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Gas price-fixing shocks energy sector

Shares in the energy sector move lower as the industry is accused of LIBOR like gas price-fixing.
April 25, 2013

Allegations of price-fixing in the wholesale gas market by an industry whistleblower sent shares in the energy sector lower ahead of investigations by the Financial Services Authority and energy regulator Ofgem. Shares in companies with gas trading activities were hit with Centrica (CNA), parent company of British Gas, down 3 per cent, and SSE (SSE) down 1 per cent, while energy groups National Grid (NG) and Drax (DRX) were flat; Dominic Nash, utilities analyst at Liberum, believes Grid and Drax would be unlikely to be hit by the claims.

IC TIP: Hold at 315p

The whistleblower who worked for ICIS Heren, a company which collects price information and sets benchmark gas prices for the industry, reported suspect trading on 28 September in the National Balancing Point (NBP), an electronic system which acts as the main pricing point for UK Natural Gas. These prices, once set, influence gas contracts and derivatives across the £300bn European wholesale gas market, and the date is crucial as it marks the end of the gas financial year and can impact future contracts.

Ed Davey, energy secretary, has said that energy firms could face fines and be forced to pay customers back through lower energy prices, adding that government would "support regulators taking whatever steps necessary to ensure the full force of the law is applied" if it is found that prices have been deliberately distorted.

A spokesperson for the SSE said: "We are entirely confident that our Energy Portfolio Management team operate in a fair and legitimate way." Centrica added that its traders are prohibited from providing price information to price reporting agencies. "Centrica has very robust governance and compliance policies, which regulate its market participation and behaviour. These policies are reviewed on a regular basis."

These claims come at a sensitive time for the energy industry after record profits and rising dividends caused critics to complain of profiteering at customers' expense. It also comes during a delicate regulatory period for the industry with the energy bill due in parliament in the coming weeks and Ofgem due to rule on pricing levels in the electricity transmission network.