Companies in the energy and utility sector face pronounced risks because of their relatively long investment and amortization cycles, exposure to commodities, and dependence on trading success. To ensure long-term value growth, they need to carefully assess whether projected returns from operational and strategic activities warrant taking the associated risks.
Some utilities in North America and Europe are enhancing their riskreturn management beyond trading activities, by assessing their risk positions for the overall business and for strategic development options. In Europe, the members of the Union of the Electricity Industry are developing a best-practice Enterprise Risk Management (ERM) framework to improve risk measurement applications. Organizations employing such a rigorous approach benefit from enhanced decision-making transparency and quality. By contrast, businesses with inadequate transparency and controls can find themselves with poor strategic positioning, share price performance, and reputation.