Government and Business
February 13, 2013
The Collapse of Enron
This case is about the collapse of Enron Corporation who at the height of their career was named by Fortune magazine as the most innovative company in America and was ranked seventh on the Fortune 500. At the topmost point of the company Enron employed 19,000 people and retained annual revenues in surplus of $100 billion dollars. Enron was formed in 1985 through a merger of Houston Natural Gas and InterNorth of Omaha, Nebraska; the company’s core business was distributing natural gas to utilities. Through a series of legislative actions at both the federal and state levels many restrictions were removed that now allowed energy producers to complete freely, buy and sell at market prices, and use other’s distribution networks. Enron created a successful model where the company would leverage its large network of pipelines to set up a gas bank that would act as an intermediary that would ultimately reduce risk. Enron would sign contracts with producers to buy their gas on a certain fate at a certain price and other contacts with users to sell them gas on a certain date at a certain price. Enron was able to make money on the idea that they would be able to sell the product for a slight premium to insure against risk. The idea was so successful that Enron made the decision to maintain their growth by extending the business model into other industries. This idea was explained to an interviewer “if you have the same general [market] characteristic, all you have to do is changes the units. Enron has a huge investment in capabilities that can be deployed instantly into new markets,” making the decision to expand into electricity, water, broadband, and pulp, paper, and lumber. The company’s primary goal was to promote the way that they were successful through deregulation and reduce government oversight specifically in the markets they did business in. Eventually heavy debt troubled the company which...
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