Better risk management helps energy companies avoid trouble, report states

FALMOUTH, Maine, Dec. 11, 2002 — The US power market is in chaos, with many companies enmeshed in legal wrangles and bankruptcy proceedings. Have any survived the past year of turmoil relatively unscathed? Yes, says energy expert Shirley S. Savage. “What’s their secret? It’s called risk management.”

Risk management (RM) helps companies identify and avoid potential risks. RM has helped several power market companies survive the credit and market problems caused by the Enron debacle. “Strong RM programs are separating those companies who can tap into the capital markets from those who can’t,” says Savage, president of The Thinking Companies Inc.

“Why? Because the financial community expects power market companies to have strong corporate governance programs in place and RM practices achieve that goal.”

There are efforts underway to tighten RM standards: Recent initiatives by the Committee of Chief Risk Officers and National Energy Marketers Association are a step in the right direction.

To bring RM expertise to a broader audience, a book published this month by Shirley S. Savage and Peter R. Savage, “Power Market Risk: How To Survive (& Prosper) In Crazy Times,” shows how to set up, run or rejuvenate a risk management program. The authors interviewed top risk managers in the power markets to discover their techniques and how to put them into action.

They recommend that companies refine their competitive intelligence methods and tighten credit risk policies. Although it is commonly accepted wisdom that no one could have guessed the Californian power market would be blatantly manipulated, or Enron would go bust leaving trading partners holding the bag, that’s not true. The portents were there, for those willing to recognize them.

“The California debacle teaches us a lot about trading tactics, indices, market prices and rigged markets,” says Shirley Savage.

“Power Market Risk: How To Survive (& Prosper) In Crazy Times” is available from Thinking Energy, an imprint of The Thinking Companies, Inc. ISBN No.: 0-9727037-0-5. For more information, contact the company’s marketing department. Phone: 207-829-3223. Web site: http://www.thinkingenergy.com.