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Ofgem wants powers to probe grid use
Monday, March 30, 2009
Ofgem, the energy regulator, is seeking new powers to investigate and fine electricity companies for market abuse to address growing concerns that generators are exploiting weaknesses in the system to push up prices.
In a consultation paper published on Monday, Ofgem warns that the need to manage the electricity grid makes it possible for generators to push up wholesale prices.
Ofgem estimates that customers may have paid up to £125m ($178m) too much for their electricity in the past financial year as a result of market exploitation.
The possibility of market abuse is created by the need to balance supply and demand on the grid.
When supply falls short, generators must be paid by National Grid, which operates the system, to bring more power stations online. Conversely, they are paid to take power stations offline.
Ofgem’s concern is that companies can choose when to run power stations to create excess demand or supply on the grid and create conditions where they will receive those payments.
The problem appears to be growing. In 2005-06, the cost of payments needed to balance the system was £84m. In 2008-09 it was £238m, and in 2009-10 it is expected to rise again to £258m.
The potential for manipulation is greatest in regional markets that have limited connections to other sources of electricity.
In April last year, Ofgem launched an investigation into Scottish and Southern Energy and ScottishPower after “a formal complaint alleging abuse of a dominant position in the electricity generation sector”.
In January, it abandoned that investigation but said its inquiries had raised “concerns” and it would look for new ways to address them.
Monday’s paper suggests several possible remedies but Ofgem’s favoured solution is a change to the licence obligations that generators must comply with to be allowed to operate.
The new powers would enable Ofgem to investigate short or excess supply it considers suspicious, and to impose fines if it believes there is market abuse
This story was featured on The FT Website
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