27 Risk Management Standards - Part 1 of 4
by Jim Pierobon
The CCRO’s most recent recommended best practices are a prescient addition to the energy risk management
landscape. As very low natural gas prices and rising costs for operating coal-fired power plants turn power supply
assumptions virtually upside down, regulations on power plant emissions grow more aggressive and demand for
electricity fluctuates as the economy struggles to recover, attention by senior officers to truly independent corporate
governance can prove its value with each passing quarter.
This is the first of four blog posts parsing the 27 separate recommendations from the CCRO’s Risk Management
Standards white paper. Development of the paper was led by these companies and their CCRO leaders / representatives,
with guidance by CCRO Executive Director Bob Anderson:
- Calpine Corporation, Morgan Davies (co-Chair)
- NRG Energy Brad Radimer (co-Chair)
- The De Laval Yeager Group Jack Yeager
- NRG Energy Glen Mackey
- Constellation Energy Nick Kiritz
- Price Waterhouse Coopers Jason Plummer
- Power Markets Advisory Services Phil Gootee
- Crowell & Moring, LLP Mike Gill
The first six recommendations focus on independent governance. The CCRO Working Group which drove the
development and vetting of the recommendations made it clear that independence is limited by how firmly governance
standards exist and are in place.
Governance duties should be assigned to a governing body, e.g. a management committee staffed with individuals in
commercial activities and individuals independent from commercial activities. That may seem like a minor distinction,
but the separation is integral to successful and credible risk management.
The governing body should be empowered with the ultimate authority and responsibility for authorizing the firm’s
commercial activities. The standards that guide them should respect these principles:
- The governing body periodically reaffirms its understanding of the firm’s risk exposure and the firm’s capacity to
- fulfill potential future financial and physical obligations.
- The governing body authorizes commercial activities and sets maximum acceptable levels of specific risks those
- activities expose the firm to. The governing body may choose to delegate to a management committee a list of
- more detailed and necessary governance duties.
- Specific risk management standards should reflect these processes which:
- Understand, review, modify, mandate, respond to and authorize relevant risk matters on an on-going basis;
- Periodically report risk management performance to the governing body.
- Individuals independent of commercial activities must perform activities that are essential to the accurate identification, measurement and independent monitoring of risks. Integral to their competent execution are the:
- validation of transaction information and related market information;
- valuation of transactions and development of systems used for that purpose;
- measurement of risks and development of systems used for that purpose; and
- reporting of performance and compliance with limits.
