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July - Duke Energy Employee Advocate

Deregulation - 2002 - Page 6

“Unchecked deregulation is an express route to chaos and tragedy.” - Bob Herbert, NYT


Employee Advocate – - January 20, 2002

Public Utilities Fortnightly offers the opinion that Duke Energy will be able to slip right in and fill the Enron void. We certainly cannot argue with that. The similarities between the two companies are uncanny. This will call for a new name. How about Duk-ron?

Of course, a new slogan will be required. How about: “Duk-ron will do everything that Enron did, and a whole lot more”?

No other company could move into the Enron slot as seamlessly. Duke already has offices in Houston. They can just acquire the Enron building and move right in. Enron Field can become Duk-ron Field. Duke has already surpassed Enron is some areas. Duke was named as the supplier charging the highest price per megawatt hour amid the California price gouging accusations. And, Duke had one of the California regulating commissioners on their payroll.

Duke’s employees already have experience in seeing promised pension benefits evaporate overnight. Duke will bring their own lawsuits and utility commission audits into the game. Enron was said to be an arrogant lot. Again, no problem!

Enron hid losses. That’s for amateurs. Duke made profits invisible to the utilities commission.

It is said that the securities analysts could not understand Enron’s convoluted derivatives structure. All they knew was that Enron told them that they were making money, and a lot of it.

No problem for Duke; they are already up to their ears in derivatives. The article below explains it all. It is simply a matter of deregulating the extrinsic value of the intrinsic as related to the peak spark spread option gross margin, while shorting a 1,000 cars of July pork bellies.

That should render the hog fat. Clarification, you say? Just put down that Duk-ron is going to make a bunch of money. (It appears a sucker is born.)

The New Enron

Public Utilities Fortnightly – by Richard Stavros - January 20, 2002

With the bankruptcy of Enron, the industry is now looking for a new leader and role model. Some have started looking at Duke Energy to pick up the torch from Enron in the areas of electric competition advocacy and lobbying, as well as looking to the company for leadership on overall wholesale market development, design and innovation.

"We continue to believe that wholesale deregulation needs to happen in this country and think that it is a good thing for ratepayers and consumers," says Harvey Padewer, Duke Energy's Group President, Energy Services, who says his company has consistently lobbied and will continue to be an advocate for competitive markets.

Could Duke Energy be that leader?

In terms of revenues in 2000, Fortune's list of America's top companies ranked Duke Energy at No. 17, which was the next largest power and gas trading concern after Enron (at No. 7 before its bankruptcy) and excluding the oil majors whose earnings are still the largest in the energy space.

Duke Energy generated revenues of more than $49 billion in 2000, has $58 billion in assets, and is the largest producer of natural gas liquids (NGLs) in the United States. Duke Energy has long believed that its corporate structure-having regulated and unregulated operations under one umbrella-is one of the reasons for its success. It's a corporate structure that many in the industry have recently shown a preference for (see Public Utilities Fortnightly, December 2000 issue, Frontlines).

"I think people before thought they could be a pure play generator and a pure play trader. We have recognized for years now [that] a better strategy is balancing assets, trading and growing our business across regions, not only in the US, but also across the world, and across commodities," says Padewer.

He believes people are recognizing that Duke Energy's strategy is more robust and can withstand a lot of different economic impacts. "As a consequence, I see a trend going back in that direction," Padewer says.

"Look at Constellation and look at Aquila. Even Enron said before they had trouble that they wanted to go back to assets. That is a general recognition in the industry," he says.

Padewer believes that one of the advantages of having a trading operation with generation assets allows the company to capture the extrinsic and intrinsic values of the plants.

"We call that the intrinsic value or the gross margin of the power plant which is simply the difference between the cost of fuel and the price of power. If you had enough gross margin, you justified building the plant. But over time we have found that we create a huge amount of value from the extrinsic value, not only the intrinsic value," he says.

"Remember, a power plant is a spark spread option. Any option has intrinsic value. The extrinsic value is trading the volatility. We see volatility still remaining strong. That component has become a larger component in the earnings of our generation. So, extrinsic value in our component still gives us the ability to justify building power plants going forward," he says, explaining how his company hopes to insulate itself from a possible overcapacity market in the next few years.

"[Furthermore], one of the issues that separate the pure plays and people like Duke is that a pure play generator-that doesn't have strong trading operations and doesn't understand the markets in a way a trading company does-can't extract that extrinsic value, by definition. That is the reason that some of the pure plays are getting into trouble." It appears a leader is born.

"Stop the Shredding"

Forbes – by Dan Ackman – January 20, 2002

NEW YORK - At this point, the folks at Enron should be down on their knees thanking the Lord for accountants like Arthur Andersen. Not only do they bless the books on the way in, they take so much of the blame on the way out.

Yesterday, the Big 5 accounting firm fired the point man in its audits of Enron and said he had directed an "expedited effort" to destroy documents even after learning that federal regulators were probing Enron's business practices.

The document destruction didn't stop, Andersen said, until the secretary for David Duncan, the now-fired partner in charge of the Enron job, sent an e-mail to other secretaries directing them to "stop the shredding" on Nov. 9, the day after Andersen received its subpoena from the Securities and Exchange Commission.

Andersen said it disposed of "thousands'' of e-mails and "large numbers'' of paper documents relating to Enron. It also placed three other partners responsible for the Enron work on leave. In a statement, Andersen said the shredding was "on such a scale and of such a nature as to remove any doubt that Andersen's policies and reasonable good judgment were violated."

While Andersen has captured attention with its repeated bonehead plays, the secrets the auditors were hiding were not Andersen's; they were Enron's. Andersen made millions from its audits, and Enron's top executives profited in the billions, all while causing losses in the tens of billions. At the end of the day, Enron was not auditing Andersen; Andersen was auditing Enron.

Andersen has not described what records it destroyed, and it claimed the shredding was done "without any consultation with others in the firm." It added that it "has successfully recovered documents from electronic backup files and is continuing efforts to retrieve more." Its managing partner Joseph Berardino already testified last month to Congress that Enron withheld critical information and engaged in "possibly illegal acts."

What was Andersen thinking?

While the Enron case is unique in scale and kind, it is part of a trend in the accounting profession, says Wollman Distinguished Professor of Accounting Douglas Carmichael of Baruch College.

While the SEC's position is "unwavering" that audit papers must be preserved in "a complete and unaltered form," there has been a cultural change. First, auditors over the years have come to "feel like victims." When shareholders suffer huge losses or companies go bankrupt, auditors have found themselves defendants in lawsuits. Often they--and their insurance carriers--are the only ones with deep pockets available to pay claims. "This has given them a sense of entitlement that they have to protect themselves," Carmichael says.

Technology has also changed. With computers able to generate new drafts at a keystroke, it is difficult to distinguish formal "work papers" from informal notes, drafts or what accountants call "desk files." There is no standard practice for keeping e-mails, Carmichael says, but, he suggests, "if it costs nothing to preserve [e-mails or other electronic files], there is no reason to delete."

As a result, auditors have tended to "clean up the work papers" and "keep only those necessary to support their opinion," Carmichael says. That practice is "nonsense," because if you discard contrary evidence, the opinion itself is tainted, he points out. And when the auditors do wind up in court, the fact of the destruction is often more damning than the papers themselves.

Andersen, it seems, has put itself in the worst position possible. The lawyers whom it feared can only be looking on now in horror and delight. For example, Melvyn Weiss, one of the most distinguished securities plaintiffs lawyers in the country, says he does not know what documents Andersen shredded but suggests it may have acted to get rid of documents that Enron itself destroyed. That way, when investigators seek documents from Enron, its executives or partnerships, "the auditors don't have them either." Weiss' firm is one of many suing Enron, its executives and affiliates.

Andersen is in trouble because of its shredding. But its problems started years before when it approved the creation of not one or two private partnerships but thousands of them. Even if all these partnerships were "legal" in the sense that they had enough minority ownership that they were not technically part of Enron, they created a distorted picture of Enron's true indebtedness.

Worse, Andersen blessed a practice known as "gross accounting" that had the world believing that Enron, a once obscure pipeline company morphed into an energy trader, was by revenue the seventh largest company in the U.S., in a league with General Electric and IBM.

The idea of accounting is that a dollar here is comparable to a dollar there. Even if Enron and Andersen took care to adhere to the technical rules--and there is reason to believe they often did not--they violated a cardinal principle. When an accountant is painting a picture of a kangaroo, it should look like a kangaroo, not an elephant.

In its audits of Enron, Andersen seems to have abandoned representational drawing for abstract impressionism or surrealism. Jackson Pollock may have been a great artist, but you don't want him painting your living room. Salvador Dali may have been a genius, but you don't want him painting your house.

Enron Grasps at Straws

Associated Press – by Josef Hebert – January 19, 2002

WASHINGTON -- Enron fired accounting firm Arthur Andersen on Thursday as the feuding corporations came under heavy scrutiny for their roles in the collapse of the world's largest energy trading company. Enron cited Andersen's destruction of thousands of documents and its accounting advice. For its part, Andersen said its relationship with Enron ended Dec.2, when Enron filed for Chapter 11 bankruptcy protection.

Documents obtained by House investigators have shown that Andersen had concerns at least a year ago about Enron's business practices.

Andersen executives decided to continue working with Enron, noting in one e-mail memo that fees from the account could reach $100million a year and that risks could be managed.

Enron: Tax Scofflaw

The Waste Basket – by Keith Ashdown – January 19, 2002

For the first time in quite awhile, a news story has nudged terrorism from the front pages of the nation's newspapers. Enron - one of the largest US corporations with over $100 billion in annual revenues - hid their pending financial implosion from the public, its investors and employees.

Enron's economic subterfuge has not only cost the life savings of thousands of Enron employees and shareholders, it has placed a potential burden on the shoulders of American taxpayers.

The New York Times recently reported that for four out of the past five years Enron has not paid a dime in federal income taxes. To add insult to injury, Enron actually received a $382 million refund check. Last year, most individual taxpayers thought they were lucky to have received a $300 rebate check in the mail - this is outrageous!

While most companies are taxed at a 35% rate, Enron employed a variety of strategies to reduce their tax burden to less than zero. They created 881 subsidiaries in foreign countries that act as tax havens. The company also received deductions for stock options exercised by their executives. In 2000, they turned a $112 million tax bill into a $278 million refund through such deductions, as the New York Times reported.

Despite the tax windfall of hundreds of millions, Enron still wasn't able to stay profitable. In October as bankruptcy approached, Enron Chairman Kenneth Lay contacted numerous high-level cabinet officials to request a bailout for his struggling company.

Enron has become such a political hot potato that it would have been political suicide for anyone to support a bailout. In fact, politicians have been donating Enron's campaign contributions to charity in an effort to distance themselves from the controversy.

Enron was not alone in their avoidance of paying taxes. An Institute on Taxation and Economic Policy study of Fortune 500 companies found that 24 companies paid less than zero in federal income taxes in 1998.

This week the IRS announced an improved tax compliance program that through more aggressive audits will ensure that corporations and others pay their fair share of taxes. As the country faces a projected $100 billion deficit next year, the federal government should be keeping a better watch on corporate tax scofflaws.

Enron is an example of corporate welfare at its worst. They have avoided paying taxes for several years and when the company reached economic doom they turned to their friends from both sides of the political aisle with their hands out...way out. They should be ashamed of themselves.

Tough and Sharp Enron Accuser

New York Times – by Jim Yardley – January 18, 2002

HOUSTON, Jan. 15 — In the cutthroat business culture of the Enron Corporation, where toughness and a sharp tongue were often prerequisites for success, Sherron S. Watkins could be noticeably tough and sharp.

One former colleague described her as "a bull in the china shop" at times. Others mistook the Texan Ms. Watkins for a brusque New Yorker. But several former colleagues agreed that her toughness was rooted in a strong sense of business ethics and that she was unafraid to deliver difficult news, even to her superiors.

"In my experience, she was not afraid to speak the truth, even when it was uncomfortable," said Stephen Schwarz, a former Enron employee who worked with Ms. Watkins and described her as "the consummate professional."

Ms. Watkins, a vice president for corporate development at Enron, has emerged as a central figure in the federal investigations into the company, after a Congressional subcommittee released a letter she sent in August to Kenneth L. Lay, Enron's chairman.

Written months before the company laid off more than 4,000 workers and filed for Chapter 11 bankruptcy protection in December, the letter warned that improper accounting practices threatened to destroy the company even as Mr. Lay was reassuring investors and employees.

That Ms. Watkins, who came to Enron eight years ago after working at the Arthur Andersen accounting firm, would confront her bosses with such a pointed message did not startle those who knew her.

"Now that I've read what she wrote, I'm not in the least bit surprised that it was her," one former Enron colleague said.

Another Enron employee said word that Ms. Watkins had confronted Mr. Lay began to circulate through the company at some point after she had sent the letter and had a subsequent audience with the chairman.

"Rumors were floating that she knew some things that were going on and that she had apparently voiced some concerns," said a former employee of Enron Broadband Services, a division where Ms. Watkins once worked.

Ms. Watkins, who is 42 and still works at Enron, declined to comment today, but her lawyer, Philip H. Hilder, said his client had written the letter as an act of conscience.

"She thought it was the right thing to do, to ask some questions," Mr. Hilder said. "I think that was her only motivation. She saw that there were some problems, and she was concerned."

The investigations into Enron are focused at least in part on a series of off-the-books partnerships that were reportedly used to inflate the company's profits by hiding its losses, including those involving the company's former chief financial officer, Andrew S. Fastow. The partnerships involving Mr. Fastow, who was fired in October amid growing investor concern, are central to the Securities and Exchange Commission's investigation of Enron's accounting.

Ms. Watkins's lawyer said his client reported directly to Mr. Fastow last summer after being reassigned to his office from the broadband unit.

In her letter to Mr. Lay, Ms. Watkins did not mince words in discussing four of those partnerships. "Has Enron become a risky place to work?" she asked. "For those of us who didn't get rich over the last few years, can we afford to stay?"

Like many other Enron employees, Ms. Watkins first worked at Arthur Andersen, the Big Five accounting firm that has also come under federal scrutiny after it was disclosed that Andersen employees had destroyed thousands of pages of Enron documents in recent months. One former Enron colleague, whose career also began at Andersen, said Ms. Watkins, then Sherron Smith, started around 1982 as an auditor in Andersen's Houston office.

Another employee in the same Andersen office was Jeffrey McMahon, who would later become Enron's treasurer.

"She was very good friends with Jeff McMahon," a former Enron colleague said, noting that each had married later in life and started a family.

It was Mr. McMahon who in 2000 complained to Jeffrey Skilling, then Enron's president, about the partnerships connected to Mr. Fastow, people close to Enron say. Mr. McMahon was later reassigned to another position. Mr. Skilling ascended to chief executive, only to leave abruptly last August after six months in the post.

Ms. Watkins's career at Andersen took her to New York until she left to join Enron, where she steadily rose to the position of corporate vice president. Colleagues say she first worked on international projects.

"She could swear up a blue streak," said a former colleague who worked with Ms. Watkins on international deals. "She came down with a tough New Yorker confidence that could carry her in a predominantly men's world." ,p> While Ms. Watkins could be abrasive, that colleague added, her ethics were unassailable.

Eventually, she was assigned to the broadband unit, where colleagues say her responsibilities included reining in costs. She earned a reputation as being outspoken at meetings. One former Enron executive said Ms. Watkins alienated some employees, who pointedly sought not to work for her. But, the executive added, "I have never heard anyone question her judgment, her integrity and her veracity. I never heard anybody say she cut corners."

Mr. Schwarz, the former broadband colleague who regarded her highly, described her as "a New Yorker amidst Texans."

In fact, Ms. Watkins grew up in a small town north of Houston and later attended the University of Texas. Her husband, Richard, declined to comment today at their home in the city's affluent Southampton neighborhood.

A neighbor, Carrie Wood, said she and Ms. Watkins were sorority sisters in college and painted a softer picture of her friend. She described Ms. Watkins as a doting mother who dedicated all her time away from Enron to her young daughter.

"She's bright and she's humble and she's thoughtful and deliberate and she's morally sound," said Ms. Wood, who described Ms. Watkins as an active Christian who participated in Bible study. "She's a bright, confident businesswoman, too."

Another neighbor, Chris Cagley, an independent accountant who did business with Enron, said he had on occasion bumped into Ms. Watkins on their street and in the Enron lobby.

"Now that I know that she wrote this mystery memo, I would say I have a newfound respect for this person," Mr. Cagley. "Because it's not easy to stand up and point out things that are wrong in corporate America. It's much easier to let it go."

Dancing with the Devil

The New York Times – by Bob Herbert – January 18, 2002

When Senator Phil Gramm and his wife Wendy danced, it was most often to Enron's tune.

Mr. Gramm, a Texas Republican, is one of the top recipients of Enron largess in the Senate. And he is a demon for deregulation. In December 2000 Mr. Gramm was one of the ringleaders who engineered the stealthlike approval of a bill that exempted energy commodity trading from government regulation and public disclosure. It was a gift tied with a bright ribbon for Enron.

Wendy Gramm has been influential in her own right. She, too, is a demon for deregulation. She headed the presidential Task Force on Regulatory Relief in the Reagan administration. And she was chairwoman of the U.S. Commodity Futures Trading Commission from 1988 until 1993.

In her final days with the commission she helped push through a ruling that exempted many energy futures contracts from regulation, a move that had been sought by Enron. Five weeks later, after resigning from the commission, Wendy Gramm was appointed to Enron's board of directors.

According to a report by Public Citizen, a watchdog group in Washington, "Enron paid her between $915,000 and $1.85 million in salary, attendance fees, stock options and dividends from 1993 to 2001."

As a board member, Ms. Gramm has served on Enron's audit committee, but her eyesight wasn't any better than that of the folks at Arthur Andersen. The one thing Enron did not pay big bucks for was vigilance.

There's a lot more you can say about the Gramms and Enron, and not much of it good. But Phil and Wendy Gramm are just convenient symptoms of the problem that has contributed so mightily to the Enron debacle and other major scandals of our time, from the savings and loan disaster to the Firestone tires fiasco. That problem is the obsession with deregulation that has had such a hold on the Republican Party and corporate America.

An article in yesterday's Times noted the extensive links between Enron and the powerful Texas congressman Tom DeLay. Mr. DeLay became unhappy when Enron wooed a Democrat — a senior treasury official in the Clinton administration — to run its Washington office. "Still," the article said, "whatever the tensions last year, Mr. DeLay and Enron had a natural alliance. In his days in the Texas Capitol, Mr. DeLay was called Dereg by some because of his support of business. And in Congress he has been a longtime proponent of energy deregulation, an issue dear to Enron."

Enron exploited the deregulation mania to the max, and the result has been economic ruin for thousands upon thousands of hard-working families. As Public Citizen put it, "Enron developed mutually beneficial relationships with federal regulators and lawmakers to support policies that significantly curtailed government oversight of [its] operations."

The kind of madness that went on at Enron could only have flourished in the dark. Arthur Andersen was supposed to have been looking at the books, but the vast shadows cast by the ideology of deregulation allowed that company to escape effective scrutiny as well. So you have revolving-door abuses and pernicious financial arrangements between companies like Enron and auditors like Andersen that are similar to those between private companies and government agencies.

Who's left to look out for the small fry?

If the deregulation zealots had their way, we'd be left with tainted food, unsafe cars, bridges collapsing into rivers, children's pajamas bursting into flames and a host of corporations far more rapacious and unscrupulous than they are now.

Enron manipulated the energy markets and cooked its own books in ways that would not have been possible if its operations had had a reasonable degree of transparency. But Enron operated in what has been widely characterized as a "black hole" that left competitors and others asking such basic questions as how the company made its money.

How long will it take? How many decades and how many scandals have to come and go before we catch on? We're human. We're self-interested. And when left to our own devices, some of us will do the wrong thing.

Some perspective is needed. Unchecked deregulation is an express route to chaos and tragedy. Where the public interest is involved, a certain amount of oversight — effective oversight — is essential.

Enron Lobbied N. C.

High Point Enterprise – by Paul B. Johnson – January 17, 2002

When the debate about reforming the state's electric industry reached its peak about two years ago, representatives of the now-bankrupt Enron Corp. circulated through the halls and meeting rooms of the State Legislative Building.

At the time, Enron was a major national player in the energy field and a leading advocate of the deregulation of the electric industry. Enron regularly sent representatives to meetings of the Study Commission on the Future of Electric Service in N.C. in Raleigh during 1999-2000, said Rob Schofield, a consumer advocate.

Enron had two registered lobbyists during the 1999-2000 legislative session, Schofield said. The lobbying by Enron corresponds to the period when members of the 4-year-old commission were most involved in discussions about whether to reform North Carolina's $8-billion-a-year electric industry that serves 4 million customers.

Schofield, a critic of electric deregulation, acknowledges that Enron representatives had a negligible influence on the commission's deliberations.

"They were not a big player, but they were trying to keep their seat at the table," said Schofield, a public-interest advocate for the N.C. Justice and Community Development Center in Raleigh.

Enron has become embroiled in controversy since the Houston-based corporation went out of business after filing for bankruptcy Dec. 2. Congressional investigations are under way into how the Enron implosion led to the corporation's 5,000 employees losing virtually all the value in their retirement plans while top executives cashed out for more than $1 billion.

Enron sent representatives to commission meetings to monitor the deliberations on electric industry reform in North Carolina, said Sen. David Hoyle, D-Gaston, co-chairman of the panel. Hoyle said Tuesday that Enron representatives had no influence on the commission decisions about electric industry reform in North Carolina.

When the commission last met a year ago this month, it declined to recommend any reforms to the N.C. General Assembly because of concerns about the uncertainty of electric deregulation efforts nationally. Periodic, rolling blackouts during the past couple of years in California, a state where deregulation was first tried, persuaded commission members to hold off on recommending any major reforms.

State Sen. Kay Hagan, D-Guilford and one of two commission members from the Triad, said she recalls being called on by lobbyists from Enron. It was clear to Hagan at the time that Enron "wanted to get into our market," she said.

When the study commission resumes meeting in Raleigh next month, Hoyle said that panel members will examine the implosion of Enron, which was an advocate of deregulation in its heyday in the 1990s.

The bankruptcy of Enron, which had been the nation's seventh-largest corporation, hasn't disrupted U.S. energy markets, Hoyle said. "The void that Enron left has been quickly filled by other players," Hoyle said. "It hasn't resulted in any power interruptions in availability across the country."

No Deregulation in N. C.

High Point Enterprise - by Paul B. Johnson - January 17, 2002

A commission studying whether to reform the electric industry in North Carolina isn't expected to make any major recommendations this year, say two members of the panel.

The Study Commission on the Future of Electric Service in N.C. will resume meeting Feb. 6 in Raleigh.

The commission hasn't met in a year, as the 30-member panel doesn't convene when the N.C. General Assembly is in session. The reason is that 18 of the commission members are legislators and are too occupied with legislative matters to meet during the General Assembly session.

The electric deregulation debate carries particular significance for High Point because of the debt load tied to municipal power.

One of the issues that commission members have debated since the panel was formed four years ago is how to resolve the $5.3 billion in debts burdening the 51 towns and cities that run their own electric systems. With a debt of approximately $408 million, High Point has the fourth-largest debt among the 51 members of the ElectriCities municipal power trade group.

Greenville has the biggest portion of the debt, with the city in the eastern part of the state owing $507 million.

Commission co-chairman Sen. David Hoyle, D-Gaston, said he doesn't expect the panel to make any major recommendations before legislators convene May 28 for the 2002 session.

"The atmosphere out there is uncertain," Hoyle said. "Most other states have put this on the back burner until we see a clear path to go that really has no pitfalls."

Sen. Kay Hagan, D-Guilford and one of two commission members from the Triad, said she can't envision the commission making any major recommendations.

"This is so complex that it's not easy to even figure out what questions to ask," she said. In April 2000, the commission had approved a set of recommendations that included moving to a free-market system for all power sales in the state by 2006. But the commission retreated from the recommendations as rolling blackouts began occurring in California, one of the first states to deregulate its power system.

Hoyle said Tuesday that the commission will receive updates on where other states stand in regard to electric reform, as well as the status of the power supply available to North Carolina's 4 million electric customers.

"We want to make sure that we don't have a debacle like they did in California," Hoyle said.

As North Carolina leaders resume deliberations over electric deregulation, they may be able to watch how reform plays out in a neighboring state.

Virginia began a two-year period to phase in the deregulation of the sale of electricity and natural gas in the state on Jan. 1.

Virginia will roll out retail choice for residential and business customers through geographical areas during 2002-03.

"All Virginians will have the opportunity to shop for electric power by Jan. 1, 2004," reports the Virginia State Corporation Commission, which is overseeing the deregulation process.

Enron Auditor’s Head Rolls

Associated Press – January 16, 2002

WASHINGTON, Jan 15, 2002 - Arthur Andersen LLP said Tuesday it is firing a senior auditor who organized a "rushed disposal" of Enron documents last fall after federal regulators had requested information about the failing energy company.

It was the first time that the accounting firm has acknowledged that the document destruction occurred after Enron received requests from the Securities and Exchange Commission for information on its financial reporting.

Andersen also said that four partners in its Houston office would be stripped of management responsibilities and that three auditors had been put on administrative leave.

One of the four Houston partners, D. Stephen Goddard Jr., an Andersen managing partner, was a major fund-raiser for President Bush's 2000 campaign and was one of the "Pioneers" who raised at least $100,000. He also personally contributed $1,250 to Bush's earlier races for Texas governor, campaign finance records show.

Enron was Bush's largest corporate contributor in the 2000 race.

The lead auditor, David B. Duncan, ordered the destruction of documents during an Oct. 23 meeting. Two weeks later, in a desperate e-mail, his assistant said, "Stop the shredding." A day before that, Andersen had received a federal subpoena for the documents.

The law firm of Sullivan & Cromwell, which is representing Duncan, said he is cooperating with investigators.

Andersen's chief executive officer, Joseph Berardino, did not rule out the possibility that wrongdoing reached higher into the accounting firm than the auditors being disciplined.

"We're not quite sure yet," he said in a telephone interview. "We want to make sure we have enough facts to make a call."

The company said it is replacing the management of its office in Houston, where Enron is based. Four Andersen partners in the Houston office "have been relieved of their management responsibilities," the accounting firm said.

The Chicago-based firm said it will fire any other employees found to have participated in the improper destruction of documents, which it disclosed last week.

Its statement said it had "discovered activities including the deletion of thousands of e-mails and the rushed disposal of large numbers of paper documents."

The SEC has been investigating Andersen's role in Enron's complex accounting, including questionable partnerships that kept about $500 million in debt off the energy company's books and allowed Enron executives to profit from the arrangements.

The SEC's enforcement director, Stephen M. Cutler, said last week the agency was widening the scope of its investigation to include Andersen's destruction of documents.

The Justice Department is pursuing a criminal investigation of Enron, which became the biggest corporate bankruptcy in U.S. history on Dec. 2.

"If anyone at Enron broke the rules, they will be punished," Treasury Secretary Paul O'Neill said in a speech to a retailers' group.

O'Neill is among the administration officials who received telephone calls last fall from Enron Chairman Kenneth Lay - President Bush's biggest campaign benefactor - seeking help for Enron as it careened toward collapse. O'Neill has said he dismissed any suggestion of intervening to help the company.

Also Tuesday, the New York Stock Exchange delisted Enron stock, saying the shares "are no longer suitable for trading" on the exchange. The delisting means the stock, which sold for $83 a year ago but has changed hands at no higher than $1 since December, can only be traded over the counter.

House Banking Committee Chairman Michael Oxley, R-Ohio, called on Berardino "to clarify and correct any inaccuracies" regarding the Enron partnerships in his Dec. 12 testimony before the panel. "As you know, providing false testimony to Congress is a serious matter," Oxley wrote in a letter to Andersen. And California legislators investigating last year's energy crisis in the state said Andersen's destruction of Enron documents may have violated a state Senate committee's subpoena.

In addition to firing Duncan, Andersen said it was placing Enron auditors Thomas H. Bauer, Debra A. Cash and Roger D. Willard on administrative leave.

Duncan called an urgent meeting on Oct. 23 to organize an "expedited effort" to destroy documents, Andersen said, a few days after he learned that the SEC had requested information. The SEC sent a letter to Enron on Oct. 17 asking for information after the company reported hundreds of millions of dollars in third-quarter losses.

The fact that Andersen employees destroyed documents after learning of the SEC inquiry "is more than just unethical. It could be criminal as well," said Ken Johnson, spokesman for Rep. Billy Tauzin, R-La., chairman of the House Energy and Commerce Committee.

Duncan is to meet Wednesday with committee investigators. He already has provided them with six boxes of personal files and records.

"Now that he's been fired, he may have a little more motivation to be cooperative," Johnson suggested. A telephone message left at the home of a David B. Duncan in Houston was not immediately returned. In addition to Goddard, the partners removed from the Houston office are Michael M. Lowther, Gary B. Goolsby and Michael C. Odom.

Goolsby signed Andersen's consent order in a major accounting case last June in which the SEC imposed its first anti-fraud injunction against a Big Five firm in more than 20 years, a government source said on condition of anonymity. Andersen agreed to pay a $7 million fine to settle allegations it issued false and misleading audit reports that inflated Waste Management Inc.'s earnings by more than $1 billion.

Andersen disclosed Monday that an in-house lawyer spelled out the firm's document destruction policy for auditors on Oct. 12, four days before Enron announced its third-quarter losses.

The Andersen lawyer, Nancy Temple, e-mailed the policy to a partner in the firm's office in Houston. Berardino testified to Congress last month that Andersen notified Enron's audit committee on Nov. 2 of "possible illegal acts" within Enron.

He did not mention Andersen's destruction last fall of thousands of documents related to the company, which the SEC, the Justice Department and congressional investigators are seeking in their inquiries. Asked about that Tuesday, Berardino said executives of the firm didn't learn of the destruction until shortly after New Year's.

Deregulation - 2002 - Page 5