‘Cancer in Energy Industry’ Described

An energy industry whistle-blower told state senators Monday that natural gas traders across the nation commonly lied about their transactions to drive market prices and boost profits.

The testimony portrayed a rotten underpinning to the energy industry, with widespread manipulation of even the prices published in newsletters that traders and regulators use to determine long-term contract prices and the rates charged to consumers.

“The cancer in the energy industry is very deep and perhaps inoperable,” Sen. Joe Dunn (D-Santa Ana), head of the select committee to investigate price manipulation of California’s wholesale energy market, said after a daylong hearing.

“If we accept the testimony today at face value,” he said, “I can say without reservation there was criminal conduct in the pricing of natural gas.”

Dunn said he would turn over to the attorney general evidence of violations of a state law that makes it a misdemeanor to release false information to affect market prices.

There’s proof of wrongdoing, he said, in the 3-inch stack of e-mails and documents given to the Senate committee by Michele Markey, the former chief of electricity and natural gas prices for Gas Daily.

Markey, now director of natural gas for Apache Corp. in Houston, testified after Dunn’s committee granted her immunity from state criminal prosecution.

At Gas Daily, Markey said, she supervised a team of reporters who gathered information volunteered by energy companies about the volume and price of natural gas trades. Gas Daily is one of a handful of private newsletters that compile and report natural gas market prices at key pipeline delivery points around the country.

In California, regulators rely heavily on these newsletters to set prices at two key spots on the Oregon and Nevada borders. The Public Utilities Commission has long used these price indices to judge whether utilities are paying reasonable prices when they buy natural gas and to set the price the utilities must pay to buy electricity from small generators.

PUC staff members say the prices tracked by Gas Daily and other publications strongly influence how much millions of Californians pay for natural gas and, ultimately, electricity, because most of the state’s power plants are fueled by natural gas.

Markey described nearly a dozen cases in which unidentified companies reported unusually high volumes of natural gas at prices slightly higher or lower than the market average. Those trades, she said, had the effect of pushing the index price up or down by a few cents, which could lead to millions of additional profit for some companies.

Though Markey has been subpoenaed by the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission, she told her story of fraudulent trade reporting for the first time in Sacramento in response to a subpoena by Dunn’s committee.

Markey said she left Gas Daily in March 2002, after it was purchased by Platts, the energy market information division of the McGraw-Hill Cos. She said she strongly suspected Enron Corp. of regularly reporting false information and was hiring a firm to audit Enron’s information when Gas Daily was sold to Platts. The audit never took place, she said.

Platts officials could not be reached for comment, but Senate investigators offered their own explanation for the aborted audit. Investigator Christian Schreiber said Enron was Platts’ biggest customer. It bought 700 subscriptions (each costing about $1,600 a year) to Platts publications.