Introduction

Ken Lay was impatient. His new goal was to double Enron’s size and earnings in five years, a mere waystation on Enron’s march to become the world’s leading energy company. Wholly new profit centers had to be created, building upon the Enron described in Part V: exploration and production; gas transmission; gas liquids; gas marketing; international infrastructure development; and operations management.

The future Enron was taking shape. The rechristened Enron Capital & Trade Resources (ECT, formerly Enron Gas Services) was marketing electricity and raising outside capital to invest in different energy areas.¹ And three new businesses were in process that would become new Enron divisions in 1997.

An entry into solar power in 1995 (via half-owned Solarex) was followed by a major wind power purchase (Zond Energy Systems) to form Enron Renewable Energy Corp. The smallest of the three new businesses, EREC, a political bet, was foremost in issuing press releases. Enron also redefined itself as a new energy major by launching Enron Energy Services, as well as acquiring the Oregon public utility Portland General Electric.

Enron was going beyond its original natural gas mission, even its core competency. “Clean” and “green” energies were offered to the stationary market (renewables to generate electricity) and for transportation (MTBE to reformulate gasoline).² Ventures completely outside the field of energy—broadband (begun in 1997) and water (begun in 1998), both failures—would be next.³

Chapter 13 reviews Enron’s entry into solar power and then wind power, a political and public-relations play dependent on special government subsidies to compete against cheaper and more reliable fossil-fuel generation. Wind power, the larger acquisition, was made “to further position Enron as a world leader in the renewable energy market.” Chapter 13 also overviews Enron’s interest in other alternative-energy technologies—and Ken Lay’s political leadership in government energy and climate policy.

Chapter 14 delineates Enron’s ever-growing visions and aspirations, as defined by Ken Lay and enforced by Richard Kinder. In 1995, Enron announced its “most aggressive vision to date,” namely, “to become the world’s leading energy company—creating energy solutions worldwide.” That superseded the prior fuel-constricted vision: “To become the first natural gas major; the most innovative and reliable provider of clean energy worldwide for a better environment.”

This third vision was accompanied by Enron 2000, which promised investors a doubling of revenue and profit in five years. Fifteen percent annual growth, nominally achieved in each of the prior eight years, was set as a five-year average for 1996–2000. In fact, this vision-within-a-vision would be all but forgotten after major write-offs in 1997.

Chapter 15 describes Enron’s expansion from wholesale to retail marketing, with natural gas and particularly with electricity, a bold incursion into the domain of public utilities. Throwing down the gauntlet, Enron challenged the utilities—those “scaly dinosaurs of yore”—to allow “deregulation,” so that commodity providers (and no one more than Enron) could reach the final user. In fact, what Enron called deregulation was just a different structure of regulation—unbundling via governmentally mandated open access.

But Ken Lay and Jeff Skilling’s “grand plan” to profitably reach millions of households had to be cut short, very short. With losses mounting and investors promised megaprofits, Enron quickly turned to a new retail concept: total energy outsourcing for large commercial and industrial users, itself an unproven business in terms of economies of scale and of scope.

Enron was expanding quickly and dangerously. To outsiders (and to Enron itself) the company appeared to be building a unique energy franchise, with intrinsic competitive advantage. But under the hood was an engine partly dismantled, partly malconstructed, and running too hard.

Ken Lay’s unrelenting earnings goals were too high for the company to describe realistically or reach prudently. There was a large and growing out-of-the-money gas position in the United Kingdom. A major acquisition of MTBE facilities was sour. Mark-to-market accounting had claimed a lot of future earnings. Long-lived revenue streams were being sold for current income (monetized). The Dabhol power plant in India was turning out to be all cost and no revenue.

Nevertheless, according to Enron’s founder, chairman, and CEO, the company was going to be a different kind of energy major. Exxon (soon to be ExxonMobil) was old and traditional; Enron was new and revolutionary. Lay’s 50th-floor office looked over the very building where, 30 years before (back when Exxon’s Houston presence was Humble Oil), Lay had been a corporate economist. The Enron Building was newer and taller than that of Exxon USA at 800 Bell Street. Ken Lay felt newer and taller too.

The period covered by Part V and Part VI ends with the resignation of Rich Kinder and the ascension of Jeff Skilling, named Enron’s president and chief operating officer effective January 1, 1997. CEO Ken Lay would increasingly turn his company over to Jeff Skilling and to Skilling’s preferred businesses. The Epilogue describes the consequential leadership change of Skilling for Kinder, the continuance of some Kinder-era business directions, and the new bets by restless Enron.