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The Enron Corp. Case

Autor:   •  December 7, 2015  •  Case Study  •  3,211 Words (13 Pages)  •  910 Views

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Section I – Background and Ethical Violations

        The Enron Corp. scandal is considered to be one of the most notorious in American history. “Before filing for bankruptcy in 2001, Enron Corporation was one of the largest integrated natural gas and electricity companies in the world. It marketed natural gas liquids worldwide and operated one of the largest natural gas transmission systems in the world, totaling more than 36,000 miles. It was also one of the largest independent developers and producers of electricity in the world, serving both industrial and emerging markets. Enron was also a major supplier of solar and wind renewable energy worldwide, managed the largest portfolio of natural gas-related risk management contracts in the world, and was one of the world's biggest independent oil and gas exploration companies. Enron pioneered innovative trading products, such as gas futures and weather futures, significantly modernizing the utilities industry” (History of Enron, 2004).

        Enron Corp. began in Omaha, Nebraska in 1930 as Northern Natural Gas Company just months after the stock market crash of 1929. Many people weren’t enthusiastic about natural gas for heating, but the fairly inexpensive cost allowed people to accept it during hard economic times. The depression also helped Northern Natural Gas to build their pipeline due to the high unemployment rate, and the access to cheap labor.

        By 1947 Northern Natural Gas was one hundred percent public. In 1954 they were finally able to bring Canadian gas to the continental United States. Northern Gas was able to become the conglomerate they were through multiple acquisitions and later took the name of Internorth. They continued to expand throughout the 70’s and also expanded operations to handle multiple energy products and run multiple pipelines throughout the country. In 1987 Enron based their operations solely out of Houston, Texas and “Enron made significant moves into electrical power, in both independent production and cogeneration facilities, in the late 1980s. Cogeneration plants produce electricity and thermal energy from one source” (History of Enron, 2004).

        “In 1995, Enron CEO Kenneth Lay promised investors that Enron's profits would rise by 15 percent a year over the next five years. Yet the pace of growth was not uniformly smooth for Enron. By 1997, only seven states were moving ahead with deregulation of their electricity markets. Enron's profit from a national deregulated electricity market was potentially huge, and the company spent millions on advertising and lobbying for the cause. It also hired hundreds of top business school graduates to help the company define new markets” (History of Enron, 2004).

        “What apparently drew investors to Enron was its aura of getting in on the ground floor of various related industries. It seemed to be a new kind of company, not a blundering old regulation-bound utility but a savvy energy trader. Though new ventures such as broadband trading were not expected to be immediately profitable, Enron supposedly had a sound core business as a gas and electricity wholesaler” (History of Enron, 2004). Newsweek (January 21, 2002) estimated that in the late 1990s Enron had lost "about $2 billion on Telecom capacity, $2 billion in water investments, $2 billion in a Brazilian utility, and $1 billion on a controversial electricity plant in India."

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