Question-and-Answer Session
Operator
(Operator Instructions). Our first question comes from Paul Fremont with Jefferies.
Paul Fremont - Jefferies
The first is on the customer supply side. I think the annual guidance showed a decrement of $74 million, but in the first quarter it looks like the gross margin increase was $81 million. So I just want to understand, number one, what happened in the customer supply business, and how should we look at expectations for the year.
The second question is really on the gross derivative asset side. I looked through your presentation on derivatives, but can you explain why the level of your gross derivative activity which I guess ended the first quarter around $50 billion is so much higher than any of your peers?
Jack Thayer
Paul this, is Jack. Why don't I start off with a discussion of the customer supply business and then we can dive into gross derivative assets. With respect to the customer supply business, I think it's fair to say that we have seen the relative competitive position of that business be quite strong. That the margins that we've earned in that business relative to plan have come in stronger than anticipated, and that we continue to see prospectively the opportunity to use our liquidity to earn good risk adjusted in that business.
Paul Fremont - Jefferies
That compares to the $614 million of annual guidance. You come in lower in the future quarters and therefore still maintain that gross margin guidance, or does that move up based on the stronger margins you're getting in the first quarter?
Jack Thayer
What I would say is with this is given our move to reduce the $0.50 of projected, one-time gains or sorry, losses, that we would see in exiting the legacy trading positions, that improved margins in this business helps facilitate our absorbing the cost that we see in exiting that trading book and holding our guidance firm.
Paul Fremont - Jefferies
Okay, and on gross derivative assets?
Jack Thayer
With gross derivative assets, as you mentioned we put out a companion piece this morning that articulated what this is a measure of and in effect what is not a measure of. What I would say is this, our gross derivative assets are higher than our peers largely because of the size and scope of our customer supply activities.
We lock in economic hedges to support that business, and earn good risk-adjusted margins in that business, and we've experienced a significantly volatile pricing environment where we've seen prices decline markedly relative to the time in which those contracts were entered into, and that's reflected in the gross derivative assets.
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