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Energy Management Criteria

Energy Management Criteria. Summary of Risk Management Framework For INA Projects. Conceptual Approach. The Energy Management Criteria (“EMC”) Incorporated in the Lender’s Credit Agreement. Designed to maximize cash flows while minimizing risk to Project.

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Energy Management Criteria

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  1. Energy Management Criteria • Summary of Risk Management Framework • For INA Projects

  2. Conceptual Approach The Energy Management Criteria (“EMC”) • Incorporated in the Lender’s Credit Agreement. • Designed to maximize cash flows while minimizing risk to Project. • Allows for active asset management, but only in compliance with strict credit controls.

  3. Conceptual Approach Main Features • Establishes credit criteria for all counterparties. • Limits ability of Project to commit 100% of capacity (“N-1”), thereby mitigating risk of unplanned outages. • Limits “Imbalances” (i.e. sales of power without a matching purchase of gas) to equivalent of 1 train (300 MW). • Limits mark to market losses on aggregate Imbalances. • Limits “value at risk” on aggregate Imbalances. • Imbalance exposures collateralized by Merchant Liquidity Reserve.

  4. Technology Benefits Four Trains - 1 x 1 x 1 Structure • Design modified for maximum flexibility • Few Shared Facilities • Ability to Dispatch on Unit by Unit basis • Helps mitigate risk of construction delays (each train turned over one at a time) • Helps mitigate spare parts risk

  5. Train Scheduling Four Trains • Security Train (“N-1”) • 1 train always held to day ahead and intraday market. • Assures Project can meet obligation to deliver power in case of extended unscheduled outage. • Matched Trains • 3 trains matched (includes Security Train) with respect to purchases of fuel and sales of power. • Magnolia would have 2 trains matched. • Subject to very limited exceptions to implement transactions. • Unmatched Train • Up to 1 train unmatched between gas purchases and power sales. • Subject to further risk and mark to market exposure limitations backstopped by amounts available in reserve account (“MLR”). • Unmatched period must, in all cases, be less than 18 months.

  6. Train Scheduling - Limitations Substantial Completion Dates Financial Start • Capacity Constraints • Anticipated Trains (N – 2), but no more than actual trains in operation • Operating Trains (N – 1) Close Date Train 1 Train 2 Train 3 Train 4 20 months 10 Months 3 Trains 1 2 months 1 Train 2 1 Train 2 Trains 3 2 Trains 2 Trains 4 3 Trains 5

  7. General Limitations Three Limitations Utilized • Absolute Limit (Incurrence Test) -- Limits absolute level of imbalances between gas and power; limited to 1 train equivalent (gas or electricity) within 18 months with minor exceptions. • Cash Flow Exposure Limit (Incurrence Test) -- All “imbalances” are risk-weighted seasonally to provide further limitation on allowed imbalance; Cash Flow Exposure must be less than Cap (see next page). • MTM Limit (Maintenance Test) -- Any imbalances, whenever they occur, must be marked to market on a daily basis and are subject to Cap. Imbalances • Calculated on calendar month basis. • Equal to difference between power sold and gas purchased (converted to equivalent MW basis for purposes of comparison) for each month.

  8. General Limitations Cap for Mark to Market and Cash Flow Exposure • Cap is sized to reflect adjusted amounts available in the Merchant Liquidity Reserve, which is initially secured by equity commitments. • Cap = MLRLC + Additional deposits by Borrower - MLR Restricted Amount - “Bookouts”. • Cap sized to provide adequate flexibility to the asset manager, while limiting actual and potential exposure. • Merchant Liquidity Reserve L/C (“MLRLC”) and Merchant Liquidity Reserve Account will total 6 months debt service at financial closing assuming project remains 100% merchant. • MLR Restricted Amount represents the greater of (i) the debt service payment obligations for one quarter, and (ii) the amount of cash necessary to ensure a 1.30x debt service coverage ratio for the upcoming three years. • “Bookouts” represent current and future losses, if any, resulting from unhedged positions.

  9. Managing Fuel/Power: Greater than 45 Days • Between 45 days and 18 months: all general limitations apply: • Absolute Limit--Maximum of 1 train imbalance for any month. • MTM Limit • Cash Flow Exposure Limit • Any day limits exceeded, borrower must take action to bring into compliance within 2 Business Days. • Greater than 18 months: • No imbalances permitted. • Any day limits exceeded, borrower must take action to bring into compliance to extent possible within one Business Day.

  10. Managing Fuel/Power within 45 Days of Production • Obligated to have sufficient gas contracted over next 45 days in aggregate to cover all firm power deliveries over the same period in aggregate on rolling 45 day basis. • May be on firm or index price. • Any failure to have sufficient gas for next 45 days must be cured within one Business Day. • Absolute limit on physical/fixed price imbalance between Gas Purchases and Firm Power: • In addition to “1 Train Limit”, Borrower has ability to have additional 1 Train imbalance for maximum of two days in order to convert financial contracts into physical deliveries. • To the extent that gas is purchased at a floating index price, it is not treated as an Imbalance.

  11. Counterparty Credit Guidelines • Limitations on transactions (measured as % of plant capacity) with investment grade counterparties • Limitations on transactions with below investment grade counterparties: • If no security posted, counterparty subject to Technical Committee Approval for limits • In any event, limit for any individual counterparty limited to: • 34% of plant capacity for day ahead and intraday sales/purchases • 5% for 45 consecutive days • If security posted, can exceed 45 day limit with counterparty • Security arrangements subject to Technical Committee Approval

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