Former Dynegy Inc. trader Jeff Hornback wrapped up his testimony in a second full day on the stand in the Houston trial of his former Dynegy colleague Michelle Valencia, and Greg Singleton, a former trader with El Paso Merchant Energy.
Valencia, a former Dynegy trader, 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 Inside FERC Gas Market Report and/or Natural Gas Intelligence (see Daily GPI, Nov. 30, 2004). Their trial is expected to last about a month in the courtroom of U.S. District Judge Nancy Atlas.
During Hornback’s time on the stand Wednesday and Thursday jurors heard numerous recorded telephone conversations involving Valencia, Singleton, Hornback, Inside FERC Editor Kelley Doolan, former PanCanadian trader Rick Andersson (now Valencia’s husband) and other traders. Valencia and Singleton are accused of reporting bogus gas trading data between July and November 2000.
Hornback, who is a prosecution witness who has been granted immunity, testified that when he first went to work as a trader on Dynegy’s “west desk,” in 1999 trade data submitted by Dynegy to index publishers hardly ever contained details of actual trades but instead was intended to be representative of what was going on in the gas market. He admitted that he and others were not following the instructions of index publishers, who asked for prices and volumes for actual physical baseload deals only. Hornback said not following the instructions did not bother him because the practice was prevalent in the industry and at the time the admittedly false information was representative of the market.
That all changed in 2000 when Hornback said he, Valencia and others were coming under increasing pressure to report trades and prices to index publishers that would support Dynegy’s trading book. The main impetus for the pressure, the defense maintains, is the entry of the Enron OnLine trading platform into the marketplace. As a counterparty to every deal transacted on its Enron OnLine system, Enron had an extremely broad view of the market and was able to manipulate prices, the defense charges.
This was particularly apparent in Southern California where Enron OnLine offered traders the opportunity to trade gas at Topock, the smallest of the Southern California points. The belief that Enron was manipulating the Southern California gas market through Enron OnLine and the Topock point was prevalent among traders in the summer of 2000, according to testimony and recorded telephone conversations entered into evidence. Because of Enron OnLine, volume traded at Topock was said to have become so heavy that it became the proxy for all of Southern California, even though the region’s other points have greater physical flow capability.
In an e-mail the head of the Dynegy’s west desk at the time, Steve Baron, is said to have written that Enron “owned” the SoCal index by virtue of the volumes it was able to transact. He is said to have pressured Hornback and Valencia to report bogus volumes and prices in an effort to swing things more in the favor of Dynegy. After questioning the ethics of Dynegy’s price reporting and clashing with Baron, Hornback asked to be relieved of price reporting duties. Not long after, he left Dynegy for another job.
So far the trial, entering its fifth day Friday, has focused almost exclusively on Valencia. However, near the end of the day Thursday prosecutors called former El Paso trader Alison Reitze to the stand. Reitze is a former colleague of Singleton’s.
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