Passing the buck – it was easy as a kid to point the finger at your sibling and say it was all their fault.
The consequences of a mistake at that age were minimal – docked pocket money, or a spell in the naughty corner.
In the grown up world of business though, those consequences can be much higher. When you take something as potentially full of risk as energy buying, it’s a whole different ball game.
That’s something to bear in mind when you’ve not gone down the in-house route but plumped for outsourcing your energy risk management.
A risky business?
How many organisations have adequate risk management regimes? Well, it’s difficult to say as most are notoriously secretive when it comes to this type of information.
Suffice it to say that all organisations need to have a risk policy which can be translated into practical solutions for managing their forward risk.
Some, mainly those at the major corporation end where budgets are larger, have their own internal procurement and risk functions. These are often – and rightly – aligned with internal treasury departments, to monitor and manage their procurement operations closely.
Others may use third party intermediaries (TPIs), brokers to whom they entrust, usually within agreed contractual guidelines, their supply side requirements.
There are many advantages in doing this as TPIs are involved by definition in managing much wider and more diverse portfolios on behalf of clients. So they are in a position to continuously monitor market prices and identify sudden spikes.
They also usually have better access to associated information on regulatory and other pass-through elements.
Keep them in the loop
But where TPIs are used it is of paramount importance that there is a continual updating process with information coming from the client on such things as building portfolios, business operational information, like operating hours. And that’s not forgetting the area which can cause most problems: predictive levels of demand.
It is wise to specify and agree in detail how ‘intelligent’ the client really needs to be to maintain this relationship over what can be several years.
Not least, it’s worth laying out how the governance around buy/sell transactions will work and how this will be translated into the budget management and reporting requirements expected.
Because a ‘blame game’ exercise when things go wrong – especially if more complex financial packages from the banking sector are involved – is an expensive way of solving any problems.
Mervyn Bowden is chair of judges for Telca and managing director of Intuitive Energy Solutions Ltd.
This is an extract of Mervyn’s article published in the March 2014 issue of Energy World from the Energy Institute, www.energyinst.org