0001 1 BEFORE THE UNITED STATES 2 FEDERAL ENERGY REGULATORY COMMISSION 3 4 - - - - - - - - - - - - - - - - - -x 5 In the Matter of: : IN-10-05-000 6 PJM UP-TO CONGESTION TRANSACTIONS. : 7 - - - - - - - - - - - - - - - - - -x 8 9 10 REDACTED REDACTED 13 14 15 16 Washington, D.C. 17 Monday, May 14, 2012 18 19 20 21 22 REPORTED BY: 23 SARA A. WICK, RPR, CRR 24 25 0002 1 Confidential deposition of RICHARD D. TABORS, called 2 for examination pursuant to agreement of counsel, on 3 Monday, May 14, 2012, in Washington, D.C., at the Federal 4 Energy Regulatory Commission, 888 First Street Northeast, 5 Hearing Room 2, at 1:20 p.m., before SARA A. WICK, RPR, 6 CRR, and a Notary Public within and for the District of 7 Columbia, when were present on behalf of the respective 8 parties: 9 10 STEVEN TABACKMAN, ESQ. 11 JAMES OWENS, ESQ. 12 Federal Energy Regulatory Commission 13 Office of Enforcement 14 888 First Street Northeast 15 Washington, D.C. 20426 16 steven.tabackman@ferc.gov 17 On behalf of the FERC 18 19 -- continued -- 20 21 22 23 24 25 0003 1 APPEARANCES (continued): 2 3 WILLIAM M. MC SWAIN, ESQ. 4 Drinker Biddle & Reath LLP 5 One Logan Square 6 Suite 2000 7 Philadelphia, Pennsylvania 19103-6996 8 215.988.2775 9 william.mcswain@dbr.com 10 On behalf of Powhatan Energy Fund and 11 the Witness 12 13 Also Present: Cathleen Colbert, Brett Rudder 14 15 16 17 18 19 20 21 22 23 24 25 0004 1 P R O C E E D I N G S 2 Whereupon, 3 RICHARD D. TABORS 4 was called as a witness and, having first been duly sworn, 5 was examined and testified as follows: 6 EXAMINATION 7 BY MR. TABACKMAN: 8 Q Would you state your full name for the record, 9 please. 10 A Richard D. Tabors. 11 Q And where do you work, sir? 12 A I work for Charles River Associates in Boston. 13 Q Let me introduce myself formally on the record. 14 My name is Steven Tabackman. I'm a staff member in the 15 Division of Investigations, the Office of Enforcement, at 16 FERC. To my right is James Owens. He is also a Staff 17 member of the Division of Investigations of the Office of 18 Enforcement. Sitting to the side to my right is Cathleen 19 Colbert and Brett Rudder, and they are in the Division of 20 Analytics and Surveillance. It's new division. They are 21 analysts working on this case. 22 You understand that this is a -- or I should 23 tell you, this is a formal investigation. It is a 24 nonpublic investigation. For purposes of this 25 investigation, Mr. Owens and I are officers of the United 0005 1 States, and I need to advise you and ask for your 2 understanding, if you were to make a false statement 3 knowingly under oath on any material matter, you could be 4 found guilty of perjury or a false statement. In the 5 course of an investigation, those are criminal charges. 6 Do you understand that? 7 A Yes, I do. 8 Q You understand that the court reporter over here 9 is taking down everything that you say, and that will be 10 the record of your testimony? 11 A Yes, I do. 12 Q You know that you need to -- have you been 13 deposed before? 14 A Yes, I have. 15 Q On more than one occasion, or roughly how many? 16 A Five or six. 17 Q As an expert or a fact witness? 18 A Both. 19 Q Today, you are testifying as a fact witness, not 20 as an expert. We will not ask you the kinds of questions 21 that one might typically ask if you were being an expert 22 witness. But this will be the entire record of what you 23 say. You need to answer questions orally as opposed to 24 nods, head shakes, shrugged shoulders, rolled eyes, grins, 25 whatever. 0006 1 A Yes, sir. 2 Q None of that gets down unless I choose to 3 characterize whatever motion you may have made, and I won't 4 do that. 5 The next thing is that I'm going to try not to 6 talk over you. You don't -- you wait for me to finish and 7 don't talk over me. Sometimes it looks like I'm done and 8 I'm not because I'm trying to think and talk at the same 9 time, which is a mistake for me. In any event, let's try 10 not to talk over each other. Wait for me to ask the 11 question, and then you can give your answer. I will wait 12 for your answer. I am not going to go through the Fifth 13 Amendment warnings. You're not under investigation in this 14 case. I think that's it. 15 For the record, are you on any medication -- or 16 have any disability that might keep you from understanding 17 or being able to give truthful answers to questions? 18 A No. I sometimes am hard of hearing, which is a 19 part of having had a cold, flying, and being 68 years old. 20 Q You've only got me by 6 years. 21 MR. MC SWAIN: If I could just jump in and 22 say -- 23 BY MR. TABACKMAN: 24 Q One last thing. You are here with counsel? 25 A I am. 0007 1 Q Could you introduce your counsel, or he can 2 state his name? 3 MR. MC SWAIN: I will state my name. That's 4 okay. I can handle it. Bill McSwain from Drinker Biddle 5 for Powhatan Energy Fund. 6 BY MR. TABACKMAN: 7 Q He was counsel for Powhatan, one of the subjects 8 of the investigation; is that correct? 9 A Yes. 10 Q As I said before, I am not going to be asking 11 you expert questions. I'm going to try to hold that line. 12 I know if I go over it in any material way that he cares 13 about, Mr. McSwain will remind me of that, though I am 14 going to ask you questions about your preparation for the 15 affidavit that you submitted so that we can understand 16 exactly what steps you took, who you spoke with, documents 17 you may have reviewed, conversations you may have had, 18 meetings you may have attended, things of that sort. 19 Do you understand? 20 A Yes. 21 Q Let's begin by having marked as Exhibit 1 what I 22 believe is your affidavit. 23 (Exhibit Tabors 1 identified.) 24 BY MR. TABACKMAN: 25 Q I'm handing a copy to your counsel. I want you 0008 1 to look through that and tell me whether this is the 2 entirety of your affidavit. I believe there's an appendix 3 to your affidavit, Appendix A, and your resume. Is this 4 the entirety of the document that you swore to? And that's 5 your signature? I want you to also affirm that it is your 6 signature on the last page that has been notarized. 7 A Yes, this appears to be the full text of my 8 affidavit. 9 Q And is that your signature that appears on the 10 last page of Exhibit 1? 11 A Yes, it is. 12 Q And is the affidavit true and accurate, to the 13 best of your knowledge? 14 A Yes, it is. 15 Q If you can recall, what was your first contact 16 in regard to this case? How did that come about? 17 A My first contact was with the attorneys at White 18 & Case. It was a phone call some time in early September, 19 September 2011. 20 Q Had you heard anything about this case before 21 then? 22 A No. 23 Q Had you had any prior dealings with the 24 attorneys at White & Case? 25 A Earle O'Donnell and I have been on cases in 0009 1 parallel to each other in the past. 2 Q And what were you asked to do? What were you 3 told at that time? What were you asked? 4 A I was asked to provide a review and an 5 evaluation of a very limited amount of information that 6 they had at that point with regard to the training that had 7 taken place for Powhatan. 8 Q And what was your understanding of who Powhatan 9 was at that time -- your understanding at that time of who 10 Powhatan was? 11 A That Powhatan was a financial trading group. 12 That was all I knew. 13 Q And were you asked to testify on behalf of Alan 14 Chen, or is this solely on behalf of Powhatan? 15 A I was hired to work only for Powhatan. 16 Q Are you familiar with the name Alan Chen? 17 A Yes, I am. 18 Q How did you become familiar with the name Alan 19 Chen? 20 A I was told that he was the actual trader in the 21 first conversation that I had with Earle O'Donnell and then 22 was asked very shortly thereafter to come to Washington for 23 a meeting with Alan Chen that I was unable to attend in 24 person. 25 Q Do you recall when that meeting was? 0010 1 A That meeting occurred on September 29th, 2011. 2 Q And did you participate in that meeting 3 remotely? 4 A I did, by telephone conference call. I was in 5 board meetings at Dartmouth that day, and I was on the 6 phone for probably four hours of a meeting that went longer 7 than that. 8 Q And how do you know that it went longer? Was 9 the meeting going on when you called in, or did you know 10 that it was going on after you ended? 11 A I had to break in the middle of it for another 12 session and got back on it, then got off the meeting, and 13 then my memory is that I got on it one more time at the 14 very end of the meeting in Washington. 15 Q And did you take any notes of the conversation 16 that went on during that meeting? 17 A I did. I took one page of very scrawling notes. 18 It was a very difficult meeting to follow on the phone. 19 Q Why was that? 20 A The conference room phone was less than perfect. 21 Q On your end or -- 22 A No, mine was fine. It was the other end. Alan 23 speaks quite rapidly and not always terribly clearly, and 24 part of the discussion that took place took place on a 25 whiteboard or a blackboard or something or a flip chart 0011 1 where the reference to A to B and B to A and so on were 2 impossible to translate without being there. 3 Q Did you ask any questions during that meeting? 4 A I did, yes. 5 Q Do you recall what questions you asked? 6 A No. I'm sorry. I don't. They were 7 clarification questions. 8 Q Do you recall the subject areas that you sought 9 clarification about? 10 A I do not. 11 Q To the best of your recollection, can you 12 summarize or describe the subject matter of the meeting, 13 the part you participated in? 14 A The subject matter was to discuss the types of 15 trades and the logic of the trades that Alan participated 16 in, more focused on what trading was -- what the trading 17 was that he did, please explain to me a trade, give me an 18 example of a trade. 19 Q Okay. And what type of trading did Dr. Chen or 20 Alan Chen -- when I refer to "Dr. Chen," I'm referring to 21 Alan Chen. 22 A Yes. 23 Q What types of trades did he do? 24 A He was working predominantly on up-to congestion 25 trading, frequently, almost always actually, balanced or 0012 1 spread-based. 2 Q And were you familiar with up-to congestion 3 trading prior to September 29, 2011? 4 A Only very gently prior to the initial phone call 5 from Earle at White & Case, and then after that, enough to 6 be intelligent, but not in any sense an expert prior to 7 that time. 8 Q Had you done any reading about up-to congestion 9 trading prior to that meeting with Alan Chen on 10 September 29th? 11 A I looked it up on the PJM Web site. 12 Q What was your understanding at that point before 13 talking to him? 14 A That it was originally designed for physical 15 trading and offered a means for generally most often a 16 physical trader to lay on a position between PJM and an 17 adjoining independent system area that would be transacted 18 only under the condition in which the transmission 19 congestion was no greater than some preset amount by the 20 trader. 21 Q You described Dr. Chen's trading as 22 predominantly or almost exclusively spread-based. I don't 23 remember the word you used. I know you used the word 24 spread-based. What does that mean? 25 A Spread means that you're looking for the 0013 1 difference between two transactions that in many times will 2 cancel somewhat or totally cancel themselves out, but 3 you're looking to see the difference between trades into 4 something and a trade out of or a trade between two points 5 and two other points. So you're looking in PJM's case most 6 often at the difference between locational marginal prices 7 in one location as opposed to another, taking into 8 consideration the transmission as well. 9 Q When you said Alan Chen was involved in 10 spread-based trading, that was your understanding after 11 this meeting, or was that before you ever heard him 12 participating in meeting? 13 A I don't remember when I formed that bit of 14 knowledge or when I came upon that bit of knowledge. 15 Q After that -- strike that. 16 Was Alan Chen the person who did most of the 17 talking during the meeting, at least the part that you 18 heard? 19 A Yes. 20 Q You smile. I take it you had some difficulty 21 understanding what he was saying for reasons you indicated 22 earlier, the whiteboard, his accent, the speed of his 23 talking? 24 A Yes. 25 Q What did you do, if anything, after that to get 0014 1 a better understanding of what he had been doing in his 2 trading as opposed to UTC trading generally? 3 A At the end of that meeting, it became clear that 4 if I was going to understand what Alan was doing, I needed 5 to know more detail about Alan's trades, and contacted my 6 attorneys at that point. That was the White & Case folks. 7 And I asked if it was allowable to have a short 8 conversation soon with Alan to ask a couple of things that 9 I had not understood from the discussion on the 29th, and 10 they arranged that phone call to take place the next day -- 11 that would be the 30th, and that call had Alan, John Estes, 12 Dan Hagan, Jane Rueger, and myself on the call. 13 Q John Estes is Alan Chen's lawyer? 14 A Is Alan Chen's lawyer, yes. 15 Q Dan Hagan was Powhatan's lawyer at the time? 16 A One of them. 17 Q Right. I'm sorry. He was with the firm of 18 White & Case, which represented Powhatan? 19 A That's right. 20 Q And Jane Rueger, what was her connection? 21 A She is also at White & Case. 22 Q And you said you had a telephone conversation 23 with Alan Chen on September 30th? 24 A Yes. 25 Q And how long -- can you tell me how long that 0015 1 conversation was? 2 A Somewhere between 20 minutes and a half an hour, 3 because John had another back-end phone call. 4 Q Did you ask specific questions of Alan Chen 5 during that phone conversation? 6 A Yes, I did. 7 Q Do you recall what you asked him, the kinds of 8 questions that you asked him? What were you interested in 9 finding out at that point? 10 A I was particularly interested in finding out if 11 he had any files, records, spreadsheets that indicated what 12 the trades were for the time period in question that he 13 could share with me. 14 Q And did he? 15 A Yes. 16 Q And what did you receive from him? 17 A I received a series of Excel files. 18 Q What was the subject matter of the Excel files? 19 A It was the information that he maintained about 20 the transactions that he undertook on his behalf and on 21 Powhatan's behalf. 22 Q And do you recall the time period that they 23 covered? 24 A I should, but I'm going blank on the time 25 period. I apologize. 0016 1 Q Was there more than one spreadsheet? 2 A Yes. 3 Q What types of data do you recall being on the 4 spreadsheets? 5 A The sizes of the trades, the location of the 6 trades, the direction of the trades, the amount of money 7 associated with the trades, and a specific spreadsheet 8 listing the TLC revenues by day. I think it was day. I 9 have to be very careful about that. 10 Q And do you recall the time frame. Was it 11 limited to any particular year, month, several months? 12 A It was definitely limited to a time period that, 13 I suspect, I may have stated in my affidavit. I can't 14 remember what it was, but it ended -- like 13 months. 15 Q Let me represent to you that Powhatan came into 16 existence on or about May 30th, May 29th, May 30th of 2010. 17 MR. MC SWAIN: It started trading then. It was 18 in existence prior to that. 19 BY MR. TABACKMAN: 20 Q It started trading then. There was a hiatus 21 between the two. The trading was done for the principals 22 at Powhatan through a company by the name of Huntrise 23 Energy Fund. 24 A Yes. 25 Q And the trading for purposes of this 0017 1 investigation terminated some time in August of 2010? 2 A Right. 3 Q Did you see data that went beyond June, July, 4 August of 2010? 5 A No. Not to the best of my memory no, I did not. 6 June, July, August is what I think I had. 7 Q And do you recall seeing any trading data? A 8 lot of the data -- are you familiar with the name HEEP 9 Fund? 10 A Yes. 11 Q That was Dr. Chen's fund. 12 A Yes. 13 Q A lot of the data has Powhatan and HEEP Fund on 14 the same page. At least is that your recollection? 15 A Yes, it is. 16 Q Putting aside that data, that HEEP Fund data 17 that you saw simultaneously, if I can use that word, 18 contemporaneously with the Powhatan data, did you see any 19 data that pertained to any other fund that the principals 20 of Powhatan had no interest in? 21 A Other than HEEP? 22 Q Right. 23 A No. 24 Q Have you ever heard of a fund by the name of CU 25 fund? 0018 1 A No. 2 Q In the data that you received, do you recall 3 whether you also saw data for the Huntrise Energy Fund, the 4 predecessor to Powhatan, as well as Powhatan data? 5 A Not that I recall. 6 Q If you could turn to page 3 of Exhibit 1, 7 please. I'm looking at the second paragraph on that page. 8 It begins "In preparing this affidavit." It says you 9 "relied on publicly available data from PJM." 10 Do you recall the kinds of things you looked at 11 on the PJM Web site? 12 A I looked at, as I had indicated earlier, what 13 they had to say about up-to congestion trading and TLCs and 14 also looked at some individual nodal prices in the time 15 period that I -- that was that June, July, August time 16 period. 17 Q And the reason that you were looking at the 18 nodal prices was what? 19 A To get a better, I would call it, fingertip feel 20 for what prices were doing during that time period. 21 Q Then you also said you looked at "information 22 available from Energy Velocity (data provider to CRA)." 23 CRA is Charles River Associates? 24 A Yes, it is. 25 Q What did you get from Energy -- who is Energy 0019 1 Velocity, other than the data provider to CRA? 2 A They're a commercial data provider that packages 3 lots of data. They do it in a way that is far easier to 4 access generally than public sources such as PJM. 5 Q And what kinds of data were you looking at from 6 Energy Velocity? 7 A I was looking again at nodal price data for the 8 interface buses for PJM and MISO. 9 Q And you described your initial look as a 10 fingertip look, which I take to mean sort of a very quick 11 look at the nodal prices when you were looking at the PJM 12 Web site. 13 Is that what you meant to convey? 14 A Probably more than a very quick look, but one 15 that had no specific hypothetical structure that I was 16 trying to prove or disprove while looking over the data. 17 Q How about when you were looking at the Energy 18 Velocity data? Was it different? 19 A No. Just easier. 20 Q Okay. And why were you looking at MISO data? 21 MISO nodal prices, rather. 22 A Because the transactions that by then I knew 23 that Alan had been involved with were boundary 24 transactions, the vast majority of which were between a bus 25 and PJM and MISO. 0020 1 Q What is a bus? 2 A That is an electrical term that has an 3 indication of a point of juncture in the electric power 4 system. And in the case of PJM, I'm using it to indicate a 5 pricing point for PJM. 6 Q The next thing that you mention is the 7 information from the written submission to Commission 8 investigation on behalf of "Dr. Houlian (Alan) Chen." Is 9 that a document that was prepared by Skadden, Arps, as far 10 as you know? 11 A Yes, it was. 12 Q And what did you learn from that document? 13 A Very little. 14 Q Can you describe what that "very little" would 15 be? 16 A It was -- I was interested in understanding the 17 trades and what the trade structure and logic was. That 18 document was not very helpful to me in doing that. It had 19 more arguments about why this was or wasn't a legitimate 20 trading strategy in helping me to think about the economics 21 that Alan was working from. 22 Q Other than your conversation with Dr. Chen on 23 September 30th and the meeting that you described on 24 September 29th, have you spoken with him on any other 25 occasion? 0021 1 A Yes, once after that. 2 Q When was that? 3 A That was October the 10th, 2011. 4 Q Was that by phone or in person? 5 A That was by phone. 6 Q And who was on that call? 7 A John Estes and Dr. Chen. And Earle O'Donnell, 8 Jane Rueger, and Dan Hagan and I. 9 Q What was subject matter of that conversation? 10 A The subject matter was to ask very specific 11 questions about the spreadsheets and what the data were 12 that were on the spreadsheets. 13 Q Do you recall, were there particular areas, 14 subject area, that you were interested in focusing on on 15 the spreadsheets that you had questions about? 16 A Yes, there were. 17 Q And what were those? 18 A I was particularly interested in finding out why 19 it seemed as though the TLC values reported on the 20 spreadsheets appeared to be one-half of what I expected 21 them to be. 22 Q What was the answer to that? 23 MR. MC SWAIN: You can answer that. 24 THE WITNESS: The answer was that because the 25 vast majority of Alan's trades were complementary in and 0022 1 out, not perfectly paired but in and out. When he 2 calculated his value for the TLCs, he calculated it as a 3 function of the sum of the transactional kilowatts, 4 megawatts. 5 And so whereas the TLC itself only counted for 6 one direction of the transaction, Alan took the transaction 7 in and the transaction back out, which let's say were 8 50 megawatts apiece, added them together and came up with 9 100, took the TLC number divided by 100 and got something 10 that was half as big as what a published value would have 11 been for one direction. 12 BY MR. TABACKMAN: 13 Q I see. And do you understand why in your 14 hypothetical those 50-megawatt transactions would have 15 gotten TLC? 16 A Well, only one of them counted from PJM, and 17 they were paying -- PJM is the only one that has marginal 18 transmission loss charge structures, and that is the only 19 side of that transaction that would be subject to earning 20 TLCs. 21 Q Was there -- did you pay for transmission from 22 PJM to MISO? 23 A Yes. 24 Q Did he pay for transmission -- I'm sorry. 25 That's a poorly phrased question. Did he have to pay -- 0023 1 are you familiar with the term OASIS? 2 A Yes. 3 Q What is OASIS? 4 A OASIS is the -- it's the registry on which one 5 has to register and sign up for transmission rights. 6 Q On transmission from PJM to MISO, which we will 7 refer to as an export from PJM, did Dr. Chen pay 8 transmission -- OASIS reservation charges? 9 A Yes. 10 Q How about from MISO to PJM? 11 MR. MC SWAIN: I don't think there's anything 12 controversial about these questions, although I think we're 13 getting beyond the boundaries. 14 BY MR. TABACKMAN: 15 Q Did you discuss what kind of other charges 16 Dr. Chen had to pay in trying to prepare yourself to 17 understand these trades? 18 A Yes. 19 Q And what did you learn? 20 A I learned that the written reports that I had 21 already seen were, in fact, accurate in terms of the values 22 of what he was paying for each of the three or four 23 components of his transactions. 24 Q When you said -- by the way, just so the record 25 is clear, that the TLC was half the value of what you 0024 1 expected it to be, I take it you meant half the value on a 2 per-megawatt basis? 3 A That's correct. 4 Q So the total TLC was the same. It was just on 5 the column where he calculated the per megawatt it was half 6 of what you expected, but then you understood after talking 7 to him as to why that was? 8 A Yes. 9 Q In terms of your preparation, did you ever read 10 quickly or slowly, in whole or in part, any depositions 11 given by Dr. Chen in this investigation? 12 A I'm embarrassed to say I can't remember whether 13 I did or not. I don't think so. 14 Q They're not mentioned here. Your affidavit does 15 indicate what you relied on. I'm making sure there's 16 nothing else outside of that. 17 A No. 18 MR. MC SWAIN: Just for the record, I don't 19 think anybody at Powhatan has those depositions of Alan 20 Chen. I don't even know if Mr. Estes has them, but I know 21 we don't have them. So I couldn't have given them to him, 22 for example. 23 BY MR. TABACKMAN: 24 Q Did you read the depositions of Kevin Gates? 25 A I read one of the depositions of Kevin Gates, 0025 1 yes. 2 Q Do you recall which deposition that was? 3 A My understanding is I read the first one. 4 Q What is that understanding based on? A 5 representation by his attorneys? 6 A My memory of how it was handed to me. 7 Q How was it handed to you? 8 A Well, I meant e-mailed to me. 9 Q The dates of those depositions, there was one in 10 September of 2010 and one in September of 2011. One was 11 notably shorter than the other. The second one was roughly 12 a 300-page document. I don't know how it came to you, in 13 Min-U-Script or -- 14 A It was not -- I don't remember. 15 Q When we take a break, I can get them. I just 16 didn't bring them down. Apart from reading the depositions 17 or that deposition, did you look at any exhibits to the 18 deposition? 19 A I don't believe I did. 20 Q Do you recall ever seeing any e-mails between -- 21 contemporaneous e-mails between Alan Chen and anybody at 22 Powhatan? By "contemporaneous," I mean during the time 23 period that the trades were taking place. 24 A No, I don't. 25 Q No, you didn't see them? 0026 1 A I don't remember seeing them, no. 2 Q Did you ever have a conversation with Kevin 3 Gates, putting aside the September 29th joint meeting that 4 I believe he was at, have you ever had any kind of 5 conversation with Kevin Gates personally about anything 6 having to do with the trades, his relationship with Alan 7 Chen, the subject matter that you discuss in your 8 affidavit? You can construe that as broadly as possible. 9 A One thing I'm now realizing is -- when I was 10 trying to remember what got me started -- let me go back a 11 notch. What got me started on this case was that I had 12 come to Washington for something else and ended up meeting 13 with Earle and Kevin, and that would have been in early 14 September. 15 So that was my first meeting, and that was where 16 I did meet Kevin, and it was for maybe an hour and a half 17 at White & Case. I knew there was one thing that was going 18 on in my brain that I was going back for. But that was a 19 meeting with Kevin and Earle, and an additional attorney 20 whose name I will not be able to bring up who was in the 21 meeting that day. 22 Q Something other than Dan Hagan? 23 A It was not Dan, and it was not Jane. 24 Q And when you said -- you said it was -- you met 25 in early September. 2011? 0027 1 A Yes, 2011. 2 Q And the meeting at White & Case, what did you 3 and Kevin Gates talk about? 4 A I was there to listen. And so it was a case of 5 Earle predominantly querying Kevin on his knowledge about 6 the transactions that Alan was involved in or that Alan had 7 undertaken on Powhatan's behalf. 8 Q And was Kevin Gates able -- I don't need to know 9 the substance, but was he able to explain to you the trades 10 that Alan Chen had been involved in? 11 A Not effectively. He was not explaining it to me 12 anyway, but did he explain it effectively at that time, no. 13 Q I take it it was after that time that you 14 received the data from Alan Chen? 15 A Yes, quite a bit. 16 Q Look at page 2 of your affidavit, Exhibit 1. In 17 the final paragraph, you say "I explain how Dr. Chen," 18 reading in the middle there, "engaged in five types of 19 trading strategies of UTCs, none of which were either 20 designed to ensure receipt of TLC revenues or guaranteed 21 only to operate at a loss but for TLC revenues. All five 22 strategies were instead designed to seek profit from price 23 spreads while mitigating transaction costs with TLC." 24 Why is "ensure" in italics? 25 A To add emphasis. 0028 1 Q Again, I'm only seeking to understand -- I'm not 2 questioning the basis for your opinion. Is the italics 3 supposed to mean a literal interpretation of "ensure," 4 which would be to make certain? 5 A Yes. 6 Q Did you discuss with Alan Chen in part of your 7 preparation whether he was attempting to maximize the 8 likelihood of receipt of TLC revenues? 9 A No. 10 Q Did you discuss with Dr. Chen whether he 11 structured his trades to increase the possibility that both 12 legs would clear? 13 A No. 14 Q You didn't discuss that issue? 15 A No. 16 Q Just so we understand, in those transactions 17 that you looked at, in the ones where both legs cleared, 18 there was no profit from the spread in prices, is that 19 correct, between the two nodes? 20 A That's correct. That canceled each other out. 21 Q I'm sorry, what? 22 A That's correct. 23 Q If you would look at the bottom of page 6 of 24 your affidavit, and I believe it goes on to page 7. The 25 first full paragraph that begins at the bottom of page 6 0029 1 and goes over to page 7, you discuss for lack of a better 2 term the predictability of TLCs. Is that an accurate way 3 of characterizing your discussion? In that paragraph? 4 A It discusses the range of TLCs, yes. 5 Q Your last sentence that ends on page 7 before 6 the figure 1 -- you say "Thus, a trader, including 7 Dr. Chen, cannot know in advance whether the TLC allocation 8 would be less than, equal to, or greater than the costs 9 associated with placing an individual UTC bid." 10 Did I read that correctly? 11 A You did read it correctly. 12 Q Did you discuss, as a part of your effort to 13 prepare yourself, whether Dr. Chen had ever engaged in any 14 kind of analysis to at least -- whether he couldn't predict 15 with certainty, to get some idea what the TLC might be at 16 various points in time, historical analysis? 17 A I didn't talk to Dr. Chen about that. I spent a 18 lot of time in my career on trading floors and dealing with 19 traders, and I don't know any trader that does things 20 randomly, and I don't know any trader in my experience that 21 hasn't attempted to learn from history. So asking the 22 question would have been rather useless, given that Alan is 23 not foolish. 24 Q You don't know, though, what -- precisely what 25 he may have done? You didn't attempt to find out if he 0030 1 looked at two years of history, three years of history, 2 one month, two days? 3 A No, I did not. 4 Q Did you yourself look back beyond the period 5 that's discussed with respect to looking at TLC allocations 6 at some point other than between May 29, 2010, and 7 August 19, 2010? 8 A I did most of my work between the May 29th and 9 the August 19th. 10 Q Did you discuss at Dr. Chen or did you learn 11 from any other source when he first became aware of TLCs? 12 A I don't know when he first became aware of TLCs. 13 Q Do you know when the market first became aware 14 of the availability of TLCs to virtual traders in PJM? 15 A That was all a part of the FERC reporting, which 16 is in my affidavit, pages 13 and on in the affidavit. 17 Q So that's what you learned about the 18 availability of TLCs to virtual traders? 19 A That's correct. 20 Q And other than knowing if Dr. Chen was aware of 21 the TLCs, you don't know what he did with -- when he began 22 to receive them or began analyzing -- when or if he 23 analyzed any data about the TLCs that he had received? 24 A I don't know what he did. 25 Q The term "home run," that's a term that's used 0031 1 throughout your affidavit, is that fair to say, as a 2 characterization of his trading strategy? 3 A I think there was more to it than that, but 4 sure. 5 Q Is that a -- 6 A That's a fair term, yes. 7 Q Is that a term that Dr. Chen used in any 8 conversation with you? 9 A At that original 29th meeting, he used a set of 10 terms that were either that or something totally similar to 11 it in terms of describing what his strategy was, given that 12 I didn't understand every word that he said. 13 Q To the best of your understanding, what was it 14 that he described? 15 A He described a very high-payoff/very 16 low-probability strategy. 17 Q And how did that work, that 18 high-payoff/low-probability strategy? 19 A How did it work for him? 20 Q Yes. 21 A The low-probability part of it worked out quite 22 well. 23 Q What did the low probability refer to? 24 A Of the home run. 25 Q The home run was what? 0032 1 MR. MC SWAIN: You can answer that. 2 THE WITNESS: The home run was an event in which 3 he had the correct side of a bidirectional trade where one 4 side was accepted and the other side failed, and the 5 failure left him holding -- or the success, depending upon 6 which way it went, left him holding a contract at a value 7 that was dramatically different from the value that would 8 eventually clear in the hour-ahead market, thus giving him 9 the profit of the difference between the value that he held 10 in the day-ahead market and the value that finally cleared 11 in the hour-ahead market. 12 BY MR. TABACKMAN: 13 Q And do you know, between May 30th of 2010, or 14 say June 1st of 2010, and August 19th, the period that you 15 studied, do you know how often he -- that potential 16 occurred, that he held the favorable side of the contract 17 and made -- and hit the home run? 18 A The potential for it occurred every hour. 19 Q Strike that. 20 How often did it actually happen? Did that ever 21 happen during that period? 22 A It never happened during that period. 23 Q Did it ever happen that a leg didn't clear 24 during that period so far as you are aware where he lost 25 money as a result of the leg not clearing but his holding 0033 1 the wrong side? 2 A Not that I recall. 3 Q Did you ever discuss with Dr. Chen the question 4 I just asked you, whether that occurred, and also why it 5 didn't occur if it didn't? 6 A No. 7 Q Did you ever undertake to analyze Dr. Chen's 8 bids on the legs that he traded on relative to the 9 historical clearing prices at the nodes that he traded on? 10 A In a very limited way, yes. 11 Q Can you describe that? 12 A I looked at the cross-correlations between the 13 prices at -- that were clearing prices at the nodes that he 14 traded at. 15 Q I'm sorry. You looked at the cross-correlation 16 of the prices at the nodes that he traded at? What 17 does "cross-correlation" mean? 18 A It just meant that he had a matrix that said 19 what's the correlation between the price at node A, so A, 20 B, C, D, E going across the top axis, A, B, C, D, E going 21 down the side axis, what's the correlation between the two. 22 So you're basically filling in the half of the -- 23 Q What did that tell you? 24 A It turned out it didn't tell me very much, 25 except that most of the ones that I was looking at in PJM, 0034 1 because they were close to the boundary of PJM, had prices 2 that were quite highly correlated and didn't vary between 3 them very, very much. 4 Q And did they vary very much between the prices 5 at the nodes in MISO? 6 A There is only one node in MISO. The answer is 7 they varied, but not very much with that either, in that 8 very short time period that I was looking at. 9 Q Did you discuss that finding with Dr. Chen? 10 A No. 11 Q Did you compare the correlation with Alan Chen's 12 bids, this cross-correlation that you discovered, with bids 13 that he placed? 14 A No. 15 Q Did you look back for any period beyond the 16 period of May 29th to August 19th, 2010, and look at the 17 clearing prices at the nodes that Alan Chen was trading at 18 between PJM and MISO? 19 A I went back a couple more months. 20 Q But you stayed within 2010? You didn't look at 21 2009, 2008, 2007? 22 A No. 23 Q Did you discuss with Dr. Chen whether he had 24 ever done that, done an analysis of clearing prices going 25 back to when he began trading between those -- in PJM? 0035 1 A I didn't, but I will go back to my previous 2 comment. I wouldn't ask a trader a question like that. 3 Q So that means that you assumed that he did look 4 at -- 5 A No. I could put a lot of money on the fact that 6 he did that. 7 Q And in the analysis that you did, the 8 cross-correlation and looking at his bids, did you 9 determine whether or not when he bid less than $50 -- how 10 close he came to whatever price you discovered to be either 11 a mean or the range of clearing prices at the nodes that he 12 was using? Do you understand the question? 13 A Yeah. 14 Q Let me make sure that it's clear. There would 15 be, over a course of 30 days, a range of clearing prices. 16 They may change by a penny. They may change by a dollar. 17 But there's one for every hour of every day, is that right, 18 at each node? 19 A Yes. 20 Q My question is, having looked at those, at those 21 nodes, did you look to see whether Dr. Chen's hourly bids 22 were -- when he bid less than $50, was he close to what -- 23 the clearing prices you saw to be on an hourly basis at 24 those nodes? 25 A I didn't look at that. 0036 1 Q If you would look at page 9 of your affidavit. 2 About seven lines up from the bottom, there begins a 3 sentence "By placing." 4 Do you see that? 5 A Yes, I do. 6 Q It says "By placing UTC bids in both directions 7 between two points with the same positive cap, the trader 8 could guarantee that one bid will fail to clear the market 9 while the other bid clears in the unlikely event that 10 congestion exceeds the set cap." 11 Did I read that correctly? 12 A Yes. 13 Q Could you explain what that means, how that 14 relates to Alan Chen's trading? 15 A That's getting -- 16 Q Fine. I'm not sure I understand the sentence. 17 Does this say that he could guarantee that a bid will fail 18 to clear the market when he placed his bids? Do I 19 understand that correctly? That's how I interpret what 20 you've said there. I want to make sure I'm reading it 21 correctly. 22 A If he puts the same cap going both ways, 23 positive going both ways, one of those will probably -- it 24 says "while the other bid clears in the unlikely event that 25 congestion exceeds" -- let me read it again so I do it 0037 1 right. This is not the easiest explanation thing going. 2 So if you put bids going both directions at the 3 same cap, so plus 50 and plus 50, the trader could 4 guarantee that one bid will fail to clear the market while 5 the other bid clears. What does that mean? That means if 6 you're both at the top -- if you're pinning them both 7 positive, one of them has to be negative by the same 8 amount. So one has to fail. 9 And then it goes on "in the unlikely event that 10 congestion exceeds the set of caps." So that basically 11 says if one of them does exceed it, then effectively you're 12 getting a winner under those circumstances. 13 MR. MC SWAIN: If we're asking this line of 14 questions just to understand and not -- I don't mean to 15 test the rule, but if you turn to page 3 of the appendix, 16 the last sentence explains what he's saying there. 17 MR. TABACKMAN: And I think the last sentence of 18 page 3 of the appendix, Bill, says something different than 19 what he says there. I think he miswrote this sentence on 20 page 9. I'm just trying to understand it, so that we're 21 clear as to what it says. 22 MR. MC SWAIN: I think what he was saying -- and 23 Dr. Tabors, correct me if I'm wrong -- is that you can't 24 have -- no matter what, one of the bids has to clear, is 25 what you're saying? 0038 1 THE WITNESS: Yes. 2 MR. MC SWAIN: It's said clearly in the 3 appendix. Is that what that sentence that -- 4 THE WITNESS: That's what it's supposed to say, 5 yes. 6 MR. MC SWAIN: It's written maybe a little bit 7 awkwardly. 8 THE WITNESS: Probably very awkwardly. 9 BY MR. TABACKMAN: 10 Q I think there's also a word missing. I think 11 you may have meant to use the word "accept" there. 12 A I will study it before I have to defend it 13 again. Thank you. 14 Q What evidence are you aware of that you saw in 15 preparation for this affidavit that Dr. Chen placed his bid 16 so as to guarantee that one bid will fail to clear? 17 A Just the pattern of the bids and the data, so 18 the data show that. 19 MR. MC SWAIN: I don't think he understood the 20 question because I think the question was phrased in a way 21 that was not a part of what Alan's data actually -- can you 22 rephrase the question? I think you're confusing the 23 witness. 24 BY MR. TABACKMAN: 25 Q You said that by placing UTC bids in both 0039 1 directions between two points with the same positive cap, 2 the trader could guarantee that one bid will fail to clear 3 the market. 4 I'm trying to understand whether or not you saw 5 evidence in Dr. Chen's tradings that he tried to place 6 trades so that one of his bids would fail the market, fail 7 to clear the market. 8 MR. MC SWAIN: I object to that question. That 9 leaves out the second part of that sentence. It says "one 10 bid will fail to clear the market while the other bid 11 clears in the unlikely event that congestion exceeds the 12 set cap." So if you turn the sentence around, you begin 13 with the premise that congestion exceeds the cap. So 14 therefore, you're going to have one leg failing, the other 15 one has to clear. That's what that sentence says. 16 BY MR. TABACKMAN: 17 Q And that's what you mean that sentence to say? 18 A That's what that's supposed to say. 19 Q Did you write this affidavit? 20 A I certainly did. 21 Q Did you read it over before you signed it to 22 assure its accuracy? 23 A Yes, many times. 24 Q Is there any possibility that he could guarantee 25 that a bid will clear? 0040 1 A I'm sorry. Ask that question -- maybe let's use 2 an example when you say that, when you say was there any 3 possibility that he could guarantee. 4 Q Could Alan Chen have guaranteed that any one of 5 his bids would actually clear? Could he be certain that a 6 bid would clear? 7 A That the bid would clear in the sense that it 8 would clear the market? 9 Q Clear the market, right. 10 A The answer is, the lower he bid on the up-to 11 congestion, the higher probability of it clearing the 12 market. 13 Q If you look at page 9, please, I have another 14 question. You said at the beginning of that paragraph -- 15 if you just read to yourself the sentence that is before 16 the one I just asked you about, and -- or the two sentences 17 that are there, from the word "Given" down to the 18 word "trades," and after you've read it, I want to ask you 19 a question about that. 20 A Okay. 21 Q Did you determine how many times in June and 22 July of 2010 that TLC on the paired trades did not cover 23 the cost of the trades? 24 A Yes, I looked at that. 25 Q And what did you discover? 0041 1 A I think the TLC covered it. If it didn't -- 2 there were very few times when it didn't cover. I can't 3 remember if it was zero or some very small number. 4 Q Did you question Dr. Chen as to how he had 5 achieved -- as to how that happened, if he had any 6 explanation? 7 A No. 8 MR. MC SWAIN: Is this a good time for a break? 9 MR. TABACKMAN: Yes. 10 (Recess.) 11 (Exhibit Tabors 2 identified.) 12 BY MR. TABACKMAN: 13 Q We are back on the record. And do you 14 understand you're still under oath? 15 A Yes, sir. 16 Q In terms of the comparison, did you -- and I 17 just want to make sure that the question was clear. Did 18 you compare Alan Chen's bids in any way -- take any 19 comparison to the historical clearing prices at the nodes 20 that he traded on? 21 A No, I did not. 22 MR. TABACKMAN: Let me show you what I've had 23 marked as Exhibit 2. If you could look at that. 24 And I'm going to give you a copy, Bill. 25 That is, I will represent to you, the first 0042 1 deposition of Kevin Gates, taken on September 23, 2010. 2 Take a look and see if you can identify that as the one 3 that you read. I will represent to you, at that point we 4 had no documents from Powhatan when we took that. 5 MR. MC SWAIN: Is this marked as an exhibit? 6 MR. TABACKMAN: As Exhibit 2. 7 MR. MC SWAIN: What would you like -- 8 MR. TABACKMAN: He said he thought he had read 9 the first one, and the timing, I would represent, seems 10 accurate if he met in early September 2011. It sounds like 11 it was before or immediately after the second deposition, I 12 don't think there would have been a transcript yet. But if 13 there's some way that we can tie that down by having him 14 review it and see if there's anything in there that allows 15 him to be certain that it was the first one that he read or 16 that it was represented to him to be the first one. 17 MR. MC SWAIN: So you want to know if he 18 remembers which deposition of Kevin Gates it was that he 19 read? 20 MR. TABACKMAN: Correct. 21 THE WITNESS: I have to tell you, I don't 22 remember. I probably could confirm it with a follow-up, if 23 that would be helpful. 24 BY MR. TABACKMAN: 25 Q That would be helpful. You said you received it 0043 1 by e-mail? 2 A I did, yeah. Let me say, somewhere, I have it 3 in my collection. So I cannot be assured that it's this 4 one that I read. 5 MR. MC SWAIN: We can figure that out and would 6 be happy to get that to you. 7 MR. TABACKMAN: Thank you. 8 BY MR. TABACKMAN: 9 Q Take a look at page 10 of your affidavit, 10 please, in the middle of the long paragraph, you describe 11 how it would work to hit the -- to achieve the home run. 12 A Right. 13 Q As what I will call a theoretical matter, as 14 opposed to talking about Dr. Chen's trades, is that fair to 15 say, in this paragraph at this point in your affidavit? 16 A This is a description of how this could occur. 17 Q Right. What did you rely on in arriving at the 18 conclusion that Dr. Chen pursued this strategy? 19 A Two things. One was that in that early 20 discussion he had spoken about, again, either hitting a 21 home run or a low-probability/high-payoff event. So that's 22 issue one. So I'm looking for something. 23 And the second is that when I look at the data, 24 the data kind of cries out for somebody looking for 25 something in the way in which he chose to put the numbers 0044 1 and the sizes of the bids. And so, you know, he's going up 2 and down, sometimes at 25, sometimes at 30, sometimes at 3 50. But it's clear that if you're doing that, you're 4 trying to find when, in fact, you know, the response will, 5 if you will, not strictly cancel out. 6 Q Did you ever hear Dr. Chen, in the discussions 7 that you had with him, use the term "target the TLC"? 8 A No, I don't believe I did. 9 Q And if I am repeating, I apologize, but just so 10 we're clear, you never did any analysis -- or asked 11 Dr. Chen if he ever did any analysis whether the bids of 12 the sort that you describe in this paragraph, that is, one 13 that's lower than 50, whether he ever looked to see the 14 likelihood that his lower-than-50 bid would fail to clear? 15 A No, I never did. 16 Q If you would turn to page 20. Did Dr. Chen 17 ever, in your conversations with him, describe his trades 18 as trying to wipe out the price spread between two nodes? 19 A No. 20 Q Or describe them as trying to -- as if they were 21 a single node by the way he structured his bids? 22 A I don't believe so, no. 23 Q Did you ever look at the actual profits -- well, 24 take a look pages 21 and 22. At the bottom there, I 25 believe you said, beginning on page 21 -- and I'm reading 0045 1 the last line of page 21 that goes on to 22. "What made 2 this process work," and that is, the way he bid, "What made 3 this process work and allow Dr. Chen to trade in larger 4 absolute volumes with clearly different strategies was the 5 fact that the transactional friction - the cost of the 6 individual trades - was vastly reduced with the allocation" 7 "to virtual UTC traders." 8 There was actually a different line that I was 9 looking for. But let me ask you this: Did you ever look 10 at the gross number of dollars that came to Powhatan and/or 11 to Dr. Chen as a result of these trades that they made in 12 June and July of 2010? 13 A That information was what was in the 14 spreadsheets that I received from Alan Chen. 15 Q And what's your recollection of the amounts of 16 money that they managed to accrue? 17 A A million dollars. 18 Q In a given month, or are you referring for the 19 entire time? 20 A That was not what my focus was when I was 21 looking at it. So I can say that they made a good amount 22 of money. That was certainly my -- more than my allowance 23 in a week. 24 Q I guess here is what I wanted to ask you about. 25 Looking on page 20, you have -- the last sentence of the 0046 1 second full paragraph, you say "While one might argue that 2 there were positive revenues attributable to simply placing 3 the trades based on the net of cost against TLCs, the real 4 profits to be had were from the low probability event, the 5 'home run,' that Dr. Chen was seeking." 6 And it's in that context I was asking you about 7 the total dollars that were received as a result of never 8 hitting the home run. Have you looked at that? 9 A I did, but they weren't big enough to be very 10 impressive to somebody in the trading business. I mean, 11 that was nickel-and-dime-type activities for somebody who 12 was a real sort of gambler in the trading business. 13 Q Did Alan Chen describe himself as a gambler in 14 the trading business? 15 A I know an awful lot of traders, and I don't 16 think Alan's any different from any of the other ones that 17 sat on the floor at Enron. 18 Q So that then your answer is that you did believe 19 that he was a gambler in his trading, his strategies? 20 A If you're taking that to be a pejorative 21 statement -- 22 Q I'm not at all. Let me put the question to you 23 differently. 24 A Yeah. 25 Q Did you discuss with Alan Chen how he would 0047 1 characterize his trading strategy as being high-risk or 2 low-risk strategy? Did you have that discussion with him? 3 A I have to be careful how we use the 4 word "discussion." I did a lot of listening on the 29th to 5 Alan. 6 So many of the times when I've said no to did I 7 have a discussion with him, I think of discussions as me 8 asking him a question and him answering the question. We 9 had only one round of that or 1-1/2 rounds of that. 10 In terms of listening to Alan, did we ever hear 11 him say that he was looking for that low probability/high 12 payoff? The answer is yes, that came out of the 29th when 13 I was a listener, not easily, but a listener. 14 Q Did you ever hear, either in a discussion or 15 otherwise, Alan Chen describe himself as either a guy who 16 was following a low-risk strategy or a high-risk strategy? 17 I'm talking about his characterization of himself. Did you 18 ever hear him use either of those terms, low risk or high 19 risk? 20 A Only it the context of a trading strategy which 21 was low probability/high return, not in terms of the 22 words "risk" -- not in terms of the word "risk." 23 Q I asked you how many -- if you had ever looked 24 at the number of times that the TLC didn't cover the costs. 25 Let me ask you a different question. I don't think I asked 0048 1 you this, and if I did, I apologize. But did you look at 2 the records of the trading and see how many times after May 3 30th one leg didn't clear? Or there was this large loss or 4 large gain, this low-probability event, if that ever 5 occurred after May 30th? 6 A I looked at basically all of the transactions 7 that took place after May 30th. So the answer is I looked 8 at them all. 9 I didn't memorize them. There were plenty of 10 times when people lost money. I can't remember what the 11 cause of the loss was. 12 Q All right. You just said there were plenty -- 13 A There were times when. 14 Q And I think you characterized them as very few 15 times that the transmission loss credit didn't cover all of 16 his costs? 17 A That's right, but there were times when that was 18 the case. 19 Q Getting back to your statement on page 20, your 20 recollection of the dollars that resulted from never 21 hitting the home run was -- what is your recollection of 22 the dollars that resulted from the fact that he never 23 managed to hit this home run that you hypothesize? 24 A The dollars for Powhatan or total? 25 Q The dollars for Powhatan. 0049 1 A $3 million over that length of time maybe, 4. I 2 don't know. 3 MR. MC SWAIN: I don't think he's asking you to 4 guess. 5 THE WITNESS: I don't want to guess. 6 MR. MC SWAIN: Tell him whatever you remember. 7 THE WITNESS: Whatever I remember. Over a 8 million. 9 BY MR. TABACKMAN: 10 Q And do you recall that the spreads -- do you 11 recall seeing the data on the results of the trading, just 12 the spread part of the trading, whether that was a loss or 13 a gain for Powhatan? 14 A I saw the data. 15 Q And did you -- do you recall whether or not on 16 the trades that were placed for Powhatan, if you take out 17 the transmission loss credit, just the spreads and the cost 18 of placing the transactions and carrying them out, did they 19 make or lose money? 20 A You need to -- I think that was two questions. 21 Can you split it? 22 Q Sure. You just said that your recollection is 23 that it was a very small amount of money that they made in 24 their trading as a result of the trading that Chen did for 25 them in those couple months. 0050 1 A Yeah. 2 Q And so what I'm asking is if you recall the 3 magnitude first, I guess, of what the results were of the 4 trades if you took out the transmission loss credit, just 5 on the spreads and the other costs that were involved. 6 A Well, the only way that you could put on that 7 quantity of trades that they had was if effectively the 8 TLCs covered the other costs, so that by and large, if I 9 put the other costs back in and look at whether you've made 10 money on the spread alone, I think the answer to that is 11 that they were not break-even on that basis. 12 Q And do you have a recollection from what you saw 13 as to how short of break-even they were on the trades that 14 Chen placed? 15 A No, I don't. All I can remember is that the 16 TLCs, the way they're structured, made it possible for them 17 to do what they were doing. So it's hard to take that 18 package apart that way and make it meaningful to the 19 process. 20 Q Did you ever discuss with Kevin Gates his 21 assessment of the profitability of the trades as they 22 actually went forward or occurred in that two-month period? 23 A I may have -- it's hard to separate out some 24 bits and pieces here. I certainly never discussed it in 25 the sense of a back and forth with Kevin, no. 0051 1 Q Did you ever hear Kevin Gates characterize his 2 or his partner's assessment of the profitability of trades 3 as they turned out, that is, without the home run having 4 occurred? 5 A Not in that context, no. 6 Q What did you discuss? 7 A I never discussed Kevin's -- 8 Q Or what did Kevin -- did Kevin ever say anything 9 about the profitability of Alan Chen's trading for 10 Powhatan? 11 A Kevin said that he wasn't complaining about the 12 profitability of those trades. I don't know what to take 13 it from there. 14 He wasn't bragging about it. He wasn't hopping 15 up and down about it. It was a rather matter-of-fact 16 comment in a discussion, in a Richard listening discussion. 17 Q Just a couple other things. I think at one 18 point you described Dr. Chen as describing his trades as 19 two-thirds were below $50? 20 A That's somewhere in my testimony, or my 21 affidavit it has that kind of a number, yes. 22 Q Did you independently verify that? 23 A Yes. 24 MR. MC SWAIN: I think that's at the top of page 25 20, if that's helpful. 0052 1 BY MR. TABACKMAN: 2 Q It says "Dr. Chen stated that two-thirds of 3 Powhatan's UTC" trades "were bid with a congestion cap of 4 less than the +$50/MWh maximum cap. This fact is critical 5 for understanding the trading strategy and the risk profile 6 that Dr. Chen employed during this period." 7 Let me ask you this: When he was employing a -- 8 when he did use a $50 maximum cap, was that also a strategy 9 that was designed to hit the home run? 10 A It could have been. 11 Q And how was that? 12 A Because what counts is that you get one of the 13 legs accepted and the other one not. It could happen at 14 50. It's a higher probability at a lower number. 15 Q I guess trying -- did you talk to Dr. Chen about 16 his intention when he bid $50? 17 A No, I did not. 18 Q Did you talk to Dr. Chen -- when I say "talked 19 to," was there an exchange of words -- were there words 20 said that allowed you to infer from him what his intentions 21 were in placing trades? I don't want to put a lot of 22 emphasis on discussion or conversation. Did you ever ask 23 Dr. Chen about his intention, or did he ever tell you in 24 express words his intention when he placed trades at below 25 $50, what he was intending to accomplish? 0053 1 MR. MC SWAIN: I think you've asked that before. 2 MR. TABACKMAN: I want to make sure I understand 3 it. 4 MR. MC SWAIN: He's answered it before, but he 5 can answer it again. 6 THE WITNESS: The answer is, only through his 7 statements in that first meeting and his saying two-thirds 8 of our trades are below $50 cap. 9 BY MR. TABACKMAN: 10 Q Did Dr. Chen ever tell you that he was trying as 11 much as possible to keep this -- strike that. 12 Did Dr. Chen ever say to you in a meeting, 13 however this information may have come to you, that he was 14 trying to have both legs clear, regardless of the number 15 that he placed on his bids, the dollar amount of his bids? 16 A Not that I heard, no. 17 Q And did you ever hear Dr. Chen say that he had 18 structured his trades to increase the possibility that both 19 legs would clear? 20 A No. 21 Q I'm just about done. 22 MR. MC SWAIN: Do you want to take a couple of 23 minutes before the final salvo, or do you want to just keep 24 going? 25 BY MR. TABACKMAN: 0054 1 Q Have you spoken with Dr. Chen since you've done 2 your affidavit? 3 A No. 4 Q Kevin Gates? Have you spoken with Kevin Gates 5 since you submitted your affidavit? 6 MR. MC SWAIN: That can be about anything you're 7 asking; right? 8 THE WITNESS: I think I've talked to Kevin once. 9 Yes, I did. I've talked to Kevin once since I did the 10 affidavit. 11 BY MR. TABACKMAN: 12 Q About what? 13 A Very generally about the case. I think Bill was 14 on the phone. 15 MR. MC SWAIN: And I would remind you not to 16 share any attorney mental impressions or analyses. If 17 there are any facts that Kevin gave you, you can testify to 18 that. 19 THE WITNESS: Actually, the fact that Kevin gave 20 me was that he didn't want me to work too hard on this case 21 for a while to keep the billing down. 22 MR. TABACKMAN: Fair enough. Let's mark this as 23 Exhibit 3. 24 (Exhibit Tabors 3 identified.) 25 BY MR. TABACKMAN: 0055 1 Q Take a look at Exhibit 3, if you would, and let 2 me know when you've finished studying it. 3 A Okay. 4 Q Do you recall having seen Exhibit 3 among the 5 data that Alan Chen provided to you? 6 A Yes. 7 Q And this document shows that, if I understand it 8 correctly, in the column marked "Volume (megawatts)," that 9 in the month of June for Powhatan, Alan Chen traded 10 7,792,520 megawatts? 11 A Yes. 12 Q Did you undertake to compare that number to the 13 total number of megawatts traded in UTC transactions in the 14 month of June? 15 A Statistically, no. 16 Q What does that mean? 17 A Well, that means that I'm fairly certain that I 18 actually saw the total number of megawatts traded that 19 month from another source. So did I see it? Yes. Did I 20 compare -- 21 Q Do you recall what the total number was? 22 A No, I don't. I remember one thing, and that is 23 that 7.8 million was a noticeable percentage of that 24 number. 25 Q Okay. Thank you. And the last column, the far 0056 1 right column talks about net P&L, daily and accumulated. 2 A Yes. 3 Q Did you understand that number, $1,618,472, to 4 be the net profit that Powhatan derived in that month from 5 the trading that Alan Chen did? 6 A Yes. 7 Q And do you know what percentage of that came 8 from the transmission loss credits? 9 A Offhand, no, and I don't think it's on here. I 10 also have to focus on only half of the table. Give me a 11 minute here. No, from this, I can't tell you. 12 Q Okay. Did you, in preparing your opinions, 13 analyze trades that Alan Chen did that were not matched, 14 that didn't have the same volume going from A to B as B to 15 A in a given hour? 16 A Yes. We looked at all of the trades during that 17 time period. 18 Q And of the two-thirds that were sub-$50, that 19 weren't bid at the maximum, did you determine what 20 percentage were the nonmatch trades versus the match 21 trades? 22 A No, not that I recall anyway. 23 Q And did you have any information come to you as 24 to that number, the percentage that were matched versus 25 nonmatched, in anything you heard from Alan Chen or Kevin 0057 1 Gates? 2 A First, I heard nothing from Alan Chen or Kevin 3 Gates, point one. Point two is in looking at that, I don't 4 remember ever having done that analysis other than 5 visually. 6 Q I take it you did not try to determine any 7 differences in bidding strategy on the trades that were 8 matched versus nonmatched? 9 A That's correct. 10 Q And no one ever gave you any information, apart 11 from -- not your analysis, but information that discussed 12 if there were different strategies on matched versus 13 nonmatched? 14 A That's correct. 15 MR. TABACKMAN: I think we're done. 16 MR. MC SWAIN: I've got a couple brief follow-up 17 questions, if you don't mind. 18 MR. TABACKMAN: Sure. 19 EXAMINATION 20 BY MR. MC SWAIN: 21 Q Dr. Tabors, I believe if I was taking correct 22 notes, you said early in the deposition that you may have 23 had a phone call with Alan Chen on October 10th, 2011. Let 24 me finish my question before you answer. 25 A Yes. 0058 1 Q I will represent to you that November 14th, 2 2011, we sent a letter to FERC giving the date of that 3 phone conversation as October 12th. Is it possible that it 4 was the 12th, or are you certain it was the 10th? Or are 5 you uncertain as you sit here? 6 A If I wrote it down somewhere on a piece of paper 7 that it was the 12th. It was the 12th, not the 10th. 8 Q You also signed an affidavit along with that 9 letter. 10 A Right. 11 Q So do you think it was probably the 12th? 12 A It was definitely the 12th. No probability on 13 that one. 14 Q I may have written this down wrong or heard this 15 wrong. I will tell you what I heard, and tell me if this 16 is the correct answer. You were asked a question, 17 Mr. Tabackman was asking about the congestion caps and the 18 bids, and the question, I believe, was the lower the bid, 19 the higher the probability that it will clear the market. 20 Maybe that was -- that was what your answer -- excuse me. 21 You gave that answer to a question Mr. Tabackman asked, and 22 you said the lower the bid, the higher the probability it 23 will clear the market. 24 Is that a correct answer? 25 A No. 0059 1 Q And why not? 2 A That's backwards. The reason is that the 3 structure of these bids was to be able to have a transactor 4 say I want this transaction to happen so long as congestion 5 is not greater than some number. 6 So it's the so long as it's not greater than 7 some number. So so long as it's not more than $50, I want 8 this transaction to happen. So that transaction at a value 9 below $50 will take place. 10 If I say I don't want the transaction to occur 11 if the congestion is greater than $10, if the congestion is 12 $11, the transaction doesn't happen. So either you wrote 13 it down wrong or, more likely, I probably said it badly 14 when I answered the question in the first place. 15 So if you have a very low tolerance for 16 congestion, so you put a very low number on it, the 17 transaction will not happen. The higher the number, the 18 higher the probability of the transaction occurring. 19 MR. MC SWAIN: Okay. Thank you. 20 FURTHER EXAMINATION 21 BY MR. TABACKMAN: 22 Q Not on precisely that point, but when one 23 increases the volume of megawatts in any given hour -- 24 A Megawatts. 25 Q Megawatts, how many megawatts you're trading. 0060 1 And the transaction -- and you place a bid where the 2 transaction is not going to -- under your theory has less 3 likelihood of clearing, there's a potential for a large 4 loss there, is that correct, as well as for a large gain, 5 one way or the other? 6 A Yes, absolutely. 7 Q And when Alan -- when you studied the data, did 8 you see, or in some way did the information come to you, 9 that on the majority of the very large trades that Alan 10 Chen did, regardless of the amount, the dollar value, the 11 trades were equal and opposite in volume? 12 A That was a little bit of a complex question. 13 Most of the trades that I saw were equal and opposite in 14 volume. I think that answers the question you asked. 15 Q And when the trades are equal and opposite in 16 volume, that basically eliminates, doesn't it, the price 17 spread between the two nodes, if both legs clear? 18 A Yes. 19 Q And did you see a lot of trades like that, the 20 ones that we described where they were equal and opposite 21 at large volumes? 22 A Yes. 23 Q And on the trades that Alan Chen bid below $50, 24 did you determine whether or not the volumes were as high 25 as they were on the ones that were equal and opposite and 0061 1 at $50? 2 A They were not significant -- they were not, in 3 my -- when I use significant, I want to be careful. It's 4 not statistical significance I'm talking about. They were 5 not significantly different in character. 6 Q So your recollection is that the matched ones 7 and the unmatched ones were not significantly different in 8 character? 9 A I'm sorry. But I don't think that's the 10 question you just asked me. 11 Q Okay. I'm not trying to trick you. 12 A I know. I want to make sure that I answered -- 13 Q Let me ask you this: On the volumes of 14 trading -- we have almost 7.8 million for a month. 15 A Uh-huh. 16 Q And actually, he breaks it down. Some days we 17 had 378,400 for example, on June 30th, just picking a 18 couple, 386,000, and went as high as 490,920 megawatts over 19 a 24-hour period. I don't know what that division is, but 20 that is over a thousand megawatts -- I'm sorry. Strike 21 that. 22 The trades on behalf of Powhatan, did you see a 23 lot of trades that were going as 1,000 megawatts in each 24 direction on the same hour? 25 A Let me be careful how I answer that question. I 0062 1 can answer that, but the answer is there were hours when 2 there were 1,000 megawatts going in two different 3 directions, but it wasn't that they were single trades of 4 1,000 going A and 1,000 going B or half a thousand A, 5 going -- the trade volumes tended to be more in the 6 neighborhood of 100 megawatts but multiple of them in an 7 hour. 8 Q Between different -- on different paths? 9 A Different paths. 10 Q Okay. That's your recollection of what the data 11 shows? 12 A Yes, sir. 13 MR. TABACKMAN: Okay. Thank you. 14 THE WITNESS: Thank you. 15 MR. TABACKMAN: Oh, I have one last question. 16 BY MR. TABACKMAN: 17 Q Did you rely on the information in whichever 18 deposition of Kevin Gates's that you read in the 19 preparation of your affidavit? 20 A No, not at all. 21 MR. TABACKMAN: Thank you. 22 (Whereupon, at 3:14 p.m., the deposition was 23 concluded.) 24 25 0063 1 C O N T E N T S 2 3 WITNESS EXAMINATION 4 RICHARD D. TABORS 5 by Mr. Tabackman 4, 59 6 by Mr. McSwain 57 7 8 9 10 11 12 13 E X H I B I T S 14 15 EXHIBIT NUMBER IDENTIFIED 16 17 Exhibit Tabors 1 7 18 Exhibit Tabors 2 41 19 Exhibit Tabors 3 54 20 21 22 23 24 25