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 09:58:50 -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 "bridge":  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-many" trading platform. On a "one-to-many" platform, one entity, such as Enron, is the principal to every trade (unlike a "broker" 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 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 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 ("CEA"), 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 ("ECPs")(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 facility" 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