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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

Latest Ofgem enforcement action gives much for the wholesale energy markets to consider

Significant financial penalty and redress payment signals Ofgem's intention to take strong action in respect of the manipulation of the wholesale energy markets, but leaves questions unanswered for market participants.

On 15 April 2020 the UK's Office of Gas and Electricity Markets ("Ofgem") announced that it had reached a settlement with companies in the InterGen group ("InterGen") in respect of allegations that InterGen had manipulated the UK's balancing mechanism on four days in 2016.

InterGen was required to pay a penalty of £24.5m (reduced from £35m on account of InterGen's early settlement of the matter) in addition to c.£12.8m in restitution to recompense those affected by its conduct.

The balancing mechanism is one of the means by which the UK's Electricity System Operator, National Grid, can balance supply and demand in the UK's electricity market. At the time of the conduct, InterGen owned and operated three power stations in the UK, which secured significant payments from National Grid to generate in the balancing mechanism on the four days under investigation.

The case demonstrates that Ofgem is prepared to impose significant financial penalties for market manipulation and may be indicative of a renewed risk appetite on the part of Ofgem to take on cases of greater complexity. However, the settlement leaves questions unanswered as to the approach that market participants should take to the submission of data to National Grid.