The diversified nature of The Principal requires a high level of business literacy, communication, diversity and operational expertise to meet the needs of the external client and the internal customers. This discussion provided a high level overview of how these challenges are met and the impact that the treasury area has on overall business success. James Parker, Director-Risk Management at MidAmerican Energy Co., discussed energy commodity financial risk management. MidAmerican has become a global company with operations in the United Kingdom, Australia, Poland, and the Philippines as well as having domestic operations across the United States. With increased movement toward deregulation in the electric industry Jim worked to establish and implement risk management policy, procedures, and systems at MidAmerican designed to protect the company's assets.
Companies take risks hoping to keep profits spiraling.
Risk management tries to make sure huge losses are not the outcome. The greater the uncertainty or exposure, the greater the risk. The energy industry has unique risk management challenges due to energy market price volatility and unknown supply and demand quantities. Electricity cannot be stored and supply shocks to price are immediate. A successful risk management organization must have separation of front, middle, and back offices including organizational reporting lines and must have authority to take corrective action.