In a saga that could be renamed “The Incredible Shrinking Company,” Enron Corp. told the Securities and Exchange Commission (SEC) in a filing last week that up to 38% of the total assets it listed when it filed for bankruptcy — $24 billion in assets and derivative values — should be erased because of “possible accounting errors or irregularities” that overstated the company’s value. The company also warned of a possible $8-10 billion reduction to unwind some of its derivatives contracts.

The filing cited several “accounting errors or irregularities” that “were not, to the best of the current management’s knowledge, presented to the Board’s Audit and Compliance Committee.” A company’s CFO or chief accounting officer traditionally presents these reports. Andrew Fastow was Enron’s CFO until he was fired in October 2001.

Enron claimed $61.5 billion in assets and $49 billion in liabilities when it filed for bankruptcy in December 2001. Since then, it has already stated that its liabilities may be closer to $100 billion. As for the asset write-downs detailed in the newest SEC filing, Enron said many would have occurred as a result of the Chapter 11 filing, since many will not be part of the reorganized company.

Many of Enron’s assets and projects fell in value following the Chapter 11 filing since potential buyers had no incentive to meet Enron’s selling price. Enron’s worth was apparent when Swiss banker UBS AG made a deal to take over the energy trading floor for no up-front capital, only a percentage of future profits. Also, Enron’s 18,000-mile broadband data network, once valued at more than $1 billion last year, was put on the market for around $500 million in February. It has had one legitimate offer for $50 million and, so far, remains unsold.

Enron’s long-term energy contracts also dropped in value at the end of December 2001, not only because of the bankruptcy, but from the general economic climate at the time. Since then, however, long-term energy contract values have rebounded — but Enron’s have not.

Enron said in the SEC filing it would not conduct a review of accounting adjustments and has not prepared a balance sheet for fiscal 2001, explaining that its resources were too limited to make a review feasible. Also not surprisingly, Enron said in the filing that its most recent quarterly filing on Nov. 19, 2001, “must not be relied upon.” Enron’s former auditor Arthur Andersen has so far not been replaced, and told the SEC that the last quarterly filing has remained unaudited because of litigation.

Enron did receive conditional approval to transfer its energy trading assets to Swiss-based UBS AG last week from the Federal Energy Regulatory Commission provided UBS turns over to the Commission “all of Enron’s contracts for electric energy sales in which it defaulted, or were cancelled or terminated early.” The order also allows access by FERC to any former Enron employees hired by UBS [EC02-51-000].

UBS and Enron completed a 10-year transaction in January, which basically transfers Enron’s trading arm to UBS Warburg. It received approval for the deal to proceed from the U.S. Bankruptcy Court of the Southern District of New York also in January. Following approval by the court, Enron and UBS requested expedited approval from the Federal Energy Regulatory Commission.

In March, FERC agreed to allow UBS to sell energy, capacity and ancillary services at market-based rates, but conditioned that approval on UBS providing all information that Commission staff might request as part of its larger price probe (see NGI, March 11).

FERC had already initiated a fact-finding investigation into whether Enron or its subsidiaries manipulated short-term prices in electric or natural gas markets in the West last year. On Feb. 15, FERC submitted a data request to Enron requesting, among other things, all contracts for sales of electric energy which had been cancelled early or in which Enron defaulted as part of that agency’s investigation of wholesale sales of natural gas or power in the Western Systems Coordinating Council in 2000 and 2001. According to FERC, Enron has so far failed to produce any substantial information.

The State of California also is awaiting Enron data for the same period. In late March, a San Francisco Superior Court judge ordered Enron to comply with subpoenas issued by the state attorney general’s office for documents necessary for its investigation of high prices. The California court gave Enron three weeks to produce the documents. The FERC order did not include California’s request in its order Monday.

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