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

of mark-to-market accounting by adopting unreasonable contract valuations and economic
assumptions when contracts were initially entered into. And third, by arbitrarily adjusting those
values upward at quarter's end to boost the wholesale operation's profits for that period – a practice
known inside Enron as "moving the curve." For instance:
(i) Prospective international deals were prepared by internal Enron
"developers," who presented the materials to Enron's RAC department with an estimated net present
value ("NPV"), calculated over 20 years, and Enron's return on investment ("ROI") over the life of
the deal. To determine the NPV and ROI, numerous economic assumptions – such as foreign-
exchange rates, revenue growth, inflation rates, cost escalation, economic growth and demand – were
used. However, Enron manipulated the assumptions to inflate projected revenues and deflate
projected 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; and
(ii) In the 4thQ 99, Enron Global Markets in London had revenues far
below projection. As a result, in 1/00, several traders were told to increase their sales by $2 million
each for the prior quarter by "increasing the curve on future-sales contracts" in their trading books,
i.e., just increasing the estimated financial profit on a long-term trade, even though the actual
economics of the trade did not justify it. The traders moved their curves in 1/00 on deals already
done – to make the unit's 4thQ numbers. "Moving-the-curve" was "endemic" inside Enron – done
in all of Enron's commodity-trading activities – everything Enron traded.
(f) The financial performance and the value of contracts entered into by EES were
grossly overstated through various techniques, including the misuse and abuse of mark-to-market
accounting to create huge current-period values for Enron on what were, in fact, highly speculative
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