[Letterhead of PSE&G appears here]
EXHIBIT 10.56
October 10, 1986
Mr. Robert C. McNair
President
Cogen Technologies NJ, Inc.
Managing Venturer
Cogen Technologies NJ Venture
14614 Falling Creek Drive
Suite 212
Houston, Texas 77068
Re: AGREEMENT FOR GAS SERVICE
UNDER RATE SCHEDULE CIG
COGEN TECHNOLOGIES NJ VENTURE
BAYONNE, NEW JERSEY
Dear Mr. McNair:
This Agreement is intended to confirm the understandings and agreement
between Cogen Technologies NJ Venture, a New Jersey Joint Venture under New
Jersey partnership laws (referred to herein as "Cogen") and Public Service
Electric and Gas Company (referred to herein as "PSE&G") relative to the
determination of Cogen's obligation to make payment to PSE&G pursuant to Special
Provision (c) of PSE&G's Rate Schedule CIG, which is incorporated herein by
reference, and other relevant terms and conditions. In certain respects this
Agreement supercedes the provisions of Rate Schedule CIG; however, except in
those specific instances, gas service to Cogen hereunder shall at all times be
subject to and consistent with all applicable terms and conditions of PSE&G's
Tariff for Gas Service and Rate Schedule CIG.
In consideration of the mutual promises and obligations contained herein,
the parties to this Agreement agree to the following procedures, terms and
conditions:
1. PSE&G will install the necessary facilities to provide, and will
provide, up to a maximum of 3,000 MCF/hr. of gas to your site in
Bayonne, New Jersey (the "Site"). No initial payment will be required
for this installation, subject, however, to the conditions below. It is
presently anticipated that the pipeline and appurtenant facilities
required for
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the provision of gas service hereunder will be ready for initial service
to Cogen by April 12, 1988.
2. As a result of (i) the uncertainties associated with the price of CIG
gas, (ii) the projected cost of the high pressure gas main required to
be installed in order to provide service, and (iii) the projected gas
usage by Cogen during the first twelve (12) months of operation, sixteen
(16) months after initial usage of gas service an amount equal to the
actual cost of the facilities as determined by PSE&G, less 10% of the
annual revenue (as defined in paragraph 4 below) resulting from this
service, plus interest on this difference, shall be paid to PSE&G by
Cogen. Should 10% of the annual revenue equal or exceed the cost of
facilities, no payment will be required. This paragraph 2 shall
supersede anything in Rate Schedule CIG appearing to the contrary,
including, without limitation, Special Provision (c) set forth on First
Revised Sheet No. 38 thereof.
3. A month is defined as a billing period in accordance with Section 8.7 of
our Standard Terms and Conditions for Gas Service (copy attached).
4. The annual revenue referred to in paragraph 2 above shall be the
aggregate of the maximum revenues received by PSE&G for any twelve of
the first sixteen months after initial usage of service.
5. The interest referred to in the paragraph 2 above shall be calculated
based on the prime rate at Chase Manhattan Bank, N. A., plus 1%.
Interest shall accrue from the time that PSE&G begins construction of
the required facilities until such time as any required payment is made.
6. If for any reason this project is unable to commence operation, Cogen
shall be responsible for payment in full for the total cost incurred by
PSE&G in pursuit of its obligations hereunder for any and all facilities
constructed by and/or expenses incurred by PSE&G, or for which any
financial obligations or expenses have been incurred. Provided, however,
that in the event the project is unable to commence operation, PSE&G
shall use reasonable efforts to find some other use for the facilities
constructed or for which financial obligations have been incurred, and
to the extent PSE&G can use such facilities for another purpose, Cogen's
responsibility for the payment of the total cost of such facilities
shall be reduced accordingly.
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7. As security for the above obligations, Cogen shall enter into an
irrevocable letter(s) of credit in favor of PSE&G on terms and
conditions acceptable to PSE&G, which letter(s) of credit shall be
executed by a commercial bank authorized to transact business in the
State of New Jersey and acceptable to PSE&G. The letter(s) of credit
will require the issuer to honor demands for payment made by PSE&G on
compliance with the terms and conditions specified in the letter(s) of
credit. The letter(s) of credit shall also be used to secure any payment
due to PSE&G from Cogen under paragraph 2 above in the event Cogen does
not make the payment if required by the terms of paragraph 2.
Cogen shall establish such letter(s) of credit for and same shall be
issued to PSE&G within thirty (30) days of execution of this Agreement.
PSE&G shall not be obligated to order any equipment or materials
required for construction of the gas facilities until such letter(s) of
credit has been issued to it in acceptable form or fails to do so. In
the event Cogen fails to establish for and have issued to PSE&G a
letter(s) of credit consistent with the above requirements, PSE&G may
suspend further performance under this Agreement until such letter(s) of
credit is (are) established for and issued to PSE&G.
The total amount to be secured ultimately by the letter(s) of credit
shall be $4.6 million. This Agreement contemplates that the letter(s) of
credit shall be provided according to Schedule A of this Agreement which
schedule establishes the amounts to be secured and the dates by which
the letter(s) shall be provided.
Before PSE&G can demand payment from the bank providing said letter(s)
of credit, it shall send a bill to Cogen for all costs, expenses and
other financial obligations incurred relative to the pipeline and
appurtenant facilities. If said bill is not paid within 30 days from the
date thereof, PSE&G may then at any time demand payment under said
letter(s) of credit from bank.
Once gas service to Cogen commences, the outstanding amount under the
letter(s) of credit may be reduced by Cogen over the ensuing 16 month
period to reflect the extent to which actual gas revenue has reduced the
potential liability of Cogen under this Agreement. Within 30 days
following the end of each three billing months commencing with the start
of gas
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service, PSE&G will advise Cogen in writing of the extent to which the
total $4.6 million amount or any subsequently reduced amount as secured
by the letter(s) of credit may be reduced as a result of actual gas
revenue. There will be a final reconciliation within 30 days following
the conclusion of the sixteen (16) month period.
In calculating the amount by which the letter of credit may be reduced
at the given intervals, the amount of any reduction will be equal to the
current face amount of the letter of credit less the actual cost of the
facilities as determined by PSE&G plus 10% of the cumulative revenue
received by PSE&G for gas service rendered to Cogen commencing with the
start of gas service, except that in any calculation occurring after the
twelfth billing month, including the final reconciliation, the "annual
revenue" as defined in paragraph 4 of this Agreement shall be used in
lieu of the "cumulative revenue" above. In the event the result of this
calculation is zero, or a negative amount, no reduction in the amount of
the letter of credit will occur.
8. The making of a payment by Cogen will not give it any interest in the
facilities, such ownership being vested exclusively in PSE&G.
9. Notwithstanding anything herein appearing to the contrary, Cogen
reserves the right to notify PSE&G in writing to suspend the performance
of the work of PSE&G in installing the gas facilities contemplated
hereunder, at any time prior to the completion thereof, for any reason,
including, without limitation, the occurrence of am Imminent Suspension
Event, Suspension Event or a Matured Suspension Event as such terms are
defined in the Construction Loan Agreement between Cogen Technologies NJ
Venture and General Electric Power Funding Corporation, relating to
financing of the contemplated cogeneration project at Cogen's Bayonne,
New Jersey site.
10. With regard to Cogen's obligations to be a qualifying facility under
Rate Schedule CIG, Cogen shall provide PSE&G with a copy of its
qualifying facility certification as granted by the Federal Energy
Regulatory Commission before service under Rate Schedule CIG is
supplied. Cogen is obligated to maintain its QF status. In the event
that Cogen makes any modification to its cogeneration facility or to its
operation of such facility that differs
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from the representations contained in Cogen's application for qualifying
facility certification, Cogen shall furnish PSE&G, upon request, a
recertification order of the Commission, or, in the alternative, at
Cogen's discretion, an opinion of counsel that the cogeneration facility
still qualifies as a qualifying facility under the Federal Energy
Regulatory Commission's rules.
11. It is acknowledged that Cogen may assign this Agreement to a third party
which has provided financing for the project, provided Cogen has
requested in writing of PSE&G a consent to such assignment explaining
the reasons therefor; however, any such assignment shall be subject to
assignee accepting in writing all of the terms and conditions of this
Agreement. Such assignment agreement shall be provided to PSE&G for
review and approval prior to its effectiveness. Consent by PSE&G shall
not be unreasonably withheld.
12. In the event PSE&G files for and/or proposes any future changes in its
Rate Schedule CIG, it shall advise Cogen in writing within fourteen (14)
days from the date of such filing.
My signature below confirms PSE&G's agreement with all the terms and
conditions of this Agreement, and your signature at the indicated location will
similarly confirm Cogen's agreement with all the terms and conditions contained
herein. Accordingly, please sign this agreement and return it to me along with
the signed Application for CIG, which is attached.
Very truly yours,
/s/ Louis L. Rizzi
-------------------------------
Louis L. Rizzi
Vice President--Customer and
Marketing Services
Accepted:
/s/ Robert McNair
- ------------------------------
R. McNair--President
Cogen Technologies NJ, Inc.
Managing Venturer
On behalf of Cogen Technologies NJ Venture
SCHEDULE A
Total Amount of $ To Be
Date Letter(s) of Credit Due Secured by Letter(s) of Credit
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November 10, 1986 450,000
February 1, 1987 850,000
April 1, 1987 1,350,000
May 1, 1987 2,850,000
June 1, 1987 3,150,000
July 1, 1987 3,500,000
August 1, 1987 4,200,000
September 1, 1987 4,600,000
APPLICATION FOR RATE SCHEDULE CIG
COGENERATION INTERRUPTIBLE SERVICE
TO PUBLIC SERVICE ELECTRIC AND GAS COMPANY:
Cogen Technologies N J Venture
requests Public Service Electric and Gas Company (PSE&G) to supply gas service
under Rate Schedule Cogeneration Interruptible Service (CIG) at
Foot of E. 22nd Street, Bayonne
for a maximum annual requirement of 176,000,000 therms
and a maximum hourly requirement of 30,000 therms, for the operation of the
following equipment:
Four gas turbines, one steam turbine, supplementary firing equipment.
Upon acceptance by PSE&G, it is understood and agreed that:
(1) Customer shall take and pay for the service in accordance with Rate Schedule
CIG and the Standard Terms and Conditions referred to therein and in
accordance with any changes or modification thereof as provided in Section
14 of the Standard Terms and Conditions for Gas Service.
(2) Customer shall obtain approval from PSE&G before making any changes in the
connected equipment served under this provision and a new application will
be required.
(3) Rate Schedule CIG will become effective on the date service is provided.
(4) Customer shall provide a 120 volt source of electric for the operation of
the gas metering equipment.
(5) Customer shall pay to Public Service $ * as a contribution towards
facilities in accordance with the terms of Special Provision (c) Rate
Schedule CIG.
(6) Gas supplied in excess of the quantity described in Special Provision (m)
shall be billed under Rate Schedule LVG except as specified under Special
Provision (e).
(7) Customer shall provide Public Service with their Qualifying Facilities
Certification as granted by the Federal Energy Regulatory Commission before
service is supplied.
* See attached letter agreement.
(8) Customer shall file, with Public Service, a monthly report of the
kilowatthours produced and volume of other fuels used by the cogeneration
facility.
(9) Customer shall install, maintain and make accessible for reading by Public
Service such electric meters as necessary for determining the volume of gas
applicable to Rate Schedule CIG.
Accepted:
Public Service Electric and Cogen Technologies
Gas Company N J Venture
By /s/ Louis L. Rizzi By /s/ Robert McNair
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Title: Vice President--Customer President
and Marketing Services Cogen Technologies NJ, Inc.
Date: 10/10/86 Managing Venturer