Marketing & Trading Leaders in Liberalised Markets

Risk Governance

Credit Risk

Exposure to credit risk arises from the potential default of counterparts under derivative contracts, physical sales and purchases or through the non-collectability of receivables. The team assesses counterparts’ creditworthiness and other credit-related risks. Each counterpart is assessed to determine an appropriate limit in accordance with the Policy. The Company’s exposure is predominantly with investment grade energy companies, utilities, financial institutions and trading companies.

Credit exposure to counterparts is regularly monitored to ensure that limits are not exceeded. The team also measures the potential unexpected loss on the portfolio based upon a given confidence level. The Company effectively mitigates credit risk, e.g. by including certain clauses in trading documentation, and also appropriately transfers credit risk, e.g. by obtaining credit support.

Market Risk

The team independently values the portfolio on a daily basis. Consistent with the Policy, the Company monitors market positions and reports the Market Value at Risk (VaR). All prices used for Mark to Market (MtM) calculations are independently sourced.

The VaR measure is used as the primary mechanism for short-term market risk control with the ROC setting a VaR limit for all trading activities. The ROC regularly reviews the VaR limit to ensure it remains appropriate. The VaR calculation measures the price risk and foreign exchange risk related to financial instruments in the Company’s portfolio and is an estimate of the maximum possible loss the portfolio can incur during the specified holding period at the specified confidence level (97.5%) under normal market conditions. The Company uses a EWMA Parametric VaR model. As VaR cannot solely be relied upon to manage market risk, additional techniques such as stress testing and sensitivity analysis are employed.

Enterprise Risk

The team manages operational risk, economic capital (EC) forecasting, development of policies and procedures, risk due diligence and capability development. Operational risk management focuses on major internal and external risks related to people, processes, systems and major assets. Covering the identification, assessment, quantification, reporting and control of risks, the Company adopts both “top-down” (EC estimation to cover operational losses) and “bottom-up” approaches (control development for operational risks).

The EC framework ensures that the total level of risk to which the Company is exposed can be supported by the Company’s balance sheet. The team develops procedures that support new activities and subsidiaries while maintaining appropriate control standards.

Regulatory Affairs

The team was established during 2009 with the recruitment of an experienced regulatory risk manager as Head of Regulatory Affairs.

Regulatory risk arises in a number of ways. For example in liberalised gas markets regulators determine the rules governing the booking and use of capacity as part of third party access to infrastructure, including charges and balancing mechanisms. To ensure that the Company manages its regulatory risk appropriately, the team engages with regulators, transmission network operators and other interested parties.

Strategy and Business Modelling