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1、UV0618Version1.2ENRONCORPORATION’SWEATHERDERIVATIVES(A)Everybodytalksabouttheweather,butnobodydoesanythingaboutit.1InOctober2000,MaryWatts,thechieffinancialofficerofPacificNorthwestElectric(PNW),autilityservicingthePacificNorthwestregionoftheUnitedStates,reviewedthefinancialplanforPNW’s2
2、000–01forthcomingwinterseason.Wintertemperaturesaffectedthefirm’srevenues:thecoldertheseason,thegreatertheelectricityusage.Sherecalledthatthelastfewyearshadofferedawarmer-than-averagewinterclimate,resultinginadversefinancialresultsforPNW.Theweather,combinedwithrapidderegulationinPNW’smar
3、ketarea,meantthatthefirmreportedsubstantiallynoEPSgrowthfrom1995to1999,inanotherwisebuoyanteconomicsetting.PNW’sstockpricehadsufferedaccordingly.Onherdeskwasareportfromaweather-advisoryservicepredictinganotherunseasonablywarmwinter.WattsrememberedarecentconversationwithMikeJames,areprese
4、ntativeofEnronCorporation.Jameshadpresentedanew“weather-derivative”productfromEnronthatheclaimedcouldminimizePNW’sweather-relatedvolumerisk.Wattswonderedhowthesederivativesworked,andhowtheymightbeusedtohelprestorePNW’scredibilityinthecapitalmarkets.ShouldsheconsiderpurchasingEnron’sweath
5、er-protectionproductsfortheupcomingwinterseason?Shewouldneedtodecidesoonabouttheuseofthesederivativesifshewantedtoputinplaceahedgeforthewintermonthsahead.PacificNorthwestElectricPNWwasasignificantproducerofelectricpower,withprimarycoverageinpartsofOregon,Washington,NorthernCalifornia,Ida
6、ho,andMontana.Itsrevenuesin1999were$111CharlesDudleyWarner,inaneditorialintheHartfordCourant,1897.ThiscasewaspreparedfromfieldresearchbyMariCapestanyandProfessorsRobertBrunerandSamuelBodily.Itisintendedtoserveasabasisforclassdiscussionratherthantoillustrateeffectiveorineffectivemanageria
7、ldecisionmaking.Certainnames,facts,andfinancialdatahavebeendisguisedtopreserveconfidentialinformationand/orsharpenthemanagerialissuesinthecase.Theresultingpresentation,however,reasonablyreflectstheactualmanagerialsetting.TheassistanceandcooperationofEnronCorporationisgrat
