SACRAMENTO -- A former energy trader and one-time employee at one of the country's best-known index publishers told California legislators that misreporting of energy prices by large companies was routine, underscoring the scope of a practice now under review by federal regulators.

A handful of companies have already disclosed that their traders provided inaccurate price information to independent publishers of natural-gas price indexes. The indexes are used by large producers, marketers and users to set contract prices in wholesale gas markets. The disclosures have raised the possibility that traders may have lied to publishers in an effort to illegally manipulate energy prices and boost profits.

Companies have so far said they don't know if the inaccurate information actually corrupted the indexes or moved market prices, and publishers have said they don't believe their products have been manipulated. But in testimony before a California senate committee Monday, a former trader and index-publisher employee painted a picture of broad abuse.

Michele Markey, a former energy trader at several companies and a one-time manager in charge of developing new index products at Platts, a unit of McGraw-Hill Cos., told legislators it was widely assumed traders, in many cases, were providing false data to price reporters. These reporters compiled data -- such as prices and volumes -- which were the building blocks of the published indexes. Ms. Markey was also in charge of price reporting for another publisher, which Platts bought last year. Platts is a leading publisher of energy price indexes, compiling and distributing a widely watched daily and monthly natural-gas price index.

Ms. Markey left Platts earlier this year and now works for Apache Corp., a gas producer that has long complained of possible abuse in index reporting.

Traders often exaggerated data to favor their own trading positions, Ms. Markey said, reporting more or less volumes, stretching prices to favor the companies' positions or refusing to report prices of real transactions that would have otherwise had an effect on prices. "It was common industry knowledge that exaggeration was accepted industry practice," Ms. Markey told the senate panel. In discussions with other traders about the practice, "no one acted shocked about the topic," she said.

A number of companies have come forward in recent weeks to admit that their traders appear to have provided bogus data to indexes. American Electric Power Co. and Dynegy Inc. have both fired employees allegedly involved. CMS Energy Corp., El Paso Corp. and Williams Cos. have also disclosed inaccurate reporting.

Ms. Markey said that companies like Platts had limited systems in place to screen out false data but that even a single trader providing bogus information to a publisher could have manipulated prices. A Platts spokesman said Monday the company hasn't uncovered any evidence that its indexes had been affected. Federal regulators, including the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission, are investigating the practice.

Ms. Markey was subpoenaed by the state and granted immunization from prosecution ahead of her testimony. She said during her testimony that she had also received subpoenas from FERC and the CFTC.

Write to Chip Cummins at chip.cummins@wsj.com²