Discussing Energy Economics on the Internet

How Firm is Firm

Posted in Legal by Cheryl Morgan on the July 17th, 2008

The EU Energy Policy blog has a long and interesting post on the question of how and when regulatory authorities can overturn long term contracts. It begins with a discussion of a recent US Supreme Court decision about contracts struck at the height of the California Energy Crisis and notes:

According to the federal judges, the market context at the time of contract formation should be taken into account to establish whether the price originally agreed upon reflected the statutory requirements of justness and reasonableness. Moreover, the contracts should be deemed contrary to the public interest if they are outside the ‘zone of reasonableness’ and resulted in retail rates higher than would be the case if that zone were not exceeded.

The post later goes on the compare and contrast US and EU regulatory approaches, and the varying powers that FERC and the European Commission have to make decisions of this type.

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