Implications from February's cold blast

As in all business risks, there are known sources that have somewhat normal frequency and severity -- both of which make them suitable for statistical modeling.  In addition, there are unknown sources of risk that can skew results in unforeseen ways but within the realm of historical observations.  These must also be considered, if not in a daily risk calculation then in an assessment of unusual, or tail, risks.  Proper risk management approaches both sources using separate techniques.

Then there are the unforeseen risks -- the ones that haven't been observed in the historical record and which haven't been factored into the analysis because modeling them requires a third dimension that is often left to chance.  Last month's cold blast and, importantly, its debilitating impact on much of the Texas energy infrastructure was one such risk.  

Much has already been written about this event but it remains to be seen just how significant the impact will be on the financial condition of those involved in supply both gas and power to consumers.  At the very least, the financial liability is in the tens of billions of dollars -- and the implications for financing new capacity are only just beginning to emerge.  

We are monitoring the long-term impact on asset development, especially via financing conditions, as this may have a significant bearing on growth projections for a number of participants.