Enron did not control natural gas price indexes, nor was it common practice for firms to report their bias in submitting price information to publishing companies six years ago, according to testimony Wednesday from Kelley Doolan, price editor of Platts Inside FERC Gas Market Report, in the Houston trial of former gas traders Michelle Valencia and Greg Singleton.

Not long after Doolan took the stand Wednesday morning, he was asked by Assistant U.S. Attorney John Lewis to descibe his relationship with former Dynegy trader Valencia. He said it was a cordial distanced relationship. Asked if he trusted her, he said yes.

During the trial Wednesday, Doolan for the first time heard a recorded telephone conversation between Valencia and her fellow Dynegy trader Mark Mickelson in which the two sounded as if they were colluding to send a report of bogus trade data to Inside FERC’s Gas Market Report (IFGMR).

“Malin and SoCal, we want them to be high and citygate we want to be low,” Valencia says to Mickelson in the recorded call. In the same conversation she provides Mickelson with information on recent market prices and says, “Make up some volumes.”

Lewis asked Doolan if he had ever heard that call before. “No, I’ve never heard them before,” he responded. Lewis then asked if that was how IFGMR wanted companies to report prices? “Absolutely not,” Doolan said.

Doolan went on to say that IFGMR only wanted fixed-priced physical baseload deals reported to its survey. “This sounds like something vastly different,” said Doolan. “It sounds like they are creating transactions that appear within the ranges the market was trading but tended in a direction they wanted.”

By 3:30 p.m. Wednesday Doolan’s opinion of Valencia had changed. He said he would not have trusted her had he heard what was in that call.

However, Doolan told prosecutors he did not believe the defense claims that Enron or other companies’ biases were prevalent in price reporting during the period in 2000-2002 when the two traders, Dynegy’s Valencia and Singleton, formerly with El Paso Merchant Energy, are accused of submitting false prices to Platts and Natural Gas Intelligence (NGI) in order to manipulate the indexes and increase their bonuses.

Further, natural gas trades that were reported to IFGMR did not automatically wind up in that publication’s calculations of the index prices it published, Doolan said in response to questions from Lewis in the eighth day of the trial. Lewis established that allegedly bogus trades submitted by Valencia influenced the publication’s index price in one instance but not another.

Doolan gave a number of reasons why some submissions and not others would be included in the calculations: for example, late receipt of the information or a suspicion that submitted trades occurred outside of the period for which the publication requested data. Doolan also said it was, and still is, standard practice to kick out “outliers,” or trades that looked suspicious because of their price or volume.

“It’s not just about the reported data,” Doolan said. He testified that editorial judgment is exercised over prices published. In the case of the August index prices for 2000, for instance, Inside FERC published an index for the Malin location that matched calculations done in Doolan’s spreadsheet of reported prices. In the case of the SoCal location, the published price was different from the weighted average calculated in the spreadsheet, and the reason was that editors relied on other reporting activities, such as conversations with traders, to adjust the number for what they thought would be a more accurate reflection of actual business.

“The reported data is a key component in reaching our assessments… It informs our thinking about what has traded. That’s what it does,” Doolan said.

In other testimony, Doolan outlined his publication’s methodology for determining index prices and explained how trade data is gathered from the industry. He told the court that he was never told by Valencia that trade data she submitted to him did not reflect actual deals.

Valencia and Singleton were indicted in November 2004 on charges of conspiracy, false reporting and wire fraud related to the transmission of allegedly bogus trade data to the two publications (see Daily GPI, Nov. 30, 2004). Gas Daily is another price survey publication that was mentioned repeatedly last week, although it is not named in the indictments of Valencia and Singleton.

Earlier in the trial, the defense maintained that any attempted manipulation of price indexes by Valencia, Singleton and possibly others was intended to counteract the influence of Enron and its EnronOnline electronic trading platform (see Daily GPI, July 14). Former and current traders have testified that Enron was using EnronOnline to manipulate gas markets.

Contrary to the defense contention that Enron was manipulating index prices, Doolan testified that it was not. While he conceded that his index prices sometimes included data from Enron trades, he answered “no” when Lewis asked, “Did Enron control your index?”

The defense also has maintained that “reporting the bias” of one’s trading book rather than reporting actual trades to index publishers was a common practice during the summer of 2000. However, Doolan testified that he did not believe this was the case.

Doolan was on the witness stand much of Wednesday. It is expected that NGI Price Editor Mark Curran will take the stand some time Thursday.

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.