Energy Trading & Risk Management: A better framework for making decisions is required to ensure earnings stability and shareholder value in the utilities industry.
Henry Fayne is executive director of the utility practice, Michael Gettings is managing director of the risk and utility division, Wes Mitchell is task manager of risk management, and Gary Vicinus is a COO at Pace Global Energy Services. Contact Vicinus at firstname.lastname@example.org.
Despite the fact that companies are refocusing attention on their traditional utility businesses, the current utility environment has become both complex and risky. Electric utility restructuring has resulted in the inextricable integration of the regulated and competitive models, which has created greater exposure to emerging and volatile fuel and energy markets; more stringent environmental requirements; more focused standards for reliability and customer service; and major requirements for capital spending to support generation and transmission infrastructure.
At the same time, in response to corporate scandals such as Enron and WorldCom, there has been a substantial increase in external scrutiny from regulators, rating agencies, investors, and shareholders reinforced by the formalized accountabilities defined in the Sarbanes-Oxley legislation. Rating agencies have imposed stricter standards—both quantitative and qualitative—for companies to maintain investment-grade credit ratings. Shareholders have successfully introduced resolutions to ensure transparency and, in some cases, to restrict management discretion. Boards of directors also are being held more accountable for their fiduciary responsibilities.