DAY ONE

Registration opens at 7:30 am. Program begins at 8:30 am and ends at approximately 5 pm, followed immediately by a wine and cheese reception.

Risk 101: Tools, Templates and Regulations

The program begins with a discussion of key terms and definitions for energy risk management; understanding and evaluating how companies approach commodities and capital markets risk; hedging vs. optimization; legislative/regulatory outlook for derivatives; ratings, and credit implications.

• The statistical foundations of risk

• Principal tools of risk analysis, including the fundamental concepts of Value-at-Risk (VaR), Earnings-at-Risk (EaR) and risk management

• What is risk worth? Moving beyond value-at-risk to value of risk

• The impact of current regulations on the use of derivatives for risk management

• Regulated cost recovery of capital asset investment for reliability and risk

Exercise: Statistical modeling and confidence intervals – energy budgetary risk

Principals of Enterprise-wide Risk Management

Discussion includes methods and challenges of risk identification beyond financial instruments, to corporate-wide earnings at risk measures. Real-world challenges are discussed relating to measurement and computation of energy related uncertainty and risk.

• Keys to successful enterprise-wide risk management

• Strategic risk management and planning

• Modeling known knowns, known unknowns, and unknown unknowns

• Risk committee and policy essentials

Break

Energy Derivatives, Pricing and Hedging

Understanding the valuation of options and derivatives; best practices to keep analysts on point, considerations in the option and derivative markets and how these elements impact the valuation on these instruments. Participants will learn different calculation approaches needed for different applications and understand how the underlying statistics can make or break energy risk calculations, including

• Fundamentals of hedging energy risk

• Price volatility, hedging strategies, understanding how correlation and hedging work together to manage risk

• Developing the framework to analyze derivatives structures and long term contracts

• Using the efficiency frontier and the Sharpe ratio to determine VaR limits and risk tolerance

• Applying the variable of credit risk; identify the issues and use the appropriate models

Case study: Hedging energy exposure

Case study: Layered hedging strategy

Lunch

Hedge Optimization to Increase Cash Flow and Minimize Risk

Unleash the latent value of generation assets and load obligations by turning risk management into an affirmative business tool that drives value and reduces uncertainty in budgeted cash flows. This is a hands-on session that builds on lessons learned earlier in the day and walks attendees through exercises on portfolio hedging for actual utility portfolios.

• Interpreting and applying metrics of hedge effectiveness

• Where basic hedge strategies fall short

• How to apply dynamic hedging to meet corporate goals

• Case studies in hedge applications with review and interpretation of results

Exercise: Regression analysis of hedge effectiveness

Exercise: Delta and dynamic hedging

Break

Analytics of Managing Commodities Risk as Markets Evolve

An outline of the knowledge and skills needed to pursue a comprehensive risk strategy in today's ever-changing commodities marketplace. Through practical exercises from the power sector, the instructor will walk participants through the process to develop a strategy that is comprehensive enough to take account of traditional fundamental drivers of price volatility while being flexible enough to cope with the new demands of the emerging regulatory framework.

• Examining market risk and how to calculate VaR using three different approaches: model-building, historical simulation and Monte Carlo simulation; advantages and disadvantages

• Incorporate current margin and capital requirements into your risk models

• Recent trends in risk instruments: weather contracts, catastrophic, volatility indices and credit default swaps

• Implementing extreme value theory (and other lessons from the banking crises)

Exercise: Portfolios and volatility – getting the units right

Exercise: Building a NYMEX gas portfolio VaR calculation from scratch

Exercise: Cornish-Fisher expansion to correct gamma error

Wine and cheese reception immediately follows the conclusion of Day One program.

DAY TWO

Continental breakfast opens at 8:30 a.m. Program begins at 9:00 a.m. and ends at approximately noon.

Case Studies: Risk Mitigation/Modeling

The focus is on how to make value-at-risk work in practice – how to design, implement and use scalable production value-at-risk measures on real trading floors. The relationship between risk and value is further developed as we apply financial engineering principals to strategic capital asset problems. Participants will discuss best practices/identify key fundamental relationships as well as perform exercises to update models, vet standard quant models and examine emergent techniques in risk mitigation, strategic valuation and stress testing

• Selecting and using risk metrics and value drivers

• How to incorporate forward market prices, unit characteristics, forced outages, and retail load

• Visualization of market and physical component contributions to risk

• Model validation and benchmarking of results

• How to forecast strategic project risk using financial engineering methods

Exercise: Calculating retail supply demand uncertainty risk

Exercise: Monte Carlo modeling of risk factors

Exercise: Valuing physical energy assets using financial engineering tools

Exercise: Calculating the value of energy storage for renewable energy intermittency risk

Workshop ends at approximately 12:00 noon.