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Enron Mail |
Mark -
thanks for the response. I agree with you that identifying all of the Regulatory Risks associated wi= th=20 either a specific asset (e.g., Sutton Bridge) or a trading book (e.g., UK= =20 gas) is impossible. We could have 50 people spending 100% of their time=20 sitting around dreaming up 'what-ifs' and still not see everything. On the= =20 other hand, as your team does now, once we have been able to identify=20 reasonable risks, it is more than appropriate to attempt to impute /=20 calculate the potential loss and assign people to mitigate these risks. =20 On the flip side of the risk coin, the process of identifying Regulatory Ri= sk=20 should also allow Govt Affairs, working with our business colleagues, to= =20 identify rule changes / policy changes that could positively impact our=20 bottom line. For instance, we could push through regulatory action for a= =20 retail rate decrease providing EES with more commodity margin. I don't disagree that these risks which I am trying to track are business= =20 risks. But they are fundamentally the result of changes in regulatory poli= cy=20 (taxes, export/import, rates, etc.). Because Enron is actively participati= ng=20 in many regulated or semi-regulated environments, regulatory risks are=20 business risks. =20 Finally, it is my understanding that Govt Affairs needs to be involved in= =20 assisting our business people in managing these risks. To this end, the=20 Regulatory Risk Working Group has identified the following set of=20 responsibilities for Govt Affairs: _ To identify Regulatory Risks within current assets.=20 _ To analyze pending transactions for Regulatory Risks.=20 _ To recommend alternative commercial arrangements to reduce Regulatory Ris= k. _ To assess and compute =01&value at risk=018 for each Regulatory Risk. _ To develop transfer mechanisms for Regulatory Risk (e.g., insurance). _ To propose and/or plan mitigation devices for Regulatory Risks. _ To assign EGA and/or commercial responsibility and resources for mitigati= on=20 efforts. _ To review mitigation efforts against existing plans. _ To advocate regulatory frameworks which reduce Regulatory Risk (e.g., BIT= ). _ To prevent catastrophic Regulatory Risk events (< $25 MM).=20 _ To report to Enron management global Regulatory Risk position.=20 _ To coordinate knowledge with other risk groups within Enron. I look forward to seeing you when you are in Houston and discussing this=20 further. Like you, I don't want to create some process that provides littl= e=20 to no value. JDS Mark Schroeder@ECT 02/10/2000 03:17 AM To: James D Steffes/HOU/EES@EES cc: Richard Shapiro/HOU/EES@EES, Steven J Kean/HOU/EES@EES, Sharon=20 Killey/LON/ECT@ECT=20 Subject: Re: Assignment of Regulatory Risk Responsibility for Current Asset= s =20 yes, let's meet. I will have Sharon try to put something in the diary. I would suggest the hardest part is "anticipating" these changes. here are= =20 some examples: UK Climate Change Levy, even other Government Departments i= n=20 the UK are not allowed to kow what is in the Budget until the Chancellor=20 delivers it to Parliament. Turkish fuel consumption tax, I believe, was=20 modified without prior notice. In Romania, Doug Wood met with the Energy= =20 Minister on the proposed Gas Decree, and 2 days later they passed another= =20 draft of the decree, which had been rejected before Christmas, verbatim. T= om=20 Briggs can tell you that the annual revenue formula for BG TransCo, which= =20 affects all of our UK assets, can swing up or down by 10% per annum, and=20 cannot be predicted/modelled (we and our consultants have tried). Decision= s=20 by Polish regulator to price regulate generation in Poland, notwithstanding= =20 our PPA, was another example. The list goes on. I remain a sceptic that a= ll=20 of these risks, or even many of them, can be "identified" a priori. Once w= e=20 fact them, we do assess/mitigate. In Europe, I think we accept these as=20 "business" risks, that the regulatory team responds to. mcs =20 James D Steffes@EES 09/02/2000 21:02 To: Mark Schroeder/LON/ECT@ECT cc: Richard Shapiro/HOU/EES@EES, Steven J Kean/HOU/EES@EES=20 Subject: Re: Assignment of Regulatory Risk Responsibility for Current Asset= s =20 Mark -- Thanks for the additions. I will add to the Asset / Responsibility Matrix. The definition I have been using is that Regulatory Risk is a subset of=20 Sovereign Risk (with the other element being Political Risk). Regulatory= =20 Risk is a "legal" action taken by a government or its agent which modifies= =20 Enron's business environment, most often directly through modifications in= =20 the energy and communications markets, but also in broad areas such as taxe= s=20 and export - import policies. Political Risk is a "supra-legal" action tha= t=20 has the same impact (e.g., expropriation). Currently the Regulatory Risk Working Group (Fiona Grant is member) is tryi= ng=20 to put in place a "standard" process to review and analyze regualtory risk= =20 around the globe - quite an undertaking. When I use the term Regulatory Ri= sk=20 Management, I am primarily talking about such a process. The key elements = of=20 any risk management function are (1) identification, (2) assessment, (3)=20 mitigation / transference, and (4) audit. You would probably agree that th= e=20 most difficult problem is to try and assess the impact of any Regulatory Ri= sk=20 event. The other key goal is to have a Mitigation Plan in place with an=20 assigned person to "manage" our activities so that Enron does not face an= =20 associated loss. My goal is to try an have this process in place by mid-year. That would=20 include having undertaken a structured review of our current Assets (the=20 reason for the original questions) and the ability to review pending deals.= =20 When you come over to Houston next week I would really like to sit down and= =20 go through my thoughts with you. =20 Thanks. JDS =20 Mark Schroeder@ECT 02/09/2000 05:48 AM To: James D Steffes/HOU/EES@EES cc: Richard Shapiro/HOU/EES@EES, Steven J Kean/HOU/EES@EES, Fiona=20 Grant/LON/ECT@ECT, Philip Davies/LON/ECT@ECT=20 Subject: Re: Assignment of Regulatory Risk Responsibility for Current Asset= s =20 Jim - overnight I realised you need to add our project in Turkey (Fiona=20 Grant) and Poland (Philip Davies). I have not given you any one person, as= =20 the regulatory issues seem to be country/environment specific, and instead = I=20 have given you the names of each person with country responsibility. Indee= d,=20 at year-end we completed a financial transaction (Project Margaux), in whic= h=20 regulatory risk was reviewed. A definition of Rugulatory Risk would be=20 helpful, e.g., in most of these markets, trading arrangements are being=20 re-written, or developed for the first time, this put existing PPAs under= =20 pressure. Would energy taxes, carbon taxes/trading, transmission pricing= =20 (both for evacuation of power, and delivery of gas), changes in property=20 tax/fuel tax regimes, risk of price regulation, all be included? Do you ha= ve=20 checklist? We can identify these risks, what is meant by "manage"? We wor= k=20 on these types of issues on a daily basis, so I am unclear as to what else = is=20 intended or implied. thanks mcs =20 James D Steffes@EES 08/02/2000 17:24 To: Richard Shapiro/HOU/EES@EES, Mark Schroeder/LON/ECT@ECT cc: Steven J Kean/HOU/EES@EES=20 Subject: Assignment of Regulatory Risk Responsibility for Current Assets Rick & Mark -- One of the first steps in building our Regulatory Risk process is to=20 establish responsibility for the current assets owned/managed by Enron. =20 Having a point person that I can contact will help me immensely. Attached is a listing of the assets that I have been able to pull together = --=20 there may be more that you know about. Is it possible for us to agree upon the person(s) who will manage the=20 Regulatory Risk with each of these assets? Please feel free to call me to= =20 discuss. I would like to have this assignment process complete within the month. The same type of effort will be necessary as we review pending transactions= . Thanks.
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