What Is A Tolling Agreement Energy

Toll agreements are a common feature of the energy sector. Through these agreements, a buyer will supply fuel to an electric generator and in return, the generator will deliver electricity to the buyer, according to an article published on Hogan Lovells` website. A toll contract is a lease agreement for a power plant to its owners. These agreements give the tenant the opportunity to convert a physical product (fuel) into another commodity (electricity). This chapter explains how to determine the economic value of a power plant. Toll agreements are a common feature of the energy sector. Through these agreements, a buyer will supply fuel to an electric generator and in return, the generator will recover the electricity. Although widely used, the United States has recently found that such a toll agreement, when concluded between companies wishing to merge, was contrary to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, amended by 15 U.C 18a (HSR Act), which resulted in the imposition of significant financial penalties on the purchaser. Squadron Energy Group`s Australian Industrial Energy Group has signed a long-term lease agreement with NSW Ports for a port site in Port Kembla, 112 km south of Sydney, for the development of the company`s LNG import terminal project. Contractual clause in a sales contract (SPA) that requires payment of a minimum amount of natural gas, whether or not the delivery is accepted by the buyer. In August 2014, Duke Energy Corporation (Duke) and Calpine Corporation (Calpine), a competing wholesale electricity seller in Florida, agreed to Duke`s purchase of the Osprey Energy Center (Osprey) in Florida.

The structure of the proposed transaction included a toll agreement that entrusted Duke with responsibility for determining the energy to be produced at BeiOsprey and for purchasing the fuel needed to produce that energy. Essentially, the toll agreement allowed Duke to take operational control of the Osprey plant and limited Calpine`s role to „the mechanical operation of the Osprey facility in accordance with Duke`s instructions.“ [1] For the toll party, the agreement serves as a guarantee of physical assets to cover the electricity trading positions. At the same time, commercial assets can be used to extract the „level of volatility“ or up that could be present in volatile gas and electricity markets, Feldman said. According to the DOJ, agreements that are entrusted to the economic beneficiary and are executed prior to notification of the HSR and the expiry of the waiting period may be reduced to impact pistols under the HSR Act when they are concluded, while a buyer intends to acquire the destination. [5] These types of agreements allow the purchaser to take control of a target and obtain the effects of the combination before the regulators have completed their review of cartels and abuse of dominance. DOJ submitted, therefore, that, overall, the deadline and toll agreement had the effect of removing Calpine as an independent competitive presence in the market and allowing Duke to make all competitive decisions regarding the Osprey plant from the date of the toll agreement and well before the HSR notification. You will also receive operating and maintenance payments as well as a starting payment for the start-up of the turbine. Project sponsors are also subject to various penalties if they do not meet the toll company`s expectations, including the construction of the facility in a timely manner. It has become a hot topic in the negotiations. Equipment manufacturers first find it difficult to meet delivery deadlines. There are also problems with defective or poorly mounted components, Feldman said.

Many developers are trying to pass on some of the risks associated with the delivery of the facilities to the contractor.