ESA RELATIONSHIP BACKGROUND

A large refinery processing up to $100,000$ bbl$/$day of crude oil executed a long$-$term ESA with a CHP facility $17$ years ago, for the purchase of steam and power. Steam is used within the refinery to process crude oil into various fuels and to produce chemicals. The refinery purchases about $40\%$ of the power produced by the CHP to drive their processes. The remainder of the power is sold to third parties. The CHP is dependent on the refinery for a large percentage of its revenue, and without the refinery$$s continued steam purchases, the CHP facility would not remain a viable business venture for its investors. The refinery relies on the CHP for low$-$cost heat energy to drive its processes. Without the CHP$,$ the cost to produce refined products would increase, thereby lowering profits and impacting the oil and gas company$$s stock price. The CHP also provides a secondary benefit by supplying steam and electricity more efficiently than conventional means, lowering its indirect carbon emissions, and providing potential tax benefits. In addition to the main elements of the ESA outlined above, the refinery also sells by$-$prod$-$uct refinery gas to the CHP as fuel. This outlet for the refinery assures a steady income stream for the low$-$quality fuel gas and helps the refinery secure environmental permits for new and upgraded processes and utilities within the refinery. The CHP provides the refinery with high$-$quality purified water for its uses in its chemical processes and supplemental steam production while the refinery provides the CHP raw water from its wells to produce the purified water product. In the past $17$ years, much has changed. The refinery has grown in complexity with new fuel lends for new customers, more stringent environmental regulation, new chemical products, and a changing economy has pressured the wholesale prices for its fuels. New technologies, especially the fields of gas turbine generators, natural gas exploration and production, and renewable energy have put downward pressure on the price of electricity making the CHP struggle to balance budgets. The aging CHP has an increasing need to provide high$-$cost maintenance to ensure the continued reliability of the steam and power supplies. The ESA is set to expire in three years. Two years prior to initial termination, the agreement allows the parties to enter negotiations to extend and renew terms. If the parties fail to reach agreement, the CHP owner may have rights to extend the ground lease to allow continued operation as a power producer, but in all likelihood this would end in closure of the CHP$.$ Over the years, the relationship between the refinery and the CHP owner has generally been good. Communications are open and transparent. There have been a few incidents in recent years in which the CHP steam reliability was not meeting expectations, but those differences have been resolved. Both parties are preparing for the start of negotiations for a new term of the ESA.

CHP DESCRIPTION AND OPERATIONS

The CHP facility is comprised of two single$-$cycle gas turbine generators with heat recovery boilers utilizing exhaust gases from the turbines that produce steam at $4\mathrm{.}48$ MPa $($gage$)$ and $658$ K with the option of burning natural gas in addition to the waste heat from the gas turbines. The refinery returns condensate to the CHP at $378$ K$,$ but is not obligated to do so$.$ The local ambient pressure is $0\mathrm{.}906$ bar and the average ambient temperature is $15$C$.$ The refinery may operate its backup boilers to provide steam not available from the CHP$.$ To compensate for unexpected CHP outages, the refinery keeps two boilers operating at minimum load $($approximately $180$ te$/$h$.)$ This practice is seen by the CHP as non$-$conforming to the initial intent of the ESA. The steam price from the CHP is an incentive to minimize boiler steam, but upsetting refinery operations is more costly to the refinery than the savings on steam purchases. The original CHP owner sold their interest in the CHP after $10$ years to an investment company that holds assets including oil and gas reserves, a fleet of power$-$generating facilities, and service companies. Internet publications show the investor group has a strong balance sheet with an expanding international presence. The investor$/$owner has hired a third party to operate and maintain the facility on their behalf.

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