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