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Introduction to Risk Management for Wholesale Electricity Markets

February 21-22 2023 | Online

Sponsored by EUCI

Click Here to register $1195.00

Electricity markets differ from other commodity markets because AC electricity cannot be stored and must be produced and used instantaneously. Consequently, numerous factors play a role in keeping price volatility in wholesale electricity markets high:

  • Interaction of supply and demand of electricity
  • Weather patterns
  • Correlation trends with natural gas-fired peakers, which tend to set real-time spot market prices under peak load conditions
  • The ever-increasing penetration of renewables (such as wind and solar)

As a result, trading and hedging becomes more important as part of risk management, making this market structure much more complex than traditional trading markets, requiring good background knowledge of uniqueness of electricity, how RTOs/ISOs offer energy market platforms for real-time and day-ahead markets, elements of trading, and tools for risk management for beginners.  

This course will give you the insight you need to better manage this risk by providing a comprehensive set of introductory information about basics of power systems, RTOs/ISOs, and electricity trading and hedging for professionals working at power, financial, and energy companies. 

Learning Outcomes

  • Review the basics of electric power system; types of electricity and their characteristics, terminology, and measurement units 
  • Identify regional transmission organizations (RTOs) / Independent system operators (ISOs) 
  • Review the types of markets offered by RTOs/ISOs 
  • Review the types of resources and their role in energy markets 
  • Identify key players in energy markets 
  • Assess locational marginal pricing (LMP) and its characteristics 
  • Discuss transmission congestion and hedging 
  • Review regulatory oversight of RTOs/ISOs and anti-manipulation authority of FERC  
  • Discuss the basics of power marketing, trading, and hedging 
  • Introduction to developing commodity price risk hedging strategies 
  • Identify the fundamentals of risk oversight 
  • Discuss common financial instruments  
  • Assess real time vs. forward markets 
  • Identify typical energy market participants and their risk profiles and implications on risk oversight 
  • Review the lifecycle of energy transactions from inception through accounting and settlement
  • Discuss the basics of energy commodity regulatory requirements 



9:00 a.m. – 4:30 p.m. Central Time


Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs)  

  • RTOs/ISOs in U.S. and Canada 
  • RTO functions and characteristics
  • RTO drivers
  • RTO stakeholders

Regulatory Oversight 

  • Role of FERC, State regulatory agencies, and market monitor
  • FERC’s anti-market manipulation authority

Overview of Power Systems 

  • Fundamentals of electricity, terms/definitions, and units
  • Characteristics of electricity as it applies to energy markets
  • Overview of source-to-socket power system components – generation, transmission, distribution, and loads
  • Types of generation resource
  • Demand response and energy efficiency participation in energy markets
  • High level explanation of power system losses as it applies to energy markets

Wholesale Energy Markets 

  • Wholesale electricity price volatility 
  • Types of energy markets
    • Physical vs. financial
    • Forward vs. real time
  • Locational marginal prices as market price
  • Components of LMP – cost of energy, losses and transmission congestion, and examples 
  • Nodal, Hub, and Zonal LMPs in RTOs
  • Cost of transmission congestion and example
  • FTRs for transmission congestion hedging and example
  • FTR market offered by RTOs

Front Office: Basics of Energy Trading and Hedging 

  • Overview of the energy transacting lifecycle, focus on front office roles, and responsibilities
  • Introduction to physical vs. financial markets and transactions
  • Overview of energy market participants and risk profiles; implications on risk governance and oversight requirements
    • Price taker
    • Asset optimizer
    • Proprietary trader
  • Hedging vs. trading
  • Market participants
  • Price volatility, counterparties, and contracts
  • Real time vs. forward markets and forward price curves
  • Overview of common financial hedging instruments 
    • Futures contracts
    • Swaps contracts
    • Options (calls and puts)
    • Case study: executing different instruments under different market conditions
    • Exchange, over-the-counter, and bilateral transactions

Middle Office: Basics of Risk Oversight, Measurement, and Monitoring 

  • Revisit the energy commodity transacting lifecycle
  • Middle office roles and responsibilities
  • Fundamentals of energy commodity risk oversight
    • Governance
    • Organization and segregation of duties
    • Policies and controls
    • Risk reporting and monitoring
  • Market risk
    • Price
    • Volatility
    • Correlation
  • Credit risk
    • Current exposure
    • Collateral and collateral-at-risk
    • Liquidity planning
    • Margin: initial, maintenance, and variation
    • Case Study: potential future exposure
  • Limits: position limits, transaction limits, and risk limits
  • Measuring and reporting risk exposures
    • Different risk simulation techniques (historical, parametric, and Monte Carlo)
    • Advanced “at-risk” metrics
    • Pros and cons of different risk metrics
    • Case Study: applying different risk quantification techniques
    • Key inputs in determining the most appropriate risk metric for your organization


9:00 a.m. – 12:00 p.m. Central Time

Review of Previous Day Topics; Opportunities for Questions and Discussion on Previous Day’s Material 

Hedge Program Design 

  • Hedging tactics vs. hedging strategy
  • A roadmap to implementing an effective hedging strategy
  • Understanding and quantifying your risk profile and risk appetite
  • Case Study: understanding the revenue-at-risk of different wind projects
  • Defining hedge strategy objectives and linkage to performance objectives
  • Building hedge strategy alternatives – different types of hedge decisions
    • Programmatic (dollar cost averaging) hedges
    • Defensive (risk limits) hedges
    • Contingent (managing foregone opportunities) hedges
  • Hedge strategy design and scenario analysis
  • Case Study: an iterative approach to evaluating the effectiveness of a hedge strategy
  • Implementing a hedge strategy
    • Tactical planning
    • Ongoing monitoring and reporting
    • Case study: the execution of a hedge strategy under different market conditions

Overview of Enabling Technology 

  • Elements of a risk management program
  • Pitfalls many organizations face
  • Information and communication
  • Benefits of seeing around the corner
  • Key takeaways
  • Demonstration: how to bring it all together


Raj Rana, PE, MBA, CEM, PMP, Consultant

At present, Mr. Rana provides consulting services in the electric utility industry in the areas of NERC compliance, energy markets, power system planning and operation, resources integrations, and project management. 

Previously, while serving as Director – RTO Policy and NERC Compliance at American Electrical Power, Mr. Rana was responsible for coordination of energy, transmission, market structure, finance, and governance-related RTO policy issues among the AEP business units, development of corporate positions/policies, and advocacy of such positions at regulatory agencies as well as at stakeholder forums in PJM, SPP, and ERCOT RTOs. He was also responsible for the development and coordination of strategic direction of AEP’s power system reliability compliance program among all business units as well as coordination and facilitation of compliance plans, policies, and procedures within the company to ensure timely and successful compliance of NERC and regional reliability standards. 

Mr. Rana also worked in AEP’s System Planning department in various positions. His experience at AEP includes planning and operation of the bulk transmission network, generation interconnections, tariff and regulatory/legislative issues, system integration, asset management, mergers and acquisitions, as well as planning and engineering studies for international transmission and generation projects. 

Mr. Rana holds a BSEE degree from M. S. University (India), an MSEE degree from West Virginia University, and an MBA degree from University of Dayton. Mr. Rana also completed the AEP Management Development Program at the Fisher Business College of The Ohio State University. He is a life-senior member of IEEE and holds Ohio State PE license. Mr. Rana is also a certified energy manager and a project management professional. 

Timothy Metts, Founder and Principal, Eos Risk Management LLC

Tim has over 14 years of experience working in the energy, resources and commodity industry. His roles include delivering market and credit risk, internal audit, mergers and acquisitions, hedge accounting, enterprise risk management, and regulatory compliance services. He has also helped design, develop and implement two proprietary risk management systems and has followed an Agile software development approach for more than 10 years.

Tim’s clients include oil and gas companies, global super majors, retail fuel providers, investor and municipal power and gas utilities, international energy companies, chemical companies, and consumer and industrial products companies.

As a Senior Manager in Deloitte’s Commodity Trading and Risk Management practice from 2012 to 2020, he was responsible for building and leading Deloitte’s Commodity Risk Analytics practice while also delivering governance, policy and procedure, controls, and risk assessment services.  In addition to being part of the CTRM practice, he also supported Deloitte’s Internal Audit, Assurance, M&A, and Strategic Risk practices.  He has an Energy Risk Professional (ERP) certification from the Global Association of Risk Professionals which allows him to bring a comprehensive overview of the energy markets to his clients and engagements.

Prior to joining Deloitte in 2012, he was a Senior Vice President in Pace Global Energy’s Executive Decisions and Risk Solutions practice, where he was responsible for the development and delivery of many of Pace Global’s senior executive targeted service offerings, including Governance, Strategic Planning, Risk Integrated Resource Planning (RIRP), Enterprise Risk Management (ERM), and Commodity Risk Management (CRM) services.