Trading firm fine highlights role of markets in energy bills

The energy regulator has handed out its first fine to an energy market trading firm under new rules.

Morgan Stanley has been fined £5.4m by Ofgem for breaching rules that require firms to record messages linked to energy trading. The records are expected to be kept due to transparency rules that help protect consumers against market manipulation and insider trading.

But Ofgem found that between January 2018 and March 2020, energy traders discussed business over WhatsApp on private phones which went against the rules. Ofgem bosses said that this represented a “significant compromise of the integrity and transparency of wholesale energy markets.”

Wholesale energy markets underpin the nation’s energy bills and so anything which impacts on these prices is of concern to all households and businesses. Under the current system, units of energy are traded on financial markets – or churned to use the industry language – by firms such as Morgan Stanley.

The latest available Ofgem data (June 2023) shows that every unit of gas is churned on the markets 13 times and every unit of electricity is traded three times.

Churn shows how often a unit of energy is traded before it is delivered to end consumers – it is calculated by dividing the total volumes traded by the total amount of energy delivered.

A spokesperson for the End Fuel Poverty Coalition which is part of the Warm This Winter campaign, commented:

“It’s welcome that Ofgem has taken action against this type of behaviour. But action on this particular case should remind us about wider concerns about the role of energy market trading.

“Every act of trading energy on the markets usually results in profit for the traders and ultimately adds to our bills. Units of energy can be traded several times before reaching our energy suppliers.

“We need to continue to ensure we have as much transparency as possible about all the firms who contribute to Britain’s broken energy system.”