Jeff Skilling, who subsequently became Enron’s CEO in August 2001, envisioned
Enron’s trading model during a 1988 McKinsey engagement at Enron.
While deregulation generally led to lower prices and increased supply, it also
introduced increased volatility in gas prices. Further, the standard contract in this
market allowed suppliers to interrupt gas supply without legal penalties. By creating
a natural gas “bank,” Skilling foresaw that Enron could help both buyers and
suppliers manage these risks effectively. The “gas bank” would act just as a nancial
banking institution, except that it would intermediate between suppliers and buyers
of natural gas. Enron began offering utilities long-term xed price contracts for
natural gas, typically at prices that assumed long-term declines in spot prices.