After identifying a portfolio management services strategy, the client asked us to continue on to a second phase to support the start-up of operations and concept testing. In this phase, we helped the client change its organization to support portfolio management. In particular, the client had traditionally procured electricity from a single source and we helped build a more robust trading operation from the ground up. The organizational support included:

• Development of process maps for the major portfolio management activities and a corresponding procedure manual. Two key areas of development were the activities of trading and risk management.
• Development of a comprehensive risk policy including specification of risk limits, as well as development of risk policies appropriate for portfolio management customers.
• Planning the organizational development, including creating a new organizational structure with job descriptions for new positions and performing appropriate training workshops.

In addition to organizational support, we also provided operational support by developing analytical tools. The portfolio management services attractive to regional customers included the capability to compare full requirements contracts to packages of standard markets products. This required a number of analytic models including:

• Development of hedging strategies that package standard forward contracts and interruptibilities. These packages were presented to retail customers as alternatives to full requirement contracts.
• Models of local energy markets that could be used to evaluate the risk-reward trade-off of various product packages and methods to communicate these trade-offs to customers.
• Pricing models to determine the price of packages of interruptibilities and other less liquid market products.

The second phase enabled the client to test the portfolio management concept with key customers and prepared the organization for full launch. It successfully defined a set of services at the organizational level that satisfied its demanding customers.