Clients

Over a 12 months period, ESP Consulting provided trading and risk management subject matter expertise to the Future Trading Programme in ESB. This programme was tasked with setting up a new integrated trading and commercial optimisation function for all un-regulated wholesale activities within ESB.

Book Structure Design:

As part of this engagement, we advised on the design of an integrated book structure covering ESB’s wholesale trading and asset positions in Ireland, Northern Ireland and GB to be implemented in a new trading and risk management (ETRM) system. This work included:

• Design of the logical structure of books;
• Design of the mechanisms/rules for how positions are transferred between books and how such transfers are priced with particular focus on the boundaries between the Trading function and the up and down-stream businesses;
• Development of proto-type models to demonstrate the working of the proposed book structure as well as the mapping to statutory and budgetary accounts; and
• Working with the system vendor to map this design to the technical (operational level) structure to be implemented within the ETRM system.

Other Areas of Support:

Subsequently, we supported the Future Trading Programme in other areas including:

• Portfolio Management: We supported the new Portfolio Management function in defining its overall business model and the allocation of roles and responsibilities including interfaces to other trading functions;
• Transfer Pricing: We assisted in the further development of transfer pricing arrangements for wholesale gas between the trading operation and the retail business; and
• Short Term Gas Demand Forecasting: We carried out a methodology review of a newly developed model for forecasting short term gas demand for the purpose of prompt and balancing operations at the NBP.

Over an 8 month period we supported ESB Customer Supply (now ESB Electric Ireland) in their preparations for commencing purchasing and hedging of NBP gas to back entry into gas retailing in Ireland.

ESB needed to establish robust capabilities and processes for management of wholesale market exposures and trading risks resulting from the entry into gas retailing. The objective was to create an interim setup which was fit-for-purpose for a limited initial market entry as well as a route map for transition to a more refined environment, consistent with full market entry.

This work included:

• Assistance with the development of a hedging strategy able to accommodate the considerable uncertainty which existed with respect to customer numbers/sales during the market entry phase and adapt to revised forecasts;
• Specification of risk metrics and control framework required to support both the initial market entry phase and subsequent steady state operations;
• Development of a prototype model capable of analysing the Margin-at-Risk for alternative hedging strategies, supporting the client with evaluating the level of risk capital required to support the market entry phase and producing recommended risk metrics for initial management reporting purposes;
• Modelling and quantification of the risks associated with daily balancing requirements in the NBP market;
• Support in developing an overall map of the main systems and models needed for initial and full entry to the gas retail market including new gas demand/load forecast capabilities data to enable effective risk management and minimise the cost of sourcing;
• Providing a route map setting out priorities for the period up to the launch date.

This engagement arose as a result of a competitive tendering process conducted by the client, and was undertaken in collaboration with Capgemini.