A former Enron Corp. employee, laid off in August 2001 shortly after former CEO Jeffrey Skilling resigned, claimed in an internal memo sent three weeks after she left the company that Enron Energy Services (EES) moved “huge” losses into its money-making Enron Wholesale Services unit to appear more substantial. The allegations, reported Thursday by the Houston Chronicle, were made last Aug. 28 in a memo to former Chairman Kenneth Lay and the board of directors.

The five-page memo by former EES employee Margaret Ceconi, 41, who now works for a Houston consultant, follows allegations in another internal memo by Enron’s former director of corporate development, Sherron Smith Watkins (see Daily GPI, Jan. 18). Ceconi’s memo, apparently not as detailed, focuses only on EES. Just last year, the EES division signed billion-dollar energy management services contracts with Harrah’s Entertainment, J.C. Penney, Saks Inc., Eli Lilly, The Quaker Oats Co. and Owens-Illinois. She claims, however, that EES lost at least $500 million that was moved to the profitable Wholesale Services unit in earnings statements.

In a review by NGI of Enron’s 2001 third quarter earnings statement, the Retail Services unit (where EES earnings are reported) had revenues of $501 million for the quarter, compared to $535 million for the third quarter of 2000. For the first nine months of 2001, Retail Services showed $1.7 billion in revenue, compared to $1.2 billion for the first nine months of 2000. Overall, the unit showed a loss of income before interest and taxes (IBIT) of $71 million for the third quarter of 2001, compared to a loss of $27 million for the third quarter of 2000. For the first nine months, IBIT losses totaled $171 million in 2001 and $79 million in 2000.

Retail Services did not report a profit until late in 2000 after signing its first major contract in 1997. Ceconi claims that many of the contracts had to be renegotiated to Enron’s disadvantage because some of the assumptions made by the company when the deals were structured did not work out, causing losses from the first day of some contracts.

“EES has knowingly misrepresented EES’ earnings,” Ceconi said in her e-mail. “This is common knowledge among all the EES employees, and is actually joked about. But it should be taken seriously.” Ceconi, who holds an accounting degree, said she had asked the Securities and Exchange Commission about the practice of moving income and losses to other units after being laid off. The SEC would not comment on whether it had received a complaint or not.

Enron spokesman Mark Palmer called Ceconi a “disgruntled employee,” but noted that the EES allegations were “serious.” He told the Chronicle, “They are the kind of allegations that should be made to government officials if she believes that.”

In its bankruptcy filing, Enron listed EES as having $2.5 billion in assets, mostly in contracts with companies and organizations. It also listed EES as having $2.1 billion in debt, with its two largest unsecured creditors being Enron subsidiaries, Risk Management & Trading Corp. and Enron North America. Risk Management is owed more than $126 million while Enron North America, which houses Wholesale Services, is owned $107 million.

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