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Resource Planning After the Crash

How to update yesterday's IRP model to account for tomorrow's risk profile.
Fortnightly Magazine - September 15 2003

risk (VaR-OP) measures the financial impact to the utility from increasing commodity prices in the absence of hedging, while fixed position risk (VaR-FP) measures the financial impact of declining commodity prices, and how such a price decline might leave management looking imprudent for any hedges that they might have placed. The risk profile incorporates material volatile elements, and considers any natural mitigation effects implicit in the diversity of costs and revenue streams (i.e., covariance effects).

The next step is to produce a consolidated risk profile. This work product shows the critical risk elements, and primary exposures of the utility's natural positions on both a commodity specific and an aggregate basis. Further, it delineates actionable items, and provides a fundamental structure from which to progress a fully constructed Risk Management Program (the short term operational program that is linked but separate from the RIRP™ process).

Once this is accomplished, it defines the metrics that will be used to evaluate alternative portfolios. It is important to use dispatch and financial tools that can accommodate representations of market volatility and correlation among key variables. -GV, MG, AH, TLB, and RM

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