The Fall of Enron
Case: The Fall of Enron
Enron was so admired prior until 2000; they grew to a powerful company. In 1985, Internorth acquired Houston Natural Gas to form HNG/Internorth, a natural gas pipeline company. This company was renamed to Enron. At the time of Enron’s creation, the U.S. gas market was in the middle of deregulation. In 1985, rules were established that allowed gas users to realize the cost savings by purchasing gas at spot prices and separately contracting with pipeline firms for delivery. The new regulations changed pipeline firms to gas transportation firms.
There was now short-term volatility in gas prices. To correct this Eron entered into long-term fixed price contracts with its customers. Jefferson Skilling who had advised on this method joined the firm in 1990. By 1993, the company was the largest seller of natural gas in North America. In November 1999, was the creation of EnronOnline, a Web-based transaction system that allowed users to buy, sell and trade commodity products online with Enron on a global basis. In the late 1990’s Skilling argued that information was the key to dominating the trading market not assets. The company began selling its assets. Enron sold 20 times its pipeline capacity.
Skilling’s argued that the trading innovations could be carried over into other markets. In the markets that it entered Enron hunted to quickly obtain physical volume so that it could guarantee distribution to customers. It would provide customers with contractual agreements. Enron would manage exposure to price volatility by using financial derivatives.
The original market established after natural gas was electric power. In 1997, Enron acquired electric power generation, transmission and distribution by buying Portland General Electric. Then it expanded in Brazil and Argentina. Electricity could not be stored though. They had to find a way to have electric power provided in peak periods. “Peaking plants” were designed. This showed
Enron was so admired prior until 2000; they grew to a powerful company. In 1985, Internorth acquired Houston Natural Gas to form HNG/Internorth, a natural gas pipeline company. This company was renamed to Enron. At the time of Enron’s creation, the U.S. gas market was in the middle of deregulation. In 1985, rules were established that allowed gas users to realize the cost savings by purchasing gas at spot prices and separately contracting with pipeline firms for delivery. The new regulations changed pipeline firms to gas transportation firms.
There was now short-term volatility in gas prices. To correct this Eron entered into long-term fixed price contracts with its customers. Jefferson Skilling who had advised on this method joined the firm in 1990. By 1993, the company was the largest seller of natural gas in North America. In November 1999, was the creation of EnronOnline, a Web-based transaction system that allowed users to buy, sell and trade commodity products online with Enron on a global basis. In the late 1990’s Skilling argued that information was the key to dominating the trading market not assets. The company began selling its assets. Enron sold 20 times its pipeline capacity.
Skilling’s argued that the trading innovations could be carried over into other markets. In the markets that it entered Enron hunted to quickly obtain physical volume so that it could guarantee distribution to customers. It would provide customers with contractual agreements. Enron would manage exposure to price volatility by using financial derivatives.
The original market established after natural gas was electric power. In 1997, Enron acquired electric power generation, transmission and distribution by buying Portland General Electric. Then it expanded in Brazil and Argentina. Electricity could not be stored though. They had to find a way to have electric power provided in peak periods. “Peaking plants” were designed. This showed