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.
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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.
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."
Automation inspires ceo confidence
"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
"I come in every day at 7 a.m., and I want risk reports out the door by 7:15," Oswald says. "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. We've had remarkable success."
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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.
Automated data aggregation, record keeping and reporting to meet regulatory compliance obligations; CEO confidence in risk systems; senior managers and energy traders base business decisions on current risk position.
“"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."”
Senior Director, Risk Strategy and Control