Enron Corp.’s legal identity, ownership and businesses

analysisEnron Corp.’s current report on Form 8-K dated November 8, 2001 identified the registrant as an Oregon corporation with IRS employer identification number 47-0255140 and SEC Commission File Number 1-13159, with principal executive offices in the Enron Building, 1400 Smith Street, Houston, Texas, and gave its New York Stock Exchange symbol as ENE. The SEC’s EDGAR record for Central Index Key 0001024401 lists the company as ENRON CORP/OR/, an operating company incorporated in Oregon, in standard industrial classification 6200 (security and commodity brokers, dealers, exchanges and services), with a December 31 fiscal year end and a business address at 1400 Smith Street, Houston. EDGAR records the former name Enron Oregon Corp. for the period from November 25, 1996 to May 16, 1997. ^{1 2}

analysisThe Joint Committee on Taxation’s staff report on Enron traces the company to Northern Natural Gas Company, incorporated in Delaware on April 25, 1930, which changed its name to InterNorth, Inc. in 1980. InterNorth, then an interstate pipeline company based in Omaha, Nebraska, acquired Belco Petroleum in 1983 and on July 1, 1985 acquired Houston Natural Gas Corporation (HNG), paying HNG shareholders $2.4 billion in cash for all of HNG’s stock; for financial reporting the acquisition was effective June 1, 1985. The combined company first operated as HNG InterNorth. HNG’s chairman and chief executive Kenneth Lay became its chairman and chief executive in February 1986, and the company changed its name to Enron Corp. in April 1986. According to the same report, Enron Corp. reincorporated as an Oregon corporation in 1997. ³

analysisThe Joint Committee on Taxation’s staff report explains that acquiring all voting securities of Portland General Electric (PGE), an Oregon public utility, made Enron a public utility holding company under the Public Utility Holding Company Act. Because the Act’s limited intrastate exemption required the holding company and its utility to be domiciled in the same State, Enron Corp. reincorporated in Oregon, reissued its capital stock without par value and ceased to be a Delaware corporation. The SEC likewise records that Enron became a public-utility holding company when it acquired Portland General in 1997. ^{4 3}

analysisOregon registry data reproduced by a corporate-registry aggregator list the company as Enron Creditors Recovery Corp., an Oregon domestic business corporation (registry number 52754984) with inactive status, and give its previous names as Enron Corp., Enron Oregon Corp. and New Falcon Corp. The Texas record of its foreign-corporation registration (number 0011128906), reproduced in the same way, lists the names Enron Oregon Corp. (to July 24, 1997), Enron Corp. (August 19, 1996 to March 1, 2007) and Enron Creditors Recovery Corp. (from March 1, 2007), with a further Enron Corp. entry dated April 13, 2007 to November 28, 2016, and a certificate of revocation dated November 28, 2016. These are an aggregator’s reproductions, not extracts from the Oregon and Texas registries themselves, and the Texas name dates differ from the former-name period shown in the SEC’s EDGAR record. ^{5 6}

analysisThe Senate Permanent Subcommittee on Investigations reported that at its collapse in December 2001 Enron Corporation was listed as the seventh largest company in the United States, with over $100 billion in gross revenues. The Joint Committee on Taxation’s staff report likewise ranks Enron seventh among the country’s largest companies for 2001, states that its market capitalization reportedly rose from about $2 billion in the mid-1980s to about $70 billion in early 2001, and counts about 58,920 holders of record of its common stock at December 31, 2000. According to the same report, Enron’s reported consolidated revenues rose from $13 billion in 1996 to $101 billion in 2000 and its reported total assets from $16.1 billion to $65.5 billion, figures reported before the charges and restatements of October and November 2001. Reported risk management assets grew from $0.5 billion in 1992 to $21 billion in 2000, while net property, plant and equipment grew from $6.5 billion to $11.7 billion. ^{1 2}

analysisOfficial reports give different workforce figures for late 2001: the Senate Permanent Subcommittee on Investigations cited more than 20,000 employees worldwide at Enron’s collapse in December 2001; the Joint Committee on Taxation’s staff report, citing an affidavit filed in the bankruptcy case, gave about 25,000 employees worldwide when Enron filed for bankruptcy; and the SEC put the number of people employed by the Enron companies worldwide at about 32,000 as of December 2001. The three reports may count different scopes, Enron Corp. and its debtor affiliates as against all Enron companies, and different dates; the retained record does not reconcile them. The Department of Justice later stated that the collapse cost investors billions of dollars and that thousands of workers lost their jobs. ^{1 3 2 4}

analysisEnron’s entities were counted differently by two congressional bodies. The Senate Permanent Subcommittee on Investigations reported that Enron’s Form 10-K filings for 1999 and 2000 listed almost 3,000 separate entities, over 800 of them organized in offshore jurisdictions, including about 120 in the Turks and Caicos and about 600 using the same post office box in the Cayman Islands. The Joint Committee on Taxation’s staff report describes Enron as doing business through approximately 3,500 domestic and foreign subsidiaries and affiliates, with more than 140 subsidiaries in the Netherlands and, by the end of 2001, approximately 1,300 foreign entities, over 400 of them formed in the Cayman Islands. These counts were drawn from Enron’s filings and records at different dates and on different bases; they are not reconciled with each other or with the SEC’s figure of approximately 2,400 legal entities in the group on the December 2, 2001 petition date. The SEC’s March 9, 2004 order recorded that, of those approximately 2,400 entities, about 600 had been sold, merged or dissolved and about 1,800 remained. ^{1 2 3}

analysisThe Joint Committee on Taxation’s staff report also describes the size of Enron’s tax organisation. Enron reported 346 entities as members of its affiliated group in its 2000 federal tax return. Its tax department grew from a staff of 83 in 1996 to 253 in 2000, while the number of federal tax returns it prepared rose from 1,002 in 1997 to 2,486 in 2000, and Enron’s reported undistributed earnings from foreign subsidiaries increased from $185 million in 1993 to $1.8 billion in 2000. ²

analysisEnron’s definitive proxy statement for its May 1, 2001 annual meeting reported that, of 1,200,000,000 authorized common shares, 758,598,801 were issued and outstanding and 151,758,865 reserved for issuance at the close of business on February 28, 2001, and that 754,367,414 common shares and 1,212,972 shares of Preferred Convertible Stock were outstanding and entitled to vote on the March 2, 2001 record date. The board proposed raising the authorized common stock to 2,400,000,000 shares, contingent on a stock split of at least 2-for-1 declared by May 1, 2003. As holders known to own more than 5% of a class of voting stock on February 15, 2001, the proxy statement listed Janus Capital Corporation, with 40,914,560 common shares (5.43%); director Robert A. Belfer, with 1.12% of the common stock and 17.66% of the Preferred Convertible Stock; Mr. and Mrs. Lawrence Ruben, with 1.35% of the common and 23.09% of the Preferred Convertible Stock; another individual investor, with 10.24% of the Preferred Convertible Stock; and the Enron Corp. Savings Plan, with 2.04% of the common and 5.74% of the Preferred Convertible Stock. ¹

analysisAccording to the same proxy statement, all directors and executive officers as a group (30 persons) beneficially owned 3.44% of Enron’s common stock as of February 15, 2001. The largest individual holdings were those of Robert A. Belfer, with 8,438,839 shares with sole voting and investment power (1.12%), and Kenneth L. Lay, with 5,392,718 shares with sole and 2,367,897 with shared voting and investment power (1.05%); Jeffrey K. Skilling held 1,941,377 shares with sole power. According to the Joint Committee on Taxation’s staff report, the New York Stock Exchange suspended trading in Enron stock on January 15, 2002 and moved to delist the shares, and on February 12, 2002 Enron announced that its creditors’ total claims exceeded the fair market value of its assets and that it did not expect equity holders to receive any interest in the reorganized company. ^{1 2}

analysisThe Joint Committee on Taxation’s staff report traces Enron’s trading business from 1987, when Enron discontinued the speculative oil and petroleum products trading conducted by Enron Oil Corp. in New York because of losses from unauthorized trading. From 1989 Enron entered into long-term fixed-price energy contracts and traded natural gas through forward contracts and other instruments; in 1992 it adopted mark-to-market accounting for its trading operations; and in 1994 it began buying and selling electricity after its power marketing subsidiary obtained an SEC no-action letter under the Public Utility Holding Company Act. In its January 1997 worldwide restructuring Enron continued Enron Capital & Trade Resources, which was later renamed Enron North America Corp.; shortly afterwards it formed Risk Management & Trading Corp. to “manage trading books” for various Enron entities, and soon thereafter Enron Energy Services, to sell energy and advisory services, such as long-term energy management, to large consumers. ¹

analysisEnron launched EnronOnline, a global Internet-based transaction system for wholesale energy and other commodities, in November 1999. The Joint Committee on Taxation’s staff report, citing Enron’s own reports, states that EnronOnline generated transactions of $857 million in notional value in its first two weeks, $336 billion through 548,000 transactions in 2000 and $590 billion by its one millionth transaction on May 23, 2001, when Enron reported that about 60 percent of all its transactions were conducted online. Enron shut down EnronOnline on November 28, 2001, the day the Dynegy merger agreement unravelled and rating agencies downgraded Enron’s long-term debt to below investment grade. ¹

analysisIn July 1997 Enron acquired Portland General Corporation, an electric utility holding company, and its utility Portland General Electric (PGE), which had about 685,000 residential and commercial retail customers in Oregon. The Joint Committee on Taxation’s staff report describes a $1.9 billion stock swap, 50.5 million Enron shares for 49.6 million Portland General Corporation shares, plus the consolidation of $1.1 billion of PGE debt, for a total price of about $3 billion; Enron considered PGE its platform for entering the deregulated California electricity market. SEC EDGAR records identify Portland General Electric Company (Central Index Key 0000784977) as an Oregon corporation in electric services (standard industrial classification 4911), listed on the New York Stock Exchange under the symbol POR and classified as a large accelerated filer, and Portland General Corporation (Central Index Key 0000079636) as an Oregon corporation in the same classification whose filings in the record run from February 1994 to March 1999. ^{1 2 3}

analysisThe Joint Committee on Taxation’s staff report states that Enron entered the water business in July 1998 by acquiring Wessex Water Plc, a major U.K. water company, for $2.2 billion; a 2002 press report gave a different price, about $2.4 billion plus nearly $482 million of assumed debt, and the retained record does not reconcile the two figures. Enron formed a new water company, Azurix Corp., to own and operate water and wastewater assets, and Azurix pursued water projects in Europe, Latin America and Asia. Azurix sold shares to the public in June 1999. Enron’s 2000 annual report states that until March 2001 Enron held a 50% voting interest in Atlantic Water Trust, which owned about 67% of Azurix’s common stock, the rest being publicly held. On December 15, 2000 Enron agreed with Azurix that holders of its approximately 39 million public shares would receive $8.375 in cash per share; Azurix shareholders approved the merger on March 16, 2001, and all shares other than those held by Atlantic Water Trust, Enron, Azurix and their wholly owned subsidiaries were cancelled. ^{1 4 5}

analysisThe examiner Neal Batson’s third interim report of June 30, 2003 states that Azurix was taken private at Enron’s expense about eighteen months after its public offering as a result of its poor performance. Citing Enron’s 2000 Form 10-K, the report records that in 2000 Enron took a $326 million charge for Azurix’s impairment of the carrying value of its Argentine assets, Enron’s portion of a charge of about $470 million, and recognized a $428 million loss from its equity in Azurix; the amounts are those reported in Enron’s 2000 annual report. Azurix’s EDGAR record lists filings made for it by Enron Corporation, Marlin Water Trust and Atlantic Water Trust. In a Form 8-K/A signed on April 30, 2002, Azurix described Atlantic Water Trust as its largest shareholder and Marlin Water Trust as a beneficiary of that trust, and reported that on April 26, 2002 a committee claiming about 31.74 percent of Marlin Water Trust’s senior notes objected in the bankruptcy court to Enron’s motion for approval of the Wessex sale and Azurix’s tender offer for its notes, contending that Azurix should also pay about $19 million it owed Atlantic Water Trust; Salomon Smith Barney was dealer manager of the tender offer. ^{6 5 7 8}

analysisIn 1999 Enron Corp. and its subsidiary Enron Oil & Gas Company (EOG) established EOG as a public company independent of Enron. According to the Joint Committee on Taxation’s staff report, Enron exchanged about 76 percent of its EOG stock for EOG’s China and India operations, recording a pre-tax financial reporting gain of $454 million ($345 million after tax) and treating the exchange as a tax-free split-off; EOG transferred about $600 million of cash to EOGI-India, Inc., an Indian subsidiary acquired by Enron Corp. ¹

analysisThe Joint Committee on Taxation’s staff report states that construction of the Dabhol combined-cycle power plant in India began in 1996, that in 1998 and 1999 Enron made a substantial equity investment in Elektro, a Brazilian electricity transmission system, and that in May 2000 Enron acquired the metals market-maker MG plc for about $2 billion. Enron’s total international investment ultimately exceeded $7 billion, including more than $3 billion in Latin America, $1 billion in India and $2.9 billion in Britain. The report adds that Enron’s 2000 attempt to sell assets abroad included Project Summer, an effort to sell about 80 percent of its non-European international businesses for $6.08 billion in cash, which failed. The examiner Neal Batson reported in his third interim report of June 30, 2003 that after Project Summer failed, Enron’s Risk Assessment and Control Group valued the international assets at only $4.480 billion to $6.927 billion against a carrying value of $10.119 billion at June 30, 2001, and that Elektro and Dabhol were major consumers of capital; this is the examiner’s account of an internal Enron valuation, not a court finding. ^{1 6}

analysisNote 9 of Enron’s 2000 annual report on Form 10-K listed among its unconsolidated equity affiliates at December 31, 2000, with Enron’s net voting interest and its investment and advances: Whitewing Associates, L.P. (50%; $558 million), Joint Energy Development Investments L.P. (JEDI) (50%; $399 million), JEDI II (50%; $220 million), Azurix Corp. (34%; $325 million), Citrus Corp. (50%; $530 million) and Dabhol Power Company (50%; $693 million). The note stated that JEDI and JEDI II, and Whitewing for certain investments, accounted for their investments at fair value. ⁵

analysisThe value of these assets later featured in the criminal case against Kenneth Lay. In the indictment of Lay announced by the Justice Department on July 8, 2004, prosecutors alleged that in October 2001 Lay told investors Enron’s goodwill impairment was up to $200 million while failing to disclose an additional impairment of up to $700 million relating to Wessex, praised the Brazilian Elektro asset carried at more than $2 billion although it was overvalued by up to $1 billion, and distributed materials describing the international portfolio as worth $6.5 billion, an overstatement of billions of dollars. These were allegations in a federal grand-jury indictment as summarized by the Department of Justice, not findings. A federal jury in Houston later convicted Lay on conspiracy, securities fraud and wire fraud charges; after his death on July 5, 2006 a federal judge voided the conviction, as the Department of Justice reported in October 2006. ^{1 2}