MP hints that gas prices were rigged
Fresh consumer outrage could soon be directed at energy companies after a leading MP hinted that an investigation into the fixing of wholesale gas prices is likely to uncover evidence of wrongdoing.
Commenting on the ongoing Ofgem investigation into alleged price rigging, Conservative MP David Davis yesterday told the BBC, "my hunch is that's going to come out and it's going to find evidence that there was some rigging in the gas market".
On the BBC Radio 5 Live programme, Pienaar's Politics, he added that he was "speaking with a little bit of inside knowledge".
A joint investigation into the £300 billion wholesale gas market was launched by regulator Ofgem and the Financial Conduct Authority (FCA) in November 2012, following accusations from a whistleblower that the market had been "regularly" manipulated by power companies, including the big six energy firms.
The whistleblower emerged soon after the Libor scandal, when banks were found to have rigged the key interest rates at which banks lend to each other.
Davis added: "If they find it to have happened it would be illegal... It's Libor for gas, it's Libor for energy."
However, the energy firms have denied any wrongdoing. For example, in a statement last year, a spokesman for Scottish Power said: "Scottish Power has never engaged in trying to fix wholesale gas trading markets. Our trading division always acts with integrity and follows all rules in all of its engagements with the market."
British Gas owner Centrica said: "Our compliance procedures and trading principles are clear. They require us to comply with all EU and UK laws and we have done so."
On its website, Ofgem says 67% of the typical household gas bill is made up of wholesale energy, supply costs and profit margin.
But while it is not yet known if any illegal activity did take place, the link between wholesale and household prices could be strong enough for consumers to demand compensation.
Commenting on the effect of alleged price fixing in the wholesale gas market on consumers last November, Arlene McCarthey, MEP, said: "It would be cynical and callous if energy companies cite the rise in wholesale prices as the reason for retail price increases and in the end wholesale prices are being manipulated to increase the profits of the energy companies. Consumers will end up the victim of this great gas rip-off."
A spokesperson from consumer champion Which? told Moneywise: "Consumers need to be confident that the price they pay for their energy is fair and not subject to abuse. The Government should introduce a clear ring-fence between generation and supply businesses, so consumers can see exactly what they're paying for and be more confident that there is effective competition in the energy market."
At the recent Labour party conference, Ed Miliband said he will freeze energy prices until the beginning of 2017 if his party is elected in 2015.
Davis said yesterday: "If I'm right and it turns out there's a big scandal about gas pricing, Miliband will look clever won't he?"
While the FCA said it cannot comment on an ongoing investigation, a spokesperson for Ofgem said: "Ofgem continues to look at allegations relating to trading on September 28 2012, working closely with the Financial Conduct Authority. We take any allegations of market abuse very seriously."
The London Inter-Bank Offer Rate is the rate at which banks lend to each other over the short term from overnight to five years. The LIBOR market enables banks to cover temporary shortages of capital by borrowing from banks with surpluses and vice versa and reduces the need for each bank to hold large quantities of liquid assets (cash), enabling it to release funds for more profitable lending. LIBOR rates are used to determine interest rates on many types of loan and credit products such as credit cards, adjustable rate mortgages and business loans.