During the period under investigation in 2000 El Paso’s basis traders reviewed prices prior to submission to index publishers and could change them, former El Paso trader Alison Reitze testified in the fifth day of the Houston trial of Michelle Valencia, a former Dynegy trader, and former El Paso trader Greg Singleton on charges of attempting to manipulate the natural gas market..
The review was at the direction of the head of El Paso Merchant Energy’s western gas trading desk, Jim Brooks, who also has been indicted in the scandal. Reitze testified that physical gas traders, such as herself, did not have an incentive to submit false price reports, but basis traders “could lose or make millions” for El Paso (and large bonuses for themselves) depending upon where index prices were set.
“He [Brooks] just wanted them [the basis traders] to look at it and be sure they didn’t need to make any changes [to the reported trades],” Reitze said during questioning by Assistant U.S. Attorney John Lewis.
Valencia and Singleton were indicted in 2004 on charges of conspiracy, false reporting and wire fraud related to the transmission of allegedly bogus trade data to Inside FERC and/or Natural Gas Intelligence (NGI) (see Daily GPI, Nov. 30, 2004). The incidents allegedly took place in 2000. Singleton also faces one count of obstruction. Their trial is expected to last about a month in the courtroom of U.S. District Judge Nancy Atlas.
According to emails produced by the prosecution, Brooks e-mailed his traders in the fall of 2000, asking whether the group should report its “book bias” or actual verifiable physical gas trades to the price index publishers. The majority said the company should report its book bias, i.e., report “trades” that supported its market position rather than real transactions that actually took place.
Reitze took the stand late Thursday following two full days of testimony by former Dynegy trader Jeff Hornback (see Daily GPI, July 14; July 12). The jury heard that Reitze, along with others, reported prices to industry trade publications.
The jury also heard a recorded conversation between Valencia and Singleton in which Valencia expresses to Singleton concern that prices at San Juan stay high. “I’m going to be buying it every day and I hope that you join me in that effort,” Valencia said to Singleton.
Next in the call, the two seem to be discussing a report to index publisher(s). “I’m going to tack on another 100,000 that I’m going to buy and you’re going to sell,” Valencia said to Singleton.
Lewis asked Reitze whether Dynegy’s Valencia and El Paso’s Singleton were doing an actual trade in the call and she said, “no.” However, she admitted that the “trade” appeared on her report of El Paso trades to Inside FERC and NGI as if it had occurred.
Reitze also recalled a directive from Tim Bourn, El Paso senior managing director, that traders only report legitimate trades to index publishers. This was in September of 2000, during the California energy crisis. This was at a time when El Paso was coming under scrutiny for allegedly manipulating the California market through locking up pipeline capacity. There also had been an explosion on El Paso Natural Gas Pipeline (see Daily GPI, Aug. 30, 2000), which affected capacity to California. “We had problems getting gas out to California,” Reitze said. Also around this time El Paso was planning to go to FERC with a complaint of false price reporting against Enron, Reitze testified.
Later, Brooks queried his traders on whether they should report real trades or fictitious deals to support the company’s positions. The majority of e-mail responses were votes for bogus trade reporting. Star basis trader Robert “Bo” Collins, who later would head the New York Mercantile Exchange, cited scrutiny from Congress, the California Public Utility Commission, the Commodity Futures Trading Commission, the Federal Trade Commission and others and voted for submitting legitimate trades only, according to an e-mail.
A subsequent e-mail from Collins to his fellow El Paso traders would prove to be prescient: “I think we should avoid discussing this on e-mail.”
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