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Corporate dance starts over sales price -- GE demands 50% refund from Enron for wind company

It's now official -- General Electric wants to pay $160 million less for Enron Wind than the $325 million price tag agreed to seven months ago during an auction. The sprawling conglomerate GE was also to assume $33 million in debt. "We completed a review of the valuation and we determined the valuation should be lower," says GE's David Frail. He is not more specific on what GE auditors are now saying was over-priced. The new offer, of $165 million, was divulged during a hearing in the US Bankruptcy Court in New York on November 14.

GE's petition for a refund will have to be approved by the bankruptcy court which approved the terms of the April sale. Its disclosure came from Enron bankruptcy lawyer Martin Sosland, who was asking the court for more time to negotiate a plan to divide proceeds from the sale of Enron Wind between its US and European units. "We're trying to fight the request for the purchase price reduction," Sosland told judge Arthur Gonzalez.

Creditors of the bankrupt Texas corporation are also bound to object. They include Mission Iowa Wind Corp, which owns hundreds of the Enron Wind 750 kW turbines for which warranty obligations were specifically excluded from the purchase. Mission Iowa claims it is owed $14 million by the parent company Enron.

GE's apparent disappointment with Enron Wind -- or what may merely be another round of business manoeuvring -- -- had been rumoured for some months. In court documents made public in September, it was hinted that GE would seek a "significant" adjustment in price (Windpower Monthly, October 2002).

Inevitable

Indeed some sort of adjustment has seemed inevitable. During the live auction in Manhattan in April, GE beat out Caterpillar to buy the wind company, one of Enron's few profitable assets. In doing so it bid up the purchase price by more than $100 million, a sum that had staggered observers of the wind industry.

In addition, GE and Enron had been remarkably vague about the contents and terms of the sale, to a degree that suggested there was more to be revealed. Both companies trumpeted the deal -- and the price tag -- to the media. "The acquisition of Enron Wind represents GE Power Systems' initial investment into renewable wind power, one of the fastest growing energy sectors," said John Rice, president and CEO of GE Power Systems, at the time of the sale.

ENRON Criminal lawsuits

Wind is also at the centre of a completely unconnected criminal case -- because of alleged fraud and money laundering by Enron Corp's former chief financial officer Andrew Fastow. The case does not involve GE or executives of Enron Wind.

An administrative law judge at the Federal Energy Regulatory Commission (FERC) has given lawyers for Enron until February 10 to submit direct testimony. The FERC is trying to determine whether Fastow used a sham transaction involving California wind farms to defraud Enron in ways that netted himself and friends millions of dollars in personal profit. It held a scheduling hearing last month.

In 1997 Enron applied for re-certification for three California wind plants -- Victory Gardens, Sky River, and Zond Systems -- as "Qualifying Facilities" (QFs) according to civil and criminal lawsuits filed against Fastow in federal court in Houston. To qualify for premium power purchase contracts with utilities under the Public Utility Regulatory Policy Act (PURPA), facilities must be owned by an independent power producer (IPP). Enron's purchase of the Oregon public utility Portland General Electric meant it was no longer an IPP and the QF status of its wind farms needed re-certifying before they could earn from PURPA contracts. But Fastow created special partnerships so that Enron could secretly control the wind farms, to hide company debt and increase profits, the lawsuit alleges.

Federal and state prosecutors are building a case that a few former Enron executives systematically fleeced California electricity consumers and taxpayers of many millions of dollars for alleged personal gain.

Fastow pleads not guilty. The FERC probe is to determine if the wind farms should be stripped of their status as QFs. A former associate and senior Enron financial executive, Michael Kopper, has already admitted to similar charges involving the wind projects.

Kopper has said that he used off-the-books partnerships involving personal friends -- including his own domestic partner -- to hide the fact that the only true investor in the partnerships was Fastow. Kopper says he even paid kickbacks to Fastow from money received for managing the partnerships. Kopper, who is helping in the case against Fastow, faces up to 15 years in prison for his wind fraud.

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