WAY UPWARDS - HSE

90 Annual Report 2011
Quantity risk associated with deviations
from contractual quantities
Quantity risk associated with deviations from
contractual quantities is represented by the difference
between the actually supplied or received
quantities and the projected quantities. The difference
must be additionally purchased or sold in the
market, frequently under less favourable conditions;
similarly, production shortfalls must be covered
with electricity purchases, the market price of which
is usually higher than the contractual price.
In 2011, risks were managed with the following
activities and methods:
• Daily recording of measurements (actual takeover
or production), monitoring of deviations
of actual schedules from the planned, i.e.
contractual, quantities, which provides for daily
monitoring of realised deliveries and subsequent
analysis, by partner, of the risk of non-delivery
or failure to take over;
• Daily analysis of scenarios involving different
hydrology conditions or failure of TPP
generation units (stress testing);
• Daily monitoring of market conditions (prices
of energy products and transmission capacities),
position of the company, and VaR and MtM by
individual groups of transactions with similar
purpose;
Quantity risk associated with
changes in NTC (cross-border
transmission capacities)
Quantity risk associated with changes in crossborder
transfer capacities arises from changes in
permeability of major individual transport routes
(e.g. reduction of daily cross-border transfer capacities
due to wild currents). As a consequence, situations
can arise where obligations from long-term
contracts are not fulfilled, leading to a need to purchase
more expensive energy as replacement from
other sources (countries) and possibility of deviations
in balances.
In 2011, risks were managed with the following
activities and methods:
• Monthly monitoring of legislation (regulations)
by country and the balance of transmission
capacities;
• Monthly scenario analysis of market conditions
given the previous probabilities of events
and subsequently with regard to findings
on limitations to trading quantities between
countries;
• Daily monitoring of the market position at
Group and company-level by country and by
individual groups of transactions with similar
purpose or significance, and monitoring of
published annual, monthly and daily values
of cross-border transmission capacities on
individual borders.
Regulatory risk
Regulatory risks arise from changes in market
rules or legislation in the Slovene and foreign electricity
and CO2 emission coupon markets and affect
the business results of the company/Group. Their
management is the most demanding as it is difficult
to predict, identify and quantify them and prevent or
mitigate their effects. Laws and other regulations in
energetic sector are frequently changed an amended.
Therefore, it is necessary to adequately adapt procedures
and methods related to the management
of regulatory risks. In 2011, risks were managed or
controlled mostly with the following activities and
methods:
• Constant monitoring of development of the
Slovenian and foreign markets for electricity and
other energy products and the CO2 emission
coupons market as well as the associated
regulatory framework, and response to such
changes by adapting the trading strategy;
• Performance of long- and medium-term
scenario analyses in light of the expected
changes to the regulatory framework;
• Continuous reporting and informing about legislative
changes in domestic and local markets
by the domestic and local legal departments;
• Daily monitoring of investment decisions in
the EU energy sector and economic policy, and
adaptation of market measures;
• Adequate responding to propositions of changes
and adopted amendments to legislation.
Methodology risks
Methodology risk is a risk arising from changes
in actual value of individual groups of transactions
due to inappropriate methodology, incorrect modelling
items, modelling errors or incompatible models.
The result is incorrect projection of price dynamics
or inaccurate valuation of products in the market.
In 2011, risks were managed with the following
activities and methods: