British lawmakers seek inquiry into possible power market abuse

LONDON, Nov 25 (Reuters) - A British parliamentary committee will ask energy regulator Ofgem to investigate possible electricity market manipulation after concerns emerged about prices paid to a power plant to keep generating during a shortage period.

On the afternoon of Nov. 4, grid operator National Grid (LSE: NG.L - news) called on the energy sector for extra supply to fill a gap in power needs after some power plants failed, in a so-called NISM (notification of inadequate supply margin).

A NISM is a signal to the market that the safety cushion between demand and available supply needs to be bigger. Generators respond by either increasing their available output or bringing additional power online.

National Grid subsequently cancelled the NISM by the evening of Nov. 4 when sufficient generation came forward.

However, in a hearing with National Grid on Tuesday, the energy and climate change select committee said Calon Energy's Severn Power gas plant in Wales had reduced its output ahead of the shortage and then National Grid had to pay it up to 2,500 pounds per megawatt-hour (MWh) to generate electricity during the shortage period.

British wholesale power prices currently trade at around 40 pounds per MWh.

"There is uncertainty around the events of November 4, but it is crucial that Ofgem establish whether major electricity generators are manipulating power prices during periods of insufficient supply," Angus MacNeil, chair of the energy and climate change committee, said on Wednesday.

"We will be writing to the energy regulator to ensure that it examines such potential abuses of the system," he added.

Neither Ofgem nor Calon Energy was immediately available for comment.

At the hearing on Tuesday, Cordi O'Hara, director of National Grid, said: "It (Other OTC: ITGL - news) is a free market and generators will create their own bidding strategies."

"On that day, we would expect prices to rise to reflect a shortage and incentivise any additional marginal generation to make itself available."

The committee said on Tuesday that Britain could pay around 20 million pounds this winter on NISMs. The NISM on Nov. 4 was the first to be issued since February 2012. (Reporting by Nina Chestney; Editing by Susan Fenton)