JERA Market Manipulation Response: Electricity and Gas Market Review
On November 12, 2024, the Electricity and Gas Transactions Surveillance Commission (“EGC”) issued business improvement recommendations to JERA, Japan’s largest power generation company. The recommendations highlighted that JERA had not offered surplus power from certain units to be shut down, causing market prices to fluctuate between April 2019 and October 2023. This kind of behavior is considered market manipulation, where transactions that could impact market prices are not executed.
But what exactly is market manipulation in the electricity market? In simple terms, generators sell power to retailers in the day-ahead spot market based on bids. If a generator with significant market influence decides not to sell power, it can drive up contract prices, making it difficult for new retailers to procure power. This unfair advantage hampers competition in the market, going against the principle of fair competition.
The EGC recommends that all surplus electricity be bid at prices based on marginal costs to ensure fair competition. The guidelines emphasize the importance of preventing any actions that could distort market prices, ensuring that the market operates smoothly and transparently.
In response to the recommendations, JERA admitted to a technical error in its bidding process. The company stated that the issue stemmed from an inadequate calculation tool used to determine surplus power to be offered to the spot market. However, the EGC found this explanation inadequate, citing internal awareness of the problem within JERA and the prolonged delay in addressing the issue.
This incident highlights a deeper issue in the Japanese electricity market – the lack of a fair competitive environment. Major players in the sector have been accused of colluding, sharing information, and engaging in fraudulent practices. This undermines the power system reform and discourages new retailers and generators from entering the market, ultimately harming consumers.
The EGC estimates that JERA’s actions may have led to a significant loss in potential bids for surplus power, affecting over 5 billion kWh of electricity transactions. Such manipulative practices can have far-reaching consequences, contributing to market instability and hindering fair competition.
It’s crucial for regulatory bodies and market participants to uphold the principles of transparency and fair competition in the electricity market. By addressing issues of market manipulation and ensuring compliance with guidelines, we can create a more level playing field for all stakeholders, ultimately benefiting consumers and promoting a healthier energy market in Japan and beyond.
