Finding that InterGen has breached Article 5 (prohibition on market manipulation) of Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (‘REMIT’)
1. The Gas and Electricity Markets Authority (‘the Authority’) takes breaches of REMIT very seriously. It is important to ensure that energy consumers and market participants have confidence in the integrity of energy markets, that prices set on the wholesale energy markets reflect a fair and competitive interplay between supply and demand and that no profits can be drawn from market abuse.
2. The Authority is satisfied that InterGen (UK) Ltd (“InterGen UK”) of 30 Crown Place, Earl Street, London, United Kingdom with Company Number 03039100, Coryton Energy Company Ltd (“Coryton”) of Coryton Power Station, Stanford-Le-Hope, The Manorway, SS17 9GN with Company number FC020597, Rocksavage Power Company Ltd (“Rocksavage”) of Cow Hey Lane, Cheshire, Runcorn, WA7 4FZ with Company number FC018868 and Spalding Energy Company Ltd (“Spalding”) of British Sugar Buildings, Spalding, West Marsh Road, PE11 2BG with Company number FC019668 (together known as “InterGen”) breached Article 5 of REMIT.
3. Article 5 provides that “any engagement in, or attempt to engage in, market manipulation on wholesale energy markets shall be prohibited”. The Authority is also satisfied that Coryton, Rocksavage and Spalding breached Standard Licence Condition (SLC) 5.1 of their Electricity Generation Licence which requires them to comply with the Grid Code. Namely, Balancing Code (BC) 1.4.2 which requires Dynamic Parameters to reasonably reflect the expected true operating characteristics of the Balancing Mechanism Unit and be prepared in accordance with Good Industry Practice and BC 1.4.3 which requires Balancing Mechanism Participants to use reasonable endeavours to ensure data held by the Electricity System Operator is accurate at all times.
4. The Authority found that InterGen breached Article 5 of REMIT on 31 October 2016, 7 November 2016, 8 November 2016 and 15 November 2016 (“the Four Days”). InterGen UK; Coryton; Rocksavage; and Spalding are liable for this breach. The Authority also found that Coryton, Rocksavage and Spalding breached SLC 5.1 of their Electricity Generation Licence. Coryton, Rocksavage and Spalding are liable for this breach.
5. The Authority found that InterGen engaged in market manipulation to exploit Great Britain’s Balancing Mechanism, a Wholesale Energy Market. InterGen submitted false or misleading “Physical Notifications” which misrepresented its best estimate of expected generation for particular time periods. Physical Notifications inform the system operator (ESO) whether or not a power plant will generate electricity over an interval of time. The submission of misleading Physical Notifications led to the manipulation of the market from which InterGen derived profits. InterGen also, on several occasions submitted false or misleading signals to the ESO on the power plants’ operational characteristics
(“Dynamic Parameters”) by submitting false or misleading Stable Export Limits. This was done with a view to achieving even higher revenues for the power plants within the Balancing Mechanism.
6. InterGen’s staff sent the ESO false or misleading Physical Notifications that indicated that they would not be generating at the high demand periods (“Darkness Peaks”) in order to induce the ESO to pay it to generate. Once InterGen's staff executed this tactic, they would then submit updated information (through revised Physical Notifications) to the ESO showing that, contrary to the earlier information, the power stations would actually be generating through the Darkness Peak period.
7. InterGen disseminated false or misleading data on its supply of power for the Darkness Peak in order to be “extended on” (i.e. paid to generate) during the day (in particular during the hours leading up to the Darkness Peak) for large sums of money in the Balancing Mechanism.
8. Therefore InterGen contravened Article 5 by:
- issuing an order to trade in wholesale energy products by submitting bid offer pairs on each of the Four Days. A bid offer pair is an offer to either generate less or generate more electricity for delivery into the Balancing Mechanism;
- submitting, on each of the Four Days, false / misleading Physical Notifications, and on occasion, a false / misleading Stable Export Limit, all of which the bid offer pair employed as fictitious device;
- and that fictitious device gave, or was likely to give, false or misleading signals regarding the supply of wholesale energy products;
- and in submitting said false / misleading Physical Notifications and, on several occasions, Stable Export Limits, disseminated information which gave or was likely to give false or misleading signals as to the supply of, demand for, or price of wholesale energy products and that it knew, or ought to have known, that that information was false or misleading.
9. Coryton, Rocksavage and Spalding also breached Standard Licence Condition 5.1 of their Electricity Generation Licences because the Dynamic Parameters they submitted did not reflect their true operating characteristics as required by BC 1.4.2 and by failing to use reasonable endeavours to ensure that the data held by the ESO was accurate at all times as required by BC 1.4.3.
10. InterGen’s behavior on the Four Days can be summarised as follows:
- submitting Physical Notifications, which misrepresented their best estimate of expected generation for particular time periods. Physical Notifications inform the ESO whether or not a power plant will generate electricity over an interval of time. InterGen’s traders sent the ESO false or misleading Physical Notifications that indicated that the power stations would not be generating at all during the high demand period from around 17:00 to 19:00 (“the Darkness Peak”), when in fact they had a contracted position to meet (i.e. it had agreed to supply electricity to other parties during this period and was either required to generate to meet this obligation or to purchase electricity from the market to meet it – it had not done so).
- InterGen submitted these misleading Physical Notifications in order to induce the ESO to pay the power stations to generate by purchasing the minimum level of power (i.e. a volume of power equal to the power stations’ Stable Export Limit) across the day so that the power stations would be able to generate at the Darkness Peak. This is referred to as an ‘extension’. Once the ‘extension’ had been achieved, InterGen then re-submitted Physical Notifications showing that the power stations would, in fact, be generating at the Darkness Peak.
- InterGen also submitted false or misleading signals to the ESO on the power stations’ operational characteristics by submitting false or misleading Stable Export Limits (the minimum level at which a power station can, under stable conditions, generate). It did this in order to require the ESO to purchase a higher volume of power in order to “extend” the power stations on to ensure they were available at the Darkness Peak. InterGen submitted an inflated Stable Export Limit with no underlying technical reason and purely for the purposes of commercial gain.
11. Mindful of its principal objective, to protect consumers, its enforcement obligations under REMIT and the need to ensure the integrity of the electricity and gas wholesale markets, the Authority considered it appropriate to impose a financial penalty of £35,000,000 (reduced to £24,500,000 for early settlement) on InterGen in respect of its contraventions of Article 5.
12. In addition, the Authority has also agreed with InterGen that it will return £12,791,000 to those parties affected by InterGen's REMIT breach. The Authority has identified this figure as the market detriment. This revenue will be returned to those who suffered losses as a result of InterGen's REMIT breach via the BSUoS charge, administered by Elexon, on behalf of the ESO and market participants.
13. The Authority has decided not to impose a separate financial penalty on Coryton, Rocksavage and Spalding in respect of their breach the Grid Code and SLC 5.1 as it considers that the financial penalty imposed in respect of the breach of REMIT is sufficient.
14. Recognising that InterGen has admitted that it has breached Article 5 of REMIT and has agreed to settle this matter during the early settlement window, the Authority discounted the penalty by 30% in accordance with its REMIT Penalties Statement published on 23 June 2015. Accordingly, the Authority considered that it was appropriate to reduce the total financial liability due from InterGen in respect of the contraventions of Article 5 to £37,291,000.
Dated: 25 March 2020
Gas and Electricity Markets Authority