Rev. Feb. eight, 2011
This kind of document is authorized to be used only simply by Mattia Tenaglia at Tecnologico de Monterrey. Please tend not to copy or perhaps redistribute. Contact [email protected] com for concerns or additional permissions.
ENRON CORPORATION'S WEATHER CONDITION DERIVATIVES (A)
Everybody discusses the weather, although nobody really does anything about it. 1
In October 2000, Mary W, the chief economic officer of Pacific Northwest Electric (PNW), a computer program servicing the Pacific Northwest area of the United States, analyzed the monetary plan for PNW's 2000вЂ“01 forthcoming winter season. Winter season temperatures afflicted the business's revenues: the colder the season, the greater the electricity use. She remembered that the last few years had presented a warmer-than-average winter weather, resulting in adverse financial outcomes for PNW. The weather, combined with rapid deregulation in PNW's market area, meant that the firm reported substantially not any EPS expansion from 95 to 99, in an in any other case buoyant financial setting. PNW's stock price had experienced accordingly. On her behalf desk was a report coming from a weather-advisory service forecasting another unseasonably warm wintertime. Watts kept in mind a recent conversation with Mike James, an agent of Enron Corporation. Adam had shown a new " weather-derivativeвЂќ item from Enron that this individual claimed may minimize PNW's weather-related amount risk. Watts wondered just how these derivatives worked, and exactly how they might be used to help bring back PNW's reliability in the capital markets. Should certainly she consider purchasing Enron's weather-protection goods for the upcoming winter season? She would ought to decide soon about the use of these derivatives if the girl wanted to set up a hedge for the winter months in advance.
Pacific Northwest Electric powered
PNW was a significant developer of electric electric power, with main coverage in some parts of Oregon, Washington, Upper California, Idaho, and Montana. Its income in 1999 were $11 billion dollars; net income was $800 mil. Earnings every share had been $1. 04 in 1999, up from $1. 03 in 1
Charles Dudley Warner, in an content in the Hartford Courant, 1897.
This case was prepared coming from field study by Mari Capestany and Professors Robert Bruner and Samuel Actual. It is intended to serve as a basis to get class discussion rather than to demonstrate effective or perhaps ineffective managerial decision making. Specific names, specifics, and monetary data had been disguised to preserve confidential information and/or touch up the managerial issues in the case. The ensuing presentation, however , reasonably demonstrates the actual managerial setting. The help and assistance of Enron Corporation is usually gratefully recognized. Copyright В© 2000 by the University of Virginia Darden School Base, Charlottesville, VETERANS ADMINISTRATION. All legal rights reserved. To order copies, send an e-mail to [email protected] com. No component to this distribution may be reproduced, stored in a retrieval system, used in a spreadsheet, or perhaps transmitted in any form or by any kind of meansвЂ”electronic, physical, photocopying, recording, or otherwiseвЂ”without the agreement of the Darden School Basis.
Page 1 of 12
This record is certified for use simply by Mattia Tenaglia for Tecnologico para Monterrey. Make sure you do not copy or redistribute. Contact [email protected] com to get questions or perhaps additional permissions.
1995. Remembering the quite simply flat EPS trend to get PNW and expressing matter for the firm's gross coverage, investments analysts were reluctant to advocate possessing PNW's shares. Thus, the utility's discuss price underperformed broad industry indexes and indexes of the utility industry. Watts estimated that the warmer-than-usual weather from the past several years experienced accounted for regarding two-thirds of the firm's underperformance in revenue. PNW was a capital-intensive organization, spending about $1 billion a year in capital...