Essay Preview: Enron
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The Beginning and Ending of Enron
Enron Corporation was an energy company based in Houston, Texas. Prior to its bankruptcy in late 2001, Enron employed over 20,000 and was one of the worlds leading electricity, natural gas, and communications companies, with claimed revenues of $101 billion in 2000. With Fortune Magazine has named Enron as their “Americas Most Innovative Company” for six consecutive years. It became even more popular towards the end of 2001 when Enron revealed that it was sustained mostly by institutionalized, systematic, and well-planned accounting fraud. In addition, its European operations filed for bankruptcy on November 30, 2001, and its sought Chapter 11 protection in the U.S. two-days later, on December 2nd. It still exists, operating a handful of key assets and making preparations for the sale or spin off of remaining businesses. Enron emerged from bankruptcy in November of 2004 after one of the biggest and most complex cases in U.S. history. It has since entered the common conscious as a symbol of willful corporate fraud and corruption.
Before there was Enron, there was Northern Gas Company which was founded in 1930 and it was consist of three companies. They are Northern American Power and Light Company, Lone Star Gas Company, and United Lights and Railways Corporation. Between 1941 and 1947, Northern Gas Company stock were offered and bought by different shareholders. By 1979, the company was renovated and replace by a new holdings company InterNorth Inc. In 1985, InterNorth obtained its competitor Houston Natural Gas Company (HNG), which the merge was masterminded by HNG CEO Kenneth Lay. Ken Lay was the obvious choice as the CEO at that particular time due to his credential, ambitions, and expertise in the industry; which excel him as the chairman and executive. Thereafter, the company was promptly renamed InterNorth as Enron Corporation. Enteron was initially the name of the company where its implications of “enter” and “on” which mean “intestine” and the name was soon expected to be terminated as the result. Instead of Omaha, Nebraska, as Enrons headquarter, where InterNorth was based, the energy giant called Houston, Texas, its new H.Q. Initially, the Enrons primarily concerned about the marketing and delivery of electricity and gas throughout the nation and its development, construction, and operation of power plants, pipelines, and other infrastructure worldwide.
During the 1980s, energy companies lobbied Washington to deregulate the trade. Companies like Enron stated that extra competition is beneficiary both companies and consumers. As the result, government starts to reduce its controls on who was able to produce energy and how it was sold. When new suppliers came into the market and competition began to increase prices of energy became more unstable in the free market. Enron saw the opportunity to benefit from fluctuations in the market. It decided that it is best to act as the middle man and the assurance of stable prices and taking its own cut along the way. The deregulation has many contemplating why would Washington be persuaded to lift its controls over the energy market sector. As a result, the following had happen:
ENERGY DEREGULATION IN THE U.S.
Utilities owned stations and sold directly to customers
Plants sold; New owners compete to sell to utilities
Mixed. Critics attack removal of strategic planning
Monopolies tightly controlled to protect consumers
Utilities compete to win consumers and contracts on basis of price
Enron and others created new markets focusing on energy trading
Regulating the industry
Special commissions monitor prices charged to consumers
Market competition theoretically to set prices, but some controls remain
Mixed political reaction; some legislators opposed unhindered markets
An anxious Ken Lay from the very start, obviously he wanted the company to expand fast and at any means necessary. His ambitions for the new company he had helped form went beyond the business of piping gas. By 2001 he appeared to be succeeding in his goal, having created a multinational corporation employing thousands with a turnover of billions of dollars. But suddenly, as if from nowhere, the company unraveled and collapsed. He wanted to see an energy trading revolution and place Enron at the heart of it. Lays prodigy Jeff Skilling, known a ruthless philosopher from a renowned consulting firm McKinsey, offered his vision to do it. Skilling envision that Enron would profit from trading futures in gas contracts between suppliers and consumers, it also effectively betting against future movements in the price of gas-generated energy. In hopes of receiving a better using the futures market buyers and sellers deal on commodity prices rather than on the open market. In addition, Enron also offered to do the same with gas by buying and selling tomorrows gas at a fixed price today. It appeared to make sense to many suppliers and industry consumers who took up the offer, in the deregulated energy world. The new Enron was emerging.
Just in a few short years, Enron became such a massive player in the United States energy market, controlling at its height a quarter of all business. After countless success, the company went on to create markets in numerous energy related products. The ever known philanthropist, Enron began to offer companies opportunities to avoid the risk of adverse price movements in a range of commodities including steel and coal. By the end of the decade it had venture its trading arm to include fabrication against external factors such as weather risk.
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As the illustration interpret how Enron profit through deception of weather conditions.
In November 1999, Enron launched Enron Online which was first of it kind to be web-based transaction system that allowed buyers and sellers to buy, sell, and trade commodity products globally. Thus, trading arm it was becoming the biggest on what was known as Energy Alley which as resulted in 90% of its income came from trades. It allows users the opportunity to deal only with Enron and many viewed this as a particular weakness. EnronOnline require too much of Enrons funds and the company exhausted its resources in other areas such as broadband, Azurix, Enron Energy, and eventually ended up shutting down the original pipeline service which generated cash flow. Enron eventually drained itself of cash and Enron Global Finance department had to become creative and find ways to manipulate numbers