2011 ERP Examination AIM Statements

2011 Energy Risk Professional (ERP) Examination AIM Statements

INTRODUCTION Recognizing the dynamic nature of the energy markets we added the current issues section to familiarize ERP candidates with new developments and issues that are likely to have a long-term impact on the global energy markets. The Applying Instructional Materials Statements (AIMS) are designed to serve as an additional study resource only and will not in and of themselves fully prepare a candidate for the ERP Examination. They should be used as guidance and support for the readings outlined in the Study Guide to help identify key learning objectives for each core reading. The Study Guide sets forth primary and secondary topics covering physical energy assets, operations, and financial energy markets; as well as the techniques used to manage risk in each. New for 2011 is the Current Issues in Energy Section. Recognizing the dynamic nature of the energy markets we added the current issues section to familiarize ERP candidates with new developments and issues that are likely to have a long-term impact on the global energy markets. The topics selected in conjunction with the Energy Oversight Committee (EOC) reflect those that practicing energy risk professionals should master. All topics are reviewed annually to ensure the ERP Examination remains timely and relevant.

Test Weights and Question Allocation for the 2011 ERP Examination Physical Energy Markets Petroleum Gas Electricity Production and Distribution Renewables and Carbon Emissions Section Total Financial Markets Financial Products and Valuation Modeling and Valuing Energy Transactions Risk Management Techniques Section Total Current Issues in Energy Exam Total 20% 15% 15% 50% 10% 100% 36 questions 27 questions 27 questions 90 questions 18 questions 180 questions 15% 10% 10% 5% 40% 27 questions 18 questions 18 questions 9 questions 72 questions

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2011 Energy Risk Professional (ERP) Examination AIM Statements

PHYSICAL ENERGY ASSETSExam Weight | 40%

Petroleum27 Questions
1.1 Exploration and Production 1. Charles F. Conaway. The Petroleum Industry: A Nontechnical Guide (Tulsa, OK: PennWell Books, 1999). Chapter 2.......................Petroleum Origins and Accumulation 2. Institut Franais du Petrol Publications. Oil, Gas Exploration, and Production: Reserves, Costs, Contracts (Paris: Editions Technip, 2007). Chapter 3.......................Hydrocarbon Reserves Chapter 1........................Upstream Oil & Gas Operations 3. Charlotte Wright & Rebecca Gallun. Fundamentals of Oil & Gas Accounting, 5th Edition (Tulsa, OK: PennWell, 2008).

AIMS:
Charles F. Conaway. The Petroleum Industry: A Nontechnical Guide Chapter 2...........................Petroleum Origins and Accumulation Understand the fundamentals of petroleum chemistry Understand how petroleum accumulates in reservoirs Understand reservoir properties Be able to describe migration and entrapment

Institut Franais du Petrol Publications. Oil, Gas Exploration, and Production: Reserves, Costs, Contracts Chapter 3 ..........................Hydrocarbon Reserves Understand concepts related to reserves and how probabilities are used in discussing reserves Discuss the difference between conventional and nonconventional hydrocarbons Discuss Hubberts theory of decline (a.k.a. peak theory) Discuss the impact of technical progress on the production profile

Charlotte Wright & Rebecca Gallun. Fundamentals of Oil & Gas Accounting Chapter 1 ...........................Upstream Oil & Gas Operations 1.2 Know the difference between integrated and independent oil companies Understand exploration methods, particularly geological and geophysical (G&G) techniques Discuss mineral rights and interests, particularly hydrocarbon ownership regimes Explain the difference between the acquisition and leasing of rights for exploration and production Understand the technical aspects of drilling operations Know the stages in the recovery process for hydrocarbons Demonstrate understanding of the offset clause, royalty payments and other lease provisions

Crude Oil 1. Norman J. Hyne. Nontechnical Guide to Petroleum Geology, Exploration, Drilling, and Production, 2nd Edition (Tulsa, OK: PennWell Books, 2001). Chapter 1........................Nature of Gas and Oil (sections titled: Petroleum, Chemical Composition, and Crude Oil) Chapter 1........................How Pipelines Differ Chapter 10 .....................Investment Decisions Chapter 12 .....................Engineering and DesignStorage
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2. Thomas O. Miesner and William L. Leffler. Oil and Gas Pipelines in Nontechnical Language (Tulsa, OK: PennWell Books, 2006).

2011 Energy Risk Professional (ERP) Examination AIM Statements

3. Samuel Van Vactor. Introduction to the Global Oil and Gas Business (Tulsa, OK: PennWell Books, 2010). Chapter 3.......................Oil Pricing Section Three...............The Role of WTI Available online: http://www.purvingertz.com/userfiles/products/PurvinGertz_WTI_Benchmark_Study.pdf 4. Purvin & Gertz, Inc. The Role of WTI as a Crude Oil Benchmark.

AIMS:
Norman J. Hyne. Nontechnical Guide to Petroleum Geology, Exploration, Drilling, and Production Chapter 1 ...........................Nature of Gas and Oil, sections titled Petroleum, Chemical Composition, and Crude Oil List the general chemical composition of crude oil and natural gas Understand the relationship of American Petroleum Institute (API) ratings and sulfur content in determining the grade of crude oil Discuss the characteristics of benchmark crude oils Understand the refining process, including cracking List the percent yield of byproducts from crude oil refining Discuss the different units of measure for crude oil and natural gas Understand differences between the reservoir classifications of: black oil, volatile oil, retrograde gas, wet gas, and dry gas Thomas O. Miesner and William L. Leffler. Oil and Gas Pipelines in Nontechnical Language Chapter 1 ...........................How Pipelines Differ List the different types of crude oil and natural gas pipelines Distinguish differences between crude oil and refined products pipelines Discuss the process for moving natural gas from the well-head to pipeline customers Discuss the types of pipeline customers for crude oil and natural gas Understand the history associated with the pipeline construction Explain the decision process for building a pipeline Define: demand-driven, supply-driven, and market-driven scenarios for developing pipelines Discuss the economics of approving and building a pipeline Explain the common methods of setting pipeline rates (the cost paid by shippers per unit of transport) Discuss reasons why a party may want to sell or acquire a pipeline Understand the basics of and key considerations for building a pipeline: Safety Route Line size, wall thickness, looping Pumps, compressors and prime mover Flow and pressure control Number of and location of stations Storage Understand the need for station locations along pipeline routes Discuss the importance of different types of storage, including factors like location, seasonality

Chapter 10.........................Investment Decisions

Chapter 12 .........................Engineering and DesignPipelines and Storage

Understand barriers to pipeline design and construction

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2011 Energy Risk Professional (ERP) Examination AIM Statements

Samuel Van Vactor. Introduction to the Global Oil and Gas Business Chapter 3 ..........................Oil Pricing Discuss OPECs role in setting global oil prices Know the history of the spot market and its impact on setting oil prices Be able to discuss the role of benchmark crudes; know the differences between major benchmark crudes and how they are used around the world Understand the linkage between the physical product and futures trading

Purvin & Gertz, Inc. The Role of WTI as a Crude Oil Benchmark, Section III 1.3 Understand the major historical events that shaped the crude oil market and the establishment of a global pricing mechanism for crude oil Discuss the Cushing Hubits role and its limitations Explain the function of netback pricing and its market impact Understand the relationship between futures and physical markets Define the term parity pricing, understand parity relationships Know the role geography plays in establishing a price for oil

Refined Petroleum Products 1. James H. Gary, Glenn E. Handwerk and Mark. J Kaiser. Petroleum Refining: Technology and Economics, 5th Edition (New York: CRC Press, 2007). Chapter 1........................Introduction (through section 1.8) Chapter 14.3..................Economics and Planning Applications Chapter 20 ....................Simple and Complex Refineries

2. William L. Leffler. Petroleum Refining in Nontechnical Language, 3rd Edition (Tulsa, OK: PennWell, 2000).

AIMS:
James H. Gary, Glenn E. Handwerk and Mark J Kaiser. Petroleum Refining: Technology and Economics, 5th Edition Chapter 1 ...........................Introduction (thru 1.8) Describe refinery processes and operations; list the commodities produced through the refining process Understand determinants in the pricing structure of refined petroleum products (commodities); highlight the supply and demand for refined petroleum products worldwide Describe the technology behind each oil refining process; understand global industry structure and key players Discuss global statistics relating to refinery output, configuration, and investment patterns Understand the concept of refinery complexity; outline key oil refinery economics factors Understand the use of linear programming in solving refinery production problems Describe the use of the reference oil method to evaluate crude oil purchases Describe the planning process for operations, shutdown, and environmental issues

Chapter 14.3 .....................Economics and Planning Applications

William L. Leffler. Petroleum Refining in Nontechnical Language, 3rd Edition Chapter 20........................Simple and Complex Refineries Discuss the operating characteristics of a simple and complex refinery Outline how supply and demand impacts prices of varies qualities of crude oil Describe how crude oil prices are established; including how complex refineries increase their operating margin by refining heavy crude oil

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2011 Energy Risk Professional (ERP) Examination AIM Statements

1.4

Synthetics 1. Michael Toman, Aimee E. Curtright, David S. Ortiz, Joel Darmstadter, Brian Shannon. Unconventional FossilBased Fuels: Economic and Environmental Trade-Offs. (Santa Monica, CA: Rand, 2008). Available online: http://www.rand.org/pubs/technical_reports/2008/RAND_TR580.pdf Chapter 4.......................Oil Sands and Synthetic Crude Oil 2. James T. Bartis, Frank A. Camm and David S. Ortiz. Producing Liquid Fuels from Coal: Prospects and Policy Issues (Santa Monica, CA: Rand, 2008). Available online: http://www.rand.org/pubs/monographs/MG754 Chapter 3.......................Coal-to-Liquids Technologies Chapter 6.......................Critical Policy Issues for Coal-to-Liquids Development

AIMS:
Michael Toman, Aimee E. Curtright, David S. Ortiz, Joel Darmstadter, Brian Shannon. Unconventional Fossil-Based Fuels: Economic and Environmental Trade-Offs Chapter 4 ..........................Oil Sands and Synthetic Crude Oil Describe the products that bitumen is used to produce Describe the geographical locations and production estimates of bitumen Discuss methods of extraction from oil sands including potential constraints on the various extraction methods, production, and uses of oil sands (e.g., competition and environmental) Understand the economic relationships between synthetics, conventional oil and natural gas

James T. Bartis, Frank A. Camm and David S. Ortiz. Producing Liquid Fuels from Coal: Prospects and Policy Issues Chapter 3 ..........................Coal-to-Liquids Technologies Explain the Fischer-Tropsch process and products produced from the conversion of coal to liquids (i.e., diesel, jet fuel, naphtha) Explain environmental issues associated with coal-derived liquid fuels as well as solutions (i.e., sequestration and other methods) Discuss potential commercial development of coal-to-liquid technologies Discuss the environmental impacts of coal-to-liquids production Describe the commercial development potential and limitations of CTL Chapter 6 ..........................Critical Policy Issues for Coal-to-Liquids Development

Natural Gas and LNG18 Questions

2.1 Natural Gas 1. Davis W. Edwards. Energy Trading and Investing (New York: McGraw-Hill, 2010). Chapter 2.1.....................Natural Gas Chapter 8.......................Regulatory History of the Gas Industry 2. Rebecca L. Busby. Natural Gas in Nontechnical Language (Tulsa, OK: PennWell Books, 1999). 3. Arthur J. Kidnay and William R. Parrish. Fundamentals of Natural Gas Processing (Boca Raton, FL: Taylor and Francis, 2006). Chapter 12 .....................Transportation and Storage Chapter 36 ....................The Natural Gas Market in the United Kingdom 4 Frank Fabozzi (ed.): The Handbook of Commodity Investing (Hoboken, NJ: John Wiley & Sons, 2008).

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2011 Energy Risk Professional (ERP) Examination AIM Statements

AIMS:
Davis W. Edwards. Energy Trading and Investing Chapter 2.1 ........................Natural Gas Know the standard heat/volumetric measurements for natural gas Define the terms hub, citygate, basis price Know how natural gas is traded; understand common types of natural gas trades including various spread trades Explain the term basis price and know the factors used to set the basis price Understand the Henry Hubs role in setting the basis price for natural gas trades Discuss the spot/forward price relationship in the natural gas market

Rebecca L. Busby. Natural Gas in Nontechnical Language Chapter 8 ..........................Regulatory History of the Gas Industry List the basic missions of a public utility Discuss the various United States Federal Legislative Acts that impacted gas and electric utility development Discuss the responsibilities of state regulatory commissions

Arthur J. Kidnay and William R. Parrish. Fundamentals of Natural Gas Processing Chapter 12 .........................Transportation and Storage Understand market choices that affect the transportation and storage of natural gas Discuss the three types of underground storage (aquifers, depleted fields, and salt caverns) and their operation Describe the transportation of various liquid products; including the difference between transporting natural gas and petroleum liquids Frank Fabozzi (ed.). The Handbook of Commodity Investing Chapter 36 ........................The Natural Gas Market in the United Kingdom 2.2 LNG 1. Department of Energy Publication: Liquefied Natural Gas: Understanding the Basic Facts. Available online: http://fossil.energy.gov/programs/oilgas/publications/lng/LNG_primerupd.pdf 2. Michael D. Tusiani and Gordon Shearer. LNG: A Nontechnical Guide (Tulsa, OK: PennWell Books, 1999). Chapter 1........................The Liquefied Natural Gas Industry Chapter 3.......................The LNG Chain: The Project Nature of the LNG Business Chapter 11 ......................The Economics of an LNG Project Understand the relationship between natural gas and other commodities, including cross-commodity correlations Define the national balancing point and how it is used Explain the basics of the physical natural gas market Explain the basics of the financial natural gas market in the UK Understand how gas is traded in the UK Define the role risk and volatility play in the natural gas market Identify the price drivers in the UK natural gas market

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2011 Energy Risk Professional (ERP) Examination AIM Statements

AIMS:
Department of Energy. Liquefied Natural Gas: Understanding the Basic Facts Be familiar with global flows in the LNG market and the main LNG exporting countries Understand the role of regulation in the LNG industry and be prepared to explain the citing process for an LNG facility Know how an LNG train operates Explain how LNG is used for peak shaving Know standard LNG units of measure and heating values Explain the role of the LNG spot market in setting global prices and how it has developed

Michael D. Tusiani and Gordon Shearer. LNG: A Nontechnical Guide Chapter 1 ...........................The Liquefied Natural Gas Industry Describe the history of natural gas and LNG and the importance of the development of the LNG market Describe the advantages of natural gas as compared to coal Discuss how the general types of pipelines are used List and describe the essential facets of an LNG project, contrast methods of monetizing natural gas resources (local market, LNG, pipeline, gas-to-liquids, and compressed natural gas) Chapter 3 ..........................The LNG Chain: The Project Nature of the LNG Business Discuss the LNG Value Chain: upstream, liquefaction, transportation, and re-gasification and the typical costs associated with each element Discuss how the costs for each element in the value chain have changed over time, various methods of cost reduction, and value generation Understand the sources of value along the LNG value chain Discuss the cost differences between an LNG project and a typical crude oil project Discuss the range of costs in upstream production and pipeline construction and their dependence on wellhead location Discuss the role of liquids in the economics of an LNG project Understand the determinants of shipping costs Chapter 11..........................The Economics of an LNG Project

Electricity Production and Distribution18 Questions

3.1 Electric 1. Davis W. Edwards. Energy Trading and Investing (New York: McGraw-Hill, 2010). Chapter 2.2 ...................Electricity 2. Chris Harris. Electricity Markets: Pricing, Structures and Economics (West Sussex, England: John Wiley & Sons, 2006). Chapter 6.......................Power Capacity Chapter 7 .......................Location Chapter 2.......................The Essential Aspects of Electricity Chapter 8.......................Details of the Integrated Trading Model Chapter 4.......................Applications

3. Sally Hunt. Making Competition Work in Electricity (New York: John Wiley & Sons, Inc., 2002).

4. Richard Baxter. Energy Storage: A Nontechnical Guide (Tulsa, OK: PennWell Books, 2006).

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2011 Energy Risk Professional (ERP) Examination AIM Statements

AIMS:
Davis W. Edwards. Energy Trading and Investing Chapter 2.2 .......................Electricity Discuss standard market design Describe how the marginal producer sets rates Understand how regional electricity markets operate and the role of the TSO/RTO/ISO in market operations Explain when a generator would be activated out-of-merit-order Define the terms nodes, zones and, hubs Discuss how congestion affects price Explain how a day-ahead market operates Define heat rate and spark spread and explain how each is used to set market prices Understand base-load and its impact on market pricing

Chris Harris. Electricity Markets: Pricing, Structures and Economics Chapter 6 ..........................Power Capacity Understand elements of electric generation capacity Understand basic economics of power generationthe power stack Discuss modeling of generation capacity (fixed cost and marginal cost, etc.) Describe the effect of the capacity option on power plant optimization Describe how price caps impact capacity and prices Describe why locational issues are important for electrical systems; list the requirements for locational charging Understand losses and how losses are modeled Define constraint Understand nodal pricing and the role of financial transmission rights

Chapter 7...........................Location

Sally Hunt. Making Competition Work in Electricity Chapter 2...........................The Essential Aspects of Electricity Describe generation, transmission, wholesale and distribution and their interconnectedness Describe the concept of competition and list the main associated risks State the four technical truths of electricity Define daily load curve and state why it is important Discuss how supply and demand factors set the spot price Contrast demand bidding, capacity payments, and capacity obligations Describe the impact of demand response Understand the role forward contracts play in risk management Define congestion management and calculate congestion costs Discuss how day-ahead markets operate and how contracts are scheduled in the PJM (Pennsylvania, New Jersey, Maryland) market

Chapter 8 ..........................Details of the Integrated Trading Model

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2011 Energy Risk Professional (ERP) Examination AIM Statements

Richard Baxter. Energy Storage: A Nontechnical Guide Chapter 4 ..........................Applications 3.2 Coal 1. James T. Bartis, Frank A. Camm and David S. Ortiz. Producing Liquid Fuels from Coal: Prospects and Policy Issues (Santa Monica, CA: Rand, 2008). Available online: http://www.rand.org/pubs/monographs/MG754 Chapter 2.......................The Coal Resource Base Explain how each term of energy storage (short/medium/long) affects market prices Understand how energy storage systems can be used for commodity arbitrage Understand the principles of energy management, including peak shaving Know the major types of energy storage devices Understand the operation of a pumped hydro storage facility Explain the factors that affect the ownership costs of storage devices

AIMS:
James T. Bartis, Frank A. Camm and David S. Ortiz. Producing Liquid Fuels from Coal: Prospects and Policy Issues Chapter 2...........................The Coal Resource Base 3.3 State the countries with the most significant coal reserves List the three key factors impacting production Describe the different types of coal Compare the worlds coal reserves to that of petroleum reserves

Nuclear and Hydroelectric 1. Roy L. Nersesian. Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative Sources (Armonk, NY: M.E. Sharpe, Inc., 2007). Chapter 8.......................Nuclear and Hydropower Chapter 6.......................Hydroelectric 2. Ann Chambers. Renewable Energy in Nontechnical Language (Tulsa, OK: PennWell Books, 2006).

AIMS:
Roy L. Nersesian. Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative Sources Chapter 8 ..........................Nuclear and Hydropower Discuss the advantages of nuclear power generation Be familiar with the different types of nuclear reactor design, their usage and advantages/disadvantages Discuss the advantages and disadvantages of hydropower List the nations with the greatest reliance on hydropower

Ann Chambers. Renewable Energy in Nontechnical Language Chapter 6 ..........................Hydroelectric Know hydropowers share of the worlds energy markets, identify major hydro installations around the world Be able to explain the basic mechanics of a hydropower plant Understand the major regulations regarding hydropower Discuss the environmental issues surrounding the construction and operation of hydropower plants Be familiar with the two case studies cited in the chapter (Hawaii and Brazil) and understand their impact on the market

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2011 Energy Risk Professional (ERP) Examination AIM Statements

Renewables and Carbon Emissions9 Questions

4.1 Renewables 1. Fisher Investments. Fisher Investments on Energy (Hoboken, NJ: John Wiley & Sons, 2009). Chapter 6.......................Alternative Energy 2. Roy L. Nersesian. Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative Sources (Armonk, NY: M.E. Sharpe, Inc., 2007). Chapter 3.......................Biomass Chapter 9.......................Sustainable Energy

AIMS:
Fisher Investments. Fisher Investments on Energy Chapter 6 ..........................Alternative Energy Define alternative energy Discuss the sources of renewable energy Discuss the investment drivers behind renewable energy investments

Roy L. Nersesian. Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative Sources Chapter 3 ..........................Biomass 4.2 Define biomass and understand its uses and limitations Discuss where biomass is generally used Discuss and compare ethanol production in Brazil and the United States and ethanols use as a vehicle fuel in Brazil Define biogas and discuss its uses Compare conventional energy production to sustainable energy production List and discuss the pros and cons of the major types of sustainable energy Explain how financial incentives impact renewable (sustainable) energy Discuss the relationship between sustainable energy and economic development Chapter 9 ..........................Sustainable Energy

Carbon Finance and Emissions 1. Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? (Singapore. John Wiley & Sons (Asia) Pte Ltd., 2006). Chapter 3.......................Green Trading Schemes

2. Frank Fabozzi (ed.): The Handbook of Commodity Investing (Hoboken, NJ: John Wiley & Sons, 2008). Chapter 37.....................Emissions Trading in the European Union

AIMS:
Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? Chapter 3 ..........................Green Trading Schemes Understand the major sources of greenhouse gases in the European Union Calculate a simple example of how emission trading can save money for participants Discuss SO2, NOx, and CO2 emissions Define negawatts

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2011 Energy Risk Professional (ERP) Examination AIM Statements

Frank Fabozzi (ed.). The Handbook of Commodity Investing Chapter 37 ........................Emissions Trading in the European Union Understand what a National Allocation Plan (NAP) is and how it affects emissions trading Explain the objectives of the Kyoto Protocol Describe how price and volume risk interact to impact the EU emissions market Understand how emissions allowances work and how they reduce greenhouse gas emissions Discuss the economics of emissions allowances, how they are priced, traded and how products are used Describe how the forward price is established in the EU emissions market

FINANCIAL MARKETSExam Weight | 50%

Financial Products and Valuation36 Questions
5.1 Commodity Forwards and Futures 1. Steven Errera and Stewart L. Brown. Fundamentals of Trading Energy Futures & Options, 2nd Edition (Tulsa, OK: PennWell Books, 2002). Chapter 3.......................Behavior of Commodity Futures Prices Chapter 6.......................Commodity Forwards and Futures Chapter 5.......................Relationship Between Risk Premium and Convenience Yield Models 2. Robert McDonald. Derivatives Markets (Boston: Addison-Wesley, 2003). 3. Frank Fabozzi (ed.): The Handbook of Commodity Investing (Hoboken, NJ: John Wiley & Sons, 2008).

AIMS:
Steven Errera and Stewart L. Brown. Fundamentals of Trading Energy Futures & Options, 2nd Edition Chapter 3 ..........................Behavior of Commodity Futures Prices Explain the principles of parallelism and convergence Discuss full carry Explain the terms backwardation and contango Explain cash management arbitrage, calculate an example of cash/futures arbitrage Understand the concept of and calculate an example of basis

Robert McDonald. Derivatives Markets Chapter 6 ..........................Commodity Forwards and Futures Describe how to create a synthetic commodity position and use it to explain the relationship between the forward price and the expected future spot price Explain the effect non-storability has on electric prices Derive the basic equilibrium formula for pricing commodity forwards and futures Describe an arbitrage transaction in commodity forwards and futures, compute the potential arbitrage profit Explain the impact storage costs and convenience yields have on commodity forward pricing and no-arbitrage bounds Compute the forward price of a commodity with storage costs Compare the lease rate with the convenience yield Explain how basis risk can occur when hedging commodity price exposure

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2011 Energy Risk Professional (ERP) Examination AIM Statements

Frank Fabozzi (ed.). The Handbook of Commodity Investing Chapter 5 ..........................Relationship Between Risk Premium and Convenience Yield Models 5.2 Understand the difference between commodities and financial assets Explain the role of arbitrage in setting futures prices of financial assets Define and differentiate risk premium and convenience yield models Understand the relationship and interpret the term structure of commodity prices, risk premium and convenience yield models Calculate futures returns using the risk premium and convenience yield models Understand the relationship between roll yield and risk premium

Energy Derivatives 1. Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power and Other Energy Markets (West Sussex, England: John Wiley & Sons, 2007). Chapter 2.......................Energy Derivatives Chapter 1........................Energy Swaps Chapter 2.......................Energy Options Chapter 3.......................Energy Exotic Options 2. Vincent Kaminski (ed). Managing Energy Price Risk (London: Risk Books, 2004).

3. Alexander Eydeland and Krzysztof Wolyniec. Energy and Power Risk Management: New Developments in Modeling, Pricing, and Hedging (Hoboken, NJ: John Wiley & Sons, 2003). Chapter 8.......................Structured Products: Fuels and Other Commodities 4. Steven Errera and Stewart L. Brown. Fundamentals of Trading Energy Futures & Options, 2nd Edition (Tulsa, OK: PennWell Books, 2002). Chapter 4.......................Speculation and Spread Trading Chapter 7 .......................Energy Options Strategies

AIMS:
Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power and Other Energy Markets Chapter 2...........................Energy Derivatives Explain how to use a forward contract for hedging Calculate the fair value of a forward contract and the fair value of a commodity swap Understand and calculate the profit and payoff profiles for plain vanilla options Understand differences between European, American, and Asian options Know how to price spot price options Understand, describe, and calculate put-call parity

Vincent Kaminski (ed). Managing Energy Price Risk Chapter 1 ...........................Energy Swaps Understand how swap positions are impacted by price changes Describe the pricing and profit/loss profiles of different types of swaps Discuss the major users of swaps and their objectives in using swaps for project finance and risk mitigation Understand issues surrounding liquidity

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2011 Energy Risk Professional (ERP) Examination AIM Statements

Chapter 2...........................Energy Options Explain the relationship between options and swaps Define, discuss and list applications of the Greeks Work through a delta hedge example Understand and discuss the volatility smile Compare and contrast standard options, participation collars and swap participations, bull and bear spreads, and swaptions Chapter 3 ..........................Energy Exotic Options Define exotic options and differentiate them from plain vanilla options Differentiate the following option valuation methods: Monte Carlo (simulation), bi-/multi-nomial trees, finite-difference/numerical integration Discuss how commodity prices differ from stock prices Calculate an option premium using a binomial tree Discuss these option structures and their application: Asian, barrier, spread, exchange, basket, compound, digital

Alexander Eydeland and Krzysztof Wolyniec. Energy and Power Risk Management: New Developments in Modeling, Pricing, and Hedging Chapter 8 ..........................Structured Products: Fuels and Other Commodities Construct a zero cost collar based on calls and puts Discuss the impact on structured product pricing of storage, convenience yield and transmission constraints Calculate the forward value of storage Discuss and contrast load-serving contracts (i.e., full requirements, interruptible, banded hourly shaped energy, block power, and fixed shape) Steven Errera and Stewart L. Brown. Fundamentals of Trading Energy Futures & Options, 2nd Edition Chapter 4 ..........................Speculation and Spread Trading Explain the beneficial role of speculation in establishing derivative prices Calculate the position a trader would take when they believe that the spread on two commodities is too wide Understand the concept of inter-market spreads and how they are used Discuss the role of the crack spread in trading commodities, explain why a trader would take a particular position in a crack spread Discuss the spark spread and its role in power markets Calculate the payoff on at-the-money/out ofthemoney call and put options Understand the use and calculation of a payoff on a bull spread, bear spread, butterfly spread, long straddle, and short straddle Explain the use of caps, floors, and collars in hedging transactions Understand the structure and calculate the cash flows associated with commodity price hedging strategies Discuss the use of bull, bear, and crack spread options Chapter 7...........................Energy Options Strategies

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2011 Energy Risk Professional (ERP) Examination AIM Statements

5.3

Electricity Products 1. Vincent Kaminski (ed). Energy Modeling: Advances in the Management of Uncertainty, 2nd Edition (Incisive Media Investments Limited, 2005). Chapter 2.......................Fundamentals of Electricity Derivatives Chapter 4.3 ...................Tolling Agreements Chapter 4.4...................Wheeling Power 2. Davis W. Edwards. Energy Trading and Investing (New York: McGraw-Hill, 2010).

AIMS:
Vincent Kaminski (ed). Energy Modeling: Advances in the Management of Uncertainty, 2nd Edition Chapter 2...........................Fundamentals of Electricity Derivatives Discuss the implication of the non-storage of electricity on pricing spot price power options Describe how the use of futures and forwards is a solution for valuing power options Explain the risk in using daily forwards to hedge daily positions

Davis W. Edwards. Energy Trading and Investing Chapter 4.3 .......................Tolling Agreements 5.4 What is the role of a power marketer? Understand why deregulation has made tolling agreements more popular Perform a net profit calculation Explain the risk management exposure of a tolling agreement Discuss the pricing of tolling agreements / Explain the impact of volatility on tolling agreements Define dispatch rate Understand the risks in using options to approximate physical behaviors Explain the purpose of wheeling power and the various types of wheeling trades Understand the nature of electricity and how it flows over a network Discuss the technical issues associated with the long-distance transmission of electricity Understand the difference between spread trades and wheeling trades

Chapter 4.4.......................Wheeling Power

Natural Gas Products 1. Fletcher J. Sturm. Trading Natural Gas: A Nontechnical Guide (Tulsa, OK: PennWell Books, 1997). Chapter 4.......................Hedging and Trading Instruments

AIMS:
Fletcher J. Sturm. Trading Natural Gas: A Nontechnical Guide Chapter 4 ..........................Hedging and Trading Instruments
14

Discuss the buying and selling of natural gas, its related terms and specifications Understand the process of hedging a natural gas swap with futures contracts Describe and calculate the profitability of a futures position at settlement Understand the role of indexes in pricing For index swaps, calculate payoffs for sale and purchase positions Discuss trading applications for fixed-floating index swaps Discuss the use of swing swaps and provide examples of payoffs given different spot price scenarios Define exchange of futures for physical (EFP) and discuss how EFPs are used Discuss triggers and contrast with EFPs
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2011 Energy Risk Professional (ERP) Examination AIM Statements

Modeling and Valuing Energy Transactions27 Questions

6.1 Intro to Energy Modeling 1. Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw-Hill, 2007). Chapter 2.......................What Makes Energies So Different? Chapter 3.......................Modeling Principles and Market Behavior

AIMS:
Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition Chapter 2...........................What Makes Energies So Different? Discuss why energy products are harder to model than financial products Describe the impact of supply and demand drivers on energy prices State why regulation, illiquidity, and decentralized markets make energy and financial markets different Provide an example of energy basis risk

Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition Chapter 3 ..........................Modeling Principles and Market Behavior 6.2 Describe the ideal modeling process Know the role assumptions play in market models Understand market variables vs. modeling parameters Know how the price of an underlying asset is established Understand modeling terms, issues and their usage Define the cost of risk Understand the difference between lognormal and mean-reverting markets Be familiar with lessons learned from the money markets

Essential Statistics 1. Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw-Hill, 2007). Chapter 4.......................Essential Statistical Tools

AIMS:
Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition Chapter 4 ..........................Essential Statistical Tools 6.3 Explain the importance of and tools used in time series analysis, distribution analysis Understand the moments of a distribution Discuss and contrast the normal and lognormal distributions Explain the use of the Q-Q plot, the autocorrelation test, mean-squared and R-squared error

Spot Price Modeling 1. Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw-Hill, 2007). Chapter 5.......................Spot Price Behavior 2. Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management (London: Lacima Publications, 2000). Chapter 6.......................Spot Price Models and Pricing Standard Instruments

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2011 Energy Risk Professional (ERP) Examination AIM Statements

AIMS:
Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition Chapter 5 ..........................Spot Price Behavior Describe the difference between single-factor and mean-reverting models Understand the role of volatility in single-factor models Calculate the Black-equivalent volatility over time Calibrate parameters using time series analysis Discuss how locational marginal pricing works in electricity markets

Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management Chapter 6 ..........................Spot Price Models and Pricing Standard Instruments 6.4 Compare and contrast single factor, two factor, and three factor models Discuss two factor model curves and the deficiencies of a single factor model Explain the different volatility assumptions used in the single factor and two factor models Discuss the key considerations in selection of a pricing model for pricing standard derivative instruments

Forward Price Modeling 1. Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw-Hill, 2007). Chapter 6.......................The Forward Price Curve Chapter 7 .......................Building Marked-to-Market Forward Price Curves

2. Helyette Geman (ed). Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy (West Sussex, England: John Wiley & Sons, 2008). Chapter 2.......................Forward Curve Modeling in Commodity Markets

AIMS:
Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition Chapter 6 ..........................The Forward Price Curve Explain the characteristics of contango and backwardation Explain the role of seasonality in electricity, oil, and natural gas forward curves Discuss and explain the concepts of the arbitrage-free condition and convenience yield as they relate to the electricity markets Model a forward price based on spot price and other general assumptions Define a marked-to-market forward price curve Understand the fundamentals of forward price contracts and valuation Understand the assumptions used in the construction of a forward price curve for a single delivery date versus a price curve for delivery over a period of time Calculate a future month forward price based on the current months forward price Explain the step-function process for adjusting annual forward prices to monthly forward prices Contrast the various methodologies used to estimate seasonality Discuss the process used to build forward price curves in basis markets Chapter 7...........................Building Marked-to-Market Forward Price Curves: Implementing Forward Price Models

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2011 Energy Risk Professional (ERP) Examination AIM Statements

Helyette Geman (ed). Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy Chapter 2...........................Forward Curve Modeling in Commodity Markets 6.5 Discuss the factors that shape commodity forward curves Contrast the forward curve for seasonal and nonseasonal commodities State the purpose of Principal Components Analysis (PCA) Provide an interpretation of a change in level, slope, and curvature in a PCA

Volatility Estimation 1. Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management (London: Lacima Publications, 2000). Chapter 3.......................Volatility Estimation in Energy Markets Chapter 8.......................Volatilities 2. Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw-Hill, 2007).

AIMS:
Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management Chapter 3 ..........................Volatility Estimation in Energy Markets Discuss the weaknesses in using Geometric Brownian Motion (GBM) to forecast commodity prices Calculate volatility from historical data and understand the advantages of natural logs Calculate the scaling of volatility for different time periods Understand how the volatility assumption for a mean-reverting process is different than a non-meanreverting process Understand and apply the terms: volatility smile, homoskedastic, heteroskedastic, leptokurtic, ARCH and GARCH

Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition Chapter 8 ..........................Volatilities Define volatility as it relates to variance Calculate the average long-term volatility from shorter-term volatilities Derive market-implied volatilities for one option or a series of options Understand how volatility smiles are created Discuss the relationship between volatility and time-to-delivery for forward contracts assuming a single-factor mean-reverting model 6.6 Modeling Energy Price Behavior 1. Alexander Eydeland and Krzysztof Wolyniec. Energy and Power Risk Management: New Developments in Modeling, Pricing, and Hedging (Hoboken, NJ: John Wiley & Sons, 2003). Chapter 4.......................Reduced-form Processes

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2011 Energy Risk Professional (ERP) Examination AIM Statements

AIMS:
Alexander Eydeland and Krzysztof Wolyniec. Energy and Power Risk Management: New Developments in Modeling, Pricing, and Hedging Chapter 4 ..........................Reduced-form Processes 6.7 Discuss the steps required for determining a price process Explain potential problems and solutions for model parameters Discuss the challenges associated with mean-reversion when developing spot and forward prices Explain the role of convenience yield and storage with regard to pricing commodity contracts Understand the necessary volatility adjustments for use in option pricing models Describe how to modify Geometric Brownian Motion (GBM) models for mean reversion and seasonality; discuss the pros and cons of using GBM Discuss modeling price spikes with jump-diffusion models, including pros and cons

Modeling Electricity Price Behavior 1. Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power and Other Energy Markets (West Sussex, England: John Wiley & Sons, 2007). Chapter 4.......................Fundamental Market Models Chapter 4.1 ....................Spatial Load Forecasting 2. Davis W. Edwards. Energy Trading and Investing (New York: McGraw-Hill, 2010).

AIMS:
Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power and Other Energy Markets. Chapter 4 ..........................Fundamental Market Models Discuss and understand the fundamental supply and demand factors that drive prices in the electricity markets Discuss the economics that drive dispatch decisions in the power markets Understand the role of variable operating costs in plant dispatch, including idle time, start-up costs, constraints, and ways to model these variables Discuss merit order dispatch curves and the major considerations for bidding a plant for next day commitment Compare and contrast how single and multiple region market models function Understand the information required to develop a model for the electricity markets (supply, demand, and transmission) Explain the supply and demand assumptions associated with natural gas market models

Davis W. Edwards. Energy Trading and Investing Chapter 4.1 ........................Spatial Load Forecasting Know the factors that go into producing a load forecast Define base load power Understand the relationship between weather and electricity consumption Know the steps in creating and testing a load forecasting model

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2011 Energy Risk Professional (ERP) Examination AIM Statements

Risk Management Techniques27 Questions

7.1 Overview of Energy Risks 1. Peter C. Beutel. Surviving Energy Prices (Tulsa, OK: PennWell Books, 2005). Chapter 3.......................Different Kinds of Risk Chapter 6.......................Energy Risk Boot Camp: Must Know Concepts for Managers and Directors 2. John Wengler. Managing Energy Risk: A Nontechnical Guide to Markets and Trading (Tulsa, OK: PennWell Books, 2001). 3. Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? (Singapore. John Wiley & Sons (Asia) Pte Ltd., 2006). Chapter 10 .....................What Risk? An Introduction to Managing Risk Chapter 8.......................Wider Risk Management Questions 4. Steve Leppard. Energy Risk Management: A Non-technical Introduction to Energy Derivatives (London: Risk Books, 2005).

AIMS:
Peter C. Beutel. Surviving Energy Prices Chapter 3 ..........................Different Kinds of Risk Define the following : Price Risk, Basis Risk, Supply Risk, Volume Risk Provide examples of each type of risk and strategies for mitigating them Understand how to hedge a customer contract using puts, calls, or futures

John Wengler. Managing Energy Risk: A Nontechnical Guide to Markets and Trading Chapter 6 ..........................Energy Risk Boot Camp: Must Know Concepts for Managers and Directors Discuss the tenets of the five minute risk manager Describe the pricerisk pyramid Discuss the difference between a forward price and an expected spot price Explain the key elements in constructing a forward price curve Discuss the difference between historical and implied volatility Explain the role of correlation in modeling energy prices

Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? Chapter 10.........................What Risk? An Introduction to Managing Risk Discuss the structure of a risk matrix Discuss each major type of risk Identify and assess the major types of basis risk

Steve Leppard. Energy Risk Management: A Non-technical Introduction to Energy Derivatives Chapter 8 ..........................Wider Risk Management Questions Calculate the cost of unwinding a hedge Discuss mark-to-market and market risk techniques Calculate an example of MVaR (Market Value-at-Risk) and Delta-Gamma approximation Describe physical risk management Discuss the risk matrix approach to risk analysis Discuss some key risks (market, accounting, credit, force majeure, data, reputational)

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2011 Energy Risk Professional (ERP) Examination AIM Statements

7.2

Operational Risk 1. Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008). Chapter 15 .....................Operational Risk and its Management

AIMS:
Tom James. Energy Markets: Price Risk Management and Trading Chapter 15 .........................Operational Risk and its Management 7.3 Describe a typical derivatives transaction List and discuss the five steps for assessing and controlling risk Understand the differences between: risk reduction, risk control, risk containment and risk transfer

Risk Management Controls 1. Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008). Chapter 10 .....................Management Controls 2. Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? (Singapore. John Wiley & Sons (Asia) Pte Ltd., 2006). Chapter 11 ......................Risk-Policy Guidelines

AIMS:
Tom James. Energy Markets: Price Risk Management and Trading Chapter 10.........................Management Controls Understand the five broad categories of control breakdowns Describe the key components of a sound risk management or trading policy Discuss the key contents in a risk policy document Describe the role of a back-office system; understand the role of external and internal auditors

Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? Chapter 11..........................Risk-Policy Guidelines State the key steps in developing a risk-policy statement Understand the general types of hedging positions Discuss a framework for monitoring and managing energy-market risks, including trading controls and position limits 7.4 Value-at-Risk (VaR) 1. Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power and Other Energy Markets (West Sussex, England: John Wiley & Sons, 2007). Chapter 6.2 ...................Value-at-Risk and Further Risk Measures 2. Alessandro Mauro. Price Risk Management in the Energy Industry: The Value at Risk Approach, Proceedings of the XXII Annual International Conference of the International Association for Energy Economics (June 9-12, 1999). Available online: http://ssrn.com/abstract=1020917

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2011 Energy Risk Professional (ERP) Examination AIM Statements

AIMS:
Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power and Other Energy Markets Chapter 6.2 .......................Value-at-Risk and Further Risk Measures Understand Value-at-Risk (VaR), including the strengths and weaknesses in its application Contrast the following methods used to calculate VaR: historical simulation, analytical, and structured Monte Carlo method Calculate volatility and correlation required to use the analytic method of VaR measurement Understand the role of backtesting in relation to VaR models Compare and discuss: cashflow-at-risk, earnings-at-risk, and profit-at-risk Describe settlement risk and replacement risk

Alessandro Mauro. Price Risk Management in the Energy Industry: The Value at Risk Approach, Proceedings of the XXII Annual International Conference of the International Association for Energy Economics (June 9-12, 1999) 7.5 Calculate the VaR for a single asset and for a portfolio of assets Use VaR to understand the potential maximum downside risk for a portfolio of commodity positions Understand the conditions in various commodity markets that lead to logical use of VaR as a risk measure

Hedging Physical Assets 1. Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008). Chapter 13 .....................Energy-Market Hedging Scenarios 2. Steve Leppard. Energy Risk Management: A Non-technical Introduction to Energy Derivatives (London: Risk Books, 2005). Chapter 4.......................Physical Transactions and Basic Hedging Instruments

AIMS:
Tom James. Energy Markets: Price Risk Management and Trading Chapter 13 .........................Energy-Market Hedging Scenarios Compare the use of fixed-price swap with a collar structure for end-use hedging Calculate the settlement of a monthly fixed-price swap and a collar structure Understand the challenges faced by an electric power generator when hedging in the coal and natural gas markets Compare and contrast the various hedging strategies used to mitigate risk in long and short energy market positions. Steve Leppard. Energy Risk Management: A Non-technical Introduction to Energy Derivatives Chapter 4 ..........................Physical Transactions and Basic Hedging Instruments Explain the roles and risk exposures confronted by producers, transformers, and off-takers Evaluate the mark to market value of a swap over time Calculate the cash and physical commodity flows associated with various energy swap structures Understand the application of fixed-for-floating swaps

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2011 Energy Risk Professional (ERP) Examination AIM Statements

7.6

Hedging Financial Assets 1. Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008). Chapter 6.......................Options Trading and Hedging Application Strategies 2. Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management (London: Lacima Publications, 2000). Chapter 9.......................Risk Management of Energy Derivatives

AIMS:
Tom James. Energy Markets: Price Risk Management and Trading Chapter 6 ..........................Options Trading and Hedging Application Strategies Discuss option contract terminology Demonstrate the use of simple option strategies to offset underlying price movements Use payoff charts to demonstrate strategies for hedging long and short energy positions Understand various volatility trading strategies

Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management Chapter 9 ..........................Risk Management of Energy Derivatives 7.7 Understand why a delta hedge becomes less effective as the price of the underlying asset changes from its original value Calculate the profiles of delta, gamma, and vega hedges Describe hedging strategies for call and put positions using long or short trading strategies Understand volatility risk and discuss hedging techniques to manage its impact on portfolio returns

Hedge Accounting 1. Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008). Chapter 17 .....................Accounting for Energy Derivatives Trades

AIMS:
Tom James. Energy Markets: Price Risk Management and Trading Chapter 17 .........................Accounting for Energy Derivatives Trades 7.8 Discuss the key aspects of FAS 133 Define effectiveness test, highly effective hedge, and financial instrument according to IAS 32 Define what a hedge is under IAS 39 Explain the steps for establishing hedge accounting

Managing Credit Risk 1. Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power and Other Energy Markets (West Sussex, England: John Wiley & Sons, 2007). Chapter 6.3 ...................Risk Management (Credit Risk) Chapter 16 .....................A Practical Guide to Credit Control and Risk-Mitigation Methods Chapter 12 .....................Credit Risk Management for the Energy IndustrySome Perspectives Chapter 9.......................Measuring and Marking Counterparty Risk 2. Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008). 3. Vincent Kaminski (ed). Energy Modeling: Advances in the Management of Uncertainty (London: Risk Books, 2005). 4. Eduardo Canabarro and Darrell Duffie. ALM of Financial Institutions, ed. Leo Tilman (London: Euromoney, 2003).

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2011 Energy Risk Professional (ERP) Examination AIM Statements

AIMS:
Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power and Other Energy Markets Chapter 6.3 .......................Risk Management (Credit Risk) Describe methods for quantifying and managing (reducing) credit risk exposure Understand external credit ratings and interpret related default probabilities Discuss internal rating factors

Tom James. Energy Markets: Price Risk Management and Trading Chapter 16.........................A Practical Guide to Credit Control and Risk-Mitigation Methods Compare methods for managing credit-risk exposure Understand the use of collateralization Explain how credit default swaps can be used to manage credit risk

Vincent Kaminski (ed). Energy Modeling: Advances in the Management of Uncertainty Chapter 12 .........................Credit Risk Management for the Energy IndustrySome Perspectives Explain the advantages of a clearing house and related margining arrangements Understand the high-level steps for measuring credit risk

Canabarro and Duffie. ALM of Financial Institutions Chapter 9 ..........................Measuring and Marking Counterparty Risk Define terms related to counterparty risk Explain the process for using a Monte Carlo simulation to model potential counterparty exposure and discuss considerations for applying such a model Describe how a credit valuation adjustment is made to an over-the-counter derivatives portfolio Define a risk-neutral mean loss rate Describe the procedures for computing the market value of credit risk when one or both counterparties in the derivatives transaction has credit exposure

Current Issues in EnergyExam Weight | 10%

NOTE ON THE CURRENT ISSUES IN ENERGY SECTION: GARP recognizes that energy markets are dynamic and are often affected by regulation, newly discovered reserves and technology breakthroughs. Global energy risk managers must remain abreast of these developments to effectively manage risk in their businesses. With this goal in mind, GARP is introducing a new Current Issues in Energy section for the 2011 ERP Examination. The Current Issues section is designed to familiarize ERP candidates with new developments and issues that are likely to have a long-term impact on the global energy markets. Topics included in the Current Issues section of the 2011 ERP Examination include Dodd-Frank regulation and its potential impact on energy firms, an introduction to the Smart Grid, analysis of the 2008 oil price shock and an overview of modern shale gas development. While three of the four topics focus specifically on the United States, they address topics that will affect energy markets globally; ERP Candidates should consider this impact when reviewing the material and preparing for the exam. Each reading is current as of November 15, 2010 and candidates can expect to be tested on the information throughout 2011. Subsequent developments in these topics, or any new areas of focus, will be captured on the 2012 ERP Examination.

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2011 Energy Risk Professional (ERP) Examination AIM Statements

Readings for Current Issues in Energy18 Questions

1. Skadden, Energy Derivatives Under the Dodd-Frank Act, (July 2010). Available online: http://www.skadden.com/Index.cfm?contentID=51&itemID=2171 2. Sidley Austin, The Dodd-Frank Acts Effect on Hedging Activities of Energy Companies and Large Energy Consumers Available online: http://www.sidley.com/SidleyUpdates/Detail.aspx?news=4622 Be able to identify and discuss the potential impacts that implementation of Dodd-Frank will have on the energy industry 3. US Department of Energy, The Smart Grid: An Introduction Available online: http://www.oe.energy.gov/DocumentsandMedia/DOE_SG_Book_Single_Pages(1).pdf Be able to define the basic elements of a Smart Grid Understand the impact the development of the smart grid will have on electricity supplies and pricing methodologies Define real time pricing Discuss the role of decentralization in creating the Smart Grid

4. Global Public Policy Institute, The 2008 Oil Price Shock Available online: http://www.gppi.net/fileadmin/gppi/GPPiPP1_Oil_Prices_2009.pdf Be knowledgeable about the price swings in the oil market in 2008 and the arguments for why they occurred Understand the factors that led to a tightening of supply in the oil market in 2008 Discuss the role speculation played in the price spike; contrast market speculation with hedging for risk mitigation purposes Understand the effect the price shock had in influencing legislation and regulation of the commodity sector

5. ALL Consulting Report, An Overview of Modern Shale Gas Development in the United States Available online: http://www.all-llc.com/publicdownloads/ALLShaleOverviewFINAL.pdf Define shale gas, understand how shale gas deposits are different from conventional natural gas reserves Explain how shale gas is becoming a price driver within the natural gas industry Understand the concept of hydraulic fracturing (fracking); know the environmental concerns associated with this technique Be familiar with the development and history of the shale gas sector

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2011 Global Association of Risk Professionals. All rights reserved.

2011 Energy Oversight Committee (EOC) Members Ken Abbott ..................................Managing Director, Morgan Stanley & Company Richard Apostolik .....................President and CEO, Global Association of Risk Professionals Mark Galicia .................................Commercial Manager, BP North America, Inc. Gordon E. Goodman ................Trading Control Officer, Occidental Petroleum Corporation James Brown...............................Managing Director, Morgan Stanley & Company Mark Jenner.................................Director, Credit Risk, BG Group Jeff Jewell ....................................Chief Risk Officer, DTE Energy Glenn Labhart, EOC Chair .....Partner, Labhart Risk Advisors, Inc. Spyros Maragos............................VP, Refined Products Analytics, Louis Dreyfus Energy Services, LP Alessandro Mauro .....................Director of Risk Management, Litasco SA Mark D. May ......................................Manager, Regional Risk Supply & Trading, Americas, ConocoPhillips Jeff Parke .....................................Senior Director, Risk Management, Koch Industries, Inc. Jonathan C. Stein ......................Chief Risk Officer, Vice President, Hess Corporation Andrew D. Sunderman ............Managing Director, JP Morgan Glen Swindle ...............................Managing Director, Energy Trade & Marketing, Credit Suisse John Wengler .............................Vice President and Chief Risk Officer, BlueStar Energy Services

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About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated to preparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 risk management practitioners and researchers from banks, investment management firms, government agencies, academic institutions, and corporations from more than 195 countries. GARP administers the Financial Risk Manager (FRM) and the Energy Risk Professional (ERP) exams; certifications recognized by risk professionals worldwide. GARP also helps advance the role of risk management via comprehensive professional education and training for professionals of all levels. www.garp.org.

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