Power companies in the UK fear a legal minefield when they are forced to unravel “contracts for differences” | Norton Rose Fulbright
Electricity generators in the United Kingdom must sell most output into a central power pool. Distribution companies and other large wholesale purchasers of electricity buy from the pool. Pool prices are set by auction and change every half hour. In the case where a generator wants to sell directly to an industrial, the parties enter into a difference contract that sets a contract price for the electricity and requires a payment by one of the parties to the other to the extent pool prices vary from the contract price.
The UK government announced plans last October to scrap the pool by April 2000. At the same time it placed a ban on construction of any new gas-fired power plants following a year of crisis for British coal companies. Representatives of industry, pool advisers and consumers’ groups, told the energy minister, John Battle, in late January that the April deadline is impossible and that legislation will be required because many of the parties involved in the pool are unlikely to endorse the reform.
Differences contracts will have to be rewritten when the reforms occur.