Financial Risk Management at American Electric Power
| Case Code: FINA013 Case Length: 14 Pages Period: 2003 Pub Date: 2003 Teaching Note: Not Available |
Price: Rs.300 Organization: American Electric Power Company Industry: Electric Countries: USA Themes: Banking and Financial Management, Microfinance |
Abstract Case Intro 1 Excerpts
Excerpts
Background Note
In 1906 Richard Breed, Sidney Mitchell, and Henry Doherty set up American Gas & Electric (AG&E) in New York to buy 23 utilities from Philadelphia's Electric Company of America. AG&E began acquiring and merging small electric properties. By 1926, the company was operating in Indiana, Kentucky, Michigan, Ohio, Virginia, and West Virginia...
Overview of Risks
AEP was subject to various risks. These included abnormal weather conditions, fluctuation in prices of fuels, electricity and gas, changes in interest rates, new legislation and government regulation, new competition in areas where deregulation was being introduced and unforeseen risks such as wars, terrorism, embargos and catastrophes...
Market Risks
Market risks were inherent in AEP's business. These included commodity price risk, interest rate risk, foreign exchange risk and credit risk...
Liquidity Risk
AEP believed liquidity management had become a critical factor due to volatility in wholesale power markets and vulnerability to credit rating downgrades. On December 31, 2002, AEP had an estimated liquidity of $3.5 billion (See Table) including cash of $1 billion...
Credit Risk
AEP limited credit risk through the use of internal ratings. AEP also used Moody's Investors Service, Standard and Poor's and other qualitative and quantitative data to assess independently the financial health of counterparties on an ongoing basis...
Exhibits
Exhibit I: Financial Risks and Strategies: A broad Overview
Exhibit II: AEP: Value at Risk
Exhibit III: AEP: Trading Assets & Liabilities
Exhibit IV: AEP: Net Revenues
Exhibit V: AEP: Credit facilities
Exhibit VI: AEP: Counterparty Credit Quality
Exhibit V: AEP: Consolidated Statements of Operations
Exhibit VI: AEP: Consolidated Balance Sheets
Exhibit VII: AEP: Consolidated Balance Sheets
Exhibit VIII: AEP: Consolidated Statements of Cash Flows
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