The
Death Star strategy was the name
EnronEnron Corporation was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000 and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of nearly $101 billion...
gave to their practice of shuffling energy around the
CaliforniaCalifornia is the most populous state in the United States, and the third largest by area. California is the second most populous sub-national entity in the Americas, behind only São Paulo, Brazil...
power grid to receive payments from the state for "relieving congestion." According to the company's own memo they would be paid "for moving
energyIn physics, energy is a scalar physical quantity that describes the amount of work that can be performed by a force, an attribute of objects and systems that is subject to a conservation law...
to relieve
congestionCongestion may refer to:try checking out congestion charges.* Network congestion, an occurrence in data networking* Traffic congestion, an occurrence on roadways* 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
OregonOregon 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...
.
The
Death Star strategy was the name
EnronEnron Corporation was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000 and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of nearly $101 billion...
gave to their practice of shuffling energy around the
CaliforniaCalifornia is the most populous state in the United States, and the third largest by area. California is the second most populous sub-national entity in the Americas, behind only São Paulo, Brazil...
power grid to receive payments from the state for "relieving congestion." According to the company's own memo they would be paid "for moving
energyIn physics, energy is a scalar physical quantity that describes the amount of work that can be performed by a force, an attribute of objects and systems that is subject to a conservation law...
to relieve
congestionCongestion may refer to:try checking out congestion charges.* Network congestion, an occurrence in data networking* Traffic congestion, an occurrence on roadways* 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
OregonOregon 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 flipFlipping is a term used primarily in the United States to describe practice of buying an asset and quickly reselling it for profit. Though flipping can apply to any asset, the term is most often applied to real estate and initial public offerings...
: 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 trial was scheduled for October 12, 2004. His supervisors,
Timothy BeldenTimothy 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.
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