This is the first entry that I made in my original California electricity crisis page about the collapse of Enron. It later became the starting point for the newer "Enron & Friends" page.
December 1, 2001: The big story for the end of the year is the collapse of Enron. All of a sudden the eighty billion dollar energy giant turns out to have nothing to it. The company's net worth has fallen to less than one percent of what it was a year ago. The buyout by Dynegy has been scuppered, when Dynegy found out Enron was even more worthless than they'd thought. The company has hardly any real assets except some pipelines. Employees, many of whom were suckered (or forced) into putting their retirement investments into Enron stock, are being sent home by the thousands. Many debts are unpaid and many other companies are left holding the bag, but most of them are other Texas energy companies like Duke. Nobody is crying too much for them.
How did they manage to lose all that money? Especially given how much of the pirated profits from our electricity shortage went in their direction. Well, like all great accomplishments, it took a lot of hard work. The important moment, I suppose, was when they decided to change over from generating electricity to doing commodity-style trading in electricity generated by others. (The idea to go into that business, I've heard, was thought up by some young woman in the lower levels of the company, who was treated with no respect at first.) Their primary business model now consisted of inserting themselves into the electricity market as an unneeded and expensive middleman, doing their best to buy lots of KWH for $250 and selling them for $275.
(The Texas energy industry has a long and colorful history of unnecessary middlemen trying to skim off a share. Back in the twenties, they would tell tall tales of gigantic oil deals involving thirty parties, who when they all got together for a meeting would turn out to be just one or two guys operating under dozens of fronts, neither of them with any oil to sell.)
They had plenty of capital then and they kept looking for a new venture to invest it in. And time after time, they got themselves into some new business where they found themselves unable to compete with those who actually knew what they were doing. Somebody got the bright idea that they could provide internet broadband at a competitive price, by stringing the fiber optic cables on top of their gas pipelines. But they never bothered to figure out how to connect these cables to customers at the end points, nor did they keep up with advances in the cable technology. They ended up writing off hundreds of millions without ever making any revenue from it. They also invested in water utilities in Latin America, and people warned them that their plan wouldn't work, but they went ahead... and again ended up writing off hundreds of millions without having made any revenue from it.
They continued in this vein for years, acting like a bunch of ignorant crackheads deluding themselves with beliefs of their own cleverness. By 1997, according to some anonymous insider messages at fuckedcompany.com, they were already starting to cook the books to hide losses and debts. And their big accounting company, Arthur Andersen, checked those books and pronounced them sound. Now that Arthur Andersen's role in keeping this charade going is coming out, revealing them to be either incompetent or corrupt (almost certainly the latter), they too may be in some trouble. We can only hope so.
When California electricity prices dropped back toward normal, the rug was yanked out from under them. They couldn't keep up the pretense any longer. The only remaining question is, how many of the people running this scam belong in jail? Of course, the odds of getting more than one or two of them to serve any time are pretty poor. Ken Lay, the outgoing CEO, made tens of millions while dumping his own Enron stock... and yet employees were blocked from selling their Enron stock. A class-action suit is pending.
Now Enron Field is going to have to find a new name, just like 3com Park.
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