Word: enronizing
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White had plenty of problems before the Crusader came along. Last week the Wall Street Journal reported that internal Enron documents suggested that White's unit, Energy Services, played a role in the price-fixing scheme involving California electricity. (White denied wrongdoing.) But White's clock was ticking even before that. He has had trouble explaining why he delayed selling Enron stock that he had been ordered to drop. Last spring he made an ill-considered trip to sell real estate in Colorado--on a government plane. All of which just made it easier for Rumsfeld to make an example...
...answer is buried deep in the tangle that is California's energy crisis. Here's how it started: Back in 1996, lobbied by Enron and other energy interests, the state (under then Governor Pete Wilson, a Republican) decided to loosen its hold on electricity production. Responsibility for matching supply and demand was handed over in 1998 to an Independent System Operator (ISO), which would buy from providers (like Enron, Calpine and Dynegy) and sell to middlemen (companies like Pacific Gas & Electric) as necessary, even paying providers to take excess electricity out of the state at times when supplies were flush...
...rules remained complex and rife with perverse incentives. The benefits to be gained from the system--taking advantage of its loopholes and stretching them wider--are all too obvious. Mike Aguirre, a San Diego lawyer who specializes in fraud and is representing California in one of its suits against Enron, took an energy-trading course in Houston last year in an enterprising bid to understand what the other side was being taught. There he learned Megawatt Laundering, or how to sell California its own electricity for a higher price by pretending it came from out of state. He also learned...
...strategies multiplied, and traders were rewarded for coming up with new ones. "You always wanted to stay one step ahead of everyone else," says Stan Cocke, who worked as a power trader pulling 12-hr. shifts in Enron's Portland, Ore., office in 2000 and 2001. "Folks were quick to catch on. People were getting more savvy. We were definitely encouraged to be innovative, to be aggressive." Once a trader found a formula that worked, he or she would send an e-mail around the office, and staff members would toss around proposed nicknames for the idea until one stuck...
...this fertile ground that Death Star, Get Shorty and their kin were planted. These two strategies were particularly devious. In the former, Enron was being paid for taking away excess energy that it never really put in, while in the latter, it was buying and selling commitments it never made. This kind of trade, known as "gaming" the market, is prohibited by the California ISO's regulations, but because there were seven different energy markets the ISO had to keep tabs on and because it is so difficult to pin down whether a company has the energy it says...