Risk Management
“Our organization understands that energy prices are increasingly volatile. We need to develop a plan that balances cost certainty with the pursuit of low prices — and the expert resources that can pull it all together.”
With LEGACY’s Energy Risk Management Service, you can.
LEGACY’s risk group utilizes industry expertise and best-practice analytics to properly balance price certainty with lower-price market opportunities. Our proprietary Budget Simulation Model combines client usage, prices and other factors to project a statistical range of consumption and cost outcomes, from which to budget and develop a comprehensive energy-risk management strategy.
Our energy risk-management strategy provides methodical discipline to procurement and hedging practices. Our ongoing hedge support helps identify and evaluate favorable price opportunities and execution strategy.
The LEGACY Difference
While risk cannot be entirely avoided in the pursuit of low prices, it can be effectively managed. Our team of industry experts uses a statistically sound approach to maximize the opportunity for lower prices, similar to the approach used in financial markets to balance portfolios for optimal performance. We will work with your team to plan, budget and manage future energy costs. Our team will inform your staff on the various risk profiles and cost-benefit trade-offs inherent in a variety of energy risk-management scenarios created to meet your objectives.
Budget Simulation Model
LEGACY uses our proprietary Budget Simulation Model to generate a range of outcomes for energy usage, cost and underlying energy prices. We use statistical methods to observe and quantify these outcomes.
The Model incorporates price volatility, market and contract prices, expected usage variations — and adjusts for energy conservation and operational cost measures which may be implemented during an upcoming budget cycle. The Model is updated quarterly with actual results from the prior quarter and a fresh simulation of the remaining year to help you track and report energy cost performance dynamically throughout the year. LEGACY’s Budget Simulation Model is presented in a brief, easy-to-read format.
Energy Risk Strategy Development
Interviews with clients’ energy management staff and key financial decision makers will provide the framework for the risk-management strategy. The strategy defines the rules governing what and how much of future months to lock in, triggering signals and deadlines. The completed strategy will include documentation of the hedge strategy, management controls, authorities, reports and approved processes.
A detailed strategy not only guides the program, but also enables the energy management staff to spend much less time on market timing and increases the level of sophistication of the energy management process. Supply contracts may integrate an energy risk-management strategy for both electricity and natural gas that is specific for each appropriate geographic market and consistent with each market’s deregulatory status and structure.
Hedge Execution Support
LEGACY monitors market activity to assess favorable versus unfavorable price environments for hedging. Hedge transactions will be executed based upon the above strategy and upon statistically significant market indications. LEGACY provides frequent summary information and recommendations from market data that affects discretionary-period hedge opportunities. LEGACY’s reports monitor performance against the key metrics established in the Budget Model. These include measuring against budget, target and most-likely cases. Note that these are distinctly different metrics than “the market,” which certain spot market indices typically represent.
And, every LEGACY service includes our industry-leading customer service team, a trained, dedicated and knowledgeable group available to answer your questions and ensure your complete understanding and satisfaction.