Company: American Electric Power
Company background:
American Electric Power is one of the largest electric utilities in the United States, delivering safe, reliable power to nearly 5.5 million regulated customers in 11 states.
AEP owns the nation's largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. AEP also operates more than 223,000 miles of distribution lines. AEP also is one of the nation’s largest electricity producers with approximately 30,000 megawatts of diverse generating capacity, including more than 5,300 megawatts of renewable energy.
AEP's utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana and east Texas). AEP's headquarters are in Columbus, Ohio.
Contact: Joseph Davis
Title: Data Scientist
Country: United States
Award Category: ROI Rock Star
What was the business need/presented problem you were faced with?
Working in Finance department, our team constructs daily interest rate zero curve for BUs across the company to discount the energy positions in our portfolio from trading operations. The daily zero curve is also used in valuing interest rate derivatives executed by the Corporate Finance department.
In order to construct our zero curve, we used LONDON Interbank Offered Rate (LIBOR) rates for the front end of the curve. However, LIBOR has been subject to manipulation and is no longer considered a reliable benchmark. As a result, it’s been determined that the Secured overnight Financing Rate (SOFR) will replace LIBOR as the alternative reference rate.
To transition our existing Interest Rate Derivative Analytics (IRDA) system from LIBOR to SOFR is not a trivial task as it requires overhauling the entire curve structure and date conventions.
How did you use SAS to increase revenue/save money for your organization?
Instead of relying on third party tools or software, we developed SAS programs using our own resources to bootstrap from SOFR market rates and constructed the SOFR based interest rate zero rate. The derived zero curve was then fed into the valuation programs for the derivative mark-to-market valuation for financial reporting and monitoring.
What SAS products did you use and how did you use them?
For IRDA we used Server SAS 9.4 and the SAS GRID server. In these we have multiple SAS scripts and macros that are automated on our SAS GRID server in a batch run (xml driven) to come up with daily evaluations which are then pulled into reporting software.
What were your results? Please quantify.
This allowed us to save at least $500K annually if we had to go with third-party vendor software. Additionally, workload might take 1 hour of manual labor daily to work on third-party platform, now the SAS product we created has been fully automated for curve construction and publishing, and it only takes 20 mins computing time to complete, which is a substantial reduction in human effort and minimized the risk of manual errors.
