John M. Forney

John M. Forney (born c. 1962) was manager of Enron’s Real-Time Trading Desk in Portland, Oregon from 1999 to 2002, where he became a principal architect of illegal schemes to manipulate California’s electricity markets during the energy crisis of 2000-2001. Forney designed “Forney’s Perpetual Loop,” also known as the “Death Star” scheme, which fraudulently collected congestion relief payments by scheduling power to flow in circles without actually moving any energy or relieving grid congestion. He was indicted in December 2002 on eleven counts of conspiracy and wire fraud, pleaded guilty to one count of wire fraud conspiracy in August 2004, and was sentenced to two years probation and a $4,000 fine in February 2007. His cooperation with prosecutors helped convict senior Enron executives including Ken Lay and Jeff Skilling.

Forney’s personal email archive contains 11,825 messages in the FERC release, making it one of the more substantial collections for studying Enron’s California trading operations. His PST files represent a significant primary source for understanding the real-time trading desk’s daily activities during the crisis period.

Early Career at Enron

Forney joined Enron in 1993 as a low-level generation unit manager, entering the company through its traditional utility operations rather than its expanding trading business. Over the following years, he moved into energy trading as Enron built out its market-making capabilities across North American power markets. In 1997, Forney was assigned to Enron’s Portland office, which specialized in West Coast power trading and was rapidly becoming the company’s center of expertise in California markets.

By 1999, Forney had risen to manager of the real-time trading desk, a position that placed him at the operational center of California market manipulation during the energy crisis. The real-time desk handled immediate power flows and congestion management, making it ideally positioned to exploit the California Independent System Operator’s grid management procedures.

Portland Trading Organization

Forney operated within Tim Belden’s West Power Trading Division, one of Enron’s most profitable units during the California crisis. While Belden served as Vice President and Managing Director overseeing all West Coast operations, the Portland desk was organized into specialized teams with distinct market responsibilities. Jeffrey Richter managed the Short-Term California desk handling day-ahead and hour-ahead markets, while Forney’s real-time desk managed immediate power flows and grid operations.

This division of labor created complementary capabilities for executing manipulation schemes. Richter’s desk could position trades in forward markets while Forney’s desk exploited real-time grid operations. The two desks worked in coordination under Belden’s strategic direction, with Belden designing overall approaches and his desk managers handling tactical execution. The Portland operation’s revenue grew from $50 million in 1999 to $800 million in 2001, with January 2001 alone generating $254 million in gross profits.

California Market Manipulation

Death Star / Forney’s Perpetual Loop

The scheme that bears Forney’s name represents one of the most creative frauds of the California energy crisis. “Forney’s Perpetual Loop,” also called “Death Star” after the Star Wars weapon, exploited the California ISO’s congestion management payments through a circular scheduling scheme that created the illusion of relieving grid congestion.

When California’s power grid experienced congestion with energy flowing south, Enron would schedule energy to be transmitted north toward Oregon. The California ISO, believing this counter-flow would relieve congestion, would pay Enron for the service. Enron would then schedule the energy back to its point of origin outside California, routing it through locations like John Day in Oregon and Mead in Nevada before returning through the same California pathways. The result was power scheduled to flow in a complete circle, ending where it started.

Internal Enron documentation captured the scheme’s essence with brutal clarity. Attorney Stephen Hall’s memo described Death Star as “getting paid for moving energy to relieve congestion without actually moving any energy or relieving any congestion.” The scheme collected premium payments from California’s grid operator for phantom services while contributing nothing to grid stability.

Get Shorty

Forney participated in the “Get Shorty” scheme, which involved selling emergency ancillary services to the California ISO without having the required generating capacity committed. Enron would submit false information about backup power sources, promising to supply emergency reserves it either did not have or did not intend to deliver.

The scheme exploited timing windows in California’s market structure. Traders were careful to purchase offsetting services right at 9:00 AM, ensuring Enron would not actually be called upon to deliver the power it had promised. The California ISO calculated that Enron earned more than $5 million from Get Shorty schemes alone.

Ricochet

The Ricochet scheme, also known as “megawatt laundering,” circumvented California’s price caps on electricity. During the crisis, California imposed caps on power prices from in-state generators, but power imported from out-of-state sources was exempt. Ricochet exploited this loophole by buying power inside California, “exporting” it outside the ISO control area to counterparties in neighboring states, then “importing” it back into California as out-of-state power that could be sold at uncapped prices.

The scheme transformed California-origin electricity into premium-priced “imported” power through paper transactions that physically moved nothing but dramatically increased costs to California ratepayers.

Additional Schemes

Forney’s indictment referenced seven separate manipulation schemes. Beyond Death Star, Get Shorty, and Ricochet, his real-time desk participated in “Fat Boy” (overstating load projections to receive higher payments) and “Load Shift” (creating phantom congestion to collect relief payments). The variety of schemes reflected the Portland desk’s comprehensive exploitation of vulnerabilities in California’s deregulated market structure.

Impact on the California Energy Crisis

The manipulation schemes executed by Forney’s desk contributed to one of the worst utility crises in American history. California wholesale electricity expenditures rose from $7.4 billion in 1999 to $27.1 billion in 2000, a 277 percent increase. Wholesale prices spiked from approximately $25 per megawatt hour to as high as $1,500 per megawatt hour during peak manipulation periods, representing a sixty-fold increase.

California experienced six days of rolling blackouts in 2001, the state’s first statewide power curtailments since World War II. The financial damage eventually forced Pacific Gas & Electric into bankruptcy and required massive state intervention in electricity markets. The California Attorney General’s subsequent enforcement efforts recovered more than $7 billion from Enron and other energy companies engaged in market manipulation.

Legal Awareness and Documentation

Evidence suggests that Enron’s legal department was aware of the Portland desk’s trading strategies well before public exposure. In October 2000, Enron attorney Richard Sanders traveled to Portland specifically to discuss Tim Belden’s trading strategies, indicating growing corporate concern about the desk’s activities. Two months later, attorneys Christian Yoder and Stephen Hall wrote a detailed internal memo documenting the various schemes, including Death Star.

Recorded conversations from the period demonstrate that traders understood the legal risks of their activities. In one tape-recorded call, John Lavorato told Belden: “I’m just trying to be an honest camper, so I only go to jail once.” This awareness of potential criminal liability extended throughout the Portland trading operation.

Criminal Investigation and Prosecution

Indictment and Arrest

Forney was indicted in December 2002 on eleven counts: one conspiracy charge and ten wire fraud counts. The indictment specifically identified him as “the creator of Death Star” and alleged he had submitted “false and fraudulent schedules” to manipulate electricity prices. The charges accused Forney of misrepresenting electricity supply amounts, receiving unwarranted congestion-relief payments, misidentifying energy origins, and promising power Enron either lacked or did not intend to deliver.

On June 3, 2003, federal agents arrested Forney in Columbus, Ohio, where he was employed by American Electric Power. He was 41 years old and living in Upper Arlington, Ohio, having relocated from Portland after leaving Enron in the wake of the company’s December 2001 bankruptcy.

Guilty Plea

On August 5, 2004, Forney pleaded guilty in a quietly arranged appearance before U.S. District Judge Martin Jenkins in San Francisco federal court. He pleaded guilty to one count of conspiracy to commit wire fraud, and the government agreed to drop the remaining ten charges. In his plea, Forney specifically admitted that he had promised to supply energy Enron did not have and had improperly collected electrical grid management fees.

Forney was the third Enron official to plead guilty to manipulating California electricity markets, following Tim Belden in October 2002 and Jeffrey Richter in February 2003. As part of his plea agreement, he agreed to assist California and other public agencies in civil lawsuits seeking damages from energy companies.

Cooperation with Prosecutors

Following his guilty plea, Forney provided what prosecutors described as “extraordinary assistance” to the government’s investigation of Enron. He gave hundreds of hours of his time helping authorities understand the technical mechanics of the trading schemes and the organizational dynamics of the Portland trading operation.

Despite this extensive cooperation, Forney did not testify at any Enron trials. His assistance consisted primarily of interviews, document review, and explanations of trading operations rather than courtroom testimony. The technical knowledge he provided helped prosecutors build cases against more senior executives who were further removed from day-to-day trading activities.

Sentencing

On February 14, 2007, Judge Martin Jenkins sentenced Forney to two years of court-supervised release (probation) and a $4,000 fine. He faced a maximum potential sentence of five years in prison and a $250,000 fine. The lenient sentence, which carried no incarceration, reflected the value prosecutors placed on his cooperation.

Forney was sentenced alongside Belden and Richter in consolidated proceedings. Belden received two years probation and forfeiture of $2.1 million. Richter received two years probation and a $10,000 fine. Forney’s $4,000 fine was the lowest of the three, suggesting prosecutors viewed his cooperation as particularly valuable or his culpability as somewhat reduced compared to his colleagues.

Significance

Forney’s case illustrates several patterns in the prosecution of corporate fraud. Only three Enron employees faced criminal charges specifically for California market manipulation, and all three were Portland-based desk-level traders rather than Houston executives. No senior executives at Enron’s Houston headquarters were charged with the specific California energy market manipulation schemes, though Ken Lay and Jeff Skilling were convicted of broader fraud and conspiracy charges.

The concentration of criminal liability at the desk-manager level raises questions about accountability structures in corporate prosecutions. While Forney designed and executed manipulation schemes, he operated within an organizational culture and strategic framework established by senior management. The recorded conversations showing management awareness of legal risks, combined with legal department documentation of the schemes, suggest corporate knowledge extended well beyond the three individuals who faced charges.

The post-prosecution careers of the Portland traders also proved notable. In 2009, Tim Belden and Jeffrey Richter co-founded Energy GPS LLC, an energy market consulting firm in Portland. The three cooperating witnesses from Enron’s California manipulation schemes thus continued their involvement in energy markets despite their criminal convictions.

References

This article is based on 11,825 emails in John Forney’s PST archive in the FERC release, along with Department of Justice indictment documents, court records from United States v. Forney, and contemporaneous reporting from CBS News, SF Gate, the Houston Chronicle, NBC News, Las Vegas Sun, UPI, and Natural Gas Intelligence. Additional sources include internal Enron memoranda released during investigations and the Enron documents published by California State Senator Joseph Dunn.