Message-ID: <17915484.1075854363488.JavaMail.evans@thyme> Date: Wed, 21 Feb 2001 04:34:00 -0800 (PST) From: darron.giron@enron.com To: kevin.radous@enron.com Subject: Re: OneOK storage deal Cc: richard.tomaski@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: richard.tomaski@enron.com X-From: Darron C Giron X-To: Kevin P Radous X-cc: Richard Tomaski X-bcc: X-Folder: \Darron_Giron_Jun2001\Notes Folders\All documents X-Origin: Giron-D X-FileName: dgiron.nsf If you have any questions about this let me know. It will be a pain in the ass if the deal is between Enovate and Oneok but is then flipped to EMW to manage. There will be twice as many legs and the volumes will need to be adusted at minimum on a monthly basis, and likely a weekly basis. Again, let me know if you need anything. DG From: Richard Tomaski@ENRON on 02/21/2001 11:42 AM To: James Simpson/HOU/ECT@ECT, Kevin Radous cc: Gregg Penman, Darron C Giron/HOU/ECT@ECT, Mark Mixon, Kay Classen/NA/Enron@Enron, Lee Fascetti, Paul Burgener, hermannt@pecorp.com Subject: OneOK storage deal Enovate sold a virtual storage service to OneOk marketing. Transaction parameters: MSV = 500,000 mmbtu Daily injection \ withdraw rights = 0-25,000 enovate's demand charge = $1.75 per MSV mmbtu Commodity charges = none Term: Apr01 - Mar02 Location: People's Citygate As we all know, our risk managment systems will not handle this kind of a transaction without al ot of manual manipulation. Below are my recommendations for booking this transaction. 1. enovate should book the expected usage pattern based on the current market curve with a zero price (and hedge, if the trader wants) in enovate's MTM risk books. The trader should periodically adjust this usage pattern as market conditions change. The negative fallout from this expected usage should be applied against the demand charge. 2. As Oneok actually withdraws or injects gas into the virtual storage, we should record the transaction in Sitara and adjust our expected usage deal. The trader can hedge this position financially, physically or may be able to use the PGL Hub. 3. The demand charge should be booked in Tagg & Sitara and offset with financial annuity so we will not realize any MTM gain on the demand charge. We will adjust this financial annuity as losses are incurred. Once the annuity is all used up, we will take all losses as incurred. Any annuity amount left over at completion of the program will be taken as a gain at that time. 4. This deal will be managed in the EMW book eventhough the actual injections\withdraws will be recorded in the enovate book. The enovate physcial book will be flat - in and out at a zero price. Cost of Carry should work in our favor unless they elect to go negative early. All cash requirement should fall out in our EMW books. Jim will build a model to determine the expected usage and track his related hedges (This will be similar to what Lee has, but not as complicated) This is not intended to be a comprehensive description of how to book this transaction, only an outline what I believe should be reflected in our books. Please forward any questions or comments to me. Thanks. Richard