Electricity Suppy Agreements
INTRODUCTION
An electricity supply agreement is a general term that encompasses all agreements made within the electricity market to ensure the provision of electricity. In this context, connection and system usage agreements as well as ancillary service agreements are broadly considered as part of electricity supply agreements. Additionally, various subcategories encountered in practice, such as full supply agreements, spot supply agreements, reserve supply agreements, and reserve supply agreements, also fall under the umbrella of electricity supply agreements.
However, in this study, the term "electricity supply agreement" has been examined in a narrower sense, focusing solely on two subcategories: bilateral agreements and retail sale agreements (subscription agreements). The subject matter, parties, essential elements, form, nature, characteristics, and termination of these agreements have been analyzed. Moreover, reference is made to the EFET General Agreement Concerning the Delivery and Acceptance of Electricity, a standardized agreement offering a more reliable and equitable alternative to bilateral agreements. These agreements are reviewed under three main headings below.
RETAIL SALE (SUBSCRIPTION) AGREEMENTS IN THE ELECTRICITY MARKET
Subject Matter of the Agreement
The Electricity Market Law No. 6446 ("the Law") does not define a retail sale agreement. However, Article 4/1-u of the Electricity Market Consumer Services Regulation ("the Regulation") states: "A retail sale agreement refers to an agreement between the authorized supply company and consumers, under the provisions of the relevant legislation, for the procurement of electricity and/or capacity and related services at the retail sale tariff or the last resort supply tariff for a consumption point that has a connection agreement in place."
Based on this definition, it is possible to assert that the subject matter of subscription agreements is to ensure that consumers meet their electricity needs through the authorized supply company, while the company commits to being constantly ready to meet the consumer's unforeseeable demand.
Parties to the Agreement
A subscription agreement involves the authorized supply company on one side and the consumer on the other.
An "authorized supply company" is defined in Article 3/1-i of the Law and Article 4/1-j of the Regulation as "a supply company established within the framework of the legal unbundling of distribution and retail sale activities or authorized by the Board as the last resort supplier."
A "consumer" is defined in Article 4/1-mm of the Law as "a person who purchases electricity for their own use." Consumers are categorized into three groups within Article 5 of the Regulation: free consumers, non-free consumers, and consumers under the last resort supply regime. Articles 6, 7, and 8 of the Regulation provide detailed explanations regarding who falls under these consumer groups and how they procure electricity.
Essential Elements of the Agreement
Element of Understanding: To establish a subscription agreement, the parties must reach a consensus on the objectively essential aspects of the agreement. These elements include the supply company’s provision of electricity and/or capacity and the consumer’s payment of the subscription fee for the electricity consumed.
Price Element: The primary obligation of the consumer is to pay the subscription fee for the electricity consumed and the service provided. The price of the agreement is not fixed due to the unpredictability of the level of consumption but is determinable. The consumer is obligated to pay the energy cost calculated based on the unit price of the energy consumed, as determined by the Energy Market Regulatory Authority (“EMRA”), along with other charges and taxes specified by EMRA.
Supply Element: The authorized supply company is obliged to always be prepared to meet the unforeseeable electricity supply needs of the consumer.
Form of the Agreement
Considering that one party to the subscription agreement is the consumer, who is in a weaker position, the legislator has stipulated that such agreements must be concluded in written form. Accordingly, pursuant to Article 52/2 of the Law on Consumer Protection No. 6502 (“Consumer Law”), subscription agreements must be executed either in written or remote form, and a copy of the agreement must be provided to the consumer either in hard copy or via a durable data storage device. Additionally, Article 4 of the Consumer Law requires that information in subscription agreements be drafted in a font size of at least twelve points, in a clear, simple, and legible manner.
Furthermore, the Regulation states that the retail sales agreement is determined as a standard agreement by the Energy Market Regulatory Authority (“EMRA”), and no amendments to its terms are allowed. This underscores the subscription agreement’s nature as a standard-form contract.
Legal Nature of the Agreement
While Article 52 of the Consumer Law provides general provisions on subscription agreements, it does not detail their essential elements or the rights and obligations of the parties, nor does it classify the type of contract. Although this statutory framework has been elaborated on in the Subscription Agreements Regulation, subscription agreements cannot be deemed as typical contracts since their essential elements are not explicitly provided in the law.
From the perspective of the electricity market, subscription agreements, being a subtype of electricity supply agreements, also lack specific legislative provisions. Neither the relevant law nor the Regulation explicitly defines the contract type. As such, subscription agreements should be categorized as atypical (sui generis) agreements.
Characteristics of the Agreement
Standard Contract: In the electricity market, subscription agreements are standard-form contracts executed between the licensed supplier and the consumer, containing pre-drafted terms established by EMRA. The standard "Retail Sales Agreement," published by EMRA’s Board Decision No. 8192 dated November 22, 2018 (“Standard Agreement”), is utilized for this purpose. The consumer is expected to fully comply with the terms set forth in the agreement, with no room for negotiation or modification. Thus, subscription agreements also include general terms and conditions.
Mandatory Contract: Subscription agreements are mandatory, due to either the de facto monopoly of licensed suppliers in providing energy or the requirements of applicable legislation. Indeed, Article 10 of the Law and various provisions of the Regulation prohibit discrimination between parties.
Consensual Agreement: Subscription agreements are formed through mutual declarations of intent on the essential elements of the agreement. However, consent is only partially present in the case of licensed suppliers, as they are obligated to enter into agreements. From the consumer’s perspective, consent is limited to deciding whether or not to enter into the agreement.
Bilateral Agreement: The primary obligation of the supplier is to provide electricity and/or capacity, while the consumer’s primary obligation is to pay for the electricity and/or capacity they consume. These obligations are interdependent, making the agreement bilateral.
Continuous Obligation: The purpose of the agreement is to continuously meet the consumer’s unforeseeable electricity needs. While the consumer undertakes to procure electricity from the supplier and pay the agreed price, the supplier commits to always being ready to provide electricity as needed. This ongoing obligation characterizes the agreement as creating continuous obligations.
Termination of the Agreement
General causes of termination under contract law apply to subscription agreements to the extent they are compatible with the agreement’s nature. Additionally, the agreement may include specific provisions for termination. For particular cases, Article 18 of the Standard Agreement should be consulted.
The consumer has the right to unilaterally terminate the agreement at any time, without any justification or penalty. Conversely, the supplier may terminate the agreement in the following cases:
i. If the consumer provides incorrect information to the supplier;
ii. If a new applicant demonstrates ownership of the usage location covered by the agreement, enabling the supplier to establish a new agreement with a different user for the same location; or
iii. If the consumer defaults on subscription fee payments.
In the event that one of the parties acts in violation of the provisions of the subscription agreement, the right to terminate the agreement arises for the parties if no result is obtained within 15 days despite the written warning of the other party to eliminate the violation.
In the event that the license of the supply company is revoked or terminated, the consumer is declared bankrupt or a liquidator is appointed, and the consumer exercises his/her right to choose a supplier arising from being an eligible consumer, the subscription agreement shall automatically terminate.
It should be noted that, since the subscription agreement gives rise to a continuous debt relationship, in the event of termination of the agreement for any reason, the consequences of the termination will be effective prospectively, and there will be no refund of the obligations fulfilled until the moment of termination.
BILATERAL AGREEMENTS IN THE ELECTRICITY MARKET
Subject of the Agreement
Article 3/1-j of the Law and Article 4/1-k of the Regulation define bilateral agreements as "commercial agreements conducted between natural or legal persons under private law provisions for the purchase and sale of electricity energy and/or capacity, which are not subject to Board approval."
Based on the above definition, it can be inferred that the subject of bilateral agreements, similar to subscription agreements, is the supply of electricity.
Parties to the Agreement
One party in bilateral agreements is the supplier, and the other is either an eligible consumer or another supplier.
A supplier is defined in Article 3/1-ğğ of the Law and Article 4/1-ğğ of the Regulation as "generation companies providing electricity energy and/or capacity or companies holding a supply license."
An eligible consumer is defined in Article 3/1-cc of the Law and Article 4/1-çç of the Regulation as "a natural or legal person who has the right to choose their supplier due to consuming more electricity than the amount determined by the Board, being directly connected to the transmission system, or having the legal entity status of an organized industrial zone."
Elements of the Agreement
Agreement Element: For bilateral agreements to be established, the parties must agree on the objectively essential points of the contract. The essential elements of this contract, as in subscription agreements, include the supplier's obligation to provide electricity energy and/or capacity and the counterparty's obligation to pay the agreed amount.
Price Element: In bilateral agreements, the price can be freely negotiated by the parties. While the price in subscription agreements is determined by Energy Market Regulatory Authority (EMRA) decisions and tariffs, in bilateral agreements, the parties have complete freedom in setting the price. However, it should be noted that even though the parties are free to determine the price, buyers of electricity can also obtain electricity at the prices determined by tariffs.
Supply Element: The supplier is obligated to always be prepared to meet the unforeseen electricity supply needs of another supplier or an eligible consumer.
Form of the Agreement
Unlike subscription agreements, the form of bilateral agreements is not defined by law. Therefore, under Article 12/1 of the Turkish Code of Obligations, bilateral agreements are not subject to any specific form. However, for bilateral agreements to take effect and produce legal consequences, they must be reported to the market operator, EPİAŞ. Without such reporting, it is unlikely that the supplier will provide electricity to the counterparty under the agreement.
Legal Nature of the Agreement
Although bilateral agreements are defined in both the Law and the Regulation, there are no provisions regulating their content or elements. Therefore, bilateral agreements, like retail sales agreements, are categorized as innominate contracts.
Characteristics of the Agreement
Dominance of Free Will: Bilateral agreements differ from subscription agreements in that they fully embody the principle of contractual freedom. The parties have the freedom to decide whether or not to enter into the agreement, as well as the freedom to determine its parties, subject, price, form, duration, content, and conditions. Thus, unlike subscription agreements, bilateral agreements are not standard contracts and are not subject to EMRA approval. Even if some bilateral agreements are prepared in advance by the supplier and presented to the counterparty, the counterparty is not obligated to accept the agreement. In this respect, bilateral agreements lean more towards commercial transactions and sales contracts than subscription agreements.
A Consensual Contract: Bilateral agreements are formed through the mutual declaration of will by the parties on the objectively essential elements of the contract. Since the parties have the opportunity to negotiate every aspect of the agreement, consensuality is more pronounced in bilateral agreements compared to subscription agreements.
A Reciprocal Contract: In bilateral agreements, the supplier's primary obligation is to provide electricity energy and/or capacity, while the counterparty's primary obligation is to pay for the electricity and/or capacity used. These obligations are interdependent, making the agreement a reciprocal contract.
A Continuous Obligation Contract: The purpose of bilateral agreements is to continuously meet undefined needs over time. In this regard, bilateral agreements, like subscription agreements, create continuous obligations.
Termination of the Agreement
General termination reasons under contract law apply to bilateral agreements to the extent that they are suitable for their nature.
Since bilateral agreements are not specifically regulated by law or standardized by EMRA, they do not have special termination provisions like subscription agreements.
It should be noted that, as subscription agreements create continuous obligations, any termination will have effects only moving forward, and the performance rendered up to the termination date will not be subject to restitution.
EFET GENERAL AGREEMENT CONCERNING THE DELIVERY AND ACCEPTANCE OF ELECTRICITY
Subject of the Agreement
The General Agreement Concerning the Delivery and Acceptance of Electricity ("EFET General Agreement") has been prepared by the European Federation of Energy Traders ("EFET") and serves as a standard/framework agreement for bilateral contracts in the context of electricity supply. Accordingly, the EFET General Agreement provides a user-friendly mechanism to the parties by prescribing predetermined contractual provisions for individual transactions related to the delivery and acceptance of electricity. This reduces transaction costs in the wholesale electricity market.
Article 1 of the EFET General Agreement defines its subject as follows:
"This General Agreement (including Appendices and the Elections Sheet, 'Elections Sheet') governs all transactions for the purchase, sale, delivery, and acceptance of electricity, including Options, that the Parties shall enter into concerning the purchase, sale, delivery, and acceptance of electricity (each transaction shall be considered an 'Individual Agreement'). All Individual Agreements and this General Agreement shall together constitute a single agreement between the Parties ('Agreement'). The provisions of this General Agreement shall form an integral part of each Individual Agreement."
Parties to the Agreement
The EFET General Agreement involves two parties: the electricity purchaser and the electricity seller.
Elements of the Agreement
Agreement Element: For the EFET General Agreement to be established, the parties must agree on the essential elements of the contract. The objective essential elements of this agreement are the sale and delivery of electricity by the seller and the acceptance and payment obligations of the purchaser.
Price Element: Under the EFET General Agreement, the price and the method for fulfilling payment obligations can be freely determined by the parties in the context of Individual Agreements via the Elections Sheet.
Supply Element: The electricity seller is obligated to always be ready to supply electricity to meet the unforeseen needs of the electricity purchaser.
Form of the Agreement
As stated above, the EFET General Agreement consists of a framework agreement and Individual Agreements made via the Elections Sheet. Designed as a framework agreement addressing issues most likely to cause disputes in electricity supply agreements, the EFET General Agreement is a standard contract subject to the requirement of written form.
Legal Nature of the Agreement
The EFET General Agreement, prepared by EFET members, serves as a universal framework agreement used in various countries and languages to facilitate the delivery and acceptance of electricity.
Features of the Agreement
The EFET General Agreement, while a standard contract, also allows for flexibility: The EFET General Agreement aims to protect the parties from potential risks in the electricity market through a standard contract while allowing the parties to shape their relationship according to commercial terms. This provides a more equitable, reliable, and universal contract option compared to bilateral agreements.
Parties can reflect their preferences on the application or non-application of specific provisions in the EFET General Agreement through the Elections Sheet. After signing the EFET General Agreement and the Elections Sheet, the parties may also use appropriate confirmation forms annexed to the EFET General Agreement for Individual Agreements regarding electricity purchase and sale.
Consensual Agreement: The EFET General Agreement is formed upon mutual declarations of intent regarding its essential elements, making it a consensual contract. Although it is a framework agreement, the parties retain the opportunity to negotiate every aspect, highlighting its consensual nature.
Reciprocal Obligations: The seller's main obligation is the supply of electricity and/or capacity, while the buyer’s obligation is to pay for the electricity and/or capacity used. These reciprocal obligations are mutually dependent, making the EFET General Agreement a bilateral contract.
Continuous Obligations: The EFET General Agreement aims to meet needs at uncertain times but continuously. Therefore, it is considered a contract creating continuous obligations, similar to subscription agreements and bilateral contracts.
· A contract that regulates certain matters not previously discussed in bilateral agreements in detail: The EFET General Agreement addresses, in detail, particularly the following four issues that have not been discussed in bilateral agreements:
· Performance Assurance: The EFET General Agreement thoroughly addresses situations where one party loses or reduces its ability to perform, referred to as "credit support documents" in Article 17. These include guarantees such as a letter of credit or bank guarantee and provisions for assessing the credibility of the parties. This ensures the continuous evaluation of the parties' performance capability throughout the contract term and facilitates the healthy continuation of the agreement. The right to demand performance assurance allows one party to request new or additional security (e.g., letters of credit, cash collateral, bank guarantees) by written notice if it believes a significant adverse change has occurred concerning the other party.
Suspension of Delivery: Article 9 of the EFET General Agreement provides that if one party fails to fulfill any payment obligation or if it or its credit support provider fails to provide the required performance assurance, the other party may suspend electricity delivery until the obligations are fulfilled, following a written notice and a three (3) business day grace period.
Price Volatility and New Pricing Methods in Market Disruptions: Article 15 of the EFET General Agreement first defines the conditions under which market disruption is deemed to occur and then establishes methods for determining new prices in the event of price volatility or market disruption. It also details the timeframes for settling resulting reconciliation amounts.
Set-off in Payments: Article 13 of the EFET General Agreement standardizes set-off in payments unless otherwise specified. Furthermore, it allows for the set-off of payments related to other existing physical purchase agreements between the parties.
· A contract that regulates certain matters previously discussed in bilateral agreements in greater detail: While some issues have been discussed in bilateral agreements, the EFET General Agreement addresses the following four topics more comprehensively:
Taxes: Article 14 of the EFET General Agreement provides a universal and detailed approach to tax matters per applicable legislation, detailing provisions for the contract’s continuation or termination in the event of changes.
Credit Support Annex (CSA): If this document, prepared as an addendum to the EFET General Agreement, is signed, it enables the parties to calculate and reconcile the risks they are exposed to at specified intervals.
Duration and Termination Rights: While bilateral agreements generally allow for contract termination in the event of non-fulfillment of obligations, they do not define the grounds for termination in sufficient detail, leaving room for interpretation in disputes. This is a significant shortcoming in terms of the contract’s commercial protection. Articles 10 and 11 of the EFET General Agreement comprehensively define material termination grounds and grant the parties specific termination rights, such as determining the termination compensation in a fixed amount or as indexed to any parameter, to cover the aggrieved party's potential losses.
Force Majeure: Article 7 of the EFET General Agreement expands and clarifies the scope of force majeure events, which are generally defined as events beyond the reasonable control of the parties that cannot be avoided or overcome and that render it impossible for the claiming party to fulfill its obligations related to the delivery or acceptance of electricity.
The general termination causes regulated under the framework of the law of obligations shall also be applicable to subscription agreements to the extent that they are compatible with their nature. However, it will also be possible to terminate the agreement due to specific reasons stipulated in the contract. For specific cases, Article 10 of the EFET General Agreement must be examined.
The EFET General Agreement (if specified in the Election Sheet) automatically terminates on the Termination Date or, if no Termination Date is specified in the Election Sheet, upon one party providing written notice of termination to the other party at least 30 (thirty) days in advance. This constitutes a termination under ordinary circumstances.
The EFET General Agreement may also be terminated in cases where a Material Reason arises and persists concerning one party, provided that the terminating party notifies the other party. This constitutes a termination under extraordinary circumstances. Material Reason is comprehensively defined under Article 10(5) of the EFET General Agreement under the headings of (i) Non-Performance, (ii) Other Defaults and Acceleration, (iii) Liquidation/Insolvency/Attachment, (iv) Breach of Delivery or Acceptance Obligation, (v) Force Majeure, and (vi) Representations and Warranties.
If it is specified in the Election Sheet that "Automatic Termination" shall apply to a party, the EFET General Agreement also terminates automatically upon the occurrence of a Material Reason in the form of Liquidation/Insolvency/Attachment.
CONCLUSION
Retail sales agreements and bilateral agreements constitute subtypes of supply agreements in the electricity market. Both agreements are unnamed contracts entered into for the purpose of supplying electricity. While these agreements share similarities due to their subject matter, their nature of creating mutual obligations for both parties, their establishment of continuous contractual relationships, and their consensual nature, they are essentially two quite different types of contracts. This is because bilateral agreements are contracts that are open to negotiation in line with the principle of freedom of contract and predominantly commercial in nature. In contrast, subscription agreements are standardized contracts that do not allow for negotiation and include general terms and conditions.
The EFET General Agreement, on the other hand, has been prepared by EFET to address the risks inherent in the parties' individual templates during the negotiation and signing processes of bilateral agreements. It mitigates the inequalities in terms of risk and benefit created by contractual provisions determined according to the power dynamics between the parties and the protracted negotiation processes. With its more equitable and risk-mitigating structure, the EFET General Agreement has positioned itself as an alternative to bilateral agreements, providing market security and serving as a tool that can be used for cross-border trade when necessary in both global and Turkish markets.
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LBF Partners Law Firm
An electricity supply agreement is a general term that encompasses all agreements made within the electricity market to ensure the provision of electricity. In this context, connection and system usage agreements as well as ancillary service agreements are broadly considered as part of electricity supply agreements. Additionally, various subcategories encountered in practice, such as full supply agreements, spot supply agreements, reserve supply agreements, and reserve supply agreements, also fall under the umbrella of electricity supply agreements.
However, in this study, the term "electricity supply agreement" has been examined in a narrower sense, focusing solely on two subcategories: bilateral agreements and retail sale agreements (subscription agreements). The subject matter, parties, essential elements, form, nature, characteristics, and termination of these agreements have been analyzed. Moreover, reference is made to the EFET General Agreement Concerning the Delivery and Acceptance of Electricity, a standardized agreement offering a more reliable and equitable alternative to bilateral agreements. These agreements are reviewed under three main headings below.
RETAIL SALE (SUBSCRIPTION) AGREEMENTS IN THE ELECTRICITY MARKET
Subject Matter of the Agreement
The Electricity Market Law No. 6446 ("the Law") does not define a retail sale agreement. However, Article 4/1-u of the Electricity Market Consumer Services Regulation ("the Regulation") states: "A retail sale agreement refers to an agreement between the authorized supply company and consumers, under the provisions of the relevant legislation, for the procurement of electricity and/or capacity and related services at the retail sale tariff or the last resort supply tariff for a consumption point that has a connection agreement in place."
Based on this definition, it is possible to assert that the subject matter of subscription agreements is to ensure that consumers meet their electricity needs through the authorized supply company, while the company commits to being constantly ready to meet the consumer's unforeseeable demand.
Parties to the Agreement
A subscription agreement involves the authorized supply company on one side and the consumer on the other.
An "authorized supply company" is defined in Article 3/1-i of the Law and Article 4/1-j of the Regulation as "a supply company established within the framework of the legal unbundling of distribution and retail sale activities or authorized by the Board as the last resort supplier."
A "consumer" is defined in Article 4/1-mm of the Law as "a person who purchases electricity for their own use." Consumers are categorized into three groups within Article 5 of the Regulation: free consumers, non-free consumers, and consumers under the last resort supply regime. Articles 6, 7, and 8 of the Regulation provide detailed explanations regarding who falls under these consumer groups and how they procure electricity.
Essential Elements of the Agreement
Element of Understanding: To establish a subscription agreement, the parties must reach a consensus on the objectively essential aspects of the agreement. These elements include the supply company’s provision of electricity and/or capacity and the consumer’s payment of the subscription fee for the electricity consumed.
Price Element: The primary obligation of the consumer is to pay the subscription fee for the electricity consumed and the service provided. The price of the agreement is not fixed due to the unpredictability of the level of consumption but is determinable. The consumer is obligated to pay the energy cost calculated based on the unit price of the energy consumed, as determined by the Energy Market Regulatory Authority (“EMRA”), along with other charges and taxes specified by EMRA.
Supply Element: The authorized supply company is obliged to always be prepared to meet the unforeseeable electricity supply needs of the consumer.
Form of the Agreement
Considering that one party to the subscription agreement is the consumer, who is in a weaker position, the legislator has stipulated that such agreements must be concluded in written form. Accordingly, pursuant to Article 52/2 of the Law on Consumer Protection No. 6502 (“Consumer Law”), subscription agreements must be executed either in written or remote form, and a copy of the agreement must be provided to the consumer either in hard copy or via a durable data storage device. Additionally, Article 4 of the Consumer Law requires that information in subscription agreements be drafted in a font size of at least twelve points, in a clear, simple, and legible manner.
Furthermore, the Regulation states that the retail sales agreement is determined as a standard agreement by the Energy Market Regulatory Authority (“EMRA”), and no amendments to its terms are allowed. This underscores the subscription agreement’s nature as a standard-form contract.
Legal Nature of the Agreement
While Article 52 of the Consumer Law provides general provisions on subscription agreements, it does not detail their essential elements or the rights and obligations of the parties, nor does it classify the type of contract. Although this statutory framework has been elaborated on in the Subscription Agreements Regulation, subscription agreements cannot be deemed as typical contracts since their essential elements are not explicitly provided in the law.
From the perspective of the electricity market, subscription agreements, being a subtype of electricity supply agreements, also lack specific legislative provisions. Neither the relevant law nor the Regulation explicitly defines the contract type. As such, subscription agreements should be categorized as atypical (sui generis) agreements.
Characteristics of the Agreement
Standard Contract: In the electricity market, subscription agreements are standard-form contracts executed between the licensed supplier and the consumer, containing pre-drafted terms established by EMRA. The standard "Retail Sales Agreement," published by EMRA’s Board Decision No. 8192 dated November 22, 2018 (“Standard Agreement”), is utilized for this purpose. The consumer is expected to fully comply with the terms set forth in the agreement, with no room for negotiation or modification. Thus, subscription agreements also include general terms and conditions.
Mandatory Contract: Subscription agreements are mandatory, due to either the de facto monopoly of licensed suppliers in providing energy or the requirements of applicable legislation. Indeed, Article 10 of the Law and various provisions of the Regulation prohibit discrimination between parties.
Consensual Agreement: Subscription agreements are formed through mutual declarations of intent on the essential elements of the agreement. However, consent is only partially present in the case of licensed suppliers, as they are obligated to enter into agreements. From the consumer’s perspective, consent is limited to deciding whether or not to enter into the agreement.
Bilateral Agreement: The primary obligation of the supplier is to provide electricity and/or capacity, while the consumer’s primary obligation is to pay for the electricity and/or capacity they consume. These obligations are interdependent, making the agreement bilateral.
Continuous Obligation: The purpose of the agreement is to continuously meet the consumer’s unforeseeable electricity needs. While the consumer undertakes to procure electricity from the supplier and pay the agreed price, the supplier commits to always being ready to provide electricity as needed. This ongoing obligation characterizes the agreement as creating continuous obligations.
Termination of the Agreement
General causes of termination under contract law apply to subscription agreements to the extent they are compatible with the agreement’s nature. Additionally, the agreement may include specific provisions for termination. For particular cases, Article 18 of the Standard Agreement should be consulted.
The consumer has the right to unilaterally terminate the agreement at any time, without any justification or penalty. Conversely, the supplier may terminate the agreement in the following cases:
i. If the consumer provides incorrect information to the supplier;
ii. If a new applicant demonstrates ownership of the usage location covered by the agreement, enabling the supplier to establish a new agreement with a different user for the same location; or
iii. If the consumer defaults on subscription fee payments.
In the event that one of the parties acts in violation of the provisions of the subscription agreement, the right to terminate the agreement arises for the parties if no result is obtained within 15 days despite the written warning of the other party to eliminate the violation.
In the event that the license of the supply company is revoked or terminated, the consumer is declared bankrupt or a liquidator is appointed, and the consumer exercises his/her right to choose a supplier arising from being an eligible consumer, the subscription agreement shall automatically terminate.
It should be noted that, since the subscription agreement gives rise to a continuous debt relationship, in the event of termination of the agreement for any reason, the consequences of the termination will be effective prospectively, and there will be no refund of the obligations fulfilled until the moment of termination.
BILATERAL AGREEMENTS IN THE ELECTRICITY MARKET
Subject of the Agreement
Article 3/1-j of the Law and Article 4/1-k of the Regulation define bilateral agreements as "commercial agreements conducted between natural or legal persons under private law provisions for the purchase and sale of electricity energy and/or capacity, which are not subject to Board approval."
Based on the above definition, it can be inferred that the subject of bilateral agreements, similar to subscription agreements, is the supply of electricity.
Parties to the Agreement
One party in bilateral agreements is the supplier, and the other is either an eligible consumer or another supplier.
A supplier is defined in Article 3/1-ğğ of the Law and Article 4/1-ğğ of the Regulation as "generation companies providing electricity energy and/or capacity or companies holding a supply license."
An eligible consumer is defined in Article 3/1-cc of the Law and Article 4/1-çç of the Regulation as "a natural or legal person who has the right to choose their supplier due to consuming more electricity than the amount determined by the Board, being directly connected to the transmission system, or having the legal entity status of an organized industrial zone."
Elements of the Agreement
Agreement Element: For bilateral agreements to be established, the parties must agree on the objectively essential points of the contract. The essential elements of this contract, as in subscription agreements, include the supplier's obligation to provide electricity energy and/or capacity and the counterparty's obligation to pay the agreed amount.
Price Element: In bilateral agreements, the price can be freely negotiated by the parties. While the price in subscription agreements is determined by Energy Market Regulatory Authority (EMRA) decisions and tariffs, in bilateral agreements, the parties have complete freedom in setting the price. However, it should be noted that even though the parties are free to determine the price, buyers of electricity can also obtain electricity at the prices determined by tariffs.
Supply Element: The supplier is obligated to always be prepared to meet the unforeseen electricity supply needs of another supplier or an eligible consumer.
Form of the Agreement
Unlike subscription agreements, the form of bilateral agreements is not defined by law. Therefore, under Article 12/1 of the Turkish Code of Obligations, bilateral agreements are not subject to any specific form. However, for bilateral agreements to take effect and produce legal consequences, they must be reported to the market operator, EPİAŞ. Without such reporting, it is unlikely that the supplier will provide electricity to the counterparty under the agreement.
Legal Nature of the Agreement
Although bilateral agreements are defined in both the Law and the Regulation, there are no provisions regulating their content or elements. Therefore, bilateral agreements, like retail sales agreements, are categorized as innominate contracts.
Characteristics of the Agreement
Dominance of Free Will: Bilateral agreements differ from subscription agreements in that they fully embody the principle of contractual freedom. The parties have the freedom to decide whether or not to enter into the agreement, as well as the freedom to determine its parties, subject, price, form, duration, content, and conditions. Thus, unlike subscription agreements, bilateral agreements are not standard contracts and are not subject to EMRA approval. Even if some bilateral agreements are prepared in advance by the supplier and presented to the counterparty, the counterparty is not obligated to accept the agreement. In this respect, bilateral agreements lean more towards commercial transactions and sales contracts than subscription agreements.
A Consensual Contract: Bilateral agreements are formed through the mutual declaration of will by the parties on the objectively essential elements of the contract. Since the parties have the opportunity to negotiate every aspect of the agreement, consensuality is more pronounced in bilateral agreements compared to subscription agreements.
A Reciprocal Contract: In bilateral agreements, the supplier's primary obligation is to provide electricity energy and/or capacity, while the counterparty's primary obligation is to pay for the electricity and/or capacity used. These obligations are interdependent, making the agreement a reciprocal contract.
A Continuous Obligation Contract: The purpose of bilateral agreements is to continuously meet undefined needs over time. In this regard, bilateral agreements, like subscription agreements, create continuous obligations.
Termination of the Agreement
General termination reasons under contract law apply to bilateral agreements to the extent that they are suitable for their nature.
Since bilateral agreements are not specifically regulated by law or standardized by EMRA, they do not have special termination provisions like subscription agreements.
It should be noted that, as subscription agreements create continuous obligations, any termination will have effects only moving forward, and the performance rendered up to the termination date will not be subject to restitution.
EFET GENERAL AGREEMENT CONCERNING THE DELIVERY AND ACCEPTANCE OF ELECTRICITY
Subject of the Agreement
The General Agreement Concerning the Delivery and Acceptance of Electricity ("EFET General Agreement") has been prepared by the European Federation of Energy Traders ("EFET") and serves as a standard/framework agreement for bilateral contracts in the context of electricity supply. Accordingly, the EFET General Agreement provides a user-friendly mechanism to the parties by prescribing predetermined contractual provisions for individual transactions related to the delivery and acceptance of electricity. This reduces transaction costs in the wholesale electricity market.
Article 1 of the EFET General Agreement defines its subject as follows:
"This General Agreement (including Appendices and the Elections Sheet, 'Elections Sheet') governs all transactions for the purchase, sale, delivery, and acceptance of electricity, including Options, that the Parties shall enter into concerning the purchase, sale, delivery, and acceptance of electricity (each transaction shall be considered an 'Individual Agreement'). All Individual Agreements and this General Agreement shall together constitute a single agreement between the Parties ('Agreement'). The provisions of this General Agreement shall form an integral part of each Individual Agreement."
Parties to the Agreement
The EFET General Agreement involves two parties: the electricity purchaser and the electricity seller.
Elements of the Agreement
Agreement Element: For the EFET General Agreement to be established, the parties must agree on the essential elements of the contract. The objective essential elements of this agreement are the sale and delivery of electricity by the seller and the acceptance and payment obligations of the purchaser.
Price Element: Under the EFET General Agreement, the price and the method for fulfilling payment obligations can be freely determined by the parties in the context of Individual Agreements via the Elections Sheet.
Supply Element: The electricity seller is obligated to always be ready to supply electricity to meet the unforeseen needs of the electricity purchaser.
Form of the Agreement
As stated above, the EFET General Agreement consists of a framework agreement and Individual Agreements made via the Elections Sheet. Designed as a framework agreement addressing issues most likely to cause disputes in electricity supply agreements, the EFET General Agreement is a standard contract subject to the requirement of written form.
Legal Nature of the Agreement
The EFET General Agreement, prepared by EFET members, serves as a universal framework agreement used in various countries and languages to facilitate the delivery and acceptance of electricity.
Features of the Agreement
The EFET General Agreement, while a standard contract, also allows for flexibility: The EFET General Agreement aims to protect the parties from potential risks in the electricity market through a standard contract while allowing the parties to shape their relationship according to commercial terms. This provides a more equitable, reliable, and universal contract option compared to bilateral agreements.
Parties can reflect their preferences on the application or non-application of specific provisions in the EFET General Agreement through the Elections Sheet. After signing the EFET General Agreement and the Elections Sheet, the parties may also use appropriate confirmation forms annexed to the EFET General Agreement for Individual Agreements regarding electricity purchase and sale.
Consensual Agreement: The EFET General Agreement is formed upon mutual declarations of intent regarding its essential elements, making it a consensual contract. Although it is a framework agreement, the parties retain the opportunity to negotiate every aspect, highlighting its consensual nature.
Reciprocal Obligations: The seller's main obligation is the supply of electricity and/or capacity, while the buyer’s obligation is to pay for the electricity and/or capacity used. These reciprocal obligations are mutually dependent, making the EFET General Agreement a bilateral contract.
Continuous Obligations: The EFET General Agreement aims to meet needs at uncertain times but continuously. Therefore, it is considered a contract creating continuous obligations, similar to subscription agreements and bilateral contracts.
· A contract that regulates certain matters not previously discussed in bilateral agreements in detail: The EFET General Agreement addresses, in detail, particularly the following four issues that have not been discussed in bilateral agreements:
· Performance Assurance: The EFET General Agreement thoroughly addresses situations where one party loses or reduces its ability to perform, referred to as "credit support documents" in Article 17. These include guarantees such as a letter of credit or bank guarantee and provisions for assessing the credibility of the parties. This ensures the continuous evaluation of the parties' performance capability throughout the contract term and facilitates the healthy continuation of the agreement. The right to demand performance assurance allows one party to request new or additional security (e.g., letters of credit, cash collateral, bank guarantees) by written notice if it believes a significant adverse change has occurred concerning the other party.
Suspension of Delivery: Article 9 of the EFET General Agreement provides that if one party fails to fulfill any payment obligation or if it or its credit support provider fails to provide the required performance assurance, the other party may suspend electricity delivery until the obligations are fulfilled, following a written notice and a three (3) business day grace period.
Price Volatility and New Pricing Methods in Market Disruptions: Article 15 of the EFET General Agreement first defines the conditions under which market disruption is deemed to occur and then establishes methods for determining new prices in the event of price volatility or market disruption. It also details the timeframes for settling resulting reconciliation amounts.
Set-off in Payments: Article 13 of the EFET General Agreement standardizes set-off in payments unless otherwise specified. Furthermore, it allows for the set-off of payments related to other existing physical purchase agreements between the parties.
· A contract that regulates certain matters previously discussed in bilateral agreements in greater detail: While some issues have been discussed in bilateral agreements, the EFET General Agreement addresses the following four topics more comprehensively:
Taxes: Article 14 of the EFET General Agreement provides a universal and detailed approach to tax matters per applicable legislation, detailing provisions for the contract’s continuation or termination in the event of changes.
Credit Support Annex (CSA): If this document, prepared as an addendum to the EFET General Agreement, is signed, it enables the parties to calculate and reconcile the risks they are exposed to at specified intervals.
Duration and Termination Rights: While bilateral agreements generally allow for contract termination in the event of non-fulfillment of obligations, they do not define the grounds for termination in sufficient detail, leaving room for interpretation in disputes. This is a significant shortcoming in terms of the contract’s commercial protection. Articles 10 and 11 of the EFET General Agreement comprehensively define material termination grounds and grant the parties specific termination rights, such as determining the termination compensation in a fixed amount or as indexed to any parameter, to cover the aggrieved party's potential losses.
Force Majeure: Article 7 of the EFET General Agreement expands and clarifies the scope of force majeure events, which are generally defined as events beyond the reasonable control of the parties that cannot be avoided or overcome and that render it impossible for the claiming party to fulfill its obligations related to the delivery or acceptance of electricity.
The general termination causes regulated under the framework of the law of obligations shall also be applicable to subscription agreements to the extent that they are compatible with their nature. However, it will also be possible to terminate the agreement due to specific reasons stipulated in the contract. For specific cases, Article 10 of the EFET General Agreement must be examined.
The EFET General Agreement (if specified in the Election Sheet) automatically terminates on the Termination Date or, if no Termination Date is specified in the Election Sheet, upon one party providing written notice of termination to the other party at least 30 (thirty) days in advance. This constitutes a termination under ordinary circumstances.
The EFET General Agreement may also be terminated in cases where a Material Reason arises and persists concerning one party, provided that the terminating party notifies the other party. This constitutes a termination under extraordinary circumstances. Material Reason is comprehensively defined under Article 10(5) of the EFET General Agreement under the headings of (i) Non-Performance, (ii) Other Defaults and Acceleration, (iii) Liquidation/Insolvency/Attachment, (iv) Breach of Delivery or Acceptance Obligation, (v) Force Majeure, and (vi) Representations and Warranties.
If it is specified in the Election Sheet that "Automatic Termination" shall apply to a party, the EFET General Agreement also terminates automatically upon the occurrence of a Material Reason in the form of Liquidation/Insolvency/Attachment.
CONCLUSION
Retail sales agreements and bilateral agreements constitute subtypes of supply agreements in the electricity market. Both agreements are unnamed contracts entered into for the purpose of supplying electricity. While these agreements share similarities due to their subject matter, their nature of creating mutual obligations for both parties, their establishment of continuous contractual relationships, and their consensual nature, they are essentially two quite different types of contracts. This is because bilateral agreements are contracts that are open to negotiation in line with the principle of freedom of contract and predominantly commercial in nature. In contrast, subscription agreements are standardized contracts that do not allow for negotiation and include general terms and conditions.
The EFET General Agreement, on the other hand, has been prepared by EFET to address the risks inherent in the parties' individual templates during the negotiation and signing processes of bilateral agreements. It mitigates the inequalities in terms of risk and benefit created by contractual provisions determined according to the power dynamics between the parties and the protracted negotiation processes. With its more equitable and risk-mitigating structure, the EFET General Agreement has positioned itself as an alternative to bilateral agreements, providing market security and serving as a tool that can be used for cross-border trade when necessary in both global and Turkish markets.
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