Romania: Proposed New OTC Trading Arrangements For Electricity

Friday (11 January 2013), the Romanian energy market regulator (ANRE) published on its website for public consultation a proposal for a procedure and regulation on OTC electricity trading (the "Proposal"). ANRE has invited stakeholders to submit their comments by 21 January 2013.

The Energy Act 2012 that came into force in July 2013 placed a ban on negotiated bilateral contracts in the energy sector (commonly referred to as PPAs - power purchase agreements). Since then, the only trading place and instruments available have been on one of the platforms organised by the Romanian market operator OPCOM.

Following the entry into force of the Energy Act 2012, the stakeholders reacted vividly in an attempt to unwind such a restrictive legal framework. However, apart from a plethora of conferences and industry events, there hasn't been much progress since July 2012.

In the cover letter accompanying the Proposal, ANRE explains that this Proposal follows the efforts of the Association of the Power Suppliers in Romanian (AFEER). Given the restrictive legal framework, AFEER has argued the need for a flexible, yet transparent, option for trading and requested the setting up of an OTC trading plat-form similar to the ones already in place in Western Europe. The Proposal is the result of a series of meetings and debates (organised in October and November 2012) of a task force comprising members of AFEER, the representatives of the power generators trading on OPCOM forward market (PCCB) and of the association of power generation (COGEN), the association of the power distributors (ACUE), the TSO, as well as representatives of OPCOM, ANRE and Romania's Ministry of Economy.

This newsletter briefly summarises the key provisions of the Proposal:

• there is no standard model form imposed on the participants, and the par-ties are free to use model forms of their choice (eg: EFET model form); however the capacity, delivery period and profile (ie: base load, peak, off-peak) are standardised.

• each participant can set up an eligibility list to include its preferred trading partners. The trading partners are freely chosen by the participant; there are no pre-requisites in this respect.

• the parties are free to enter into a master trading agreement preceding trading on the OTC market. The master trading agreement can comprise all terms and conditions of a typical power trading master agreement; however, the price, the delivery period and profile must be left out, as these are the elements that will be negotiated during the trading sessions organised by OPCOM.

• OPCOM does not act as counterparty and there are no requirements on the participants to submit any collateral.

• the parties can at any time during a trading session modify their bids.

• to be registered as participant, an entity must hold a valid generation, supply, transmission or distribution license.

• the bids must comprise the following elements:

• once a sale / purchase bid has been submitted, the bidder (seller / purchaser) is committed to the terms and conditions of the master trading agreement entered into or pre-agreed with those participants listed on the eligibility list, as well as to the price and volume included in the bid.

• trading sessions are organised daily (excluding on weekends and bank holidays).

• once a trading session commences, each participant will post (using his own computer) the hourly capacity and the price.

• any time during a trading session, each market participant can place a bid or can amend, suspend or withdraw that bid.

• all participants can follow in real time all the bids placed in the market at any time during a trading session.

• all the bids where the purchase price is higher than or equal to the sell bid price, respectively the selling price is lower than or equal to the purchase bid price, are considered in the merit and they will be matched automatically.

• upon the request of both parties, a transaction can be cancelled (without cause) provided OPCOM is notified (by telephone or email) within 10 minutes as of the end of the trading session.

• the proposal also provides for a procedure where the matching bids have been posted by participants outside the eligibility list.

• the results (ie: the price and the volume) of each trading session will be made available on OPCOM's website.

The Proposal specifically provides that failure to observe the provisions of Regulation 1227/2011 (REMIT) on market manipulation and trading based on inside information will be sanctioned with a suspension from trading for a 6-month period. If a participant is suspended from trading twice, any additional infringement of the pro-visions of the Proposal will result in the revocation of its participation right.

On the face of it, the Proposal offers greater flexibility than the current trading options available on OPCOM's platforms. It still does not completely solve the risk of price and volume fluctuations (doing so is needed to put financiers and sponsors at ease); nevertheless, it will be interesting to follow the feedback from the banks and the industry during this public consultation period.

Beyond financing, the Proposal also raises several practical questions: how will it blend with the other forward markets organised by OPCOM? Will the parties still have an interest in engaging in trading on those other markets, considering the flexibility options given by these proposed arrangements? How far can the provisions of the "pre-agreed" master trading arrangement go? Based on the Proposal, it is clear that such a master agreement cannot comprise any reference to the price, the delivery period and profile (since these are the elements that will be negotiated during the trading sessions organised by OPCOM). But will an agreement, in the context of developing new generation capacities and securing the off-take of the en-tire output for medium to long term, be valid under this proposed OTC trading framework? Is such an arrangement compatible with the provisions of REMIT? These are just few examples of the questions that need to be addressed during the public consultation period.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.