OREANDA-NEWS. EU energy regulators are about to find out what really goes on in the wholesale gas and electricity markets, as a new trade reporting obligation starts on October 7. This is a huge step toward more transparent markets, but what will regulators do with the data?

Not as much as they would like, given their current staffing levels, according to the director of EU energy regulatory agency ACER, Alberto Pototschnig. ACER is tasked by an EU regulation known as REMIT to collect and analyze the trade data, looking for anomalies that might indicate market abuse.

If it finds something suspicious, it sends it on to the relevant national regulators among the EU’s 28 countries to investigate further.

To give a sense of scale, more than 6 million records of standard contracts and orders to trade have been submitted to ACER during the last six months as part of testing its new IT system.

As at mid-September there were 2,702 entities registered as market participants – a requirement in order to comply with the reporting obligation. There were 24 approved registered reporting mechanisms – companies able to report trades to ACER on behalf of third parties — with hundreds more in the pipeline.

From October 7, companies have to start reporting all their standard contracts and orders to trade on registered organized market places such as exchanges and broker platforms – there are at least 65 of these.

At the same time ACER will also start receiving fundamental physical data from the transparency websites of formal EU gas and power transmission system operator bodies Entsog and Entso-e. That includes outages, capacity availability and demand data, giving context to the trading data.

The downpour increases from April 7, when all other wholesale energy contracts, including over-the-counter standard and non-standard supply contracts, as well as capacity contracts and other fundamental data from TSOs, LNG and storage facility operators must be reported to ACER.

At the moment ACER has 15 staff devoted to REMIT activities, which include monitoring compliance with the prohibitions on insider trading, market manipulation and failing to disclose inside information. It wants an extra 30, but so far has only been promised an extra 10 for next year.

The US Federal Energy Regulatory Commission, which has similar responsibilities and activity levels, has 89 staff devoted to combating market manipulation — 40 on market oversight and 49 on analytics and surveillance.

It’s not exactly equivalent, as in the EU national regulators are responsible for enforcing compliance with the REMIT regulation and imposing penalties for breaches, whereas FERC does everything. But Pototschnig has been on a campaign trail to argue that “you can’t do with 15 people what you can do with 45.”

FERC’s chairman Norman Bay came to Brussels this month to help Pototschnig put his case to EU national governments, who ultimately fund ACER through the EU budget. Bay said that FERC gained its anti-abuse mandate in 2005 after US energy company Enron “ripped off consumers across the western US” during the 2000-2001 western energy crisis.

FERC has recovered about $1 billion in settlements from companies over the last ten years, though much of that has come from a few big cases – for example $410 million from JP Morgan in 2013. Bay’s conclusion is that “manipulation does occur” and that to monitor effectively you need the physical and financial data, the IT and enough subject matter experts to make sense of it.

So are the European markets more at risk of undetected serious abuse than American ones? Well, probably not, because screening the data is not the only way regulators check for abuse. FERC, for example, has a hotline for tip-offs. “Some of our best cases came from hotline calls,” said Bay.

ACER, meanwhile, has had a dedicated website for reporting suspicious activities since the REMIT rules took effect in 2011. REMIT requires anyone involved in professionally arranging trades, as well as national energy and financial regulators, to do this.

ACER received 32 such reports in 2014, after revamping the site to make reporting easier, compared with just four in 2013, according to its annual REMIT report. The revamped site also makes it easy for any individual – such as potential whistleblowers – to report suspicions, anonymously if they wish. ACER only recorded one such report in 2014, and one in 2013.

ACER’s limited staffing, however, means that it takes a long time to close cases. As at end-July, ACER had helped investigate 77 potential breaches of REMIT rules since 2011. It has closed 30 cases, with only seven involving a proven breach, and none of these was deemed serious. Meanwhile 47 are still pending, some from 2013. “It’s taking longer and longer,” said Pototschnig. “Is that how we want to run REMIT?”

A high-profile case of suspected gas price manipulation in Britain in 2012 would have gone a lot quicker if regulators had already had access to the trade data, according to ACER’s chairman Lord Mogg. British energy regulator Ofgem eventually concluded that there was no evidence of manipulation.

In fact there have been no proven cases of serious market manipulation so far in Europe, although this is all still new territory for both ACER and many national energy regulators, most of whom only gained their enforcement powers in 2013 or later.

Bay said effective market monitoring is important to help drive a culture of compliance among traders. Raising awareness of what constitutes abuse also helps. In the US, for example, Direct Energy self-reported potential abuse after a discussion about a FERC case made an employee realize that two of his trader colleagues were probably breaking the rules. Direct Energy investigated, agreed, sacked the traders and reported it to avoid a heavy fine.

In Britain, one of Europe’s biggest gas and electricity markets, Ofgem has just published an open letter to the market listing exactly which behaviors would be deemed in breach of REMIT. The imminent trade reporting obligation has also focused companies’ attention. ACER handled 897 inquiries about REMIT in 2015, compared with just 83 in 2014.

The trend on both sides of the Atlantic is clear – more regulatory oversight of gas and electricity markets, more internal compliance requirements, and more pressure on companies to justify their actions and prices.

As Pototschnig says, we are all consumers and “we want confidence that the prices we pay reflect the fundamentals.”