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On June 25, 2003, the Federal Energy Regulatory Commission (FERC) revoked Enron's market-based rate authority—effectively its license to trade wholesale energy—ruling that the company's Oregon-based West Power division had manipulated neighboring California's wholesale electricity markets via various “gaming” practices.1 As a consequence, Enron was found to have severely disrupted energy markets through the western states, contributing to a prolonged shortage of electricity supply that would ultimately become known as the California energy crisis. Five years previously, California had dramatically reconfigured its energy supply industry, splitting up the large monopoly utilities and creating markets for electricity to be traded between various participants. The move was the first of its kind within the United States, following widespread liberalization of other regulated industries like natural gas, and the system initially performed well following its inception in 1998. However, by the spring of 2000, supply problems began to appear, leading to sharp rises in the cost of wholesale electricity.2 These problems would escalate dramatically over the following year, resulting in rolling blackouts across the state, multiple regulatory interventions, and ruinously high energy prices for both the state's citizens and its utility companies.
While similar practices were found elsewhere, Enron's manipulation of California's markets was particularly extreme.3 Specifically, Enron's traders used their knowledge of the newly designed markets to artificially increase or decrease wholesale prices in their favor, which often involved submitting false supply-and-demand information, withholding available electricity, or scheduling energy they did not have. They also made use of flaws in the market's new computerized scheduling system, for instance, deliberately overloading parts of the grid to then receive payments for relieving it. Additionally, the FERC found that Enron had entered into undisclosed partnerships with numerous market participants, which allowed it to control energy scheduling and physical infrastructure. Not only did these actions exacerbate the state's high energy prices and supply issues, but they directly violated Enron's market-based rate authority and also contravened numerous rules set out in the protocols designed to govern the new system.4 Perhaps most significantly, they led to the criminal guilty pleas of three of West Power's most senior traders: Timothy Belden, John Forney, and Jeffery Richter, who were convicted of intention to commit wire fraud. Belden's plea agreement acknowledged that...