Message-ID: <19273477.1075855893211.JavaMail.evans@thyme> Date: Tue, 4 Apr 2000 01:19:00 -0700 (PDT) From: ted.murphy@enron.com To: wes.colwell@enron.com, sally.beck@enron.com Subject: Prudency Cc: tim.despain@enron.com, jeffrey.mcmahon@enron.com, rick.buy@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: tim.despain@enron.com, jeffrey.mcmahon@enron.com, rick.buy@enron.com X-From: Ted Murphy X-To: Wes Colwell, Sally Beck X-cc: Tim DeSpain, Jeffrey McMahon, Rick Buy X-bcc: X-Folder: \Sally_Beck_Dec2000\Notes Folders\Prudency X-Origin: Beck-S X-FileName: sbeck.nsf Wes, As we discussed on Friday, I think that there is merit to your arguments regarding the release in prudency in North America. However, this may alter the way we articulate the relative liquidity of our positions to banks and ratings agencies. De facto, we will be saying that our balance sheet and income statement reflect an ability to liquidate gas and power in North America at the mid with no adverse effects. While this may be true, typically these types of institutions see the result of liquidating much more liquid portfolios, i.e., they will not believe that we have perfect liquidity. I believe that we can satisfy both accounting and credit considerations if we maintain an ability to calculate an "orderly liquidation" under a negative pricing scenario (basically, multiple horizon VAR against a liquidating position). This is what we showed Moody's last month. The main difference is that the resulting number will be a hit to p&l as opposed to having reserves against it. This is a long way of saying that I think it would be a good idea to discuss prudency methodology with both RAC and Treasury once you have finalized a course of action. Ted