item 2: committee education on enterprise risk management€¦ · item 2 ercot public 2 what is...
TRANSCRIPT
![Page 1: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/1.jpg)
Item 2: Committee Education on
Enterprise Risk Management
Mark Ruane
Vice President, Credit and Enterprise Risk Management
Finance & Audit Committee Meeting
ERCOT Public
May 13, 2013
![Page 2: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/2.jpg)
Item 2
ERCOT Public 2
What is Enterprise Risk Management?
One definition:
“… a process,
• effected by an entity's board of directors, management and other personnel,
• applied in strategy setting and across the enterprise,
• designed to identify potential events that may affect the entity, and
• manage risks to be within its risk appetite,
• to provide reasonable assurance regarding the achievement of entity objectives.”
Source: COSO Enterprise Risk Management – Integrated Framework. 2004. COSO.
![Page 3: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/3.jpg)
Item 2
ERCOT Public 3
What is Risk?
Defining Risk
![Page 4: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/4.jpg)
Item 2
ERCOT Public 4
What is Risk?
Defining Risk
A risk is a potential occurrence that, if it happens, will have an
adverse effect on the achievement of enterprise objectives.
![Page 5: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/5.jpg)
Item 2
ERCOT Public 5
What is Risk?
Defining Risk
A risk is a potential occurrence that, if it happens, will have an
adverse effect on the achievement of enterprise objectives.
Risks are different from opportunities. Risks represent downside outcomes.
![Page 6: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/6.jpg)
Item 2
ERCOT Public 6
Defining Risk
In the energy industry, risks are conventionally categorized as
market, credit, operational and business.
![Page 7: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/7.jpg)
Item 2
ERCOT Public 7
Defining Risk
In the energy industry, risks are conventionally categorized as
market, credit, operational and business.
Risk of loss of value
from changes in market
factors:
• Fuel prices
• Interest rates
• Heat rates
• Exchange rates
- and how these factors
move together
• Correlation risk
• Spread risk
Market
Risk
![Page 8: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/8.jpg)
Item 2
ERCOT Public 8
Defining Risk
In the energy industry, risks are conventionally categorized as
market, credit, operational and business.
Risk of loss of value
from changes in market
factors:
• Fuel prices
• Interest rates
• Heat rates
• Exchange rates
- and how these factors
move together
• Correlation risk
• Spread risk
Market
Risk
Credit
Risk
Risk of not receiving payment
or receiving late payment
from a counterparty
• Credit quality risk
• Concentration risk
• Performance/delivery risk
![Page 9: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/9.jpg)
Item 2
ERCOT Public 9
Defining Risk
In the energy industry, risks are conventionally categorized as
market, credit, operational and business.
Risk of loss of value
from changes in market
factors:
• Fuel prices
• Interest rates
• Heat rates
• Exchange rates
- and how these factors
move together
• Correlation risk
• Spread risk
Market
Risk
Credit
Risk
Risk of not receiving payment
or receiving late payment
from a counterparty
• Credit quality risk
• Concentration risk
• Performance/delivery risk
Operational
Risk Risk associated with
shortfalls in
• People
• Processes
• Technology
![Page 10: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/10.jpg)
Item 2
ERCOT Public 10
Defining Risk
In the energy industry, risks are conventionally categorized as
market, credit, operational and business.
Risk of loss of value
from changes in market
factors:
• Fuel prices
• Interest rates
• Heat rates
• Exchange rates
- and how these factors
move together
• Correlation risk
• Spread risk
Market
Risk
Credit
Risk
Risk of not receiving payment
or receiving late payment
from a counterparty
• Credit quality risk
• Concentration risk
• Performance/delivery risk
Operational
Risk Risk associated with
shortfalls in
• People
• Processes
• Technology
Business/
Strategic Risk Risk resulting from business
or strategic decisions, e.g.:
• Change in markets,
• Adverse legal or regulatory
outcomes
![Page 11: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/11.jpg)
Item 2
ERCOT Public 11
Defining Risk
In the energy industry, risks are conventionally categorized as
market, credit, operational and business.
Risk of loss of value
from changes in market
factors:
• Fuel prices
• Interest rates
• Heat rates
• Exchange rates
- and how these factors
move together
• Correlation risk
• Spread risk
Market
Risk
Credit
Risk
Risk of not receiving payment
or receiving late payment
from a counterparty
• Credit quality risk
• Concentration risk
• Performance/delivery risk
Operational
Risk Risk associated with
shortfalls in
• People
• Processes
• Technology
Business/
Strategic Risk Risk resulting from business
or strategic decisions, e.g.:
• Change in markets,
• Adverse legal or regulatory
outcomes
• For ERCOT, the primary risks are operational and credit.
• For ERCOT Market Participants, the predominant risk is often market
risk arising from changes in fuel and electricity prices.
![Page 12: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/12.jpg)
Item 2
ERCOT Public 12
ERM Framework
A number of frameworks have been designed for visualizing
components of ERM. One of the most common is the COSO
(Committee of Sponsoring Organizations) framework.
![Page 13: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/13.jpg)
Item 2
ERCOT Public 13
ERM Framework
COSO defines ERM elements across three dimensions.
Enterprise objectives
![Page 14: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/14.jpg)
Item 2
ERCOT Public 14
ERM Framework
COSO defines ERM elements across three dimensions.
Enterprise objectives
“What do risks
affect?”
![Page 15: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/15.jpg)
Item 2
ERCOT Public 15
ERM Framework
COSO defines ERM elements across three dimensions.
Enterprise objectives
“What do risks
affect?”
Risk management
activities
![Page 16: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/16.jpg)
Item 2
ERCOT Public 16
ERM Framework
COSO defines ERM elements across three dimensions.
Enterprise objectives
“What do risks
affect?”
Risk management
activities
“How are risks
managed?”
![Page 17: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/17.jpg)
Item 2
ERCOT Public 17
ERM Framework
COSO defines ERM elements across three dimensions.
Enterprise objectives
“What do risks
affect?”
Risk management
activities
“How are risks
managed?”
![Page 18: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/18.jpg)
Item 2
ERCOT Public 18
ERM Framework
COSO defines ERM elements across three dimensions.
Enterprise objectives
“What do risks
affect?”
Risk management
activities
“How are risks
managed?”
“Where do risks
occur?”
![Page 19: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/19.jpg)
Item 2
ERCOT Public 19
The Internal Environment layer at the top of the COSO framework
is sometimes referenced as “Tone at the top”, but also
encompasses:
Internal Environment
• Tone throughout the organization
• Risk management philosophy
• Ethical values
• Risk appetite
![Page 20: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/20.jpg)
Item 2
ERCOT Public 20
The International Organization for Standardization defines risk
appetite as “the amount of risk that an organization is willing to
pursue or retain”.
Risk Appetite
• Understanding organizational risk
appetite is necessary in defining internal
controls and risk limits
• ERCOT has a low risk appetite for its activities
• ERCOT Market Participants will typically have a higher risk
appetite because they must assume some amount of market risk
![Page 21: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/21.jpg)
Item 2
ERCOT Public 21
Risk tolerances are more detailed specifications of risk appetite
that define the acceptable level of variation around targets
Risk Tolerance
• In the context of the COSO framework,
defining risk tolerances aligns with the
“Objective Setting” layer.
For example, a risk appetite statement might specify a low level of
operational errors. Allowing no more than a certain number of
operational errors in a given time frame is a risk tolerance.
![Page 22: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/22.jpg)
Item 2
ERCOT Public 22
Risk tolerances may be expressed by different metrics.
Risk Appetite and Risk Tolerance
Enterprise
Strategic
Goals
Risk
Appetite
Risk
Tolerances
KPIsBudget
VariancesRisk Limits
Other
Indicators*
* Process exceptions, Internal Audit results, etc.
![Page 23: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/23.jpg)
Item 2
ERCOT Public 23
Risk Metrics
In addition to these, ERCOT Market Participants will utilize a
number of metrics to measure and control market risk positions:
• Physical (volumetric) position limits
• Mark-to-market limits
• Cumulative loss limits
• Value-at-Risk (VaR)
• How much value might a portfolio lose –
• Over a defined time period
• With a defined confidence level
• Stress tests (how position values react to shocks to market
factors)
![Page 24: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/24.jpg)
Item 2
ERCOT Public 24
Risk Identification and Assessment
After risk tolerances are defined, risks are identified and
assessed, and responses deployed as appropriate.
Within the COSO framework, these
activities correspond to:
• Event Identification
• Risk Assessment
• Risk Response
• Risks are typically identified and assessed by periodic internal
surveys, management brainstorming, etc.
![Page 25: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/25.jpg)
Item 2
ERCOT Public 25
Risk Identification and Assessment
Once identified, risks are often assessed with respect to their
likelihood and potential impact. The result is called a heat map.
![Page 26: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/26.jpg)
Item 2
ERCOT Public 26
Exceeds risk
appetite
Within risk
appetite
Risk Identification and Assessment
Once identified, risks are often assessed with respect to their
likelihood and potential impact. The result is called a heat map.
Risk appetite decreases as we move to the upper right corner –
representing risk events that are more frequent and with a larger
potential impact.
![Page 27: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/27.jpg)
Item 2
ERCOT Public 27
Risk Response
Risk assessments help drive appropriate strategies to control and
mitigate risks.
Exceeds risk
appetite
Within risk
appetite
![Page 28: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/28.jpg)
Item 2
ERCOT Public 28
Risk Response
Risk assessments help drive appropriate strategies to control and
mitigate risks.
Exceeds risk
appetite
Within risk
appetite
The region in which firm risk appetite is exceeded implies active
strategies to control and mitigate risks.
Control and mitigate
risks
![Page 29: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/29.jpg)
Item 2
ERCOT Public 29
Risk Response
Risk assessments help drive appropriate strategies to control and
mitigate risks.
Exceeds risk
appetite
Within risk
appetite
Low-impact or very unlikely risks may be acceptable
Control and mitigate
risks
Accept risks
![Page 30: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/30.jpg)
Item 2
ERCOT Public 30
Risk Response
Risk assessments help drive appropriate strategies to control and
mitigate risks.
Exceeds risk
appetite
Within risk
appetite
Intermediate risks are addressed by implementing controls or
insuring against large losses
Control and mitigate
risks
Accept risks
Share or insure risks
Control risks
![Page 31: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/31.jpg)
Item 2
ERCOT Public 31
Risk Response
ERCOT risk management tools include:
• Insurance (property damage, crime, employment practices)
• Independent reviews of operations (auditors, NERC, Market
Monitor)
• Collecting collateral from Market Participants (credit risk)
• Contractual limitations on liability (embedded within Standard
Form Agreement)
• Vendor review process (fraud risk)
• Policies and procedures
• Strong internal controls
![Page 32: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/32.jpg)
Item 2
ERCOT Public 32
Risk Response
For ERCOT Market Participants, risk management tools will also
include means to mitigate market risk:
• Fuel and power hedges
• Swaps and options
• Congestion Revenue Rights
• Full-requirements contracts
• Bilateral contracts
• Weather derivatives
• Retail pricing arrangements
![Page 33: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/33.jpg)
Item 2
ERCOT Public 33
Control Activities
At a more detailed level, we consider control activities and
information & communication.
Control Activities
• Processes designed to minimize
inherent risks in business activities
• SSAE16 controls managed by
ICMP
• Periodic control self-assessments
• Periodic testing by Internal Audit
![Page 34: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/34.jpg)
Item 2
ERCOT Public 34
Information and Communication
Management is responsible for ensuring that risk information is
communicated throughout the organization.
Information and Communication
• Board and Committee reporting
• Internal Audit reports
• Ongoing communication with
PUCT and other regulatory
authorities
• Internal assessment and reporting
of risks
![Page 35: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/35.jpg)
Item 2
ERCOT Public 35
Risk Governance
Finally, we consider Risk Governance – the means by which the
risk management activities are put in place across enterprise
objectives and levels.
Enterprise objectives
Risk management
activities
![Page 36: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/36.jpg)
Item 2
ERCOT Public 36
Risk Governance
Effective risk governance ensures that all risk management
activities function effectively throughout the organization.
![Page 37: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/37.jpg)
Item 2
ERCOT Public 37
Risk Governance
Effective risk governance ensures that all risk management
activities function effectively throughout the organization.
Organization design
• Appropriate segregation of duties between risk-taking and
risk control functions.
• Clearly defined roles and responsibilities for all employees
![Page 38: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/38.jpg)
Item 2
ERCOT Public 38
Risk Governance
Effective risk governance ensures that all risk management
activities function effectively throughout the organization.
Risk policy
• Defines risk management roles and responsibilities
• Specifies risk reporting
![Page 39: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/39.jpg)
Item 2
ERCOT Public 39
Risk Governance
Effective risk governance ensures that all risk management
activities function effectively throughout the organization.
Risk Committee
• “Owns” risk across the organization
• Should have a view across organization divisions
• Determines organizational risk appetite
• Ensures appropriate reporting
![Page 40: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/40.jpg)
Item 2
ERCOT Public 40
Risk Governance
At ERCOT, the risk governance structure is defined by CS1.3 –
Enterprise Risk Management Corporate Standard.
• Defines objectives for ERM
• Establishes ERM responsibilities for:
• Board of Directors
• CEO
• Risk Management Committee (RMC)
• VP Enterprise Risk
![Page 41: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/41.jpg)
Item 2
ERCOT Public 41
Risk Governance
Primary ownership of ERM at ERCOT lies with the Risk
Management Committee (RMC).
RMC responsibilities:
• Implements risk management governance structure
• Maintains awareness of the impact of risks on ERCOT
• Defines long-term goals for risk management capabilities
• Reviews ERCOT risk assessments
• Recommends risk mitigation strategies
• Monitors risk reporting
![Page 42: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/42.jpg)
Item 2
ERCOT Public 42
Risk Governance
In addition, ERCOT has established a Director-level Advisory
Risk Committee (ARC).
ARC responsibilities:
• Assists in identification of risks
• Reviews project/NPRR risk assessments
• Assists in definition of long-term risk management
capabilities
• Reviews ERCOT risk assessments
![Page 43: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/43.jpg)
Item 2
ERCOT Public 43
Risk Governance
In general, to effectively manage enterprise risk every ERCOT
employee is responsible for maintaining awareness of risks and
acting in accordance with internal controls and Protocols.
![Page 44: Item 2: Committee Education on Enterprise Risk Management€¦ · Item 2 ERCOT Public 2 What is Enterprise Risk Management? One definition: “… a process, • effected by an entity's](https://reader034.vdocuments.us/reader034/viewer/2022042811/5fa161974c5326431777d027/html5/thumbnails/44.jpg)
Item 2
ERCOT Public 44
Questions