Garp Erp Program Manual 31615

2015
ERP
Program
Manual
2015 Energy Risk Professional (ERP) Program Manual
Table of Contents
Introduction...........................................................................................................................................................1
Global Association of Risk Professionals ............................................................................................................1
The ERP Program ................................................................................................................................................3
The ERP Exam ......................................................................................................................................................3
Exam Learning Objectives ................................................................................................................................6
Reserves, Mineral Rights, and Project Development7 Questions .........................................................7
Crude Oil Markets and Rened Products21 Questions .............................................................................9
Natural Gas and Coal Markets14 Questions .................................................................................................12
Electricity Markets and Renewable Generation28 Questions ..............................................................14
Financially Traded Energy Projects and Structured Transactions21 Questions.............................21
Data Analysis and Market Risk21 Questions ...............................................................................................25
Credit, Counterparty, and Country Risk Assessment21 Questions ....................................................29
Enterprise Risk Management and Business Ethics7 Questions ..........................................................33
Register for the Exam ......................................................................................................................................36
Prepare for the Exam .......................................................................................................................................39
Suggested Exam Preparation Reading Plan ..............................................................................................40
Sit for the Exam .................................................................................................................................................41
After the Exam ..................................................................................................................................................45
Proper Usage of the ERP Designation.........................................................................................................46
Resources for Certied ERPs.........................................................................................................................46
Continuing Professional Development........................................................................................................46
Frequently Asked Questions..........................................................................................................................48
2015 Global Association of Risk Professionals. All rights reserved.
Introduction
As the leading professional association for risk managers,

GARPs mission is to advance globally the risk profession through
education, training, and the promotion of best practices.
The Global Association of Risk Professionals (GARP)
Oversight and Governance
created the ERP Program Manual to provide a comprehen-
GARP is governed by a Board of Trustees comprised of top
sive resource for those interested in becoming a certied
risk professionals and academics from around the world.
Energy Risk Professional (ERP).
As a professional association with global membership and
Global Association of Risk Professionals
GARP is in a unique position to ascertain standards and
an extensive professional and academic chapter network,

History and Mission
assess evolving trends in risk management practices. To
Founded in 1996, the Global Association of Risk Profess-
calibrate and benchmark its understanding of the demands
ionals (GARP) is a not-for-prot organization and the
of the global risk management community, GARP also
only globally recognized membership association for
conducts formal job task analysis surveys to determine
risk managers. GARP's goal is to help create a culture of
the knowledge, skills and abilities required to function
risk awareness within organizations, from entry level to
eectively as an energy risk manager around the world.
board level.
The ERP Program is overseen by GARPs Energy Oversight
In the areas of nancial and energy risk management,
Committee (EOC) comprised of senior energy industry pro-
GARP sets the global standard in professional designation
fessionals and experienced academics. The EOC reviews and
with the FRM (Financial Risk Manager) and ERP (Energy
revises the ERP curriculum on an annual basis to ensure that
Risk Professional) certications. Through our educational
the certication remains relevant and in-line with industry
programs, specialized content, in-person or online events,
demands. The curriculum is published annually in the ERP
and chapter program, GARP promotes best practices in
Study Guide. Detailed learning objectives for each reading
risk management and supports ongoing professional and
listed in the Study Guide, along with other important pro-
career development for risk managers.
gram information, are summarized in this manual.

To support the preparation of returning candidates, changes
from the prior years curriculum are published separately in
the 2015 ERP Exam Study Guide Changes document.
THE ERP
PROGRAM
Earning the ERP is a great way to dierentiate yourself from industry
peers, and demonstrates to employers that you possess the knowledge
and skills necessary to assess threats and opportunities across the energy
value chain.
More than 90% of candidates who sat for the exam since 2009 have indicated they would recommend the ERP Program to a friend or colleague.
The ERP Program was developed in direct response to
and Market Risk; Credit, Counterparty and Country Risk;
the growing need for professionals who understand the
and Enterprise Risk Management and Business Ethics.
breadth and complexity of risk linked to physical or nan-
The exam is presented in two separate four hour segments;
cial energy assets. It is a truly unique program that oers
an AM and PM session, with a one-hour break for lunch
broad coverage of physical hydrocarbon commodities,
between each session.
electricity markets, and renewable power generation.

Learning objectives related to nancially traded products
Exam Structure
and risk management are linked back to the physical com-
The allocation of questions by topic for the 2015 ERP Exam
modity markets to create a practical, well rounded, and
are summarized below. Exam weights are structured in
comprehensive curriculum. The ERP establishes a baseline
conjunction with the EOC to create a balanced assessment
of competency in energy risk management that is not
that properly reects the relative importance of topics
constrained or dened by market practices applied in any
across the energy markets.
one country or region. In short, the ERP can help global

energy professionals ll knowledge gaps that help broaden
perspectives on how global energy markets operate and
Physical Energy Commodities and Electricity Markets
inuence one another.

Oil, Gas, and Coal
Program Requirements
Mineral Rights and
There are no specic educational or professional prerequi-
Project Development
sites to sit for the ERP Exam. To become a Certied ERP,
Crude Oil Markets and
candidates must meet the following minimum requirements:
Rened Products
15%
21 questions
Pass the ERP Exam
Natural Gas and Coal Markets
10%
14 questions
Demonstrate two years of related work experience
5%
7 questions
Power
Once certied, ERPs are required to complete 40 hours
Electricity Markets and
of Continuing Professional Development (CPD) every
Renewable Generation
20%
28 questions
Section Total
50%
70 questions
two years. Participation in GARPs CPD program helps to

ensure Certied ERPs remain abreast of current market
challenges and solutions in such areas as energy modeling,
counterparty and operational risk management, fundamental supply and demand trends in physical energy commod-
Financial Energy Products and Risk Management
ity markets, new accounting and regulatory initiatives, and

the latest developments in exploration and production
Financially Traded
technology.
Energy Products
15%
21 questions
Data Analysis and Market Risk
15%
21 questions
15%
21 questions
THE ERP ExAMOvERviEw
Credit, Counterparty, and
The ERP Exam consists of 140 equally-weighted multiple-
Country Risk Assessment
choice questions designed to assess learning objectives
Enterprise Risk Management
across eight primary knowledge domains: Mineral Rights
and Business Ethics
5%
7 questions
Section Total
50%
70 questions
and Project Development; Crude Oil Markets; Natural Gas

and Coal Markets; Electricity Markets and Renewable Generation; Financially Traded Energy Products; Data Analysis
Language Requirements
Commonly-Used Abbreviations and Acronyms
The exam is oered in American English only. GARP is
The following is a list of commonly use abbreviations and
aware that not every ERP candidates native language is
acronyms that may appear on the exam:
American English, and makes every eort to ensure that

each exam question is written in a clear and concise manner.
Bbl: Barrel of _________
The use of colloquialisms or other terms and phrases that
CCP: Central Counterparty
might confuse a non-native American English speaker are
CDD: Cooling Degree Days
strictly avoided in the exam development process.
Cf: Cubic Feet
CFD: Contract for Dierences
Mathematical Requirements and Commonly-Used Equations
CRO: Chief Risk Ocer
The exam is not designed to be a rigorous quantitative
CSA: Credit Support Annex
assessment. The level of mathematical prociency required
CVA: Credit Value Adjustment
is equivalent to an advanced undergraduate or introductory
DES: Delivered Ex-Ship
graduate level nance course at most universities. Candi-
EFP: Exchange for Physicals
dates are expected to be prepared to interpret important
ERM: Enterprise Risk Management
quantitative relationships and apply specic calculations,
EWMA: Exponentially Weighted Moving Average
without the aid of pre-constructed formula sheets. To gain
FTR: Financial Transmission Right
insight into the quantitative relationships or calculations
HDD: Heating Degree Days
that may appear on the exam, candidates should review
IRR: Internal Rate of Return
the learning objectives outlined in this document with par-
ISO: Independent System Operator
ticular focus on statements that include the words assess,
KPI: Key Performance Indicators
calculate, compute, derive, or interpret.
KRI: Key Risk Indicators
kW: Kilowatt
Commonly-Used Contract Specications
kWh: Kilowatt Hour
Exchange-traded energy commodity futures and options
LMP: Locational Marginal Pricing
contracts are typically transacted in standardized lot sizes.
LNG: Liqueed Natural Gas
Unless otherwise noted, exam questions will assume the
MCf: Million Cubic Feet
following standard volumetric terms:
MMBtu: One Million British Thermal Units
MT: Million Tons
Crude Oil: 1,000 barrels (equal to 42,000 gallons)
MtM: Mark-to-Market
per contract
MW: Megawatt
Gasoline (and other distillates): 42,000 gallons
MWh: Megawatt Hour
per contract
NPV: Net Present Value
NYMEX ULSD (formerly Heating Oil): 42,000 gallons
NYMEX: New York Mercantile Exchange
per contract
OTC: Over-the-Counter
ICE Gasoil (Diesel) Futures: 100 metric tons (MT)
PFE: Potential Future Exposure
per contract
PJM: Pennsylvania/New Jersey/Maryland

Interconnection (electricity market)
Natural Gas (Henry Hub Futures): 10,000 MMBtu

per contract
PSC: Production Services Contract
Coal (ICE): 1,000 MT per contract
RTO: Regional Transmission Organization
Coal (NYMEX CME): 1,550 tons per contract
RBOB: Reformulated Gasoline Blendstock for
Electricity: Volume specication and contract terms

(e.g., a 5x16 or 7x24 contract) for day ahead and real
ULSD: Ultra-low Sulfur Diesel
time electricity contracts typically vary depending on
VaR: Value-at-Risk
local market specications.
WACC: Weighted Average Cost of Capital
WTI: West Texas Intermediate
Oxygen Blending
EXAM
LEARNING
OBJECTIVES
The ERP is a comprehensive exam and you are expected to be familiar with a broad
range of energy risk management concepts and techniques. Detailed information
regarding the knowledge domains covered by the Exam, as well as the specic recommended readings and learning objectives for each of these readings are detailed in this
section. Approximate ERP Exam weightings for each knowledge domain are provided.
This information is intended to help guide you through the self-study process as these
learning objectives form the backbone of the exam itself. You should be prepared to
answer questions on any of the individual knowledge points.
PHYSICAL
ENERGY
COMMODITIES
AND
ELECTRICITY
MARKETS
The following is a detailed summary of
specic learning objectives for the required
readings in the 2015 ERP Study Guide.
Learning objectives highlight the specic
areas of knowledge that candidates are
expected to understand and apply after
reviewing a required reading. All exam questions are developed from and linked directly
to individual learning objectives.
On the following pages, an asterisk after a reading

title indicates that the reading is freely available
on the GARP website.
MinERAL RiGHTS And PROjECT dEvELOPMEnT7 QuESTiOnS 5%

Mineral rights and project development
Concessionary agreements
Contractual systems
Production sharing agreements
Lease provisions, including royalty payments
Project development and real options
Economic valuation of oil/gas projects
Mineral Rights and Project Development Learning Objectives

Andrew inkpen and Michael H. Moett. The Global Oil and Gas Industry: Management, Strategy and Finance
(Tulsa, OK: Pennwell, 2011).
Chapter 4. Developing Oil and Gas Projects [MP-01]
Understand and apply the concept of unitization in the development of Joint Development Zones (JDZs).
Assess the nancial viability of a project using Net Present Value (NPV), Internal Rate of Return (IRR), and other
available nancial metrics.
Calculate and interpret the Weighted Average Cost of Capital (WACC) for a company.
Classify pre-completion, post completion and macroeconomic risks and explain their impact on project development
decisions.
Explain the role that contractors play in project development.
Summarize the key challenges, failures, or risks associated with the various case studies provided.
Chapter 6. Fiscal Regimes [MP-02]
Dierentiate between the various scal regimes used in hydrocarbon production contracts and understand how the
Calculate the cashow for a petroleum company under a royalty/tax nancial system and a production sharing
ownership of subsurface minerals aects the type of regime applied.

agreement (including application of the R-factor (or rate-of-return) calculation).
Interpret the use of secondary contractual features like signature bonuses, and identify the circumstances in which
Assess the nancial viability of a hydrocarbon project based on production volumes and petroleum prices.
Demonstrate how the mineral rights for an oil and gas eld are applied using the sub-Saharan case study as
they are used.
an example.
Charlotte wright and Rebecca Gallun. Fundamentals of Oil & Gas Accounting, 5th Edition (Tulsa, OK: Pennwell, 2008).
Chapter 15. Accounting for International Petroleum Operations [MP-03]
Dierentiate the characteristics of various scal systems used in global petroleum contracts including: concessionary,
contractual, and production sharing/service agreements.
Calculate the economic revenue generated from various global petroleum contracts.
Understand how prot oil impacts project economics.
Illustrate the application of a joint operating agreement and the circumstances when it is used.
Identify accounting regulations that can aect international petroleum contracts.
Production Decisions Using Real Options Learning Objectives

Betty j. Simkins and Russell E. Simkins, eds. Energy Finance and Economics: Analysis and Valuation, Risk Management,
and the Future of Energy (Hoboken, new jersey: wiley, 2013).
Chapter 11. Real Options and Applications in the Energy Industry [MP-04]
Dene dierent types of real options (option to expand, option to exercise, etc.) and identify the circumstances in
which they are employed.
Understand the valuation of real options and assess a real option on a hypothetical project.
Describe how Black-Scholes, binomial trees, and Monte Carlo simulations are used to value real options; identify the
challenges associated with each approach.
william Bailey, Benoit Couet, Ashish Bhandari, Soussan Faiz, Sunaram Srinivasan and Helen weeds. Unlocking the Value
of Real Options (Oileld Review, 2004).* [MP-05]
Apply a binomial lattice to value a project; calculate the up or down move at various steps on the lattice using a given
set of assumptions.
Interpret output from a real option valuation and apply it to a switching or salvage decision for an existing oil/gas project.
CRudE OiL MARKETS And REFinEd PROduCTS21 QuESTiOnS 15%

Crude oil production
Upstream economics including: wellhead price, break-even price and tax allocations
Partnership arrangements and the allocation of working interests
Global crude grades and global benchmarks
Brent, WTI, Dubai-Oman
Oil trading related to benchmark pricing
Unconventional oil
Crude Oil Transportation and Storage
Pipeline, seaborne, and rail economics
Petroleum Rening
Renery complexity
Rening margins and price formation
Crack spread
Unconventional Oil
Unconventional resources dened
Project economics conventional vs. unconventional resources
Crude Oil Production Learning Objectives

Andrew inkpen and Michael H. Moett. The Global Oil and Gas Industry: Management, Strategy and Finance.
Chapter 5. Production of Oil and Gas [COM-01]
Identify and describe the broad categories of upstream costs, and understand how specic costs impact an energy
companys earnings.
Explain why crude oil production costs vary by location and demonstrate how production costs can create a competitive
advantage for a specic crude oil eld.
Assess the economic performance of an oil well, including: operating protability, break-even price, working interest and
tax allocations.
Classify and describe the costs and factors associated with the enhancement and ongoing production of an oil eld,
with particular focus on primary, secondary and tertiary recovery methods.
Assess terms of a partnership management agreement; determine how duties are shared and how disputes are settled
within the framework of the arrangement.
Understand the nature of relationships, incentives, and potential conicts between various stakeholders along the oil and
gas supply chain.
Identify and assess political risks that impact crude oil production decisions.
Crude Oil Grades and Global Benchmarks Learning Objectives

Chapter 10. The Market for Crude Oil [COM-02]
Describe how crude oil pricing has evolved in recent decades.
Identify the various physical properties of crude oil and the impact they have on market pricing.
Understand the role of benchmark prices in the global crude oil market.
Demonstrate how the price of a specic crude oil stream is linked to a benchmark crude.
Distinguish between spot, futures and contract transactions in the crude oil markets.
Understand the factors that aect the valuation of a crude oil futures contract; perform a valuation of crude oil futures
contract given a set of market assumptions.
vincent Kaminski. Energy Markets (London: Risk Books, 2012).

Chapter 17. Oil Pricing [COM-03]
Calculate royalty and tax payments associated with a typical petroleum contract using a given set of contractual terms.
Explain the physical and nancial characteristics of Brent oil, the role of dated Brent, Brent complex, and the use of
Contracts for Dierences (CFDs) in trading Brent.
Describe the physical and nancial characteristics of West Texas Intermediate oil.
Understand the impact pipeline constraints can have on WTI pricing and the use of the P-plus price.
Identify market factors that can cause benchmark crude oil prices to diverge from each other; use the historical
relationship between WTI/Brent and WTI/LLS as a basis.
Understand the market factors that have prompted the emergence of the Dubai-Oman benchmark and discuss the
issues surrounding its adoption and operation.
Crude Oil Transportation and Storage Learning Objectives

Chapter 11. Transportation [COM-04]
Develop a plan for transporting dierent types of rened products through a pipeline that will minimize batch cutting,
over-wash and transmix.
Identify dierences between demand-driven, supply-driven, and market-driven scenarios, and explain how they impact
pipeline development decisions.
Understand how political, economic and logistical challenges can impact the construction of pipelines.
Be familiar with challenges related to the various pipeline systems identied; summarize key points in the Baku-TbilisiCeyhan (BTC) Pipeline case study.
Summarize the evolution of oil tanker design and the economics of tanker charter over time.
Understand the rationale for using the Worldscale pricing system for shipments of crude oil.
vincent Kaminski. Energy Markets.

Chapter 16. Oil Transportation and Storage [COM-05]
Describe dierent classes of oil tankers; understand the transport limitations (e.g., typical route and cargo specication) for each class of tanker.
Identify the common types of charter contracts used for crude oil shipments.
Calculate the cost of transporting a shipment of oil using the Worldscale pricing system.
10
Understand the relative economics associated with the various methods available to transport crude oil; for example:
pipeline, rail, tanker, and other methods.
Explain how pipeline shipment times and unexpected disruptions in shipments can impact commodity traders and
oil consumers.
Summarize the characteristics of dierent types of crude oil storage facilities and explain how storage level reports
are generated.
Discuss the important similarities and dierences between crude oil and natural gas storage methods.
List the primary petroleum inventory storage reports used in the United States and internationally, including the JODI
framework, and understand their impact on the petroleum markets.
Transporting Crude Oil by Rail in Canada (Canadian Association of Petroleum Producers). [COM-06]
Understand the market dynamics driving the rapid increase in crude-by-rail shipments across North America, including
the relative geographic location of crude oil production and rening facilities.
Understand the economics of transporting crude oil by rail.
Compare the dierent requirements for transporting light crude oil, heavy crude oil, and bitumen.
Identify the additional steps necessary to transport heavier grades of crude oil and why rail transport can be a better
alternative to pipelines.
Demonstrate knowledge of the operational risks associated with crude-by-rail transport and explain how recent
accidents have prompted new requirements for delivering crude oil by rail.
Petroleum Rening Learning Objectives

Chapter 12. Rening [COM-07]
Compare and contrast the competitive balance between independent reners and integrated oil companies.
Describe the rening process and identify the end-products typically produced.
Dene and explain the various processes related to crude oil rening.
Describe how a renery's complexity aects its choice of crude oil feedstock and the optimal product mix it will
produce; interpret the Nelson Complexity Index.
Assess the economics of renery operations including the relationship between the cost of crude oil and renery
margins and the impact of a renery's complexity on its product mix and prot margin.
Dene crack spread and interpret results of a crack spread calculation using given input and output prices.
Understand how other factors, including location, technology, environmental mandates, capacity utilization, scheduling,
and renery complexity/eciency impact rening economics.
Unconventional Oil Learning Objectives

deborah Gordon. Understanding Unconventional Oil (Carnegie Endowment). [COM-08]
Dene the types of unconventional oils and explain the origin of each; understand the broad categories of unconventional oils, including which are commercially viable and which are more speculative.
Explain how oils are categorized as light or heavy; sweet or sour; and how these designations aect rening decisions
and rening protability.
Discuss how the carbon footprint of unconventional oils diers from that of conventional oil and how governmental
energy policy may be shaped by this dierence.
11
nATuRAL GAS And COAL MARKETS14 QuESTiOnS 10%

Natural gas properties, transportation and storage
Natural gas units of measurement and heat content
Pipeline processes and economics
Storage technologies and economics
Liqueed natural gas (LNG)
Global natural gas markets and price dynamics
Comparative pricing and trading mechanisms
Oil indexation
Global coal markets
Physical properties
Global benchmarks, contract specications and trading
Natural Gas Properties, Transportation and Storage Learning Objectives

vivek Chandra. Fundamentals of Natural Gas: An International Perspective (Tulsa, OK: Pennwell Books, 2006).
Chapter 1. The Basics [NGC-01]
Gas Chemistry and Language, Units of Natural Gas, and Gas Formation sections only
Dierentiate the properties of natural gas (methane), liqueed petroleum gas, natural gas liquids and condensates;
understand the relationship between each type of gas.
Identify the components of raw natural gas drawn from a reservoir (methane, butane, etc).
Dene and apply terminology associated with natural gas extraction, including: wet, dry, sweet, sour and associated gas.
Understand and apply common units of measurement for natural gas.
Chapter 2. Transport and Storage [NGC-02]

Gas Storage section only
Understand the nancial and operational reasons for natural gas storage.
Compare and contrast the common physical structures used for storing natural gas.
Chapter 4. Contracts and Project Development [NGC-03]

Gas Sales and Transportation Contracts sections only
Understand the mechanics and contractual terms contained in a gas sales agreement (GSA) including: take-or-pay
obligations, nominations, and force majeure.
Explain the nancial and operational considerations related to the sale and transport of LNG.
Understand why LNG prices are indexed to crude oil prices in certain geographic regions (i.e. the JCC price in Japan);
calculate an LNG price using a sample crude oil index.
Chapter 9. Liqueed Natural Gas [NGC-04]
Describe the business structures and contractual arrangements used in LNG production and transportation.
Understand the operation of an LNG train and describe the LNG liquefaction process.
Dierentiate three types of LNG shipping contracts: Free On Board (FOB), Cargo, Insurance and Freight (CIF), and
Delivered Ex Ship (DES); understand the economics associated with each.
Compare the fundamentals of regional LNG markets in the Asia-Pacic region and the Atlantic Basin.
Examine the Gorgon LNG project in Australia and explain how various factors associated with local geography and
reserves aected the project development process.
12

Chapter 10. Natural Gas Transportation and Storage [NGC-05]
Develop a plan to transport natural gas to a specic destination via a pipeline network.
Calculate pipeline shipping costs for a given set of market assumptions.
Describe how pumping station fuel requirements are fullled on a pipeline; evaluate an example.
Identify the xed and variable costs associated with natural gas pipeline charges, including taris.
Create a practical example to illustrate how and why a pipeline may be used to temporarily store natural gas.
Summarize the steps in the nomination process, including balancing mechanisms.
Categorize the factors that impact the cost structure of the LNG supply chain; explain LNG transportation and
production technology trends.
Explain how natural gas storage inventories are reported and identify the weaknesses in the reporting methodology.
Global Natural Gas Markets and Price Dynamics Learning Objectives

international Gas union. Wholesale Gas Price FormationA Global View of Price Drivers and Regional Trends. [nGC-06]
Apply the following natural gas pricing terms to market operations: wellhead price, border/beach price, hub price,
citygate price, end user price and netback price.
Compare and contrast the eight key mechanisms for pricing natural gas and identify the geographic regions where
each is the dominant pricing mechanism.
Describe the relationship between a local gas pricing mechanism, the observed market price, and the hypothetical
market-clearing price.
Understand how volatility impacts natural gas prices and why oil-linked prices can help mitigate the impact of volatility.
international Energy Agency. Developing a Natural Gas Trading Hub in AsiaObstacles and Opportunities. [nGC-07]
Compare and contrast the three main types of market-based gas pricing mechanisms, explaining the main benet of
each; describe the methods used to establish a price through government regulation.
Assess the development of gas market pricing mechanisms in Asia, including the use of the JCC and S-Curve formulas.
Explain the current dynamics in the Asian natural gas market and understand how supply and transport fragmentation
is aecting the development of a regional pricing mechanism.
Compile a list of market and regulatory factors required for the ecient operation of a natural gas trading hub in Asia
Describe the market mechanisms through which nancial-only transactions aect the price paid for natural gas bought
and discuss the factors that contribute to price transparency.

or sold for physical delivery.
Identify the risks that market participants will likely face in the development of a natural gas trading hub in Asia.
Global Coal Markets Learning Objectives

Chapter 26. Coal Markets [NGC-08]
Compare and contrast the physical properties of anthracite, bituminous, sub-bituminous and lignite coal and know how
physical properties aect the value of coal.
Describe the features of popular coal contracts, including exchange-traded and OTC contracts.
Develop a scenario to demonstrate how volume overages/underages are dealt with in these contracts.
Compare and contrast the economics of coal-red and natural-gas red power plants, and understand the motivations
for fuel-switching decisions (when applicable).
13
ELECTRiCiTy MARKETS And REnEwABLE GEnERATiOn28 QuESTiOnS 20%

Economics of electricity markets
Baseload, mid-merit, and peak generation
Consumer demandValue of Lost Load (VOLL)
Investing in generation capacity
Cash Markets for Power Trading
Day-Ahead and Real-Time markets
ISOs, RTOs and power pools
Analytical tools and structured solutions for electricity markets
Heat rate
Spark spreads
Generation stack
Ancillary services
Capacity payments
Auction Revenue Rights (ARRs)
Financial Transmission Rights (FTRs)
Tolling agreements
Global market design
Capacity payments
Energy-only vs. capacity markets
Emissions reduction programs and regulation
Demand response programs
Renewable generation, integration and project nance
Wind economics
System integration
Impact of feed-in taris and other renewable incentives
Project nance fundamentals
The Economics of Electricity Markets Learning Objectives

daniel Kirschen and Goran Strbac. Fundamentals of Power System Economics (west Sussex, England: john wiley & Sons, 2004).
Chapter 3. Markets for Electrical Energy [EMR-01]
Understand the role the spot (real time) market plays in the reliable operation of an electric grid.
Understand the strategy behind placing or accepting bids and oers on an open electricity market and how the
bidding process sets the wholesale price for electricity.
Explain the role of the system marginal price (SMP) in an electricity pool.
Calculate the settlement of electricity contracts, including instances when imbalances exist.
14
Chapter 4. Participating in Markets for Electrical Energy [EMR-02]

Sections 4 to 4.3.1.14 only
Understand the methods used to determine the amount a customer is willing to pay for electricity, including value of
Identify the economic factors that a power retailer considers, and understand demand forecasting.
Understand the relationship between the marginal cost of generation and market prices.
lost load (VOLL).
Evaluate the protability of a generating unit based on a given set of market parameters and operating factors,
including start-up costs.
Chapter 7. Investing in Generation [EMR-03]
Apply the internal rate of return (IRR) and minimum acceptable rate of return (MARR) to assess the economic viability
of a plant; explain how a plants operating characteristics impact its IRR.
Understand how a plants utilization factor will aect its IRR, particularly for renewable power installations.
Identify the market factors used to determine power plant upgrade or retirement decisions.
Interpret a load-duration curve and understand its application in the decision to invest in additional power generation
capacity.
Understand how a marginal generating unit sets electricity prices.
Create an auction bid for a peaker plant given a set of market assumptions.
Interpret a three-stage piecewise linear price curve for the electricity market.
Explain how the result from a capacity element (CE) calculation will incentivize construction of additional generation
capacity.
Cash Markets for Power Trading Learning Objectives

Steven Stoft. Power System Economics: Designing Markets for Electricity (Piscataway, nj: iEEE Press, 2002).
Chapter 3-1. Introduction [EMR-04]
Compare and contrast the various designs applied in an electricity market.
Calculate the cost of transmission between two points on a power grid, using a given set of market parameters.
Chapter 3-2. The Two-Settlement System [EMR-05]
Calculate the cashow for a transaction in a two-settlement system.
Understand how Contracts for Dierences (CFD) are applied and evaluate the settlement of a CFD.
Understand how dierences in locational prices impact the settlement of bilateral trades.
Chapter 3-3. Day-Ahead Market Designs [EMR-06]
Dierentiate the characteristics of four types of day-ahead markets.
Explain how a day-ahead power auction works; be familiar with notation used in a power auction market.
Understand how marginal costs are used to set prices in an auction process.
Apply a given set of auction data to calculate a consumer or producer surplus.
15
Chapter 3-5. The Day-Ahead Markets in Theory [EMR-07]
Understand which generator costs are considered nonconvex and the role nonconvex costs play in market clearing prices.
Describe the economic supply and consumer demand conditions that would result in no clearing price being set for
the market.
Discuss how pool prices can optimally produce the least cost price to meet short-term demand and the eect this can
have on long-term capacity issues.
Perform a short-run prot calculation when given a set of parameters.
Explain why a generator would incur start-up costs as protection against swings in real-time prices.
Chapter 3-6. The Real-Time Market in Theory [EMR-08]
Describe real-time market transactions and day-ahead transactions; understand their fundamental dierences.
Understand how side payments are used by RTOs (like PJM) to promote the ecient operation of a power market.
Describe the conditions under which power generators are required to deviate from volume specications in a contract.
Interpret the relationship between real-time pricing and the balancing market.
Analytical Tools and Structured Solutions for Power Markets Learning Objectives
Chapter 22. Analytical Tools [EMR-09]
Calculate and compare results for a capacity factor, availability factor, load factor, and demand factor given a set of
Understand and compare the relationship between thermal eciency and the heat rate; use the heat rate to calculate
market assumptions.
the marginal cost of electricity.
Calculate a spark spread, including clean and dark spreads, and understand how they are applied.
Explain challenges associated with spark spread modeling.
Interpret the supply stack (generation stack) and understand its limitations.
Identify sources of data for electricity generation and explain how emission estimates can be derived from published data.
Understand how data about the electricity forward curve, cash market transactions, power/fuel price spreads, and
power outages is collected and reported by price reporting agencies.
Identify challenges associated with modeling and analyzing the operation of hydropower plants.
Chapter 23. Electricity Market Transactions [EMR-10]
Dene and apply examples of ancillary services.
Explain the mechanics of providing reactive power and voltage support.
Understand the rationale and criticisms of capacity payments.
Identify key challenges and considerations in the implementation of a capacity payments system.
Structure a Financial Transmission Rights (FTR) transaction and calculate its payout.
Dierentiate between auction revenue rights (ARRs) and the FTR auctioning system; construct a practical application
for each.
Identify drawbacks in the application of FTR transactions and understand how credit risk is created.
Explain the mechanics of power pool transactions in the US; identify frequently used block types and time buckets.
Understand why power marketers use full requirements contracts and identify the risks associated with these contracts.
Understand the application and settlement of a tolling transaction.
16
Global Market Design Learning Objectives

Market Evolution: Wholesale Electricity Market Design for 21st Century Power Systems
(Alliance for Sustainable Energy, LLC.)* [EMR-11]
Sections 1-4 only
Identify challenges associated with modern electricity markets and explain actions that can help resolve these challenges.
Understand the market mechanisms available that can improve the adequacy, generating capacity, and ancillary
services of markets that contain a large proportion of variable renewable energy.
Compare the benets and weaknesses of energy-only markets and capacity markets; identify global examples of
their implementation.
Explain how negative electricity prices can arise and their practical impact on power markets.
Identify challenges related to the implementation of demand response programs and the market rules that can be
adopted to incorporate demand response.
The Impact of Global Coal Supply on Worldwide Electricity Systems: Overview of Europe, the United States, Australia,
Japan, China, and South Africa (iEA Coal industry Advisory Board).* [EMR-12]
Compare and contrast global power market structures, and identify the relative proportion of coal-red generation in
each of the following regions: Europe, the United States, Australia, Japan, China, and South Africa.
Assess the relationship between coal prices and electricity prices in the following regions: Europe, the United States,
Australia, Japan, and China.
Understand and interpret the position of European coal-red generation plants in the merit order curve.
Understand how emissions control programs, like the EU Emissions Trading Scheme and carbon taxes, impact the
operating economics of coal-red generators and local electricity prices.
Understand the relationship between coal prices and natural gas prices in various global markets.
Bo Shen, Girish Ghatikhar, Chun Chun ni, and junqiao dudley. Addressing Energy Demand Through Demand Response
(Berkeley national Laboratory, june 2012).* [EMR-13]
Sections 1 to 3 only
Dene demand response (DR) and understand how DR works to curtail shortages on a power grid.
Distinguish between DR and energy eciency programs.
Understand how government policy and market deregulation have been instrumental in the creation of DR programs.
Compare and contrast the DR programs for various RTOs.
Understand how bilateral DR programs like cost recovery and demand-side management (DSM) operate.
Describe the various methods used to encourage end-user participation in DR programs.
17
Wind Power, Renewable Integration, and Project Finance Learning Objectives

Rebecca Busby. Wind PowerThe Industry Grows Up (Tulsa, OK: Pennwell, 2012).
Chapter 6. Wind Farms: Developing and Operating Wind Power Plants [EMR-14]
Identify and assess the steps and challenges associated with the development of a wind farm, including site selection,
turbine selection, grid interconnection, modeling and initial design, the spacing and siting of turbines, energy sales
agreements, contracting, and nancing.
Evaluate key factors that inuence power production from a wind installation, including design class, availability, and
Understand and assess the economic impact on wind projects created by government incentives, including production
the capacity factor.

tax credits, renewable energy credits, and feed-in taris.
Identify risks that are typically associated with development of a wind farm.
Explain how the performance of wind installations is monitored, and understand how unplanned maintenance and
operating shutdowns can be minimized.
Chapter 7. Wind Power Integration: Striking a New Balance [EMR-15]
Assess the impact of base-load power plants, demand response programs, and wind generation on the operation and
reliability of a power grid.
Identify the sources of power that are most likely to serve as backup generating capacity or spinning reserves.
Summarize the challenges related to the integration of wind generation on a power grid, particularly as the penetration
of wind capacity relative to total power capacity increases.
Identify solutions to reduce the economic cost of integrating wind power to the grid.
Develop scenarios that could result in the curtailment of wind power production.
Identify and apply techniques to forecast and model wind power production.
jeery Altman, Ross Board, Felix ab Egg, Andreas Granata, and Hans Poser. Development and Integration of Renewable
Energy: Lessons Learned from Germany (FAA Financial Advisory AG). [EMR-16]
Explain how the rapid build-out of renewable energy resources in Germany has impacted the following areas:
Government spending
Retail and wholesale electricity prices
Baseload generators, including fossil-fuel and nuclear plants
Grid reliability, grid interventions (rebalancing events), and backup power generation
Transmission system development costs and grid usage fees
Compare and assess feed-in taris with quota-based renewable obligation programs.
Explain the response of German PV solar installers to modications in the German feed-in tari program over time.
Identify the economic challenges associated with the use of feed-in tari programs.
Assess trends in German renewable capacity additions and penetration over a recent 20-year period.
Understand how observed domestic retail electricity prices are aected by the penetration of renewable energy
capacity on a countrys power grid.
18
Chris Groobey, john Pierce, Michael Faber and Greg Broome. Project Finance Primer for Renewable Energy and Clean
Tech Projects.* [EMR-17]
Describe project nance, and explain the structure of a typical project nance agreement; dierentiate between project
nance and merchant nance.
Understand the importance of power purchase agreements (PPAs) in securing project nance.
Identify the primary stakeholders in a project nance agreement.
Dierentiate the characteristics of common loan structures used to nance renewable energy projects.
Understand the project waterfall as it relates to the distribution of revenues to stakeholders in a project nance
Describe key U.S. government incentive structures for renewable energy projects, including production tax credits
transaction.
(PTCs), investment tax credits (ITCs), and accelerated depreciation.
19
FINANCIAL
ENERGY
PRODUCTS
AND RISK
MANAGEMENT
On the following pages, an asterisk after a reading

title indicates that the reading is freely available
on the GARP website.
FinAnCiALLy TRAdEd EnERGy PROduCTS21 QuESTiOnS 15%

Commodity trading and risk management
The role and functions of commodity trading rms
Risk management practice at commodity trading rms
Hedging strategies and their comparative economics
Forward contracts and exchange traded futures
Market mechanics
Storage costs
Arbitrage theory
Valuation and hedging
Energy commodity swaps
Market mechanics
Basis swaps
Fixed-oating, oating-oating, and index swaps
Exchange for physicals (EFP)
Options and option strategies
Market Mechanics
Plain-vanilla options
Spreads, collars, caps and oors
Hedging using options
Swing options and Volumetric Production Payments (VPPs)
Weather derivatives, CDDs and HDDs
Natural gas and crude oil market dynamics

Regulation of nancially traded energy products
Commodity Trading and Risk Management Learning Objectives
Craig Pirrong, The Economics of Commodity Trading Firms
(Bauer College of Business, university of Houston, March 2014). [FEP-01]
Identify and describe the functions of commodity trading rms; explain how commodity trading rms can serve as
nancial intermediaries.
Explain how commodity trading rms facilitate transformation of commodities to add value to producers and consumers.
Identify the typical risk exposures that threaten the operation of commodity trading rms; understand how each type
of risk arises.
Understand the processes by commodity trading rms to manage various categories of risk, including at price risk,
basis risk, credit risk, liquidity risk, freight risk, and other categories of risks.
Summarize methods used to measure risk exposure, including the benets and drawbacks of VaR, the use of historical
and Monte Carlo simulation, and the estimation of extreme losses.
Describe trends in asset ownership by commodity trading rms and explain why commodity trading rms would own
midstream, downstream, and upstream assets.
Assess the potential impact of commodity trading rms on systemic market risk, including their potential to be a direct
source of systemic risk.
21
Robert Mcdonald. Derivatives Markets (Boston, MA: Addison-wesley, 2013).

Chapter 4. Introduction to Risk Management [FEP-02]
Compare and contrast the use of forward contracts and option strategies to hedge risk exposures; describe and
calculate the payo function and cash ows for each strategy.
Understand why rms manage risk and engage in hedging transactions.
Identify scenarios in which hedging activity adds value to a rm, and understand the reasons a rm might choose not
to hedge a risk exposure.
Understand and apply collar strategies, including zero-cost collars and pay-later strategies, to hedge risk exposures;
assess their payo functions.
Explain how rms engage in cross-hedging strategies to reduce risk exposures created by the price dierential
between two assets; construct a cross-hedge and calculate the proper hedge notional amounts.
Understand how the correlation between asset prices will impact the optimal hedge amount when implementing a
cross hedging strategy.
Financially Traded Energy Products and Structured Transactions Learning Objectives

iEA, The Mechanics of the derivatives Markets: what They Are and How They Function
(Special Supplement to the Oil Market Report, April 2011).* [FEP-03]
Explain the role of hedgers, speculators, and arbitrageurs in a derivatives market.
Compare and contrast forward and futures contracts and understand how they are applied.
Understand the mechanics of a futures position; assess the margin requirements and protability of an open futures
contract.
Identify circumstances that would require posting of additional margin (a margin call); quantify the margin
requirements for a specied period of time based on incremental MtM valuations.
Dierentiate and apply market, limit and stop-loss orders.
Use a long or short futures position to hedge a commodity exposure or an obligation to buy or sell a commodity.
Understand how basis risk can arise in a hedging transaction.
Describe the mechanics of swaps and explain the function of the swap counterparty, including swap dealers.
Use forward prices and interest rates to calculate a periodic swap settlement for a multiyear commodity swap.
Understand how the market value of a swap changes over time and describe factors that aect the market value of
Demonstrate how a swap represents an implicit lending agreement, use forward commodity prices and interest rates to
a swap.
derive a xed swap rate (swap price).
Compare and contrast American, European and Bermudan options.
Understand the mechanics and payo proles of call and put options; identify when an option contract is in, at, or out
of the money.
22
Robert Mcdonald, Derivatives Markets, 3rd Edition (Boston: Addison-wesley, 2013).

Chapter 6. Commodity Forwards and Futures [FEP-04]
Apply commodity concepts such as storage costs, carry markets, lease rate, and convenience yield.
Explain the basic equilibrium formula for pricing commodity forwards.
Describe an arbitrage transaction in commodity forwards, and compute the potential arbitrage prot.
Dene the lease rate and explain how it determines the no-arbitrage values for commodity forwards and futures.
Dene carry markets, and illustrate the impact of storage costs and convenience yields on commodity forward prices
and no-arbitrage bounds.
Compute the forward price of a commodity with storage costs.
Identify factors that impact electricity, natural gas, and oil forward prices.
Compute a commodity spread.
Explain how basis risk can occur when hedging commodity price exposure.
Evaluate the dierences between a strip hedge and a stack hedge and explain how these dierences impact risk
management.
Provide examples of cross-hedging; assess the process of hedging jet fuel with crude oil and using weather derivatives.
Construct a synthetic commodity position, and use it to explain the relationship between the forward price and the
expected future spot price.
Calculate heating degree days (HDD) and cooling degree days (CDD); understand and assess the application of a
weather derivative to hedge weather related risk.
Structured Transactions Learning Objectives

Chapter 4. Energy Markets: The Instruments [FEP-05]
Describe the relationship between spot, forward and futures prices, and identify challenges related to price formation
of energy futures.
Dene a futures contract and contrast the mark-to-market value of forward versus futures positions.
Understand the characteristics of forward price curves including backwardation and contango; construct a forward
price curve.
Describe market frictions and imperfections that can impact price formation in a forward price curve.
Dene convenience yield and explain why the concept of convenience yield is often disregarded by market practitioners.
Compare theoretical and practical approaches to modeling the forward curve and provide advantages and disadvan-
Assess the sensitivity of commodity swaps to changes in interest rates and describe the use of the LIBOR curve in
tages of each.
commodity swaps.
Describe the mechanics of and calculate the settlement for the following types of swaps: physical, nancial, basis,
and Asian swaps.
Describe the payout function and calculate payouts on the following types of options: an Asian call and put, a call and
put on a spread option, and a binary (cash-or-nothing) option.
Understand the mechanics of and applications for volume-based options, including swing options and take-orpay options.
23
Chapter 11. US Natural Gas Markets [FEP-06]
Describe characteristics of the US natural gas market, interpret the shape of and relationship between elasticity of
supply and demand curves, and identify market factors that explain these characteristics.
Understand the market mechanism that maintains balance between supply and demand in the short-term natural
gas market.
Summarize the factors that contribute to price volatility in the natural gas market, including the impact of traders
and speculators.
Explain how physical basis transactions aect natural gas price formation and price reporting.
Understand how regional natural gas price indices are developed and reported.
Structure and apply a xed-for-oating, a oating-for-oating, and a natural gas basis swap; calculate a swap
settlement for each.
Describe Exchange for Physicals (EFPs) transactions and understand their practical application.
Understand the application of and economic rationale for Volumetric Production Payments (VPPs); identify the risks
borne by buyers and sellers of VPPs.
Explain how natural gas processing plants can mitigate market risk through contracts that include xed-fee,
percentage of proceeds, percentage of index, and keep-whole provisions.
Identify and compare the application of structuring solutions for mitigating volumetric risk, including swing options,
swaps with embedded call options, weather derivatives and tari positions.
Chapter 18. Transactions in the Oil Markets [FEP-07]
Describe the mechanics of a collar strategy, including costless collars, extendable collars, three-way collars, and
four-way collars.
Summarize the risks associated with using a costless collar strategy, particularly when transactions are backed by
collateral.
Construct and interpret a crack spread and identify potential risks that reneries face in using crack spreads as a hedge.
Explain the mechanics and application of a participating swap used to hedge a crude oil position.
Identify and understand the application of available indices and derivative contracts that shipping companies can use
to monitor and mitigate freight risk.
Apply a forward freight agreement (FFA).
Regulation of Financially Traded Energy Products Learning Objectives

Gordon Goodman. Swaps: dodd-Frank Memories.* [FEP-08]
Understand the nancial limits and other obligations that a counterparty must meet to qualify for the end-user
exemption.
Explain how the use of swap hedges is aected under Dodd-Frank.
Understand and apply the de minimis threshold and major swap participant (MSP) test as they apply to counterparty
end-user qualication.
Summarize the reporting process under Dodd-Frank, and identify when a counterparty is obligated to report a transaction to a swap data repository (SDR).
Gordon Goodman. dodd-Franks impact on Financial Entities, Financial Activities and Treasury Aliates.* [FEP-09]
Understand and interpret the denition of a nancial entity under the Dodd-Frank Act; explain how this designation
aects mandatory clearing requirements.
24
Construct or identify scenarios in which the end-user exemption may be applied to organizations deemed nancial entities.
dATA AnALySiS And MARKET RiSK21 QuESTiOnS 15%

Data analysis tools and applications
Random variables and probability distributions
Expected value, mean, variance, and standard deviation
Skew and kurtosis
Joint and marginal probability distributions
Covariance and correlation
Minimum variance hedging
Market risk tools
The Greeks
Value at Risk (VaR): calculations and limitations.
Backtesting VaR
Stress testing
Liquidity risk
Energy spot price formation:
Geometric Brownian Motion
Mean reversion
Jump diusion
Energy price volatility and modeling:
Volatility vs. variance
Historical and implied volatility
Volatility skews and smiles
Modeling processes (EWMA, GARCH, etc.)
VaR applications
Characteristics of energy commodity forward curves
Backwardation and contango
Data Analysis Applications for Risk Management Learning Objectives

Michael Miller, Mathematics and Statistics for Financial Risk Management, 2nd Edition (Hoboken, nj: john wiley & Sons, 2013).
Chapter 2. Probabilities [DMR-01]
Compare, contrast, and identify continuous and discrete random variables.

Distinguish between the probability density function, the cumulative distribution function, and the inverse cumulative
distribution function.
Calculate the probability of an event given a discrete probability function.
Dierentiate between independent and mutually exclusive events.
Understand joint probability; calculate joint probabilities using a probability matrix.
Dene and dierentiate between conditional and unconditional probabilities, and calculate the conditional probability
using assumptions for a given scenario.
25
Chapter 3. Basic Statistics (AveragesKurtosis only) [DMR-02]
Apply and interpret the mean, standard deviation, and variance of a random variable.
Calculate and interpret the covariance and correlation between two random variables.
Calculate the mean and variance of sums of variables.
Interpret and calculate the minimum variance hedge ratio.
Describe the four central moments of a statistical variable or distribution: mean, variance, skewness and kurtosis.
Interpret the skew and kurtosis of a statistical distribution.
Chapter 4. Distributions (ParametricStudents t Distribution only) [DMR-03]
Identify the distinguishing characteristics of parametric and nonparametric distributions.
Describe and apply the Central Limit Theorem.
Describe the properties of independent and identically distributed (i.i.d.) random variables.
Summarize and identify key properties of a uniform distribution, Bernoulli distribution, Binomial distribution, Poisson
distribution, normal distribution, lognormal distribution, Chi-squared distribution, and Students t distribution; illustrate
and assess practical applications of each.
Chapter 6. Bayesian Analysis (OverviewBayes vs. Frequentists only) [DMR-04]
Describe Bayes theorem and apply this theorem in the calculation of conditional probabilities.
Compare the Bayesian approach to the frequentist approach.
Tools for Measuring and Managing Market Risk Learning Objectives

john C. Hull. Risk Management and Financial Institutions, 3rd Edition (Hoboken, nj: john wiley & Sons, 2012).
Chapter 7. How Traders Manage their Risks [DMR-05]
Dene delta hedging and explain its application in the immunization of market risk associated with linear and nonlinear
nancial products.
Construct a delta hedge for an option contract or portfolio of options; assess and rebalance a delta hedge for a given
Dene gamma and explain the relationship between delta and gamma; construct a gamma hedge and a delta-gamma
set of price changes.

hedge by using a combination of options and the underlying asset.
Dene vega and construct a vega neutral position; calculate the quantity of options necessary to make a portfolio
gamma and vega neutral.
Dene theta and rho as they relate to individual options and option portfolios.
Explain how dynamic hedging of delta, gamma, vega, theta, and rho is typically done in practice.
Chapter 9. Value at Risk [DMR-06]
Dene Value-at-Risk (VaR); identify the parameters for a VaR calculation, and describe the strengths and weaknesses
of using VaR.
Calculate VaR for a single position or a portfolio using dierent time horizons and condence levels.
Describe and calculate expected shortfall (ES); interpret the results from a VaR and ES calculation.
Summarize the four conditions required for a risk measure to be coherent; explain why VaR is not a coherent risk measure.
Estimate the marginal VaR, component VaR, and incremental VaR for a given position in a portfolio or for a potential
addition to a portfolio.
26
Explain the process of backtesting VaR and interpret results from backtesting a VaR model.
Chapter 10. Volatility [DMR-07]
Describe and calculate the volatility of an asset return over various time periods.
Explain how the power law can be used to model fat-tailed return distributions, apply the power law to estimate the
probability of a variable exceeding a specied level.
Explain how the Exponentially Weighted Moving Average (EWMA) and the GARCH (1,1) model are used to forecast
volatility; understand the practical application of the two models and interpret results from each.
Kevin dowd. Measuring Market Risk, 2nd Edition (Hoboken, nj: john wiley & Sons, inc., 2005).
Chapter 13. Stress Testing [DMR-08]
Understand the benets of stress testing and identify situations in which stress tests are an eective assessment of risk.
Compare the application of stress test results to VaR or expected shortfall.
Identify the challenges of designing and implementing stress tests.
Summarize the process of scenario analysis and identify guidelines for successful scenario analysis.
Develop practical scenarios and evaluate their potential impact on stress test results.
Compare and contrast mechanical stress testing techniques to the application of scenario analysis.
Chapter 14. Estimating Liquidity Risks [DMR-09]
Dene liquidity risk and identify factors that inuence liquidity.
Understand how the bid-ask spread can be applied to measure market liquidity.
Dierentiate between exogenous and endogenous liquidity.
Summarize the challenges associated with estimating liquidity-adjusted VaR (LVaR).
Calculate LVaR using the constant spread approach and the exogenous spread approach.
Explain the endogenous price approach to LVaR, its motivation and limitations.
Understand the relationship between liquidation strategies, transaction costs and market price impact.
Describe liquidity at risk (LaR) and identify the factors that aect future cash ows.
Energy Commodity Price Formation and Market Risk Learning Objectives

Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management
(London: Lacima Publications, 2000).
Chapter 2. Understanding and Analyzing Spot Prices [DMR-10]
Understand mean reversion and its impact on spot price formation.
Identify weaknesses in using the Black-Scholes Merton model to replicate the behavior of energy commodity spot prices.
Understand why energy price jumps occur, describe the impact of jumps on spot price behavior, and explain how
jumps can be simulated.
Describe how seasonality is accounted for when estimating energy spot prices.
27
Chapter 3. Volatility Estimation in Energy Markets [DMR-11]

Sections 3.1 to 3.2 only
Summarize the practical challenges of modeling energy price behavior.
Estimate volatility for a given set of historical price data; understand how volatility is scaled for a specic time horizon.
Distinguish between volatility for a mean-reverting process and a non-mean-reverting process.
Describe the market convention used to derive implied volatility.
Interpret a volatility smile, explain how it is derived and understand its relationship to implied volatility.
Identify weaknesses in using a Geometric Brownian Motion process to model energy prices.
Describe the characteristics of a leptokurtic distribution.
Chapter 10. Value-at-Risk [DMR-12]
Understand the relationship between the Simple Moving Average (SMA) and Exponentially Weighted Moving Average
(EWMA) methods for calculating VaR; identify advantages and disadvantages of each.
Understand how the decay factor aects output from an EWMA model; explain considerations for selecting the
decay factor.
Describe limitations in applying VaR as a risk management tool for energy assets.
Calculate VaR for a two-security energy portfolio given the correlation coecient between assets, explain the
relationship between correlation and VaR.
Dierentiate between delta VaR, delta-gamma VaR, historical simulations, and Monte Carlo simulations.
Understand, summarize and interpret the methodologies for backtesting VaR.
28
CREdiT, COunTERPARTy, And COunTRy RiSK ASSESSMEnT21 QuESTiOnS 15%

Fundamental credit assessment
Financial statement and ratio analysis
Credit ratings, scoring and risk modeling
Credit exposure metrics
Expected loss
Loss given default
Probability of default
Counterparty credit exposures, pricing, mitigation and documentation
Settlement and replacement risk
Potential future exposure
Netting agreements
Collateralization
Credit Value Adjustment (CVA)
ISDA master and credit support annex
Central counterparty clearing
Netting, collateralization, insurance, and mutualization
Wrong-way risk
Country risk assessment
Fundamental Credit Assessment and Risk Exposure Learning Objectives
Betty Simkins and Russell Simkins, eds. Energy Finance and Economics: Analysis and Valuation, Risk Management, and
the Future of Energy.
Chapter 9. Financial Statement Analysis for Oil and Gas Companies and Competitive Benchmarking [CCP-01]
Understand the relationship between commonly used nancial statements including the balance sheet, income
statement, statement of cash ows, and statement of retained earnings.
Describe the process of competitive benchmarking and use this process to compare an energy companys nancial
ratios against those of similar competitors.
Dene and calculate free cash ow and operating cash ow.
Calculate and interpret common metrics used to assess liquidity, debt coverage, protability and return on equity.
Calculate and interpret common metrics used to assess the value of hydrocarbon assets, reserves, and the eciency
of exploration and production activity.
Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: A Practical Guide for Risk Management
in Power, Gas, and Other Energy Markets (Hoboken, nj: john wiley & Sons, 2014).
Chapter 3.4 (Credit Risk section only). Risk Management [CCP-02]
Understand the relationship between settlement risk and replacement risk, calculate settlement and replacement risk
for an energy commodity transaction based on a given a set of assumptions.
Summarize and interpret external credit ratings and their related default probabilities.
Identify common quantitative internal rating factors, explain their application and how they dier from external credit
ratings.
Explain the important credit risk measures used to quantify credit risk, including: Risk-at-Default, Expected Loss,
Describe the credit risk-reducing methods commonly-used with energy transactions.
Potential Exposure and Credit VaR; perform a simple calculation of each measure given a set of market inputs.
29
Counterparty Credit Risk Learning Objectives

Allan Malz. Financial Risk Management: Models, History, and Institutions (Hoboken, nj: john wiley & Sons, 2011).
Chapter 6. Credit and Counterparty Risk [CCP-03]
Summarize the various levels of debt seniority including their respective security, collateral and priority.
Calculate and interpret the expected loss, loss given default, probability of default, and expected return for a credit
risk exposure.
Summarize credit assessment tools, including credit ratings, rating migration, internal ratings, and credit risk models.
Dene counterparty risk and dierentiate between counterparty risk and credit risk.
Dene Credit VaR (Value-at-Risk).
jon Gregory. Counterparty Credit Risk and Credit Value Adjustment: A Continuing Challenge for Global Financial
Markets, 2nd Edition (west Sussex, uK: john wiley & Sons, 2012).
Chapter 3. Dening Counterparty Credit Risk [CCP-04]
Dene counterparty risk and dierentiate it from lending risk.
Identify transactions with counterparty risk and explain how counterparty risk is created in each transaction.
Dierentiate between settlement risk and pre-settlement risk.
Dene credit exposure, credit migration, recovery, mark-to-market, replacement cost, default probability, loss given
default and the recovery rate.
Identify and describe the dierent tools available to manage or mitigate counterparty risk.
Counterparty Risk Mitigants: Netting, Collateral, Central Counterparty Clearing Learning Objectives
jon Gregory. Counterparty Credit Risk and Credit Value Adjustment: A Continuing Challenge for Global Financial Markets.
Chapter 4. Netting, Compression, Resets and Termination Features [CCP-05]
Explain the purpose of an ISDA master agreement.

Summarize netting and close-out procedures (including multilateral netting), describe their strengths and weaknesses,
and understand how they t into the framework of the ISDA master agreement.
Dene netting and understand how it is used to reduce credit exposure under various scenarios.
Describe the mechanics of termination provisions and explain their advantages and disadvantages.
Dene walkaway features and identify the disadvantages in using walkaway features.
30
Chapter 5. Collateral [CCP-06]
Dene collateralization and explain the mechanics of the collateralization process.
Describe the role of a valuation agent, the types of collateral that are typically used, and reconciliation of collateral
disputes.
Describe features of a credit support annex (CSA) as they relate to the ISDA master agreement and identify terms that
are typically included in a CSA.
Describe types of collateral that are typically used.
Explain the process for reconciling collateral disputes.
Summarize and apply standard terms found in a collateralization agreement including: links to credit quality, margin and
Dierentiate between a two-way and one-way CSA agreement and describe how collateral parameters can be linked to
call frequency, thresholds, independent amount, minimum transfers, rounding, haircuts, interest, and rehypothecation.
credit quality.
Explain how market risk, operational risk, and liquidity risk (including funding liquidity risk) can arise through
collateralization.
Chapter 7. Central Counterparties [CCP-07]
Understand how a Central Counterparty (CCP) clears nancial transactions; describe the eect a CCP has on risk
allocation and its potential impact on systemic risk.
Describe how transactions are assessed and approved for clearing through a CCP.
Explain how a CCP manages default, particularly how netting is employed in such a circumstance.
Summarize the nancial waterfall used by CCPs to absorb defaults.
Dierentiate between initial and variation margin; identify factors used by a CCP to calculate the initial margin
Dene reserve funds, capital calls, and loss mutualization.
Explain how CCPs can create moral hazard among market participants.
Summarize the steps a CCP may take to replace or port a defaulted exposure.
requirement for a transaction.
Measuring Counterparty Credit Exposure Learning Objectives

jon Gregory. Counterparty Credit Risk and Credit Value Adjustment: A Continuing Challenge for Global Financial Markets.
Chapter 8. Credit Exposure [CCP-08]
Describe and interpret frequently used metrics to quantify credit exposure, including expected mark-to-market,
Compare the characterization of credit exposure to VaR methods and describe additional considerations used in the
expected exposure, potential future exposure, expected positive exposure, eective exposure, and maximum exposure.
determination of credit exposure.
Identify factors that aect the calculation of the credit exposure prole and summarize the impact of collateral on
exposure.
Identify typical credit exposure proles for swaps, options, and credit derivatives.
Explain how payment frequencies and exercise dates aect the exposure prole of various securities.
Explain the impact of netting on future exposure; Interpret the impact of correlation on netting and calculate the
netting factor.
Explain the impact of collateralization on exposure, and assess the risk associated with the remargining period.
Explain the dierence between risk-neutral and real-world parameters, and describe their use in assessing risk.
31
Chapter 10. Default Probability, Credit Spreads and Credit Derivatives [CCP-09]
Section 10.1 only
Dierentiate between cumulative and marginal default probabilities.
Calculate risk-neutral default probabilities, and compare the use of risk-neutral and real-world default probabilities in
pricing derivative contracts.
Describe the following approaches for estimating price: the historical data approach, equity based approach, and risk
neutral approach.
Explain how recovery rates can be estimated.
Chapter 12. Credit Value Adjustment [CCP-10]

Section 12.1 only
Explain the motivation for and the challenges related to pricing counterparty risk.
Dene Credit Value Adjustment (CVA) and describe how CVA is applied.
Calculate CVA assuming wrong-way risk does not exist.
Calculate the CVA spread with no wrong-way risk, netting or collateralization.
Chapter 15. Wrong-Way Risk [CCP-11]

Sections 15.1 to 15.2 and 15.4.4 only
Describe wrong-way risk and contrast it with right-way risk.
Identify examples of wrong-way risk and right-way risk.
Explain how trades involving the following nancial products can introduce wrong-way risk: put options, commodity
swaps, and credit default swaps.
Managing Country Risk Learning Objectives

daniel wagner, Managing Country Risk: A Practitioners Guide to Eective Cross-Border Risk Analysis
(Boca Raton, FL: Taylor & Francis Group, 2012).
Chapter 3. Assessing Country Risk [CCP-12]
Identify the characteristics and guidelines that lead to an eective country risk analysis.
Identify key indicators used by rating agencies to analyze a countrys debt and political risk, and describe challenges
Summarize the factors that are likely to inuence the political stability and economic openness within a country.
Apply basic country risk analysis in comparing two countries as illustrated in the case study.
faced by country risk analysts in using external agency ratings.
Chapter 4. Country Risk Assessment in Practice [CCP-13]
Explain key considerations when developing and applying analytical tools to assess country risk.
Describe a process for generating a ranking system and selecting risk management tools to compare the risk among
countries.
Identify and apply qualitative and quantitative factors that can be used to assess country risk.
Describe alternative measures and indices that can be useful in assessing country risk.
32
EnTERPRiSE RiSK MAnAGEMEnT And BuSinESS ETHiCS7 QuESTiOnS 5%

Enterprise risk management framework
Determining and communicating risk appetite and risk tolerance
Quantitative and qualitative risk metrics
Key Risk Indicators (KRIs)
Key Performance Indicators (KPIs)
Heat maps and MARCI (Mitigate, Assure, Redeploy, and Cumulative Impact) charts
Implications of E3 and a Complex Infrastructure System (CIS)

The GARP Code of Conduct
Enterprise Risk Management Framework Learning Objectives
COSO. understanding and Communicating Risk Appetite (january 2012).* [ERM-01]
Compare and contrast the roles of risk appetite and risk tolerance and explain how an organization can align its risk
tolerance to its risk appetite.
Provide examples of considerations a rm must make in determining its risk appetite, and explain how an organizations
risk appetite can dier for various risk factors.
Evaluate the objective and characteristics of an eective risk appetite statement.
Describe eective strategies for how senior management can develop, communicate, monitor and update an organization's risk appetite.
COSO. Risk Assessment in Practice (October 2012).* [ERM-02]
Compare impact, likelihood, vulnerability, and speed of onset of potential risk events and explain how a scale can be
created to assess these four factors with respect to specic potential risk events.
Identify examples of actions a rm can take to reduce its vulnerability to specic risk events.
Compare and contrast qualitative and quantitative measurement techniques in assessing risks, and describe examples
of each.
Capture interactions between various risk factors using techniques such as risk interaction maps and the bow-tie
diagram.
Create a hierarchy of risks using heat maps and MARCI (Mitigate, Assure, Redeploy, and Cumulative Impact) charts to
aggregate, compare, and prioritize risks faced by a rm.
john Fraser and Betty Simkins. Enterprise Risk Management: Todays Leading Research and Best Practices for
Tomorrows Executives. (Hoboken, nj: john wiley & Sons, 2010).
Chapter 8. Identifying and Communicating Key Risk Indicators [ERM-03]
Provide examples of Key Risk Indicators (KRIs) and explain their application in risk management.
Compare and contrast KRIs and Key Performance Indicators; understand the role each plays within a risk management
strategy.
Describe the parameters for creating eective KRIs and how KRIs can then be aligned to support an organization's risk
management strategy.
Explain how KRIs are used to monitor risk exposures on an ongoing basis and how KRIs help to calibrate risk
management strategies.
Analyze the stakeholders, metrics and risk appetite inputs within an organization and explain how they are used to
Explain how adopting KRIs for risk management can be a challenge for an organization.
craft a set of KRIs.
33
Chapter 16. Operational Risk Management [ERM-04]
Demonstrate the ability to dierentiate between types of "good risk" and "reckless risk" for an organization.
Dene the concepts of risk tolerance and risk appetite and explain their eect on the risk management strategy of
an organization.
Identify and explain the key elements of an eective risk management strategy.
Explain the features of the Bowtie Model of risk assessment; explain its associated strategies and actions.
Summarize the selection criteria for managing risk in a given scenario.
Robert Bea, ian Mitro, daniel Farber, Howard Foster and Karlene H. Roberts. A New Approach to Risk: The Implications
of E3. (Palgrave Macmillan 2009).* [ERM-05]
Discuss the factors used to assess risk within a complex organization or system.
Understand the interdisciplinary aspect of modeling risk associated with a complex system.
Provide an example of a Type Three Error (E3) and explain how mismanagement of this error can undermine a risk
management strategy.
Describe the elements used in a Complex Infrastructure System (CIS) risk assessment.
Explain why human error may be overlooked in risk assessment and why engineering analyses often underestimate the
probability of a system failure.
Business Ethics Learning Objectives

GARP Code of Conduct.* [ERM-06]
Explain the responsibility of each GARP member with respect to professional integrity, ethical conduct, conicts of
Understand the potential consequences of violating the GARP Code of Conduct.
interest, condentiality of information and adherence to generally accepted practices in risk management.
34
REGISTER
FOR THE
EXAM
The rst step in obtaining your ERP designation is to register for the exam.
Registration for the ERP Program is available on the GARP website.
Details about the registration process and payment options are summarized in the following pages.
ERP Program Fees and Exam Registration Schedule

The current fee for enrollment in the ERP program is USD 300. The ERP Exams are oered on the third Saturday in May and
the third Saturday in November. The 2015 schedule of important registration dates and fees is summarized below:
ERP
May 16, 2015
November 21, 2015
USD 300.00
Valid for 4 Years
Valid for 4 Years
Exam Fee
If you register between these dates:
Exam Early Registration**
USD 450.00
Dec 1, 2014Jan 31, 2015
May 1, 2015Jul 31, 2015
Exam Standard Registration**
USD 575.00
Feb 1, 2015Feb 28, 2015
Aug 1, 2015Aug 31, 2015
Exam Late Registration**
USD 750.00
Mar 1, 2015Apr 15, 2015
Sep 1, 2015Oct 15, 2015
Program Enrollment Fee
Note: The ERP enrollment fee entitles you to a complimentary one year Individual Membership in GARP (a USD 195 value),
access to a wealth of premium risk content (Special Reports, CRO Interviews, webcasts), special pricing on GARP products,
programs and events, and many other benefits.
If you have any questions or encounter any diculties in registering, please contact memberservices@garp.com
for assistance.
36
Payment Options
Scholarships are awarded based on merit and the nal deci-
Candidates can pay for their exam registration via the
sion is at the sole discretion of GARP. Scholarships cover the
following four options:
cost of the exam registration fee only (study material must
1. Credit card on line: GARP accepts MC, Visa or Amex
one scholarship, no exceptions. Exam deferrals may result in
2. Credit card via fax*: fax us at 1.201.222.5022
the disqualication of a scholarship award (see scholarship
be purchased separately). A candidate is eligible for only
3. Check*: Must be drawn on a US bank check or a foreign

check with a US intermediate bank.
application for details on deferral policy). The scholarship

application can be downloaded from the GARP website.
4. Wire*: Wire instructions can be found on the bottom of

your invoice.
deferral Policy
ERP candidates may defer their Exam registration to the
*For any manual payments by fax, check or wire, there is a
next successive examination date. The deadline for request-
US$50 processing fee that will be added to your invoice.
ing deferral is the last day of registration for the May and
Be sure to include your GARP ID, a copy of your invoice and
November exams; April 15 and October 15, respectively.
your signature for approval.

The following conditions apply to the exam deferral policy:
Please mail your invoice and or payment information to the
Candidates are allowed one deferral.
following address.
An administrative processing fee of USD 100 applies to

all deferrals.
Attn: ERP Administration
As a deferred ERP candidate, you will automatically
Global Association of Risk Professionals
be re-enrolled in the next Exam cycle. If you decide
111 Town Square Place, 14th oor
not to attend the next Exam, you will forfeit your Exam
registration fee and will need to re-register as a return-
Jersey City, NJ 07310 USA
ing candidate should you choose to sit for the ERP

Exam at a later date.
Make your check payable to GARP Risk Academy, LLC.
Note: Only single payments per candidate registration are
Once the deferral deadline has passed, special requests

for deferrals will not be considered.
accepted online. Should a candidate be paying for more

than one candidate using any of the above options, please
contact us directly at memberservices@garp.com to help
you with your multiple registrations.
ERP Scholarship Opportunities
As part of our ongoing commitment to the academic community, GARP oers a scholarship program for qualied
full-time graduate students and faculty. To qualify, students
and faculty members must meet the following minimum
requirements:
Students must demonstrate full-time enrollment in a

graduate degree program at the time of the Exam.
Faculty members must demonstrate full-time employment at a university.
37
PREPARE
FOR THE
EXAM
The ERP curriculum is a self-study program that requires a considerable amount of time and focused preparation that culminates
in the ERP Exam. The ERP curriculum is quite comprehensive,
covering a wide range of topics with a signicant volume of supporting material.
Exam Preparation and Available Resources
Practice Exams
Candidates have reported dedicating an average of be-
Candidates are encouraged to utilize the ERP Practice
tween 200 to 400 hours of study time for the exam. The
Exams that are freely available on the GARP website. The
exact amount of preparation time required for any specic
practice exams oer candidates the opportunity to gauge
candidate is dependent on factors that include years of
the style and range of questions that may appear on exam
industry work experience and prior knowledge of energy
day and help candidates develop a pace for answering
commodities, nancial products, and risk management
questions in a timely and ecient manner. Explanations
topics. Candidates are strongly encouraged to develop
are provided for each practice question so that candidates
a systematic approach to exam preparation that spreads
can better understand the rationale for correct answers
learning objectives over an extended period of time. It is
while identifying areas of weakness that may require addi-
unlikely that cramming for the exam over a few weeks
tional preparation time.
leading up to exam day will result in a favorable outcome.

To assist candidates, a suggested 15-week study plan that
Suggested Exam Preparation Reading Plan
candidates may apply to logically tackle the ERP curricu-
Outlined below is a 15-week reading planone module per
lum appears later in this document.
weekfor learning the material covered in the 2015 ERP

Course Pack. Reading sessions are sometimes paired across
Study Guide and Study Guide Changes Document
sections where appropriate to complement each other. The
Published annually, the ERP Study Guide summarizes the
primary goal of the reading plan is to break the curriculum
exam curriculum, including all required readings for the
down into logical pieces for the candidate that can be
current exam year. To support returning candidates from
learned eciently. Since it is impossible to accurately judge
2014, all changes to the 2015 curriculum have been summa-
the amount of time necessary for each individual candidate
rized in the ERP Study Guide Changes document.
to prepare for the exam, this study plan is oered simply

as a guideline for approaching the material. For example, by
ERP Exam Course Pack
allotting 10 to 20 hours per week a candidate will dedicate
All required readings that contain publisher copyright pro-
between 150 to 300 hours towards exam preparation. Candi-
tection are aggregated and bound in the four volume ERP
dates are encouraged to modify the plan to best meet their
Exam Course Pack. The printed course pack is available for
personal circumstances.
purchase on the GARP website.

Required reading notations correspond to the eight
In addition, the ERP Study Guide includes a number of
primary knowledge domains as summarized below:
required online readings. Online readings typically cover
MPMineral Rights and Project Development
specic topics or research not currently available in tradi-
COMCrude Oil Markets and Rened Products
tional text books. Online readings are made available for
NGCNatural Gas and Coal Markets
free download from the GARP website and are an integral
EMRElectricity Markets and Renewable Generation
part of the ERP curriculum.
FEPFinancially Traded Energy Products
DMRData Analysis and Market Risk
Candidates are strongly encouraged to purchase the ERP
CCPCredit, Counterparty, and Country Risk Assessment
Exam Course Pack and download all freely available online
ERMEnterprise Risk Management and Business Ethics
readings.
39
Module Number
Module Name
Suggested Readings
Oil and Gas Resources
MP 1-5
Crude Oil Transport and Valuation
COM 1-6
Crude Oil Rening/Fundamentals of Natural Gas
COM 7-8, NGC 1-3
Market Dynamics of Natural Gas and Coal
NGC 4-8
Electricity Market Design Fundamentals
EMR 1-3, 9-11
Economic Tools of Power Markets
EMR 4-8
Renewables, Resource Integration and Project Finance in Electricity
EMR 12-17
Commodity Trading and Structured Products
FEP 1-4
Energy Product Valuation and Regulation
FEP 6-9
10
Tools for Measuring Risk
DMR 1-4
11
Risk Management Techniques in Energy
DMR 5-9
12
Derivatives Pricing and Risk
DMR 10-12, CCP 1-2
13
Fundamentals of Credit Risk
CCP 3-7
14
Credit Ratings and Country Risk
CCP 8-13
15
Enterprise Risk Management
ERM 1-6
40
Helpful Hints
Exam Admission and Test day Materials
Cramming for the exam in the few weeks leading up to
Candidates are required to present their Exam Admission
the test date is not recommended.
Ticket in order to take the exam. Each registered candidate
Have a regularly-scheduled time for studying and do
will receive an email notice approximately two (2) weeks
so in an environment that oers as few distractions as
prior to the exam date containing instructions for how to
possible.
download their Exam Admission Ticket.
Feel free to consult external sources for additional

information on a specic topic, but remember that all
The ERP Exam is administered in paper and pencil only.
exam questions will be drawn exclusively from the
Candidates should bring several #2 pencils and one of
material in the ERP curriculum.
the following GARP-approved calculators (only a GARP-
When taking the ERP Practice Exams, try to simulate
approved calculator may be used on exam day):
the exam day experience as closely as possible: turn o

cellphones, put away study material and time the taking
Other Available Resources and important information

Study Groups
Texas Instruments BA II Plus (both versions), including

the BA II Plus Professional;
of the practice exam.
Hewlett Packard 10B II, 10B II+, 20 B;
Hewlett Packard 12C, including the HP 12C Platinum and

the Anniversary Edition.
While the ERP curriculum is designed to be a self-study

undertaking, many candidates nd that studying with their
All exam materials, including exam booklets and answer
peers positively impacts their Exam preparation. Our sur-
sheets, are the sole property of GARP. Completed examina-
veys indicate that the vast majority of candidates who work
tions will not be returned to or shared with candidates. All
within a study group nd it very helpful. You can connect
exam materials must be returned to the Proctor prior to
with other ERP candidates to form study groups by join-
leaving the examination room.
ing our Facebook or LinkedIn groups. Alternatively, many

GARP Professional and University Chapters now facilitate
If you nish an exam session before the end of the allotted
study group sessions that enable ERP candidates in the
time, you may leave the testing room but only after you
same city or region to meet each other and ask GARP
have handed in all your examination materials to the proctor.
Regional Chapter Directors questions about the Exam.
Once you leave the testing room, after completing a session,

you may not return. No candidates are permitted to leave
Exam Preparation Courses
during the last 30 minutes of either session. Should you
GARP does not directly oer exam preparation courses;
leave the testing room and inadvertently take the examina-
however, there are third party rms that do provide such
tion materials with you, your exam will not be graded.
services. A list of approved Exam Preparation Providers

is available on the GARP website. It should be noted that
Acceptable Forms of identication
GARP does not endorse, promote, review, or warrant the
Candidates are required to provide an acceptable form of
accuracy or the products or services oered by Exam
government issued identication that includes a photo-
Preparation Providers of ERP-related information. Nor
graph. The name on your government issued photo ID is
does it endorse pass rates claimed by any Exam Prepara-
required to exactly match the name under which you are
tion Provider. Further, GARP is not responsible for any
registered. If the name on your exam registration does not
fees or costs paid by the user to an ERP Exam Preparation
exactly match your government-issued identication, please
Provider. GARP provides ERP candidates with this informa-
contact us immediately at memberservices@garp.com.
tion as a service to them.
41
The following are the only acceptable forms of
Study materials including notes, pens, papers, text
identication:
books, study guides, scratch paper, present/future value
Government issued passport
tables, or calculator manuals, highlighters, correction
Government issued drivers license
uid, correction tape, or rulers
badges are not acceptable. There are no exceptions to this
Knives of any type, including box cutter and X-ACTO

knives for use as pencil sharpeners
Other forms of identication, such as work or school ID
Cellular telephones, cameras, pagers, headsets, com-
policy. Should a candidate arrive on exam day without any
puters, electronic organizers, personal data assistants,
of the GARP approved forms of government issued ID, they
or any other remote communication or photographic

devices
will not be allowed to sit for the exam. If you have any questions about the identication policy, please contact us
any type of desk clock/time
immediately at memberservices@garp.com.
Exam Center/Room Policies
Wristwatches with engaged audible alarms/timers or
Candidates will be required to place prohibited items in a
Proctors and security personnel may ask to inspect your
designated area away from the testing room during the
belongings at check-in to ensure that prohibited items are
examination. You will not have access to these items during
not carried into the testing room. Please comply with all
the examination, but may access them during the lunch
of these requests. You must follow these guidelines at your
break and at the conclusion of the examination. Neither
testing center. With your cooperation, we are able to ensure
GARP nor the test center, testing personnel, nor vendors
that candidates are checked in promptly and seated on time.
will assume responsibility or liability for stolen, lost, or

damaged personal property left in this area.
The following items must be kept on your desk during

the exam:
Smartphones and your Exam
ERP Admission Ticket(s)
Smartphones (such as iPhones, Blackberries, Windows
Current government-issued photo identication
phones, Android devices and all other cellular/mobile
Approved calculator(s), including calculator case(s)
phones) are not allowed in the Exam room under any
Pencils or pencil lead for mechanical pencils
circumstances and may not be used as calculators for the

ERP Exam. If a candidate is found to have a smartphone
The following items are permitted in the testing room but
or cellular phone in the exam room their exam will not be
must remain in your pockets or in transparent plastic bags
graded.
under your chair when not in use:
Wallet (money purse)
Misconduct during the Exams
Calculator batteries, pencil sharpeners, eyeglasses,
GARP seriously reviews each and every Exam Violation
earplugs
Report. We have listed some of the violations that have
Medicine, tissues, and other medically necessary or
resulted in a Candidate Violation Report being led and,
personal items
subsequently, an exam not graded.
Food and drinks (Please note containers cannot be

opened in the testing room. All food and drinks must be
consumed outside the testing room)
Candidate used a pen on the answer sheet and/or the

exam booklet
Candidate began the exam early
The following items are not permitted in the testing room:
Candidate opened the exam booklet early
Baggage of any kind including backpacks, handbags,
Continued to write after the session ended
tote bags, briefcases, laptop bags, luggage, carrying
Brought a cellular telephone into the exam room
Candidate caught cheating
Violation of calculator policy
cases, or pencil cases
42
Exam day Schedule

Without exception, candidates are prohibited from entering the examination room after the exam room doors have closed
to commence the start of the AM and PM sessions, respectively.
ERP Exam AM Session

7:00 am
Candidates may begin to check in.
7:45 am
Doors close promptly. No late candidates will be permitted to enter.
7:46 am
Once doors close, the exam is distributed and instructions are read.
8:00 am
Exam begins.
11:30 am
30 minutes remaining announcement made.
11:55 am
12:00 pm
Exam is over, materials are collected and candidates are released.
ERP Exam PM Session

1:00 pm
Candidates may begin to check in.
1:45 pm
Doors close promptly. No late candidates will be permitted to enter.
1:46 pm
Once doors close, the exam is distributed and instructions are read.
2:00 pm
Exam begins.
5:30 pm
5:55 pm
6:00 pm
Exam is over, materials are collected and candidates are released.
43
AFTER
THE EXAM
Scoring of all exams takes approximately six (6) weeks to complete. There
are no penalties for incorrect answers; exam results are given as pass/fail.
The passing score for the exam is determined by the EOC.
After the Exam
Proper usage of the ERP designation
Scoring and Obtaining Your Results
The ERP designation adds signicant value to your creden-
Candidates are notied via e-mail of their results and will
tials. Having earned the ERP certication, you are eligible
be provided quartile results that will enable them to see
and encouraged to acknowledge your achievement by using
how they scored on specic areas of the exam relative to
the certication designation on your business cards and
other candidates. Specic numerical grades, or information
where appropriate in your business activities.
about incorrectly answered questions will not be given.

Certied ERPs May Only Use The Following Designations
Reregistering
ERP
Candidates who do not receive a passing score are strongly
Certied ERP
encouraged to register to retake the exam on the next
Energy Risk ProfessionalCertied by the Global
available administration date. Returning candidates are
Association of Risk Professionals
required to pay the exam fee only.

Usage Guidelines
Work Experience Requirements
After passing the ERP Exam, you will be instructed on
how to provide GARP with your CV/Resume to verify your
1. When using the letters only, they must be capitalized:

ERP.
2. When spelling out the designation, at minimum, the
professional experience. Experience completed for school,
rst letter in each word should be capitalized: Energy
including internships, part-time jobs, or student teaching,
Risk Professional.
will not be considered as relevant professional experience.
3. The registered trademark symbol should be used when
Candidates have ve years from the date they received
referring to the exam or the program, but is not required
notice of passing the ERP Exam to complete the verica-
when placed beside an individual's name: The ERP
tion process. If candidates fail to fulll this requirement
program is the global benchmark for professional nan-
within the ve year time frame, they must re-take the
cial risk managers; Mary Sue, ERP.
ERP Exam.
4. The designations may not be altered in any way or used

to form new symbols or designs nor may they be trans-
Receiving your Certicate

Only candidates who have passed the ERP Exam and pro-
lated into another language: ERp is not a proper use.

5. The designation may not be used in conjunction with
vided GARP with proof of their two years of professional
a company name or as part of an e-mail address: ERP
work experience as outlined above will receive a certicate
Provider@webhosting company.com is not a proper use.
and be acknowledged as a Certied ERP. All Certicates
6. The ERP designation must be used only as an adjec-
are sent via the United States Postal Service only. Delivery
tive, not in a generic manner or as a common name.
may take up to 10 weeks, depending on your mailing
Stating that all doctors are "PhDs" and all energy risk
address.
professionals are "ERPs" is considered generic and is

unacceptable.
If your certicate does not arrive due to an incorrect or
7. Articles, advertisements or promotional materials
insucient address, you will be assessed a USD 100 fee to
should indicate that the ERP designation is owned by
re-issue the certicate. For GARP members that have lost
GARP. The following tag line should be used: ERP (and
their certicates; or wish to receive a duplicate certicate,
Certied ERP) are trademarks owned by the Global
there is a USD 100 replacement fee. You can either fax your
Association of Risk Professionals.
request to GARP at +1.201.222.5022, or send it via email to

memberservices@garp.com. Your credit card information
and expiration date are required in order to have your
certicate re-issued.
45
Suggested Uses For The ERP Designation
The chapter network is organized around ve regions:
After your name in written correspondence and/or as
Africa, Americas, Asia-Pacic, Europe and the Middle East.
part of your email signature
GARP members and guests can attend GARP chapter
After your name on business cards, letterheads and/or
meetings anywhere in the world.
name plates
As an identier in resumes, curricula vitae, biographies,

personal statements and/or published articles
GARP Events
GARP Events further the advancement of risk management and best practice by preparing risk professionals
If you have any questions about how to use the ERP desig-
around the world to make better informed decisions
nation properly, please contact us at +201.719.7210 or
through their participation in conferences, conventions,
memberservices@garp.com.
executive briengs and master classes. GARP Events bring
RESOuRCES FOR CERTiFiEd ERPs
academic thinkers, regulators and policy makers to present,
GARP works to provide Certied ERPs with a range of
discuss and debate the latest developments in the practice
opportunities to enhance their personal growth though
of risk management.
together leading CROs, senior risk managers, leading
learning and networking opportunities.

Continuing Professional development (CPd)
Maintaining GARP Membership
Risk management is an evolving discipline with new
Participation in the world's leading professional association
challenges emerging every day. These challenges make
for risk practitioners communicates your commitment to
continued learning essential for Certied ERPs. GARPs
shared knowledge and expertise, and the advancement of
Continuing Professional Development program provides
best practices in risk management. Certied ERPs receive
the resources you need to maintain your knowledge and
a reduced annual Membership fee in recognition of their
expertise, and advance your professional development.
achievement.
The CPD program delivers a broad range of accessible
Maintaining GARP membership provides the candidate with
learning opportunities and provides the tools you need to
unlimited access to online news articles, white papers and
track and document your activities. Participation in the
other analysis available on the GARP website.
CPD program for Certied ERPs is mandatory.
The Daily Limit
Requirements
The Daily Limit is an informal discussion forum for certied
Participants are required to earn 40 credit hours every
FRMs and ERPs to share information and ideas, with original
24 months. Credits are typically measured as one hour
content published regularly. Certied ERPs are encouraged
of learning activity per credit. Credits may be earned by
to provide content, ideas, papers, and projects to the Daily
participating in a wide range of activities and ERPs are
Limit. Please contact Chris Donohue at cdonohue@garp.com
typically aorded broad latitude in selecting both activities
for more information.
and providers.
Chapter Meetings
Activities and programs eligible for credit should be edu-
Participation in local chapters is a core benet of GARP
cational in nature and focus on risk-relevant topics at an
membership and oered to all members. GARP supports
advanced level.
Professional and University Chapters around the globe

which enable risk practitioners and students to develop
their understanding of risk, and share their knowledge and
expertise, while also building their network of professional
contacts.
46
Typical activities:
While credits are earned based on an honor system; you will
Attend: Conferences, forum, seminars, chapter or
need to submit requests for credit through your online credit
society meetings or other live events
tracking tool accessible through your GARP account. After
Read or Publish: In-depth articles, journals or books,
becoming certied, you will receive notication of your rst
whitepapers, research papers
open CPD cycle. Depending on your certication date, your
Participate: Training courses, employer training or
cycle will either open in the current calendar year or the fol-
programs, college or university courses (including
lowing January. Detailed guidance on participation in the
MOOCs)
CPD program can be found on the GARP website.
View or Listen: Webcasts, podcasts, videos or on-line

training
Achieve: Earning a passing score on risk relevant certication or licensing exams
Speak or Teach: Featured or panel speaker at event,

on a webcast or video; teach a risk-relevant course
Volunteer: GARP committees and chapters, SMEs,

Item writers
Recognition for Maintaining a Higher Standard

FRMs and ERPs actively participating in CPD can be acknowledged in a number of ways.
DIGITAL BADGE
Provides online verification of your certification and validates your participation in CPD
on professional and social networking pages like LinkedIn, Twitter, a blog or website
FRM|ERP DIRECTORY
Provides verification of your participation in the official directory of FRMs and ERPs,
including the date of your last completed cycle
ACKNOWLEDGEMENT OF COMPLETION
Provides printable proof of your achievement in meeting the standards set forth in the
CPD program
47
Frequently Asked Questions
Q. How much work experience is required before sitting
Q. what are my career prospects after becoming a
for the ERP Exam? is a specic academic background

required?
A.
Certied Energy Risk Professional?

A.
There are no educational or professional prerequisites
By choosing the ERP, you are selecting the only risk

management designation in the world for energy risk
to sit for the ERP Exam. However, there is a professional
professionals. As global economies rebound and the
experience requirement that must be fullled before
world population grows, global energy requirements
candidates can become certied as an Energy Risk
will expand, creating demand for highly trained energy
Professional. Visit the website to review ERP certica-
risk professionals. Earning your ERP designation not
tion requirements.
only broadens your skill set, it demonstrates a standardized level of industry knowledge, making you a
Q. How much time is needed to prepare for the
recognized leader in energy risk management. Visit the
ERP Exam?
A.
website to learn about the career benets of the ERP.
Candidates' preparation times will vary based on their

prior professional experience level, academic back-
Q. what is the dierence between the FRM and the ERP?
grounds, and familiarity with the concepts tested on
A.
Many of the techniques used to evaluate and manage
the curriculum. It is dicult to recommend a particular
market credit and operational risk in traditional nancial
number of hours to dedicate to studying, but candi-
markets have been adopted and applied to energy risk
dates should expect to commit to between 200-400
management. However, the factors that drive price formation, volatility, and risk in physical energy commodity
hours of preparation time.
markets are dierent from conventional nancial assets

Q. who designs the ERP Exam?
A.
like equities, xed income and foreign exchange. For-
The ERP Exam is developed in conjunction with a
wards, futures, and swaps have been more heavily
committee of seasoned energy risk practitioners called
emphasized in the ERP curriculum given their extensive
the Energy Oversight Committee. Committee members
use in the energy market. The capital investments and
have expertise in market, credit, and operational risk;
physical infrastructure required in energy production,
energy risk consulting, commodity trading, product
generation, transportation and storage creates a unique
structuring, and quantitative analysis. Close collabora-
set of nancial, operational and safety challenges not
tion with the EOC ensures each exam is a valid assess-
found in the nancial markets. A unique curriculum that
ment of topics that are relevant, and directly related to
integrates knowledge about physical energy markets,
the necessary knowledge and skills identied by the
nancial products used in energy trading and hedging
committee to manage energy risk. Before it is nalized,
activities, and risk management applications all charac-
the exam is reviewed by a select group of energy mar-
terize and distinguish the ERP from the FRM.
ket practitioners to ensure that questions are unambiguous and clear to candidates regardless of where in the
Q. How is the Exam scored?
world they may be sitting for the exam.
A.
The passing score is determined by the EOC. Candidates will receive a pass/fail notication based on their
scores; numerical scores are not provided.
48
2015 Energy Oversight Committee (EOC) Members

Richard Apostolik............................Global Association of Risk Professionals
Dr. Lawrence Austen ......................Tragura
Gordon E. Goodman ......................NRG Energy
Je Jewell ..........................................DTE Energy
Dr. Vince Kaminski ..........................Rice University
Glenn Labhart, EOC Chair............Labhart Risk Advisors
Alessandro Mauro ...........................Litasco SA
Mark D. May .......................................Phillips 66
Ken Robinson ....................................Calpine
Michael Sell ........................................Global Association of Risk Professionals
Jonathan C. Stein ............................Hess Corporation
Andrew Sunderman........................Direct Energy
Dr. Chris Strickland .........................Lacima Group
Dr. Glen Swindle...............................Scoville Risk Partners
Gary Taylor.........................................British Petroleum
Creating a culture of
risk awareness
Global Association of
Risk Professionals
111 Town Square Place
14th Floor
Jersey City, New Jersey 07310
U.S.A.
+ 1 201.719.7210
2nd Floor
Bengal Wing
9A Devonshire Square
London, EC2M 4YN
U.K.
+ 44 (0) 20 7397 9630
www.garp.org
About GARP | The Global Association of Risk Professionals (GARP) is a not-for-prot global membership organization dedicated to
preparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 Members and
Aliates from banks, investment management rms, government agencies, academic institutions, and corporations from more than
195 countries and territories. GARP administers the Financial Risk Manager (FRM) and the Energy Risk Professional (ERP) Exams;
certications 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.
2015 Global Association of Risk Professionals. All rights reserved. 3-16-15

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2015

2015 Energy Risk Professional (ERP) Program Manual

Global Association of Risk Professionals ............................................................................................................1

The ERP Program ................................................................................................................................................3

The ERP Exam ......................................................................................................................................................3

Exam Learning Objectives ................................................................................................................................6

Reserves, Mineral Rights, and Project Development7 Questions .........................................................7

Crude Oil Markets and Rened Products21 Questions .............................................................................9

Natural Gas and Coal Markets14 Questions .................................................................................................12

Electricity Markets and Renewable Generation28 Questions ..............................................................14

Financially Traded Energy Projects and Structured Transactions21 Questions.............................21

Data Analysis and Market Risk21 Questions ...............................................................................................25

Credit, Counterparty, and Country Risk Assessment21 Questions ....................................................29

Enterprise Risk Management and Business Ethics7 Questions ..........................................................33

Register for the Exam ......................................................................................................................................36

Prepare for the Exam .......................................................................................................................................39

Suggested Exam Preparation Reading Plan ..............................................................................................40

Sit for the Exam .................................................................................................................................................41

After the Exam ..................................................................................................................................................45

Proper Usage of the ERP Designation.........................................................................................................46

Resources for Certied ERPs.........................................................................................................................46

Continuing Professional Development........................................................................................................46

Frequently Asked Questions..........................................................................................................................48

2015 Global Association of Risk Professionals. All rights reserved.

2015 Energy Risk Professional (ERP) Program Manual

As the leading professional association for risk managers,

Oversight and Governance

created the ERP Program Manual to provide a comprehen-

GARP is governed by a Board of Trustees comprised of top

sive resource for those interested in becoming a certied

risk professionals and academics from around the world.

Energy Risk Professional (ERP).

As a professional association with global membership and

Global Association of Risk Professionals

GARP is in a unique position to ascertain standards and

an extensive professional and academic chapter network,

assess evolving trends in risk management practices. To

Founded in 1996, the Global Association of Risk Profess-

calibrate and benchmark its understanding of the demands

ionals (GARP) is a not-for-prot organization and the

of the global risk management community, GARP also

only globally recognized membership association for

conducts formal job task analysis surveys to determine

risk managers. GARP's goal is to help create a culture of

the knowledge, skills and abilities required to function

risk awareness within organizations, from entry level to

eectively as an energy risk manager around the world.

Committee (EOC) comprised of senior energy industry pro-

GARP sets the global standard in professional designation

fessionals and experienced academics. The EOC reviews and

with the FRM (Financial Risk Manager) and ERP (Energy

revises the ERP curriculum on an annual basis to ensure that

Risk Professional) certications. Through our educational

the certication remains relevant and in-line with industry

programs, specialized content, in-person or online events,

demands. The curriculum is published annually in the ERP

and chapter program, GARP promotes best practices in

Study Guide. Detailed learning objectives for each reading

risk management and supports ongoing professional and

listed in the Study Guide, along with other important pro-

career development for risk managers.

gram information, are summarized in this manual.

2015 Global Association of Risk Professionals. All rights reserved.