History of Enron Corporation

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. In North
America, Enron was the largest wholesale marketer of natural gas and electricity. Enron pioneered innovative trading
products, such as gas futures and weather futures, significantly modernizing the utilities industry. After a surge of growth in
the early 1990s, the company ran into difficulties. The magnitude of Enron's losses was hidden from stockholders. The
company folded after a failed merger deal with Dynegy Inc. in 2001 brought to light massive financial finagling. The
company had ranked number seven on the Fortune 500, and its failure was the biggest bankruptcy in American history.

Company Origins
Enron began as Northern Natural Gas Company, organized in Omaha, Nebraska, in 1930 by three other companies.
North American Light & Power Company and United Light & Railways Company each held a 35 percent stake in the new
enterprise, while Lone Star Gas Corporation owned the remaining 30 percent. The company's founding came just a few
months after the stock market crash of 1929, an inauspicious time to launch a new venture. Several aspects of the Great
Depression actually worked in Northern's favor, however. Consumers initially were not enthusiastic about natural gas as a
heating fuel, but its low cost led to its acceptance during tough economic times. High unemployment brought the new
company a ready supply of cheap labor to build its pipeline system. In addition, the 24-inch steel pipe, which could
transport six times the amount of gas carried by 12-inch cast iron pipe, had just been developed. Northern grew rapidly in
the 1930s, doubling its system capacity within two years of its incorporation and bringing the first natural gas supply to the
state of Minnesota.

Public Offering in the 1940s

The 1940s brought changes in Northern's regulation and ownership. The Federal Power Commission, created as a result
of the Natural Gas Act of 1938, regulated the natural gas industry's rates and expansion. In 1941, United Light & Railways
sold its share of Northern to the public, and in 1942 Lone Star Gas distributed its holdings to its stockholders. North
American Light & Power would hold on to its stake until 1947, when it sold its shares to underwriters who then offered the
stock to the public. Northern was listed on the New York Stock Exchange that year.
In 1944, Northern acquired the gas-gathering and transmission lines of Argus Natural Gas Company. The following year,
the Argus properties were consolidated into Peoples Natural Gas Company, a subsidiary of Northern. In 1952, Peoples
was dissolved as a subsidiary, its operations henceforth becoming a division of the parent company. Also in 1952, the
company set up another subsidiary, Northern Natural Gas Producing Company, to operate its gas leases and wells.
Another subsidiary, Northern Plains Natural Gas Company, was established in 1954 and eventually would bring Canadian
gas reserves to the continental United States.
Through its Peoples division, the parent company acquired a natural gas system in Dubuque, Iowa, from North Central
Public Service Company in 1957. In 1964, Council Bluffs Gas Company of Iowa was acquired and merged into the
Peoples division. Northern created two more subsidiaries in 1960: Northern Gas Products Company (later Enron Gas
Processing Company), for the purpose of building and operating a natural gas extraction plant in Bushton, Kansas; and
Northern Propane Gas Company, for retail sales of propane. Northern Natural Gas Producing Company was sold to Mobil
Corporation in 1964, but the parent company continued expanding on other fronts. In 1966, it formed Hydrocarbon
Transportation Inc. (later Enron Liquids Pipeline Company) to own and operate a pipeline system carrying liquid fuels.
Eventually, this system would bring natural gas liquids from plants in the Midwest and Rocky Mountains to upper-Midwest
markets, with connections for eastern markets as well.

Growth through Acquisitions

Northern made several acquisitions in 1967: Protane Corporation, a distributor of propane gas in the eastern United
States and the Caribbean; Mineral Industries Inc., a marketer of automobile antifreeze; National Poly Products Inc.; and
Viking Plastics of Minnesota. Also in 1967, Northern created Northern Petrochemical Company to manufacture and
market industrial and consumer chemical products. The petrochemical company acquired Monsanto Corporation's
polyethylene marketing business in 1969.
Northern continued expanding during the 1970s. In February 1970 it acquired Plateau Natural Gas Company, which
became part of the Peoples division. In 1971, it bought Olin Corporation's antifreeze production and marketing business. It
set up UPG Inc. in 1973 to transport and market the fuels produced by Northern Gas Products. UPG eventually would
handle oil and liquid gas products for other companies as well.
In 1976, Northern formed Northern Arctic Gas Company, a partner in the proposed Alaskan arctic gas pipeline, and
Northern Liquid Fuels International Ltd., a supply and marketing company. Northern Border Pipeline Company, a
partnership of four energy companies with Northern Plains Natural Gas as managing partner, began construction of the
eastern segment of the Alaskan pipeline in 1980. This segment, stretching from Ventura, Iowa, to Monchy, Saskatchewan,
was completed in 1982. About that time, it became apparent that transporting Alaskan gas to the lower 48 states would be
prohibitively expensive. Nevertheless, the pipeline provided an important link between Canadian gas reserves and the
continental United States. Northern changed its name to InterNorth, Inc. in 1980. That same year, while attempting to
grow through acquisitions, InterNorth became involved in a takeover battle with Cooper Industries Inc. to acquire Crouse-
Hinds Company, a manufacturer of electrical products. Cooper rescued Crouse-Hinds from InterNorth's hostile bid and
bought Crouse-Hinds in January 1981. The takeover fight brought a flurry of lawsuits between InterNorth and Cooper. The
suits were dropped after the acquisition was finalized.
While InterNorth grew through acquisitions, it also expanded from within. In 1980, it set up Northern Overthrust Pipeline
Company and Northern Trailblazer Pipeline Company to participate in the Trailblazer pipeline, which ran from
southeastern Nebraska to western Wyoming. Also that year, it created two exploration and production companies, Nortex
Gas & Oil Company and Consolidex Gas and Oil Limited. The latter company was a Canadian operation. In 1981,
InterNorth set up Northern Engineering International Company to provide professional engineering services. In 1982, it
formed Northern Intrastate Pipeline Company and Northern Coal Pipeline Company as well as InterNorth International
Inc. (later Enron International) to oversee non-U.S. operations.
InterNorth significantly expanded its oil and gas exploration and production activity in 1983 with the purchase of Belco
Petroleum Corporation for about $770 million. Belco quadrupled InterNorth's gas reserves and added greatly to its crude
oil reserves. Exploration efforts focused on the United States, Canada, and Peru.
Other acquisitions of the early 1980s included the fuel trading companies P & O Falco Inc. and P & O Falco Ltd.; their
operations joined with UPG--renamed UPG Falco--in 1984 and Chemplex Company, a polyethylene and adhesive
manufacturer, also acquired in 1984. InterNorth had sold Northern Propane Gas in 1983.
InterNorth made an acquisition of enormous proportions in 1985, when it bid to purchase Houston Natural Gas
Corporation for about $2.26 billion. The offer was received enthusiastically, and the merger created the largest gas
pipeline system in the United States--about 37,000 miles at the time. Houston Natural Gas brought pipelines from the
Southeast and Southwest to join with InterNorth's substantial system in the Great Plains area. Valero Energy Corporation
of San Antonio, Texas, sued to block the merger. InterNorth had entered into joint ventures with Valero early in 1985 to
transport and sell gas to industrial users in Texas and Louisiana. Because these ventures competed with Houston Natural
Gas, InterNorth withdrew from them when it agreed to the merger. Valero alleged that InterNorth had breached its
fiduciary obligations, but the Valero lawsuit failed to stop the acquisition.

Although still officially named InterNorth, the merged company initially was known as HNG/InterNorth, with dual
headquarters in Omaha, Nebraska, and Houston, Texas. In 1986, the company's name was changed to Enron Corp., and
headquarters were consolidated in Houston. After some shuffling in top management, Kenneth L. Lay, HNG's chairman,
emerged as chairman of the combined company. HNG/InterNorth began divesting itself of businesses that did not fit in
with its long-term goals. The $400 million in assets sold off in 1985 included the Peoples division, which sold for $250
million. Also in 1985, Peru's government nationalized Enron's assets there, and Enron began negotiating for payment,
taking a $218 million charge against earnings in the meantime. In 1986, Enron's chemical subsidiary was sold for $603
million. Also in 1986, Enron sold 50 percent of its interest in Citrus Corporation to Sonat Inc. for $360 million but continued
to operate Citrus's pipeline system, Florida Gas Transmission Company. Citrus originally was part of Houston Natural
Gas.
In 1987, Enron centralized its gas pipeline operations under Enron Gas Pipeline Operating Company. Also that year,
Enron Oil & Gas Company, with responsibility for exploration and production, was formed out of previous InterNorth and
HNG operations, including Nortex Oil & Gas, Belco Petroleum, HNG Oil Company, and Florida Petroleum Company. In
1989, Enron Corp. sold 16 percent of Enron Oil & Gas's common stock to the public for about $200 million. That year
Enron received $162 million from its insurers for the Peruvian operations, and it continued to negotiate with the
government for additional compensation.

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. It added major cogeneration units in
Texas and New Jersey in 1988; in 1989, it signed a 15-year contract to supply natural gas to a cogeneration plant on Long
Island. Also in 1989, Enron reached an agreement with Coastal Corporation that allowed the company to increase the
natural gas production from its Big Piney field in Wyoming. Under the accord, Coastal agreed to extend a pipeline to the
field, since the line already going to it could not handle increased volume. The same year, Enron and El Paso Natural Gas
Company received regulatory approval for a joint venture, Mojave Pipeline Company. The pipeline transports natural gas
for use in oil drilling.

New Markets in the Early 1990s

In the early 1990s, Enron appeared to be reaping the benefits of the InterNorth-Houston Natural Gas merger. Its
revenues, at $16.3 billion in 1985, fell to less than $10 billion in each of the next four years but recovered to $13.1 billion
in 1990. Low natural gas prices had been a major cause of the decline. Enron, however, had been able to increase its
market share, from 14 percent in 1985 to 18 percent in 1990, with help from efficiencies that resulted from the integration
of the two predecessor companies' operations. Enron also showed significant growth in its liquid fuels business as well as
in oil and gas exploration.
Beginning with the 1990s, Enron's stated philosophy was to "get in early, push to open markets, position ourselves to
compete, compete hard when the opening comes." This philosophy was translated into two major sectors: international
markets and the newly deregulated gas and electricity markets in the United States.
Beginning in 1991, Enron built its first overseas power plant in Teesside, England, which became the largest gas-fired
cogeneration plant in the world with 1,875 megawatts. Subsequently, Enron built power plants in industrial and developing
nations all over the world: Italy, Turkey, Argentina, China, India, Brazil, Guatemala, Bolivia, Colombia, the Dominican
Republic, the Philippines, and others. By 1996, earnings from these projects accounted for 25 percent of total company
earnings before interest and taxes.

In the United States, states were given the power to deregulate gas and electric utilities in 1994, which meant that
residential customers could choose utilities in the same way that they chose their phone carriers. This looked like an
enormous opportunity for Enron. CEO Lay was fervently in favor of deregulation, believing it would solve problems for
consumers and utilities alike. The company moved into the residential electricity market in 1996, when Enron agreed to
acquire Portland General, an Oregon utility whose transmission lines would give the company access to California's $20-
billion market, as well as access to 650,000 customers in Oregon. In 1997, Enron Energy Services began to supply
natural gas to residential customers in Toledo, Ohio, and contracted to sell wind power to Iowa residents. Through a
subsidiary, Zond Corporation, the company contracted with MidAmerican Energy Company of Houston to supply 112.5
megawatts of wind-generated electricity to about 50,000 homes, the largest single purchase contract in the history of wind
energy. Zond was to build the facility in northwestern Iowa, using about 150 of its Z-750 kilowatt series wind turbines, the
biggest made in the United States.

A Shaky Structure Collapses

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. The company seemed a potential gold mine if it could
successfully open up the electricity market. Meanwhile, some of its earlier projects were going badly. Its huge deal to build
a power plant in India, worth $2.8 billion, was held up by embittered local politicians. Other overseas projects also faltered.
Earnings had grown annually in the early 1990s by between 16 and 20 percent. The figure shrank to 11 percent for 1995,
then to only 1 percent in 1996. In the second quarter of 1997, the company took a $550 million charge, representing
losses on the Indian project and others.
The company continued to spend heavily to advertise and lobby for deregulation. Enron advanced into the newly
deregulated California electricity market in 1998, offering consumers discounts for signing up with the company. Enron's
president, Jeffrey Skilling, predicted a revolution in electricity marketing once deregulation took hold, while admitting that
California residents initially would not save much money by switching to Enron. The company was bringing in $4 billion a
year from electricity sales in 1998, while predicting it would have ten percent of the $300 billion domestic gas and electric
retail market within ten years. Yet in 1999 the company halted its efforts to expand into California and admitted it had been
losing $100 million a year in its retail push. But Enron had many other ideas for turning a profit. In 1999, it launched an
Internet-based commodities trading service, EnronOnline. Enron traded gas and electricity as well as more exotic futures
such as weather. This gave companies whose business was affected by weather, such as home heating companies or
golf courses, a hedge against the risk of unfavorable weather. Enron also launched Enron Broadband Services, a unit that
traded capacity in telecommunications bandwidth. The company invested some $1.3 billion to build a fiber optic network
so that more players would be able to buy and sell bandwidth capacity. The company investigated other e-commerce
markets as well, such as trading in airport landing rights. The company had made natural gas into a tradeable commodity
in the 1980s, and it was looking to pull off the same trick again in these various other commodities. Wall Street began to
take notice, and Enron's stock, which had languished, began to climb again. It rose 55 percent in 1999, and leapt another
87 percent over 2000.

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. In fact, Enron's core business was floundering. 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." An unnamed Enron
insider quoted in Business Week (December 17, 2001) put it this way: "You make enough billion-dollar mistakes, and they
add up." Yet investors were not aware of Enron's troubles. Losses were disguised in elaborate partnerships and joint
ventures, keeping them off Enron's books. Enron's duplicitous bookkeeping kept the stock price high, even as Enron's top
executives began selling off their own holdings. Enron's president Jeffrey Skilling abruptly resigned in August 2001, citing
only personal reasons. The slowdown in technology and Internet stocks brought Enron's stock down too, and it had fallen
almost by half by the third quarter of 2001. At that point the company announced a loss of $618 million. Shortly thereafter,
the company announced that actually it had been misstating its earnings since 1997. While the Securities and Exchange
Commission began investigating irregularities at the company, Enron tried to sell out to another Houston energy company,
Dynegy. That deal collapsed when the extent of Enron's losses became clear. In December 2001, Enron filed for
bankruptcy, the largest ever by an American company. Enron's collapse stirred tremendous fallout. Its executives had
made millions selling off their Enron shares, while many of its employees lost their retirement savings as the stock hit rock
bottom. The accounting firm Arthur Andersen, which had certified Enron's bookkeeping, was disgraced, especially as
revelations surfaced that it had destroyed potentially incriminating documents. The scandal reached into the upper
echelons of government as well, as Enron had given liberally to many politicians, including President George W. Bush and
Attorney General John Ashcroft. CEO Kenneth Lay resigned in January 2002, while the company faced multiple
congressional, criminal, and SEC investigations. The company faced liquidation, with its only valuable asset the network
of natural gas pipelines it had started out with in the mid-1980s.
Principal Subsidiaries: Enron Engineering and Construction; Enron International Inc.; Enron Renewable Energy Corp.;
Enron Ventures Corp.; EOG Resources Inc.; EOTT Energy Partners LP; Florida Gas Transmission Co.; Houston Pipeline
Co.; Transwestern Pipeline Co.; Enron Wind Corp.; Louisiana Resources Co.; Northern Border Pipeline Co.; Northern
Plains Natural Gas Co.; Northern Transportation & Storage; Linc Corp.; Azurix Corp.; Enron Capital & Trade Resource;
Enron Corp.

Chronology
 Key Dates:
 1930: The company is founded as Northern Natural Gas Company in Omaha, Nebraska.
 1947: The company is listed on New York Stock Exchange.
 1980: The company's name is changed to InterNorth, Inc.
 1985: A merger with Houston Natural Gas Corp. takes place.
 1986: The company's name changed to Enron; the new company is headquartered in Houston.
 1991: Enron begins overseas expansion.
 1999: Launches EnronOnline.
 2001: Files for bankruptcy after previously hidden losses come to light.

Additional Details
 Public Company
 Incorporated: 1930 as Northern Natural Gas Company
 Employees: 21,000
 Sales: $101 billion (2000)
 NAIC: 211111 Crude Petroleum and Natural Gas Extraction; 22121 Natural Gas Distibution; 48621 Pipeline
Transportation of Natural Gas; 221122 Electric Power Distribution; 221119 Other Electric Power Generation.