CEP Energy Market Fundamentals 2

Question 1

What does the term 'basis' refer to in energy markets?

Accepted Answer

The price difference between a regional location and a benchmark hub

Answer

Basis is the price differential between a specific delivery point and a liquid benchmark hub such as Henry Hub for natural gas.

Question 2

Which of the following best describes a 'heat rate' in the context of power generation?

Accepted Answer

The BTUs of fuel required to produce one kilowatt-hour of electricity

Answer

Heat rate measures generator efficiency as BTUs of input fuel needed per kWh of electrical output — lower heat rates indicate more efficient plants.

Question 3

What is the primary function of an Independent System Operator (ISO)?

Accepted Answer

To manage the transmission grid and wholesale electricity markets in a region

Answer

An ISO/RTO coordinates the operation of the transmission grid, dispatches generators, and administers wholesale energy markets to ensure reliability.

Question 4

A 'swing' contract in natural gas procurement allows the buyer to:

Accepted Answer

Take variable volumes within a stated minimum and maximum range

Answer

Swing contracts give buyers flexibility to take volumes anywhere between a floor and ceiling, accommodating demand uncertainty.

Question 5

In electricity markets, what is meant by 'locational marginal pricing' (LMP)?

Accepted Answer

The cost of serving the next megawatt of load at a specific grid location, reflecting energy, congestion, and losses

Answer

LMP decomposes the nodal price into energy, congestion, and marginal loss components, reflecting actual grid conditions at each location.

(CEP) Certified Energy Procurement Professional Practice Test