In Re (#12 December 2019)

Establishment of Contractual Relations on New Electricity Market of Ukraine

by Andriy Syvak

The segments of the new electricity market in Ukraine provided for by the Law of Ukraine On the Electricity Market, as balancing, ancillary services segment, one day in advance, intra-day and bilateral contracts, obligatory conditions of participation in which for individuals, who are non-consumers, are contracts that ensure the functioning of such a market, should have come into effect from 1 July 2019 in Ukraine.

In particular, according to Article 4 of the aforementioned Law, the following types of contracts are concluded to ensure that the electricity market functions:

a bilateral contract for the purchase and sale of electricity;

participation in the market one day in advance and/or the daily market;

the purchase and sale of electricity on the market one day in advance;

the purchase and sale of electricity on the domestic market;

participation in the balancing market;

on the settlement of imbalances;

provision of distribution services;

provision of transmission services;

provision of ancillary services;

provision of dispatching (operational and technological) management services;

about joining the transmission system;

about joining the distribution system;

on access to the capacity of interstate crossings;

on the supply of electricity to the consumer;

on the supply of electricity to the universal service provider;

on the supply of electricity to the supplier of last hope;

provision of commercial electricity metering services;

on the purchase and sale of electricity at a green tariff;

about the purchase and sale of electricity between a guaranteed buyer and an entity which has been eligible for support as a result of the auction.

Establishment of contractual relations between the parties implies, in most cases, adherence to the terms of standard public contracts approved by the regulator of NCGRECS by the market participants in question.

As a general rule, a contract is concluded from the moment of receipt by the person who made the offer to conclude the contract, the answers on acceptance of this offer (Part 1 of Article 640 of the Civil Code of Ukraine).

Article 630 of the Civil Code defines an agreement of accession as a contract whose terms are established by one of the parties in a form or other standard forms, which can be concluded only by the other party joining to the proposed contract as a whole. The other party cannot offer its own contractual terms.

The agreement of accession may be amended or terminated at the request of the acquiring party if it disposes of the customary rights it has, and also if the agreement excludes or limits the liability of the other party for breach of the obligation or contains other conditions clearly oppressive to the joined party. The joined party must prove that it would not accept these conditions on the basis of its interests if it had the opportunity to participate in determining the terms of the contract.

If the request for modification or termination of the contract is made by the party that joined it in connection with the pursuit of its business activity, the party that has submitted the contract for accession may refuse to satisfy these requirements if it proves that the party that has joined, knew or could know, on what terms it joined the contract.

According to Part 4 of Article 179 of the Civil Code, when concluding business agreements, the parties may determine the content of the contract on the basis of an agreement of accession offered by one party to other possible entities, when these entities have no right to insist on changing its content when entering into a contract.

According to Article 633 of the Civil Code a public contract is a contract in which one party, the entrepreneur, undertakes to sell goods, perform works or provide services to anyone who addresses it on terms identical to all consumers except those who are legally granted the relevant benefits. The entrepreneur has no right to refuse to conclude a public contract if he has the opportunity to provide the consumer with relevant goods (works, services), while legislation may establish rules that are binding on the parties when concluding and executing a public contract.

Consider as some examples some of those contracts mentioned in Article 4 of the Law On the Electricity Market.

In particular, contracts for the provision of distribution services, the provision of universal services, and the supply of electricity by a supplier of last hope are defined by public contracts of accession directly by this Law.

Agreement on the regulation of electricity imbalances is defined by the public agreement of accession by Market Rules.

Legislation on the electricity market provides for the special rules mentioned in part 5 of Article 633 of the Civil Code of Ukraine, which are binding on the parties when concluding and executing a public contract.

For example, in accordance with Market Rules a candidate for market participant who wishes to conduct operations on the electricity market of Ukraine must submit to the Transmission System Operator (TSO) a duly completed application for joining the agreement on regulation of electricity imbalances (in the prescribed form).

In so doing, such a candidate must have valid contracts for the provision of electricity transmission services, for the provision of dispatching (operational and technological) management services, which are concluded in accordance with the Transmission System Code, and a valid contract for the provision of services for compensation of overflows of the reactive electric energy (for consumers connected to the TSO networks) which is in accordance with the procedure established by the Rules of the Retail Electricity Market.

After receipt of the relevant accession application, the TSO checks the completeness and correctness of its completion and, in the absence of grounds for its rejection, within three working days of receiving it, submits the candidate to the market participants register and assigns the relevant market participant agreement and the date of acceptance of the application for accession, about which he informs the market participant.

In this way, the condition for the establishment of contractual relations is, in this case, the presence between the parties of a set of other contractual obligations, entry in the special register and a separate acceptance of the proposal of the party that joins the public contract. This condition is additional to the general procedure provided for in Article 630, Article 633 of the Civil Code.

A similar model is applicable in the ancillary services market segment where a supplier candidate has to undergo a registration procedure and be included in a separate register, and ancillary service contracts are concluded with the TSO, provided that the candidate has agreements on electricity imbalances and participation in the balancing market.

The procedure for concluding individual contracts on the retail market is different.

Thus, the provider of last hope supplies electricity to the consumer on the basis of a standard contract which is a public contract of accession, and is considered concluded in certain Rules of the Retail Electricity Market in cases in which the consumer accepts the terms of the contract on the supply of last hope electricity.

In this case, the supplier of last hope shall make the supply from the moment of the termination of the electricity supply to the previous electricity supplier and the contract with it shall be considered as concluded from the start of the actual supply of electricity to such consumer.

Also, on the example of the retail market, the fact that the consumer joins the terms of the consumer agreement on the provision of electricity distribution services or the universal service contract (acceptance of the contract) is the fulfillment by the consumer of any actions that indicate his desire to conclude the contract, including the return (provision) connection statements, payment of the bill by the distribution system operator (universal service provider), and/or documented electricity consumption.

Therefore, the establishment of contractual relations in the new electricity market of Ukraine has its architecture and features, depending on certain segments of it, which potential participants should take into account in their activities.

Andriy Syvak
is a partner at Shkrebets & Partners

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