Timing is everything

The important factor all credit risk managers need in energy is timely and accurate
information. This is far from simple, especially since most utilities are more used to
monthly or even multiple-month turnarounds. Getting an up-to-date list of counterparty
exposures and their associated lists was traditionally seen an initiative that
sometimes happened after a major event.
Unfortunately credit managers need to work within these constraints and balance
between what is desirable versus what is feasible. As such their ability to get timely
exposure reports and lists of potential counterparties is often hampered by antiquated
accounting systems and a bemused sales force and management. In some cases the
credit managers are still divorced from the trading team and housed with the
corporate finance and treasury function.
Given the potential for extreme volatility, isolation of credit from market risk is
extremely dangerous in energy. With prices moving dramatically credit exposures
become significant in hours rather than days or weeks, and problems often need to
be dealt with before the next day. Energy has neither the luxury of the institutionalized
nature of the finance markets nor the ability to take the more blase´ approach of
a traditional utility who has experienced few historical defaults. As such, the credit
manager and risk manager need to be side by side on the trading floor as should the
most important person on the energy trade floor, the operational risk manager.