Early Successes

In spring 1994, a Wall Street Journal front-page article was headlined “Natural-Gas Industry Is Reinventing Itself by Going International.” The subtitle: “Enron Is Racing British Gas in a Global Expansion Aimed at Big Oil’s Empire,” and a third line: “Pitching Clean Air in Asia.” In the feature, Daniel Yergin commented about how Ken Lay had presciently challenged him about how the Age of Oil was giving way to a new age of natural gas. “And he’s proving himself right by creating a new gas industry as he goes along,” Yergin stated.

“Enron and British Gas are the new paradigm of the surging, $120 billion-a-year global gas market, racing across five continents to plant their corporate flags in a flurry of ambition that had been unheard of in their stay-at-home industry,” the article explained. “They are reinventing themselves as the first international gas utilities.” The article’s authors added that ENE had outperformed the stock price of the world’s top seven oil companies, not only the stocks of natural gas companies back home.

Great press about flashy high-risk plays was a public relations coup. Enron painted its international forays as pioneering and humanitarian (“to bring electricity to … children and schools and hospitals”); well managed for risk (“solid legal contracts”); synergistic (“turnkey construction operator agreements, fuel supply, and fuel management contracts”); “geographically diverse”; “integrated market-led”; increasingly selective; and profitable.

Enron Development Corp. described its mission as “selecting projects that have the greatest chance of succeeding” and “pursuing projects that will offer the highest long-term value to shareholders.” To this end, “risk analysis and management” were “key components of EDC’s development projects.”

All bases were covered, Enron assured investors. Project financing limited liabilities to a particular project without recourse to other corporate assets. Long-term contracts at known rates, denominated in US dollars, locked in margins. The creditworthiness of power purchasers and pipeline shippers was carefully vetted. Sovereign guarantees and letters of credit were executed, as needed. And political risk was mitigated via loans and loan guarantees from OPIC and Ex-Im (Department of Commerce), as well as the International Finance Corporation (World Bank).

Problems? Enron’s burgeoning liability with its J-Block (Teesside II) UK contracts “will not have a materially adverse effect” on earnings. Dabhol’s contract cancellation and construction halt in 1995 was a blessing in disguise as a renegotiation resulted in a larger project and restart the next year.

Kudos was common in the period under review. Yergin’s Cambridge Energy Research Associates (CERA) ranked Enron tied for first in global project development in the 1991–94 period. Ken Lay touted his company as “the market leader in creating energy solutions worldwide.” Rebecca Mark wowed her audiences with such zingers as, “We recreate ourselves, our definition, and our mission in the marketplace on a regular basis.” Enron International, in fact, was one reason that Fortune ranked Enron as America’s “Most Innovative” company in March 1996.

Developing Problems

EI emphasized its mission as creating sustainable value through careful vetting and taking the long view. Yet aggressiveness and risk taking were evident in most EI projects. Teesside II, Dabhol I, and Dabhol II were problematic from the start. A few projects encountered design and operational problems that never occurred at home. But high corporate overhead, beginning with EI’s lavish Houston headquarters across the street from the Enron Building, not to mention over-the-top events for employees, were just part of the optimism amid the imaging of a global Enron.⁵

Enron’s rent-seeking in the far corners of the world took on a macabre quality in April 1996 when Ron Brown, the Clinton administration’s Secretary of Commerce, died in a plane crash on an Enron-related trade mission in Croatia (formerly part of Yugoslavia).⁶ Brown was a top EI booster, reflecting the help that Enron received from his department’s lending agencies. He was present at some of Enron’s most high-profile contract signings, including at Dabhol.

San Juan Gas Company

Enron had some small Caribbean businesses inherited from InterNorth dating from when Sam Segnar purchased Belco Petroleum in 1983. Marginally profitable, these stragglers were not sold by Mike Muckleroy after the 1985 merger between HNG and InterNorth. The same assets were not divested in the early 1990s either.

The thinking was that a far greater South American presence would emerge. “Enron Americas plans to capitalize on its historic presence in the Caribbean area to take advantage of significant potential power generation opportunities in the area,” Enron told investors. But there was another reason that Enron remained in this distant mom-and-pop arena: Rich Kinder reputedly did not want to take a small write-off from a sale, estimated to be $1 million or $2 million.

Enron Americas had two businesses in Venezuela. Industrias Ventane (Ventane, also known as Vengas), founded in 1953, was the leading transporter and distributer of natural gas liquids in Venezuela (bottled propane, mainly). Enron was also part owner (with General Electric and locals) of the leading manufacturer and distributor of washing machines in the country, a business that just needed, so the joke went, a second Mother’s Day to improve profitability.

In Jamaica, as in Venezuela, Enron Americas had a bottled-gas presence. But a third similar business in San Juan, Puerto Rico, would be much more consequential. San Juan Gas Company became notorious in November 1996 when a massive explosion destroyed a six-story building in the commercial section of Rio Piedras. Thirty-three were killed and 80 injured in what was one of the worst industrial accidents in the history of the region.

San Juan Gas did not serve the building, but a propane leak from a nearby underground line of the company was eventually implicated. “San Juan Gas Company’s Inadequate Training of Employees and Government Deficiencies led to Building Explosion,” concluded a study by the US National Transportation Safety Board (NTSB) in 1997. “Contributing to the loss of life was the failure of San Juan Gas Company, Inc. to inform adequately citizens and businesses of the dangers of propane gas and the safety steps to take when a gas leak is suspected or detected,” the full accident report found. Eight hundred plaintiffs filed 500 lawsuits against six different Enron subsidiaries.

Enron denied its involvement until 2000. In what would be its final annual report, Enron stated that “numerous claims have been settled,” a fund had been established to cover future settlements and awards, and the final outcome “will not have a material adverse effect on its financial position or results of operations.” At the time of Enron’s bankruptcy, about $60 million had been paid, covered by indemnity insurance. Another $50 million in payments were expected. All this from a meager asset with small profits in the best of times.

Expertise could have prevented the accident; as it was, numerous visits to the building by San Juan employees failed to pinpoint the leak because of a lack of proper training. Best practices by Enron in North America were not in place in Puerto Rico. Enron knew that San Juan’s operations had been out of compliance since 1985, the NTSB concluded, but a correction of deficiencies “was neither timely nor sufficient.” In fact, 40 percent of San Juan’s service lines were inactive, a reason behind the company’s unaccounted-for gas problem, Enron’s affiliate was told in a year before the explosion.

“The pipeline was in terrible condition,” said Enron’s top infrastructure executive, Tom White, in 2001. “We had done leak surveys and were working hard to fix it up.” But the unthinkable happened. “Every once in a while, we get too clever by half by ignoring operational risk,” he added.

Unfulfilled Aspirations

Enron International brought home a string of successful first-generation projects. But the next wave would prove to be a step back from the Teesside-led successes of 1993–94. Whole business lines did not materialize (global liquid marketing; global LNG). Major regions did not produce profits, despite early-in years of effort: Russia, Mexico, the Middle East, Africa, and China. The same proved true for the developing nation of Enron’s greatest aspirations, despite Lay’s assurance that “we’re planning to be in India for the long term.” In these and other nations, many touted projects would quietly fade away.

“Execution to date has been difficult,” Rebecca Mark told the Senate Committee on Foreign Relations in 1995. Privatization was “politically unpopular” where “the government uses the infrastructure bureaucracy to create thousands of jobs,” she added. Developing countries’ “fleeting” interest in privatization and “see-saw politics” were barriers, as was unstable currencies. What Daniel Yergin and Joseph Stanislaw’s The Commanding Heights termed (in its subtitle) The Battle Between Government and the Marketplace that Is Remaking the Modern World was a struggle for Enron in some of the most inhospitable areas of the world.

Risk mitigation was key. Mark stressed government funding and guarantees as a difference maker: “One of the big issues that helps us and/or can hurt us is the access to capital, particularly from US EXIM and OPIC.” Indeed, for India’s Dabhol project alone, $400 million in direct funding and $200 million in equity insurance got the financing done—and to everyone’s detriment.

Many well-announced projects would terminate with nary a mention. These included proposals to build power plants in East Java, Indonesia (500 MW, $525 million, 50 percent owned), and in Poland (116 MW, $120 million, 97 percent owned). In the Republic of Croatia, where Ron Brown’s Enron-related trade mission had ended tragically, a 180 MW, $160 million project, scheduled to begin construction in 1997 with completion two years later, did not get off the ground.

In Mozambique, reputedly the poorest country in the world, Enron garnered great press for its proposed 560-mile gas pipeline project that would market gas from the country’s Pande Field (a potential EOG project). DOE Secretary Hazel O’Leary, who led a trade mission to South Africa in 1995, was present for the $700 million signing. Enron’s half-owned project, however, would not materialize.¹⁴

The Middle East was also part of Enron’s ambitions. Rebecca Mark wanted to sell liquefied natural gas to Israel from Qatar, breaking what otherwise was an impasse between the two countries. (There was irony in Enron’s attempt to do business in the very region of the world whose instability Lay cited as a reason for the United States to move from oil to natural gas.) The $4 billion megadeal (“so big that it will raise us to a new plateau when it comes on stream,” Lay told the press) never got done.

There was a proposed $161 million natural gas processing plant in Vietnam that did not reach fruition. All told, 5 out of 10 projects listed as “in final development” in Enron’s 1996 Annual Report would be terminated.

The ones that made it had their own issues. On the island of Sardinia, for example, a 551 MW power plant that would turn residue from Italy’s largest refinery into electricity, described over two pages in Enron’s 1996 Annual Report, was way late. The $1.35 billion project, 45 percent owned by Enron, began construction in August 1997, with commercial operation set for two years later. In 1998, Enron postponed the in-service date to first-quarter 2000. Finally, in 2001, in Enron’s last months of solvency, the refigured integrated gasification combined-cycle plant began operations.

The problem went beyond individual projects to whole divisions, business lines, and regions. A division of Enron International, Enron LNG, formed in early 1993, never got a deal done despite numerous well-publicized project negotiations. The cover story of a 1996 issue of Enron Business, “EDC Takes LNG to the Middle East and Beyond,” touted the prospects of the “proven” technology being “the fuel of choice in developing nations that have no indigenous gas supplies or limited pipeline import capacities.” Africa, Middle East, Russia—whole regions where Enron rolled the dice in the quest to become “the premier international global” resulted in snake eyes. Same for an LNG import terminal in Puerto Rico with Kenetech Corp., a soon-to-be bankrupt wind developer.

International liquids marketing reflected Enron’s own liquids and petrochemical production. But finding a “market niche to provide us with some competitive advantage,” as stated by EI head Robert Kelly in 1993, was never solved. This would require becoming the low-cost provider à la Enron Oil & Gas, added Kelly. That did not and probably could not happen; asset-rich incumbents, including the oil majors, were ensconced in that field.

Big plans for China, begun in 1990, produced one project that Enron would have been better off without. A purchased power agreement for the $130 million, 150 MW Hainan Island, completed in 1996, was a “debacle,” remembered one principal. “The economy turned south, didn’t need the power, and they stopped paying us,” said Jim Hughes, who was assigned the cleanup.

Russia was another mega-target for Enron and Ken Lay. On the “historic morning” of August 30, 1993, Gazprom Chairman Rem Viakhirev signed a “major agreement” to supply natural gas to prospective Enron power plants in Greece, Italy, Turkey, and Germany. Along for the signing were Russian Prime Minister Viktor Chernomyrdin and US Energy Secretary Hazel O’Leary. Lots of press resulted from the highly choreographed event.

Actually, this was a second beginning between the two parties. Gazprom had just nixed a several-year effort by Enron to enter into a contract to rehabilitate Russian pipelines. And as it turned out, Gazprom did not want to enable a competitor, and a capitalist one at that. Why would the world’s largest gas company with reserves of 1,700 TCF—nearly a thousandfold that of EOG—want to give a hyperaggressive US company a beachhead in Europe and in Russia itself?

Enron got some scraps. Fifty-four Russian pipeliners had been trained at Northern Natural Gas’s facilities in Nebraska. Also in 1994, Enron Operations helped Gazprom with document management. The next year, Gazprom turned to EOG to jointly develop and market gas reserves in Uzbekistan with Uzbekneftegaz. In neighboring Latvia, the former Soviet republic utilized Enron’s expertise in storage field equipment and operation. A compressor station was refurbished in St. Petersburg.

But the bigger things midstream or downstream—with transmission, marketing, or sales—were no-gos. “Gazprom did not want to liberalize markets,” one Enron principal remembered. “They truly believed that letting Enron into this particular spot was a taste of something they didn’t want.”

The off-limits country just to the south of Enron—rich in minerals, people, and climate—stood ready to be a Canada or even a new Texas with private ownership, voluntary exchange, stable money, and the rule of law. But Mexico, lurching between crisis and recovery (euphemistically referred to as “a transition period”), kept Enron on the sidelines, as it did the whole of US industry.

There was always hope. The North American Free Trade Agreement (NAFTA) was seen as a wedge capable of increasing gas exports from the United States to Mexico sixfold by 2000—not to mention increased Mexican demand for energy infrastructure. The American Gas Association and Interstate Natural Gas Association of America (INGAA), both with Mexican membership, made it their top legislative priority, and Ken Lay personally testified in favor of the trade bill. Another upside was that NAFTA, in the words of Natural Gas Week, “undoubtedly will serve as a model for other agreements throughout Central and Latin America.”

Mexico, meanwhile, talked a good game about opening up its natural gas market to imports, foreign capital, and even open access to transportation and storage facilities. “We’re aggressively looking for opportunities in Mexico,” stated Jeff Skilling in 1993. “NAFTA is obviously a plus from a long-term standpoint,” he added.

Hard-fought NAFTA became law on the first day of 1994. DOE Undersecretary Bill White directed a trade mission to Mexico in mid-1995 to “promot[e] U.S. energy, environmental, and technological interests in Mexico’s expanding and emerging markets,” inviting Enron representatives from various business units and from government affairs. It was such a natural with Houston Pipe Line reaching Mexico’s border.

Infrastructure opportunities were certainly there. At an INGAA-sponsored event, the head of the gas pipeline division of Petróleos Mexicanos (PEMEX) rejected any move toward privatization or open access. But he predicted that Mexico’s new Energy Regulatory Commission (enabled by November 1, 1995, legislation) would modernize what was currently a manually operated system, characterized by once-a-week readings instead of automatic metering controls and daily balancing.

Mexico business was not to be, despite much effort by Enron. The peso crisis in late 1994–95, remarked James Steele of Enron Development, was just the sort of political risk that made financing unavailable for the socialist, quasi-corrupt, impoverished country. “The experts don’t know what will happen; the equation is constantly changing,” he lamented.

Enron Global Power & Pipelines

The chairman and CEO of Enron International in 1994, Rod Gray, had the difficult task of presiding over a global start-up and, in particular, the whirlwind Rebecca Mark. Mark, head of EI’s Enron Development Corp., was a John Wing protégé turned Ken Lay confidante. Combining Wing’s drive and toughness with Lay’s incurable optimism, Mark saw few obstacles that she felt she could not overcome.

EI’s goals in 1994 went beyond finding markets for Teesside II’s gas and getting Dabhol to financial close. Gray saw a basic need to better coordinate EI’s far-flung operations in order to improve information flow and teamwork.

As Gray grappled with pulling the team together, Jeff Skilling and Rich Kinder worried about Enron Development. With Mark’s acquiescence, and to Gray’s relief, the Joint Venture Management Group was formed within ECT to compare actual performance to contractual obligations and financial projections. The auditors were led by Amanda Martin, a lawyer who had come to Enron in 1991 from Vinson & Elkins. Second in charge was Darrell Kinder, recently discharged from his troubled gas liquids and MTBE operations. With an eye for numbers, in addition to her other strengths, Martin would become ECT’s first female managing director in 1996.

“Our mandate is to look at each project from the perspective of the owner,” Martin explained to Enron employees. “We’re not looking at a deal as a developer or as a turnkey operator.” The goal was to have the legal foundation to ensure “that a good project is developed that is viable for the duration of the asset’s life cycle in this competitive marketplace,” she added. Only then, added Lou Pai, would developing-country projects “make a major contribution to Enron’s global expansion.”

But the horse was out of the barn. Martin uncovered operational issues that would have embarrassed Enron back home, from a leaky pipeline to an infested water intake at a power plant. Cost estimates, profit forecasts, and risk analyses were dicey. Because of the timing of their bonuses, the people in Mark’s deal shop turned out to be far more interested in financial closure than in actual operations.¹⁵

What was needed, Rich Kinder et al. concluded, was a new stand-alone organization dedicated to developing-country operations. Also, to the extent that a project’s market value (as revealed by the public offering) exceeded the project’s book value, Enron wanted to monetize the investment to keep earnings growth high, reduce debt for a strong credit rating (of great benefit to Skilling’s side), and capitalize other priorities. Investors, too, were more interested in operating projects than in taking development risks. A step toward a credit-rating upgrade, of great benefit to Skilling’s side, in particular, was welcomed too.

Four times already, Enron had taken a wholly owned subsidiary public: EOG (1989), Enron Liquids Pipeline LP (1992), Northern Border Partners LP (1993), and EOTT Energy Partners LP (March 1994). A fifth time would attract capital for emerging-market projects, while offering Enron investors a new play. The company could also bring dividend earnings to investors.

The result was Enron Global Power & Pipelines LLC (EPP), which went public in November 1994 with Rich Kinder as chairman, Rod Gray as CEO, and Jim Alexander as Chief Financial Officer (CFO). Just five months before, EI had been merged into ECT, with Gray joining Ron Burns and Jeff Skilling atop management. Now, Rebecca Mark of Enron Development reported to Kinder and Lay, with her projects designed to be turned over to EPP for operation. EI, meanwhile, a shell of its former self, was ECT-focused to create liquid markets for gas and electricity abroad.

Although EPP was a publicly traded company, Enron as majority owner created complications. “Enron will control the Company and will have extensive ongoing relationships with the company,” the prospectus read. “Certain conflicts of interest exist and may arise in the future as a result of these relationships.” To arbitrate, Enron-EPP deals would be reviewed by three independent members of the board of directors, two of them being George Slocum (the ousted head of Transco Energy and now a consultant) and General Brent Scowcroft (the former national security advisor to Presidents Ford and George H. W. Bush).

EPP would own and operate Enron’s power plants and pipelines located outside North America and Western Europe, that is, in the developing world. The new public company began with Transportadora de Gas del Sur, as well as ED’s two power plants in the Philippines and one in Guatemala, all of which were strong enough.¹⁶ Further assets would come from a Purchase Right Agreement whereby Enron promised to sell, “at prices lower than those available to third parties,” its developed interests in like assets through 2004. Similar commercial assets from outside parties could also be acquired in the same geographical region, investors were told.

Ten million shares, representing 48 percent of the company, were placed at $24 per share, raising $225 million for Enron. The year-end cash-out helped Enron make its 1994 numbers and provided an instant valuation for Enron’s remaining 52 percent share.

EPP would acquire new assets from Enron right after they had achieved commercialization. In second-quarter 1996, EPP purchased Enron’s 49 percent interest in Centragas, a 357-mile, 110 MMcf/d pipeline in Colombia, anchored by a 15-year shipper agreement with state-owned Ecopetrol. The next month, EPP purchased Enron’s 50 percent interest in a newly commercialized 185 MW barge-mounted power plant in the Dominican Republic, anchored by a 19-year power purchase agreement with the public utility of the country. (This project was a fiasco on many fronts, negating returns on its $95 million cost.) The missing asset, however, was the grandest one: Dabhol. Just the prospect of restarting the project in 1995 moved EPP’s stock.

Predictable problems developed as EPP management’s fiduciary duties to their minority shareholders bumped into the concerns of Enron, which was why the accounting rules discouraged such arrangements in the first place. Enron spent $2 million with lawyers and accountants to find a way to be in control, but technically not be, in order to book profits by taking EPP public.

Selling high and buying low was a tough mix for two public companies committed to 15 percent earnings growth. It was a classic conflict of interest. And soon, EPP’s CFO Jim Alexander was at loggerheads with Rich Kinder over valuation. To Alexander, Enron’s assets were being sold to EPP at cost, not market, not good for EPP given Enron Development’s high-cost, low-value propositions.¹⁷

In addition to Kinder, Alexander fussed with his boss, Rod Gray, over Enron’s cost assignments, such as the snowball. Alexander met with Ken Lay to voice his concerns only to have Lay return the issue to Kinder. When Alexander’s accounting function was outsourced to ECT, it was a signal to resign. (ECT had assumed scaled-down EI in August 1994, five months before EPP went public.) He did, as did EPP’s general counsel Jennifer Vogel and controller Jeffrey Spiegel. “I am not going to sign any SEC documents unless I have control over the numbers,” Spiegel insisted.

Gray remained as CEO, and Stan Horton was brought in along with other Enron-side executives in the makeover. Only Alexander’s resignation was announced. It was time for Enron to end the experiment and the conflict-of-interest imbroglio, by either selling its 52 percent to EPP or buying out EPP shareholders’ 48 percent.

The latter option was chosen in August 1997, with EPP’s owners receiving ENE at $35 per share of EPP, effective November 1. It had been less than three years from the partial spin-off. EPP shareholders exited with a 14 percent annual return on their investment. Enron admitted it paid a “premium price,” part of a bigger cause of assuring “Wall Street that its investments were stellar.” The assets were redeployed within Enron Capital & Trade Resources, which was already managing the commercial side of Enron’s domestic power plants.

Authors Bethany McLean and Peter Elkind described the short-lived arrangement as “a remarkably sleazy solution,” a paean to the present at the expense of the future, not unlike the all-in use of mark-to-market accounting elsewhere at Enron. “This story again reveals Lay’s (and Kinder’s) failure to address serious conflicts of interest,” noted Harvard Business School professor Malcolm Salter. In 2002, Alexander would tell the New York Times: “We were the dead canary in the coal mine.”

Enron Engineering & Construction

Formed on the fly to design and build the 1,725 MW Teesside cogeneration plant, Enron Power US was an immediate profit center that generated $100 million during 1991–93, a 7 percent margin on a $1.4 billion project.¹⁸ Originally housed within Enron Power Corp., this unit was “responsible for design and construction aspects of worldwide power development.” In addition to Teesside, the unit got busy on Enron International’s “fast-track and integrated projects,” several of which were completed in 1993–94.

With a track record of “high quality construction on time and under budget,” Enron Power US—now housed within Enron Operations Corp. (EOC)—was “building, managing and operating all of Enron’s assets around the world,” excepting those of EOG. The self-described “best in class builder and manager” sought third-party business as well to be “a growth area for EOC.” But how could this division grow beyond the captive business of its parent to help Enron become a new energy major?

In first-quarter 1994, EOC head Tom White announced Project Mid-1990s, “a bottom up review of [our] engineering and construction services.” McKinsey & Company, still Enron’s favorite, would facilitate and summarize the proceedings for 70 task force heads and members.

The result was a new division, Enron Engineering & Construction (EEC). Six months of feedback from “internal and external customers, benchmarking against competitors, and an in-depth review of current practices,” defined EEC’s purpose as undertaking “major construction projects in support of business developers in Enron International and Enron Gas Services [and] … major ‘rate base’ projects for our pipeline companies.” The leader of EEC was Linc Jones, at that time head of Enron Power Corp. Larry Izzo, the hero of Teesside, was vice president of project management—and soon to take Jones’s place as president of EEC.

“Through the end of the decade,” Enron’s 1995 Annual Report read, “EE&C is negotiating turnkey contractor and engineering services for approximately 30 projects throughout the United States, Asia, Latin America and Europe with total capital costs of approximately $15 billion.” With international starts slow, however, EEC turned to home projects, such as Northern Natural’s East Leg expansion and a small intrastate pipeline for a Midwest gas utility.

Net income of $47 million in 1994, driven by EI projects, flatlined at $44 million and $46 million in 1995 and 1996, respectively. Third-party work was the exception, and mixed results made Teesside’s triumph a fading star. Operational problems with several EI/ED projects—the 185 MW Puerto Plata project in the Dominican Republic being foremost—reflected design and building issues. Cost-plus contracting between affiliates created malincentives, and fiefdom-like problems grew over time. “Army mafia” was a term coined by critics of EEC, including Jim Alexander of EPP.

EEC pitched itself as “the low-cost provider” with “depth and breadth of experience, leading-edge technology and excellent safety and environmental records.” A backlog of $3–$4 billion was trumpeted in Enron’s 1996 annual report. But third-party business was going to Bechtel, Black & Veatch, and Foster Wheeler, among others. (Bechtel, in fact, was building Enron’s Dabhol power plant in India as part owner.) EEC did not even have a sales force to pursue outside projects, hardly a sign of confidence.

The growth strategy turned to acquisitions. Now housed in Enron Ventures (the expanded successor to Enron Operations), EEC bought National Energy Production Corp. (NEPCO) from Zurn Industries in 1997 to “help Enron meet its goal of becoming the world’s leading energy company.” NEPCO, headquartered in Washington State, had a full book of business to add to its 45 completed power plants. More business was envisioned from a restructured electric industry.

As it turned out, EEC’s appetite outraced its capabilities in the next years, as NEPCO accumulated a multibillion-dollar liability from violated performance agreements. NEPCO would file for bankruptcy six months after Enron. “The recklessness surrounding the acquisition and development of NEPCO is noteworthy because it shows the pervasiveness of Enron’s commercial naïveté, deal orientation, and lack of financial discipline,” wrote Malcolm Salter. Larry Izzo, meanwhile, on whose watch the unreported liabilities accumulated, was now CEO of Calpine Power Services.

Conclusion

Enron’s international effort failed to sustain its fast start. In 1992, income before interest and taxes was $33 million; in 1993, $132 million. But there it plateaued. The absolute level of IBIT remained high: $148 million (1994), $142 million (1995), $152 million (1996). But asset sales and one-time project bookings, not annual cash flow from operations, made these earnings transient.

In 1995, Rebecca Mark and Joe Sutton told investors: “By the year 2002, Enron’s international projects could total 14,000 megawatts of generating capacity and 6,000 miles of pipelines.” By the time Enron deemphasized international infrastructure development (in 1999), with less than 4,000 megawatts and with 10,000 miles of pipe (all in South America), the entire international portfolio was for sale. Rebecca Mark and Joe Sutton left Enron in 2000, and by the end of 2001, Enron was insolvent.

It began so promisingly with Teesside I. But that harrowing project was diminished by Teesside II and would not be replicated in countries and regions less capitalistic than the United Kingdom.

The mixed bag of International was, no doubt, plagued by a lack of capitalist institutions that kept country populations away from energy prosperity. Enron was ready with capital and expertise to perform around the world. But execution was marred by hubris (rather than humility); hope (rather than prudence); illusion (rather than substance); promise (rather than results); signings (rather than operations); postponements (rather than admissions); politics (rather than markets).

In this regard, contra-capitalist Enron International was not unlike its parent. In fact, the financial drain from EI contributed to the decision of capital-starved Enron to double down on financial shenanigans in the late 1990s.

Rebecca Mark, a “New Age corporate diva” to her critics, proved to be too confident in her ambition, too inattentive to the marketplace, too trusting in government. Heart-over-head, she was a Lay-like gambler. Talented, and with many successes in her earlier corporate life, her flameout would come with Azurix, a water company she founded at Enron in 1998.