Sunday August 11, 12:21 pm Eastern Time
Reuters Business Report
Pledge Difficult for Some Energy Traders?
By Paul Thomasch and Carolyn Koo
NEW YORK (Reuters) - It was one last piece of bad news Alan Wright wanted to share with investors before he left embattled power company CMS Energy Corp. (NYSE:CMS - News) ADVERTISEMENT
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After more than a decade as chief financial officer, he couldn't vouch for the accuracy of the company's financial statements.
"Under these circumstances, we feel it imprudent to certify (the books) at this time," Wright told investors last Wednesday. Wright, who will leave CMS later this month for a job outside the energy business, then thanked his listeners for their years of support.
The government, in a bid to restore investor confidence after months of financial scandal, has mandated that top executives from nearly 1,000 major companies sign a statement attesting to the accuracy of their results. Expect a flood of filings in the coming days -- just 11 percent of companies have certified so far, ratings agency Fitch said on Friday morning.
But don't expect the deadline to be met by every company in the energy sector -- scene of the Enron Corp. (Other OTC:ENRNQ.PK - News) debacle and home to some the most notorious cases of misleading financial statements.
CMS Energy doesn't plan to sign off until it can restate two years of results to account for more than $4 billion worth of sham trades. The power company is among the hundreds of corporations that have not yet attested to the accuracy of their books ahead of an Aug. 14 deadline set by regulators.
Two other prominent trading firms, Dynegy Inc. (NYSE:DYN - News) and Mirant Corp. (NYSE:MIR - News), also have expressed doubts they can certify their books on time. AS a result, there could be still more of an erosion of investor confidence in the battered power trading industry.
"Any company that didn't work overtime to meet that deadline is a fool," said Duane Grubert, a financial analyst at Bernstein who covers utilities.
But many energy trading companies already are in a difficult position. Some top trading companies now carry "junk" credit ratings, their stocks are at all-time lows and many have been hit by government investigations of their dealings. The probes largely have focused on sham trades that artificially boosted revenue and have forced the resignations of top industry executives.
NEVER SUCH SCRUTINY
Still, some top energy executives will vouch their books are above board.
El Paso Corp.'s (NYSE:EP - News) Chairman and Chief Executive William Wise, for one, had no problem putting his name to financial statements, despite a subpoena by the U.S. Attorney for documents relating to "round-trip" deals, or simultaneous trades done at the same price.
"I've only been CEO for 14 years and I feel like I certified all of our financials in those years anyway, so it didn't cause any consternation in my mind," Wise said in an interview.
Other power companies also intend to meet the deadline, including American Electric Power Co. (NYSE:AEP - News), Aquila Inc. (NYSE:ILA - News), Calpine Corp. (NYSE:CPN - News), Duke Energy Corp. (NYSE:DUK - News), Reliant Energy Inc. (NYSE:REI - News) and Xcel Energy Inc. (NYSE:XEL - News).
Those are the fortunate ones, said Paul Patterson, an independent energy analyst. "Investors in the sector are craving certainty and the inability to certify only creates uncertainty."
At Dynegy, executives are still reviewing the SEC's order to evaluate how it applies to companies "such as ours, which is undergoing a re-audit by its independent auditor and whose leadership consists of an interim chief executive officer and newly appointed chief financial officer," a spokesman said.
Dynegy's new accountant, PricewaterhouseCoopers, is re-auditing financial statements for 1999 through 2001. Expected to go on until the end of the year, the process will determine whether a restatement of earnings over prior periods is necessary.
Mirant, too, has to review its accounting after several overstatements were discovered in its 2001 results. The company is doing its best to resolve the accounting issues, a spokesman said, but "it's still too early to tell" if they'll be resolved in time for the certification deadline.
Energy companies that can't resolve their problems before next week stand to lose whatever credibility they have in an industry already under a microscope.
"I don't think in my 30-plus years in business that I have seen such scrutiny in any area of any business in the United States," said El Paso's Wise. |
