Wheel Out was a trading strategy that critics say took advantage of California’s stupidity. And maybe the strategy did exploit a weakness, but California was well aware of the weakness that Enron traders were exploiting.
Wheel Out basically involved scheduling electricity to a line that had may or may not have capacity – because of the ISO. The schedule was accepted because of a flaw in the California utility’s software program – a flaw that California was under no illusions about. However, it was not entirely without merit. The strategy actually did work to the advantage of consumers when the line was actually functional; it eased congestion rents in the day-ahead market.
Meanwhile, Enron would receive a payment for transmission of congestion relief whether or not the line was active (and it should be reiterated, the responsibility for that rested squarely on the ISO).
Like Fat Boy and Thin Man, Wheel Out had a companion strategy known as Death Star, which I’ll cover in the next post.
