Proposals to tackle electricity market abuses given thumbs up by regulator, Ofgem

The UK Department of Trade and Industry (DTI) on Tuesday issued two revised licence conditions to electricity market participants, which are open for consultation by the industry until October 9. The conditions, which are aimed at preventing market abuse of the New Electricity Trading Arrangements (Neta), drew a positive reaction from market regulator, Ofgem.

UK Energy Minister, Brian Wilson, believes that power companies have to be “carefully controlled” if customers are not going to be faced with price hikes and power shortages. The minister is determined to ward off any possibility of a Californian-style power crisis.

The revised license conditions follow an earlier period of consultation. Industry regulator Ofgem stated that responses given during the initial consultation period had been taken into account and said that it welcomed the modified proposals.

If the proposals are agreed, Ofgem will have the role of monitoring and ensuring compliance. Interested parties will have available to them Ofgem’s own interpretation of the revised requirements.

The new licensing proposals are aimed at preventing companies from materially prejudicing the safe, economic and efficient operation of the new transmission system, or the economic and efficient balancing of the transmission system. They also seek to prevent generators from intentionally limiting, without reasonable cause, generation or capacity availability if it would materially prejudice the interests of consumers.

In December 2000, British Energy and AES raised objections to similar measures which, they claimed, were inappropriate in the context of Neta’s tighter regulation. The Competition Commission agreed and upheld the complaint prompting Ofgem to press ministers for an alternative approach to policing the new trading arrangements.

Over the weekend, Ofgem chief executive Callum McCarthy was reported as believing deliberate price fixing may have occurred within the Neta. McCarthy said that since the trading exchange was set up in March, he suspected that companies had knowingly abused the market. “There have been some instances where prices have unusually changed, which looks very hard to justify in normal market conditions,” he said.

While price-fixing is harder under Neta than it was under the old electricity “pool”, McCarthy said companies could still withhold generating capacity to influence prices.

Ofgem’s support for a reinstatement of some of the powers it had under the old “pool” arrangements is opposed by trade body the Electricity Association. In a letter to the DTI, it said that it was “strongly opposed” to Ofgem’s proposals and that new abuse clauses would deter new generators from entering the market.

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