Annual report - HSE

In 2012, risks were managed with the following activities and methods:
• daily recording of measurements (actual take-over or production), monitoring of
deviations of actual schedules from the planned, i.e. contractual, quantities, which
provides for daily monitoring of realised deliveries and subsequent analysis, by partner,
of the risk of non-delivery or failure to take over;
• daily analysis of scenarios involving different hydrology conditions or failure of TPP
generation units (stress testing);
• daily monitoring of market conditions (prices of energy products and transmission
capacities), position of the company, and VaR and MtM by individual groups of
transactions with similar purpose;
Quantity risk associated with changes in NTC (cross-border
transmission capacities)
Quantity risk associated with changes in cross-border transfer capacities arises from
changes in permeability of major individual transport routes (e.g. reduction of daily crossborder
transfer capacities due to wild currents). As a consequence, situations can arise
where obligations from long-term contracts are not fulfilled, leading to a need to purchase
more expensive energy as replacement from other sources (countries) and possibility of
deviations in balances.
In 2012, risks were managed with the following activities and methods:
• monthly monitoring of legislation (regulations) by country and the balance of transmission
capacities;
• monthly scenario analysis of market conditions given the previous probabilities of events
and subsequently with regard to findings on limitations to trading quantities between
countries;
• daily monitoring of the market position at Group- and company-level by country and by
individual groups of transactions with similar purpose or significance, and monitoring of
published annual, monthly and daily values of cross-border transmission capacities on
individual borders.
Regulatory risk
Regulatory risks arise from changes in market rules or legislation in the Slovene and
foreign electricity and CO 2
emission coupon markets and affect the business results of
the company. Their management is the most demanding as it is difficult to identify and
quantify them and mitigate their effects.
In 2012, the company HSE managed these risks with the following activities and methods:
• constant monitoring of development of the Slovenian and foreign markets for electricity
and other energy products and the CO 2
emission coupons market as well as the associated
regulatory framework, and response to such changes by adapting the trading strategy;
• performance of long- and medium-term scenario analyses in light of the expected
changes to the regulatory framework;
• continuous reporting and informing about legislative changes in domestic and local
markets by the domestic and local legal departments of the company;
• daily monitoring of investment decisions in the EU energy sector and economic policy,
and adaptation of market measures.
Methodology risk
Methodology risk is a risk arising from changes in actual value of individual groups of
transactions due to inappropriate methodology, incorrect modelling items, errors in
modelling or incompatible models. The result is incorrect projection of price dynamics or
inaccurate valuation of products in the market.
Annual Report HSE 2012
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In 2012, the company HSE managed these risks with the following activities and methods:
• regular monitoring of all stages of modelling;
• regular examination of changes in the value of individual groups of transactions in case
of different models and consideration of other defaults;
• regular recording of changes and a list of valuation models.