Enron Energy Services
Enron Energy Services (EES) was a business unit of Enron Corporation, whose purpose was to provide gas, electricity, and energy management directly to businesses and homes. Enron compared the service to choosing a telecommunications company to provide your house with a phone line. Consumers would be able to call and order all of their energy from Enron in one bill. EES was headed by Lou Pai until he left the company in 2000, when it was taken over by David Delainey.
The business plan
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EES's best known area of business was California. Part of their strategy was to use two-way wireless electric meters, which could be read remotely and eventually turn air-conditioning and lighting systems on and off by telephone . Enron bought thousands of these meters as well as millions of dollars' worth of wireless air time. Enron Energy Services promised business and home users average annual savings from 5% to 15%.
EES spent millions of dollars on advertising to attract customers. This business strategy depended on a large, deregulated market, and it became clear in the late 1990s that states were not deregulating fast enough. Few meters made it out of the warehouse and Enron employees received Skytel pagers because the company already bought the massive amount of airtime. Enron decided to change its strategy and target businesses, organizations, and corporations with offices distributed around the United States.
Enron Energy Services signed contracts with large commercial and industrial customers guaranteeing a fixed amount of energy savings off their historical bills. Enron contracted to share the savings, split installation costs and/or assumed they could exceed these savings and pocket the additional savings for themselves. However, when construction costs for energy retrofits exceeded their earlier estimates and energy savings were less than projected, they were often upside down on deals and owed more money than they were making. Initial problems were presented within the company as typical “start-up” losses that would eventually be covered as sales and profitability were expected to grow exponentially. However, much of the losses were concealed with complicated contract language, mark-to-market accounting and other financial tricks that are known about Enron, while the dramatic increase of sales and profitability never materialized.
Enron Energy Services had problems billing customers and getting the bills to them in the correct amount. It was alleged that they paid customers to sign contracts, to prove to Wall street that energy trading actually was happening. It was also alleged that the company manipulated the California electricity market to increase profits .
After spending on ads and marketing with little return, the company’s operations were in a deficit of over 500 million dollars. Enron Energy Services was one of the many business units that filed for bankruptcy with Enron Corporation on December 2, 2001.
- "Press Release". Enron Corp. December 15, 1997. Archived from the original on December 18, 2005. Retrieved February 2, 2006.
- "Memo Shows Enron Division Headed by Army Secretary Thomas White Manipulated California Electricity Market". Public Citizen. May 8, 2002. Retrieved February 2, 2006.
- "Enron's Skilling OK'd concealing losses". www.namibian.com. Retrieved April 26, 2007.[dead link]
- McLean, Bethany & Elkind, Peter (2005) Enron: The Smartest Guys in the Room.