Case study

El Paso Merchant Energy Group

Project Pharos: developing and implementing an integrated market, credit, and cash flow risk management system

El Paso Merchant Energy (EPMEG) sought assistance in developing and implementing a proprietary market risk, credit risk, and cash flow measurement and reporting system. This system would be designed to enable enhanced portfolio cash flow forecasting and management, collateral management, and market risk mitigation.

PA’s solution was founded on a well-coordinated project team that focused on the key components of the proposed system and its implementation. Each team included PA content experts and EPMEG employees, facilitating both knowledge transfer and responsiveness to user feedback. PA’s approach focused on the following high-level project areas: future market simulation, market VaR measurement, CFaR measurement, CVaR integration, IT system design construction and system validation and testing.

Development and final implementation of these work streams resulted in a reliable system that produces estimates of simulated price paths, credit exposures, MCVaR, and CFaR. As an added benefit, PA’s approach to energy price simulation provided EPMEG with modular tools that can be used for other types of analysis, including stress testing.