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Enron Corporation

Enron Corporation

1400 Smith Street
Houston, Texas 77002-7369
U.S.A.
Telephone: (713) 853-6161
Fax: (713) 853-3129
Web site: http://www.enron.com

Public Company
Incorporated:
1930 as Northern Natural Gas Company
Employees: 21,000
Sales: $101 billion (2000)
NAIC: 211111 Crude Petroleum and Natural Gas Extraction; 22121 Natural Gas Distribution; 48621 Pipeline Transportation of Natural Gas; 221122 Electric Power Distribution; 221119 Other Electric Power Generation.

Before filing for bankruptcy in 2001, Enron Corporation was one of the largest integrated natural gas and electricity companies in the world. It marketed natural gas liquids worldwide and operated one of the largest natural gas transmission systems in the world, totaling more than 36,000 miles. It was also one of the largest independent developers and producers of electricity in the world, serving both industrial and emerging markets. Enron was also a major supplier of solar and wind renewable energy worldwide, managed the largest portfolio of natural gas-related risk management contracts in the world, and was one of the worlds biggest independent oil and gas exploration companies. In North America, Enron was the largest wholesale marketer of natural gas and electricity. Enron pioneered innovative trading products, such as gas futures and weather futures, significantly modernizing the utilities industry. After a surge of growth in the early 1990s, the company ran into difficulties. The magnitude of Enrons losses was hidden from stockholders. The company folded after a failed merger deal with Dynegy Inc. in 2001 brought to light massive financial finagling. The company had ranked number seven on the Fortune 500, and its failure was the biggest bankruptcy in American history.

Company Origins

Enron began as Northern Natural Gas Company, organized in Omaha, Nebraska, in 1930 by three other companies. North American Light & Power Company and United Light & Railways Company each held a 35 percent stake in the new enterprise, while Lone Star Gas Corporation owned the remaining 30 percent. The companys founding came just a few months after the stock market crash of 1929, an inauspicious time to launch a new venture. Several aspects of the Great Depression actually worked in Northerns favor, however. Consumers initially were not enthusiastic about natural gas as a heating fuel, but its low cost led to its acceptance during tough economic times. High unemployment brought the new company a ready supply of cheap labor to build its pipeline system. In addition, the 24-inch steel pipe, which could transport six times the amount of gas carried by 12-inch cast iron pipe, had just been developed. Northern grew rapidly in the 1930s, doubling its system capacity within two years of its incorporation and bringing the first natural gas supply to the state of Minnesota.

Public Offering in the 1940s

The 1940s brought changes in Northerns regulation and ownership. The Federal Power Commission, created as a result of the Natural Gas Act of 1938, regulated the natural gas industrys rates and expansion. In 1941, United Light & Railways sold its share of Northern to the public, and in 1942 Lone Star Gas distributed its holdings to its stockholders. North American Light & Power would hold on to its stake until 1947, when it sold its shares to underwriters who then offered the stock to the public. Northern was listed on the New York Stock Exchange that year.

In 1944, Northern acquired the gas-gathering and transmission lines of Argus Natural Gas Company. The following year, the Argus properties were consolidated into Peoples Natural Gas Company, a subsidiary of Northern. In 1952, Peoples was dissolved as a subsidiary, its operations henceforth becoming a division of the parent company. Also in 1952, the company set up another subsidiary, Northern Natural Gas Producing Company, to operate its gas leases and wells. Another subsidiary, Northern Plains Natural Gas Company, was established in 1954 and eventually would bring Canadian gas reserves to the continental United States.

Through its Peoples division, the parent company acquired a natural gas system in Dubuque, Iowa, from North Central Public Service Company in 1957. In 1964, Council Bluffs Gas Company of Iowa was acquired and merged into the Peoples division. Northern created two more subsidiaries in 1960: Northern Gas Products Company (later Enron Gas Processing Company), for the purpose of building and operating a natural gas extraction plant in Bushton, Kansas; and Northern Propane Gas Company, for retail sales of propane. Northern Natural Gas Producing Company was sold to Mobil Corporation in 1964, but the parent company continued expanding on other fronts. In 1966, it formed Hydrocarbon Transportation Inc. (later Enron Liquids Pipeline Company) to own and operate a pipeline system carrying liquid fuels. Eventually, this system would bring natural gas liquids from plants in the Midwest and Rocky Mountains to upper-Midwest markets, with connections for eastern markets as well.

Growth through Acquisitions

Northern made several acquisitions in 1967: Protane Corporation, a distributor of propane gas in the eastern United States and the Caribbean; Mineral Industries Inc., a marketer of automobile antifreeze; National Poly Products Inc.; and Viking Plastics of Minnesota. Also in 1967, Northern created Northern Petrochemical Company to manufacture and market industrial and consumer chemical products. The petrochemical company acquired Monsanto Corporations polyethylene marketing business in 1969.

Northern continued expanding during the 1970s. In February 1970 it acquired Plateau Natural Gas Company, which became part of the Peoples division. In 1971, it bought Olin Corporations antifreeze production and marketing business. It set up UPG Inc. in 1973 to transport and market the fuels produced by Northern Gas Products. UPG eventually would handle oil and liquid gas products for other companies as well.

In 1976, Northern formed Northern Arctic Gas Company, a partner in the proposed Alaskan arctic gas pipeline, and Northern Liquid Fuels International Ltd., a supply and marketing company. Northern Border Pipeline Company, a partnership of four energy companies with Northern Plains Natural Gas as managing partner, began construction of the eastern segment of the Alaskan pipeline in 1980. This segment, stretching from Ventura, Iowa, to Monchy, Saskatchewan, was completed in 1982. About that time, it became apparent that transporting Alaskan gas to the lower 48 states would be prohibitively expensive. Nevertheless, the pipeline provided an important link between Canadian gas reserves and the continental United States. Northern changed its name to InterNorth, Inc. in 1980. That same year, while attempting to grow through acquisitions, InterNorth became involved in a takeover battle with Cooper Industries Inc. to acquire Crouse-Hinds Company, a manufacturer of electrical products. Cooper rescued Crouse-Hinds from InterNorths hostile bid and bought Crouse-Hinds in January 1981. The takeover fight brought a flurry of lawsuits between InterNorth and Cooper. The suits were dropped after the acquisition was finalized.

While InterNorth grew through acquisitions, it also expanded from within. In 1980, it set up Northern Overthrust Pipeline Company and Northern Trailblazer Pipeline Company to participate in the Trailblazer pipeline, which ran from southeastern Nebraska to western Wyoming. Also that year, it created two exploration and production companies, Nortex Gas & Oil Company and Consolidex Gas and Oil Limited. The latter company was a Canadian operation. In 1981, InterNorth set up Northern Engineering International Company to provide professional engineering services. In 1982, it formed Northern Intrastate Pipeline Company and Northern Coal Pipeline Company as well as InterNorth International Inc. (later Enron International) to oversee non-U.S. operations.

InterNorth significantly expanded its oil and gas exploration and production activity in 1983 with the purchase of Belco Petroleum Corporation for about $770 million. Belco quadrupled InterNorths gas reserves and added greatly to its crude oil reserves. Exploration efforts focused on the United States, Canada, and Peru.

Other acquisitions of the early 1980s included the fuel trading companies P & O Falco Inc. and P & O Falco Ltd.; their operations joined with UPGrenamed UPG Falcoin 1984 and Chemplex Company, a polyethylene and adhesive manufacturer, also acquired in 1984. InterNorth had sold Northern Propane Gas in 1983.

Key Dates:

1930:
The company is founded as Northern Natural Gas Company in Omaha, Nebraska.
1947:
The company is listed on New York Stock Exchange.
1980:
The companys name is changed to InterNorth, Inc.
1985:
A merger with Houston Natural Gas Corp. takes place.
1986:
The companys name changed to Enron; the new company is headquartered in Houston.
1991:
Enron begins overseas expansion.
1999:
Launches EnronOnline.
2001:
Files for bankruptcy after previously hidden losses come to light.

InterNorth made an acquisition of enormous proportions in 1985, when it bid to purchase Houston Natural Gas Corporation for about $2.26 billion. The offer was received enthusiastically, and the merger created the largest gas pipeline system in the United Statesabout 37,000 miles at the time. Houston Natural Gas brought pipelines from the Southeast and Southwest to join with InterNorths substantial system in the Great Plains area. Valero Energy Corporation of San Antonio, Texas, sued to block the merger. InterNorth had entered into joint ventures with Valero early in 1985 to transport and sell gas to industrial users in Texas and Louisiana. Because these ventures competed with Houston Natural Gas, InterNorth withdrew from them when it agreed to the merger. Valero alleged that InterNorth had breached its fiduciary obligations, but the Valero lawsuit failed to stop the acquisition.

Although still officially named InterNorth, the merged company initially was known as HNG/InterNorth, with dual headquarters in Omaha, Nebraska, and Houston, Texas. In 1986, the companys name was changed to Enron Corp., and headquarters were consolidated in Houston. After some shuffling in top management, Kenneth L. Lay, HNGs chairman, emerged as chairman of the combined company. HNG/InterNorth began divesting itself of businesses that did not fit in with its long-term goals. The $400 million in assets sold off in 1985 included the Peoples division, which sold for $250 million. Also in 1985, Perus government nationalized Enrons assets there, and Enron began negotiating for payment, taking a $218 million charge against earnings in the meantime. In 1986, Enrons chemical subsidiary was sold for $603 million. Also in 1986, Enron sold 50 percent of its interest in Citrus Corporation to Sonat Inc. for $360 million but continued to operate Citruss pipeline system, Florida Gas Transmission Company. Citrus originally was part of Houston Natural Gas.

In 1987, Enron centralized its gas pipeline operations under Enron Gas Pipeline Operating Company. Also that year, Enron Oil & Gas Company, with responsibility for exploration and production, was formed out of previous InterNorth and HNG operations, including Nortex Oil & Gas, Belco Petroleum, HNG Oil Company, and Florida Petroleum Company. In 1989, Enron Corp. sold 16 percent of Enron Oil & Gass common stock to the public for about $200 million. That year Enron received $162 million from its insurers for the Peruvian operations, and it continued to negotiate with the government for additional compensation.

Enron made significant moves into electrical power, in both independent production and cogeneration facilities, in the late 1980s. Cogeneration plants produce electricity and thermal energy from one source. It added major cogeneration units in Texas and New Jersey in 1988; in 1989, it signed a 15-year contract to supply natural gas to a cogeneration plant on Long Island. Also in 1989, Enron reached an agreement with Coastal Corporation that allowed the company to increase the natural gas production from its Big Piney field in Wyoming. Under the accord, Coastal agreed to extend a pipeline to the field, since the line already going to it could not handle increased volume. The same year, Enron and El Paso Natural Gas Company received regulatory approval for a joint venture, Mojave Pipeline Company. The pipeline transports natural gas for use in oil drilling.

New Markets in the Early 1990s

In the early 1990s, Enron appeared to be reaping the benefits of the InterNorth-Houston Natural Gas merger. Its revenues, at $16.3 billion in 1985, fell to less than $10 billion in each of the next four years but recovered to $13.1 billion in 1990. Low natural gas prices had been a major cause of the decline. Enron, however, had been able to increase its market share, from 14 percent in 1985 to 18 percent in 1990, with help from efficiencies that resulted from the integration of the two predecessor companies operations. Enron also showed significant growth in its liquid fuels business as well as in oil and gas exploration.

Beginning with the 1990s, Enrons stated philosophy was to get in early, push to open markets, position ourselves to compete, compete hard when the opening comes. This philosophy was translated into two major sectors: international markets and the newly deregulated gas and electricity markets in the United States.

Beginning in 1991, Enron built its first overseas power plant in Teesside, England, which became the largest gas-fired cogeneration plant in the world with 1,875 megawatts. Subsequently, Enron built power plants in industrial and developing nations all over the world: Italy, Turkey, Argentina, China, India, Brazil, Guatemala, Bolivia, Colombia, the Dominican Republic, the Philippines, and others. By 1996, earnings from these projects accounted for 25 percent of total company earnings before interest and taxes.

In the United States, states were given the power to deregulate gas and electric utilities in 1994, which meant that residential customers could choose utilities in the same way that they chose their phone carriers. This looked like an enormous opportunity for Enron. CEO Lay was fervently in favor of deregulation, believing it would solve problems for consumers and utilities alike. The company moved into the residential electricity market in 1996, when Enron agreed to acquire Portland General, an Oregon utility whose transmission lines would give the company access to Californias $20-billion market, as well as access to 650,000 customers in Oregon. In 1997, Enron Energy Services began to supply natural gas to residential customers in Toledo, Ohio, and contracted to sell wind power to Iowa residents. Through a subsidiary, Zond Corporation, the company contracted with MidAmerican Energy Company of Houston to supply 112.5 megawatts of wind-generated electricity to about 50,000 homes, the largest single purchase contract in the history of wind energy. Zond was to build the facility in northwestern Iowa, using about 150 of its Z-750 kilowatt series wind turbines, the biggest made in the United States.

A Shaky Structure Collapses

In 1995, Enron CEO Kenneth Lay promised investors that Enrons profits would rise by 15 percent a year over the next five years. Yet the pace of growth was not uniformly smooth for Enron. By 1997, only seven states were moving ahead with deregulation of their electricity markets. Enrons profit from a national deregulated electricity market was potentially huge, and the company spent millions on advertising and lobbying for the cause. It also hired hundreds of top business school graduates to help the company define new markets. The company seemed a potential gold mine if it could successfully open up the electricity market. Meanwhile, some of its earlier projects were going badly. Its huge deal to build a power plant in India, worth $2.8 billion, was held up by embittered local politicians. Other overseas projects also faltered. Earnings had grown annually in the early 1990s by between 16 and 20 percent. The figure shrank to 11 percent for 1995, then to only 1 percent in 1996. In the second quarter of 1997, the company took a $550 million charge, representing losses on the Indian project and others.

The company continued to spend heavily to advertise and lobby for deregulation. Enron advanced into the newly deregulated California electricity market in 1998, offering consumers discounts for signing up with the company. Enrons president, Jeffrey Skilling, predicted a revolution in electricity marketing once deregulation took hold, while admitting that California residents initially would not save much money by switching to Enron. The company was bringing in $4 billion a year from electricity sales in 1998, while predicting it would have ten percent of the $300 billion domestic gas and electric retail market within ten years. Yet in 1999 the company halted its efforts to expand into California and admitted it had been losing $100 million a year in its retail push. But Enron had many other ideas for turning a profit. In 1999, it launched an Internet-based commodities trading service, EnronOnline. Enron traded gas and electricity as well as more exotic futures such as weather. This gave companies whose business was affected by weather, such as home heating companies or golf courses, a hedge against the risk of unfavorable weather. Enron also launched Enron Broadband Services, a unit that traded capacity in telecommunications bandwidth. The company invested some $1.3 billion to build a fiber optic network so that more players would be able to buy and sell bandwidth capacity. The company investigated other e-commerce markets as well, such as trading in airport landing rights. The company had made natural gas into a tradeable commodity in the 1980s, and it was looking to pull off the same trick again in these various other commodities. Wall Street began to take notice, and Enrons stock, which had languished, began to climb again. It rose 55 percent in 1999, and leapt another 87 percent over 2000.

What apparently drew investors to Enron was its aura of getting in on the ground floor of various related industries. It seemed to be a new kind of company, not a blundering old regulation-bound utility but a savvy energy trader. Though new ventures such as broadband trading were not expected to be immediately profitable, Enron supposedly had a sound core business as a gas and electricity wholesaler. In fact, Enrons core business was floundering. Newsweek (January 21, 2002) estimated that in the late 1990s Enron had lost about $2 billion on Telecom capacity, $2 billion in water investments, $2 billion in a Brazilian utility, and $1 billion on a controversial electricity plant in India. An unnamed Enron insider quoted in Business Week (December 17, 2001) put it this way: You make enough billion-dollar mistakes, and they add up. Yet investors were not aware of Enrons troubles. Losses were disguised in elaborate partnerships and joint ventures, keeping them off Enrons books. Enrons duplicitous bookkeeping kept the stock price high, even as Enrons top executives began selling off their own holdings. Enrons president Jeffrey Skilling abruptly resigned in August 2001, citing only personal reasons. The slowdown in technology and Internet stocks brought Enrons stock down too, and it had fallen almost by half by the third quarter of 2001. At that point the company announced a loss of $618 million. Shortly thereafter, the company announced that actually it had been misstating its earnings since 1997. While the Securities and Exchange Commission began investigating irregularities at the company, Enron tried to sell out to another Houston energy company, Dynegy. That deal collapsed when the extent of Enrons losses became clear. In December 2001, Enron filed for bankruptcy, the largest ever by an American company. Enrons collapse stirred tremendous fallout. Its executives had made millions selling off their Enron shares, while many of its employees lost their retirement savings as the stock hit rock bottom. The accounting firm Arthur Andersen, which had certified Enrons bookkeeping, was disgraced, especially as revelations surfaced that it had destroyed potentially incriminating documents. The scandal reached into the upper echelons of government as well, as Enron had given liberally to many politicians, including President George W. Bush and Attorney General John Ashcroft. CEO Kenneth Lay resigned in January 2002, while the company faced multiple congressional, criminal, and SEC investigations. The company faced liquidation, with its only valuable asset the network of natural gas pipelines it had started out with in the mid-1980s.

Principal Subsidiaries

Enron Engineering and Construction; Enron International Inc.; Enron Renewable Energy Corp.; Enron Ventures Corp.; EOG Resources Inc.; EOTT Energy Partners LP; Florida Gas Transmission Co.; Houston Pipeline Co.; Transwestern Pipeline Co.; Enron Wind Corp.; Louisiana Resources Co.; Northern Border Pipeline Co.; Northern Plains Natural Gas Co.; Northern Transportation & Storage; Line Corp.; Azurix Corp.; Enron Capital & Trade Resource; Enron Corp.

Further Reading

Banerjee, Neela, Trying to Salvage What Can Be Salvaged While the Creditors Line Up, New York Times, January 25, 2002, p. C7.

Davies, Erin, Enron: The Powers Back On, Fortune, April 13,1998, p. 24.

Eichenwald, Kurt, and Brick, Michael, Deals that Helped Doomed Enron Began to Form in the Early 90s, New York Times, January 18, 2001, pp. A1, C7.

Enron Chief Criticises U.S. Congress and World Bank, International Trade Finance, October 11, 1996, p. 8.

Enron Joins West Coast Team, ENR, February 17, 1997, p. 12.

Fineman, Howard, and Isikoff, Michael, Lights Out: Enrons Failed Power Play, Newsweek, January 21, 2002, pp. 1624.

Fisher, Daniel, Lynn Cook, and Rob Wherry, Shell Game, Forbes, January 7, 2002, p. 52.

Kemezis, Paul, Why Enron Paid a Premium for Portland General, Electrical World, September 1996, pp. 578.

McWilliams, Gary, The Quiet Man Whos Jolting Utilities, Business Week, June 9, 1997, p. 84.

Oppel, Richard A., Jr., and Jonathan D. Glater, Enrons Chief Sold Shares After Receiving Warning Letter, New York Times, January 18, 2002, pp. C1, C7.

OReilly, Brian, The Secrets of Americas Most Admired Corporations, Fortune, March 3, 1997, pp. 604.

Palmeri, Christopher, At the Heart of a Revolution, Forbes, January 12, 1998, p. 48.

, The Watt Hustlers, Forbes, September 20, 1999, p. 78.

Pechter, Kerry, Watts In a Name? The Future of Enrons Energy Business, Advertising Age, October 1997, p. 114.

Power Players, Fortune, August 5, 1996, p. 94.

Share, Jeff, Massive Pipeline to Carry Bolivian Gas into Brazil, Pipeline & Gas Journal, August 1997, p. 34.

Wherry, Rob, Separated at Birth, Forbes, December 24, 2001, p. 54.

Zellner, Wendy, Enron Electrified, Business Week, July 24, 2000, p. EB54.

Zellner, Wendy, Stephanie Anderson Forrest, and others, The Fall of Enron, Business Week, December 17, 2001, p. 30.

Trudy Ring
updates: Dorothy Kroll and A. Woodward

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Enron Corporation

Enron Corporation

1400 Smith Street
Houston, Texas 77002-7369
U.S.A.
(713) 853-6161
Fax: (713) 853-6790
Web site: http://www.enron.com

Public Company
Incorporated:
1930 as Northern Natural Gas Company
Employees: 6,700
Sales: $13.28 billion (1996)
Stock Exchanges: New York Boston Chicago Pacific Cincinnati Philadelphia
SICs: 4922 Pipelines, Natural Gas; 5172 Gases; 1311 Natural Gas Production; 1321 Crude Petroleum Products; 2911 Natural Gas Liquids; 4613 Petroleum Refining

Enron Corporation is one of the largest integrated natural gas and electricity companies in the world. It markets natural gas liquids worldwide and operates one of the largest natural gas transmission systems in the world, totaling more than 36,000 miles. It is also one of the largest independent developers and producers of electricity in the world, serving both industrial and emerging markets. Enron is also a major supplier of solar and wind renewable energy worldwide, manages the largest portfolio of natural gas-related risk management contracts in the world, and is one of the worlds biggest independent oil and gas exploration companies. In North America, Enron is the second biggest buyer and seller of natural gas and the largest nonregulated marketer of electricity. Enrons stated goals are to become the largest retailer of electricity and natural gas in the United States and the largest provider of both in Europe.

Company Origins

Enron began as Northern Natural Gas Company, organized in Omaha, Nebraska, in 1930 by three other companies. North American Light & Power Company and United Light & Rail-ways Company each held a 35 percent stake in the new enterprise, while Lone Star Gas Corporation owned the remaining 30 percent. The companys founding came just a few months after the stock market crash of 1929, an inauspicious time to launch a new venture. Several aspects of the Great Depression actually worked in Northerns favor, however. Consumers initially were not enthusiastic about natural gas as a heating fuel, but its low cost led to its acceptance during tough economic times. High unemployment brought the new company a ready supply of cheap labor to build its pipeline system. In addition, the 24-inch steel pipe, which could transport six times the amount of gas carried by 12-inch cast iron pipe, had just been developed. Northern grew rapidly in the 1930s, doubling its system capacity within two years of its incorporation and bringing the first natural gas supply to the state of Minnesota.

Public Offering in the 1940s

In the 1940s there were changes in Northerns regulation and ownership. The Federal Power Commission, created as a result of the Natural Gas Act of 1938, regulated the natural gas industrys rates and expansion. In 1941 United Light & Rail-ways sold its share of Northern to the public, and in 1942 Lone Star Gas distributed its holdings to its stockholders. North American Light & Power would hold on to its stake until 1947, when it sold its shares to underwriters who then offered the stock to the public. Northern was listed on the New York Stock Exchange that year.

In 1944 Northern acquired the gas-gathering and transmission lines of Argus Natural Gas Company. The following year, the Argus properties were consolidated into Peoples Natural Gas Company, a subsidiary of Northern. In 1952 Peoples was dissolved as a subsidiary, its operations henceforth becoming a division of the parent company. Also in 1952, the company set up another subsidiary, Northern Natural Gas Producing Company, to operate its gas leases and wells. Another subsidiary, Northern Plains Natural Gas Company, was established in 1954 and eventually would bring Canadian gas reserves to the continental United States.

Through its Peoples division, the parent company acquired a natural gas system in Dubuque, Iowa, from North Central Public Service Company in 1957. In 1964 Council Bluffs Gas Company of Iowa was acquired and merged into the Peoples division. Northern created two more subsidiaries in 1960: Northern Gas Products Company, now Enron Gas Processing Company, for the purpose of building and operating a natural gas extraction plant in Bushton, Kansas; and Northern Propane Gas Company, for retail sales of propane. Northern Natural Gas Producing Company was sold to Mobil Corporation in 1964, but the parent company continued expanding on other fronts. In 1966 it formed Hydrocarbon Transportation Inc., now Enron Liquids Pipeline Company, to own and operate a pipeline system carrying liquid fuels. Eventually, this system would bring natural gas liquids from plants in the Midwest and Rocky Mountains to upper-Midwest markets, with connections for eastern markets as well.

Growth through Acquisitions

Northern made several acquisitions in 1967: Protane Corporation, a distributor of propane gas in the eastern United States and the Caribbean; Mineral Industries Inc., a marketer of automobile antifreeze; National Poly Products Inc.; and Viking Plastics of Minnesota. Also in 1967, Northern created Northern Petrochemical Company to manufacture and market industrial and consumer chemical products. The petrochemical company acquired Mon-santo Corporations polyethylene marketing business in 1969.

Northern continued expanding during the 1970s. In February 1970 it acquired Plateau Natural Gas Company, which became part of the Peoples division. In 1971 it bought Olin Corporations antifreeze production and marketing business. It set up UPG Inc., now Enron Oil Trading & Transportation, in 1973 to transport and market the fuels produced by Northern Gas Products. UPG eventually would handle oil and liquid gas products for other companies as well.

In 1976 Northern formed Northern Arctic Gas Company, a partner in the proposed Alaskan arctic gas pipeline, and Northern Liquid Fuels International Ltd., a supply and marketing company. Northern Border Pipeline Company, a partnership of four energy companies with Northern Plains Natural Gas as managing partner, began construction of the eastern segment of the Alaskan pipeline in 1980. This segment, stretching from Ventura, Iowa, to Monchy, Saskatchewan, was completed in 1982. About that time, it became apparent that transporting Alaskan gas to the lower 48 states would be prohibitively expensive. Nevertheless, the pipeline provided an important link between Canadian gas reserves and the continental United States. Northern changed its name to InterNorth, Inc. in 1980. That same year, while attempting to grow through acquisitions, InterNorth became involved in a takeover battle with Cooper Industries Inc. to acquire Crouse-Hinds Company, an electrical-products manufacturer. Cooper rescued Crouse-Hinds from InterNorths hostile bid and bought Crouse-Hinds in January 1981. The takeover fight brought a flurry of lawsuits between InterNorth and Cooper. The suits were dropped after the acquisition was finalized.

While InterNorth grew through acquisitions, it also expanded from within. In 1980 it set up Northern Overthrust Pipeline Company and Northern Trailblazer Pipeline Company to participate in the Trailblazer pipeline, which runs from southeastern Nebraska to western Wyoming. Also that year, it created two exploration and production companies, Nortex Gas & Oil Company and Consolidex Gas and Oil Limited. The latter company was a Canadian operation. In 1981 InterNorth set up Northern Engineering International Company to provide professional engineering services. In 1982 it formed Northern Intrastate Pipeline Company and Northern Coal Pipeline Company as well as InterNorth International Inc., now Enron Inter-national, to oversee non-U.S. operations.

InterNorth significantly expanded its oil and gas exploration and production activity in 1983 with the purchase of Belco Petroleum Corporation for about $770 million. Belco quadrupled InterNorths gas reserves and added greatly to its crude oil reserves. Exploration efforts focused on the United States, Canada, and Peru.

Other acquisitions of the early 1980s included the fuel trading companies P & O Falco Inc. and P & O Falco Ltd.; their operations joined with UPGrenamed UPG Falcoin 1984; and Chemplex Company, a polyethylene and adhesive manufacturer, also acquired in 1984. InterNorth had sold Northern Propane Gas in 1983.

InterNorth made an acquisition of enormous proportions in 1985, when it bid to purchase Houston Natural Gas Corporation for about $2.26 billion. The offer was received enthusiastically, and the merger created the largest gas pipeline system in the United Statesabout 37,000 miles at the time. Houston Natural Gas brought pipelines from the Southeast and Southwest to join with InterNorths substantial system in the Great Plains area. Valero Energy Corporation of San Antonio, Texas, sued to block the merger. InterNorth had entered into joint ventures with Valero early in 1985 to transport and sell gas to industrial users in Texas and Louisiana. Because these ventures competed with Houston Natural Gas, InterNorth withdrew from them when it agreed to the merger. Valero alleged that InterNorth had breached its fiduciary obligations, but the Valero lawsuit failed to stop the acquisition.

Company Perspectives:

Enrons mission is to become the most innovative integrated natural gas company in North America. After recognizing early on that the natural gas pipeline business was the back-bone of the corporation, we concentrated on growing our existing businesses our exploration and production, gas liquids and cogeneration operations which best complemented and are complemented by our pipeline activities.

Although still officially named InterNorth, the merged company initially was known as HNG/InterNorth, with dual headquarters in Omaha, Nebraska, and Houston, Texas. In 1986 the companys name was changed to Enron Corp., and headquarters were consolidated in Houston. After some shuffling in top management, Kenneth L. Lay, HNGs chairman, emerged as chairman of the combined company. HNG/InterNorth began divesting itself of businesses that did not fit in with its long-term goals. The $400 million in assets sold off in 1985 included the Peoples division, which sold for $250 million. Also in 1985, Perus government nationalized Enrons assets there, and Enron began negotiating for payment, taking a $218 million charge against earnings in the meantime. In 1986 Enrons chemical subsidiary was sold for $603 million. Also in 1986, Enron sold 50 percent of its interest in Citrus Corporation to Sonat Inc. for $360 million but continued to operate Citruss pipeline system, Florida Gas Transmission Company. Citrus originally was part of Houston Natural Gas.

In 1987 Enron centralized its gas pipeline operations under Enron Gas Pipeline Operating Company. Also that year, Enron Oil & Gas Company, with responsibility for exploration and production, was formed out of previous InterNorth and HNG operations, including Nortex Oil & Gas, Belco Petroleum, HNG Oil Company, and Florida Petroleum Company. In 1989 Enron Corp. sold 16 percent of Enron Oil & Gass common stock to the public for about $200 million. That year Enron received $162 million from its insurers for the Peruvian operations, and it continued to negotiate with the government for additional compensation.

Enron made significant moves into electrical power, in both independent production and cogeneration facilities, in the late 1980s. Cogeneration plants produce electricity and thermal energy from one source. It added major cogeneration units in Texas and New Jersey in 1988; in 1989 it signed a 15-year contract to supply natural gas to a cogeneration plant on Long Island. Also in 1989, Enron reached an agreement with Coastal Corporation that allowed Enron to increase the natural gas production from its Big Piney field in Wyoming; under the accord, Coastal agreed to extend a pipeline to the field, since the line already going to it could not handle increased volume. The same year, Enron and El Paso Natural Gas Company received regulatory approval for a joint venture, Mojave Pipeline Company. The pipeline transports natural gas for use in oil drilling.

The 1990s and Beyond

In the early 1990s, Enron appeared to be reaping the benefits of the InterNorth-Houston Natural Gas merger. Its revenues, at $16.3 billion in 1985, fell to less than $10 billion in each of the next four years but recovered to $13.1 billion in 1990. Low natural gas prices had been a major cause of the decline. Enron, however, had been able to increase its market share, from 14 percent in 1985 to 18 percent in 1990, with help from efficiencies that resulted from the integration of the two predecessor companies operations. Enron also showed significant growth in its liquid fuels business as well as in oil and gas exploration.

Beginning with the 1990s, Enrons stated philosophy was to, get in early, push to open markets, position ourselves to compete, compete hard when the opening comes. This philosophy was translated into two major sectors: international markets and the newly deregulated gas and electricity markets in the United States.

Beginning in 1991, Enron built its first overseas power plant in Teesside, England, which became the largest gas-fired cogeneration plant in the world with 1,875 megawatts. Subsequently, Enron built power plants in industrial and developing nations all over the world: in Italy, Turkey, Argentina, China, India, Brazil, Guatemala, Bolivia, Colombia, the Dominican Republic, the Philippines, and others. By 1996, earnings from these projects accounted for 25 percent of total company earnings before interest and taxes.

Enron expects that further overseas growth will come from the privatization of government-owned companies in the fields of energy, transportation, and telecommunications. In 1997, Enron became the first company to develop a privately-owned independent power plant in Poland when a subsidiary, Elektrocieplownia Nowa Sarzyna Sp., signed a 20-year power purchase contract with the Polish Power Grid Company. The contract called for Enron to build a 116 megawatt, natural gas-fired combined heat and power plant in Nowa Sarzyna.

In North America, the states were given the power to deregulate gas and electric utilities in 1994, which meant that residential customers could choose utilities in the same way that they chose their phone carriers. In 1996, Enron agreed to acquire the utility, Portland General, whose transmission lines would give the company access to Californias $20-billion market, as well as access to 650,000 customers in Oregon.

In 1997, Enron Energy Services began to supply natural gas to residential customers in Toledo, Ohio, and contracted to sell wind power to Iowa residents. Through a subsidiary, Zond Corporation, the company contracted with MidAmerican Energy Company of Houston to supply 112.5 megawatts of wind-generated electricity to about 50,000 homes, the largest single purchase contract in the history of wind energy. Zond was to build the facility in northwestern Iowa, using about 150 of its Z-750 kilowatt series wind turbines, the biggest made in the United States.

Interest in industrial customers also continued, and in 1997, Enron Capital & Trade Resources contracted with Amtrak to buy electric energy at reduced rates. Amtrak functions as a wholesale purchaser of electric power, using it for its own system and reselling it to commuter lines. Amtrak planned to use the electric energy to run nearly 600 of its own trains daily in the Northeast Corridor and another 100 commuter trains on the Keystone line between Philadelphia and Harrisburg. Savings to the electric-powered trains were estimated to be as much as $40 million per year.

Principal Subsidiaries

Enron Gas Pipeline Group; Enron Capital & Trade Resources; Enron International; Enron Oil & Gas Company; Enron Renewable Energy Corp.

Principal Operating Units

Enron Ventures Corp.; Enron Energy Services; Enron Oil and Gas India.

Further Reading

Enron Chief Criticises U.S. Congress and World Bank, International Trade Finance, October 11, 1996, p. 8.

Enron Joins West Coast Team, ENR, February 17, 1997, p. 12.

Kemezis, Paul, Why Enron Paid a Premium for Portland General, Electrical World, September 1996, pp. 5758.

OReilly, Brian, The Secrets of Americas Most Admired Corporations, Fortune, March 3, 1997, pp. 6064.

Power Players, Fortune, August 5, 1996, p. 94.

Trudy Ring

updated by Dorothy Kroll

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Enron Corp.

Enron Corp.

1400 Smith Street
Houston, Texas 77002
U.S.A.
(713) 853-6161
Fax: (713) 853-6790

Public Company
Incorporated: 1930 as Northern Natural Gas Company
Employees: 7,000
Sales: $13.17 billion
Stock Exchanges: New York Pacific Midwest London Frankfurt

Enron Corp. is the largest integrated natural gas company in the United States. It operates a 38,000-mile pipeline network that supplies nearly 18% of U.S. natural gas consumption. In addition to natural gas transmission and marketing, it is involved in oil and gas exploration and production, liquid fuels processing and marketing, electricity development and production, and nonregulated purchasing and marketing of long-term natural gas commitments.

Enron began as Northern Natural Gas Company, organized in Omaha, Nebraska, in 1930 by three other companies. North American Light & Power Company and United Light & Railways Company each held a 35% stake in the new enterprise, while Lone Star Gas Corporation owned the remaining 30%. The companys founding came just a few months after the stock market crash of 1929, an inauspicious time to launch a new company. Several aspects of the Great Depression actually worked in Northerns favor, however. Consumers initially were not enthused about natural gas as a heating fuel, but its low cost led to its acceptance during tough economic times. High unemployment brought the new company a ready supply of cheap labor to build its pipeline system. In addition, the 24-inch steel pipe, which could transport six times the amount of gas carried by 12-inch cast iron pipe, had just been developed. Northern grew rapidly in the 1930s, doubling its system capacity within two years of its incorporation and bringing the first natural gas supply to the state of Minnesota.

In the 1940s there were changes in Northerns regulation and ownership. The Federal Power Commission, created as a result of the Natural Gas Act of 1938, regulated the natural gas industrys rates and expansion. In 1941 United Light & Railways sold its share of Northern to the public, and in 1942 Lone Star Gas distributed its holdings to its stockholders. North American Light & Power would hold on to its stake until 1947, when it sold its shares to underwriters who then offered the stock to the public. Northern was listed on the New York Stock Exchange that year.

In 1944 Northern acquired the gas-gathering and transmission lines of Argus Natural Gas Company. The following year, the Argus properties were consolidated into Peoples Natural Gas Company, a subsidiary of Northern. In 1952 Peoples was dissolved as a subsidiary, its operations henceforth becoming a division of the parent company. Also in 1952, the company set up another subsidiary, Northern Natural Gas Producing Company, to operate its gas leases and wells. Another subsidiary, Northern Plains Natural Gas Company, was established in 1954 and eventually would bring Canadian gas reserves to the continental United States.

Through its Peoples division, the parent company acquired a natural gas system in Dubuque, Iowa, from North Central Public Service Company in 1957. In 1964 Council Bluffs Gas Company of Iowa was acquired and merged into the Peoples division.

Northern created two more subsidiaries in 1960: Northern Gas Products Company, now Enron Gas Processing Company, for the purpose of building and operating a natural gas extraction plant in Bushton, Kansas; and Northern Propane Gas Company, for retail sales of propane. Northern Natural Gas Producing Company was sold to Mobil Corporation in 1964, but the parent company continued expanding on other fronts. In 1966 it formed Hydrocarbon Transportation Inc., now Enron Liquids Pipeline Company, to own and operate a pipeline system carrying liquid fuels. Eventually, this system would bring natural gas liquids from plants in the Midwest and Rocky Mountains to upper-midwest markets, with connections for eastern markets as well.

Northern made several acquisitions in 1967: Protane Corporation, a distributor of propane gas in the eastern United States and the Caribbean; Mineral Industries Inc., a marketer of automobile antifreeze; National Poly Products Inc.; and Viking Plastics of Minnesota. Also in 1967, Northern created Northern Petrochemical Company to manufacture and market industrial and consumer chemical products. The petrochemical company acquired Monsanto Corporations polyethylene marketing business in 1969.

Northern continued expanding during the 1970s. In February 1970 it acquired Plateau Natural Gas Company, which became part of the Peoples division. In 1971 it bought Olin Corporations antifreeze production and marketing business. It set up UPG Inc., now Enron Oil Trading & Transportation, in 1973 to transport and market the fuels produced by Northern Gas Products. UPG eventually would handle oil and liquid gas products for other companies as well.

In 1976 Northern formed Northern Arctic Gas Company, a partner in the proposed Alaskan arctic gas pipeline, and Northern Liquid Fuels International Ltd., a supply and marketing company. Northern Border Pipeline Company, a partnership of four energy companies with Northern Plains Natural Gas as managing partner, began construction of the eastern segment of the Alaskan pipeline in 1980. This segment, stretching from Ventura, Iowa, to Monchy, Saskatchewan, was completed in 1982. About that time, it became apparent that transporting Alaskan gas to the lower 48 U.S. states would be prohibitively expensive. Nevertheless, the pipeline provided an important link between Canadian gas reserves and the continental United States.

Northern changed its name to InterNorth, Inc. in 1980. That same year, while attempting to grow through acquisitions, InterNorth became involved in a takeover battle with Cooper Industries Inc. to acquire Crouse-Hinds Company, an electricalproducts manufacturer. Cooper rescued Crouse-Hinds from InterNorths hostile bid and bought Crouse-Hinds in January 1981. The takeover fight brought a flurry of lawsuits between InterNorth and Cooper. The suits were dropped after the acquisition was finalized.

While InterNorth grew through acquisitions, it also expanded from within. In 1980 it set up Northern Overthrust Pipeline Company and Northern Trailblazer Pipeline Company to participate in the Trailblazer pipeline, which runs from southeastern Nebraska to western Wyoming. Also that year, it created two exploration and production companies, Nortex Gas & Oil Company and Consolidex Gas and Oil Limited. The latter company was a Canadian operation. In 1981 InterNorth set up Northern Engineering International Company to provide professional engineering services. In 1982 it formed Northern Intrastate Pipeline Company and Northern Coal Pipeline Company as well as InterNorth International Inc., now Enron International, to oversee non-U.S. operations.

InterNorth significantly expanded its oil and gas exploration and production activity in 1983 with the purchase of Belco Petroleum Corporation for about $770 million. Belco quadrupled InterNorths gas reserves and added greatly to its crude oil reserves. Exploration efforts focused on the United States, Canada, and Peru.

Other acquisitions of the early 1980s included the fuel trading companies P & O Falco Inc. and P & O Falco Ltd.; their operations joined with UPGrenamed UPC Falcoin 1984; and Chemplex Company, a polyethylene and adhesive manufacturer, also acquired in 1984. InterNorth had sold Northern Propane Gas in 1983.

InterNorth made an acquisition of enormous proportions in 1985, when it bid to purchase Houston Natural Gas Corporation for about $2.26 billion. The offer was received enthusiastically, and the merger created the largest gas pipeline system in the United Statesabout 37,000 miles at the time. Houston Natural Gas brought pipelines from the Southeast and Southwest to join with InterNorths substantial system in the Great Plains area. Valero Energy Corporation of San Antonio, Texas, sued to block the merger. InterNorth had entered into joint ventures with Valero early in 1985 to transport and sell gas to industrial users in Texas and Louisiana. Because these ventures competed with Houston Natural Gas, InterNorth withdrew from them when it agreed to the merger. Valero alleged that InterNorth had breached its fiduciary obligations, but the Valero lawsuit failed to stop the acquisition.

Although still officially named InterNorth, the merged company initially was known as HNG/InterNorth, with dual headquarters in Omaha, Nebraska, and Houston, Texas. In 1986 the companys name was changed to Enron Corp., and headquarters were consolidated in Houston.

After some shuffling in top management, Kenneth L. Lay, HNGs chairman, emerged as chairman of the combined company. HNG/InterNorth began divesting itself of businesses that did not fit in with its long-term goals. The $400 million in assets sold off in 1985 included the Peoples division, which sold for $250 million. Also in 1985, Perus government nationalized Enrons assets there, and Enron began negotiating for payment, taking a $218 million charge against earnings in the meantime. In 1986 Enrons chemical subsidiary was sold for $603 million. Also in 1986, Enron sold 50% of its interest in Citrus Corporation to Sonat Inc. for $360 million, but continued to operate Citruss pipeline system, Florida Gas Transmission Company. Citrus originally was part of Houston Natural Gas.

In 1987 Enron centralized its gas pipeline operations under Enron Gas Pipeline Operating Company. Also that year, Enron Oil & Gas Company, with responsibility for exploration and production, was formed out of previous InterNorth and HNG operations, including Nortex Oil & Gas, Belco Petroleum, HNG Oil Company, and Florida Petroleum Company. In 1989 Enron Corp. sold 16% of Enron Oil & Gass common stock to the public for about $200 million. That year Enron received $162 million from its insurers for the Peruvian operations, and it continued to negotiate with the government for additional compensation.

Enron made significant moves into electrical power, in both independent production and cogeneration facilities, in the late 1980s. Cogeneration plants produce electricity and thermal energy from one source. It added major cogeneration units in Texas and New Jersey in 1988; in 1989 it signed a 15-year contract to supply natural gas to a cogeneration plant on Long Island. Also in 1989, Enron reached an agreement with Coastal Corporation that allowed Enron to increase the natural gas production from its Big Piney field in Wyoming; under the accord, Coastal agreed to extend a pipeline to the field, since the line already going to it could not handle increased volume. The same year, Enron and El Paso Natural Gas company received regulatory approval for a joint venture, Mojave Pipeline Company. The pipeline transports natural gas for use in oil drilling. In 1990 Enron made significant progress on its plans for a gas-fired electrical power plant in Teesside, England, as well as one in Milford, Massachusetts.

In the early 1990s, Enron appeared to be reaping the benefits of the InterNorth-Houston Natural Gas merger. Its revenues, at $16.3 billion in 1985, fell to less than $10 billion in each of the next four years, but recovered to $13.1 billion in 1990. Low natural gas prices had been a major cause of the decline. Enron, however, had been able to increase its market share, from 14% in 1985 to 18% in 1990, with help from efficiencies that resulted from the integration of the two predecessor companies operations. Enron also showed significant growth in its liquid fuels business as well as in oil and gas exploration.

Principal Subsidiaries

Florida Gas Transmission Company (50%); Houston Pipe Line Company; Northern Border Pipeline Company (35%); Northern Natural Gas Company; Trans western Pipeline Company; Enron Finance Corp.; Enron Gas Marketing Inc.; Enron Power Corp.; Enron Europe Ltd.; Enron Oil & Gas Company (84%); Enron Exploration Company; Enron Oil Canada Ltd.; Enron Gas Processing Company; Enron Gas Liquids Inc.; Enron Liquids Pipeline Company; Enron Oil Trading & Transportation Company; Enron Americas, Inc.

Trudy Ring

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Enron Corporation

Enron Corporation, U.S. company that in 2001 became the largest bankruptcy and stock collapse in U.S. history up to that time. The company was formed in 1985 when InterNorth purchased Houston Natural Gas to create the country's longest natural-gas pipeline network. Renamed Enron in 1986, the company transformed itself in the 1990s from a gas-pipeline business into a natural-gas and electricity trading giant. By 2000 it was the seventh largest U.S. corporation.

Enron employed shoddy and deceptive accounting practices to hide its financial losses (and occasionally its gains). The techniques of structured finance—complex financial transactions designed to hedge the risks involved in business activities—were used to enrich some of Enron's corporate officers and hide the firm's financial losses. Independent partnerships to which Enron sold assets were created, enabling Enron to convert loans and assets burdened with debt obligations into income, but the contracts with the partnerships contained guarantees and risky buy-back conditions that had potentially disastrous consequences for Enron. Enron also booked projected long-term income from trading contracts when those contracts were signed, but the income projections were often overly optimistic and inflated. In 2001, when one partnership deal was properly accounted for by Enron's outside auditor, Arthur Andersen, large quarterly losses resulted. Those losses and subsequent profit and debt restatements caused Enron's stock price to drop, triggering the unraveling of the partnership and resulting in a sudden and dramatic financial collapse that led to bankruptcy in Dec., 2001. The pensions of some 20,000 Enron employees were devastated in varying degrees as well; 62% of the company pension plan was in now worthless Enron stock.

Enron was also accused of manipulating the electricity markets during the California energy crisis of 2000–2001. There is evidence that its subsidiaries engaged in sham trading among themselves to drive up the price of electricity, and Enron traders arranged power supply deals with California that gave the appearance of creating power congestion, generating fraudulent fees when Enron then appeared to take steps relieve the nonexistent congestion. The large profits made during the crisis were partially hidden by manipulating Enron's financial reserves.

More than 30 people were charged with various crimes arising from Enron's business practices. More than 20 people, including its chairman, president, and chief financial officer, were ultimately convicted of or pleaded guilty to fraud, conspiracy, and other crimes, although the chairman, Kenneth L. Lay, had his conviction extinguished when he died in 2006 before being sentenced. The collapse also destroyed Arthur Andersen, Enron's accounting firm, which found itself accused of obstructing justice when it destroyed documents relating to the case in late 2001 after the Securities and Exchange Commission had begun investigating Enron. Arthur Andersen, which had been one of the top five accounting firms, quickly lost clients and partners when it came under SEC investigation for its role in Enron's collapse, and its federal criminal conviction for obstruction of justice in 2001 sealed the firm's fate. (The conviction was overturned in 2005 by the U.S. Supreme Court because of faulty instructions given by the judge to the jury.)

A number of financial institutions, including Citigroup and J. P. Morgan, paid hundreds of millions in fines and penalties for the roles they played in financing and setting up the independent partnerships that contributed to Enron's collapse. The firms also paid more than $7 billion to be used to repay creditors and investors, but Enron's creditors were owed more than $70 billion when the company collapsed.

See study by B. McLeon and P. Elkind (2003).

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Enron Scandal

ENRON SCANDAL

ENRON SCANDAL. Enron is an energy company that quickly grew to become one of the world's largest corporations before its financial practices caused its bankruptcy. Formed in 1985 by the merger of two gas pipeline companies, Houston Natural Gas and InterNorth, the company diversified under its manager, Kenneth Lay, into an energy trading company offering various services, including a massive e-commerce. It bought the name of the Houston Astros' ballpark and was named most innovative company of the year for five consecutive years by Fortune magazine. It peaked in the year 2000, with revenues of $100 billion and a share price of $90, its rapid growth attracting many investors.

In 2001, however, Enron's success appeared to be phony. The company had assigned billions of dollars of debt and risk to subsidiary companies, which then kept them off their books. Share prices began to fall precipitously. Enron's accounting firm, Arthur Anderson, was caught destroying Enron-related documents. On 2 December 2001, Enron filed for bankruptcy, along with sixty subsidiary companies. In 2002, its shares were traded at 11 cents. The company's collapse destroyed thousands of investors' savings. In July 2002, Arthur Andersen, Enron's accounting firm, was convicted of destroying evidence, although an appeal was pending at the time of this writing. Enron's officials were then undergoing further congressional hearings and criminal investigations, and numerous agencies were investigating other corporations for similar accounting and finance methods.

BIBLIOGRAPHY

Fox, Loren. Enron: The Rise and Fall. New York: Wiley, 2002.

Barreveld, Dirk J. The ENRON Collapse. New York: Universe, 2002.

SteveSheppard

See alsoBusiness, Big ; Corporations ; Scandals .

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