So, what did Enron do, anyway? - Part 1

There's a shortage of people out there who even know what fraudulent activities were committed by the management of Enron, let alone understand how it was done. I've also noticed that a great many people don't even know what Enron's line of business was.

So, that's a good place to start.

The short version is that Enron did a lot of different things.

The longer version is that Enron's activities were primarily divided into two sectors:

1. Ownership and management of utilities
2. Ownership and operation of commodities futures and other derivatives trading services

Enron's utilities business included a few dozen power plants (including several wind farms), eleven major natural gas pipelines, liquid propane storage and distribution facilities, wholesale and retail distribution of electricity and natural gas, and some oil and natural gas exploration services.

Their more high profile business in the years leading up to the company's bankruptcy was commodities trading. The company operated several commodities exchanges that were used by customers to buy and sell commodity futures and derivatives. In short, a commodity future is a contract to buy or to sell a certain quantity of a good as of a set future date, at a specific price. If you've seen the movie Trading Places, then you might have some idea of what this is all about. If you haven't, go out and buy the DVD, it's cheap and features a healthy amount of nudity, in addition to being damn funny. The contracts are bought and sold by traders who attempt to determine via the available information what the future price of that good will be. As you get closer to the date of delivery, the amount of information about the total supply and demand of a given commodity (for instance, Frozen Concentrated Orange Juice) increases and traders are better able to set the "correct" price. By guessing what that price will be in advance, you can make money selling contracts for more than they will be worth as of the delivery date, or by buying them for less than they will be worth. Derivatives are the generalized form of a tradeable contract. Futures are a type of derivative (and a subtype of a "forward"). The major types or derivatives are forwards, options, and swaps. Forwards are mandatory contracts to buy or sell. Options are contracts which give one party the option to buy or sell at a future date. Swaps are agreements to exchange the cash generated from one activity for the cash generated from another activity.

The company established a large number of exchanges on which new types of commodities were being traded, for example, electricity, broadband network capacity, etc. They also used an online system that permitted extremely fast trading of futures that might not be delivered in days, but in just hours.

These were not the only businesses that Enron was engaged in. It also provided broadband network services, financial consulting, project management services, and was involved in various sorts of manufacturing.