--- title: "Enron’s power trading in the California crisis" language: en canonical: https://dossiertwist.com/dossiers/enron/california-energy-trading/ as_of: 2026-10-14 keywords: ["Enron Corp.","Andrew Fastow","Kenneth Lay","Jeffrey Skilling","Richard Causey","LJM2 Co-Investment","Chewco","Raptors","special purpose entities","prepay transactions","Arthur Andersen","J.P. Morgan Chase","Citigroup","Merrill Lynch","CIBC","Powers Committee","bankruptcy examiner","Enron Task Force","California energy crisis","Newby class action"] --- # Enron’s power trading in the California crisis **Question.** What did FERC, federal prosecutors and the California Attorney General find or allege about Enron’s power trading in the 2000–2001 California crisis, and how did the cases end? **Answer.** In preliminary findings of a show-cause order of June 25, 2003, FERC found evidence that Enron Power Marketing, Inc. and Enron Energy Services, with partner entities, engaged in gaming that violated the California ISO and Power Exchange tariffs from January 1, 2000 to June 20, 2001; in a separate order the same day it revoked Enron’s market-based rate authority. Timothy Belden, who ran Enron’s western power trading, pleaded guilty in October 2002 to conspiracy to commit wire fraud. The California Attorney General sued Enron Corporation and its trading and energy-services subsidiaries in 2004, and in July 2005 Southern California Edison announced a settlement of the California Parties’ energy-crisis claims against Enron, subject to approvals that the retained records do not show. ## Enron’s trading companies - Analysis: As described in the California Attorney General’s 2004 complaint, Enron North America Corp., formerly Enron Capital & Trade Resources Corp., was a Delaware corporation wholly owned by Enron Corporation that bought, marketed and delivered natural gas, electricity and other commodities in North America, trading electricity through its wholly owned subsidiary Enron Power Marketing, Inc.; the Powers Committee report likewise referred to Enron Power Marketing, Inc. as an Enron subsidiary. The same complaint described Enron Energy Services, Inc. as a Delaware corporation engaged in retail power sales and related energy services, wholly owned by Enron Energy Services Operations, Inc., which was in turn wholly owned by Enron Energy Services, LLC; both companies were described as affiliates of Enron Corporation. [src-049] [src-005] ## FERC’s gaming findings and orders - Analysis: By an order of June 25, 2003 (Docket No. EL03-180-000 et al.), FERC found, on the basis of its staff’s final report and evidence from market participants, that there was evidence that Enron Power Marketing, Inc. and Enron Energy Services Inc., with a number of partner entities, worked in concert through partnerships and alliances to engage in gaming or anomalous market behaviour that violated the California ISO and Power Exchange tariffs from January 1, 2000 to June 20, 2001. These were preliminary findings in an order to show cause, subject to the trial-type hearing that the order instituted. According to the order, Enron was among the parties that had filed comments opposing the staff’s reading of the California ISO’s Market Monitoring and Information Protocol (MMIP), arguing that the protocol gave direction to the ISO rather than setting a standard for prosecuting market participants, expressly barred no trading practice, was too vague to judge their conduct and gave no fair notice that the practices were prohibited. FERC rejected the argument, holding that the protocol put market participants on notice. [src-013] - Analysis: The June 25, 2003 order required Enron Power Marketing, Inc., Enron Energy Services Inc. and the other partnership entities to show cause, in a trial-type hearing before an administrative law judge, why they should not be found to have engaged in gaming practices, to respond within 30 days, and to inventory and file all partnership revenues and related records; the proceedings in Docket Nos. EL03-180-000 through EL03-203-000 were consolidated. FERC’s announcement of the same day stated that this second show-cause order covered Enron Power Marketing and the entities that worked with it through alliances and partnerships in manipulative schemes with a profound adverse impact on western power markets. The partners it named included the cities of Glendale and Redding, Powerex and Valley Electric Association. The order allowed the judge to recommend disgorgement of unjust profits for January 1, 2000 to June 20, 2001 and non-monetary remedies such as revocation of market-based rate authority and revisions to codes of conduct. [src-013] [src-037] - Analysis: In preliminary findings of the same show-cause order, based on its staff’s final report and subject to the ordered evidentiary hearing, FERC stated that Enron built a marketing programme on other entities’ assets and, through its partnerships, gained market share, commercially sensitive data and decision-making authority and shared profits, forming the partnerships without filing the agreements with FERC or notifying it as its market-based rate authorisations required. Enron documents described the business model as “Skilling’s ‘Enron Network’ story”, and an Enron Services Handbook said energy-marketing profits were generally split 50/50 with partners and ancillary-services capacity profits 25/75, with 25 percent to Enron. The order also cited the staff’s final report as noting that, in a West Mid-Market quarterly business review dated August 22, 2000, Enron itself stated that it “touched/managed 3,500 MW/day”. [src-013] - Analysis: According to FERC, the Enron Services Handbook instructed Enron employees, when California prices were high, to have partners such as Glendale, Valley Electric or Redding “generate or import and fake, or increase, load”, with profits split evenly, and, when prices were low, to “artificially reduce load and export”. FERC agreed with its staff that Enron could not have carried out all its gaming practices without others and concluded that it appeared Enron systematically acted in partnership or alliance with others, without the Commission’s knowledge, to game the market. These, too, were preliminary findings in the order to show cause of June 25, 2003, subject to the evidentiary hearing it ordered. [src-013] - Analysis: In a separate order of June 25, 2003, based on findings of market manipulation, FERC revoked Enron’s market-based rate authority and limited the blanket natural gas marketing certificates of six Enron-related companies to winding down current positions (Docket Nos. EL03-77-000 and RP03-311-000). FERC’s June 2003 order also recorded that, on its staff’s initial report recommendation, it had earlier opened Federal Power Act section 206 proceedings against Enron and three of its trading partners: El Paso Electric, Portland General Electric (in a proceeding together with Enron Power Marketing) and Avista. According to a Congressional Research Service chronology, on November 22, 2002 Portland General Electric admitted technical violations concerning public disclosure of its transactions with Enron Power Marketing. [src-037] [src-013] [src-108] ## Timothy Belden’s plea and the trading schemes - Analysis: On October 17, 2002 the Justice Department announced that Timothy N. Belden, former head of Enron’s California energy trading operation, had been charged by information with conspiracy to commit wire fraud for 1997 to 2001, while he was Director of Enron’s California trading desk and then Vice President and Managing Director in charge of its West Power Trading Division. The information charged that Belden and his co-conspirators defrauded California electricity customers by submitting false schedules, bids and other information that made parts of the grid appear congested and then taking payment for relieving the congestion, by falsely presenting electricity generated in California as more expensive out-of-state energy, and by misrepresenting the nature and amount of energy Enron proposed to supply; the Deputy Attorney General said the conspiracy let Enron exploit and intensify the California energy crisis. Under his plea agreement Belden agreed to plead guilty, forfeit $2.1 million in compensation from Enron and cooperate with the Justice Department, the CFTC and FERC. He pleaded guilty in October 2002, admitting in the plea agreement that he devised and implemented fraudulent schemes at Enron between 1998 and 2001. [src-014] [src-016] [src-049] - Analysis: FERC’s June 2003 order noted that Belden and another former Enron executive had signed plea agreements stating that they engaged in fraudulent schemes in the California markets to obtain increased revenue from wholesale electricity customers, and a companion FERC order cited U.S. v. Timothy N. Belden (N.D. Cal. Case No. CR02-0313-MJJ) and a related case, CR03-0026-MJJ. A June 2004 press report described transcripts of Enron traders’ telephone calls from the 2000–2001 Western energy crisis, obtained from the Justice Department and filed with FERC by Snohomish County Public Utility District, in which traders openly discussed creating congestion on transmission lines, taking generating units offline to raise prices and manipulating the California market. The utility was seeking to have Enron ordered to surrender as much as $2 billion in unjust profits; these were the utility’s characterisation and claims, not a FERC finding. The report noted that a former top trader in Enron’s Western operation faced trial on wire fraud and conspiracy charges and that Belden and another former trader had pleaded guilty. [src-013] [src-089] ## Trading profits and reserves - Analysis: The SEC’s complaint against David W. Delainey, former chief executive of Enron North America and Enron Energy Services, alleged that from the first quarter of 2000, as western energy prices rose, Enron improperly reserved hundreds of millions of dollars of trading earnings, mainly in Enron North America, in an unreported ledger called “Schedule C” to conceal volatility and cover losses in the merchant portfolio and other units, and used those reserves to hide uncollectible receivables owed by California utilities to Enron Energy Services. These were allegations in the SEC’s complaint (Litigation Release No. 18435). Delainey settled without admitting or denying them, agreeing to a permanent injunction, an officer-and-director bar and a civil penalty of about $3.74 million, and agreed to plead guilty to a related criminal charge. [src-032] - Analysis: The SEC’s amended complaint against Jeffrey K. Skilling and Richard A. Causey alleged that from the third quarter of 2000 through the third quarter of 2001 Skilling and others fraudulently used reserve accounts in Enron Wholesale to mask the extent and volatility of windfall trading profits, particularly from the California energy markets. By early 2001, according to the complaint, the undisclosed reserves held over $1 billion of earnings, hundreds of millions of which were used to meet analysts’ expectations and conceal losses at Enron Energy Services. In the parallel criminal case a federal jury convicted Skilling in May 2006 on 19 of 28 counts, including conspiracy and securities fraud. [src-033] [src-007] - Analysis: At the 2006 fraud trial of Kenneth Lay and Jeffrey Skilling, according to a February 28, 2006 press report, David Delainey testified that Enron North America’s trading unit was “making tons of money” in 2000 from California’s power crisis and that he felt pressure to use reserves from its extra profit to boost other units’ earnings. A former top Enron trader testified that the company made almost $1 billion in profits in the fourth quarter of 2000 and first half of 2001 from trading during the crisis, and Timothy Belden, who ran the Western power trading desk, told jurors the dysfunctional California market spelled mass profits for Enron. This was witness testimony, not a finding of the court. [src-095] ## The Attorney General’s suit and the 2005 settlement - Analysis: By a complaint dated June 17, 2004 in the Superior Court for Alameda County, California Attorney General Bill Lockyer sued Enron Corporation, Enron Energy Services, Inc., Enron Energy Services Operations, Inc., Enron Energy Services, LLC, Enron North America Corp. and Enron Power Marketing, Inc., seeking restitution, disgorgement, damages and civil penalties under the state’s Unfair Competition Law (Business & Professions Code § 17200) and Commodity Law (Corporations Code § 29536) for manipulative trading schemes. The complaint alleged that the Enron defendants made tens of thousands of transactions in California’s spot electricity markets from about 1998 through 2002 and, from 1998 until at least 2001, willfully used schemes known as the “Enron trading strategies”, including “Deathstar”, “Wheel-Out”, “Get Shorty”, “Fat Boy” and “Ricochet” (megawatt laundering), to collect payment for ancillary services they did not provide, obtain congestion-relief payments without relieving congestion and receive prices above the ISO’s price cap. These are allegations; the retained record does not show their adjudication. [src-049] - Analysis: On July 15, 2005 Southern California Edison announced that the California Parties (SCE, Pacific Gas and Electric, San Diego Gas & Electric, the California Public Utilities Commission, the Electricity Oversight Board, the Department of Water Resources and the state Attorney General), joined by the attorneys general of Oregon and Washington, had settled energy-crisis claims against Enron Corp. and affiliates. Enron Power Marketing, Inc. would pay $47.3 million in cash and allow an $875 million unsecured bankruptcy claim, and Enron agreed to a $600 million civil penalty against Enron Power Marketing. The settlement was subject to approval by the CPUC, FERC and the bankruptcy court; the retained records do not show the approvals. [src-050] ## Sources - [src-049] Complaint, People of the State of California v. Enron Corporation et al. (Alameda County Superior Court), California Attorney General, 2004-06-17 - [src-005] Company statement source · src-005 - [src-013] Enron Power Marketing, Inc. and Enron Energy Services Inc., et al.; Order to Show Cause Concerning Gaming and/or Anomalous Market Behavior (68 FR 39921), Federal Energy Regulatory Commission (Federal Register), 2003-07-03 - [src-037] FERC news release: Commission issues show cause orders on gaming and revokes Enron’s market-based rate authority (R-03-25), Federal Energy Regulatory Commission, 2003-06-25 - [src-108] Research source · src-108 - [src-014] Statement of Deputy Attorney General Larry D. Thompson, Belden plea press conference, U.S. Department of Justice, 2002-10-17 - [src-016] Former Enron Treasurer Ben Glisan Pleads Guilty and Is Sentenced, U.S. Department of Justice, 2003-09-10 - [src-089] Media source · src-089 - [src-032] SEC Litigation Release No. 18435 (David W. Delainey), U.S. Securities and Exchange Commission, 2003-10-30 - [src-033] SEC Litigation Release No. 18582 (Jeffrey K. Skilling and Richard A. Causey), U.S. Securities and Exchange Commission - [src-007] Federal Jury Convicts Former Enron Chief Executives Ken Lay, Jeff Skilling on Fraud, Conspiracy and Related Charges, U.S. Department of Justice, 2006-05-25 - [src-095] Media source · src-095 - [src-050] Company statement source · src-050