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Enron Mail |
Mark
I would like to thank you for your review of our draft product description. The benefit of your experience is invaluable in assisting us to develop our forms. I had a couple of reservations about some changes you proposed. In particular the changes to the Swap product description would involve the Fixed and Floating Price in each Calculation Period (half hour) being averaged over a Settlement or Determination Period. The payment obligation would then be multiplied by the Notional Quantity Per Settlement Period to get the amount payable on the Settlement Date. This not the way electricity derivatives are traded on the Australian electricity pool. In addition to being inconsistent with the terminology both within our documentation and industry agreed forms we would have difficulty in having this new trading form adopted by the market. In brief, in Australia electricity trades occur in the following manner: - Trades are calculated on the basis of discrete half hourly Calculation Periods. - Payment obligations for these Calculation Periods are then aggregated on Settlement Date each month. The Settlement Date is defined as the day each month when parties are obliged to make payments under the National Electricity Code. - It is the market custom for the Notional Quantity to be quoted in MWs. This number is then divided in half to calculate to convert it into MWhs, which becomes the Notional Quantity per Calculation Period. (To ensure its consistency with market practice we have determined that amounts should be quoted in MWs then converted in this manner into MWhs. This is explained in the product description Mark Taylor and myself discussed the principles that should be followed in preparing long form product descriptions. Whilst we should endeavour for consistency in drafting and in terminology amongst products, the primary concern is to ensure that the terms used in the long form descriptions are consistent with our GTCs, other relevant contractual arrangements with the counterparties and market trading forms. There are also practical reasons for adopting terminology used in a particular market. We would have some difficulty in attempting to market EnronOnline to potential counterparties if we also simultaneously convince them to commence trading on another type of product. Furthermore, departure from agreed forms of trading will increase the transaction risk. I would be interested in getting your views as we are planning to turn out a number of descriptions over the next week based on our original form. ---------------------- Forwarded by David Minns/ENRON_DEVELOPMENT on 02/02/2000 02:16 PM --------------------------- Paul Smith 02/02/2000 12:33 PM To: David Minns/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Allan Ford/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: Australian Power: EOL Long Form Description David, I have changed the description of the reference load shape for OffPeak and Flat trades. Can you pls OK these before I proceed with other regions. In the meantime, I will use the original Peak template as the base for options. Rgds Paul David Minns 31/01/2000 15:05 To: Paul Smith/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Paul Quilkey/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: Australian Power: EOL Long Form Description The major change is the adoption of a new product into Australia. The current arrangement is for trades to be effected in discrete 30 minute Calculation Periods settled monthly in accordance with an the NEMMCO calendar. What is proposed is for the floating amounts to to be averaged over a Settlement Period. The implication is that the "Average Floating Amount" is this the Average Floating Price multiplied by the number of Calculation Periods. This should equate to the same figure. There are a couple of concerns This is not what is currently traded. There are no definitions to cover these terms. We would also have to amend the GTCs and existing ISDA Agreements to be able to trade this type of Product. Apart from additional definitions issues such as rounding conventions for averaging would also need to be addressed. We will need to educate potential counterparties as to this produce. There is also a change to require counterparties to quote a volume per Settlement Period. A figure is quoted in MW and then multiplied by the number of hours within the Settlement Period to get the "Notional Quantity Per Settlement Period". Assuming this is limited to the number of hours within each "Victorian NEM Peak" during the Settlement Period it should work. But there will need to be an explanation that the Average Floating Amount is the Average Floating Price multiplied by the Notional Quantity Per Settlement Period. If we must adopt this form then we have no choice but I believe that it will cause difficulties in implementing EnronOnline. We will need not only sell the system but also new products. A further level of complexity will be added to trades as we attempt modify the current Australian market conventions. Paul Smith 01/26/2000 07:45 AM To: David Minns/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Australian Power: EOL Long Form Description David, Here is the response from Mark. Comments? Rgds Paul ---------------------- Forwarded by Paul Smith/ENRON_DEVELOPMENT on 26/01/2000 07:48 --------------------------- Mark Dilworth@ECT 26/01/2000 00:34 To: David Forster/LON/ECT@ECT cc: Paul Smith/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Australian Power: EOL Long Form Description David I have reviewed the language sent by Paul. The description is broken down into 8 paragraphs - for the record: Paragraphs 1, 2, 3, 7 all cover details usually covered in the Product Type description (7 is actually settlement date[s] for which we do not have a separate attribute). Paragraph 4 is reference period. Paragraph 5 is Index. Paragraph 6 is loadshape. These look fine to me - subject to my observations on whether we can use the 'Averaging' language. Paragraph 8 covers 2 attributes - currency (looks fine) and Unit of Measure - for which I suggest we go with our current language for MWh - which details that the volume submitted by the counterparty is MWh per hour. The product type language does not refer to determination (or settlement) periods, but calculation periods (half hourly) - and then details the computation of volume for a calculation period. If we are consistent with the approach used in other products we would refere to the average reference price (being the index) within a determination period and further define the determination period. (If we average this also changes the loadshape language). I have attached a document with the language I would propose referring to averaging. Paul I have reviewed the descriptions comparative to those already held for power financial swaps on the system. David may have further comments. David is not back until 7th Feb. and you may wish to have your legal team consider if the 'averaging language' can be used in Australia before he returns. If it can not I suggest we could add the definition of determination period, and state that the settlement amount is the aggregation of the amounts computed for all calculation periods within the determination period. The second attachment purely takes the language from your document and orders it as it would appear assuming all the attribute descriptions are as per my breakdown above. regards M Paul Smith@ENRON_DEVELOPMENT 24/01/2000 07:00 To: David Forster/LON/ECT@ECT cc: Mark Dilworth@ECT, Allan Ford/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, David Minns/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Elena Kapralova@ECT Subject: Re: EOL Long Form Description Apologies. Please use this attachment as the prior attachment is incorrect. Rgds Paul
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