CEP Energy Market Fundamentals 3 — Questions and Answers
Question 1: Which body has primary federal jurisdiction over wholesale electricity markets in the United States?
- The Environmental Protection Agency (EPA)
- The Department of Energy (DOE)
- The Federal Energy Regulatory Commission (FERC) (Correct answer)
- The North American Electric Reliability Corporation (NERC)
Correct answer: The Federal Energy Regulatory Commission (FERC)
FERC regulates wholesale electricity rates, transmission access, and natural gas pipelines under the Federal Power Act and Natural Gas Act.
Question 2: What is a 'capacity market' designed to do in restructured electricity markets?
- Procure fuel for peaking generators during summer months
- Ensure sufficient generation resources exist to meet future peak demand (Correct answer)
- Set long-term contracts for renewable energy certificates
- Regulate the maximum price suppliers can bid into the energy market
Correct answer: Ensure sufficient generation resources exist to meet future peak demand
Capacity markets compensate generators for being available during peak periods, ensuring resource adequacy even when energy market prices alone don't incentivize enough investment.
Question 3: A natural gas 'citygate' price represents:
- The NYMEX futures settlement price
- The price at which gas is delivered from a pipeline to a local distribution company (Correct answer)
- The spot price at the Henry Hub benchmark
- The cost of gas at the wellhead before processing
Correct answer: The price at which gas is delivered from a pipeline to a local distribution company
The citygate is the transfer point between interstate pipelines and local distribution companies, and its price includes transport costs from production areas.
Question 4: What risk does a fixed-price energy contract primarily eliminate for the buyer?
- Volume risk if consumption exceeds forecast
- Price volatility over the contract term (Correct answer)
- Counterparty credit risk from the supplier
- Regulatory risk from state commission rulings
Correct answer: Price volatility over the contract term
Fixed-price contracts lock in a known cost, removing exposure to market price fluctuations for the duration of the agreement.
Question 5: In natural gas markets, 'peaking storage' facilities are characterized by:
- Large working gas capacity and slow injection/withdrawal rates
- Smaller capacity but very high deliverability for short-duration peak events (Correct answer)
- Underground salt dome formations only
- Federally regulated maximum withdrawal rates
Correct answer: Smaller capacity but very high deliverability for short-duration peak events
Peaking storage (typically LNG or salt cavern facilities) trades volume capacity for high withdrawal rates needed to meet sudden demand spikes.
Question 6: Which of the following is an example of a 'behind-the-meter' energy resource?
- A merchant wind farm selling into the wholesale market
- A rooftop solar installation on a commercial building (Correct answer)
- A natural gas peaker plant owned by a utility
- An ISO-registered demand response aggregator
Correct answer: A rooftop solar installation on a commercial building
Behind-the-meter resources are located on the customer's side of the utility meter and directly reduce the customer's net electricity consumption.
Question 7: What is the main purpose of a Renewable Energy Certificate (REC)?
- To certify that a generator has a valid operating license
- To track and transfer the environmental attributes of one megawatt-hour of renewable generation (Correct answer)
- To guarantee physical delivery of renewable power to a buyer
- To provide tax credits to renewable energy developers
Correct answer: To track and transfer the environmental attributes of one megawatt-hour of renewable generation
RECs (also called SRECs or GOs) represent the non-energy attributes of renewable generation and can be sold separately from the underlying electricity.
CEP Energy Market Fundamentals 3
Which body has primary federal jurisdiction over wholesale electricity markets in the United States?