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all this gas at specified prices or else to pay for gas tendered
but not taken.9
Plant Is Built and Begins Operation
Construction of the project began in 1981. The project was
placed in service for tax purposes in 1984. On July 28, 1984,
the plant delivered its first synthetic natural gas to the
interconnecting gas pipeline. Since then, the plant has
continuously produced and delivered synthetic natural gas.
Initial Eligibility for Investment and Energy Tax Credits
A substantial part of the project’s assets constituted new
section 38 property, qualifying for general business credits
(sometimes referred to as investment credits). In addition, a
substantial part of the project’s assets constituted alternative
energy property within the meaning of section 48(l)(3) and
constituted energy property eligible for the energy percentage
under section 46(b)(2)(A). The partners and DOE relied on the
availability of the investment and energy tax credits as a key
9 These contracts obligated the pipeline affiliates to a
payment rate substantially above the market price for the gas
produced; the price was to be reduced in periodic increments over
a 25-year period. Economic analyses indicated to the partnership
that the gas purchase agreements would result in an assured
market for the synthetic natural gas produced during the
project’s life and that revenues would be adequate to service the
debt and also contribute toward the return of invested equity.
By separate agreement, in the event a default by the partnership
led to the termination of the gas purchase agreements, those
agreements could be reinstated between the pipeline affiliates
and DOE on the same terms.
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