Subject: prudency
wes ,
as we discussed on friday , i think that there is merit to your arguments
regarding the release in prudency in north america . however , this may alter
the way we articulate the relative liquidity of our positions to banks and
ratings agencies . de facto , we will be saying that our balance sheet and
income statement reflect an ability to liquidate gas and power in north
america at the mid with no adverse effects . while this may be true ,
typically these types of institutions see the result of liquidating much more
liquid portfolios , i . e . , they will not believe that we have perfect
liquidity . i believe that we can satisfy both accounting and credit
considerations if we maintain an ability to calculate an " orderly
liquidation " under a negative pricing scenario ( basically , multiple horizon
var against a liquidating position ) . this is what we showed moody ' s last
month . the main difference is that the resulting number will be a hit to p & l
as opposed to having reserves against it . this is a long way of saying that
i think it would be a good idea to discuss prudency methodology with both rac
and treasury once you have finalized a course of action .
ted