Enron Mail

From:elizabeth.sager@enron.com
To:leslie.hansen@enron.com
Subject:FW: Draft Responses to FERC Staff
Cc:
Bcc:
Date:Mon, 25 Jun 2001 12:09:33 -0700 (PDT)


fyi
-----Original Message-----
From: =09Kitchen, Louise =20
Sent:=09Monday, June 25, 2001 11:59 AM
To:=09Yoho, Lisa; Nicolay, Christi
Cc:=09Kean, Steven; Shapiro, Richard; Robertson, Linda; Novosel, Sarah; Wha=
lley, Greg; Lavorato, John; Forster, David; Bradford, William S.; Steffes, =
James; Sager, Elizabeth; Hodge, Jeffrey T.; Haedicke, Mark E.; Taylor, Mark=
; Briggs, Tom; Long, Chris; Butts, Bob; Zipper, Andy
Subject:=09Re: Draft Responses to FERC Staff


Question1:=09In providing an answer to our questions regarding risk assessm=
ent or management, would you please provide an explanation to the following=
? We understand that EOL requires that a counter party, before accessing E=
OL to do business with Enron North America, must undergo a credit worthines=
s evaluation. When a counter party executes or clicks on a price, EOL doe=
s an instant credit check before confirming the transaction.
However, Enron may not only buy from a counter party, it may sell. What so=
rt of creditworthiness standards must Enron provide to a counter party util=
izing EOL to purchase from Enron?
Are there industry standard creditworthiness agreements regarding counter p=
arty credit risk that Enron uses? If yes, may we have copies? If Enron ut=
ilizes its own agreements, please provide us with a copy.

All counterparties are assessed by our credit department prior to any trans=
action being entered into by Enron whether the transaction is being conduct=
ed over the phone or through EnronOnline. Enron, as the principal to all p=
urchases and sales on EnronOnline and when completing transactions on the t=
elephone or in writing, requires counterparties to be creditworthy. In add=
ition, Enron's risk management process is required to be approved by the En=
ron Board of Directors, according to Securities Exchange Act regulations as=
a publicly held company. Enron's risk policies are provided in Enron's pu=
blicly available [[10-Q??]]_______ audited financial statements filed on a =
quarterly and annual basis with the SEC. Enron maintains a separate risk m=
anagement group that has oversight over all transactions done by all Enron =
trading units and that ensures compliance with the risk management policies=
. This group has a separate reporting line directly to the office of the C=
hairman of Enron Corp. and has the authority to instruct the suspension of =
transactions in order to ensure that trading limits are not exceeded. In a=
ddition, every counterparty of Enron has to clear a credit check before the=
y can transact through EnronOnline. The Credit Risk Management group appro=
ves a counterparty for a specific credit limit and tenor limit which are em=
bedded within the EnronOnline database. Every transaction is passed thro=
ugh an electronic credit check to assure that the credit limits and tenor l=
imits are not violated prior to Enron accepting the counterparty's bid or o=
ffer via EnronOnline, such credit checks are done automatically and there i=
s no human intervention. As with all Enron transactions, the credit limit =
checks utilize a potential exposure calculation to take into account future=
price volatility. The Credit Risk Management group monitors transaction f=
low on all Enron transactions including EnronOnline continually. EnronOnl=
ine does provide CRM with electronic alerts when customers approach credit =
limits or breach credit limits. No further transactions are executed unles=
s CRM is sufficiently satisfied that the credit position has been mitigated=
such that credit limit is still available.

EnronOnline uses the same credit policy as other transactions Enron enters =
into, whether we are buying or selling. The transactions entered into on E=
nronOnline are all governed by either a Master Agreement or the General Ter=
ms and Conditions (which are a shorter form of contract and differ for each=
commodity, these are all available on the web-site). A Master Agreement i=
s negotiated with the Counterparty offline and includes negotiated bilatera=
l credit terms and these terms govern any transactions entered into on Enro=
nOnline. The General Terms and Conditions which will apply to EnronOnline =
transactions if there is no Master Agreement in place between Enron and the=
counterparty include industry standard credit requirements which the count=
erparty chooses to accept or not online, should the counterparty not want t=
o accept to language in the contract (for credit or other reasons), the Hel=
pdesk for EnronOnline will facilitate contact between the Enron Credit grou=
p or Enron Legal group with the counterparty allowing the Counterparty to n=
egotiate terms which may be more appropriate to them.

Question 2: I understood Dave Forster to state that EOL does not collect=
data regarding where a customer's mouse is moving on the system. However,=
does EOL require customers to have cookies enabled? If yes, does EOL col=
lect, use or manage data regarding cookies?

It is correct that Enron does not collect data regarding where a customer's=
mouse is moving on the system. It is also correct to note that we have no=
capability of knowing where the customer's mouse is. =20

EnronOnline does not require customers to have cookies enabled. =20

Question 3:=09Also, why doesn't EOL publish a "ticker" of completed trades =
showing prices and quantities? Does EOL have any plans to start publishing=
such data? If yes, when?

There are now several options for viewing historical pricing/transaction da=
ta from EnronOnline. Reuters recently began showing quotes from EnronOnlin=
e (http://about.reuters.com/enrononlinequotes/), which also provides custom=
ers with the ability to reference historical prices from the date at which =
they acquire access. In addition, EnronOnline provides a number of online =
charts for products, which graphically depict historical transaction prices=
. Customers can also run reports to see their own transactions and downloa=
d the results into an Excel spreadsheet on EnronOnline The system also all=
ows for administrative users, thereby allowing the back offices of counterp=
arties to monitor the trading activity and deal with it appropriately in li=
ne with their own systems.

Enron does not publish transactions completed via EnronOnline however Enron=
will provide information on such transactions in order to ensure market ac=
tivity is being correctly reflected in the approriate market indices. For e=
xample, Enron does provide EnronOnline transaction data to the Natural Gas =
Exchange in Calgary in order to ensure that indices produced by Canadian En=
erdata accuately reflect the activity in the market place (this will commen=
ce on July 1, 2001). At the end of each day, EnronOnline makes available t=
o all customers through EnronOnline the weighted average price of that day'=
s transactions. The data associated with US Natural Gas is sent in this fo=
rmat to Gas Daily for inclusion in their automated exchange index.

Question 4: =09In addition, how does the data collection from EOL/Enron Net=
works flow to the risk management groups? How is the information used?

EnronOnline transactions are sent to different risk management groups depen=
ding on the type of commodity transacted. For example, the group that hand=
les U.S. gas settlements is not the same group as the one handling Australi=
an Power. The transactions are transmitted to the appropriate back office =
utilizing a "bridge": a process that is capable of communicating transacti=
on information into the variety of systems that Enron operates. The potenti=
al for manual input error is thereby removed providing Enron and the custom=
er with more efficient recording of the transaction. The back office system=
s at Enron use transaction information as an input into various functions, =
such as invoicing, preparation of financial statements, risk management and=
credit. These back office systems are used to track transactions from all=
sources, including EnronOnline, the telephone, other trading systems, etc.=
Information is maintained on these systems according to accounting and re=
gulatory rules, regardless of the source of the transaction.

The Enron commercial employee, who is offering to buy or to sell through En=
ronOnline, does so through a price management software application, this no=
tifies him immediately that a transaction is completed. The counterparty, =
the Enron commercial employee and the risk management groups are all notifi=
ed by the system at the same time. =20

The data from an EnronOnline transaction is used in exactly the same way as=
information is used from any transaction completed by Enron. When a transa=
ction is completed, EnronOnline serves purely as a deal capture system that=
captures the data necessary to feed to our risk management system. Enron =
Online does not feed settlement systems or credit systems. It does, howeve=
r, automate our deal capture system, which improves the data feeds to our s=
ettlement and credit systems.

Question 5:=09Also, we assume that data regarding each trade is maintained =
by EOL. If yes, in what form and for how long?

EnronOnline transactions are captured in the EnronOnline database. The tra=
nsactions are 'bridged' (duplicated) onto the various systems (databases) m=
anaging the underlying commodity (the risk system associated with the commo=
dity). We currently intend to store the data for a period of six years pos=
t a transaction completing (for example, deliveries finishing) and this is =
policy across all databases.

In general, EnronOnline is an electronic trading platform that offers free,=
real-time pricing information for approximately 1,800 products for 13 comm=
odities, including electricity and natural gas. EnronOnline utilizes e-com=
merce and Internet technology to conduct trading business that previously t=
ook place on the telephone and by fax. EnronOnline is a proprietary, or "=
one-to-many" trading platform. On a "one-to-many" platform, one entity, suc=
h as Enron, is the principal to every trade (unlike a "broker" type platfor=
m). =20

EnronOnline allows buyers and sellers to act on prices that can change by t=
he second. Buyers or sellers can also see real-time price spreads of both =
the sell price and the buy price. For example, on the telephone, a buyer p=
reviously would call to ask about gas prices for each of the next six month=
s, but by the time the trader finished reciting the prices, some prices cou=
ld have changed. EnronOnline allows counterparties to see the 'bid and off=
er prices" all the time to make more informed decisions.

The energy products offered on EnronOnline are subject to federal oversight=
as follows: The Commodity Futures Trading Commission ("CFTC") has enforc=
ement authority over physical transactions on EnronOnline to police for pot=
ential manipulation. The Federal Energy Regulatory Commission has regulato=
ry authority over physical natural gas and electricity sales for resale. =
=20

The CFTC has anti-fraud and anti-manipulation enforcement jurisdiction over=
financially settled derivatives (swaps and options). Moreover, pursuant t=
o the Commodity Exchange Act ("CEA"), Enron can only trade derivatives with=
counterparties that qualify as sophisticated according to such rules. Suc=
h transactions are permitted as long as both parties are Eligible Contract =
Participants ("ECPs")(generally, corporations, partnerships and other entit=
ies that meet net worth or asset tests). =20

EnronOnline is a proprietary, bilateral trading platform on which Enron is =
a principal to every trade. As such, EnronOnline is not a "trading facilit=
y" as defined under the CFMA. As a proprietary platform, EnronOnline uses =
Internet technology to provide another method of communication between Enro=
n and its customers. =20





From:=09Lisa Yoho@ENRON on 06/22/2001 12:14 PM
To:=09Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron, Linda R=
obertson/NA/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Greg Whalley/Enron=
@EnronXGate, John J Lavorato/Enron@EnronXGate, Louise Kitchen/HOU/ECT@ECT, =
David Forster/Enron@EnronXGate, William S Bradford/Enron@EnronXGate, James =
D Steffes/NA/Enron@Enron, Elizabeth Sager/Enron@EnronXGate, Jeffrey T Hodge=
/Enron@EnronXGate, Mark E Haedicke/Enron@EnronXGate, Mark Taylor/Enron@Enro=
nXGate, Tom Briggs/NA/Enron@Enron, Chris Long/Corp/Enron@ENRON, Bob Butts/E=
nron@EnronXGate
cc:=09=20

Subject:=09Draft Responses to FERC Staff

Attached are draft responses to FERC staff's questions relating to EOL rais=
ed during and after their visit to Enron. Please provide comments to Lisa=
Yoho (x53837) or Christi Nicolay (x37007) by COB on Monday, June 25th. =
=20

Thanks!

Christi and Lisa

=20