Everyone wins: Renegotiating purchase power agreements

Journal Article · Tue Apr 01 04:00:00 EST 1997 · Electricity Journal

DOI:https://doi.org/10.1016/S1040-6190(97)80381-8· OSTI ID:535282

Marron, S T; Tyurin, E N; Wile, J H; Trader, G

Electric industry restructuring places pressure on utilities to renegotiate their power purchase agreements, particularly those with nondispatchable provisions. Real economic savings, which can be achieved by replacing purchased power in those hours when it is not economic, can be shared by the utility and non-utility generator. Electric utilities are examining their purchase power contracts closely in response to electric industry restructuring. Under the Public Utilities Regulatory Policies Act (PURPA), many utilities entered into contracts with prices that may have seemed reasonable at the time but are now very high compared to both current wholesale electric prices and projections of future competitive prices. The difference between the contract prices for utilities and the competitive prices is a major component of their potential stranded cost. Moreover, these high priced contracts place utilities at a disadvantage in competitive power markets. Consequently, utilities have a strong incentive to renegotiate these contracts to obtain more favorable terms. This article focuses on the potential savings that can be obtained from renegotiating non-dispatchable provisions of purchased power contracts. Converting the nondispatchable terms to allow for dispatchability can yield substantial gains that can be shared by the utility and the non-utility generator. To the extent the utility shares in the gains, its potential stranded cost exposure is reduced, and its competitive position is improved. Non-utility generators can benefit in two ways: (1) Renegotiation can lead to greater profits; and (2) renegotiation can reduce a utility`s risk, which can improve the financial rating of a non-utility project. When both utilities and non-utility generators can gain, both have incentives to renegotiate their contracts.

• OSTI ID: 535282
• Journal Information: Electricity Journal, Journal Name: Electricity Journal Journal Issue: 3 Vol. 10; ISSN ELEJE4; ISSN 1040-6190
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
COMPETITION
CONTRACT MANAGEMENT
CONTRACTS
DEREGULATION
ELECTRIC POWER
ELECTRIC POWER INDUSTRY
ELECTRIC UTILITIES
GHANA
NEGOTIATION