CROs: Defending the Faith

"Back-to-basics" strategies challenge enterprise-risk philosophies.

 

Nearly a year ago, cover story announced the rise of the chief risk officer (CRO). "Utility senior management is becoming positively enamored with the office of the CRO," we said. "Fully 40 percent of America's CROs work for utilities and energy companies."

Given the uncertainties and changes in the industry, one might assume that the CRO's position is more important today than ever. Many of the industry's CROs are dealing with an expanding scope of risk issues, from capital adequacy to compliance with the Sarbanes-Oxley Act. "There is much more focus on risk management than there was two years ago," says Richard Osborne, Duke Energy's CRO. Events that have occurred since late 2001 "have created a need for energy companies to have robust risk-management functions," he says.

However, if the CRO's role is defined more narrowly-to oversee trading-oriented risks, for example-then the position becomes more tenuous in today's environment.

"As part of our return to being a seven-state power and gas utility, we eliminated the CRO position," says a spokesperson for Aquila Inc. in Kansas City, Mo. "We no longer have a need for a risk officer now that we are out of the merchant marketing and trading business."

Aquila isn't the only company distancing itself from the wholesale trading markets, or whose former CRO is pursuing other opportunities. El Paso Energy, for example, is liquidating its merchant energy portfolio, and the company eliminated its CRO position earlier this year.