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Enron Corporation was an American
energy In physics, energy (from Ancient Greek: wikt:ἐνέργεια#Ancient_Greek, ἐνέργεια, ''enérgeia'', “activity”) is the physical quantity, quantitative physical property, property that is #Energy transfer, transferred to a phy ...
,
commodities In economics, a commodity is an economic goods, good, usually a resource, that has full or substantial fungibility: that is, the Market (economics), market treats instances of the good as equivalent or nearly so with no regard to who Production ...
, and services company based in
Houston, Texas Houston (; ) is the List of cities in Texas by population, most populous city in Texas, the Southern United States#Major cities, most populous city in the Southern United States, the List of United States cities by population, fourth-most pop ...
. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional companies. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,600 staff and was a major
electricity Electricity is the set of physics, physical Phenomenon, phenomena associated with the presence and motion of matter that has a property of electric charge. Electricity is related to magnetism, both being part of the phenomenon of electromagne ...

electricity
,
natural gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbon di ...

natural gas
, communications, and pulp and paper company, with claimed revenues of nearly $101 billion during 2000. '' Fortune'' named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, it was revealed that Enron's reported financial condition was sustained by an institutionalized, systematic, and creatively planned accounting fraud, known since as the
Enron scandal The Enron scandal was an accounting scandal involving Enron, Enron Corporation, an American energy company based in Houston, Texas. Upon being publicized in October 2001, the company declared bankruptcy and its accounting firm, Arthur Andersen ...
. Enron has become synonymous with willful corporate
fraud In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compe ...

fraud
and
corruption Corruption is a form of dishonesty or a criminal offense which is undertaken by a person or an organization which is entrusted in a position of authority, in order to acquire illicit benefits or abuse power for one's personal gain. Corruption m ...
. The scandal also brought into question the accounting practices and activities of many corporations in the United States and was a factor in the enactment of the
Sarbanes–Oxley Act The Sarbanes–Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations. The act, (), also known as the "Public Company Accounting Reform and Investor Protecti ...
of 2002. The scandal also affected the greater business world by causing, together with even larger fraudulent bankruptcy
WorldCom MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunication Telecommunication is the transmission of information by various types of technologies over wire, radio, Optical system, optical, or other Electromagnetism, elect ...
, the dissolution of the
Arthur Andersen Arthur Andersen was an American accounting firm based in Chicago that provided auditing, Tax advisor, tax advising, Consultant, consulting and other professional services to large corporations. By 2001, it had become one of the world's largest ...

Arthur Andersen
accounting firm, which had been Enron and WorldCom's main auditor for years. Enron filed for bankruptcy in the Southern District of New York in late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It ended its bankruptcy during November 2004, pursuant to a court-approved plan of reorganization. A new board of directors changed the name of Enron to Enron Creditors Recovery Corp., and emphasized reorganizing and liquidating certain operations and assets of the pre-bankruptcy Enron. On September 7, 2006, Enron sold its last remaining subsidiary, Prisma Energy International, to Ashmore Energy International Ltd. (now AEI).


History


Pre-merger origins (1925–1985)


InterNorth

One of Enron's primary predecessors was InterNorth, which was formed in 1930, in
Omaha, Nebraska Omaha ( ) is the largest city in the U.S. state of Nebraska and the county seat of Douglas County, Nebraska, Douglas County. Omaha is in the Midwestern United States on the Missouri River, about north of the mouth of the Platte River. List of ...
, just a few months after
Black Tuesday The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash that occurred in the autumn of 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange colla ...
. The low cost of
natural gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbon di ...

natural gas
and the cheap supply of labor during the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The Financial contagion, ...

Great Depression
helped to fuel the company's early beginnings, doubling in size by 1932. Over the next 50 years, Northern expanded even more as it acquired many energy companies. It was reorganized in 1979 as the main subsidiary of a
holding company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...
, InterNorth, a diversified energy and energy-related products firm. Although most of the acquisitions conducted were successful, some ended poorly. InterNorth competed with
Cooper Industries
Cooper Industries
unsuccessfully over a hostile takeover of Crouse-Hinds Company, an electrical products manufacturer. Cooper and InterNorth feuded in numerous suits during the course of the takeover that were eventually settled after the transaction was completed. The subsidiary Northern Natural Gas operated the largest pipeline company in North America. By the 1980s, InterNorth became a major force for natural gas production, transmission, and marketing as well as for natural gas liquids, and was an innovator in the
plastics industry The plastics industry manufactures polymer materials—commonly called plastics—and offers services in plastics important to a range of industries, including packaging, building and construction, electronics, aerospace, and transportation. It is ...
. In 1983, InterNorth merged with the Belco Petroleum Company, a
Fortune 500 The ''Fortune'' 500 is an annual list compiled and published by ''Fortune (magazine), Fortune'' magazine that ranks 500 of the largest United States Joint-stock company#Closely held corporations and publicly traded corporations, corporations by ...
oil exploration and development company founded by Arthur Belfer.


Houston Natural Gas

The Houston Natural Gas (HNG) corporation was initially formed from the Houston Oil Co. in 1925 to provide gas to customers in the Houston market through the building of
gas pipelines
gas pipelines
. Under the leadership of CEO Robert Herring from 1967 to 1981, the company took advantage of the unregulated Texas natural gas market and the commodity surge in the early 1970s to become a dominant force in the energy industry. Toward the end of the 1970s, HNG's luck began to run out with rising gas prices forcing clients to switch to oil. In addition, with the passing of the Natural Gas Policy Act of 1978, the Texas market was less profitable and as a result, HNG's profits fell. After Herring's death in 1981, M.D. Matthews briefly took over as CEO in a 3-year stint with initial success, but ultimately, a big dip in earnings led to his exit. In 1984, Kenneth Lay succeeded Matthews and inherited the troubled conglomerate.


Merger

With its conservative success, InterNorth became a target of corporate takeovers, the most prominent originating with Irwin Jacobs. InterNorth CEO Sam Segnar sought a friendly merger with HNG. In May 1985, Internorth acquired HNG for $2.3 billion, 40% higher than the current market price. The combined assets of the two companies created the second largest gas pipeline system in the US at that time. Internorth's north-south pipelines that served Iowa and Minnesota complemented HNG's Florida and California east-west pipelines well.


Post-merger rise (1985–1991)

The company was initially named HNG/InterNorth Inc., even though InterNorth was technically the parent. At the outset, Segnar was CEO but was soon fired by the Board of Directors to name Lay to the post. Lay moved its headquarters back to Houston and set out to find a new name, spending more than $100,000 in focus groups and consultants before Enteron was suggested. The name was eventually dismissed over its apparent likening to an intestine and shortened to Enron. (The distinctive logo was one of the final projects of legendary graphic designer Paul Rand before his death in 1996.) Enron still had some lingering problems left over from its merger, however the company had to pay Jacobs, who was still a threat, over $350 million and reorganize the company. Lay sold off any parts of the company that he believed didn't belong in the long-term future of Enron. Lay consolidated all the gas pipeline efforts under the Enron Gas Pipeline Operating Company. In addition, it ramped up its electric power and natural gas efforts. In 1988 and 1989, the company added power plants and
cogeneration Cogeneration or combined heat and power (CHP) is the use of a heat engine or power station to electricity generation, generate electricity and useful heat at the same time. Cogeneration is a more efficient use of fuel or heat, because otherwise- ...

cogeneration
units to its portfolio. In 1989,
Jeffrey Skilling Jeffrey Keith Skilling (born November 25, 1953) is an American businessman who is best known as the CEO of Enron Corporation during the Enron scandal. In 2006, he was convicted of federal felony charges relating to Enron's collapse and eventuall ...
, then a consultant at
McKinsey & Company McKinsey & Company is a global management consulting firm founded in 1926 by University of Chicago professor James O. McKinsey, that offers professional services to corporations, governments, and other organizations. McKinsey is the oldest and ...
, came up with the idea to link natural gas to consumers in more ways, effectively turning natural gas into a commodity. Enron adopted the idea and called it the "Gas Bank". The division's success prompted Skilling to join Enron as the head of the Gas Bank in 1991. Another major development inside Enron was a pivot to overseas operations with a $56 million loan in 1989 from the Overseas Private Investment Corporation (OPIC) for a power plant in Argentina.


Timeline (1985–1992)


=1980s

= * New regulations gradually create a market-pricing system for natural gas.
Federal Energy Regulatory Commission The Federal Energy Regulatory Commission (FERC) is the United States Independent agencies of the United States government, federal agency that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce an ...
(FERC) Order 436 (1985) provides blanket approval for pipelines that choose to become common carriers transporting gas intrastate. FERC Order 451 (1986) deregulates the wellhead, and FERC Order 490 (April 1988) authorizes producers, pipelines, and others to terminate gas sales or purchases without seeking prior FERC approval. As a result of these orders, more than 75% of gas sales are conducted through the spot market, and unprecedented market volatility exists.


July 1985

*
Houston Houston (; ) is the List of cities in Texas by population, most populous city in Texas, the Southern United States#Major cities, most populous city in the Southern United States, the List of United States cities by population, fourth-most pop ...

Houston
Natural Gas, run by Kenneth Lay merges with InterNorth, a natural gas company in
Omaha Omaha ( ) is the largest city in the U.S. state of Nebraska and the county seat of Douglas County, Nebraska, Douglas County. Omaha is in the Midwestern United States on the Missouri River, about north of the mouth of the Platte River. List of ...

Omaha
,
Nebraska Nebraska () is a U.S. state, state in the Midwestern United States, Midwestern region of the United States. It is bordered by South Dakota to the north; Iowa to the east and Missouri to the southeast, both across the Missouri River; Kansas ...

Nebraska
, to form an interstate and intrastate natural gas pipeline with approximately 37,000 miles of pipeline.Fusaro, Peter C, ''What went wrong with Enron''. J Wiley & Sons 2002


November 1985

* Lay is appointed Chairman and Chief Executive of the combined company. The company chooses the name Enron.


=1986

= * Company moves headquarters to Houston, where Ken Lay lives. Enron is both a natural oil and gas company. * ''Enron's vision:'' To become the premier natural-gas pipeline in America.Mimi Swartz, Sherron Watkins, ''Power Failure: The Inside Story of the Collapse of Enron'' (Doubleday, 2003) .


=1987

= * Enron Oil, Enron's flourishing petroleum marketing operation, reports loss of $85 million in 8-K filings. True loss of $142–190 million is concealed until 1993. Two top Enron Oil executives in Valhalla, New York, plead guilty to charges of fraud and filing false tax returns. One serves time in prison.


=1988

= * The company's major strategy shift – to pursue unregulated markets in addition to its regulated pipeline business – is decided in a gathering that became known as the ''Come to Jesus'' meeting.Loren Fox, ''Enron: The Rise and Fall''. (Hoboken, N.J.: Wiley, 2003). * Enron enters the UK energy market following privatization of the electricity industry there. It becomes the first U.S. company to construct a power plant, Teesside Power Station, in Great Britain.


=1989

= * Enron launches ''Gas Bank'', later run by Jeff Skilling in 1990, which allows gas producers and wholesale buyers to purchase gas supplies and
hedge A hedge or hedgerow is a line of closely spaced shrubs and sometimes trees, planted and trained to form a barrier or to mark the boundary of an area, such as between neighbouring properties. Hedges that are used to separate a road from adjoini ...
the price risk at the same time. * Enron begins offering financing to oil and gas producers. * Transwestern Pipeline Company, owned by Enron, is the first merchant pipeline in the US to stop selling gas and become a transportation only pipeline.


=1990

= * Enron launches plan to expand US natural gas business abroad. * Enron becomes a natural gas market maker. Begins trading futures and options on the
New York Mercantile Exchange The New York Mercantile Exchange (NYMEX) is a commodity futures exchange owned and operated by CME Group of Chicago. NYMEX is located at One North End Avenue in Brookfield Place (New York City), Brookfield Place in the Battery Park City sectio ...

New York Mercantile Exchange
and over-the-counter market using financial instruments such as swaps and options. * and Rich Kinder hire Jeff Skilling from
McKinsey & Company McKinsey & Company is a global management consulting firm founded in 1926 by University of Chicago professor James O. McKinsey, that offers professional services to corporations, governments, and other organizations. McKinsey is the oldest and ...
to become CEO of ''Enron Gas Services'', Enron's "Gas Bank". Enron Gas Services eventually morphs into ''Enron Capital and Trade Resources'' (ECT). * Jeff Skilling hires
Andrew Fastow Andrew Stuart "Andy" Fastow (born December 22, 1961) is a convicted felon and former financier who was the chief financial officer The chief financial officer (CFO) is an Corporate title, officer of a company or organization that is assigned ...
from the banking industry; he starts as account director and quickly rises within the ranks of ECT.


=1991

= * Enron adopts
mark-to-market accounting Mark-to-market (MTM or M2M) or fair value accounting is accounting for the "fair value" of an asset or liability based on the current market price, or the price for similar assets and liabilities, or based on another objectively assessed "fair" ...
practices, reporting income and value of assets at their replacement cost. * Rebecca Mark becomes Chairman and of Enron Development Corp., a unit formed to pursue international markets. * Andy Fastow forms the first of many off-balance-sheet partnerships for legitimate purposes. Later, off-balance-sheet partnerships and transactions will become a way for money losing ventures to be concealed and income reporting to be accelerated.


=1992

= * Enron acquires Transportadora de Gas del Sur.


1991–2000

Over the course of the 1990s, Enron made a few changes to its business plan that greatly improved the perceived profitability of the company. First, Enron invested heavily in overseas assets, specifically energy. Another major shift was the gradual transition of focus from a producer of energy to a company that acted more like an investment firm and sometimes a
hedge fund A hedge fund is a pooled investment fund that trades in relatively Market liquidity, liquid assets and is able to make extensive use of more complex trader (finance), trading, portfolio (finance), portfolio-construction, and risk management techn ...
, making profits off the margins of the products it traded. These products were traded through the Gas Bank concept, now called the Enron Finance Corp. and headed by Skilling.


Operations as a trading firm

With the success of the Gas Bank trading natural gas, Skilling looked to expand the horizons of his division, Enron Capital & Trade. Skilling hired Andrew Fastow in 1990 to help.


Entrance into the retail energy market

Starting in 1994 under the
Energy Policy Act of 1992 The Energy Policy Act of 1992, effective October 24, 1992, (102nd Congress H.R.776.ENR, abbreviated as EPACT92) is a United States government Act of Congress, act. It was passed by United States Congress, Congress and set goals, created mandates, ...
, Congress allowed states to deregulate their electricity utilities, allowing them to be opened for competition. California was one such state to do so. Enron, seeing an opportunity with rising prices, was eager to jump into the market. In 1997, Enron acquired
Portland General Electric Portland General Electric (PGE) is a Fortune 1000 public utility based in Portland, Oregon. It distributes electricity to customers in parts of Multnomah County, Oregon, Multnomah, Clackamas County, Oregon, Clackamas, Marion County, Oregon, Mari ...
(PGE). Although an Oregon utility, it had potential to begin serving the massive California market since PGE was a regulated utility. The new Enron division, Enron Energy, ramped up its efforts by offering discounts to potential customers in California starting in 1998. Enron Energy also began to sell natural gas to customers in Ohio and wind power in Iowa. However, the company ended its retail endeavor in 1999 as it was revealed it was costing upwards of $100 million a year.


Data management

As fiber optic technology progressed in the 1990s, multiple companies, including Enron, attempted to make money by "keeping the continuing network costs low", which was done by owning their own network. In 1997, FTV Communications LLC, a
limited liability company A limited liability company (LLC for short) is the United States of America, US-specific form of a private limited company. It is a business structure that can combine the Flow-through entity, pass-through taxation of a partnership or sole p ...
formed by Enron subsidiary FirstPoint Communications, Inc., constructed a 1,380 mile fiber optic network between Portland and Las Vegas. In 1998, Enron constructed a building in a rundown area of Las Vegas near E Sahara, right over the "backbone" of fiber optic cables providing service to technology companies nationwide. The location had the ability to send "the entire Library of Congress anywhere in the world within minutes" and could stream "video to the whole state of California". The location was also more protected from natural disasters than areas such as Los Angeles or the East Coast. According to ''Wall Street Daily'', "Enron had a secret", it "wanted to trade bandwidth like it traded oil, gas, electricity, etc. It launched a secret plan to build an enormous amount of fiber optic transmission capacity in Las Vegas ... it was all part of Enron's plan to essentially own the internet." Enron sought to have all US internet service providers rely on their Nevada facility to supply bandwidth, which Enron would sell in a fashion similar to other commodities. In January 2000, Kenneth Lay and Jeffrey Skilling announced to analysts that they were going to open trading for their own "high-speed fiber-optic networks that form the backbone for Internet traffic". Investors quickly bought Enron stock following the announcement "as they did with most things Internet-related at the time", with stock prices rising from $40 per share in January 2000 to $70 per share in March, peaking at $90 in the summer of 2000. Enron executives obtained windfall gains from the rising stock prices, with a total of $924 million of stocks sold by high-level Enron employees between 2000 and 2001. The head of Enron Broadband Services, Kenneth Rice, sold 1 million shares himself, earning about $70 million in returns. As prices of existing fiber optic cables plummeted due to the vast oversupply of the system, with only 5% of the 40 million miles being active wires, Enron purchased the inactive "dark fibers", expecting to buy them at low cost and then make a profit as the need for more usage by internet providers increased, with Enron expecting to lease its acquired dark fibers in 20 year contracts to providers. However, Enron's accounting would use estimates to determine how much their dark fiber would be worth when "lit" and apply those estimates to their current income, adding exaggerated revenue to their accounts since transactions were not yet made and it was not known if the cables would ever be active. Enron's trading with other energy companies within the broadband market was its attempt to lure large telecommunications companies, such as
Verizon Communications Verizon Communications Inc., commonly known as Verizon, is an American multinational telecommunications Telecommunication is the transmission of information by various types of technologies over wire, radio Radio is the technolog ...
, into its broadband scheme to create its own new market. By the second quarter of 2001, Enron Broadband Services was reporting losses. On March 12, 2001, a proposed 20-year deal between Enron and Blockbuster Inc. to stream movies on demand over Enron's connections was cancelled, with Enron shares dropping from $80 per share in mid-February 2001 to below $60 the week after the deal was killed. The branch of the company that Jeffrey Skilling "said would eventually add $40 billion to Enron's stock value" added only about $408 million in revenue for Enron in 2001, with the company's broadband arm closed shortly after its meager second-quarter earnings report in July 2001. Following the bankruptcy of Enron, telecommunications holdings were sold for "pennies on the dollar". In 2002, Rob Roy of Switch Communications purchased Enron's Nevada facility in an auction attended only by Roy. Enron's "fiber plans were so secretive that few people even knew about the auction." The facility was sold for only $930,000. Following the sale, Switch expanded to control "the biggest data center in the world".


Overseas expansion

Enron, seeing stability after the merger, began to look overseas for new possible energy opportunities in 1991. Enron's first such opportunity was a
natural gas power plant A gas-fired power plant or gas-fired power station or natural gas power plant is a thermal power station A thermal power station is a type of power station in which heat energy is converted to electrical energy. In a steam-generating cy ...
utilizing cogeneration that the company built near
Middlesbrough Middlesbrough ( ) is a town on the southern bank of the River Tees in North Yorkshire, England. It is near the North York Moors national park. It is the namesake and Borough of Middlesbrough, main town of its Middlesbrough Council, local boroug ...
, UK. The power plant was so large it could produce up to 3% of the United Kingdom's electricity demand with a capacity of over 1,875
megawatts The watt (symbol: W) is the unit of Power (physics), power or radiant flux in the International System of Units, International System of Units (SI), equal to 1 joule per second or 1 kg⋅m2⋅s−3. It is used to quantification (science), ...
. Seeing the success in England, the company developed and diversified its assets worldwide under the name of Enron International (EI), headed by former HNG executive Rebecca Mark. By 1994, EI's portfolio included assets in The Philippines, Australia, Guatemala, Germany, France, India, Argentina, the Caribbean, China, England, Colombia, Turkey, Bolivia, Brazil, Indonesia, Norway, Poland, and Japan. The division was producing a large share of earnings for Enron, contributing 25% of earnings in 1996. Mark and EI believed the
water industry The water industry provides drinking water and wastewater services (including sewage treatment) to residential, commercial, and industrial sectors of the economy. Typically public utility, public utilities operate water supply networks. The wat ...
was the next market to be deregulated by authorities and seeing the potential, searched for ways to enter the market, similar to PGE. In 1998, Enron International acquired Wessex Water for $2.88 billion. Wessex Water became the core asset of a new company, Azurix, which expanded to other water companies. After Azurix's promising IPO in June 1999, Enron "sucked out over $1 billion in cash while loading it up with debt", according to Bethany McLean and Peter Elkind, authors of '' The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron''. Additionally, British water regulators required Wessex to cut its rates by 12% starting in April 2000, and an upgrade was required of the utility's aging infrastructure, estimated at costing over a billion dollars. By the end of 2000 Azurix had an operating profit of less than $100 million and was $2 billion in debt. In August 2000, after Azurix stock took a plunge following its earnings report, Mark resigned from Azurix and Enron. Azurix assets, including Wessex, were eventually sold by Enron.


Misleading financial accounts

In 1990, Enron's Chief Operating Officer
Jeffrey Skilling Jeffrey Keith Skilling (born November 25, 1953) is an American businessman who is best known as the CEO of Enron Corporation during the Enron scandal. In 2006, he was convicted of federal felony charges relating to Enron's collapse and eventuall ...
hired
Andrew Fastow Andrew Stuart "Andy" Fastow (born December 22, 1961) is a convicted felon and former financier who was the chief financial officer The chief financial officer (CFO) is an Corporate title, officer of a company or organization that is assigned ...
, who was well acquainted with the burgeoning deregulated energy market that Skilling wanted to exploit. In 1993, Fastow began establishing numerous
limited liability Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to it ...
special-purpose entities, a common business practice in the energy industry. However, it also allowed Enron to transfer some of its liabilities off its books, allowing it to maintain a robust and generally increasing stock price and thus keeping its critical investment grade credit ratings. Enron was originally involved in transmitting and distributing electricity and natural gas throughout the US. The company developed, built, and operated
power plant A power station, also referred to as a power plant and sometimes generating station or generating plant, is an industrial facility for the electricity generation, generation of electric power. Power stations are generally connected to an el ...
s and pipelines while dealing with rules of law and other infrastructures worldwide. Enron owned a large network of natural gas pipelines, which stretched coast to coast and border to border including Northern Natural Gas, Florida Gas Transmission, Transwestern Pipeline Company, and a partnership in Northern Border Pipeline from Canada. The states of California, New Hampshire, and Rhode Island had already passed power deregulation laws by July 1996, the time of Enron's proposal to acquire
Portland General Electric Portland General Electric (PGE) is a Fortune 1000 public utility based in Portland, Oregon. It distributes electricity to customers in parts of Multnomah County, Oregon, Multnomah, Clackamas County, Oregon, Clackamas, Marion County, Oregon, Mari ...
corporation. During 1998, Enron began operations in the
water sector The water industry provides drinking water and wastewater services (including sewage treatment) to residential, commercial, and industrial sectors of the economy. Typically public utility, public utilities operate water supply networks. The wat ...
, creating the Azurix Corporation, which it part-floated on the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City New York, often called New York City or NYC, is the List o ...
during June 1999. Azurix failed to become successful in the
water utility The water industry provides drinking water Drinking water is water that is used in drinking, drink or food preparation; potable water is water that is safe to be used as drinking water. The amount of drinking water required to maintain good ...
market, and one of its major concessions, in
Buenos Aires Buenos Aires ( or ; ), officially the Autonomous City of Buenos Aires ( es, link=no, Ciudad Autónoma de Buenos Aires), is the Capital city, capital and primate city of Argentina. The city is located on the western shore of the Río de la Plata ...
, was a large-scale money-loser. Enron grew wealthy due largely to marketing, promoting power, and having a high stock price. Enron was named "America's Most Innovative Company" by '' Fortune'' for six consecutive years, from 1996 to 2001. It was on the ''Fortune''s "100 Best Companies to Work for in America" list during 2000, and had offices that were stunning in their opulence. Enron was hailed by many, including labor and the workforce, as an overall great company, praised for its large long-term pensions, benefits for its workers, and extremely effective management until the exposure of its corporate fraud. The first analyst to question the company's success story was Daniel Scotto, an energy market expert at
BNP Paribas BNP Paribas is a French international banking group, founded in 2000 from the merger between Banque Nationale de Paris (BNP, "National Bank of Paris") and Paribas, formerly known as the Banque de Paris et des Pays-Bas. The full name of the gr ...
, who issued a note in August 2001 entitled ''Enron: All stressed up and no place to go'' which encouraged investors to sell Enron stocks, although he only changed his recommendation on the stock from "buy" to "neutral". As was later discovered, many of Enron's recorded assets and profits were inflated, wholly fraudulent, or nonexistent. One example was during 1999 when Enron promised to repay
Merrill Lynch Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investment banki ...
's investment with interest in order to show a profit on its books. Debts and losses were put into entities formed offshore that were not included in the company's
financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
s; other sophisticated and arcane financial transactions between Enron and related companies were used to eliminate unprofitable entities from the company's books. The company's most valuable asset and the largest source of honest income, the 1930s-era Northern Natural Gas company, was eventually purchased by a group of Omaha investors who relocated its headquarters to their city; it is now a unit of
Warren Buffett Warren Edward Buffett ( ; born August 30, 1930) is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world and has a net ...
's Berkshire Hathaway Energy. NNG was established as collateral for a $2.5 billion capital infusion by Dynegy Corporation when Dynegy was planning to buy Enron. When Dynegy examined Enron's financial records carefully, they repudiated the deal and dismissed their CEO, Chuck Watson. The new chairman and CEO, the late Daniel Dienstbier, had been president of NNG and an Enron executive at one time and was forced out by Ken Lay. Dienstbier was an acquaintance of Warren Buffett. NNG continues to be profitable now.


2001 accounting scandals

In 2001, after a series of revelations involving irregular accounting procedures perpetrated throughout the 1990s involving Enron and its auditor
Arthur Andersen Arthur Andersen was an American accounting firm based in Chicago that provided auditing, Tax advisor, tax advising, Consultant, consulting and other professional services to large corporations. By 2001, it had become one of the world's largest ...

Arthur Andersen
that bordered on fraud, Enron filed for the then largest
Chapter 11 bankruptcy Chapter 11 of the United States Bankruptcy Code (Title 11 of the United States Code) permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, wheth ...
in history (since surpassed by those of
Worldcom MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunication Telecommunication is the transmission of information by various types of technologies over wire, radio, Optical system, optical, or other Electromagnetism, elect ...
during 2002 and
Lehman Brothers Lehman Brothers Holdings Inc. ( ) was an American global financial services firm founded in 1847. Before Bankruptcy of Lehman Brothers, filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Gol ...
during 2008), resulting in $11 billion in shareholder losses. As the scandal progressed, Enron share prices decreased from US $90.56 during the summer of 2000, to just pennies. Enron's demise occurred after the revelation that much of its profit and revenue were the result of deals with special-purpose entities (
limited partnership A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited p ...
s which it controlled). This maneuver allowed many of Enron's debts and losses to disappear from its
financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
s. Enron filed for bankruptcy on December 2, 2001. In addition, the scandal caused the dissolution of
Arthur Andersen Arthur Andersen was an American accounting firm based in Chicago that provided auditing, Tax advisor, tax advising, Consultant, consulting and other professional services to large corporations. By 2001, it had become one of the world's largest ...

Arthur Andersen
, which at the time was one of the Big Five of the world's accounting firms. The company was found guilty of
obstruction of justice Obstruction of justice, in United States jurisdictions, is an act that involves unduly influencing, impeding, or otherwise interfering with the justice system, especially the legal and procedural tasks of prosecutors, investigators, or other gov ...
during 2002 for destroying documents related to the Enron audit. Since the SEC is not allowed to accept audits from convicted felons, Andersen was forced to stop auditing public companies. Although the conviction was dismissed in 2005 by the
Supreme Court A supreme court is the highest court A court is any person or institution, often as a government institution, with the authority to Adjudication, adjudicate legal disputes between Party (law), parties and carry out the administration of ju ...
, the damage to the Andersen name has prevented it from recovering or reviving as a viable business even on a limited scale. Also, the court ruling was little comfort to the thousands of now unemployed Andersen employees. Enron also withdrew a naming-rights deal with the
Houston Astros The Houston Astros are an American professional baseball Professional baseball is organized baseball in which players are selected for their talents and are paid to play for a specific team or club system. It is played in baseball leag ...
Major League Baseball Major League Baseball (MLB) is a professional baseball organization and the oldest major professional sports league in the world. MLB is composed of 30 total teams, divided equally between the National League (NL) and the American League (AL), ...
club for its new stadium, which was known formerly as Enron Field (now
Minute Maid Park Minute Maid Park is a retractable roof stadium in Houston, Texas, United States. It opened in 2000 as the baseball park, home ballpark of Major League Baseball's Houston Astros. It has a seating capacity of 41,168, which includes 5,197 club sea ...
).


Accounting practices

Enron used a variety of deceptive and fraudulent tactics and accounting practices to cover its fraud in reporting Enron's financial information. Special-purpose entities were created to mask significant liabilities from Enron's financial statements. These entities made Enron seem more profitable than it actually was, and created a dangerous spiral in which, each quarter, corporate officers would have to perform more and more financial deception to create the illusion of billions of dollars in profit while the company was actually losing money. This practice increased their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars' worth of Enron stock. The executives and insiders at Enron knew about the offshore accounts that were hiding losses for the company; the investors, however, did not. Chief Financial Officer
Andrew Fastow Andrew Stuart "Andy" Fastow (born December 22, 1961) is a convicted felon and former financier who was the chief financial officer The chief financial officer (CFO) is an Corporate title, officer of a company or organization that is assigned ...
directed the team which created the off-books companies, and manipulated the deals to provide himself, his family, and his friends with hundreds of millions of dollars in guaranteed revenue, at the expense of the corporation for which he worked and its stockholders. During 1999, Enron initiated EnronOnline, an Internet-based trading operation, which was used by virtually every energy company in the United States. By promoting the company's aggressive investment strategy, Enron president and chief operating officer
Jeffrey Skilling Jeffrey Keith Skilling (born November 25, 1953) is an American businessman who is best known as the CEO of Enron Corporation during the Enron scandal. In 2006, he was convicted of federal felony charges relating to Enron's collapse and eventuall ...
helped make Enron the biggest wholesaler of gas and electricity, trading over $27 billion per quarter. The corporation's financial claims, however, had to be accepted at face value. Under Skilling, Enron adopted
mark-to-market accounting Mark-to-market (MTM or M2M) or fair value accounting is accounting for the "fair value" of an asset or liability based on the current market price, or the price for similar assets and liabilities, or based on another objectively assessed "fair" ...
, in which anticipated future profits from any deal were tabulated as if currently real. Thus, Enron could record gains from what over time might turn out to be losses, as the company's fiscal health became secondary to manipulating its stock price on
Wall Street Wall Street is an eight-block-long street in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It runs between Broadway (Manhattan), Broadway in the west to South Street (Manhattan), South Street and ...
during the so-called Tech boom. But when a company's success is measured by undocumented financial statements, actual balance sheets are inconvenient. Indeed, Enron's unscrupulous actions were often gambles to keep the deception going and so increase the stock price. An advancing price meant a continued infusion of investor capital on which debt-ridden Enron in large part subsisted (much like a financial "pyramid" or "
Ponzi scheme A Ponzi scheme (, ) is a form of fraud that lures investors and pays Profit (accounting), profits to earlier investors with Funding, funds from more recent investors. Named after Italian businessman Charles Ponzi, the scheme leads victims to be ...
"). Attempting to maintain the illusion, Skilling verbally attacked Wall Street analyst Richard Grubman, who questioned Enron's unusual accounting practice during a recorded conference telephone call. When Grubman complained that Enron was the only company that could not release a balance sheet along with its earnings statements, Skilling replied, "Well, thank you very much, we appreciate that ... asshole." Though the comment was met with dismay and astonishment by press and public, it became an inside joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skilling's offensiveness.


Post-bankruptcy

Enron initially planned to retain its three domestic pipeline companies as well as most of its overseas assets. However, before emerging from bankruptcy, Enron sold its domestic pipeline companies as CrossCountry Energy for $2.45 billion and later sold other assets to Vulcan Capital Management. Enron sold its last business, Prisma Energy, during 2006, leaving Enron asset-less. During early 2007, its name was changed to Enron Creditors Recovery Corporation. Its goal is to repay the old Enron's remaining creditors and end Enron's affairs. Azurix, the former water utility part of the company, remains under Enron ownership, although it is currently asset-less. It is involved in several litigations against the government of
Argentina Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the List of South American countries by area, second-largest ...
claiming compensation relating to the negligence and corruption of the local governance during its management of the
Buenos Aires Buenos Aires ( or ; ), officially the Autonomous City of Buenos Aires ( es, link=no, Ciudad Autónoma de Buenos Aires), is the Capital city, capital and primate city of Argentina. The city is located on the western shore of the Río de la Plata ...
water concession during 1999, which resulted in substantial amounts of debt (approx. $620 million) and the eventual collapse of the branch. Soon after emerging from bankruptcy during November 2004, Enron's new board of directors sued 11 financial institutions for helping Lay, Fastow, Skilling and others hide Enron's true financial condition. The proceedings were dubbed the "megaclaims litigation". Among the defendants were
Royal Bank of Scotland The Royal Bank of Scotland plc (RBS; gd, Banca Rìoghail na h-Alba) is a major retail banking, retail and commercial bank in Scotland. It is one of the retail banking subsidiaries of NatWest Group, together with NatWest (in England and Wales) ...
,
Deutsche Bank Deutsche Bank AG (), sometimes referred to simply as Deutsche, is a German multinational Investment banking, investment bank and financial services company headquartered in Frankfurt, Frankfurt, Germany, and dual-listed on the Frankfurt Stock ...
and
Citigroup Citigroup Inc. or Citi (Style (visual arts), stylized as citi) is an American multinational investment banking, investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking ...
. , Enron has settled with all of the institutions, ending with Citigroup. Enron was able to obtain nearly $7.2 billion to distribute to its creditors as a result of the megaclaims litigation. As of December 2009, some claim and process payments were still being distributed. Enron has been featured since its bankruptcy in popular culture, including in
The Simpsons ''The Simpsons'' is an American animated sitcom created by Matt Groening for the Fox Broadcasting Company. The series is a satirical depiction of American life, epitomized by the Simpson family, which consists of Homer Simpson, Homer, Marge ...
episodes '' That '90s Show'' (Homer buys Enron stocks while Marge chooses to keep her own
Microsoft Microsoft Corporation is an American multinational corporation, multinational technology company, technology corporation producing Software, computer software, consumer electronics, personal computers, and related services headquartered at th ...
stocks) and Special Edna, which features a scene of an Enron-themed amusement park ride. The 2007 film '' Bee Movie'' also featured a joke reference to a
parody A parody, also known as a spoof, a satire, a send-up, a take-off, a lampoon, a play on (something), or a caricature, is a creative work designed to imitate, comment on, and/or mock its subject by means of satire, satiric or irony, ironic imitation. ...
company of Enron called "Honron" (a play on the words honey and Enron). The 2003 documentary ''The Corporation'' made frequent references to Enron post-bankruptcy, calling the company a "bad apple".


Insider trading scandal


Peak and decline of stock price

During August 2000, Enron's stock price attained its greatest value of $90.56. At this time Enron executives, who possessed inside information on the hidden losses, began to sell their stock. At the same time, the general public and Enron's investors were told to buy the stock. Executives told the investors that the stock would continue to increase until it attained possibly the $130 to $140 range, while secretly unloading their shares. As executives sold their shares, the price began to decrease. Investors were told to continue buying stock or hold steady if they already owned Enron because the stock price would rebound in the near future. Kenneth Lay's strategy for responding to Enron's continuing problems was his demeanor. As he did many times, Lay would issue a statement or make an appearance to calm investors and assure them that Enron was doing well. In March 2001 an article by Bethany McLean appeared in ''Fortune'' magazine noting that no one understood how the company made money and questioning whether Enron stock was overvalued. By August 15, 2001, Enron's stock price had decreased to $42. Many of the investors still trusted Lay and believed that Enron would rule the market. They continued to buy or retain their stock as the equity value decreased. As October ended, the stock had decreased to $15. Many considered this a great opportunity to buy Enron stock because of what Lay had been telling them in the media. Lay was accused of selling more than $70 million worth of stock at this time, which he used to repay cash advances on lines of credit. He sold another $29 million worth of stock in the open market. Also, Lay's wife, Linda, was accused of selling 500,000 shares of Enron stock totaling $1.2 million on November 28, 2001. The money earned from this sale did not go to the family but rather to charitable organizations, which had already received pledges of contributions from the foundation. Records show that Mrs. Lay made the sale order sometime between 10:00 and 10:20 am. News of Enron's problems, including the millions of dollars in losses they hid, became public about 10:30 that morning, and the stock price soon decreased to less than one dollar. Former Enron executive Paula Rieker was charged with criminal insider trading and sentenced to two years probation. Rieker obtained 18,380 Enron shares for $15.51 a share. She sold that stock for $49.77 a share during July 2001, a week before the public was told what she already knew about the $102 million loss. In 2002, after the tumultuous fall of Enron's external auditor, and management consultant, Andersen LLP, former Andersen Director, John M. Cunningham coined the phrase, "We have all been Enroned." The fallout resulted in both Lay and Skilling being convicted of conspiracy, fraud, and insider trading. Lay died before sentencing, Skilling got 24 years and 4 months and a $45 million penalty (later reduced). Fastow was sentenced to six years of jail time, and Lou Pai settled out of court for $31.5 million.


California's deregulation and subsequent energy crisis

In October 2000, Daniel Scotto, the most renowned utility analyst on
Wall Street Wall Street is an eight-block-long street in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It runs between Broadway (Manhattan), Broadway in the west to South Street (Manhattan), South Street and ...
, suspended his ratings on all energy companies conducting business in California because of the possibility that the companies would not receive full and adequate compensation for the deferred energy accounts used as the basis for the California Deregulation Plan enacted during the late 1990s. Five months later,
Pacific Gas & Electric The Pacific Gas and Electric Company (PG&E) is an American Investor-owned utility, investor-owned utility (IOU). The company is headquartered in the Pacific Gas & Electric Building, in San Francisco, California. PG&E provides natural gas and el ...
(PG&E) was forced into bankruptcy. Republican Senator
Phil Gramm William Philip Gramm (born July 8, 1942) is an American economist and politician who represented Texas in both chambers of United States Congress, Congress. Though he began his political career as a Democratic Party (United States), Democrat, Gr ...
, husband of Enron Board member Wendy Gramm and also the second-largest recipient of campaign contributions from Enron, succeeded in legislating California's energy commodity trading deregulation. Despite warnings from prominent consumer groups which stated that this law would give energy traders too much influence over energy commodity prices, the legislation was passed in December 2000. As the periodical Public Citizen reported, "Because of Enron's new, unregulated power auction, the company's 'Wholesale Services' revenues quadrupled – from $12 billion in the first quarter of 2000 to $48.4 billion in the first quarter of 2001." After the passage of the deregulation law, California had a total of 38 Stage 3 rolling blackouts declared, until federal regulators intervened during June 2001. These blackouts occurred as a result of a poorly designed market system that was manipulated by traders and marketers, as well as from poor state management and regulatory oversight. Subsequently, Enron traders were revealed as intentionally encouraging the removal of power from the market during California's energy crisis by encouraging suppliers to shut down plants to perform unnecessary maintenance, as documented in recordings made at the time. These acts contributed to the need for rolling blackouts, which adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail customers. This scattered supply increased the price, and Enron traders were thus able to sell power at premium prices, sometimes up to a factor of 20 × its normal peak value. The callousness of the traders' attitude toward ratepayers was documented in an evidence tape of a conversation regarding the matter, and sarcastically referencing the confusion of retiree voters in Florida's
Miami-Dade County Miami-Dade County is a County (United States), county located in the southeastern part of the U.S. state of Florida. The county had a population of 2,701,767 as of the 2020 United States census, 2020 census, making it the most populous county in ...
in the November 2000, presidential election.Enron's "Grandma Millie" In High School Classrooms, F-Bombs And All
, ''
Houston Press The ''Houston Press'' is an online newspaper published in Houston, Texas, United States. It is headquartered in the Midtown Houston, Midtown area. It was also a weekly print newspaper until November 2017. The publication is supported entirely ...
'', Richard Connelly, March 2, 2009. Retrieved March 13, 2021.
"They're fucking taking all the money back from you guys? All the money you guys stole from those poor grandmothers in California?" "Yeah, Grandma Millie man. But she's the one who couldn't figure out how to fucking vote on the butterfly ballot." (Laughing from both sides.) "Yeah, now she wants her fucking money back for all the power you've charged right up, jammed right up her ass for fucking $250 a megawatt-hour."
The traders had been discussing the efforts of the Snohomish PUD in Northwestern Washington state to recover the massive overcharges that Enron had engineered.
Morgan Stanley Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the fir ...
, which had taken Enron's place in the lawsuit, fought the release of the documents that the PUD had sought to make its case, but were being withheld by the
Federal Energy Regulatory Commission The Federal Energy Regulatory Commission (FERC) is the United States Independent agencies of the United States government, federal agency that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce an ...
.


Former management and corporate governance

: :


Products

Enron traded in more than 30 different products, including
oil An oil is any nonpolar In chemistry, polarity is a separation of electric charge leading to a molecule or its chemical groups having an electric dipole moment, with a negatively charged end and a positively charged end. Polar molecules m ...
and
LNG Liquefied natural gas (LNG) is natural gas (predominantly methane, CH4, with some mixture of ethane, C2H6) that has been cooled down to liquid form for ease and safety of non-pressurized storage or transport. It takes up about 1/600th the volu ...
transportation,
broadband In telecommunications, broadband is wide bandwidth data transmission which transports multiple signals at a wide range of frequencies and Internet traffic types, that enables messages to be sent simultaneously, used in fast internet connection ...
, principal investments, risk management for commodities, shipping /
freight Cargo consists of bulk goods conveyed by water, air, or land. In economics, freight is cargo that is transported at a freight rate for Commerce, commercial gain. ''Cargo'' was originally a shipload but now covers all types of freight, includ ...
, streaming media, and water and
wastewater Wastewater is water generated after the use of Fresh water, freshwater, raw water, drinking water or saline water in a variety of deliberate applications or processes. Another definition of wastewater is "Used water from any combination of domesti ...
. Products traded on EnronOnline in particular included
petrochemicals Petrochemicals (sometimes abbreviated as petchems) are the product (chemistry), chemical products obtained from petroleum by refining. Some chemical compounds made from petroleum are also obtained from other fossil fuels, such as coal or natural ...
, plastics, power, pulp and paper, steel, and weather risk management. Enron was also an extensive futures trader, including sugar, coffee, grains, hogs, and other meat futures. At the time of its bankruptcy filing during December 2001, Enron was structured into seven distinct business units.


Online marketplace services

*EnronOnline (commodity trading platform). *ClickPaper (transaction platform for pulp, paper, and wood products). *EnronCredit (the first global online credit department to provide live credit prices and enable business-to-business customers to hedge credit exposure instantly via the Internet). *ePowerOnline (customer interface for Enron Broadband Services). *Enron Direct (sales of fixed-price contracts for gas and electricity; Europe only). *EnergyDesk (energy-related derivatives trading; Europe only). *NewPowerCompany (online energy trading, joint venture with IBM and
AOL AOL (stylized as Aol., formerly a company known as AOL Inc. and originally known as America Online) is an American web portal and online service provider based in New York City. It is a brand marketed by the current incarnation of Yahoo (2017 ...
). *Enron Weather (weather derivatives). *DealBench (online business services). *Water2Water (water storage, supply, and quality credits trading). *HotTap (customer interface for Enron's U.S. gas pipeline businesses). *Enromarkt (business to business pricing and information platform; Germany only).


Broadband services

*Enron Intelligent Network (broadband content delivery). *Enron Media Services (risk management services for media content companies). *Customizable Bandwidth Solutions (bandwidth and fiber products trading). *Streaming Media Applications (live or on-demand Internet broadcasting applications).


Energy and commodities services

*Enron Power (electricity wholesaling). *Enron Natural Gas (natural gas wholesaling). *Enron Clean Fuels (
biofuel Biofuel is a fuel that is produced over a short time span from biomass, rather than by the very slow natural processes involved in the formation of fossil fuels, such as oil. According to the United States Energy Information Administration (EIA ...
wholesaling). *Enron Pulp and Paper, Packaging, and Lumber (risk management derivatives for forest products industry). *Enron Coal and Emissions (coal wholesaling and offsets trading). *Enron Plastics and Petrochemicals (price risk management for polymers, olefins, methanol, aromatics, and natural gas liquids). *Enron Weather Risk Management ( Weather Derivatives). *Enron Steel (financial swap contracts and spot pricing for the steel industry). *Enron Crude Oil and Oil Products (petroleum hedging). * Enron Wind Power Services (wind turbine manufacturing and wind farm operation). *MG Plc. (U.K. metals merchant). * Enron Energy Services (Selling services to industrial end users). * Enron International (operation of all overseas assets).


Capital and risk management services


Commercial and industrial outsourcing services

*Commodity Management. *Energy Asset Management. *Energy Information Management. *Facility Management. *Capital Management. * Azurix Inc. (water utilities and infrastructure).


Project development and management services

*Energy Infrastructure Development (developing, financing, and operation of power plants and related projects). *Enron Global Exploration & Production Inc. (upstream oil and natural gas international development). *Elektro Electricidade e Servicos SA (Brazilian electric utility). * Northern Border Pipeline. * Houston Pipeline. * Transwestern Pipeline. * Florida Gas Transmission. * Northern Natural Gas Company. *Natural Gas Storage. *Compression Services. *Gas Processing and Treatment. *Engineering, Procurement, and Construction Services. *EOTT Energy Inc. (oil transportation). Enron manufactured gas valves,
circuit breaker A circuit breaker is an electrical safety device designed to protect an Electrical network, electrical circuit from damage caused by an overcurrent or short circuit. Its basic function is to interrupt current flow to protect equipment and ...
s,
thermostats A thermostat is a regulating device component which senses the temperature of a physical system and performs actions so that the system's temperature is maintained near a desired setpoint (control system), setpoint. Thermostats are used i ...
, and electrical equipment in Venezuela by means of INSELA SA, a 50–50 joint venture with
General Electric General Electric Company (GE) is an American multinational conglomerate founded in 1892, and incorporated in New York state and headquartered in Boston Boston (), officially the City of Boston, is the capital city, state capital a ...
. Enron owned three paper and pulp products companies: Garden State Paper, a newsprint mill; as well as Papiers Stadacona and St. Aurelie Timberlands. Enron had a controlling stake in the Louisiana-based petroleum exploration and production company Mariner Energy.


EnronOnline

Enron opened EnronOnline, an
electronic trading platform In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products ...
for energy commodities, on November 29, 1999. Conceptualized by the company's European Gas Trading team, it was the first web-based transaction system that allowed buyers and sellers to buy, sell, and trade commodity products globally. It allowed users to do business only with Enron. The site allowed Enron to transact with participants in the global energy markets. The main commodities offered on EnronOnline were natural gas and electricity, although there were 500 other products including credit derivatives, bankruptcy swaps, pulp, gas, plastics, paper, steel, metals,
freight Cargo consists of bulk goods conveyed by water, air, or land. In economics, freight is cargo that is transported at a freight rate for Commerce, commercial gain. ''Cargo'' was originally a shipload but now covers all types of freight, includ ...
, and TV commercial time. At its maximum, more than $6 billion worth of commodities were transacted by means of EnronOnline every day, but specialists questioned how Enron reported trades and calculated its profits, saying that the same fraudulent accounting that was rampant at Enron's other operations may have been used in trading. After Enron's bankruptcy in late 2001, EnronOnline was sold to the Swiss financial giant
UBS UBS Group AG is a multinational Investment banking, investment bank and financial services company founded and based in Switzerland. Co-headquartered in the cities of Zürich and Basel, it maintains a presence in all major financial centres ...
. Within a year, UBS abandoned its efforts to relaunch the division, and closed it in November 2002.


Enron International

Enron International (EI) was Enron's wholesale asset development and asset management business. Its primary emphasis was developing and building natural gas power plants outside North America. Enron Engineering and Construction Company (EECC) was a wholly owned subsidiary of Enron International, and built almost all of Enron International's power plants. Unlike other business units of Enron, Enron International had a strong cash flow on bankruptcy filing. Enron International consisted of all of Enron's foreign power projects, including ones in Europe. The company's Teesside plant was one of the largest gas-fired power stations in the world, built and operated by Enron from 1989, and produced 3 percent of the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
's energy needs."Principal Player in the Electricity Game". ''
Financial Times The ''Financial Times'' (''FT'') is a British daily newspaper A newspaper is a Periodical literature, periodical publication containing written News, information about current events and is often typed in black ink with a white or gray ba ...
''. (London, England) September 17, 1990: 19. Retrieved July 4, 2012.
Enron owned half of the plant's equity, with the remaining 50 percent split between four regional electricity companies.


Management

Rebecca Mark was the CEO of Enron International until she resigned to manage Enron's newly acquired water business, Azurix, during 1997. Mark had a major role in the development of the Dabhol project in India, Enron's largest international endeavor.


Projects

Enron International constructed power plants and pipelines across the globe. Some are presently still operating, including the massive Teesside plant in England. Others, like a barge-mounted plant off Puerto Plata in the Dominican Republic, cost Enron money by lawsuits and investment losses. Puerto Plata was a barge-mounted power plant next to the hotel ''Hotelero del Atlantico''. When the plant was activated, winds blew soot from the plant onto the hotel guests' meals, blackening their food. The winds also blew garbage from nearby slums into the plant's water-intake system. For some time the only solution was to hire men who would row out and push the garbage away with their paddles. Through mid-2000 the company collected a paltry $3.5 million from a $95 million investment. Enron also had other investment projects in Europe, South America, Argentina,
Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America South America is a continent entirely in the Western Hemisphere and mostly in the Southern Hemisphere, ...
, Bolivia,
Colombia Colombia (, ; ), officially the Republic of Colombia, is a country in South America with insular regions in North America—near Nicaragua's Caribbean coast—as well as in the Pacific Ocean. The Colombian mainland is bordered by the Cari ...
, Mexico,
Jamaica Jamaica (; ) is an island country situated in the Caribbean Sea. Spanning in area, it is the third-largest island of the Greater Antilles and the Caribbean (after Cuba and Hispaniola). Jamaica lies about south of Cuba, and west of Hisp ...
, Venezuela, and across the
Caribbean The Caribbean (, ) ( es, El Caribe; french: la Caraïbe; ht, Karayib; nl, De Caraïben) is a region of the Americas that consists of the Caribbean Sea, its islands (some surrounded by the Caribbean Sea and some bordering both the Caribbean ...
.


India

Around 1992
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
n experts came to the United States to find energy investors to help with India's energy shortage problems. During December 1993, Enron finalized a 20-year power-purchase contract with the Maharashtra State Electricity Board. The contract allowed Enron to construct a massive 2,015 megawatt power plant on a remote volcanic bluff south of Mumbai through a two-phase project called Dabhol Power Station. Construction would be completed in two phases, and Enron would form the
Dabhol Power Company The Dabhol Power Company (now called RGPPL - Ratnagiri Gas and Power Private Limited) was a company based in Maharashtra, India, formed in 1992 to manage and operate the controversial Dabhol Power Plant. The Dabhol plant was built through the comb ...
to help manage the plant. The power project was the first step in a $20 billion scheme to help rebuild and stabilize India's power grid. Enron, GE (which was selling turbines to the project), and
Bechtel Bechtel Corporation () is an American engineering, procurement, construction, and project management company founded in San Francisco, California, and headquartered in Reston, Virginia, Reston, Virginia. , the ''Engineering News-Record'' ranked B ...
(which was actually constructing the plant), each contributed 10% equity with the remaining 90% covered by the MSEB During 1996, when India's Congress Party was no longer in power, the Indian government assessed the project as being excessively expensive and refused to pay for the plant and stopped construction. The MSEB was required by contract to continue to pay Enron plant maintenance charges, even if no power was purchased from the plant. The MSEB determined that it could not afford to purchase the power (at Rs. 8 per unit kWh) charged by Enron. The plant operator was unable to find alternate customers for Dabhol power due to the absence of a free market in the regulated structure of utilities in India. By 2000, the Dabhol plant was almost complete and Phase 1 had begun producing power. Enron as a whole, however, was heavily overextended, and in the summer of that year Mark and all the key executives at Enron International were asked to resign from Enron in an effort to reshape the company and get rid of asset businesses. Eichenwald, Kurt
''Conspiracy of Fools: A True Story''
Random House, 2005. pp. 362–364.
Shortly thereafter a payment dispute with MSEB ensued, and Enron issued a stop-work order on the plant in June 2001. From 1996 until Enron's bankruptcy during 2001 the company tried to revive the project and revive interest in India's need for the power plant without success. By December 2001 the Enron scandal and bankruptcy cut short any opportunity to revive the construction and complete the plant.Pretorius, Frederik; Chung-Hsu, Berry-Fong; McInnes, Arthur; Lejot, Paul; Arner, Douglas
''Project Finance for Construction and Infrastructure: Principles and Case Studies''
John Wiley & Sons, 2008. pp. 319–321.
In 2005, an Indian government-run company, Ratnagiri Gas and Power, was set up to finish construction on the Dabhol facility and operate the plant.


Project summer

During the summer of 2001, Enron made an attempt to sell a number of Enron International's assets, many of which were not sold. The public and media believed it was unknown why Enron wanted to sell these assets, suspecting it was because Enron was in need of cash. Employees who worked with company assets were told in 2000 that Jeff Skilling believed that business assets were an outdated means of company worth, and instead he wanted to build a company based on "intellectual assets".


Enron Global Exploration & Production, Inc.

Enron Global Exploration & Production Inc. (EGEP) was an Enron subsidiary that was born from the split of domestic assets via EOG Resources (formerly Enron Oil and Gas EOG) and international assets via EGEP (formerly Enron Oil and Gas Int'l, Ltd EOGIL). Among the EGEP assets were the Panna-Mukta and the South Tapti fields, discovered by the Indian state-owned
Oil and Natural Gas Corporation The Oil and Natural Gas Corporation (ONGC) is a Public Sector Undertakings in India, central public sector undertaking under the ownership of Ministry of Petroleum and Natural Gas, Government of India. It is headquartered in New Delhi. ONGC w ...
(ONGC), which operated the fields initially. December 1994, a joint venture began between ONGC (40%), Enron (30%) and Reliance (30%). Mid year of 2002, British Gas ( BG) completed the acquisition of EGEP's 30% share of the Panna-Mukta and Tapti fields for $350 million, a few months before Enron filed bankruptcy.


Enron Prize for Distinguished Public Service

During the mid-1990s, Enron established an endowment for the Enron Prize for Distinguished Public Service, awarded by
Rice University William Marsh Rice University (Rice University) is a Private university, private research university in Houston, Houston, Texas. It is on a 300-acre campus near the Houston Museum District and adjacent to the Texas Medical Center. Rice is ranke ...
's Baker Institute to "recognize outstanding individuals for their contributions to public service". Recipients were: * 1995:
Colin Powell Colin Luther Powell ( ; April 5, 1937 – October 18, 2021) was an American politician, statesman, diplomat, and United States Army officer who served as the 65th United States Secretary of State from 2001 to 2005. He was the List of Africa ...
. * 1997:
Mikhail Gorbachev Mikhail Sergeyevich Gorbachev (2 March 1931 – 30 August 2022) was a Soviet politician who served as the 8th and final leader of the Soviet Union from 1985 to dissolution of the Soviet Union, the country's dissolution in 1991. He served a ...
. * 1999 (early):
Eduard Shevardnadze Eduard Ambrosis dze Shevardnadze ( ka, ედუარდ ამბროსის ძე შევარდნაძე}, romanization of Georgian, romanized: ; 25 January 1928 – 7 July 2014) was a Soviet and Georgians, Georgian politician a ...
. * 1999 (late):
Nelson Mandela Nelson Rolihlahla Mandela (; ; 18 July 1918 – 5 December 2013) was a South African Internal resistance to apartheid, anti-apartheid activist who served as the President of South Africa, first president of South Africa from 1994 to 1 ...
. * 2001:
Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC ...
.Almond, B.J
Greenspan, Putin to speak on campus
''Rice University News & Media Relations'', November 8, 2001. Retrieved: August 26, 2011.
Greenspan, because of his position as the Fed
chairman The chairperson, also chairman, chairwoman or chair, is the presiding officer of an organized group such as a board, committee, or deliberative assembly. The person holding the office, who is typically elected or appointed by members of the gr ...
, was not at liberty to accept the $10,000 honorarium, the $15,000 sculpture, nor the crystal trophy, but only accepted the "honor" of being named an Enron Prize recipient. The situation was further complicated because a few days earlier, Enron had filed paperwork admitting it had falsified financial statements for five years. Greenspan did not mention Enron a single time during his speech.Bryce, Rober
Pipe Dreams: Greed, Ego, and the Death of Enron
''Rice University News & Media Relations'', November 8, 2001. Retrieved: August 26, 2011.
At the ceremony, Ken Lay stated, "I'm looking forward to our first woman recipient." The next morning, it was reported in the ''Houston Chronicle'' that no decision had been made on whether the name of the prize would be changed. 19 days after the prize was awarded to Greenspan, Enron declared bankruptcy. During early 2002, Enron was awarded Harvard's (in)famous
Ig Nobel Prize The Ig Nobel Prize ( ) is a satire, satiric prize awarded annually since 1991 to celebrate ten unusual or trivial achievements in scientific research. Its aim is to "honor achievements that first make people laugh, and then make them think." The ...
for "Most Creative Use of Imaginary Numbers". The various former members of Enron management team all refused to accept the award in person, although no reason was given at the time.


Enron's influence on politics

*
George W. Bush George Walker Bush (born July 6, 1946) is an American politician who served as the 43rd president of the United States from 2001 to 2009. A member of the Republican Party (United States), Republican Party, Bush family, and son of the 41st ...
, sitting U.S. president at the time of Enron's collapse, received $312,500 to his campaigns and $413,800 to his presidential war chest and inaugural fund. *
Dick Cheney Richard Bruce Cheney ( ; born January 30, 1941) is an American politician and businessman who served as the 46th vice president of the United States from 2001 to 2009 under President George W. Bush. He is currently the oldest living former U ...
, sitting U.S. vice president at the time of Enron's collapse, met with Enron executives six times to develop a new energy policy. He refused to show minutes to Congress. *
John Ashcroft John David Ashcroft (born May 9, 1942) is an American lawyer, Lobbying, lobbyist and former politician who served as the 79th United States Attorney General, U.S. Attorney General in the Presidency of George W. Bush, George W. Bush administratio ...
, attorney general at the time, recused himself from the DOJ's investigation into Enron due to receiving $57,499 when running for senate seat in 2000. * Lawrence Lindsay, White House Economic Advisor at the time, made $50,000 as a consultant with Enron before moving to the White House in 2000. *
Karl Rove Karl Christian Rove (born December 25, 1950) is an American Republican political consultant, policy advisor, and lobbyist. He was Senior Advisor and Deputy Chief of Staff during the George W. Bush George Walker Bush (born July 6, 1 ...
, White House senior advisor at the time, waited five months before selling $100,000 of Enron stock. * Marc F. Racicot, Republican National Committee chairman nominee at the time, was handpicked by George W. Bush to serve as a lawyer with Bracewell LLP, a firm that lobbied for Enron.


See also

* '' Enron: The Smartest Guys in the Room'', an award-winning 2005 documentary film which examines the collapse of the Enron Corporation * '' The Crooked E: The Unshredded Truth About Enron'', a television movie aired by CBS in January 2003 based on the book Anatomy of Greed by Brian Cruver * '' Pipe Dreams: Greed, Ego, and the Death of Enron'', a book by Robert Bryce * ''
ENRON Enron Corporation was an American Energy development, energy, Commodity, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relativ ...
'', a 2009 play by British playwright Lucy Prebble *
Dot-com bubble The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Compos ...
*
Theranos Theranos Inc. () was an American privately held corporation that was touted as a breakthrough health technology company. Founded in 2003 by then 19-year-old Elizabeth Holmes, Theranos raised more than US$700 million from venture capitalists ...


References

https://www.econcrises.org/2016/12/07/enron-corporation-2001/


Bibliography

* Robert Bryce, ''Pipe Dreams: Greed, Ego, and the Death of Enron'' (PublicAffairs, 2002) . * Lynn Brewer, Matthew Scott Hansen, ''House of Cards, Confessions of An Enron Executive'' (Virtualbookworm.com Publishing, 2002) . *
Kurt Eichenwald Kurt Alexander Eichenwald (born June 28, 1961) is an American journalist and a ''New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership rep ...
, '' Conspiracy of Fools: A True Story'' (Broadway Books, 2005) . * Peter C. Fusaro, Ross M. Miller, ''What Went Wrong at Enron: Everyone's Guide to the Largest Bankruptcy in U.S. History'' (Wiley, 2002), . * Loren Fox, ''Enron: The Rise and Fall''. (Hoboken, NJ: Wiley, 2003). *
Judith Haney
''Enron's Bust: Was it the result of Over-Confidence or a Confidence Game?'' USNewsLink/ December 13, 2001. * Marc Hodak
''The Enron Scandal''
Organizational Behavior Research Center Papers (SSRN), June 4, 2007. * Bethany McLean, Peter Elkind, '' The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron'' (Portfolio, 2003) . * * Mimi Swartz, Sherron Watkins, ''Power Failure: The Inside Story of the Collapse of Enron'' (Doubleday, 2003) . * Daniel Scotto "American Financial Analyst: The First Analyst to recommend the selling of Enron Stock". * *


External links

* .
Portland General Electric Company

Northern Natural Gas Company


TheSmokingGun.com *
"The Fall of Enron"
HBS Research paper
FBI Web Site
*


Data




Enron Creditors Recovery Corp. Profile
Hoovers.com
Enron Creditors Recovery Corp. profile
Google Finance

* (Contains the ENRON historical stock quotes from 1997 to 2002.) {{Authority control Defunct energy companies of the United States Companies based in Houston Dot-com bubble Energy companies established in 1985 Non-renewable resource companies established in 1985 Non-renewable resource companies disestablished in 2007 1985 establishments in Nebraska 2001 disestablishments in Texas Companies formerly listed on the London Stock Exchange Companies that filed for Chapter 11 bankruptcy in 2001 Defunct companies based in Omaha, Nebraska Defunct companies based in Texas Scandals in the United States