Fortnightly’s 2013 ranking of shareholder value performance shows substantial changes, with gas prices weighing on some utilities and elevating others.
Going Global: The Top 10 Risks
before doing business overseas.
affecting these prices, like weather, must be hedged carefully to avoid peak expenditures. "If it takes a typical 6.8 million BTUs to make a kilowatt-hour of power and the market ratio is 7 million, you're not making any margin; but if there's a ratio of 15, you're making lots of money," says Stibolt.
For regions dependent on hydroelectric generation-like the Northeastern or Northwestern United States, or Brazil-rainfall can mean anything from cheap power to 20 percent rationing. "Weather can influence demand, be it a function of heat, cold, or rainfall," says Woodcock. "We've done a lot of thinking about these factors since our revenues were affected this year," he notes.
8) Foreign Exchange Risk
Trillions of dollars in foreign exchange are traded around the world daily, and the volatility in the variations can impact both utility suppliers as well as its customers. Derivative hedges against fluctuations are a standard part of any foreign business, and these exposures frequently are reported on a real-time basis up to regional if not global centers, where the costs of protecting against relative geographic risks can be measured with the same financial stick. If protection against currency devaluation is acquired in the country where the risk arises, placing the risk there limits the exposure of a parent company elsewhere in the world.
9) Repatriation Risk
Hedging against a currency shift is one thing, but managing to repatriate the protected profits is another matter, points out Abbott. "You can push currency risk into a country by way of derivatives, but the answer to the question of whether that means the risk of repayment is adequately dealt with is no. A third party may guarantee a contract and (dollar-based) payments, but not necessarily the debt service to the (offshore) lenders," she says. In early December, for example, Argentina placed controls on bank withdrawals and foreign remittances in an effort to stop capital flight. Such moves keep profits captive in a country, forcing a company to reinvest or to convert profits from local currency to physical products that can be exported. Under a prior government in Brazil, when currency repatriation was heavily taxed, international companies routinely purchased gold or food products to ship value back to a parent company.
10) Containment of Risk
Some utilities operate each individual project like an island, with risk management handled locally, to shield the parent from any false moves-as well as shielding the subsidiary from a capsizing mother ship, as has been a danger with Enron. Other country risk managers compare similar country risks on at least a regional basis, to take advantage of higher volumes when it comes to costs and exposures. Some managers also will report risks to a global center, where a corporate-wide prioritization of the risks can be undertaken and protected. "In North America, we have played a role in the risk methodology used more widely," says Stibolt. The sophistication of risk models employed today are both a function of the evolution of the art of risk management and of the evolution of the software tools now available to develop