Risk Analysis & Regulatory Compliance Flashcards
7 cards from real CEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Analysis & Regulatory Compliance flashcards as text
What is 'weather normalization' used for in energy procurement risk analysis?
Answer: Adjusting historical energy consumption data to remove the effects of abnormal weather for more accurate load forecasting
Weather normalization adjusts historical consumption data to what it would have been under average weather conditions, improving the accuracy of future load forecasts.
Which type of risk arises when a retail electricity supplier cannot pass through all costs to customers due to a fixed-price retail contract?
Answer: Margin compression risk
Margin compression risk occurs when wholesale procurement costs rise above the fixed retail price, squeezing or eliminating the supplier's profit margin.
Under CFTC rules implementing Dodd-Frank, which category of market participant is generally exempt from mandatory swap clearing requirements?
Answer: Commercial end-users hedging bona fide business risk
Commercial end-users that use swaps to hedge commercial risk (not for speculation) qualify for an exemption from mandatory clearing under Dodd-Frank.
A natural gas buyer has contracted supply at a Henry Hub-indexed price but takes delivery at a different location. Basis has historically been -$0.20/MMBtu but suddenly widens to -$0.80/MMBtu. What should the buyer do next time?
Answer: Add a basis swap to lock in the spread between the delivery point and Henry Hub
A basis swap locks in the differential between the delivery location and the reference hub price, directly hedging basis risk.
What is the significance of a 'net short' or 'net long' position in an energy procurement portfolio?
Answer: It describes whether the portfolio has more supply contracted than load (net long) or more load than supply (net short)
A net long position means contracted supply exceeds expected load (creating surplus risk), while net short means load exceeds supply (creating price spike exposure).
Which document is typically used as the industry standard master agreement for bilateral OTC energy derivative transactions in North America?
Answer: ISDA Master Agreement with commodity schedules
The ISDA Master Agreement with commodity annexes and schedules is the standard framework for OTC energy derivative (swap) transactions globally, including in North America.
A state renewable portfolio standard (RPS) requires a utility to procure 30% of its supply from renewables by 2030. What compliance instrument is commonly used to demonstrate fulfillment of this requirement?
Answer: Renewable Energy Certificates (RECs)
Renewable Energy Certificates (RECs) represent the environmental attributes of one MWh of renewable generation and are the standard compliance instrument for RPS requirements.