GLOBAL ASSOCIATION OF RISK PROFESSIONALS

The Future of Energy Risk Management: Making the

Case for Standardized Education and Certification
Glenn Labhart
President, Labhart Risk Advisors Inc. and Chair of GARP’s Energy Oversight
Committee (EOC)

January 2010
About Global Association of Risk Professionals

• GARP is the world leader in financial risk certification, education and

training
– Not-for-profit association founded in 1996
– Over 100,000 members representing 167 countries
– All certification programs developed by practitioner oversight committees
– Offices in Jersey City, NJ, London, with presence in Beijing, China
– Independent, non-partisan, committed to the Risk profession, and ready to
speak up for the best in risk management practices.

• Financial Risk Manager (FRM©) certification

– Launched in 1997 with 108 candidates in 6 test sites
– In 2009, over 23,000 candidates in 85 test sites
• 70% growth in 2009
– Supported by largest financial institutions across the globe
• Over 500 companies registered 5 or more candidates in 2009

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GARP’s Professional Designation and Certification Programs
Professional Designations Certificate Programs
Creating a Culture of Risk
Awareness TM

Advanced: 
Completion earns 
certificate

• 180 Multiple Choice

Questions Basic to
intermediate
• 8 Hour Examination
(2 - 4 hour sessions)
Country Programs
• 100 Multiple Choice • Administered the
questions each section
Indonesia: 52,000+ have taken program to date
same day, time, and
location as FRM China: 7,500+ have taken program to date
• 8 hour examination
(2 – 4 hour sessions)
Azerbaijan: July 09’ 1st phase of long-term program
•Successful completion
of both sections earns Saudi Arabia: November 09’ introduction
FRM designation

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Energy Risk Professional (ERP) Program

• New initiative launched in June 2009

• Program objective
– To measure from a practitioner perspective a person’s ability to provide
professional risk management advice relating to the physical and
financial energy marketplaces based on globally accepted industry
standards and practices
• Increasing global interdependence and complexity of energy
products
– Demand for risk professionals with a comprehensive understanding of
both the physical and financial energy marketplaces
• Practitioner-oriented, dynamic syllabus
• Accessible - global, affordable
• Supported by API

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Energy Oversight Committee
• Recognized experts in diverse areas of energy physical and financial markets
• Design, develop and review all program material

Ken Abbott MD, Morgan Stanley

Richard Apostolik President and CEO, GARP
Mark Galicia Commercial Manager, British Petroleum
Gordon E. Goodman Trading Control Officer, Occidental Petroleum Corp.
Mark Jenner Director, Credit Risk, BG Group
Jeff Jewell CRO, DTE Energy
Glenn Labhart Partner, Labhart Risk Advisors, Inc. (Committee Chair)
Spyros Maragos Manager, Quantitative Analysis, Chevron
Mark D. May Mgr, Regional Risk Supply & Trading, ConocoPhilips
Alessandro Mauro Director of Risk Management, Litasco SA
Jeff Parke Sr. Director, Risk Management, Koch Industries, Inc.
Jonathan C. Stein CRO, Vice President, Hess Corporation
Andrew Sunderman MD, JP Morgan
Glen Swindle MD, Energy Trade & Marketing, Credit Suisse
John Wengler CRO, Entergy Services, Inc.
Jim Brown MD, Morgan Stanley

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ERP Program
• Program Coverage
– Physical Energy Markets
• Exploration and Production (Petroleum and
Natural Gas)
• Crude Oil, Refined Petroleum Products,
Natural Gas, Liquefied Natural Gas, Coal,
Electricity, Alternative Energy
– Financial Trading Instruments
– Valuation and Structuring of Energy Transactions
– Risk Management in Financial Trading
– Financial Disclosure, Accounting, and Compliance

• Designation Requirements
– Pass exam
• 8-hour, 180 multiple choice questions offered annually
in May and November
– 2 years relevant work experience
• Not required to sit for exam

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Sample ERP Learning Objectives Addressing Electricity
Physical Markets
• Define “short-term trading arrangements”
• Discuss why electricity is structurally different from other commodities
• List and discuss the “four pillars” of market design
• Compare and contrast the three trading models: wheeling, decentralized, and integrated
• Define the following terms:
– merit order
– contraint
– locational prices
– imbalances
– congestion
– contract path
– ancillary services (list the services)
• Calculate the price congestion if point A has a location price different than point B

Financial Markets

• Discuss the difference between production cost models and hybrid pricing models for forecasting power prices
• Define the characteristics and goals of hybrid pricing models
• Discuss the parameters associated with an electric price jump-diffusion model
• Discuss difference between reduced-form hybrid and fundamental hybrid models
• Calculate the bid curve and determine the market clearing price
• Calculate the cost of generation of electricity and explain why the bid curve may be different
• Construct a generation stack for electricity bid pricing
• Calculate generating unit costs for fuel and emission (NOx and SO2) parameters
• List and discuss the process for modeling power prices
• Discuss the justification of the hybrid model

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ERP Program Information
• 2009 Program (first ERP exam – October 2009)
– 225 candidates from 37 countries, 190 different companies
• Energy Companies: Hess, Occidental, Dominion Resources, DTE Energy,
Koch Industries, Shell
• Financial Companies: Citigroup, Goldman Sachs, Barclays, Standard
Chartered, Deutsche Bank, Credit Suisse, World Bank
• Other: KPMG, Deloitte and Touche, Enrst & Young, McKinsey, Thomson
Reuters, Oracle, Singapore Mercantile Exchange
– Top countries by number of candidates
1. USA 4. Singapore
2. Canada 5. Switzerland
3. Hong Kong 6. UK
– 63.9% Pass Rate
• 2010 Program
– Currently 251 candidates – registration opened December 1, 2009
– Early Registration Ends January 31st

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Approach to Energy Risk Management

Universal Companies (Macro models, e.g., Shell, Exxon Mobil, BP

Transportation/ Refining/
Production Distribution
Storage Processing
Specialty Specialty
Specialty Companies, e.g. Specialty
Companies e.g.,
Companies, e.g. Companies, e.g.,
Anadarko Transwestern, Valero
PG&E ,
Stoldt Scottish Power

Supply Demand Supply Demand Supply Demand Supply Demand

Trading Trading Trading Trading

Underlying Underlying Underlying Underlying

Risks Risks Risks Risks

Credit Credit Credit Credit

Market Market Market Market
Operational Operational Operational Operational

Disclosure: tax, regulatory, financial statements (accounting)

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For more information

• Next Exam: Saturday, May 22, 2010

• More information: www.garp.com/ERPexam

• Questions: erp@garp.com

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 Creating a culture of
risk awareness.TM

Global Association of
Risk Professionals

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Suite 1215
Jersey City, New Jersey 07310
USA
+ 1 201.719.7210

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42 Mincing Lane
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UK
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www.garp.org

© 2009 Global Association of Risk Professionals. All rights reserved.