As the Enron trial of Ken Lay and Jeff Skilling continues in Houston, we're dusting off our January 2001 interview from The Motley Fool Radio Show . This is the second of a two-part interview. (Check out part 1, as well as our Ken Lay interview published earlier in the week.)

Skilling, who was Enron's president and chief operating officer at the time, talked to David Gardner about the company's video-on-demand project and which numbers investors should watch to monitor the company's progress. Today, Skilling faces 31 counts of conspiracy, fraud, insider trading, and lying to the company's auditors.

David Gardner: Let me ask you, Jeff: In the last few years, Enron has expanded well beyond the energy business, obviously, as we have discussed. You now trade over a thousand commodities, I read. Now, as a company with so many different businesses, I am wondering, do you run the risk of losing focus in being a jack of all trades, but master of none, as they say?

Jeff Skilling: Well, I don't think so, David, and the reason is, of the 1,200 [businesses] that are on Enron Online, probably a thousand of those are natural gas or electricity in various forms, various subsets. The vast majority of our business today is in natural gas and electricity.

The next really big business for us is our bandwidth business. We are trying to create the same sort of market for bandwidth that we created for natural gas and electricity. I think that is an enormous market. We are also developing some other markets. For example, pulp and paper, we think, is pretty inefficient. There are things that we can do there. Some of the metals businesses [as well]. But in every single one of those areas, there is a strong common theme. The common theme is creating these markets. It is the same people. It is the same technology. It is the same computer systems. It is the same online transaction system, just applied to a broader range of commodities, so we think it is a very clear, focused business model. But we think it can be applied in a range of other commodities as time goes on.

David Gardner: Well, then let me ask, then: Is there anything that Enron wouldn't trade?

Jeff Skilling: Well, we feel that we are probably competitively advantaged in markets that are not particularly efficient [and] need that efficiency, and they are markets that tend to have very complex logistic systems attached to them, like a gas pipeline network or an electric transmission network or a fiber optic network. If it has complex logistics, we can provide enormous value to our customers.

David Gardner: OK, so probably Pokemon cards, you are not really going to be offering that marketplace any time soon?

Jeff Skilling: Yeah, I think we are going to steer clear of knickknacks. (Laughs.)

David Gardner: (Laughs.) OK.

Jeff Skilling: eBay (NASDAQ:EBAY) doesn't have to worry. (Laughs.)

David Gardner: I hear you. Now, in another departure from the world of energy trading, Jeff, Enron will be teaming up with Blockbuster Video (NYSE:BBI) this year to offer online video on demand. Talk a little bit about that venture and why Enron chose to get involved.

Jeff Skilling: OK. I mentioned that we are in process of creating markets for bandwidth. Video is a bandwidth hog application. It chews up enormous amounts of bandwidth. And so . we started to create this market for bandwidth; we have bandwidth available on demand for our customers. This is a perfect fit with the needs of someone like Blockbuster that is trying to create a video-on-demand product.

So for example, you are sitting at home, Friday evening, you decide you would like to watch a movie. You don't want to drive out to the Blockbuster store and pick up a video tape. You are tired; you just want to sit in front of the television. So you turn on the television, go to the screen, which will be a Blockbuster screen where we are providing the bandwidth to get it to your house. You choose the movie that you want to see. When you choose that movie, we will automatically provision the necessary bandwidth to get that movie to your house, [in] real time. So we will create the bandwidth to make that happen. You will watch the movie. When you are done watching the movie, that bandwidth will go away, so you are just paying for what you use, and we are making sure that bandwidth is available in the quantity you need to get a great picture.

David Gardner: When am I going to be able to do that?

Jeff Skilling: Well, we have got it right now; we are rolling it out in four cities in a test phase. That is, Portland, Ore.; Salt Lake City; New York City; and Seattle. In those four cities, we are now starting to sign up customers for this test, and we are actually delivering movies right now. So this will roll out over time, over the next several years, all across the country. And people will, for the first time, be able to watch a Blockbuster movie and not have to take it back the next day.

David Gardner: I gotta ask you, Jeff, what about Houston? You left Houston off the list? One of the most populous cities? You are right there in Houston.

Jeff Skilling: Well, see, my son was saying .

David Gardner: Where is the local love?

Jeff Skilling: My son was saying, "Dad," he says, "When this thing happens, this is fantastic." I said, "Well, why?" He said, "Well, you know, when I'm in school and study," or in, what do you call it, study hall? I'm getting old.

David Gardner: I hope they're still calling it that.

Jeff Skilling: I am getting old. But he said, "You know, I could just call up a movie on my screen." I said, "Well, son, I think what we are going to do is, we are going to have Houston as the last city where we roll this out."

David Gardner: What is the biggest opportunity for Enron headed forward?

Jeff Skilling: Well, I think the wholesale electricity and power markets are undergoing enormous change all around the world. That has been the locomotive of our growth in sales and earnings over the last decade. I think for the next five to 10 years, that may continue to be the case.

Now, we have got two other big businesses that are important. The first one is a retail energy market, which we really haven't discussed, but in addition to deregulation at the wholesale level, we are seeing more deregulation at the retail level. So we are now moving from wholesale -- not only serving wholesale customers, but moving all the way out to the end to serve retail customers, typically large commercial and light industrial customers. That market is brand new. It is enormous, and right now, given all the volatility in the energy markets, we can provide enormous value to our customers in that marketplace. So that is the second big one.

Then the third big one, in terms of growth, is this whole bandwidth business.

David Gardner: OK. What is the biggest challenge for Enron, headed forward?

Jeff Skilling: I think just keeping the momentum. We have a lot of tremendously talented people here, which really makes the difference in our business. We have to keep them motivated and enthusiastic and moving forward.

David Gardner: OK. Now as a an investor, speaking always as an investor, I am wondering, what are one or two numbers that people like me can keep an eye on to get a good sense of whether Enron is on track in the future?

Jeff Skilling: Well, I think the number right now that I think has the most potential for upside for Enron is in our wholesale business, and I would be watching the volumes very carefully, David. The earnings in that business track almost exactly with our volume growth, and, as I mentioned, in that business over the last year, our volumes are about 60%. Our earnings for the year in that segment will be around a 60% increase. That is the number you want to watch over the next couple of years. I think you are going to see very, very high growth rates there, and that will translate into significant increases in earnings.

David Gardner: Is there another number I can watch?

Jeff Skilling: The other one would be in our retail business -- to look at the dollar value of contracts that we are signing to provide energy services to large commercial and light industrial customers. In 1999, we did about $8 billion of contracts. In the year 2000, we did $16 billion of contracts. As we move into 2001, I think you are going to see that that trajectory is continuing, and that is an important number to look at. If that trajectory continues, this business will be enormous.

David Gardner: Jeff, to close, we enjoyed having Enron's CEO Ken Lay on The Motley Fool Radio Show last year, when we were in Houston. We couldn't help but notice that Ken is being mentioned for a cabinet position in the new Bush administration. Now, obviously, we are coming off the controversy with Linda Chavez, who had to withdraw because of some skeletons in her closet, so with that in mind, do you think Ken Lay's involvement with The Motley Fool Radio Show may have cost him that cabinet position?

Jeff Skilling: Gee, David, I don't think so. I think it was probably your fault, but . (laughs). No, I am just kidding. Ken has always said that he was not interested in going to Washington in a cabinet position. We have got so much going on here with Enron that there is an enormous, fun challenge here. I think that will keep him going for a long time.

David Gardner: Understood. Jeff Skilling, president and COO of Enron. Thank you very much for appearing on The Motley Fool Radio Show.

Jeff Skilling: Thanks, David.

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