NewPower Holdings Inc., already in a steep stock slide, warned investors of a possible liquidity crunch if commodity prices continued to slide.

NewPower, one of the few national retail electricity providers, is locked into certain financial agreements with principal shareholder Enron Corp. The agreements require posting of cash collateral to back NewPower’s contracts for power and gas to supply customers. The amount of cash that must be posted depends on the price of forward contracts compared with the current market price of the particular commodity.

But NewPower, Purchase, NY, had arranged to supply customers buying forward contracts at higher prices than the curent market price. When the price falls, more cash must be put up as collateral.

New Power amended that arrangement with Enron Friday with a filing at the Securities and Exchange Commission. The amended agreement allows NewPower to post ‘substitute collateral’ instead of cash after the first $70 million. The company can substitute receivables and inventory for cash. Also as part of this amendment, NewPower grants to Enron a security interest in all its receivables and inventory. The arrangement expires Jan. 4.

The security interest can be released when cash collateral replaces the receivables.

NewPower had hedged its own customer contracts for power and gas with forward contracts for future delivery of power and gas. When gas and electric prices declined, the amount of collateral that New Power was required to post under the original financing agreement increased.

As of Sept. 30, New Power had supplied Enron with $109.3 million of cash collateral.

NewPower warned investors that if commodity prices decline any more, more collateral will be required.

“Any significant increase in the amount of collateral that NewPower is required to post to Enron as a result of further declining gas and electric prices, additional transactions, or otherwise, could adversely affect the company’s liquidity and financial resources,” according to the SEC filing.

There will also be a cash flow timing difference since New Power has purchased gas inventory of $78 million to serve customers. Revenues from customers served will not come until later in the winter. The company has redoubled its efforts to reduce expenses,

NewPower said. It is seeking asset-backed financing which will be necessary when this current arrangement expires.

“The company may not be able to secure such financing or to raise additional capital on attractive terms or at all, all of which would have a material adverse effect on the ability to conduct business,” the filing said.

The stock closed Friday at a new low of $1.25/share. About a year ago, the company had an initial public offering amid fanfare about the deregulating retail energy markets, a process that subsequently stalled. The shares were priced at $28.50/share.