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Enron Mail |
Since I did not get a chance to meet with you yesterday, I would like to lay
out a few thoughts in this email: 1. Additional areas that might require immediate attention: ? Consider existing "Bets" and large positions already in the books and ways of adjusting these bets, if necessary (excluding CA): - NY: large short positions behind Central Hudson and ConEd (IBM deal and others) - Carolinas: Standard Offer timing (Springs, Eli Lily, others) - Illinois: concentration of short regulated positions ? Quick handle on option positions: do we need to switch customers in some areas? what options we ought to exercise tomorrow? next week? etc. - options embedded in the deals - regulatory switch options - retail index options - EAM options ? Managing value from restructuring legacy deals: in the process of reviewing the 13 deals, we discovered some provisions in the contracts that were not captured and managed properly - they might require immediate attention to minimize losses in these deals. 2. Managing Regulatory Exposure ? Approximately 80% of EES regulatory exposure is behind 40 utilities ? In the process of rate case decomposition, we need to identify the main components of each rate structure - create a rate case formula ? These components will fall into two categories: hedgeable (gas, coal, heating oil fuel costs, inflation, etc.) and "unhedgeable" (CTC timing, standard offer, etc.) Hedgeable Component Unhedgeable Component Strategy: Manage within the respective commodity books Capitalize on portfolio diversification across the country Look for "macro" hedges and focus activities of EGA Pricing: You know best Risk-based: higher premiums for greater uncertainty Policy: Internal authorizations only on who, how and when to hedge Develop a limit framework and propose a limit to the BOD Exposure: Existing VaR model will suffice Develop and implement stress scenarios to quantify exposure 3. Other Considerations ? Curve management: clear responsibilities, periodic review and validation ? Interaction with the EAM world: EAM projects create long positions, pricing bundled deals with an EAM component ? Flash-to-actual catch up: liquidations validate curve assumptions ? Attention to EES-Canada: currently executed a power deal and a few gas deals ? Process for pricing smaller mid-market deals: sacrificing quantity for quality - force originators to develop standard deal structures I could elaborate further on these points. Vlady.
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