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Contracting to Sell or Buy Electricity

David K. Detton, The Electric Industry Opportunities and Impacts for Resource Producers, Power Generators, Marketers, and Consumers (1996)

When deregulation occurred in the natural gas industry, independent, non-pipeline producers supplied most of the production under a well-developed basic form of purchase and sale contract.2 These contracts addressed four main components of bundled service: gas, transportation, storage, and local distribution.3 In the vertically-integrated electric industry, the predominant contractual model is still the regulatory tariff, which includes many more bundled services for a single posted price.4 As a result, contracts in the wholesale market for the sale and purchase for resale of electricity as a commodity and for unbundled generation, transmission and other ancillary services are still developing. Unlike natural gas, however, the physical characteristics of electricity not only make storage impractical, but impose unique “real time” supply, delivery, and damage mitigation requirements. Contracts for local distribution of electricity are still subject to state regulation of the retail market and are just beginning to emerge with the open access and retail wheeling initiatives.

This paper briefly overviews the load characteristics defining customer needs, the unbundled commodities and services potentially available and deliverable to the customer, and the factors involved in selecting the products, providers, and prices best suited to meet the customer's needs. Within this