CEP Risk Analysis & Regulatory Compliance 3

Question 1

An energy buyer wants to limit downside price exposure while retaining upside benefit if prices fall. Which derivative instrument best achieves this?

Accepted Answer

Energy cap

Answer

An energy price cap sets a maximum price the buyer will pay, protecting against price spikes while allowing the buyer to benefit if prices fall below the cap.

Question 2

Under the Dodd-Frank Act, which type of energy derivative transactions became subject to mandatory clearing?

Accepted Answer

Standardized OTC swaps designated by the CFTC

Answer

Dodd-Frank required standardized OTC swaps designated by the CFTC to be cleared through central counterparties to reduce systemic risk.

Question 3

A procurement team uses Monte Carlo simulation for energy price forecasting. What is the primary advantage of this method?

Accepted Answer

It models a range of possible outcomes by running thousands of scenarios

Answer

Monte Carlo simulation generates probability distributions of outcomes by running many randomized scenarios, giving a fuller picture of price risk.

Question 4

What is the primary purpose of NERC (North American Electric Reliability Corporation) standards in energy procurement?

Accepted Answer

Ensuring the reliability and security of the bulk power system

Answer

NERC develops and enforces mandatory reliability standards to ensure the safe and reliable operation of the bulk North American power system.

Question 5

A municipal utility is evaluating counterparty credit risk for a long-term energy supply contract. Which metric is most directly relevant?

Accepted Answer

The supplier's credit rating and financial statements

Answer

Credit ratings and financial statements directly assess a counterparty's ability to fulfill its financial obligations under the contract.

(CEP) Certified Energy Procurement Professional Practice Test

(CEP) Certified Energy Procurement Professional Practice Test

CEP Risk Analysis & Regulatory Compliance 3