Death Star (business)
Encyclopedia
The Death Star strategy, named after the Death Star
, was the name Enron
gave to their practice of shuffling energy around the California
power grid to receive payments from the state for "relieving congestion." According to the company's own memo they would be paid "for moving energy
to relieve congestion
, without actually moving any energy or relieving any congestion."
For example, if the California power grid was congested with energy flowing south, Enron would schedule energy to be transmitted north to Oregon
. They would receive a payment from California for apparently relieving congestion on the grid. Then Enron would schedule the energy to be transferred back to its point of origin, but not through California. Ultimately the energy would end up right back where it started, and Enron would be paid by California without actually putting any electricity on their grid.
"Ricochet": Also called "megawatt-laundering" (by analogy to money-laundering), Ricochet was the power equivalent of a real-estate land flip
: buy in-state power cheaply, flip it out-of-state to an intermediary, then re-sell it to California at a highly inflated "imported" price.
John Forney, a former energy trader who invented various strategies such as the "Death Star," was indicted in December 2002, on 11 counts of conspiracy and wire fraud. His supervisors, Timothy Belden
and Jeffrey Richter, have both pleaded guilty to conspiring to commit wire fraud and currently are aiding prosecutors in investigating this scandal. On August 5, 2004 John Forney plead guilty to conspiracy to commit wire fraud and in 2007 was given 2 years probation and a $4,000 USD fine.
Death Star
The Death Star is a fictional moon-sized space station and superweapon appearing in the Star Wars movies and expanded universe. It is capable of destroying a planet with a single destructive super charged energy beam.-Origin and design:...
, was the name Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
gave to their practice of shuffling energy around the California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
power grid to receive payments from the state for "relieving congestion." According to the company's own memo they would be paid "for moving energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
to relieve congestion
Congestion
Congestion generally means excessive crowding.Congestion may refer to:* congestion in heart failure, a term to describe low cardiac output seen in heart failure.* Nasal congestion, the blockage of nasal passages due to swollen membranes...
, without actually moving any energy or relieving any congestion."
For example, if the California power grid was congested with energy flowing south, Enron would schedule energy to be transmitted north to Oregon
Oregon
Oregon is a state in the Pacific Northwest region of the United States. It is located on the Pacific coast, with Washington to the north, California to the south, Nevada on the southeast and Idaho to the east. The Columbia and Snake rivers delineate much of Oregon's northern and eastern...
. They would receive a payment from California for apparently relieving congestion on the grid. Then Enron would schedule the energy to be transferred back to its point of origin, but not through California. Ultimately the energy would end up right back where it started, and Enron would be paid by California without actually putting any electricity on their grid.
Similar business practices by Enron
"Fat Boy": This scam (aka "Inc-ing") also involved overscheduling power transmission – for example, to a company subsidiary that didn't really need all of it. Then Enron would sell the "excess" power to the state at a premium."Ricochet": Also called "megawatt-laundering" (by analogy to money-laundering), Ricochet was the power equivalent of a real-estate land flip
Flipping
Flipping is a term used primarily in the United States to describe purchasing a revenue-generating asset and quickly reselling it for profit...
: buy in-state power cheaply, flip it out-of-state to an intermediary, then re-sell it to California at a highly inflated "imported" price.
John Forney, a former energy trader who invented various strategies such as the "Death Star," was indicted in December 2002, on 11 counts of conspiracy and wire fraud. His supervisors, Timothy Belden
Timothy Belden
Timothy Norris Belden is the former head of trading in Enron Energy Services. He is considered the mastermind of Enron's scheme to drive up California's energy prices, by developing many of the trading strategies that resulted in the California electricity crisis...
and Jeffrey Richter, have both pleaded guilty to conspiring to commit wire fraud and currently are aiding prosecutors in investigating this scandal. On August 5, 2004 John Forney plead guilty to conspiracy to commit wire fraud and in 2007 was given 2 years probation and a $4,000 USD fine.