reading

Contents

Cover

Title page

Copyright page

Dedication

Preface

Acknowledgments

Introduction: The Process of Enron

Contra-Capitalism
Chairman Lay
Earnings Issues
Corporate Masks
Government Opportunity and Dependence
Achievements (in Political Space)
Contra-Capitalist Enron
Lessons for History

Part I: From HNG to Enron: 1984–1987

Chapter 1: The New Houston Natural Gas
1. A New Company
2. Back to Gas
3. New Talent
4. Acquisitions
5. Divestitures
6. Momentum—and Debt
7. Into 1985
8. A Final Piece?
Chapter 2: HNG/InterNorth
1. Northern Natural Gas Company
2. A Marketing Pipeline
3. Prelude to a Merger
4. HNG/InterNorth
5. Buyer’s Remorse
6. A Postmerger Stumble
7. Getting Together
8. Ken Lay Takes Charge
9. Competitive Pipelining
10. Positioning for the Future
11. A New Name
Chapter 3: Foundations
1. A New Home
2. The New Team
3. Enduring 1986
4. Brightening 1987
5. Conclusion

Part II: Peril and Progress: 1987–1989

Chapter 4: Crisis at Enron Oil Corporation: 1987
1. Sirens and Denial (Valhalla 1)
2. Crisis and Cleanup (Valhalla 2)
3. Lesson Unlearned
Chapter 5: Recovery: 1988–1989
1. Managerial Depth and Change
2. Repositioning EOG
3. Recommitting to Cogeneration
4. Pipeline Entrepreneurship
5. Capturing Gas Marketing
6. Liquid Fuels: Profitable Incrementalism
7. Getting Political
8. Vision Accomplished

Part III: Natural Gas, Natural Politics: 1990–1993

Chapter 6: Natural Gas Majoring
1. A New Vision
2. Growing the Interstates
3. Going International
4. Enron Power
5. Enron Oil & Gas Company
6. Liquids
7. Corporate Culture
8. Conclusion
Chapter 7: Political Lay
1. Mr. Natural Gas
2. Talking Up Prices
3. Fighting Oil
4. Warring Against Coal
5. Getting Gas to Green
6. Getting Bush to Rio
7. From Bush to Clinton-Gore
8. Environmental Enron
9. Politicking Elsewhere
10. An Energy Philosopher?

Part IV: Jeff Skilling

Chapter 8: Gas Marketing: 1990–1991
1. Regulatory Change, New Markets
2. Enron Gas Marketing: 1990
3. Enron Gas Services Group: 1991
4. Mark-to-Market Accounting
5. Conclusion
Chapter 9: Expanding Gas Marketing: 1992–1993
1. Enron Gas Services: 1992
2. Enron Gas Services: 1993
3. Regulatory Issues
4. Competition and Pressure

Part V: Expanding Enron: 1994–1996

Chapter 10: The Steady Side
1. Interstate Pipeline Progress
2. Enron Oil & Gas Company
3. Enron Oil Transportation & Trading (EOTT)
4. Conclusion
Chapter 11: Enron Capital & Trade Resources
1. New Name, Organizational Change
2. Wholesale Electricity Marketing
3. International
4. Risk Management, Corporate Culture
5. Talent Evaluation and Infusions
6. Conclusion
Chapter 12: International Ambitions
1. Early Successes
2. Developing Problems
3. Unfulfilled Aspirations
4. Enron Global Power & Pipelines
5. Enron Engineering & Construction
6. Conclusion

Part VI: Restless Enron: 1994–1996

Chapter 13: Alternative Energies
1. Big Thoughts, New Bets
2. Solar Power
3. Wind Power
4. A Try at Fuel Cells
5. Enron Environmental Services
6. President’s Council on Sustainable Development
7. Conclusion
Chapter 14: Visionary Enron
1. New Enron Visions
2. New-Economy Enron (Gary Hamel)
3. Great Man, Great Company
4. Conclusion
Chapter 15: Energy Retailing
1. Natural Gas
2. Electricity
3. Pilot Programs
4. Enron Energy Services
5. Conclusion

Epilogue: Dangerous Ambitions

Three Eras
Circa 1996
A Changing Company
Righting Misinterpretations
Contra-Capitalist Enron
Final Thoughts

Kenneth L. Lay: A Chronology

Selected Bibliography

Illustration Credits

Name Index

Business Index

Political Economy Index

End User License Agreement

List of Illustrations

Chapter 1

Figure I.1 Enron’s nominally strong board of directors had too much allegiance to Ken Lay, in part because of Enron’s largesse toward them. John Duncan, executive chairman from beginning to end, was particularly smitten with Enron’s and Lay’s apparent success.
Figure I.2 Enron’s annual reports were all business in the early years, such as 1986 and 1987. Themed reports in 1992 and 1993 fashioned Enron as a natural gas company with global reach. Enron’s 1996 report highlighted the new logo with the company’s plan to retail gas and electricity to homes and businesses.
Figure I.3 Enron quietly but decisively entered the coal business in 1997, first in trading and then in asset acquisition to enhance trading. The coal unit was a welcome new profit center on the wholesale side of ECT.
Figure I.4 Enron’s asset-light and green-energy strategies, as well as virtually all its profit centers, were dependent on special government favor. A politically connected, politically correct Ken Lay was the common denominator of Enron’s public-sector activism.
Figure I.5 Enron doubled its original market valuation by the early 1990s (shown in billions of dollars), and doubled it again in the mid-1990s. Increasing earnings, accelerated by mark-to-market accounting, as well as Ken Lay’s stature and messaging, made ENE a momentum stock with a high price/earnings ratio.
Figure I.6 Enron Outlook for Natural Gas, first published in 1989, and updated periodically, portrayed the resource base as prolific and open-ended. More than rebutting supply pessimism from other studies, the Outlook challenged electric utilities to build gas plants in place of new coal capacity.
Figure I.7 Enron’s practice of contra-capitalism involved not only government intervention but also habits of mind that classical-liberal thinkers long criticized and warned against.

Chapter 1

Figure 1.1 Ken Lay’s first annual report as CEO of Houston Natural Gas announced a return to the company’s core. The strategy, adopted from In Search of Excellence, was about incremental improvement, not revolutionary change.
Figure 1.2 Ken Lay’s first management team at Houston Natural Gas (bottom, left to right) was led by James Walzel (President and COO) and Mick Seidl (SVP, corporate development). The two major divisions were run by Melvin Sweatman (President, HNG Intrastate) and Ted Collins (President, HNG Oil Company).
Figure 1.3 Transwestern Pipeline Company, built in 1959 to connect gas supplies in New Mexico and Texas to southern California, was acquired by HNG in 1984. The system’s 4,434-mile mainline and 18 mainline compressor stations, moving 750 MMcf/d to California and 250 MMcf/d to Oklahoma, would prove very profitable for its new parent in the years ahead.
Figure 1.4 Florida Gas Transmission, completed in 1959, was part of Ken Lay’s first corporate stop after leaving the Department of Interior in 1973. Succeeding Lay as head of FGT was William Morgan (far right), who would join HNG after the merger. Not expanded since 1970, FGT would triple in capacity with four expansions during Enron’s solvent life.
Figure 1.5 Houston Natural Gas returned to its core by divesting its industrial gas, coal, and marine assets and purchasing two interstate pipelines and one small intrastate. The makeover more than doubled the debt-to-capital ratio in Ken Lay’s first eight months at the company with purchases outdistancing sales by almost two-to-one.
Figure 1.6 Ken Lay’s profile in the New York Times added to his reputation as an industry visionary. As a former economics professor (as mentioned in the article), Dr. Lay had gravitas beyond the usual business CEO.

Chapter 2

Figure 2.1 Northern Natural Gas Company began as a gas pipeline and distribution company and later diversified into exploration and production, gas liquids, and petrochemicals. In 1951, the company consolidated its operations at 2223 Dodge Street in Omaha. The company’s longest-serving presidents (top to bottom) were Burt Bay (1939–50), John Merriam (1950–60), and Bill Strauss (1960–76).
Figure 2.2 InterNorth was a rock-solid, mid-America company centered on natural gas transmission. In 1984–85, CEO Sam Segnar (upper right) instructed Rocky LoChiano (lower right) to find a merger partner before Irwin Jacobs (left) could gain control and break up the company.
Figure 2.3 The dual corporate communications and public affairs departments went into high gear to meld two corporate cultures and improve morale. The tag line America’s Premier Energy Company would soon be forgotten with what was to come for the balance of 1985 and in 1986.
Figure 2.4 A mid-1985 meeting of top gas executives from HNG and InterNorth formed an opening strategy for the new company’s intrastate and interstate grid, including the formation of a national marketing company.
Figure 2.5 Ideas have consequences. The advent of MOA for interstate natural gas pipelines was championed by a young FERC Commissioner, Oliver “Rick” Richard, who credits the 1984 book shown above for his inspiration and direction. Richard would go on to become CEO of Enron’s Northern Natural Gas in 1988.
Figure 2.6 In just under 10 months, HNG/InterNorth president and COO Ken Lay became chairman, president, and CEO. “The present business climate provides no margin for error,” Lay sternly stated on the opening page of the 1985 Annual Report, but his penchant for overspending and going first class belied his prudent words.

Chapter 3

Figure 3.1 The Enron Building (upper right) was a big step up from the HNG Building and a world apart from Ken Lay’s childhood in Rush Hill, Missouri. The challenges of 1986 brought out some criticism of Ken Lay, including an article in Business Week (upper left).
Figure 3.2 The Houston Chronicle documented the management changes at HNG/InterNorth compared to the year before. Only 1 of 5 senior executives and 6 of 17 board directors had come from InterNorth. Meanwhile, HNG’s senior management prior to Ken Lay’s arrival had all but departed.
Figure 3.3 More than $1.3 billion in asset sales in 18 months after the HNG and InterNorth merger left Enron’s debt-to-capital ratio little changed, given other developments. Not until 1992 did this ratio fall below 50 percent, still above where the two companies were on a consolidated basis at year-end 1984.
Figure 3.4 Attempts by Mick Seidl and Ken Lay (lower left) to integrate Enron’s four pipelines into one synergistic system were limited by federal regulation. Enron’s senior natural gas management included (top right, left to right) Jim Rogers (interstate pipelines); Gerald Bennett (intrastate operations); and Ron Burns, John Esslinger, and Claude Mullendore (national marketing).
Figure 3.5 HNG Interstate, composed of Transwestern Pipeline and Florida Gas Transmission, expertly navigated a changing regulatory landscape. Stan Horton and Rod HaysIett came with the Florida Gas purchase; the other five joined HNG after Ken Lay took over in mid-1984.
Figure 3.6 Enron Oil & Gas received new leadership in 1987 with Forrest Hoglund, Ken Lay’s most rewarding hire. Hoglund is shown in 1977 upon joining Texas Oil & Gas and in 1989 with the top Enron brass at the New York Stock Exchange when EOG went public.
Figure 3.7 FERC’s open-access regulation led interstate pipelines, including Enron’s, to leave the bundled sales and transportation function. Independent marketers assumed the buy/sell commodity function, leaving the interstates as pure transporters. This created two profit centers for Enron where there had been only one before.

Chapter 4

Figure 4.1 Head of Enron Liquid Fuels, Mike Muckleroy (upper left) futilely blew the whistle on Enron Oil Company’s Lou Borget (lower left). Muckleroy cleaned up Borget’s mess, a fiasco that was not fully appreciated until after Enron’s bankruptcy in late 2001.
Figure 4.2 The PURPA-driven cogeneration work of John Wing (center) was a much-needed profit generator for Enron in the in the mid-to-late 1980s. Enron’s other two top cogen developers were Wing lieutenant Robert Kelly (upper right) and, from the InterNorth side, Howard Hawks (upper left), who would leave Enron in 1987 to found his own company, Tenaska.

Chapter 5

Figure 5.1 Financing with high-yield bonds (junk bonds) proved crucial for Ken Lay from the time of the HNG/InterNorth merger in 1985 through project financings in 1989, when Michael Milken was indicted for securities violations. Drexel Burnham Lambert filed for bankruptcy protection in 1990.
Figure 5.2 Enron Oil & Gas, advertised as “America’s Pure Natural Gas Play,” launched an October 1989 public offering that valued the company at $1.6 billion. Forrest Hoglund, chairman and chief executive officer, was off to a very fast start in a low-price environment.
Figure 5.3 Bayonne Cogeneration Plant in New Jersey was the inaugural project of Robert McNair’s Cogen Technologies. A decade later, Bayonne and two neighboring CTI plants would be sold to Enron for $1.1 billion and debt assumption, enabling McNair to found an NFL franchise, the Houston Texans.
Figure 5.4 After much turmoil, Ken Lay had a top team in place by 1989 to manage Enron’s North American gas assets. Under himself and Rich Kinder (the new vice chairman and soon president) were (lower, left to right) Ron Burns, who oversaw interstate pipelines and marketing; Forrest Hoglund, for exploration and production; Mike Muckleroy, running liquids; and John Wing, handling cogeneration.

Chapter 6

Figure 6.1 Enron’s 41,000-mile, 7.8 Bcf/d gas-pipeline systems were (as of 1996) limited synergistically under federal open-access regulation. Northern Natural’s capacity exceeded the combined size of Enron’s (wholly owned) Transwestern Pipeline, (half-owned) Florida Gas Transmission, and (35 percent owned) Northern Border Pipeline.
Figure 6.2 Ken Lay put Enron at the forefront of the 16th Economic Summit of Industrialized Nations, held in Houston, Texas, in mid-1990.
Figure 6.3 It was all smiles with the completion of the world’s largest cogeneration plant in Teesside, on April 1, 1993. Ken Lay and Tom White (center) join together with other principals of the UK project.
Figure 6.4 Transportadora de Gas del Sur (TGS) was a second major international step toward Ken Lay’s vision of Enron’s becoming the world’s first natural gas major. George Wasaff, in particular, brought best practices from Enron’s US interstates to Argentina between 1993 and 1998.
Figure 6.5 A 1993 issue of Enron Business was full of photo-ops on Enron’s early agreements with Russian and Chinese officials, but little activity would follow these heady beginnings.
Figure 6.6 The Dabhol, India, project of Rebecca Mark was a bold attempt to replicate Teesside in an undeveloped country. Contracts were completed and construction commenced in 1993, but political problems would soon engulf the project to leave Enron and its partners with a nonperforming, in-construction project.
Figure 6.7 New technology was necessary to increase natural-gas production in a low-price environment. Technologies such as 2-D and 3-D seismic and forays into fractionation and horizontal drilling were used at EOG in the early 1990s.
Figure 6.8 Enron’s big bet to enter into the reformulated-gasoline market concerned the natural gas–derived oxygenate, MTBE. This foray went south quickly, when the demand expected to emanate from new federal environmental standards pursuant to the Clean Air Act of 1990 failed to materialize.
Figure 6.9 Ken Lay liked to celebrate Enron’s success, such as awarding each full-time employee a $50 bill and when paying off the ESOP bank loan to allow stock dividends to go straight to employee ENE holders.

Chapter 7

Figure 7.1 Enron continually educated energy constituencies about the environmental advantages of natural gas under current technology. This summary from a company brochure (circa 1995) showed the emission reductions of a similarly sized gas plant versus coal plant in six relevant categories.
Figure 7.2 With strong arguments developed in part by fellow PhD economist Bruce Stram (pictured), Ken Lay challenged electric generators to choose natural gas instead of coal for new capacity. Less rent-seeking than moral suasion, Enron’s Natural Gas Standard was targeting franchised monopolists to do the right thing in the face of a rate-base bias towards coal.
Figure 7.3 Ken Lay, looking for the next big energy thing, was attracted to the global-warming issue and the analysis of Christopher Flavin of the Worldwatch Institute (see “Desk” written at top). Lay at times revealed his pragmatism on this issue, as this quotation attests.
Figure 7.4 While nominally a Republican, Ken Lay became a favorite of President Clinton and Vice President Al Gore with Enron’s support of their administration’s global-warming position. Lay joined other corporate executives, including Kenneth Derr of California-based Chevron, to split the fossil fuel industry on the climate issue.
Figure 7.5 Ken Lay looked to tax policy to penalize oil and coal relative to natural gas. This could be done with either a tax on the carbon dioxide content of each fuel or a Btu measure. Only later would Enron quietly get into the coal business.

Chapter 8

Figure 8.1 FERC’s regulatory restructuring of the natural gas industry is shown in this illustration from Enron’s 1990 Annual Report. Unbundling sales from transportation gave Enron two profit centers in place of one, a key reason why Ken Lay refocused his company toward interstate gas transmission in 1984–85.
Figure 8.2 Gas marketing, a new business in the mid-1980s, grew significantly beginning with Gas Bank in 1989–90, Enron Finance in 1990, and Enron Gas Services in 1991.
Figure 8.3 The hiring of Jeff Skilling in 1990 would bring highs and lows to the corporation in the next decade. Two key early hires by Skilling (standing) were Gene Humphrey (left) for producer finance and Lou Pai (right) for derivative products.
Figure 8.4 The organization chart for Enron Gas Services in first-quarter 1991 showed five support groups, six profit centers, and five marketing sections.
Figure 8.5 VPP was a major Enron legal innovation to fund gas producers and thus supply end-user contracts. Gene Humphrey, vice president of Enron Finance (left), is shown with Rob Boswell of Forest Oil Company (right) after their first VPP in April 1991. VPPs took off to support long-term fixed-priced contract originations.
Figure 8.6 The hub of Enron Gas Services Group was gas marketing, which was divided into three regions (lower right). Jeff Skilling’s open-office concept is shown by the cubicles and transparent offices.
Figure 8.7 Enron Gas Services’ use of mark-to-market accounting, announced in the 1992 annual report, was defended in the employee magazine after receiving negative press. Enron’s Rick Causey would increasingly find himself lobbying his former employer, Arthur Andersen, for accounting liberties.

Chapter 9

Figure 9.1 The 20-year, 195 MMcf/d contract to fuel Sithe Energies’ 1,000 MW cogeneration project in New York State represented an extreme test for Enron Gas Services’ capabilities. Three Enron principals were Mark Frevert (left), Dan McCarty (center, responsible for supply), and Ken Rice (right, in charge of sales).
Figure 9.2 EGS’s 1992 EnFolio advertising campaign, featuring Spot the big black dot, warned gas buyers about price spikes and reliable short-term gas. Long-term, fixed-priced firm contracts, assuming locked-in gas supply, could receive immediate profit recognition and separately securitized (monetized) with outside investors.
Figure 9.3 Enron Gas Transportation and Trading (EGTT), a new unit within Enron Gas Services, divided North America into six regions for short-term deal making. The sketched areas were attached to a March 1992 memo from Steve Smaby (inset) to EGS employees.
Figure 9.4 Louisiana Resources Company’s 540-mile, 730 MMcf/d pipeline, delivering gas to industry along the Mississippi River between Baton Rouge and New Orleans, gave Enron a physical presence at Henry Hub, the trading center of the United States.
Figure 9.5 The unsolicited interest of the California Public Employees Retirement System (CalPERS) in energy investments by Enron was a corporate highlight of 1993. Equally funded by Enron, Andy Fastow–led Joint Energy Development Investments (JEDI) was capitalized at $500 million to fund Enron projects and outside ventures.
Figure 9.6 A mid-1993 organization chart showed the top 18 executives of Enron Gas Services Group. With Ron Burns joining Skilling and Esslinger at the top, the triumvirate presided over 11 presidents and 4 vice presidents.

Chapter 10

Figure 10.1 Enron’s interstates had a peak-day delivery capacity approaching 9 Bcf/d in 1996, a nearly one-third increase from a decade before. In addition to wholly owned Northern Natural and Transwestern, Enron held a 50 percent interest in Florida Gas Transmission and a 9 percent interest in Northern Border and operated all four.
Figure 10.2 Transwestern Pipeline’s global agreement with its customers, led by SoCalGas, created a de facto 10-year unregulated period in which cost improvements and revenue enhancements could be brought to the bottom line. Deborah Macdonald, Transwestern’s president, is shown along with a celebratory picture of other project team members.
Figure 10.3 Enron integration strategy for its interstate pipelines encountered regulatory and ownership obstacles. But one opportunity (in 1996) was combining the southern part of Northern Natural’s system with the eastern end of Transwestern into one entity.
Figure 10.4 Enron’s interstate pipelines practiced entrepreneurship under regulatory constraints. Under Stan Horton (bottom center), CEO of Enron Interstate Pipelines, the four pipeline heads were (clockwise) Deb Macdonald (Transwestern), Larry DeRoin (Northern Border), Bill Cordes (Northern Natural), and Bill Allison (Florida Gas).
Figure 10.5 EOG was a model of sustainable growth, with increasing production, earnings, and reserves, year after year. Forrest Hoglund (right) was atop this performance, as was Mark Papa (left), who would take over from Hoglund in 1999, the year that EOG fully separated from Enron to become EOG Resources Inc.
Figure 10.6 EOTT, the oil side of Enron, was spun off as a master limited partnership in 1994 with Enron guarantees to support the stock price and see that the partnership would meet its required quarterly distributions.

Chapter 11

Figure 11.1 Physical volumes and financial settlements at EGS/ECT increased dramatically between 1992 and 1996. But the overall growth rate was slowing, and increasing competition and maturing markets were reducing margins.
Figure 11.2 Enron’s capabilities expanded from marketing and risk management of physical commodities (including, most recently, electricity) into project financing in the mid-1990s. EGS/ECT’s tripartite pitch was supply reliability, price certainty, and a lower cost of capital.
Figure 11.3 The name change to Enron Capital & Trade Resources, the cover story of Enron Business (October 1994), was cause for celebration for the former Enron Gas Services Group.
Figure 11.4 ECT’s share of the wholesale electricity market dwarfed that of its closest competitors. But profit margins, a closely guarded secret, were falling from the early days of mandatory open access for natural gas. Volumes (in MWh) grew steadily.
Figure 11.5 A year after the Teesside cogeneration plant opened, Enron launched a UK-based European operation. Geoff Roberts (center, bottom-left picture) built the initial organization in 1994–95 (bottom right). In 1996, Mark Frevert’s “second wave” expanded Enron Europe at 40 Grosvenor Place in Westminster, London (upper right).

Chapter 12

Figure 12.1 Enron International projects ranged from the moneymaking Batangas power plant in the Philippines (upper left) to the non-revenue-generating Dabhol plant in India (lower left). Half of the 10 projects in “final development” in Enron’s 1996 annual report would not be completed.
Figure 12.2 Enron Americas, led by Mike Dahlke, was a little-known part of Enron until a gas leak from a pipeline in San Juan caused a human disaster. Only a lack of immediate linkage to San Juan Gas Company and Enron’s later implosion saved Ken Lay from a great embarrassment.
Figure 12.3 Seven years of effort in China resulted in one (problematic) project, Hainan Island (1996), signed and celebrated by Ken Lay. An earlier agreement signed by Enron to develop an LNG project in China (lower left) did not reach fulfillment.
Figure 12.4 A framework agreement was signed with Gazprom in 1993 in Enron’s 50th-floor boardroom. Witnessed by dignitaries from both countries, the signing did not result in major projects. The world’s largest gas entity was not interested in enabling a capitalist competitor on its home turf.
Figure 12.5 Enron Global Power & Pipelines, under Rod Gray, was Enron’s attempt to monetize its investments in developing-country projects. EPP’s problems in navigating between majority-owner Enron and minority owners resulted in Enron’s taking the unit back after less than three years.

Chapter 13

Figure 13.1 Enron’s partnership with Amoco was a quick entry into the international solar market. Robert Kelly (top right) oversaw a staff of five to market solar farms and to place large orders for rooftop panels. After troubled sales, Enron’s half-interest was profitably sold to BP (which purchased Amoco) in 1999.
Figure 13.2 Enron turned to wind power, a more economical (but still problematic) form of renewable energy than solar farms. The purchase of Zond Energy Systems to begin 1997 had Ken Karas (pictured) reporting to Robert Kelly of Enron Renewable Energy Corp.
Figure 13.3 Enron’s fuel-cell marketing began with high expectations and ended with no executed contracts, as ONSI Corp. was unable to install the units at a cost that allowed Enron to sell long-term electricity. Bruce Stram (left) led the 2/-year effort, assisted by marketing director Malcolm Jacobson (right).
Figure 13.4 A schematic presented to electric utilities and others explained the range and interaction of services offered by Enron Environmental Services (later renamed Clean Energy Solutions). Growing regulatory complexity suggested a role for a specialized aggregator and outsourcer, but Enron was not able to execute outsourcing arrangements.

Chapter 14

Figure 14.1 This slide (from Ken Lay presentations) highlighted several events that made Enron (in its own view) the premier integrated natural gas company in North America. The second major vision was set in 1990 (upper right).
Figure 14.2 Enron’s first three major visions went from natural gas and North America (1987) to natural gas and global (1990) to energy and global (1995).
Figure 14.3 Another Ken Lay slide showed a timeline of events that made Enron (in its own view) the world’s first natural gas major. But the steady growth of Enron’s traditional gas functions, as much as or more than these seven milestones, underlay that designation.
Figure 14.4 Enron’s “Vision and Values” statement (1995) listed 4 values and 22 descriptions as part of the new goal to “become the world’s leading energy company.” Lay saw values as “the tools [employees] will use to stay on course.”
Figure 14.5 Enron’s third vision (1995) contained a vision-within-a-vision: to double income (to $1 billion) by 2000. In what would be the company’s final solvent year (2001), Ken Lay declared Enron as the world’s leading energy company and announced a new vision: to become the world’s leading company.
Figure 14.6 The fatherly Ken Lay expounded his emphasis on corporate stewardship in the July/August 1996 edition of Enron Business. Subheadings in the article were “Citizenship begins in the workplace,” “Enron’s external focus a priority,” and “Enron’s role in community moves into the spotlight.”
Figure 14.7 In March 1997, Fortune magazine announced its poll results ranking Enron as America’s most innovative company—and first among energy companies in the America’s Most Admired category.

Chapter 15

Figure 15.1 Two major studies organized and funded by Enron made a consumer case for retail wheeling of electricity. Customer Choice, Consumer Value (left) estimated the reduced cost and prices from MOA; Economic Deregulation and Customer Choice (right) estimated the price declines from other industries to suggest the same for electricity.
Figure 15.2 The legal right of Enron to access utility customers (MOA), first at wholesale and then at retail, was the job of Government Affairs. Terry Thorn and Cynthia Sandherr (left) led the Washington, DC, effort. Steve Kean and Kathleen Magruder (right) led the state effort. Top executives (center) were dedicated to the overall electricity effort: Jeff Skilling and Lou Pai (front, left to right) and Mark Frevert, Ken Rice, and Thorn (back, left to right).
Figure 15.3 Enron’s branding, led by Beth Tilney (center), was highlighted by a new logo designed by Paul Rand (right). The unveiling of the New Enron in early 1997 was a company-wide celebration to get employees to take the effort to family and friends.
Figure 15.4 Situating Ken Lay as a world figure, part of Enron’s branding effort, included extracurricular activities, such as establishing the Enron Prize for Distinguished Public Service, awarded at the Baker Institute at Rice University. The second recipient, Mikhail Gorbachev, attracted a Who’s Who of American statesmen, such as Henry Kissinger and James Baker, both of whom consulted for Enron.
Figure 15.5 Enron Field was the capstone of Enron’s national branding effort. The political fight to get new taxpayer-funded sports stadiums in Houston, shouldered by Ken Lay and Enron, was a come-from-behind victory. Beth Tilney (lower left), shaking hands with Astros owner Drayton McLane, was helped by Cindy Olson (center).
Figure 15.6 Enron heralded a new era of energy convergence in the energy industry by acquiring Portland General Electric in 1997. PGE’s low-cost resource mix and open-mindedness toward retail wheeling were major attractions in the merger. Ken Harrison (right), CEO of PGE, became vice chairman of Enron.
Figure 15.7 Enron’s Big Enchilada was retailing electricity and natural gas directly to the home, not only to places of business. The estimated $305 billion market required a simultaneous lobbying and branding effort, which began with pilot programs in several states beginning in 1996.
Figure 15.8 Toledo, Ohio, was Enron’s laboratory for retailing natural gas directly to residential users. Ray Bowen oversaw this and other pilot programs as vice president of Enron Energy Services. Despite an all-in effort, low margins and a lack of scale would doom the retail efforts with gas—and with electricity.
Figure 15.9 Total energy outsourcing became the focus of Enron Energy Services. The range of services bundled together by Enron was assumed to multiply the opportunities to make margins. The premise that EES would achieve scale economies in centralizing such services for business would not be borne out in fact.

Epilogue: Dangerous Ambitions

Figure E.1 Enron was a momentum stock on the way up, beginning in the late 1980s. The ENE pitch in 1996 was that the past was prologue, despite the challenges presented by start-up businesses.
Figure E.2 Post-Kinder, the new leadership team atop Enron was Ken Lay and Jeff Skilling. President and COO Skilling would soon join Enron’s 14-person board of directors, which was led by John Duncan (bottom right).
Figure E.3 Into 1997, Enron had seven divisions, the newest being Enron Renewable Energy and Enron Energy Services. Within a year, Enron would divide itself into core (interstate pipelines, exploration and production, wholesale energy services) and noncore (international, retail energy services, renewables).
Figure E.4 By the mid-1990s, Enron was riding an innovation and reinvention wave, led by a wholesale-to-retail marketing push with natural gas and electricity. This Wall Street Journal advertisement by Enron touted its growing fame.
Figure E.5 Heavy capital requirements from Enron’s new businesses, coupled with the need to protect the corporation’s creditworthiness, inspired a reorganization. Enron Capital Management under Andy Fastow (right) was composed of a finance unit under Bill Gathmann (left) and a risk-management unit under Rick Buy (center).

Pages

iii

xii

xiii

xiv

xvi

xvii

xviii

xix

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

185

186

187

188

189

190

191

192

193

194

195

196

197

198

199

200

201

202

203

204

205

206

207

208

209

210

211

212

213

214

215

216

217

218

219

220

221

222

223

224

225

226

227

228

229

230

231

232

233

234

235

236

237

238

239

240

241

242

243

244

245

246

247

248

249

250

251

252

253

254

255

256

257

258

259

260

261

262

263

264

265

266

267

268

269

270

271

272

273

274

275

276

277

278

279

280

281

282

283

284

285

286

287

288

289

290

291

292

293

294

295

296

297

298

299

300

301

302

303

304

305

306

307

308

309

310

311

312

313

314

315

316

317

318

319

320

321

322

323

324

325

326

327

328

329

330

331

332

333

334

335

336

337

338

339

340

341

342

343

344

345

346

347

348

349

350

351

352

353

354

355

356

357

358

359

360

361

362

363

364

365

366

367

368

369

370

371

372

373

374

375

376

377

378

379

380

381

382

383

384

385

386

387

388

389

390

391

392

393

394

395

396

397

398

399

400

401

402

403

404

405

406

407

408

409

410

411

412

413

414

415

416

417

418

419

420

421

422

423

424

425

426

427

428

429

430

431

432

433

434

435

436

437

438

439

440

441

442

443

444

445

446

447

448

449

450

451

452

453

454

455

456

457

458

459

460

461

462

463

464

465

466

467

468

469

470

471

472

473

474

475

476

477

478

479

480

481

482

483

484

485

486

487

488

489

490

491

492

493

494

495

496

497

498

499

500

501

502

503

504

505

506

507

508

509

510

511

512

513

514

515

516

517

518

519

520

521

522

523

524

525

526

527

528

529

530

531

532

533

534

535

536

537

538

539

540

541

542

543

544

545

546

547

548

549

550

551

552

553

554

555

556

557

558

559

560

561

562

563

564

565

566

567

568

569

570

571

572

573

574

575

576

577

578

579

580

581

582

583

584

585

586

587

588

589

590

591

592

593

594

595

596

597

598

599

600

601

602

603

604

605

606

607

608

609

610

611

612

613

614

615

616

617

618

619

620

621

622

623

624

625

626

627

628

629

630

631

632

633

634

635

636

637

638

639

640

641

642

643

644

645

646

647

648

649

650

651

652

653

654

655

656

657

658

659

660

661

662

663

664

665

666

667

668

669

670

671

672

673

674

675

676

677

678

679

680

681

682

683

684

685

686

687

688

689

690

691

692

693

694

695

696

697

698

699

700

701

702

703

704

705

706

707

708

709

710

711

712

713

714

715

716

717

718

719

720

721

722

723

724

725

726

727

728

729

730

731

732

733

734

735

736

737

738

739

740

741

742

743

744

745

746

747

748

749

750

751

752

753

754

755

756

757

758

759

760

761

762

763

764

765

766

767

768

769

770

771

772

773

774

775

776

777

778

779

780

781

782

783

784

785

786

Political Capitalism: A Tetralogy

Book 1 Capitalism at Work: Business, Government, and Energy

Book 2 Edison to Enron: Energy Markets and Political Strategies

Book 3 Enron Ascending: The Forgotten Years, 1984–1996

Book 4 Contra-Capitalism: Enron and the Post-Enron World (Forthcoming in 2020)

This edition first published 2018 by John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA and Scrivener Publishing LLC, 100 Cummings Center, Suite 541J, Beverly, MA 01915, USA.
© 2018 Scrivener Publishing LLC.
For more information about Scrivener publications, please visit www.scrivenerpublishing.com.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, except as permitted by law. Advice on how to obtain permission to reuse material from this title is available at http://www.wiley.com/go/permissions.

Wiley Global Headquarters
111 River Street, Hoboken, NJ 07030, USA

For details of our global editorial offices, customer services, and more information about Wiley products visit us at www.wiley.com.

Limit of Liability/Disclaimer of Warranty
While the publisher and author have used their best efforts in preparing this work, they make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives, written sales materials, or promotional statements for this work. The fact that an organization, website, or product is referred to in this work as a citation and/or potential source of further information does not mean that the publisher and author endorse the information or services the organization, website, or product may provide or recommendations it may make. This work is sold with the understanding that the publisher is not engaged in rendering professional services. The advice and strategies contained herein may not be suitable for your situation. You should consult with a specialist where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read.

Library of Congress Cataloging-in-Publication Data:

Names: Bradley, Robert L., 1955- author.
Title: Enron ascending : the forgotten years, 1984-1996 / Robert L. Bradley Jr.
Description: Hoboken, NJ : John Wiley & Sons, Inc., 2018. | Includes bibliographical references and index. |
Identifiers: LCCN 2018002976 (print) | LCCN 2018010698 (ebook) | ISBN 9781119494201 (epub) | ISBN 9781119494232 (pdf) | ISBN 9781119493709 (oBook) | ISBN 9781118549575 (cloth) | ISBN 9781119556169 (dust jacket)
Subjects: LCSH: Enron Corp–History. | Energy industries–United States–History.
Classification: LCC HD9502.U54 (ebook) | LCC HD9502.U54 E5727 2018 (print) | DDC 333.790973–dc23
LC record available at https://lccn.loc.gov/2018002976