Alert proposition forenergybuyers

The ALERT Proposition for Energy Buyers A lways L ive E nergy R isk T oolkit By: Mike Coulten - Director Mob: 07971 691747 Office/fax: 01638 508444 [email_address] www.energy-alert.co.uk ENERGY ALERT Limited Bringing transparency to competitive energy markets

What is “good” Risk Management discipline for a consumer?
Its actually very simple to protect your budgets
Measure your position in real time, second by second through each trading day
Set total cost and/or individual price limits within which your Procurement Department can work
Ensure limit violations are notified to stakeholders within seconds of breach
Close positions when you hit limits – ensure authorities are delegated beforehand to immediately buy the floating volumes upon limit violations
Now only market price gapping risk remains (the risk that prices suddenly jump). Gapping is actually a quite rare event if you look at second by second prices, very common if you look once a day. Estimating unquoted prices in real time mitigates gapping in low liquidity.
Measure – Monitor – Manage
It wont ensure that you get the lowest cost outcome, that’s trading strategy
It will ensure that you don’t break the budget trying to get the lowest cost outcome, that’s risk management

Consumer energy price Risk Management discipline is poor
Gas/Power wholesale markets are extremely volatile, fragmented & often illiquid – within day they are effectively opaque to consumers.
Yet consumers manage massive bottom line exposures in real time with internal risk management process ranging from informal at best to practically non-existent as the “norm”. Why?
Why? Because there are significant barriers to consumers adopting best practice Risk Management.
Cost – many data feeds required.
Complexity – need to distil to best Bid and best ask curve in real time.
Real time monitoring is operationally difficult – tea breaks!
Most outsource to procurement advisors who are profitably complicit in the current status quo. They sell you the service of watching the market and finding the “best” price.
Open book makes the transaction transparent….
… .while leaving the within day market price dynamic opaque.
Which we think produces some potentially large and disturbing incentives.
Agents facilitate trades that are many times the annual turnover of the agent in question in a market at least partially opaque to the final buyer. The potential for the consumer incurring a loss seems to be very high
A risk management systems solution is needed to bring transparency to this market and to remove any barriers stopping consumers implementing effective position and limit monitoring themselves.

The ALERT system facilitates best practice risk management
Aggregate prices across brokers and exchanges in real time and estimate a full forward curve.
Calculate real time Mark to Market and Value at Risk for various user defined consumer consumption profiles and trades made (budget periods, actual and notional).
Automatically monitor user defined limits in real time for individual:
live market prices.
position MTM+VaRs.
Alert multiple users upon limit violations using mobile phone SMS text message and email.
Position and market price reports email to ALERT system user lists.
Daily, weekly, on limit violation or other event.
Simple to use and secure user interface and real time “all in one screen” market and position monitoring screen that can be run in any internet browser anywhere without installing any proprietary software on the users PC (Flash Player 9 required).
Full audit trail of every user input and market price change action and provides “as-at” capability so that all system events/alerts can be audited and checked as required.

ALERT connects the supplier / consumer team to the entire market in real time < 60 seconds from new price received to SMS text message sent, or browser window update. Consumers Head Office Management Information System Finance Dept Procurement Dept Risk Management Committee or Board of directors Web service or XML/FTP Procurement Managers Smartphone/Blackberry at the off site meeting Finance directors mobile at the conference SMS text 2-way Procurement Advisors Office PC Supplier Account Managers laptop At home Email and internet browser One Or More Price Source Any other broker or exchange

From an illiquid UK baseload trader screen… Best bid and ask prices combined from GFI and Spectron broker live price feeds. No other prices shown, only the info traders need. How does a buyer track their mark to market using this then? Some prices you need are nearly always missing.

… to a full estimated forward curve enabling MTM and VaR calculations in real time This Jan-09 price is for a quarter yet is implied from a Season price for both the bid and ask as there is either no quarter price or one that is not as good as the implied price from the season. This Summer 2010 price is not currently quoted so it has been estimated by ALERT based on the prices we can see for Winter 10 and Summer 09 as well as any Summer 2010 prices or trades done earlier today. ALERT can tell you a price to request OR it can alert you when to go and seek a price and indicate the “expected” price discovery. ALERT price estimates are often very good!

ALERT users can easily set various limits for market prices, position Mark To Market values and VaR This amber Mark to Market + VaR limit has just been added. SO8 price history displays when the user selected the S08 limit opposite. This S08 season limit has been in force all day since 9 am at a constant £54. New limits can be defined for Prices for the current Contracts exposure. New limits can be defined for MTM and VaR for the current Budget Period and VaR definition consumption and trades.

When limits are hit, ALERT users buy and sell with the substantial benefit of a unique price dynamics insight 1. See the real time dynamic of the within day Bid and Ask prices you are exposed to. What is the whole market really doing? 4. At settlement both trades look good value. How good were your trades? Take a free trade check. 2. This trade looks bad value – late and above the best ask price The stop loss (dashed red line) was hit as the market opened yet the trade did not happen until an hour later when prices had risen. When the trade was finally made there was a bid at £57.85 when the deal was done, £0.65 lower price! And the contract actually traded after your price was struck at £57.70 3. This trade looks good value – below the best Ask Price in the market Whenever a trade is made it can now be seen in the context of the actual live market and linked back to the individual Broker Prices. Although prices did fall subsequently, at the time of the trade this was a good price.

Don’t believe us, take a free price check chart or system trial
Email Energy Alert with the following details of your real trade:
Day of trade i.e. 2008-03-17. Don’t tell us the time, you can check your price confidentially
Contract purchased (sold) i.e. UK Baseload Power Winter 2008
Price you paid
… and Energy Alert will email you back the chart you saw on the previous slide plus a table of the data showing Broker names and Price ID’s for Bid and Ask prices at the time
So…. how are your purchasing system and your outsourced consultants really performing?
Why spend money on market “guru’s” or “intelligence” that may (or may not) improve performance when you have not even implemented best practice risk management?
Do you know if your stop loss and buy triggers were efficiently and effectively executed in real time, and whether the prices you got were competitive at the exact time of the trade? Why not find out before someone else does.
As well as free price checks you can request a free two week ALERT trial, the full working system, with SMS text messages to your mobile phone and secure pdf position and price reports to your email inbox, live for two weeks.

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Alert proposition forenergybuyers

by Energy Alert on Oct 13, 2011

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Alert proposition forenergybuyers — Presentation Transcript