Past event: Power Risk Analysis Workshop

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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Seminar Agenda

Day One  

7:30 am - Registration and Continental Breakfast Open

8:00 am - Risk 101: Tools, Templates and Calculations

The opening session focus on understanding basic risk management analysis using specific tools to evaluate a particular company's approach. Discussion includes an overview of the 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, including:

• The statistical foundations of risk
• Principal tools of risk analysis, including the fundamental concepts of VaR, EaR and risk management
• Introduction to Monte Carlo simulation, correlation and Cholesky decomposition
• Fundamentals of market risk and how to calculate value-at-risk (VaR); three approaches to calculating VaR – model-building, historical simulation and Monte Carlo simulation– advantages and disadvantages

Exercise: Statistical modeling and confidence intervals - Energy Budgetary Risk
Exercise: Monte Carlo simulation and correlating random numbers
Exercise: Comparing the three approaches to calculate VaR for a skewed portfolio
Exercise: Cornish-Fisher expansion to correct gamma error  

10:00 am - Break

10:15 am - Risk 101: Tools, Templates and Calculations (continued)

11:30 am - Lunch

1:00 pm - Principals of Enterprise Wide Risk Management

In this session, we focus on the fundamental principles of enterprise wide risk management from strategic corporate goals to risk identification and reporting. The 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. Participants will learn:

• What is risk worth? Moving beyond value at risk to value of risk
• Impact of current regulations on use of derivatives for risk management
• Regulated cost recovery of capital asset investment for reliability and risk
• Keys to successful wnterprise-wide risk management
• Strategic risk management and planning
• Modeling known known’s, known unknowns, and unknown unknowns
• Risk committee and policy essentials

2:30 pm - Break

2:45 pm - 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; understand how correlation and hedging work together to manage risk
• Forecasting volatility using Geometric Brownian Motion (GBM), mean reversion jump diffusion and other financial engineering models
• Develop the framework to analyze derivatives structures and long term contracts
• Using the Efficiency Frontier and the Sharp Ratio to determine VaR limits and risk tolerance
• Apply the variable of credit risk; identify the issues and use the appropriate models      

Exercise: Portfolios and volatility – getting the units right
Exercise: Energy and energy volatility forecasting
Exercise: Monte Carlo modeling of risk factors
Exercise: Calculating the value demand uncertainty risk
Exercise: Building a weather hedge

Case Study – Hedging Energy Exposure
Case Study - Layered Hedging Strategy

5:00 pm - Day One Concludes

Day Two  

7:30 am - Continental Breakfast Opens

8:00 am - Hedge Optimization to Increase Cash Flow and Minimize Risk

Utility hedge design has generally focused on creation of balanced physical positions largely independent of market prices. Although disciplined rules applied to cover physical exposure work well, they fall far short of optimal hedging. 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 in previous sessions and will walk attendees through exercises on portfolio hedging for actual utility portfolios, including:

• 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

10:00 am - Break

10:15 am - Analytics of Managing Commodities Risk as Markets Evolve

This session will outline 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. Key elements include:

• Incorporate current margin and capital requirements to your risk models
• Consider other trends in more recent instruments (weather contracts, catastrophic, volatility indices and credit default swaps)
• Implementing extreme value theory (and other lessons from the banking crises)

Exercise: Building a NYMEX gas portfolio VaR calculation from scratch

11:30 am - Lunch

1:00 pm - 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, including:

• Selection and use of 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: Valuing Physical Energy Assets using Financial Engineering Tools
Exercise: Calculating the value of Energy Storage for Renewable Energy Intermittency Risk

2:30 pm - Break

2:45 pm - Case Study (Continued)

4:00 pm - Program Concludes

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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
Power Risk Analysis Workshop presumes that participants are familiar with standard basic option pricing theory or risk modeling, such as Monte Carlo simulation. Please bring laptop.

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

This two-day seminar will be held at the hotel listed below. The seminar will start promptly at 8:00 AM and will finish at 5:00 PM on the first day. On the second day, the seminar will resume at 8:30 AM and will finish at 4:00 PM. Your registration includes all conference materials and continental breakfast and lunch on both days. Dress is business casual.

Venue to be confirmed
Houston, TX

Because of the diversity of hotels found in the area, we will not be holding a block of sleeping rooms with one particular hotel.