Enron
Enron Creditors Recovery Corporation | |
---|---|
Type | / Asset-less Shell |
Founded | Omaha, Nebraska, 1985 |
Headquarters | Houston, Texas, USA |
Key people | Kenneth Lay, Founder, former Chairman and CEO Jeffrey Skilling, former CEO and COO Andrew Fastow, former CFO Rebecca Mark-Jusbasche, former Vice Chairman, Chairman and CEO of Enron International , Interim CEO and CRO , Chairman |
Industry | Energy |
Revenue | $111 billion (in 2000) |
Employees | approx. 300 as of 2007 |
Slogan | Ask Why? |
Website | Enron |
Enron Creditors Recovery Corporation (formerly Enron Corporation) (former NYSE ticker symbol: ENE) was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed around 21,000 people (McLean & Elkind, 2003) and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of $111 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. It achieved infamy at the end of 2001, when it was revealed that its reported financial condition was sustained mostly by institutionalized, systematic, and creatively planned accounting fraud. Enron has since become a popular symbol of willful corporate fraud and corruption.
In August 2001, Daniel Scotto, a top ranked utility analyst issued a report entitled "Enron: All Stressed Up and No Place to Go" lowering his rating on Enron warning investors to sell securities in the company at all costs since the departure of Chief Executive Officer Jeffrey Skilling would likely cause the company to implode due to its leveraged balance sheet and questionable corporate activities. Enron filed for bankruptcy protection in the Southern District of New York in late 2001 and selected Weil, Gotshal & Manges as their bankruptcy counsel. Enron still exists as an asset-less shell corporation, emerging from bankruptcy in November of 2004 after one of the biggest and most complex bankruptcy cases in U.S. history. On September 7, 2006, Enron sold Prisma Energy International Inc., its last remaining business, to Ashmore Energy International Ltd. Following the scandal, lawsuits against Enron's directors were notable because the directors settled the suits by paying very significant sums of money personally. The scandal also caused the dissolution of the Arthur Andersen accounting firm, affecting the wider business world.[1]
Enron Creditors Recovery Corp. will continue to operate under the name Enron Corp. by filing a Doing Business As, or "dba" certificate in Harris County, Texas.
Contents |
Early history
Enron has its roots in Omaha, Nebraska, with Northern Natural Gas Company, formed in 1931 and reorganized under a holding company in 1979, InterNorth, which purchased the smaller Houston Natural Gas in 1985, changing its name to Enron in the process.[2] After building a large, new corporate headquarters in Omaha, the new Enron named former Houston Natural Gas CEO Kenneth Lay as CEO of the newly merged company. Lay purchased a condominium home on the top floor of a historic downtown Omaha building, but soon engineered a "management coup", in which he moved Enron's headquarters to Houston.
The merged company initially styled itself "HNG/InterNorth Inc.", but the departure of ex InterNorth CEO six months after the merger provided Ken Lay with the opportunity to thoroughly re-brand the business. Lay originally favored the name "Enteron" (possibly spelled in camelcase as "EnterOn"); but when it was pointed out that the term approximated a Greek word referring to the intestine, it was quickly shortened to "Enron." The final name was decided upon only after business cards, stationary, and other items had been printed reading Enteron, reflecting the confused state of affairs in the company at the time. Enron's famous "tilted E" logo was designed by the late American graphic designer Paul Rand.
Enron was originally involved in the transmission and distribution of electricity and gas throughout the United States and the development, construction, and operation of power plants, pipelines, and other infrastructure worldwide. In 1998, Enron moved into the water sector, creating the Azurix Corporation, which it part-floated on the New York Stock Exchange (NYSE) in June 1999. Azurix failed to break into the market, and one of its major concessions, in Buenos Aires, was a large-scale money-loser. In April 2001, Enron announced its intention to break up Azurix and sell its assets.
Enron grew wealthy, it claimed, through its pioneering, marketing and promotion of power and communications bandwidth commodities and related derivatives as tradable financial instruments, including exotic items such as weather derivatives. Enron was named "America's Most Innovative Company" by Fortune magazine for six consecutive years, from 1996 to 2001. It was on the Fortune's "100 Best Companies to Work for in America" list in 2000, and had offices that were, in hindsight, 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 its exposure in corporate fraud.
As was later discovered, many of Enron's recorded assets and profits were inflated, or even wholly fraudulent and nonexistent, by putting debts and losses into entities formed "offshore" that were not consolidated with (included in) the company's financial statements and, in addition, by the use of other sophisticated and arcane financial transactions between Enron and related companies formed to take unprofitable entities off the company's books.
Its most valuable asset and the largest source of honest income, the 1930s-era Northern Natural Gas, was eventually purchased back by a group of Omaha investors, who moved its headquarters back to Omaha, and is now a unit of Warren Buffett's Mid-American Energy Holdings Corp. NNG was put up as collateral for a $2.5 billion capital infusion by Dynegy Corporation when Dynegy was planning to buy Enron. When Dynegy took a close look at Enron's books they backed out of the deal and fired their CEO, Chuck Watson. Ironically the new chairman and interim CEO, the late Daniel Dienstbier, had been president of NNG and an Enron executive at one time and an acquaintance of Warren Buffett. NNG continues to be profitable today.
Products
Enron traded in more than 30 different products including the following.
- Products traded on EnronOnline
- Petrochemicals
- Plastics
- Power
- Pulp &
- Steel
- Weather Risk Management
- Oil & LNG Transportation
- Broadband
- Principal Investments
- Risk Management for Commodities
- Shipping / Freight
- Streaming Media
- Water & Wastewater
- Computer Chips
It was also an extensive futures trader, including sugar, coffee, grains, hog, and other meat futures. At the time of its bankruptcy filing in 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)
- 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)
- EnronStrommarkt (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 Pulp and Paper, Packaging, and Lumber (risk management derivatives for forest products industry)
- Enron Coal and Emissions (coal wholesaling and CO2 offsets trading)
- Enron Plastics and Petrochemicals (price risk management for polymers, olefins, methanol, aeromatics, 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)
- (wind turbine manufacturing and wind farm operation)
- (U.K. metals merchant)
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)
- Inc. (oil and natural gas field services)
- SA (Brazilian electric utility)
Energy Transportation and Upstream Services
- Natural Gas Transportation
- Northern Border Pipeline
- Transwestern Pipeline
- Florida Gas Transmission
- Northern Natural Gas Company
- Natural Gas Storage
- Compression Services
- Gas Processing and Treatment
- Engineering, Procurement, and Construction Services
- Inc. (oil transportation)
Enron manufactured gas valves, circuit breakers, thermostats, and electrical equipment in Venezuela through SA, a 50-50 joint venture with General Electric. Enron owned three paper and pulp products companies: , a newsprint mill; as well as and . Enron held a controlling stake in the Louisiana-based petroleum exploration and production company .
EnronOnline
In November 1995, Enron launched EnronOnline. EnronOnline 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. Due to the giant cash needs of Enron Online and the company wasting money in other areas such as broadband, Azurix, Enron Energy Services, and shutting down the original pipeline service which generated cash flow, Enron virtually drained itself of cash. The Enron Global Finance department had to keep working up more creative financing moves to keep the company running.
EnronOnline went live on November 29, 1999. The site allowed energy users to do business in a previously unseen way. Until this point a trader who wanted to buy an energy contract talked with another energy trader who wanted to sell a contract, and from there terms were agreed. EnronOnline allowed market participants to see prices on their screen just like a stock ticker, and could do business much more simply.
The main commodities offered on EnronOnline were natural gas and electricity, although there were 500 other products including credit derivatives, , pulp, gas, plastics, paper, steel, metals, freight, and TV commercial time.
EnronOnline was seen as an impressive tool, but because Enron was either buying, selling, or trading in every transaction, the costs increased as time went on, and the systems were involved in the financial misreporting and other questionable financial behavior that eventually led to the Enron's demise. However, EnronOnline spawned several other e-commerce websites including www.DealBench.com. DealBench is an acquisition and divestiture tool still operating today. As of this writing, Enron still operates the DealBench code under the name EnronAssets. Other Enron developed technologies include Commodity Logic, ClickPaper and EnronCredit.
EnronOnline closed down for online trading on the morning of November 28, 2001, with Enron filing for bankruptcy four days later.
Principal assets
At the time of bankruptcy, Enron owned all or interests in the following major assets:
Power Plants: Enron owned or operated 38 electric power plants worldwide
- Teeside (United Kingdom) - at the time of commission in 1992, at 1750 MW, was the largest Natural Gas Co-Gen plant in the world. Its on-time and under-budget completion put Enron Power on the map as an international developer, owner and operator.
- Bahia Las Minas (Panama)- largest thermal power plant in Central America, 355 MW
- Puerto Quetzal Power Project (Guatemala) - 110 MW
- PQP LLC (Guatemala) - holding company for 124 MW Power Barge named "Esperanza"
- Empresa Energetica Corinto (Nicaragua) - holding company for "Margarita II" 70.5 MW power barge, Enron held 35% share
- EcoElectrica (Puerto Rico, USA) - 507 MW natural gas cogeneration plant, with adjacent LNG import terminal- supplied 20% of island's electricity
- Puerto Plata Power Project (Dominican Republic) - 185 MW power barge named "Puerto Plata"
- Modesto Maranzana Power Plant (Argentina) - 70 MW
- Cuiaba Integrated Project (Brazil) - 480 MW combined cycle power plant
- Nowa Sarznya Power Plant (Poland) - 116 MW, first privately developed post-Communist electricity project in Poland
- Sarlux Power Project (Italy) - 551 MW combined cycle power plant, converted residue from Italy's largest oil refinery into synthetic gas for fuel
- Trakya Power Project (Turkey) - 478 MW
- Chengdu Cogen Project (China) - 284 MW, joint venture with
- Northern Marianas Power Project (Guam, USA) - 80 MW slow speed diesel oil plant
- Batangas Power Project (Philippines) - 110 MW
- Subic Bay Power Project (Philippines) - 116 MW
- Dabhol Power Project (India) - 2,184 MW combined cycle plant, generally considered one of Enron's most controversial and least successful projects
- Storm Lake Wind Generation Project (Iowa, USA) - 193 MW wind farm
- Lake Benton II Wind Generation Facility (Minnesota, USA) - 104 MW wind farm
- Lake Benton I Wind Generation Facility (Minnesota, USA) - 107 MW wind farm
- Cabazon Wind Generation Facility (California, USA) - 40 MW wind farm
- Green Power I Wind Generation Facility (California, USA) - 16.5 MW wind farm
- Indian Mesa I Wind Generation Facility (Texas, USA) - 25.5 MW wind farm
- Clear Sky Wind Power Generation Facility (Texas, USA) - 135 MW wind farm
- Mill Run Wind Wind Power Generation Facility (Pennsylvania, USA) - 15 MW wind farm
- Trent Mesa Wind Generation Facility (Texas, USA) - 150 MW wind farm
- Montfort Wind Generation Facility (Wisconsin, USA) - 30 MW wind farm
- 8 hydroelectric plants in Oregon with a combined capacity of 509 MW, owned through Portland General Electric
- 4 additional thermal plants in Oregon and Montana with a combined capacity of 1,464 MW, owned through Portland General Electric
Pipelines
- Centragas (Colombia) - 357 miles, natural gas
- Promigas (Colombia)
- Transportadora de Gas del Sur (Argentina) - largest pipeline system in South America, 5,005 km
- CEG (Brazil) - 1,368 miles, natural gas
- CEGRio (Brazil)
- Transredes (Bolivia) - 3,000 km natural gas pipeline and 2,500 km oil & liquids pipeline
- Bolivia-to-Brazil Pipeline (Bolivia/Brazil) - 3,000 km, natural gas
- Northern Natural Gas (Upper Midwestern USA) - 16,500 miles, included share in Trailblazer Pipeline
- Transwestern Pipeline (Texas, Arizona, New Mexico, Colorado) - 2,554 miles
- Florida Gas Transmission (Texas, Louisiana, Alabama, Mississippi, Florida) - 4,800 miles
- Northern Border Pipeline (Indiana, Illinois, Iowa, South Dakota, North Dakota, Montana ) - 1,249 miles
Electric Utilities/Distributors
- Portland General Electric Company (USA) - serving 775,000 customers in Oregon
- Elektro Electricidade e Servicos S.A. (Brazil) - 1.5 million customers
- Compania Anonima Luz y Fuerza Electricas de Puerto Cabello (Venezuela) - 50,000 customers
Natural Gas-Related Businesses
- ProCaribe (Puerto Rico, USA) - LPG storage terminal, only fully refrigerated LPG storage facility in Caribbean
- San Juan Gas Company (Puerto Rico, USA) - gas distribution, 400 industrial/commercial customers
- Industrial Gases Ltd. (Jamaica) - 8 filling plants, industrial gas manufacturing & LPG distribution, held 100% monopoly on Jamaican industrial gas business and 40% of LPG business
- Gaspart (Brazil) - consortium of 7 gas distribution companies
- Vengas (Venezuela) - LPG transportation and distribution
- SK-Enron Company Ltd. (South Korea) - joint venture with SK Corporation; included 8 city gas utilities, an LPG distributor, and a steam and electricity cogeneration facility
Pulp & Paper
- Garden State Paper Company Inc. (New Jersey, USA) - paperboard and newsprint recycling mill
- Papiers Stadacona Ltee. (Quebec, Canada) - wood pulp & paper mill
- St. Aurelie Timberlands Company Ltd. (Quebec, and New Brunswick, Canada & Maine, USA) - timber company
Other
- Mariner Energy Inc. (Houston, Texas, USA) - oil & gas exploration, development, and production with operations in the Gulf of Mexico
- Interruptores Especializados Lara (Venezuela) - manufacturer of valves, thermostats, and electrical breakers for appliances
- Enron Wind - manufacturer of wind power turbines and related systems, with factories in USA, Spain, and Germany
Accounting scandal of 2001
After a series of revelations involving irregular accounting procedures bordering on fraud, perpetrated throughout the 1990s, involving Enron and its accounting firm Arthur Andersen, Enron stood at the verge of undergoing the largest bankruptcy in history by mid-November 2001. Daniel Scotto an , number one ranked for an unprecedented nine consecutive years published and stated in August 2001 that Enron was likely to implode. Scotto was the first analyst to recommend the sale of all Enron securities, including its common stock. He was also the first to divulge publicly the magnitude of Enron's financial leverage and lack of corporate ethics, and to question the reliability of Enron's reported earnings results, despite those results being audited by Arthur Andersen. A white knight rescue attempt by a similar, smaller energy company, Dynegy, was not viable. Enron filed for Bankruptcy on December 2, 2001.
As the scandal was revealed, Enron shares dropped from over US$90.00 to just pennies. As Enron had been considered a blue chip stock, this was an unprecedented and disastrous event in the financial world. Enron's plunge occurred after it was revealed that much of its profits and revenue were the result of deals with special purpose entities (limited partnerships which it controlled). The result was that many of Enron's debts and the losses that it suffered were not reported in its financial statements.
In addition, the scandal caused the dissolution of Arthur Andersen, which at the time was one of the world's top accounting firms.
California's deregulation and subsequent energy crisis
In October 2000, Daniel Scotto, the top ranked utility analysts on Wall Street suspended his ratings on all conducting business in California due to the unlikely probability that the companies would receive full and adequate compensation for the defered energy accounts used as the corner stone for the California Deregulation Plan enacted in the late 1990's. The fact that the nation's top ranked utility analyst chose to suspend any commentary on several of the largest utilities in the United States due to questions surrounding the ability of California rate payers to repay the money which had accrued to the utilities under the ill-conceived - five months later, Pacific Gas & Electric was forced into bankruptcy. Congressman Phil Gramm, 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 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." [1]
Prior to the passage of the deregulation law, there had been only one Stage 3 rolling blackout. Following the passage, California experienced a total of 38 blackouts defined as Stage 3 rolling blackouts until federal regulators intervened in June 2001. These blackouts occurred largely as a result of the manipulation by traders and marketers. By withholding energy and shutting down generators, frenzy appeared in the market and energy prices climbed higher on the west coast. Enron traders were revealed as intentionally encouraging the removal of power from the market during California's energy crisis by encouraging suppliers to shutdown plants to perform unnecessary maintenence, as documented in recordings made at the time.[3] These acts contributed to the necessity for "rolling blackouts", which adversely affected numerous businesses dependent upon a reliable supply of electricity and inconveniencing a large number of retail consumers.
According to the industry consultant Charles Cicchetti, former chairman of the Wisconsin Public Service Commission: "Two things should be obvious. First, none of this should be called deregulation. Second, it is difficult to see how any of these myriad regulatory schemes, unless altered significantly but perhaps not fundamentally, will lower prices."[citation needed]
References
Bibliography
- , Sherron Watkins, Power Failure: The Inside Story of the Collapse of Enron (Doubleday, 2003) ISBN 0-385-50787-9
- Bethany McLean, , Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (Portfolio, 2003) ISBN 1-59184-008-2
- Robert Bryce, Pipe Dreams: Greed, Ego, and the Death of Enron (PublicAffairs, 2002) ISBN 1-58648-138-X
- , , House of Cards, Confessions of An Enron Executive (Virtualbookworm.com Publishing, 2002) ISBN 1-58939-248-5 ISBN 1-58939-248-5
- Kurt Eichenwald, Conspiracy of Fools: A True Story (Broadway Books, 2005) ISBN 0-7679-1178-4
- , , What Went Wrong at Enron: Everyone's Guide to the Largest Bankruptcy in U.S. History (Wiley, 2002), ISBN 0-471-26574-8
- , Enron: The Rise and Fall. (Hoboken, N.J.: Wiley, 2003)
External links
- Enron Corporation homepage
- CrossCountry Energy L.L.C.
- Portland General Electric Company
- Northern Natural Gas Company
- "Enron - Legal News Archives", Breaking Legal News
- Enron's Code of Ethics
- [2]Daniel Scotto
Data: