A utility tolling agreement is a contract between two parties that allows one party to toll or process a specific amount of a utility (such as natural gas or electricity) through the other party`s facility. This type of agreement is commonly used in the energy industry, particularly in the operation of natural gas and electricity power plants.
In a utility tolling agreement, the party that owns the utility provides it to the party that owns the facility, who then processes it and returns the product back to the utility owner. The fees paid for the tolling service may include a fixed fee or a variable cost based on the amount of energy processed.
One benefit of a utility tolling agreement is that it allows the utility owner to outsource the processing of its product, reducing the need for capital investment in facilities and equipment. This can be particularly advantageous for smaller utility companies that may not have the resources to build and operate their own processing facilities.
Another benefit is that the facility owner can potentially generate more revenue by processing the additional utility. This may be helpful in times when demand for energy is high or when the facility has excess capacity that can be used for tolling services.
However, there are also potential downsides to utility tolling agreements. For example, the tolling party may not have control over the processing of its utility, which could result in quality issues or delays. In addition, the utility owner may have limited options for where to send its product for tolling services, which could limit its negotiating power.
Overall, a utility tolling agreement can be a useful tool for both utility and facility owners in the energy industry. It is important to carefully consider the potential benefits and drawbacks before entering into such an agreement, and to ensure that both parties are clear on the terms and expectations of the contract.