na gas and power limits the enron bod approved the some limit changes today , effective for trading
day tuesday , february 13 , 2001 , consistent with the risk management policy ' s
intent to provide a trading limit framework whereby management can review
enron ' s consolidated exposure to commodities . to faciliate the aggregation
and reporting of enron ' s consolidated exposure to commodities , the limit
structure was modified to provide for aggregation of north american natural
gas and electricity , with ees ' s na gas and power positions included , and with
a separate business unit sub - limit for ees .
policy amendments were as follows :
u clarify the cross - commodity trading policy to specify that trading limits
are to be applied against enron  , s consolidated commodity positions on an
individual commodity group basis ; enron  , s consolidated daily position report
should provide required market risk disclosures by primary commodity group ;
( for example , enron  , s exposure to the north american natural gas market shall
be aggregated across the company ) .
 ) delegate cross - commodity trading approval among established commodity
groups to the respective business units offices of the chairman , with
appropriate reporting to the enron corp . chief risk officer .
u specify the operational control requirement that all trades executed over
the telephone must be recorded electronically .
cross - commodity trading authority was not automatically pre - approved for
anyone in the company . authority to trade a commodity for which you are not
the authorized trader must be obtained from the business unit office of the
chairman for the commodity group that is authorized to trade that commodity ,
with appropriate reporting as noted below .
north american cross - commodity limits
var limit none ( terminated the $ 5 mm var limit )
north american natural gas
net open position 500 bcf
maturity / gap risk limit 200 bcf
var limit $ 61 mm ( ees - $ 1 mm ) * *
north american electricity
net open position 90 twh
maturity / gap risk limit 25 twh
var limit $ 54 mm ( ees - $ 4 mm ) * *
* * ees ' s $ 5 mm var was allocated between gas and power for purposes of
calculating consolidated na gas and power limits . from a business unit
perspective , the $ 5 mm var limit will continue to be monitored for ees in
total .
below are relevant excerpts from the revised policy addressing the
cross - commodity trading guidelines . i will distribute the entire updated
policy as soon as we incorporate the bod ' s comments .
v . operations and controls .
b . position reporting . " . . . for purposes of limit monitoring and aggregation
of enron  , s consolidated trading results , enron  , s consolidated daily position
report should include the net open position , maturity / gap position , profit or
loss , and potential exposure ( var ) for approved commodity groups consolidated
across the company without regard to which business unit undertook the
trading activity . in those instances where limits are granted to a business
unit for a basket of commodities , reporting for individual commodity risk
books shall be maintained to facilitate aggregation of enron  , s actual
consolidated commodity specific exposure . management reporting may
separately provide business unit sub - limit monitoring and trading results
aggregated according to management lines . "
e . transaction approval and execution . " only those employees designated by
the enron corp . chief risk officer or his designee ( s ) will be authorized to
enter into transactions on behalf of enron . the chief risk officer must also
maintain a record of those employees responsible for the individual commodity
groups ( commodity group manager ) as specified in the appendices . individuals
will be assigned as commodity leaders to manage enron  , s aggregate position
across the company as determined necessary by the chief risk officer . . . "
vi . policy amendment authority
b . cross - commodity position authorization . if in the ordinary course of its
business an enron business unit or trading desk incurs an exposure to an
underlying commodity or financial instrument for which it does not have
explicit authority to carry , this exposure should be hedged internally with
the appropriate enron desk ( s ) , with appropriate notification to the chief
risk officer or his designee ( s ) . hedge positions should be in instruments
that have an observable correlation with the underlying exposure , and should
be rebalanced regularly to substantially neutralize the underlying exposure .
upon notification to the chief risk officer or his designee ( s ) , the enron
business unit office of the chairman who has authority for that commodity
group may authorize a specific trader in a different commodity group to take
speculative positions with other enron trading desks in commodities and / or
financial instruments other than those which that trader has explicit
authority to trade ( i . e . the business unit office of the chairman for north
american natural gas may authorize a trader in the coal group to trade gas
with the north american natural gas desk ) . for limit monitoring purposes
of enron  , s consolidated trading results , these cross - commodity positions
shall be captured by individual commodity to facilitate aggregation and
reporting of enron  , s consolidated exposure by commodity in the daily position
report ( coal desk  , s gas position will be aggregated with the north american
natural gas commodity group . )
if you have any questions , feel free to call vlady at x 36954 , me at x 30429 ,
or david port at x 39823 .
regards ,
cassandra schultz .