Introduction to Risk Management for Wholesale Electricity Markets

Live Streaming Online June 23-24, 2022

A Program

Click Here to register ($1195)

If you are unable to attend at the scheduled date and time, we make recordings available to all registrants for three business days after the event

Electricity markets differ from other commodity markets because electricity in the AC (alternating current) form cannot be stored and must be produced and used instantaneously. Price volatility in wholesale electricity markets tend to remain high due to interaction of supply and demand of electricity, weather patterns, as well as correlation trends with natural gas-fired pickers, which tend to set real-time spot market prices under peak load conditions.  Also, the fast-changing landscape in the arena of fuel-mix due to ever increasing penetration of renewables (such as wind and solar) in the wholesale electricity markets puts a lot of pressure on conventional baseload fossil-fired and nuclear plants. As a result, trading and hedging becomes more important as part of risk management. As such, this market structure is 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 provide 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


TUESDAY, JUNE 28, 2022

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