Enron Corp. - University of California | Office of The President

costs. For example, Enron picked the lowest possible consumer-price-index figure from all available
world markets and the highest possible revenue-stream escalator figures, which in contrast would
boost a project's profit by many millions of dollars. Moreover, EES had entered into many contracts
on which it would lose hundreds of millions of dollars. To induce customers to enter into these
agreements – so that Enron could claim its EES business was growing and succeeding – Enron had,
in effect, "purchased" their participation by promising them unrealistic savings and charging low
prices Enron knew would likely result in a loss.
(f) The value of contracts entered into by EES was grossly overstated by the
misuse and abuse of mark-to-market accounting to create huge current-period values on what were,
in fact, highly speculative long-term contracts on which Enron was almost certain to lose money.
This resulted in EES improperly and prematurely recognizing hundreds of millions of dollars of
revenue that not only boosted its financial results, but allowed top EES managers and executives to
collect huge bonuses based on these improperly inflated contract valuations.
(g) It was impossible for EES to enter into energy contracts that extended beyond
three years and accurately account for energy costs or savings because of the variables related to
these contracts. Enron misused these variables in long-term contracts to manipulate its assumptions
– moving the earnings curve to create larger contract values and record higher revenues abusing
mark-to-market accounting.
(h) Enron's Dabhol power plant in India was a financial disaster, the completion
of which had resulted in huge cost overruns such that to ever recover its investment, Enron would
be required to charge electricity rates so much in excess of existing rates in that region that Enron's
rates could never be collected. Consequently, the purported valuation of Dabhol on Enron's balance
sheet was grossly inflated, which, in turn, inflated Enron's assets and distorted its apparent
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