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EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions
A Jolly Contrarian owner’s manual™
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Section Receiving Party’s Replacement Cost in a Nutshell™
Use at your own risk, campers!
Receiving Party’s Replacement Cost means:
- (1) No Excess Emissions Penalty: If “Excess Emissions Penalty” does not apply or the Delivery Date falls outside the EEP Risk Period, then, for a failure to deliver a number of Allowances (the “RPRC Shortfall”), an amount equal to:
- (A)
- (I) the price (per Allowance) Calculation Agent determines that Receiving Party would pay in a reasonable arm’s length transaction on the Final Delivery Date for an equivalent number of Allowances to be delivered on the Delivery Business Day on which Allowances would be ordinarily be delivered under a spot transaction on the Final Delivery Date; less
- (II) the relevant Allowance Purchase Price/Allowance Strike Price plus, where the termination under “Physical Settlement” follows a Suspension Event, the Close-out Cost of Carry Amount; multiplied by:
- (B) the RPRC Shortfall; plus
- (C) interest at the Default Rate from the Delivery Date to the termination date in accordance with “Failure to Deliver Not Remedied” on the product of the RPRC Shortfall and any excess of the price determined under to paragraph (1)(A)(I) over the relevant Allowance Purchase Price/Allowance Strike Price; or
- (2) Excess Emissions Penalty: If “Excess Emissions Penalty” applies and Delivery Date falls within the relevant EEP Risk Period, then, for a failure to deliver a number of Allowances (the “Undelivered Allowances”), an amount equal to the sum of:
- (A) either:
- (I) if Receiving Party can reasonably purchase a number of Allowances for delivery between the Final Delivery Date and the Reconciliation Deadline immediately following the Delivery Date (the “Buy-In Period”), which for each such individual purchase of Allowances, in aggregate equalling the number of Undelivered Allowances:
- (X)
- (1) the price (per Allowance) at which Receiving Party is able so to purchase the relevant number of Allowances; less
- (2)
- (A) the Allowance Purchase Price or Allowance Strike Price, as applicable, for the Undelivered Allowances set out in the relevant Confirmation plus
- (B) Where the termination of the parties’ obligations under “Physical Settlement” follows a Suspension Event, the Close-out Cost of Carry Amount; multiplied by:
- (Y) the affected number of Allowances; plus
- (Z) interest at the Default Rate from the Delivery Date to the termination date under “Failure to Deliver Not Remedied” on the product of the number of Undelivered Allowances and any excess of the determined price over the relevant Allowance Purchase Price/Allowance Strike Price; or
- (II) if Receiving Party cannot reasonably purchase a number of Allowances for delivery equal to the Undelivered Allowances during the Buy-In Period:
- (X) for the number of Allowances Receiving Party can Buy-In during the Buy-In Period, an amount determined under paragraph (I) above; and
- (Y) for a number equal to the Undelivered Allowances minus the Allowances referred to in (II)(X) above (the “Shortfall”), the sum of:
- (a)
- (I) the price (per Allowance) at which Receiving Party can reasonably buy for delivery after the Reconciliation Deadline a number of equivalent Allowances equal to the Shortfall; less
- (II) the relevant Allowance Purchase Price/Allowance Strike Price for the Undelivered Allowances, where the relevant termination of the parties’ obligations under “Physical Settlement” follows a Suspension Event, the Close-out Cost of Carry Amount; plus
- (III) the EEP Amount; multiplied by:
- (b) the Shortfall; plus
- (c) interest at the Default Rate from the Delivery Date to the date Receiving Party could purchase Allowances under paragraph (II)(Y)(a)(1) on an amount equal to the the number of Undelivered Allowances and any excess of the price determined under paragraph (II)(Y)(a)(1) over the relevant Allowance Purchase Price/Allowance Strike Price; and
- (B) Receiving Party’ reasonable costs as a direct result of Delivering Party’s failure to deliver the Shortfall where those costs and expenses are not reflected in paragraphs (A)(I) or (A)(II) above; or
- (3) Failure to Deliver (Alternative Method): If “Failure to Deliver (Alternative Method)” applies then, for a failure to deliver a number of Allowances (“RPRC Shortfall”), an amount equal to:
- (A)
- (I) the price (per Allowance) the Calculation Agent determines that Receiving Party can reasonably buy a number of equivalent Allowances equal to the RPRC Shortfall for delivery on the first standard Delivery Business Day for settling transactions concluded on the Delivery Date; less
- (II) the relevant specified Allowance Purchase Price/Allowance Strike Price plus, where termination of the parties’ obligations under “Physical Settlement” follows a Suspension Event, the Close-out Cost of Carry Amount; multiplied by:
- (B) the RPRC Shortfall; plus
- (C) interest at the Default Rate from the Delivery Date to the Final Delivery Date on the product of the relevant Allowance Purchase Price/Allowance Strike Price, and the RPRC Shortfall.
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Full text of Section Receiving Party’s Replacement Cost
Receiving Party’s Replacement Cost means:
- (1) if “Excess Emissions Penalty” is specified not to be applicable in the Annex to this Part or the Confirmation for the relevant EU Emissions Allowance Transaction, or if “Excess Emissions Penalty” is specified to be applicable and if an EEP Risk Period is specified in the Annex to this Part or in the Confirmation for the relevant EU Emissions Allowance Transaction but the Delivery Date falls outside the EEP Risk Period then, in respect of a failure to deliver a number of Allowances (the “RPRC Shortfall”), an amount equal to:
- (A)
- (I) the price (per Allowance) that Receiving Party, acting in a commercially reasonable manner, does or would, in the determination of the Calculation Agent, pay in an arm’s length transaction concluded on the Final Delivery Date for an equivalent number of Allowances to be delivered on the Final Delivery Date or, if later, the Delivery Business Day on which Allowances would be delivered in accordance with prevailing market practice under a spot transaction concluded on the Final Delivery Date; less
- (II) the Allowance Purchase Price or Allowance Strike Price, as applicable, as set out in the Confirmation for the relevant EU Emissions Allowance Transaction plus, in those circumstances in which the relevant termination of the parties’ obligations under “Physical Settlement” occurs following a Suspension Event, the Close-out Cost of Carry Amount; multiplied by:
- (B) the RPRC Shortfall; plus
- (C) interest at the Default Rate for the period from (and including) the Delivery Date to (but excluding) the date of termination in accordance with Part [7](d)(ii)(1)(B)(Failure to Deliver Not Remedied) on an amount equal to the product of the RPRC Shortfall and an amount equal to the excess, if any, of the price determined pursuant to paragraph (1)(A)(I) above over the Allowance Purchase Price or the Allowance Strike Price, as applicable; or
- (2) if “Excess Emissions Penalty” is specified to be applicable in the Annex to this Part or the Confirmation for an EU Emissions Allowance Transaction and, if an EEP Risk Period is specified in the Annex to this Part or in the Confirmation for the relevant EU Emissions Allowance Transaction, the Delivery Date falls within the EEP Risk Period for the relevant EU Emissions Allowance Transaction, then, in respect of a failure to deliver a number of Allowances (the “Undelivered Allowances”), an amount equal to the sum of:
- (A) either:
- (I) if in one or more arm’s length transactions Receiving Party is able, using its reasonable endeavours, to purchase a number of Allowances to be delivered during the period from (but excluding) the Final Delivery Date to (and including) the Reconciliation Deadline on or immediately following the Delivery Date (the “Buy-In Period”), which in respect of each such individual purchase of Allowances, when aggregated with other such purchases, amounts to a purchase of a number of Allowances equal to the number of Undelivered Allowances:
- (X)
- (1) the price (per Allowance) at which Receiving Party is able so to purchase the relevant number of Allowances; less
- (2) (A) the Allowance Purchase Price or Allowance Strike Price, as applicable, for the Undelivered Allowances set out in the relevant Confirmation plus, (B) in those circumstances in which the relevant termination of the parties’ obligations under “Physical Settlement” occurs following a Suspension Event, the Close-out Cost of Carry Amount; multiplied by:
- (Y) the number of Allowances to which such purchase relates; plus
- (Z) interest at the Default Rate for the period from (and including) the Delivery Date to (but excluding) the date of termination in accordance with Part [7](d)(ii)(1)(B)(Failure to Deliver Not Remedied) on an amount equal to the product of the number of Undelivered Allowances and an amount equal to the excess, if any, of the price determined pursuant to paragraph (2)(A)(I)(X)(1) above over the Allowance Purchase Price or Allowance Strike Price, as applicable; or
- (II) if in one or more arm’s length transactions Receiving Party, using its reasonable efforts, is unable to purchase a number of Allowances equivalent to the Undelivered Allowances to be delivered during the Buy-In Period:
- (X) in respect of the number of Allowances for which Receiving Party is able to effect a Buy-In during the Buy-In Period, an amount for such Allowances calculated in accordance with paragraph (I) above; and
- (Y) in respect of a number of Allowances equal to the number of Undelivered Allowances minus the number of Allowances referred to in (II)(X) above (the “Shortfall”), the sum of:
- (a)
- (I) the price (per Allowance) at which Receiving Party, using its reasonable efforts and in an arm’s length transaction, is able to purchase as soon as reasonably possible for delivery after the Reconciliation Deadline a number of Allowances (such Allowances also being of the same Allowance Type equal to the Shortfall; less
- (II) the Allowance Purchase Price or Allowance Strike Price, as applicable, for the Undelivered Allowances set out in the relevant Confirmation plus, in those circumstances in which the relevant termination of the parties’ obligations under “Physical Settlement” occurs following a Suspension Event, the Close-out Cost of Carry Amount; plus
- (III) the EEP Amount; multiplied by:
- (b) the Shortfall; plus
- (c) onterest at the Default Rate for the period from (and including) the Delivery Date to (but excluding) the date Receiving Party is or would be able to purchase Allowances in accordance with paragraph (II)(Y)(a)(1) above on an amount equal to the product of the number of Undelivered Allowances and an amount equal to the excess, if any, of the price determined pursuant to paragraph (II)(Y)(a)(1) above over the Allowance Purchase Price or the Allowance Strike Price, as applicable; and
- (B) such reasonable costs and expenses which Receiving Party incurs as a direct result of Delivering Party’s failure to deliver the Shortfall to the extent that those costs and expenses are not reflected in paragraphs (A)(I) or (A)(II) above; or
- (3) if “Failure to Deliver (Alternative Method)” is specified to be applicable in the Annex to this Part or the Confirmation for an EU Emissions Allowance Transaction, then, in respect of a failure to deliver a number of Allowances (the number of Allowances not so delivered being the “RPRC Shortfall”), an amount equal to:
- (A)
- (I) the price (per Allowance) Receiving Party, acting in a commercially reasonable manner, does or would, in the determination of the Calculation Agent, pay in an arm’s length transaction concluded in accordance with prevailing market practice on the Final Delivery Date to purchase a number of Allowances equivalent to the RPRC Shortfall for delivery on the first Delivery Business Day on which transactions concluded on the Delivery Date would be settled in accordance with prevailing market practice; less
- (II) the Allowance Purchase Price or Allowance Strike Price, as applicable, as set out in the Confirmation for such EU Emissions Allowance Transaction plus, in those circumstances in which the relevant termination of the parties’ obligations under “Physical Settlement” occurs following a Suspension Event, the Close-out Cost of Carry Amount; multiplied by:
- (B) the RPRC Shortfall; plus
- (C) interest at the Default Rate for the period from (and including) the Delivery Date to (but excluding) the Final Delivery Date on an amount equal to the product of the Allowance Purchase Price or the Allowance Strike Price, as applicable, and the RPRC Shortfall.
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