Energy · Profile from Energy Research Companion
Enron
The Houston company formed in 1985 when InterNorth of Omaha bought Houston Natural Gas. It turned a heavily indebted interstate pipeline group into the largest trader of natural gas and electricity in North America. Its "gas bank" (1990) solved a real problem that deregulation had created, and EnronOnline (Nov 1999) became the most-used electronic platform in US gas and power. But from 1992 Enron booked the projected lifetime profit of long-term contracts on the day it signed them (mark-to-market accounting). It lost cash in Dabhol (India), Azurix (water) and broadband. Its finance chief Andrew Fastow kept debt and losses off the balance sheet in special-purpose entities backed by Enron's own shares. In 2000 Enron reported ~$100bn of revenue and had a peak market value of ~$70bn (reported). On 2 Dec 2001, fewer than seven weeks after its first big loss announcement, it filed for Chapter 11 with ~$63bn of assets, then the largest bankruptcy in US history (reported). Enron had a route to market. It did not have a cost advantage, and it did not have capital that could survive a falling share price.
At a glance
- Founded
- 1985: InterNorth (Omaha) acquired Houston Natural Gas (HNG) for ~$2.3bn (reported). Renamed Enron in 1986 and headquartered in Houston
- Headquarters
- Houston, Texas
- Ownership / structure
- Public (NYSE: ENE) until 2001; a holding company over regulated interstate pipelines, a wholesale trading arm, a retail energy-services arm, international assets, Portland General Electric (from 1997), Azurix (water, 1998–2001) and Enron Broadband Services; hundreds of special-purpose entities (Powers Report, Feb 2002)
- Leadership
- Kenneth Lay (CEO 1986–Feb 2001 and again Aug 2001–Jan 2002; chairman throughout); Richard Kinder (president and COO until the end of 1996); Jeffrey Skilling (president and COO from 1997, CEO 12 Feb–14 Aug 2001); Andrew Fastow (CFO from 1998, ousted 24 Oct 2001); Stephen Cooper (interim CEO in bankruptcy, from Jan 2002)
- Assets at peak (2000)
- Interstate gas pipelines, including Northern Natural Gas, Transwestern and stakes in Florida Gas and Northern Border (~32,000 miles of pipeline, reported, verify); Portland General Electric; power plants and pipelines abroad, including Dabhol in India (~2,184 MW planned); Wessex Water (UK) through Azurix; a fibre network; the EnronOnline platform
- Scale
- 2000: revenue ~$100.8bn (gross trading revenue, reported) and reported net income ~$979m (later restated); ~20,000 employees (reported); share price peaked at ~$90 in Aug 2000 (reported)
- End
- Chapter 11 filed 2 Dec 2001 in the US Bankruptcy Court for the Southern District of New York (~$63bn of assets, reported); liquidation plan confirmed Jul 2004 and effective Nov 2004; ~$21.8bn paid to creditors by 2012 (Bloomberg, reported)
- Signature moves (incl. failures)
- HNG–InterNorth merger (1985); the gas bank and mark-to-market accounting (1990–92); Dabhol (PPA 1993, plant 1999, mothballed 2001); the special-purpose entities (Chewco 1997, LJM 1999, the Raptors 2000); EnronOnline (1999); the California crisis (2000–01); broadband (2000–01); collapse and Chapter 11 (Oct–Dec 2001); Andersen and the convictions (2002–06)
9 strategic moves analysed
Each one gets a full strategy file in the companion: context, the decision, the financing, what happened, and the lesson.
1985
HNG InterNorth Merger
Acquisition or merger
1990
Gas Bank and Mark to Market
Strategy pivot (new product: long-term risk management) and an accounting choice
1993
Dabhol Power Project
Project final investment decision and construction; international offtake contract; later a failure and sovereign dispute
1997
SPEs and Fastow
Financing structure (off-balance-sheet vehicles); accounting and related-party transactions
1999
EnronOnline
Technology bet / route to market (electronic trading platform)
2000
Broadband
Strategy pivot / technology bet (bandwidth trading, fibre network and video on demand); failure
2000
California Crisis
Trading strategy in a newly deregulated market; later regulatory and legal action
2001
Collapse and Chapter 11
Restructuring or bankruptcy
2002
Andersen and the Convictions
Regulatory or legal action (criminal prosecutions, civil suits, legislation)