(see questions at the end)
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| The energy secretary said he would follow the two investigations closely |
Energy Secretary Ed Davey will make a statement to the House of Commons later as regulators investigate claims that wholesale gas prices have been manipulated.
Mr Davey said he was "extremely concerned about the allegations".
The investigations by the Financial Services Authority (FSA) and Ofgem follow claims by a whistleblower.
Four of the UK's big six energy suppliers have released statements denying any involvement.
The wholesale gas market includes everything from the UK's own North Sea gas supplies, to gas from Norway or elsewhere, or arriving in the UK by ship as LNG, liquefied natural gas.
'Less transparent'
Energy companies buy gas at the wholesale price and then sell it on to businesses and domestic users.
The allegation is that the market has been rigged in a similar way to the fixing of Libor, the inter-bank lending rate.
It is claimed that on 28 September, dealers made unrealistic bids, at the time when information was being gathered to set the wholesale gas price, to suit their own trading position.
David Hunter, an analyst at M&C Energy Group, said that most of the trading was done directly between companies, rather than via an electronic trading system, and that this system was, in theory, easier to manipulate.
He told the BBC: "This sort of trading is less transparent than a fully fledged market. Hypothetically someone could seek to artificially lower the price by making small trades below the prevailing market price that may benefit them."
The alleged manipulation is said to have reduced the wholesale price, and as such does not imply any knock-on impact on the retail price paid by customers.
The cost of wholesale gas makes up the majority of our energy bills - 45% of the average energy bill is made up of the cost of wholesale gas, supply costs and profit margins.
'Considering evidence'
The Guardian newspaper, which received a separate tip-off from the whistleblower behind the allegations, said the investigations were into "some of the big six" energy providers, but the brief statements released by both the FSA and Ofgem did not identify any companies.
The FSA said: "We can confirm that we have received information in relation to the physical gas market and will be analysing the information."
Ofgem also said it had "received information" and was looking into the issue. It added that it would "consider carefully any evidence of market abuse that is brought to our attention as well as scope for action under all our other powers".
Mr Davey said he would keep in close contact with both investigations.
Labour's shadow Energy Secretary, Caroline Flint, said that if the reports proved to be true, they "suggest shocking behaviour in the energy market, that should be dealt with strongly".
She said that gas and electricity companies should be forced to sell the energy they generate into a pool, in order to open up the market and ensure fairer consumer prices.
The whistleblower, Seth Freedman, worked at ICIS Heron, a financial information company that publishes energy price reports.
ICIS Heron said it had "detected some unusual trading activity on the British wholesale gas market on 28 September 2012, which it reported to energy regulator Ofgem in October".
It added: "The cause of the trading pattern, which involved a series of deals done below the prevailing market trend, has not yet been established.
"If anyone was to benefit from this it would have been derivatives traders."
Energy company responses
EDF Energy said it "does not participate in loss-leading trading activity and considers it to be against existing market regulation".
It added: "We make information likely to impact market price formation publicly available on our website in compliance with the European Union's regulation on energy market integrity and transparency."
Npower said: "There is an explicit commitment in our code of conduct to comply with all laws and regulations."
Scottish Power said that it had "never engaged in trying to fix wholesale gas trading markets", adding: "Our trading division always acts with integrity and follows all rules in all of its engagements with the market."
SSE said: "We are entirely confident that our energy portfolio management team operate in a fair and legitimate way."
Questions for discussion:
What is a 'Whistleblower'?
How can the gas industry set prices?
Have the regulators done their job?
How will the consumers be effected by this in both the long & the short run?
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