WSPP Agreement Overview
The Western Systems Power Pool Agreement (the "WSPP Agreement"), is a participation agreement for members of the Western Systems Coordinating Council ("WSCC") in the California-Mexico Power Exchanging Network (the "CAPEX Network"). Its purpose is to facilitate energy transactions in the CAISO and western interconnection. The WSPP provides a central resource for access to energy supply and demand , as well as a flexible framework for establishing creditworthiness of market participants. This agreement and its associated governing documents are vital to power and gas markets in the western interconnection. Capable of aggregating all of the market participants in the region, the WSPP fits right in with the interconnection-wide principles embodied in the NERC reliability standards and the ISO reliability must-run agreements. The WSPP Agreement is invaluable in achieving the objectives of the CAPEX network.
Features of the WSPP Agreement
The WSPP Agreement codifies the rules or conditions under which transactions are entered into and helps reduce uncertainty, protects against opportunistic behavior in the market, and provides for the resolution of disputes. It contains a number of standard provisions that can have a material effect on the parties’ obligations. Other than a few exceptions, the WSPP Agreement will govern energy trading operations on an on-going basis.
The most relevant provisions of the WSPP Agreement cover the following:
• Transaction Types: The types of transactions permitted under the WSPP Agreement are:
• Terms and Conditions: The WSPP Agreement provides standard terms and conditions that govern the use and supply of energy through the WSPP Agreement, including:
• Interaction with Other Transactions: The WSPP Agreement is intended to interact with FERC-jurisdictional wholesale power sales, that is, it does not intend to pre-empt such power sales or alter their rights and obligations.
• Optional Services. The WSPP Agreement also sets out additional services for anyone who wishes to avail themselves of such services, as well as a procedure for modifying the WSPP Agreement, which is proposed by the relevant committee and voted on by the full membership.
Advantages of the WSPP Agreement
The WSPP Agreement offers a number of advantages for energy traders. It provides a standard, pro forma agreement that has been vetted by some of the largest companies in the country and helps facilitate deals in the competitive markets for electric energy and ancillary services. By using the WSPP Agreement, energy traders can save time and obtain greater certainty that their agreements will be compliant with FERC orders and Commission policies.
A significant aspect of the WSPP Agreement is that it has been endorsed by the Western Electricity Coordinating Council. A non-profit organization recognized by FERC, WECC represents 25 western states in the areas of electric planning, reliability and information sharing. This includes utilities and power producers in California, Nevada, Montana, North and South Dakota, Washington, Utah, Arizona, and New Mexico. WECC members include such major electric market participants as PG&E, Edison International, Entergy, Williams Energy, Mid American Energy and Puget Sound Energy.
By using the WSPP Agreement to facilitate market transactions, market participants are able to realize a number of advantages:
These benefits make the WSPP Agreement an essential tool for increasing trading efficiency, market liquidity and regulatory compliance.
WSPP Agreement Compliance
When faced with the FERC WSPP tariff, compliance requirements become important. As an initial matter, you’re required to file an executed copy of the WSPP agreement with the Commission within 15 days from the date of execution. So if you’re dealing with an unsigned WSPP Agreement from the FERC unexecuted tariff, the agreement will not and cannot become effective until a signed copy has been filed. Under the FERC Uniform Facilities Manual, the use of a commercial web-based Electronic Scheduling System is required for scheduling. So there’s no short-cutting compliance there either.
And compliance with FERC procedures doesn’t mean you can’t also implement your own internal rules. For example, it’s possible to have independent corporate approval processes to follow before trading under the WSPP. Some energy companies tie employee access to the WSPP system to particular asset classes and require certain limited authorizations to trade. Others have pre-approved buy/sell trading limits on various commodities. Still others permit only senior employees to use the WSPP system at all. Although not strictly required, confirming that such internal rules exist will go a long way towards compliance.
Errors in reporting to the WSPP system can result in damages, including self-reporting expenses of approximately $500 to $10,000 per transaction. If the error is determined to be a product of gross negligence, damages can run to the amount of profit that would have been realized without the error. In addition, damages for non-reporting of transactions can run to $5,000 for each transaction violated, or fines of up to $2,500 per day for continuing violations.
Compliance with reporting requirements means that, prior to confirming WSPP trades, the reporting member shall have made a preliminary determination of an estimated profit and loss for the trade. Three different types of reports are available when transacting business under the WSPP agreement:
Statistical data on reported trades is available on the WSPP website in a number of formats and is updated regularly. This data is vital for transparency and also essential for those traders seeking data about transactions occurring or previously recorded by any other member. Flexibility in formatting must be highlighted – the person filing the reports can customize the reports so as to meet their internal filing needs for purposes of compliance.
Distinctions Between WSPP Agreement and Other Energy Trading Agreements
The WSPP Agreement is one of several energy trading agreements commonly used in the energy industry. When comparing the WSPP Agreement with other industry-standard trading agreements, it is important to consider how the WSPP Agreement differs from and/or is similar to these other agreements.
In terms of structure, the WSPP Agreement and the FERC-Jurisdictional ISDA EFET Agreement are remarkably similar. Much of the language in the WSPP Agreement tracks language in the FERC-Jurisdictional ISDA EFET Agreement, which adopts the industry standard EFET Master Agreement. The term agreements under the FERC ISDA and EFET definitions share many similarities in terminology and structure. Like the WSPP Agreement, the FERC-Jurisdictional ISDA EFET Agreement has a Master Agreement element. The Master Agreement can be executed separately or together with any transaction confirmations going forward with regard to a given transaction. The WSPP Agreement is analogous to the FERC Jurisdictional Master Agreement , and the applicable transaction confirmations are comparable to the Transaction Confirmation or ICE Master Confirmation. Further, the contracts and transactions entered into under the WSPP Agreement are readily admissible as evidence in FERC proceedings. In this way, it is similar to the FERC-Jurisdictional ISDA and EFET agreements, where transaction e-mails may be admissible at FERC in the event of a dispute.
Despite the similarities noted above, there are also key differences between the WSPP Agreement and FERC-Jurisdictional ISDA EFET Agreement. Of these differences, the scope of the WSPP Agreement is probably the most significant. The WSPP Agreement scope extends to any trading activity in Western Interconnection (except for agreements in connection with the California ISO ("CAISO")). The scope of the FERC-Jurisdictional ISDA EFET Agreement is not as broad and applies only to sales and purchases in the areas of PJM, NYISO, SPP, and AESO. The FERC-Jurisdictional ISDA EFET Agreement specifically excludes energy offered to CAISO.
Practical Examples of WSPP Agreement
One clear indication of the versatility and applicability of the WSPP Agreement is that it has been used in many different contexts and in all parts of the United States. From the outset, the WSPP Agreement had its most likely participants, i.e., purchasing and transmission utilities whose service territories spanned multiple state lines. These original participants, as well as the expansions to the WSPP Agreement that have taken place over the years, show a picture of a diverse array of small and large entities from across the country.
The original purpose of the WSPP was to foster interstate trading, where large purchases of a vertical deficiency could be met by other companies’ surpluses. The WSPP Agreement facilitated the bilateral trades between these two types of companies through its innovative credit practices. Because the WSPP Agreement did not set forth rules regarding a minimal balancing group size, the large purchasing utility could sign a bilateral agreement with a larger number of sellers, allowing an adequate balancing group for movement over large distances. The inverse case, where a larger entity wanted to sell its surpluses to a smaller utility, was not seen as often in those early days.
As time passed, the WSPP Agreement’s contracting practices became more documented in the WSPP Agreement, and the WSPP Agreement started being used in ways beyond those contemplated by the original signatories. Parties would enter into WSPP Agreements and add ancillary agreements that established new trading program types. Examples of these ancillary programs are sales of capacity and energy, imbalance energy, ancillary services, and a variety of financial and physical trading programs. Today, the multitude of contract types created by the various programs is extensive.
Among the early programs was the Central Corridor Capacity and Energy (CCCE) Program. Developed in 1987-1988, this program was originally intended to create a trading center for the movement of capacity and energy along the central corridor of the West. To facilitate this process, the WSPP Agreement established various guidelines for the movement of energy. But the CCCE Program quickly became more successful than its creators had expected, and it soon became obvious that the program had to be changed. Among the complexities that arose in the original WSPP Agreement was the effect of Network Open Access Transmission Service (NOATS) on the WSPP Agreement. In response to the concerns of the CCCE participants, a new WSPP Agreement provision was developed that governed the rights of the purchaser on both an energy-only and a firm aspect. The WSPP Agreement now has three major components – the sale of energy, the sale of capacity and energy, and the sale of financial-urgency energy.
Another example of the diversity of the WSPP Agreement can be illustrated with the various programs developed in California. Of the programs currently offered through the ISO under the WSPP Agreement, some have peculiar justifications. For example, the ISO adopted the Supplementary Ancillary Services Program (SAS) in order to make energy available in emergencies. Thus, the SAS provides energy for a period when either of the main components of the energy market is unavailable. A similar program known as the Reliability Demand Response Ancillary Services Program (RDRAS), was developed to provide demand response resources under the same emergency circumstances. Both of these programs also emphasize that while these energy supplies are only available in emergencies, they can provide customers with the ability to alter their demand for electricity.
The Future of the WSPP Agreement
The future of the WSPP Agreement is inextricably linked to the rapid pace of development in the energy markets, particularly with regard to regulatory changes. Developments such as the push towards renewable energy and the move towards a more integrated, regionally interconnected and dynamic electric grid may reshape the way participants approach power sales agreements and engage in the energy market more broadly. Moreover, it is clear that in this rapidly evolving space, the flexibility and adaptability of the WSPP Agreement – embodied in its "between-market approach" and its emphasis on electronic functionality and enhanced data management – will continue to be an asset .
The FERC initiated a comprehensive Public Policy Review of the WSPP Agreement in 2015 in light of these developments, seeking input on potential issues related to the Agreement, including with respect to the WSPP Integrated Marketplace. Industry participants have and will continue to submit proposals related to the WSPP Agreement through the current summer 2016 cycle, including requesting changes to the tariff language and submitting forms (the deadline for which recently closed on August 1, 2016). These proposals will then be used to draft the "revised WSPP Agreement" as the third iteration if the success of the current proposed revisions in the 2014 cycle, which came into effect on May 1, 2015, is any indication of how industry participants feel about the ongoing updates. This will ultimately be presented to the FERC in the fourth quarter of this year or early next year for consideration.
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