ENRON'S Kenneth D. Rice

 

A Sunday May 27, 2001 article in the Houston Chronicle entitled "Houston's Highest-Paid Executives" listed the top 100 paid executives in the Houston area. That article has been paraphrased below.
The following is based on total compensation in 2000.

Rank in Terms of Pay

Name

Company

Total Compensation

2

Kenneth D. Rice Enron Corp. $47,375,588
4 Mark A. Frevert Enron Corp. $37,341,139
5 Jeffrey K. Skilling Enron Corp. $36,381,688
6 Kenneth L. Lay Enron Corp $35,665,037
11 Charles L. Watson Dynegy $26,364,445
14 Stephen W. Bergstrom Dynegy $16,835,542
18 William A. Wise El Paso Corp. $13,974,828
37 Ralph Eads El Paso Corp. $6,348,012
47 Stanley C. Horton Enron Corp. $5,397,047
50 R. Steve Ledbetter Reliant Energy $5,165,355
63 H. Brent Austin El Paso Corp. $4,022,385
64 John W. Somerhalder II El Paso Corp. $4,019,769
72 Britton White, Jr. El Paso Corp. $3,721,781
97 Kenneth E. Randolph Dynegy $2,727,534
    TOTAL: $245,340,150

http://www.ucan.org/consumer_info/Elec%20Bill/CEOsals.htm

Kenneth D. Rice
Chairman and CEO, Enron Capital & Trade-North America

• Kenneth D. Rice, chief executive Enron Broadband Services: Sold 1.1 million shares for $72.7 million.


BOYLE AND RICE ARE HONORED AS ALUMNI AWARD WINNERS

OMAHA, Neb. -- Michael Philip Boyle and Kenneth D. Rice are Creighton alumni who have transformed their academic education into business and personal success.

For 15 years, Boyle has been on the move at Microsoft. In May 2000, he was named vice president after directing Microsoft's worldwide tax and internal audit functions for several years. His service to his profession includes chairing the Tax and Finance Committee of the American Electronics Association as well as serving on the board of the National Foreign Trade Council.

His service to his alma mater is just as impressive. This 1979 graduate from the College of Business Administration at Creighton and 1983 graduate from the Creighton School of Law is on the Advisory Board of the College of Business Administration as well as an active member of the Creighton Alumni Club in Seattle.

For all of his involvement and interest in Creighton, Boyle is the 2001 Alumni Merit Award winner from the College of Business Administration.

Rice, chairman and CEO of Enron Broadband Services, oversees the development of Enron's emerging communications business, which includes an 18,000-mile nationwide fiber optic network dedicated to high bandwidth.

This 1984 Master of Business Administration graduate from the College of Business Administration has given his energy and time to Creighton as well, after presiding as past president of the Creighton Alumni Club in Houston.

A reception and dinner was held for both honorees, on Monday, Sept. 10, 2001 in the Skutt Student Center on the Creighton University campus.
http://cobweb.creighton.edu/new/

http://cobweb.creighton.edu/about/prominentalums.htm

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Press Release

ENRON REFUTES CLAIMS THAT IT INTENDS TO MARKET BPA POWER
FOR IMMEDIATE RELEASE: Thursday, November 6, 1997

HOUSTON - Enron Capital & Trade Resources (ECT), a subsidiary of Enron Corp., reiterated and clarified a media report that the company has no current plans to market power in the Northwest for Bonneville Power Authority (BPA).

"We are not currently studying, nor have any intention of proposing a plan whereby Enron would market BPA's power," said Kenneth D. Rice, chairman and CEO, ECT North America. "If approached by BPA's administration or by a Northwest delegation, we would, of course, be pleased to look at solutions for what we consider a very valuable regional asset in the Northwest."

Rice added that, until approached, ECT would not pursue any marketing role with the utility. "BPA is a valued Enron customer, so we would approach any marketing relationship with them only after working with their management to create such an arrangement, as we do with all our customers," Rice said. "We regret any confusion created by the report."

Rice's comments come after The Oregonian reported that Enron was considering marketing BPA's power

http://www.enron.com/corp/pressroom/releases/1997/150bpa.html

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Broadband Strategy Got Enron In Trouble
By Peter Behr, Washington Post
WASHINGTON, D.C., U.S.A.,
02 Jan 2002, 5:48 AM CST
Enron Corp. was already a formidable company in January 2000, after a decade-long transformation from a stodgy gas-pipeline company into the nation's largest energy trader.
Then it spoke the B-word — broadband. Chairman Kenneth L. Lay and chief executive Jeffrey K. Skilling told stock market analysts that month that Enron was about to create a market for trading space on the high-speed fiber-optic networks that form the backbone for Internet traffic.

Asking few questions, investors sped to buy the stock, as they did with most things Internet-related at the time. Enron shares shot up from $40 in January more than $70 in less than two months and went as high as $90 that summer.

The stock price gains helped created a windfall for Enron executives and directors, who sold $924 million of company stock in 2000 and 2001. Kenneth D. Rice, who ran Enron Broadband Services, sold more than 1 million Enron shares for a total of $70 million in 2000 and the first half of 2001, according to regulatory and court filings. He left the company in August.

Enron's broadband foray collapsed this year. A business that Skilling had said would eventually add $40 billion to Enron's stock value produced just $16 million in revenue in this year's second quarter, before it was closed down.

Enron's recent financial disclosures show that its claims of success in broadband last year included large gains from trades with private partnerships it had set up itself. And using aggressive accounting practices, it assigned exaggerated values to the broadband contracts it traded with others in the industry, greatly inflating its actual revenue and profit, Enron insiders and analysts now say.

"From a common-sense standpoint, we knew it was smoke and mirrors," said Rudy Sutherland Jr., a former Enron broadband trader.

"The [profit] margins were whatever they decided," said a former Enron vice president familiar with the broadband trading, who spoke on the condition of anonymity. In many instances "they were trading with themselves," he said.

As prices for fiber-optic circuits plummeted last year, Enron tried and failed to lure telecommunications giants that used broadband — such as MCI WorldCom Inc. and Verizon Communications Inc. — to trade with it and create a true market.

Carol Coale, an analyst at Prudential Securities who heard Enron's repeated claims that its trading operations were growing rapidly, said: "These guys were great spin doctors. They had the answers. The answers were lies."

Enron declined to answer questions for this report. Joseph Hirko, founder of Enron's broadband operation, said he would not discuss his role on the advice of his attorney.

Broadband trading was never a major contributor to Enron revenue — in 2001 it accounted for only $408 million of Enron's total $100 billion in reported revenue.

But as government investigators and shareholder lawyers attempt to piece together the once-secretive financial operations at the now-bankrupt company, some former employees and analysts say Enron's broadband failure demonstrates how difficult the task is.

The bankruptcy of what was the nation's seventh-largest business was triggered by disclosures that it had kept billions of dollars in debt off its balance sheet in private partnerships, some controlled by a top executive. In explaining those partnerships in a Securities and Exchange Commission filing last month, Enron provided some details of a large broadband trade with one of those partnerships.

In June 2000 Enron sold some excess fiber-optic connections to a private partnership called LJM2, run by its then-chief financial officer, Andrew S. Fastow. LJM2 is a central focus of the Enron investigations.

The cable lines were called "dark fiber" because they were not yet connected to the lasers and switching equipment that transmit and route Internet traffic. As such, they were valued at a fraction of operating network circuits.

Enron valued the sale at $100 million, one-quarter of the $408 million in revenue Enron said it made from broadband sales last year. At the time of the sale, Enron received $30 million in cash and a $70 million note from LJM2. On that one deal, Enron also recorded a profit of $67 million, at a time when dark-fiber prices were plunging. It also received a $20 million fee from LJM2 for marketing and managing the dark-fiber assets, according to an SEC filing.

LJM2 sold part of its fiber to others in the industry, and the majority to another private partnership created by Enron, in December. While the deal enabled LJM2 to repay the $70 million it owed Enron from the first dark-fiber deal, Enron acted as banker to the new partnership, underwriting the purchase. As result, Enron was still owed $61 million of the original $70 million, it disclosed.

Since there was very little real trading of broadband contracts, industry experts question how realistic those prices were.

"It would be very hard to price those deals," said Peter Fusaro, president of Global Change Inc., a New York consulting firm that has analyzed Enron for its clients. Broadband pricing "was a shot in the dark," he said. "Like throwing a dart against the wall."

Enron's strategy for broadband trading had two linked paths. Enron spent more than $1 billion on broadband, buying or leasing 18,000 miles of cable in the United States and abroad and creating a score of hubs, or connection points, where its Internet lines tied in with other major networks.

At the same time, Enron traders set out to buy and sell space on those broadband networks, in deals involving both Enron and its competitors. For example, Enron would bid to lease a competitor's circuit from Los Angeles to New York for one month, then try to sell that space to another Internet provider.

Enron's lofty revenue and profit projections required it to quickly draw major telecommunications and Internet companies into this market. But it had to settle for trading with a handful of other energy companies.

"The trading environment was pretty much a joke," said Thomas Blakeslee, a former trading executive at Global Crossing Ltd., a major fiber-optic network operator. He called Enron and a handful of other energy companies that traded broadband "the Houston poker game."

"The energy companies were trading up a storm, hoping to lure the telcos into the space," said Jerry Samuels, senior vice president of RateXchange Corp., an Internet broadband trading site that competed with Enron.

In fact, Enron's dream of a fast-growing market in fiber-optic circuits never materialized, industry officials agree.

Andre Meade, a market analyst with Commerzbank Securities in New York, said "this enormous amount of value given to Enron's broadband business was hard to justify" last year. "My guess is, Enron's insiders knew it was hard to justify, too."

Enron's broadband strategy was the right idea, although it came several years too early, said Michael Moore, president of bandwidth investment partnerships at Houston-based Amerex, an Enron competitor. If Enron's top executives had been more patient in developing the market, the plan could well have succeeded, he added.

But Enron was not about patience, Fusaro said. In the company's hard-driving corporate culture, compensation and bonuses were inextricably tied to constant gains in revenue and stock market value, particularly for top executives, Fusaro said. "It was a get-rich scheme for every one of them," Moore said.

Beginning last year, Enron — and the rest of the industry — faced a vast oversupply of broadband capacity. The Internet industry had installed nearly 40 million miles of fiber-optic cables across the country, tearing up city streets to bury the lines or stringing them alongside railroad and pipeline rights of way. Only about 5 percent of those cables could be used to transmit the light waves that carry Internet signals, however. The rest were dark fibers, whose value was a fraction of "lit" fibers that can transmit Internet traffic.

As broadband prices continued to fall this year, Enron insisted it was immune to the problems. In fact, officials there said, the company would profit from the glut by buying surplus space cheaply and reselling it at a profit.

Aggressive accounting helped keep Enron's numbers looking good. It permitted Enron to add up a stream of revenue from a multiyear contract and, with some adjustments, to count that revenue as current.

A former Enron's broadband trader, who did not want his name used, said: "We recognized the income immediately. The payables were pushed out over time. Honestly, you didn't think about it. It didn't dawn on anyone immediately that this was an issue."

The former Enron vice president said it also was routine for Enron to sell or swap a section of dark fiber to an Internet network provider under a contract for up to 20 years, guaranteeing the purchaser a lease on the line.

Enron accounting models would determine a future date when the fiber would be upgraded from "dark" to "lit," thus multiplying the revenue that the circuits would generate after they became operational. That increase in expected value would be added to Enron's current income, although no one could know when or if the circuits would ever become operational, the vice president said.

The company's accounting practices gave it great leeway in reporting the success of the operations, experts say. "You just don't know what the value of these contracts will be three, four or five years out," said Columbia University law professor John Coffee Jr.

Douglas R. Carmichael, a professor of accountancy at the City University of New York's Baruch College, said the type of "mark-to-market" accounting used by Enron — recognizing the whole value of a multi-year contract at its beginning and then recording any gains or losses in value over time as the market dictated — is appropriate only when there is a ready market for such a contract, as there is for oil. If there's not an active and ready market, Carmichael added, assigning values and recognizing revenue upfront "gets arbitrary."

The first solid evidence that Enron's broadband strategy was faltering did not come until March 12 of this year. Then, Blockbuster Inc. and Enron killed a heavily promoted, 20-year partnership that was intended to feed movies-on-demand over Internet connections owned or leased by Enron — another bid by Enron to breathe more life into the broadband network.

Enron's stock, which had been as high as $80 a share in mid-February, dropped below $60 a share the week after the Blockbuster announcement.
The bad news for broadband kept coming, and by July, when Enron reported second-quarter revenue of just $16 million from the business, the venture was dead.

http://www.newsbytes.com/news/02/173311.html