Message-ID: <20246740.1075857579720.JavaMail.evans@thyme>
Date: Wed, 29 Mar 2000 11:22:00 -0800 (PST)
From: john.arnold@enron.com
To: john.lavorato@enron.com, jeffrey.shankman@enron.com, mike.maggi@enron.com
Subject: New curve generation methodology
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I am changing the way the curve is generated starting in Jan 2004 to better 
replicate seasonal fundamentals.  There are convincing arguments as to why 
the summer/winter spreads should tighten over time.  However, in the previous 
methodology they blew out.  For instance summer/winter in Cal 3 was .232 
while Cal 10 was .256.  
I have added a seasonality dampening function that both contracts the 
summer/winter spread and applies a premium to the electric load demand months 
of July and August over time.

The formula for the curve remains the same except for a premium lookup for 
the month as well as for the year.  These premiums are as follows:

Jan  -.008
Feb -.004
Mar -.001
Apr .002
May .003
Jun .004
Jul .004
Aug .004
Sep .003
Oct .002
Nov -.003
Dec -.006


These premiums start in Jan 2004
On Wednesday Jan 2003 settled 2.959,  the 3/4 spread was marked at .0375, the 
4/5 spread was marked at .0475.  
In the old methodology
Jan 2003  = 2.959
Jan 2004  = 2.959 + .0375 = 2.9965
Jan 2005  =          2.9965 + .0475 = 3.044


In the new methodology
Jan 2003  = 2.959
Jan 2004  = 2.959 + .0375 - .008 =2.9885
Jan 2005  = 2.9885 + .0475 -.008 = 3.028

The only change in the formula is from:
Month x = Month (x- 1 year) + lookup on year on year table
to
Month x = Month (x- 1 year) + lookup on year on year table + lookup on month 
premium table

The seasonality premiums will change over time and I will let you know when I 
change them