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Enron Mail |
I discussed with Ted and David, and they agree with Oliver's analysis below,
so Chris, let's go ahead and report on the $20MM loss against UK Gas in today's notifications. Then perhaps you can work with James to adjust DPR reporting accordingly going forward. Thank you, Cassandra. ---------------------- Forwarded by Cassandra Schultz/NA/Enron on 12/06/2000 03:28 PM --------------------------- Oliver Gaylard@ECT 12/06/2000 02:55 PM To: Cassandra Schultz/NA/Enron@ENRON cc: David Port/Market Risk/Corp/Enron@ENRON, James New/LON/ECT@ECT, Ted Murphy/HOU/ECT@ECT Subject: Re: Loss Notification - "Structured Derivatives" Cassandra As discussed with Ted, David and yourself the loss should not be looked at on its own as it is due to movements in two markets. The UK power price curve shifted and the UK gas volatility curve shifted. The P+L break out is as follows: UK Power delta P+L $38MM Spread options (Structured derivatives) gamma P+L $(20)MM Spread options (Structured derivatives) vega P+L $(23)MM UK Gas vega P+L $4MM If prudency releases are stripped out I think if we allocate P+L to the correct books we get the following total P+Ls exluding reserve releases: UK Power $18MM UK Gas $(20)MM (Excludes reserve release of $17MM) Therefore we only have a loss violation in UK gas. This is not trying to avoid the $42MM loss notification, I am only trying to represent the loss that reflects the true risk in the books of Europe. Please hold off on the issue of a notification until it is decided that only a loss notification is issued for gas. Rgds Oliver From: Cassandra Schultz @ ENRON 06/12/2000 19:55 To: Michael Kass/EU/Enron@Enron, Chris Abel/HOU/ECT@ECT, James New/LON/ECT@ECT cc: Oliver Gaylard/LON/ECT@ECT, David Port/Market Risk/Corp/Enron@ENRON, Mike Jordan/LON/ECT@ECT, Shona Wilson/NA/Enron@Enron Subject: Loss Notification - "Structured Derivatives" Per discussion with Ted Murphy, P/L related to the Eastern spread options should be included in our Loss Notification monitoring in accordance with the Risk Management Policy. However, my understanding is that the positions and VaR are captured in European Gas and UK Power, but the P/L is reported separately in "Structured Derivatives". This reporting is perhaps further complicated by related prudencey being released in the line item European Gas. The 12/5 DPR reflects a ($43MM) loss in Structured Derivatives, and Oliver indicated this represents the market moving against our Eastern spread option position. This is a Ken Lay level notification by any measurement standards, regardless of whether you compare it to the $7,500 VAR limit for Gas, or the $15,300 VaR limit for UK Power. Or even split it between them. Chris, please include this loss in today's notification letters to Ken Lay and Jeff Skilling for the 5th. Per Oliver, the loss was due to power price curve shift and gas volatility curve shift against the Eastern spread options. Going forward, James, perhaps you could work with Oliver and the commercial team to determine a reasonable methodology to support the allocation of P/L and related DPR reporting for these positions so we can continue to evaluate in compliance with the policy. Thank you, Cassandra.
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