Job at time of interview: Founder and Managing Director, Empowered Energy
I am the founder and managing director of Empowered Energy, an independent energy consultancy based in Durango, Colorado. Empowered Energy specializes in the economic and regulatory analysis of renewable energy, natural gas, power and emissions markets, focusing in particular on the interactions between those markets.
I apply my risk management training every day in general terms, finding the basic fundamentals of risk identification applicable to almost every project that I undertake. Such projects might include projecting supply and demand conditions (and resultant prices) in natural gas and electricity markets, or assessing the economic viability of renewable generating technologies within the context of the traditional fossil fuel-based electricity grid.
I have made specific application of my risk management training in reviewing the major utility risk management policies and practices as they relate to natural gas and electricity hedging.
As managing director of Empowered Energy, my risk management training not only helps me take a broader view of how the company fits into the energy consultancy world but also enables me to identify the major competitive risks we face.
Being a successful global risk manager requires both a breadth and depth of knowledge about and across the market(s) of interest. The breadth is necessary because of how inter-related the markets have become in the age of instantaneous communication and globalization. The depth is necessary to understand the specific details about the market(s) in which the risk manager is most involved.
Individuals tend to have either a "big picture" or an "in the weeds" world view. It is important to know which tendency you favor, so that you can make a conscious effort to appreciate the value and nuances of the tendency that you favor less.
Besides the knowledge that is obtained from studying individual markets and market interactions, the most successful risk managers also have an intuitive sense about risk. The more one is able to anticipate where risks may arise, the better a risk manager he or she will be. I am a big fan of "out-of-the-box" scenario analysis, because sometimes a cursory review of a seemingly ridiculous scenario will provide unexpected insights into risks that are not at all ridiculous.
There has not been a more interesting and exciting time to be involved in energy risk management. There is a wealth of analytical opportunity, as the ramifications of actually implementing academic theories in the real world make themselves apparent. Cutting-edge opportunities are available for risk managers in energy, technology, finance, credit and compliance, because of the risks associated with the integration of renewable energy generation into the gird; the development of smart grids; the continued production of fossil fuels; and the need for compliance with new environmental regulations.
The richness of the content in GARP communications to the membership is one of the things I value most about my GARP membership. I first heard about the ERP through a GARP e-mail. The idea of earning the ERP certification was appealing to me as something of a capstone to a long career in energy. I only wish that the ERP had been available earlier in my career. Realizing its value, I have encouraged many GARP members to sit for the ERP certification, at any stage in their risk management career.
The biggest benefit that I personally got from the ERP was the synthesis of knowledge that was required to pass the ERP exam. Over the years, I have worked in many different areas of energy, and I found the ERP exam preparation materials to be a good overview of many of my own experiences. I still use the preparation materials from time to time as reference material. In addition, there are intangible benefits of having earned the ERP certification. Potential clients familiar with the ERP certification know upfront that you have a certain level of risk management skills. This is a benefit that I believe will grow over the years, as more people earn the certification and become familiar with its rigor. On the other hand, potential clients unfamiliar with the ERP certification recognize that achieving any professional certification requires a committed effort, and being a Certified ERP reflects well on my willingness to work hard to accomplish a goal. In both cases, there is an implicit level of respect that is difficult to quantify.
My main advice would be to become a Certified ERP as early in your career as possible. Even if you are unsuccessful in passing the ERP exam the first time you take it, the preparation will serve you well in your energy risk management career. That being said, the more time you commit to the preparation, the more likely that you will not have to sit through eight hours of the ERP exam more than once!
The primary difference is that energy producers and consumers have a physical commodity that must be supplied and delivered. This physical aspect of energy market risk adds another dimension to the financial market risk that is also associated with energy markets. Although financial instruments are an important component of hedging energy price risk, the successful completion of the hedge relies on the physical spot markets for the actual physical commodity.
Besides the traditional risk management tools, an in-depth knowledge of the markets themselves is vital. If you can combine the qualitative in-depth market knowledge with the ability to model the markets of interest quantitatively, you provide an invaluable connection that helps to ensure that valuable information does not get lost in translation. I have successfully worked with both lawyers and engineers throughout my career, and find my ability to bridge the communication gap between the legal and the technical arena is a relatively rare commodity.
Curiosity; Analytical skills (Excel, ACCESS, MATLAB); A willingness to take on a new challenge; Fascination with markets and their interactions; and An ability to talk with people and share ideas.
Implementation of the Dodd-Frank regulations is probably the most topical current trend in energy markets. Since the regulations are designed as a risk management device, there are many areas of opportunity for risk managers. The webcasts that GARP has presented on the various aspects of Dodd-Frank have provided a wealth of information. Other current trends include the ones I previously mentioned -- namely, renewable energy integration into the grid, smart grid development, fossil fuel production and compliance with environmental regulations. In all cases, risk managers who can understand the implications of the risks associated with these developments will serve their constituents well. As I said previously, there has never been a more interesting time to be involved in energy risk management.
Increased priced-based demand response and innovations in rate design in electricity markets are market design changes that we are already seeing. Anything that we can do to enable a grid designed for central station generation to accommodate the move to increased distributed energy generation will move us in the right direction. The overall cost-benefit analysis should include recognition of the value of distributed energy generation in terms of reduced transmission and distribution losses; potentially reduced air emissions (and associated health benefits); and increased security.
Renewable energy generation will likely continue to grow around the globe, initially relying on policy incentives and eventually achieving grid parity in many cases, as technology costs decline with increased capacity installations. Assuming that climate change concerns continue unabated, policy incentives will continue to provide the basis of this market transformation. As renewable energy generation increases, so will the grid integration issues, the latter of which are coming increasingly into focus. These are not insurmountable issues, but they do temper the realistic rates and locations at which increased renewable energy generation will be able to occur. One perhaps unexpected result of increased renewable energy generation is the associated need for additional flexible and dispatchable generation to offset the intermittency of renewable energy generation. Energy storage is an exciting area of research that could help offset some of the grid integration issues, as is price-based demand response.
Although I never had an official mentor, I was fortunate to have some excellent bosses during my corporate career, in companies both large and small. From them I learned the importance of surrounding yourself with the best people you can and of having confidence in your own abilities (while recognizing your own weaknesses). I have also benefitted from my friends and colleagues in the United States Association for Energy Economics (USAEE), which is part of the larger International Association for Energy Economics (IAEE). As Immediate Past President of the USAEE, I have a close association with members doing research and applied work in "hot topic" energy areas of interest to academics, industry and government; this research provides a wealth of insight into energy risks of all different types. Sometimes risk professionals are required to provide insights and feedback that are necessary, but not necessarily popular.
The key here is to be well-prepared and confident in your underlying analysis. The toughest "bad news" that I have had to deliver was to a group of equipment manufacturers who believed that their equipment had a compelling greenhouse gas reduction story. Although I can't claim that I was able to turn the "bad news" into a positive, through detailed analysis and careful explanation, I was in the end able to help the group understand why their equipment did not provide the greenhouse reduction that they'd assumed, and to suggest changes that could be made that might get them to that point in the future.
The GARP Daily News and GARP Week in Risk e-mails are an invaluable source of information on current risk management topics. I also take in as many GARP webinars as I can that are relevant to energy risk management. Earning CPE credits on an ongoing basis can be a challenge in a busy schedule, but this is an important component of the ERP certification. I also enjoy the GARP discussions on LinkedIn. Being a member of GARP is an important and efficient way for me to keep current as a risk manager.