Thomas H. Warren 9 th Annual Gas & Power Institute September 24, Power Purchase Agreements in a Nodal Market

Transcription

1 Thomas H. Warren 9 th Annual Gas & Power Institute September 24, 2010 Power Purchase Agreements in a Nodal Market

2 About Sutherland Over 50 energy attorneys Offices Atlanta Austin Houston New York Washington, DC

3 Past, Present and Future Interpretation issues under pre-nodal PPAs Issues to address in current PPAs Planning for future market changes

4 Interpretation Issues Delivery Point Delivery Point Specified as an ERCOT Zone Specified as a specific point, e.g., facility busbar ERCOT Seller s Choice Are we still talking about this? Relatively recent EEI Products clarify nodal obligations Legacy contracts

5 Interpretation Issues Delivery Point Does the change to nodal invalidate the PPA? Force Majeure Change in law Common law theories Can you say you didn t see it coming? Depends on when you entered into the PPA Contract terms matter Compare to experiences in other RTOs PJM and MISO Into, Seller s Daily Choice MRTU Settlement EEI Conversion Conventions

6 Interpretation Issues Wind PPAs Wind PPAs typically allocate risk of curtailment Seller bears risk of ERCOT transmission curtailment Buyer bears risk of low (and negative) prices Buyer may curtail voluntarily, pay contract price + gross-up of PTC Nodal: expect fewer curtailments, many negative LMPs Result: Buyer pays for energy that would have been curtailed in a zonal market Buyer s right to curtail prevents market inefficiencies Just re-allocates economic risk between Buyer and Seller

7 Interpretation Issues Structured PPAs Long-term PPAs often contain much more detailed scheduling provisions than short-term PPAs Greater specificity is better except when it becomes incorrect Likewise, long-term PPAs often have more detailed terms allocating rights and responsibilities for ERCOT payments and charges Easier to reconcile ambiguities before positions are crystallized

8 Interpretation Issues QSE Services Don t forget the QSE Services Agreement May contain outdated provisions E.g., require QSE to submit zonal balanced schedules May not reflect credit obligations of QSE

9 Current Issues Delivery Point Delivery Point under Long-term PPAs Typical for delivery to be at busbar Buyers seeking delivery at Hub Congestion risk Difficult to hedge Delivery risk

10 Current Issues ERCOT Dispatch Dispatch every 5 minutes instead of 15 minutes Ramp rates become more critical Effect on ability to provide ancillary services Ramp rate guarantees?

11 Current Issues Scheduling Scheduling Deadline for Firm Products EEI relies on the practice of the Transmission Providers EEI Amendment for ERCOT Energy Firm (LD) Firm (No Force Majeure) Clarifies parties must schedule prior to RUC deadlines

12 The Future Capacity No capacity market Encourage new generation through scarcity pricing Potential volatility Northeast RTOs have struggled with structure of capacity markets Still developing

13 The Future Anticipating Change You can t anticipate the future but you can anticipate change Compliance with laws covenant Change in law clauses Increased costs to perform Changes in law that affect the contract structure Consider your related positions Inclusive drafting regarding operations, payments

14 Thank You Thomas H. Warren Sutherland 999 Peachtree Street, NE Atlanta, GA