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Risk management

Hedging or Betting?

Byline: 

By John A. Neri

Magazine Volume: 
Fortnightly Magazine - September 2012
Many utilities engage in hedging to protect customers from price spikes. But unless regulators are involved in crafting and monitoring these programs, they can turn into speculative ventures that put ratepayers at risk — for the benefit of shareholders.
Category: 
Business & Money
Author Bio: 

John A. Neri is a principal with energy consulting firm Benjamin Schlesinger and Associates, and is a lecturer in economics at the University of Maryland.

Category (Actual): 
Rate Cases
ETRM & Markets
Natural Gas

Lacking regulatory oversight, financial hedges turn into risky speculation.

Risk Management's Existential Crisis

Despite strong methodologies and supporting technology, risk management failures continue aplenty. Fortunately, structural changes can help.
By David Foti, Lone Star College and Foti LLC
JP Morgan’s recent multi-billion dollar loss is just the latest in a series of risk-management disasters – some of which involved energy companies. The problem stems from perverse incentives that encourage risk managers and traders to over-risk the company – and utilities aren’t exempt from the problem. Avoiding similar losses in the future will require taking a careful look at the incentives in place for risk management professionals.
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