Enron Pipelines Case Study

In the beginning of the 80’s, business between gas producers and pipelines were made through “take-or-pay” contracts, in which pipelines “agreed either to purchase a predetermined quantity at a given price or be liable to pay the equivalent amount in case of failure to honor that contract”; this price was basically fixed during the life of the contract but can be adjusted with inflation. Since the pipelines where tied to contracts, they used the same model with their clients and issued similar contracts that assured a long-term stability for their business.
Enron was founded in 1985 by Kenneth Lay through a merge between two natural gas pipeline companies: Houston Natural Gas and Omaha-based Internorth. The result of the merge put Enron as