The Standard Power Contract: A Hedge Against Price Spikes?

 

EEI's contract is ready to go for physical trades of electricity, but the architects say it's likely too late to make a difference this summer.

Will the return of summer again find power marketers glued to computer screens, watching for that killer price spike that in minutes could wipe out a year's worth of profits?

The fear is real. Suppliers who default can cause havoc if the underlying contract for physical energy delivery fails to spell out the financial liabilities. And in the past, that's been the case in U.S. power markets, says Chuck Shivery, president and chief executive officer at Constellation Power Source.

"Part of the reason we have contractual risk," he notes, "is because there is not standardization within the industry. Everything works well and [then] when there are problems, you get into significant disagreement about this term or that term."

Yet all that may change - and for the better - if the industry embraces the long-anticipated standardized contract for physical trades of electricity, which was introduced in New York city in April, at a conference sponsored by the Edison Electric Institute.