Almost a year and a half has passed since FERC issued Order 745, declaring demand response to equal to power supplies in wholesale markets. Yet uncertainty surrounds the order’s implementation,...
Rating the New Risks
How trading hazards affect enterprise risk management at utilities.
most likely remain volatile.
Most risk models and managers seek to measure and manage expected events, but more emphasis should go to protecting from surprises. Risk managers should have tools in place to respond quickly to predictable surprises with the magnitude of the fall of Enron and Amaranth and the Katrina floods. Management that fails to take action to prevent predictable surprises could experience rating downgrades.
Keeping risk across the enterprise at manageable levels can be done if a company institutes a strong risk-management infrastructure, maintains a stable management structure, long-term goals, risk tolerance levels commensurate with its ability to manage those risks, strong internal policies, procedures, and controls, transparency, and strong corporate governance.
However, no risk model is perfect. How good a company’s risk management is depends a great deal on the commitment of senior management, and whether sufficient budget and resources are allocated, to create and implement good firm-wide systems, improve technology, and hire and retain the right people.