Exhibit 10.5
U.S. ENERGY SERVICES, INC.
October 5, 2004
Xxxxx Xxxxxxxxx
Green Plains Renewable Energy, Inc.
0000 Xxxxxx Xxx Xxxxx
Xxx Xxxxx, XX 00000
Dear Xx. Xxxxxxxxx:
The purpose of this letter is to set forth the understanding and agreement
between U.S. Energy Services, Inc. ("U.S. Energy") and Green Plains Renewable
Energy, Inc. (GREEN PLAINS) (hereinafter "the Parties").
WHEREAS: GREEN PLAINS is attempting to locate a site that will be suitable, at
which, GREEN PLAINS can construct a 45 million dry-mill ethanol plant; and
WHEREAS: U.S. Energy has expertise in negotiating and/or providing for the
competitive pricing of natural gas, electricity, and/or coal, and any associated
energy facilities and services for such plants; and
WHEREAS: GREEN PLAINS is interested in using the services and expertise of U.S.
Energy in helping GREEN PLAINS to negotiate the cost of these services and
facilities for the benefit of Green Plains as part of the site selection process
and the ongoing energy requirements of the Green Plain's Plant;
NOW THEREFORE, and in consideration of the above, the value and sufficiency of
which is hereby acknowledged, the Parties agree as follows:
PROJECT DESCRIPTION: GREEN PLAINS is developing a 45 million gallon per year
ethanol plant ("Plant") to be located in southwest Iowa. The Plant will have
approximately a four MW peak usage in electricity and will consume approximately
4,500 MMBtu of natural gas per day.
U.S. ENERGY RESPONSIBILITIES: U.S. Energy will provide consulting and energy
management services for supplies of natural gas, coal, and electricity for the
Plant for the purpose of incorporating the requirements for service and pricing
established by GREEN PLAINS for the reasonable operation of the Plant described
herein. These services will be provided prior to and during the construction of
the Plant ("Construction Period"), and after the Construction Period when the
Plant has been placed in service ("Completion Date") subject to the terms of
this Agreement. The Completion Date shall be determined when the Plant begins
producing ethanol. These services will include but not be limited to the
following:
A. Energy Infrastructure Advisory Services Prior to and During the Construction
Period
1. Provide an economic comparison of receiving natural gas distribution
service. U.S. Energy will provide preliminary engineering cost
estimates, route drawings, and project timeline related to constructing
pipeline facilities.
In the event that a direct connect pipeline option is selected, U.S.
Energy will submit a tap request to the pipeline. In addition, U.S.
Energy will also on behalf of and under the direction of GREEN PLAINS
negotiate an option for GREEN PLAINS to minimize interconnect costs
through the purchase of firm transportation to the Plant.
2. Determine whether firm, interruptible, or a blend of transportation
entitlement will provide the lowest burnertip cost. Factors that will
be considered include pipeline credits for the new interconnect, cost
of an alternate fuel system, and availability of specific receipt point
capacity.
3. Provide advisory services to GREEN PLAINS regarding electric pricing
and service agreements.
a. Analyze the electric service proposals along with primary,
secondary and generation options and recommend an electric
sourcing strategy and plan. The plan may include a combination
of electric supplier agreement and/or installation of on-site
generation.
b. Negotiate final electric service agreements that meet the
pricing and reliability requirements of GREEN PLAINS,
including options for third party access to electric metering.
c. Prepare and implement a regulatory strategy, if required and
if an alternative power supplier is selected. Any attorney
fees required for the specific purpose of obtaining regulatory
approval for an alternative power supplier, if any, will be
over and above U.S. Energy's monthly fee herein, and must be
pre-approved by GREEN PLAINS.
4. Evaluate the economics and feasibility of using coal as a fuel source
rather than natural gas. Negotiate the acquisition, transportation,
storage and other logistics necessary in managing the cost of coal if
used as a fuel source.
5. Evaluate the proposed electric distribution infrastructure (substation)
for reliability, future growth potential and determination of the
division of ownership of facilities between the utility and the Plant.
6. Investigate economic development rates, utility grants, equipment
rebates and other utility programs that may be available.
7. Provide a monthly report, at the time of monthly billing to GREEN
PLAINS, outlining the tasks completed and the tasks to be completed in
the next month(s)and the current status of tasks and activities
completed on behalf of GREEN PLAINS to accomplish the goals of GREEN
PLAINS.
B. On-Going Energy Management Services Following the Completion Period
U.S. Energy will provide the following services at GREEN PLAINS's request:
1. Provide natural gas supply information to minimize the cost of natural
gas purchased. This will include acquiring multiple supply quotes and
reporting to GREEN PLAINS the various supply index and fixed prices.
U.S. Energy will not take title to GREEN PLAINS gas supplies, but will
communicate supply prices and potential buying strategies.
2. Negotiate with pipelines, utilities, other shippers, and suppliers to
provide transportation, balancing, and supply agreements that meet
GREEN PLAINS's performance criteria at the lowest possible cost.
3. Develop and implement a price risk management plan that is consistent
with GREEN PLAINS's pricing objectives and risk profile.
4. Provide daily nominations to the suppliers, pipeline, and other
applicable shippers for natural gas deliveries to the Plant. This will
include daily electronic confirmations to GREEN PLAINS of all
nominations and actual daily usage. U.S. Energy will utilize customer
or utility supplied telemetering to obtain actual usage data.
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5. Provide a consolidated monthly invoice to GREEN PLAINS that reflects
all applicable natural gas and electric energy costs. U.S. Energy will
be responsible for reviewing, reconciling and paying all shipper,
supplier and utility invoices.
6. Provide a monthly usage report of electric energy consumption and
costs. Also, where applicable and available from the utility, obtain
monthly interval electric load data and provide monthly load profile
graphs.
7. On going review and renegotiation of electric service costs, as
required. This may include:
a. Completing and evaluating annual proposals to identify the
most reliable and economic third party electric energy supply.
b. Identifying new service tariffs or opportunities to
renegotiate the service agreement to provide lower costs.
c. Identifying on-site generation opportunities as market
conditions change.
d. Provide a monthly projection of energy (natural gas or coal
and electricity) and annual summaries.
8. Evaluate the economics and feasibility of using coal as a fuel source
rather than natural gas. Negotiate the acquisition, transportation,
storage and other logistics necessary in managing the cost of coal if
used as a fuel source.
9. Provide natural gas or coal and electric energy operating budgets for
the Plant.
10. Perform initial sales tax exemption audits for energy consumption costs
as required and allowed by Iowa tax laws.
In performing the activities described above and throughout this
document, U.S. Energy agrees that it will at no time xxxx up or xxxx
down, for its own benefit, the actual commodity it is negotiating
and/or purchasing for and on behalf of GREEN PLAINS, whether it be
natural gas, coal, electricity, or any futures or options it may
purchase concerning those same commodities, for and on behalf of GREEN
PLAINS, in its hedging strategies or risk management programs for the
same. U.S. Energy further agrees that GREEN PLAINS shall be permitted
to inspect the books and trades n said commodities done by U.S. Energy
for and on behalf of GREEN PLAINS at any and all times.
TERM: The initial term of this Agreement shall commence on October 1, 2004 and
continue until six (6) months after the Plant's completion date, unless the site
at Shenandoah, Iowa, which is the primary location that U.S. Energy is being
engaged to work on behalf of GREEN PLAINS, is found to be deficient in anyway in
the feasibility study that is to be done by Xx. Xxxxx Xxxxxx and Pro Exporters
on behalf of the lending banks for the Project. In the event the Shenandoah sit
is found to be unsuitable, this Agreement shall be suspended until such time as
an alternative site is identified and U.S. Energy is directed to provide the
services specified in this Agreement for the substitute site. Once U.S. Energy
begins activities related to the new site all terms and conditions of this
Agreement shall be effective and enforceable. The Agreement shall be
month-to-month from that time on. This Agreement may be terminated by either
party effective after the initial term upon sixty (60) days prior written
notice. GREEN PLAINS shall remain responsible for payment and performance
associated with any and all transportation, supply, and storage transactions
entered into by U.S. Energy and authorized by GREEN PLAINS, prior to
termination.
FEES: U.S. Energy's fee for services described above during the term of this
Agreement shall be $2,900 per month, plus pre-approved travel expenses. GREEN
PLAINS may defer payment on the invoiced amounts until documents for closing and
funding the loans necessary for the plant have been secured. Deferred invoice
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amounts shall not bear interest. Plant financing shall be deemed to be secured
at the time GREEN PLAINS and its project lender(s) actually execute and deliver
all required documents for closing the loans necessary to finance the complete
construction of the GREEN PLAINS plant. In the event that plant financing is not
secured, this Agreement shall become null and void and both parties will be
relieved of professional and/or financial obligations due the other party.
Payment of pre-approved travel expenses shall not be deferred. If GREEN PLAINS
experiences significant delays in its project timeline and it is necessary for
U.S. Energy to delay work on GREEN PLAINS's energy management activities, upon
mutual agreement by both parties, U.S. Energy will suspend its activities and
suspend invoicing GREEN PLAINS until U.S. Energy's activities resume.
BILLING AND PAYMENT: On the first of the month, U.S. Energy shall invoice GREEN
PLAINS for the work completed in the prior month and GREEN PLAINS shall pay U.S.
Energy within ten (10) days of receipt of invoice. U.S. Energy will also provide
to GREEN PLAINS a consolidated invoice of the Plant's energy costs.
TAXES: GREEN PLAINS will be responsible for payment of all taxes including, but
not limited to, all sales, use, excise, BTU, heating value and other taxes
associated with the purchase and/or transport of natural gas or coal and
electricity and the provision of services hereunder.
CONFIDENTIALITY: U.S. Energy shall not divulge to any other person or party any
information developed by U.S. Energy hereunder or revealed to U.S. Energy
pursuant to this Agreement, unless such information is (a) already in U.S.
Energy's possession and such information is not known by U.S. Energy to be
subject to another Confidentiality Agreement, or (b) is or becomes generally
available to the public other than as a result of an unauthorized disclosure by
U.S. Energy, its officers, employees, directors, agents or its advisors, or (c)
becomes available to U.S. Energy on a non-confidential basis from a source which
is not known to be prohibited from disclosing such information to U.S. Energy by
legal, contractual or fiduciary obligation to the supplier, or (d) is required
by U.S. Energy to be disclosed by court order, or (e) is permitted by GREEN
PLAINS. All such information shall be and remain the property of GREEN PLAINS
unless such information is subject to another Confidentiality Agreement, and
upon the termination of this Agreement, U.S. Energy shall return all such
information upon GREEN PLAINS's request. Notwithstanding anything to the
contrary herein, U.S. Energy shall not disclose any information which is in any
way related to this Agreement or U.S. Energy's services hereunder without first
discussing such proposed disclosure with GREEN PLAINS.
NOTICES: Any formal notice, request or demand which a party hereto may desire to
give to the other respecting this Agreement shall be in writing and shall be
considered as duly delivered as of the postmark date when mailed by ordinary,
registered or certified mail by said party to the addresses listed below. Either
party may, from time-to-time, identify alternate addresses at which they may
receive notice during the term of this Agreement by providing written notice to
the other party of such alternate addresses.
Green Plains Renewable
Energy, Inc.: Green Plains Renewable Energy, Inc.
Attn: Xxxxx Xxxxxxxxx
0000 Xxxxxx Xxx Xxxxx
Xxx Xxxxx, XX 00000
U.S. Energy: U.S. Energy Services, Inc.
(Payment) c/o US Bank SDS 12-1449
Account #: 173100561153
X.X. Xxx 00 Xxxxxxxxxxx, XX 00000
(Notices): U.S. Energy Services, Inc.
0000 Xxxxxxxx Xxxx
Xxxxxxx, XX 00000
Attn: Xxxx XxXxxx
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ASSIGNMENT OR AMENDMENT: The Agreement may not be assigned or amended without
the written consent of U.S. Energy and GREEN PLAINS.
APPLICABLE LAW: The Agreement shall be construed in accordance with the laws of
the State of Iowa.
ENTIRE AGREEMENT: This Agreement constitutes the entire Agreement among the
parties pertaining to the subject matter hereof and supersedes all prior
Agreements and understanding pertaining hereto.
If the above correctly sets forth GREEN PLAIN's understanding of the Agreement,
please so indicate in the spaces below and return both originals to U.S. Energy,
Attention: Xxxx XxXxxx
Sincerely,
U.S. ENERGY SERVICES, INC.
By: /s/ Xxxx XxXxxx (Sign)
----------------------------------
Name: Xxxx XxXxxx (Print)
Title: Vice President
Date: 10-5-04
ACCEPTED AND DATED TO THIS 5th
DAY OF OCTOBER, 2004.
GREEN PLAINS RENEWABLE ENERGY, INC.
By: /s/ Xxxxx X. Xxxxxxxxx (Sign)
----------------------------------
Name: Xxxxx X. Xxxxxxxxx (Print)
Title: President
Date: 10-5-04
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