Professional Training

Introduction to Hedging and Risk Management for Utilities (VIRTUAL CLASSROOM)

Mennta Energy Solutions , In Los Angeles
2 days
2 days
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Course description

Introduction to Hedging and Risk Management for Utilities is a two-day VIRTUAL instructor-led course presented by the energy training experts at Mennta Energy Solutions.  This is an introductory course on gas and power hedging and risk management for utilities in an applied context.

The course will enable participants to gain a practical working knowledge of gas and power markets as well as the main players and common traded instruments. Delegates will gain a practical understanding of the various dimensions of risk for utilities active in gas and power markets and the various tools to manage and transfer those risks.

We will present standard approaches to hedge energy exposures with derivatives with physical forward, futures, swaps, and options. Numerous case studies and hand-on Excel examples will illustrate contract payoffs, potential hedge gains and losses, derivatives valuation, communication and reporting.

Throughout the course, delegates will manage a portfolio of physical exposures using derivatives and will compute price risk and mark-to-market exposures.

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  • Energy Traders and Marketers
  • Energy Analysts
  • Marketing Managers
  • Sales Managers
  • Asset Optimizers
  • Power Utilities staff
  • Power and Fuel purchasing managers
  • End-users of derivatives in corporations
  • Market Risk Managers
  • Credit Risk Analysts
  • Risk consultants
  • Risk and Audit Committee Members
  • CFOs and Treasury Managers
  • COOs
  • Finance department personnel
  • Compliance and Internal Audit
  • Middle and Back-Office Personnel
  • Government agencies


Power Prices, Drivers, Behavior, and Volatility

  • Physical and Financial Gas and Power Markets: From Producers to End-users
  • Risk dimensions: Market, credit, liquidity, volume, operations, operational
  • Long or short? Volumetric and Financial Considerations
  • Forward curve analysis for power markets: Shaping and Extrapolation
  • Case study: Forward curves vs. Price Forecasts
  • Gas and Power Price Drivers in North America
  • Net Loads in California: The evolving Duck curve
  • Spot and Forward energy price behavior and its volatility structure
  • Case Study: CAISO extreme price behavior during August 2020 Heat Wave

Physical Hedges: Physical purchase and sales

  • Physical purchase and sale contracts
    • Fixed Price, Index, Heat Rate, NYMEX + Basis
  • Price Fixing, delivery window and settlement timeline in physical vs. financial contracts
  • Mark-to-market and fixed price in physical contracts
  • Risk analysis of long and short fixed price positions

Financial Hedges: Futures, Swaps

  • Futures contracts
  • Margin and settlements
  • Case study: Hedging with NYMEX Henry Hub futures
  • Swaps (Fixed-for-Floating, Index)
  • Basis Swaps and Spread trades
  • Hedging locational basis risk with basis swaps

Physical and Financial Options

  • Overview of key option concepts
  • Options types and payoffs
  • Intrinsic and Extrinsic Value
  • Key drivers of option premiums
  • Using call options to set a cap on costs
  • Zero Cost Collars: Benefits and risks
  • Use of options in utility hedging programs

Simulation Game (I)

  • Portfolio Management Simulation Game: Session I
  • Portfolio Management Simulation: Session II

Mark to Market, P/L and Position Management (I)

  • Book Structure and Position Management
  • Front, Middle and Back Office: Roles and Responsibilities
  • Key Trading and Trade Capture Processes
  • Transaction limit monitoring
  • Mark to market vs. Mark to Model
  • Case study: Pricing a swap with forward curves
  • Case study: Pricing a CRRs and Basis Swaps
  • Mark-to-model: Illiquid instruments and derivatives valuation

Utility Hedging Strategy

  • Why should utilities hedge and what risks should they hedge?
  • Risk and regret in hedging programs
  • Alternative hedging programs: Programmatic, discretionary, risk-based
  • Risk appetite statements and risk tolerance
  • Common hedging mistakes
  • Setting hedge benchmarks and program objectives
  • Introduction to risk metrics and key risk indicators
  • Case study: Market, credit, liquidity and regret risk from alternative hedging strategies
  • Hedging in a low price environment

Practical Considerations Implementing a hedge program

  • General transacting policy considerations
  • Maximum transaction terms
  • Allowed and Prohibited Transactions
  • Trading controls
  • Communication and reporting: Scope and frequency
  • Uses and Abuses of Financial Hedging Instruments
  • Tips for negotiating with hedge counterparties
  • Case study: Portland General Electric $100+ million trading loss in Q2 2020 from “ill-advised trades”

Portfolio Management Simulation Game (II)

  • Portfolio Management Simulation: Session III
  • Portfolio Management Simulation: Session IV

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