As part of my series of interviews with Triple Point clients, I recently had the chance to sit down with Thomas Harvey, CIO and VP of Information Technology at The Energy Authority, to discuss industry changes and how they use technology to operate effectively in the energy marketplace.
Q: What are some of the major trends driving your industry and how do you see it changing in the next few years?
Thomas: The Dodd-Frank Act and what’s happening with the CFTC is the hot topic. We’re looking at our business policies and technical systems across several areas–transaction and position reporting; audit-ability; credit management; and documentation–to ensure we’re ready to meet additional reporting requirements.
From an IT perspective, we see technology becoming less about automating routine tasks and processing data; it’s more about mining data for information we can act on. Some of what’s driving this is the world in which we live and our reliance on immediate information exchange. Technology enables us to capture and access huge amounts of data, and the ubiquitous presence of it in our lives means our workforce is increasingly more technically savvy and astute to analyzing the information available to them. Service providers that quickly provide actionable information to move businesses forward will be market leaders.
Q: What are some of the business issues that keep you up at night?
Thomas: Technology is an underpinning of TEA’s ability to operate effectively in the energy marketplace…so we’re always questioning where we should be investing our efforts and resources in terms of improving business processes. We are cognizant of how we can provide reliable, cost-effective competitive advantages to our traders, power managers, schedulers, and analysts.
Q: What were the major business drivers in moving to Triple Point’s Enterprise Solution?
Thomas: Having trading, scheduling, and risk management functionality on a common platform was key. Triple Point enables us to manage both transaction and decision-making information in one solution: physical and financial transactions for power, gas, and oil; scheduling; and credit risk management.
Q: In addition to your current business, how do you see Triple Point supporting TEA’s future expansion?
Thomas: TEA represents 46 Public Power Utilities throughout the United States, and we wear multiple hats to support our partners. Triple Point truly understand the complexities of our business, and this provides great peace-of-mind. With Triple Point, we have the infrastructures in place to support our business strategically, now and in the future. If you really look at what TEA offers, a cornerstone of our business is risk management. The value that Triple Point provides in our risk management practice will continue to be a contributor to our success.
Q: What have been the biggest benefits of implementing the Triple Point Solution?
Thomas: I’d be remiss in not mentioning the exceptional Triple Point staff we work with. Our success with the implementation of Triple Point’s commodity management and credit risk platform is built upon the dedication of some very smart, hard-working individuals. Triple Point provides an outstanding implementation team and superior customer support. They’ve been invaluable in educating our team on the inner working of the Commodity XL product and have been fully engaged in helping craft solutions for our unique requests. It’s really the whole package, Triple Point’s software and people, which brings benefit.
“Thanks to the global financial meltdown, we now know what a “black swan” is,” writes Russ Banham in the April edition of CFO Magazine, “but do we know from which direction the next one will swim into view, and what to do when it does?” Black swan events are highly unpredictable, but it appears more and more companies are implementing ERM programs in hopes of being better prepared to identify and mitigate the impacts of the next one. What is causing this uptake? Is it really the fear of the next black swan event?
Possibly, but Banham shares 3 other converging trends that he thinks will propel ERM to a new level of acceptance and maturity.
Regulatory Pressure on Corporate Boards. Corporate boards can no longer ignore risk management. “The Dodd-Frank Act establishes new requirements for board risk oversight and reporting,” explains Banham. “Rating agencies, led by Standard & Poor’s, now factor ERM criteria for financial and nonfinancial entities into the ratings process. The Committee of Sponsoring Organizations (COSO) rolled out COSO II (referred to by many as “COSO ERM”) in 2004 to establish requirements for risk identification, management, and reporting. And the Securities and Exchange Commission has sharpened its stance on risk management.”
ERM Recognition as an overall Risk Management Best Practice. Historically, companies have struggled to implement ERM due to a lack of overall standards. A set of standards is now emerging. “If you can demonstrate that you have identified and analyzed risks according to a best-practice standard, you have an advantage over competitors that do not closely hew to the standard,” explains Bill Ingram from Zurich Services.
New Technologies. New risk management tools are making critical risk analytics including stress-testing and “what-if” scenarios easier to perform and report. “Things are never static, so you need business intelligence on risks that flows in real time to senior stakeholders to enhance their decision making,” says Henry Ristuccia, the leader of Deloitte’s governance and risk-management practice.
Check out the full CFO Magazine article “Disaster Averted?” to learn more about what is driving ERM acceptance and predictions on what’s next for ERM. It is an excellent read.
The long-term economic consequences of the government bail outs and stimulus packages are far from clear, and predications about what will happen to prices vary enormously. Triple Point’s Michael Schwartz recently shared with the Journal of Compliance, Risk and Opportunity his thoughts on the New Risk Management Imperative.
I particuraly enjoyed his thoughts on the 3 things one can be certain about:
1. High Levels of Volatility will Continue to Thrive. The Financial Times/Stock Exchange (FTSE) 100 Index over the recent three-month period shows a surge to 5,796 in April 2010 and a drop in June 2010 to 4,914. In 2008 alone, we saw three or four ‘100-year risk events,’ and will almost certainly see more such extreme events, that are simply outside of normal expectations.
2. Everyone is Taking Closer Look at Credit. Credit risk managers used to triage potential counterparties into three groups – definite yes, definite no and everyone in between. Now there is no chance that a potential counterparty will be automatically accepted – everyone is either rejected or sent for assessment. The profile of the credit department has risen and it isn’t going to sink any time soon.
3. Markets will be more Closely Regulated – The precise form of regulation is still being worked out, but there’s no denying the growing importance of accounting standards that require additional transparency in valuations and accounting methods such as International Accounting Standards (IAS) 39, Financial Accounting Standards (FAS) 133, FAS 157 and FAS 161.
Wherever the markets go in the next 12 months, firms with a real-time enterprise trading and risk platform that integrates the four key areas of risk – market/price risk; operational risk; regulatory risk; counterparty credit risk – will be best prepared to capitalize on today’s world of increasing uncertainty. Click here to read the full article in from the Journal of Compliance, Risk and Opportunity.