Tolling Agreement In Power Plants

Squadron Energy Group Australian Industrial Energy has signed a long-term lease with NSW Ports for a port site in Port Kembla, 112 km south of Sydney, for the development of the company`s planned LNG import terminal. Toll agreements are a common feature of the energy sector. Through these agreements, a buyer supplies fuel to an electric generator and, in exchange, the generator will return electricity to the buyer. Although commonly used, the United States recently found that such a toll agreement, when entered into between companies considering merging, was contrary to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. § 18a (HSR Act), resulting in the imposition of significant financial penalties on the buyer. A joint venture between VPower Group and China National Technical Import & Export Corp. Synergy Marine Group has taken over the CNTIC VPower Energy floating natural gas reservoir as part of an LNG-to-Power project in Myanmar. Regulatory risks remain, he said, especially in California, where price caps have been put in place, affecting distributor factories. Under a toll agreement, the toll party supplies the fuel to a plant operator and receives the electricity as a product that it then markets.

Feldman said these deals have started an important cog in the risk allocation in the sector and are based on a different profitability than the initial independent power generation projects. A toll contract is a contract for the lease of a power plant by its owners. These agreements give the tenant the opportunity to convert one physical product (fuel) into another (electricity). This chapter explains how to determine the economic value of a power plant. Owning (or leasing) a power plant allows a concessionaire to turn fuel into electricity. If electricity prices are high enough, a power plant can burn fuel to produce electricity profitably. Otherwise, the concessionaire usually leaves the plant inactive. This is very similar to the behavior of financial option contracts. That`s the way it is. ORLANDO-As gas prices rise and electricity prices rise, more and more companies are turning to toll agreements to finance and share the risk of building new commercial power plants, Dealmaker says. For liability to the toll, the agreement serves as a physical hedge of assets to cover electricity trading positions. At the same time, commercial investments can be used to extract the “volatility value” or upward trend that could be present in volatile gas and electricity markets, Feldman said.

This case highlights the importance of consulting with experienced HSR consultants before acquiring voting shares, non-company interests or assets. Although the toll agreements in question are becoming more common in the energy sector, parties who have or may have an interest in acquiring the other party must be careful not to acquire the economic ownership of the offeree company before fulfilling the reporting obligations under the HSR Act if notification of the HSR was necessary. Otherwise, the toll agreement can be interpreted as proof of shooting and the acquiring person is liable to significant penalties of up to 40,654 $US per day for non-compliance. In August 2014, Duke Energy Corporation (Duke) and Calpine Corporation (Calpine Corporation), a competing wholesale electricity vendor in Florida, agreed to purchase the Osprey Energy Center (Osprey), a combined natural gas and gas power plant in Florida, in Calpine. The structure of the proposed transaction included a toll agreement that gave Duke responsibility for determining the amount of electricity to be generated at Osprey and purchasing the fuel needed to generate that electricity. . . .

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