FERC Seeks Tougher Accounting Rules
Federal regulators have proposed new accounting rules after an audit found that two Enron Corp. pipelines may have improperly funneled $1 billion to the energy trader in the weeks before it filed for bankruptcy.
The rules, which would apply to at least 400 utilities and energy pipelines, would help insulate customers from the costs of a bankruptcy by non-regulated companies that own the businesses, according to the Federal Energy Regulatory Commission proposal.
A commission audit found that parent companies owe their regulated subsidiaries $16 billion, an amount that has been “increasing significantly” since 1997, it said. Such arrangements “create severe financial risk to FERC-regulated entities and cause harm to ratepayers should the subsidiaries attempt to pass through costs that result from defaults by unregulated parent companies.”
The commission wants businesses it regulates to have debt of less than 70% of total capital, while their non-regulated owners would have to maintain investment-grade credit ratings, according to the proposal.
The proposal came as the commission disclosed partial findings of an audit begun in November amid allegations of accounting irregularities at Enron. The probe found that two Enron-owned pipelines obtained credit lines from Citigroup Inc. and J.P. Morgan Chase & Co., then loaned the funds to Enron in a failed bid to keep it solvent.
The pipelines, Transwestern and Northern Natural, don’t expect Enron to repay the loans and will have to justify any costs associated with the default before they can be passed along to customers, the commission said in a separate order. The pipelines also failed to adequately document the “imprudent” transfers, the order said.
Dynegy Inc. bought Northern from Enron for $2.45 billion in January. On Monday, it announced plans to sell the pipeline to MidAmerican Energy Holdings Co. for $1.88 billion.
Beginning in November, the commission’s chief accountant, John Delaware, reviewed transactions between unregulated parent companies and their regulated subsidiaries from 1997 through 2001. The audit found that balances in the regulated units’ receivables from the parent increased “significantly” during the period, the commission said, without giving a comparison.
