SearchThe Project
As part of its ongoing commitment to strengthening commodity risk management capabilities and modernising its analytical infrastructure, a leading US electric and natural gas utility engaged Lacima to implement Lacima Analytics as its next-generation commodity valuation and market risk analytics platform.
The implementation was driven by the need to modernise quantitative risk analytics and introduce greater flexibility and scalability alongside the client’s existing legacy ETRM environment. While the legacy platform provided established capabilities for logistics, deal capture and settlement, the client identified an opportunity to introduce a dedicated, future-ready quantitative risk engine with stronger capabilities for valuation and market risk analysis.
Lacima Analytics enables the client to accurately model complex commodity structures, manage positions, assess the value of current and prospective deals, and measure market risk through Value-at-Risk (VaR) analytics. Lacima’s flexible contract modelling capabilities also allow the client to adapt its analytics to evolving trading requirements.
The Client
The client is a leading electric and natural gas utility in the United States, serving millions of customers across Western and Midwestern states.
Through its wholesale energy operations, the client participates in North American power and natural gas markets, requiring robust valuation and risk analytics to support disciplined commodity risk management, governance and commercial decision-making.
As part of its commitment to operational excellence and digital transformation, the client continues to invest in advanced technologies that enhance transparency, analytical capability and risk oversight across its energy trading activities.
The Challenge
As our client’s wholesale commodity trading activities evolved, they identified the need to modernise their valuation and market risk analytics infrastructure. Their existing legacy platform was approaching the end of its supported lifecycle, creating an opportunity to transition to a more flexible and scalable solution aligned with their future business requirements.
Our client was seeking an integrated commodity valuation and market risk analytics solution which:
- Consolidated commodity positions across multiple trading portfolios
- Delivered consistent and independent Mark-to-Market (MTM) valuations
- Supported multiple Value-at-Risk (VaR) methodologies, including Parametric VaR, Covariance Monte Carlo VaR and Historical VaR
- Evaluated portfolio resilience under changing market conditions
- Accurately represented complex commodity transactions
- Improved automation, transparency and efficiency across valuation, risk and reporting processes
The solution needed to provide traders, analysts and risk managers with reliable and timely insights while strengthening governance and operational efficiency. Critically, the new platform needed to be introduced while maintaining continuity across existing valuation and risk processes throughout the transition from the legacy environment.
The Solution
Lacima Analytics now serves as our client’s core commodity valuation and market risk analytics platform for its wholesale power and natural gas trading activities.
Supported by Lacima’s local implementation expertise, the solution provides a comprehensive suite of valuation and risk capabilities, including:
- Valuation and Greeks: Independent Mark-to-Market valuation and sensitivity analysis of commodity transactions
- Position Management: Capabilities to consolidate and analyse trading positions across portfolios
- Flexible Contract Modelling: Support for a wide range of commodity structures, including forwards, strips, swaps, options and other structured transactions
- Parametric VaR: Calibration and modelling to measure portfolio risk
- Covariance Monte Carlo VaR: Simulation-based techniques to evaluate portfolio risk
- Historical VaR: Assessment of potential portfolio impacts based on historical market movements
- Stress Testing: Evaluation of portfolio resilience under hypothetical and adverse market scenarios
- Automated Scheduling: Support for efficient and repeatable day-to-day operational processes
Lacima Analytics provides our client with a single, trusted source of valuation and risk analytics, improving transparency, consistency and efficiency across their commodity risk management function.
The Outcome
Lacima Analytics has enhanced our client’s commodity risk management capabilities by providing a consolidated and flexible platform for power and natural gas valuation, position analytics and market risk measurement.
Key outcomes include:
- Successful transition from a legacy analytics platform to a modern, scalable valuation and risk solution
- A single, trusted source of truth for commodity valuation and market risk analytics.
- Enhanced capability to model complex commodity contracts and trading structures
- Greater transparency into portfolio exposures and market risk
- Increased automation and operational efficiency across valuation and risk processes
- A flexible analytical foundation to support the future evolution of our client’s wholesale energy activities
By replacing their existing end-of-life platform with a flexible, scalable integrated analytics solution, our client enhanced their ability to manage commodity market risk and strengthened their long-term analytical capabilities.
