Subject: Market Risk Management Changes under New Risk Management Policy
From: [email-masked]
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Date: Thu, 23 Aug 2001 17:09:49 -0700 (PDT)

To:	The Enron Management Committee

The Enron Corp. Board of Directors approved a new Risk Management Policy (the "Policy") on August 14, 2001, and notice has been distributed to Enron employees to announce the posting of this policy on the Enron intranet website at http://home.enron.com/resources (without market risk limits due to confidentiality).  The Policy includes a three page Executive Summary providing an overview of risk management practices for the four major types of risks addressed: (a) market risk; (b) credit risk; (c) operational risk and (d) liquidity/funding risk, and this summary is attached to this e-mail for your convenience.  The credit policy was incorporated without change, and the Transaction Approval Process and Guarantee Approval Processes were also incorporated with updating for specific approval authorities. 

This e-mail message is being sent to the Enron Management Committee to highlight some key aspects of the Company's market risk management practices which may be of interest.  

The Policy established a new Risk Management Committee, members of which are the Chief Risk Officer and any others designated by the CEO of Enron Corp.  During this transition period, existing Commodity Group Limits as of August 14th remain in effect, and Enron Business Unit Limits are assigned accordingly.  These limits may be further adjusted by the Risk Management Committee and the CEO, and your market risk managers will be working with you to review the limit structure for your business unit's activities to facilitate compliance with the Policy and your business initiatives.  RAC is currently working with Global Risk Management Operations to develop appropriate risk reporting that meets the Policy requirements and the needs of business unit management.  

Regards,
Cassandra Schultz
Vice President, RAC
713-853-0429
[email-masked]

Summary of Changes to Market Risk Management Practices

In addition to consolidating Enron's various risk management policies and procedures into one comprehensive Policy, some substantive changes and clarifications were made to the Company's market risk management practices, as summarized below.  

1.	Increased the VaR Limit for the Trading Portfolio, providing discretion to the Enron Corp. CEO ("CEO") to allocate such VaR limits within defined parameters
2.	Established an Expected Tail Loss Advisory Limit for the Trading Portfolio
3.	Revised the Market Risk Limit Structure within each Portfolio to delegate more discretion for individual Business Unit and Commodity Group limits to the CEO and Risk Management Committee
a)   Concentration VaR Limits approved by Board of Directors 
b)   Business Unit VaR Limits approved by CEO / Risk Management Committee
c)   Commodity Group Limits for each Business Unit approved by CEO / Risk Management Committee
d)   Trader/Desk Limits approved by Business Unit Office of the Chairman

Key Points re: the Limit Structure
1.	Concentration Limits are established on 6 large buckets of commodity groups; this bucketing focuses on market indicators from a Board perspective, not according to Enron's organizational structure; 
?	1) Americas Gas, 2) Americas Power, 3) European Gas & Power, 
4) Products, 5) Financials, and 6) Emerging Businesses
o	Examples:  Americas Power Concentration Limit includes Global Risk Markets; Financials Concentration Limit includes Credit; Appendix A of the Policy lists the individual Commodity Groups comprising each Concentration Limit
2.	CEO/Risk Management Committee has discretion to allocate the Trading Portfolio VaR limit among the Enron Business Units, subject to the Concentration Limits approved by the Board
3.	Expected Tail Loss is a new risk metric, and accordingly, an advisory limit is established only at the total Trading Portfolio level; some Commodity Groups may have the measurement calculated in RisktRAC, but no limit is set
4.	Business Unit VaR Limits are to be set for each Enron Business Unit (i.e. Enron Americas, Enron Global Markets, Enron Europe, etc. - any Business Units recognized as having authority for trading by the CEO)
5.	Commodity Group Limits are now to be set at a Business Unit level, representing the individual Business Unit's authority for trading specific commodities
?	every Business Unit shall have a Commodity Group Limit for any commodities for which they are authorized to trade; 
?	these Commodity Group Limits and corresponding risk reporting will enable top management and the Risk Management Committee to quickly understand risk parameters on a "pure" commodity group basis within each Enron Business Unit;
6.	Each Enron Business Unit OOC can establish Trader/Desk Level Limits and/or related risk reporting as they require, enabling them to view their trading results the way they manage their business (i.e., the same trader may actually trade more than one commodity, and therefore wish to view risk parameters for several commodities combined, etc.)

Risk Management Benefits of Limit Structure: 1) CEO flexibility below the Concentration Limit level, and 2) individual Enron Business Units have clearly defined trading authority, enabling the Risk Management Committee to authorize business units to trade in the same commodities while strengthening risk management practices to facilitate compliance with the Board approved Concentration Limits 

Limit Monitoring and Reporting
1.	All position and VaR violations are triggered at 100% of the respective limit
2.	All Daily Loss notifications are triggered at 100% of the VaR limit
3.	All Cumulative 5-day Loss notifications are triggered at 225% of the VaR limit 
4.	Trading Portfolio limit monitoring reported to the Board
5.	Concentration limit monitoring reported up to the CEO, and at Board meetings
6.	Business Unit and Commodity Group limit monitoring reported up to the Risk Management Committee
7.	Trader/Desk Level Limits and related reporting to be established by each business unit

Overall Portfolio Structure
?	Expanded the Trading Portfolio includes all of Enron's mark-to-market trading activity, including speculative trading of PGE and ETS 
?	Merchant Portfolio does not have established limits
?	Clarified that the Capital Portfolio is to capture and manage all positions related to Enron's capital structure; the VaR limit established is a Concentration Limit for Enron stock related transactions; as other positions are captured and measured, additional limits may be established as needed
Added a new "Regulated" Portfolio for certain transportation and distribution activities (a VaR limit was established by the Board for PGE's regulated activities)
?	Added a new "Other Assets & Contracts" Portfolio to capture and manage accrual or other type of positions not otherwise captured in the other Portfolios; no limits established