CEP Risk Analysis & Regulatory Compliance 5

Question 1

What is 'weather normalization' used for in energy procurement risk analysis?

Accepted Answer

Adjusting historical energy consumption data to remove the effects of abnormal weather for more accurate load forecasting

Answer

Weather normalization adjusts historical consumption data to what it would have been under average weather conditions, improving the accuracy of future load forecasts.

Question 2

Which type of risk arises when a retail electricity supplier cannot pass through all costs to customers due to a fixed-price retail contract?

Accepted Answer

Margin compression risk

Answer

Margin compression risk occurs when wholesale procurement costs rise above the fixed retail price, squeezing or eliminating the supplier's profit margin.

Question 3

Under CFTC rules implementing Dodd-Frank, which category of market participant is generally exempt from mandatory swap clearing requirements?

Accepted Answer

Commercial end-users hedging bona fide business risk

Answer

Commercial end-users that use swaps to hedge commercial risk (not for speculation) qualify for an exemption from mandatory clearing under Dodd-Frank.

Question 4

A natural gas buyer has contracted supply at a Henry Hub-indexed price but takes delivery at a different location. Basis has historically been -$0.20/MMBtu but suddenly widens to -$0.80/MMBtu. What should the buyer do next time?

Accepted Answer

Add a basis swap to lock in the spread between the delivery point and Henry Hub

Answer

A basis swap locks in the differential between the delivery location and the reference hub price, directly hedging basis risk.

Question 5

What is the significance of a 'net short' or 'net long' position in an energy procurement portfolio?

Accepted Answer

It describes whether the portfolio has more supply contracted than load (net long) or more load than supply (net short)

Answer

A net long position means contracted supply exceeds expected load (creating surplus risk), while net short means load exceeds supply (creating price spike exposure).

(CEP) Certified Energy Procurement Professional Practice Test

(CEP) Certified Energy Procurement Professional Practice Test

CEP Risk Analysis & Regulatory Compliance 5