Ofgem has undertaken a REMIT (EU Regulation 1227/2011 on wholesale energy market integrity and transparency) investigation into National Grid Electricity Transmission plc’s (“NGET”) failure to provide accurate information to the wholesale energy market.
Our investigation focused on concerns that NGET had breached Article 5 of REMIT, the prohibition of market manipulation, during specific periods between November 2015 and January 2016. During these periods, NGET erroneously caused incorrect De-Rated Margin (“DRM”) calculations to be published through Elexon’s online platform. There is clear evidence that this resulted in false or misleading signals as to the supply of, demand for, or price of wholesale energy products being given to the market, contrary to Article 5 of REMIT, as defined under Article 2(2)(b).
REMIT is designed to ensure the integrity and transparency of wholesale energy markets. Our investigation highlighted a number of deficiencies in NGET’s processes, which resulted in the undermining of market confidence and had a direct impact on the integrity and transparency of the GB wholesale energy market.
Our investigation found that any breach by NGET over the affected period was unintentional and occurred as a result of deficiencies in the internal processes for calculating the DRM. We note that the publication of erroneous information had a relatively low financial impact on market participants as a whole. We also acknowledge that NGET has published a lessons learnt document into these occurrences and that changes have been made to NGET’s processes to ensure this type of situation is not repeated.
However, this incident is one of several instances over the past year where we have observed NGET providing inadequate information, IT systems and processes. We consider these incidents to be below the standards we, and market participants, expect from the System Operator (SO).
NGET, as the SO, plays a crucial role in providing information services to the market and it is vital it does so to a high standard. NGET should be aware that whilst, so far, each incident in isolation is not believed to have had a substantial financial impact on the market, the cumulative impact of all these incidents on market confidence may give us sufficient grounds to take further enforcement action should they continue to occur in the future.
Taking all the relevant information into consideration we have decided it would not be appropriate to proceed with our investigation on this occasion. In reaching this decision, we considered the relatively limited direct impact of the erroneous DRM on the market, the relatively low materiality of the breach and our role as a proportionate regulator and enforcer of REMIT. However, we expect NGET to take all reasonable measures to prevent the re-occurrence of the process deficiencies we identified during our investigation.
As a first step, we expect NGET to engage with market participants. For example, by forming a working group with industry participants to establish a programme which ensures that the information provided, and the IT systems used, meet the needs and expectations of market participants. We also encourage market participants to raise any concerns about the performance of the SO with us so that we can ensure continued compliance with REMIT and confidence in the provision of market information.