This Letter of Intent (LOI) is a critical tool for “distressed” infrastructure deals. It allows you to freeze the asset in the market (Exclusivity) while you perform technical due diligence on the dam’s structural integrity and the profitability of the power sales.
LETTER OF INTENT (LOI): PROPOSED ASSET ACQUISITION
DATE: [Current Date]
SELLER: [Name of Private Owner or Association]
BUYER: [Your Corporation Name]
ASSET: [Dam Name], NID ID: [ID Number], located at [Address/County]
Dear [Owner Name],
This Letter of Intent (“LOI”) outlines the preliminary terms under which [Your Corporation Name] (“Buyer”) proposes to acquire the hydroelectric asset and associated real property known as [Dam Name] (“The Property”) from [Seller Name] (“Seller”).
1. Proposed Transaction Structure
- Acquisition Type: Asset Purchase (including all water rights, FERC/EGLE licenses, and generating equipment).
- Purchase Price: $[Amount—Note: Often $1.00 for distressed dams with high liability].
- Assumption of Liability: Upon closing, Buyer will assume all responsibility for compliance with Michigan Part 315 (Dam Safety) and all future maintenance and decommissioning obligations.
2. Due Diligence Period (The “Inspection” Phase)
Buyer shall have [e.g., 90–120] days from the signing of this LOI to conduct a comprehensive review, including:
- Structural Audit: A 3rd-party engineering assessment of the spillway, embankments, and powerhouse.
- Interconnection Review: Confirmation of the Power Purchase Agreement (PPA) status with the utility.
- Environmental Review: Phase I environmental site assessment.
3. Exclusivity (The “No-Shop” Clause)
In consideration of the time and expense Buyer will incur for due diligence, the Seller agrees that for a period of [90] days, it will not negotiate with, or solicit offers from, any other party regarding the sale of the Property.
4. Conditions to Closing
The final purchase is contingent upon:
- Approval of the transfer by EGLE (and FERC, if applicable).
- Execution of a Definitive Purchase Agreement.
- Confirmation of Liability Insurance coverage for the structure.
5. Binding vs. Non-Binding
Except for the sections on Exclusivity and Confidentiality, this LOI is non-binding and intended only as a roadmap for the final agreement.
SINCERELY,
[Your Name], Managing Director
Strategic Advice for the “Distressed” Offer
If you are approaching an owner whose dam is in “Poor” condition (according to the EGLE map), your pitch should be:
“I am not just buying your dam; I am taking away your biggest legal headache. My corporation is raising the capital to fix this structure so you don’t have to.”
Next Step for Your Strategy
Now that you have the LOI, you need to verify the Power Purchase Agreement (PPA) rates. In Michigan, these rates are determined by the “Avoided Cost” of the utility.
Would you like me to find the current “Avoided Cost” rates for DTE or Consumers Energy so you can see exactly how much they are required to pay you for every megawatt of power your dam produces?