Power & Gas: Process & Technology/Complex Financial Reporting: Essential Power: Reconstruction of Policies/Processes
Essential Power (the Company) is a merchant power company that operates a fleet of natural gas-fired plants in PJM and ISO-NE. The Company’s ability to realize the inherent optionality embedded in its plants is dependent on strong commercial skills and market knowledge, supported by accurate views of expected plant dispatch, and effective risk management of swaps, futures and heat rate options used to take advantage of market opportunities.
Following substantial losses in 2013, created by a breakdown in correlation between hedged heat rate options and actual physical production capacity, Opportune professionals assisted in the reconstruction of the policies, processes and strategies used by the Company’s commercial group, risk oversight function and BOD. At the beginning of the project, all new optimization activity had been halted, portfolio valuations were inaccurate and risk metrics such as value at risk were not available.
A coordinated work plan to build effective processes, policies and tools was approved by the Board in 34 individual areas. In 90 days, comprehensive risk policies and interim trading authorities were approved by the Board on the basis of new commercial strategies that articulated opportunities, risks and tools available to manage risk. Portfolio values, expected plan volumes and risk metrics are now available daily to commercial and risk oversight personnel, as well as the Company’s Board.
A risk oversight committee of senior leadership was mentored and actively evaluates the portfolio, proposed strategies and transactions and monitors the effectiveness of trading limits. The Company’s trading and risk management systems were substantially improved, providing accurate valuation and enabling stress testing and scenario capabilities for modeling risk. Today, a risk manager leads an independent risk function that uses comprehensive front-to-back information systems. This platform values the physical assets as a real option portfolio, captures all transaction activity and reports daily to stakeholders an accurate portfolio value along with various risk metrics identified by the Company as being valuable in managing the business.
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.