A claim by a former employee for the Financial Times’ (FT) subsidiary Resource Data International (RDI) Monday before a California state Senate committee alleging that FT’s Gas Daily natural gas price index was manipulated by traders, brought a prompt retort from Gas Daily’s current owner that the account was a “misrepresentation of the facts.”

A McGraw-Hill spokesman said its Platts division, which now owns Gas Daily “would have enjoyed an opportunity to tell the true story to the committee,” but they were not informed of the hearing, nor asked to testify. Nevertheless, the publisher will be entering written testimony before the record closes in two days.

Michelle Markey, a Gas Daily employee until March 2002, said that some of the same people relied on for prices used to establish gas indexes also were trading in the market on a daily basis, so they would try to inflate or deflate what they reported to help their mark-to-market positions on a daily basis. She further said the price reporters were not taking the time to look at price quotes closely or analyze information coming in.

Markey was removed from her position collecting data in August 2001 when Gas Daily was taken over by Platts. She is now employed by Apache Corp., which is a leading member of a group lobbying to have the federal government take over natural gas price surveys.

According to Markey’s testimony before the California Select Committee to Investigate Manipulation of Wholesale Energy Markets, when she and her colleagues pursued an audit of various price sources, including Enron Online, the review was abandoned when Gas Daily was sold. She noted that Enron was Platts’ largest customer.

Markey’s account of the incident is not even close to what really happened, the McGraw-Hill spokesman said. EnronOnline had asked Platts to fund and audit a new index for which the data would be collected by Enron. “We would have been paying for non-verifiable Enron numbers. It was a bad idea and we didn’t support it.”

Before agreeing to testify under subpoena from the state legislative committee and to produce a three-inch-thick stack of documents, mostly e-mails, Markey was given full immunity. She and her attorney indicated she also had been subpoenaed by two federal agencies — the Federal Energy Regulatory Commission and the Federal Trade Commission. Word of her committee appearance had not been announced until the day she testified. Reporters tried in vain all last week to find out what was on the committee’s schedule.

“It was common industry knowledge that exaggeration was an accepted practice” in the trading and price reporting sectors, Markey told the investigative committee, meeting in a rare between-legislative-sessions hearing in Sacramento. Industry price surveys, such as the one conducted by Gas Daily, became tools in the industry that they never were intended to become, she said, noting that earlier witnesses confirmed the reliance that the California Public Utilities Commission and state independent transmission grid operator, CAISO, placed on the indexes.

When she was told that California law makes it a misdemeanor to intentionally publish false information in order to influence a market for a product, Markey drew short of categorically saying that “false information” was given to the Gas Daily index, saying it was her “strong opinion, but I don’t have clear evidence.”

McGraw-Hill said she got the exaggeration right. “In any industry people exaggerate. The reason Platts is the market leader is because we take all the information available, both confirmed and unconfirmed, and apply our expertise to come up with an index or assessment. We understand that sometimes information provided may not be reflective of the trade. Just because information is submitted doesn’t mean it automatically is included in the index. There is no evidence of that. Everyone was aware when the information was not necessarily accurate, and it would be discarded.”

Markey got a sympathetic hearing from California’s Senate select investigating committee, headed by Sen. Joe Dunn. The committee has been attempting for nearly two years to prove the California energy crisis of 2000-2001 was caused by market manipulation.

At one point one of the state senators said that it was “important in reporting (energy) prices there be some sort of oversight” and eventually the “publishing” of each individual transaction, and Markey, who is also a former energy utility trader, agreed. Opponents of government involvement in price surveys have labeled it the first step toward government price controls.

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