SAS® streamlines Xcel’s Dodd-Frank compliance

To supply electricity and natural gas to more than 5 million customers in eight US states, Xcel Energy must comply with 10 different sets of rules enforced by 10 different state and federal regulatory agencies. And to supply energy affordably, the Minneapolis-based utility has to mitigate risk across volatile markets. In order to make that happen, Xcel manages market and credit risk and automates reporting with energy risk solutions from SAS.

Most utilities buy and sell excess power with other providers on the grid. Some companies reduce price volatility and other risks related to this energy trading by hedging with derivatives traded on an exchange, such as futures or options, or in the over-the-counter (OTC) market using swaps, forwards or options. Others use proprietary trading to seek profitable transactions for their own accounts in the energy commodity markets.

Introduced after the 2008 financial crisis, the Dodd-Frank Act shines a light into these OTC commodity markets. For energy and commodity companies that engage in trading activity to reduce risk and find opportunities in the fast-moving energy market, this has brought a new level of regulatory compliance.

The rules include a new requirement to report each trade to a new entity – the Swap Data Repository (SDR) – in near-real time.

"There's a whole protocol of how those transactions need to be reported," explains Cary Oswald, Xcel's Managing Director of Risk Strategy and Control. "That means you have to have new checkpoints. It's one thing if we make a mistake between two counterparties. Now you have to worry about making a mistake between yourself, the counterparty, and the government or the SDR."

 

I've felt comfortable from day one that SAS is a partner we can rely on because of its reputation and experience with big data and analytics.

Cary Oswald
Senior Director, Risk Strategy and Control

Automation inspires CEO confidence

Xcel's leadership recognized that Dodd-Frank posed many new challenges to its risk management strategy. The company even considered eliminating trading strategies that would require additional staff for Dodd-Frank compliance. Instead, Xcel turned to SAS for an IT solution that automates the process.

"We realized there had to be an IT solution to this," Oswald says. "While you could build all this in spreadsheets and manually upload it to the SDR, that's going to be a lot of manual labor for not a lot of actual business benefit."

With SAS BookRunner, Xcel can capture, analyze and simulate market and credit risks associated with price volatility. In addition to a full suite of modeling tools, SAS automates the company's daily reporting process mandated by the new compliance rules.

"If we did not have those systems and their capabilities, most of what we do on the proprietary side of our business would not happen," Oswald says. "Our CEO is very fluent in value at risk, earnings at risk, liquidity and those kinds of risk metrics. He is confident that our risk systems give him good data and good result sets."

That confidence inspired the CEO to approve a new transaction type at twice the requested risk limit.

"If we didn't have that credibility with the SAS solutions," Oswald says, "I don't think we would've gotten approval for even the original request, and here he was willing to go and double it on the fly."

Delivering timely risk reports

To help senior managers and energy traders make the right business decisions quickly and confidently, Oswald's team makes sure it knows what happened yesterday and what's at risk today based on the positions it takes.

xcel-energy

Challenge

Mitigate risk across volatile trading markets while complying with the Dodd-Frank Act, a set federal record-keeping and reporting rules for users of commodity swaps.

Solution

SAS® BookRunner

Benefits

  • CEO confidence in risk systems.
  • Automated data aggregation, record keeping and reporting to meet regulatory compliance obligations.
  • Senior managers and energy traders base business decisions on current risk position.

The results illustrated in this article are specific to the particular situations, business models, data input, and computing environments described herein. Each SAS customer’s experience is unique based on business and technical variables and all statements must be considered non-typical. Actual savings, results, and performance characteristics will vary depending on individual customer configurations and conditions. SAS does not guarantee or represent that every customer will achieve similar results. The only warranties for SAS products and services are those that are set forth in the express warranty statements in the written agreement for such products and services. Nothing herein should be construed as constituting an additional warranty. Customers have shared their successes with SAS as part of an agreed-upon contractual exchange or project success summarization following a successful implementation of SAS software. Brand and product names are trademarks of their respective companies.

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