DECC secretary of state Ed Davey said that the new laws would give Ofgem the power to prosecute those found guilty of market rigging with a punishment of up to two years in prison.
“Under the new laws, it would be a criminal offence to fix the price of energy at an artificial level or use insider information to buy or sell energy on the wholesale market,” said a government statement.
Currently, Ofgem is equipped only to bring civil action against those found guilty of market rigging. Although this poses a strong deterrent through unlimited fines, those responsible would not be considered criminals.
Davey said the new laws against “absolutely unacceptable” manipulation of energy markets would bring them more in line with the approach taken with financial markets.
The Financial Conduct Authority (FCA) is capable of enforcing criminal proceedings against those in breach of the rules, but its powers are limited to financial derivatives of energy products and stop short of regulating the physical markets themselves.
But even with tough new laws, wholesale power traders told Utility Week market manipulation would remain difficult to prove.
The UK’s gas market in late 2012 was rocked by allegations that the ICIS pricing benchmark had been subject to market rigging, but both Ofgem and the FCA concluded that no evidence of manipulation existed in either the physical or financial derivatives markets.
Since then, Ofgem has urged Government to extend its powers to enable stronger action if needed.
Ofgem’s senior partner in charge of markets, Rachel Fletcher, welcomed the proposals saying the regulator wants “the strongest possible deterrents” in place to guard against market rigging and insider trading.
The proposed change to the law is currently under consultation and could come into effect in spring 2015.