The adoption of the Regulation on Energy Market Integrity and Transparency (REMIT) by the European Council on 10 October 2011, will for the first time ever, lead to the introduction of the regulation of wholesale energy trading taking place at an EU level. REMIT will seek to prevent (and detect) market abuse (or more specifically, market manipulation and insider trading) in the wholesale energy sector. As national regulatory authority (NRA) in the UK, Ofgem will have responsibility for enforcing the prohibitions in the UK.
REMIT will introduce the concepts or prohibitions of insider trading and market manipulation, better known in the financial sector (included in the Market Abuse Directive), into the energy sector and expose energy companies and others trading in this sector to the possibility of severe penalties for 'abusive' behaviour.
The Regulation will come into force 20 days after its publication in the Official Journal.
Market participants will be prohibited from trading, or recommending that others trade, on the basis of inside information. Before any trades can take place relating to inside information, there will be an obligation on market participants to disclose inside information such as non-public information relating to the capacity and use of gas and electricity facilities that could have a significant effect on the price of wholesale gas or electricity.
The regulation also prohibits market manipulation and attempted manipulation which covers manipulative transactions or the spreading of false or incorrect information which gives misleading signals to the market regarding the supply of, demand for or price of wholesale energy products.
The Agency for Co-operation of Energy Regulators (ACER) is to provide non-binding guidance as to what will constitute market manipulation. This is likely to be welcomed given the apparent breadth of the definition of market manipulation.
Monitoring and enforcement
In order to increase the likelihood of detection of 'abusive' behaviour, there will be an obligation on energy traders to report specific information to ACER. Such information will include prices, volumes, dates and times of transactions and names of parties to each transaction. In order to report this data, all traders will require to be registered on a new EU register.
Importantly, if ACER suspects that either of the prohibitions is being breached (on the basis of the information that it has) it will request the relevant NRA(s) to investigate the suspected breaches. In this context, it will be the responsibility of the Member States to ensure that their NRA has the appropriate powers to conduct such investigations. These powers are to include the right to carry out on-site inspections and access any relevant document in any form.
In the UK, the responsibility (and the powers) for enforcement of REMIT will sit with Ofgem. The consequences for breaching the prohibitions are to be established in each Member State but must be effective, proportionate and dissuasive and reflect the gravity of the infringements and the potential gains from the abusive behaviour. Where the investigations have a cross-border dimension, ACER will be required to co-ordinate enforcement.
Given Ofgem's previous attempts to penalise behaviour that it considered to be abusive in the wholesale energy sector, it will no doubt welcome this new string to its bow.