Got it

-----Original Message-----
From: Buy, Rick 
Sent: Thursday, August 16, 2001 6:26 PM
To: Port, David
Subject: RE: Policy and other items


OK- here is my view. I believe the Bod approved a policy that had discretionary var in it even if the one presented did not. We need to modify the policy to include dis. var and have it be $50MM. I believe we can take extreme liberty here given the situation. We can clean everything up after next meeting. Poetic license from the poets. Please confirm to me you got this message as electrons flow a little more slowly up here (as does everything else). Rick

-----Original Message----- 
From: Port, David 
Sent: Thu 8/16/2001 1:23 PM 
To: Buy, Rick 
Cc: 
Subject: Policy and other items



Rick 

1       Limits. Here's how I interpreted the BOD approvals: 

The BOD approved an aggregate of $150MM, with $50MM of discretionary VaR, plus the new policy which doesn't recognise the concept of discretionary VaR. So here's what I did:

Effectively I allocated all the $50MM of discretionary such that Pug's "Big Buckets" are now as follows: 

US Gas                          $100MM 
US Elec                         $100MM 
Europe Gas & Elec                       $35MM 
Global Products                 $20MM 
Financials                              $15MM 
Emerging Businesses             $20MM 

If you have a calculator handy you'll see that this aggregates to $149.164MM (assuming zero correlation). 

At Business Unit level the individual commodity limits are unchanged, and I have put limits over the Business Units themselves as follows:

Enron Americas                          $82MM 
EWS OOC (aka George Martingale) $3MM 
EEL                                     $34MM 
EGM                                     $23MM 
EIM                                     $8MM 
EBS                                     $4MM 
PGE                                     $4MM 
ETS                                     $1MM 

Again I used root-sum-of-squares, and remember the original commodity limits (by VaR, net open and mat gap) are still in place (e.g. gas = $61MM as before). So that keeps it screwed down pretty tight and preserves the discretion between the "Big Buckets" and the Business Units.

I spoke to Rebecca C who could only remember the decision outlined above, but offered to call Pug and let him know. I said I would come back on that. I think we should do that ourselves, possibly with Lay in the loop (?).

Cleared it with Whalley today (he laughed), mentioned the dwindling membership of the Risk Management Committee and said "In my current role I think I should be asking for limits, not approving them"

...and then... 

2       The gas desk lost $98MM yesterday 

A combination of a very bullish AGA number (3 Bcf injection - not a typo - three Bcf !) plus some hurricane activity in the gulf sent prices up by between 25 and 30c all across the strip. The long and the short of it was we are long Nov - Jan but short (big-time) out beyond that - the rest is arithmetic.

So we have two flavors of P&L notification, one at the business unit level (Americas) $89MM loss against VaR limit of $82MM; the other as a commodity, losing $126MM (the desk aren't the only ones with a gas position, as usual) against the Big Bucket number of $100MM. Total trading was a loss of $106MM against a VaR limit of $150MM so no calls to Pug required (thank goodness).

That's it for now, hope you're having fun and remember: pan-fry the big ones and throw back the little ones. 

DP