.svg){kind=link}
The story
Founded by Kenneth Lay in 1985.1
History
InterNorth
One of Enron's primary predecessors was InterNorth, which was formed in 1930, in Omaha, Nebraska, just a few months after Black Tuesday. The low cost of natural gas and the cheap supply of labor during the 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, 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 unsuccessfully over a hostile takeover of Crouse-Hinds Company, an electrical products manufacturer. Cooper and InterNorth feuded in numerous suits during 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. In 1983, InterNorth merged with the Belco Petroleum Company, a Fortune 500 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. 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 died 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, and on July 16, 1985, the two entities voted to merge. 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 in the process. Lippincott & Margulies, the advertising firm responsible for the InterNorth identity five years prior, suggested "Enteron". During a meeting with employees on February 14, 1986, Lay announced his interest in this name change, which would be held to a stockholder vote on April 10. Less than a month from this meeting, on March 7, 1986, a spokesman for HNG/InterNorth rescinded the planned Enteron proposal, as since its announcement the name had come under scrutiny for being the same as a medical term for the intestines. This same press release saw the introduction of the Enron name, which would be the new name voted on come April.
Some problems lingered after the merger, however; Enron still had to pay Jacobs, an ongoing threat, over $350 million, and it needed to 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 units to its portfolio. In 1989, Jeffrey Skilling, then a consultant at McKinsey & Company, 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.
1980s
New regulations gradually create a market-pricing system for natural gas. Federal Energy Regulatory Commission (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 Natural Gas, run by Kenneth Lay, merges with InterNorth, a natural gas company in Omaha, Nebraska, to form an interstate and intrastate natural gas pipeline with approximately 37,000 mi (60,000 km) of pipeline.
November 1985
Lay is appointed chairman and chief executive of the combined company. The company chooses the name Enron.
Read the full text
1986
Company moves headquarters to Houston, where Ken Lay lives. Enron is both a natural gas and oil company.
Enron's vision: To become the premier natural gas pipeline in America.
1987
Enron Oil, Enron's petroleum marketing operation, reports a 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.
Enron enters the UK energy market following the 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 CEO Jeff Skilling in 1990, which allows gas producers and wholesale buyers to purchase gas supplies and hedge the price risk at the same time.
Enron begins offering financing to oil and gas producers.
Transwestern Pipeline Company, owned by Enron at that time, 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 and over-the-counter market using financial instruments such as swaps and options.
Ken Lay and Rich Kinder hire Jeff Skilling from McKinsey & Company 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 from the banking industry; he starts as account director and quickly rises within the ranks of ECT.
1991
Enron adopts mark-to-market accounting practices, reporting income and value of assets at their replacement cost.
Rebecca Mark becomes chairman and CEO 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
Throughout 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, 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, 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 (PGE). Although an Oregon utility, it had the 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 formed by Enron subsidiary FirstPoint Communications, Inc., constructed a 1,380 miles (2,220 km) 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, 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 canceled, 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 utilizing cogeneration that the company built near Middlesbrough, 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. 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 was the next market to be deregulated by authorities. Seeing the potential, they searched for ways to enter the market, similar to PGE.
During this period of growth, Enron introduced a new corporate identity on January 14, 1997, and from that point adopted their distinctive tricolor E logo. This logo was one of the final projects of legendary graphic designer Paul Rand before his death in 1996, and debuted almost three months after his departure.
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 hired Andrew Fastow, who was well acquainted with the burgeoning deregulated energy market that Skilling wanted to exploit. In 1993, Fastow began establishing numerous limited liability 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 keep its critical investment-grade credit ratings.
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, 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 in 1999 when Enron promised to repay Merrill Lynch's investment with interest 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 statements; 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 stable 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'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.
2002–2006
In 2003, Enron moved its subsidiaries of Transwestern Pipeline, Citrus Corporation, and Northern Plains Natural Gas Company into a separate corporation. The plan was to distribute the shares of the new pipeline company to creditors as part of the planned reorganization. Enron later announced the name of the new pipeline corporation as CrossCountry Energy (CCE).
As a result of an attempted merger with Dynegy and a series of court cases between Enron and Dynegy, Northern Plains became a part of Dynegy as a settlement from Enron. MidAmerican Energy Holdings, a subsidiary of Berkshire Hathaway, later purchased the pipeline company from Dynegy for $928 million.
2024 satirical reboot and meme coin
On December 2, 2024, a new tweet was posted on the @Enron X account. The tweet had the caption "We're back. Can we talk?", along with a promotional video. Viewers also noticed that the website enron.com was also functional. The replies alleged a potential cryptocurrency scam, but others pointed to the new terms of service including a clause explicitly stating that the content on the website was parody protected under the First Amendment. Many pointed out that this was likely a joke, as the domain seemed to be registered by Peter McIndoe, a performance artist and founder of Birds Aren't Real. Additionally, the rights to the Enron name had been purchased at auction by The College Company for $275 in 2020. On December 9, it was announced that the CEO of Enron was Connor Gaydos, another cofounder of The College Company and Birds Aren't Real. It was also announced that Enron planned to hold a new "Enron Power Summit" on January 6, 2025. On December 12, the Twitter page @Pubity posted video of Gaydos being pied in the face. Many viewers quickly assumed the incident was staged, and it may have been a parody of an incident when Jeff Skilling was pied in the face by a California woman.
On January 6, 2025, Enron announced the Enron Egg, its first new product in 20 years. Gaydos claimed that the product was a micro nuclear reactor capable of powering a suburban home for 10 years using 20% enriched uranium in the form of uranium zirconium hydride. The announcement supposedly took place at the previously announced "Enron Power Summit," but the Houston Chronicle was unable to confirm that such an event actually took place.
On February 4, 2025, Enron launched a crypto token named $ENRON on the Solana blockchain as part of its satire, at one point trading with a market capitalization of $700 million before the price fell at least 76% within 24 hours of launch.
From Wikipedia’s article on Enron, shared under CC BY-SA 4.0.6