We are faced with an array of risks, some well understood and controlled and others emerging and not as well defined. Our effectiveness at managing risk helps us to identify and prepare for new opportunities that may benefit our customers, improve the work environment for our employees and deliver value to our shareholders.
Our enterprise risk management process continuously evaluates our levels of acceptable risk based on internal targets and guidelines and external operating conditions. As part of our enterprise risk management and strategic planning processes, we have developed utility industry scenarios that present potential business trends and issues based on the key drivers in AEP’s business.
The goal is not to predict the future of the electric utility industry but to help us identify the range of possibilities that could exist in the future and to examine the impacts of scenarios on our business, our current strategies’ chance for success in those scenarios, and other potential strategic options.
The scenario development process enables us to find potential weaknesses in AEP’s strategic plan and develop more robust plans for the future. It also allows us to identify emerging risks or issues that could become material risks or new business opportunities. One example that is being monitored and evaluated is distributed generation technologies and how they interact with the grid as these technologies become more widely deployed.
These activities link risk management and strategic planning more closely and give management and the Board of Directors more information to understand, evaluate and respond to all of the risks and strategic opportunities facing the company now and to anticipate what could affect the company in the future. It enables us to be more proactive in our decision-making and risk reduction activities.
Our Enterprise Risk Oversight group, led by our chief risk officer, is responsible for developing the collective risk assessment of the company. This group gathers and analyzes information from functional business units at all levels of the company and reports to the Risk Executive Committee, which consists of members of the executive management team and functional unit representatives. The Risk Executive Committee makes recommendations to business unit leaders for risk mitigation, where appropriate, and identifies the major risks and material issues on an enterprise-wide basis that align with the company’s strategies, which are monitored, reported and discussed on a regular basis with the Audit Committee of the AEP Board of Directors.