King Kinder

Rich Kinder has made a cool billion dollars since leaving Enron. Now he’s ready to take over the world, or at least the nearest pipeline.

By that time, Ken Lay had already been at Florida Gas for several years. But in 1980, Lay left to work for another pipeline company, Transco. Four years later, when Lay took the top job at Houston Natural Gas, one of his first acquisitions was Florida Gas, a move that brought Kinder, Morgan and Lay back together.

After the 1985 merger between HNG and Internorth, which created Enron, Kinder began a steady rise within the new pipeline giant. He quickly became general counsel and chief of staff. In late 1988, he was named vice chairman of the board of directors. Enron's news release announcing the promotion said Kinder's duties included almost everything but making coffee and refilling the copy machine. Kinder was handling "finance and accounting, law, administration, human resources, management information systems, corporate development and corporate affairs," the release said, adding that he "will retain these responsibilities in his new post."

In 1990, Kinder ascended to president and chief operating officer. While almost universally admired at Enron as a shrewd, tough manager, he had his share of bad deals.

Kinder's new companies deal in solid assets: tanks, wharves and pipelines.
Robert Bryce
Kinder's new companies deal in solid assets: tanks, wharves and pipelines.
Kinder has put aside his penny-pinching ways for a new River Oaks mansion.
Robert Bryce
Kinder has put aside his penny-pinching ways for a new River Oaks mansion.

The executive was involved in the J-Block gas purchase, which committed Enron to buy North Sea gas for a long term at a high price. Shortly after the agreement, gas prices fell below the price Enron had committed to pay. In 1997, Enron agreed to shell out $440 million to a group of oil companies to settle litigation over the contracts.

Kinder also had a hand in the decision to set up Enron Global Power & Pipelines (EPP), an independent company designed by Enron to move underperforming foreign assets off its books. One former executive has called EPP a "dumping ground" for Enron's bad projects. In 1997, however, Enron bought back all of the EPP shares and replaced them with about $400 million worth of Enron common stock. Although the actual cash costs to Enron of the EPP mess are difficult to discern, the deals caused consternation among Enron's financial personnel, who believed the company was cutting corners.

Even worse was the Dabhol project, negotiated during Kinder's tenure. Engineered by Enron's glamorous deal maker Rebecca Mark (see "Diva of the Deal," October 10), Enron sank about $900 million into the power plant south of Bombay, but it closed in May 2001 after the Indian government quit paying for the hyperexpensive electricity it generated.

While Kinder shares the blame for those deals, many who worked at Enron believe the energy giant never would have failed if he had stayed on. "Kinder made everybody accountable for every penny," says one senior finance person. "When Skilling came in, there were no budgets."

That transition from Kinder to Skilling marked the beginning of the end for Enron. Skilling lacked Kinder's discipline and focus. He also never understood the importance of cash and cash flow. But in retrospect, Kinder's departure from Enron in late 1996 allowed him to really prove his worth.

Ed Randall III, 76, a high-profile Houston investment banker and investor who is now on Kinder Morgan Inc.'s board of directors, calls Kinder "one of the smartest, most capable executives" he's ever known. "In fact," he says, "he may be the smartest."

There are two conflicting stories about why Rich Kinder left Enron. The first one is rather simple: In 1992, Kinder and Lay agreed that Kinder would ascend to the CEO job in five years. Under the plan, Lay would remain chairman but Kinder would be in control of all real decision-making. But by late 1996, Lay and Enron's board of directors reneged and agreed that Lay would remain CEO for another five years.

When informed of the decision, Kinder tendered his resignation. He told another Enron executive that he had no choice, adding, "If you aren't the lead dog, the scenery never changes."

The second version is more entertaining, with a background tied to Lay's tenure at Florida Gas. In about 1980, Lay divorced his wife Judie and moved to Houston to take his new job -- and a new wife, Linda Phillips, who had been his secretary in Florida. She helped him hire a new executive assistant, a petite, smart, ambitious woman named Nancy McNeil.

According to several executives who worked with Lay and Kinder, sometime in 1996 Lay discovered that Kinder, who was married at the time, was having an affair with McNeil. Lay considered it a problem, so McNeil was moved off the 50th floor to get her away from Kinder and Lay's executive offices. One source says they made up excuses about the move, "but everybody knew it was because she was sleeping with Rich." Kinder's wife, Anne, sued him for divorce in 1996. He and McNeil married a short time later.

Kinder left the company and began remaking his life with his new wife, and he also went back to the Big Iron assets that had made Enron successful. He returned to what he once called an "unsexy, dirty business."

At the same time that investors were swooning over Web sites, page views and all the other cyberjargon that came with them, Kinder and partner Bill Morgan focused on businesses that produced cash. Their first acquisition was a small natural gas liquids pipeline bought from Enron for $40 million in 1997. (Sources at Enron say that the pipeline was not part of Kinder's retirement package.) They spent the next several years buying the big tanks, big pipes and big wharves needed to transport the most critical commodities in the U.S. economy: gasoline, natural gas and jet fuel.

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