Fuel Risk Management at American Electric Power

The senior management team and board of directors at American Electric Power (AEP) have emphasized the importance of an Enterprise Risk Management approach for dealing with the wide array of risk exposures that the firm faces. Senior management has put in place a risk governance structure that facilitates the identification of major risk exposures, assesses their impact on the firm's overall risk profile, and interacts the risk management process with the strategic planning process. Central to this structure is the firm's Risk Executive Committee, which includes the senior leadership of the firm and the Enterprise Risk Oversight staff. Members of the AEP Enterprise Risk Oversight group have just returned from a meeting of the Risk Executive Committee. The discussion at the meeting focused on an event that recently came to the firm's attention—an unexpected disruption in the firm's coal supply over the coming year due to necessary repairs in railroad facilities near the coal source. By the end of the week, the Enterprise Risk Oversight group needs to communicate with the relevant teams within the organization as part of its effort to identify the potential repercussions of the event for the enterprise. In addition, the Risk Executive Committee would like the groups to identify other possible adverse events that could occur and steps that should be taken now in preparation.