Capacity Tolling Agreement

As gas prices rise and electricity prices rise, more and more companies are turning to pay-as-you-go to finance and share the risk of building new commercial power plants, dealers say. Roger D. Feldman, partner and co-chair of Bingham Dana LLP`s finance and development group, told Power-Gen International on Wednesday that the basic model was energy companies capable of managing both fuel and electricity risk. Another party undertakes to manage the process or installation and collects a toll per converted entry unit or unit of capacity on which fees are granted (the toll). As part of a toll agreement for LNG, a company sends a volume of input gas to a liquefaction plant, with the gas being liquefied against a predetermined toll. One tonne is equivalent to 1,000 kg, or 2,204.6 pounds. The capacity of an LNG storage facility is generally expressed in tonnes and the cost of capital for LNG production is expressed in tonnes. When implementing a third-party LNG toll structure, the project management company (i) provides natural gas suppliers with a liquefaction processing service for a fee; (ii) is not bound or does not belong to the appropriate customers, (iii) may support a negotiated and capped amount of liability, which is tailored to a reasonable business risk, (iv) requires the safety of appropriate customers to protect their interests in facilities and satisfy lenders with respect to the credit risk of duly assumed customers , (v) do not take possession of natural gas, LNG or by-products, or (vi) does not possess natural gas, LNG or by-products are supported. Given the proximity of the grid with probably abundant gas for most U.S. projects, deding and availability of gas reserves is generally not an aspect. This paper highlights the main considerations in negotiating a toll system for third parties, which reflects the agreements we see in many U.S. projects.

It is essential that the provisions relating to repeal and planning conditions (including port use agreements or terms of use), measurement methodology and the allocation of LNG and other by-products to all toll customers be consistent in a project. Clear, non-discriminatory allocation procedures and measurement principles to accurately determine each toll client`s right to the elimination of LNG and by-products are important not only to project participants, but also to financiers. The allocation procedures and evaluation method should apply in the same way to all paying customers and be verifiable by all paying customers using LNG liquefaction facilities.

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