Determination of the Effectiveness of Risk Management Systems in the Electricity Industry

Abstract

Electrical power companies are operating today in a turbulent environment characterized by changes in energy regulatory policies, opening of the electricity markets, competition and a subsequent loss of market share, increased customer demand, increased expectations from stakeholders; price volatility of electricity, fuel and CO2 emissions; difficulties in securing fuel supply routes, difficulties in securing transmission facilities at acceptable prices and other factors. An effective risk management system can permit an enterprise to recognize opportunities and react to change at the right time, i.e. to protect and increase the company value. In this paper, a hypothesis is presented that there is a correlation between the effectiveness of a risk management system and market competitive intensity, MCI. For the purpose of testing this hypothesis, an index has been developed to measure the effectiveness of a risk management system. The results of research conducted on a sample of twenty—one electrical power companies operating both inside and outside the countries of the European Union confirm this hypothesis.