Source: http://lawinfo.ru/en/catalog/contents-2015/pravovoi-energeticheskiy-forum/2/7896
Timestamp: 2020-04-06 21:46:38
Document Index: 799328117

Matched Legal Cases: ['Art. 32', 'Art. 428', 'Art. 30', 'Art. 33', 'Art. 23', 'Art. 33', 'Art. 1177', 'Art. 6726', 'Art. 904', 'Art. 33', 'Art. 1916', 'Art. 504']

Kashlikova, I.A. - Jurist Publishing Group
Catalog » 2015's issues contents » Energy law forum №2 - 2015 » Kashlikova, I.A.
System of Contracts in the Wholesale Electric Power And Capacity Market
Inna Alexandrovna Kashlikova, Head of the Legal Department of Trading System Administrator, OJSC, Lecturer of the Energy Law Department of Kutafi n Moscow State Law University (MSAL)
In this article, the author reviews the system of contracts operating in the wholesale electric power and capacity market, places special emphasis on the contract of accession to the wholesale market trade system, its legal capacity and material terms, draws attention to features of the procedure for conclusion of contracts in the wholesale electric power and capacity market and identifies types of contracts signed in the wholesale electric power and capacity market.
Key words: energy legislation, legal regulation of the wholesale electric power and capacity market, contract of accession to the trade system of the wholesale electric power and capacity market, system of contracts of the wholesale electric power and capacity market, Market Council Non-Profit Partnership, Trading System Administrator of Wholesale Market Transactions.
Pursuant to Art. 32 of Federal Law “On the Electric Power Industry”[1], the wholesale electric power and capacity market has an organized system of contracts. It means that parties to legal relations associated with trading in the wholesale electric power and capacity market sign not any contracts, but only those contracts that are elements of the said organized system.
In this respect, the major element of the wholesale market’s system of contracts is a contract of accession to the wholesale market trade system. Article 35 of Federal Law “On the Electric Power Industry” stipulates that an organization shall gain the status of wholesale market entity through admission to Market Council Non-Profit Partnership (Market Council) and conclusion of the contract of accession to the wholesale market trade system (hereinafter referred to as the contract of accession).
As far as the way of conclusion is concerned, the contract of accession shall be concluded through general subscription of the wholesale market entity to the proposed contract. By virtue of the rules of Art. 428 of the Civil Code of the Russian Federation, the contract of accession is a contract, which terms shall be determined by either party in blank forms or other standard forms and adopted by the other party solely by general subscription to the proposed contract. The legislator chose such a way to contract due to the fact that all wholesale market entities shall have equal terms of trade by virtue of principles stipulated in Art. 30 of Federal Law “On the Electric Power Industry”. It should be noted that similar contracting ways are traditionally used in any exchange trading and, for the purposes of legal qualification, the organized bidding rules stipulated by Federal Law dd. November 21, 2011 No. 325-ФЗ “On Organized Bidding”[2] and clearing rules stipulated by Federal Law dd. February 7, 2011 No. 7-ФЗ “On Clearing and Clearing Activities”[3] constitute contracts concluded by accession, which is also caused primarily by the need to ensure legal coverage to equal terms of participation in organized bidding and clearing of obligations.
However, technically the contract of accession shall be concluded through signing of its full text in five copies (according to the number of parties – see below) by each wholesale market entity. In other words, each wholesale market entity has its own copy of the contract of accession with the individual number and relevant date of signing. It differs from the way of subscription to the rules of exchange trading used at exchanges, when a bidder signs not copies of its contract, but a subscription list, whereunder it subscribes to the exchange rules.
The form of contract of accession shall be approved by the Supervisory Board of Market Council on the basis of Art. 33 of Federal Law “On the Electric Power Industry”, as a body expressing consolidated interests of the market community with a view to positions of all categories of major suppliers and major purchasers of electric power and capacity, infrastructure organizations of the wholesale market and the state[4].
In its legal capacity, the contract of accession is a multilateral transaction. In this respect, parties to the contract of accession are organizations acting as the technological infrastructure of the wholesale market – System Operator and Federal Grid Company, organizations acting as the commercial infrastructure of the wholesale market – Market Council, Trading System Administrator of Wholesale Market Transactions (commercial operator) and Center of Financial Settlements, and the wholesale market entity – supplier or purchaser of electric power and capacity.
Legislation stipulates material terms to be determined in the contract of accession. Pursuant to cl. 40 of the Rules of the Wholesale Electric Power and Capacity Market approved by Resolution of the Government of the Russian Federation dd. December 27, 2010 No. 1172 (hereinafter referred to as the Rules of the Wholesale Market)[5], in fact all terms of the contract of accession are material, because the said clause names all sections of the contract of accession regulating the full cycle of operation of the wholesale market trade system. In this respect, subcl. “a” of cl. 40 of the Rules of the Wholesale Market indicates rights and obligations of contracting parties and the procedure of their interaction as the first material term of the contract of accession.
Legal relations between the wholesale market entity and organizations of the commercial infrastructure of the wholesale market in provision of paid services arise directly from the contract of accession. For example, pursuant to cl. 7.1 of the contract of accession, the commercial operator shall render to the wholesale market entity a service in wholesale trading in electric power, capacity and other commodities and services admitted to trading in the wholesale market[6]. In its scope, the commercial operator’s service is complex and includes a range of the commercial operator’s actions in arrangement of wholesale trading listed in the said clause of the contract of accession. It should be noted that due to continuous operation of the wholesale market trade system (every hour of every day of every year), the commercial operator’s service is also rendered to the wholesale market entity on a continuous basis. However, due to the fact that a calendar month constitutes a settlement period in the wholesale market, which is stipulated by cl. 3 of the Rules of the Wholesale Market, a certificate of services rendered by the commercial operator to the wholesale market entity shall be drawn up and signed by the parties for every calendar month. The price of the commercial operator’s service is regulated in accordance with Art. 23.1 of Federal Law “On the Electric Power Industry” and shall be established by the Federal Tariff Service of the Russian Federation as prescribed by the Basics of Price-Setting for Regulated Prices (Tariffs) in the Electric Power Industry approved by Resolution of the Government of the Russian Federation dd. December 29, 2011 No. 1178[7].
Under the contract of accession, Center of Financial Settlements renders to the wholesale market entity a complex service in calculation of demands and obligations, and acts in the wholesale market as a unified party to transactions and signs in the wholesale electric power (capacity) market on its own behalf contracts ensuring wholesale trading in electric power and capacity in accordance with standard forms and (or) preliminary terms stipulated by the contract of accession. The service of Center of Financial Settlements is complex and implies continuous implementation, pursuant to cl. 8.1 of the contract of accession, of a range of actions for the wholesale market entity aimed primarily at determination of financial obligations and demands of each wholesale market entity on a basis of the results of settlement period and arrangement of settlements for electric power and capacity. The price of services of Center of Financial Settlements is not regulated and shall be determined in the contract of accession through approving the amount of charge for services of Financial Settlements by the Supervisory Board of Market Council.
Organizations of the technological infrastructure of the wholesale market – System Operator and Federal Grid Company – being parties to the contract of accession, render no services to the wholesale market entity under this contract. Services of Federal Grid Company in transmission of electric power rendered to wholesale market entities are mediated by individual contracts signed in the manner and under the terms determined by statutory legal instruments regulating the procedure of rendering electric power transmission services.
Similarly, services of System Operator in supervisory control are rendered to wholesale market entities under individual contracts as stipulated by statutory legal instruments regulating supervisory control in the electric power industry.
In this respect, participation of System Operator and Federal Grid Company as parties to the contract of accession is conditioned by their infrastructure functions exercised in the electric power industry. System Operator, exercising its functions in management of technological modes of electric power facilities, performs a range of actions aimed at ensuring operation of the technological infrastructure of the wholesale market in accordance with the powers determined by the Rules of the Wholesale Market and terms of the contract of accession, pursuant to cl. 9.2 of the contract of accession.
Federal Grid Company performs a range of organizationally and technologically related actions ensuring transmission of electric power through technical devices of power grids, which it owns or otherwise legally possesses as prescribed by federal laws, whereas it also performs only infrastructure functions under the contract of accession.
The scope of Market Council’s activities is defined by cl. 6.1 and 6.2 of the contract of accession and includes performance of its functions stipulated by Art. 33 of Federal Law “On the Electric Power Industry”: Market Council ensures operation of the commercial infrastructure of the wholesale market, effective interrelation of the wholesale and retail markets, favorable conditions for attraction of investments in the electric power industry and a common stand of players in the wholesale and retail markets, when developing statutory documents regulating operation of the electric power industry, arranges an effective system of wholesale and retail trading in electric power, capacity, other commodities and services admitted to trading in the wholesale and retail markets to ensure energy security of the Russian Federation, unity of the economic area, freedom of economic activities and competition in the wholesale and retail markets, to balance interests of producers and purchasers of electric power and capacity and to meet public demands for reliable and stable supply of electric power.
In this respect, the crucial point for the wholesale market entity is that it is Market Council represented by its collegiate body – Supervisory Board – which determines terms of the contract of accession and terms of standard forms of contracts regulating purchase and sale of electric power and capacity.
Legal relations between wholesale market entities in purchase and sale of electric power and capacity do not arise from the contract of accession, since wholesale market entities are not bound by the contract of accession. Pursuant to subcl. 3, cl. 40 of the Rules of the Wholesale Market, material terms of the contract of accession include types of contracts signed in the wholesale market to ensure purchase and sale of electric power and/or capacity.
This requirement of the Rules of the Wholesale Market corresponds to Chapter 3 of the contract of accession, which stipulates general principles of the system of contracts of the wholesale market and includes essential terms of each contract that must be concluded by the wholesale market entity.
The system of contracts of the wholesale market ensures operation of the commercial infrastructure of the wholesale market and determines a range of contractual relations compulsory for wholesale market entities to ensure purchase and sale of electric power and (or) capacity and provision of services in the wholesale market.
The list, terms and procedure of conclusion, amendment and termination of contracts being part of the system of contracts of the wholesale market shall be defined by regulatory legal instruments and (or) provisions of the contract of accession.
In the cases stipulated by the Rules of the Wholesale Market and/or provisions of the contract of accession, contracts required for participation in the wholesale market trade system (trading in electric power and capacity in the wholesale market) shall be concluded in accordance with standard forms constituting annexes to the contract of accession.
Compulsory electric power and capacity sale contracts (depending on the category of wholesale market entities) include:
- regulated electric power and capacity sale contracts as prescribed by the rules of the wholesale market;
- commission agency contracts and electric power sale contracts on a basis of a competitive tender of 24-hour price bids;
- commission agency contracts and electric power sale contracts on a basis of a competitive tender of bids to balance the system;
- capacity supply contracts, including contracts on supply of capacity of commissioned generating facilities;
- contracts on sale (supply) of capacity of new hydropower plants and nuclear power plants;
- contracts on sale of capacity produced with the use of generating facilities engaged in enforced generation of capacity;
- capacity sale contracts on a basis of competitive capacity outtake;
- contracts on supply of capacity of qualified renewable-based generating facilities.
The specific list of contracts compulsory for a certain wholesale market entity shall be defined in compliance with the Rules of the Wholesale Market, when it gains the right to participate in relations associated with trading in electric power and capacity in the wholesale market.
Next, we shall address the issue of cancellation of the contract of accession. The grounds for its termination are stipulated in cl. 22.1 of the contract of accession and include termination of the contract:
- upon agreement of the parties;
- upon unilateral extrajudicial repudiation of the contract by Market Council;
- upon court order.
In this respect, unilateral extrajudicial repudiation of the contract of accession by Market Council is acceptable in the following cases:
- upon withdrawal of the organization’s status of wholesale market entity;
- upon termination of purchase (sale) of electric power and capacity in the wholesale electric power market (deprivation of the right to participate in trading in electric power and (or) capacity) in relation to the wholesale market entity;
- upon cancellation, at the wholesale market entity’s initiative, of any contract regulating purchase and sale of electric power and capacity and compulsory for such a wholesale market entity;
- upon the wholesale market entity’s failure to conclude any contract regulating purchase and sale of electric power and capacity and compulsory for such a wholesale market entity;
- upon transfer of rights and obligations under this contract to any third party by succession as a result of reorganization through merger or acquisition, whereas the third party has a signed contract of accession to the wholesale market trade system.
A key element of the mechanism cancellation the contract of accession is that, if the wholesale market entity fails to conclude or cancels any contract regulating purchase and sale of electric power and capacity and compulsory for such a wholesale market entity, Market Council repudiates, unilaterally by extrajudicial means, the contract of accession with such an entity, which makes its participation in trading in the wholesale market legally impossible.
In conclusion it should be noted that the contract of accession and the entire system of contracts of the wholesale market is unique in the Russian Federation and the absence, over the past twelve years[8], of judicial acts recognizing any defects of these contracts evidences, in our view, that the system of contracts in the wholesale market is correct and legally effective.
[1] Federal Law dd. March 26, 2003 No. 35-ФЗ “On the Electric Power Industry” // Collection of Legislative Acts of the Russian Federation, 2003, No. 13, Art. 1177 (in Russian).
[2] Federal Law dd. November 21, 2011 No. 325-ФЗ “On Organized Bidding” // Collection of Legislative Acts of the Russian Federation, 2011, No. 48, Art. 6726 (in Russian).
[3] Federal Law dd. February 7, 2011 No. 7-ФЗ “On Clearing and Clearing Activities” // Collection of Legislative Acts of the Russian Federation, 2011, No. 7, Art. 904 (in Russian).
[4] The procedure for forming the Supervisory Board of Market Council Non-Profit Partnership is set in Art. 33 of the Federal Law “On the Electric Power Industry”.
[5] Resolution of the Government of the Russian Federation dd. December 27, 2010 No. 1172 “On Approving the Rules of the Wholesale Electric Power and Capacity Market and on Amending Certain Acts of the Government of the Russian Federation on the Procedure of Operation of the Wholesale Electric Power and Capacity Market” // Collection of Legislative Acts of the Russian Federation, 2011, No. 14, Art. 1916 (in Russian).
[6] The standard form of the contract of accession is posted on the official website of Market Council. URL: http://www.np-sr.ru/regulation/joining/stdd/index.htm
[7] Resolution of the Government of the Russian Federation dd. December 29, 2011 No. 1178 “On Price Setting for Regulated Prices (Tariffs) in the Electric Power Industry” // Collection of Legislative Acts of the Russian Federation, 2012, No. 4, Art. 504 (in Russian).
[8] Wholesale market entities started concluding the contract of accession in October, 2003 during the reform of RAO UES of Russia, OJSC with the entry into force of the Rules of the Wholesale Electric Power Market in Transition approved by Resolution of the Government of the Russian Federation No. 643 dd. October 24, 2003.