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The Standard Power Contract: A Hedge Against Price Spikes?

The Fine Print: Who Won, Who Lost
Fortnightly Magazine - June 1 2000

that don't have to be documented. It doesn't, so you really are not burdened.

On the other hand, there are the more burdensome aspects from the utility standpoint, and the way [FERC has] changed their policy is that utilities must continue to document their long-term transaction for longer than [the] year they want the contract. They want the confirmation letter that documents that particular trade on file at the FERC. In the course of this meeting, we reached an understanding that they are going to be accommodating with respect to terminations under the long-term agreements.

now under appeal in federal court in

In that case the FERC ruled that when a utility has authority to sell electricity at wholesale at market-based rates, and has an "umbrella" tariff on file that allows it to sign individual deals without filing a deal-specific tariff, then if a supplier defaults, and the utility decides to cancel the deal, it need not file any formal document other than a simple notice in the . PCA has appealed, arguing that the new FERC rule conflicts with FERC precedent set in the 1996 Portland General case . Commissioner Massey also has doubts, and favors a formal filing requirement, since he believes that the FERC might want to take a look at a contract cancellation, since, in his view, a contract to supply "firm" energy is not entirely "discretionary."

Final briefs in the PCA appeal are due Nov. 17, and the court has set oral argument for January 2001.]

What about the FERC's plan for RTOs - the regional transmission organizations?

Katz: There are a number of ways that it could affect the contract. I am not so sure that the bilateral market is going to go away just because there is centrally dispatched power in the Northeast. There still can be active trading between two counterparts. Even if the source of the power comes out of the pool, power can change hands in multiple daisy chains. So it can be used in multiple-party daisy chains. Where it is going to have an impact will come really in the application in some of the obligations. That is a detail that is not defined in the contract. There are obligations to arrange for transmission. To the extent that there are new rules for that created in the RTOs, that will have an impact on the underlying obligation to arrange for transmission in the contract. That does not change the obligation in the contract.

What is possible is that there may be new products emerging in these markets based on how the RTO's geographic scope and how the pools develop that we have not anticipated yet. Our group intends to keep working to review the contract, its relevance in the market, and on a going-forward basis, make any needed enhancements.

Looking Forward: The Contract Début Will the contract make a difference this summer?

Katz: I have a feeling, given where the contract is, that this summer's market will probably not realize the full effect of what the contract can do. The contract