RiskAdvisory 2004 US Energy Portfolio Management Survey
By Leigh Parkinson
RiskAdvisory has completed polling a broad cross-section of US energy market participants including energy producers, electric and natural gas utilities and industrial end users in the initial US Energy Portfolio Management Survey. Respondent companies were asked to respond to a comprehensive series of questions on energy risk management methods, practices and preferences. Companies were also given the opportunity to rate the universe of counterparty service providers on a broad set of criteria. Responses are categorized by industry classification for presentation in a confidential and informative format. All respondents will receive a detailed summary report from RiskAdvisory that will provide them with valuable incites into the views and opinions of peer group companies and other energy market participants.
A sampling of the survey results reveal that:
- Energy producer's primary risk management objective is to protect cash flow for reinvestment whereas end users and utilities are more focused on volatility mitigation. Natural gas utilities viewed the protection of ratepayers against price volatility as the dominant objective (86%)
- Non-regulated companies have a strongly subjective (price view driven) approach in their risk management activities versus regulated companies. Regulated companies recognize the regulatory risk exposure (prudence reviews) and the asymmetrical payoff (gains to ratepayers losses to utilities) and suggests a more disciplined approach to risk management
- A solid majority of respondents opined that material portfolio management losses would be accepted based on the hedge concept with natural gas utilities unanimous in that opinion
- 40% of the aggregate respondent base (58% in the case of end users) believes that investment dealer research analysts do not understand the nature of their physical and financial portfolio management activity. Indications are that shareholders/investment analysts expect companies to beat the market. This is clearly not the driver for utility risk management activity
- Utilities are less restrictive with counterparty credit ratings probably due to an overriding desire to ensure secure physical supply
- Some maturation has taken place in the credit environment with 74% of respondents having made policy changes particularly lessening exposure to individual counterparties
- In counterparty selection criteria, although ranked high by all respondent groups, only end users chose competitive pricing as their number one criteria. The ability to price innovative/exotic structures ranks extremely low illustrating a preference for plain vanilla structures. The lack of importance of educational capabilities would support this as well. The overriding desire to ensure physical supply noted above shows up again as physical market capability was ranked very high by the utility groups. Financial creditworthiness ranked second in aggregate.
RiskAdvisory is currently conducting the 7th Canadian Energy Portfolio Management Survey. Any inquiries on either the US or CAD surveys should be directed to Leigh Parkinson at 403.263.7475 or e-mail lparkinson@riskadvisory.com