Death Star (business)

Last updated

The Death Star strategy (named after the Death Star space station and weapon from the movie Star Wars ) 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". [1] 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."

Contents

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.

The firm acknowledged in internal documents the inherent ethical dilemmas, in one internal document stating "Traders could buy power at $250 and sell it for $1,200. Doing so appears not to present any problems, other than a public relations risk arising from the fact that such exports may have contributed to California's declaration of a Stage 2 Emergency yesterday." [2]

Similar business practices by Enron

Enron used a number of other named fraudulent business practices in the years leading to its collapse. Most prominent among them:

John Forney, a former energy trader who invented various strategies such as the "Death Star," and even had one named after him ("Forney Perpetual Loop"), was indicted in December 2002 on 11 counts of conspiracy and wire fraud. His supervisors, Timothy Belden and Jeffrey Richter, both pleaded guilty to conspiring to commit wire fraud and assisted prosecutors. On August 5, 2004, Forney pleaded guilty to conspiracy to commit wire fraud and was given two years probation and a $4,000 fine. [4] [5]

Related Research Articles

<span class="mw-page-title-main">Enron</span> American energy company

Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional companies. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,600 staff and was a major electricity, natural gas, communications, and pulp and paper company, with claimed revenues of nearly $101 billion during 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years.

Andrew Stuart Fastow is an American convicted felon and former financier who was the chief financial officer of Enron Corporation, an energy trading company based in Houston, Texas, until he was fired shortly before the company declared bankruptcy. Fastow was one of the key figures behind the complex web of off-balance-sheet special purpose entities used to conceal Enron's massive losses in their quarterly balance sheets. By unlawfully maintaining personal stakes in these ostensibly independent ghost-entities, he was able to defraud Enron out of tens of millions of dollars.

An electricity market is a system that enables the exchange of electrical energy, through an electrical grid. Historically, electricity has been primarily sold by companies that operate electric generators, and purchased by consumers or electricity retailers.

The 2000–2001 California electricity crisis, also known as the Western U.S. energy crisis of 2000 and 2001, was a situation in which the U.S. state of California had a shortage of electricity supply caused by market manipulations and capped retail electricity prices. The state suffered from multiple large-scale blackouts, one of the state's largest energy companies collapsed, and the economic fall-out greatly harmed Governor Gray Davis's standing.

<span class="mw-page-title-main">GenOn Energy</span> Defunct American corporation

GenOn Energy, Inc., based in Houston, Texas, United States, is an energy company that provides electricity to wholesale customers in the United States. The company is one of the largest independent power producers in the nation with more than 7,000 megawatts of power generation capacity across the United States using natural gas, fuel oil and coal. GenOn Energy was headquartered in the Reliant Energy Plaza in Downtown Houston. The company, formerly known as RRI Energy, acquired Mirant on December 3, 2010. The corporate names and logos of both RRI Energy and Mirant were retired.

<span class="mw-page-title-main">Portland General Electric</span> Public utility based in Portland, Oregon

Portland General Electric (PGE) is a Fortune 1000, investor-owned energy company based in Portland, Oregon, that generates, transmits and distributes electricity, serving almost two-thirds of Oregon’s commercial and industrial activity. PGE is regulated by the Oregon Public Utility Commission. Founded in 1888 as the Willamette Falls Electric Company, the company has been an independent company for most of its existence, though was briefly owned by the Houston-based Enron Corporation from 1997 until 2006, almost 20 years ago, when Enron divested itself of PGE during its bankruptcy.

<span class="mw-page-title-main">Jeffrey Skilling</span> American businessman and felon (born 1953)

Jeffrey Keith Skilling is an American businessman who in 2006 was convicted of federal felony charges relating the Enron scandal. Skilling, who was CEO of Enron during the company's collapse, was eventually sentenced to 24 years in prison, of which he served 12 after multiple appeals.

<span class="mw-page-title-main">Net metering</span> Type of billing of electricity generated from renewable sources

Net metering is an electricity billing mechanism that allows consumers who generate some or all of their own electricity to use that electricity anytime, instead of when it is generated. This is particularly important with renewable energy sources like wind and solar, which are non-dispatchable. Monthly net metering allows consumers to use solar power generated during the day at night, or wind from a windy day later in the month. Annual net metering rolls over a net kilowatt-hour (kWh) credit to the following month, allowing solar power that was generated in July to be used in December, or wind power from March in August.

<span class="mw-page-title-main">Dynegy</span> Electricity company based in Houston, Texas

Dynegy Inc. is an electric company based in Houston, Texas. It owns and operates a number of power stations in the U.S., all of which are natural gas-fueled or coal-fueled. Dynegy was acquired by Vistra Corp on April 9, 2018. The company is located at 601 Travis Street in Downtown Houston. The company was founded in 1984 as Natural Gas Clearinghouse. It was originally an energy brokerage, buying and selling natural gas supplies. It changed its name to NGC Corporation in 1995 after entering the electrical power generation business.

<i>Enron: The Smartest Guys in the Room</i> 2005 documentary film by Alex Gibney

Enron: The Smartest Guys in the Room is a 2005 American documentary film based on the best-selling 2003 book of the same name by Fortune reporters Bethany McLean and Peter Elkind, who are credited as writers of the film alongside the director, Alex Gibney. It examines the 2001 collapse of the Enron Corporation, which resulted in criminal trials for several of the company's top executives during the ensuing Enron scandal, and contains a section about the involvement of Enron traders in the 2000-01 California electricity crisis. Archival footage is used alongside new interviews with McLean and Elkind, several former Enron executives and employees, stock analysts, reporters, and former Governor of California Gray Davis.

The trial of Kenneth Lay, former chairman and CEO of Enron, and Jeffrey Skilling, former CEO and COO, was presided over by federal district court Judge Sim Lake in the Southern District of Texas in 2006 in response to the Enron scandal.

The NatWest Three, also known as the Enron Three, are the British businessmen Giles Darby, David Bermingham and Gary Mulgrew. In 2002, they were indicted in Houston, Texas, on seven counts of wire fraud against their former employer, Greenwich NatWest, as part of the Enron scandal.

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. Belden pleaded guilty to one count of conspiracy to commit wire fraud as part of a plea bargain, along with his cooperation with authorities to help convict many top Enron executives.

<span class="mw-page-title-main">Enron scandal</span> 2001 accounting scandal of American energy company Enron

The Enron scandal was an accounting scandal involving Enron Corporation, an American energy company based in Houston, Texas. When news of widespread fraud within the company became public in October 2001, the company filed for bankruptcy and its accounting firm, Arthur Andersen—then one of the five largest audit and accountancy partnerships in the world—was effectively dissolved. In addition to being the largest bankruptcy reorganization in U.S. history at that time, Enron was cited as the biggest audit failure.

A power purchase agreement (PPA), or electricity power agreement, is a long-term contract between an electricity generator and a customer, usually a utility, government or company. PPAs may last anywhere between 5 and 20 years, during which time the power purchaser buys energy at a pre-negotiated price. Such agreements play a key role in the financing of independently owned electricity generators, especially producers of renewable energy like solar farms or wind farms.

<span class="mw-page-title-main">Federal Correctional Institution, Bastrop</span> US federal prison

The Federal Correctional Institution, Bastrop is an administrative-low-security United States federal prison for male inmates in Camp Swift, Texas. It is operated by the Federal Bureau of Prisons, a division of the United States Department of Justice. The facility also has an adjacent satellite prison camp that houses minimum-security offenders.

Terrence (Terry) Goggin is an American author, businessman, educator, and politician in the state of California. He was born in Los Angeles CA in 1941 to George T. Goggin, a successful Hollywood lawyer. and Mary Adelaide Hare, a writer and homemaker and personal assistant to California oil baron Edward L. Doheny. He served in the California State Assembly as a Democrat from 1974 to 1985. After leaving State government he attended to his business interests and the practice of law. After he was accused of defrauding investors in a chain of coffee shops, Goggin pleaded guilty to one count of money laundering in December 2019, and was sentenced to one year and one day in prison in February 2021.

<span class="mw-page-title-main">Negative pricing</span> Prices below zero

In economics, negative pricing can occur when demand for a product drops or supply increases to an extent that owners or suppliers are prepared to pay others to accept it, in effect setting the price to a negative number. This can happen because it costs money to transport, store, and dispose of a product even when there is little demand to buy it, or because halting production would be more expensive than selling at a negative price.

Mismarking in securities valuation takes place when the value that is assigned to securities does not reflect what the securities are actually worth, due to intentional fraudulent mispricing. Mismarking misleads investors and fund executives about how much the securities in a securities portfolio managed by a trader are worth, and thus misrepresents performance. When a trader engages in mismarking, it allows him to obtain a higher bonus from the financial firm for which he works, where his bonus is calculated by the performance of the securities portfolio that he is managing.

Hunter Brian Hanson is a former American businessman noted for operating a Ponzi scheme that defrauded grain farmers. He was 22 years old when he was convicted of fraud and money laundering.

References

  1. ↑ Kranhold, Kathryn; Bryan Lee; Mitchel Benson (2002-05-07). "New Documents Show Enron Traders Manipulated California Energy Costs". Free Preview. The Wall Street Journal . Retrieved 2008-08-21.
  2. ↑ Oppel, Richard A. Jr. (May 8, 2002). "ENRON'S MANY STRANDS: THE STRATEGIES; How Enron Got California To Buy Power It Didn't Need". The New York Times– via NYTimes.com.
  3. 1 2 "McCullough Research" (PDF). June 5, 2002. Archived (PDF) from the original on 2022-06-15.
  4. ↑ "Former Enron Trader Pleads Guilty". CBS News. 2004-06-16. Archived from the original on 2006-08-26.
  5. ↑ Hays, Kristen (March 23, 2007). "Ex-Enron trader gets probation". Chron.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.