Blackout 'culprit' sued over accounts

THE company blamed for last week's North American blackout is being sued by shareholders, who claim it artificially inflated its share price by misstating profits.

FirstEnergy has told the Securities and Exchange Commission it has had to restate its financial results for last year and early this year. The Ohio-based company said it had changed accounting methods after dropping Arthur Andersen, the auditor disgraced in the Enron affair.

Its profits for 2002 were reduced by $76.5m (£48m) in the revised figures, to $552.8m. For the first quarter of this year, profits are now $22.5m lower than they were.

For the stock market, the restatement carries uncomfortable reminders of Enron, the Texas energy trader that collapsed amid accounting irregularities.

The shareholders' class action lawsuits claim FirstEnergy misled the stock market with the earlier figures.

The company dismisses the suits as opportunistic. 'Few of these suits are ever successful,' said company spokeswoman Kristen Baird. 'The restatement was not because we weren't reporting properly but because of an interpretation of complex accounting rules.'

She said that when the company had switched to Pricewaterhouse Coopers from Andersen, PwC advocated a different treatment for some of its accounts. These involved the treatment of certain costs associated with the state of Ohio's transition from a highly regulated to a more competitive energy market over the next few years. 'There were differing interpretations of the methodology,' Baird said. PwC also had to re-audit the accounts for 2000 and 2001.

FirstEnergy also warned there could be further blackouts in the midwest as it struggled to get its energy system under control.