Energy and Commodities Practice
Product and Industry Coverage:
Wholesale & Retail
- Electric Power & Capacity
- Natural Gas, Gas Liquids & LNG
- Coal and Other Feedstocks
- Crude Oil
- Refined Fuels, Bulk Chemicals & Other Derivative Products
- Weather Derivatives
- Financial Derivatives
Breadth of Experience:
OTC Physical Energy Trading
Troutman Sanders is the only law firm to have actively participated in the development of what have become the industry standard master trading agreements for physical wholesale power and natural gas on both sides of the Atlantic Ocean. Troutman Sanders serves as principal outside counsel to the European Federation of Energy Traders (EFET), having chaired drafting committees for development of the current versions of EFET’s Master Agreements for both European Power and Natural Gas trading. The firm also coordinates the procurement by EFET of legal opinions in numerous countries regarding insolvency, close-out netting and other key issues relating to enforcement of the EFET Master Trading Agreements. In addition to its work with EFET, the firm remains an active participant in the Edison Electric Institute (EEI) which it has done since EEI’s inception, participating in the development of the EEI Master Agreement employed for North American power trading (EEI Power Contract) as well as the EEI Gas Annex and the EEI Coal Trading Annex to the EEI Power Contract. The firm was also an active participant in the development of both the North American Energy Standards Board (NAESB) Agreement and its predecessor, the Gas Industry Standards Board (GISB) Agreement for trading natural gas in North America.
In addition to its unrivaled expertise in the now dominant market agreements described above, the firm has extensive expertise in the use of regional and niche market trading documents and terms of reference such as the Electric Reliability Council of Texas (ERCOT) Agreement and Western Systems Power Pool (WSPP) Contract in the United States, England’s NBP-97 gas trading terms and Electronic Forward Agreement Association’s Grid Trade Master Agreement (GTMA), both releases of Belgium’s Zeebrugge Gas Hub ZBT Terms & Conditions in 2001 and 2004, as well as the variety of other regional energy hub and locationally specific trading and title transfer documents employed across both North America and Europe.
The firm was also active in working with EFET to develop the TTF Appendix customizing EFET’s Gas Master Agreement for purposes of trading at the Netherlands’ TTF Virtual Gas Hub, country Appendices for both the Power and Gas Master Agreements for use in Italy (PSV) and Appendices to the Gas Master to facilitate trading at France’s PEG hub, Belgium’s Zeebrugge hub, England’s NBP, and most recently, Germany’s BEB hub.
The firm has customized all principal master forward trading agreements in use in the industry today and has also developed proprietary agreements to meet specific client needs while continuing to facilitate the simplified and systematic formation of legally enforceable energy transactions. The Firm’s attorneys are familiar with or have negotiated many master forward trading agreements and related security arrangements in addition to the EFET, EEI, NAESB, GISB, ERCOT, WSPP, NBP, ZBT, and GTMA contracts already mentioned above, including the Coal Trading Association’s Master Coal Purchase and Sale Agreement (both the 2000 and the updated 2006 versions), globalCoal’s Standard Coal Trading Agreement (SCOTA)(for which Troutman Sanders assisted EFET in developing its Template Coal Credit Annex), the ISDA master trading agreements, ERMA and other proprietary form master swap agreements for "over-the-counter" energy risk management and derivative trading transactions, as well as long and short form swap and forward product confirmation agreements.
The firm has remained on the cutting edge of trading document development, having drafted one of the first widely used proprietary master agreements to enable the trading of multiple energy commodities under a single umbrella document, thus greatly simplifying the administrative burden of trading multiple commodities while allowing for trade credit optimization through cross-commodity netting under a truly single agreement.
The Firm’s attorneys have drafted and negotiated hundreds of power purchase and sales agreements, including for coal, gas, dual fuel and nuclear. These agreements have ranged from system supply agreements to generator-specific, long-term, take-or-pay power purchase agreements in order to support project financings, to spot purchases of energy.
OTC Financial Trading & Hedging
Troutman Sanders is an active member of the International Swaps and Derivatives Association (ISDA), with full access to all ISDA publications, legal opinions and committee reports. Firm representatives serve on numerous ISDA working groups and committees, including its Energy Products committee, Emissions Trading committee, European Energy, Commodities and Developing Products committee, as well as ISDA’s working group committees for Gas (both Europe and North America), Power (both Europe and North America), Freight and Coal, Oil (global), and Other Products. The firm also serves on the Users’ Group for the FEMA Agreement developed by the Nordic Association of Energy Traders (NAET).
In assisting our clients with OTC transactions, we have prepared and customized countless ISDA (both 1992 and 2002 versions), FEMA, ERMA and proprietary form master swap agreements and contracts for differences for energy risk management and other "over-the-counter" derivative trading transactions. We have also developed long form swap confirmation ("mini-master") agreements for use pending the execution of formal umbrella trading documents. Further, we can customize deal documentation for all forms of synthetic, off-exchange futures trading, cash-settling energy options and option-based products, as well as all traditional swap and basis trading activities, weather, credit, emissions and other energy-linked derivative products.
Auctions of Electricity and Natural Gas
We have developed highly flexible credit and contractual frameworks for use in public auctions in Europe of electricity generating capacity including drafting power purchase agreements, credit support annexes, netting agreements and various forms of collateral instruments. We have also advised clients on public auctions of natural gas including highly structured contractual documentation to implement and manage the credit and legal risk of such innovative products as the auction of a physical exchange of gas between deliveries at a single delivery point in one European Economic Area (EEA) country and corresponding redeliveries at market hubs in other EEA countries such as England, Germany, Belgium, and Holland.
Exchange Trading
We have counseled clients on membership and access agreements on, as well as, where applicable, the purchase of seats on, all major global energy commodity exchanges, from the New York Mercantile Exchange (NYMEX), Chicago Board of Trade (CBOT), Kansas City Board of Trade (KCBT) and Intercontinental Exchange (ICE) in the US, to the UK’s International Petroleum Exchange (IPE) and UK Power Exchange (UKPX), to the NordPool Power Exchange for Europe’s Nordic energy markets, to Germany’s now combined Leipzig and Frankfurt Energy Exchanges (the European Energy Exchange or EEX), to the Amsterdam Power Exchange (APX), the French Electricity Bourse (Powernext) and Energy Exchange Austria (EXAA). We also advised both Powernext and Clearnet in revising the terms of their spot and derivatives market documents and concluding the terms of an endorsement agreement with EFET necessary for its participants to gain optimal close-out netting rights under French law.
In connection with clients’ exchange trading activities we have negotiated service and margining agreements with floor brokers, clearing brokers, clearing houses and other regulated Futures Commission Merchants and financial service intermediaries serving all major global energy markets.
Electronic Trading Systems
The firm has reviewed and negotiated agreements to transact business on all major futures exchange-operated, real time and after hours trading systems as well as the vast majority of recognized internet-based, proprietary B2B physical energy trading platforms and quasi-exchanges. Further, our E-Commerce and Securities practitioners enable us to remain on the cutting edge of developments in the laws and regulations governing both the traditional regulated contract markets and the newer electronic energy trading systems which are becoming more and more aligned with, and in some cases merging with, acquiring or replacing, traditional contract markets and futures exchanges.
Retail Sales and Purchases & Long Term Supply Agreements
The firm has developed an array of agreements to meet the needs of both end use energy customers and those marketing to them. Our retail energy marketing applications run the spectrum from highly structured and customized long term requirements contracts for large industrial and commercial customers to short and simple contracts for use with less sophisticated end use customers making their first non-utility energy purchases under retail choice programs. For our energy consumer clients, we can provide a wealth of knowledge about the regulatory developments currently expanding their choices of energy supplier options, guidance in helping them differentiate and select from among available energy providers, and specific assistance in contracting for the worry-free supply of their comprehensive energy needs. In this vein, the firm has ample experience with the structuring and preparation of requests for supply proposals, RFP bid responses and capacity auctions for every conceivable structure of energy transaction and on behalf of a broad spectrum of customer classes and suppliers.
Balancing, System Access, Power Pool and Interchange Agreements
We are familiar with all of the major membership and participation agreements which must be executed as a prerequisite to the purchase, sale, wheeling, parking, balancing and transmission of energy on ISOs, grid networks, regional power pools, hubs, interchanges and transmission systems.
Fuels Management, PPA and Tolling Agreements
The firm has negotiated and developed consulting services and agency agreements for the outsourcing and management of third-party procurement, supply, fuels management and delivery services. We have performed these services on behalf of independent power generation and cogeneration facilities, industrial plants and refineries, as well as assisted such clients with umbrella agreements for the aggregation of energy billings and payments on both a regional and nationwide basis. We have developed traditional cost-based power purchase, tolling, physical exchange and fuels management agreements that provide varying degrees of rebundling of commodities and services or that involve the exchange of one energy commodity for another on either a real time or a temporal or distance deferred basis.
Utility Power Sales Tariffs
The firm has broad experience in developing appropriate terms and conditions and pursuing the filings necessary to successfully secure all requisite regulatory approvals for the sale of energy at competitive, market-based rates. We have acquired approval from the Federal Energy Regulatory Commission and numerous state level regulators for our utility and other energy clients to market both wholesale and retail energy. In all such cases we have consistently and successfully pursued the minimization of retained regulatory encroachment over our client’s energy marketing activities.
Weather
We have counseled clients with weather-sensitive risk profiles in the review, negotiation and purchase of "over-the-counter" weather derivatives, both on a stand alone basis and under one or more master swap agreements. We have also advised clients making a market in weather derivatives on form documentation, policies and procedures relevant to this product market.
Regulation of Traded Markets
The firm has long advised clients on the regulation of various "over-the counter" derivative and historically regulated contract markets, on market and exchange rules and on pending legislation impacting the traded markets. We have been actively involved on behalf of a number of companies lobbying in Washington D.C. against Senator Feinstein’s proposed amendments to The Commodity Exchange Act. The firm is also actively involved with several clients in developing strategies to participate in and respond to related ongoing legislative efforts at both the state and federal levels. Our extensive practice before the US Federal Energy Regulatory Commission (FERC) has expanded to follow FERC, in its post-Enron realignment, into increased scrutiny of trading practices within the US energy markets. And the firm’s Special Investigations and Securities practices have assisted clients being investigated by the Securities Exchange Commission, Commodity Futures Trading Commission, Federal Trade Commission and FERC’s newly created Office of Market Oversight.
We have also worked with EFET and its members in meeting with European Commission representatives on issues relevant to Financial Services and Energy Market regulation, emphasizing the EU Directive’s potential impact on traditional energy companies participating in Europe’s recently liberalized and now increasingly competitively traded energy markets. We have also spoken on behalf of clients with financial services and energy regulatory bodies in several European Union member states.
The firm has coordinated trading client responses to inquiries from the CFTC and FERC’s Office of Market Oversight and Investigations (OMOI), and has conducted, in the Post-Enron environment, and at the request of senior management, risk managers, legal departments, Audit Committees and Boards of Directors of numerous companies engaged in trading activities, a large number of both targeted and broad-ranging evaluations and reviews designed to determine if deficiencies exist in controls and processes related to their companies’ trading functions, and if so, recommending ameliorative responses to both address lingering risks relating to prior conduct and also to bring such activities on a going forward basis up to industry best practice levels.
Ancillary Risk Management Advise, Document Preparation & Negotiation
In support of our clients’ various energy trading, marketing and risk management activities, Troutman Sanders has developed, negotiated, customized and advised on the following energy-related ancillary credit support documents:
Master Netting & Bridging Agreements
We have worked with clients and are fully conversant in the use of netting documentation of the cross-contract, cross-product (commodity), cross-border and cross-entity varieties. We assisted EFET with its development of the EFET/IECA European Energy Commodities Schedule to the Bond Market Association form Cross Product Master Agreement (CPMA). The firm is also coordinating on EFET’s behalf the procurement of local country legal opinions on the CPMA, as modified by the EFET/IECA Schedule. In addition to its work with the CPMA, the firm’s North American Practitioners have significant experience and expertise with the EEI Form Master Netting Agreement. In addition, we have developed proprietary form netting agreements of various scopes to meet the unique needs of numerous clients. Further, the firm’s energy derivatives personnel have assisted clients with evaluations and use of ISDA’s 2001 Cross Agreement Bridge and 2002 Energy Product Bridge.
Collateral and Margin Agreements
We have advised on and are familiar with the plethora of collateralization, securitization and margining agreements designed to facilitate the management of mark-to-market and accounts receivable risks inherent in trading energy at fixed forward prices. We assisted EFET with the development of a form Credit Support Annex to supplement either or both of its Power and Gas Master Agreements as well as a Cross Product Credit Support Annex (CPCSA) for collateralizing net obligations at the level of EFET’s form Master Netting Agreement (the CPMA). The firm is currently coordinating on EFET’s behalf local country legal opinions on the enforceability of collateral rights under the CPCSA in multiple European jurisdictions. Firm derivatives practitioners are equally familiar with and conversant in the US and UK law versions of the ISDA Credit Support Annexes. Model Credit Support Addendum developed by NAESB as a supplement to its form Master Agreement for Natural Gas trading. We have also assisted clients in developing their own proprietary form margin and credit documents.
Other Credit Instruments
The firm works on a daily basis with the varying types and forms of financial support agreements designed to expand or enhance the trading flexibility of often thinly–capitalized trading entities while only exposing the parent, guarantor, surety or issuer to readily quantifiable potential obligations. We are familiar with industry practices in this area, and are fully conversant in the review and use of parent company and bank guarantees, German Profit & Loss Transfer Agreements and Dutch 403 Declarations, escrow agreements, standby letters of credit, prepayment agreements, pledge, hypothecation and other securitization agreements, comfort letters, credit derivatives, credit insurance and other credit instruments customized to address the exposures common to underlying transactions.
Clearing Agreements
We have counseled clients wishing to make use of centralized third party services for clearing of both exchange-related trades and "over-the-counter" physical and derivative transactions. In doing so we have reviewed and negotiated on their behalf various form agreements with the major providers of these services in the US and Europe.
Counterparty & Service Provider Document Review & Negotiation
In addition to the preparation and drafting of form and customized documents for its energy trading and marketing clients, Troutman Sanders’ attorneys regularly review, analyze, negotiate and advise clients on agreements received from their trading counterparties and various regulated and unregulated service providers.
Master Trading Agreements, Sales Tariffs and Service Schedules
Our recommendations primarily focus on correcting legal deficiencies in the documents of less sophisticated parties and on conforming such documents to what we believe to be industry best practices and what we have learned regarding the requirements of the client’s internal procedures and policies.
Confirmations & Deal Documentation
Here, our primary focus is on ensuring the enforceability and proper documentation of the commercial terms of physical and financial transactions. We have also been engaged to resolve disputes over conflicting confirmations and differing interpretations of the commercial terms of transactions, and have successfully litigated and arbitrated trading-related disputes on behalf of multiple clients.
Transmission, Transportation, Gathering, Processing, Wheeling and Distribution
We have reviewed and advised on individual service agreements with utility and other regulated and unregulated monopoly and other essential service providers. We have also negotiated the terms of such agreements and related side agreements with such service providers, capitalizing on negotiated special arrangements and rate discounts.
Storage, Control Area and Hub Services
We are familiar with and have put in place agreements for wheeling, balancing, deferred delivery, ancillary and peaking services provided by market centers, control area operators, energy hub centers and other service providers.
Collateral, Agency and Margin Loan Agreements
Coincident with trading on the contract and OTC markets, we have negotiated the terms of supplementary documents with banks, escrow agents, affiliates of brokers and various Futures Commission Merchants to ease the administrative burden of margin and collateral calls. Here, our focus has most often been on simplifying the cash flow obligations of our clients.
Development of Internal Procedures & Codes of Conduct
The legal practitioners at Troutman Sanders have advised energy trading clients on the development and implementation of industry best practice policies and procedures governing: (1) Risk Management, Administration of Internal Controls, and Trade Security, (2) Counterparty Credit Management, (3) Inter-Affiliate Sales, Information Flows and Related Codes of Conduct, (4) Antitrust, Competition Law and Fair Competitive Practices, (5) Contract Administration and Trading Systems Integration, (6) Insider Trading, (7) Financial Services Regulation and Related Requirements, (8) Anti-Boycott and Foreign Corrupt Practice Act Requirements, and (9) Document Control and Retention. We have also provided clients with customized seminars and employee training on any and all of the above subjects.
Best Practice Reviews and Audits of Trading and Marketing Functions
In the wake of the collapse of Enron and numerous related allegations of improper, fraudulent, anticompetitive and otherwise illegal activities within the traded energy markets, Troutman Sanders has been the preferred choice of Boards of Directors, Audit Committees and Senior Management with numerous companies for performing independent reviews of the practices currently engaged in by their trading related subsidiaries. This is no doubt in some part due to the firm’s historic record of having never represented any division, affiliate or arm of Enron, thus making it perhaps the only major energy law firm free of any taint associated with the practices and deals which ultimately led to Enron’s demise. We have performed both narrow analyses of identified risk areas and top to bottom evaluations. We have also recommended and assisted in the implementation of numerous ameliorative actions designed to correct identified deficiencies or risk areas and bring the actions of the evaluated entity up to what we believe to be industry best practices.