1C/2C/3C Resources
" Also known as contingent resourcesthese are those quantities of oil or gas
estimated, as of a given date, to be potentially recoverable using established
technology or technology under development, but that are not currently
considered to be commercially recoverable due to one or more contingencies
(note the difference here between contingent resources and Proven, Possible
and Probable Reserves, where a market is more likely to exist).
These contingencies may include factors such as economic, legal, environmental,
political and regulatory matters, or a lack of markets. It is also appropriate
to classify as contingent resources the estimated discovered recoverable
quantities of oil or gas associated with a project in the early evaluation
stage. 1C Resources are classified as “low estimate” — the lowest level
of certainty for predicting the level of oil or gas resources. 2C Resources are
classified as “best estimate.” 3C Resources are classified as “high
estimate,” or the highest level of certainty for predicting the level of oil or
gas resources.
10b-5 Rep
Same as a Rule 10b-5 Representation.
122 Endorsement
" An Endorsement to Title Insurance for construction loans , issued at the time of borrowings that occur after the initial
closing. This endorsement does not “date down” or otherwise modify the
effective date of the Title Insurance, but rather describes any additional
encumbrances against the property, insures the Lenders that no other
encumbrances have been recorded, and insures the priority of the Lender’s
existing liens and new advances over any subsequent encumbrances. Even though
this Endorsement is sometimes called a “datedown,” it is distinguished from a Datedown
Endorsement which changes the date of the policy to the date of the
endorsement.
363 Sale
" Named after a section of the Bankruptcy Code , an auction-like procedure for a bankrupt entity to sell
assets, subject to approval by the judge. Often there is a Stalking Horse
Bidder who has already arranged to purchase the assets. If the Stalking
Horse Bidder is outbid (which does happen), he gets a breakup fee for his
trouble.
Acceleration
" The end of the line under an Indenture or Credit Agreement. The definitions of Default and Event of Default describe how we get there. Following an Event of Defaultdescribe how we get there. Following an Event of Default, the
Bondholders (under an Indenture) or Lenders (under a Credit Agreement) have the
right to “accelerate” the due date of their debts; in other words, they have
the right to declare their Notes or loans immediately due and payable.
Bankruptcy and insolvency Events of Default usually automatically lead to
Acceleration because otherwise Acceleration would be prohibited under the Automatic
Stay.
Access
" The right to enter and exit a property from a public right of way (a road). Access rights will often require zoning approvalscurb cuts, easements or use agreements with adjoining
landowners. A Title Insurance Policy may insure “access” with regard to
an insured property if an Access Endorsement is included. If you do not
have Access, you are “landlocked” and your property is worth very little.3
Accordion
" A feature in a Credit Agreement that allows the Borrower to increase the maximum commitment amount under a Revolver or to incur additional term loan debt under circumstances specified in the Credit Agreement. The Accordionhowever, is not pre-committed financing,
and may involve bringing another Lender into the facility. It is really just an
advance agreement to share Collateral with additional Lenders in the future if
the Borrower can find them on the agreed terms. Also known as an Incremental
Facility. You would not see an Accordion in a Project Financing absent a change
in the economics, such as would result from expansion of the Project’s Capacity.
Account Control Agreement
" This is how Lenders in a secured financing Perfect their Security Interest in a Borrowers deposit accounts and securities accounts. It is an agreement among the Borrower the Collateral Agent and the bank or securities intermediary
where the Borrower holds its deposit or securities account. Absent an Event of
Default, the Borrower usually retains full access to the account. Upon an
Event of Default, however, the Collateral Agent may notify the deposit bank or
securities intermediary to transfer control over the account to the Collateral
Agent by no longer accepting instructions from the Borrower. A Security
Interest in a securities account is typically Perfected either by means of an
Account Control Agreement or by filing a Financing Statement, although a
Security Interest Perfected by means of Control has Priority over
a Security Interest Perfected by filing a Financing Statement. A Security
Interest in a deposit account, by contrast, can be Perfected only by means of
an Account Control Agreement or another method of Control, not by filing a
Financing Statement.
Account Party
" The party that asks that a Letter of Credit be issued, and who is responsible
for repaying the Issuing Bank when the Letter of Credit is Drawn by
the Beneficiary.
Additional Insured / Additional Named Insured
" Lenders worry that a plaintiff may sue them if their Borrower harms the plaintiff, because the banks have deep pockets. So they have the Borrower
add the Lenders, or at least the Collateral Agent and Administrative
Agent, on the Borrower’s liability policies as Additional Insureds. The
Additional Insureds have the right to be defended by the insurer, and to have
any valid and covered claims paid, up to the policy limit. This is done through
an Endorsement issued by the Insurance Broker, who makes sure the
insurer’s records show all the Additional Insureds. The cost is nominal.
Administrative Agent / Admin Agent
" The bank that serves as the principal Agent administering the credit facilities documented in the Credit Agreement. The Administrative Agent is responsible for processing interest payments to Lenders , posting notices delivered by the Borrower, and acting as the
primary representative of the Lenders in dealings with the Borrower. The Trustee
performs an analogous role in Bond land, except that the Administrative
Agent is often accorded more discretion over minor Covenants than is a
Trustee.
Administrative Agent Fee
The annual fee paid to the Administrative Agent for administering a Credit Agreement.
Aero-derivative
Combustion gas turbines that are based upon aircraft engine designs. These are very responsive and so are used in Peaker plants and are very compatible with Automatic Generation Control. Compare Frame Unit.
Affiliate
" Defined slightly differently in different types of agreements, but generally refers to a subsidiary, corporation, partnership
or other person controlling, controlled by or under common control with another
entity.
Affirmative Covenant
" Contractual provisions in an Indenture or a Credit Agreement that itemize certain actions the Issuer or Borrower must take to be in compliance. Think of these as the Thou Shalt Covenants. Many Affirmative Covenants are boilerplate in nature covering such things as a promise by the Borrower to pay
interest and fees, maintain insurance, pay taxes and provide quarterly operating
reports. In a secured deal, the Affirmative Covenants regarding delivery and
maintenance of Collateral will be more highly negotiated. Compare Negative
Covenant.
AFUDC
" Allowance for Funds Used During Construction. The FERC and state regulatory accounting procedure that allows interest paid on borrowed funds and a rate of return on equity funds to be added to the construction cost of a project for purposes of rate recovery (i.e., including those amounts in rates charged
to ratepayers).
AGC
Automatic Generation Control.
ALTA
" The American Land Title Association , a national trade
association of the title industry, which produces survey standards, forms of
title insurance policies and endorsements, and other real estate guidelines
which have become industry standard. Typically used as an adjective and never
spelled-out, as in ALTA Survey
ALTA Survey
A survey performed by a licensed land surveyor that meets the requirements specified by ALTA for the Title Insurance to cover title defects that would be revealed by a survey. The Title Insurer will examine the ALTA Survey to avoid issuing title coverage that might lead to a claim such as an Encroachment.
Ammonia Slip
" Ammonia used in an SCR unit that ends up as part of the exhaust gases, as opposed to reacting with the exhaust gas to reduce nitrogen
oxides.
Amortization
" The required periodic repayment in installments of the principal of a term loan prior to its final maturity. Corporate bonds and Revolvers generally do not amortize , but bonds issued to finance an individual project do typically
amortize.
Ancillary Services
" Services that an electric generating facility can provide to the Grid besides Capacity and energy or that a customer consumes from the Grid besides energy, that
are required for the electric 5
distribution system to operate properly.
For example, if a particular generator is on AGC and is an extremely
responsive technology (e.g., an Aero-derivative turbine), it
might be able to stabilize the voltage on the system by quickly changing
output. As power markets have shifted away from single-source providers
(utilities) and have become more sophisticated, it was thought important to pay
for and charge for Ancillary Services so that the price signals would ensure a
balanced supply and demand.
Applicable Margin
" Same as Margin except that it might change depending on predetermined rules.
The Applicable Margin might increase when the Borrower is downgraded or is on
the weak side of performing its Financial Covenants, on the principle
that higher risk should equal higher reward for the Lenders. The Applicable
Margin is the Lender’s profit, which it is paid in consideration of taking on
the risk of the loan.
Arbitration
" A means of dispute resolution often perceived as less cumbersome and more expeditious than litigation. In Arbitration , the rules of evidence are considerably more lax, there is no
risk of a “wild jury verdict” (as there is no jury per se, other than the
arbitrators, who are sort of professional jurors) and since the process is
private, the parties do not have to wait on the public court system. The
agreement should specify that the arbitration is binding; otherwise, the losing
party could simply re-litigate in the public court system. Some perceive that
arbitrators tend to “split the baby,” leaving both sides somewhat unhappy
instead of one side very unhappy.
ARRA
" The American Recovery and Reinvestment Act of 2009 that included billions of dollars of benefits to the renewable
energy industry.
Arrangement Fee
The fee paid to the Lead Arranger for pulling a deal together and doing most of the work by negotiating the basic deal terms as reflected in the Term Sheet and either offering an Underwriting or putting together a Club Deal.
Arranger or Lead Arranger
" The bank that arranges a credit facility by negotiating original terms with the Borrower and Syndicating the facility to a larger group of Lenders. The Arranger generally has no ongoing obligations under a Credit Agreement after the closing date in its capacity as Arranger generally has no ongoing obligations under a Credit Agreement
after the closing date in its capacity as Arranger, but often serves as
Administrative Agent and/ or Collateral Agent.
Array
" The arrangement of Wind Turbines in a Windfarm. All Windfarm sites have a direction from which the wind blows a large part of the time (see also Wind Rose). The Array will be situated such that each String is perpendicular to this prevailing wind direction and far enough away from the upwind Strings to minimize Wake turbulence which pummels your WTGs,
increasing operating costs
Article 9
" The part of the UCC that governs the validity and Perfection of Security Interests in most personal property secured deals. In California Article 9 is called “Division 9” — they
just have to be special.
As-Built Survey
" A type of ALTA Survey that is performed after a project is finished showing all of the improvements. You need one of these because
projects almost never get built exactly as shown in the original drawings — the
As-Built Survey becomes a historical document showing where everything is
(including underground piping) while the construction is still fresh in
everybody’s mind.
Associated Gas
" A natural gas which is found in association with crude oil either dissolved in the oil or as a cap of free gas above the oil.
As with Condensate, a market exists for Associated Gas.
Attainment
See NAAQS.
Auction Rate Securities
" A long-term securityoften a municipal bond, that has interest that re-sets on very
short terms, usually seven, 28 or 35 days. At the end of that period, the
interest rate is re-set through a Dutch Auction. The holder can, at the
end of any interest period, put the bond back to the issuer (i.e., cause
the issuer to buy the bond). The bond is then quickly Remarketed. Variable
Rate Debt Obligations are similar but have a bank facility to ensure
purchase of the Bonds if they are not successfully Remarketed.
Automatic Generation Control / AGC
" Technology which allows an Offtaker of a power plant to control remotely and electronically basic operations of the facility, such as starting, stopping and output level. The term also
refers to the related contract right, as in “we gave the utility AGC on that
peaker.”
Automatic Stay
" The rule deriving from Bankruptcy Code Section 362 that prohibits creditors from taking any but very limited actions against a bankrupt debtor or its property without permission from the court. For example, the Lender may not Accelerate a loan (though the loan
may Accelerate automatically if the Credit Agreement so provides),
demand payment, foreclose on Collateral or exercise Setoff rights.
The Automatic Stay does not prevent draws on a Letter of Credit for
which the bankrupt debt is the Account Party, thanks to the Independence
Principle.
Aux Boiler
" Auxiliary boilers at a Cogeneration plant which produce steam independent of the gas turbine/HRSG. The capabilities and costs of running Aux Boilers is often a material issue in steam purchase agreements as the Thermal Host does not want to rely exclusively on availability
of the power plant to support its operations.
Availability (Factor)
" The percentage of time a project (often a power generation facility) is in a state where it is ready to run at full-output , even if it is not actually running. Availability Factor
is used by Offtakers to determine whether they are getting their money’s worth
when they are paying for Capacity. For example, a utility might pay a
project owner 7
a capacity component under its PPA for
merely having the facility ready to fire up and run at full capacity at any
time within 5-10 minutes (e.g., on a hot summer Phoenix afternoon when
everybody gets home at the same time and turns on their TV, computer and air
conditioner). Even if the utility rarely Dispatches that facility, they
need to know they can if they need to.
Availability Guaranty
" A guaranty by a WTG manufacturer (or other main facility component manufacturer) that its machine will have a minimum Availability over a stated term (say five years). These are most helpful when a particular technology
has had reliability issues. These are also least helpful when a particular
technology has had reliability issues, because the manufacturer may not be
around to honor the guaranty.
Avian Mortality
" Scientific term for bird deaths (they run into WTGs while flying). In some areas Avian Mortality is a serious impediment to windfarm development.
Often, the concern centers on large birds of prey (raptors). Because raptors
evolved with the assumption they could fly around unimpeded while focusing on
the ground looking for prey, they often run into WTGs without knowing what hit
them. Among the early mitigants, developers started using tubular towers
instead of lattice towers, which discourages perching on the lattice. Recently,
many projects are required to shut down when radar arrays and annual migratory
pattern studies reveal that birds will be passing by. Though not as regal as
raptors, bats are also considered worth protecting from turbine strikes.
Avoided Cost
" The rate at which QFs that are utilizing a PURPA Put may charge utilities for energy. Under PURPA utilities were required to pay power sellers what the utility
theoretically would have paid to build a new power plant (the cost of which was
theoretically avoided). Avoided Cost is determined by the respective state
utilities commissions, and may or may not include a capacity charge component.
AWEA
American Wind Energy Association. AWEA is the primary advocacy organization for the wind industry in the United States.
BACT
" Best Available Control Technology. A determination made by the permitting agency when an air permit is issued for a new industrial facility that meets certain emission size thresholds. BACT is required for a particular Criteria Pollutant when the source is in an Attainment area (compare LAER). Essentially , it requires new facilities to use the “best” technology
available, as determined by the agency (and EPA) from time-to-time. This
requirement can also be imposed when a facility undergoes major modifications.
Balance of Plant / BOP
" In a fossil-fuel-fired power production facility the entire facility minus the Turbine Island equipment;
and in a Windfarm, the entire facility minus the WTGs.
Balloon Payment
Same as Bullet Maturity.8
Bank Book
The Confidential Information Memorandum (or CIM) used to Syndicate bank loans.
Bankruptcy Remote Vehicle
" A subsidiary that is set up within a corporate group in a way so as to prevent the insolvency of the parent company from affecting the subsidiary through Substantive Consolidation. A Bankruptcy Remote Vehicle is created for a limited corporate purpose. A typical example would be when a Bankruptcy Remote Vehicle is set up to acquire or operate a particularly risky asset or make investments. Also known as a Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE). SPEs are often established by non-investment-grade-rated parents who want the debt issued by the SPE subsidiary (to finance a particular project) rated investment grade. See also Separateness , which is a necessary part of every Bankruptcy Remote Vehicle.
Bargain Purchase Option
" An option given to the Lessee to purchase the leased asset at a price that is less than the expected Fair Market Value such that at the inception of the
Lease, it is reasonable to assume that the Lessee will definitely purchase the
leased asset on the option date. Purchase options for one dollar or other
nominal consideration are clearly Bargain Purchase Options. In True Lease transactions,
forward-looking appraisals are often used to support the parties’ position that
a Purchase Option is not a Bargain Purchase Option
Barrel
" In the United States , the “standard” barrel of 42 US gallons is the unit typically
used to measure oil quantities. Elsewhere, oil is commonly measured in cubic
meters or metric tons (what they call in the United States a “tonne,” or 1000
kilograms).
Barrel of Oil Equivalent / BOE
" A unit of energy based on the approximate energy released by burning one Barrel of Crude Oil. This is a method for equating oil gas and natural gas liquids.
Baseball Arbitration
" A method to motivate disputing parties to be reasonable in their settlement demands so-named because it is
often used in contract negotiations between baseball team owners and players.
Both parties present their offer to the arbitrator and the arbitrator is
required to choose between the two offers, rather than seeking or crafting a
compromise. Since extreme offers are more likely to be rejected, any party
taking an extreme position is more likely to end up worse off than if it had
been more moderate
Baseload
" A power generation technology that by its nature you dont want to turn off and on any more than necessary , such as nuclear and coal. So-named because Baseload plants are
built to serve the minimum load, i.e., the minimum that is needed on
that grid, day and night, all year-round. To the extent a Baseload facility has
Capacity in excess of the base load, it is a good candidate to serve Pumped
Storage projects, since the excess Capacity is essentially
valueless. See also Load Stack.9
Base Rate
" A rate of interest that gets reset as often as daily (but only theoretically usually it changes just a few times a year). It used to be called the Prime Rate ,” which implied a rate offered by money center
banks to their best (prime) customers. But some Borrowers complained that those
best customers got better rates than the published prime rate, so the term
switched to Base Rate, which just became an Index like any other.
Changes in the Base Rate are highly correlated to changes in the Federal
Funds Rate.
Basic (or Base) Term
The term of a Lease from the closing date (or if there is an Interim Term from the end of the Interim Term) to the scheduled end of the Lease (not including any renewals).
Basis Point / bp
" One one-hundredth of a percentage point (e.g.50 Basis Points equals 0.50 percent).
Basket
" An exception contained in a Negative Covenant (usually expressed as a dollar amount). For example a Negative Covenant may be: “Borrower shall not issue additional
debt;” a Basket would be: “except for unsecured debt in an amount not to exceed
US$10 million.”
BCF
" A billion standard cubic feet, a unit of measurement used to measure natural gas or other gases.
BCFD
" A billion cubic feet per day , a unit of measurement of
rate of delivery (or entitlement to, or obligation of, delivery) of natural gas
or other gas.
Beneficiary
" Term Used to denote someone who benefits from a contractual relationship without actually being party to the contract. In the context of issuance of a Letter of Creditthe contractual
relationship is the Reimbursement Agreement between the Account Party
and the Issuing Bank. The Beneficiary is given the Letter of Credit,
which is the sole document that spells out the Beneficiary’s rights.
Best Efforts Syndication
" A Syndication where the Arranger commits to provide less than the entire amount of the loans (or even none of them) but agrees to use its “commercially reasonable” efforts (not
“best” efforts, notwithstanding the name) to find Lenders to provide the loan.
Traditionally used for risky Borrowers, complex transactions or Syndications in
bad markets.
Bilateral
" Meaning between two parties the term is often used to distinguish between two-party
(Bilateral) contracts and other types of economic relationships. For example,
in the United States, RPS statutes encourage individually negotiated
Bilateral contracts between utilities and generators, as opposed to the
European approach, where all renewable generators are compensated the same
under a Feed-In Tariff, which does not need a contract at all.
Bilateral Investment Treaty / BIT
An agreement between two nations setting forth the terms and conditions that will apply to private investments made by nationals of one of the nations in the other nation. The idea is the term is often used to distinguish between two-party
(Bilateral) contracts and other types of economic relationships. For example,
in the United States, RPS statutes encourage individually negotiated
Bilateral contracts between utilities and generators, as opposed to the
European approach, where all renewable generators are compensated the same
under a Feed-In Tariff, which does not need a contract at all.
Binary
" A technology used in geothermal power production wherein Brine is pumped up and run through a heat exchanger which imparts the Brines heat to a gas that vaporizes at a temperature lower than does water (e.g.., isobutane or isopentane). That gas then
turns a turbine, and on the other side of the turbine the gas is condensed and
runs through the process again. Some geothermal fields’ fluid is so hot it can
directly run a steam turbine; this is called Flash technology.Remember, there are only 10 kinds of people in the world—those
who understand binary and those who don’t.
Biofuel
Liquid fuel derived from recently grown plants (as opposed to ancient plants that made the oil in the ground).
Biomass
" Wood waste
Biomass Facility
" A power production facility that burns Biomass. Biomass Facilities are particularly susceptible to shortage of Feedstock since Biomass as a fuel is not part of an organized transportation infrastructure (unlike natural gas or oil). Generally Biomass is trucked to the Biomass Facility and therefore must be
of sufficient proximity that the cost of labor and diesel does not exceed the
fuel value.
BI Insurance
Business Interruption Insurance.
BIT
Bilateral Investment Treaty.
Black Liquor
" A byproduct of paper production a kind of black, soupy/syrupy liquid, Black Liquor is combusted
in Cogeneration facilities at paper mills along with Hog Fuel, to create steam
and electricity that are consumed in the mill.
Black Start Capability
" The ability to start up a power production facility without power from an outside source. These are used when the entire grid has gone down since the vast majority of power plants need outside power to
start up. Once the Black Start plant is up, the rest of the system can be
restored. These facilities are rarely (if ever) IPPs, since utilities do
not want to have to rely on outside help in blackout situations.
Blade or Turbine Blade
" A component of a WTG that captures the energy of the wind by converting lift into rotation. Basically each Blade is like an airplane wing; when the wind rushes by,
the Blade moves (lifts) in the direction of the top of the “wing.” See also Swept
Area. A Blade Set is a set (usually three) that the manufacturer wants to
all go on one WTG since they have been balanced to work together.
BLM
The Bureau of Land Management of the US Department of the Interior. The BLM grants and administers site leases and rights of way for many of the geothermal, wind and solar facilities. It controls two-thirds of the land in Nevada and vast swaths in
other Western states.
Blowdown
" The initiation of gas production from a natural gas well. Commencement of Blowdown operations is the first stage in the production process. Blowdown also refers to mineral and chemical-laden water that is removed from an evaporative condenser system of an electric generating facility so that the recirculating water in the system maintains a proper level of dissolved solids. Because water that evaporates from the system is pure what remains for recirculation would become more and more briny
unless Blowdown were removed and replaced with new water.
BOE
Barrel of Oil Equivalent.
Boilerplate
" The parts of a contract,usually found near the end, that vary little among contracts
of the same type.
Bond
" Debt instruments that represent a fixed principal amount of money and a fixed (or floating) interest rate. Also known as Notes or Debentures , though a Bond would generally refer to a longer-tenor
instrument and a Note to a shorter tenor instrument (10 years or less). These
are almost always issued pursuant to an agreement known as an Indenture.
Bone Dry Ton / BDT
" A ton of Biomass at zero moisture content. Once different types of Biomass are made apples to apples by removing moisture their relative heating value (Btu content) can be
compared, so Biomass facilities can compare the economics of various Feedstocks.
B-O-O
" Build-Own-Operate. A type of Concession granted by a governmental entity whereby the developer is entitled to build, own and operate a
project in the applicable jurisdiction. Under the concession agreement, the
developer will be paid to operate the project during the term. At the end of
the term, the developer will retain ownership of the project. See also B-O-T.
BOP
Balance of Plant.
B-O-T
" Build-Own-Transfer. A type of Concession granted by a governmental entity whereby the developer is entitled to build, own and operate a
project in the applicable jurisdiction. At the end of the Concession term, the
developer will transfer ownership of the Project to the government. See also B-O-O.
bps
Shorthand for Basis Points; pronounced bips.
Breakage Costs
" The losses The losses, costs and expenses incurred by a Lender as a result
of a Borrower’s (i) failure to borrow, convert or continue a LIBOR Loan
after giving notice requesting the same; (ii) failure to make a prepayment of
LIBOR Loans after giving notice thereof; or (iii) making of a prepayment of
LIBOR Loans on a day that is not the last day of the applicable Interest
Period. The Lender borrows money from somebody else before on-lending it to
the Borrower (see Match Funding), and the 12
Lender at that time agrees to pay its lender
a certain rate of interest for the applicable Interest Period. When the
Borrower prepays the loan prior to the end of that Interest Period, the Lender
will from that point no longer earn interest from the Borrower; therefore the
Lender repays its lender to stop accruing interest on that side. If
rates have gone down since the beginning of the Interest Period, the Lender’s
lender will have to redeploy the repaid funds at a lower rate, thereby losing
the benefit of its bargain for the balance of the Interest Period. It is this
loss that is the basis for Breakage Costs. (If interest rates have gone up
since the beginning of the Interest Period, there are no Breakage Costs since
the Lender’s lender is happy to be able to reinvest the repaid funds at a
higher rate.) Credit Agreements make clear that Breakage Costs are payable even
if a Lender does not Match Fund.
Brine
" Geothermal fluid that is not at the boiling point. Since it is hot , it has particular capacity to dissolve minerals, and so often
has a high mineral content.
Broken Priority
" Occurs when a developer begins construction on a property prior to recording a deed of trust or mortgage in favor of its lender. In many jurisdictions the priority of the Mechanics’ Lien claims relate back to
the date on which work first commenced on the project in general (as opposed to
the date when the applicable mechanic or materialman actually began providing
labor or materials). If the date of the commencement of work is prior to the
date that that the lender’s lien is recorded against the property, all
mechanic’s and materialmen’s liens arising at any time during the development
of the project may have priority over the Lender’s lien.
Brownfield
Describes a facility being constructed on a site that has previously been used for anything other than environmentally harmless uses (such as farming or residential). Compare Greenfield.
Btu
" British thermal unit , a measurement of heating value. The amount of energy it takes
to heat a pound of water from 60 to 61 degrees F. at sea level.
Bullet (Maturity)
" When the entire principal of a Bond or term loan is due and payable on the Maturity Date (i.e.., there is little or no Amortization prior
to maturity). Same as Balloon Payment.
Business Interruption Insurance / BI Insurance
" Insurance which is designed to pay a projects fixed operating costs (salaries , overhead, debt service, land rent, etc.) for a period of time
after a casualty, to allow the owner to make a property insurance claim, order
new equipment and restore the facility to operating condition so as to start
making money again. Business Interruption Insurance does not begin paying until
after the deductible period, measured in days (usually 30 or 45).
Business MAC
" Definitions vary but this is a reference to the Conditions Precedent in a Commitment
Letter, merger agreement or Credit Agreement that there has been no Material
Adverse Change in the 13
operations, business or prospects of the
Borrower or the target company. This should not be confused with a Market
MAC, which deals with Material Adverse Changes in market conditions. See
also Material Adverse Change.
Cap
" In interest rate hedging an agreement by a Borrower’s counterparty to pay the Borrower
any amount by which the chosen Index (e.g., three month LIBOR as
published by the British Bankers Association (BBA)) exceeds the negotiated cap
amount, multiplied by the agreed Notional Amount. For example, if your
Borrower has a four percent Cap on a three month BBA LIBOR for a US$100 million
notional amount, each three months during the term of the Cap, the Cap
counterparty will pay your Borrower the amount by which three month BBA LIBOR
exceeds four percent, multiplied by US$100 million. The price of a Cap is
usually paid by a Borrower as a lump-sum at inception.
Capacity
" The theoretical maximum production capacity of an output facility. Offtakers sometimes pay for Capacity apart from actual output (see Demand Charge). This is important for facility owners because they have to pay fixed costs (mainly debt service) regardless of whether their facility is in operation. This is important for Offtakers because they might be subject to rules or contractual obligations which require them to have available Capacity even if it is never used. For electric utilities this is called Reserve Margin.
Capacity Charge
" In contrast to a Demand Charge this is what customers of a commodity delivery system, such as a
pipeline or power distribution system, pay to the service provider as a
function of the customer’s actual level of usage of the system.
Capacity Factor
A percentage equal to a facilitys actual output over a period (usually a year) divided by its Capacity over that period.
Cap and Trade
See discussion under Emission Allowances.
Capital Lease
" A lease that meets at least one of the criteria outlined in paragraph seven of FASB 13 and , therefore, must be treated essentially as a loan for book
accounting purposes. The four criteria are:
• Title passes automatically at the end of the lease term
• Lease contains a Bargain Purchase Option
• Lease term is greater than 75 percent of Estimated Useful
Life of the leased asset
• Present Value of lease payments is greater than 90 percent of
the leased asset’s Fair Market Value
A Capital Lease is treated by the Lessee as both the borrowing
of funds and the acquisition of an asset to be depreciated; the Lease is
recorded on the Lessee’s balance sheet as an asset and corresponding liability
(lease payable). Periodic Lessee expenses consist of interest on the debt and
depreciation of asset.
Capped Fair Market Value Lease
A Fair Market Value Lease with a predetermined ceiling to limit Fair Market Value exposure at the end of the Lease term.
Carbon Capture and Storage
The extraction of carbon dioxide from the exhaust stream of a power plant or other emitter and the injection of the carbon dioxide underground or into another storage facility.
Cash Grant
" Under ARRA , projects that qualify for PTCs or ETCs may be
eligible for cash grants equal to 30 percent of the tax basis of tangible
personal property used in the project. Cash Grants are only available for
qualifying projects placed into service in 2009 or 2010 (or after 2010 in the
case of certain long-term construction projects commenced in 2009 or 2010).
Cash Grant recipients may not claim either the PTC or ETC.
Cash Sweep
" Taking all Excess Cash Flow and applying it to the mandatory prepayment of debt. Cash Sweeps usually apply when something bad has happened or is projected to happen so as to reduce the Lenders’ exposure as quickly as possible.
Sometimes they happen by design, where a loan is intended to be relatively
short-term and is expected to be refinanced. But see also Good Times Sweep,
which applies only when a project is doing particularly well.
Cash Trap
" When things are bad , but perhaps not bad enough to call for a Cash Sweep,
Lenders may use a Cash Trap. Excess Cash Flow is held in an account
while the parties wait and see whether things improve. Sometimes the Credit
Agreement calls for this money to be “aged” a certain period of time and then
applied to Mandatory Prepayment. See Distribution Suspense Account.
Sometimes, when a Cash Trap is used, the Borrower is given the option of having
the trapped funds applied to the debt, which saves the Borrower from Negative
Arbitrage.
Casualty Value
Same as Termination Value.
CCS
Carbon Capture and Storage.
CDS
Credit Default Swap.
Cellulosic Ethanol
" Ethanol derived from non-food plants. Scientists are looking for the right combination of a Feedstock high in sugar content (but not so high as a food product such as corn or sugar cane) and a means of separating the sugar from the plant so it can be
distilled. Cellulosic Ethanol is viewed as the most viable ethanol for the
future, since the Feedstock will be inexpensive and its use will not compete
with human food consumption.
CEMS
Continuous Emissions Monitoring System. CEMS are imposed as a permit condition in most major industrial facilities. These devices continuously monitor emissions and generate continuous electronic (and in some cases paper) records of emissions of specific pollutants over time. These results are typically reported to the permitting agencies and are also often reviewed by the project sponsor and Independent Engineer for compliance evaluation and audit purposes.
CERCLA
Federal environmental statute often referred to as Superfund. CERCLA imposes liability for the costs of responding to and remediation of a Release of Hazardous Materials into the environment. Liability can be imposed on current owners and operators of a facility even if they did not cause the Release. CERCLA also grants the EPA authority to investigate and remediate sites or to order responsible parties to conduct investigation or remediation. The Superfund statute is the leading reason to conduct environmental diligence before becoming involved with a site.
CFB Boiler
Circulating Fluidized Bed Boiler.
Change of Control
" A material change in the ownership of a company or the makeup of its board of directors. Definitions vary in Indentures and Credit Agreements. In Credit Agreements a Change of Control may result in an Event of Default and in Indentures, may result in a Put Right.
Change Order
" An agreement during construction between a facility owner and the contractor that the contractor should do something different than was
originally contemplated by the construction contract. The Change Order process
is typically initiated by the contractor when some circumstance or assumption
has changed, and the owner agreed to take the risk surrounding that change. For
instance, a contractor might agree to guarantee completion by March 15, provided
there are no more than five days of inclement weather preventing crews from
working. Once the inclement weather days exceed five, the contractor will seek
a day-for-day extension of the guaranteed completion date, through the Change
Order process.
Charterparty Contract
A contract by which a shipowner lets out the entire ship to another person (the charterer) for the transportation of a cargo (such as Crude Oil or LNG).
CIM
Confidential Information Memorandum. Same as Bank Book.
Circulating Fluidized Bed Boiler / CFB Boiler
" A technology used to reduce sulfur dioxide emissions resulting from combustion of coal. The coal is fed into a giant boiler with pulverized limestone and combusted while air is blown up from the bottom of the boiler making the whole thing look like a roiling fluid. The sulfur and
limestone combine in a chemical reaction to create a powder called calcium
sulfate.
Class
Lenders holding a particular class or Tranche of loans.
Class Voting
" Type of voting where one or more Classes under a Credit Agreement vote separately and the affirmative vote of a majority of each Class is required for an amendmentwaiver or other action to pass. Class Voting on all matters
would be unusual because it would give each Class a veto right, even over
matters of little legitimate interest to them. Class Voting is appropriate
where one Class of Lenders will particularly care about the issue and might
otherwise be outvoted by the majority. For example, if you had a credit
facility with one Class of Lenders with a short 16
"Tenor and one with a longer Tenor
and the Borrower requested a waiver of a covenant to maintain reserves for major maintenance expenditures you might see Class voting, since the
long-term Lenders would be much more concerned about such an issue.
"Class 3 4, 5, etc" wind recourse
Classification of wind resource areas based on average meters
per second wind speed over the course of a year, or average Wind Power
Density, measured in Watts of energy per square meter, at 50 meter height.
Higher is better and seven is the highest. Class 2B or 3 is considered the
lowest where a commercially viable Windfarm can be sited. Different WTG
models or Turbine Blades are specified for different Class sites.
Clawback
" If a creditor receives assets or payments from a debtor during the 90 day period (or one year period in the case of insiders) prior to the date the debtor files a bankruptcy petition (see Preference) or obtains a Fraudulent Transfer from the debtor prior to the bankruptcy petition (see Preference) or obtains a Fraudulent Transfer from
the debtor prior to the bankruptcy petition, a bankruptcy court can require
that such creditor return those assets or payments that are determined to be
preferential transfers or Fraudulent Transfers. This is known as the bankruptcy
court exercising its “clawback powers.” The creditor may be able to assert a
defense against a Preference, by demonstrating that it gave “new value” to the
debtor in exchange for the assets or payments received or that the debtor made
the payment in the ordinary course of business.
Clean Air Act
" The major US federal statute governing air pollution control both for stationary sources (e.g., power plants) and
vehicles. This law was substantially overhauled in 1990, and the 1990
amendments gave rise to the permitting requirements for new industrial facilities
that are currently in place. The US Supreme Court recently ruled in Massachusetts
v. EPA that certain Greenhouse Gases are “pollutants” under the
vehicle provisions of the Clean Air Act; it is likely that this interpretation
will soon be extended to the stationary source program. This means that GHG emission
controls could be imposed under the Clean Air Act for new or modified sources,
without the need for further legislation.
Cleanup
" A period of time during each 12 month period , usually 10-30 days, when a Revolver which is intended
to be used solely for working capital must be paid down to zero. This is to
prevent the Borrower from in effect using the Revolver as a term loan.
Clear Market Provision
" Found in the text of the Commitment Letter , an agreement by the Issuer/Borrower not to (and sometimes not
to allow its affiliates to) issue new debt, equity, preferred stock or other
securities during Syndication. The purpose is to protect the Lenders
from having to compete for the same pool of investors as the Issuer/Borrower
other financings.
Closing Checklist
The document which lists every piece of paper that needs to be executed and delivered as a Closing Condition.
Closing Conditions
" A type of Conditions Precedent , namely those applicable at the time of
closing of a transaction.
Closing Conditions Memo / Letter / CP Memo
A memo required by some banks in connection with the closing of a credit facility. The CP Memo is prepared by counsel to the Administrative Agent. It confirms the satisfaction of certain mechanical Closing Conditions set forth in the Credit Agreement that require delivery of specified legal documents and points out whether any items have been deferred for delivery after closing.
Closing Dinner
" Your reward. A dinner organized by the bankers to celebrate the closing of the transaction. The better the deal the better the wine (or, for some of us, the better the wine,
the better the deal).
Closing Instruction Letter
" An agreement among the Title Insurer and the other key parties to the transaction (typically the Administrative Agent or Collateral Agent and Borrower or the purchaser and seller) with respect to the delivery and
disposition of closing documents and payments, and binding the Title Insurer to
issue the final Title Insurance Policy in the form of the Pro Forma
Title Policy (which is customarily attached as an exhibit to the Closing
Instruction Letter). The actual Title Insurance Policy is typically issued
subsequent to the closing of the transaction and the recording of documents in
the public records. Also sometimes referred to as a “closing escrow agreement”
or “title instruction letter.”
Club (Deal)
" A loan transaction which is in effect pre-Syndicated to a relatively large group of banks because nobody is willing to Underwrite the transaction for fear of not being able to Syndicate it after closing. Nevertheless sometimes a Secondary Syndication occurs, the goal of
which is for the initial Club to sell down to their respective Target Holds.
Coal Seam Methane
Natural gas generated from within a coal deposit.
COD
Commercial Operation(s) Date.
Cogeneration
" The use of a single energy input to create both electricity and thermal output which will be used for something else, like heating, an industrial process or more electricity
production (as to which, see Combined Cycle).
Coinsurance
" Because title insurance companies are generally viewed as thinly capitalized (i.e. ., unlikely to be able to honor a claim for
the full policy amount on a large policy), some lenders require the title
insurer to obtain Coinsurance, which is a risk-sharing agreement between the Title
Insurer and one or more other Title Insurers.
Collateral
The assets of a Borrower made subject to a Security Interest.
Collateral Agent
" In a secured debt financing the Agent to whom, on behalf of all the Secured Parties,
all Security Interests in Collateral will be granted.
Collection System
" At a Windfarm , the electrical cables that run from each WTG
to the interconnection point with the utility.
Combined Cycle
" An efficient fossil-fired electrical generating system which captures heat which otherwise would have been exhausted to the atmosphere after fuel is combusted in a gas turbineand uses that heat to create steam which will run a steam
turbine. A type of Cogeneration.
Combined Operating License / COL
" A COL from the Nuclear Regulatory Commission authorizes the construction and operation of a nuclear power plant conditioned on the
successful performance of inspections, tests, analyses and verification of
acceptance criteria
Commercial Letter of Credit
Same as Trade Letter of Credit.
Commercial Operation(s) Date / COD
" The date upon which an Offtaker agrees a facility is ready to deliver its output and the Offtaker is willing to pay for the Capacity and
output. Prior to COD, often the Offtaker will pay for test power generated
during testing, but at a reduced rate.
Commissioning
The process whereby a manufacturer and others oversee and sign off on equipment being placed in commercial operation.
Commitment Fee
" In bank lending in the context of bank construction loans and revolving loans this refers to a fee that is paid based on the average unused
commitment, usually payable quarterly following execution of the Credit
Agreement. In acquisition finance, Commitment Fee has a completely different
meaning, referring to a one-time fee payable to Underwriters at closing,
based on the principal amount they have committed to the deal in the Commitment
Letter.
Commitment Letter
" The letter by which financial institutions commit to provide loans. In the acquisition finance context , these loans generally consist of a senior secured term loan
facility and one or more bridge loan facilities to “bridge” any notes offering
expected to be part of the permanent financing — meaning that the bridge loans
are committed financing that will be available if the company is unable to
issue the notes successfully in time to fund the acquisition closing. The
Commitment Letter consists of the text of the letter, along with annexes and
exhibits that lay out the terms of the facilities and the Conditions Precedent
to funding.
Commitment Papers
A catch-all term referring to the Commitment Letter and Fee Letter (and the related annexes and exhibits).
Completion Bond
" An agreement by a bonding company (a type of insurance company) that if its customer , a contractor, does not complete work under a specified
contract, the bonding company will pay to have it completed. These are designed
to protect against contractors going belly-up during construction. Completion
Bonds are not viewed as particularly comforting, since they are issued by
insurance companies, and insurance companies tend to like to collect premiums
and resist paying claims.
Concentrating Photovoltaics / CPV
" These are systems that use large lenses or mirrors to focus sunlight on a small area of Photovoltaic cells. The idea is that the PV cells part of the system is expensive and the concentrating part is relatively inexpensive , making the cost per kWh lower than using
pure PV. Also referred to as Concentrating Solar.
Concession
" An agreement by a host country setting out the rules under which a foreign entity is allowed to operate , and granting the foreign entity rights. For example, a
telephone company might be given a concession to operate exclusively (or with
limited competition) a cellphone business in an area, in exchange for the
company’s agreement to invest a certain amount in capital equipment over time.
The parties will agree on Tariffs, profit repatriation rights, tax
rates, extension terms, ownership rights at end of term, etc.
Condemnation
" The process by which a government (federal or state or subdivision of the state) or a public utility takes private property for public use (e.g.to build a transmission line) in exchange for just compensation.
Also called “taking,” or Eminent Domain.
Condensate
" Hydrocarbons that are gaseous while in the Reservoir but condense to form a liquid as they rise to the surface where
the pressure is much lower. They are separated from the primary product (crude
oil or natural gas) and sold separately. As Condensates are a by-product,
output is dictated by production of the primary product and not price for the
Condensate.In any power generation technology that uses a steam turbine,
Condensate is the water that forms when steam loses pressure and temperature.
Only water can be put into a boiler; so to recycle steam after it runs through
the steam turbine, it must first be reduced to Condensate, either through air
cooling (those giant hourglass-shaped structures at nuclear power plants are
air-cooled condensers) or water cooling.
Conditions Precedent
" The things that must happen , including delivery of documents, representations and
warranties being true, and sufficient funds being on-hand to close a
transaction or to be entitled to draw under a Revolver or construction
loan facility. The accent is on the second syllable: “prə-see-dent.” There can
also be Conditions Precedent to other events, such as availability of a
particular Tranche of debt or to Term-Conversion.
Conditions Subsequent
" Term mainly used by lawyers meaning something that must
occur at a point after your contract has been signed (acquisition
agreement, Credit Agreement, EPC Contract, whatever) before one of the parties
is required to do something (e.g., signing a contract to buy a ’65
Mustang for US$1,000, subject to the Condition Subsequent of the seller getting
her husband to sign over the pink slip before the buyer has to pay the money).
Confidential Information Memorandum / CIM
The marketing book used to Syndicate credit facilities. Also refers to a marketing book used in a mergers and acquisitions or auction
context. Often referred to as the CIM, or the Bank Book.
Confirmation
" The document that evidences a Transaction under an ISDA Master. It is called a Confirmation because typically the Transaction is effected over the telephone , even for very large Transactions, and then one party follows
up with the Confirmation.
Confirming Bank
" Used where the Issuing Bank of a Trade Letter of Credit does not have a branch easily accessible by the Beneficiary. A bank accessible by the Beneficiary allows the Beneficiary to Draw the Letter of Credit on the Confirming Bank which in turn seeks reimbursement from the Issuing Bank.
Consent (to Assignment)
" In Project Finance because the Lenders rely on the value of contracts as much as on
other assets, they want to ensure that the important contracts of their
Borrower cannot be terminated by the Borrower’s counterparties. Consents give
the Lenders the right to receive notice of the Borrower’s default under the
contract, the right to cure that default within a cure period which is usually
longer than that afforded to the Borrower under the contract, and the right to
consent to amendments to the contract, among other things. Even though the term
is supremely non-descriptive, in Project Finance, people always know
what you mean when you say “the Consent with [insert name of Borrower’s
counterparty].” Also called a Direct Agreement.
Sometimes, the Consent is used as a vehicle to amend the
contract. Often, the Borrower and its counterparty have just finished spending
months hotly negotiating the contract, and are sick of the contract and each
other. When the Lender comes along and finds a perceived defect, the last thing
the contracting parties want to do is formally amend the contract, but they
might allow the amendment through the Consent.
Contiguity
" Parcels of land right next to each other without the slightest gap between them. Contiguity is critical when assembling property interests to create a project site or a route for pipelines and transmission lines. Imagine a transmission line with a foot of conductor missing somewhere those electrons cannot be trained to jump. Where needed Title Insurance includes
an Endorsement insuring Contiguity.
Contingency
" Extra money in a construction budget which at the time of closing is not earmarked for any particular use. History has shown that almost every project needs Contingency. Depending on the stage of development and construction the complexity of the technology, the owner having locked in
fixed prices for its Project Costs, the number of contractors available
to blame each other for oversights, and the experience level of the
contractors, Contingency might be anywhere between five percent and 15 percent.
Developers do not want Contingency to be too high, since it consists of
(expensive and rare) equity and debt.
Contingency can also mean planning for an outage of a facility
connected to the electric grid. The reliability of the electrical grid is based
upon 21 single-contingency (one bad thing) or
double-contingency (two bad things interacting with each other) planning.
Contract for Differences
" Where a particular market system wishes to ensure that a supplier is present in the market the system will provide assurances to that supplier, through a
Contract for Differences, that its output will garner a minimum price, or
“strike price.” In exchange, the supplier agrees to refund any excess of its
sale price over the strike price. The supplier sells into the market and
receives whatever proceeds result from the market price, and the Contract for
Differences takes care of truing up to the strike price.
Control
" In the UCC context Control is a means of establishing Perfection over
certain asset classes, such as securities accounts, deposit accounts and
securities. In the securities and contractual context, Control has a range of
definitions, factoring in various degrees shareholdings, management roles,
shareholder agreements, directorships and the degree to which others have any
of these things. One definition is “the possession, direct or indirect, of the
power to direct or cause the direction of management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.”
In the marital context, Control is your spouse saying you can’t
go to the Closing Dinner.
Conversion Services
Services provided by a generation owner/operator to a Toller under a Tolling Agreement to convert fuel (supplied by the Toller) into electric capacity and energy (delivered to the Toller). The flip side of Tolling Service provided by a Toller.
Cost-Plus
" A pricing mechanism in construction contracts whereby the contractor passes through all costs to the owner , and is paid a fixed percentage of those costs as its profit.
Because the contractor is economically motivated to increase costs, in order to
increase its own profits, these arrangements are always “open-book,” meaning
the owner is involved in deciding which subcontractors and suppliers will be
used.
Cost Segregation (Cost Seg) Analysis
The analysis which segregates costs into those which are eligible for tax benefits (such as personal property or qualified energy property) versus those which are not (such as real property or raw land).
Covenant
" An agreement to do something (Affirmative Covenants) not to do something (Negative Covenants), or to maintain
something (like a financial ratio) in a certain state or better (Maintenance
Covenants).
CPs
Conditions Precedent.
Crack Spread
Refers to the difference measured in dollars between gross proceeds for selling refinery products such as gasoline and aviation fuel on the spot market and the gross cost of crude oil. All other costs of production must be paid from the Crack Spread.
Cracking
" Junior lawyers and bankers exhibit signs of this toward the end of a deal. Also a complex process involving high pressures
and temperatures in which heavy, complex hydrocarbon molecules are broken down
into smaller, lighter molecules. In an oil refinery, LPG, gasoline,
diesel and other products are produced by Cracking crude oil into shorter
chemical chains.
CREBs
" Clean Renewable Energy Bonds. CREBs are a type of tax credit bond that may be issued by tax-exempt electricity producers (e.g.public power providers, electric cooperatives and state, local
and tribal governments) to finance qualified renewable energy facilities. CREBs
accrue tax credits quarterly in lieu of interest payments. Holders must include
the accrued tax credits in income as interest, and can then use the credits to
offset their regular and alternative minimum tax liability. The total principal
amount of CREBs that may be issued is capped at US$2.4 billion, of which
one-third must be allocated to qualifying projects of governmental bodies,
one-third to qualifying projects of public power providers, and one-third to
qualifying projects of electric cooperatives.
Credit Agreement
" The main agreement governing terms and conditions under which credit facilities are provided by Lenders to Borrowers , including construction loans, term loans, revolving loans and Letters
of Credit. Sometimes called a Financing Agreement or, mainly outside
the United States, a Facilities Agreement.
Credit Bid
" Both verb and noun a Secured Party may bid up to the amount of its
promissory note at a Foreclosure sale of the assets constituting
collateral for its loan or in a bankruptcy of its Borrower.
Credit Default Swap / CDS
" A contract , using ISDA form documentation, whereby one party agrees
to pay the other party if certain catastrophic events (such as bankruptcy or
payment default) occur under a debt undertaking (loan, bond or note) of an
obligor.
Credit Enhancement
" The improvement of the credit quality of a company or its securities by employing resources financial instruments or the credit of another entity to support
such credit quality. Common methods of Credit Enhancement include Guarantees, Letters
of Credit, surety bonds, reserve accounts and cash collateral accounts.
Credit Support Annex / CSA
" A preprinted form published by ISDA which has rules by which parties to ISDA transactions provide collateral to each other securing their respective obligations in the event of default and termination. Paragraph 13 of the CSA is the part of the form used for customization similar to the ISDA Schedule being used to customize the ISDA
Master.
Creeping Expropriation
" An Expropriation that is implemented gradually through a series of actions that individually would not constitute an Expropriation. For example , the gradual imposition of fees and taxes on a project that,
when viewed as a whole, deprive the project of substantial 23 value. The term is used in the context of
claims under PRI policies and Bilateral Investment Treaties.
Criteria Pollutants
" Under the Clean Air Act a series of pollutants were specifically identified as target
pollutants that create smog, acid rain and other problems, for which criteria
would be developed (also called National Ambient Air Quality Standards, or
NAAQS), toward which the United States would strive to clean up all of its air
basins to meet the NAAQS for the Criteria Pollutants. These pollutants are
ground level ozone (O3), nitrogen oxides (NOX), sulfur oxides (SOX —
principally sulfur dioxide as SO2), carbon monoxide (CO), particulate matter
(PM) and lead (Pb). All air basins in the United States have NAAQS for each
criteria pollutant, although lead is no longer a factor since the United States
switched to unleaded fuels.
Critical Path (Item)
" In every construction project where multiple teams are working on different aspects of the project on different paths at any given time there is one Critical Path. It is the thing
that must be completed on time, or the entire project is guaranteed to be
delayed. Once that Item is completed, or perhaps when another path has
experienced a schedule adjustment, the Critical Path will shift to being
something else and the Eye of Mordor will shift to focus on the new Critical
Path.
Crossing Permit
" A right to cross public property (such as a road , channel or levee) for the purpose of constructing, operating
or maintaining transmission lines or other improvements. This is also the term
used by railroads for their permission to cross over or under their tracks.
Being a “permit,” it is revocable, unlike other kinds of interests in real
property such as a Fee, a Leasehold or an Easement. This makes lawyers lose sleep, however, no railroad will give
anything more solid than a Crossing Permit, so we live with it.
Crude Oil
" Unrefined petroleum or liquid petroleum. Found underground , it is extracted and refined into a number of different
products. Crude Oil low in sulfur is referred to as “sweet;” and high-sulfur
crude is “sour.”
Crush Spread
" Similar in concept to Spark Spread the difference between
gross proceeds for a unit of ethanol on the spot market and the gross cost of
acquiring the corn necessary to distill and process the ethanol, having made
stated assumptions about the efficiency of the conversion technology. All other
costs of production must be paid from the Crush Spread.
CSA
Credit Support Annex.
Culm
" A byproduct of coal mining essentially what is sometimes known as “high-Btu dirt,” the
material that is not commercially marketable. Kept in huge piles in coal-producing
regions or sometimes used to backfill depleted coal mines, CULM is also used as
Feedstock in waste coal facilities.24
Cultural Resource Survey
" A field assessment performed by a qualified archaeologist , who examines a particular site or linear
route for evidence of cultural resource artifacts. These can include Native
American artifacts, burial sites, former habitations, and more recent matters
of cultural significance, such as former slave quarters or early historic and
pioneer artifacts and dwellings. The field work is usually preceded by a
literature and library search. During the fieldwork, the artifacts and sites
are carefully catalogued and preserved as appropriate, and depending on the
results, project siting may be altered. There are various federal and state
statutes governing these matters, and the cultural resource results are
typically reported to and reviewed by the relevant State Historic Preservation
Officer (SHPO).
Cure
" Coming into compliance with a Covenant or otherwise eliminating a Default or Event of Default. The Credit Agreement might provide that a certain Default only becomes an Event of Default after it has been in effect for a certain period (the cure period or grace period). Ideally the Borrower would Cure within that period. If the Cure is
effected after an Event of Default has occurred (i.e., after the cure
period has expired), is that good enough? How about after Acceleration?
Ask your lawyer.
In a Leveraged Lease, the right of the Lessor (and any
Owner Participant) to cure Lessee defaults (when no Lessor defaults exist) to
prevent the lenders from exercising remedies under either the security
agreement with the Lessor or the Lease that has been assigned to the lenders.
Currency Swap
" A contract documented under an ISDA Master whereby two parties allocate the risk as to changes in the value of one currency relative to the value of another. For example if one agrees in June to buy a flat in Paris for one million
Euros next December, when the buyer has a CD for US$1.25 million maturing, the
buyer might enter into a Currency Swap whereby the buyer’s counterparty agrees
to pay the buyer in December the amount by which one million Euros costs more
than US$1.25 million. (If USD is worth more in December relative to Euros, the
buyer pays the counterparty.)
Curtailment
" An instruction by an Offtaker to an owner to curtail output of a facility or a restriction on usage
of a pipeline or transmission line by the operator when demand exceeds Capacity
— the dropped customers are usually referred to as having Interruptible service.
Cut-In Wind Speed
Wind speed at which a WTG begins to produce electricity because wind speed is sufficient to overcome inertia and internal friction inherent in the mechanics.
Cut-Out Wind Speed
Wind speed so high that a WTG is programmed to shut itself down so as not to be damaged.
DACA
Deposit Account Control Agreement. See Account Control Agreement.
Dark Spread
Same as Spark Spread except where coal is the fuel rather than natural gas.
Datedown Endorsement
" An Endorsement to Title Insurance which brings the date of the policy forward to the date of the Endorsement. This Endorsement describes any encumbrances or other matters affecting title to the property that have been recorded against the property since the date of the initial title policy and insures that there are no additional
encumbrances since the date of the initial title policy that take priority over
your Mortgage or Deed of Trust. This Endorsement is customarily
obtained in connection with a Term-Conversion or a loan modification
transaction and is typically simply an expansion of the coverage provided in a 122
Endorsement.
DDGS
Dried Distiller Grain Solids.
Deal Creep
" No , this is not a person (though if it were, on any given deal we
would all know who it is). This is the process whereby over the course of
negotiating a transaction, a deal term incrementally and imperceptibly becomes
more and more burdensome on one of the parties, who finally wakes up and says
they would never have agreed to the term if it had been proposed at the outset.
Because each evolutionary step is usually justifiable, claiming Deal Creep does
not always succeed in having the term scaled back.
Debottlenecking
Increasing production capacity of existing facilities through the modification of existing equipment to remove throughput restrictions. Debottlenecking generally increases capacity for a fraction of the cost of building new facilities.
Debt Service Coverage Ratio / DSCR
" Revenue from a project remaining to pay debt service after payment of operating costs. Though some have tried in Project Finance this is generally not calculated on an
accrual basis, but rather a cash basis. It is calculated periodically looking
back one year. Occasionally, people try to use a projected DSCR as the basis
for a distribution condition. But this can get messy since if you use the
closing date financial model, the assumptions may have been proven wrong, and
trying to agree on new assumptions could be a battle. Instead of projected
DSCRs, people often use the Distribution Suspense Account approach.
Debt Service Reserve / DSR
Cash collateral held by Lenders to pay debt service in case there is a hiccup in revenue. This is almost always sized at six months debt service.
Deed in Lieu of Foreclosure / Deed in Lieu
" An agreement by an owner to hand the keys to the Lender instead of making the Lender go through the hassle of Foreclosure. This is a fairly common approach in downside casesindicating that not all Acceleration scenarios are
contentious between Borrower and Lenders. Often the Sponsor has other
relationships with some or all of the Lenders, which it wishes to preserve to
the extent possible under the circumstances. Sometimes, the owner is given a
nominal payment to cough up the Deed in Lieu, perhaps payment of its legal
fees.
Deed of Trust
" The document which creates a Lien on real property to secure debt of the borrower. Like a Security Agreement but for real property. The law of the
jurisdiction where the property is located will dictate whether a Mortgage or
a Deed of Trust is the appropriate instrument, but they are functionally
equivalent.
Default
The beginning of trouble. Indentures and Credit Agreements generally have three stages of trouble the Default, the Event of Default and Acceleration.
At stage one, the Default, the Issuer or Borrower has violated some provision
of the Indenture or Credit Agreement. Left uncured for a specified period of
time, together (in some cases) with notice from the Administrative Agent or
Trustee, a Default will mature into an Event of Default (and the story
continues in that definition).
Defaulting Lender
Credit Agreements used to only contain terms that fretted about a borrowers financial distress. Now they include long passages on which rights the so-called Defaulting Lenders give up when they fail to fund loans pursuant to their commitment.
Defeased Lease
A lease transaction in which all of the rent and purchase option (if exercised) obligations of the Lessee have been fully economically (and sometimes legally) defeased by the Lessee or one of its affiliates depositing funds with one or more other parties who agree to make the Lessees rental and/or purchase option payments when due.
Deficiency
The difference between how much a Secured Party is owed and how much it realizes upon disposing of its Collateral in Foreclosure.
Delay LDs
" Liquidated Damages payable for late completion of contract performance. The contractual manifestation of time is money. A project owner enters into a web of contracts with many parties relying on timely and quality performance by
the others. Delay LDs are ideally sized to compensate the owner for all of its
costs incurred as a result of the delay, including increased IDC, lost
revenue and Liquidates Damages payable by the owner to others.
Demand Charges
" Commodity customers typically vary in their usage of the commodity delivery system , be it a pipeline or a power distribution system. But the
system owner has to size the system such that all Firm customers can
draw their Firm capacity at once. Once the system is sized that way, the
capital costs and maintenance costs are recovered from all of the Firm
customers through a Demand Charge, based on the respective customers’ maximum
Firm capacity (i.e., theoretical peak usage, rather than actual usage).
Think of it as a payment to the service provider “just for being there.” Actual
usage of the system gives rise to a Capacity Charge.
Demand-Side Management / DSM
" The concept that it can be considerably less expensive to maintain Reserve Margin by reducing demand than by increasing Capacity. Since historically utilities were rewarded for spending money (their regulated rate of return being calculated off of invested capital)the incentives were not there for a 27
utility to do the societally efficient
thing by reducing demand. Demand Side Management includes concepts of both
motivating electricity consumers to reduce demand and seeing that utilities are
also fairly compensated for singing from that same songbook.
Denatured Ethanol
" Potable Ethanol made inconsumable through addition of a poisonous denaturant , which would typically be unleaded gasoline. Denaturing avoids
alcohol tax. It is called denaturing because it is just not natural to ruin
perfectly good alcohol.
Deposit Account Control Agreement
See Account Control Agreement.
Depositary/Depository Bank
A bank that agrees to hold a Borrowers accounts in a Project Financing and to administer them in accordance with instructions that leave no discretion to the Depositary.
Development Well
A well drilled in a proved production area to extract Hydrocarbons.
DGS
Distiller Grain Solubles.
Direct Agreement
" Same as Consent (to Assignment). This term is commonly used outside the United States. It is more descriptive than Consent and because there can be other types of consent
in a deal, less confusing.
Dirty Hedge
Same as Imperfect Hedge.
Dispatch
" The ability by an Offtaker of a power plant to instruct the owner/operator to start stop, or increase or
decrease output of a power plant. This may be through oral instructions or
electronically through Automatic Generation Control (AGC).
Dispatchability
" The susceptibility of a given power source to being Dispatched. For example wind power is highly
non-Dispatchable and hydropower is highly Dispatchable.
Distiller Grain Solubles / DGS
" A by-product of the use of grains (usually corn) in the production of Ethanol. DGS has a high content of protein and sugar. It is mainly used as feed. If it is to be shipped more than 50 miles or stored it is typically dried to avoid spoilage.
Distributed Generation
" The concept that it is not necessary to have large power stations transmitting large distances on large transmission lines to large load centers (aka cities). Load can be satisfied also by small generation sources at or near load centers. Residential or commercial rooftop photovoltaic installations are the best example, but there are many others.
Distributed Generation is not so much a policy as a vague goal; and the jury is
still out whether the typically high costs of Distributed Generation are too
much to pay for the benefits.
Distribution Suspense Account
Some Credit Agreements allow dividends (aka distributions) only when certain financial performance conditions have been satisfied, such as
a minimum historical Debt Service Coverage Ratio. If the DSCR is above 1.0x,
but below the distribution condition level (perhaps 1.15x), sometimes amounts
that would otherwise have been distributed are held in a Distribution Suspense
Account to see what happens over the next few quarters (usually one or two
years). If the DSCR distribution condition is met during the relevant period,
the funds in the Distribution Suspense Account are released. If it is not, they
are often applied to prepay debt (which eventually bolsters DSCRs).
Documentary Conditions
" In the context of a Draw of a Letter of Credit these are the documents that
must be presented to the Issuing Bank by the Beneficiary. For a Trade Letter of
Credit, this would typically include a certificate by an officer of the
Beneficiary stating that the goods which are the subject of the underlying
contract have been shipped in full conformance to the contract, and a bill of
lading from the shipping company (a document indicating the goods have been
accepted for shipment). For a Standby Letter of Credit, this would typically
include a certification by an officer of the Beneficiary stating that the
Account Party is in default of some underlying obligation and owes money to the
Beneficiary.
Downstream
" Downstream refers to the refining marketing and distribution
of Crude Oil and its resulting products. See also Upstream.
Draw
" Used as a verb making a claim against a
Letter of Credit or borrowing under a credit facility. Used as a noun, the
proceeds of such a claim or loan. A Draw of a Letter of Credit is made by
presenting a Sight Draft, the Letter of Credit and any Documentary Conditions.
Dried Distiller Grain Solids
Dried DGS that will be shipped or stored rather than sold for use near the Ethanol plant.
Dry Closing
" A lending transaction in which all of the documents are executed and delivered but no money flows pending satisfaction of one
or more Conditions Subsequent, at which point the Financial Closing occurs (the
loans are made) Thankfully, an initial closing where money does flow is not
called a Wet Closing.
Dry Steam Geothermal Resource
Geothermal steam which can be expanded directly through a steam turbine.
DSCR
Debt Service Coverage Ratio.
DSM
Demand-Side Management.
DSR
Debt Service Reserve.
Dutch Auction
" An auction style used where the market demand will result in multiple sellers or multiple buyers. In a sale auction the lowest bidder’s sale
offer is accepted, and each succeeding next lowest bidder’s sale offer is
accepted, until all buyers have what they need. The price of the last accepted
offer is given to all sellers. In a situation with multiple buyers, the highest
buy offer is accepted, then the next-highest, etc., with all buyers ultimately
paying the bid price of the last buy offer accepted. 29
In each case, the last offer
accepted is called the “Market Clearing Price.” This approach encourages the
sellers to bid as low as possible or the buyers to bid as high as possible,
since they know they will not be punished economically for bidding
aggressively.
E&P [Company]
" Exploration and production , used to denote a type of
oil company only involved in the Upstream part of the business.
Early Buyout Option / EBO
" An option of the Lessee to purchase the leased asset and terminate the Lease prior to the end of the Basic Term of the Lease. In a Tax Lease any Early Buyout Option should be for a price
that is supported by a forward-looking appraisal. Early Buyout Options put
pressure on Tax Lease treatment and should be reviewed by tax experts.
Early Site Permit
Nuclear power plant developers can apply to the Nuclear Regulatory Commission (NRC) for an Early Site Permit to have a physical site approved by the NRC for one or more nuclear power facilities prior to expending substantial resources in development activities that may ultimately prove unviable.
Easement
" A right to use another persons property for a stated purpose such as for vehicular travel pipeline or transmission
lines or temporarily for construction. In Windfarm developments, sometimes the
developer’s rights to the project site itself take the form of Easements.
Easement agreements may also restrict the property owner from using its
property in specified ways (like putting somebody else’s WTGs in front of
mine!).
ECA
Export Credit Agency.
ECCA
Equity Capital Contribution Agreement. The usual name for an agreement by a Tax Equity Investor to invest in a project once COD is achieved.
EEI Master Power Purchase and Sale Agreement
" A Master Agreement in the form published by the Edison Electric Institute and used by parties to sell and buy physical power. Elections are made on a cover sheet and additional provisions
can be added as “Other Changes.”
EIA
" Energy Information Administration (USEIA). This is the independent statistical agency within the US Department of Energy which provides data,
forecasts and analyses to promote sound policy-making, efficient markets, and
public understanding regarding energy and its interaction with the economy and
the environment.
EIR
Environmental Impact Report.
EIS
Environmental Impact Statement.
Eminent Domain
The inherent power of a governmental entity to effect a Condemnation.
Emission Allowances
" A regulatory authorization to emit a specified quantity of air pollutant (e.g.ton of sulfur dioxide or
nitrogen oxides) pursuant to an emission trading (or “cap and trade”) program.
Most such 30
programs require an affected
source to hold a number of allowances equivalent to the number of tons emitted
of the regulated pollutant. Common examples of “cap and trade” programs are the
federal Acid Rain Program, the NOx Budget Program, the Northeast States’
Regional Greenhouse Gas Initiative (RGGI), and greenhouse gas credits in the
EU. These can be (and often are) bought and sold on various exchanges.
Emission Offsets
" Emission reductions required to be obtained by a new source to offset increases in emissions as a condition to commencing operation of a major source subject to the Clean Air Act. These requirements can be met with Emission Allowances (if available)), or by creating new
allowances at the new source or at other sources. Companies often get very
creative in getting offsets, including replacing old vehicles or converting
commercial vehicles to alternative fuels. All offsets need to be approved by
the regulatory agencies.
Encroachment
" When a partys improvements are located on (or hanging over) another persons adjacent property without the right to be there. A typical encroachment would be a fence being built on the wrong side of the property line. Title Companies will provide insurance over Encroachments in the Title Insurance Policy provided they have reviewed
an ALTA Survey. But in a construction financing, the Lender gets this insurance
at closing; since nothing has been built, Encroachment coverage is meaningless
(since there are no improvements). This is where a Datedown Endorsement comes
in, which is obtained after the Title Insurer has reviewed an As-Built Survey.
Encumbrance
" Another word for Lien , typically used in the real
estate context. Like a Lien, an Encumbrance does not have to be consensual. For
example, an easement of a utility to run power lines over your property would
be considered an Encumbrance.
Endorsement
" A supplement to an insurance policy agreed to by the issuer of the insurance. You could have an Endorsement to either a title policy or a liability, property, workman’s comp,
business interruption or other type of insurance policy. In Title Insurance,
there is great variety in the nature, scope, cost and negotiability of
endorsement coverages from jurisdiction to jurisdiction. Examples of title
Endorsements include usury, same-as-survey, Contiguity and Access.
Energy Tax Credit / ETC
" ETCs are one-time investment tax credits equal to 30 percent of the cost of qualifying property. Types of qualifying property include solar, gas microturbine,
cogeneration or fuel cell equipment, among others, as well as tangible personal
property used in PTC-qualifying facilities that elect ETC treatment in lieu of
PTCs, as permitted by the ARRA. The ETC is claimed in the tax year the
qualifying property is placed in service and is subject to recapture (in
declining amounts) in the event the property is sold within five years of the
placed-in-service date. Owners claiming the ETC must reduce their depreciable
basis in the qualifying property by 50 percent of the credit amount. Like PTCs, ETCs are
non-refundable, meaning they can only be used to offset tax liability.
Enhanced Oil Recovery / EOR
Method of injecting CO2 in oilfields to push/pump out more oil than would otherwise be recoverable.
Environmental Assessment
" A short , initial evaluation of
environmental impacts of a proposed project or action to determine if
preparation of a full Environmental Impact Statement is required. These are
typically prepared under NEPA.
Environmental Attributes
" An aspect, claim, characteristic or benefit associated
with the generation of a quantity of electricity by a renewable energy
generation facility, other than the electric energy produced, that is capable
of being measured, verified or calculated. An Environmental Attribute may
include one or more of the following identified with a particular MWh of
generation by a renewable energy Environmental Attributes do
not include production or investment tax credits or other direct third-party
subsidies for generation of electricity by any specified renewable energy
generation facility.
Environmental Impact Report / EIR
" The California name for an Environmental Impact Statement under its NEPA-type statutethe California Environmental
Quality Act (or CEQA).
Environmental Impact Statement / EIS
" A comprehensive document that evaluates the environmental impacts of a proposed project or action including an evaluation of
the reasonable alternatives to the project and an assessment of available
methods to mitigate the project’s impact. The scope of an EIS can be quite
broad, extending beyond considerations of air and water pollution to include
noise, visibility and traffic as well as socioeconomic and cultural impacts. An
EIS can be required under NEPA, where a project involves a “major action” by a
federal agency, or under various state “baby-NEPA” statutes, such as the
California Environmental Quality Act (CEQA) or the New York State Environmental
Quality Review Act (SEQRA).
Environmental Site Assessment / ESA
" An evaluation of the current environmental condition of a property , typically limited to the
presence of contamination caused by current or historical operations. A
standard Phase I ESA will not cover some environmental concerns that may be
significant to particular projects, e.g., asbestos, mold, endangered species or
regulatory compliance. See Phase I ESA and Phase II ESA.
EOR
Enhanced Oil Recovery.
EPA
The Environmental Protection Agency.32
EPC
" Engineering , Procurement and
Construction (Contract). Sometimes called a “turnkey” contract, because the
contractor performs virtually all construction-related work on a facility, the
owner only having to wait to have the keys turned over at completion. These are
often fixed-price contracts. If fixed-price, the contractor takes the risk for
many unknown costs, and the owner is made to pay a premium for the certainty.
In practice, contractors succeed in pushing many of the unknowns off onto the
owner, which are later reflected in multiple Change Orders affecting the fixed
price.
Equator Principles
" A set of policies voluntarily adopted by a group of financial institutions establishing standards and practices for evaluation of environmental and social impacts of projects in the context of project finance transactions. Participating financial institutions agree not to provide loans to non-complying projects. Compliance with the Equator Principles can involve , depending upon the
project’s location, preparation of an environmental impact report (called a
“Social and Environmental Assessment”), public notice and consultation,
implementation of mitigation and monitoring programs, and entering into related
loan covenants. (For more information, visit www.equator-principles.com).
Equity
" An owners money invested in a project or financing. It is an abbreviation of equity of redemption an ancient doctrine which
prohibited a secured lender from effecting a strict foreclosure on collateral
(i.e., keeping it) when the borrower had made a substantial reduction of the
debt, since this would leave the lender with both the collateral and the debt
repayment to-date. The borrower was provided the just outcome (equity) of being
allowed to sell the property to pay off the debt (redemption), and keep the
difference (now called the Equity). Equity also refers to the owner of an
asset, as in “that Credit Agreement allows distributions to Equity if debt
service coverage ratios are above 1.4x.”
Equity Free Cash
Same as Free Cash.
Equity Squeeze
" The result obtained in a Leveraged Lease if there is an Event of Default by the Lessee under the Lease but no Lessor Event of
Default under the Lessor’s credit documents. The Lessor’s lenders would be
entitled to foreclose on the Lessor’s interest in the Lease and leased asset,
but leave the Lease in place even though the Lessee precipitated the exercise
of remedies, thereby squeezing out the Lessor (the Equity) who did nothing
“wrong.” Lessors negotiate Squeeze Protection so that their investment is not
lost in a situation where the lenders are not willing to exercise remedies against
the Lessee.
Erection
" The sequence of installing a WTG consisting of hoisting the
first Tower section, bolting it to a foundation, hoisting subsequent Tower
sections and welding them to the others, hoisting the Nacelle and attaching it
to the Tower, then attaching each of the Blades to the Hub. To see the whole
process, go to http://tinyurl.com/ntwg8m. To watch a rather untidy reversal of
the process, go to http://tinyurl.com/387dnp.33
ERU
" Emission Reduction Unit. This refers to the reduction of greenhouse gases particularly under the
mechanisms set forth in the Kyoto Protocol to help countries with binding
greenhouse gas emissions targets meet their obligations. It represents the
equivalent of reducing 1,000 kg of CO2 emissions.
ESA
Environmental Site Assessment. See also Phase I ESA and Phase II ESA. Estimated Useful Life: The
period during which a leased asset is expected to be useful in trade or
business.
• Used for purposes of
calculating the maximum allowable term of a Tax Lease
• Used for determining
whether or not a Lease is a Capital Lease
• Used to determine the
method of depreciation for a Capital Lease asset
• May or may not be the same
as the life used for income tax purposes
Estoppel / Estoppel Certificate:
Estoppel is when somebody does or fails to do a
thing, such that a court will view that person as not fairly entitled to make a
claim later. For example, if I help your son hang a rope swing on my tree and
he falls off and breaks his arm, I can’t argue that he was trespassing — I am
“estopped” from making that argument. When a Lender lends to a lessee, the
lessor is usually asked for an Estoppel Certificate, wherein the lessor
acknowledges the rent amount, that the rent is current and that the lessee is
not otherwise in default. If it turns out the lessee was in fact in default
when the Estoppel Certificate was given, the lessor is estopped (prevented)
from evicting the lessee, based on the Estoppel Certificate. Used in Leasehold
Loan situations.
ETC
Energy Tax Credit.
Ethanol
A type of alcohol. See also Denatured Ethanol.
EUR
" Also known as estimated ultimate recovery EUR is used to refer to the
total expected recoverable volume of oil, gas and natural gas liquids
production from a well, lease, or field under present economic and engineering
conditions; synonymous with total recovery that includes produced reserves,
Proven Reserves and Probable Reserves. EUR figures are an important part of the
due diligence done by lenders to determine the amount of debt that an oil and
gas project can sustain.
Eurodollar
" Although this is technically a reference to the market for dollar-denominated loans outside the United States it is most often used
interchangeably with the term LIBOR to refer to an interest rate index determined
in London based on a polling of major banks by the British Bankers Association.
See LIBOR.
Eurodollar Disaster Clause
There is a historically little-used provision in most sophisticated Credit Agreements to the effect that Lenders do not have to offer Eurodollar loans if a specified percentage of the Lenders declare that the rates of interest for such Eurodollar loans do not adequately and fairly
reflect the cost to such Lenders of making or maintaining such loans.” It was
probably originally designed for a situation (which has never arisen) where for
some reason the Lenders don’t like the Eurodollar rate. Recently, there has
been talk of invoking it in situations in which the Eurodollar market doesn’t
like the Lenders, insofar as some of them are not able to borrow on an
interbank basis at the published Eurodollar rate. For the Eurodollar Disaster
Clause to be invoked, Lenders would have to admit they were in this awkward
position, which has not much happened as of this writing.
Event of Default
" If you are experiencing one of these things are not going well.
As discussed in Default, Indentures and Credit Agreements basically have three
stages of trouble: the Default, the Event of Default and Acceleration. At stage
two, the Event of Default, the Default has matured into an Event of Default
because the Issuer or Borrower has failed to cure the Default (and in some
cases a Lender or Bondholder has provided a required notice) within the Cure
Period. Certain Default events such as bankruptcy Defaults are automatic Events
of Default. So what happens now? Also See Acceleration.
Event of Loss
" In leasing land an event that harms the
leased asset in a manner sufficient to cause a termination of the Lease as to
that asset and a requirement that the Lessee pay the Termination Value for the
asset. Insurance coverage amounts should be sized to cover the Termination
Values that become due upon an Event of Loss. In other financings, the credit
documents will dictate whether insurance proceeds received following an Event
of Loss are applied to repair the facility or to repay debt. Also called a
Casualty Event.
EWG
Exempt Wholesale Generator.
Excess Cash Flow
" What is leftover at the bottom of the Waterfall i.e., after paying operating
costs and debt service, and funding all reserve accounts. Excess Cash Flow is
either dividended to the Sponsor, or subjected to a Cash Sweep or Cash Trap.
Excluded Payment or Excepted Payment
" In a Leveraged Lease payment obligations of the
Lessee owed to the Lessor or the Owner Participant that are not assigned to the
lenders as collateral.
Exempt Wholesale Generator / EWG
Anyone engaged exclusively in the business of owning and operating eligible facilities and selling electric energy at wholesale. EWGs are exempt from most PUHCA regulation and are eligible for certain blanket authorizations under the Federal Power Act.
Exploration Drilling / Exploratory Drilling
Drilling carried out to determine whether Hydrocarbons are present in a particular area. Exploration Drilling may not always result in the discovery of recoverable Reserves.35
Exploration Phase
The phase of operations which covers the search for oil or gas by carrying out detailed geological and geophysical surveys followed up where appropriate by Exploratory Drilling.
Exploration Well
" A well in an unproven (speculative) area also sometimes referred to
as a “wildcat well:”
In West Texas in the 1920s,
wildcats were abundant, and those wildcats unlucky enough to be shot were hung
from oil derricks. Not much has changed in West Texas — currently most-popular
bumper sticker: “If you can’t shoot ’em, why do they call it ‘Tourist Season’?”
Export Credit Agency
" Private or governmental institutions established by nations to assist contractors and suppliers of those nations in exporting their products and services. Typically ECAs provide financing for
the development of projects in other nations so long as such projects use a
prescribed amount of goods and services from contractors and suppliers located
in the ECA’s nation. The financing can be provided as either loans or loan
guarantees. The United States’ ECA is Export-Import Bank of the United States
(Ex-Im Bank).
Expropriation
" A government or governmental entity unilaterally taking a project or interests in a project held by a private investor. The taking could be implemented by assuming some ownership of the project or by taking an action or issuing an order that deprives the project of certain rights thereby diminishing its
value (e.g., an indefinite order prohibiting a power plant from being
operated). This is one of the risks covered by Political Risk Insurance and is
one of the main subjects of Bilateral Investment Treaties.
Facilities Agreement
Same as Credit Agreement; this term is mainly used outside the United States.
Facilities Study
" A Facilities Study is a detailed transmission study undertaken by a transmission owner or operator (in an organized market the ISO/RTO; outside of an
organized market, the transmission owner) to determine what additional
facilities are needed in order to accommodate a request for transmission
service or interconnection service (particularly for new interconnecting
generation facilities). A Facilities Study usually follows a System Impact
Study and is more detailed than a System Impact Study. The Facilities Study
identifies the cost estimates of the additional facilities and determines the
allocation of those costs to the customer(s) seeking such service.
Factored Fired Hours / FFH
" Fired hours is the number of hours a gas turbine has run since its last major overhaul. More hours of course, means more wear
on the turbine. But starts and stops create a lot more wear on a turbine than
merely running it. Factored Fired Hours is a calculated number intended to
reflect cumulative wear on a gas turbine taking into account both fired hours
and starts and stops (including the abruptness of the start or stop). FFH is
used in determining when turbines should be overhauled and factors into
compensation under many LTSAs.36
Fair Market Value / FMV
" The price for which property can be sold (or as applicable, the rent for
which it can be leased) in an “arms length” transaction; that is, between
informed, unrelated and willing parties, each of which is acting rationally and
in its own best interest.
Fair Market Value Lease
" A Lease which includes an option for the Lessee to either renew the Lease at a Fair Market Value renewal or purchase the leased asset for its Fair Market Value at the end of the Lease term. Though often referred to as Tax Leases , not all Fair Market Value
Leases qualify as Tax Leases.
Farm-In
" An arrangement under which one oil or gas company buys in or acquires an interest in a lease or concession owned by a third party in respect to which oil or gas has been discovered or is being produced. Often farm-ins are negotiated to
assist the original owner with development costs and to secure for the buyer a
source of crude oil or natural gas. See also Farm-Out.
Farm-Out
" An arrangement under which the owner or lessee of oil or gas rights assigns a working interest to an oil or gas company , part of the consideration
for which is specified exploration and/or development activities. The owner
retains an overriding royalty or other type of economic interest in the mineral
production. The arrangement from the viewpoint of the oil or gas company is
termed a Farm-In.
FASB 13 / Financial Accounting Standards Board 13
" Statement number 13 of the Financial Accounting Standards Board , which establishes
standards for Lessees’ and Lessors’ accounting and reporting for leases. This
includes the characterization of a lease as an Operating Lease or Capital Lease
for Lessee’s purposes. A company’s assets, liabilities and net income will
differ depending on how it chooses to structure its leases. The provisions of
FASB 13 derive from the view that a Lease that transfers substantially all of
the benefits and risks of ownership should be accounted for as the acquisition
of an asset and the incurrence of an obligation by the Lessee (a Capital Lease)
and a sale or financing by the Lessor. Other Leases should be accounted for as
the rental of property (Operating Leases).
FCPA
" The Foreign Corrupt Practices Act prohibits US companies from bribing foreign governmental officials in exchange for contracts , Concessions or other
benefits conferred by the foreign government. It can give rise to personal
criminal liability on the part of company officers committing prohibited acts.
Feathering
A method of controlling torque on a wind turbine rotor by decreasing the area of Blade surface exposed to the wind.
Federal Funds
" Immediately available funds (i.e.., a wire transfer that
lands in the recipient’s account on the day it is sent).
Fee Letter
The part of the Commitment Papers package that sets forth the fees and contains the Market Flex provisions (if any). This letter outlines certain fees to bepaid in connection with the various credit facilities contemplated by theCommitment Letter. This is a separate letter from the Commitment Letter and, inan acquisition financing, is often not shared with the target (among others).
Fee / Fee Title
" Outright ownership almost always used in
reference to land. Compare to a Leasehold or an option.
FEED
" Front-End Engineering and Design typically the minimum necessary engineering work
required to determine whether a project or product is likely to be economically
feasible.
Feed In Tariff
" The approach taken by many European countries as well as other nations
around the world, to encourage renewable energy production, it is a published
rate which will be paid for renewable energy generated by anybody, without the
need of a negotiated contract (subject to transmission and other system
constraints).
Feedstock
" Any raw material that is a basic (or the basic) input in a manufacturing process e.g., crude oil to a
refinery or wood waste to a biomass power production facility.
FERC
" Federal Energy Regulatory Commission which has authority in the
United States over wholesale sales of power and the provision of transmission
service, as well as the interstate transportation of natural gas, the
interstate transportation of oil and the certification of hydroelectric
facilities.
Financial Closing
" Some financing transactions have the parties execute and deliver all of the documents so as to get that part out of the way (and stop the interminable negotiation) even though the Lenders are not prepared to make loans at that time for whatever reason. When the conditions to making loans are later satisfied the Financial Closing occurs, meaning the
Lenders make their loans. See also Dry Closing.
Financial Covenant
" Covenants contained in a Credit Agreement requiring the Borrower to meet certain tests,
Financial (or Finance) Lease
" Technically, a lease as defined in
section 103 of Article 2A of the UCC which will achieve certain legal benefits
for the Lessor. The term is often used generically to mean a full-payout,
Triple Net Lease transaction in which the Lessor is a supplier of money and
financing, rather than a supplier of the leased asset. The term generally
should not be used as its meaning is imprecise.
Financial Power Swap
An arrangement entered into by a company to Hedge its exposure to power prices. A generator with a Financial Power Swap sells its output into
the Spot Market and receives the Spot Price. If the Spot Price exceeds a fixed
price per MWh in the Financial Power Swap, the generator pays the excess to its
swap counterparty; if the Spot Price is lower than the fixed price, the
counterparty pays the generator. This effectively converts the power sale into
a fixed price sale.
Financing Agreement
Same as Credit Agreement.
Financing Statement
" The first thing to know is that these are not the Financial Statements. The purpose of Financing Statements is to Perfect a Security Interest in many classes of personal property. A Financing Statement is used in a secured financing and is a simple document that contains the name and address of each of the debtors and the Secured Party and contains a brief description of the Collateral. The Financing Statement serves as public notice of the Security Interest. To be effective the Financing Statement must
be completed properly (particular attention must be paid to the exact legal
name of the debtor) and be filed in the proper filing office, usually the
Secretary of State. It is always advisable to file a Financing Statement as
soon as possible, but in any event, within 10 days of the closing date, in
order to avoid Preference concerns if the debtor were to file for bankruptcy.
Firm
" Power or pipeline system capacity that by contract, cannot be
curtailed by the supplier or pipeline operator regardless of needs or demands
of other customers. Compare Interruptible.
Fitch
" Fitch Ratings a subsidiary of Fimelac,
S.A. Fitch is a Ratings Agency.
Fixed Price Purchase Option
An option given to the Lessee to purchase the leased asset from the Lessor on the option date for a predetermined price.
Fixture
Goods that are so related to (affixed to) real property that an interest in them arises under real property law. The furnace that heats a building is an example of a Fixture.
Fixture Filing
A filing in the county real estate records that shows the Secured Partys Lien in Fixtures. The filing can be in the form of a UCC-1 or it can be included as part of the Mortgage or Deed of Trust. There is no advantage to having a Fixture Filing separate from the Mortgage.or Deed of Trust. There is
no advantage to having a Fixture Filing separate from the Mortgage.
Flex
Another name for Market Flex which comes in flavors Structure Flex and Pricing Flex.
Flip Structure
" The partnership flip structure allows developers to monetize tax credits and depreciation currently by passing the tax benefits on to Tax Equity Investors in exchange for cash payments. The flip is the point in time when the Tax Equity Investors have earned an agreed after-tax return on the investment taking into account cash
flow, tax savings from tax credits and tax losses, and tax cost of pass-through
income. Before the flip, all cash goes to the Tax Equity Investors 39
and after the flip almost
all cash goes to the other owners. The IRS has published “safe harbor” rules
for Flip Structures which, if followed, keep Tax Equity Investors from being
treated as Lenders (not able to use the tax benefits) rather than owners.
Float
Soft drink with ice cream
floating in it, often with whipped cream and a bright red cherry on top. In the
construction world, the period of time between when a builder expects to finish
a facility and the date upon which the owner has agreed with the Offtaker it
will be finished. To the extent the builder’s guaranteed completion date is
later than the expected completion date, the builder is said to “own the
float.” The owner, of course, wants to own as much of the Float as possible
(i.e., have the builder guarantee to complete as close as possible after the
expected completion date), since any delay-based Change Orders may extend the
guaranteed completion date.
Flood Certificate
" A certificate issued by a firm that specializes in this analysis , that describes whether a property is located
in a flood zone, as delineated by the Federal Emergency Management Agency.
Banks are typically required to obtain Flood Certificates prior to lending
money secured by improved real property.
Flow-Down Terms
" When an owner has a contract with a prime contractor who will be using subcontractors , and the owner wants to
make sure each subcontract includes certain owner-protection terms, the owner
enumerates those Flow-Down Terms in the prime contract. For example, an
obligation to provide certain levels and types of insurance and to comply with
the owner’s drug and alcohol policy.
FMV
Fair Market Value.
FOB
" This term is more often used improperly than not , as in “The price is
US$100, FOB Wichita” supposedly meaning the seller of merchandise will get it
to Wichita and charge the buyer US$100 total for the merchandise and the
shipping costs. It actually is supposed to be used only when shipment is by
water, and the seller’s only responsibility is to clear any export restrictions
and load it on the boat at the designated port, as in “FOB Singapore,” from
which point the buyer is responsible for shipping costs and risk of loss. See
“Incoterms 2000, ICC [International Chamber of Commerce] Official Rules for the
Interpretation of Trade Terms.” There is no good ICC term for what people
usually mean by FOB, so it’s best to just say what you mean, as in “the price
is US$100. Seller will arrange export and import documentation and duties and
arrange and pay for shipping to Wichita.”
FONSI
" Finding of No Significant Impact. A determination issued by a federal agency under NEPA concluding , after reviewing the
Environmental Assessment for a particular project, that the project will not
create any significant impacts on the environment, either with or in some cases
without mitigation measures. A project that receives a FONSI is not required to
prepare an Environmental Impact Statement.40
Forced Outage
" A generation , transmission or
distribution outage that results from emergency conditions or failure of
facilities. The other type of outage is a planned outage.
Force Majeure
" Literally an overpowering force. Also
known as an Act of God, though many Force Majeure events have nothing to do
with God (at least directly … well, I suppose you never really know…). Typical
Force Majeure would include hurricane, war, earthquake, terrorism, and other
similar occurrences beyond the control of the party claiming Force Majeure, but
would not include things that result in an inability to pay money. A Force
Majeure event can excuse a party from performance under a contract. The party
claiming Force Majeure has to have done everything reasonably possible before
and after the event to avoid the effects. Unlike other Boilerplate, sometimes
the way Force Majeure is drafted has a real effect on the outcome of a contract
dispute. In an actual case a few years ago, lightning struck a power plant,
delaying COD. The owner, of course, argued that the lightning strike was Force
Majeure, which would cause an extension of its completion Milestone. The
utility argued in effect that the lightning strike was not an Act of God
(because its effects could have been avoided had there been proper grounding
equipment installed). Now you see why we lawyers tell our kids that we are
firemen.
Foreclosure
" In both the real and personal property contexts the act by a Secured Party
of following certain legally prescribed procedures to realize upon its
Collateral, usually by advertising the Collateral is for sale and selling it in
an auction process for cash. A Foreclosure by a senior Secured Party entirely
wipes out any junior liens as well as, of course, the owner’s interests. A
Foreclosure by a junior Secured Party also wipes out the owner’s interests (and
those of any even more junior Secured Parties), but leaves intact any senior
Security Interests. (Some of these outcomes can be altered through an
Intercreditor Agreement.) It is rare for anybody other than the Secured Party
to bid at a Foreclosure, simply because you are bidding on the value of the
property in excess of the debt (i.e., the Equity). If there were any such
value, most often the owner would not have let the property go into Foreclosure
in the first place. Also, typically bidders must bid cash or cash equivalents,
except that the foreclosing Secured Party may Credit Bid.
Foreign Exchange Risk
" The risk that the value of a particular currency will fluctuate relative to another currency. The risk arises when somebody earns revenue in one currency but has obligations payable in another. For example Icelanders are paid their
wages in local currency, the Krona. During boom times, many built new homes,
taking out mortgages in Euros. On January 1, 2008, it took 92 Krona to buy a
Euro. On January 1, 2009, it took 173.
Foreign Tax Credit
The credit that a US person
or entity may claim against his, her or its US federal income tax liability as
a direct result of the payment of foreign income taxes by that person or
entity.41
FPA
" Federal Power Act which, among other things,
regulates the rates, terms and conditions pursuant to which public utilities
may sell electric energy or capacity or provide transmission service.
Fracking
Method of using high pressure fluid injection to fracture rock deep in the earth and release natural gas that is trapped in the rock formation.
Fracturing
" The characteristic of subsurface rock in geothermal fields which allows incursion of water which is the medium for
extracting the energy (in the form of Brine or steam). Fracturing is also
relevant to Hydrocarbon extraction.
Frame Unit
Combustion turbines that are not Aero-derivative units.
Fraudulent Transfer
" A transfer made by a party (a) that was made with actual intent to hinder delay or defraud that
party’s creditors or (b) in which the party making the transfer received less
than reasonably equivalent value in exchange and (i) was insolvent, (ii) had
unreasonably small capital or (iii) intended to incur debts beyond its ability
to pay them. A Fraudulent Transfer is subject to Clawback from the transferee
under state Fraudulent Transfer laws and, if the transferor is in bankruptcy,
under the Bankruptcy Code, provided that the statute of limitations has not
expired. The statute of limitations is two years for actions under the
Bankruptcy Code and is typically four years under state law.
Free Cash
" In a Leveraged Lease the excess of a rent payment
over the debt service scheduled to be due at the time. In the rest of the
universe, there is no such thing.
Fronting Fee
" A percentage of the average Stated Amount of a Letter of Credit periodically paid by the Account Party to the Issuing Bank in consideration of the Issuing Bank administering the Letter of Credit and taking the risk that if the Account Party does not reimburse a Draw neither will the other banks
in the syndicate who have agreed to do so. So it is basically a payment for
taking interbank risk. Consequently, historically, if there were only one bank
providing the credit facility, there would be no Fronting Fee; however, this is
no longer universally the case.
Full Payout Lease
" A Lease in which the total of the Lease payments pays back to the Lessor the entire cost of the leased asset including financing overhead and a reasonable
rate of return, with little or no dependence on a Residual Value.
Funds Flow Memorandum
" The closing document that tells everybody in detail where the money is going. In more complex transactions the memorandum is often
executed or initialed by the Issuer/Borrower, particularly when the funding
bank is directed to apply the funds in some manner on the Issuer’s/Borrower’s
behalf. Unlike other PF documents which take twice as long to prepare as you
thought they would, this one takes four times as long, so start at least a week
before closing.42
Gap (Title) Coverage
Gap coverage is Title Insurance coverage whereby the title company insures the risk associated with the recording of any encumbrance against the real property security after the closing of a transaction and prior to the date the Lenders Mortgage or Deed of Trust is recorded in the public records.
Gas-to-Liquid / GTL
" A technology used to convert natural gas or other gaseous Hydrocarbons into liquids such as gasoline or diesel fuel thus making it easier to
transport. The liquid is usually converted back to natural gas (a process known
as “regasification”) for consumption.
GHG
Greenhouse Gas(es).
GL Certificate
" Germanischer Lloyd (GL) is a German company that evaluates WTG designs for robustness and will issue a certificate for the model giving owners and lenders
some level of comfort. A GL Certificate is typically not issued until the model
has experienced a significant level of run-time.
Good Standing (Certificate)
" Good Standing refers to whether a particular statutorily created company such as a corporation,
limited liability company or limited partnership, has paid the annual
registration fees due to its state of formation, and whether any type of
company (statutorily created or not) has paid applicable annual fees to any
states in which fees must be paid for the company to do business in that state.
For a fee (naturally), states will issue a certificate of Good Standing, and
those certificates are included in the closing conditions. Lack of Good
Standing can affect a company’s ability to enforce contracts in that state, and
in some cases can have other adverse consequences.
Good Times Sweep
" Commodity prices experience wide fluctuations over time (e.g. crude oil’s price went from
US$30/barrel in 2003 to US$60 in 2006 to US$140 in 2008 and back down to US$70
in 2009). Lenders to commodity producers realize this, but do not insist that
lending be based on the most pessimistic price assumptions. In return for this
concession, it is agreed that when prices are high, some of the Excess Cash
will be applied to repay debt. This is the Good Times Sweep, and it applies to many
Merchant Facility financings. The difference from a Cash Sweep is that the Good
Times Sweep only applies to a portion of the Excess Cash (e.g., the amount
which exceeds a 2.0x DSCR).
Gray Market
" The market for previously owned but not necessarily “used” equipment. In other
words, you are buying from another buyer who, for whatever reason, needs to
sell the equipment (well, OK, it’s not really “whatever reason,” it is because
they planned to grow way faster than reality would allow, they bought too many
units and the manufacturer won’t take them back except for half what was
originally paid). Depending on whether the item is an “orphan” or a common
model, and how long the manufacturer’s backlog is, Gray Market prices can be
fairly robust.
Green Bank
" There is a Congressional proposal to establish a Clean Energy Deployment Administration or Green Bank with the exclusive mission of providing a comprehensive range of financial support (e.g.direct loans (including
junior/mezzanine debt) and loan guarantees) to qualified transmission, clean
energy and energy efficiency projects in the United States. The proposal would
structure Green Bank as an independent tax-exempt, wholly owned corporation of
the United States with a 20 year charter, that would be governed by a Board of
Directors including the Secretaries of Energy, Treasury, Interior and
Agriculture, and four other members appointed by the President. The proposal
would provide the Green Bank with an initial authorized capitalization of US$7.5
billion. Latham attorneys have been involved in development of the Green Bank,
and are on its steering committee.
Greenfield
Adjective describing a facility being built on land that has not been used for anything that might have resulted in contamination. Compare Brownfield.
Greenhouse Gases
Any of the gases (such as carbon dioxide) created or released as a result of industrial processes that would cause a greenhouse effect on the earth.
Green Tags
" Another term for a REC; also, a type of Environmental
Attribute.
Grid
" The whole interlocking system of electricity delivery from generator to customer.
There generally are considered three main parts of the Grid: generation
(creation of the power), transmission (high voltage) and distribution (low voltage
transmission from a substation to the customers — the power lines in the
neighborhood). Transmission and distribution are natural monopolies, and
generation is not.
Grid Pricing
" When the Applicable Margin changes as a function of the creditworthiness of the Borrower as measured by a credit
rating, leverage ratio or other metric.
Ground Lease
A lease of undeveloped or minimally developed land.
GTL
Gas-to-Liquid.
Haircut
Usually refers to a discount off of Par in selling a loan.
Hazardous Materials / Hazardous Substances
" A broad category of substances that have the potential for causing injury or damage to human health animals or the environment,
often including items that are deemed to be toxic, radioactive, flammable or
explosive, or are generally treated as a “pollutant” or “contaminant” under
environmental law.
HazMat
A Hazardous Material.
Head
" Measured in vertical distance (feet or meters) the amount of water pressure
available to turn a water turbine. Though generally, of course, more head is
good for a water turbine, not all hydroelectric facilities are 44
designed for “high-head.”
Some facilities (picture larger buckets on slower-turning rotors) are designed
for greater volume and “low-head” and some, with a great vertical distance
between the Penstock’s intake and the generation facility, for lower volume and
“high-head.”
Head Lease
A Lease from the owner of an asset to another party when the other party will sublease the asset back to the owner or to a third party.
Heat Rate
" The number of Btus of a particular fuel it takes to generate one kWh of electricity. Low is good , indicating a more efficient process. So for
example, you would expect a Combined Cycle facility to have a lower heat rate
than a Simple Cycle facility, or a Combined Cycle facility running in Simple
Cycle mode (i.e., without the Heat Recovery Steam Generator and Steam Turbine
Generator running).
Heat Recovery Steam Generator / HRSG (sometimes referred to as a hersig)
" The machine in a Combined Cycle power production facility that captures the waste heat from exhaust gases coming out of a gas turbine heats water with that and
additional fuel, and sends the resulting steam along to the steam turbine.
Hedge
" An investment or strategy that attempts to reduce the impact of economic exposure in an area by taking an offsetting position. This could take the form of among many other approaches,
selling forward, selling short, buying or selling puts or calls, or entering
into a swap. For example, if you have milestone payments payable in Euros and
you have budgeted to pay them in USD, you might enter into a foreign exchange
hedge which pays you if the value of USD deteriorates versus Euros. (And if USD
appreciates, you give up the gain.) See also Imperfect Hedge.
Hedge Provider
" A counterparty willing to execute a Financial Power Swap Interest Rate Swap, Currency
Swap or other type of Hedge, thereby assuming the price risk associated with
the subject of the Hedge. A Hedge Provider that provides expensive quotes is
called a Hedgehog (not really, but it should be).
Heliostat
Mirror used in Solar Thermal facilities to focus the suns rays on a central collector.
Hell or High Water Clause
" A provision in a Triple Net Lease that provides that the Lessee must pay all amounts owing under the Lease and related documents regardless of any defenses the Lessee may have available to it , including defenses as against the Lessor, the
lender or the manufacturer of the leased asset. Hell or High Water Clauses are
critical in Leveraged Leases or in lease securitizations since the lenders or
holders or purchasers in the lease securitization will want a guaranteed cash
flow regardless of equipment failures or other claims that a Lessee might
otherwise have against a Lessor. The Lessee retains its right to pursue claims
against the equipment manufacturer or other appropriate parties.
Hog Fuel
" The parts of a tree that cannot be used to make paper products or lumber such as bark, leaves and
small limbs. Virtually all mills that use virgin timber burn Hog Fuel in an
onsite Cogeneration Facility, which creates steam used in mill processes, as
well as electricity for the mill. The Cogeneration Facility also consumes Black
Liquor.
Hold
Same as Target Hold.
Horizontal Axis
" Used with reference to WTGs means that the main drive
shaft is parallel to the ground. Most WTGs are Horizontal Axis. Compare
Vertical Axis.
HRSG
Heat Recovery Steam Generator.
Hub
" The center of a wind turbine rotor where the blades are attached to the main drive
shaft.
HVDC
" High Voltage Direct Current, a power transmission
technology that uses direct current rather than the more common alternating
current (“AC”). It is useful for transmitting bulk power long distances when
there are few or no taps between the end points. Line losses and cost of
conductor are lower than with AC systems.
Hydrocarbon
" A molecule containing hydrogen and carbon. umm
sorry you knew that. Hydrocarbons can exist in solid,
liquid or gaseous form and the term is often used as a catch-all to refer to
oil, gas and Condensate.
ICC Arbitration
Arbitration conducted under the rules of the International Chamber of Commerce. Private parties in cross-border transactions might pre-agree to this in their contract.
IDC
" Interest during construction. IDC is a line-item in a construction budget one of many Project Costs.
IE
Independent Engineer.
Imperfect Hedge
" A Hedge which would tend to result in economic benefit to offset an underlying risk sought to be hedged but which might not do so
dollar-for-dollar. For instance, Southwest Airlines kept making money during
the oil price spike of 2007/08 even though the price of aviation fuel spiked.
They had not entered into long-term contracts for aviation fuel because there
is no such contract available; but they had bought futures in heating oil,
whose price correlates highly with that of aviation fuel. Later, they sold the
futures contracts at great profit and used the proceeds to offset high fuel
costs. Also called Dirty Hedge.
Impoundment
" A water storage structure or area used by a hydroelectric facility. As opposed to a Run of the River hydroelectric facility . As opposed to a Run of the
River hydroelectric facility, an Impoundment allows the operator to generate at
Peak times.
Improvement
" A building or other structure permanently constructed on a site. An Improvement is real property rather than personal property so a Lien is granted by a
Mortgage or Deed of Trust rather than by a
Security Agreement. The term
can be a misnomer, as a building is an Improvement even if it is
non-functional, hazardous or just plain ugly.
In and Out Costs
" The costs of accessing and removing a piece of equipment that is under warranty. If In and Out Costs are not covered in the warranty If In and Out Costs are not
covered in the warranty, an owner can have the benefit of the manufacturer’s obligation
to repair or replace the part, but be stuck with an enormous bill to access the
part. Also called Open and Close Costs.
In the Money
" Used in the context of valuing a contract at a specified moment when it is the type of
contract which by its nature has a value that might fluctuate. At that
specified moment, being In the Money means that if you offered somebody in the
business of entering into contracts of that nature the opportunity to
substitute themselves into your position under the contract, they would pay you
for the privilege. When your counterparty is in default under the contract, it
sounds like it would be a good thing for you to be In the Money, but it’s not.
This is because if the contract is terminated due to the default, you have to go
collect its termination value, the amount by which you are In the Money.
Incumbency Certificate
" Incumbency is the state of being in office. So an Incumbency Certificate is a certificate by the company secretary that thus and such persons hold thus and such offices in the company. Contract counterparties then look at the board resolutions , which authorize certain
officers to take actions on behalf of the company (like sign a Credit
Agreement). If the person who signs has the title stated in Incumbency Certificate
and the person of that title is authorized by the resolutions to bind the
company, that closes the loop.
Incurrence Covenant
" A covenant that only applies upon a borrower taking a certain action such as borrowing money or
paying a dividend. For example, a borrower might have a leverage covenant that
prohibits it from ever having debt that exceeds 3-times earnings. If the
covenant only applies when the borrower incurs new debt, it is an Incurrence
Covenant (and thus, in this example, would not apply if earnings dropped). If
it applies at all times, it is a Maintenance Covenant.
Independence Principle
" The principle whereby the Beneficiary of a Letter of Credit may effect a Draw without the Account Party being able to argue that the draw is improper and if the Account Party is
in bankruptcy, without violating the Automatic Stay. So what’s independent of
what? The Letter of Credit is viewed as an obligation of the Issuing Bank to
the Beneficiary, independent of the Account Party’s reimbursement obligation to
the Issuing Bank and independent of any underlying dispute between the Account
Party and the Beneficiary. That is really the whole point of Letters of Credit.
Independent Director
" One of the elements of Separateness used to create a Bankruptcy Remote Vehicle. As a corporate law matter directors have a fiduciary
duty to their company, a kind of very strict obligation to look out for the
company. Normally, a parent company appoints officers 47
of the parent to be
directors of subsidiaries. But now having two roles, how is the parent
officer/subsidiary director supposed to look out for the subsidiary if the
interests of the subsidiary conflict with those of the parent? The Independent
Director is a person appointed to be a director of the subsidiary who is not an
officer of or in any other way beholden to the parent. It is thought he/she is
more likely to honor fiduciary duties. One of those duties is to not authorize
the filing of a voluntary bankruptcy petition if the subsidiary is still viable.
So in creating a Bankruptcy Remote Vehicle, the Lender to the subsidiary has
the parent agree to always appoint an Independent Director and the charter
documents require unanimity of directors before a bankruptcy filing can be
made. In the days leading up to the bankruptcy filing of real estate
developer/owner General Growth Properties, the parent company replaced
Independent Directors at several supposedly Bankruptcy Remote Vehicle
subsidiaries, in breach of the covenant that required the Bankruptcy Remote
Vehicles to maintain Independent Directors. Stay tuned.
The term Independent
Director is also used in the context of public companies, where it means a
director who is neither a major shareholder, influenced by a major shareholder
or an officer of the company. In this context, Independent Directors are
thought to give the company a fresh and unbiased perspective on major business
decisions and company direction.
Independent Engineer
The engineering company that works for the Lenders in a financing which calls for such expertise.
Independent System Operator / ISO
" A non-profit organization that operates and controls, but does not own, an
electric transmission system. An ISO is subject to FERC’s jurisdiction over
“public utilities” and provides non-discriminatory access to the transmission
grid, manages congestion and maintains reliability. Sometimes, it also operates
centralized wholesale power markets, such as day-ahead and real time markets
for energy sales. Similar to a Regional Transmission Operator.
Indenture
A contract between the Issuer and the Trustee (who acts as a sort of Bondholder representative) pursuant to which Bonds are issued.In a Leveraged Lease, the
agreement between an indenture trustee and the Lessor pursuant to which the Lessor
grants to the indenture trustee on behalf of the lenders the assignment of the
Lease and the lien on the leased asset. The document will also set forth the
other intercreditor arrangements between the Lessor and the Indenture Trustee.
Index
" In the context of interest rates a reference rate such as
LIBOR or Base Rate. May also refer to an index of prices, such as the Consumer
Price Index or the Henry Hub Spot Price for Natural Gas.
Injection Well
" In geothermal facilities resource (either steam or
Brine) is extracted from Production Wells, much of the heat is spent in the
power production process, and the cooled liquid is left. This liquid is pumped
back into the ground through Injection Wells, ideally in a manner such that the cooler fluid does
not migrate back to the production zone, but creates pressure that supports the
production zone.
Insolation
" The amount of solar radiation reaching a surface (typically the Earth) over a period of
time, often measured as kWh per square meter per day. This is used to determine
the best sites for Photovoltaic projects.
Intake Structure
The part of a Run of the River hydroelectric facility where water is diverted from the river into the Penstock.
Integrated Resource Plan
" A projection of a utilitys load growth and how future load will be satisfied taking into account the
various types of generation technology involved and policy goals. For example,
if a particular utility has a lot of windpower resource, it will have to plan
how to keep its system stable under all different kinds of wind conditions.
Utilities have to prepare these every few years to be approved by their public
service commission.
Interconnection Agreement
" Agreement between a generator and a transmission owner or operator that provides for interconnection service (i.e. the ability to inject
electric energy into the transmission grid), including the design,
construction, installation and operation of interconnection facilities.
Interconnection Points
" The physical locations at which a facility connects to third-party facilities for supply in or delivery out (e.g.electricity, fuel, water,
telephone or steam).
Intercreditor Agent: In
financings involving a number of different types of Lenders, such as syndicates
of banks, export credit agencies and/or multi-lateral institutions, a financial
institution is often selected by the Lenders to act on behalf of the Lenders as
their agent to monitor the project and administer any voting required in
respect of decisions to be made by the Lenders or their agents under the
financing documents. The Intercreditor Agent represents the Lenders as a group,
and is usually appointed via an Intercreditor Agreement.
Intercreditor Agent
" In financings involving a number of different types of Lenders with respect to shared
Collateral or other intercreditor relationship matters. Think of this as a
prenuptial agreement between two classes of creditors. Apart from addressing
the obvious point that the first lien Lenders get paid out first from
Collateral proceeds and the second lien Lenders get paid out second in first
lien/second lien deals, Intercreditor Agreements also lay out a number of
important provisions regarding the right of each Lender group to take action
with respect to the Collateral generally.
Intercreditor Agreement
" An agreement that sets forth the rules of engagement between two or more groups of Lenders with respect to shared Collateral or other intercreditor relationship matters. Think of this as a prenuptial agreement between two classes of creditors. Apart from addressing the obvious point that the first lien Lenders get paid out first from Collateral proceeds and the second lien Lenders get paid out second in first lien/second lien deals Intercreditor Agreements
also lay out a number of important provisions regarding the right of each
Lender group to take action with respect to the Collateral generally.
Interest Period
" The period of time under a variable-rate Indenture or Credit Agreement during which a given interest rate applies (the variable applies between Interest Periods , not within an Interest
Period). In most (but not all) Indentures, there are two Interest Periods per
year. In Credit Agreements, the number of Interest Periods per year can vary widely, especially
if the Borrower chooses to have LIBOR Loans (which may bear Interest based upon
1-, 3-, 6-, 9- or 12-month LIBOR).
Interest Rate Swap
" An arrangement entered into by a company to Hedge its exposure when it has borrowed money at an interest rate that can fluctuate. The borrower (often called Party B) agrees to pay its counterparty (often called Party A) periodically a fixed percentage rate (Fixed Rate) multiplied by the size of the Swap (the Notional Amount , which is equal to the
amount of borrowed money or a portion thereof); and Party A agrees to pay Party
B periodically an indexed interest rate (typically the same index as was used
for the borrowing, e.g., three month LIBOR) multiplied by the same Notional
Amount. On the periodic payment dates, either Party A’s payment or Party B’s
payment will be larger, so the payments are netted and only the larger payment
(minus the smaller payment) is made. Between payments made or received under
the Interest Rate Swap and interest payments on its loans, the Borrower ends up
paying all-in the aforementioned Fixed Rate on the Notional Amount.
Interim Rent
Any rent payable for the Interim Term which is usually calculated on the basis of a specified interest rate applying to Lessors Cost.
Interim Term
The period in some Leases from the closing until the commencement of the Basic Term.
Intermittency (Variability)
" The extent to which a power source by its nature stops producing or becomes unavailable. For example , every solar facility will
be intermittent (until they figure out how to capture starlight).
Interruptible
Power or pipeline capacity that, by contract,
the supplier or pipeline operator is allowed to curtail if the needs of
customers who have contracted Firm would otherwise exceed the supplier’s
resources or pipeline capacity.
Inverter
The equipment that converts the direct current (DC) generated by Photovoltaic cells into alternating current (AC) usable in the Grid.
Investment Grade
" A rating of Baa3 or better by Moodys , BBB- or better by S&P
or BBB- or better by Fitch.
Investment Tax Credit / ITC
" A credit against taxes owed by a taxpayer who purchases certain kinds of property that for policy reasons the government wants us to buy. For example ITC is (currently) available
for the purchase of wind energy facilities. ITC is subject to Recapture (you
have to pay back the benefit) if the applicable property is taken out of
service before the end of a specified period of time.
Investor-Owned Utility / IOU
" A public utility that is not owned by a governmental entity which typically owns
electric transmission and/or distribution facilities.
IOU
Investor Owned Utility.
IPP
" Independent Power Producer (i.e.one that is not, and is not
owned by, an investor-owned utility).
IRP
Integrated Resource Plan.
ISDA
" International Swaps and Derivatives Association Inc. (fka International Swap
Dealers Association, Inc.)
ISDA Master
" A Master Agreement in the form published by ISDA. This is a form agreement used by parties to swaps and other Hedges that was designed by ISDA to
be a balanced and easily administered agreement. The idea was to make it so
palatable to all that there would be few non-standard provisions required by
any market player. The second-generation ISDA Master was published in 1992 and
the third generation was published in 2002. However, the 1992 form is more
commonly used than the new form. The ISDA Schedule is part of an ISDA Master —
there is no such thing as an ISDA Master without an ISDA Schedule. Any two
entities in the world that may want to enter into Hedges across from each other
are supposed to have just one ISDA Master between them, which by itself has no
economic effect until they enter into one or more “Transactions,” which
incorporate by reference their ISDA Master.
ISDA Schedule
" The part of an ISDA Master agreement that includes the specific choices/elections made by the counterparties as well as notice
information and any exceptions and addenda the parties wish to make to the
preprinted form.
ISO
Independent System Operator.
Issuing Bank
" The financial institution that issues Letters of Credit under the Credit Agreement. Also called LC Issuer LC Bank or other variations.
ITC
Investment Tax Credit.
JLA
Joint Lead Arranger.
Joint Lead Arranger / JLA
" In transactions with more than one Arranger, where no particular one of
them lays sufficient claim to be the Lead Arranger, they all get the JLA
designation. In practice, even in these cases, it is rare for a deal to not
have one particularly prominent arranger. Even if the title is shared for
reasons of comity, the real lead is usually compensated somewhat better than
the rest for its efforts.
Judgment Currency
" In Credit Agreements with a foreign Borrower or where there are one or more Tranches in different currencies there are typically
provisions that allow for the original currency of the loans to be converted
into an alternative currency for the purpose of obtaining judgment in any
court. This alternative currency is the Judgment Currency. The Judgment
Currency provisions exist because, although Credit Agreements generally provide
for payments in a specified currency, it is important to have a conversion
mechanism to deal with the possibility that a judgment may nevertheless be awarded in an alternative currency.
KGRA
" Known Geothermal Resource Area , a term used originally in
BLM regulations on procedures for leasing BLM land to geothermal developers.
“An area in which the geology, nearby discoveries, competitive interests, or
other indicia would, in the opinion of the Secretary, engender a belief in men
[sic — or women?] who are experienced in the subject matter that the prospects
for extraction of geothermal steam or associated geothermal resources are good
enough to warrant expenditures of money for that purpose.” The term is also
used now outside the BLM context.
KYC
" Know-Your-Customer; refers to a policy implemented to conform to a customer identification program mandated under the USA PATRIOT Act. KYC policies have become increasingly important globally to prevent identity theft fraud, money laundering and
terrorist financing.
kWh
" kiloWatt-hour or one kiloWatt generated
for one hour. The “W” is capitalized because Watt was originally a person —
until he was transformed into pure energy in Star Trek: The Wrath of Khan.
LAER
" Lowest Achievable Emission Rate. A very strict standard of pollution control under the Clean Air Act that reflects the strictest pollution control available. LAER is required for a particular Criteria Pollutant when the source is in a Non-Attainment area (compare BACT). Differs from BACT in that it is emissions-limit-based , so no economic criteria
can be used to justify an alternate, less-stringent control technology.
Land Man
" The person responsible for aggregating land rights for a project which will require multiple parcels , such as some Windfarms.
Always very affable and low-key, so as to sign the landowner up before he gets
greedy. Having the necessary qualities, many a Land Man is a woman. Also refers to the
individual who checks title to land where an E&P Company is interested in
buying an interest in a field or drilling a well.
Large Generator Interconnection Agreement / LGIA
" An Interconnection Agreement based on a standard FERC pre-approved form,
between a generator and a transmission owner and/or operator, and regulated by
FERC.
Lateral
" An offshoot from a main supply line that is dedicated to a particular facility. For example Lateral railroads,
electrical transmission lines or pipelines.
Lattice Tower
" Early-generation WTGs used towers made of latticed steel members because they were less expensive than tubular towers. However Lattice Towers encouraged
perching by birds, resulting in higher Avian Mortality. Between that and their
sheer ugliness, they are no longer used on utility-scale WTGs.52
LC Fee
" A fee paid periodically (usually quarterly) in arrears by an Account Party to the Lenders which participate in a Letter of Credit facility calculated as a percentage
of the average Stated Amount of the letter of credit during the period.
LC Loan
" The conversion of the reimbursement obligation resulting from a Draw upon a letter of credit into a loan. Of course a reimbursement obligation
and a loan are both debt obligations of the borrower, but existence of an LC
Loan implies that the debt need not be repaid immediately.
LDC
" Local distribution company typically referring to the local natural gas
utility.
LDs
Liquidated Damages.
Lead Arranger
" In a transaction with more than one Arranger the primary or original
Arranger engaged by a Borrower or Sponsor in connection with structuring the financing.
See also Joint Lead Arranger.
League Table
" League tables are annual lists kept by certain institutions and publications such as Thompson Financial
and Bloomberg, that keep track of deal volume and deal size by banks and law
firms. League Table credit refers to receiving credit for a specific deal for
purposes of determining the rankings.
Lease / Leasehold
" An agreement pursuant to which an asset is provided by one party , the Lessor, to another
party, the Lessee, for a fixed period of time in exchange for compensation. A
Leasehold is the right created by a Lease of real property.
Lease Intended as Security
" A Lease that constitutes a Lease Purchase or is otherwise characterized as a secured loan. Because the Lessee in a Lease Purchase is generally considered the owner of the leased property the Lessor’s retention of
title is viewed as a security interest, and the transaction is treated as a
secured loan. Equipment financings are often documented as leases even though
the characteristics of the transaction mean that they are Leases Intended as
Security (i.e., secured loans).
Leasehold Loan
" A secured loan in which the Borrower leases rather than owns all or a significant portion of the property on which is located the revenue-generating means of repaying the loan. The Lender takes the Leasehold as security for the loan as well as any Improvements
and personal property, and obtains one or more SNDAs and Estoppel Certificates
and records a Leasehold Mortgage.
Leasehold Mortgage / Leasehold Deed of Trust
" A Mortgage or Deed of Trust encumbering a leasehold interest in property. Because the Leasehold Mortgage is of necessity recorded after the lease it is by law junior to the
rights of the Lessor. This means that if the Lessee defaults under the Lease,
the Lessor can terminate the Lease and wipe out the 53
Leasehold Mortgage. This is
a disastrous result for the Lender, which it avoids by using both a Lessor’s
Estoppel and, when the Lessor has its own Lender, a Subordination and
Non-disturbance Agreement.
Lease Purchase
" Full Payout Net Leases, often with a
term equal to the Estimated Useful Life of the leased asset. Because many Lease
Purchases include a Bargain Purchase Option for the Lessee to purchase the
leased asset for US$1 at the expiration of the Lease, these Leases are often
referred to as dollar buyout or buck-out leases. Lease Purchases are generally
considered to be Capital Leases from an accounting perspective and non-Tax
Leases from a tax perspective due to their Bargain Purchase Option and length
of Lease term.
Lease Schedule
" A schedule to a Master Lease describing the leased asset rentals and other terms applicable to the leased
asset.
Left Side
" Placement of a bank on the top of the left side of the list of banks providing a financing in a CIM or other marketing materials for the issue signifying the role of Lead
Arranger.
Lessors Cost
" The price paid by the Lessor at the closing to acquire the leased asset. Usually Lessors Cost includes some Soft Costs. When rent or Termination Values are provided in percentage form they are usually a
percentage of Lessor’s Cost.
Lessors Estoppel
See Estoppel/Estoppel Certificate.
Lessors Lien
" A category of liens on the leased asset for which the Lessor (and any Owner Participant) is responsible and for which the Lessee is not responsible. Lessors are generally required to remove Lessors Liens except the lien of the lenders in a Leveraged
Lease.
Letter of Credit / LC / LOC
" Many revolving credit facilities provide that all or a portion of the facility may be used in the form of Letters of Credit. A Letter of Credit essentially acts as a guarantee by the Issuing Bank under the revolving facility that kicks in if the Borrower (the Account Party) does not meet an obligation to a third party (the Beneficiary). A Borrower may post a Letter of Credit in favor of a third party as a guarantee to that third party that it will pay out on an obligation if needed or will fulfill a
governmental requirement, etc. If the third party requires payment, the Issuing
Bank must pay under the LC, and can look to the other revolving Lenders for
reimbursement as if the payout were a revolving loan made by all the revolving
Lenders as a group. The two main types of Letters of Credit are Commercial Letters
of Credit (Trade Letters of Credit) and Standby Letters of Credit.
Leveraged Lease
A lease transaction in which the Lessor has borrowed a portion of the acquisition cost of the leased asset on a non-recourse basis and the lender obtains an assignment of the Lease and a mortgage or security interest in the leased asset as Collateral for the debt. The rent under the Lease is always sufficient to pay in full the debt service under the loan.54
LFG
" Landfill gas. The natural decomposition of organic matter creates methane and other combustible gases which are collected using a
simple system of pumps, pipes, filters and separators, and often used to fuel a
small gas turbine.
LGIA
Large Generator Interconnection Agreement.
LIBOR
" The London Interbank Offered Rate which refers to the rate at
which major financial institutions can (usually) borrow from each other in the
London interbank market (not limited to London, which is why a more proper term
is the synonym Eurodollar). Most credit facilities have interest rates that are
set at certain margins above LIBOR. See Applicable Margin.
Lien
" Depends on the context. Often used interchangeably with Security Interest; however Lien is a broader term and
includes non-consensual encumbrances on property such as tax Liens or Liens in
favor of warehousemen or carriers as well as consensual Security Interests.
Lien Waiver
" A document by which a subcontractor or supplier waives all of its rights to place a Mechanics/Materialmens Lien on a project for any work done or materials provided prior to the date of the waiver. This is the way for the Lender owner and Title Insurer
providing a 122 Endorsement or Datedown Endorsement to know that payments made
to the prime contractor have actually been paid to subcontractors. The
subcontractor doesn’t care whether the prime contractor has been paid, only
whether he or she has; and the subcontractor is entitled to put a lien on the
facility if he or she has not. So if the prime contractor is paid and spends
the money somewhere other than paying off his or her subcontractors, the owner
can be forced to pay off the subcontractor to have the lien released, otherwise
known as paying for the same thing twice. In some jurisdictions, there are
statutory forms that need to be used for a Lien Waiver to be enforceable.
Limitation of Liability / LOL
" A cap on the damages one party to a contract could have to pay to the other party. The Limitation of Liability can apply to Liquidated Damages or any other kind of contract breach damages , or both. Usually, the cap
is a fraction of the contract price, or a (higher) fraction of the profit under
the contract of the party limiting its liability.
Limited Notice to Proceed
See discussion under Notice to Proceed.
Limited Recourse Financing
A type of financing in which the Lender has no ability to make claims against the Sponsor in excess of the value of the Collateral if such Collateral is insufficient to repay the debt. Sometimes called Non-Recourse even though the Lender does have recourse to the Collateral.
Limited Use Property
A term utilized in the IRS leasing guidelines to refer to property subject to a Lease which at the end of the Lease term could only reasonably be expected to be usable by the Lessee.55
Liquefied Natural Gas / LNG
" As its name suggests , LNG is natural gas in
liquid form, converted into this state only temporarily so as to store or
transport it more easily. The chemistry behind the liquefaction process is
complex. Dust, acid gases, helium, water and heavy hydrocarbons are removed
from the natural gas, before the gas is condensed at a very high pressure and
low temperature (-260ºF / -163ºC).
Liquefied Petroleum Gas / LPG
" Gas mainly composed of propane and butane , which has been liquefied
at low temperature and moderate pressure. The gas is obtainable from refinery
gases or after the crude oil cracking process. Released to atmospheric
pressure, it converts into gas and can be used industrially or domestically.
LPG is also called “bottle gas,” we think because after changing out a tank of
it on your BBQ, you need to go grab a tall, cold “bottle.”
Liquidated Damages
" An acknowledgment by parties to a contract that even though they might be
difficult to calculate with precision, if one party doesn’t meet a contractual
undertaking in some specified way, the other party will suffer damages, and
that therefore the breaching party will pay the damaged party money pursuant to
a formula. Use of the formula saves a lot of effort over calculating actual
damages. For Liquidated Damages to be enforceable, there are two requirements:
(we are not making this up): (i) actual damages must be difficult or impossible
to calculate and (ii) the formula used must be a reasonable approximation of
actual damages. In Project Financing, the two most common Liquidated Damages
are Performance LDs and Delay LDs.
LLCR
Loan Life Cover Ratio.
LNG
Liquefied Natural Gas.
LNTP
See discussion under Notice to Proceed.
Load Curve / Load Graph
The actual or projected electric load within a utilitys service territory over the course of a day. The projections are used for scheduling in the day-ahead market. It is interesting to see the peak in the evening when everybody gets home and turns everything on. (See the real-time California version at: caiso.com/
outlook/SystemStatus.html).
Load Factor
" The ratio of the average load supplied during a period to the peak or maximum load in that period expressed as a percentage.
Utilities are generally interested in increasing Load Factors on their systems.
Load Stack
" Electrical grid system operators have to figure out how to satisfy system load over the course of a day in a way that is reliable,
economical and somewhat flexible. The Load Stack is a chart that shows their
decisions as to which system resources will be used to satisfy system load over
the day. Load/Capacity is on the vertical axis and time of day on the
horizontal axis. Baseload units are on the bottom shown each in 56
their own color, and other
units are stacked on top successively. The Load Stack has to be above the
projected Load Curve for each moment in the day. As you get to the top, these
are the resources that would be shut off (or never turned on) if system demand
were lower than projected.
Loan Certificates
" The evidence of indebtedness issued by the Lessor in a Leveraged Lease to the lenders and a synonym for notes.
Loan Life Cover Ratio / LLCR
" A financial ratio commonly used in project financing , this is the ratio of (a)
the project’s discounted cash flow available for debt service from the date on
which it is measured up to the final maturity date of the loans, to (b) the
total amount of the project’s debt on specified dates. It is calculated by
dividing the net present value of the project’s cash flow (after deducting operating
expenses and any other amounts payable in a higher priority to the debt, such
as project taxes) to the total amount of debt owed by the project. The LLCR
gives lenders an estimate of the ability of the project to repay its
outstanding debt.
Loan Participants
The Lenders in a Leveraged Lease.
LOL
Limitation of Liability.
Loss Payee
" Under a property insurance policy the person or persons to
whom the insurance company writes the check for proceeds of a claim. Secured
lenders want to be a Loss Payee because the casualty has turned their
Collateral into money, and so they want to ensure the money is either used to
purchase replacement Collateral or to repay debt.
Low Floater
" A Variable Rate Debt Obligation Auction Rate Security or
other debt instrument, usually a municipal bond, that has a long Tenor but
whose interest rate resets frequently (like once a week).
Low Flow Line of Credit
" A debt service reserve line of credit offered by Lenders financing Run of the River hydroelectric facilities to allow the owner to cover debt service in low water years. Expanding the concept to cover windpower facilities during low wind years the “Low Blow Line of
Credit” was discontinued when lenders realized being repaid was more important
than offering cleverly named credit facilities.
LTM
Last twelve months. Used to describe the measurement period for Financial Covenants. Same as TTM (trailing twelve months).
LSTA
" The Loan Syndication and Trading Association, a non-profit organization
dedicated to promoting the development of a fair, efficient, liquid and
professional trading market for corporate loans originated by commercial banks
and other similar private debt. A number of standard forms, market practice
documents and publications can be found at http://www.lsta.org. The English
equivalent is called “LMA,” for Loan Markets Association.
LTSA
Long Term Service Agreement. Just what it sounds like. It is usually (but not always) provided by the manufacturer of the equipment which is the subject of the LTSA.
It is purportedly very profitable for the manufacturers, but also provides
certainty to owners as to their costs.
MAC
Material Adverse Change.
MACT
See NESHAPs.
MAE
Material Adverse Effect.
MAE Qualifier
" This is an exception to what would otherwise be an absolute assertion or representation for example: “I have not
been drinking, except to such extent as would not be likely to have a Material
Adverse Effect on my drafting.” See Material Adverse Change and Material
Adverse Effect.
Maintenance Covenant
" A contractual provision in a Credit Agreement that requires a Borrower to maintain a certain state of affairs , for example, to meet or
exceed various financial performance measures. Financial Covenants are one
category of Maintenance Covenants.
Make-Whole (Payment)
" A payment made to a Lender who has lent at a fixed-rate of interest when its loan is prepaid to compensate it for the
interest foregone by having to reinvest the prepayment proceeds at a lower
interest rate. Usually calculated by discounting foregone interest payments
over what would have been the remaining term at a discount rate equal to yield
on a US Treasury security having a maturity equal to the weighted remaining
average life of the prepaid loan, plus 0.50 percent. The discount rate used in
this calculation is sometimes negotiable.
Makeup Well
" The power generation capacity of a geothermal power facility is a function of both its equipment and its Production Wells (and also its Injection Wells which could otherwise create a bottleneck).
Production Well temperature and/or flow can degrade over time, resulting in
non-optimal use of the equipment capacity. A Makeup Well is a new Production
Well that allows the wellfield capacity to meet or exceed the power generation
equipment capacity.
Mandatory Prepayment
" Provisions in a Credit Agreement that require the prepayment of term loans (and sometimes the prepayment and/or permanent reduction of commitments under a Revolving Facility) with certain cash of the Borrower. In Project Finance , it generally includes one
or more of the following: Cash Sweep, asset sale prepayment, insurance proceeds
prepayment and eminent domain prepayment.
Margin
" The difference between a lenders cost of funding (e.g.., issuing CDs, borrowing on
the Eurodollar market, or taking savings account or checking account deposits)
and the interest rate it charges on a loan. Also known as Spread.
Margin (as in On the Margin)
" A type of technology which , at a particular point
during the day, is going to be Dispatched off the Load Stack to meet load
increases or decreases. For example, a Peaker.58
Margining
" Demanding credit support from a counterparty based on Mark-to-Market Exposure. If a company is In the Money , a Credit Support Annex
would allow the company to demand credit support from its counterparty.
Mark-to-Market Exposure is often calculated on a daily basis. If the company’s
exposure increases, the Out of the Money party may be required to post
additional credit support. If the company’s exposure decreases, it may have to
return some or all of the credit support. Similarly, if the company becomes Out
of the Money, it may have to post credit support to the counterparty, and so
on.
Market Flex
" A powerful provision included in the Fee Letter portion of the Commitment Papers that allows the Arranger to change the terms conditions, pricing and/or
structure of the facilities provided in the Commitment Letter if the Arranger
determines that the changes are advisable to ensure the Successful Syndication of
the facilities the Arranger has agreed to provide to the Borrower. The exact
terms of Market Flex will be heavily negotiated and sometimes include
limitations (called Closed Flex). See also Pricing Flex and Structure Flex.
Market Flex is included in the Fee Letter because potential syndicate banks do
not see the Fee Letter. If everybody knew Market Flex were part of the deal, of
course the market would demand better terms.
Market MAC
" This is a reference to a Condition Precedent to a Lenders commitment and funding obligations that there shall not have been any disruption or adverse change to the financial banking or capital markets
generally, or the particular market in which the applicable debt is being
Syndicated, specifically. Compare Business MAC.
Mark-to-Market
An accounting requirement to write assets down (and in some cases up) to update the value of a financial instrument to its current market price. This is required by GAAP for certain assets in certain industries. Also used as a means of determining the value of a Hedge for purposes of exchange of collateral under a Credit Support Annex.
Master Lease
A continuing lease arrangement whereby additional assets can be added from time to time merely by describing the assets in a new Lease Schedule executed by the parties. The original lease contract terms and conditions apply to all subsequent Lease Schedules.
Match Funding
" Occurs when a Lender does not have funds of its own to lend to a Borrower because it does not have a customer deposit base (savings accounts checking accounts,
certificates of deposit), and so borrows funds from other Lenders to on-lend.
If these other Lenders are not willing to lend at a rate close to the Index
used in the Credit Agreement, the Match Funding Lender will have a hard time
staying in business.
Material Adverse Change
" Just like it sounds this phrase refers to a
“material adverse change” in something — generally either the business (see
Business MAC) or the market (see Market MAC). This term is used in 59
two general contexts: either
(i) as a Condition Precedent (for instance, a seller would not have to close on
an acquisition if there had been a Material Adverse Change to the business) or
(ii) as a qualifier to a Representation and Warranty (for instance, the
environmental representation is limited to instances where violations of the
representation could (or would) lead to a Material Adverse Change). However,
when used as a qualifier to a Representation and Warranty, most agreements use
the term Material Adverse Effect. See MAE Qualifier.
Material Adverse Effect
" Just like it sounds this refers to a material
adverse effect and is just another way of expressing the concepts embedded in
the phrase Material Adverse Change.
Maturity / Maturity Date
The date on which a Bond or amounts outstanding under a Credit Facility must be repaid in full.
Maximum Achievable Control Technology
See discussion under NESHAPs.
Mechanical Completion
" The point during construction of a facility where everything is screwed together and is functioning as designed but has not yet been
completely fine-tuned to maximize performance, hasn’t been tested and
commissioned, and doesn’t have its Punchlist completed.
Mechanics Lien / Materialmens Liens
" A contractor who does work on a project (and a materialman who provides material to a project) has a statutory right to place a lien on the property that incorporates his work or materials in order to enforce his
right to payment. Mechanics’ liens may, in certain situations, prime (be senior
to) a Lender’s lien. Also see Broken Priority.
Mediation
" A type of dispute resolution approach which involves bringing the parties to agreement through discussion , and efforts by a neutral
mediator to have each side understand the other’s view. If successful,
Mediation results in an agreement by the parties (as opposed to a ruling by the
Mediator); and if not successful, it results in a more adversarial dispute
resolution approach, such as Arbitration or litigation.
MegaWatt / MW
" A standard measurement of electric Capacity , 1,000 kiloWatts or 1
million Watts.
MegaWatt-hour / MWh
" A standard measurement for electric energy , 1,000 kiloWatts per hour.
Merchant Facility
" A facility that does not have a contract for its output , other than perhaps a
relatively short-term contract. It used to be these facilities were financed on
the basis of a Power Market Study showing that there would be sufficient demand
in the area that proceeds from merchant (i.e., short-term) sales would
eventually be able to repay the debt. Consultants providing the Power Market
Studies amazingly never lost any money on these deals, but many banks did.60
Met Tower
" Meteorological tower. Towers placed on or near potential Windfarms that measure wind data for the site to determine whether it is suitable for a project. Developers and Lenders usually require two years of data preferably measured at or
near the hub height of the WTGs that are proposed to be used, before investing
more in a Windfarm than the costs of data collection.
Milestone
A clearly distinguishable event in the course of performance of a contract that either entitles the performing party to a carrot (a payment) or relieves it of being whacked by a stick (like Liquidated Damages or contract termination).
Mini-Perm
" In the context of a construction financing , a type of short-term loan,
typically three to five years, used by a Borrower to pay off construction
financing or initial acquisition financing during the period a project is being
completed or becoming stabilized as an income-producing asset. Borrowers enter
into Mini-Perms during this phase because long-term financing is not yet
available because the project has an insufficient operating history. Mini-Perms
typically have Balloon Payments at the end of their terms that are intended to
be refinanced by long-term financing.
Moodys
" Moodys Investors Service Inc., a subsidiary of
Moody’s Corporation. Moody’s is one of the two most powerful Ratings Agencies.
S&P is the other big one.
Mortgage
" A document by which a Borrower grants a Lender or a group of lenders a lien on real property to secure the Borrowers loan obligations. The law of the jurisdiction where the property is located will dictate whether a Mortgage or a Deed of Trust is the appropriate instrument but they are functionally
equivalent.
Mortgage-Style
An Amortization technique whereby all payments of principal + interest are equal. The earlier payments are attributable mainly to interest and the later mainly to principal.
Mortgagee Protective Provisions
Provisions within a Project Document providing for notice and cure rights of a Secured Party to protect such Secured Party in the event the Borrower defaults under the Project Document. The Secured Party is a Third Party Beneficiary of the Mortgagee Protective Provisions.
MOU
" Memorandum of understanding a sometimes non-binding term
sheet embodying the basic terms of a transaction and a path toward achieving a
definitive agreement.
MSW
Municipal Solid Waste.
MTA / MTPA
" Millions of tonnes per annum a unit of measurement used
to measure the amount of oil or gas that a project is able to produce and
sell.61
Multilateral
" Something established by , or serving, multiple
countries, e.g., Multilateral Investment Treaty (vs. Bilateral Investment
Treaty) or Multilateral Credit Agencies. For example, Corporación Andina de
Fomento (Andean Development Bank) is a Multilateral Credit Agency serving the
Andean countries.
Municipal Solid Waste / MSW
Trash from residences and businesses that is used in a Trash to Cash project. It is turned into Refuse-Derived Fuel.
Mutatis Mutandis
" Sequel to Night of the Living Dead. Also Also, borrowing all or a
distinct portion of one contract for use in another, without repeating the
words, where you know some provisions of the former contract will have to be
tweaked to have them make sense in the latter, but it is clear that none of the
substantive terms need to be renegotiated. Typically used only when the latter
contract may not ever be used, so it is not worth drafting in full. Usage would
be like “the Parties hereby incorporate by reference Article 8 of their Former
Contract, mutatis mutandis.” This simple latin phrase saved the ancient Romans
thousands in chiseling costs.
Mute Point
This is included as a public service announcement for the benefit of all those who are bothered when somebody refers to a Mute Point. There is no such term. It is Moot Point.
MW
MegaWatt.
MWh
MegaWatt-hour.
NAAQS
National Ambient Air Quality Standards.
Nacelle
The box-like enclosure that goes on top of a WTG tower that holds the gearbox and generator.
NAESB Base Contract for Sale and Purchase of Natural Gas
" A Master Agreement in the form published by NAESB and used by parties to sell and buy physical natural gas. Elections are made on a cover sheet and additional provisions
can be added as “Special Provisions.”
Nameplate Capacity
" The Capacity of a facility or machine as stated by the manufacturer though typically “pushing”
the machine in one way or another can result in greater output. Nameplate
Capacity is sometimes called nominal capacity.
National Ambient Air Quality Standards / NAAQS
" The EPA sets NAAQS for each Criteria Pollutant which apply throughout the
United States. Each air basin is monitored for the Criteria Pollutants, and is
classified as in “attainment” or “non-attainment” for each Criteria Pollutant.
In some cases, such as ozone, basins are further classified as areas of
“moderate,” “severe” or “extreme” non-attainment. Many air basins are in
attainment for some Criteria Pollutants and non-attainment for others. For
non-attainment areas and Criteria Pollutants, Emission Offsets and credits 62
along with technology and
emission rate requirements are imposed on proposed new or modified pollutant
sources. See BACT and LAER.
Native Load
" The maximum demand for power by the customers of a utility in its service area , used in reference to how
much power must be imported or can be exported to other systems.
NDA
Non-Disclosure Agreement.
NDSA
Nondisturbance and Subordination Agreement.
Negative Arbitrage
" The difference between the interest rate on a Tranche of debt and the rate earned on any cash collateral securing the debt. This is one reason why Bonds are generally not favored for construction financing the Issuer has to take down the whole Bond issuance on Day 1 and so starts paying interest on the whole issuance even though much of the money will not be needed for months or years. In the meantime the Issuer suffers the Negative Arbitrage.
Negative Covenant
" A contractual provision in an Indenture or a Credit Agreement that prohibits the Issuer or Borrower from engaging in specified activities such as making investments,
incurring new debt or Liens, selling assets or making acquisitions. Think of
these as the “Thou Shalt Not” Covenants. Negative Covenants are usually highly
structured and customized to an Issuer’s or Borrower’s specific condition.
Compare Affirmative Covenant.
Negative Pledge
" A Covenant not to grant a Lien on particular property to any other person (or sometimes , not to do so without also
giving an “equal and ratable” Lien on that property to the beneficiary of the
Covenant).
NegaWatt
Cutesy term used in Demand-Side Management discussions to denote load which would have existed but for the DSM efforts.
NEPA
" National Environmental Policy Act. NEPA requires that before approving any major federal action the federal agency conduct
an assessment of the environmental impacts of a specific project and reflect
consideration of the analysis in the agency’s record of decision. This usually
takes the form of an initial Environmental Assessment, in which the project is
initially analyzed to see if it will present significant environmental impacts.
If not, the agency typically issues a FONSI and the process is concluded. If
significant impacts are likely to occur, the agency then proceeds to prepare an
EIS, a draft of which is circulated for public comment (and often is the
subject of one or more public hearings). Once the final EIS is completed, the
agency can proceed to a final decision on the project or approval. There are
particular procedures to follow when multiple federal agencies are involved. In
some cases, such as in California, where a project is subject both to state and
federal EIS-type requirements, the state and federal agencies will prepare
what’s known as a “joint document,” on which all federal and state agencies
rely. The adequacy of an EIS (or EA) can be challenged in federal 63
district court under the
federal Administrative Procedure Act following agency approval.
NESHAPs
" National Emission Standards for Hazardous Air Pollutants , also known as maximum
achievable control technology (MACT) standards. Under the Clean Air Act, the
EPA is required to adopt NESHAPs for designated categories of sources that emit
large quantities of specified Hazardous Air Pollutants. Normally, NESHAP
compliance is evaluated by the Independent Engineer.
Net Lease
" A Lease in which all of the risks and costs relating to the leased asset during the Lease term are borne by the Lessee , such as risk and cost of
loss, taxes, insurance and maintenance. Also known as a Triple Net Lease
(referring to taxes, insurance and maintenance).
Net Metering
" A particular electricity tariff which allows the customer to reduce the number of kWh it pays the utility for by the number of kWh generated by the customer. If the customer generates more than it consumes , it is not entitled to a
payment from the utility. Net Metering is particularly useful for solar
installations where the customer has elected Time of Use (TOU) Metering,
because the customer receives credit for the value of the kWh its generates
under the TOU tariff, and that value is much higher during solar production
hours.
Net Payment
" Where a contract has each party owing money to the other on a particular payment date , Net Payment allows only
one party to pay money on that date, the one that owes more, after subtracting
the amount owed to it.
Net Proceeds
" What is leftover from the sale of an asset after subtracting the costs associated with the sale (such as taxes , marketing costs or
brokerage fees). If assets sales are subject to Mandatory Prepayment, this is
the amount that needs to be prepaid.
NGA
" Natural Gas Act under which FERC regulates the transportation of
natural gas.
NIMBY
" Acronym for Not In My Backyard but it is a reference to the
person who makes the statement, or sometimes to the attitude of that person.
Often implies a certain level of hypocrisy, as a “green” who nominally supports
windpower or recycling but won’t agree to bear any of the related
inconveniences.
No-Hazard Determination
" A No-Hazard Determination is issued by the Federal Aviation Administration for buildings and other structures based on a certain height/slope relationship to airports and reflects a judgment that
the particular structure does not pose a hazard to air navigation.
Non-Attainment
See NAAQS.
Non-Disclosure Agreement / NDA
" Also known as a Confidentiality Agreement it is the document binding
those to whom confidential information is conveyed not to disclose it to
persons other than those closely involved with the transaction.64
Nondisturbance and Subordination Agreement
" Also called a Nondisturbance Agreement an NDSA, a Subordination and
Nondisturbance Agreement, an SNDA, or other variations, sometimes with
“Attornment” thrown in somewhere. When a Borrower has site access through a
Leasehold, the lease has usually been entered into and recorded against the
land after the lessor has put a Mortgage on the property; and therefore the
lessor’s lender is senior to the lease (as well as the Leasehold Mortgage). If
the lessor defaults on its loan, its lender could Foreclose, which would cause
the lease (and the Leasehold Mortgage) to be wiped out. The NDSA has (i) the
lessor’s lender agree that if it forecloses, it will leave the lease in place,
(ii) the lessee agree that the lease is subordinate to the loan made to the
lessor, and (iii) the lessee agree that if the lessor’s lender forecloses, the
lessee will recognize the lender as the landlord (this is “Attornment”).
Non-Recourse Financing
A type of financing in which the Lender has no ability to make claims against the Sponsor in excess of the value of the Collateral if such Collateral is insufficient to repay the debt. Should really be called Limited-Recourse Financing since the Lender does have recourse to the Collateral.if such Collateral is
insufficient to repay the debt. Should really be called “Limited-Recourse
Financing” since the Lender does have recourse to the Collateral.
Non-Severable Modifications
" Modifications made by the Lessee to the leased asset during the Lease term to which the Lessor will obtain title without additional payment by the Lessor usually defined as
modifications which are required by law or which are not readily removable
without causing material damage to the leased asset.
Notice to Proceed
" Often a construction contract is
signed before the owner is ready to have the contractor commence work, usually
because the owner has not closed its financing and so does not have the pile of
money needed for the contractor to order supplies and otherwise mobilize. When
the owner is ready, it issues the Notice to Proceed. Sometimes a construction
contract contemplates a limited scope prior to the Notice to Proceed; to start
the limited scope, the owner would issue a “Limited Notice to Proceed” and the
Notice to Proceed would probably then instead be called a “Full Notice to
Proceed.”
Notional Quantity or Notional Amount
" Hedges including Interest Rates
Swaps, Currency Swaps, Financial Power Swaps and other financially settled
hedges, are settled by the payment of money from one counterparty to the other,
depending on which way value of the underlying hedged item has moved. The
Notional Quantity or Notional Amount is essentially the size of the Hedge. For
example, if you buy an Interest Rate Cap which provides you will be paid if 12
month LIBOR rises above five percent, if the Notional Amount of the cap is
US$100 million and interest rates are at 6.25 percent on the payment date, you
will be paid US$1.25 million. It is called “notional” because there is never an
actual exchange under the Hedge of the Notional Amount — it is just used as a
multiplier to determine the financial settlement.65
NPDES
" National Pollution Discharge Elimination System the permit program
established under the federal Clean Water Act for regulation of discharges of
pollutants to streams and other waterbodies. Typically implemented by state
environmental agencies under delegations of authority from the EPA or through
permit programs established by local or regional sewer authorities. Also covers
storm water runoff. Discharges to sewer systems, in contrast, are typically
regulated by the local publicly owned treatment works, usually a city or county
entity.
NREL
National Renewable Energy Laboratory. This is the primary lab of the US government conducting research on renewable energy and energy efficiency.
NSPS
" New Source Performance Standards. Under the Clean Air Act , the EPA is directed to
adopt emission standards for categories of sources that are deemed to cause or
contribute significantly to air pollution. The emission standards can be
applied to new or modified pollutant sources. Compliance with the NSPS are
typically permit conditions in power and other industrial projects, and the
Independent Engineer usually evaluates this aspect of a facility’s performance
and design.
NTP
Notice to Proceed.
Off-Balance Sheet Financing
" A Lease that qualifies as an Operating Lease for the Lessees financial accounting purposes. Such Leases are referred to as Off-Balance Sheet Financing due to their exclusion from the balance sheet asset and debt presentation except for that portion of
the payments that is due in the current fiscal period. Full disclosure of such
transactions is typically made in the auditor’s notes to the financial
statements. Periodic payments are recorded as expense items on the Lessee’s
income statement.
Off-Peak
Point in time where load distribution or electricity consumption is at a minimum. The reference can be to a block of time during the day or during the year. Opposite of Peak.
Offtaker
The purchaser under a PPA or other commodity contract.
OGIP and OOIP
" Also known as original gas-in-place and original oil-in-place these refer to the total
volume of Hydrocarbons stored in a reservoir prior to production. Unlike
Reserves, this includes oil and gas deposits that cannot be economically
recovered using current technology.
One Action Rule or One Form of Action Rule
" A rule of law in some jurisdictions (California and other Western states) that forces a lender to bring only one court action or proceeding against a Borrower when the debt is secured by real property. The One Action Rule can be a trap for the unwary. In one shocking California case a bank exercised its
statutory right to set off amounts in its defaulted borrower’s bank account
against the debt, and that was ruled the one action, precluding the bank from
foreclosing on the real property security. Yikes. Consult your lawyer.66
On-Peak
Same as Peak.
Open Access
Principle that owners and operators of the transmission grid must provide access (both transmission and interconnection) to unaffiliated companies on a nondiscriminatory basis. Open Access does not necessarily provide access to the transmission grid in a particular manner or timeframe or at a particular cost.
Open and Close Costs
Same as In and Out Costs.
Operating Lease
" A lease which is treated as a True Lease (as opposed to a loan) for book accounting purposes. As defined in FASB 13 an operating lease must have
all of the following characteristics:
• Lease term is less than 75
percent of Estimated Useful Life of the leased asset
• Present Value of Lease
payments is less than 90 percent of the leased asset’s Fair Market Value
• Lease cannot contain a
Bargain Purchase Option
• Ownership is retained by
the Lessor during and after the Lease term
An Operating Lease is
accounted for by the Lessee without showing an asset (for the leased asset) or
a liability (for the lease payment obligations) on its balance sheet. Periodic
payments are accounted for by the Lessee as operating expenses of the period.
Org ID Number
" A companys organizational identification number. Not to be confused with Tax Payer ID Number the Org ID Number is a
unique number assigned to a registered organization by its jurisdiction of
organization.
Out of the Money
Opposite of In the Money.
Overriding Royalty
" The right to receive a percentage of (i) the revenues deriving from production of electricity from a geothermal power plant or (ii) production or revenues deriving from the production or sale of Hydrocarbons in each case without netting
against those revenues any costs of development, production or maintenance.
Owner Participant
" In a Lease that uses an Owner Trustee the beneficiary of the owner
trust and the party that therefore has the beneficial ownership interest in the
asset and makes the equity investment in the leased asset.
Owner Trust Agreement
" An agreement between the Owner Trustee and the Owner Participant creating the trust that will own the leased asset and incur any loan in a Leveraged Lease, and setting forth the
relationship between the trustee and its beneficiary.
Owner Trustee
" In many lease transactions the entity with the economic
ownership interest in the asset will arrange for that asset to be held in a
trust, the trustee of which is usually a bank. This Owner Trustee will then
lease the asset to the Lessee and incur the loans from any lenders. Owner 67
Trustees are often used in
larger transactions to ease handling of funds, facilitate transfers of equity
interests, protect Owner Participants from third-party liability based on
strict liability in tort, and/or provide some protection to the other parties
upon an Owner Participant bankruptcy.
P99, P50, etc
Used in wind resource studies,
the number of kilowatt-hours that WTGs of a certain nameplate rating placed at
specified places will generate, at a probability of 99 percent (or 50 percent,
etc.). In other words, for a P99 probability, there would only be a one percent
chance that WTGs placed in those spots would generate less than the stated
number of kWh. Lenders and other investors use these for various purposes, a
main one being to determine the amount of debt a project can support. It is
important to distinguish between P99 over one year or over a longer period.
Because there do occur low wind years, and the wind consultant is saying there
is no more than a one percent chance of actual output coming in below his/her
P99 number, a “one year P99” will be somewhat lower than a “10 year P99.”
In the oil and gas arena,
P50 is used to refer to Proven and Probable Reserves, whereas P90 is used to
refer to Proven Reserves.
Par
" In Bond parlance Par Value is the stated
value or face value of a Bond. So if a US$1,000 Bond is redeemed at Par, it is
redeemed for the full US$1,000 (plus accrued Interest up to the redemption
date). Bonds are said to be redeemed “above Par” or “below Par” if redeemed for
more or less (as applicable) than their Par Value.
Parasitic Load
" The power that a generating station itself consumes in the process of generation and which therefore cannot
normally be sold to the Offtaker. However, if a utility is trying to maximize
the number of RECs it is receiving from a seller, it might purchase the plant’s
gross output, and sell the plant an amount of energy equal to the Parasitic
Load.
Participation
" A contract between a Lender and another financial player where the latter is given all of the benefits and burdens of being a Lender under a particular credit facility , other than actually being
a party to the Credit Agreement.
Participation Agreement
" An agreement used almost universally in Leveraged Leases and occasionally in Single
Investor Leases, to which all the financing parties, their trustees and,
perhaps, credit enhancement parties are signatory. It is the “road map” which
sets forth the financing commitments of the financing parties, conditions to
closing, representations of the parties, usually the general indemnities by the
lessee and various other covenants for the benefit of the other parties to the
lease transaction.
PATRIOT Act Provisions
" Provisions in credit documents notifying the Borrower (and potentially others) that pursuant to the USA PATRIOT Act , each Lender may be required to obtain, verify and
record certain information
Pay-In-Kind / PIK
" Another term for capitalized interest. Instead of paying cash interest the Borrower increases the
principal amount payable to the Lender by that amount, which in turn earns
interest in subsequent periods.
Payment In Lieu of Taxes (PILOT) Agreement
" Sometimes a project whose benefits will largely flow to a private owner happens to be nominally owned by a governmental entity such as a city. This can be
for a variety of reasons. One of the often unintended and unneeded consequences
of the governmental ownership is that the project is exempt from local property
taxes. If you are the private sponsor of one of these projects, to keep the
local taxing authorities from making your life miserable during the permitting
or operation phase, you enter into a Payment In Lieu of Taxes Agreement wherein
you contractually agree to pay some or all of what you would have paid in taxes
if you directly owned the project as a taxable entity.
PCBs
" Polychlorinated Biphenyls. A compound that was widely used as a dielectric fluid in transformers and other electrical equipment due to its non-flammability , chemical stability, high
boiling point and insulating properties. Although still present in some older
equipment, production of PCBs was banned in 1979 due to its adverse health
impacts.
Peak
Period of time where load distribution or electricity consumption is at a maximum. The reference can be to a block of time during the day or during the year. Same as On Peak and opposite of Off-Peak.
Peak Load / Peak Demand
" Used both by reference to a day or a the maximum draw on a power
system’s resources, in Megawatts. Even though yearly Peak Load may only last an
hour or two (perhaps during a heat wave), the system has to include sufficient
generating resources to accommodate the usage. To see an illustration of
real-time actual versus projected daily Peak Load, go to
http://tinyurl.com/3wcj6 at around 6:00 p.m. Pacific time.
Peaker / Peaking Unit
A power plant with a very high Ramp Rate that is turned on only during Peak Load. Peakers typically have a relatively high Heat Rate and relatively low capital cost relative to Capacity.
Peak Shaving
" When a utility charges a business customer a much higher rate during On-Peak periods of the day it may be more economical
for the customer to self-generate using its own small on site generator. This
is Peak Shaving. See illustration at http://tinyurl.com/n49efg.
Penstock
The pipe used to transport water for a hydroelectric generation facility from the Intake Structure to the turbine.
Perfection
" What a holder of a Security Interest (i.e.the Lenders) has to do to
make that Security Interest enforceable against third parties. A Security
Interest that is valid and enforceable but has not been Perfected is
enforceable against the debtor but not third parties and most notably not
against the trustee in the debtor’s bankruptcy. There are five basic 69
methods of Perfection under
Article 9: filing of a Financing Statement, Control, possession (either
directly or through a third party), temporary perfection and automatic
perfection. The easiest and most common method of Perfection is the filing of a
Financing Statement. Filing a Financing Statement is sufficient to Perfect a
Security Interest in most (but not all) UCC Collateral.
Perfection Certificate
" This is how a Lender finds out what assets a company has and where to find them. It is a certificate signed by the authorized officers of the Borrower and each other grantor under the Security Agreement which sets forth certain
information regarding the Borrower, the other grantors and their respective
assets.
Performance LDs
" Liquidated Damages payable by an equipment manufacturer if the equipment does not meet contractually guaranteed performance levels. For example most gas turbines have a
guaranteed Heat Rate and output. If the Heat Rate tests out higher than was
guaranteed, the owner will perpetually have higher fuel costs than it initially
assumed. Performance LDs have the manufacturer compensate the owner for the
loss on a present-value basis. Similarly, if output is less than guaranteed,
the owner has paid an amount for equipment which it has assumed would generate
a certain revenue over time; and so the manufacturer makes up the difference.
Performance Tests
" Pretty much what it sounds like , tests which measure
equipment and facility performance in its “new and clean” state.
Permit to Operate / PTO
" The permit issued to a stationary source of air emissions , typically an industrial or
energy facility, after construction has been completed and all emissions tests
have been passed and certified to the agency. The PTO is typically valid for a
fixed term, after which it is subject to renewal. Under Title V of the federal
Clean Air Act, a federal Title V Permit to Operate is also issued to certain
facilities.
Permitted Liens
" In secured loan transactions there is always a Negative
Covenant prohibiting the Borrower from incurring or suffering any Liens. But
“Lien” is defined so broadly that even normally operating companies with no
consensual liens outstanding would get tripped up by the covenant. Thus,
Permitted Liens are an exception to the covenant. They are those types of Liens
that would normally not bother a senior secured Lender, such as easements on
the Borrower’s land, Mechanics Liens while the work is still in progress, in
some cases existing consensual liens (i.e., Liens to other secured creditors),
and other negotiated exceptions.
Petroleum Coke / Pet Coke
" A solid black obsidian-looking residue resulting from the refining process. As with many substances in the oil and gas sphere even though it is a
byproduct, there is a market for Pet Coke. It is used in a variety of
industries, including as Feedstock in furnaces for the steel and aluminum
industries, for heating purposes and for the production of electrodes.70
Phase I ESA
Sometimes simply referred to as a “Phase I.” An
initial Environmental Site Assessment prepared to identify the likely presence
of site contamination based on a review of available documentation regarding
site usage and history, interviews with knowledgeable site personnel and a
visual inspection of the property. Issues identified as material potential
concerns will be noted as Recognized Environmental Conditions (RECs) or Areas
of Concern (AOCs). A Phase I ESA does not involve the collection or laboratory
analysis of soil, groundwater, building materials or other environmental media.
The scope of the traditional Phase I ESA, as defined by the ASTM “Standard
Practice for Environmental SiteSometimes simply referred to as a “Phase I.” An
initial Environmental Site Assessment prepared to identify the likely presence
of site contamination based on a review of available documentation regarding
site usage and history, interviews with knowledgeable site personnel and a
visual inspection of the property. Issues identified as material potential
concerns will be noted as Recognized Environmental Conditions (RECs) or Areas
of Concern (AOCs). A Phase I ESA does not involve the collection or laboratory
analysis of soil, groundwater, building materials or other environmental media.
The scope of the traditional Phase I ESA, as defined by the ASTM “Standard
Practice for Environmental Site Sometimes simply referred to as a “Phase I.” An
initial Environmental Site Assessment prepared to identify the likely presence
of site contamination based on a review of available documentation regarding
site usage and history, interviews with knowledgeable site personnel and a
visual inspection of the property. Issues identified as material potential
concerns will be noted as Recognized Environmental Conditions (RECs) or Areas
of Concern (AOCs). A Phase I ESA does not involve the collection or laboratory
analysis of soil, groundwater, building materials or other environmental media.
The scope of the traditional Phase I ESA, as defined by the ASTM “Standard
Practice for Environmental Site Assessments: Phase I
Environmental Site Assessment Process,” may not cover all relevant aspects of
environmental liability or compliance (e.g., excluded topics include indoor air
pollution, permit compliance, asbestos and third-party disposal site
liability). In almost all circumstances, a lender or purchaser will require a
satisfactory Phase I ESA prior to closing a finance or purchase transaction
involving US real property, dated within 6 months of the closing. While they
are not typically expensive, they can take a few weeks to complete so this
diligence item should not be left to the last minute.
Phase II ESA
" Sometimes simply referred to as a Phase II. Typically performed after completion of a Phase I ESA a Phase II involves the
collection and laboratory evaluation of samples of the site’s soil,
groundwater, building materials or other environmental media, to confirm
whether or not contamination above applicable regulatory criteria is actually
present. The location and extent of sampling will depend upon the nature of the
site and the objective of the investigation. Depending on the results obtained,
further sampling events (sometimes referred to as a “Phase II A, or Phase III”)
may be needed to delineate the extent of contamination. Once you get to this
point, you typically have a serious issue that warrants involving environmental
professionals in your project if not already part of the team.
Photovoltaic
Technology that converts sunlight directly into DC electricity. It then needs an Inverter to be converted to AC usable in the grid.
Piercing the Corporate Veil or Piercing
" When a creditor of a corporate LLC or LP subsidiary finds
out that the subsidiary does not have sufficient funds to pay the creditor, it
might try to Pierce the Corporate Veil. Piercing means showing that (i) the
parent company/shareholder did not respect necessary statutory formalities such
as conducting shareholder and board meetings periodically, (ii) the subsidiary
was not sufficiently capitalized in light of its expected business and (iii)
there was intermingling of assets between parent/shareholder and the
subsidiary, among other somewhat squishy factors. If a Piercing argument
succeeds, the creditor can reach assets of the parent/shareholder to satisfy
the debt of the subsidiary.
Pig
A cylindrical device that is inserted into a pipeline to clean the pipeline wall or monitor the internal condition of the pipeline. Sometimes called a “go-devil.” Many
rookie pipeline workers believe that Pig performance can be improved through
application of lipstick, but we have heard it isn’t so.
PILOT Agreement
Payment In Lieu of Taxes Agreement.
PIK
Pay-In-Kind.
Placed In Service (Date)
" Tax term for the moment a particular asset becomes eligible for tax benefits such as Production Tax
Credit, depreciation, Cash Grant, etc.
Pledge Agreement
" How Lenders take the shares of a Borrower or its subsidiaries as Collateral. This is an agreement that creates a Security Interest in equity interests owned by a Pledgor in favor of the applicable Secured Parties. In many instances , the pledge of equity
interests is included in the Security Agreement and a separate Pledge Agreement
will not be required. “Pledge” is used to connote a possessory security
interest. So “you can hold on to my cow till I pay you back the five guineas I
borrowed” would be a pledge. But as things go electronic and intangible (e.g.,
DTC ownership), the concept of a physical pledge is losing significance.
PM10 / PM10
Particulate matter (in the air) of 10 micrometers or less. One type of Criteria Pollutant.
POD
Point of Delivery.
Point of Delivery / POD
The place where commodities or other goods change hands between seller and buyer (or shipper and transporter).
Political Risk Insurance / PRI
" An insurance policy that covers a Sponsors equity investment in a project or a lenders loans or other financing provided to the project against political risk , such as the risk of
Expropriation.
Possible Reserves
" Often referred to as P3 these are reserves which
analysis of geological and engineering data suggest are less likely to be
recoverable than Probable Reserves (and of course also less than Proven
Reserves). There should be at least a 10 percent probability that the
quantities recovered will equal or exceed the sum of the estimated Proven
Reserves plus Probable Reserves plus Possible Reserves.
Potentially Responsible Party / PRP
" A person or entity that could be held liable for site contamination pursuant to CERCLA (or similar state statutes). Under CERCLAPRPs can include the current
owner or operator of a site, former owners or operators, and other parties that
transported or arranged for transportation to the site. Although most state
site remediation statutes impose liability on a similar group of PRPs, the
exact scope of the term may vary. The term can apply to either onsite or
offsite liabilities of a particular enterprise.
Power Curve
A curve provided by a WTG manufacturer showing the expected output of its WTG over the full range of windspeeds. Every specimen of a given model of
WTG should be able to meet this Power Curve, wherever it is located. For this
reason, Power Curve testing is often not performed at a Windfarm if the WTG
model has been well-tested elsewhere. When Power Curve testing is required, it
may take several days or weeks (or more) to finish, since the wind gods do not
deliver each required speed on demand. The manufacturer will often guaranty a
certain percentage of the Power Curve, perhaps 98 percent.
Power Market Study
" A study performed by consultants who analyze the power supply and demand in the market area for a Merchant Facility sought to be financed projecting out at least as
long as the life of the loan. This is supposed to help Lenders determine
whether their loans will be repaid.
Power of Attorney
An instrument permitting an individual to serve as the attorney or authorized agent of the grantor.
Power Pool
Two or more interconnection power systems planned and operated to supply power in the most reliable and economic manner.
Power Purchase Agreement / PPA
Contract between a power generator and one who is seeking to purchase electricity. The PPA defined all of the commercial terms for the sale of electricity between the two parties.
Power Tower
" The focal point for some types of Solar Thermal plants where Heliostats direct the
sun’s rays, where light is converted to heat and imparted to a fluid which is
piped back down to run a steam turbine on the ground.
PPA
Power Purchase Agreement.
PPSA
" The Personal Property Security Act
Precautionary Filing
" The financing statement filing made pursuant to section 9-408 of the UCC perfecting the security interest of the Lessor in the leased asset in the event the Lease is considered a security agreement under section 1 201(37) of the UCC. Actual UCC filings should be made against the Lessee in all Lease Purchases or other leases that are not True Leases for commercial law purposes since the Lessee owns the leased equipment subject to the Lessors security interest. Precautionary Filings should be made against the Lessee in all leases that are intended to be True Leases for commercial law purposes in case upon bankruptcy of the
Lessee or otherwise, the lease is determined not to be a True Lease for
commercial law purposes.
Preference
" Transfers made during the 90 days preceding a bankruptcy filing (or one year for transfers to insiders in each case the “Preference
Period”) (i) to a creditor; (ii) on account of an antecedent debt owed by the
transferor before the transfer is made; (iii) while the transferor was
insolvent; and (iv) that enable the creditor to receive more than it would have
received in a Chapter 7 liquidation case under the Bankruptcy Code.
Preferential transfers are subject to Clawback, but creditors may 73
avail themselves of certain
defenses to a Clawback action such as the “ordinary course of business defense”
and the “new value defense.” One rationale behind Preference rules is that they
prevent creditors from making a mad grab for assets when they learn that the
debtor is becoming insolvent and prevent debtors from favoring some creditors
over others as bankruptcy nears.
Preliminary Title Report / PTR
" A report by a title company identifying the owner of the property and the interests therein , including easements,
encumbrances and other property rights which affect the property. This document
does not itself provide insurance coverage or commit the title company to
provide coverage. It is used as a tool early in the financing process to learn
what title issues need to be cleaned up, e.g., releasing an old mortgage that
was paid off but the release was never recorded.
Prepayment Premium
" Seen in term loan facilities this is a fee paid by the
Borrower for prepaying the loans. The fee is expressed as a percentage of the
amount of the loans being prepaid. Typically, prepayment fees will be set on a
sliding scale, for instance, two percent in year one and one percent in year
two. The fee may be applied to all prepayments of term loans or only those made
from a refinancing or at the discretion of the Borrower.
Present Value
" The discounted value of a payment or stream of payments to be received in the future taking into consideration an
agreed “discount rate.” Another way of looking at this is, if you started with
the Present Value and used the discount rate as an interest rate earned by the
Present Value, you would end up with exactly the “payment or stream of payments”
mentioned in the first sentence.
PRI
Political Risk Insurance.
Pricing Flex
" A Flex provision that allows the Arranger to change the pricing of the facilities. Pricing Flex refers to the changes that the Arranger may make to the interest rates if needed to facilitate the Successful Syndication of the credit facilities. Pricing Flex sometimes includes limitations (e.g. that the rate may not be
increased by more than two percent). See also Market Flex and Structure Flex.
Primary Obligor
" When a guaranty is in place this refers to the person
whose obligations are being guaranteed.
Primavera
" This a computer program that tracks project tasks in a very sophisticated way including analyzing Critical Path.
Private Lender
See Public/Private Information Undertaking.
Privatization
" A process by which a project (e.g.., an airport) or an
industry sector (e.g., oil exploration and production) that was previously
owned and/or operated by the government or a governmental entity is either sold
to private investors or becomes operated by private investors pursuant to a
Concession or similar agreement. The idea is that not only does the government
receive proceeds from sale of the asset, perhaps allowing it to pay down
debt, but also the privatized business should be more efficiently run than
before.
Probable Reserves
" Often referred to as P2 these are reserves which
analysis of geological and engineering data suggest are more likely than not to
be recoverable. There should be at least a fifty percent probability that the
quantities recovered will equal or exceed the sum of the estimated Proven
Reserves plus Probable Reserves.
Production Tax Credit / PTC
" A federal tax credit per unit of production (2.2¢/kWh for 2012 (or 1.1¢/kWh for certain qualifying facilities) and adjusted annually for
inflation) allowed to a qualifying energy facility that produces and sells
energy from certain renewable resources to an unrelated person. Qualifying
energy facilities include wind, geothermal and biomass facilities, among
others, that are located in the United States or a United States possession.
PTCs generally may be claimed over a 10 year period from the placed-in-service
date of the facility. There is a scale-back in PTCs for projects that receive
tax-exempt financing or other governmental energy subsidies. PTCs are not
“refundable,” meaning they can only be used to offset tax liability. See Tax
Equity Investor.
Production Well
" In a geothermal wellfield one of the wells from which
is taken the Brine or steam. Compare Injection Well.
Pro Forma Title Policy
The negotiated Title Policy to be issued upon satisfaction of all title company conditions. This document does not itself provide coverage or commit a title company to provide such coverage but the pro forma can serve as a basis for interim title coverage pursuant to the Closing Instruction Letter until the Title Policy is issued.
Project Costs
" Term universally used in Project Finance to denote all of the costs of the project that are allowed under the Use of Proceeds covenant of the Credit Agreement. In other words development costs, land
acquisition, equipment, consultant fees, construction, legal fees, startup
costs, initial fuel fill, initial reserves, etc.
Project Documents
" This term is almost universally used in Project Finance to denote all contracts to which the Borrower is a party other than those related to the financing itself (which are usually called Credit Documents , Loan Documents or
Financing Documents).
Project Finance / PF
" A type of Limited Recourse Financing whereby debt is incurred by a project developer (known as the project company which is formed by a
Sponsor), and in combination with equity contributed by the Sponsor is used to
finance the development and construction of a capital-intensive project, such
as a power plant or toll road, typically by means of construction loans that
later convert to term loans upon completion of the project. A primary feature
of Project Finance is that the Lenders advance debt on the basis of their evaluation
of the projected revenue-generating capability of the project, rather than the
credit quality of the project Sponsor. The equity of the project company and
the project assets, including
the Project Documents and other cash flows, are pledged as Collateral for the
debt.
Proved Undeveloped Reserves / PUDs
Oil and gas reserves that exist but for which actual development has not commenced. US domestic oil and gas lenders will often not attribute much value to PUDs.
Proven Reserves
" Sometimes called proved reserves or P1 these are reserves that are
known to exist and to be exploitable to a reasonable degree of certainty — from
known stores, under current economic conditions and using current technology.
Investment in (and exploitation of) such reserves is commonplace. The concept
of Proven Reserves should provide a near-certain indicator (around 90 percent)
of how to target investment in oil and gas. However, the exact definition of
Proven Reserves varies from company to company and from country to country.
Perhaps unsurprisingly, the numbers disclosed by national governments are often
manipulated. See also Probable Reserves (P2) and Possible Reserves (P3).
PRP
Potentially Responsible Party. Has the advantage of
sounding like “perp,” as used on Law & Order; in both cases, it’s maybe
“the guy who did it.”
Prudency Review
" To be allowed to pass along costs to customers (aka to Rate Base the cost), the
PSC has to conclude that the utility acted prudently and reasonably in
incurring the cost. A Prudency Review is a formal process to determine whether
the utility met the standard.
Prudent Industry Practices
" Standardized definition that sets forth the standard of care by an operator of a particular facility. The idea is not to impose a performance standard higher than is generally accepted in the industry. Sometimes a geographic region is specified which depending on the region, may
raise or lower the bar. In the electricity industry, the term used is sometimes
“Prudent Utility Practices,” but this can be dangerous because some utilities
might have higher operating standards than independent power producers.
PSC
Public Service Commission. Used in some states in lieu of Public Utility Commission.
PSD
" Prevention of Significant Deterioration a program established under
the federal Clean Air Act that imposes permitting and emission control
requirements on new major sources and major modifications at existing sources
of air pollution that are located in areas that otherwise meet applicable
national ambient air quality standards. PSD permits generally require that a
source install emission control equipment that meets a Best Available Control
Technology standard and require an evaluation of the source’s impact on air
quality and certain other environmental resources.
PTC
Production Tax Credit.76
PTO
Permit to Operate.
PTR
Preliminary Title Report.
Public Lender
See Public/Private Information Undertaking.
Public/Private Information Undertaking
" A provision in the Commitment Letter that provides that the company will make two versions of the Bank Book one for Public Lenders and
one for Private Lenders. The public book will generally be the same as the
private book, but will have been scrubbed of any material non-public
information about the Borrower, Sponsor or target, as applicable. Note that
projections are almost always considered to be material non-public information.
Note also that even deals for private companies will include Public Lenders
and, therefore, will require two versions of the Bank Book.
PUC
" A state public utility commission (sometimes referred to as a public service commission or a department of public utilities (or service)) which is typically
responsible for authorizing regulated utility expenses and rates, and often
regulates siting of new facilities.
PUDs
Proved Undeveloped Reserves.
PUHCA
" Public Utility Holding Company Act of 2005 , which replaced the Public
Utility Holding Company Act of 1935. New PUHCA provides for federal and state
access to books and records of electric and gas utility holding companies (and
their affiliates).
Pumped Storage
" A project that moves water from a reservoir at low elevation to an Impoundment at higher elevation during Off-Peak periods (when power is very inexpensive) and then back down through a
Penstock and water turbine and into the reservoir during Peak periods (when
power is expensive). This is the only utility-scale means of (basically)
storing electricity. It sounds like, and is, a great idea. Unfortunately, Pumped
Storage facilities are rare due to siting impediments. Pumped storage can also
be used in reference to air pumped into enormous underground caverns during
Off-Peak periods and released through turbines during Peak periods.
Punchlist or Punch List
" The part of the construction work on a project that remains after Substantial Completion consisting of tasks which if
they were never completed would not interfere with the project basically
running as intended. For example, painting and landscaping. This is not to say
the owner doesn’t care if the Punchlist is ever completed, he does. Often, the
owner is entitled to hold back 2x the cost of completing the Punchlist and only
release those funds as each item is crossed off.
PURPA
" The Public Utility Regulatory Policies Act of 1978. Thanks to the PURPA Put this statute is the
grand-daddy of the Project Finance business in the United States.
PURPA Put
" The mandatory purchase by electric utilities of power from a QF required under PURPA which led to long-term Power
Purchase Agreements between utilities
and QFs. The Environmental Policy Act of 2005 and new regulations by FERC have
eliminated the PURPA Put in organized electric energy markets.
Put Right
" The right to make somebody else buy something you have for a predetermined price. In Bond land which led to long-term Power Purchase
PV
Photovoltaic.
QA / QC
" Quality Assurance / Quality Control. These are procedures implemented by an owner well prior to its contractor or supplier delivering products or services to make sure the owner will
receive what it has contracted for. Quality Assurance means the owner is
entitled to investigate “back” in the supply chain, at the supplier’s factory
or even earlier, to, well, assure quality. Quality Control is procedures to
check whether a finished product meets specifications.
QECB
Qualified Energy Conservation Bonds.
QF
Qualifying Facility.
Qualifying Advanced Energy Project Credits
" One-time non-refundable investment
tax credits available for tangible personal property (e.g., equipment, but not
buildings) for projects that re equip, expand or establish a manufacturing
facility for the production of qualifying renewable energy assets such as solar
property, energy storage systems for use with electric or hybrid-electric motor
vehicles, energy grids and new qualified plug-in electric drive motor vehicles.
The credit is claimed in the tax year the property is placed in service and is
subject to recapture (in declining amounts) in the event of a disposal within
five years of the placed-in-service date. Owners claiming the credit must
reduce their depreciable basis in the property by 50 percent of the credit
amount. The total amount of credits available for all qualifying projects is
capped at US$2.3 billion.
Qualified Energy Conservation Bonds / QECBs
" A type of tax credit bond that may be issued by state and local governments to finance a wide range of qualifying conservation purposes (e.g. implementing green
communities, developing renewable energy production, qualifying energy
conservation research and mass commuting facilities). QECBs accrue tax credits
quarterly in lieu of interest payments. Holders must include the accrued tax
credits in income as interest, and can then use the credits to offset their
regular and alternative minimum tax liability. The total principal amount of
QECBs that may be issued is capped at US$3.2 billion, which must be allocated
among states and large local governments based on population. At least 70
percent of the allocation of the bonds cannot be considered “private activity
bonds.”78
Qualifying Facility / QF
" Under PURPA an electric cogeneration
facility or small (80 MW or less) power production facility using a primary
fuel source of biomass, waste, renewable resources or geothermal resources. You
have to be a QF to benefit from the PURPA Put.
Queue Sitting
" Taking up space in a generation interconnection queue without any real intent to build a new generation facility. Typically the goal of a Queue Sitter
is to be bought out by real generation projects whose spot in the queue is
after that of the Queue Sitter.
Radial Line
" A transmission line that connects generation or load to a transmission system that is not looped
Ramp Rate
" The speed at which a particular facility can reach its rated output (e.g.5 MW/minute). This is mainly
important for facilities that are expected to be Dispatched over the course of
a day. Sometimes, there is a different Ramp Rate depending on the mode the
equipment is in, such as “Cold” or “Warm Standby” and the Offtaker might pay
the owner to keep the equipment in the more-available mode.
Rate Base
" The value of invested capital upon which a utility is entitled to earn its regulated rate of return. Also used as a verb as in “the PUC allowed that
utility to rate base the costs of failed renewable Project X because the
developer and its technology at the time of contracting seemed reliable.”
Rate Case
" A proceeding by a public utility before the PSC (or PUC) wherein the utility argues that the Ratepayers should be obligated to pay a particular cost incurred by the utility in the form of electricity rates (or water or other rates depending on the type of
utility).
Rated Wind Speed
" Wind speed at which a WTG starts to produce its rated (nameplate) power. Power Curves will become almost flat after this speed (i.e., even higher wind will
not create greater output).
Ratepayers
Utility customers.
Ratings Agency
" See Fitch Moody’s and S&P. Ratings
Agencies rate companies, securities and loans on a risk spectrum. The ratings
directly impact the cost of borrowing.
RCRA
" The Resource Conservation and Recovery Act. RCRA generally regulates the handling and disposal of hazardous wastes through the imposition of permit obligations for hazardous waste treatment , storage and disposal
facilities and detailed regulations on storage, labeling and recordkeeping for
generators of hazardous waste. Other provisions of RCRA establish standards for
Underground Storage Tanks and impose remediation (or corrective action)
requirements for hazardous waste disposal locations.
RDF
Refuse-Derived Fuel.79
Reactive Power
" The most common term in the industry as to which nobody has a clue what it means. Thomas Edison himself could not define it. In the last 30 years no lawyer or banker has ever
had to know what it means, and neither will you. If this proves incorrect, you
may apply for a full refund for the purchase price of this complementary book.
REC
" Renewable Energy Credit or Renewable Energy Certificate. An REC is a regulatory product created by states that represents the Environmental Attributes of one MWh of electric energy produced by a renewable generator. An REC is distinct from the underlying renewable electric energy from which it is derived. An REC can be used or traded (purchased and sold) to meet a states RPS. State and federal environmental authorities are looking at ways to use enforcement mechanisms to make sure that RECs are real and are not oversold. In addition federal renewable energy
standards have been proposed and if enacted, may have significant impacts on
current state programs.
Recapture
" ITCs and Cash Grants are provided to taxpayers expected to hold the qualifying property or their investment in the qualifying property (through an entity taxed as a partnership) for a 5 year period. Recapture refers to a sale of qualifying property or a sufficiently large sale disposition or dilution in
the ownership of an investment in qualifying property within the 5 year period
requiring the owner to increase its taxes for ITCs and repay the US Treasury for
Cash Grants to reflect the change in ownership. The recapture percentage begins
at 100 percent (for transfers in the first year) and decreases in equal 20
percent increments over the 5 year recapture period. There is a de minimis (not
big enough to be worth fussing about) rule — a Tax Equity Investor can transfer
up to one-third of its equity interest without triggering Recapture.
Receptor (Noise or Odor)
" Scientific term for an ear or a nose in range of a God-awful noisy or stinky facility not counting those ears or
noses paid to be there. So a private residence near a composting facility might
be “the nearest odor Receptor” for study and permitting purposes.
Refuse-Derived Fuel / RDF
" After Municipal Solid Waste is run through Rube Goldberg-like processes to remove recyclables and non-combustibles , this is what you actually
put in the boiler at a Trash-to- Cash facility.
Regional Transmission Operator / RTO
" A non-profit organization that operates and controls but does not own, a
transmission system, and administers centralized wholesale power markets,
similar to an Independent System Operator. FERC regulates RTOs and they must
have certain functions and characteristics not required of ISOs to attain RTO
status; for example, unlike an ISO, an RTO must meet FERC requirements of
having adequate geographic “scope.” The terms ISO and RTO are often used
interchangebly in the industry and by FERC, and some regional operators that
have kept “ISO” in their name, like the ISO-NE, technically have RTO status at
FERC.80
Reg-Out (Clause)
A provision in a PPA which allows the utility Offtaker to terminate the PPA if the PUC does not permit the utility to pass through PPA costs to Ratepayers.
Reimbursement Agreement
An agreement between an Issuing Bank and its Account Party under which the Account Party agrees to reimburse the Issuing Bank for any Draws of outstanding Letters of Credit. It is only called a Reimbursement Agreement if there are no other credit facilities involved; otherwise it is called a Credit Agreement or Financing Agreement.
Reinsurance
" Reinsurance is a way for insurance underwriters to spread around risk of a claim by laying off some of it to
a type of “wholesale” insurer called a reinsurer. See also Coinsurance.
Release
" A broadly defined term that , under CERCLA, includes the
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the environment
(including the abandonment or discarding of barrels, containers and other
closed receptacles containing any hazardous substance or pollutant or
contaminant). Although not universally adopted, in some jurisdictions, the
migration of contamination through soil or groundwater is also considered a
“release.”
Reliability
" This refers to how certain a Grid operator can be about the future output of a power source. Somewhat counterintuitively , a wind farm is highly
Reliable because there are multiple WTGs, and so even if a few are broken, the
rest will generate, and over time the wind can be counted on to blow. However,
Windfarms are also highly Intermittent.
Remarketing
" When a Variable Rate Debt Obligation or Auction Rate Security reaches the end of an interest period and the holder no longer wants the bond the process of finding
another buyer.
Remedial Plan
" Usually refers to what an owner has to do when its project is behind schedule in terms of achieving project completion. The owner may have covenanted to create a Remedial Plan to show how the schedule will be made up sufficiently to stay out of danger of [insert nasty consequence of completing late , such as losing an offtake
agreement or a material permit]. Can also refer to a strategy for addressing
the removal or containment of site contamination so as to render the site safe
for future use or to prevent further potential injury to human health or the
environment.
Remediation
Process by which contamination at a site is addressed in order to make the site safe for future use or to prevent further potential injury to human health or the environment. Remediation can often be defined to include the investigation of a site and the development of a remedial plan. Remediation is often preceded by several rounds of site investigation and analysis.81
Renewable Electricity Standard / RES
" As of this writing the federal equivalent of
the Renewable Portfolio Standard. One hurdle is that not all states have much
in the way of renewable energy resources.
Renewable Energy
" Energy created by technology which takes advantage of energy renewed by nature , such as biomass,
hydroelectric, wind, geothermal, solar thermal, photovoltaic, wave motion and
tidal motion.
Renewable Energy Credit / Renewable Energy Certificate
See REC.
Renewable Portfolio Standard / RPS
" State law mandates placed upon utilities to acquire not less than a specified percentage of their electricity from renewable resources by a certain date. These laws are all over the map so to speak, in terms of
whether the power must come from within the state, whether having a contract is
sufficient to establish compliance (even if the technology is not proven to be
viable), whether there are earmarks (sub-minimums) for certain technologies,
the penalties for non-compliance, whether existing renewable generation counts,
what counts as being renewable, etc. Approximately 30 states have passed RPSs.
REO
" Real estate owned. Property that a lender purchased at its own foreclosure sale. REO is then held until the market improves , or fixed up and then sold.
Repatriation Risk
" Risk that a foreign nation will restrict or limit the ability of investors to return the proceeds of their investment in that foreign nation back to the investors country. The risk is rooted in exchange controls. When you make money in the foreign currency and want to repatriate it , you have to exchange it
for your currency. Some countries impose restrictions on foreign exchange if it
is perceived as deflating the value of their currency.
Repowering
" Refers to re-using the original site of a power plant of whatever technology for a new power project salvaging as much of the
infrastructure as possible. Even though Repowering requires new permits, they
are vastly easier to obtain than for a new project, since the Repowering is
invariably better for Ratepayers, NIMBYs, the jobs market, the tax base, birds,
investors, neighbors and puppies, than the existing facility.
Representation and Warranty
An assertion of fact in a contract (such as a merger agreement or Credit Agreement). Representations and Warranties are the means by which one party to a contract tells the other party that something is true as of a particular date.
Request for Proposal / RFP
" A somewhat open-ended solicitation made to a large group , asking for ideas for how
to solve the requestor’s problem. Unlike an “offer” to enter into a contract,
it cannot be “accepted” to result in a contract. If a RFP response is of
interest, the requestor will invite the proposer to contract discussions.82
Required Lenders
" The Lenders holding more than 50 percent (rarely 66.6 percent) of the
aggregate principal amount of outstanding loans and unfunded commitments under
a Credit Agreement. Usually required for approval of amendments and waivers
under a Credit Agreement, although certain Amendments require a 100 percent
vote. See also Class Voting and Supermajority Voting.
Requirements Contract
" A contract under which a supplier agrees to sell at a set price all quantities of a particular product that the buyer needs over the duration of the contract and the buyer agrees to
purchase the products exclusively from that supplier.
RES
Renewable Electricity Standard.
Reserve Margin
" The amount of Capacity required to be available to an electric utility beyond its peak load in case peak load is
underestimated or normal supplies are unavailable due to a Forced Outage.
Reserves
" The estimated quantities of oil or gas that are claimed to be recoverable under existing economic and operating conditions. This is a much vaguer figure than Proven Reserves but still provides some
indication of the quantity of economically recoverable oil or gas.
Reservoir
" Porous permeable rock formations
where oil and gas have accumulated. It has a “cap” of less permeable rock that
prevents its escape.
Residual Value
" The value of a leased asset at the end of a Lease. Since the leased asset reverts to the Lessor at the Lease term the Lessor uses Residual
Value (in addition to Lessor’s Cost and the Lessor’s desired rate of return on
investment) to determine rent. The higher the assumed Residual Value, the lower
the rent.
Resiliency
" Because wind power is generated by large numbers of small generators (the individual WTGs) individual failures do not
have large impacts on power grids. This feature of wind power is referred to as
Resiliency.
Retainage
" A means of keeping a contractors attention until the job is finished Retainage is a withholding
of a percentage (usually 5-10 percent) of each progress payment under a
contract until the contract is fully performed. Under many contracts, the
contractor’s profit margin is not much higher than the Retainage, so it is a
powerful tool to hold back that much money.
Revenue Decoupling
A ratemaking mechanism that is intended to remove a utilitys disincentive to promote customer efforts to reduce energy consumption or demand or install distributed generation. Certain disbursements to the states of certain funds that were made available under ARRA are contingent on the states pursuing Revenue Decoupling mechanisms. See also Demand Side Management.83
Revolving Facility or Revolver
" A credit facility structured as a line of credit that can be borrowed repaid and reborrowed at any
time prior to maturity, at the Borrower’s discretion. A Revolving Facility can
also often be used for the issuance of Letters of Credit.
RFP
Request for Proposal.
Right of Way / ROW
A right to cross another persons property for a specified purpose.
Right-Way Risk
" When an entity is party to a hedging contract and there is a strong correlation between an event that affects the partys creditworthiness and the partys exposure under the hedge contract , if you are the party’s
counterparty, it is worth examining whether the risk you are taking is
Right-Way Risk or Wrong-Way Risk. If the event makes your counterparty more
creditworthy while they would potentially owe you more under the contract, that
is Right-Way Risk, and the opposite is Wrong-Way Risk. For example, say you
have contracted to buy power from GenCo. The higher the cost of power, the more
GenCo owes you if they breach their contract with you, i.e., the more you are
In the Money. If you have taken a lien in the generating asset to secure
GenCo’s obligations to you, you have taken Right-Way Risk — the more you are
exposed to a potential GenCo default due to high energy prices, the higher
presumably is the value of your collateral. See Wrong-Way Risk for an example
of one of those.
Riparian Rights
" The right of owners of land located on the banks of waterways to (i) the use of the water flowing through the property , (ii) the soil under the
waterway and (iii) accretions of soil along the banks of the waterway.
RMU
" Removal Unit. Under the Kyoto Protocol credit arising from
emissions reductions created by countries by means of projects that reduce
emissions (land-use change and forestry). RMUs are only traded at the country
level, and can be used toward fulfilling national obligations as of 2008.
Root
" The part of a turbine Blade at the base where it is connected to the Hub.
Rotor
The part of a WTG consisting of the Hub and Blades.
ROW
Right of Way.
Royalty
" Income from production of oil and gas geothermal or windpower
facilities that is earned by the holder of the Royalty Interest.
Royalty Interest
" Ownership of a percentage of production or production revenues. The owner of this share of production does not bear any of the cost of exploration drilling, producing,
operating, marketing or any other expense associated with drilling and
producing an oil and gas well. In the Windfarm context, the Royalty Interest
would typically be a percentage of gross revenue, payable to the landowner.84
RPS
Renewable Portfolio Standard.
RTO
Regional Transmission Operator.
Rule 10b-5 Representation
" Also known as a 10b-5 Rep this term is generally used
as shorthand for a Representation and Warranty by an Issuer, target or Borrower
that the diligence information provided is complete and correct in all material
respects and does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements contained therein not
misleading. This language is based on the SEC’s Rule 10b-5 issued under the
Securities Exchange Act of 1934.
Runaway Turbine
" WTGs are designed to shut down when wind speeds exceed a rated maximum specified by the manufacturer and programmed into the control software. Shutdown is accomplished through Feathering the Blade and applying a brake to the Rotor. If these systems fail you have a Runaway Turbine.
(To see one fail catastrophically, go to http://tinyurl.com/387dnp.) Once WTGs
reach the age of 14 or 15, they might Runaway if they don’t feel sufficiently
loved.
Run of the River
" A hydroelectric facility that does not use an Impoundment of any sort. It just diverts water from a river (never all of it) at an Intake Structure runs it through a Penstock
and then a water turbine, and then returns it to the same river.
Running With the Land
" Refers to covenants that pass with the transfer of land (i.e. they are binding on all
owners, as opposed to being only enforceable against the owner who initially
agreed to them).
S&P
" Standard & Poors a division of The
McGraw-Hill Companies, Inc. S&P is one of the two most powerful Rating
Agencies, along with Moody’s. Fitch is a third Rating Agency.
Sale-Leaseback
" A transaction where a company sells an asset (usually to a financial services company of some kind) and then immediately leases back that same asset. Companies engage in Sale-Leasebacks for a variety of reasons including to raise cash get assets off their balance
sheets and shift the market risk on the underlying asset. Sale-Leasebacks are
very similar economically to secured debt, and are therefore treated very
similarly under Indentures and Credit Agreements.
SCADA
" Supervisory Control and Data Acquisition. Basically remote-control and
monitoring of a power plant or pipeline. It is particularly useful in the
context of Windfarms, which are all in a sense remote. Even the old first and
second generation WTGs in the late 1980s used SCADA, which allowed remote
operators to measure windspeed, rotor speed, output, gearbox oil temperature,
etc., clear faults, and shut down turbines or feather their blades.
SCR
" Selective catalytic reduction , a technology which reduces
nitrogen oxide emissions.85
Secondary Syndication
The further syndication that occurs after the lead Lenders have each already achieved their Target Hold.
Secured Parties
" Those who hold a given Security Interest. Generally defined to include the Lenders the Administrative Agent, the
Collateral Agent, the Issuing Bank and sometimes Hedge counterparties, this
group will incorporate all parties in favor of whom a grant of security over
assets has been made.
Securities Account Control Agreement
See Account Control Agreement.
Security Agreement
The document by which a Borrower grants a Security Interest in personal property Collateral.
Security Interest
" A right held by a Secured Party to realize upon Collateral if the debtor fails to meet payment or performance obligations and an Event of Default occurs as a result. The Secured Party sells the Collateral pursuant to statutory procedures and applies the proceeds of sale against the debt. If the proceeds exceed the amount of the debt , the Secured Party has to
give the leftover to junior Secured Parties until they are paid, and then to
the debtor.
Separateness
" Various techniques and principles used to create Bankruptcy Remote Vehicles , such as observing all
separate entity formalities such as having board meetings and keeping separate
books and records, stationery and bank accounts, and having independent
directors, among other things. This is all intended for one purpose, to avoid
Substantive Consolidation of a Bankruptcy Remote Vehicle in its parent’s
bankruptcy.
Serial Defect
" A manufacturing or design defect found in all of a given model or batch of machines. Outside the context of Wind Turbine Generators the difference between a
Serial Defect and any other defect is meaningless: if the machine is still
under warranty, you call the manufacturer and they come out and fix it and its
“serial” nature is irrelevant (unless you own more of them). But with WTGs,
some TSAs provide that if the defect is shown to be a Serial Defect, the
manufacturer will remedy the Serial Defect on all of the turbines, not just the
ones that have already broken. This is a potentially a huge economic difference
to the owner, since remediation can be scheduled during Off-Peak periods.
Setback
" A statute or regulation that creates a zone where improvements may not be built. Examples of setback zones include a restriction on building any improvements within a certain number of feet from a property line or roadway or a restriction that no
wind turbines may be built within certain distances from other improvements.
The BLM prohibits placement of turbines within 1.5x the height of the turbine
from BLM’s property line.
Setoff
Setoff can be a statutory right banks have to take money from the account of a depositor if the depositor is also a borrower from that bank and is in default on the loan. It can also be a contractual right agreed by the parties to allow a party
which owes money to the other party under the contract to subtract anything the
other party owes it first, before making payment. This latter usage of the term
would be the same as Net Payment.
Settlement Amount
" Depending on the context either the amount due at the
end of each specified interval under a Swap or the amount determined to be due
following an Event of Default and termination under a Swap.
Severable Modifications
" Modifications made by the Lessee to the leased asset during the Lease term to which the Lessee will retain title usually defined as
modifications that are not required by law and are readily removable without
causing material damage to the leased asset.
SGIA
Small Generator Interconnection Agreement.
Shoulder Period
The period during which Load is transitioning between Peak and Off-Peak periods. A Shoulder Period might be used in a TOU Metering tariff or in a PPA to set pricing for certain months/seasons.
Sight Draft
Written demand for immediate payment submitted by the Beneficiary of a Letter of Credit when effecting a Draw.
SILO
Term used by EPC Contractors to refer to areas in which the scope is too narrow and which will require a Change Order (price increase).
Simple Cycle
" A combustion turbine that is designed to cycle (start and stop) on short notice. Compare Combined Cycle. Simple Cycle facilities have higher heat rates than Combined Cycle plants
Single Investor Lease
A Lease that is not a Leveraged Lease.
SIP
" State Implementation Plan. Each state is required under the Clean Air Act to put together an implementation plan which sets out how the state
intends to achieve compliance with the NAAQS. EPA then approves (or
disapproves) the SIP, modifications to it, or portions of it, as the case may
be. Each new air permit must be issued in compliance with the SIP. When a SIP
is not approved, the EPA technically has the authority to “drop down” through
unapproved parts of the SIP and exercise federal enforcement jurisdiction. As a
practical matter, SIPs typically consist of the combined air quality
regulations and rules promulgated by the relevant state air quality agency, or
the local air districts in each state.
Site Control
" A stage in project development when the owner either has all of the land rights it will need or has options on the rights. In the interconnection process , the generator must show a
transmission owner or operator that the generator has Site Control and is not
merely Queue Sitting.
Skim
" The difference between what a Sponsor has agreed to pay an Arranger as an Upfront Fee and what the Arranger agrees to pass along to the other Lenders during the Syndication. Occasionally (but rarely) ), Skim applies to the
interest rate payable under a credit facility. Skim is 87
usually attributable to the
Lead Arranger having invested considerably more time and energy into a
transaction than the other Lenders, or to some set of the Lenders having
provided an Underwriting.
Slug
" A large quantity of gas or liquid that exits a pipeline (see Slugcatcher). Slugs exiting the pipeline can overload the gas or liquid handling capacity of a plant at the pipeline outlet as they are often produced
at a much larger rate than the equipment is designed for.
Slugcatcher
" Units in which Slugs at the outlet of a pipeline are collected or caught. Slugcatchers can be used continuously or on-demand. A Slugcatcher permanently connected to the pipeline will buffer all production including the Slugs, before it is sent to gas
and liquid handling facilities.
Small Generator Interconnection Agreement / SGIA
" An Interconnection Agreement often based on a standard FERC pre-approved form,
between a generator and a transmission owner and/or operator, and typically
regulated by FERC. The SGIA is more streamlined than the LGIA.
Smart Grid
" A combination of technologies many not yet developed,
whose broad function is to make the electricity grid more interactive and whose
broad purpose is to reduce the need to build additional power plants and to
reduce electricity consumption. For example, there might be an ability by the
utility to curtail non-essential load (such as air conditioners) by sending a
signal wirelessly or through the electric distribution lines.
SNDA
Subordination and Nondisturbance Agreement.
Soft Costs
" In a lease transaction costs beyond the simple cost
of the equipment, such as sales tax, installation or delivery charges,
software, etc. These can usually be included in the financing, up to a limit
imposed by the Lessor (perhaps 10-20 percent of the equipment cost).
Solar Thermal
" Technology which converts the suns rays to heat by concentrating them using lenses or mirrors (Heliostats or reflective parabolic troughs or some variation). The heat is absorbed by a fluid at which point relatively
conventional generation technology converts that heat to electricity the same
way it would geothermal Brine.
Solid Waste Disposal Facility
" The federal income tax law significantly circumscribes what types of facilities can qualify for tax-exempt financing when the ultimate borrower is a taxpaying business. Solid Waste Disposal Facilities owned by taxpaying businesses can be financed with tax exempt bonds; however , there are stringent
requirements (including obtaining an allocation of the applicable state volume
cap). A Solid Waste Disposal Facility collects, stores, treats, processes or
disposes of “solid waste,” which is garbage, refuse and other discarded solid
materials resulting from industrial, commercial and agricultural operations,
and from community activities. Solid waste must have no value, but a facility
which disposes of solid waste by converting or otherwise recycling it into material which is not waste
qualifies as a solid waste disposal facility if solid waste constitutes at
least 65 percent (by weight or volume) of the total materials introduced into
the process.
Sovereign Immunity
The immunity provided to foreign nations under the Foreign Sovereign Immunity Act and various judicial doctrines whereby foreign governments are immune from the jurisdiction of federal and state courts.
Spark Spread
" Refers to the difference measured in dollars between gross proceeds for selling a MWh (or kWh) on the spot market and the gross cost of acquiring the natural gas fuel necessary to generate the power having made stated
assumptions about the efficiency of the conversion technology (i.e., the Heat
Rate). All other costs of generation must be paid from the Spark Spread.
Special Purpose Entity / SPE / Special Purpose Vehicle / SPV
Same as Bankruptcy Remote Vehicle.
Spinning Reserve
" The circumspectness of political handlers after their boss has made a gaffe measured in microns. Also,
the difference between a generating unit’s full capacity and its current
output, which is available for an almost instantaneous increase in output.
Utilities are required to maintain a certain amount of Spinning Reserves to
meet load changes.
Sponsor
" Use of this term implies that a financing or acquisition transaction is using an SPE as the Borrower or acquiror. The Sponsor is the ultimate owner of the SPE and is the name that would
be recognizable.
Spot Market
A market in which commodities are purchased and sold for cash and delivered on the spot or very soon after the sale. Also called a cash market. A sale on the Spot Market is known as a spot sale. A company sells commodities on a contracted basis rather than a spot basis if it enters into a contract to sell the commodities over a period of time at a specified price or pursuant to a specified price generating formula.
Spot Price
" The price paid to the seller of a commodity in a Spot Market which price may fluctuate hourly or even
minute-to-minute, depending on the structure of the Spot Market.
Spread
Sometimes used as a synonym of Margin. Other times it means the difference between an offered sale (or purchase) price and what the purchaser (or seller) is willing to pay (accept).
Spudding In
" Nothing to do with potatoes this term refers to the very
beginning of drilling operations of a new well.
Squeeze Protection
" A clause in the Security Agreement stating that the Lenders cannot engage in an Equity Squeeze with the common exception
that an Equity Squeeze is permitted after a “stand-still” period if remedies
against the Lessee are stayed because the Lessee is in bankruptcy or the
exercise of such remedies is otherwise prohibited by law.89
Stalking Horse Bidder
" The entity in a 363 Sale that enters into an asset purchase agreement with the bankrupt entity prior to the auction creating the “offer to
beat.” This is thought to be the only context in the entire animal kingdom
where horses stalk.
Standby Letter of Credit
" A Letter of Credit which is not expected to be drawn unless the Account Party fails in performance of some duty to the Beneficiary. For example a Windfarm developer might
covenant with its site lessor to restore the site upon decommissioning the
Windfarm after 25 years. To “secure” that obligation, the developer maintains a
Standby Letter of Credit for the benefit of the lessor, sized to cover the
expected restoration costs. Only if the developer does not perform may the Standby
Letter of Credit be drawn.
Standstill
" Where a creditor is legally and contractually entitled to exercise remedies against its Borrower due to an Event of Default but an Intercreditor
Agreement or some other arrangement prohibits it from doing so. Often the
Standstill expires after a time (perhaps 180 days). When the Standstill applies
to the senior creditor, it is usually to give the junior creditor time to
remedy the default to keep from being wiped out in a Foreclosure by the senior.
When the Standstill applies to the junior creditor, it is because the senior
creditor does not want its Borrower distracted from fixing a problem by the
possibility of a Foreclosure or other action by the junior.
Staple Financing
A financing package being offered up by the investment bank that is acting as the sell-side advisor in connection with the auctioning of a target company or asset. Called staple because the financing package (the Commitment Papers) is stapled to the bid materials that are sent out to potential buyers. Staple Financings are a useful way for the investment bank acting as the advisor to a company that is putting itself on the auction block to also be involved in the financing of the acquisition by the buyer.
Stated Amount
" The face amount of a Letter of Credit i.e., the amount that is
available to the Beneficiary to Draw.
Steam Host
A Thermal Host that purchases steam (as opposed to other types of thermal energy) from a generation owner.
Steam Turbine Generator
" A steam turbine linked to an electrical generator on the same main central shaft. All solid fuel (coal biomass, RDF, waste coal)
and nuclear generation facilities use these as part of their Turbine Island
equipment.
Step-In Rights
Contractual rights granted to a party to take over operation of a facility if the owner fails in some way in its contract performance. These are rights apart from rights to appoint a receiver that are often held by Secured Parties to protect their Collateral pending exercise of further remedies.
STG
Steam Turbine Generator.90
Stimulus Bill
" The American Recovery and Reinvestment Act of 2009 , a federal law passed in
February 2009 that included billions of dollars of benefits to the renewable
energy industry.
Stipulated Loss Value
See Termination Value.
Stranded Cost
" When the electricity sector was deregulated in some US jurisdictions utilities lost their
monopoly status as generators. (While transmission and distribution are
“natural monopolies,” generation is not—this was the point of the
deregulation.) The utilities had assumed they would recover all of their
capital costs over time through their rates. But with deregulation, some
customers could choose to purchase power from more competitive (cheaper)
sources, leaving fewer ratepaying customers to pay for the non-competitive
equipment, the Stranded Costs. To gain utilities’ and customers’ political
buy-in to deregulation, legislators devised various ways to allocate the
Stranded Costs fairly.
String
" A row of WTGs sometimes within an Array.
Structural Subordination
" Non-contractual Subordination created where debt is issued by a holding company or other parent entity with no guarantee from the
operating subsidiary that is the Issuer/Borrower under other indebtedness. The
parent debt is effectively Subordinated to the debt held closer to the
operating assets since all the operating subsidiary’s debt gets paid in full in
a bankruptcy before anything is dividended up to the holding company.
Similarly, if the subsidiary’s debt is in default, dividends to the parent will
be blocked. See also Subordination.
Structure Flex
" The changes that the Arranger may make to the structure (i.e. the type of debt offered, or
the location of the Borrower within the credit group) of the credit facilities
provided for in the Commitment Letter if needed to facilitate the Successful
Syndication of the credit facilities. Structure Flex is considered more
draconian than Pricing Flex because changing the structure may have broader
ripple effects than just paying more money. However, sometimes changing the
structure can avoid having to invoke Pricing Flex. For example, if it can be
used to avoid Structural Subordination.
Stuffee
A bank that is not particularly discriminating in the loans it will purchase on the secondary market. Sometimes used to refer to a bank that might be discriminating but which does not have its own loan origination capabilities.
Subdivision
" A legally valid division of property into two or more separate parcels pursuant to locally prescribed restrictions approvals and procedures. In
some jurisdictions, subject to certain exemptions, a party cannot transfer,
lease or finance a property unless it has been legally subdivided. The
restrictions are designed to keep people from dividing up land in ways that
cannot be discerned from review of the public records, so as to minimize title
disputes.91
Subordination
" Subordination always involves at least two Classes of creditors (senior and junior) with a negotiated set of relative rights vis-à-vis a particular Borrower and pool of Collateral. The term subordinated by itself is not sufficient to describe the junior creditors rights since there are so many
types of subordination. This is all spelled out in the Intercreditor Agreement
or an article of a subordinated debt Indenture.
Subordination and Nondisturbance Agreement or
Subordination, Nondisturbance and Attornment Agreement:
Same as Nondisturbance and
Subordination Agreement.
Subrogation
" Not the same as subordination or anything like it. This
term is only used in situations where there has been a payment made under a
guaranty or under an insurance policy. If you are the guarantor or insurer,
Subrogation is your legal right to go after the entity that caused you to have
to pay, and recover the amount of the payment. In the guaranty context, that
would be the Primary Obligor. This is why guaranties often have the guarantor
waive Subrogation until the beneficiary of the guaranty is no longer a creditor
of the Primary Obligor (since the beneficiary doesn’t want a new co-creditor).
In the insurance context, the entity that caused you to have to pay is whoever
broke the thing in the case of property insurance or injured the person in the
case of liability insurance. For instance, if your neighbor’s dead tree falls
on your house, your insurance company pays you, and is then Subrogated to your
rights against the neighbor, so can sue the neighbor for negligence. In
contracts where your counterparty agrees to provide and pay for property or
liability insurance covering the subject of the contract, you want the
counterparty’s insurer to waive Subrogation against you. Otherwise, what is the
benefit of the insurance if you can be sued for allegedly causing the injury?
Substantial Completion
" The step of completion of construction of a project beyond Mechanical Completion where all performance tests
have been completed and the only thing left is completion of the Punchlist.
Substantive Consolidation
" The pooling of the assets and liabilities of separate legal entities in a bankruptcy. Creditors of substantively consolidated entities will have a claim against the single pool of assets and guaranty claims. The notion that a bankruptcy court can order the Substantive Consolidation of the assets and liabilities of multiple affiliate debtors dates back many years. The remedy of Substantive Consolidation is equitable not statutory, and is not
the same thing as Piercing the Corporate Veil. Whether it will be ordered in a
particular case will turn on how the court chooses among and applies standards
that have developed as judge-made law, rather than through analysis of a
statute. Historically, Substantive Consolidation has been reserved for cases
where (i) the financial affairs among affiliates are so entangled—whether by
design or sloppy business practices—that an accurate assessment of which entity
is obligated to a particular creditor or group of creditors cannot be
determined or could only be determined at undue cost or 92
(ii) where creditors
generally had dealt with the enterprise as a single consolidated entity (rather
than separate legal entities). Courts routinely state that Substantive
Consolidation is to be granted “rarely,” though courts routinely permit
Substantive Consolidation when it is consensual.
Subsurface Risk
" The risk that geotechnical studies such as core sampling were not sufficiently extensive to reveal all relevant subsurface conditions prior to commencement of construction such as an unknown UST, a
giant slab of solid rock, unstable soil or an aquifer. Usually stated in terms
of who is taking it, the contractor or owner (and rarely is it the contractor).
Successful Syndication
" In Commitment Paper land , a number of things happen
once the Arranger has achieved a Successful Syndication. For example, Flex
rights terminate. The term is not always defined in Commitment Papers, but when
it is, it is usually with reference to the Arrangers’ Target Hold. For example,
if the original commitment is US$500 million, Successful Syndication may be
defined as the point at which the Arranger has Syndicated commitments such that
it is only on the hook for US$50 million.
Supermajority Voting
Situation where a percentage of the Lenders under a Credit Agreement greater than a simple majority (usually 65 percent to 80 percent) is required for certain particularly material amendments or waivers.
Supplemental Rent
" Generally all amounts owed by a Lessee
under a lease transaction other than Basic Rent and Interim Rent.
Survey
" A pictorial depiction of the state of facts in existence on real property including boundary lines improvements, setbacks,
encumbrances and other matters affecting the subject property. For a
development project, a survey will often include the future improvements to be
constructed on the subject property as contemplated by a development plan.
Swap
" A type of Hedge in which the parties agree to exchange specified cash flows at specified intervals (e.g. one party agrees with the
other party that it will exchange a floating interest rate for a fixed interest
rate on a specified Notional Amount of principal at the end of each quarter).
See Interest Rate Swap for a better explanation.
Swept Area
" Measured in square meters the area covered by rotating
Turbine Blades. Obviously, more is better. The reason Blades are always failing
is because manufacturers keep wanting to make them longer, since the Swept Area
increases by the increased radius squared (doubling the blade length increases
the Swept Area 4x).
Synchronization
The process of ensuring that a generation source is operating harmoniously with the rest of the power grid.
Syndication
The process by which the Arranger sells loans and/or commitments to a number of Lenders. Remember that the Arranger is in the distribution business and not the storage business.93
Synthetic Letter of Credit
" A Letter of Credit facility where the Issuing Bank relies on cash collateral to secure the Account Partys reimbursement obligation. The source of the cash collateral is up-front loans from the Lender group , and thus the Issuing Bank
does need not be concerned that any Lender will not fund its participation in
the facility if the Account Party does not reimburse a Letter of Credit draw.
System Impact Study
" A study performed by a utility before it will agree to interconnect a new generation source within its system to evaluate the impact of
the proposed interconnection on the reliability of the system. If the System
Impact Study concludes that facilities need to be constructed to provide the
service, the System Impact Study is usually followed by a more detailed
Facilities Study to identify specific additional facilities needed.
Take or Pay Contract
" A contract under which an Offtaker pays its supplier for a given volume regardless of whether the Offtaker actually accepts that volume. This allows the supplier to cover its fixed costs and thereby be ready to supply in the future. It is similar to a contract where the Offtaker makes a Capacity payment (i.e. a payment designed to cover
fixed costs).
Target Cost Contract
" A hybrid between a Turnkey Contract and a Cost- Plus Contract. In this arrangement the owner and contractor
exhaustively analyze the expected costs to build a project and this becomes the
Target Cost. The contractor is in any event paid whatever it costs on a
pass-through basis; but if actual costs exceed the Target Cost, some or all of
the contractor’s profit is relinquished. If the Target Cost exceeds actual cost
(i.e., the project is under-budget), the contractor is paid a percentage of the
“savings” as a bonus. This is a worthwhile approach for both parties, but there
are a lot of tricky (non-obvious) structuring issues not found in other types
of contracts. Sometimes called a “Target Price Contract.”
Target Hold
" The principal amount of a credit facility that a Lender wants to sell down to during Syndication. If all of the Lenders sell down to their Target Hold it is a Successful
Syndication.
Tariff
" The terms of service used by a public utility that have been approved by the utilitys regulatory oversight body. Often the term is used to refer to
just the rate schedule part of the terms of service.
Tax Attributes
The tax benefits that can be used by owners of a facility based on the characteristics of the facility that qualify it for the tax benefit.
Tax Equity Investor
" An entity invested in renewable energy or other projects which qualify for various tax benefits. The entity has tax liability from other operations that it is seeking to offset using the tax benefits. The investment is made to look like an equity investment because the tax benefits are only available to owners but in reality is
substantively more like a loan. However, if it looks too much like a loan, the
tax benefits will be disallowed. The IRS has published safe harbor rules on
this.94
Tax Lease
" A generic term for a Lease in which the Lessor takes the risk of ownership (as determined by various IRS pronouncements) as the owner and is entitled to the
benefits of ownership, including tax benefits.
Taxpayer ID Number
A companys Federal Employer Identification Number (FEIN). One of the items of information a Lender must obtain from the Borrower in order to comply with PATRIOT Act Requirements.
Tenor
The length of time a debt instrument is outstanding through its Maturity.
Term Sheet
A non-binding summary of the expected terms of a transaction.
Term-Conversion
" A set of conditions that must be satisfied by a Borrower to avoid maturity of its construction loan. After Term-Conversion the construction loan turns
into a term loan and the Lenders largely do not have to think about it again
until they are refinanced or the loan matures. Outside the United States, the
Term-Conversion concept is not much used; rather, the important Term-Conversion
features are addressed through covenants.
Termination Value
" An amount calculated for a lease transaction which at any point in time during
the lease term, is sufficient to (i) pay off in full any debt (if the lease is
a Leveraged Lease), (ii) return to the Lessor its outstanding investment in the
transaction, (iii) pay to the Lessor a yield on that investment to the date of
repayment, (iv) pay to the Lessor an amount in recognition of the expected
Residual Value of the leased asset and (v) pay to the Lessor a gross-up amount
so the Lessor achieves its after-tax yield. A given lease may have one or more
schedules of termination values (sometimes called Stipulated Loss Values or
Casualty Values) which assure to the Lessor different yields from the transaction.
In particular, the parties may agree that the Casualty Value due upon an Event
of Loss is less than the Termination Value due upon a termination of the lease
due to an event of default since the occurrence of the Event of Loss is not the
Lessee’s “fault.”
TFA
Technical Field Advisor. These are the folks sent to a jobsite by turbine and other heavy equipment manufacturers to oversee installation and assist in Commissioning.
Thermal Host
" What you need to meet FERCs QF standards for Cogeneration facilities. The Thermal Host has to have sufficient thermal energy needs and be sufficiently near the facility that produces thermal energy. Traditionallya Thermal Host has a
long-term thermal energy purchase agreement with the generation owner.
Thin Film PV
" Photovoltaic technology that converts sunlight at a substantially lower efficiency than silicon crystal (wafer) technology but also at a much lower
cost. Thin Film PV can be printed on flexible and light substances, which may
lead to new applications.95
Third Party Beneficiary
" An entity that is entitled to the benefits of some or all of the terms of a contract without actually being a party thereto. If you want there to be a Third Party Beneficiary the contract should say so,
in which case you have an “express third party beneficiary” (and if you are the
Third Party Beneficiary, that’s the type you want to be). If you don’t want any
Third Party Beneficiaries, the contract should also say that.
Time of Use (TOU) Metering
" Where a customer pays more for electricity used during Peak hours and less for electricity used during Off-Peak hours. For example one TOU tariff in California
has the customer pay approximately 50¢/kWh during summer peak hours (noon to
6:00 pm Monday through Friday) and 10¢ during summer off-peak (the remainder of
the week), where a normal customer would pay 13.5¢ for all kWh. See also Net
Metering. If TOU Metering were mandatory, it would result in enormous
consumption savings; but at this point it is purely elective for residential
customers.
Tipping Fee
" The per-ton fee charged by a Trash-to-Cash power plant as consideration for accepting Municipal Solid Waste or other combustible material. Sometimes the Tipping Fee varies
depending on the usability of the material as fuel. The term is also used at
landfills.
Title
" One of the titles which entitles a bank to a ranking in the League Tables. These are Administrative Agent Documentation Agent, Lead
Arranger, Syndication Agent and Book Runner.
Title Company / Title Insurer
The company that provides Title Insurance.
Title Insurance Commitment
" A commitment by a Title Company to issue Title Insurance subject to the satisfaction
of the conditions and requirements contained therein. This document does not
itself provide title insurance coverage.
Title Insurance / Title Insurance Policy
" A policy of insurance that insures against specified losses arising due to defects in title to real property or invalidity of, or not
having the expected priority of, mortgage liens, and certain other coverages
pursuant to the included endorsements, subject to the enumerated exclusions and
exceptions contained therein. In real property-secured deals, both the owner
and lender have Title Insurance insuring their respective interests (ownership
and priority of mortgage, respectively).
T-Line
Transmission line.
Toller
" An entity providing fuel to and purchasing electric
energy and capacity from, a generation owner or operator under a Tolling
Agreement.
Tolling Agreement
" An agreement whereby an Offtaker provides to a project owner the fuel or other Feedstock for a facility thereby relieving the owner
of pricing and delivery risk as to that fuel or Feedstock. The owner is
basically then just charging the Offtaker for the use of the facility (the
“toll”). The term is used to describe this type of agreement, 96
but the agreement is rarely
actually called a “Tolling Agreement.” For example, “that PPA is a tolling
agreement.” At these facilities, the metering station is called the
“Tollhouse,” where you can always find a supply of chocolate chip cookies — ask
for one.
Tonne
" A metric ton or 1,000 kilograms, the
standard unit to measure oil other than in the United States.
Tower
" The steel structure at the top of which is placed a WTG. Modern Towers are much too tall to be shipped to site in one piece so they are welded together
in place.
TOU
" Time of Use Metering Tariff, etc. See Time of Use
Metering.
Tracer Test
" In a geothermal field , if there is any suspicion
that injection fluid is migrating to the production zone and causing cooling, a
chemical can be added to the injection fluid, which would later show up out of
a Production Well, demonstrating this connection.
Tracking Account
" A record (not an actual account into which something is deposited) used to track the amount by which one party under a contract has overpaid the other party in some sense. For example a PPA might have a
relatively “front-loaded” payment structure, which allows the owner to pay debt
service on high capital costs. In the early years, the Tracking Account builds
up and then over time, as Capacity is supplied and energy produced, the
Tracking Account is reduced. If the PPA is terminated before the Tracking
Account is reduced to zero, the owner owes the Offtaker the balance of the
Tracking Account (securing the payment of which, there might be a Mortgage on
the facility). Another type of Tracking Account can allow a Windfarm owner to
manage its cashflows under a Financial Power Swap.
Trade Letter of Credit
" A letter of credit used in a commercial transaction which is expected to be drawn by the Beneficiary as payment for goods provided to the Account Party. Compare to Standby Letter of credit used in a commercial
transaction which is expected to be drawn by the Beneficiary as payment for
goods provided to the Account Party. Compare to Standby Letter of Credit, which
is not expected to be drawn. A Commercial Letter of Credit is the same as a
Trade Letter of Credit.
Train
" In any multi-step industrial processing facility a Train refers to a
stand-alone set of equipment that operates all the way from the initial to the
final step of the process to produce a slice of the entire facility output. So
in a three-Train facility, each Train would produce one third of the output and
could operate with or without the other Trains operating. In the commodities
business, using Train-based facilities is important, because production can be
ramped up or down efficiently, depending on prices — a Train is typically
running at full capacity (greatest efficiency) or not at all. In an LNG plant,
a Train consists of a compression area, propane condenser area and methane and
ethane areas.
Tranche
" This which means “slice” in
French, refers to an individual class or series of Bonds within an offering
(which may have different ratings) or to individual types of loans within the
same Credit Agreement.97
Transmission Line
" An electric power line located above or below ground that transmits energy to from or within a project.
Trash-to-Cash
" The conversion of MSW to recyclables a much smaller amount of
noncombustible trash, electric energy and ash, in that order. These facilities,
while seemingly the ideal solution to landfill shortages and recycling apathy,
are notoriously difficult to site. They create traffic, odor, noise, pollution
and potentially other environmental issues.
Seems like a good idea,
though, and who can argue with the name?
Tree
" In the acquisition finance context , Trees are references to
different bidders or financing sources. If a company puts itself up for sale
(in an auction), there will be multiple bidders (generally Sponsors, but
sometimes strategic buyers) looking at the target, and each bidder will in turn
be examining possible financing from a variety of banks. So if Sponsor A and
Sponsor B were looking at the target, and each had two possible financing
sources (drafting Commitment Papers), there would be four financing Trees.
Triple Net Lease
Same as Net Lease.
True Lease
" A lease can be a true lease for tax accounting or commercial law
/ bankruptcy purposes. For tax purposes, a Tax Lease is a “true lease” if the
Lessor owns the leased equipment and is entitled to take depreciation and other
tax benefits. For accounting purposes, an Operating Lease is a “true lease” if
the leased asset is on the Lessor’s books and the Lessee incurs current
expenses for the payment of rent. For commercial law and bankruptcy purposes, a
“true lease” means that the equipment is owned by the Lessor and is not owned
by the Lessee subject to the Lessor’s lien, and is not owned by the Lessee and
thus property of the Lessee’s estate in any Lessee bankruptcy.
True Sale
" A transaction in which actual legal title to an asset is transferred as opposed to the asset
being loaned or pledged as Collateral in a financing transaction. The issue of
whether a transaction is a True Sale or a financing has bankruptcy
implications, because if a transferor goes Bankrupt, unless the asset in
question is deemed to have been sold in a True Sale transaction, the bankruptcy
court can determine that the asset is still owned by the transferor and can
therefore be included as part of the bankruptcy assets that are distributed to
creditors.
Trust Agreement
" In leasing same as Owner Trust
Agreement.
Trust Deed
" Usually same as Deed of Trust, but
sometimes it can refer to the simple granting document that is used to place an
asset in trust.
Trustee
" Performs as the Bond equivalent of a Credit Agreement Administrative Agent. The Trustee has certain assigned duties and rights under the Indenture that become particularly important following Defaults or Events of Default. Unlike an Administrative Agent , a Trustee will rarely own
any of the underlying securities and will take no action absent specific
direction and indemnification from the bondholders.98
Trust Indenture
Same as Indenture.
TSA
Turbine Supply Agreement (supplying WTGs).
TTM
Trailing twelve months. Used to describe the measurement period for Financial Covenants. Same as LTM (last twelve months).
Turbine Blade
Same as Blade.
Turbine Island
" The part of a fossil-fired power plant consisting of gas and/or steam turbines HRSG, and generator sets.
Turnkey Contract
" A contract where the owners main responsibilities are site procurement permitting and writing checks to the contractor.
At the end of construction, the contractor “hands the owner the keys.” See also
EPC
Two-Meter Test
" A very mobile and inexpensive way to test for geothermal prospects. Temperature probes are inserted in the ground at a two meter depth and by measuring temperature
over the course of a year, a temperature gradient is created which is highly
predictive of temperatures at greater depth.
UCC
" The Uniform Commercial Code. The UCC is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States (although each states version of the UCC may be slightly different from anothers). Also Indian tribes, being
sovereign nations in some senses, have their own UCCs. The UCC deals primarily
with transactions involving personal property.
UCC-1
The form used to Perfect by filing.
UCC-3
" The form used to evidence the termination or release (and in some states amendment) of a Security
Interest.
UEG
Utility Electric Generator.
UNCITRAL
United Nations Commission on International Trade Law.
UNCITRAL Arbitration
Arbitration conducted under UNCITRAL rules.
Underground Storage Tank / UST
" Generally a storage tank and
associated piping that is located underground but also typically includes tanks
10 percent or more of whose volume is below ground. However, a tank that is
entirely contained in an underground vault that is accessible for inspection
may be considered an above-ground storage tank. USTs are often the source of
contamination, and any facility with such tanks containing Hazardous Materials
should be carefully evaluated.
Underwriting
" Antiquated term since the Meltdown, used
mainly in the negative these days. However, before the Meltdown and after the
bailouts succeed, it refers to an agreement by a Lender to take the risk that
no other Lenders will be willing to invest in a particular financing. The
Underwriting Lender agrees to fund the entire amount of the debt, 99
but usually sells its
commitment in a Syndication process, often before the first loan is made.
Unit Contingent
" When a generator contracts to sell Capacity or energy from its plant it might agree to sell on a
Unit Contingent basis, meaning that if its own plant became unable to generate,
it would not have to go find replacement power for the buyer or be liable for
damages.
Unitization
" In geothermal development or an oil or gas field where there are multiple owners/lessees of adjacent lands you can imagine issues with
one guy sticking his straw in the other guy’s milkshake. If all the
owners/lessees agree to Unitize, they have a commonly agreed plan as to how the
entire resource is to be developed and operated, and how to share/allocate
costs and revenues. If some of the land is BLM land, the owners additionally
have a Unit Agreement with the BLM (BLM regulations have a model form).
Upfront Fee
Usually what Project Finance bankers call the fee they get paid at closing based on a percentage of the credit facilities they have committed to provide.
Upstream
The exploration and production sector of the oil and gas industry. This includes all activities up to (but not including) the refinery. See also Downstream.
Useful Life
" Packing it all in and joining the Peace Corps. Also Also, for purposes of
evaluating the proper Tenor of a Project Financing, refers to the expected time
a facility or piece of equipment (e.g., a WTG) will remain in service before
becoming prohibitively expensive to maintain. This is a much less precise usage
than Estimated Useful Life.
UST
Underground Storage Tank.
Usury
" When a Lender not in an exempt class of Lenders (e.g. a bank) lends to a Borrower
in a class of transaction that is not exempt at a rate exceeding a state
statutory limit. Typically, the penalty for Usury is not foregoing principal
repayment, but foregoing a multiple of the usurious interest collected.
Usury Savings Clause
" The provision of a Credit Agreement that says that if a loan would otherwise be usurious “we didn’t really mean it;
the rate we meant to charge is that rate which is the highest non-usurious
rate."
Variable-Pitch WTG
" The ability of a WTG to rotate its Blades about their axis through a mechanism in the Hub so as to regulate the rotational speed of the hub/blades and to varythe output, as well as minimizing wear and tear on the machine. For example,when wind speeds are high, one can expose less of the Blade to the wind(feather it) while staying on the high end of the Power Curve, all the whileminimizing wear and tear on the gearbox, blades, etc.100
Variable Rate Debt Obligation
" A long-term security often a municipal bond, that
has interest that re-sets on very short terms, usually seven, 28 or 35 days. At
the end of that period, the interest rate is re-set through a Dutch Auction.
The holder can at the end of any interest period put the bond back to the issuer
(i.e., cause the issuer to buy the bond). The bond is then quickly Remarketed
(another buyer is found). If no other buyer is found, a bank which has provided
a backup facility for just that event puts up the money to buy the bond, and
Remarketing efforts continue. See also Auction Rate Securities.
Variable-Speed WTG
Same as Variable Pitch WTG. Not all WTGs can vary their blade pitch.
Vertical Axis
" Used with reference to WTGs means that the main drive
shaft is perpendicular to the ground. These have the advantage of never needing
to turn to the wind. The most visible commercially produced example was the
Flowind turbine, still seen in the Altamont Pass in Northern California, and
known as the “eggbeater” turbines.
VOCs
" Volatile Organic Compounds. VOCs are regulated under air quality standards as ozone precursors although they are not
themselves a Criteria Pollutant. Siting a new facility in an ozone
Non-Attainment Area will typically require procuring offset credits for VOC
emissions. In addition, VOCs are often discovered as part of soil and
groundwater contamination. These typically include solvents, benzene and other
petroleum breakdown products, and other compounds, all of which are generally
part of the hydrocarbon chemical family. VOCs are those which evaporate more
easily; there are also other hydrocarbons (typically heavier molecules), which
have a lower vapor pressure and are termed “semi-volatile organic compounds,”
or “SVOCs.” These are typically addressed as part of soil and groundwater remediation,
and don’t typically impact air quality analyses.
VPP
" Volumetric Production Payment. Used as a financing technique in the US oil and gas industry an oil and gas producer will
sell a specified amount of hydrocarbons produced from a specified field or
fields during a specified time period. Like a royalty, these volumes do not
bear any of the burdens of production. In most states in the United States, a
VPP is considered an interest in real property and when sold to a non-affiliate
is specifically carved out from the estate of the seller. The structure is
useful in financing oil and gas producers with weaker credit.
Waiver of Subrogation
See discussion under Subrogation.
Wake
" The air downwind of a spinning WTG. Turbine Blades create air turbulence in the Wake which can have a damaging
effect on downwind WTGs due to increased wear and tear. This is why Array
design is important, and why sometimes a Windfarm owner likes to have an
Easement on upwind lands even if he or she doesn’t plan on building there, to
prohibit others from doing so.
Waste Coal
Same as Culm.101
Waterfall
" Sometimes called a payment waterfall or flow of funds refers to the order of
application of revenues. Think of the funds in question as water running down a
flight of stairs with a bucket placed on each step—the water (money) flows to
the top step first and fills that bucket before the overflow continues on to
the second step, and fills that bucket before proceeding to the third step,
etc. You only “run the Waterfall” on periodic (usually quarterly or semiannual)
payment dates, since if you filled up a lower waterfall level in-between
payment dates, you would be potentially depriving a higher waterfall level of
funds when needed. The exception is operating costs, which are paid at least
monthly. The Waterfall is generally ordered: (i) operating costs, (ii) costs of
administering the credit facility, (iii) interest and interest rate swap
payments, (iv) principal, (v) reserves, (vi) subordinated debt, and (vii)
equity distribution (or if distributions conditions are not met, Cash Sweep or
Cash Trap (possibly with retention in a Distribution Suspension Account)).
Wet Distiller Grain Solubles / WDGS
Distiller Grain Solubles that have not been dried for transportation or storage.
WGL
" Working Group List. The list assembled early in every deal showing all parties and their respective roles. In 15 years the junior-most people on
the list will be Masters of the Universe.
Wheeling
The transmission of electricity by one company or utility over the system of another utility.
Wildcat
See discussion under Exploration Well.
Windfarm
A power project using Wind Turbine Generators.
Windmill
" A device which turns grain into flour by transferring through gearing the rotational action of a set of wind vanes or sails into rotational action of a millstone against another fixed millstone.
Wind Power Density
" See Class 3 , 4, 5, etc. Wind Resource.
Wind Rose
" A circular graphical depiction of the history of wind blowing at a particular spot the frequency with which the
wind blew from a particular direction and how often that wind was blowing
within certain speed ranges. Each compass direction (broken down into 16) has a
piece of pie emanating from the center of the graph. The pie piece has colored
bands for each windspeed. The radius of each band shows how often the wind blew
from that direction at that speed. (You kind of have to see one to understand.)
Wind Turbine Generator / WTG
" A Nacelle including its guts, being
mainly a gearbox which converts a slowly rotating main drive shaft into a
fast-moving shaft inside a generator, Blades, Hub and a Tower. So-called “first
generation” WTGs (many of which are still in commercial operation) had
capacities of 100 kW or less. The second generation was in the 500 kW range.
It’s not so clear what generation we are on now, but most machines are in the
1.5 MW to 2.5 MW range, with 102
some offshore machines at
3.5 MW. Land-sited machines may not get much bigger, as the Blades and Tower sections
already max-out transportation constraints.
Working Capital
" A measure of a companys short-term liquidity calculated by subtracting
current liabilities from current assets.
Working Interest
" A percentage of ownership in an oil and gas lease granting its owner the right
to explore, drill and produce oil and gas from a specific parcel. A Working
Interest provides fewer benefits to its holder than a Royalty Interest. Working
Interest owners are obligated to pay a corresponding percentage of the cost of
leasing, drilling, producing and operating a well or unit. After Royalties are
paid, the Working Interest also entitles its owner to share in production
revenues with other Working Interest owners, based on the respective
percentages owned.
Wrap
" This term is used in different contexts to mean a party guaranteeing the obligations of one or more Primary Obligors. For instance if you have a project
entirely ready to be designed and built, but you have contracted with five
different contractors for the various tasks, your Lender will have serious
“finger-pointing” concerns, no matter how reputable the contractors. A single
Wrap by a creditworthy contractor may save the day. An EPC Contract is usually
a Wrap insofar as most or all of the work may be subcontracted out.
Wrong-Way Risk
See discussion generally under Right-Way Risk. . An example of a Wrong-Way Risk: Say you enter
into a currency swap with IcelandCo where you will owe them each month if the
US Dollar is worth less than 125 Krona and they pay you if it is not. In other
words, a relatively strong Dollar/weak Krona puts you In the Money, where
IcelandCo owes you. The weaker the Krona, the more IcelandCo owes you. But, as
the Krona weakens, capital leaves Iceland, unemployment rises, Icelanders who
have debt in Dollars default because they are earning in Krona but paying in
Dollars, they cut other expenditures, which further weakens the economy, and so
on. In short, while you have cleverly bet in the right direction on the
currency swap, you still have to collect, and your counterparty is less
creditworthy than at contract inception due to the generally weaker Iceland
economy; accordingly, you have a Wrong-Way Risk position
WTG
Wind Turbine Generator.
Yank-a-Bank
" A Credit Agreement provision that allows the Borrower to throw a Lender out of a Credit Facility if it wont agree to an Amendment (or sometimes if it asks for an gross-up
indemnity that not all of the Lenders are claiming). Certain Credit Agreement
amendments (including Amendments affecting pricing of the loans) cannot be
achieved without approval of all Lenders. Yank-a-Bank provisions enable the
Borrower to squeeze out dissenting Lenders in a 100 percent vote situation so
long as the majority of the Lenders has approved the Amendment. The “yanked”
Lender is replaced with a new Lender who does approve 103
the Amendment and is willing
to purchase the outstanding loans and commitments of the yanked Lender, usually
at Par.
Yaw
The rotation of a Nacelle to maintain alignment of the plane of the Blades perpendicular to wind direction.
Zoning
" Local statutes and regulations governing the use of real property. For example Zoning would tell you that
you may not build a power plant in Beverly Hills. Zoning addresses minimum lot
size for residential construction, building height, setback rules, noise
restrictions, parking lot size, etc.104
Project Development &
Finance Contacts at Latham & Watkins
If you have questions about
Latham & Watkins’ global Project Development and Finance Practice or the PF
Book of Jargon, please contact one of the attorneys listed below or the Latham
attorney with whom you normally consult: