| Gas Pipeline Success Story |
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Risk Management, Policy and Controls In reaction to Order 636 and the deregulation of the Natural Gas markets in the '90s, a major gas utility in the northeast, created its non-regulated marketing division. As a new entity, they had not yet established any risk management capability, trading Policies and Procedures, nor any operational controls. Analysis revealed that the new entity was suffering from "death by a thousand cuts" from errors due to its deficient controls. The cost was approximately 2% of revenues, or 20% of net -- $millions each year. Once effective risk management and controls were put into place, loss due to errors dropped by approximately 85%. Due to this enhanced control environment, senior management allowed the new entity to become more aggressive, increasing revenues 5 times and net profits ten-fold in just 18 months. |
