Message-ID: <16747579.1075842012497.JavaMail.evans@thyme> Date: Wed, 18 Apr 2001 12:23:37 -0700 (PDT) From: david.forster@enron.com To: andy.zipper@enron.com Subject: RE: Charge Methodology Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Forster, David X-To: Zipper, Andy X-cc: X-bcc: X-Folder: \ExMerge - Zipper, Andy\charges X-Origin: ZIPPER-A X-FileName: andy zipper 6-26-02.PST Sorry - xxx (below) was supposed to be replaced with $54.50 per transaction, which is based on 2 * the July00-Dec00 transaction count. Note this results in $40 million of recovery, which includes Amita's costs. If you just look at $35 million recovery, the per-transaction fee is $47.68. This structure has the advantage that it is a little closer to the current cost allocation methodology, but this methodology is not well known by the business units. I actually started drafting this email with Alternative 1 as the recommendation, but decided that if we have to sell this internally, the brokerage lookalike structure would be easer to sell and defend. Dave -----Original Message----- From: Zipper, Andy Sent: Wednesday, April 18, 2001 1:35 PM To: Forster, David Subject: RE: Charge Methodology Okay. good start. I like the idea of a minimum for each product, and I like staying with existing structure for new products. Let's look at alternative 1, the flat fee per trade, and see what it would need to be to yield $35mm in revs based on average tradecount YTD, i.e. extraplolate that out for rest of year for a pro forma. Thoughts ? -----Original Message----- From: Forster, David Sent: Wednesday, April 18, 2001 9:29 AM To: Zipper, Andy Subject: Charge Methodology Andy, Attached are some ideas for possible charge structures for EnronOnline. I am recommending something which will probably be surprising, given our conversation. Let's discuss when you have a moment. Dave Recommendation a) For new commodity areas, continue to charge a set up fee in accordance with our previously agreed schedule. (e.g. $350,000 for new Market Area) b) Charge a per-volume maintenance fee which is comparable to industry brokerage fees, with a minimum charge equivalent to $4,000 per Product * Total number of Products). This method results in a total charge of approx. $46.5 million pa. (providing coverage for existing charges, some growth and London's charges) This method is recommended because it balances a fee to reflect real expenditure of effort on behalf on Enron Online staff (the per Product minimum) with a structure which is recognizeable (and hopefully more easily sold) to the traders. This structure is primarily not cost-driven, but is value-driven; those who derive the greatest value pay the highest costs. Example Charges Here are some example charges if we use the recommended method: Commodity Charge US Nat Gas $24,282,875 US Power $ 5,163,563 Metals $ 5,798,144 Crude & Products $ 3,578,560 Norwegian Power $ 380,869 Global Credit $ 400,000 Coal $ 966,265 Bandwidth $ 312,000 Or, by Group: ENA $30,647,772 EEL $ 8,774,844 EGM $ 6,741,955 EIM $ 106,250 EBS $ 312,000 Total: $46,582,821 Sensitivity With the recommended structure, if transactions for 2001 are: a) The same as the last half of 2000 * 2, then we recover approx. $46 million. b) Double, then we recover approx. $90 million c) Half, then we recover approx.$24 million c) Zero, then we recover approx. $6.4 million Alternatives - Basic Structure Any of the following could be combined to create additional alternatives: Alternative 1: As per the recommended structure, but charge a flat per-transaction fee instead of a per volume fee. This would result in a charge of $xx per transaction. Alternative 2: Charge by Product Types (we currently have 358, so full charge would be approx. $112,000 per Product Type) Alternative 3: Charge by Products (we currently have 1500 per day, so full charge would be approx. $27,000 per Product) Alternative 4: Charge by Country/Commodity (we currently have 61, so full charge would be approx. $656,000 per Country/Commodity) Alternative 5: Use the same methodology as currently used for the cost allocation (55% of cost allocation based on number of transactions and 45% based on Country/Commodity Markets Served) This would result in transaction charges of approx. xxx per transaction and $295,000 per Market served. Alternatives - Different Structures Alternative 5: Separate Marketing costs and charge directly to business units based on activity Alternative 6: Separate Development costs as a separate item not covered by the basic charge structure, but recovered solely through increases in EnronOnline business.