Energy Risk Management: Rise of the Chief Risk Officer

Deck: 
The new CROs are bringing back much-needed discipline to restore investor confidence.
Fortnightly Magazine - October 1 2002
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The new CROs are bringing back much-needed discipline to restore investor confidence.

Scott Smith's title is senior vice president and chief risk officer. But when he's out of earshot, some people at AEP call him the chief SOB.

"I'm not a popular guy," Smith says half-jokingly. "I continually get comments about what a pain I am. My people are aggressive and they don't take any crap."

But Smith isn't a bully or sadist. He's just doing his job-namely, helping AEP "make informed risk-taking decisions." Sometimes that means unearthing risk factors that effectively send the company's business managers back to the drawing board.

While the CRO might never be elected the Most Likeable Person, utility senior management is becoming positively enamored with the office of the CRO. Fully 40 percent of America's CROs work for utilities and energy companies, according to a survey by the Conference Board of Canada, Tillinghast Towers Perrin, and the University of Georgia.

And the industry's CRO community is taking a higher profile in the face of recent crises. Earlier this year, a group of six energy companies-AEP, Constellation Energy, Duke Energy, Mirant, Tractebel North America, and TXU-came together to form the Committee of CROs. (See sidebar: "The Committee of CROs: United We Stand") The committee's purpose is to identify best practices for energy industry risk management.

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