CEP Procurement Strategies & Contract Management 3 — Questions and Answers
Question 1: Which procurement strategy is most appropriate for a company with strong ESG commitments and a desire for additionality in renewable energy?
- Purchasing RECs on the spot market
- Signing a long-term virtual power purchase agreement (VPPA) (Correct answer)
- Enrolling in a green tariff utility program
- Buying Green-e certified RECs annually
Correct answer: Signing a long-term virtual power purchase agreement (VPPA)
A VPPA with a new renewable project delivers additionality by directly financing new clean generation capacity.
Question 2: A 'portfolio' procurement strategy in energy management refers to:
- Purchasing all energy from a single long-term contract
- Dividing energy volume across multiple contract types, terms, and suppliers (Correct answer)
- Buying only on the spot market to minimize commitment
- Outsourcing all procurement decisions to a broker
Correct answer: Dividing energy volume across multiple contract types, terms, and suppliers
Portfolio procurement spreads risk by using a mix of fixed, indexed, and spot purchases across different time horizons and counterparties.
Question 3: In natural gas contracts, what does 'interruptible service' mean for an industrial buyer?
- The buyer can interrupt payments during price spikes
- The supplier may curtail gas delivery during peak demand periods (Correct answer)
- The contract automatically renews unless interrupted by notice
- The buyer receives gas only during off-peak hours
Correct answer: The supplier may curtail gas delivery during peak demand periods
Interruptible service allows the supplier or pipeline to curtail deliveries, typically when system demand peaks, in exchange for lower rates.
Question 4: What is the function of an energy procurement policy within an organization?
- To dictate the exact price at which energy must be purchased
- To establish governance, risk tolerances, and decision-making authority for energy buying (Correct answer)
- To replace the need for market analysis before each contract
- To require all energy purchases to be fixed-price
Correct answer: To establish governance, risk tolerances, and decision-making authority for energy buying
A procurement policy sets the organizational framework—risk limits, approval thresholds, and permissible contract structures—guiding consistent decision-making.
Question 5: Which of the following best describes a 'layered' or 'tranche' buying strategy?
- Purchasing the entire annual energy requirement in one transaction at the start of the year
- Buying portions of future energy volume at different times to average the entry price (Correct answer)
- Layering renewable energy on top of a fossil fuel baseline contract
- Splitting energy purchases between retail and wholesale markets simultaneously
Correct answer: Buying portions of future energy volume at different times to average the entry price
Tranche buying involves purchasing incremental volumes over time, averaging the cost basis and reducing the risk of buying at a single price peak.
Question 6: Under FERC Order 888, what right did industrial customers gain in wholesale electricity markets?
- The right to set their own retail electricity rates
- Open, non-discriminatory access to transmission services (Correct answer)
- The ability to sell excess on-site generation to the grid
- Exemption from capacity market obligations
Correct answer: Open, non-discriminatory access to transmission services
FERC Order 888 mandated open access to transmission infrastructure, enabling competitive wholesale power markets to develop.
Question 7: A contract clause stating that neither party is liable for non-performance due to an unforeseen event beyond their control is known as:
- Liquidated damages clause
- Force majeure clause (Correct answer)
- Indemnification clause
- Consequential damages waiver
Correct answer: Force majeure clause
A force majeure clause excuses performance obligations when extraordinary, unforeseeable events (e.g., natural disasters, grid emergencies) prevent contract fulfillment.
CEP Procurement Strategies & Contract Management 3
Which procurement strategy is most appropriate for a company with strong ESG commitments and a desire for additionality in renewable energy?