John Forney, an Enron energy trader, came up with an idea to skirt the trading rules in California. Enron and Portland General were considered related, so California did not allow them to deal with each other on energy trading transactions. California was worried that since they were related, business done with each other might drive up prices for consumers.
To get around the rules, Enron would create a loop by purchasing electricity in California, passing it to one of its trading companies in another state, and then selling to Portland General, who sent it to California. The electricity was marked up at each stage of the loop, so Enron earned greater profits than it should have.