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Enron and the California Energy Crisis: The Role of

Networks in Enabling Organizational Corruption

Article in The Business History Review · December 2021

DOI: 10.1017/S0007680521001008

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Adam Nix , Stephanie Decker and Carola Wolf

Enron and the California Energy Crisis: The

Role of Networks in Enabling Organizational
Corruption
We provide an analytically structured history of Enron’s
involvement in the California energy crisis, exploring its emer-
gence as a corrupt organization and its use of an interorganiza-
tional network to manipulate California’s energy supply
markets. We use this history to introduce the concept of
network-enabled corruption, showing how corruption, even if
primarily enacted by a single dominant organization, is often
highly dependent on the support of other organizations. Specif-
ically, we show how Enron combined resources from partner
ﬁrms with its own capabilities, manipulating the energy
market and capitalizing on the crisis. From a methodological
point of view, our study emphasizes the growing importance
of digital sources for historical research, drawing particularly
on telephone and email records from the period to develop a
rich, ﬂy-on-the-wall understanding of a phenomenon that is
otherwise hard to observe.

Keywords: Organizational corruption, organizational mis-

conduct, analytically structured history, digital sources,
energy supply industry

O n 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 Cali-
fornia’s wholesale electricity markets via various “gaming” practices.1

1
FERC, “Commission Revokes Enron’s Market-Based Rate Authority, Blanket Gas Certif-
icates Terminated,” ed. B. Connors, 2003; Federal Energy Regulatory Commission (FERC),
Order Revoking Market-Based Rate Authorities and Terminating Blanket Marketing Certif-
icates, 103 FERC ¶ 61,343 (2003). Gaming here represents the taking of an unfair advantage

Business History Review 95 (Winter 2021): 765–802. doi:10.1017/S0007680521001008

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Nix, Decker, and Wolf / 766

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 Califor-
nia 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 incep-
tion 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 “as a result of these false schedules, we were able to
manipulate prices in certain markets, arbitrage price differences

from market rules and procedures, or any market conditions that could affect the availability of
transmission and generation capacity or behavior of other market participants, to the detri-
ment of efﬁciency and consumers. See California Independent System Operator (CAISO),
“ISO Market Monitoring and Information Protocol,” 2000, EL03-180, SNO-127, FERC.
2
Carl Blumstein, Lee Friedman, and Richard Green, “The History of Electricity Restructur-
ing in California,” Journal of Industry, Competition and Trade 2, no. 1 (2002): 9–38.
3
FERC, “Initial Decision,” 119 FERC ¶ 63,013 (2007); FERC, “Final Report on Price Manip-
ulation In Western Markets,” Docket No. PA02-02-000 (2003).
4
FERC, “Initial Decision,” 12.

between the markets, obtain ‘congestion management’ payments in

excess of what we would have received with accurate schedules, and
receive prices for electricity above price caps.”5
In this article, we engage with the organizational corruption litera-
ture as a specific theoretical basis for better understanding Enron’s prac-
tices and involvement in the California energy crisis.6 Corruption
represents a misuse of one’s position for personal or collective gain,
and within a corporate context such behaviors tend to manifest as
illicit transactions (e.g., bribery), agreements (e.g., price-fixing), decep-
tion (e.g., misleading investors), or manipulative practices (e.g.,
market abuse).7 While the underlying social and economic causes of cor-
ruption have been extensively theorized, in-depth empirical investiga-
tions are less common, in part because of the challenges surrounding
its observation. Accordingly, we have a fairly good idea about what
makes organizations commit corrupt acts (often as a persistent and
routine organizational practice), but we know relatively little about
how corruption is conceived, managed, and coordinated over time. By
extension, the role that outside organizations play is particularly
unclear.8 Clearly, acts like bribery or price-fixing involve external
parties, but it is also conceivable that other forms of corruption extend
beyond the context of a single organization. Given these gaps, as well
as the regular calls for more empirical elaboration of the
phenomena surrounding corruption, we provide a historical account of

5
Plea agreement, United States v. Timothy Belden, U.S. Dist. Ct., N.D. Cal. (2002), 3; Plea
agreement, United States v. Jeffery Richter, U.S. Dist. Ct., N.D. Cal. (2003); Plea agreement,
United States v. John Forney, U.S. Dist. Ct., N.D. Cal. (2005).
6
Blake Ashforth, Dennis A. Gioia, Sandra L. Robinson, and Linda K. Treviño, “Re-Viewing
Organizational Corruption,” Academy of Management Review 33, no. 3 (2008): 670–84;
Stelios Zyglidopoulos, Paul Hirsch, Pablo Martin de Holan, and Nelson Phillips, “Expanding
Research on Corporate Corruption, Management, and Organizations,” Journal of Manage-
ment Inquiry 26, no. 3 (2017): 247–53; Jonathan Pinto, Carrie Leana, and Frits Pil,
“Corrupt Organizations or Organizations of Corrupt Individuals? Two Types of Organiza-
tion-Level Corruption,” Academy of Management Review 33, no. 3 (2008): 685–709;
Donald Palmer, “Extending the Process Model of Collective Corruption,” Research in Organi-
zational Behavior 28 (2008): 107–35; Armando Castro, Nelson Phillips, and Shaz Ansari,
“Corporate Corruption: A Review and an Agenda for Future Research,” Academy of Manage-
ment Annals 14, no. 2 (2020): 935–68.
7
See, for instance, Hartmut Berghoff, “‘Organised Irresponsibility’? The Siemens Corrup-
tion Scandal of the 1990s and 2000s,” Business History 60, no. 3 (2018): 423–45; Lynne
Andersson, “Of Great Vampire Squids and Jamming Blood Funnels: A Socially Constructed
and Historically Situated Perspective on Organizational Corruption,” Journal of Management
Inquiry 26, no. 4 (2017): 406–17; Stelios Zyglidopoulos, “Toward a Theory of Second-Order
Corruption,” Journal of Management Inquiry 25, no. 1 (2016): 3–10; J. S. Nelson, “The Cor-
ruption Norm,” Journal of Management Inquiry 26, no. 3 (2017): 280–86.
8
Olivier Bertrand and Fabrice Lumineau, “Partners in Crime: The Effects of Diversity on
the Longevity of Cartels,” Academy of Management Journal 59, no. 3 (2016): 983–1008.

Enron’s manipulation that is analytically structured around the elabora-

tion of corruption as an organizational phenomenon.9
As a concept, corruption is distinct from criminality or illegality,
which depend on factors such as geographically specific laws, an appetite
to prosecute or litigate, and a particular judicial interpretation. While
corruption often involves the breaking of laws, it can also extend
beyond the technically illegal to include wrongful activities that are
judged to transgress broader social norms.10 This is an important histor-
ical consideration, with legal proceedings subject to social, financial, and
political conditions, as well as the evidence available at the time. More-
over, convictions for occupational crimes are comparatively rare, even
when such behaviors were clearly widespread, because those behaviors
often occupy an ambiguous space between ethically questionable and
actively illegal.11 Nonetheless, it has been widely recognized that
Enron’s actions in California deviated from acceptable social norms,
both as a matter of ethical standard and as a point of law.12 Thus, ours
is an established case of wrongdoing, which offers an entry point from
which to explore how organizational corruption was enacted over time
within an organizational division and through its relationship to other
market participants.
Our analysis of these activities offers several contributions, the first
of which is to add historical insight into Enron’s history. Because Enron
is notorious for the extraordinary accountancy scandal that emerged in
late 2001, its involvement in the 2000–2001 energy crisis has been
somewhat overshadowed. Thus, focus has fallen primarily on its
Houston-based executives and the firm’s wider political and cultural sig-
nificance. For instance, Malcolm Salter shows how its leadership created
conditions that embedded self-interested behaviors and compromised
the judgments of those faced with ethically uncertain decisions.13

9
Blake Ashforth and Vikas Anand, “The Normalization of Corruption in Organizations,”
Research in Organizational Behavior 25 (2003): 1–52; Castro, Phillips, and Ansari, “Corpo-
rate Corruption”; Zyglidopoulos et al., “Expanding Research.”
10
Henrich Greve, Donald Palmer, and Jo-Ellen Pozner, “Organizations Gone Wild: The
Causes, Processes, and Consequences of Organizational Misconduct,” Academy of Manage-
ment Annals 4, no. 1 (2010): 53–107; Castro, Phillips, and Ansari, “Corporate Corruption.”
11
Hugo van Driel, “Financial Fraud, Scandals, and Regulation: A Conceptual Framework
and Literature Review,” Business History 8, no. 61 (2019): 1259–99.
12
Peter Fleming and Stelios Zyglidopoulos, Charting Corporate Corruption: Agency,
Structure and Escalation (Cheltenham, U.K., 2009), 23–24; Edward Balleisen, Fraud: An
American History from Barnum to Madoff (Princeton, 2018), 357; Robert Tillman,
“Making the Rules and Breaking the Rules: The Political Origins of Corporate Corruption in
the New Economy,” Crime, Law and Social Change 51, no. 1 (2009): 73–86; Donald
Palmer, Normal Organizational Wrongdoing: A Critical Analysis of Theories of Misconduct
in and by Organizations (Oxford, 2012), 52.
13
Malcolm Salter, Innovation Corrupted: The Origins and Legacy of Enron’s Collapse
(Cambridge, MA, 2008).

Similarly, Gavin Benke uses Enron as a lens through which to explore

broader trends of neoliberalism and globalization, underscoring that
“two separate debacles in 2000 and 2001—the California energy crisis
and the revelation of accounting fraud—transformed the company into
a symbol for all the ills of the deregulation.”14
The history we present also contributes to the literature on organiza-
tional corruption, constituting a historically informed theoretical narra-
tive with both historical veracity and conceptual rigor (what Mairi
Maclean, Charles Harvey, and Stewart Clegg call “dual integrity”).15
Empirically, we add insight into the workings of a corrupt organization
and how corrupt practices evolve over time, something a historical
approach is uniquely placed to provide. In particular, we show the
extent to which normalized corruption can be embedded within interor-
ganizational processes and the adaptation of these practices in the face of
increased public and organizational scrutiny. Conceptually, we develop
the particular nature of Enron’s corruption, which, while orchestrated
by Enron as the primary actor, nevertheless was facilitated by a
network of partner ﬁrms around Enron and could not have taken place
without the active involvement of these network partners.16 We label
this “network-enabled corruption,” a type of corruption in which a dom-
inant organization (in this case, Enron) coordinates with a network of
partner organizations to achieve illicit ends. This accounts for situations
where corruption is primarily organized and enacted by a single organi-
zation but sustained by other organizations that are a removed, but
nonetheless vital, component. Interorganizational corruption in this
form is less likely to be seen horizontally among collusive competitors
and, as in our case, can exist within ostensibly legitimate market

14
Gavin Benke, Risk and Ruin: Enron and the Culture of American Capitalism (Philadel-
phia, 2018): 10. Also compare Robert Bradley’s work, which explores Enron as an agent of
political capitalism: Edison to Enron: Energy Markets and Political Strategies (Hoboken,
NJ, 2011); Capitalism at Work: Business, Government, and Energy (Salem, 2014); and
Enron Ascending: The Forgotten Years, 1984–1996 (Hoboken, NJ, 2018).
15
Mairi Maclean, Charles Harvey, and Stewart Clegg, “Conceptualizing Historical Organi-
zation Studies,” Academy of Management Review 41, no. 4 (2016): 609–32; Maclean, Harvey,
and Clegg, “Organization Theory in Business and Management History: Present Status and
Future Prospects,” Business History Review 91, no. 3 (2017): 457–81.
16
Following the FERC’s final report, various market participants, including identified part-
ners of Enron, were ordered by the FERC to “show cause” as to why their behavior during the
crisis period should not be considered to constitute gaming and/or anomalous market behav-
ior. See FERC, Order To Show Cause concerning Gaming and/or Anomalous Market Behav-
ior through the Use of Partnerships, Alliances or Other Arrangements and Directing
Submission of Information, 103 FERC ¶ 61,346 (2003) and 103 FERC ¶ 61,345 (2003). The
FERC individually agreed settlements or filed motions to dismiss relating to all entities. See
FERC, “Initial Decision,” 4.

relations of service provider and client.17 Similarly, it differs from other

notions of networked corruption, which revolve around illicit transac-
tional activities like bribery or rent-seeking, generally between private
and public actors.18 Thus, our narrative presents a materially different
way of looking at corruption as an interorganizational phenomenon.
In addition to its historical and theoretical contributions, this article
also holds methodological novelty. That is, we demonstrate how digital-
era primary sources can provide an unprecedented view into the work-
ings of a historically important organization and how they can elaborate
usually hidden or underrepresented historical events.19 For business his-
torians in particular, the growing importance of digital sources is partic-
ularly clear, as great swaths of organizational record-keeping and
communication practice migrated to digital platforms from the mid-
1990s onwards.20 Indeed, it is quite conceivable that to fully understand
historically important events like the emergence of the dot-com economy
or the 2007 ﬁnal crisis, historians will need to engage with these so-
called born-digital sources.21

Organizational Corruption

While corruption often represents an abuse of publicly mandated

authority—necessitating the involvement of a legislative or executive
ofﬁce—the concept is relevant to a broad collection of social contexts.22
Indeed, the conceptualization of wrongful organizational activities as
corrupt has gained signiﬁcant prominence, embodying what Blake Ash-
forth and colleagues refer to as “the illicit use of one’s position of power

17
FERC, “Final Report,” VI-37-38. While such market relationships were an explicit part of
Enron’s business and were not fundamentally illicit (as with a price-fixing agreement), the
failure to declare the extent of them contravened the terms of their market-base rate authority.
18
Kyoung-Hee Yu, Su-Dol Kang, and Carl Rhodes, “The Partial Organization of Networked
Corruption,” Business & Society 59, no. 7 (2020): 1377–409; David Jancsics and István Jávor,
“Corrupt Governmental Networks,” International Public Management Journal 15, no. 1
(2012): 62–99.
19
Castro, Phillips, and Ansari, “Corporate Corruption.”
20
Adam Nix and Stephanie Decker, “Using Digital Sources: The Future of Business
History?,” Business History (advance online publication 22 Apr. 2021), https://doi.org/10.
1080/00076791.2021.1909572; David Kirsch, “The Record of Business and the Future of Busi-
ness History: Establishing a Public Interest in Private Business Records,” Library Trends 57,
no. 3 (2009): 352–70; Michael Moss, “Where Have All the Files Gone? Lost in Action Points
Every One?,” Journal of Contemporary History 47, no. 4 (2012): 860–75.
21
Nix and Decker, “Using Digital Sources.” Born-digital sources have only ever existed dig-
itally, unlike the digitized versions of analog records.
22
Overfocusing on corruption within public office “leaves out much of what has historically
been deemed corrupt; and it relies upon the superficial clarity of public/private distinction and
an unexamined view of what counts as improper use [of authority].” William Heffernan and
John Kleinig, Private and Public Corruption (Lanham, MD, 2004), 3.

for perceived personal or collective gain.”23 Thus, while lawfulness is

often an important consideration in cases of corruption, it is not a defin-
ing criterion, as is the case with white-collar crime, corporate fraud, or
other related terms.24 Instead, corruption focuses on the underlying
social phenomena behind such activities, in that they deviate from
accepted social norms, involve the misappropriation of entrusted posi-
tion, and are enacted with a view to some form of undue benefit.
Within an organizational context, actors leverage corruption either for
the benefit of their organization at the expense of stakeholders or for
themselves at the expense of their organization. We focus here on cor-
ruption as the former, focusing on wrongdoing that is collectively prac-
ticed and primarily enacted for organizational gain.25
Such behaviors have been seen as endemic within the late twentieth
and early twenty-first centuries, aided by the emergence of increasingly
ambiguous (de)regulation and a push for entrepreneurial innovation
more generally.26 However, there is plenty of historical precedence.27
Within the early energy supply industry itself, the creation (and subse-
quent collapse) of the industry’s utility holding companies was a signifi-
cant contributor to the Great Depression, disintegrating the corporate
empires of energy tycoons like Samuel Insull.28 While not themselves
illegal, their unregulated expansion became a context for widespread
investor speculation, market manipulation, and embezzlement. Insull
himself famously convinced the criminal courts that his actions,
though flawed, were ultimately honest; others, like Howard Hopson of
Associated Gas & Electric Co., were found to have committed numerous
offenses, including mail fraud, conspiracy, and unlawful profitmaking.29
As Edwin Sutherland’s analysis of Associated Gas & Electric and fourteen
other utilities shows, such cases were far from aberrations, with acts of

23
Ashforth et al., “Re-Viewing Organizational Corruption,” 671.
24
See Van Driel, “Financial Fraud”; and Balleisen, Fraud, 11–12. Even within these fields,
there is a reticence to make hard distinctions between fraud and related (but not necessarily
criminal) wrongdoing, particularly as such terms have both colloquial and technical
significance.
25
Pinto, Leana, and Pil, “Corrupt Organizations.” This is not to say that individuals were
not benefiting indirectly, for instance, via performance-related bonuses.
26
Balleisen, Fraud, 362–66; Jackson Lears, Something for Nothing: Luck in America
(New York, 2003), 5, 321–22; Jonathan Levy, Freaks of Fortune: The Emerging World of Cap-
italism and Risk in America (Cambridge, MA, 2012), 309–10.
27
See Van Driel, “Financial Fraud.”
28
Forrest McDonald, Insull: The Rise and Fall of a Billionaire Utility Tycoon (1962; repr.,
Washington, DC, 2004). Initially set up to finance utilities’ asset-heavy operations, these enti-
ties and the securities markets that supported them became the basis for complex and opaque
ownership structures, often involving multiple layers of holding equity that controlled hun-
dreds of operational utilities.
29
William J. Hausman, “Howard Hopson’s Billion Dollar Fraud: The Rise and Fall of Asso-
ciated Gas & Electric Company, 1921–1940,” Business History 60, no. 3 (2018): 381–98.

collusion, ﬁnancial misrepresentation, and misappropriation rife

among the industry’s executive elite.30 Indeed, Sutherland’s work on
“white-collar crime” broke new ground, challenging the assumption
that pervasive criminality was the preserve of the lower classes and
their circumstances and showing that the well-to-do were more than
capable of committing serious crimes, particularly through their
organizational positions.31 Though subsequently criticized for overfocus-
ing on the offender (over the offense), his work made forensically clear
the prevalence, severity, and social cost of wrongdoing in organizational
and economic contexts.32
While Sutherland’s work centered around relatively senior execu-
tives, corruption within organizations often transcends villainized indi-
viduals like Hopson, permeating throughout an organization’s
structure and hierarchy. John Brooks’s analysis of price-ﬁxing between
General Electric and other postwar heavy electrical equipment manufac-
turers illustrates that wrongdoing, even when expressly prohibited, can
become a widespread and implicitly accepted practice.33 Organizational
corruption research highlights the importance of organizational charac-
teristics and conditions (e.g., competition, resource scarcity) that coerce
or facilitate a decision to act wrongfully.34 While this is suggestive of a
rational calculation of risk and return, such assessments—if consciously
made at all—are invariably bounded by the incomplete information
available to actors, along with their own cognitive limitations. Nonethe-
less, where structural conditions present the potential for reward (or for-
feiture), they can create a criminogenic environment, which encourages

30
Edwin Sutherland, White Collar Crime: The Uncut Version (New Haven, 1983).
31
Hartmut Berghoff and Uwe Spiekermann, “Shady Business: On the History of White-
Collar Crime,” Business History 60, no. 3 (2018): 289–304; James William Coleman,
“Toward an Integrated Theory of White-Collar Crime,” American Journal of Sociology 93,
no. 2 (1987): 406–39.
32
Susan Shapiro, “Collaring the Crime, Not the Criminal: Reconsidering the Concept of
White-Collar Crime,” American Sociological Review 55, no. 3 (1990): 346–65.
33
John Brooks, “The Impacted Philosphers,” in Business Adventures: Twelve Classic Tales
from the World of Wall Street (London, 2019), 227–55; Wayne Baker and Robert Faulkner,
“The Social Organization of Conspiracy: Illegal Networks in the Heavy Electrical Equipment
Industry,” American Sociological Review 58, no. 6 (1993): 837–60; Kurt Eichenwald, The
Informant: A True Story (New York, 2000). In addition to General Electric, notable historical
examples of price-ﬁxing networks include ADM and competitors’ price-ﬁxing of the cattle-feed
additives.
34
For instance, organizational corruption builds on works such as Martin Needleman and
Carolyn Needleman, “Organizational Crime: Two Models of Criminogenesis,” Sociological
Quarterly 20, no. 4 (1979): 517–28; Diane Vaughan, “The Dark Side of Organizations:
Mistake, Misconduct, and Disaster,” Annual Review of Sociology 25 (1999): 271–305;
Gresham Sykes and David Matza, “Techniques of Neutralization: A Theory of Delinquency,”
American Sociological Review 22, no. 6 (1957): 664–70; and Elizabeth Umphress and John
Bingham, “When Employees Do Bad Things for Good Reasons: Examining Unethical Pro-
Organizational Behaviors,” Organization Science 22, no. 3 (2011): 621–40.

or even compels misconduct. This was seen within the U.S. savings and
loan industry, when regulations governing thrift institutions were
relaxed, precipitating widespread fraudulent behavior.35 Similarly, glob-
alization and the neoliberal turn toward deregulation since the 1980s are
often lamented for their catalytic effects on levels of corporate illegality
and corruption.36 Here, as with the 1929 stock market crash, a focus on
ﬁnancial innovation and global competitiveness was seen to blur
accepted business norms and heightened expectations for extraordinary
performance.37
Within organizations, systemic characteristics such as culture, lead-
ership, and incentives can facilitate corruption, encouraging and ulti-
mately embedding it as an acceptable means to goal attainment. The
process by which corrupt behaviors are normalized further shows how
the mindful action of a limited few can become increasingly mindless
and widespread as they are incorporated within an organization’s struc-
tures and processes.38 Even in cases where wrongdoers are aware of the
transgressive nature of their actions, they often use alternative interpre-
tations to rationalize them, reframing dissonant information in line with
a self-deceptive but morally tolerable explanation.39 Incumbent perpe-
trators also use rationalizations rhetorically to socialize newcomers
into the group’s particularistic world view. While these theories
provide valuable interpretations of corruption as an organizational phe-
nomenon, they generally focus on what engenders and maintains a will-
ingness to act corruptly. In contrast, the practice of corruption remains
largely hidden behind its clandestine nature, and we still need to empir-
ically elaborate how it is actually incorporated and maintained within
discrete organizational and industry contexts.
Furthermore, corruption as an interorganizational phenomenon
remains particularly underexplored.40 Beyond inherently interorganiza-
tional collusion like price-ﬁxing, a wealth of evidence shows that criminal
35
William Black, Kitty Calavita, and Henry Pontell, “The Savings and Loan Debacle of the
1980s: White-Collar Crime or Risky Business?,” Law & Policy 17, no. 1 (1995): 23–55.
36
Tillman, “Making the Rules”; Ashforth et al., “Re-Viewing Organizational Corruption.”
37
Brent Goldfarb and David Kirsch, Bubbles and Crashes: The Boom and Bust of Techno-
logical Innovation (Stanford, 2019), 64–67; Balleisen, Fraud, 247–49; John Kenneth Gal-
braith, The Great Crash, 1929 (Boston, 1955), 194–200.
38
Palmer, “Extending the Process Model.”
39
Dan Ariely, The (Honest) Truth about Dishonesty: How We Lie to Everyone, Especially
Ourselves (London, 2012), 165–72; Amos Tversky and Daniel Kahneman, “The Framing of
Decisions and the Psychology of Choice,” Science 211, no. 4481 (1981): 453–58; Tammy
MacLean, “Framing and Organizational Misconduct: A Symbolic Interactionist Study,”
Journal of Business Ethics 78, no. 1–2 (2008): 3–16; Nina Mazar, On Amir, and Dan Ariely,
“The Dishonesty of Honest People: A Theory of Self-Concept Maintenance,” Journal of Mar-
keting Research 45, no. 6 (2008): 633–44.
40
On the involvement of third parties in corrupt networks, see Bertrand and Lumineau,
“Partners in Crime”; Pinto, Leana, and Pil, “Corrupt Organizations”; and David Jancsics, “Cor-

and unethical organizational practices often include actors from outside

a single organization. For instance, analysis of the U.S. automobile
industry shows that manufacturers were complicit in the illegality of
their franchise dealers, incentivizing illicit sales practices by exerting
superior market power.41 Similarly, when Wall Street trader Dennis
Levine embarked on an episode of sustained insider trading, it was a
carefully maintained network of external co-conspirators that provided
the information material to his scheme.42 While interorganizational,
the level of active collaboration in these cases remains relatively low,
with incidents of corruption still occurring largely within discrete orga-
nizational settings. However, some industries—particularly those involv-
ing network technologies like electricity—necessitate far greater levels of
interdependence between market participants, which in turn affects how
organizations navigate institutional arrangements.43 Where such set-
tings are conducive to corrupt means, they present a highly relevant
context from which to understand structural boundaries of corruption
as a collective operational practice. This is the case for Enron.

Digital Sources

As highlighted recently by Armando Castro, Nelson Phillips, and Shaz

Ansari, corruption presents a serious methodological challenge to man-
agement scholars, as the contexts in which it occurs are invariably clandes-
tine and thus difficult to study directly.44 We believe that historical
approaches can add significant value as an alternative to the social-
scientific methods that predominate this area. Indeed, business historians
are well positioned to contribute to wider debates in the study of wrong-
doing, as has already been seen in related areas like fraud and white-
collar crime.45 For such phenomena, the selection of a case or contextual
setting is invariably in the past and events are often difficult to fully

ruption as Resource Transfer: An Interdisciplinary Synthesis,” Public Administration Review

79, no. 4 (2019): 523–37.
41
William Leonard and Marvin Weber, “Automakers and Dealers: A Study of Criminogenic
Market Forces,” Law and Society Review 4 (1970): 407–24; Harvey Farberman, “A Crimino-
genic Market Structure: The Automobile Industry,” Sociological Quarterly 16, no. 4 (1975):
438–57.
42
James B. Stewart, Den of Thieves (New York, 1992).
43
Jonathan Coopersmith, The Electriﬁcation of Russia, 1880–1926 (Ithaca, 2016); Harry
M. Trebing, “Assessing Deregulation: The Clash between Promise and Reality,” Journal of
Economic Issues 38, no. 1 (2004): 1–27; Ernst ten Heuvelhof, Martin de Jong, Mirjam Kars,
and Helen Stout, eds., Strategic Behaviour in Network Industries: A Multidisciplinary
Approach (Cheltenham, U.K., 2009).
44
Castro, Phillips, and Ansari, “Corporate Corruption.”
45
Van Driel, “Financial Fraud”; Balleisen, Fraud; James Taylor, “White-Collar Crime and
the Law in Nineteenth-Century Britain,” Business History 60, no. 3 (2018): 343–60.

appreciate without sufﬁcient hindsight.46 Moreover, information released

during subsequent judicial proceedings are often valued by those seeking
to piece together and illuminate otherwise hidden aspects of organiza-
tional events and actions. These traces of the past often take the form of
retrospective inquiry reports and judgments or submitted evidence like
company records or social correspondence—materials highly suited to
critical source analysis. Despite this, explicitly historical studies on orga-
nizational corruption are rare, and we suggest that a more historically cog-
nizant treatment of organizational corruption has the potential to add
significant empirical and theoretical understanding.
In this regard, more recent historical periods offer particularly
rich opportunities for insight, as digital technologies such as personal
computers and the Internet have changed the nature of those traces
left behind. We use a uniquely rich collection of digital historical
sources to empirically elaborate historical events in ways that would
not have been otherwise possible.47 This is because digital technologies
preserve organizational life in ways that analog equivalents do not. In
particular, communication technologies are very good at capturing the
ephemera of daily life from varied organizational contexts, as compared
with correspondence of high-level managers and executives who are
more typically represented in traditional archives. For us, this provided
a view that included both junior and senior divisional employees, as well
as their day-to-day interactions, many of which were too fleeting to have
survived as traditional historical sources. Such insights are of particular
value to understanding wrongful behaviors, which are usually pieced
together from trial proceedings rather than fly-on-the-wall views into
their actual enactment.48 In this sense, our research is illustrative of
both the “digital shift” emerging within historical research generally
and the specific affordances such sources offer to researching otherwise
hidden organizational phenomena.49

46
Richard Evans, In Defense of History (New York, 1999); John Lewis Gaddis, The Land-
scape of History: How Historians Map the Past (Oxford, 2002); Albert Mills, Terrance
Weatherbee, and Gabrielle Durepos, “Reassembling Weber to Reveal The-Past-as-History in
Management and Organization Studies,” Organization 21, no. 2 (2014): 225–43.
47
JoAnne Yates, “Understanding Historical Methods in Organization Studies,” in Organi-
zations in Time: History, Theory, Methods, ed. Marcelo Bucheli and Daniel Wadhwani
(Oxford, 2014), 268–70; Kirsch, “Record of Business.” While it is common for legal processes
to create accessible historical source material, the amount of information collected and
released in relation to Enron is exceptional for both its scale and its richness of detail.
48
Samuel Buell, “‘White Collar’ Crimes,” in The Oxford Handbook of Criminal Law, ed.
Markus Dubber and Tatjana Hörnle (Oxford, 2014), 844.
49
Lise Jaillant, “After the Digital Revolution: Working with Emails and Born-Digital
Records in Literary and Publishers’ Archives,” Archives and Manuscripts 47, no. 3 (2019):
285–304.

The sources we used were accessed primarily via the FERC’s

e-library (https://www.ferc.gov/ferc-online/elibrary), which provides
online access to its public collection of regulatory proceedings and
related records. In particular, we made use of telephone transcriptions
relating to 380 time-stamped trading-floor calls. Obtained from Digital
Audio Tape (DAT) recordings from each of Enron’s trading desks,
these capture the traders’ daily telephone interactions with various rele-
vant parties, including colleagues, competitors, customers, and regula-
tory representatives.50 The original recordings were created and used
internally by Enron, primarily as means of recording oral offers and
acceptances, but they were seized under federal subpoena, whereupon
calls relevant to the case were transcribed and made public by the
FERC. As a geographically dispersed and time-sensitive task, the
trading and scheduling of wholesale energy relied heavily on telephone
conversations, even more than alternative forms of digital communica-
tion like email. As such, these records offer an essential view into how
managers at Enron organized corruption, both internally throughout
the division and its hierarchy and with its partner organizations.
Because only the tapes most relevant to the case were transcribed, the
conversations made public are a relatively small sample of those origi-
nally obtained.51 Nonetheless, they give a highly relevant sample of cor-
ruption-related interaction, centering around Enron’s manipulation of
California energy markets and the key events in the energy crisis.52
We complement these sources with other company documents filed
during the FERC’s investigation, including memos, meeting minutes,
and other stand-alone items of correspondence. These were generally
digitized reproductions of printed documents that were submitted indi-
vidually for their specific relevance to a particular legal assertion. We
also used legal documents such as legal briefs and the testimony of
expert witnesses, which provided an additional appreciation of the his-
torical context and the various sources available within the elibrary.
Additionally, we draw on a data set of Enron’s emails, publicly released

50
Carl Pechman, “Supplemental Testimony of Carl Pechman, Ph.D. on behalf of Public
Utility District No. 1 of Snohomish County, Washington,” EL03-180, SNO-160, 2007. The tran-
scription process, overseen by an economist specializing in the energy industry, entailed
screening over one thousand hours of recordings and identifying calls relevant to the
inquiry. Because of its irrelevance as case evidence, some personal dialogue (e.g., concerning
family members and home telephone numbers) was redacted before publication.
51
Many more were appraised as audio ﬁles, but the cost of transcription (payable by the
claimant) was such that they only transcribed those essential in making their case.
52
On archival sampling, see Stephanie Decker, “The Silence of the Archives: Business
History, Post-Colonialism and Archival Ethnography,” Management & Organizational
History 8, no. 2 (2013): 155–73.

by the FERC in the fallout from the company’s failure.53 Unlike the other
sources we use, the emails were published as a corpus for public and his-
torical interest, not individually based on specific legal arguments. As
such they represent a large, un-curated data set (over 500,000 emails
from 150 accounts), and we limited our focus to accounts relevant to
the Portland trading office.54 Together, these company records represent
important additional sources, adding details about the case and allowing
us to better contextualize the often technical and partial nature of the
surviving telephone correspondence.
In addition to the above primary sources, we also make use of
summary reports and decisions that together concluded the various
legal proceedings into California’s energy crisis. While these provide
valuable insight, they carry limitations as a source of historical record.
For one, legal decisions are relatively atemporal, being structured
around specific legal issues and only considering temporality when rele-
vant to the case. This makes past actions and events difficult to under-
stand without reinterpreting and reordering their findings with a view
to historical knowledge creation. Additionally, as there were various pro-
ceedings relevant to this case, the understanding they provide is very dis-
persed. In this sense, reading a single report—even the FERC’s final
report—provides only a partial and relatively specific picture of the
crisis and the action that contributed to it.55 Moreover, these decisions
themselves rely heavily on related briefs, exhibits, and testimonials to
contextualize the summary discussion. Without synthesizing this body

53
FERC, Order directing the release of information, 102 FERC ¶ 61,311 (2003). This data
has previously been used in various fields, including history (e.g., Benke, Risk and Ruin), man-
agement research (e.g., Brandy Aven, “The Paradox of Corrupt Networks: An Analysis of Orga-
nizational Crime at Enron,” Organization Science 26, no. 4 [2015]: 980–96), and linguistics
(e.g., David Wright, “Stylistic Variation within Genre Conventions in the Enron Email
Corpus: Developing a Textsensitive Methodology for Authorship Research.,” International
Journal of Speech, Language & the Law 20, no. 1 [2013]: 45–75). While originally available
via the FERC, this data is now publicly hosted by Carnegie Mellon University as part of the
CALO Project: “Enron Email Dataset,” last modified 8 May 2015, https://www.cs.cmu.edu/
∼enron/.
54
To isolate a manageable and relevant set of sources, we only included West Power
Trading employees, reducing the accounts from 150 to 18. The emails from these accounts
were then limited to just those of the “sent email” folders. With sent mail, the communication
was significant enough to warrant the original actor’s attention, as opposed to the passive
holding of emails in an inbox folder. This process reduced the corpus to 4,091 individual
items, which were then manually analyzed.
55
FERC, “Final Report.” In fact, it was later, lesser-known legal challenges that proved the
most valuable. For instance, Washington-based Snohomish Public Utility District sought to
remove itself from costly forward energy contracts made with Enron at the height of the
crisis, and it was through these proceedings (rather than the official investigation) that the
most illuminating details were found. Like many, Snohomish’s case ultimately ended in settle-
ment; however, the FERC’s 2007 “Initial Decision” on the case found extensively in their favor,
upholding and extending the judgments made against Enron in the earlier 2003 report.

of supporting legal material, a full appreciation of the case would be

extremely hard to achieve. Judicial process is also necessarily bound
by a duty to determine legally relevant facts and apply the law. These cir-
cumstances mean that while Enron’s involvement in California’s energy
markets has been heavily investigated as a point of legal interest, the his-
torical and conceptual importance of this case remains largely hidden.

Enron and California’s Energy Supply Reforms

The energy company Enron was formed by the merger of Houston

Natural Gas and Omaha-based InterNorth in 1985, under the leadership
of the former’s CEO, Ken Lay. The new entity constituted a major player
within the natural gas industry, controlling the largest system of trans-
mission pipelines in North America.56 Lay was a vocal advocate of free
markets, and this quickly became a core aspect of Enron’s public identity
and its justification for liberalization within the energy industry.57 Thus,
when natural gas was deregulated in the late 1980s, Enron looked to cap-
italize. The company worked with then McKinsey consultant Jeffrey
Skilling to develop a new, commodity-based form of natural gas
trading, pitched as a “gas bank.” Skilling believed gas should be traded
through a mediating partner rather than directly between buyer and
seller, as was then the case.58 Enron would continue to push the envelope
of financial innovation, persuading the energy sector to embrace ever-
greater levels of commoditization and financial service provision.59
In 1990, Skilling left McKinsey to head up Enron’s financial services
division.60 His experience in banking and finance influenced his com-
moditized vision of income generation, and he soon turned the gas
bank into a success, solidifying his position within the firm.61 Over the
next few years, Skilling continued to champion financialization,

56
Enron, “The stockholders of HNG/InterNorth, at the Corporation’s Annual Meeting
Today, Approved Changing the Corporation’s Name to Enron Corp.,” PR Newswire, 10
April 1986, https://www.nexis.com; HNG/InterNorth, “HNG/InterNorth Announced Today
That It Will Propose to Its Stockholders That the Name of the Corporation Be Changed to
Enron Corp., Rather than Enteron Corp., Which Was Previously Announced,” PR Newswire,
7 March 1986, https://www.nexis.com.
57
Enron’s particular interpretation and rhetorical use of free market capitalism suited the
company’s aggressively proﬁt-driven focus. Indeed, as a public relations tool, the free market
justiﬁcation was strategically advantageous to the business and formed a core element of its
political and public identity throughout its existence. See Benke, Risk and Ruin, 90–91.
58
Jeffery Skilling, “Promoting Price Stability through Supply Portfolios,” Public Utilities
Fortnightly, 1991.
59
Salter, Innovation Corrupted, 23–25.
60
Enron, “Enron Finance Corp. Names Jeffrey Skilling Chairman & CEO,” PR Newswire,
26 June 1990, https://www.nexis.com.
61
Sayan Chatterjee, “Enron’s Incremental Descent into Bankruptcy: A Strategic and
Organisational Analysis,” Long Range Planning 36, no. 2 (2003): 133–49.

introducing a variety of energy-related ﬁnancial services and placing

Enron as an interface between buyers and sellers of commoditized
energy products.62 Such activity was a stark contrast to the firm’s historic
focus on heavy assets like pipelines and power plants. However, with
Skilling’s success, the company increasingly resembled the organizations
found on Wall Street rather than the gas company of its past. While the
dynamic and innovative face of Enron sought to naturalize extraordinary
growth, increasingly deceptive accounting practices—including the
hiding of debt in complex subsidiary structures and the forward
booking of unrealized profits—were concealing a troubling financial
reality.
By 1997, Enron had gone from a significant, if globally obscure,
natural gas company to an organizational phenomenon with substantial
visibility and political sway. Young, aspirational, and bright graduates
wanted to work for the company that promoted the importance of
brains above age or experience.63 Furthermore, its political presence
as an advocate of deregulation was substantial, helped in no small way
by Lay’s connections to Washington.64 Despite significant diversifica-
tion, much of Enron’s focus remained based in the energy sector; it
was here that the firm directed its deregulation advocacy, seeing electric-
ity markets as the greatest opportunity for new profit streams.65 As polit-
ical appetites increasingly aligned with Enron, government and industry
alike looked with ever-increasing optimism to the role of competitive
markets within the electricity supply.
The distribution of the electricity supply to consumers (or ratepay-
ers) relies on two key physical components: generation, or the ability
to produce electricity; and transmission, or the capacity to transfer
large amounts of it to its point of distribution. As excessive quantities
of surplus electricity cannot be stored, it has the potential to overload
system infrastructure. Conversely, too little energy will necessitate the
limiting of voltage (brownouts) or the total absence of supply (black-
outs). Thus, a precise balance between generated supply and electricity
demand is needed, and it is achieved through scheduling: the advance
planning of a base-level of generation, anticipating availability and
demand at a given point in time (twenty-four hours ahead). If necessary,
schedules are adjusted closer to the time of transmission (day-of or hour-
ahead) and in some cases reserves might be called on to negate any

62
Benke, Risk and Ruin, 61.
63
Brian Cruver, Anatomy of Greed: The Unshredded Truth from an Enron Insider
(London, 2002), 4.
64
Bradley, Edison to Enron, 20.
65
Tillman, “Making the Rules.”

Figure 1. Representation of pre-reform energy supply. (Source: Christopher Weare, The Cal-
ifornia Electricity Crisis: Causes and Policy Options [San Francisco, 2003], 11.)

unexpected shortfall.66 Care must also be taken not to congest transmis-

sion lines by scheduling too much energy through particular paths. Using
this combination of planning and redundancy, electricity can be reliably
delivered to ratepayers while avoiding the risks of overgenerating.
Energy supply, like other core public service industries, has long
been at the heart of contestation over government’s role in the interven-
tion and regulation of business. In California (as in other U.S. states) the
pre-1998 grid was made up of vertically integrated utility companies that
supplied captive consumers in a geographic area, predominantly using
their own generation and transmission infrastructure (Figure 1).67 This
arrangement—established in New Deal movements toward institutional

66
Blumstein, Friedman, and Green, “History of Electricity Restructuring.”
67
In addition to energy produced internally, a limited number of bilateral transactions
were also made for generation. See Ashutosh Bhagwat, “Institutions and Long Term Planning:
Lessons from the California Electricity Crisis,” Administrative Law Review 55, no. 1 (2003):
95–125.

economic policy—encouraged the naturally monopolistic tendencies of

networked technologies, leaving utilities to internally coordinate the
interdependent functions required for a reliable and safe electricity
service.68 Nonetheless, no one utility exists in isolation. Rather,
they are connected directly to others as a regional system (or intercon-
nection), which is itself then connected to other interconnections.
Thus, California is a single, if substantial, area within the Western
Interconnection, which is itself part of the North American grid. From
their position within this macrogrid, California’s utilities could under-
take limited import and export arrangements and mitigate potential
reliability issues (Figure 2).
Though the integrated utility structure had endured, global events
and the economic realities of capital-intensive infrastructure projects
had blurred this framework over time. Speciﬁcally, legislation in the
late 1970s encouraged independent, private generation, which was
then sold to utilities through generous long-term contracts.69 By the
late 1980s, the cost of maintaining both these contracts and their own
generation infrastructure was contributing to higher operating costs
for utilities and Californians were paying more for their electricity
than consumers in any other state. Moreover, as independent (noninte-
grated) generation was prevalent within the grid, many questioned
whether vertical integration was still required.70 This added weight to
the arguments of those who believed government’s presence in indus-
tries like energy was stiﬂing innovation and impeding competitiveness.
In line with broader political trends of the time (and encouragement
by companies like Enron), regulators widely agreed that integrating
competition would address many of their issues. Such initiatives had
already been initiated elsewhere, for instance, in the United Kingdom,
where a mandatory wholesale “pool” market had been implemented in
the early 1990s.71 Thus, on September 23, 1996, the state agreed to
restructure its electricity system, setting in motion a radical departure
from the predominating vertically integrated supply model (Figure 3).72

68
Phillip Schewe, The Grid: A Journey through the Heart of our Electriﬁed World (Wash-
ington, DC, 2007), 173.
69
The Public Utility Regulatory Policies Act required utilities to buy energy from registered
independent generators (known as “Qualify Facilities”), a policy that California’s Public Util-
ities Commission was particularly stringent in applying.
70
Blumstein, Friedman, and Green, “History of Electricity Restructuring.”
71
The U.K. pool system itself encountered problems, with market power abuse contribut-
ing to higher prices, and steps were taken to introduce bilateral markets. See Richard Green,
“Draining the Pool: The Reform of Electricity Trading in England and Wales,” Energy Policy
27, no. 9 (1999): 515–25.
72
The Electric Utility Industry Restructuring Act, AB 1890 (1996); Dan Richard and
Melissa Lavinson, “Something for Everyone: The Politics of California’s New Law on Electric
Restructuring,” Public Utilities Fortnightly, 1996, https://www.nexis.com.

Figure 2. Map of North American energy interconnections. (Source: Image adapted, with per-
mission, from the Western Electricity Coordinating Council [WECC], https://www.wecc.org/
epubs/StateOfTheInterconnection/Pages/The-Bulk-Power-System.aspx.)

Though widely referred to as deregulation, this process did not rep-

resent the wholesale adoption of market forces. Instead, the regulatory
framework governing energy was substantively reconﬁgured, introduc-
ing competitive elements to an otherwise regulated system.73 Speciﬁ-
cally, the bill required utilities to sell and purchase power on a newly
created spot market, the Power Exchange (PX), rather than generating
for their own demand. It also curtailed their ability to enter bilateral con-
tracts with independent generators, making the PX the main mechanism
of domestic and interstate market exchange. To manage the physical
delivery of electricity, the California Independent Systems Operator
(ISO) was created to manage statewide transmission and held responsi-
bility for contingency and adjustment administration. As such, the ISO
would receive the PX’s market information, ensuring enough power

73
Marc Allen Eisner, Jeffrey Worsham, and Evan Ringquist, Contemporary Regulatory
Policy, 2nd ed. (Boulder, 2006), 15–16. As Eisner, Worsham, and Ringquist note, deregulation
need not be a complete removal of regulation; rather, it normally represents the replacement of
one regulatory tool with a less intrusive alternative.

Figure 3. Representation of post-reform energy supply. (Source: Christopher Weare, The Cal-
ifornia Electricity Crisis: Causes and Policy Options [San Francisco, 2003], 11.)

was available. If transmission lines were congested, its automated com-

puter system would set artiﬁcial price adjustments to incentivize the
required change in scheduled ﬂow. Finally, caps were introduced to
reduce consumer rates by 10 percent, freezing them for a four-year tran-
sition period and ensuring the public saw an immediate positive
outcome from the reforms.74

An Illicit Path to Proﬁt

Throughout the 1990s Enron had increasingly developed an aggres-

sive performance focus, and with profits from natural gas waning, the
firm looked to electricity to sustain its profitability.75 To this end,

74
Even so, it was assumed that rates would remain above wholesale prices, thus allowing
utilities to recover any economical disadvantages of the reforms (i.e., stranded costs) through
the difference.
75
Jeremiah Lambert, The Power Brokers: The Struggle to Shape and Control the Electric
Power Industry (Cambridge, MA, 2015), 181–82.

Enron acquired Portland General Electric (PGE) in July 1997, providing

a route into the Western Interconnection and California’s new
markets.76 The state’s reforms were the culmination of a sustained
public relations campaign by Enron, and its executives were naturally
eager to capitalize on these efforts, seeing an opportunity to leverage
Enron’s knowledge of financial markets and trading in an untapped
market.77 To this end, the goals for the acquisition were closely tied to
its interest in energy deregulation and an ethical climate that valued
profit maximization in an increasingly competitive business environ-
ment. This entry point would encourage the initial interrogation of Cal-
ifornia’s new regulations for weakness and provide the initial grounding
for gaming as an acceptable trading practice.
Following the acquisition, Enron created the West Power division,
locating it in the same building as PGE in Portland. This new division’s
role was to buy and sell wholesale electricity and manage trading activ-
ities for other parties.78 As its senior traders worked to understand the
complex new systems, it became clear that the rules and protocols Cali-
fornia had devised contained flaws, offering potentially profitable oppor-
tunities to anyone with the knowledge and inclination to use them. While
Enron was by no means the only company interested in leveraging the
new regulations, its distinctive presence as a financial entity and an
unambiguous prioritization of profit encouraged a particularly unsym-
pathetic pursuit of their variabilities.79 To this end, the division’s
leaders would begin to analyze the rules and, by late 1997, start actively
exploring the market’s exploitable weaknesses with a view to generating
operational income in the process.80
At this time, Enron was approached by others keen to exploit such
“loopholes.” Among them was George Backus, a consultant associated
with Perot Systems, the information technology provider that had

76
Benjamin A. Holden, “Enron to Acquire Portland General,” Wall Street Journal, 22 July
1996, https://www.wsj.com/articles/SB837990920552923500; Portland-General/Enron,
“Enron Closes Merger with Portland General,” Business Wire, 1997, https://www.nexis.com.
77
Benke, Risk and Ruin, 82; Lambert, Power Brokers, 186.
78
Patrick Crowley, “Initial Audio Tape Testimony of Patrick R. Crowley,” EL03-180, S-84,
2005; Carl Pechman, “Supplemental Testimony of Carl Pechman, Ph.D. on behalf of Public
Utility District No. 1 of Snohomish County, Washington,” FERC, 2005, https://elibrary.ferc.
gov.
79
Mark de Bruijne, “Enron,” in Ten Heuvelhof et al., Strategic Behaviour, 100–1; Gary
Mcwilliams, “The Quiet Man Who’s Jolting Utilities,” BusinessWeek, 8 June 1997; Bethany
McLean and Peter Elkind, “Gaming California,” in The Smartest Guys in the Room: The
Amazing Rise and Scandalous Fall of Enron (New York, 2003), 267–68.
80
Robert McCullough, “Summary of Supplemental Testimony of Robert F. McCullough on
behalf of Public Utility District No 1 of Snohomish County, Washington,” EL03-180, SNO-710,
2007, 14–15; Belden plea agreement.

designed California’s new automated market protocols.81 In designing

these protocols for both the ISO and PX computer systems, Perot
Systems had amassed a substantial working knowledge of the new
markets’ features, limitations, and flaws.82 Using this knowledge,
Backus promoted his consultancy services, offering market participants
a privileged view into the new regulatory landscape within which they
would operate. A fax sent by Backus to utility companies highlights the
extent to which these opportunities for profit were morally complicated,
noting, “There may be ethical issues related to ‘the end justifying the
means’ but there is a large region of opportunities between what is eth-
ically viable (profitable) and ethically dangerous (illegal).”83 Though he
also suggested they “destroy [the fax] or black out selected sections
after you have read it,” his endeavors did not go unnoticed for long. In
October, the head of the ISO chastised Perot Systems not only for its “vio-
lations of basic norms of business ethics” and “bad faith dealing” but also
for having risked “seriously eroding the integrity of the California market
system.”84
Despite this, Backus and his team continued to offer services based
on this information to various market participants, including Enron’s
West Power traders. A presentation entitled “Profit Maximization
under U.K. and U.S. Deregulation” contained a section on “using Califor-
nia PX/ISO and FERC rules in the best advantage.”85 Here, the present-
ers were quick to naturalize such activity, arguing that “market
distortions are inevitable” and “distortions ‘force’ gaming to ‘clear’ the
market.” In contradiction, however, “gaming” (i.e., taking unfair advan-
tage of the rules and procedures) was explicitly prohibited by the new
markets’ rules.86 Nonetheless, the presentation went on to identify
ways that various automated protocols would behave in different
market conditions and the best tactics for capitalizing on them. Among
those in attendance was the then director of Enron’s California trading
desk, Tim Belden. His handwritten notes on subsequent tutorial hand-
outs allude to his particular interest in these vulnerabilities.87

81
George Backus, email to Hannon, Rice, and Kean re: “ISO Found on of the $1B loop-
holes,” 7 Nov. 1997, EL03-180, SNO-713, FERC.
82
Jon Kamp, “Perot Systems’ Denials Fall Flat in Probe of California Energy Crisis,” Wall
Street Journal, 8 June 2002, https://www.wsj.com/articles/SB102347466174656760.
83
George Backus, letter to Jonathan Jacobs, manager of market evalution at Pacific Gas
and Electric, 21 July 1997, EL03-180, SNO-80, FERC.
84
Jeffrey Tranen, letter to Ronald Nash re: “ISO Alliance and Perot Systems Corporation
Conflicts of Interest,” 22 Oct. 1997, EL03-180, SNO-81, FERC.
85
George Backus et al., Presentation re: “Profit Maximization under UK and US Deregula-
tion,” 13 Jan. 1998, EL03-180, SNO-84, FERC.
86
CAISO, “ISO Market Monitoring.”
87
Tim Belden, “Handwritten notes on document ‘Zonal Market Clearing Prices: A Tuto-
rial,’” 1998, EL03-180, SNO-87, FERC.

In the months that followed, the division’s senior traders remained

in contact with the consultants, clarifying details and further developing
their understanding of market vulnerabilities.88 Belden remained con-
vinced of their value, and in an email to a superior reﬂecting on his per-
sonal performance, he was explicit in seeing gaming as a core aspect of
Enron’s trading strategy: “California gaming—we always say that we
need to increase this activity but we never do. Need to work more
closely with cash, scheduling, and real time [desks] to maximize
opportunities.”89
Such activity was still largely exploratory at this time, with occa-
sional internal trading notes highlighting trades as “PHONY,” with the
cited goal to “see if we could [successfully deploy the phony trade] and
take advantage of buying power at the Ex-Post price.”90 They also
alluded to the involvement of Enron’s clients, with traders seeking
case-by-case partnerships to trial particular games. Thus, Enron had
entered a period of incremental testing, probing the regulations to ﬁnd
those practices its traders might successfully implement on a larger
scale. In addition to providing technical insight, these efforts provided
an initial precedence for the integration of gaming practices within the
division’s operational processes, going so far as to formally document
them for review by Enron superiors.91
The most notable example of testing occurred in May 1999, when
Belden conducted what he would later characterize as a market “exper-
iment.”92 On the morning of May 24, Belden bid to supply 2,900 mega-
watts of power for the next day to the California PX from a Nevada-based
generation source. In order to provide this, he scheduled transmission
through a small path called Silver Peak. Although theoretically within
the ISO’s transmission network, Silver Peak was a small capacity line
installed solely for the transfer of power from a generator in Nevada
through to California. In what one expert witness called a “proof of
concept scheme,” Belden had orchestrated a situation whereby only 15
megawatts of the 2,900 megawatts of power the ISO thought it was
getting could actually be delivered.93 In effect, he had purposefully
88
Ed Smith, letter to Rich Davis re: “Real-Time Market Modeling Optimization,” 4 Aug.
1998, EL03-180, SNO-86, FERC.
89
Tim Belden, email to Phillip Allan, 30 June 1998, EL03-180, SNO-795, FERC.
90
Enron West Power Trading, “California PX/ ISO Schedule,” 6 May 1998, EL03-180,
SNO-717, 3, FERC.
91
A more general precedent for gaming within Enron had already been established through
small-scale initiatives such as Project Stanley, a manipulation strategy that involved Enron and
other parties within the Canadian energy market. See FERC, “Initial Decision,” 34.
92
Quoted in Market Compliance Unit, “Report on Compliance Unit Investigation of
Market Events for [Redacted],” California Power Exchange, EL03-180, SNO-89, 1999, 13.
93
Robert McCullough, “Prepared Direct Testimony of Robert F. McCullough on Behalf of
Public Utility District No 1 of Snohomish County, Washington.,” EL03-180, SNO-58, 2007, 56.

congested a path, allowing him to observe what happened when the ISO’s
system intervened to decongest it.
Once submitted to the ISO, Belden’s schedule triggered operational
procedures that Perot Systems had helped create, and the system auto-
matically set about rebalancing the congested path.94 The schedule
had also created significant variance between anticipated and actual
supply, and this was remedied by increasing out-of-state imports,
using reserve power, and reducing demand in the day-ahead market
through increased prices. Belden’s experiment demonstrated that it
was possible to influence prices using California’s congestion protocols
and to receive payments for relieving purposefully created congestion—
in this case, costing Californian ratepayers an estimated $4.6 million to
$7.0 million in the process.95 However, the episode did not go unnoticed;
following a lengthy investigation, the PX concluded that Belden’s actions
violated its scheduling and control protocols and showed “disregard for
[its] primary goal of maintaining efficient and fair markets.”96 Enron
also conducted its own internal investigation, sending the director of reg-
ulatory affairs to interview Belden. In addition to advocating his case, she
encouraged him not to report a similar trade he had made in January, lest
the PX realize Silver Peak was not an isolated incident.97 Enron ultimately
settled with the PX for a modest $25,000, which reflected the firm’s coop-
erative attitude during the investigation and the PX’s limited regulatory
jurisdiction to apply further penalty.98
Enron also agreed that such conduct would not be substantially
repeated; however, its traders now had much of the information they
needed and were already looking to operationalize it through more sus-
tainable means. Belden had not actually tried to hide his actions. More-
over, he did not intend to repeat them, at least not in their current form.
Instead, Silver Peak constituted an isolated act, albeit one that would
precipitate future normalization of related practices. As such, it was
indicative of the relatively isolated, emergent nature of gaming activity
within the division at that time. Enron’s defense of Belden during
Silver Peak had also positively sanctioned such activity, presenting
gaming as concordant with the company’s wider culture and ethical posi-
tion. Even if the operational particularities of manipulative energy
trading were largely bound within the division, Enron’s executives saw
94
McCullough, “Direct Testimony” 52–54.
95
McCullough, “Supplemental Testimony,” 22; McCullough, “Direct Testimony” 56–57.
96
Market Compliance Unit, “Report,” 6.
97
See Mary Hain, “Draft Fact Summary,” n.d., EL03-180, SNO-715, FERC. In fact, the PX
was ultimately made aware of the previous event but noted the lack of effect on prices and
Enron’s explanation that it was done to correct an earlier bedding error.
98
Market Compliance Unit, “Report,” 6; Patrick O’Neill and Stan Cocke, “Manipulation?,”
Energy Market Report 5 (1999).

the leveraging of California’s new system as vital to the company’s ﬁnan-

cial prosperity.

Normalizing Corruption

By late 1999, Belden was running the whole West Power division.99
Additionally, a trader responsible for a small-scale gaming scheme in
Canada, John Lavorato, was now Belden’s superior. In Lavorato,
Belden had a boss who understood the potential gaming offered and
shared similar ethical views on its use.100 While experiments like
Silver Peak had proved enlightening, they were unsubtle, so traders
began incorporating this knowledge into more covert “trading strategies”
(Table 1).101 These were predefined formulas that exploited vulnerabili-
ties in California’s systems while disguising the traders’ true intent. They
could be used many times, allowing senior traders to embed and routin-
ize gaming as a widespread, consistent practice within the division. In
this way, the end of 1999 saw reports of preliminary success in exploiting
the ISO’s flawed system. One of the division’s traders even cited “gaming
California’s congestion management system” among his accomplish-
ments, noting that the practice had “captur[ed] significant value in the
process.”102 During this time such gaming activities were, therefore,
increasingly normalized, moving beyond the instigating actors and into
the everyday activities of the wider division.
As part of this escalation, traders also began to further embed these
manipulative routines into Enron’s external service relationships, pro-
viding the control of generation and transmission scheduling needed
to actually execute their strategies.103 For instance, to utilize one partic-
ularly effective strategy, known as “Fat Boy,” traders used the control of
partners’ generation output and scheduling to misrepresent demand for
electricity in the day-ahead market, on the basis that this would give
them excess generation to sell in the higher real-time markets.104 As

99
Steven Cofﬁn, Criminal Complaint report to US District Court (Northern District of Cal-
ifornia) re: United States of America v. John Forney, 30 May 2003, Federal Bureau of
Investigation.
100
Tim Belden, transcript of telephone conversation with John Lavorato, 4 Aug. 2000,
EL03-180, SNO-221, FERC; McCullough, “Supplemental Testimony” 196–97.
101
Christian Yoder and Stephen Hall, memorandum to Richard Sanders re: “Trading Strat-
egies in the California Wholesale Power Markets/ISO Sanctions,” 6 Dec. 2000, EL03-180,
SNO-20, FERC; De Bruijne, “Enron.”
102
Scott McKinney, personal review documents “Accomplishments 1999” and “Goals for
Y2K,” 1999, EL03-180, SNO-797, FERC.
103
FERC, Order to Show Cause.
104
Pechman, “Supplemental Testimony of Carl Pechman, Ph.D. on behalf of Public Utility
District No. 1 of Snohomish County, Washington,” EL03-180, SNO-247, 2007, 111. While none-
theless still a breach of market rules, there is an argument that this particular game was used in

Table 1
Summary of Key Trading Strategies
Code Description Result
name

Ricochet Exporting energy out of California’s ISO’s Artiﬁcially increased prices

system, thus simultaneously avoiding
price caps and decreasing supply, then
reimporting it and selling it in the next
day’s (uncapped) real-time markets.
Fat Boy Deliberately overscheduling demand in Artificially increased prices
the hour or day-ahead markets, gener-
ating a surplus that could then be sold in
the uncapped real-time markets.
Death Scheduling a fictitious energy transmis- Activated congestion relief
Star sion in a loop that flows in the opposite payments
direction to a congested transmission
path, enabling collection of congestion
relief revenues. Known variants on this
strategy included Forney’s Perpetual
Loop and Driscoll’s Death Star.
Load Shift Creating phantom demand for energy in Activated congestion relief
order to change the market price and payment, and artificially
then buying or selling in that market at increased prices
an advantageous rate.
Wheel- Purposefully scheduling transmission on a Activated congestion relief
Out path that was out of service, resulting in payments
entitlement to congestion relief
revenues.
Get Selling reserves in the day-ahead markets Provided a (prohibited) arbi-
Shorty and then buying them in the cheaper trage opportunity between
real-time market. markets

such, traders would make regular calls to partners, instructing them to

turn units on or off, and on occasion, partners would even contact
traders to let them know when they were in a good position to use the
strategy.105 Thus, cooperative arrangements between Enron and other
parties allowed the illusion of normal trading activity, when in reality
it was implemented for ulterior reasons. By increasing the division’s inte-
gration into its partners’ operational activities and decision making,

part because utilities were underscheduling their demand on the other side of the market, in
the hope of buying cheaper real-time electricity. See De Bruijne, “Enron,” 88–89.
105
Brian (Enron), transcript of telephone conversation with “Steve,” 4 Aug. 200, EL03-180,
SNO-165, FERC; Snohomish, “Initial Brief of Public Utility District No. 1 of Snohomish County,
Washington,” EL03-180, 2007, 35.

Enron’s existing business model provided traders with the means to

enact their gaming strategies.106 Ultimately, these “consulting arrange-
ments” allowed traders to convert their knowledge of the market’s
flaws into something they could implement in a discrete and repeatable
manner. In return, the partner firms generally received a predefined per-
centage share of the traders’ returns, benefiting from Enron’s superior
trading expertise that they themselves lacked.107
Despite the openness and regularity with which Enron pursued
these relationships, the undisclosed nature of these collaborations
breached market rules designed to limit the very market power that
they were now providing Enron’s traders. One of the earliest and most
prominent of these partnerships was Enron’s relationship with Texas-
based utility El Paso Electric.108 Enron had maintained a close relation-
ship with El Paso for several years, and when the opportunity to profit
from California materialized, the utility signed on to the traders’
plans.109 An example of the sort of arrangement between the two firms
can be seen in an email sent by the head of real-time trading, John
Forney, to staff in early February 2000, when he reports a new arrange-
ment for the “Wheel Out” strategy:

We have struck a deal with El Paso where we buy from them PV [Palo
Verde] and sell to them 4C [Four Corners] for a $10 spread. They
don’t ﬂow any power because they have the rights at both points,
and they collect a check—no risk to them. . . . Today, we have been
paid in the mid-forties to relieve congestion. With approx. $4 of
expenses, we make $31 no risk margin.110

Accordingly, by working with companies like El Paso, traders could

create an apparently legitimate schedule, the sole purpose of which
was to trigger congestion relief payments.111 Enron also ran a large pro-
portion of El Paso’s scheduling activity, providing control of generation
and privileged information, which it used to affect levels of energy avail-
able to the Californian markets. It was the success of this early relation-
ship with El Paso that would ultimately inform the development of a
106
FERC, Order to Show Cause.
107
FERC, “Initial Decision,” 19.
108
See FERC, “Commission Revokes.” In order to avoid issues of market power, Enron was
required to disclose any relationships with other participants. This it did not do, violating its
market-based authority as a result.
109
Stewart Rosman, transcript of telephone conversation with “Theresa,” 19 Dec. 2000,
EL03-180, SNO-218, FERC.
110
John Forney, email to Miller, Rosman, Wolfe, and Foster re: “Here’s some service for
you!,” 4 Feb. 2000, EL03-180, SNO-98, FERC.
111
In 2002, the FERC initiated proceedings against El Paso Electric for its part in Enron’s
strategies. A settlement was subsequently agreed in July 2003. See FERC, “Certiﬁcation of
Contested Settlement,” 104 FERC ¶ 61,115 (2003).

wider network of partners, serving “as a model for many of Enron’s other
relationships.”112 Traders also leveraged Enron’s ownership of PGE, con-
travening the requirement to remain operationally distinct from the
acquired utility and controlling large portions of its operations instead.
Through these means, a network of facilitative organizations began to
emerge, with each affiliated firm embedded in the actions of Enron as
a dominant corrupt organization.113 Thus, as Figure 4 illustrates, by
leveraging partners’ physical assets, information, and assistance, West
Power traders were able to pursue profit for Enron and its partners,
via collectively enabled market manipulation.
As traders developed more strategies, they created code names to
distinguish them, further embedding their usage in the collective
memory and language of the division and its network of partners.
While many of the names appear to stem from internal actors (some
even naming them eponymously), it is clear that some external actors
also used and understood them, even participating in their development.
For instance, in April 2000, Forney was in the initial stages of coordinat-
ing a new congestion strategy with the Californian utility City of Redding,
when he included his counterpart in the naming of their new game, sug-
gesting the now notorious “Death Star.”

John [Forney]: OK what do you want to call this project—we have to

have a catchy name for that?
Trader: Project—ah—I was going to say project loop—but I don’t
want that to go out in the world.
John: How about you know something friendly like Death Star?
Trader: (Laughter) How about reduce the debt—debt star—
because we are trying to reduce our debt here. Whenever we make
money it reduces our debt.114

Consistent with other accounts of collective wrongdoing, such inter-

actions also allude to the excitement that surrounded the new strategies,
with code names compounding their novelty.115 Others were simply illus-
trative of their process. In this way, a “Ricochet” involved the rebounding
112
Snohomish, “Initial Brief.”
113
As a legal matter, the involvement of Enron’s partners was addressed in the “show
cause” orders issued by the FERC following the findings of its final report in 2003. While sub-
sequent trial evidence significantly extended insight into its partnership arrangements, the
legal scope of these proceedings was limited to Enron. See FERC, “Initial Decision,” 4.
114
Quoted in Barry Sullivan, “Prepared Initial Tape Testimony of Barry E. Sullivan Witness
for the the Staff of the FERC,” EL03-180, S-129, 2005, 12. Though settling for the subtler “Debt
Reduction,” Forney retained his preference for the Death Star, and it was this moniker that was
ultimately adopted.
115
Levine instigated codified terms for use among his contacts, providing both security and
a level of excitement. Stewart, Den of Thieves, 68.

Figure 4. Structure of Enron’s network of market participants. (Source: FERC, “Initial Deci-
sion,” 119 FERC ¶ 63,013 [2007], 18–20, 36-38.)

of a scheduled out-of-state energy back into California, simultaneously

reducing apparent supply and avoiding the state’s price caps. Thus,
code names made complicated gaming processes easily identiﬁable
and engaging, helping to embed them into accepted trading activity.
Once arrangements were established for a particular strategy, senior
traders used the formal structures to disseminate instructions to traders
within the division, who were responsible for much of the day-to-day
implementation and coordination with partners. Indeed, trial evidence
suggests at least seventy-two of the division’s one hundred employees
were involved in these strategies, along with as many as thirty genera-
tors, who supported Enron and shared in its proﬁts.116 Expectations
were openly communicated in meetings and reference materials, with

116
Snohomish, “Initial Brief,” 2; McCullough, “Direct Testimony,” 35.

the real-time division’s service handbook providing detailed instructions

for market manipulation, specifying the generation units, transmission
paths, and participants to use in the process.117 Here, the level to
which manipulation had become a routine part of trading is highlighted
in the FERC’s comments on the use of such handbooks:

If prices in the California market are high, the Enron employee would
refer to the handbook section entitled “Who do you call and what
action to take?” The Enron employee first decides if the price is
high enough to be profitable to the “customer.” If it is profitable,
the Enron employee would: “generate or import and fake, or increase,
load.” In this situation, the Enron employee could call, for example,
Glendale or Valley Electric and instruct them to increase imports
into the California ISO control area; the Handbook lists the transmis-
sion paths to be used.118

The ability to use trading strategies appropriately became an explicitly

articulated performance criterion, with an agenda from a staff meeting
even referencing formally monitored proﬁciency tests.119 The agenda
goes on to update the group on current strategy options and even intro-
duces three new employees (referred to as “players”), illustrating the
overt nature of managerial expectation and the speed at which new
traders were socialized into the use of corrupt practices.
Once normalized, market manipulation was neither spontaneous
nor occasional. A network of actors from multiple organizations had
formed around Enron, with the collective aim of exploiting California’s
regulations. While Enron was the linchpin, its traders’ corruption had
clearly moved beyond this single organization, evolving to include a
network of corruption-enabling partner organizations.

Rationalizing in Response to Crisis

By spring 2000, senior traders had normalized corruption in the

form of gaming throughout the division and its network of partner orga-
nizations; however, this normalization was still susceptible to disruption.
Before the crisis, traders had deployed their strategies within a relatively
uneventful market environment, where minimal price volatility and
supply issues had kept electricity in the back of public consciousness.
However, from May, the price utilities paid for electricity started to

117
Enron West Power Trading, “Service Handbook (Real Time),” n.d., EL03-180, SNO-46,
FERC.
118
FERC, Order to Show Cause, 21.
119
Enron West Power Trading, “Agenda for Real Time Staff Meeting,” 7 Mar. 2000, EL03-
180, SNO-75, FERC.

rise signiﬁcantly, consistently reaching the ISO’s wholesale cap of $750/

MWh during that month and beyond, into the summer.120 While the
causes were unclear, new regulations, unseasonable weather conditions,
and suspicions of opportunistic behavior by companies such as Enron
were variously singled out for blame. At this point, Enron’s traders
and their network of partners increasingly used rationalizing techniques
to account for the unfolding crisis, attempting to portray their acts as
acceptable based on certain ideological positions.121 For instance,
when discussing the situation in California with Belden, his superior
notes, “It’s just [expletive] unfortunate—we’re going to have repercus-
sions of all this stuff, and not necessarily ’cause we do anything
wrong. . . . You take this much money out of a market, I think that
there’s um, you know, they just [expletive] like try to find somethin’.”122
Such views followed the pre-crisis logic, underpinning its initial explora-
tion of vulnerabilities—that is, a belief that its actions were a legitimate
part of participation in a flawed market. Accordingly, in the same way
Backus had argued that gaming was a natural stage in the process of
deregulation, trading strategies were an uncomplicated route to profit
maximization. Thus, the view prevailed that “if they’re going to put in
place such a stupid system, it makes sense to try to game it.”123 Accord-
ingly, when the system started to fail, this too was added to a collective
interpretation of acceptability.
Arguably, the crisis was something of a perfect storm, with multiple
factors together creating an exceptional situation.124 First, there were
several supply and demand issues. Low rainfall contributed to drought
conditions in the Northwest, which limited the hydroelectric generation
California could import. Coupled with the state’s low domestic output,
this meant that available generation was lower than in previous years.
On the demand side, hot weather increased air-conditioning and refrig-
eration-based consumption, adding to demand. This compounded an
existing trend of demand increase, caused by the state’s economic devel-
opment (particularly Silicon Valley) and greater domestic consumption.
These factors significantly contributed to the shortage and, thus, the
price increases. The new regulations did not help this situation.
The cap on consumer rates had essentially decoupled demand from
the cost of supply, and with this, the economic situation became
120
FERC, “The Western Energy Crisis, the Enron Bankruptcy, and FERC’s Response”, n.
d., https://www.ferc.gov/industries/electric/indus-act/wec/chron/chronology.pdf.
121
Sykes and Matza, “Techniques of Neutralization”; Ariely, (Honest) Truth about Dishon-
esty, 207–10; MacLean, “Framing and Organizational Misconduct.”
122
Belden, transcript of telephone conversation with Lavorato, 2. Expletives in original are
redacted here.
123
McLean and Elkind, Smartest Guys, 267.
124
Blumstein, Friedman, and Green, “History of Electricity Restructuring.”

problematic for utilities. Forced to pay a heightened price for wholesale

energy, they were unable to pass any of this increase on to ratepayers. In
turn, the ratepayer had no financial incentive to use less energy. There
was minimal opportunity to reduce the price through economically
incentivized demand reductions.
As summer progressed, the economic and infrastructural situation
in California deteriorated further. Supply shortages resulted in the first
set of rolling blackouts on June 14, representing a significant escalation
of the problem for California’s citizens.125 Ratepayers had been largely
protected by the consumer price caps, but intersections without traffic
lights, elevator trappings, and forced industry downtime brought the
public dependence on reliable power into sharp focus. Additionally,
San Diego had left the consumer-rate-cap arrangement early and, with
utilities passing high energy prices on to ratepayers, public anger was
swelling.126 Energy companies were increasingly being suspected of
foul play by citizens and politicians alike.127 Moreover, Enron was
singled out, partly for the company’s vocal advocacy for the reforms,
but also because it was increasingly seen by many as a self-interested,
out-of-state opportunist.128
By late summer, the situation in California had deteriorated further,
and with ever-increasing wholesale prices and suspicions of foul play,
utilities pressed the FERC to investigate whether manipulation had
occurred within the new market. Until now, Enron had been happy to
support the West Power traders, content that their endeavors were
bringing in record earnings. However, the FERC inquiry prompted
Enron’s risk management team to launch their own investigation into
the division’s practices, the details of which Houston was largely still
unaware. Though their investigation revealed the trader’s strategies,
code names and all, Enron’s lawyers ultimately permitted its traders to
continue, albeit with notice that their strategies remained a concern.129

125
FERC, “The Western Energy Crisis, the Enron Bankruptcy, and FERC’s Response”
126
Michael McMahon, “San Diego Rate Freeze Request Rejected, Customers Irate,” The
Energy Report, 2000, https://www.nexis.com.
127
Hil Anderson, “Governor Seeks Probe of California Electricity Market,” United Press
International, 2 August 2000, https://www.nexis.com.
128
Gavin Benke, “Where Is Enron? Changing Perceptions of Geographic Relationships in
the Deregulation of California’s Energy Market,” Business and Economic History On-Line 6
(2008), http://www.thebhc.org/publications/BEHonline/2008/benke.pdf. Similar animosity
was felt by Enron, particularly in relation to the state’s politicians. Bob Badeer, email to Tim
Belden re: Stave Peace, 17 July 2000, Enron Email Dataset.
129
McLean and Elkind, Smartest Guys, 274–76; FERC, “The Western Energy Crisis, the
Enron Bankruptcy, and FERC’s Response”; McCullough, “Direct Testimony.” When details
of Enron’s wrongdoing did come to light, it was through the discovery of a memo sent
during this investigation, which summarized the various trading strategies and the purpose.
See Yoder and Hall, memo to Richard Sanders.

In November, the FERC also reported back on its investigation, ﬁnding

that a combination of supply-and-demand imbalance and flawed
market design had caused the “unjust and unreasonable rates for
short-term energy.”130 Claiming insufficient time and a lack of data,
the report failed to substantiate any specific incidents of manipulation,
but it acknowledged the opportunity was there and that market data sug-
gested such abuses may have already occurred.131 In California the
FERC’s decision, seen by many as a failure to act on blatant exploitation,
was widely criticized.132
Despite the report’s findings, the crisis continued to create complica-
tions for Enron’s traders, with some partners becoming increasingly reluc-
tant to engage in the inflammatory gaming activities. This, in turn,
frustrated the traders’ ability to maximize opportunities effectively, as
the use of alliances was key to their trading strategies. As the political
risk increased, some could not reconcile the risk of being found complicit
in the worsening problems. Such reluctance was particularly strong
among Enron’s public partners who, irrespective of their own views,
feared others might see their actions as unacceptable. In one case, a
partner describes the “nasty political situation” that would result for a
public agency found to have exported energy out of California, exacerbat-
ing the problem while others were trying to solve it.133 Thus, rather than
failing to rationalize their actions, for some the crisis appeared to tip the
balance of political risk and financial reward, making participation more
of a liability than an opportunity.
Despite traders’ efforts to encourage continued involvement, the reluc-
tance by some to continue was clearly a frustration as, throughout Enron’s
network, partners were split on whether to continue.134 From an internal
perspective, the risks surrounding California came to a head on December
12, when Enron’s legal team returned to Portland, where ultimately they
ordered the cessation of the traders’ strategies.135 At least a partial
130
San Diego Gas & Electric Company v. Sellers of Energy and Ancillary Services into
Markets Operated by the California Independent System Operator and the California Power
Exchange, et al., 95 FERC ¶ 61,173 (2001).
131
At this point, organizational records had not been subpoenaed, and key documents like
the Yoder/Hall memo were yet to be discovered. As such, the investigation was based primarily
on market data and gave limited scope to provide specific incidents of wrongdoing.
132
Doug Heller, “Federal Energy Commission Finds Excessive Rates, But Fails to Take
Action; FERC Report Magnifies Need for Re-regulation of Electricity in California,” U.S. News-
wire,1 Novermber 2000, https://www.nexis.com; Bart Janson, “FERC Finds ‘Unreasonable’
Power Costs in San Diego,” The Associated Press, 1 November 2000, https://www.nexis.com.
133
Stewart Rosman, transcript of telephone conversation with Dick Jones, 5 Dec. 2000,
EL03-180, SNO-380, FERC.
134
Mike McDonald, transcript of telephone conversation with Stewart Rosman, 11 Dec.
2000, EL03-180, SNO-386, FERC.
135
“Examining Enron: Developments Regarding Electricity Price Manipulation in Califor-
nia,” Senate Hearing 107-1035 Before the Subcommittee on Consumer Affairs, Foreign Com-

suspension was subsequently apparent from communications, with some

traders seeing the move as a prudent one and others eager for a resump-
tion.136 However, this state of inactivity did not last long, and it is clear
that manipulation activity resumed just a few weeks later. Indeed, the
increased political and legal scrutiny had encouraged Enron’s traders
and their network of partners to incorporate new, clandestine behaviors
into their normalized practice. Again, Enron’s traders led the way, encour-
aging the use of cell phones and chat rooms to avoid monitored ofﬁcial tele-
phone and email channels.137
In January 2001, Forney moved to Houston and his colleague Bill
Williams was promoted as his successor. At this time, some of the orig-
inal trading strategies remained suspended, with political risk and
market illiquidity issues continuing to limit traders’ use of them.138
Despite the risks, Williams was keen to continue the work his predeces-
sor had instigated, noting his desire to “take the shackles off and get after
it again.”139 However, Forney cautioned Williams that they needed to
limit their activity until the crisis had settled, also warning him that per-
sonal liability was an increasing issue for them. Accordingly, Enron’s
focus on actual trading strategies such as the Death Star reduced some-
what, with the company instead working with partners to physically
withhold energy from California, increasing prices throughout the
western markets in the process.140
In California, the ﬁnancial implications of the crisis were reaching a
critical point. The creditworthiness of indebted utilities meant genera-
tors were unwilling to sell power to their de facto creditors, the PX and
ISO.141 While such credit issues were a genuine liability for anyone
selling into California, this was not the only reason the state was strug-
gling to acquire energy. By physically withholding energy, market partic-
ipants were able to maintain high prices within the Western

merce and Tourism of the Committee on Commerce, Science, and Transportation, 107th
Cong., 2nd Sess. (2002).
136
Jesse Bryson, transcript of telephone conversation with Ryan Slinger, 14 Dec. 2000,
EL03-180, SNO-293, FERC; Holden Salisbury, transcript of telephone conversation with
Jesse Bryson, 2000, EL03-180, SNO-201, FERC.
137
Sean Crandell, reply email to Tim Belden re: “Morning Gas Call,” 9 Apr. 2001, Enron
Email Dataset; Carl Pechman, “Supplemental Testimony of Carl Pechman, Ph.D. on Behalf
of Public Utility District No. 1 of Snohomish County, Washington,” EL03-180, SNO-160,
2007, 5.
138
Monika Cousholi, transcript of telephone conversation with Geir Solberg, 19 Jan. 2001,
EL03-180, SNO-477, FERC.
139
Bill Williams, transcript of telephone conversation with John Forney, 29 Dec. 2000,
EL03-180, SNO-192, FERC.
140
FERC, “Initial Decision,” 16.
141
Once utilities like PG&E defaulted on their debts, the credit risk was transferred to their
creditors (the PX), who then defaulted on their debts to the ISO. See Blumstein, Friedman, and
Green, “History of Electricity Restructuring.”

Interconnection, offering continued proﬁt for companies like Enron.142

Indeed, such withholding was actively pursued within Enron West
Power, with the FERC finding that the division “used its ability to
control and withhold large amounts of generation to manipulate the
market.”143 To do this, it also needed to mitigate the ISO’s new federal
powers, which allowed the ISO to compel generators to offer
electricity supply during shortages.144 In this way, Enron’s traders
encouraged its partners to find increasingly elaborate ways to avoid
selling to California.
Such activity was illustrated most prominently when Williams asked
a generator, Las Vegas Cogeneration, to “get a little creative . . . and come
up with a reason to go down.”145 Here, his contact agreed to stop gener-
ation for maintenance, meaning a plausible excuse accompanied its
withholding of electricity. This allowed Enron to avoid a schedule
already committed to California, while the state again was forced to
implement emergency procedures. Similarly, on January 19, the ISO
used new powers to order Enron to notify it of all its available generation
in the whole Western Interconnection. On receiving the order, the trader
on duty immediately called numerous colleagues; between them, they
constructed a way to minimize the amount of energy they would have
to declare.146 In this way, market manipulation had escalated from
trading strategies that unfairly exploited the rules to actions that actively
contravened the federal orders implemented to mitigate the crisis.
It was not until June that a fall in prices gave the first suggestion the
crisis was abating, by which time it had already brought about the bank-
ruptcy of both the PX and the major Californian utility Pacific Gas and
Electric.147 The FERC had extended emergency regulation, requiring all
generators in the Western Interconnection to bid available power into Cal-
ifornia, whether on or off peak. This closed many of the remaining oppor-
tunities for interstate manipulation and by the end of summer the prices
had returned to pre-crisis levels.148 For Enron’s traders, the significance of
the energy crisis was dramatically eclipsed by the company’s bankruptcy
and fraud scandal just months later. As the various companies within its
142
Bhagwat, “Institutions and Long Term Planning.”
143
FERC, “Initial Decision,” 16.
144
FERC, Order Directing Remedies for California Wholesale Electric Markets, 93 FERC
¶ 61,294 (2000).
145
Bill Williams, transcript of telephone conversation with “Rich,” 16 Jan. 2001, EL03-180,
SNO-525, FERC.
146
Geir Solberg, transcript of coversations with Greg Wolfe and Bill Williams, 19 Jan. 2001,
EL03-180, SNO-479, FERC; Cousholi.
147
Blumstein, Friedman, and Green, “History of Electricity Restructuring.”
148
Before this point, traders had continued to use and establish strategies, albeit at a sig-
nificantly reduced scale. See Geir Solberg, email to “Real-time desk” re: “New deal! Export at
silverpeak!!!!,” 17 Apr. 2001, Enron Email Dataset.

network entered a period of lean post-crisis market conditions, Enron was

making ever more dramatic headlines. The impact this had on the Port-
land-based traders was naturally signiﬁcant, and after months of forced
inactivity because of its poor credit rating, the group was largely disbanded
before being sold off in the fallout from Enron’s bankruptcy.149

Conclusion

When California deregulated its energy industry, it materially

changed the environment of electricity generation and supply through-
out the western states. Not only did it separate the previously integrated
processes of generation, transmission, and distribution, but the experi-
mental market structure encouraged the entry of new market partici-
pants, who offered their financial expertise to incumbents unused to
operating within competitive markets. Among these, Enron’s West
Power division was found by the FERC to have conceived and exploited
various illicit strategies, both manipulating the new markets and contrib-
uting to the ensuing crisis.150 This article develops an analytically struc-
tured history and argues that Enron normalized corruption in the form
of market manipulation, developing and maintaining a facilitative
network of partner organizations that were used to enable its traders’
illicit strategies. Enron’s manipulation of the California energy markets
thus highlights that some cases of corruption are difficult to understand
without considering routine interorganizational involvement as a funda-
mental component, even when the wrongdoing itself is concentrated
around a single corrupt organization.
While it has been assumed that corrupt organizations often require a
level of external involvement to enable corrupt behavior, the dynamics of
such arrangements have largely been omitted in favor of organization-
level analysis.151 Our analysis shows how the strategies employed by
Enron would not have been feasible without its network of partners,
who held structurally different positions from Enron and owned the gen-
eration assets that traders needed to execute their strategies. In this way,
Enron’s use of network-enabled corruption was embedded within the
division’s core business model, providing financial services to market
participants and evolving partnerships over time to increase control of
resources beyond the scope of their legitimate market relationship.152

149
Stewart Rosman, telephone conversation with “Tom,” 11 Dec. 2001, EL03-180, SNO-
499, FERC.
150
FERC, “Final Report”; FERC, “Initial Decision.”
151
Pinto, Leana, and Pil, “Corrupt Organizations”; Bertrand and Lumineau, “Partners in
Crime.”
152
FERC, “Final Report,” VI-40.

Far from discrete and unambiguous rule breaking, this alternative con-
ceptualization of interorganizational corruption shows how such
abuses often mutate from the normal pursuit of competitiveness and
profitability, and, as our analysis shows, this can extend to include an
organization’s network of ostensibly legitimate market relations.
While illicit cartels represent an alternative form of interorganiza-
tional corruption, these are notably different than the concept we intro-
duce here. Within such networks, scope for collaboration is narrowly
focused (on price-fixing) and generally disconnected from legitimate
market structures.153 As such, price-fixing is generally an intermittent
and covert practice—Brooks talks of GE managers periodically going to
surreptitious lunches and holding euphemistic discussions with
colleagues—that, even when widely practiced and accepted, is generally
forbidden officially by the organization(s) involved.154 Bribery and rent-
seeking relations are similarly unambiguous in their wrongfulness and,
also like cartels, involve corruption committed across a network rather
than through one dominant organization. In contrast, our case elabo-
rates a form of corruption that closely aligned with normal operational
activities, representing illicit means by which multiple organizational
commercial interests were directly or indirectly realized. Thus, traders
communicated their practices in an uncomplicated and explicit way,
even highlighting their gaming achievements and discussing their strat-
egies and partnerships openly. It was only with the worsening energy
crisis and the FERC’s investigation that their corruption took on a
more clandestine form.
In this regard, our analysis of Enron also shows the normalization of
corrupt “gaming,” whereby market manipulation became a core compo-
nent of day-to-day operations and the deliberate pursuit of organiza-
tional profit.155 While the process of normalization has been described
empirically—most notably in Diane Vaughan’s ethnographic history of
deviance within NASA156—detailed analysis of corruption remains
largely theoretical. Normalization within Enron and its network
emerged from intricate patterns of network interactions that, while not
153
Bertrand and Lumineau, “Partners in Crime.” Additionally, the use of cartels within
business has distinct historical and theoretical significance, which is not exclusively illicit in
nature. Jeffrey Fear, “Cartels,” in The Oxford Handbook of Business History, ed. Geoffrey
Jones and Jonathan Zeitlin (Oxford, 2008), 267.
154
Brooks, “Impacted Philosphers,” 234–36. GE managers knowingly acted in breach of
the company’s regularly communicated “Policy Directive 20.5” on competitor price
agreements.
155
Thus providing in-depth, historical perspective on the process underlying organiza-
tional corruption. See Ashforth and Anand, “Normalization of Corruption”; and Palmer,
“Extending the Process Model.”
156
Diane Vaughan, The Challenger Launch Decision: Risky Technology, Culture, and
Deviance at NASA (Chicago, 1996).

necessarily of individual signiﬁcance, collectively showed the embedding

and routinization of deviant behaviors over time. Sustained inquiry into
the psychology of wrongdoing also shows that actors often frame their
decisions around self-deceptive rationalizations, which can themselves
contribute to the process of normalization.157 While this is primarily
seen as a cognitive process, the everyday organization of corruption
shows how these rationalizations are also developed through the interac-
tions and collectively constructed beliefs and responses of participating
individuals.158 In this way, the collective interpretation of, and response
to, the crisis was mediated through regular informal interaction, and the
clandestine norms later instigated by Enron traders provide a key
example of the socially organized responses to changing market and reg-
ulatory circumstances.
California’s reforms clearly provided a facilitative context for cor-
ruption, constituting a form of criminogenic environment.159 Within
Enron, exploitable loopholes directly influenced the strategic direction
of the West Power division, with traders working to expose and opera-
tionalize these lucrative flaws. For its partners, the reforms markedly
changed the nature of energy supply, adding new risks, opportunities,
and uncertainty that they addressed through their relationships with
Enron. These responses were bound within a fledgling commercial land-
scape, where ambiguity and emergent norms further compromised
ethical decision making.160 Though the regulations were breaking new
ground in the energy industry, they were also symptomatic of wider
trends of the period, and Enron’s network of partners illustrates how
some chose to navigate these conditions within this particular industry
context. Here, understanding the manipulation of California’s energy
markets requires an appreciation of the integrated nature of both phys-
ical and market-based elements of the energy supply industry. Indeed,
the network characteristics of energy supply highlights that while indi-
vidual organizations are often singled out as culprits, the complexity
and interconnectedness of some industries can precipitate more cooper-
ative, market-based responses to criminogenic conditions.
157
Jeremias De Klerk, “‘The Devil Made Me Do It!’ An Inquiry into the Unconscious ‘Devils
within’ of Rationalized Corruption,” Journal of Management Inquiry 26, no. 3 (2017): 254–
69; Sykes and Matza, “Techniques of Neutralization”; Mazar, Amir, and Ariely, “Dishonesty
of Honest People.”
158
This aligns with Vaughan’s analysis of the Challenger disaster, whereby an interorgani-
zational “work group culture” influenced the interpretation of information and decision
making in a manner particular to (if concordant with) wider organizational norms.
Vaughan, Challenger Launch Decision, 394–96.
159
William Black, “Neo-Classical Economic Theories, Methodology, and Praxis Optimize
Criminogenic Environments and Produce Recurrent, Intensifying Crises,” Creighton Law
Review 44 (2010): 597.
160
Balleisen, Fraud, 148–55.

Within this article, we combine a conceptual elaboration of organi-

zational corruption with a rich empirical account of what is usually a
hidden and difﬁcult-to-observe setting. This historically situated view
extends our temporal appreciation of corruption beyond existing theo-
rizing and elaborates how it actually occurs as an organizational and
market phenomenon over time. This is signiﬁcant as corruption is
often highly complex in nature, blurring legitimate business practices
with abuses of authority and the privileges conferred through participa-
tion within a given commercial context. This makes it an important area
for business historians to explore further, and extensions such as
network-enabled corruption highlight the affordances that historical
approaches present to understanding how organizational actors go
about exploiting such behaviors over time. In providing our history of
Enron and the California energy crisis, we elaborate the day-to-day prac-
tices and networks of relationships that enabled a corrupt organization
to function and, in doing so, demonstrate how corruption became a nor-
malized and highly integrated part of organizational life.

. . .

ADAM NIX is a lecturer in responsible business at the University of Bir-

mingham. He holds a PhD in management from Aston Business School; his
thesis focused on the role of social relationships in facilitating corruption as
an organizational activity. His research interests also include historical
methods, digital history, and practice approaches to management and organi-
zational research.

STEPHANIE DECKER is professor in strategy and history at the Univer-

sity of Bristol and visiting professor of African business history at the Univer-
sity of Gothenburg, Sweden. Her research focuses on the history of
multinationals in West Africa as well as the use of historical methodology
and archival research in business and management. She is joint editor-in-chief
of Business History and has published her work in journals such as Business
History Review, Business History, Human Relations, Enterprise & Society,
Journal of Management Studies, and Academy of Management Review.

CAROLA WOLF is senior lecturer in strategy at the University of Liver-

pool. Her research applies a sociological perspective to strategy processes
and practices, exploring issues of strategic change and the emergence of strat-
egy in different organizational contexts. She also has an interest in managerial
and professional work and career studies. Her work has been published in
outlets including the Journal of Management, Journal of Management
Studies, and Human Relations.

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Enron and The California Energy Crisis The Role of

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Enron and the California Energy Crisis: The Role of

Article in The Business History Review · December 2021

Adam Nix Stephanie Decker

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Enron and the California Energy Crisis: The

Keywords: Organizational corruption, organizational mis-

O n June 25, 2003, the Federal Energy Regulatory Commission

Business History Review 95 (Winter 2021): 765–802. doi:10.1017/S0007680521001008

As a consequence, Enron was found to have severely disrupted energy

between the markets, obtain ‘congestion management’ payments in

Enron’s manipulation that is analytically structured around the elabora-

Similarly, Gavin Benke uses Enron as a lens through which to explore

relations of service provider and client.17 Similarly, it differs from other

While corruption often represents an abuse of publicly mandated

for perceived personal or collective gain.”23 Thus, while lawfulness is

collusion, ﬁnancial misrepresentation, and misappropriation rife

and unethical organizational practices often include actors from outside

As highlighted recently by Armando Castro, Nelson Phillips, and Shaz

ruption as Resource Transfer: An Interdisciplinary Synthesis,” Public Administration Review

appreciate without sufﬁcient hindsight.46 Moreover, information released

The sources we used were accessed primarily via the FERC’s

of supporting legal material, a full appreciation of the case would be

Enron and California’s Energy Supply Reforms

The energy company Enron was formed by the merger of Houston

introducing a variety of energy-related ﬁnancial services and placing

unexpected shortfall.66 Care must also be taken not to congest transmis-

economic policy—encouraged the naturally monopolistic tendencies of

Though widely referred to as deregulation, this process did not rep-

was available. If transmission lines were congested, its automated com-

An Illicit Path to Proﬁt

Throughout the 1990s Enron had increasingly developed an aggres-

Enron acquired Portland General Electric (PGE) in July 1997, providing

designed California’s new automated market protocols.81 In designing

In the months that followed, the division’s senior traders remained

the leveraging of California’s new system as vital to the company’s ﬁnan-

Ricochet Exporting energy out of California’s ISO’s Artiﬁcially increased prices

such, traders would make regular calls to partners, instructing them to

Enron’s existing business model provided traders with the means to

Accordingly, by working with companies like El Paso, traders could

John [Forney]: OK what do you want to call this project—we have to

Consistent with other accounts of collective wrongdoing, such inter-

of a scheduled out-of-state energy back into California, simultaneously

the real-time division’s service handbook providing detailed instructions

The ability to use trading strategies appropriately became an explicitly

Rationalizing in Response to Crisis

By spring 2000, senior traders had normalized corruption in the

rise signiﬁcantly, consistently reaching the ISO’s wholesale cap of $750/

problematic for utilities. Forced to pay a heightened price for wholesale

In November, the FERC also reported back on its investigation, ﬁnding

suspension was subsequently apparent from communications, with some

Interconnection, offering continued proﬁt for companies like Enron.142

network entered a period of lean post-crisis market conditions, Enron was

When California deregulated its energy industry, it materially

necessarily of individual signiﬁcance, collectively showed the embedding

Within this article, we combine a conceptual elaboration of organi-

ADAM NIX is a lecturer in responsible business at the University of Bir-

STEPHANIE DECKER is professor in strategy and history at the Univer-

CAROLA WOLF is senior lecturer in strategy at the University of Liver-

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