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ERP Examination
TM
STUDYGUIDE
GARPS ENERGY RISK PROFESSIONAL (ERP): T H E D E S I G N AT I O N F O R R I S K P R O F E S S I O N A L S I N T H E E N E R G Y S E C T O R
The Study Guide sets forth primary and subtopics covering physical operations and physical and financial markets for energy, as well as risk management techniques in both areas. The topics selected by the Energy Oversight Committee (EOC) reflect those that energy risk professionals working in practice today must master. The topics are reviewed yearly to ensure the ERP Examination is kept timely and relevant.
Readings Questions for the ERP Examination are derived from the readings listed under each topic. These readings were selected by the ERP EOC to assist candidates in their review of the subjects covered by the exam. It is strongly suggested that candidates review these readings in depth prior to sitting for the examination.
Test weights and question allocation for the 2009 ERP ERP Examination Approach The ERP is a practice-oriented examination. Its questions are derived from a combination of science, industry practice, and theory, as well as real-world work experience. Candidates are expected to understand both physical and financial energy sectors, general and specific risk management concepts and approaches, and how they are applied in an energy risk professionals dayto-day activities. The ERP Examination is a comprehensive assessment, testing risk professionals on a number of energy-related risk management concepts and approaches. One should note that it is very rare that an energy risk professional will be faced with an issue that can immediately be slotted into one category; in the real world, an energy risk professional must be able to identify any number of risk-related issues and be able to manage them effectively. Financial Disclosure, Accounting, and Compliance ....... 10% 18 questions Risk Management in Financial Trading ......................... 15% 27 questions Valuation and Structuring of Energy Transactions ........ 15% 27 questions Financial Trading Instruments....................................... 20% 36 questions Physical Energy Markets............................................... 40% 72 questions Exploration and Production (Petroleum and Natural Gas)........................................................... 5% Crude Oil................................................................ 5% Refined Petroleum Products................................... 5% Natural Gas............................................................ 5% Liquefied Natural Gas ............................................ 5% Coal........................................................................ 5% Electricity ............................................................... 5% Alternative Energy ................................................. 5% Examination will be as follows:
NOTE: Because many of the readings in the physical market section cover physical risk management and mitigation techniques as part of daily operations, there is no separate risk management section for physical energy markets.
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Vincent Kaminski (ed). Managing Energy Price Risk (London: Risk Books, 2004). Chapter 1 . . . . . . . . . . . Energy Swaps Chapter 2 . . . . . . . . . . . Energy Options Chapter 3 . . . . . . . . . . . Energy Exotic Options Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw Hill, 2007). Chapter 4 . . . . . . . . . . . Essential Statistical Tools Chapter 5 . . . . . . . . . . . Spot Price Behavior Chapter 6 . . . . . . . . . . . The Forward Price Curve
Electricity Trading 1. Alexander Eydeland and Krzysztof Wolyniec. Energy and Power Risk Management: New Developments in Modeling, Pricing, and Hedging (Hoboken, NJ: John Wiley & Sons, 2003). Chapter 7 . . . . . . . . . . . Hybrid Process for Power Prices Chapter 8 . . . . . . . . . . . Structured Products: Fuels and Other Commodities 2. Vincent Kaminski (ed). Energy Modelling: Advances in the Management of Uncertainty (London: Risk Books, 2005). Chapter 2 . . . . . . . . . . . Fundamentals of Electricity Derivatives Carbon Finance / Emissions Market / Emission Trading 1. Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? (Singapore. John Wiley & Sons (Asia) Pte Ltd. 2006). Chapter 3 . . . . . . . . . . . Green Trading Schemes Chapter 6 . . . . . . . . . . . Overview of the Carbon Exchanges Chapter 10 . . . . . . . . . . What Risk? An Introduction to Managing Risk Chapter 11 . . . . . . . . . . Risk-Policy Guidelines 2. Sonia Labatt, Rodney R. White. Carbon Finance: The Financial Implications of Climate Change (Hoboken, NJ: John Wiley & Sons, Inc., 2007). Chapter 6 . . . . . . . . . . . Emissions Trading in Theory and Practice
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Markus Burger, Bernhard Grae ber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power and Other Energy Markets (West Sussex, England: John Wiley & Sons, 2007). Chapter 4 . . . . . . . . . . . Fundamental Market Models Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management (London: Lacima Publications, 2000). Chapter 3 . . . . . . . . . . . Volatility Estimation in Energy Markets Chapter 6 . . . . . . . . . . . Spot Price Models and Pricing Standard Instruments Alexander Eydeland and Krzysztof Wolyniec. Energy and Power Risk Management: New Developments in Modeling, Pricing, and Hedging (Hoboken, NJ: John Wiley & Sons, 2003). Chapter 4 . . . . . . . . . . . Reduced-form Processes Helyette Geman (ed). Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy (West Sussex, England: John Wiley & Sons, 2008). Chapter 2 . . . . . . . . . . . Forward Curve Modelling in Commodity Markets Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw Hill, 2007). Chapter 7 . . . . . . . . . . . Building Marked-to-Market Forward Price Curves: Implementing Forward Price Models Chapter 8 . . . . . . . . . . . Volatilities Chapter 9 . . . . . . . . . . . Overview of Option Pricing for Energies Chapter 10 . . . . . . . . . . Option Valuation Chapter 11 . . . . . . . . . . Valuing Energy Options Platts. The Increasing Divergence of WTI Pricing from World Markets (March 2009). Available online: http://www.platts.com/Content/Oil/Resources/Market%20Issues/wtipricing.pdf.
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Helyette Geman (ed). Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy (West Sussex, England: John Wiley & Sons, 2008). Chapter 15 . . . . . . . . . . Case Studies and Risk Management in Commodity Derivatives Trading Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008). Chapter 10 . . . . . . . . . . Management Controls Steve Leppard. Energy Risk Management: A Non-technical Introduction to Energy Derivatives (London: Risk Books, 2005). Chapter 8 . . . . . . . . . . . Wider Risk Management Questions Alessandro Mauro. Price Risk Management in the Energy Industry: The Value at Risk Approach, Proceedings of the XXII Annual International Conference of the International Association for Energy Economics (June 9-12, 1999): http://ssrn.com/abstract=1020917. Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw Hill, 2007). Chapter 2 . . . . . . . . . . . What Makes Energies So Different? John Wengler. Managing Energy Risk: A Nontechnical Guide to Markets and Trading (Tulsa, OK: PennWell, 2001). Chapter 6 . . . . . . . . . . . Energy Risk Boot Camp: Must Know Concepts for Managers and Directors
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Peter C. Fusaro (ed). Energy Risk Management: Hedging Strategies and Instruments for the International Energy Markets (New York: McGraw Hill, 1998). Chapter 12 . . . . . . . . . . Credit Issues and Counterparty Risk 3. Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008). Chapter 16 . . . . . . . . . . A Practical Guide to Credit Control and Risk-Mitigation Methods 4 . Vincent Kaminski (ed). Energy Modelling: Advances in the Management of Uncertainty (London: Risk Books, 2005). Chapter 12 . . . . . . . . . . Credit Risk Management for the Energy IndustrySome Perspectives
Note on Financial Disclosure, Accounting and Compliance: GARP recognizes that issues of financial disclosure, accounting, and compliance are critical to the daily life of an energy risk professional. While adherence to a regulatory body will be governed by ones specific firm or geographic region, it is critical for any globally-minded energy risk professional to have a base level understanding of several of the larger regulators that will likely be encountered. However, as global energy markets continue to evolve, so do the standards of these globally-recognized regulators. As such, for the October 2009 ERP Examination, candidates may expect to be tested on changes occurring in the below mentioned governing bodies through June 1, 2009, the date of this study guide. Any changes made after this date will be picked up by the 2010 ERP Study Guide to be issued in November 2009. Candidates are expected to understand the objectives and general structure of each of the below mentioned regulators and general application of the various regulations listed. Candidates are not expected to memorize specific details.
Basel Committee on Banking Supervision 1. Basel Committee on Banking Supervision: Discussion paperfair value measurements http://www.bis.org/bcbs/commentletters/iasb20.pdf. Financial Accounting Standards Board (FASB) 1. Financial Accounting Standards Board: Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (Posted April 9, 2009). http://www.fasb.org/pdf/fsp_fas157-4.pdf. 2. Financial Accounting Standards Board: Summary of Statement No. 133. http://www.fasb.org/st/summary/stsum133.shtml. 3. Financial Accounting Standards Board: Summary of Statement No. 157. http://www.fasb.org/st/summary/stsum157.shtml. 4. Financial Accounting Standards Board: Summary of Statement No. 161. http://www.fasb.org/news/nr031908fas161.shtml. International Accounting Standards Board (IASB) 1. International Accounting Standards Board: Fair Value Measurement Project http://www.iasb.org/Current+Projects/IASB+Projects/Fair+Value+Measurement/Fair+Value+Measurement.htm. 2. International Accounting Standards Board: IASB Work Planprojected timetable as of April 30, 2009: http://www.iasb.org/Current+Projects/IASB+Projects/IASB+Work+Plan.htm. Sarbanes-Oxley Act of 2002 1. Sarbanes-Oxley Act of 2002: SEC. 302. Corporate Responsibility for Financial Reports. http://www.sox-online.com/act_section_302.html. 2. Sarbanes-Oxley Act of 2002: SEC. 401. Disclosure in Periodic Reports. http://www.sox-online.com/soxact.html#sec401. 3. Sarbanes-Oxley Act of 2002: SEC. 404. Management Assessment of Internal Controls. http://www.sox-online.com/soxact.html#sec404. 4. Sarbanes-Oxley Act of 2002: SEC. 409. Criminal Penalties for Altering Documents http://www.sox-online.com/soxact.html#sec409. 5. Sarbanes-Oxley Act of 2002: SEC. 802. Real Time Issuer Disclosure. http://www.sox-online.com/soxact.html#sec802. Securities and Exchange Commission (SEC) 1. Securities and Exchange Commission: Selected Staff Accounting Bulletins. http://www.sec.gov/interps/account.shtml.
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Commodities Future Trading Commission (CFTC) 1. Commodity Exchange Act: http://www.cftc.gov/lawandregulation/index.htm. 2. Markets, Clearing Organizations, and Intermediaries: http://www.cftc.gov/industryoversight/index.htm. Commodity Futures Exemption Requirements 1. CME Group. Online Rulebook (December, 2008). Chapter 4 . . . . . . . . . . . Section 443: Position Limit Violations: http://www.cmegroup.com/rulebook/CBOT/I/4/4.pdf. 2. IntercontinentalExchange (Europe). Regulations (2009). Section P . . . . . . . . . . . . Position Reporting, Accountability and Limits: https://www.theice.com/futures_europe_regulations.jhtml. 3. NYMEX. Online Rulebook (2008). Chapter 9A . . . . . . . . . . Position Rules: http://www.nymex.com/rule_main.aspx?pg=13. Federal Energy Regulatory Commission (FERC) 1. Energy Policy Act (EPAct) of 2005: http://www.ferc.gov/legal/fed-sta/ene-pol-act.asp. 2. FERC & EPAct 2005Overview: http://www.ferc.gov/legal/fed-sta/ferc-and-epact-2005.pdf; Details available in LNG, electric, gas, hydropower, and more: http://www.ferc.gov/legal/fed-sta/ene-pol-act.asp. 3. FERC Federal Order 670Prohibition of Energy Market Manipulation (January 19, 2006): http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=10932497. 4. FERC Prohibition of Energy Market Manipulation (updated January 15, 2009): http://www.ferc.gov/enforcement/market-manipulation.asp. 5. FERC Standards of Conduct for Transmission Providers Order No. 717: http://www.ferc.gov/whats-new/comm-meet/2008/101608/M-1.pdf. 6. FERC Strategic Plan, FY 2006-FY 2011: http://www.ferc.gov/about/strat-docs/strat-plan.asp. 7. FERC Top Priorities, FY 2006-FY2011: http://www.ferc.gov/about/top-priorities.asp. Financial Services Authority (FSA) 1. FSA Handbook. http://fsahandbook.info/FSA/html/handbook. North American Electric Reliability Corporation (NERC) 1. NERC: About the Compliance and Enforcement Program. http://www.nerc.com/fileUploads/File/Compliance/About-Compliance(1).pdf. Open Compliance and Ethics Group (OCEG) 1. Measurement and Metric Guide: http://www.oceg.org/view/MMG. Securities and Exchange Commission (SEC) 1. Modernization of Oil and Gas Reporting: http://www.sec.gov/rules/final/2008/33-8995.pdf.
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The following individuals were responsible for the oversight of the development of the 2009 ERP Study Guide:
Ken Abbott . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managing Director, Morgan Stanley & Company Richard Apostolik . . . . . . . . . . . . . . . . . . . . . . . . . . . . President and CEO, Global Association of Risk Professionals Mark Galicia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compliance Manager, BP North America, Inc. Gordon E. Goodman . . . . . . . . . . . . . . . . . . . . . . . . . . Trading Control Officer, Occidental Petroleum Corporation James Brown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managing Director, Morgan Stanley & Company Mark Jenner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director, Credit Risk, BG Group Jeff Jewell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Risk Officer, DTE Energy Glenn Labhart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Partner, Labhart Risk Advisors, Inc. Spyros Maragos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manager, Quantitative Analysis, Chevron Mark D. May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manager, Regional Risk Supply & Trading, Americas, ConocoPhilips Jeff Parke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior Director, Risk Management, Koch Industries, Inc. Jonathan C. Stein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Risk Officer, Vice President, Hess Corporation Andrew D. Sunderman . . . . . . . . . . . . . . . . . . . . . . . . . Managing Director, JP Morgan Glen Swindle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managing Director, Energy Trade & Marketing, Credit Suisse John Wengler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Risk Officer, Entergy Services, Inc.
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