Message-ID: <3423712.1075852286511.JavaMail.evans@thyme> Date: Mon, 25 Jun 2001 12:09:33 -0700 (PDT) From: elizabeth.sager@enron.com To: leslie.hansen@enron.com Subject: FW: Draft Responses to FERC Staff Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Sager, Elizabeth X-To: Hansen, Leslie X-cc: X-bcc: X-Folder: \ESAGER (Non-Privileged)\Sent Items X-Origin: SAGER-E X-FileName: ESAGER (Non-Privileged).pst fyi -----Original Message----- From: =09Kitchen, Louise =20 Sent:=09Monday, June 25, 2001 11:59 AM To:=09Yoho, Lisa; Nicolay, Christi Cc:=09Kean, Steven; Shapiro, Richard; Robertson, Linda; Novosel, Sarah; Wha= lley, Greg; Lavorato, John; Forster, David; Bradford, William S.; Steffes, = James; Sager, Elizabeth; Hodge, Jeffrey T.; Haedicke, Mark E.; Taylor, Mark= ; Briggs, Tom; Long, Chris; Butts, Bob; Zipper, Andy Subject:=09Re: Draft Responses to FERC Staff Question1:=09In providing an answer to our questions regarding risk assessm= ent or management, would you please provide an explanation to the following= ? We understand that EOL requires that a counter party, before accessing E= OL to do business with Enron North America, must undergo a credit worthines= s evaluation. When a counter party executes or clicks on a price, EOL doe= s an instant credit check before confirming the transaction. However, Enron may not only buy from a counter party, it may sell. What so= rt of creditworthiness standards must Enron provide to a counter party util= izing EOL to purchase from Enron? Are there industry standard creditworthiness agreements regarding counter p= arty credit risk that Enron uses? If yes, may we have copies? If Enron ut= ilizes its own agreements, please provide us with a copy. All counterparties are assessed by our credit department prior to any trans= action being entered into by Enron whether the transaction is being conduct= ed over the phone or through EnronOnline. Enron, as the principal to all p= urchases and sales on EnronOnline and when completing transactions on the t= elephone or in writing, requires counterparties to be creditworthy. In add= ition, Enron's risk management process is required to be approved by the En= ron Board of Directors, according to Securities Exchange Act regulations as= a publicly held company. Enron's risk policies are provided in Enron's pu= blicly available [[10-Q??]]_______ audited financial statements filed on a = quarterly and annual basis with the SEC. Enron maintains a separate risk m= anagement group that has oversight over all transactions done by all Enron = trading units and that ensures compliance with the risk management policies= . This group has a separate reporting line directly to the office of the C= hairman of Enron Corp. and has the authority to instruct the suspension of = transactions in order to ensure that trading limits are not exceeded. In a= ddition, every counterparty of Enron has to clear a credit check before the= y can transact through EnronOnline. The Credit Risk Management group appro= ves a counterparty for a specific credit limit and tenor limit which are em= bedded within the EnronOnline database. Every transaction is passed thro= ugh an electronic credit check to assure that the credit limits and tenor l= imits are not violated prior to Enron accepting the counterparty's bid or o= ffer via EnronOnline, such credit checks are done automatically and there i= s no human intervention. As with all Enron transactions, the credit limit = checks utilize a potential exposure calculation to take into account future= price volatility. The Credit Risk Management group monitors transaction f= low on all Enron transactions including EnronOnline continually. EnronOnl= ine does provide CRM with electronic alerts when customers approach credit = limits or breach credit limits. No further transactions are executed unles= s CRM is sufficiently satisfied that the credit position has been mitigated= such that credit limit is still available. EnronOnline uses the same credit policy as other transactions Enron enters = into, whether we are buying or selling. The transactions entered into on E= nronOnline are all governed by either a Master Agreement or the General Ter= ms and Conditions (which are a shorter form of contract and differ for each= commodity, these are all available on the web-site). A Master Agreement i= s negotiated with the Counterparty offline and includes negotiated bilatera= l credit terms and these terms govern any transactions entered into on Enro= nOnline. The General Terms and Conditions which will apply to EnronOnline = transactions if there is no Master Agreement in place between Enron and the= counterparty include industry standard credit requirements which the count= erparty chooses to accept or not online, should the counterparty not want t= o accept to language in the contract (for credit or other reasons), the Hel= pdesk for EnronOnline will facilitate contact between the Enron Credit grou= p or Enron Legal group with the counterparty allowing the Counterparty to n= egotiate terms which may be more appropriate to them. Question 2: I understood Dave Forster to state that EOL does not collect= data regarding where a customer's mouse is moving on the system. However,= does EOL require customers to have cookies enabled? If yes, does EOL col= lect, use or manage data regarding cookies? It is correct that Enron does not collect data regarding where a customer's= mouse is moving on the system. It is also correct to note that we have no= capability of knowing where the customer's mouse is. =20 EnronOnline does not require customers to have cookies enabled. =20 Question 3:=09Also, why doesn't EOL publish a "ticker" of completed trades = showing prices and quantities? Does EOL have any plans to start publishing= such data? If yes, when? There are now several options for viewing historical pricing/transaction da= ta from EnronOnline. Reuters recently began showing quotes from EnronOnlin= e (http://about.reuters.com/enrononlinequotes/), which also provides custom= ers with the ability to reference historical prices from the date at which = they acquire access. In addition, EnronOnline provides a number of online = charts for products, which graphically depict historical transaction prices= . Customers can also run reports to see their own transactions and downloa= d the results into an Excel spreadsheet on EnronOnline The system also all= ows for administrative users, thereby allowing the back offices of counterp= arties to monitor the trading activity and deal with it appropriately in li= ne with their own systems. Enron does not publish transactions completed via EnronOnline however Enron= will provide information on such transactions in order to ensure market ac= tivity is being correctly reflected in the approriate market indices. For e= xample, Enron does provide EnronOnline transaction data to the Natural Gas = Exchange in Calgary in order to ensure that indices produced by Canadian En= erdata accuately reflect the activity in the market place (this will commen= ce on July 1, 2001). At the end of each day, EnronOnline makes available t= o all customers through EnronOnline the weighted average price of that day'= s transactions. The data associated with US Natural Gas is sent in this fo= rmat to Gas Daily for inclusion in their automated exchange index. Question 4: =09In addition, how does the data collection from EOL/Enron Net= works flow to the risk management groups? How is the information used? EnronOnline transactions are sent to different risk management groups depen= ding on the type of commodity transacted. For example, the group that hand= les U.S. gas settlements is not the same group as the one handling Australi= an Power. The transactions are transmitted to the appropriate back office = utilizing a "bridge": a process that is capable of communicating transacti= on information into the variety of systems that Enron operates. The potenti= al for manual input error is thereby removed providing Enron and the custom= er with more efficient recording of the transaction. The back office system= s at Enron use transaction information as an input into various functions, = such as invoicing, preparation of financial statements, risk management and= credit. These back office systems are used to track transactions from all= sources, including EnronOnline, the telephone, other trading systems, etc.= Information is maintained on these systems according to accounting and re= gulatory rules, regardless of the source of the transaction. The Enron commercial employee, who is offering to buy or to sell through En= ronOnline, does so through a price management software application, this no= tifies him immediately that a transaction is completed. The counterparty, = the Enron commercial employee and the risk management groups are all notifi= ed by the system at the same time. =20 The data from an EnronOnline transaction is used in exactly the same way as= information is used from any transaction completed by Enron. When a transa= ction is completed, EnronOnline serves purely as a deal capture system that= captures the data necessary to feed to our risk management system. Enron = Online does not feed settlement systems or credit systems. It does, howeve= r, automate our deal capture system, which improves the data feeds to our s= ettlement and credit systems. Question 5:=09Also, we assume that data regarding each trade is maintained = by EOL. If yes, in what form and for how long? EnronOnline transactions are captured in the EnronOnline database. The tra= nsactions are 'bridged' (duplicated) onto the various systems (databases) m= anaging the underlying commodity (the risk system associated with the commo= dity). We currently intend to store the data for a period of six years pos= t a transaction completing (for example, deliveries finishing) and this is = policy across all databases. In general, EnronOnline is an electronic trading platform that offers free,= real-time pricing information for approximately 1,800 products for 13 comm= odities, including electricity and natural gas. EnronOnline utilizes e-com= merce and Internet technology to conduct trading business that previously t= ook place on the telephone and by fax. EnronOnline is a proprietary, or "= one-to-many" trading platform. On a "one-to-many" platform, one entity, suc= h as Enron, is the principal to every trade (unlike a "broker" type platfor= m). =20 EnronOnline allows buyers and sellers to act on prices that can change by t= he second. Buyers or sellers can also see real-time price spreads of both = the sell price and the buy price. For example, on the telephone, a buyer p= reviously would call to ask about gas prices for each of the next six month= s, but by the time the trader finished reciting the prices, some prices cou= ld have changed. EnronOnline allows counterparties to see the 'bid and off= er prices" all the time to make more informed decisions. The energy products offered on EnronOnline are subject to federal oversight= as follows: The Commodity Futures Trading Commission ("CFTC") has enforc= ement authority over physical transactions on EnronOnline to police for pot= ential manipulation. The Federal Energy Regulatory Commission has regulato= ry authority over physical natural gas and electricity sales for resale. = =20 The CFTC has anti-fraud and anti-manipulation enforcement jurisdiction over= financially settled derivatives (swaps and options). Moreover, pursuant t= o the Commodity Exchange Act ("CEA"), Enron can only trade derivatives with= counterparties that qualify as sophisticated according to such rules. Suc= h transactions are permitted as long as both parties are Eligible Contract = Participants ("ECPs")(generally, corporations, partnerships and other entit= ies that meet net worth or asset tests). =20 EnronOnline is a proprietary, bilateral trading platform on which Enron is = a principal to every trade. As such, EnronOnline is not a "trading facilit= y" as defined under the CFMA. As a proprietary platform, EnronOnline uses = Internet technology to provide another method of communication between Enro= n and its customers. =20 From:=09Lisa Yoho@ENRON on 06/22/2001 12:14 PM To:=09Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron, Linda R= obertson/NA/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Greg Whalley/Enron= @EnronXGate, John J Lavorato/Enron@EnronXGate, Louise Kitchen/HOU/ECT@ECT, = David Forster/Enron@EnronXGate, William S Bradford/Enron@EnronXGate, James = D Steffes/NA/Enron@Enron, Elizabeth Sager/Enron@EnronXGate, Jeffrey T Hodge= /Enron@EnronXGate, Mark E Haedicke/Enron@EnronXGate, Mark Taylor/Enron@Enro= nXGate, Tom Briggs/NA/Enron@Enron, Chris Long/Corp/Enron@ENRON, Bob Butts/E= nron@EnronXGate cc:=09=20 Subject:=09Draft Responses to FERC Staff Attached are draft responses to FERC staff's questions relating to EOL rais= ed during and after their visit to Enron. Please provide comments to Lisa= Yoho (x53837) or Christi Nicolay (x37007) by COB on Monday, June 25th. = =20 Thanks! Christi and Lisa =20