Culture of trial, despite error

Lou L. Pai's last assignment at Enron had all the hallmarks of a career maker.

As the chairman and chief executive of Enron Energy Services, Pai led the company's charge to become the nation's premier marketer of electricity to residential customers as states like California deregulated their utility industries.

Oops. After an intensive, two-year campaign that sent Enron's stock on a roller-coaster ride, the company has declared retail electric sales a dead end for now. A career breaker? Not at Enron, said Pai, 51. Top executives concluded that the company had just been premature. "You're going to make mistakes," Pai said. "You can't sit there and punish people for trying." It doesn't hurt that the company's senior officers have known failure. Jeffrey K. Skilling, Enron's president, recalled that he and Pai were part of group in 1990 that developed a financial instrument called a Gas Trust, intended to let investors speculate on natural gas prices. Enron promoted the trust around the country, but quickly abandoned it when investors showed little interest. Now, instead of being reined in by his superiors, Pai has been encouraged to push ahead and take even more risks. His unit is spending heavily to persuade large industrial and commercial customers to sign up for long-term contracts under which Enron will supply them with low-cost electricity and natural gas, along with an array of services to cut their energy costs. The start-up costs are expected to reach $300 million by the end of the year, and Pai hopes that the new business will begin to generate operating profits by fall. That makes the gamble much bigger than Enron's retailing efforts, which began in April 1996, when the company sent 30 salespeople to set up an office in Peterborough, N.H., a village of 5,300. New Hampshire had a pilot program to introduce competition into electricity sales, and as part of it, Enron beat back a score of rivals to be selected as Peterborough's new energy supplier. The company then spent $30 million on television commercials -- some featuring happy customers in Peterborough -- intended to make itself a household name. By the fall of 1997, Pai and his group had carried the banner to California, which as the first state to fully deregulate would be a much bigger market to tap. Enron sent out hundreds of thousands of fliers offering customers two weeks of free electricity, and it blanketed the state with advertising. But the response was tepid: The company ended up with about 50,000 customers, or 1 percent of a potential pool of five million accounts. After spending $15 million in a few months, Enron pulled out of California -- and left Peterborough, too, as New Hampshire's deregulation efforts flagged. "It's a marketing game," explained Pai, who studied economics at the University of Maryland and worked at Conoco as a trader before joining Enron in 1987. "We're not a marketing company. That's not our expertise." His current thrust -- going after larger customers to supply electricity and natural gas in big quantities -- is more familiar ground for Enron. But there are challenges: knitting together disparate services to provide energy audits, billing and centralized heating and cooling controls for hotel chains or sports stadiums or a company's factories. There is also ample competition -- and the certainty that for all the leeway Enron affords, the market's discipline will be swift and severe if Pai and his group have miscalculated on the long-term supply agreements. "If we don't execute," he said, "we're toast."

Copyright 1999
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