ees operational risk per our conversation , here is the model that i have for simon . the notes
that i gave you were from some work i did back in september as i was looking
for volume numbers . the notes show what drives the final cash flow numbers .
briefly , the issue surrounds exactly what is meant by nonmarket and
noncredit risk . ideally , this would be anything that effects npv of the
deal . however , i think that we should limit ourselves to those things that
effect the time and amount of the eam volumes . even here , such a problem set
is quite large . if you glance at the spreadsheet model , you will notice that
there exists a large number of possible items that effect the eam volumes .
if we are to do this rigorously , then it is necessary to tear apart ees ' s
business model , and although such an attempt to do so would be noble , the
scope of such an excercise may be too large . we need a clear definition of
ees operational risk .
briefly , from the ees deals that i have looked at , two things drive their
profit : a long term bet that power prices will go down , and that we can
improve the facility through various enhancements . each of these may be
gleaned from the spreadsheet , as well as the assumptions regarding the
funding of the facility improvements and so on . 95 % of the savings is
assumed to come from power , and 5 % from gas . ( the effeciency gain may not be
explicitly given ) . if we have data that show the realized efficiency gains ,
then it would be simple [ in principle ] to determine a distribution , and hence
a distribution of eam volumes , npv ' s , etc . at this time , i understand that
rac has determined some of the realized efficiency gains , but my knowledge is
quite sketchy . jay hachen may have more info .
if i get a chance , i will try to see if i can do a " proof of concept "
excercise , but i have a late january deadline on something else .
another point : even if we are successful in doing this for the spreadsheet
model , ees has chosen to book things differently . i do not have a thorough
understanding of their it systems , but at least in principle , if we can do
this for the spreadsheet model , then we can do it in their it environment
( data are data are data ) . they may book efficiency gains through improvement
type , such as gains due to compressors , chillers , boilers , etc . if this is
indeed the case , then we need to have distributions for each type of
improvement .
if we are successful on the spreadsheet and not successful with their it
systems , then the other alternative is to build our own reporting system . it
would be similar to a database where the recordsets are replaced by excel
workbooks . it can be constructed in such a way as to enable us to run
simulations and queries , but this would probably take me about five or six
weeks .
finally , don hawkins does operational audits for enron ' s physical assets .
he sends out teams to audit our pipelines and strategic assets . i don ' t
think that he does it for ees , but you might want to give him a call anyway .
- kevin k .
ps : the ees lunch meeting has been moved to wednesdays . jay hachen will
know more .
ees operational risk
per our conversation , here is the model that i have for simon . the notes
that i gave you were from some work i did back in september as i was looking
for volume numbers . the notes show what drives the final cash flow numbers .
briefly , the issue surrounds exactly what is meant by nonmarket and
noncredit risk . ideally , this would be anything that effects npv of the
deal . however , i think that we should limit ourselves to those things that
effect the time and amount of the eam volumes . even here , such a problem set
is quite large . if you glance at the spreadsheet model , you will notice that
there exists a large number of possible items that effect the eam volumes .
if we are to do this rigorously , then it is necessary to tear apart ees ' s
business model , and although such an attempt to do so would be noble , the
scope of such an excercise may be too large . we need a clear definition of
ees operational risk .
briefly , from the ees deals that i have looked at , two things drive their
profit : a long term bet that power prices will go down , and that we can
improve the facility through various enhancements . each of these may be
gleaned from the spreadsheet , as well as the assumptions regarding the
funding of the facility improvements and so on . 95 % of the savings is
assumed to come from power , and 5 % from gas . ( the effeciency gain may not be
explicitly given ) . if we have data that show the realized efficiency gains ,
then it would be simple [ in principle ] to determine a distribution , and hence
a distribution of eam volumes , npv ' s , etc . at this time , i understand that
rac has determined some of the realized efficiency gains , but my knowledge is
quite sketchy . jay hachen may have more info .
if i get a chance , i will try to see if i can do a " proof of concept "
excercise , but i have a late january deadline on something else .
another point : even if we are successful in doing this for the spreadsheet
model , ees has chosen to book things differently . i do not have a thorough
understanding of their it systems , but at least in principle , if we can do
this for the spreadsheet model , then we can do it in their it environment
( data are data are data ) . they may book efficiency gains through improvement
type , such as gains due to compressors , chillers , boilers , etc . if this is
indeed the case , then we need to have distributions for each type of
improvement .
if we are successful on the spreadsheet and not successful with their it
systems , then the other alternative is to build our own reporting system . it
would be similar to a database where the recordsets are replaced by excel
workbooks . it can be constructed in such a way as to enable us to run
simulations and queries , but this would probably take me about five or six
weeks .
finally , don hawkins does operational audits for enron ' s physical assets .
he sends out teams to audit our pipelines and strategic assets . i don ' t
think that he does it for ees , but you might want to give him a call anyway .
- kevin k .
ps : the ees lunch meeting has been moved to wednesdays . jay hachen will
know more .