What is the OEA Master Agreement?
The OEA Master Agreement (OEA-MA) is best described as a framework for transactions that are personalized by the parties to suit specific needs. The OEA-MA is an agreement published by the Energy and Power Credit Committee of the Energy Bar Association that was designed to be used by two or more parties who buy or sell short-term energy products that either do not require long-form agreements , or where the parties do not want to use a long-form agreement. The OEA-MA is designed to work with the standard master agreements of ISDA and EEI, as well as to be independent and self-contained to the point that the OEA-MA may be a stand-alone agreement, or the OEA-MA may be used in conjunction with a master agreement from ISDA or EEI. However, the OEA-MA cannot be interfiled with the EEI or ISDA master agreements.
Some of the noteworthy characteristics of the OEA-MA include:
Features of the OEA Master Agreement
The provisions of the OEA Master Agreement incorporate many of the terms and conditions present in the general terms of service, as well as terms that are specific to Ontario Electronic Auction. The Master Agreement applies to both sellers and purchasers who want to trade on the OEA, and sets the terms of the relationship between OEA, sellers and purchasers.
The OEA Master Agreement, incorporates the terms and conditions set out in the general terms of service and is referred to in the general terms of service as "the Agreement". The Master Agreement lists a number of definitions at the beginning and then goes on to set out the terms. Some of the terms, as specifically related to the sellers, are as follows:
Also in the Master Agreement are terms that relate to the purchaser, such as:
In the first instance, the only action that is required is for the user to upload a copy of the Master Agreement electronically. Once an electronic copy has been uploaded, the user will be subjected to the terms and conditions as set out in the Master Agreement.
With regards to the legal implications, the general terms of service and other various disclaimers that the OEA has present in its website sets out the implications of a breach and the procedure that the OEA may follow in the event of breach.
Advantages of the OEA Master Agreement
The OEA Master Agreement offers numerous advantages to parties, the electricity market and the economy as a whole. The speed of the negotiation process is arguably the most direct benefit for parties. The streamlined process of reaching agreement can in some circumstances halve the time it takes to finalize a bilateral trade. For example, while a bilateral negotiations may take anywhere from 30 to 60 days, discussions with respect to an OEA Master Agreement will generally only take 10 to 20 days. The transaction cost savings and benefits of obtaining certainty regarding fundamental elements of a trade are meaningful.
In addition to dramatically streamlining the process for entering into a bilateral deal, the OEA Master Agreement, with its 200 separate articles, provides a contractual framework that has been tested over decades, presumably resulting in a sound and balanced document. Given the extensiveness of the OEA Master Agreement, parties entering into a contract based on the OEA Master Agreement (even with a limited scope) will avoid certain problems which may bedevil the interpretation of contracts drafted from scratch with little or no reference to existing precedents. Potential issues such as liability caps, force majeure and differing termination clauses are contemplated and addressed for each type of transaction.
As it is currently drafted, the OEA Master Agreement limits the applicability of the master agreement to transactions that fall within the definitions of the OEA Master Agreement. Certain transactions, including intra-affiliate trades, or trades between a parent company and a subsidiary that do not meet the definition of "Trading Party" as defined in the OEA Master Agreement, will either not fall under the OEA Master Agreement or will require the parties to exclude the affiliate from the definition of Trading Party. The result of not applying the OEA Master Agreement is a significant increase in the time required to draft a trade document, particularly when the transaction must be closed quickly or the parties are located in different countries and time is required to have the transaction documents executed in two places, which can give rise to additional delay.
The OEA Master Agreement supports efforts to promote fair trade practices in the energy sector by providing a uniform foundation that will be adopted by many players in the industry. This is likely to have a positive impact in that it will minimize the number and scope of disputes that arise in connection with the interpretation of trade documents.
Implementing the OEA Master Agreement
Implementation of the OEA Master Agreement is pretty straightforward because typically agreements have already been negotiated and parties are in agreement as to principles, but the master agreement carries a higher level of detail and is established without party or third party intervention. When this happens, implementation becomes simple.
However, if some aspects of the OEA Master Agreement are not clearly established in a previously negotiated way, it may be prudent to establish a committee comprised of representatives of all stakeholders. Make sure that committee has clearly defined steps to follow so everyone is on the same page . Federal inspectors and auditors and members of specific disciplines may all have a vested interest in knowing how the MOEs (method of execution) are written, for example, so invite them to your steering committee and give them roles to play.
As with any type of AU program, make sure you have a clear documentation plan in place and perform the auditing process outlined for your quality management systems so everyone sees how each piece fits into the larger plan. It’s important that you keep good records as to the value of all the items involved and make sure you have a solid reporting system to account for everything.
Typical Obstacles and Remedies
The OEA Master Agreement standard form of agreement has many advantages and is widely used in California. However, as with any standard form, it is inevitable that problems can arise over particular provisions. Looking ahead at some of the common issues that arise will help modern drafting and negotiation.
If a party has not participated in the negotiation or drafting process, the OEA Master is not likely to suit their purposes. "Negotiated terms" is a defined term in the OEA Master Agreement and is defined to include the changes to the standard form resulting from negotiations between the parties. In addition, an owner cannot use the term "Owner’s Consultant" in lieu of "Architect" in the OEA form without consulting with and obtaining the consent of OEA.
A bank or lender may be uncomfortable with the provisions in the indemnity section of the OEA Master Agreement. The OEA standard amendments allow parties to specifically limit the indemnification obligations of the design professional, which is more amenable to banks and lenders.
One major con for the surety is that on OEA led jobs, if an owner terminates the contract without cause, the owner can then pursue the proceeds of the bond for the benefit of itself and the next contractor. Standard additional requirements of surety bonds can be added to address this concern.
A demand for evidence of insurance can be problematic. Some parties in construction are reluctant to provide an owner with a notice of cancellation of insurance coverage as they see that as revealing potentially sensitive information about their coverage. Additionally, surety and other bonds may not automatically cover claims made against insurance. The state of the market and negotiated terms makes providing certified copies of insurance less common than previously.
Amendments to the OEA Master Agreement require that each party must list and update the related provisions. This means that if the original provisions have been crossed out and replaced with new text, then the original section numbers for those provisions must be stated and the new provisions must have new section numbers applied to them. Some architects may find this to be excessive.
Because the OEA Master Agreement and OEA standard amendments have certain default provisions that apply if the parties do not indicate otherwise, the approach to negotiations is to identify areas where something other than the standard form language is desired and then negotiate only those terms. The other terms remain as drafted in the standard form. The benefit of this approach can be found in the fact that most parties are generally familiar with the OEA form and standard amendments and create a better platform for informed negotiation.
The OEA Master Agreement includes a provision, allowing the owner to request documents from the architect in performance of the contract, even if the contract has ended. However, if there is no additional compensation language, the architect is not likely to provide documents from prior performance unless additional compensation is provided.
The Prospects for the OEA Master Agreement
In the coming years, we are likely to see further refinement and evolution of the OEA Master Agreement to address the unique issues that arise in negotiated commodity transactions. The energy industry is one where quick-changing market circumstances put a premium on flexibility in the pricing and delivery of commodities. As the market continues to mature and evolve, we expect that OEA will update its Master Agreement to add new provisions, or alternative forms, to address unique industry developments. Some examples include adding an option for pricing that incorporates a market index rather than a fixed price, or to account for market developments in how to treat liquidated damages as a penalty versus a true-up.
In addition, while the OEA Master Agreement is a strong fit for many customer classes , for some larger consumers of electricity the existing credit and termination terms may become problematic. We expect that these types of issues will push larger consumers to negotiate stand-alone agreements to address credit issues and termination obligations. While not every provision in the OEA Master Agreement may be appropriate for larger end-users, there is one side particularly well-suited for customized provisions: Section 7 (Remedies and Indemnities), which provides detailed rights to set-off and offsets.
Finally, we expect that the market will continue to expand in new directions, for example, with an increasing share of distributed generation or demand response, and the OEA Master Agreement may incorporate new transactions to address these trends as they emerge.