Download 03/11/04 Banff - Materials

Wright & Talisman, P.C.
WSPP OPERATING COMMITTEE
March 12, 2004
Hotel Fairfax
Lake Louise, Banff National Park
Proposed WSPP Agreement Amendments
Wright & Talisman, P.C.
WSPP Operating Committee
Page 2
Proposed Amendments to Agreement Text
for OC Vote
1. Section 30: Proposed Revision of Confidentiality Provision to Permit Disclosure
of the Identities of Counterparties for Compilation of Energy Price Indices
At the Fall OC meeting in Vancouver, by a slight margin the OC disapproved
changes to Section 30 to permit disclosure of transaction terms and conditions to
developers of energy indices. Because the matter pertained to compliance with FERC
policy, and in light of the closeness of the vote (just shy of 90%), the matter was
presented to the EC for consideration. One significant area of discussion before both the
OC and the EC was whether identities of counterparties should be subject to disclosure or
whether this information should remain confidential. In order to achieve agreement to an
amendment that would advance the development of indices and serve FERC policy, the
EC approved the amendment currently in effect (Section 30.2). The Agreement now
permits disclosure of terms and conditions for development of indices, excluding party
identities.
The EC expressed approval of the Contract Subcommittee exploring a system that
would permit disclosure of party identities where members, by standing agreement, had
waived objections to disclosure (analogous to the standing netting agreements). The
Contract Subcommittee evaluated this concept, but found it unworkable and recognized
that such a system would need approval of 90% of the members in any event. Rather
than present a new system, a vast majority of the Subcommittee decided to present the
issue of party identity disclosure anew to the OC for further consideration. The
Subcommittee proposes the following amendment:
30.2
A Party may disclose the terms of transactions under this Agreement,
including the identities of parties, to any developer of any index of
electric power prices without violation of the confidentiality
obligations under Section 30.1 if: (1) the disclosing Party and the
index developer have entered into a written agreement, prior to the
disclosure, under which the developer has agreed to use the
information solely for the development of an index of electric power
prices for publication and not for any other purpose; and (2) the index
with respect to which disclosure is made is an aggregation of terms of
transactions and does not identify terms of single transactions or the
identities of parties to transactions.
Wright & Talisman, P.C.
WSPP Operating Committee
Page 3
2. Amendments Concerning Withholding of Disputed Amounts.
The Agreement requires that if a portion of a bill is disputed, the entire bill shall be
paid including the disputed amount. Credits or refunds, if appropriate, will be given
only after the dispute is resolved. Some members have maintained that this can be
unfair and have sought an amendment that would permit withholding of disputed
amounts. On the other hand, other members have opposed permitting withholding of
disputed amounts because of credit risk and because they fear that a right to withhold
could encourage bad faith disputes.
The OC has approved the Contract
Subcommittee’s work to find a mid-ground approach to these considerations.
The Contract Subcommittee now proposes the following amendments. The
amendments permit the withholding of disputed amounts but only if credit risk is
addressed with a letter of credit or as the parties may otherwise agree. If the
withholding party wins the dispute, it shall be entitled to collect interest calculated
under Section 9.3. The Contract Subcommittee considered many other aspects of
this, including payment of costs of the L/C and other forms of security. It rejected
these approaches as too complicated or too likely to produce further dispute, or as
encompassed under the authority to agree to approaches other than an LC. The
proposal reflects quite a bit of give and take among Contract Subcommittee
members. The proposed amendment follows:
4.2e
Disputed Amount Letter of Credit: As defined in Section 9.4 of this
Agreement.
9.4
(a) If a portion of a bill is disputed, the entire bill shall be paid when
due, except under the following conditions: a Party may withhold a
disputed amount, other than a Termination Payment or any part
thereof, pending resolution of the dispute, provided, that no later than
three (3) Business Days after the date the disputed amount would
otherwise have been due: (i) the withholding Party, at its expense,
posts and presents to the other Party, an irrevocable, transferable
standby letter of credit (“Disputed Amount Letter of Credit”) for the
benefit of the other Party, in an amount no less than the disputed
amount, subject to terms and conditions for payment to the other
Party, or reduction by the withholding Party, as required under part
(b) hereof, and issued by a a commercial bank or trust company
organized under the laws of the United States or Canada or a political
subdivision thereof having a capital surplus of at least one billion
United States dollars ($1,000,000,000.00) and having a credit rating
of at least (x) “A -” by Standard & Poors (S&P) and “A3” by
Moody’s Investors Service (Moody’s), if such entity is rated by S&P
Wright & Talisman, P.C.
WSPP Operating Committee
Page 4
and Moody’s or (y) “A -” by S&P or “A3” by Moody’s, if such entity
is rated by either S&P or Moody’s, but not both, or other financial
institution acceptable to the other Party; or (ii) enters into some other
mutually agreed method of satisfying the other Party with respect to
such withholding. The withholding Party shall maintain the Disputed
Amount Letter of Credit until draw or reduction occurs in accordance
with terms required under part (b) hereof, and if the Disputed
Amount Letter of Credit is not so maintained, then payment of the
full amount of the disputed amount shall be immediately due.
Nothing in this Section 9.4 is intended to modify Section 34
concerning dispute resolution.
(b) The Disputed Amount Letter of Credit shall authorize the other
Party to draw thereon no later than five (5) Business Days after
presentation of, and in accordance with, (i) an agreement between the
Parties authorizing the draw, or (ii) a final judgment, final
administrative order, or final arbitral order, that determines the
dispute or the parties’ respective entitlements to the withheld amount
or portions thereof, and as to which no appeal is pending or the time
for filing an appeal has expired. The Disputed Amount Letter of
Credit shall provide that if any disputed amount has been paid or has
been agreed by the parties or determined by such a final judgment,
final administrative order, or final arbitral order not to be due, then
the withholding Party may reduce the Disputed Amount Letter of
Credit in such amount.
(c) To the extent the dispute is resolved in favor of the withholding
Party, the other Party shall be required to pay interest on the disputed
amount, such interest to be calculated in the manner set forth in
Section 9.3. To the extent the dispute is resolved against the
withholding Party, interest shall be paid in accordance with Section
9.3.
(d) Any amount of any bill that, due to inadvertent error or payment
of a disputed amount, has been underpaid or overpaid, shall be
returned by the owing Party upon determination of the correct
amount, with interest calculated in the manner set forth in Section
9.3. The Parties shall have no rights to dispute the accuracy of any
bill or payment after a period of two (2) years from the date on which
the bill was initially delivered.
Wspp/operating committee materials 030204