The CC Authorization Form, Performance Calls and Collateral

Overview

This blog post provides more context and information regarding the Credit Card Authorization form requirement, as well as how it relates to SREC delivery, collateral, and performance calls.

Background

The 5% collateral associated with your SREC contract is held by the contracting utility. This is the utility that receives your SRECs, and makes SREC payments to you. Carbon Solutions buys SRECs from you and sells them to that utility. The 5% collateral must be maintained at that level for the term of the contract.

As part of Carbon Solutions agreement with the utility, if SRECs are not delivered as contracted, the utility will draw on the 5% collateral at the contracted SREC price for however many SRECs are not delivered. The utility will then charge Carbon Solutions for the undelivered SREC(s).

Due to the nature of the up-front payment, this payment is passed on to you. This is called a “Performance Call”.

In practice, the utility will review SREC delivery after 36 months and compare the contracted amount with the amount delivered, based on the 36 month moving average of SREC delivery. After the first review, the utility will review annually thereafter until the contract ends.

Example: 150 SRECs on the contract, 10 SREC per year, flat. Through the first three years your system delivered 10, 10 and 9 SRECs. So 29 SRECs are delivered of the 30 SRECs contracted. The utility will draw on the collateral for the amount of 1 SREC, and charge Carbon Solutions.

In this example Carbon Solutions would invoice you for the same amount and provide five days notice before the card on file is charged. During that five day period you can update your payment method.

If you deliver all SRECs as contracted, or over-deliver SRECs, no additional payments are due, and no additional payments are owed to you by either Carbon Solutions or the contracted utility. The 5% collateral would be returned in full at the end of the 15 year agreement.

Below contains a few of the references to the SREC Purchase Agreement that discusses collateral, performance calls and the payment method on file.



The collateral draw-down is noted in the SREC purchase agreement. Page 6 provides an example of how the draw-down works and provides the following explanation.

If a collateral draw-down is to occur Buyer will notify Seller at the end of the generation year where the under generation occurs. The Collateral Draw-down payment is owed to Buyer immediately upon notification and the Buyer has the right to draw this amount from the Seller automatically.

Section 6.3 goes further into depth

6.3. Collateral Maintenance and Management.

Seller understands and agrees that Seller will be required to maintain a predefined Collateral balance (refer to Coversheet B) with Buyer for the entire Term of the Agreement.

The Collateral will be determined in the Application based on the kilowatt AC size of the System, and further adjusted based on the final Contract Value. The Collateral will be used to fulfill shortfalls in REC production relative to the production schedule agreed upon in the Coversheet C.

In the event the Collateral is needed to meet a shortfall in RECs delivered under Buyers ABP contract due to REC production shortfall, Seller will be required to make a payment to Buyer to restore the Collateral to the full original balance (a “Performance Call”). Payment to restore the Collateral will be made by credit card, ACH withdrawal from Seller’s bank account, or other method as required.

In all instances when a Performance Call is made, Seller will have no more than five (5) business days to restore the Collateral. In the event that Buyer requires a Performance Call from the Seller and the Seller is unable to restore the Collateral in the required time frame, Seller agrees and authorizes that Buyer may use any and all commercially available means to collect the Collateral from Seller. Commercially available means include, but are not limited to, charging a credit card the Seller keeps on file with Buyer, withdrawing funds automatically from the Seller’s bank account, utilizing another form of payment, or hiring third party collection agencies. If it is determined that during the Term of the Agreement the Seller’s form of payment in the event of Performance Calls is no longer active, the Seller will be required to update its form of payment for events of Performance Calls in their account on Buyer’s website.


Additionally, Buyer reserves the right to take all legal actions under any Security Agreement Addendum as set forth in Section 6.4. At all times during the Term of this Agreement, the Seller represents and warrants that it has the financial wherewithal to maintain the Collateral required under the terms of this Agreement. Furthermore, for each 30 day period for which the Performance Call is not answered Seller will accrue an additional 1.5% monthly fee.

Section 6.3.2 speaks to the requirement before payments are made.

6.3.2 Collateral Payment Information.

No payment will be made to Seller until Seller has given Buyer valid authorization and transaction information to be used for automatic Collateral Draw-down. Buyer shall have the right to verify payment method is valid. This includes the right to charge the seller One (1) Dollar each Delivery year to verify this payment method  

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