EU plans clampdown on energy market abuse

By Pete Harrison and Henning Gloystein

BRUSSELS/LONDON (BestGrowthStock) – Europe’s energy chief will this week reveal plans to clamp down on potential market abuse by traders in gas and power markets from 2012, EU documents show.

A team of 15 market monitors would be handed extensive powers to collect market data and act on manipulative behavior, and would be based at the Agency for the Cooperation of Energy Regulators (ACER) in Slovenia. “The rules governing energy markets are insufficient to ensure their stable and orderly functioning,” said a leaked draft seen by Reuters on Monday.

“Market participants who trade wholesale energy products shall provide the agency with a record of their transactions, including orders to trade, the timing, form and content,” the draft said.

The monitors’ powers would be wide-ranging, including: “the right to have access to any document in any form whatsoever… to demand information from any person (involved in transactions), carry out on-site inspections, require existing telephone and existing data traffic records, and to request temporary prohibition of professional activity.”

“The draft gives the regulator, who some considered a bit of a toothless tiger, more power,” said Matthias Lang, energy specialist at German lawyers Arqis. “However, dealing with this data may be quite a challenge.”

“The underlying concept seems to implement regulation that is similar to other financial markets but to add some energy specificities,” he added.

ABUSIVE BEHAVIOR

The European Commission said that a 2008 probe of German utility E.ON (EONGn.DE: ) had raised concerns that power generators were capable of manipulating power prices by temporarily withdrawing generation capacity from the market.

“The potential for unfair trading practice undermines public trust, deters investment, increases volatility of energy prices and may lead to higher energy prices in general,” the draft said.

EU officials also studied a case of market abuse in the United States in 2006 where several gas markets were manipulated by hedge fund Amaranth, and concluded that a similar play in Europe would cost consumers about 1 billion euros ($1.3 billion).

It said the market monitors would have to watch gas and power markets, but should also have full access to carbon market transactions in the EU’s Emissions Trading Scheme.

“The rules have to be also complete and cover all relevant transactions, including spot and derivatives and on- and off-exchange transactions,” it added.

European governments would enforce the rules and decide sanctions for anybody breaking them.

“It’s about civil damages, fines, and in the worst case, to imprisonment,” EU Energy Commissioner Guenther Oettinger told German newspaper Handelsblatt in an interview last week.

The monitoring agency would be set up as a unit of ACER, based in Ljubljana, at a cost of about 1.5 million euros a year.

The proposals will be finalized and launched on Wednesday and will be debated by EU governments and the European Parliament before becoming law.

The draft also indicates that the EU and U.S. are converging on a common approach to market regulation.

In recent months, European regulators have been in contact with the Commodity Futures Trading Commission (CFTC) in the U.S., and some of the wording in the Commission’s draft is similar to that of the CFTC’s Dodd-Franck Act.

“Cooperation makes sense as many players are active in both markets,” Lang said.

(Editing by William Hardy)

EU plans clampdown on energy market abuse