Annual report - HSE

In 2012, the company’s risks were managed with the following activities and methods:
• Weekly review of the fundamental analysis of changes in electricity prices;
• Weekly examination of events taking place in non-transparent markets that could lead to
changes in market conditions in the electricity market;
• Daily analysis of HSE’s position;
• Monthly reviews of price curves in relation to transactions concluded in various countries
and the value of cross-border transmission capacities;
• Gathering of quality and up-to-date information from local sources.
Price risk
Price risk is the risk arising from fluctuations in market prices of electricity and market prices
of other energy products (coal, gas, emission coupons, oil etc.) that have a direct impact on
electricity prices or HSE’s operations. On the one hand, price risks affect the sales revenue
(e.g. lower market prices of electricity lead to lower market values of electricity not yet sold
by HSE subsidiaries), and on the other, expenses associated with the company’s operations
(e.g. higher prices of CO 2
emission coupons increase production costs of subsidiaries
emitting CO 2
).
In 2012, the company HSE managed its price risks with the following activities and methods:
• Daily monitoring of the market position on group-level and on the level of HSE by
countries and individual groups of transactions that have a similar purpose and/or
significance. In the event that in a certain moment the position exceeds the quantities
allowed by the rules, it is corrected accordingly (conclusion of a purchase or sale
transaction). For optimisation of the market position, we use both contracts for supply,
i.e. sale, of physical energy and derivatives involving physical settlement (forwards). In
2011, the market position never exceeded the limit defined by the rules;
• Daily monitoring and limitation of trade in illiquid markets, as well as liquid markets
where supply is expected further away in the future, in connection with market volatility;
• Daily hedging – conclusion of counter-transactions involving the same quantity in the
same market, or purchase of derivatives involving financial settlement (futures), if they
exist for the market in question, depending on the type of the trading transaction;
• Daily monitoring and analyses of prices of energy products and projections regarding the
expected changes in prices of energy products in various markets;
• Daily monitoring of market activities in the CO 2
emission coupons market, investment
decisions in the EU energy sector, and monitoring of economic growth of leading
countries;
• Daily monitoring and analyses of the value of VaR and MtM (Mark-to-Market) parameters
by individual groups of transactions of the company HSE with a similar purpose or
significance, taking into account the limitations or values of VaR determined by the rules;
• Daily monitoring of the value of the coverage used for price fluctuations for transactions
intended to generate added value or minimise the risk of losses in accordance with the
principle of good management;
• Weekly examination of conditions, prices and developments in the electricity markets;
• Bi-weekly examination of the company’s exposure to risks by individual groups of
transactions with similar purpose and examination of conditions in oil and coal markets.
More information on price risk management is disclosed in Notes 4.5.8.8.5 and 5.5.8.8.5 of
the financial part of this Annual report.
Quantity risk associated with deviations from contractual
quantities
Quantity risk associated with deviations from contractual quantities is represented by
the difference between the actually supplied or received quantities and the projected
quantities. The difference must be additionally purchased or sold in the market, frequently
under less favourable conditions; similarly, production shortfalls must be covered with
electricity purchases, the market price of which is usually higher than the contractual price.
Annual Report HSE 2012
2 Business Report
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