Commodity risk is related to possible changes in revenue/cash flows generated by the Group resulting, in particular, from fluctuations in commodity prices and changing demand for products/services offered. The objective of commodity risk management is to maintain the risk exposure within an acceptable level while optimizing the return on risk.
One of the key aspects of the commodity risk results from the fact that being an energy company operating based on an electricity trading license, the entity is required to submit electricity tariffs for the G-tariff groups for approval. The Company purchases energy at market prices and calculates its tariff based on costs regarded as legitimate by the President of the Energy Regulatory Office as well as margins (for electricity trading) planned to be earned in the subsequent tariff period. Therefore, during the tariff period the Group’s possibility to transfer adverse changes in its operating costs to electricity customers is limited. A tariff adjustment request may be filed to the President of the Energy Regulatory Office only in the event of a dramatic rise in costs for reasons that are beyond the Group’s control.
Commodity risk management in the scope of pricing is based on continuous monitoring of an open position in trading (both with regard to securing the volume of retail sales, and to proprietary trading) and measurement - using value at risk tools - of the level of risk of possible electricity price fluctuation with respect to such an open position in trading. An appropriate risk mitigation technique in this case is to close an item that generates excessive value of potential loss.
Commodity risk management in terms of volumetric involves using scenario methods, optimizing the planning processes and control of commercial activities which allows possibly the most accurate way to estimate expected volumes of electricity and related goods that are traded.
A commodity risk management based on the above mentioned principles was implemented in 2014.
Moreover, independently from mentioned above, the Enea SA applys the management principles defined by the strategic regulation (so-called Wholesale Trading Procedure), defining the operating methods related to optimization of Enea's trading position, with the primary purpose of minimizing the risk of taking actions contrary to the market trends, taking account of the efficiency aspect in the context of that trend (achieving better results than the market average).