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formula and the relative weighting to be afforded to each index will often be the
subject of lengthy negotiation. However, each party will be equally concerned to
ensure that the indexation formula will be responsive to changes in market
conditions in a balanced and reasonable manner.
Although the indices included in the gas price formula will change daily, the gas
price will usually be calculated in accordance with the formula on a less frequent
basis (eg, at the beginning of each contract year, quarter or month)36 with the
resultant gas price applying for the duration of the applicable time period.37
While indexation will ensure that the gas price reflects changes in market
conditions, it will by no means be perfect and the parties may wish to insulate
themselves from the volatility of the market by including a price floor below which
the gas price cannot fall, and/or a price ceiling which the gas price cannot exceed.
10.2
36
Although calculating the gas price in accordance with the gas price formula on a more frequent basis
will help ensure that the gas price reflects more accurately changes in market conditions, this needs to
be balanced against the continuity of the gas-pricing arrangements and the administrative burden
associated with having continuously to recalculate the gas price.
If the parties disagree on the calculation of the gas price, the GSA will usually provide that either party
may refer the matter to an independent expert for determination. Further, where an index included in
the gas price formula is temporarily unavailable or has been published in an erroneous form, the GSA
may prescribe a mechanism for a provisional price to be agreed between the parties during the interim
and for subsequent adjustment payments to be made once the actual or corrected figures have been
published or become available. Similarly, where an index included in the gas price formula permanently
ceases to be quoted, or if there is a material change in the underlying basis upon which the index is
quoted, the GSA may prescribe a mechanism for agreeing a replacement index, failing which either party
may have the right to refer the matter to an independent expert for determination.
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