International Energy Credit Association Issues Long-Awaited Master Netting Agreement

International Energy Credit Association Issues Long-Awaited Master Netting Agreement

Date: 
October 19, 2016

The International Energy Credit Association (IECA), the leading nonprofit association for professionals involved in energy credit and risk management, is proud to announce the publication of its standardized form of master netting agreement. The IECA Master Netting Agreement is a succinct, state-of-the-art agreement designed to allow the termination, close-out, and netting of physical and financial commodities transactions under certain circumstances including insolvency.  The group hopes that the IECA Master Netting Agreement will become the industry standard for netting arrangements in the commodities and derivatives area. 

“The Working Group designed the netting agreement with ease of negotiation as one of its principal objectives,” stated Scott Le Bouef, a partner with Stroock & Stroock & Lavan LLP and Co-Chair of the Working Group. “We believe that the IECA Master Netting Agreement will be a critical tool for reducing credit risk among trading partners.” 

Zack Starbird, IECA President and Co-Chair of the Working Group, noted that the IECA Master Netting Agreement “is the best of its kind:  shorter, sharper, and better than any legally-supported document in the market.”

The IECA has procured legal opinions as to the enforceability of the IECA Master Netting Agreement under English law as well as under US law. When used in accordance with the legal opinions, parties to the IECA Master Netting Agreement can be confident that their exposure on covered transactions can be viewed on a net, rather than a gross, basis, thereby reducing credit risk and potentially conserving working capital. 

Compared to the few other master netting forms available in the market, the IECA Master Netting Agreement has the following advantages:

• It is shorter and easier to use
• It is supported by legal opinions in two key jurisdictions (England & Wales; US and New York)
• Designed for use with long form or bespoke transactions in addition to those covered by master trading agreements
• Drafting team intentionally considered use with a variety of commodities, including power, gas, crude, refined products, NGLs, metals, freight, emissions, and other environmental products.

According to Wendy Lewis, Chair of the IECA’s Contracts & Legal Education Group and Manager of Contract Administration at Freepoint Commodities, “the IECA Master Netting Agreement is in a league of its own, and clearly hits the sweet spot between simplicity and versatility. With enforceability addressed under both US and English law, the market can take a great deal of confidence in this agreement.”

The IECA Master Netting Agreement is available to the public as a free download on the IECA’s website (http://www.ieca.net/education-resources/master-netting-agreement). The legal opinions have been prepared by a top tier international law firm, Reed Smith LLP. They will soon be available for purchase on the IECA’s website.

Reed Smith LLP is an international firm with 26 offices on three continents.  Strong contributions to the drafting of the opinion came from the firm’s Energy & Natural Resources and Bankruptcy & Commercial Restructuring teams in New York, Houston, and London.  Special thanks go to Ms. Andrea Pincus, Mr. Claude Brown, Mr. Paul Turner, and Mr. Craig Enochs for their many contributions.  Reed Smith has been a longstanding friend to the IECA and is a Platinum sponsor.

The IECA would like to extend special thanks to the members of the drafting committee, including the Working Group’s Co-Chair, Scott Le Bouef, a partner with Stroock & Stroock & Lavan LLP, IECA President and Working Group Co-Chair, Zack Starbird, a Managing Counsel at BP, Jeremy Weinstein, Owner, Law Offices of Jeremy Weinstein, Marianne Griffin, Trading Counsel at BP, Nicole Russell, Director and Trading Counsel, Trading Counsel Solutions, LLC, Geoffrey Heffernan, Sole Member and Attorney, O’Heffernan LLC, Michael Etkin, Partner, Lowenstein Sandler LLP, Craig Enochs, Partner, Reed Smith LLP, Mark Sherrill, Partner, Sutherland, Asbill & Brennan LLP, Phil Lookadoo, Partner, Haynes Boone, LLP, K.C. Hairston, Partner, Balch and Bingham LLP, Jeffrey Daniel, Associate, Willkie Farr & Gallagher LLP, Lance Miller, Senior Corporate Counsel, Westar Energy, Kevin Freeman, Managing Attorney, Alliant Energy Corporate Services, Inc., Gloria Sandoval, Sr. Credit Risk Analyst, Chevron Natural Gas Company, Tara Liscombe, Executive Director, Castleton Commodities International LLC, Rhonda Dempsey, Contract Manager, PetroChina International, Peter Wilbur, Senior Counsel, BP, Patricia Krause, Global Delivery Manager for IST Risk, BP, Trey Glendye, Director of Shared Services, Colonial Group, Inc., Darla Zink, Senior Counsel, Northern Natural Gas Company, Gregory Shomper, Contracts Manager, The Energy Authority, Inc., Ian Plester, Managing Director, BMO Capital Markets, Tiffany Silvey, Managing Counsel, Energy Future Holdings, Ginger Price, Director, Energy Contract Management, LLC, Malik Kaiser, Managing Counsel, Trading, Calpine Corporation, Joseph Yu, Attorney, Pacific Gas & Electric Company, Kevin Masucci, Senior Counsel, NRG Energy Inc., Dennis J. Withee, Assistant General Counsel, Hartree Partners, James Hawkins, Principal, Credit Risk, Cenovus Energy Inc., Amanda Kenly, Supervisor, Market Risk & Contracts, Ameren Services Company, Jamie Swartz, Counterparty Risk Specialist, TransCanada Corporation, Patti Prewitt, Owner, Law of Office of Patricia Williams Prewitt.

Every situation is different and requires independent legal analysis.  For those reasons, neither the IECA nor Reed Smith can guarantee the enforceability or fitness of the IECA Master Netting Agreement for you, your counterparty, or your situation.  You are encouraged to consult with your own legal counsel with respect to the preparation, negotiation, and use of the IECA Master Netting Agreement.