GOLD FINANCIAL RISK MANAGEMENT WINNER………Timing, it is said, is everything in life. Certainly, that was true for General Electric Co. when it decided in 2005 to develop a Web-based natural gas hedging simulator to tighten its portfolio hedging strategy and allow the business units to better manage their price risk to the volatile natural gas market. The GE hedging simulator went "live" in the fourth quarter of 2005–a period, it turned out, of the kind of extreme price and supply instability the new system was designed to mitigate. In the final four months of that year, daily U.S. production of natural gas fell to a 12-year low of 49.8 billion cubic feet, because of damage to facilities from hurricanes, while spot prices more than doubled from December 2004 to December 2005, to $15.38, only to plummet back to earth seven months later.

To be sure, even before the onslaught of hurricanes, the natural gas market was already wrestling with the pressures from a flood of real demand from emerging economies and speculation by investors. "We, along with everyone else in the market, were experiencing tremendous volatility in natural gas prices," says David Rusate, GE's deputy treasurer of foreign exchange and commodities. "And [given] that increased volatility, we wanted to put more rigor around our risk management approach."

When GE decided to pump up its FRM technology, Rusate and his team, which included Maryann Vando, manager of commodity risk, and Jim Leddy, senior manager of technical accounting, first looked at the online tools used by GE's banking counterparts, but none met GE's requirements. So, Rusate and Vando went up to GE's global research and development center in Schenectady, N.Y., and outlined the mission: GE's primary objective was risk avoidance. "They're rocket scientists up there, and they developed this arithmetic simulator and were able to map out all the different types of scenarios and then plug in the tools that we would use," says Rusate.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including and

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.