Transcript How to Retail Markets Work

ace usa
How to Make Retail Markets Work
Presentation by Patricia Goudarzi,
ACE USA Power Products
to the New England Conference
of Public Utility Commissioners
June 2002
CONFIDENTIAL & PROPRIETARY
Agenda
Introduction to ACE USA
Experience In New England
Differences in How Markets Evaluate Risk
Regulatory Issues
Benefits of Insurance Solutions
ACE USA
Introduction to
ACE USA
ACE USA is a division of the ACE Group of
Companies

“A” rated capacity; “A+” S&P; “A” AM Best

Global business in 50 countries

$40 Billion in Consolidated Assets
ACE USA
Introduction to
ACE USA (Contd.)
ACE USA Power Products

Introduced product in 1998

Started as Retail; Currently Predominantly Wholesale

Insured 70,000 MW of Generating Capacity at Summer Peak

Coverage ranges from 2 MW to 12,000 MW systems

All 10 NERC regions covered and UK and Australia

Policy Limits up to $100 million available per individual risk

Risks can be covered either individually or as a portfolio
ACE USA
Experience in New
England
Largest concentration of clients in Midwest and
PJM
Great Bay (Only Announced Transaction in New
England)
Predominantly municipal clients in New England
(versus IOU in other areas of country)
PURMA Relationship
Power Marketers with Off-Take Agreements
ACE USA
Basics of Insurance
Credit
D&O
Fortuitious
Business Interruption
Unexpected or
Rare Events
Earthquake
Low Probability
Events Make it
Affordable
Terrorist Act
Forced Outages
Interruptible Contracts
ACE USA
Risk Management
Perspectives
Commodity/Trading
Organization
Standardized Risks
Risk Management

Offsetting Positions

Unwind positions

Rely on market liquidity and
transparency
Insurance
Customized Solutions
Risk Management

Risk is retained until expiration (not
relying on chain of suppliers for
delivery, etc.)

One-Sided Transactions

Typically Hedge through reinsurance
Large portfolios rely on offsetting Large portfolios rely on law of large
numbers for risk management
positions for risk management
Rely on historic statistics and fleet
Forward Looking
information

Larger number of transactions,
converge to expected losses
ACE USA
Innovative Solutions
Are Available
Full Service Capabilities

Short-term outage and price volatility coverage

Long-term outage/fixed indemnification coverage

Volumetric Risk Management due to temperature
extremes

Specialized Solutions (eg. Retail Programs)
ACE USA
Retail Risk Transfer
Example 1
Interruptible Tariff
Extreme conditions to interrupt (reserve
margin threshold)

No Purely Economic Pass Through
Tariff Contained Option to Buy Through if Able
Insurance Protected Against Impact of
Extreme Prices for Pass Through
ACE USA
Risk Transfer
Example 2
Onsite Generation
Receive Back-up Generation from Local
Provider at Market Cost
Protect Customer Against Extreme Price
Volatility if Generator Offline
ACE USA
Advantages of
Insurance Solutions
Generally Backed by Financially Strong Counterparties
Insurance Companies are Not Potential Competitors in
Commodity Business
Insurance Companies are Diversified Into Different
Businesses
Contingent Nature of Coverage Tends to Result in
Pricing and Coverage Efficiencies
Financially settled through look-back mechanism. No
scheduling or other requirements
ACE USA
Thanks for Your
Attention!
Contact Information:

Patricia Goudarzi

Senior Vice President - ACE Power Products

215.640.1893 (phone)

[email protected]
ACE USA