Enron Case Study
Enron Case Study
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Enron Case Study
Table of Contents
Executive Summary 2-7
History/Case of Enron 2
Case Background of Enron……………………………………………………………………………………………………………..…3-7
Problem/Issue Statement 7-9
Key Decision Criteria/Alternative Analysis 9-10
Recommendation 10-11
Conclusion…………………………………………………………………………………………………………………………………………11
References..………………………………………………………………………………………………………………………………………12
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Enron Case Study
Enron Corporation is the epitome of “too good to be true”. This major
energy company caused nearly 20,000 employees to lose their jobs,
benefits, investments, and ultimately responsible for the dissolution of Arthur
Andersen, one of the world’s top five accounting firms. When Enron filed for
bankruptcy, the company estimated a loss of over $70 billion in investors’
money. The company’s stock rose to an impressive $90.75 per share during
August of 2000, but dropped to barely pennies by December of 2001.
Enron Corporation was formed by a merger between Houston Natural
Gas and InterNorth. HNG was formed to provide gas to retail customers in
Houston. InterNorth began as Northern Natural Gas Company, organized in
Omaha, Nebraska. InterNorth’s CEO Sam Segnar bought out HNG on May
1985, in which InterNorth would acquire HNG for $2.4 billion. In 1986 Segnar
retired and Kenneth Lay became CEO and Chair of the board of directors.
Once CEO, Lay renamed the merger company ‘Enron’ and relocated
corporate headquarters to Houston, TX. In 1984 the Federal Energy
Regulatory Commission lowered pricing restrictions on natural gas and
allowed local gas distribution companies to buy gas from anywhere and
anyone. Lay used this to his advantage, but still retained debt in the early
stages of the merger company, so in 1989 Enron created a new way to
market natural gas to consumers, by trading it. With “the Gas Bank” concept
in place, Enron would act as an intermediary between buyers and sellers of
gas and became a success. The idea was created by Je@ Skilling, hired by
Enron in 1991 and a key player in the company’s “success”. In 1994,
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Enron Case Study
Congress gave the states the authority to deregulate electricity as well,
which helped Enron after they purchase PGE, an electricity provider based on
the west coast. The newly opened California market too made Enron millions
as they would take advantage of the rolling blackouts to purposely shutdown
plants to cut cost. Enron spent $100 million a year to generate business in
California, even going as far as to purposely reroute power out of the state to
increased prices, then sell it back at more than double the market rate.
Under Je@ Skilling, Enron’s COO, CEO, and President, the trading
operation adopted mark-to-market accounting in which the present value of
expected revenue is realized and the expected costs of fulfilling the contract
are expensed once a contract is signed. As its outside auditor, Arthur
