CEP Risk Analysis & Regulatory Compliance 4

Question 1

A company uses a 'collar' strategy in energy procurement. What does this accomplish?

Accepted Answer

Sets both a price floor and a price ceiling, limiting exposure on both sides

Answer

A collar involves buying a cap (ceiling) and selling a floor, which bounds the buyer's effective price range on both the upside and downside.

Question 2

Under EPA's Clean Air Act Section 111(d), what primary obligation does it create for energy procurement professionals?

Accepted Answer

Awareness that carbon emission regulations may affect the cost and availability of fossil fuel-based supply

Answer

Section 111(d) authorizes EPA to regulate greenhouse gas emissions from existing power plants, potentially affecting fossil fuel procurement costs and supply availability.

Question 3

Which scenario best illustrates 'load shape risk' in electricity procurement?

Accepted Answer

Actual hourly consumption patterns differ significantly from the contracted block supply profile

Answer

Load shape risk arises when a customer's actual usage profile (hourly variation) differs from the flat or block-shaped supply contracted, creating imbalance costs.

Question 4

What is the role of a 'credit support annex' (CSA) in an ISDA Master Agreement for energy transactions?

Accepted Answer

It establishes collateral posting obligations to manage mark-to-market credit exposure

Answer

A CSA under an ISDA Master Agreement governs the exchange of collateral (margin) between counterparties based on the mark-to-market value of open derivative positions.

Question 5

In a restructured electricity market, what is an 'Incremental Cost' or 'Locational Marginal Price' (LMP) designed to reflect?

Accepted Answer

The cost of delivering one additional megawatt-hour to a specific location, including energy, congestion, and losses

Answer

LMP reflects the real-time marginal cost of supplying electricity at a specific node, incorporating energy cost, transmission congestion, and line losses.

(CEP) Certified Energy Procurement Professional Practice Test

(CEP) Certified Energy Procurement Professional Practice Test

CEP Risk Analysis & Regulatory Compliance 4