A bilateral contract is a private trade between two parties. Bilateral transactions usually occur on the phone with two individuals negotiating and agreeing upon a price or via electronic trading exchanges. For shorter transactions, the use of electronic exchanges such as the Intercontinental Exchange (ICE) has become common. Longer-term transactions are typically negotiated face to face.
A bilateral trade specifies key terms including delivery point, volume, time of delivery, price, and whether the transaction is firm. Trades are done for specified blocks of time. Typical blocks include:
- Peak: 5x16 (weekday blocks 5 days per week and 16 hours per day) or 6x16 (Mon-Sat 16 hours per day)
- Off-peak: hours not defined as peak
- Round-the-clock: 24 hours per day
Blocks are also often defined by the time of year they will be delivered:
- Monthly (for a specified number of months)
- Balance-of-month (the remaining days of the current month)
- Daily (for a specific number of days)
- Summer (July-Aug)
- Winter (Jan-Feb)
- Annual (a block for a year)
Common pricing options include:
- Fixed: a specified $/MWh that does not change
- Indexed: a specified formula for determining the price based on published indices
- Strip: a specified fixed price for each month of a contract, which varies by month