Tags: Former | Top | Enron | Trader | Arrested | Ohio

Former Top Enron Trader Arrested in Ohio

Tuesday, 03 June 2003 12:00 AM

John Forney, 41, is the third former Enron Corp. executive who worked at the company's office in Portland, Ore., to be charged with crimes related to California's energy crisis.

The former executives are accused of scheming to enrich Houston-based Enron by manipulating rules put in place to protect California consumers during the 1999-2001 crisis, which caused rolling blackouts and cost the state an estimated $42 billion.

"As you know, California consumers paid big time because of the manipulation of energy traders and energy companies like Enron, and it's time that someone from Enron paid big time," Gov. Gray Davis said Tuesday. "I said a couple of years ago that someone ought to go to jail for this deception, and it looks like that day is close."

Davis argued that several energy companies, including Enron, "gamed" the wholesale spot market during the state's energy crisis, forcing utilities and later the state itself to pay artificially high prices for blocks of electricity generation known as megawatt hours in order to prevent rolling blackouts.

Forney became manager of the company's the Real Time trading desk in 1999. He transferred to Enron's Portland-based West Power Trading Center in 1997, after joining the energy firm in 1993.

He reported to Timothy Belden, who pleaded guilty last month on a charge of conspiracy to commit wire fraud. Another for Enron executive, Jeff Richter, also pleaded guilty in the ongoing investigation into the energy company.

Following Enron's bankruptcy filing last year, it was revealed that company traders employed a number of trading strategies that carried colorful nicknames such as "Death Star," "Get Shorty," and "Black Widow" as a means of allegedly manipulating the daily supply-and-demand situation and causing bidding for unsold megawatt hours to catapult up the prices paid.

"While California consumers were suffering through blackouts and Stage III power alerts, Enron was manipulating western energy markets for profit through illegal, fraudulent means," said U.S. Attorney Kevin V. Ryan.

According to the complaint, filed against Forney last week and unsealed Tuesday in San Francisco, the former energy trader has been charged with wire fraud and conspiracy for allegedly using the complex trading strategies to evade federal price caps on wholesale power generated inside California and to schedule the transmission of power that Enron did not actually own.

The San Francisco Chronicle reported last year that prosecutors possessed transcripts of recorded telephone calls in which Forney instructed other traders in carrying out the questionable trades.

In a statement, Ryan said Forney allegedly used a scheme called "Ricochet" to, in essence, launder electricity produced in California by selling it first to an out-of-state company on the forward market and then re-selling it to California shortly before it was actually generated during periods of high demand.

"In doing so, Enron was able to pretend that the energy it was selling to California at an inflated rate was generated outside the state, when in fact it was located in California the entire time," Ryan said.

Forney allegedly also took part in disguising the nature of the electricity it was selling into the California Independent System Operator's transmission grid by representing it as "firm," which has a guaranteed delivery, when it was in fact "non-firm," and would not be available if there was a problem with the power plant that produced it.

In addition, Forney allegedly scheduled electricity with the ISO from generators that were not functioning in order to increase congestion on the grid. The power was also scheduled to move on the grid in a looping pattern. The pattern made it appear on paper that Enron was shipping power in the direction opposite the primary flow of power, which would help relieve periodic congestion on the ISO grid. As a result, Enron collected a "congestion relief" premium from the ISO for power the company never actually provided.

"In other words, Enron submitted schedules to the ISO that pretended to move electricity owned by Enron, but in reality did not," the U.S. Attorney's office accused. "Because the scheduled energy appeared to relieve congestion, the ISO awarded Enron congestion relief payments."

The highly lucrative strategy was officially dubbed "Death Star" within Enron, although some inside the company also paid homage to Forney's method of being paid for nothing by jokingly referring to it as "Forney's Perpetual Loop."

FBI agents took Forney into custody Tuesday morning in Columbus, Ohio, at the headquarters of American Electric Power, where the 41-year-old trader has been working for the past 15 months. He will make his initial court appearance in Columbus on Monday before his expected transfer to San Francisco.

AEP, one of the nation's largest utilities, said Forney worked in the company's innocuous fuel logistics operations and had been placed on administrative leave.

"The arrest is related to a period of time prior to March 1, 2002, when he joined AEP," said Jeffrey Cross, AEP's general counsel, in a statement. "We have no reason to believe Mr. Forney was involved in any inappropriate activities while with AEP."

Enron officials were not immediately available for comment.

Copyright 2003 by United Press International.

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John Forney, 41, is the third former Enron Corp. executive who worked at the company's office in Portland, Ore., to be charged with crimes related to California's energy crisis. The former executives are accused of scheming to enrich Houston-based Enron by manipulating...
Tuesday, 03 June 2003 12:00 AM
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