Subject: Re: Draft Responses to FERC Staff
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Mon, 25 Jun 2001 04:58:00 -0700 (PDT)

We do not seem to be answering the questions and the format makes it pretty 
difficult to understand where we are answering each question.  Is this a 
style we use with FERC?  If so, fine.  But if not, here's my attempt, I have 
changed quite a few answers too.

Question1: In providing an answer to our questions regarding risk assessment 
or management, would you please provide an explanation to the following?  We 
understand that EOL requires that a counter party, before accessing EOL to do 
business with Enron North America, must undergo a credit worthiness 
evaluation.   When a counter party executes or clicks on a price, EOL does an 
instant credit check before confirming the transaction.
However, Enron may not only buy from a counter party, it may sell.  What sort 
of creditworthiness standards must Enron provide to a counter party utilizing 
EOL to purchase from Enron?
Are there industry standard creditworthiness agreements regarding counter 
party credit risk that Enron uses?  If yes, may we have copies?  If Enron 
utilizes its own agreements, please provide us with a copy.

All counterparties are assessed by our credit department prior to any 
transaction being entered into by Enron whether the transaction is being 
conducted over the phone or through EnronOnline.  Enron, as the principal to 
all purchases and sales on EnronOnline and when completing transactions on 
the telephone or in writing, requires counterparties to be creditworthy.  In 
addition, Enron,s risk management process is required to be approved by the 
Enron Board of Directors, according to Securities Exchange Act regulations as 
a publicly held company.  Enron,s risk policies are provided in Enron,s 
publicly available [[10-Q??]]_______ audited financial statements filed on a 
quarterly and annual basis with the SEC.  Enron maintains a separate risk 
management 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 
Chairman of Enron Corp. and has the authority to instruct the suspension of 
transactions in order to ensure that trading limits are not exceeded.  In 
addition, every counterparty of Enron has to clear a credit check before they 
can transact through EnronOnline.  The Credit Risk Management group approves 
a counterparty for a specific credit limit and tenor limit which are embedded 
within the EnronOnline database.    Every transaction is passed through an 
electronic credit check to assure that the credit limits and tenor limits are 
not violated prior to Enron accepting the counterparty,s bid or offer via 
EnronOnline, such credit checks are done automatically and there is 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 flow on 
all Enron transactions including EnronOnline continually.   EnronOnline does 
provide CRM with electronic alerts when customers approach credit limits or 
breach credit limits.  No further transactions are executed unless 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 
EnronOnline are all governed by either a Master Agreement or the General 
Terms 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 
is negotiated with the Counterparty offline and includes negotiated bilateral 
credit terms and these terms govern any transactions entered into on 
EnronOnline.  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 counterparty chooses to accept or not online, should the 
counterparty not want to accept to language in the contract (for credit or 
other reasons), the Helpdesk for EnronOnline will facilitate contact between 
the Enron Credit group or Enron Legal group with the counterparty allowing 
the Counterparty to negotiate 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 
collect, 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.  

EnronOnline does not require customers to have cookies enabled.  

Question 3: Also, 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 data 
from EnronOnline.  Reuters recently began showing quotes from EnronOnline 
(http://about.reuters.com/enrononlinequotes/), which also provides customers 
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 download the 
results into an Excel spreadsheet on EnronOnline  The system also allows for 
administrative users, thereby allowing the back offices of counterparties to 
monitor the trading activity and deal with it appropriately in line 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 
activity is being correctly reflected in the approriate market indices. For 
example, Enron does provide EnronOnline transaction data to the Natural Gas 
Exchange in Calgary in order to ensure that indices produced by Canadian 
Enerdata accuately reflect the activity in the market place (this will 
commence on July 1, 2001).  At the end of each day, EnronOnline makes 
available to all customers through EnronOnline the weighted average price of 
that day's transactions.  The data associated with US Natural Gas is sent in 
this format to Gas Daily for inclusion in their automated exchange index.

Question 4:  In addition, how does the data collection from EOL/Enron 
Networks flow to the risk management groups?  How is the information used?

EnronOnline transactions are sent to different risk management groups 
depending on the type of commodity transacted.  For example, the group that 
handles U.S. gas settlements is not the same group as the one handling 
Australian Power.  The transactions are transmitted to the appropriate back 
office utilizing a &bridge8:  a process that is capable of communicating 
transaction information into the variety of systems that Enron operates. The 
potential for manual input error is thereby removed providing Enron and the 
customer with more efficient recording of the transaction. The back office 
systems 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 regulatory rules, regardless of the source of the 
transaction.

The Enron commercial employee, who is offering to buy or to sell through 
EnronOnline, does so through a price management software application, this 
notifies him immediately that a transaction is completed.  The counterparty, 
the Enron commercial employee and the risk management groups are all notified 
by the system at the same time.  

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 
transaction 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, 
however, automate our deal capture system, which improves the data feeds to 
our settlement and credit systems.

Question 5: Also, 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 
transactions are 'bridged' (duplicated) onto the various systems (databases) 
managing the underlying commodity (the risk system associated with the 
commodity).  We currently intend to store the data for a period of six years 
post 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 
commodities, including electricity and natural gas.  EnronOnline utilizes 
e-commerce and Internet technology to conduct trading business that 
previously took place on the telephone and by fax.   EnronOnline is a 
proprietary, or &one-to-many8 trading platform. On a &one-to-many8 platform, 
one entity, such as Enron, is the principal to every trade (unlike a &broker8 
type platform).  

EnronOnline allows buyers and sellers to act on prices that can change by the 
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 
previously would call to ask about gas prices for each of the next six 
months, but by the time the trader finished reciting the prices, some prices 
could have changed.  EnronOnline allows counterparties to see the +bid and 
offer prices8 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 (&CFTC8) has 
enforcement authority over physical transactions on EnronOnline to police for 
potential manipulation.  The Federal Energy Regulatory Commission has 
regulatory authority over physical natural gas and electricity sales for 
resale.  

The CFTC has anti-fraud and anti-manipulation enforcement jurisdiction over 
financially settled derivatives (swaps and options).  Moreover, pursuant to 
the Commodity Exchange Act (&CEA8), Enron can only trade derivatives with 
counterparties that qualify as sophisticated according to such rules.  Such 
transactions are permitted as long as both parties are Eligible Contract 
Participants (&ECPs8)(generally, corporations, partnerships and other 
entities that meet net worth or asset tests).  

EnronOnline is a proprietary, bilateral trading platform on which Enron is a 
principal to every trade.  As such, EnronOnline is not a &trading facility8 
as defined under the CFMA.  As a proprietary platform, EnronOnline uses 
Internet technology to provide another method of communication between Enron 
and its customers.  

From: Lisa Yoho@ENRON on 06/22/2001 12:14 PM
To: Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron, Linda 
Robertson/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@EnronXGate, Tom 
Briggs/NA/Enron@Enron, Chris Long/Corp/Enron@ENRON, Bob Butts/Enron@EnronXGate
cc:  

Subject: Draft Responses to FERC Staff

Attached are draft responses to FERC staff's questions relating to EOL raised 
during and after their visit to Enron.   Please provide comments to Lisa Yoho 
(x53837) or Christi Nicolay (x37007) by COB on Monday, June 25th.   

Thanks!

Christi and Lisa