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Power & Gas: Enterprise Risk: Tennessee Valley Authority: Risk Management Stabilization

The Tennessee Valley Authority (“TVA”), a corporation owned by the U.S. government, provides electricity for 9 million people in parts of seven southeastern states. TVA consumes about $4.5 billion of coal, gas, nuclear fuel and purchased power on an annual basis, serving its customers through its fleet of fossil, nuclear and hydro-generating assets.

Opportune professionals were engaged to execute projects in several areas, including:

  • Assessment and recommendation of the coal and non-commodity trade risk books;
  • Assessment and recommendation of protocols for classifying and processing all commodity transactions;
  • Mid-office general support; and
  • Development of fuel supply plans

Due to changes in commodity pricing, TVA’s fuel supply mix, and changes in strategy, use of coal products were in decline. Legacy coal transportation contracts did not anticipate this decline and contract terms left TVA in a more disadvantaged cost position each year. TVA had over hedged their transportation risks and were unable to estimate future liquated damages. Additionally, coal-on-gas price competition moved TVA’s gas-fired fleet from a peaking responsibility to increasingly toward a base-load role. Although coal is still TVA’s dominant fossil fuel source, the movement challenged contracting practices within the commercial group, drove the need for comprehensive position management for all fuels and required new contracting and risk management skills, processes and systems to be developed at TVA.

The dynamic nature of the fuel mix used to generate power at TVA and the increasing need for innovative contracting strategies led to the need to ensure the proper capture and valuation of all commodity contracts at TVA, and the inclusion of such contracts in TVA’s newly-established system of record, using CXL Triplepoint. Opportune delivered the following solutions:

  • After review of the TVA risk books, ownership of measurement of the coal transportation risk was assigned to the chief risk officer. TVA adopted a risk-book approach to managing transportation risk
  • We recommended the adoption of fundamental protocols for classifying and processing all commodity transactions at TVA. Protocols were established for each category of transaction ensuring consistent oversight and processing of all commodity transactions consistent with the risk, complexity and valuation issues associated with the transaction
  • Consultation to TVA mid-office on daily matters and issues
  • Best practices review of the CGS Fuel Supply Plan

Opportune added tremendous value by providing extensive risk management expertise – front/mid/back office processes, risk control, risk analytics and IT systems and infrastructure. We have developed systems and processes in all energy commodities. Our extensive knowledge of the natural gas business allowed us to assist TVA in not only developing the appropriate risk systems and processes, but we were also able to help them develop the required changes in business processes and strategies to transition from a coal dominated strategy to natural gas. Finally, our experience in leading major organizational change initiatives allowed us to help TVA manage the overall transformation.

Opportune understands the intricacies of the U.S. power and gas markets and the complex commercial strategies, systems, controls and oversight needed for success. Thus, power generators, retail power and gas companies, and wholesale supply and trading companies all benefit from the depth of our industry expertise and the breadth of our consulting experience in addressing commodity risk management, organizational and policy design and operational execution. For more information, CLICK HERE.

Charlie Palmer

Managing DirectorOpportune LLP