CEP Risk Analysis & Regulatory Compliance 2

Question 1

A buyer locks in a fixed price for natural gas six months ahead but spot prices drop significantly at delivery. Which risk has materialized?

Accepted Answer

Opportunity cost risk

Answer

Opportunity cost risk occurs when a hedged fixed price becomes unfavorable relative to the market price at delivery.

Question 2

Under FERC Order 2000, which entity is responsible for independent transmission system operations in a region?

Accepted Answer

Regional Transmission Organization (RTO)

Answer

FERC Order 2000 encouraged the formation of RTOs to independently manage transmission grids and improve market efficiency.

Question 3

A Value-at-Risk (VaR) model at the 95% confidence level over a 10-day horizon means there is what probability of exceeding the estimated loss?

Accepted Answer

5%

Answer

A 95% confidence VaR means there is a 5% chance (1 in 20) that losses will exceed the modeled amount.

Question 4

Which regulatory body oversees compliance for natural gas interstate pipeline transportation rates in the US?

Accepted Answer

FERC

Answer

The Federal Energy Regulatory Commission (FERC) regulates interstate natural gas transportation rates and pipeline access.

Question 5

A company's energy supply contract contains a 'take-or-pay' clause. Which risk does this clause primarily create for the buyer?

Accepted Answer

Volumetric risk

Answer

A take-or-pay clause obligates the buyer to pay for a minimum volume regardless of actual consumption, creating volumetric risk.

(CEP) Certified Energy Procurement Professional Practice Test