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New rules for sale of electricity

The requirement to sell electricity on the commodities exchange, on an online trading platform and in the form of an open tender is about to go into effect.

Weronika Pelc, head of the Energy Law practice group at Wardyński & Partners, considers whether the unclear regulations will be a source of disputes.

New rules for sale of electricity by power producers, as governed by Art. 49a of the Energy Law (Journal of Laws Dz.U. 2006 No. 89 item 625, as amended) come into force on 9 August 2010. Under the new rules, the Parliament intended to create a transparent and accessible power market. So far wholesale trade in electricity has been based chiefly on bilateral contracts directly between buyer and seller, which were deemed by lawmakers to detract from transparency in establishing prices because of concentration on the market.
Must use the exchange
Under the new regulations, producers of electrical energy will be required to sell at least 15% of their output on a commodities exchange or on a regulated market. Electricity producers who receive funds to cover “orphaned costs” in connection with dissolution of long-term output contracts—which include the great majority of Polish power producers—will also be required to sell all of the remaining electricity in a manner that assures buyers equal public access to the power, i.e. through an open tender, an Internet trading platform on a regulated market, or on a commodities exchange. The only producers exempt from this obligation are producers of renewable energy (“green”), energy produced in combination with heat (“red” or “yellow”), power supplied on a direct line to the end user, power generated for the producer’s own needs, and small and medium-sized sources with an installed capacity of up to 50 MW.
A missing comma
The wording of the new regulations raises problems in interpretation having to do with the ability to comply with this obligation by entering into contracts for sale of electricity on “an Internet trading platform on a regulated market.” The Internet trading platform currently existing in Poland, under the name POEE, does not operate within a regulated market. The lack of a comma means that, when read literally, the new regulation does not recognise trade in electricity on the existing platform as meeting the legal requirements. Under the law as enacted, electricity should be sold “on an Internet trading platform on a regulated market…” but the intended meaning is disjunctive: “…on an Internet trading platform, [or] on a regulated market….” On 24 June 2010 a bill to amend the Energy Law (Parliament publication 3237) to add the missing comma was filed with the Speaker of Parliament. On 13 July the bill was given its first reading and forwarded to a committee, but it is doubtful whether it will be adopted prior to 9 August 2010 so that the missing comma can be supplied before the new rules go into effect. If not, electricity producers will be unsure whether the Energy Regulatory Office will treat POEE transactions as meeting statutory requirements.
Sale vs. production
Another doubt concerns the issue of how to determine the quantity of electricity that must be sold in the open manner described above during 2010. Interim rules provide that the new regulations apply to electricity unsold as of the effective date of the amendment. According to the interpretation from the Energy Regulatory Office announced on 12 May 2010, “unsold electricity” refers to electricity produced from 9 August through the end of 2010. The office deems sale of electricity to occur upon delivery, which in light of the specific nature of the product is the same as the time of production. In the view of the regulator, entering into an agreement for sale of electricity prior to that date cannot be regarded as the sale of electricity, because the sale of future energy occurs under the condition that the electricity will be produced. The contract thus does not effectively convey title until the electricity is delivered.
The position taken by the regulator may be countered by a different interpretation. Since the law uses the term “unsold electricity,” and not the term “unsold and undelivered electricity,” “electricity not transferred to the buyer” or “produced electricity,” the wording was clearly intention. An agreement to sell goods that are designated as to type, or future goods, is a valid and binding contract as of the time it is entered into. There is no doubt that it is possible to enter into a contract for sale of electricity to be generated in the future. Subsequent transfer of possession is not a condition for validity of the contract, but only constitutes performance of the contract. The material effect of the agreement is suspended until the good is produced, but the obligation arising out of sale of the item exists (see Supreme Court judgment dated 25 July 2001, Case No. I CKN/2000). The producer cannot effectively sell the electricity covered by the contract twice, because the electricity is already “sold.” “Sold” does not mean the same thing as “delivered to the buyer.” Thus, under the terminology used in Polish law, including the Civil Code, “sale” is different from “delivery” and “passage of title.” For this reason, the position taken by the Energy Regulatory Office is questionable.