PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT ATTORNEY-CLIENT PRIVILEGED COMMUNICATION
MEMORANDUM
September 12, 2022
To: Marcus J. Calloway, Founder & Chief Investment Officer, Ironside Capital Management LP Renata Obasi, Senior Managing Director, Infrastructure, Ironside Capital Management LP
From: Pamela Cross, Responsible Partner, Calderwood & Harkness LLP Theresa Kim, Lead Associate, Calderwood & Harkness LLP
Re: FERC §203 Filing Requirements and Timeline — Transfer of Hydroelectric Licenses Held by Cascadia Renewables Holdings, Inc.
Matter No.: 1023-00001
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I. Executive Summary
The purpose of this memorandum is to analyze the requirements, process, and anticipated timeline for obtaining approval from the Federal Energy Regulatory Commission ("FERC" or the "Commission") under Section 203 of the Federal Power Act, 16 U.S.C. §824b ("Section 203" or "FPA §203"), in connection with the proposed acquisition of one hundred percent (100%) of the outstanding equity interests of Cascadia Renewables Holdings, Inc. ("Cascadia" or "CRH"), an Oregon corporation headquartered at 1100 SW Sixth Avenue, Suite 1800, Portland, OR 97204, by Cascadia Acquisition Corp. ("AcquisitionCo"), a newly formed Delaware corporation wholly owned by Meridian Infrastructure Partners Fund IV, LP ("Fund IV") and ICM Cascadia Co-Invest, LP ("ICM Co-Invest" or the "Vehicle"). This memorandum is provided to Ironside Capital Management LP ("Ironside") in its capacity as the 99.99% limited partner of ICM Co-Invest and the ultimate beneficial owner of the co-investment allocation in the proposed transaction.
The proposed transaction involves a change of control of jurisdictional facilities — specifically, fourteen (14) hydroelectric generating facilities licensed by FERC pursuant to Part I of the Federal Power Act, located across the states of Oregon, Washington, and Idaho. As a result of the acquisition, upstream ownership of these FERC-licensed facilities will transfer from the current shareholders of Cascadia (principally Timberline Growth Equity Fund III, LP, the Weir Family Trust, and a management rollover pool) to AcquisitionCo, and through it to Fund IV and ICM Co-Invest. This change of control squarely triggers the prior authorization requirement of Section 203.
Filing of the Section 203 application with FERC is required prior to the closing of the proposed transaction. Approval by FERC is an express closing condition under the Equity Purchase Agreement dated September 15, 2022 (the "EPA"), which is expected to be executed three (3) business days following the date of this memorandum. The EPA provides for an outside date of December 31, 2022, by which all closing conditions — including FERC approval — must be satisfied or waived in order for the transaction to close on or before that date.
Based on our analysis of the applicable statutory and regulatory framework, current FERC processing timelines, and the substantive merits of the transaction, we conclude as follows:
• The filing should be made no later than mid-October 2022 in order to preserve a reasonable probability of obtaining FERC approval by the original EPA outside date of December 31, 2022. However, the expected review period of sixty (60) to ninety (90) days makes that deadline tight and dependent on the filing being deemed complete upon submission, the absence of material interventions or protests, and FERC staff acting on delegated authority without referring the matter to the full Commission.
• We recommend a filing target date of October 19, 2022, which allows sufficient time for Breckenridge Sloane & Pratt LLP ("BSP"), as counsel to Meridian Infrastructure Partners LP ("Meridian") and AcquisitionCo, to prepare the application, and for Calderwood & Harkness LLP ("C&H") to review and comment on all portions of the application that describe or relate to ICM Co-Invest and Ironside prior to filing.
• On the merits, we expect the application to be approved without material difficulty. The transaction involves the acquisition by financial investors with no existing generation assets in the relevant geographic markets, long-term contracted revenues under power-purchase agreements, and no identifiable adverse effects on competition, rates, or regulation. The principal risk to the transaction timeline is not the substantive outcome of the FERC proceeding, but rather the processing time required for FERC to act.
• A FERC docket number will be assigned upon filing of the application. We understand from BSP that, upon filing, the proceeding was subsequently assigned FERC Docket No. EC22-143-000.
The balance of this memorandum sets forth our detailed analysis of the transaction background, the applicable statutory and regulatory framework, filing requirements, the anticipated review process and timeline, our assessment of the likelihood of approval, potential conditions that FERC may impose, coordination with other regulatory approvals, considerations specific to ICM Co-Invest and Ironside, and our recommendations for next steps.
II. Background on the Transaction
A. Transaction Structure
The proposed transaction is structured as a one hundred percent (100%) equity acquisition. AcquisitionCo, a newly formed Delaware corporation established for the sole purpose of consummating this transaction, will acquire all of the outstanding equity interests of Cascadia from Cascadia's existing shareholders. AcquisitionCo is jointly owned by Fund IV and ICM Co-Invest, with each entity's equity contribution and ownership percentage governed by the Co-Investment Allocation Agreement between Fund IV and ICM Co-Invest (the "Allocation Agreement"), a copy of which will be included as a filing exhibit in the FERC application.
The principal financial terms of the proposed transaction are as follows:
• Aggregate Enterprise Value: $1,950,000,000 (one billion, nine hundred fifty million dollars), representing approximately 14.1x Cascadia's fiscal year 2021 earnings before interest, taxes, depreciation, and amortization ("EBITDA") of $138,000,000, based on Cascadia's audited financial statements for the fiscal year ending December 31, 2021, as audited by Halstead & Greer LLP. Cascadia reported fiscal year 2021 revenue of $487,000,000 per the same audit.
• Equity Value: $1,050,000,000 (one billion, fifty million dollars), calculated as the aggregate enterprise value of $1,950,000,000 less approximately $900,000,000 of net debt outstanding on Cascadia's balance sheet as of the anticipated closing date.
• Sources of Funds: The aggregate capital required to consummate the transaction, inclusive of fees, expenses, and working capital adjustments, is approximately $2,025,000,000, to be funded from the following sources:
The senior secured term loan of $975,000,000 is being provided by Atlas National Bank, N.A., acting as lead arranger and administrative agent, with Pinnacle Credit Partners LLC participating as co-lender. The debt financing is expected to be provided on customary terms for leveraged acquisition financings in the infrastructure sector.
• Selling Shareholders: The existing shareholders of Cascadia, from whom AcquisitionCo is acquiring one hundred percent (100%) of Cascadia's outstanding equity, are as follows:
Approximately fifty percent (50%) of the Management Rollover Pool's equity interest is expected to be rolled over into the post-acquisition ownership structure of AcquisitionCo, with the remainder cashed out at closing. The specific terms of the management rollover are set forth in the Management Participation Agreement, a copy of which has been provided to C&H under separate cover and will be referenced, though not filed in full, in the FERC application.
B. Cascadia's FERC-Jurisdictional Assets
Cascadia owns and operates a portfolio of fourteen (14) hydroelectric generating facilities located across three states in the Pacific Northwest: Oregon, Washington, and Idaho. Each of these facilities operates under a FERC-issued hydroelectric license granted pursuant to Part I of the Federal Power Act (16 U.S.C. §§791a–823d). These licenses are the jurisdictional assets that trigger the Section 203 filing requirement in connection with the proposed transaction.
The fourteen hydroelectric facilities represent the core revenue-generating assets of Cascadia's business. They have a combined installed capacity that is significant within the Pacific Northwest region, and they generate and sell electric power primarily under long-term power-purchase agreements ("PPAs") with counterparties that include investor-owned utilities, municipal utilities, and public utility districts in Oregon, Washington, and Idaho. The PPAs have a weighted-average remaining contract life of approximately twenty-two (22) years, providing substantial visibility into future revenue streams and reducing the exposure of Cascadia's FERC-jurisdictional assets to merchant market risk.
In addition to the fourteen hydroelectric facilities, Cascadia's broader asset portfolio includes six (6) wind farms and three (3) water-treatment concessions. These assets, while material to Cascadia's overall enterprise value, are not FERC-jurisdictional for purposes of Section 203 and therefore do not independently trigger a Section 203 filing obligation. The wind farms may be subject to certain FERC requirements relating to market-based rate authority under Section 205 of the Federal Power Act, and the water-treatment concessions are regulated at the state and local level. However, the scope of this memorandum is limited to the Section 203 filing requirements arising from the change of control of Cascadia's FERC-licensed hydroelectric facilities.
The current officers of Cascadia relevant to this proceeding include Jonathan M. Weir, Chief Executive Officer, and Sandra K. Llewellyn, Chief Financial Officer. Mr. Weir is a member of the Weir Family Trust, which holds an 18% equity interest in Cascadia, and he is expected to continue in his role as CEO following the closing of the transaction, subject to the terms of a new employment agreement currently under negotiation.
C. Parties and Counsel
The following parties and their respective legal counsel are involved in the proposed transaction and will be relevant to the FERC filing process:
Meridian Infrastructure Partners LP serves as the sponsor and deal lead for the transaction. Meridian is headquartered at 200 Clarendon Street, Suite 4200, Boston, MA 02116, and is led by David R. Hargreaves, Managing Partner. Meridian is acting through Meridian Infrastructure GP IV LLC, a Delaware limited liability company that serves as the general partner of both Fund IV and ICM Co-Invest. Fund IV is a private equity fund managed by Meridian with capital commitments dedicated to infrastructure investments in the energy, transportation, and water sectors. Meridian is also the investment manager and sponsor of Fund IV and has been responsible for sourcing, negotiating, and structuring the Cascadia acquisition.
Breckenridge Sloane & Pratt LLP ("BSP") serves as legal counsel to Meridian and AcquisitionCo. BSP's lead partner for the transaction is Charles A. Delacroix, who can be reached at BSP's offices at One Federal Street, Suite 3600, Boston, MA 02110. BSP will serve as the lead drafter of the Section 203 application to be filed with FERC on behalf of AcquisitionCo and, as applicable, Fund IV.
Ridgeway, Ashford & Malone PC ("RAM") serves as legal counsel to Cascadia. The lead partner for RAM in connection with this transaction is Nina R. Castellano, who can be reached at RAM's offices at 1000 SW Broadway, Suite 1600, Portland, OR 97205. RAM is expected to coordinate with BSP on portions of the FERC application that require Cascadia's input or verification, including the description of Cascadia's jurisdictional facilities, FERC license information, and the execution of any verified statements required of Cascadia as a co-applicant or transferor of control.
Ironside Capital Management LP is the client to whom this memorandum is addressed. Ironside (Marcus J. Calloway, Founder & Chief Investment Officer) is headquartered at 590 Madison Avenue, 38th Floor, New York, NY 10022, and is the 99.99% limited partner of ICM Cascadia Co-Invest, LP, the co-investment vehicle through which Ironside is participating in the acquisition. Ironside is a SEC-registered investment adviser with approximately $14.8 billion in assets under management across multiple fund strategies, including infrastructure, private credit, and special situations. Calderwood & Harkness LLP represents Ironside and ICM Co-Invest in connection with this transaction.
Blackthorn Advisory Group LLC serves as financial advisor to Meridian in connection with the Cascadia acquisition. Blackthorn is not expected to have a direct role in the FERC filing process, but certain financial analyses prepared by Blackthorn may be referenced or incorporated into the application exhibits.
As noted above, BSP will be the lead drafter of the Section 203 application on behalf of AcquisitionCo and Fund IV. C&H's role is to review and comment on the application on behalf of Ironside and ICM Co-Invest, with particular attention to (i) the accuracy and completeness of the description of the co-invest structure and Ironside's role therein, (ii) any representations made in the application regarding Ironside, ICM Co-Invest, or their existing assets and business activities, and (iii) the organizational charts and ownership disclosures that depict the full ownership chain from AcquisitionCo through to Ironside as the ultimate beneficial owner of the co-invest capital.
III. Statutory and Regulatory Framework
A. Section 203 of the Federal Power Act
Section 203 of the Federal Power Act (16 U.S.C. §824b) establishes the requirement that certain transactions involving jurisdictional public utility facilities receive prior authorization from FERC before they may be consummated. The statute was substantially amended by the Energy Policy Act of 2005, which broadened its scope to cover, among other things, acquisitions of securities in public utilities and holding companies that result in a change of control of jurisdictional assets. The pertinent subsections of Section 203 are as follows:
Section 203(a)(1)(A) 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 $10,000,000. This subsection is directed at dispositions by the public utility itself — that is, where the public utility is the transferor of jurisdictional assets. Although Cascadia is not directly disposing of its physical facilities in the proposed transaction (since the transaction is structured as an equity acquisition rather than an asset sale), this provision provides relevant background for understanding the scope of Section 203's authorization requirements.
Section 203(a)(1)(B) applies to mergers or consolidations, directly or indirectly, of the facilities of a public utility subject to the jurisdiction of the Commission, or any part thereof, with the facilities of any other person, by any means whatsoever. This provision is primarily directed at mergers of operating companies and is not directly triggered by the Cascadia transaction, which involves a change in the upstream equity ownership of a public utility rather than a merger of utility facilities.
Section 203(a)(2) provides that no holding company in a holding company system that includes a transmitting utility or an electric utility shall purchase, acquire, or take any security with a value in excess of $10,000,000 of, or, by any means whatsoever, directly or indirectly, merge or consolidate with, a transmitting utility, an electric utility company, a holding company in a holding company system that includes a transmitting utility or an electric utility company, or obtain the direct or indirect control over the management or policies of any such entity, without prior authorization of the Commission. This is the principal provision triggered by the Cascadia transaction, because the acquisition of one hundred percent (100%) of Cascadia's equity by AcquisitionCo constitutes a change in the upstream ownership and control of FERC-licensed hydroelectric facilities. Through AcquisitionCo, Fund IV and ICM Co-Invest — and through them, Meridian and Ironside — will obtain indirect control over Cascadia and its FERC-jurisdictional assets.
The $10,000,000 threshold set forth in Sections 203(a)(1)(A) and 203(a)(2) is clearly and overwhelmingly exceeded by the proposed transaction, which has an aggregate enterprise value of $1,950,000,000.
For completeness, we note that Section 203(a)(7) provides additional requirements applicable to transfers of FERC-issued hydroelectric licenses, which may be implicated to the extent that the change of control of Cascadia is treated as requiring license-transfer filings under Part I of the Federal Power Act. We address this further in Section VII of this memorandum (Conditions That May Be Imposed).
B. FERC Approval Standard
In evaluating applications filed under Section 203, FERC applies a three-prong standard articulated in its Merger Policy Statement, issued as Order No. 592 (77 FERC ¶61,263 (1996)), and refined in subsequent orders, including Order No. 642 (93 FERC ¶61,164 (2000)). Under this standard, the Commission will approve a proposed transaction if the applicant demonstrates that the transaction is "consistent with the public interest." The burden of proof rests on the applicant.
The three prongs of the standard are:
1. Effect on Competition. The Commission examines whether the proposed transaction will have an adverse effect on competition in relevant wholesale electric power markets. This analysis typically involves identification of the relevant geographic and product markets, assessment of market concentration using the Herfindahl-Hirschman Index ("HHI") or similar analytical tools, and evaluation of whether the transaction creates or enhances market power. In transactions involving financial acquirers with no existing generation assets in the relevant markets, the competitive analysis is generally straightforward, as there is no horizontal overlap that would increase market concentration.
2. Effect on Rates. The Commission examines whether the proposed transaction will adversely affect rates charged to wholesale electric power customers. This prong focuses on whether the transaction will result in increased costs being passed through to ratepayers, whether customers served under cost-based rate tariffs will be adversely affected, and whether the transaction will undermine any existing rate protections. Where the public utility's revenues are derived primarily from long-term PPAs at contractually established rates, and where there are no captive customers served at cost-based rates, the rate analysis is typically favorable to the applicant.
3. Effect on Regulation. The Commission examines whether the proposed transaction will impair the effectiveness of federal or state regulation of the public utility and its jurisdictional facilities. This prong considers whether the post-transaction ownership structure will create obstacles to regulatory oversight, whether the transaction will result in a loss of regulatory jurisdiction, and whether the combined entity will be subject to conflicting or duplicative regulatory requirements that could impair effective regulation. Where the post-transaction entity remains fully subject to FERC jurisdiction and applicable state regulatory oversight, this prong is generally satisfied.
In addition to the three primary prongs, FERC may also consider cross-subsidization concerns, as required by Section 203(a)(4) of the Federal Power Act. Specifically, the Commission will evaluate whether the proposed transaction may result in cross-subsidization of a non-utility associate company or the pledge or encumbrance of utility assets for the benefit of an associate company. This analysis is addressed through the submission of an Exhibit M (Cross-Subsidization Analysis) pursuant to 18 C.F.R. §33.2(j), which is discussed further in Section IV.B below.
For transactions involving hydroelectric facilities licensed under Part I of the Federal Power Act — as is the case with the Cascadia transaction — FERC may undertake additional scrutiny to ensure that continued compliance with hydroelectric license conditions is assured following the change of control. This may include examination of the acquirer's financial capacity and operational capabilities, as well as the terms of any license conditions that impose affirmative obligations on the licensee (such as environmental mitigation measures, fish passage requirements, and recreational access obligations). In the context of a financial acquisition where existing management is expected to remain in place, this review is typically limited.
C. Blanket Authorization vs. Individual Filing
FERC regulations at 18 C.F.R. §33.1(c) provide blanket authorization for certain categories of transactions that are deemed to be routine and that do not raise public interest concerns warranting individual review. These blanket authorizations generally apply to:
• Internal corporate reorganizations and restructurings that do not result in a change of the ultimate parent company or a change in the effective control of jurisdictional facilities;
• Formations of holding company structures where the public utility's operations and management are not materially altered;
• Acquisitions of securities in connection with the issuance of new debt or equity by a public utility, where the transaction does not result in a change of control; and
• Certain categories of transactions involving holding companies that are solely "passive" investors and do not exercise control over the public utility.
The proposed Cascadia transaction does not qualify for blanket authorization under any of these categories. The transaction involves the acquisition of one hundred percent (100%) of Cascadia's equity by a newly formed acquisition vehicle owned by unrelated third-party financial investors (Fund IV and ICM Co-Invest), resulting in a clear change of control from Cascadia's existing shareholders to AcquisitionCo and its upstream owners. This is precisely the type of transaction for which Section 203 requires prior, individualized Commission authorization. An individual filing under 18 C.F.R. Part 33 is therefore required.
IV. Filing Requirements
A. Form and Content of Application
The Section 203 application must be filed with FERC in accordance with the requirements set forth in 18 C.F.R. Part 33. The regulations prescribe both the form and the substantive content of the application. Based on our review of the applicable requirements and current FERC practice, the application must include the following:
Verified Application. The application must be a verified application, signed under oath by an authorized officer of each applicant. In the context of the Cascadia transaction, this means that the application should be signed by an authorized officer of AcquisitionCo (as the acquiring entity) and, depending on how the application is structured, by an authorized officer of Cascadia (as the entity whose FERC-licensed facilities are subject to the change of control). It is common practice for both the acquirer and the target to be named as co-applicants in Section 203 filings, particularly where the transaction involves a change of control of the target's jurisdictional assets. BSP should coordinate with RAM regarding Cascadia's participation as a co-applicant and the designation of an appropriate officer to execute the verified application on Cascadia's behalf.
Description of Jurisdictional Facilities. The application must include a detailed description of all jurisdictional facilities involved in the transaction. For the Cascadia filing, this means a comprehensive listing and description of each of the fourteen (14) hydroelectric generating facilities that are operated under FERC-issued licenses, including for each facility: the FERC license number (e.g., FERC Project No. P-XXXXX), the installed generating capacity (in megawatts), the physical location (river, county, and state), and a brief description of the facility's operational characteristics. This information will be compiled as Exhibit A to the application.
Description of the Proposed Transaction. The application must contain a detailed description of the proposed transaction, including all material terms, conditions, and consideration. This includes a description of the equity acquisition structure, the identity and roles of all parties, the purchase price and sources of funding, the post-closing corporate structure, and any material terms of the EPA that bear on the FERC filing (such as closing conditions, representations, and covenants relating to regulatory approvals). The transaction description will also need to address the role of Fund IV and ICM Co-Invest as co-owners of AcquisitionCo, and the Co-Investment Allocation Agreement that governs the economic and governance relationship between the two vehicles.
Corporate Organizational Charts. The application must include corporate organizational charts depicting the ownership structure of the applicants and the target both before and after the proposed transaction. The pre-transaction organizational chart will show the existing ownership of Cascadia by Timberline Growth Equity Fund III, LP, the Weir Family Trust, and the Management Rollover Pool. The post-transaction organizational chart will show the full chain of ownership from AcquisitionCo up through Fund IV and ICM Co-Invest to Meridian Infrastructure GP IV LLC (as the general partner of both Fund IV and ICM Co-Invest), Meridian Infrastructure Partners LP (as the sponsor and investment manager), and Ironside Capital Management LP (as the ultimate beneficial owner of the co-invest capital). These charts must be accurate and complete, and must clearly distinguish between general partner interests (with associated management and control rights) and limited partner interests (with passive, economic-only rights). C&H will need to review the post-transaction organizational chart carefully to ensure that Ironside's role is accurately depicted.
Financial Information. The application must include financial information regarding each of the applicants, as prescribed by the regulations. This will include, at a minimum, Cascadia's audited financial statements for the most recent fiscal year (as prepared by Halstead & Greer LLP), and financial information regarding Fund IV and ICM Co-Invest to the extent available. FERC may also require financial information regarding Meridian and Ironside to the extent they are considered upstream owners or affiliates of the applicants.
B. Required Exhibits
The application must be accompanied by a series of exhibits prescribed by 18 C.F.R. §33.2. Based on our review of the regulatory requirements and current FERC filing practice, the following exhibits will be required or potentially applicable:
Exhibit A — Description of Jurisdictional Facilities. This exhibit will contain a comprehensive description of all fourteen (14) hydroelectric facilities owned and operated by Cascadia that are licensed by FERC under Part I of the Federal Power Act. For each facility, the exhibit should include the FERC project license number, the installed generating capacity (in megawatts), the geographic location by river, county, and state, a brief description of the type and configuration of the facility (e.g., run-of-river, impoundment, pumped storage), and the status and expiration date of the FERC license. BSP will need to coordinate with RAM and Cascadia management to compile accurate and complete information for this exhibit.
Exhibit B — Description of the Proposed Transaction. This exhibit will provide a detailed narrative description of the equity acquisition, including the terms and conditions of the EPA, the identity and roles of all parties, the sources and uses of funds, the post-closing corporate and governance structure (including the respective roles of Fund IV and ICM Co-Invest as equity investors in AcquisitionCo), and the allocation of economic interests and governance rights between Fund IV and ICM Co-Invest under the Allocation Agreement.
Exhibit C — Maps and Diagrams. To the extent applicable, this exhibit will include maps or diagrams depicting the geographic location of the affected hydroelectric facilities and their relationship to the relevant electric transmission systems. This exhibit may be limited in scope if FERC does not require detailed system maps for a change-of-control transaction involving existing facilities.
Exhibit D — Transaction Contracts. This exhibit will include copies of the principal contracts related to the transaction, including the EPA, the Co-Investment Allocation Agreement between Fund IV and ICM Co-Invest, and relevant excerpts or summaries of the limited partnership agreements of Fund IV and ICM Co-Invest insofar as they demonstrate the control and governance arrangements among the parties. C&H should review the materials included in this exhibit to ensure that confidential commercial terms of the Allocation Agreement and the ICM Co-Invest limited partnership agreement are either redacted (with appropriate confidentiality motions) or described in summary form consistent with FERC practice.
Exhibit E — Corporate Organizational Charts. This exhibit will include the pre- and post-transaction organizational charts described above. As noted, C&H must review the post-transaction chart to confirm the accurate depiction of the ICM Co-Invest structure and Ironside's position in the ownership chain.
Exhibit F — Financial Statements. This exhibit will include audited financial statements of Cascadia for the most recent fiscal year, as prepared by Halstead & Greer LLP, as well as financial information for Fund IV, ICM Co-Invest, and, as appropriate, Meridian and Ironside. The financial information for Ironside should be limited to what is necessary to satisfy FERC's requirements and should not disclose confidential fund-level performance data beyond what is required. C&H should coordinate with BSP regarding the scope of financial disclosures relating to Ironside.
Exhibit G — Competitive Analysis. This exhibit will address the first prong of the Merger Policy Statement standard — the effect of the transaction on competition. The competitive analysis is expected to be relatively straightforward, as the acquirers (Fund IV and ICM Co-Invest, and through them Meridian and Ironside) are financial investors with no existing electric generation assets in the Pacific Northwest or in any relevant wholesale electric power market. There is therefore no horizontal overlap between the acquirers' existing assets and Cascadia's hydroelectric facilities. Additionally, Cascadia's facilities sell power under long-term PPAs with a weighted-average remaining life of approximately twenty-two (22) years, limiting the extent to which Cascadia participates in spot or short-term wholesale markets where the exercise of market power would be a concern. The exhibit may include a simplified market concentration analysis or may rely on a Competitive Analysis Screen, depending on FERC staff preferences and BSP's assessment of the most effective approach.
Exhibit H — Rate Analysis. This exhibit will address the second prong of the Merger Policy Statement standard — the effect of the transaction on rates. The analysis is expected to demonstrate that Cascadia's hydroelectric facilities sell power at rates established under long-term PPAs and/or FERC-accepted market-based rate tariffs, and that the change in upstream ownership does not directly affect these rates. The exhibit should also confirm that Cascadia does not serve captive customers at cost-based rates from its FERC-jurisdictional assets.
Exhibit I — Regulatory Analysis. This exhibit will address the third prong of the Merger Policy Statement standard — the effect of the transaction on regulation. The analysis should demonstrate that post-acquisition, Cascadia's FERC-licensed hydroelectric facilities will continue to be subject to the full scope of FERC jurisdiction under the Federal Power Act, including all terms and conditions of their respective FERC licenses. The exhibit should also note the parallel regulatory proceedings before the Oregon Public Utility Commission (OPUC Docket No. UM-2287, described further in Section VIII below) and relevant agencies in Washington and Idaho, and should confirm that the transaction does not impair the effectiveness of federal or state regulation.
Exhibit M — Cross-Subsidization Analysis. Pursuant to 18 C.F.R. §33.2(j), this exhibit is required if an associate company of the applicant has captive customers or if the transaction otherwise raises cross-subsidization concerns. The exhibit requires the applicant to describe the potential for cross-subsidization of associate companies and to provide assurances that the public utility's assets and revenues will not be diverted to the benefit of non-regulated affiliates. Although the cross-subsidization risk in this transaction is low — Meridian and Ironside are financial investors, and ICM Co-Invest's sole asset will be its equity interest in AcquisitionCo — the Exhibit M analysis must be completed to satisfy the regulatory requirement. C&H should review this exhibit to ensure that no associate company of Ironside or ICM Co-Invest is identified as having captive customers.
C. Filing Fee
The FERC filing fee applicable to a Section 203 application will be determined based on the Commission's current fee schedule as set forth in 18 C.F.R. §381.108 or as otherwise published by FERC. Filing fees for Section 203 applications are typically nominal relative to the size of the underlying transaction and are not expected to present any obstacle to the filing. BSP will be responsible for ensuring that the appropriate filing fee is remitted at the time of filing.
D. Service and Publication
Upon filing, the application must be served on all affected state commissions and other interested parties as required by FERC's rules of practice. For the Cascadia transaction, service will be required on:
• The Oregon Public Utility Commission ("OPUC"), which has jurisdiction over Cascadia's state-regulated utility operations in Oregon. As discussed further in Section VIII below, the OPUC has a parallel approval process for the transaction, which has been docketed as OPUC Docket No. UM-2287 and is expected to be filed on or about October 14, 2022.
• The relevant state regulatory commissions in Washington (Washington Utilities and Transportation Commission) and Idaho (Idaho Public Utilities Commission), to the extent that Cascadia's hydroelectric facilities located in those states are subject to state regulatory jurisdiction.
• Any other persons or entities that FERC requires to be served based on the specific circumstances of the application.
Upon receipt of the application, FERC will publish a notice of the filing in the Federal Register. The Federal Register notice triggers a comment and intervention period during which interested parties may file comments, motions to intervene, or protests. The standard comment/intervention period is twenty-one (21) days from the date of Federal Register publication. The management of the intervention period and the response to any filed interventions or protests is a critical component of the timeline analysis discussed in Section V below.
V. Review Process and Expected Timeline
A. Standard Review Timeline
The review process for a Section 203 application typically proceeds as follows:
Filing and Docket Assignment. Upon receipt of the application, FERC assigns a docket number (in this case, subsequently assigned as EC22-143-000) and publishes a notice of the filing in the Federal Register. The time between filing and Federal Register publication can vary, but is typically one to two weeks. During this period, FERC staff conducts a preliminary review of the application to determine whether it is facially complete or whether a deficiency letter is warranted.
Comment and Intervention Period. The Federal Register notice establishes a comment and intervention deadline, typically twenty-one (21) days from the date of publication. During this period, any interested party — including state commissions, consumer advocacy groups, environmental organizations, competing utilities, or other stakeholders — may file comments, motions to intervene, or protests. The nature and volume of any interventions or protests filed during this period have a significant effect on the subsequent processing timeline.
Uncontested Applications. If no interventions or protests are filed during the comment period, or if only favorable or non-substantive interventions are filed, FERC staff may act on delegated authority to issue an order approving the application without referring the matter to the full Commission. The typical processing time for an uncontested Section 203 application is approximately sixty (60) days from the date of filing. This represents the most favorable timeline scenario and is dependent on the application being complete, the absence of material interventions, and FERC staff having sufficient capacity to process the application in a timely manner.
Contested Applications. If one or more parties file protests or substantive interventions raising material objections to the proposed transaction, the proceeding may become contested. In a contested proceeding, FERC staff may request additional briefing from the parties, may issue data requests or deficiency letters seeking additional information, and may refer the matter to the full Commission for decision. The processing time for a contested Section 203 application can range from ninety (90) days to one hundred eighty (180) days or longer, depending on the nature and complexity of the issues raised and the extent of FERC's review.
Deficiency Letters. Independently of whether the proceeding is contested, FERC staff may issue one or more deficiency letters requesting additional information or clarification regarding the application. Deficiency letters can add thirty (30) or more days to the processing timeline, depending on the scope of the requested information and the applicant's ability to respond promptly. The risk of a deficiency letter can be minimized by ensuring that the application is as complete and comprehensive as possible at the time of filing.
B. Anticipated Timeline for Cascadia Filing
Based on our analysis of the applicable review process, current FERC processing timelines, and the specific characteristics of the Cascadia transaction, we anticipate the following timeline:
Several observations regarding this timeline are warranted:
First, the recommended filing date of October 19, 2022 is designed to balance two competing considerations: (i) providing sufficient time for BSP to prepare a thorough and complete application (thereby minimizing the risk of a deficiency letter) and for C&H to review and comment on the portions of the application relating to ICM Co-Invest and Ironside, and (ii) allowing the maximum possible review period before the EPA outside date of December 31, 2022. A filing date of October 19, 2022 would allow approximately seventy-three (73) days before the EPA outside date — within the range of FERC's typical sixty (60) to ninety (90) day processing period for an uncontested application, but not providing a comfortable margin.
Second, the original EPA outside date of December 31, 2022, while potentially achievable, is tight. A FERC order by that date is possible but not certain. It is contingent on the application being filed on or before the recommended date, the application being accepted as complete without a deficiency letter, no material protests or interventions being filed, and FERC staff acting expeditiously on delegated authority. If any of these assumptions prove incorrect, the FERC order may not be issued until mid-January 2023 or later. This supports C&H's recommendation, discussed further in Section X below, that an extension of the EPA outside date may be prudent.
Third, the OPUC application for Docket No. UM-2287 is expected to be filed approximately five (5) days before the FERC filing, on or about October 14, 2022. The FERC and OPUC proceedings are independent — neither is contingent on the outcome of the other — but both are closing conditions under the EPA. The parties should ensure that the representations and descriptions of the transaction in the OPUC and FERC filings are consistent and do not contain any contradictory statements.
C. Potential for Expedited Review
FERC allows applicants to request expedited action on Section 203 applications, particularly where the transaction has a time-sensitive outside date or other exigent circumstances that warrant accelerated processing. Requests for expedited treatment are granted at FERC's discretion and are not guaranteed.
Based on our experience, expedited requests are more likely to be granted where the following conditions are met:
• The filing is complete, well-organized, and provides all information required by the regulations, minimizing the need for FERC staff to issue deficiency letters or seek additional information;
• The proceeding is uncontested — that is, no material protests or interventions have been filed;
• The competitive analysis is straightforward and demonstrates that the transaction does not raise horizontal or vertical market power concerns;
• The applicant clearly articulates the basis for expedited treatment, including the contractual outside date and the consequences of delay.
We recommend that the FERC application include a request for expedited action. The request should specifically cite the EPA outside date of December 31, 2022, and should emphasize the straightforward nature of the transaction from a competitive, rate, and regulatory perspective. BSP should be instructed to include this request in the application's cover letter or in a dedicated section of the filing, and C&H should review the request to ensure that it does not contain any representations regarding Ironside or ICM Co-Invest that have not been approved.
VI. Substantive Analysis — Likelihood of Approval
A. Effect on Competition
The first prong of the Merger Policy Statement standard requires the applicant to demonstrate that the proposed transaction will not have an adverse effect on competition in relevant wholesale electric power markets.
Cascadia's fourteen (14) hydroelectric facilities are located in the Pacific Northwest, spanning Oregon, Washington, and Idaho. The facilities generate and sell electric power primarily under long-term PPAs with investment-grade counterparties, including investor-owned utilities, municipal utilities, and public utility districts. The weighted-average remaining life of these PPAs is approximately twenty-two (22) years. The long-term contracted nature of Cascadia's revenue streams significantly limits the extent to which Cascadia participates in spot or short-term wholesale electric markets. As a result, Cascadia's ability to exercise market power — whether through withholding capacity, manipulating prices, or otherwise — is substantially constrained by its contractual obligations.
The acquirers in the proposed transaction — Fund IV and ICM Co-Invest, and through them Meridian and Ironside — are financial investors. Neither Meridian nor Ironside owns or controls any existing electric generation, transmission, or distribution assets in the Pacific Northwest or in any other relevant geographic market. There is therefore no horizontal overlap between the acquirers' existing portfolio and Cascadia's FERC-jurisdictional assets. The acquisition does not increase market concentration in any relevant market, as measured by the HHI or any other analytical framework employed by FERC.
Additionally, the financial-investor nature of the acquirers reduces the risk of vertical foreclosure or other competitive concerns that might arise in a transaction between strategic industry participants. Fund IV and ICM Co-Invest do not own or control fuel supply assets, transmission facilities, or load-serving obligations that could create vertical integration concerns.
Assessment: We believe there is a low risk of an adverse competition finding by FERC. The competitive analysis should be straightforward and favorable to the applicants.
B. Effect on Rates
The second prong of the Merger Policy Statement standard requires the applicant to demonstrate that the proposed transaction will not adversely affect rates charged to wholesale electric power customers.
Cascadia's hydroelectric facilities sell power at rates established under long-term PPAs and/or rates that have been accepted by FERC under Cascadia's market-based rate authorization. The change in upstream ownership of Cascadia — from the existing shareholders (Timberline Growth Equity Fund III, LP, the Weir Family Trust, and the Management Rollover Pool) to AcquisitionCo (and through it to Fund IV and ICM Co-Invest) — does not directly affect the rates charged under these agreements. The contractual terms of the PPAs, including the pricing provisions, are not altered by the transaction, and the counterparties to those agreements will continue to receive power at the same rates as before.
Furthermore, based on our review of Cascadia's operations, Cascadia does not serve captive customers directly from its FERC-jurisdictional hydroelectric assets at cost-based rates. The absence of captive customers eliminates the principal mechanism through which a change-of-control transaction could adversely affect ratepayers — namely, the potential for increased costs or cross-subsidization to be passed through to customers who have no alternative supplier.
Assessment: We do not anticipate an adverse rate effect and believe this prong of the analysis will be satisfied without difficulty.
C. Effect on Regulation
The third prong of the Merger Policy Statement standard requires the applicant to demonstrate that the proposed transaction will not impair the effectiveness of federal or state regulation of the public utility.
Post-acquisition, Cascadia's FERC-licensed hydroelectric facilities will continue to be subject to the full scope of FERC jurisdiction under the Federal Power Act, including all terms, conditions, and obligations of their respective hydroelectric licenses. The FERC licenses impose a range of continuing obligations on the licensee, including compliance with environmental mitigation measures, fish passage and protection requirements, recreational access obligations, dam safety standards, and reporting requirements. These obligations will continue to apply to Cascadia following the change of control, and Cascadia's management (which is expected to remain in place post-closing) will continue to be responsible for compliance.
The Oregon Public Utility Commission will retain jurisdiction over Cascadia's state-regulated utility operations in Oregon, including any operations that are subject to OPUC oversight. A separate OPUC approval process is underway (Docket No. UM-2287), and the OPUC's jurisdiction will not be impaired by the FERC proceeding or the change of control. Similarly, the Washington Utilities and Transportation Commission and the Idaho Public Utilities Commission will retain any existing jurisdiction over Cascadia's operations in those states.
The post-transaction corporate structure — in which Cascadia is owned by AcquisitionCo, which is in turn owned by Fund IV and ICM Co-Invest — does not create any structural impediment to regulatory oversight. FERC and state regulators will have the same ability to regulate Cascadia's operations, inspect its facilities, and enforce compliance with applicable requirements as they do under the current ownership structure. The introduction of a new upstream holding company (AcquisitionCo) and new ultimate beneficial owners (Meridian and Ironside) does not diminish regulatory authority, as FERC's jurisdiction runs to the public utility and its facilities, not to the identity of the upstream owners.
Assessment: We believe there is a low risk that FERC will find an impairment of regulatory effectiveness.
D. Cross-Subsidization
As noted in Section III.B above, FERC may examine cross-subsidization concerns in connection with Section 203 applications, particularly where an associate company of the applicant has captive customers whose rates could be affected by the diversion of utility assets or revenues to non-regulated affiliates.
Meridian and Ironside are financial investors. Fund IV's portfolio includes a range of infrastructure assets across the energy, transportation, and water sectors, but none of these assets involve the direct service of captive retail electric customers. Similarly, Ironside's approximately $14.8 billion in assets under management are invested across multiple fund strategies (including infrastructure, private credit, and special situations), but Ironside does not own or control any regulated electric utility with captive customers.
The Exhibit M analysis is expected to confirm that no associate company of the applicants has captive customers and that there is no material risk of cross-subsidization arising from the proposed transaction. The application should include appropriate commitments to ensure that Cascadia's FERC-jurisdictional assets and revenues are not pledged or encumbered for the benefit of non-regulated associate companies, consistent with FERC's standard cross-subsidization protections.
Assessment: We do not anticipate cross-subsidization concerns will present a material obstacle to approval.
VII. Conditions That May Be Imposed
FERC routinely conditions approval of Section 203 applications on the applicant's compliance with certain standard requirements designed to protect ratepayers, preserve regulatory oversight, and ensure that the transaction is implemented in a manner consistent with the public interest. Based on our review of recent FERC orders in comparable proceedings, we anticipate that the Commission may impose the following types of conditions on its approval of the Cascadia application:
License-Transfer Filings. FERC may require Cascadia to file updated information with FERC reflecting the change in upstream ownership of its FERC-issued hydroelectric licenses following the closing of the transaction. This is a standard administrative requirement and does not involve a re-adjudication of the license terms. The updated filings will identify AcquisitionCo (and through it, Fund IV and ICM Co-Invest) as the new upstream owners of the licensee.
Informational Filings. FERC may require AcquisitionCo and/or Cascadia to file post-closing notification with the Commission within a specified period (typically thirty (30) days) after the closing of the transaction, confirming that the transaction has been consummated and providing updated ownership information. This is a routine filing requirement.
Hold-Harmless Provisions. FERC may condition approval on the applicants' commitment that the transaction will not adversely affect rates, regulation, or competition, and that any incremental costs associated with the transaction (such as acquisition premium, financing costs, or transaction fees) will not be passed through to wholesale ratepayers. This commitment is standard and should not present any substantive obstacle.
Ring-Fencing. In some transactions involving the acquisition of regulated utility assets by financial investors, FERC has required commitments regarding the financial separation of regulated assets from the broader fund structure. Ring-fencing conditions are designed to insulate the regulated utility from financial distress at the holding company or fund level, and may include restrictions on dividends, asset pledges, and intra-company transactions. The applicability and scope of ring-fencing conditions in the Cascadia proceeding will depend on FERC's assessment of the financial structure of the acquisition and the degree of leverage involved. Given the $975,000,000 senior secured term loan, FERC may inquire about the impact of debt service obligations on Cascadia's financial health and operational capabilities.
These conditions are generally standard in nature and should not present substantive obstacles to the consummation of the transaction. C&H should review any conditions proposed by FERC to ensure that they do not impose unanticipated obligations on Ironside or ICM Co-Invest.
Lapse Provision. It is important to note that FERC approvals typically include a time limitation providing that the authorization shall lapse if the transaction is not consummated within a specified period, often eighteen (18) months from the date of the order. This lapse provision should be tracked carefully relative to the EPA outside date and any potential extensions thereof. If the transaction does not close within the lapse period, the applicants would be required to either seek an extension of the FERC authorization or file a new Section 203 application. We do not anticipate that the lapse provision will be an issue given the current transaction timeline, but it should be calendared upon receipt of the FERC order.
VIII. Coordination with Other Regulatory Approvals
A. Oregon Public Utility Commission (OPUC)
In addition to FERC approval under Section 203 of the Federal Power Act, the Cascadia transaction requires separate approval from the Oregon Public Utility Commission for the transfer of Cascadia's state-regulated utility assets. The OPUC has its own filing requirements, review process, and approval standards, which are independent of the FERC proceeding.
The OPUC application is expected to be filed on or about October 14, 2022, and has been assigned Docket No. UM-2287. The OPUC review process typically involves a public notice and comment period, the potential for intervenor participation (including participation by the Oregon Citizens' Utility Board and other consumer advocacy organizations), and an evaluation of whether the proposed transaction is in the public interest of Oregon ratepayers.
While the FERC and OPUC proceedings are legally independent — neither Commission's approval is contingent on the other's — the parties should ensure that the representations and descriptions of the transaction in the two filings are consistent. Inconsistent statements regarding the transaction structure, financial terms, or anticipated effects on ratepayers could invite regulatory scrutiny and delay in either or both proceedings. BSP, as the coordinating counsel for both filings, should prepare the OPUC and FERC applications in tandem and circulate drafts to C&H for review to ensure consistency.
B. CFIUS
A voluntary notice regarding the proposed transaction was filed with the Committee on Foreign Investment in the United States ("CFIUS"). The notice was acknowledged by CFIUS on September 20, 2022. Based on our preliminary assessment, no foreign ownership, control, or influence ("FOCI") issues have been identified in connection with the transaction. Neither Meridian nor Ironside is a foreign person or entity, and the equity capital for the transaction is being sourced exclusively from domestic investors and domestic lending institutions. Accordingly, we do not anticipate that the CFIUS process will result in any findings or conditions that would impact the FERC filing or approval process.
C. Interaction Between Proceedings
The FERC proceeding (Docket No. EC22-143-000) and the OPUC proceeding (Docket No. UM-2287) will run in parallel. Both are closing conditions under the EPA, and both must be satisfied (or waived, if applicable) before the transaction can close. Neither proceeding is contingent on the outcome of the other, and the parties should not represent to either commission that approval by the other is a prerequisite or condition of the filing.
BSP, as counsel to Meridian and AcquisitionCo, is coordinating the preparation and filing of both the FERC and OPUC applications. C&H will review each application on behalf of Ironside and ICM Co-Invest, with particular attention to the consistency of representations across filings and the accuracy of descriptions relating to the co-invest structure and Ironside's role.
To the extent that either proceeding generates substantive comments, interventions, or conditions that may affect the other, C&H and BSP should coordinate to ensure a consistent and coherent response. For example, if the OPUC imposes ring-fencing or hold-harmless conditions on its approval, those conditions should be disclosed to FERC (and vice versa) to avoid any inconsistency or appearance of regulatory arbitrage.
IX. ICM Co-Invest–Specific Considerations
This section addresses considerations specific to ICM Cascadia Co-Invest, LP and Ironside Capital Management LP in connection with the FERC Section 203 filing.
Entity Information. ICM Cascadia Co-Invest, LP was formed as a Delaware limited partnership for the purpose of co-investing alongside Fund IV in the Cascadia acquisition. The entity's Employer Identification Number is 88-3921457, and its Delaware Secretary of State file number is 7439218. ICM Co-Invest is contributing $300,000,000 in equity capital to the transaction, representing 28.57% of the total equity funding of $1,050,000,000.
Ownership and Governance Structure. Ironside Capital Management LP is the 99.99% limited partner of ICM Co-Invest. Meridian Infrastructure GP IV LLC, a Delaware limited liability company, serves as the 0.01% general partner of ICM Co-Invest and is responsible for the day-to-day management and investment decisions of the vehicle. This GP/LP structure means that Ironside, while the predominant economic owner of ICM Co-Invest, does not exercise control over the management or investment decisions of the vehicle — control resides with Meridian Infrastructure GP IV LLC as general partner. This distinction is important for the FERC filing, as FERC's analysis of control and affiliate relationships under Section 203 is informed by the actual governance and decision-making structure of the entities involved, not solely by economic ownership percentages.
FERC Disclosure Requirements. FERC will require full disclosure of the ownership chain from AcquisitionCo up to and including all entities with a significant economic or governance interest. The corporate organizational charts submitted with the application (Exhibit E) must accurately reflect the GP/LP structure of ICM Co-Invest, the Co-Investment Allocation Agreement between Fund IV and ICM Co-Invest, and Ironside's role as the limited partner of ICM Co-Invest and as a SEC-registered investment adviser with approximately $14.8 billion in assets under management. The description of Ironside in the application should be accurate and factual, and should clearly characterize Ironside as a purely financial investor with no generation, transmission, or distribution assets in any relevant electric market.
Competitive Analysis Implications. Ironside's status as a purely financial investor with no existing generation assets is a significant factor supporting the competitive analysis under the first prong of the Merger Policy Statement standard. The application should highlight this fact to reinforce the conclusion that the transaction does not create or enhance market power in any relevant market. C&H should review the