Sun, Dec 29, 2002 - Page 11 News List

Enron's hard assets may have been undervalued

DOUBLE TROUBLE The investigation into whether Enron was carrying assets on its books at inflated values developed as a result of actions taken by the firm's new managers

NY TIMES NEWS SERVICE , NEW YORK

The pipeline is worth about US$800 million, according to former executives, but was carried on Enron's books at a value of more than US$4 billion -- a sum unchanged since Enron was created through the purchase of Houston Natural Gas by InterNorth, another energy company.

In that acquisition, InterNorth paid several billion dollars more than the total book value of Houston Natural Gas and chose to write up the value of the gas company's assets, a so-called fair value adjustment under accounting rules.

At the time, the former executives said, Enron's accountants argued that Houston Pipeline would be extremely valuable in the future, when it could be used as a hub in a nationwide pipeline system.

But, as the years passed, Enron sold parts of Houston Pipeline. Since no acquirer was willing to pay the value that had been assigned to the system, accounting rules normally would have required Enron to record a loss on those sales. To avoid that outcome, Enron shifted billions of the fair value adjustment from the pipeline itself onto a storage area associated with it.

Though the assumptions that had allowed Enron to inflate the pipeline system's value were ultimately undermined, the company never restated the value of the assets, people who have examined the company's financial records said.

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