Message-ID: <19043508.1075854388893.JavaMail.evans@thyme> Date: Wed, 11 Apr 2001 09:09:00 -0700 (PDT) From: darron.giron@enron.com To: ryan.o'rourke@enron.com Subject: TW transportation index hedges entered into 1/2001 Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Darron C Giron X-To: Ryan O'Rourke X-cc: X-bcc: X-Folder: \Darron_Giron_Jun2001\Notes Folders\Discussion threads X-Origin: Giron-D X-FileName: dgiron.nsf ---------------------- Forwarded by Darron C Giron/HOU/ECT on 04/11/2001 04:09 PM --------------------------- Jeffrey C Gossett 04/11/2001 02:37 PM To: Darron C Giron/HOU/ECT@ECT cc: Subject: TW transportation index hedges entered into 1/2001 More Deals. ---------------------- Forwarded by Jeffrey C Gossett/HOU/ECT on 04/11/2001 02:36 PM --------------------------- Enron North America Corp. From: Dan Fancler @ ENRON 04/11/2001 02:33 PM To: Georgeanne Hodges/HOU/ECT, Jeffrey C Gossett/HOU/ECT@ECT cc: Vincent Strohmeyer/ET&S/Enron@Enron, James Saunders/FGT/Enron, Bob Chandler/ET&S/Enron@Enron, Roger G Leworthy/ENRON_DEVELOPMENT@ENRON_DEVELOPMENt, Ron Baker/Corp/Enron Subject: TW transportation index hedges entered into 1/2001 Thanks for your assistance and that of Jeff. In addition to the 8 trades sent yesterday (see below), which Jeff is assisting on the offsetting positions, we have another done on March 7, 2001 ticket # QV8401.1, please add it to the list. At year end Ron Baker worked with your group to document the offsetting third party positions on the following trades. NI8156.1 NK4742.1 NT6154.1 NV5358.1 I understand that as a result of that work about 97 third party trades were identified to offset these 4 Transwestern trades. Somehow an effectiveness test was done. We were not involved in any of that work and I hope all 97 trades (If that is the correct number) are still on ENA's books and are still effective. At this time I don't see how I can measure effectiveness without the third party positions in our books. Can ENA met the effectiveness standard and measurement requirements of SFAS 133 or is it the responsibility of the business unit that originated the hedge. At this time we are only measuring our own positions. Roger, indicated in the below memo that Ernie was going to do the effectiveness testing. We need your advice on if we should continue hedging positions with ENA. I am concerned that ETS does not have the ability to monitor and maintain effectiveness when ENA facilitates the transaction because ETS loses control of the offseting 3rd party position. I was under the impression that intercompany trades were kept in an affiliate book. Perhaps we can get together next week and work out documentation procedures and the use of the affiliate book. Anyday except Monday. Thanks, Dan ---------------------- Forwarded by Dan Fancler/ET&S/Enron on 04/11/2001 01:21 PM --------------------------- Vincent Strohmeyer 04/10/2001 01:52 PM To: Jeffrey C Gossett/HOU/ECT@ECT cc: Dan Fancler/ET&S/Enron@ENRON Subject: TW transportation index hedges entered into 1/2001 Jeff, I hope you can help me with this. I need to find a way to identify offsetting 3rd party derivative transactions relating to the internal trades done with TW for the following deals: TW RMTC QL2915.1 TW RMTC QL2918.1 TW RMTC QL5424.1 TW RMTC QL5444.1 TW RMTC QL5357.1 TW RMTC QL5358.1 TW RMTC QL9270.1 TW RMTC QL9273.1 Tiffany Miller identified you as the person that did this for our deals with ENA earlier. Please let me know as soon as possible, if you can help. If not, do you have any suggestions? Vince 713.853.6701 Roger G Leworthy@ENRON_DEVELOPMENT 04/10/2001 11:36 AM To: Dan Fancler@Enron, Bob Chandler@ENRON cc: Ron Baker/Enron@EnronXGate, Ernie de Lachica@Enron Subject: TW transportation index hedges entered into 1/2001 Dan/Bob, Following my voice mail message (to Dan), I want to circle back on the accounting impact of the recent internal transportation derivatives between TW and RMTC. The concern that has arisen is that TW has taken the "out-of-the-money" impact of these trades (approx. $27MM) to OCI while RMTC has marked the "in-the-money" impact through income. TW has taken its impact to OCI because it is, on a standalone accounts basis, designating these internal trades in cash flow hedge relationships. However, from an Enron consolidated financial position viewpoint, the internal trades cannot be designated as hedges (and, thus, would need to be reversed which would have a negative impact on earnings of $27MM). So, in order not to have this negative impact, 3rd party "offset" transactions in ENA must be identified and documented as cash flow hedge transactions. It may be that RMTC has already identified offsetting 3rd party derivative transactions relating to the internal trades done with TW. However, if not, we think that the best place for responsibility for getting these 3rd party trades IDENTIFIED AND PROPERLY DOCUMENTED IN CASH FLOW HEDGE RELATIONSHIPS is with the business unit that wanted the internal trade in the first place - i.e. TW in this case. If this has not already been done, can you have someone in your shop work with ENA to identify and obtain copies of sufficient 3rd party trades that hedge the risk hedged by TW. Once this is accomplished, Enron Corp. consolidated hedge documentation needs to be established as a matter of urgency; again, we consider this responsibility is best placed in the BU using the internal trade as a hedge. In this regard, Ernie (effectiveness testing) and I will be available to assist with this documentation. Please do not hesitate to advise comments or questions on this matter. I am preparing the FAS 133 impact 3/31 Pro-Formas based on the identification and development of the consolidated hedge documentation. Roger