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Our Ref. 292/31 July 2020
FREE ENERGY MARKET ASSOCIATION
6 NAYDEN GEROV ST., 4TH FLOOR, OFFICE 7,
SOFIA, BULGARIA
E-mail: office@asep.bg

TO:
MR. ALBERTO POTOTSCHNIG
AGENCY FOR THE COOPERATION OF ENERGY REGULATORS
TRG REPUBLIKE 3, 1000 LJUBLJANA
Email: director@acer.europa.eu

SUBJECT: Alert and request pursuant to Article 74a of the Energy Act for breach of Article 5 of Regulation (EU) 1227/2011 – non-market transactions on the Continuous Trading screen of IBEX

DEAR MR POTOTSCHNIG,

In furtherance of the long-lasting relentless policy of the Free Energy Market Association aimed at the establishment of a transparent and competitive environment for exchange trading, we would like to hereby alert about actions intended to manipulate the wholesale energy market on the basis of Article 74a of the Energy Act implementing the provisions of Article 5 of Regulation (EU) No 1227/211 (REMIT).
We have already alert the National Regulatory Authority (EWRC, www.dker.bg) and National Competition Authority with an official letter our Ref. 291/20.07.2020. Since we haven’t received their official statements yet, we would like to ensure that ACER is already informed by EWRC according to Article 16(2) of the Regulation (EU) 1227/2011, as Agency have an important role in ensuring that investigations of the suspected breach are carried out in an efficient and coherent way in every member state.
On 16 July 2020, a tender procedure was realized on the Continuous Trading screen of the Bulgarian Independent Energy Exchange EAD for 50 MW base load at 78.10 BGN/MWh. All transactions on a Continuous Trading screen are entered into using the Auto-Matching algorithm when a counter-offer to buy or sell is entered, setting out conditions that satisfy the terms of an existing bid in the system. The transaction was concluded at the offer price indicated by the trading participant that had been the first to enter its bid or using the one-click trading algorithm.

Figure 1 Information on transactions concluded on the Continuous Trading screen, www.ibex.bg

All transactions on a Continuous Trading screen are practically anonymous and are not given the needed publicity, which creates preconditions for prior coordination of commercial transactions to which the market should not have access. And so was the realized transaction – purchase and sale of 50 MW base load on 16 July 2020, at the non-market price of 78.10 BGN/MWh. The non-market price was determined by the current supply and demand for the delivery period of the last quarter of 2020 – October, November and December. The difference between the realized price of the transaction on the Continuous Trading screen of IBEX and the market levels in the days preceding and following the same delivery period is within 10 EUR/MWh, or 19.56 BGN/MWh. For comparison purposes, we enclose an extract from the settlement price of futures of the European Energy Exchange (EEX) for the same delivery period:

Figure 2 The settlement price of futures of the European Energy Exchange www.eex.com

As a result of the transaction, the seller has generated lost profits of about BGN 2 million. In addition to the loss of benefits for the seller of energy, the cited case is an attempt to manipulate the wholesale energy market since the actions taken by those involved artificially create a price level that is not justified by the market forces of supply and demand on the day of trading.
With the changes introduced to the Energy Act implementing the EU Regulation REMIT, the Energy and Water Regulatory Commission has acquired new powers and obligations to monitor, at national level, the prevention of market abuse in the functioning of wholesale energy markets and to impose sanctions for the detection of such abuses in the form of inside information with relation to a wholesale energy product as well as market manipulation or attempts to manipulate the market. The objective is for the Regulator to investigate transactions on the energy exchange in order to ensure market transparency and integrity and, in cases of proven manipulation, to impose effective sanctions against market participants. The extension of the powers of the EWRC relates in particular to the application of the provisions of Articles 3 and 5 of Regulation (EU) No 1227/2011.

Market integrity and transparency are crucial for the establishment of well-functioning energy markets and for increasing the confidence of market participants and end-users. Regulation (EU) No 1227/2011 aims to ensure the integrity and transparency of wholesale energy markets by fostering open and fair competition for the benefit of final consumers of energy. In order to ensure that wholesale energy markets reflect a fair and competitive interplay between supply and demand and that their participants cannot draw undue profits from market abuse, national regulatory authorities shall be entrusted with investigating market manipulation and insider trading and imposing appropriate sanctions on infringers.

Article 5 prohibits any engagement in, or attempt to engage in, market manipulation on wholesale energy markets. All possible forms of market manipulation are detailed in point 2 of Article 2 of the Regulation and attempted manipulation is defined in point 3 of that Article: any practice that is contrary to the Regulation or delegated acts or implementing acts adopted on the basis thereof; request a court to freeze or sequester assets; request a court or any competent authority to impose a temporary prohibition of professional activity.

In view of the above, and given the wide public interest in the forthcoming full liberalization of the energy market, the Free Energy Market Association insists that:
– The Energy and Water Regulatory Commission exercises in full its powers under Article 74a Energy Act in conjunction with the implementation of Article 5 of Regulation (EU) No 1227/2011;
– The Energy and Water Regulatory Commission obliges IBEX, pursuant to Article 300 of the Rules on the Operation of an Organized Energy Exchange Market, to make public the names of the trading participants in order to ensure the integrity and transparency of the exchange market.

As representatives of an associated interest, the Free Energy Market Association insists on constant market monitoring and strict measures to be taken by the institutions to ensure the transparency of wholesale energy transactions in Bulgaria.

RESPECTFULLY YOURS,
SONYA NIKOLOVA–KADIEVA
CHAIRPERSON OF THE MANAGEMENT BOARD