Former Enron official involved in Calif market being investigated

Wednesday November 27, 2002

SAN FRANCISCO (AP) A former Enron Corp. official involved in the company's California market strategy during the state's energy crisis is being investigated by federal prosecutors looking into companies that allegedly manipulated power prices, according to sources close to the probe.

The San Francisco Chronicle reports John M. Forney handled trading on the ``real time'' market managed by the California Independent System Operator. Authorities believe many of Enron's questionable trading tactics were executed in that market in 2000 and 2001, according to court documents.

Forney was in charge of one of Enron's power trading desks in Portland, Ore. and reported to Timothy N. Belden, who pleaded guilty last month to a federal charge of conspiracy to commit wire fraud and is cooperating with the government.

Forney recently had a so-called proffer session with prosecutors with the U.S. attorney's office in San Francisco, a source speaking on condition of anonymity told The Chronicle.

Proffer sessions usually give a potential defendant an opportunity to tell prosecutors all they know about a crime while cooperating with an investigation in exchange for leniency. Prosecutors cannot use information from the meetings against the defendant at trial.

In June, the U.S. attorney's office in San Francisco launched a grand jury investigation into Enron's alleged role in tampering with California's power market after the company gave up memos to federal regulators describing trading schemes officials allege were used to artificially inflate energy prices, subvert California's power price caps, and collect fees for unnecessary services.

That investigation led to Belden's guilty plea.

One of the trading strategies was named after Forney, according to an Enron's lawyer's notes obtained by state investigators. The Forney Perpetual Loop simulated transmission line congestion, a variation on schemes authorities say Enron used to inflate profits.

Evidence implicating Forney includes telephone conversation transcripts, in which he instructs traders on how to implement trades that energy regulators say may have violated market rules, The Chronicle reported Wednesday.

Forney failed to appear for his first scheduled deposition when he was subpoenaed during a Federal Regulatory Commission proceeding regarding West Coast power prices. He appeared for a second deposition and asserted his Fifth Amendment right against self-incrimination 15 times in 28 minutes, according to a transcript of the proceeding.

During the proceeding Forney cited state and federal investigations into Enron's role in the state energy crisis and said he was attempting to cooperate with those authorities.

In recorded traders' telephone conversations submitted as evidence in several FERC proceedings Forney appears to direct many trading strategies, The Chronicle reports. In several calls he clarifies deals to traders from Portland General Electric on how to schedule deals between Enron and other companies. The traders seem confused about the deals and complain that they don't make sense in many conversations.

In one conversation, Forney describes the logic of a deal that placed third party Washington Water Power between Enron and Portland General.

Since Enron owned Portland General at the time, market rules prohibited the company from trading directly with Portland General. But an investigation into Enron's tactics by federal energy lawyers have asserted that the companies frequently traded with each other through third parties to hide the true purpose of their deals.

Forney started as a generation manager for Enron, but as the company expanded into power trading he began working at the company's trading desk in Houston. When California's market opened in 1998, the company marked him for its West Coast trading operation in Portland.

Forney declined comment when contacted by The Chronicle at his new position at American Electric Power in Columbus, Ohio. Brian Murphy, his attorney in Columbus, also declined comment.

A source close to Forney said the former Enron official had good knowledge of rules governing California's power market and felt that he never ran amok of the rules.

Federal prosecutors declined to discuss the case.

(Copyright 2002 by The Associated Press. All Rights Reserved.)