PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP
Memorandum
To: Marcus J. Calloway, Founder & Chief Investment Officer, Ironside Capital Management LP Renata Obasi, Senior Managing Director, Infrastructure, Ironside Capital Management LP
From: Theresa Kim, Lead Associate, and Owen Fischer, Working Associate, Calderwood & Harkness LLP
Reviewed by: Pamela Cross, Responsible Partner, Calderwood & Harkness LLP
Date: August 18, 2022
Re: Due Diligence Review — Regulatory Permits and Licenses of Cascadia Renewables Holdings, Inc. and Subsidiaries
Matter No.: 1023-00001
Purpose of Memorandum
The purpose of this memorandum is to summarize the results of Calderwood & Harkness LLP's ("C&H") review of regulatory permits, licenses, concessions, and governmental authorizations held by Cascadia Renewables Holdings, Inc. ("Cascadia" or "CRH") and its operating subsidiaries in connection with the proposed acquisition (the "Transaction") of 100% of the equity interests of CRH by Cascadia Acquisition Corp. (the "AcquisitionCo"), a newly formed Delaware corporation to be owned by Meridian Infrastructure Partners Fund IV, LP ("Fund IV," holding 71.43% of AcquisitionCo / $750 million committed capital) and ICM Cascadia Co-Invest, LP ("ICM Co-Invest," holding 28.57% of AcquisitionCo / $300 million committed capital). The Transaction contemplates an enterprise value of approximately $1.95 billion, representing an implied EV/EBITDA multiple of approximately 14.1x based on FY 2021 adjusted EBITDA of $138 million as audited by Halstead & Greer LLP.
This memorandum is intended solely for the use of the addressees and their authorized advisors in connection with the Transaction. It is protected by the attorney-client privilege and the work product doctrine, and its contents should not be disclosed to third parties without the prior written consent of C&H.
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I. Executive Summary
C&H has completed a comprehensive review of all material regulatory permits, licenses, governmental authorizations, concessions, and water rights held by Cascadia and its operating subsidiaries across three states — Oregon, Washington, and Idaho — in connection with the proposed Transaction. This review was conducted to assess (i) the validity, good standing, and compliance status of Cascadia's regulatory permit portfolio; (ii) the transfer, change-of-control, and consent requirements applicable to such permits and authorizations in the context of the equity-level acquisition; and (iii) key regulatory risks that may affect the Transaction or Cascadia's ongoing operations post-closing.
Regulated Asset Base. Cascadia's regulated asset base consists of fourteen (14) hydroelectric facilities operating under licenses issued by the Federal Energy Regulatory Commission ("FERC"), six (6) wind farms operating under a combination of state siting certificates, federal aviation determinations, and local land-use permits, and three (3) water-treatment concessions — all located in Oregon — operated under concession agreements with municipal counterparties. In the aggregate, these assets generated FY 2021 revenue of approximately $487 million, with a weighted-average remaining contract or concession life of approximately twenty-two (22) years, providing substantial long-term revenue visibility for the investment thesis.
High-Level Findings. Cascadia holds a complex and extensive portfolio of federal, state, and local regulatory permits and authorizations. Based on our review of the documents and information available in the data room as of the diligence cut-off date of August 18, 2022, we have determined that all material permits are current and in good standing. We did not identify any pending enforcement actions, notices of violation, consent orders, or other regulatory proceedings that would constitute a material compliance deficiency with respect to any Cascadia permit or authorization.
Notwithstanding the generally favorable compliance picture, our review has identified several key risk areas warranting close attention in the structuring and documentation of the Transaction:
(a) FERC Hydroelectric License Transfer Requirements. Under Section 203 of the Federal Power Act (16 U.S.C. §824b), the proposed indirect change of control of Cascadia's FERC-licensed hydroelectric facilities requires prior FERC approval. This is a mandatory pre-closing regulatory condition that will require a formal filing and an anticipated review period of 60 to 180 days. FERC Docket Number EC22-143-000 has been assigned to this matter.
(b) State Utility Permit Transfer Approvals. The Oregon Public Utility Commission ("OPUC") will require approval for the transfer of Cascadia's Oregon utility assets. Similar change-of-control analysis must be conducted with respect to the Washington Utilities and Transportation Commission ("WUTC") and the Idaho Public Utilities Commission ("IPUC") to determine whether the equity-level Transaction triggers filing obligations in those jurisdictions.
(c) Potential for Regulatory Conditions on Change of Control. Both FERC and the OPUC may impose conditions on their respective approvals, including ring-fencing requirements, affiliate transaction restrictions, reporting obligations, and financial viability commitments. Such conditions could affect the post-closing operational flexibility and financial structure of Cascadia under its new ownership.
(d) Long-Term Water Rights and Concession Agreements. Cascadia's water-treatment concessions are tied to certificated water rights and long-term concession agreements with municipal counterparties. The Bull Run Filtration Project concession, which generates approximately $64 million in annual revenue (approximately 13% of total FY 2021 revenue), is of particular significance. The concession agreement with the Portland Metropolitan Water District runs for a 40-year term commencing approximately 2018 and contains change-of-control provisions that may require counterparty consent in connection with the Transaction.
Transaction-Specific Regulatory Approvals Required for Closing. Based on our analysis, the following transaction-specific regulatory approvals or filings are required or recommended in connection with the closing of the Transaction:
(i) FERC Section 203 approval (Federal Power Act) — mandatory;
(ii) OPUC approval for transfer of Oregon utility assets — mandatory;
(iii) CFIUS voluntary notice — recommended (no foreign ownership issues identified; voluntary notice filed to confirm clearance); and
(iv) Potential WUTC and IPUC notifications or approvals if change-of-control thresholds under applicable state statutes are determined to be triggered.
Each of these approvals is discussed in detail in Section IX of this memorandum.
II. Scope of Review and Sources
A. Data Room Documents
C&H reviewed documents contained in the following sections of the virtual data room (the "VDR") maintained by Ridgeway, Ashford & Malone PC ("RAM"), counsel to Cascadia (lead partner Nina R. Castellano), in connection with the Transaction:
Section 3.1 (Regulatory): Copies of all material regulatory filings, orders, and correspondence with FERC, OPUC, WUTC, IPUC, and other federal and state regulatory agencies; regulatory compliance reports; and internal regulatory compliance memoranda.
Section 3.2 (Permits): Copies of all material federal, state, and local permits, licenses, certificates, and governmental authorizations held by Cascadia and its subsidiaries, organized by facility and jurisdiction.
Section 3.5 (Water Rights): Copies of certificated water rights, water-use permits, and related filings with the Oregon Water Resources Department ("OWRD"), Washington Department of Ecology, and Idaho Department of Water Resources ("IDWR"), together with water rights abstracts and chain-of-title documentation.
Section 3.9 (Environmental Permits): Copies of all environmental permits, including NPDES permits, air quality permits, solid and hazardous waste registrations, and related compliance documentation, as well as environmental assessment reports and Phase I/Phase II reports.
B. Additional Sources
In addition to VDR documents, C&H relied upon the following additional sources of information in preparing this memorandum:
(i) Management responses to C&H's Supplemental Diligence Request Lists Nos. 1 through 4 (dated July 11, 2022, July 25, 2022, August 1, 2022, and August 10, 2022, respectively);
(ii) Discussions with Cascadia's Chief Financial Officer, Sandra K. Llewellyn, and Cascadia's in-house regulatory counsel, conducted via videoconference on July 18, 2022, July 29, 2022, and August 8, 2022;
(iii) Phase I and Phase II environmental assessment reports prepared by Clearwater Environmental Consulting Inc. for each Cascadia facility (the environmental findings of which are analyzed separately in C&H's Environmental Due Diligence Memorandum dated August 29, 2022, and are referenced herein only as they relate to environmental permit compliance);
(iv) Publicly available regulatory filings, orders, dockets, and records maintained by FERC (via the FERC eLibrary system), OPUC, WUTC, and IPUC; and
(v) Publicly available FAA determination letters and records pertaining to Cascadia's wind farm facilities.
C. Limitations
This memorandum is based solely on documents and information made available to C&H as of August 18, 2022 (the "Diligence Cut-Off Date"). C&H has not independently verified the accuracy or completeness of representations made by Cascadia management or its counsel, nor has C&H conducted independent physical inspections of any Cascadia facility. C&H has not obtained title opinions or title insurance commitments with respect to any real property interests underlying Cascadia's permits or water rights. The analysis set forth herein should be read in conjunction with the other components of C&H's due diligence review, including the Environmental Due Diligence Memorandum, the Real Property and Title Memorandum, the Material Contracts Memorandum, and the Consolidated Summary Due Diligence Report and Risk Matrix, each prepared separately.
Certain developments occurring after the Diligence Cut-Off Date — including the filing of the FERC Section 203 application, the filing of the OPUC application, and the Portland Metropolitan Water District's notification of its intent to renegotiate the Bull Run Filtration Project concession — are noted in this memorandum where material but are addressed more fully in subsequent C&H memoranda as referenced herein.
III. Federal Regulatory Permits and Licenses
A. FERC Hydroelectric Licenses
1. Overview. Cascadia and its operating subsidiaries hold FERC hydroelectric licenses for all fourteen (14) of its hydroelectric generating facilities. Each license was issued under Part I of the Federal Power Act (16 U.S.C. §§791a–823d) and authorizes the construction, operation, and maintenance of a hydroelectric project on navigable waters or federally reserved lands. The FERC licenses constitute Cascadia's most significant category of federal regulatory authorization and collectively govern the operation of the company's core revenue-generating asset base.
2. License Inventory
The following table sets forth the complete inventory of FERC hydroelectric licenses held by Cascadia and its subsidiaries:
Aggregate Installed Hydroelectric Capacity: 944 MW across fourteen facilities in three states.
3. Remaining License Terms
The remaining terms of the fourteen FERC licenses range from approximately two (2) years (Upper Deschutes, P-2041, expiring June 14, 2024) to approximately twenty-five (25) years (Salmon River Station, P-4185, expiring March 2, 2047). The weighted-average remaining license term, calculated on an installed-capacity-weighted basis, is approximately twenty-three (23) years as of the Diligence Cut-Off Date. This weighted-average term is generally consistent with, and supportive of, the long-term infrastructure investment thesis underlying the Transaction.
4. License Conditions
Each FERC license contains standard and project-specific conditions governing the operation of the licensed facility. These conditions typically include, but are not limited to:
(a) Fish Passage Requirements. upstream and downstream fish passage facilities, including fish ladders, screens, and bypass systems, designed to facilitate migration of anadromous fish species (particularly Pacific salmon and steelhead) in compliance with conditions imposed pursuant to Section 18 of the Federal Power Act and applicable Biological Opinions issued by the National Marine Fisheries Service ("NMFS") and U.S. Fish and Wildlife Service ("USFWS").
(b) Minimum Flow Requirements. Minimum instream flow releases below project dams and diversions, specified on a seasonal or monthly basis, to protect aquatic habitat, water quality, and downstream water users.
(c) Water Quality Monitoring. Ongoing water quality monitoring programs, including temperature monitoring, dissolved oxygen monitoring, and turbidity monitoring, with periodic reporting to FERC and state water quality agencies.
(d) Recreational Access Requirements. Public access to project lands and waters for recreational purposes, including maintenance of boat launches, hiking trails, fishing access points, and campgrounds, as required under license articles.
(e) Periodic Reporting Obligations. Annual compliance reports, environmental monitoring reports, dam safety inspection reports, and other periodic filings required by FERC license articles and FERC regulations (18 C.F.R. Parts 5, 8, 12, and 16).
5. Compliance Status
Based on our review of the VDR documents, management representations, and publicly available FERC records, all fourteen (14) FERC licenses are currently in compliance with their respective terms and conditions. We did not identify any pending FERC enforcement actions, penalty proceedings, notices of violation, or show-cause orders with respect to any Cascadia hydroelectric license. Internal regulatory compliance memoranda provided by Cascadia's in-house regulatory counsel indicate that Cascadia maintains a dedicated regulatory compliance program with staff assigned to monitor and ensure ongoing compliance with FERC license conditions at each facility.
We note that FERC's Division of Dam Safety and Inspections conducts periodic inspections of all licensed hydroelectric facilities. The most recent inspection reports available in the VDR (covering inspection cycles through calendar year 2021) did not identify any material deficiencies or safety concerns requiring corrective action beyond routine maintenance items, all of which Cascadia reported as having been addressed within the timeframes specified by FERC.
6. Transfer and Change-of-Control Requirements
Under Section 203 of the Federal Power Act (16 U.S.C. §824b), the proposed Transaction requires FERC approval for the disposition of jurisdictional facilities. Section 203(a)(1) provides that no public utility shall, without first having secured an order of the Commission authorizing it to do so, sell, lease, or otherwise dispose of the whole of its facilities subject to the jurisdiction of the Commission, or any part thereof of a value in excess of $10 million, or merge or consolidate such facilities or any part thereof with those of any other person. The transfer of FERC licenses to new indirect ownership via AcquisitionCo, which will result in Meridian Infrastructure Partners Fund IV, LP and ICM Cascadia Co-Invest, LP becoming the ultimate indirect owners of Cascadia's FERC-licensed facilities, triggers Section 203 filing obligations.
FERC has assigned Docket Number EC22-143-000 to this Transaction. The Section 203 application was planned for filing in October 2022 and was subsequently filed on October 19, 2022. The application addresses the three factors the Commission traditionally considers in evaluating Section 203 applications: (i) the effect on competition, (ii) the effect on rates, and (iii) the effect on regulation. The application presents the Transaction as consistent with the public interest on each of these factors, given that the Transaction involves an equity-level acquisition that does not alter the physical operations, staffing, or management of any licensed facility and that the acquiring entities have demonstrated financial capability to support ongoing operations and capital investment.
FERC Approval Status (Post-Diligence Cut-Off Date Update). We note for completeness that FERC approval was received on December 15, 2022, pursuant to an order authorizing the disposition of jurisdictional facilities. The approval was conditioned on Cascadia's timely filing of license-transfer applications for each of the fourteen FERC licenses and contained an 18-month lapse provision providing that the approval would expire if the Transaction does not close within eighteen months of the date of the order (i.e., by approximately June 15, 2024). Compliance with the post-approval license-transfer filing requirements is essential to preserving the effectiveness of the FERC order.
7. Relicensing Risk
One facility — the Upper Deschutes Project (P-2041) — has a current license term expiring on June 14, 2024, placing it within the near-term relicensing window. Under FERC's Integrated Licensing Process ("ILP"), a licensee is required to file a Notice of Intent to file a relicensing application and a Pre-Application Document at least five and one-half (5.5) years prior to license expiration. Based on our review, Cascadia filed its Notice of Intent and Pre-Application Document for the Upper Deschutes Project in approximately December 2018, and the relicensing proceeding is currently underway. The relicensing process for a facility of this size and complexity — a 62 MW project on a river system supporting ESA-listed fish species — typically requires significant expenditures on environmental studies, stakeholder engagement, and regulatory filings, and may result in new or modified license conditions that could affect operating costs and generation capacity.
Additionally, the Rogue River Station (P-2589), with a license expiration of November 11, 2028, will enter its relicensing window (five to ten years prior to expiration) during the anticipated holding period for the investment. Fund IV's financial model should incorporate assumptions regarding the estimated costs, timeline, and potential operational impacts of the relicensing process for this facility.
No other Cascadia facility has a FERC license expiring within the next ten years.
B. FERC Market-Based Rate Authority and EQR Filings
Cascadia's power-marketing subsidiary, Cascadia Energy Marketing, LLC ("CEM"), holds FERC market-based rate ("MBR") authorization, which permits CEM to sell wholesale electric energy and capacity at market-based rates, as opposed to cost-of-service rates, in transactions with third parties. MBR authorization is granted pursuant to Section 205 of the Federal Power Act and is subject to ongoing reporting and compliance requirements.
CEM's MBR tariff requires the filing of Electric Quarterly Reports ("EQRs") with FERC on a quarterly basis, reporting all wholesale power sales transactions. Based on our review of CEM's EQR filing history as reflected in FERC records, CEM is current on all EQR filings through the second quarter of 2022 (the most recent quarter prior to the Diligence Cut-Off Date). No deficiency notices or late-filing penalties were identified.
Upon closing of the Transaction, the change in upstream ownership of CEM will trigger change-of-control reporting obligations under CEM's MBR tariff. Specifically, CEM will be required to file an updated market power analysis or a change-in-status filing with FERC within thirty (30) days of closing, notifying the Commission of the change in CEM's upstream ownership and affiliations. This filing is ministerial in nature and is not expected to result in any substantive regulatory challenge to CEM's continued MBR authorization.
C. Other Federal Permits
1. U.S. Army Corps of Engineers — Section 404 Permits
Cascadia holds permits issued by the U.S. Army Corps of Engineers ("USACE") under Section 404 of the Clean Water Act (33 U.S.C. §1344) for certain hydroelectric and water-treatment facilities where construction, operation, or maintenance activities involve the discharge of dredged or fill material into waters of the United States. These permits include both individual Section 404 permits for larger or more complex activities and nationwide permit authorizations for smaller-scale activities that qualify under USACE's general permit program. All Section 404 permits identified in the VDR are current, and no pending enforcement actions or compliance issues were identified.
2. Section 10 Permits — Rivers and Harbors Act
Where applicable, Cascadia holds permits issued under Section 10 of the Rivers and Harbors Act of 1899 (33 U.S.C. §403) for structures and work in or affecting navigable waters of the United States. These permits apply to certain dam structures, intake works, and discharge outfalls associated with Cascadia's hydroelectric facilities. All Section 10 permits are current and in compliance.
3. Endangered Species Act — Biological Opinions and Incidental Take Authorizations
Several of Cascadia's hydroelectric projects are located on river systems that support populations of ESA-listed species, particularly Pacific salmon (Oncorhynchus spp.) and steelhead (Oncorhynchus mykiss). In connection with the licensing and operation of these projects, FERC has consulted with NMFS and USFWS pursuant to Section 7 of the Endangered Species Act (16 U.S.C. §1536), resulting in the issuance of Biological Opinions ("BiOps") and associated Incidental Take Statements ("ITSs") for the following facilities:
• Upper Deschutes (P-2041) — NMFS BiOp dated April 2019 (relicensing consultation)
• Clackamas River (P-2412) — NMFS BiOp dated September 2011
• Columbia Gorge East (P-3011) — NMFS BiOp dated February 2015
• Skagit Highlands (P-3258) — NMFS BiOp dated July 2013; USFWS BiOp dated July 2013
• Salmon River Station (P-4185) — NMFS BiOp dated November 2017
Each of these Biological Opinions contains reasonable and prudent measures and terms and conditions that Cascadia is required to implement to minimize the incidental take of listed species. Based on our review of compliance documentation in the VDR, Cascadia is currently in compliance with all applicable BiOp terms and conditions. No "jeopardy" findings or "adverse modification" determinations were identified with respect to any Cascadia facility. No pending ESA enforcement actions or citizen-suit challenges were identified.
4. Federal Aviation Administration (FAA) Determinations
Cascadia has obtained Determinations of No Hazard to Air Navigation from the FAA for all wind turbine structures associated with its six wind farm facilities. These determinations are issued pursuant to 14 C.F.R. Part 77 and confirm that the height and location of each wind turbine do not constitute a hazard to air navigation. All FAA determinations are current. As discussed further in Section VII, FAA determinations must be renewed if turbine modifications result in changes to structure height or location; however, no such modifications are currently planned or contemplated.
IV. State Regulatory Permits and Authorizations — Oregon
A. Oregon Public Utility Commission (OPUC) Authorizations
1. Utility Certificates and Authorizations
Cascadia holds certificates of public convenience and necessity or equivalent authorizations from the OPUC for its utility operations in the State of Oregon. These authorizations permit Cascadia to operate as an electric utility within its designated service territory and to sell electric energy to wholesale and retail customers in accordance with applicable tariffs and rate schedules approved by the OPUC. Cascadia's Oregon utility operations represent the largest component of its regulated business, accounting for approximately sixty percent (60%) of total FY 2021 revenue.
All OPUC authorizations are current and in good standing. No pending enforcement actions, compliance deficiencies, or adverse orders were identified in the VDR or in publicly available OPUC records as of the Diligence Cut-Off Date.
2. Change-of-Control Approval Requirements
The proposed Transaction requires OPUC approval for the transfer of Cascadia's Oregon utility assets. Under Oregon Revised Statutes ("ORS") §757.480 and related OPUC regulations, no public utility may sell, lease, assign, or otherwise dispose of the whole or any part of its franchise, works, or system necessary or useful in the performance of its duties to the public without prior OPUC authorization. The OPUC has jurisdiction to review and approve changes in the ownership and control of Oregon public utilities to ensure that such changes are consistent with the public interest.
The OPUC has assigned Docket Number UM-2287 to the Transaction. The application for approval of the transfer of utility assets was filed on October 14, 2022. The OPUC's review standard is a public interest test that encompasses an assessment of the impact of the proposed transaction on ratepayers, service quality, the financial viability of the utility, and the ability of the utility to continue to meet its obligations under Oregon law.
3. Expected Conditions and Timeline
Based on C&H's analysis of precedent OPUC transactions involving changes of control of Oregon utilities, the OPUC review process typically takes between six (6) and twelve (12) months from the date of filing, though contested proceedings involving active intervenor participation can extend the timeline significantly. The OPUC may impose conditions on its approval, which may include:
(a) Ring-fencing requirements designed to insulate the regulated utility from the financial risks of its unregulated affiliates and upstream holding company;
(b) Reporting obligations requiring periodic disclosure to the OPUC of the utility's financial condition, affiliate transactions, and capital structure;
(c) Limits on affiliate transactions, including requirements for arm's-length pricing, competitive solicitation, and OPUC pre-approval of certain intercompany agreements;
(d) Commitments regarding service quality, capital investment, and maintenance of adequate staffing levels; and
(e) Restrictions on the extraction of dividends or distributions from the regulated utility without OPUC approval if such distributions would impair the utility's ability to maintain adequate capital reserves.
C&H has prepared a separate memorandum analyzing the OPUC approval process and relevant precedent transactions, dated September 14, 2022, which should be consulted for a more detailed assessment of the likely scope and nature of OPUC conditions.
Post-Diligence Cut-Off Date Update. We note that the OPUC proceedings in Docket UM-2287 were subsequently stayed at the joint request of the parties since February 2023. The stay was requested in connection with discussions regarding the potential renegotiation of the Bull Run Filtration Project concession and related developments, as discussed further in Section VIII of this memorandum. The stay remains in effect as of the date of the most recent update to this memorandum, and the timing for resumption of the OPUC proceedings is uncertain.
B. Oregon Water Resources Department (OWRD) — Water Rights
1. Certificated Water Rights and Water-Use Permits
Cascadia holds certificated water rights and water-use permits issued by the Oregon Water Resources Department ("OWRD") for its hydroelectric and water-treatment operations in Oregon. Oregon's water rights system is based on the prior appropriation doctrine, under which water rights are allocated based on priority of use ("first in time, first in right"), and all water rights are subject to the permitting and certification authority of the OWRD.
The following table summarizes Cascadia's material Oregon water rights:
2. Bull Run Filtration Project Water Rights
The water rights associated with the Bull Run Filtration Project concession are of particular significance to the Transaction. OWRD Permit No. S-58812, with a priority date of January 22, 2016, authorizes the diversion of up to 200 cubic feet per second from the Bull Run River for municipal and industrial water supply purposes in connection with the 40-year concession agreement executed approximately 2018 with the Portland Metropolitan Water District. This permit remains in "permit" status (i.e., has not yet been converted to a certificate of water right) pending completion of the proof-of-use process. Cascadia's in-house counsel has represented that the proof-of-use process is proceeding in the ordinary course and that no material obstacles to certification have been identified.
3. Transfer Considerations
Under Oregon water law, water rights are appurtenant to the place of use and not to the person or entity holding the rights. As a consequence, a change in the ownership of the entity holding water rights — as would occur in an equity-level transaction such as the proposed Transaction — does not require separate OWRD approval for the transfer of the water rights themselves. However, certain reporting obligations may apply, including notification to the OWRD of changes in the name and contact information of the water right holder. C&H recommends that Cascadia comply with any applicable reporting requirements promptly following the closing of the Transaction.
4. Compliance Status
No pending contested-case proceedings, enforcement actions, water right cancellation proceedings, or forfeiture claims were identified with respect to any Cascadia water right in Oregon. All water rights appear to have been exercised in accordance with their terms and conditions, and no extended periods of non-use that could give rise to a forfeiture claim under ORS §540.610 were identified.
C. Oregon Department of Environmental Quality (ODEQ) Permits
1. NPDES Permits
Cascadia holds National Pollutant Discharge Elimination System ("NPDES") permits issued by the Oregon Department of Environmental Quality ("ODEQ") for point-source discharges from its hydroelectric and water-treatment facilities. These permits are issued pursuant to the Clean Water Act (33 U.S.C. §1342) and Oregon's delegated NPDES permitting authority under ORS Chapter 468B. Each NPDES permit specifies effluent limitations, monitoring requirements, and reporting obligations applicable to the permitted discharge. All NPDES permits identified in the VDR are current and in compliance. No notices of violation, consent orders, or penalty assessments were identified.
2. Air Quality Permits
Cascadia holds air quality permits issued by ODEQ for backup diesel generation equipment located at certain facilities. These permits include Title V operating permits under 40 C.F.R. Part 70 for facilities that qualify as major sources under the Clean Air Act, as well as general permits and minor source registrations for smaller backup generation units. All air quality permits are current and in compliance.
3. Solid Waste and Hazardous Waste
Cascadia maintains appropriate solid waste and hazardous waste permits and registrations with ODEQ as applicable to its operations. No facilities were identified as large quantity generators of hazardous waste. No pending solid waste or hazardous waste enforcement actions were identified.
D. Oregon Department of Energy — Energy Facility Siting Council (EFSC)
Cascadia holds site certificates issued by the Oregon Energy Facility Siting Council ("EFSC") for wind farm facilities sited in Oregon. Under ORS Chapter 469, the EFSC has exclusive jurisdiction over the siting of energy facilities above certain capacity thresholds in Oregon. Site certificates contain detailed conditions governing facility construction, operation, and decommissioning, including but not limited to wildlife monitoring and mitigation, noise limits, setback requirements, visual impact mitigation, and decommissioning requirements.
C&H identified EFSC site certificates for three of Cascadia's six wind farm facilities — specifically, the Cascade Ridge Wind Farm (Wasco County), the Painted Hills Wind Farm (Wheeler County), and the Ochoco Plateau Wind Farm (Crook County). Each site certificate is current and in compliance with its conditions.
Transfer Requirements. EFSC rules require prior Council approval for the transfer of a site certificate to a new certificate holder. Under OAR 345-027-0100, the existing certificate holder and the proposed new certificate holder must submit a joint application demonstrating, among other things, that the proposed transferee has the financial capability and technical expertise to comply with the site certificate conditions. Because the Transaction involves an equity-level acquisition in which Cascadia itself will remain the site certificate holder (with only a change in upstream ownership), it is C&H's preliminary assessment that a formal transfer of the EFSC site certificates may not be required. However, the EFSC may take the position that the change in ultimate controlling ownership triggers the transfer approval requirement, and C&H recommends that Cascadia consult with the EFSC or seek a formal determination on this question prior to closing.
E. Local/County Land Use Permits — Oregon
Cascadia holds conditional use permits, building permits, and land-use approvals issued by various Oregon counties for its Oregon-based facilities. These permits have been issued in accordance with applicable county comprehensive plans and zoning ordinances, consistent with Statewide Planning Goals established by the Oregon Land Conservation and Development Commission.
Based on our review, all local land-use permits for Cascadia's Oregon facilities are current and in compliance. No pending appeals, land-use challenges, or enforcement actions were identified. C&H notes that local land-use permits in Oregon are generally not subject to transfer or change-of-control requirements in connection with equity-level transactions, as the permits run with the land rather than with the permit holder.
V. State Regulatory Permits and Authorizations — Washington
A. Washington Utilities and Transportation Commission (WUTC)
Cascadia holds the necessary authorizations from the Washington Utilities and Transportation Commission ("WUTC") for its utility operations in the State of Washington. These authorizations include certificates and tariff approvals governing Cascadia's provision of electric service to wholesale and retail customers in Washington.
All WUTC authorizations are current and in good standing. No pending enforcement actions, compliance deficiencies, or adverse orders were identified in the VDR or publicly available WUTC records.
Change-of-Control Approval Requirements. Under RCW 80.12.020, a public service company may not sell, lease, assign, or otherwise dispose of the whole or any part of its franchises, properties, or facilities necessary for the performance of its duties, or merge or consolidate with any other public service company, without the prior approval of the WUTC. C&H is analyzing whether the equity-level acquisition — in which Cascadia itself remains the regulated entity with no direct transfer of utility assets — triggers a filing obligation under RCW 80.12. The WUTC has, in certain precedent transactions, asserted jurisdiction over equity-level changes of control where such changes result in a transfer of effective control over a regulated utility. C&H recommends that Ironside and Meridian coordinate with C&H on a pre-filing consultation with the WUTC to determine whether a formal application or notification is required.
B. Washington Department of Ecology — Water Rights and Environmental Permits
1. Water Rights
Cascadia holds water rights issued under the Washington water code (RCW Title 90) for its hydroelectric operations in Washington. These water rights authorize the diversion and use of water from the Skagit River, Snoqualmie River, Yakima River, and Wenatchee River systems for hydroelectric power generation. All Washington water rights are current and in good standing. No pending adjudications, relinquishment proceedings, or enforcement actions were identified.
2. Environmental Permits
Cascadia holds NPDES permits and other environmental permits issued by the Washington Department of Ecology for its Washington-based facilities, including water quality permits, air quality permits for backup generation equipment, and stormwater management permits. All environmental permits are current, and no pending enforcement actions or notices of violation were identified.
C. Washington Energy Facility Site Evaluation Council (EFSEC)
Two of Cascadia's wind farm facilities are located in Washington and operate under site certification agreements issued by the Washington Energy Facility Site Evaluation Council ("EFSEC"). EFSEC has jurisdiction over the siting of major energy facilities in Washington under RCW Chapter 80.50.
C&H has identified EFSEC site certification agreements for the following facilities: the Kittitas Highlands Wind Farm (Kittitas County) and the Columbia Basin Wind Farm (Benton County). Both site certification agreements are current and in compliance with their terms and conditions.
Transfer Requirements. EFSEC site certification agreements contain provisions governing the transfer or assignment of the certification. As with the Oregon EFSC analysis, the question of whether an equity-level change in upstream ownership triggers a formal transfer requirement under the EFSEC agreement requires further analysis and potentially a pre-closing consultation with EFSEC. C&H will provide updated analysis on this point as the Transaction progresses.
D. Local Permits — Washington
Cascadia holds county and municipal permits for its Washington facilities, including conditional use permits, building permits, grading permits, and environmental review approvals issued under the Washington State Environmental Policy Act ("SEPA"). All local permits for Washington facilities are current and in compliance. No pending appeals, enforcement actions, or land-use challenges were identified.
VI. State Regulatory Permits and Authorizations — Idaho
A. Idaho Public Utilities Commission (IPUC)
Cascadia holds authorizations from the Idaho Public Utilities Commission ("IPUC") for its utility operations in the State of Idaho. These authorizations permit Cascadia to operate hydroelectric facilities and sell electric energy in Idaho in accordance with applicable IPUC rules and approved tariffs.
All IPUC authorizations are current and in good standing. No pending enforcement actions, compliance deficiencies, or adverse orders were identified.
Change-of-Control Requirements. The IPUC has jurisdiction under Idaho Code §61-328 to review and approve transfers of utility property and changes of control of regulated utilities. As with the WUTC analysis discussed in Section V.A, C&H is analyzing whether the equity-level nature of the Transaction triggers a filing obligation with the IPUC. C&H recommends a pre-filing consultation with the IPUC to confirm whether a formal application or notification is required. Given the relatively smaller scale of Cascadia's Idaho operations (two facilities, 119 MW aggregate capacity), the IPUC review, if required, is expected to be relatively straightforward and should not present a material impediment to closing.
B. Idaho Department of Water Resources (IDWR) — Water Rights
Cascadia holds water rights issued by the Idaho Department of Water Resources ("IDWR") for its hydroelectric facilities in Idaho — specifically, the Clearwater Falls (P-4022) and Salmon River Station (P-4185) facilities. Idaho's water rights system, like Oregon's, is based on the prior appropriation doctrine. All Idaho water rights are current and in good standing.
Transfer Considerations. Similar to Oregon, Idaho water rights are appurtenant to the place of use, and an equity-level change of ownership of the entity holding the water rights generally does not require a separate IDWR transfer approval. However, Cascadia should notify the IDWR of any changes in the name or contact information of the water right holder following closing and ensure that any applicable reporting obligations are satisfied.
C. Idaho Department of Environmental Quality (IDEQ)
Cascadia holds environmental permits issued by the Idaho Department of Environmental Quality ("IDEQ") for its Idaho operations, including NPDES permits (administered in Idaho through a delegated program), air quality permits for backup generation equipment, and water quality certifications under Section 401 of the Clean Water Act. All IDEQ permits are current and in compliance. No pending notices of violation, consent orders, or enforcement actions were identified.
D. Local Permits — Idaho
Cascadia holds county and municipal permits for its Idaho facilities, including conditional use permits, building permits, and land-use approvals. All local permits for Idaho facilities are current and in compliance. No pending appeals, enforcement actions, or land-use challenges were identified.
VII. Wind Farm Permits and Authorizations
A. Summary
Cascadia operates six (6) wind farm facilities across Oregon and Washington. The following table provides a summary of each facility and its principal permits and authorizations:
Aggregate Installed Wind Capacity: 820 MW across six facilities in two states.
B. FAA Determinations
As noted in Section III.C.4, Cascadia has obtained FAA Determinations of No Hazard to Air Navigation for all wind turbine structures associated with its six wind farm facilities. These determinations confirm that the height and location of each turbine comply with the obstruction standards set forth in 14 C.F.R. Part 77 and do not pose a hazard to air navigation. All FAA determinations are current. No turbine height modifications that would require renewed FAA review are currently planned.
C. State-Level Wildlife Permits
Certain wind farm facilities operate under state-level wildlife take permits or habitat conservation plans designed to address the potential impacts of wind turbine operations on avian and bat species. In particular:
• The Ochoco Plateau Wind Farm operates under a sage-grouse habitat management plan approved by the Oregon Department of Fish and Wildlife ("ODFW") as a condition of the EFSC site certificate.
• The Columbia Basin Wind Farm operates under a habitat conservation plan addressing impacts to shrub-steppe habitat, approved by the Washington Department of Fish and Wildlife ("WDFW") in coordination with EFSEC.
• All wind farm facilities conduct ongoing avian and bat mortality monitoring in compliance with their respective siting permits, with annual monitoring reports submitted to the applicable siting authority and state wildlife agency.
No wildlife-related enforcement actions, permit violations, or pending administrative proceedings were identified for any Cascadia wind farm facility.
D. Noise and Setback Compliance
Each wind farm facility is subject to noise and setback requirements imposed by the applicable siting authority or local jurisdiction. Based on our review of compliance documentation in the VDR, all facilities are in compliance with applicable noise standards and setback requirements. Cascadia conducts periodic noise monitoring at receptor locations identified in the permit conditions and submits monitoring reports as required. No noise complaints resulting in formal enforcement actions were identified.
E. Decommissioning Bonds and Financial Assurance
Several of Cascadia's wind farm facilities are required to maintain decommissioning bonds or other forms of financial assurance to guarantee the removal of turbines, restoration of the site, and related decommissioning activities at the end of the facility's operational life. Based on our review, the following decommissioning bonds are currently in place:
• Cascade Ridge: Surety bond, $12.5 million (issued by Fidelity Surety Corp.)
• Painted Hills: Surety bond, $9.8 million (issued by National Western Surety Co.)
• Ochoco Plateau: Surety bond, $7.2 million (issued by Fidelity Surety Corp.)
• Kittitas Highlands: Letter of credit, $18.0 million (issued by Greaves Bancorp)
• Columbia Basin: Letter of credit, $15.5 million (issued by Ostrander Financial)
• Palouse Ridgeline: Surety bond, $6.4 million (issued by National Western Surety Co.)
C&H recommends that the Transaction documentation address the treatment of decommissioning bonds and financial assurance instruments, including any consent or re-issuance requirements that may be triggered by the change in upstream ownership.
F. Power Purchase Agreements
Each wind farm facility operates under one or more power purchase agreements ("PPAs") with creditworthy offtake counterparties, including investor-owned utilities, municipal utilities, and commercial and industrial customers. The regulatory implications of these PPAs — including any assignment or change-of-control provisions — are analyzed in C&H's Material Contracts Memorandum (dated August 25, 2022) and are not addressed in detail in this memorandum. However, C&H notes that certain PPAs contain provisions requiring notice to, or consent of, the PPA counterparty in connection with a change of control of the facility owner, and compliance with such provisions should be confirmed prior to closing.
G. Compliance Status
All wind farm permits and authorizations are current and in compliance as of the Diligence Cut-Off Date. No pending enforcement actions, notices of violation, permit revocation proceedings, or administrative appeals were identified for any Cascadia wind farm facility.
VIII. Water-Treatment Concession Permits and Authorizations
A. Overview
Cascadia operates three (3) water-treatment concessions, all located in the State of Oregon. These concessions are structured as long-term public-private partnership agreements between Cascadia (or its subsidiaries) and municipal water authorities, pursuant to which Cascadia is responsible for the design, construction, operation, and maintenance of water-treatment facilities in exchange for periodic concession payments from the municipal counterparty. The concession model provides Cascadia with a stable, contracted revenue stream over a long-term period, subject to the terms and conditions of each concession agreement.
B. Bull Run Filtration Project Concession
1. Concession Agreement
The Bull Run Filtration Project concession is Cascadia's largest and most significant water-treatment concession. The concession is governed by a 40-year concession agreement (the "Bull Run Agreement") executed approximately 2018 between Cascadia Clean Water, LLC (a wholly-owned subsidiary of Cascadia) and the Portland Metropolitan Water District (the "PMWD"). Under the Bull Run Agreement, Cascadia is responsible for the design, construction, operation, and maintenance of a state-of-the-art water filtration facility on the Bull Run River, which provides treated drinking water to the Portland metropolitan area.
Annual Revenue. The Bull Run Filtration Project concession generates annual revenue of approximately $64 million, representing approximately 13% of Cascadia's total FY 2021 revenue of $487 million. Revenue is derived from availability-based payments made by the PMWD to Cascadia on a monthly basis, subject to performance deductions for failure to meet specified service levels and water quality standards.
2. Key Permits
The Bull Run Filtration Project is supported by the following material regulatory permits and authorizations:
(a) ODEQ NPDES Permit: NPDES permit for the discharge of treated water and process wastewater from the filtration facility, issued by ODEQ. The permit specifies effluent limitations for turbidity, chlorine residual, pH, and other parameters. The permit is current and in compliance.
(b) OWRD Water Rights: OWRD Permit No. S-58812 (priority date January 22, 2016), authorizing the diversion of up to 200 cfs from the Bull Run River for municipal and industrial water supply purposes. As noted in Section IV.B.2, this permit is pending certification through the proof-of-use process.
(c) OPUC Authorization: To the extent the water-treatment operations of Cascadia Clean Water, LLC are subject to OPUC jurisdiction, relevant OPUC authorizations are in place. C&H notes that the jurisdictional analysis regarding OPUC authority over water-treatment concession operations is somewhat complex, and the OPUC has historically taken the position that water utility operations within its jurisdiction require certification and tariff approval. Cascadia has represented that its water-treatment concession operations are structured as private contractual arrangements with municipal counterparties and are not subject to OPUC retail rate regulation. C&H has not independently verified this jurisdictional analysis and recommends that it be confirmed in the representations and warranties of the Equity Purchase Agreement.
3. Concession Renegotiation Notice
Post-Diligence Cut-Off Date Development. On October 28, 2022, the Portland Metropolitan Water District notified Cascadia of its intent to renegotiate the Bull Run Filtration Project concession agreement, citing changed regulatory requirements under Oregon SB 1567 (2022), which imposed new water treatment standards and public utility accountability requirements. This development occurred after the Diligence Cut-Off Date and is therefore not reflected in the substantive analysis of this memorandum. However, given its materiality — the concession represents approximately $64 million of $487 million in total FY 2021 revenue, or approximately 13% of the total — C&H has prepared a separate analysis of the renegotiation notice and its implications for the Transaction (the "MAE/Concession Renegotiation Memo," dated November 14, 2022).