-----Original Message-----
From: 	"John D. Martin" <J_Martin@baylor.edu>@ENRON [mailto:IMCEANOTES-+22John+20D+2E+20Martin+22+20+3CJ+5FMartin+40baylor+2Eedu+3E+40ENRON@ENRON.com] 
Sent:	Thursday, June 21, 2001 10:02 AM
To:	Kaminski, Vince J; jmccormack@sternstewart.com
Subject:	Did you guys see this?


"Enron Corporation's Weather Derivatives (A) & (B)"

       BY:  SAMUEL E. BODILY
               University of Virginia
               Darden Graduate School of Business Administration
            ROBERT F. BRUNER
               University of Virginia
               Darden Graduate School of Business Administration
            MARI CAPESTANY
               Enron Corporation

Document:  Available from the SSRN Electronic Paper Collection:
            http://papers.ssrn.com/paper.taf?abstract_id=274195

Paper ID:  Darden Case Nos.: UVA-F-1299-M and UVA-F-1300-M
     Date:  2000

  Contact:  SAMUEL E. BODILY
    Email:  Mailto:bodilys@darden.gbus.virginia.edu
   Postal:  University of Virginia
            Darden Graduate School of Business
            Administration
            Box 6550
            Charlottesville, VA 22906-6550  USA
    Phone:  804-924-4813
      Fax:  804-293-7677
  Co-Auth:  ROBERT F. BRUNER
    Email:  Mailto:brunerr@darden.gbus.virginia.edu
   Postal:  University of Virginia
            Darden Graduate School of Business
            Administration
            Box 6550
            Charlottesville, VA 22906-6550  USA
  Co-Auth:  MARI CAPESTANY
    Email:  Mailto:mari.capestany@enron.com
   Postal:  Enron Corporation
            Enron Investment Partners
            1400 Smith Street
            Houston, TX 77002-7316  USA

Requests For Copies:
  A free inspection copy of the case (in CD-ROM format only) and
  its teaching note (in paper format) may be requested by email
  or telephone to Darden Educational Materials Services at the
  coordinates below. Please mention FEN.

  Email: Mailto:dardencases@virginia.edu
  Phone: (800) 246-3367 (toll-free in the U.S.); (804) 924-0902
  (for inquiries from outside the U.S.)

ABSTRACT:

  SUBJECT AREAS: Risk management, financial innovation, options
  and derivatives.
  CASE SETTING: 2000, U.S.


  In October 2000, the chief financial officer of Pacific
  Northwest Electric (PNW) is considering whether to use weather
  derivatives to reduce the weather-related risk in the volume of
  megawatt hours (MWh) sold.

  The (A) case may be used to stimulate student discussion of
  how the derivative contracts work, why one might want or not
  want to take such a contract, and how one would decide whether
  to use the weather protection. No prior exposure to options or
  derivatives is needed for this discussion; indeed, the case may
  be used as an introduction to options.

  The (B) case involves valuing the available contracts and
  deciding, which, if any, is the best contract for PNW.
  Spreadsheet simulation can be used to determine the probability
  distribution of the payout of the contract and the probability
  distribution for the net operating contribution including the
  contract payout, which is the basis for comparing alternatives.
  It is instructive for the students to think about what would be
  the ideal contract to reduce exposure to the greatest intent.
  This pushes students towards the optimal hedge ratio.

  Specific learning objectives of these cases include these:

  - to expose students to the cutting edge in financial
    innovation

  - to illustrate the use of options to reduce business risk

  - to challenge the students to value options where the
    Black-Scholes model cannot be used, and simulation can be
    readily employed

  - to experience the perspective of top management in risk
    management activities.


JEL Classification: G30
John D. Martin
Carr P. Collins Chair in Finance
Finance Department
Baylor University
PO Box 98004
Waco, TX 76798
254-710-4473 (Office)
254-710-1092 (Fax)
J_Martin@Baylor.edu
web:    http://hsb.baylor.edu/html/martinj/home.html