UK capacity market supervision: Ofgem opens investigation as it suspects submission of false information to auctionning authority
Ofgem, the UK Office of Gas and Electricity Markets, announced on 15 December 2014 that it has launched an investigation against UK Capacity Reserver Limited (UKCR) which is suspected of having submitted "false or misleading information to National Grid (the Delivery Body) regarding whether it had planning consent for some Capacity Market Units (CMUs)."
Risk for market manipulation
The Capacity Market (CM) has been established as a part of the UK Electricity Market Reform. It is a market-based instrument which received clearance of the European Commission under state aid rules (see New Commission Guidelines for state aid in favour of energy and environmental protection 2014-2020. The first bidding round is taking place this week.
It has as official purpose to "incentivise investment in more sustainable, low-carbon electricity capacity at the least cost for energy consumers." It will support the financing of capacity generation which will ensure security of energy supply for the UK and prevent situations of backouts. Similar markets have been established in the US and in Europe. The CM market is subject to the Electricity Capacity Regulations 2014 - general rules and design - and the CM Rules - practical details - .
While Rule 5.13.1 (a) of the CM Rules targets anti-competitive behaviour in Capacity Auction, Rule 5.13.1(b) prohibits the participants to the Capacity Auction submitting to the Delivery Body or the Authority any information which is misleading or false.
Market monitoring issues
For those who were still wondering, yes, capacity markets are just another market to monitor. Question surrounding the legal treatment of the tradable obligations units under the EU legislation on market supervision has been raised before. It was concluded that capacity markets were truly not financial instruments subject to the MiFID Directive on markets in Financial instruments or the EMIR Regulation on European Market Infrastructure Regulation.
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