For simplicity to illustrate the credit requirements, we assume that the bidder is relying on its own financial standing and is not rated by S&P, Moody’s or Fitch. Under the DG contracts for each utility, the performance assurance collateral amount is 10% of the remaining contract value if the calculated amount is at least $50,000. If the calculated amount is less than $50,000, then the Seller would not be required to provide any performance assurance collateral. This calculation is performed on the Effective Date of the contracts. During the term of the contracts, AIC will perform this calculation upon request by the Seller if the Seller believes it has delivered sufficient RECs to warrant a decrease in the collateral requirement. ComEd will perform this calculation annually on the last day of June.
As an example, a purchase price of $100 for 6,000 RECs across 5 delivery years would correspond to a contract value of $600,000, which would result in a requirement to provide performance assurance in the amount of $60,000 on the Effective Date of the contract. The Seller must provide this amount as performance assurance in the form of cash or a letter of credit at the beginning of the contract term. Assuming at the end of the first delivery year, the Seller has delivered 960 RECs. This would correspond to a remaining contract value of $504,000 (i.e., $100 x (6,000 RECs -1,000 RECs) = $504,000), and a performance assurance requirement of $51,000 (i.e., 50,400 rounded up to the nearest $1000). At that time, the Seller may request the return of $9,000. If collateral is posted in the form of a letter of credit, the Seller may provide an amendment to the letter of credit to reflect the reduced amount of $51,000.
Assuming further that the Seller delivered 1,200 RECs in the second delivery year, the remaining contract value would be $384,000 (i.e., $100 x (6,000 RECs – 960 RECs – 1,200 RECs) = $384,000). Given 10% of the remaining contract value yields an amount less than $50,000, the Seller may request the return of all the collateral posted as performance assurance at that point in time. In this case, there would no longer be any requirement to post performance assurance collateral through the remainder of the contract term.