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

(m) Enron's Dabhol power plant in India was a financial disaster where Enron was
losing millions. Dabhol never generated profits for Enron or benefitted its business or financial
condition and resulted in a huge loss for Enron.
(n) Enron represented that it successfully managed its balance sheet by effectively
hedging its merchant investments and placing billions of dollars of non-recourse debt in related but
independent parties. In fact, the hedges were illusory, not real and were largely dependent on the
value of Enron's own stock where Enron still was exposed to the risk of its merchant investments.
In fact, that debt was not non-recourse because if Enron's credit rating was downgraded that debt
would become recourse as to Enron. This was an extraordinarily dangerous situation for Enron
because, in fact, based upon its true financial condition, which was known to its insiders, Enron did
not deserve the investment-grade credit rating it was carrying and it was in constant and precarious
danger of losing that rating when the true structure of its off-balance-sheet partnerships and SPEs
became known and its true financial condition was revealed.
(o) Enron was further falsifying its financial condition, especially its international
operations, through a technique known inside the Company as "snowballing." That is, Enron took
the escalating costs of bidding on large projects that it lost and, instead of expensing those costs in
the current period as required, rolled those costs over into some other unrelated international project
that Enron was bidding on or actually performing – in either event, avoiding recognizing those costs
in the current period.
(p) In fact, Enron did not deserve an investment-grade credit rating and did not
have a solid or substantial financial structure because it was inflating the value of its assets by
billions of dollars while concealing billions of dollars of debt that should have been on its balance
sheet. As a result, Enron's true financial structure was extremely fragile.
- 189 -