Past event: Structured Transactions for Energy Risk Management Seminar

A Two-Day Classroom Seminar (CPE Approved) - In Partnership with SNL Energy

Standardized derivatives (what you might call "plain vanilla") like swaps, options, and futures have long been a common way for energy companies to manage risk, and many people have gotten quite comfortable with the pricing, transactions and risks of these highly liquid products. Frequently, though, the specific risks of a large physical asset can’t be effectively managed with a standardized derivative approach. The risks of the asset are too different from the payoffs of those standard contracts.

In these cases, a better way to match the risks is to enter into a more specialized transaction, with terms and underlying commodities specific to the asset in question. Structured contracts are customized with specialized terms. Because of their non-standard features, these structured transactions are not as transparent, or easy to evaluate, but they are very common in energy companies. They can be extremely useful in terms of matching risks and generating margin. But, because of their complexity, structured transactions require extreme care. If they are mispriced, or executed incorrectly, they can lead to huge losses.

Common examples of structured contracts include:

Power Purchase Agreements; Cross Commodity Contracts; Tolling Contracts; Full Requirements/Load Following Contracts; Structured Retail Products; Bulk Energy Contracts.

These contracts are typically managed by the term and intra-month trading function within an energy company, where they are optimized and hedged in liquid forward markets. As a result, risk on structured contracts is typically governed using the Value at Risk (VaR) metrics that govern other trading activity. However, for complex structured contracts, the fundamental risk management metrics don’t tell the whole story. In this course, you will focus on the fundamental relationships governing the valuation and development of structured contracts.

A laptop is suggested because the seminar's agenda includes learning to navigate and understand websites useful in constructing analyses.


What You Will Learn

  1. Explain how structured contracts differ from "plain vanilla" derivatives
  2. List the most commonly used structured contracts and describe the advantages/disadvantages of each
  3. Identify the type of financing required for these kinds of transactions
  4. Understand how to measure and manage the risks associated with structured products
  5. Evaluate the risks involved with each type of contract
  6. Outline the key accounting and back office issues with derivatives and structured transactions Determine whether specific derivatives are transacted for hedging, trading, or dealing purposes
  7. Identify the inputs and risk information required to properly value a structured contract
  8. Value the six most common structured contracts

Your Instructor

Kenneth Skinner, PhD - VP and Chief Operating Officer, Integral Analytics

Kenneth Skinner, Ph.D. is Vice President of Risk & Evaluation Products for Integral Analytics, an analytical software and management consulting firm focused on operational, planning, and market research solutions. Dr. Skinner has over 20 years’ experience in evaluation and risk measurement, having worked as an energy consultant with PHB Hagler Bailly and Financial Times (FT) Energy, and as the Derivative Structuring Manager for the retail energy supplier Sempra Energy Solutions. He has his Ph.D. from Colorado School of Mines, in Mineral Economics, with an emphasis in Operations Research, an MBA from Regis University and his BS in Engineering from Letourneau University.

Dr. Skinner is a nationally recognized expert in economic evaluation and modeling of energy assets including energy storage, distribution and generation, efficiency and demand response, renewable energy alternatives, financial derivatives and structured contracts using net present value, econometric and statistical methods, optimization principles, and real option valuation techniques. Dr. Skinner is currently the technology columnist for Wiley Natural Gas and Electricity Journal and is a noted speaker on energy related topics for organizations such as AESP, IAEE, ACEEE, PLMA, IEPEC, INFORMS, Infocast, EUCI, SNL Energy and PGS Energy Training.

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Day One  

7:45 am - Registration and Continental Breakfast Opens

8:30 am - Foundations of Structuring
  • Derivatives refresher: Futures, Forwards, Swaps, Options – Pricing and mechanics
  • Structured Contracts: What they are and how they differ from plain vanilla derivatives
  • Accounting and back office issues with derivatives and structured transactions
  • Deal Capture and Compliance: Financing needed for these kinds of transactions – Margining, Counterparty credit, etc.

10:15 am - Refreshment Break

10:30 am - Risk in Structured Products
  • Measuring risk in transactions
  • Statistics of structuring
  • Managing Risk in transactions
  • Markets and hedging
  • Component risk and risk adjusted performance and value

12:00 pm - Lunch

1:00 pm - SNL Product Features for Structured Transactions Overview

1:30 pm - Wholesale Electric Structuring
  • Bulk Energy Contracts and Power Generators
  • Spark Spreads and heat rates
  • Merchant Generator economics
  • Building the Business Case for Energy Storage – Example of optionality
  • Renewable Portfolio Standards and Wind Energy and Photovoltaic
  • Hedging Generation Assets
  • Different power products/structures (7x8, 2x16)

3:30 pm - Refreshment Break

3:45 pm - Power Purchase Agreements
  • Inputs to value
  • Risks
  • Model & Example to Price

5:00 pm - Day One Concludes

Day Two  


8:00 am - Continental Breakfast Opens

8:30 am - Tolling Contracts
  • Inputs
  • Risks
  • Model & Example to Price

10:00 am - Refreshment Break

10:15 am - Financial Contracts that Mimic Physical Assets
  • Cross Commodity Energy Swaps
  • Spark Spread Options
  • Heat Rate Call Options
  • Examples of pricing the above

12:00 pm - Lunch

1:00 pm - Default Service/Provider of Last Resort/Full Requirements
  • Pricing the RFP
  • Wholesale Portfolios and bidding
  • Managing switching/migration risk
  • Managing shape risk
  • Example

3:00 pm - Refreshment Break

3:15 pm - Retail Electric Structuring
  • The role of aggregators
  • Valuing Consumer Volumetric Risk – 1hour
  • Pricing Retail Adders
  • Contractual Issues
  • Example/ Case
  • Mitigating Risks to Value

5:00 pm - Program concludes

Venue

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Who Should Attend this Seminar

Credit risk analysts; Market risk managers; Energy traders and managers; End-users of derivatives in corporations; Risk consultants; Risk and audit committee members; Finance department professionals; Compliance managers.

Prerequisites and Advance Preparation

This fundamental level group live seminar has no prerequisites. No advance preparation is required before the seminar.

Program Level
Basic level. This fundamental course begins with basic material and then proceeds to the intermediate level.

Delivery Method
Group-live.


Hotel and Seminar Information

Downtown Conference Center
157 William Street
New York, NY 10038
Telephone: (212) 618-6990
View Seminar Location Website

Although lodging is not provided as part of this program, the hotels listed below are convenient to the Downtown Conference Center.

Millennium Hilton
55 Church St.
212-693-2001
800-Hiltons

Gild Hall
15 Gold St.
212-232-7700
800-268-0700

Seaport Inn
33 Peck Slip
212-766-6600

Hampton Inn Seaport
320 Pearl St.
212-571-4400
Event details
Organizer : PGS
Event type : Training Course
Reference : ASDE-3404