Grigs

Grigsby's SoCal book was transferred to Phillip Allen for liquidation. Grigsby will be responsible for trading the gas daily book.

Lessons learned:
? Grigsby doubled down at the top of the market, (see price graph below, light blue line).
? The element of time. While the fundamental analysis regarding storage looks correct, the timing of the trade appears to have been too early.
? Core and non core SoCal customers
o Core - The West desk fundamental analysis considered only the core users, who can't/wont forward hedge because their price risk is inherently tied to index. This being the case, there is sentiment is that the trade will return, however the time between today and then is too long, too risky.
o Non Core - Analysis here did not truly recognize that the non core customer base can/will in fact forward hedge, or that their hedging would have a material impact on the curve. It is my understanding that these non core customers are selling gas and buying power in the back of the curve, (note both NP-15 power prices and SoCal have dropped from mid-March) and in the front of the gas curve, they are buying.
? As an aside - as the political rhetoric heats up, the market place appears to be getting jittery --that while nothing will be done tomorrow, something may in fact be done in the long run, impacting prices.

I spoke with Grigsby regarding any other large counter parties that may be experiencing similar "pain" and he said that basically Enron is the only one, so it appears as if counterparty credit risks are minimal.

Frank