Procurement Strategies & Contract Management Flashcards
7 cards from real CEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Procurement Strategies & Contract Management flashcards as text
What is the main disadvantage of a 'block and index' energy contract structure?
Answer: The indexed portion exposes the buyer to market price fluctuations
While the block portion is priced at a fixed rate, the indexed component means total cost varies with market conditions.
Which factor most directly affects a buyer's negotiating leverage when procuring energy from retail suppliers?
Answer: The buyer's load size, credit quality, and contract term flexibility
Large, creditworthy buyers with flexible terms are more attractive to suppliers, generating more competitive bids and better pricing.
A 'heat rate contract' for electricity is structured so that the price of power is tied to:
Answer: The price of natural gas multiplied by a fixed heat rate factor
Heat rate contracts link electricity prices to natural gas prices using a conversion factor (heat rate), mimicking the economics of a gas-fired peaker plant.
When is it most advantageous for a buyer to use a broker versus going directly to suppliers in an energy RFP?
Answer: When the buyer lacks market access, resources, or expertise to manage the RFP process
Brokers add most value when buyers lack procurement infrastructure, market intelligence, or supplier relationships to run a competitive process themselves.
What does 'swing' or 'tolerance' in a natural gas supply contract typically allow?
Answer: The buyer to take a percentage above or below the nominated daily volume
Swing provisions give the buyer operational flexibility to take more or less gas than the base nomination, within agreed percentage limits.
In energy contract negotiations, 'creditworthiness' of the buyer primarily affects which contract term?
Answer: Collateral requirements such as letters of credit or security deposits
Suppliers use a buyer's credit rating to determine whether—and how much—collateral or credit support is required to mitigate counterparty default risk.
Which contract type transfers the most price risk to the energy supplier?
Answer: Fixed-price full-requirements contract
A fixed-price full-requirements contract locks the supplier into delivering all the buyer's load at a set price, exposing the supplier to any market price increases.