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You Can Fool Mother Nature. Presented by Judy Pokorny Chief Risk Officer 2004 Enterprise Risk Management Symposium. Weather Events Significantly Impact the Bottom Line of Natural Gas and Electric Utilities.

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Presentation Transcript
you can fool mother nature

You Can Fool Mother Nature

Presented by Judy Pokorny

Chief Risk Officer

2004 Enterprise Risk Management Symposium

weather events significantly impact the bottom line of natural gas and electric utilities
Weather Events Significantly Impact the Bottom Line of Natural Gas and Electric Utilities

“We believe weather explains 10% of gas utility stock movement.” A.G. Edwards Gas Utilities Quarterly Review, January 7, 2004

“Outlook for 2004 and Beyond. In the short term, our financial results will be affected by a number of factors, including weather conditions, …”,Exelon Corporation 2003 Annual Report, MD&A

why weather affects utility earnings
Why Weather Affects Utility Earnings

Certain costs fit the definition “variable”

These costs are divided by 20-30 year weather statistics

Most variable costs are difficult to manage

Rate cases are infrequent

In Midwest, the trend has been warmer in winter

is weather risk strategic or should it be insured
Is Weather Risk Strategic or Should it be Insured?

Questions to consider

What is the sensitivity of the firm to weather ?

What is the volatility of weather ?

Can the firm withstand an extreme event?

Are there internal mitigants?

what are the alternatives
What Are The Alternatives?

1.File rate case frequently

2. Weather normalization clause

3. Offer fixed cost distribution product

4. Derivatives

5. Insurance

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