The URL can be used to link to this page

Home My WebLink About20040609Schochet Direct.pdfECEIVEO L:J I.".,,Conley E. Ward (ISB No. 1683) GIVENS PURSLEY LLP 601 W. Bannock Street O. Box 2720 Boise, ID 83701-2720 Telephone: (208) 388-1200 Fax: (208) 388-1300 cew(fYgi venspursley. com I~It, n.nfU HHJ LUO'i .,;IN - .. r I:; i:U t) BLIC UTILlYIES COr"1!'-+tISSJOH Attorneys for U.S. Geothermal, Inc. S:\CLIENTS\6667\2\Schochet Testimony.DOC BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION S. GEOTHERMAL, INC., an Idaho corporation Case No. IPC-04- Complainant vs. IDAHO POWER COMPANY, an Idaho corporation Respondent. BOB LEWANDOWSKI and MARK SCHROEDER Case No. IPC- E-04-1 0 Complainants vs. IDAHO POWER COMPANY, an Idaho corporation Respondent. DIRECT TESTIMONY OF DANIEL N. SCHOCHET ON BEHALF OF U.S. GEOTHERMAL, INC. June 9, 2004 ORIGINAL PLEASE STATE YOUR NAME AND ADDRESS FOR THE RECORD. My name is Daniel N. Schochet and my business address is 980 Greg Street, Sparks Nevada, 89431-6039. BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY? I am Vice President of ORMA T Nevada, Inc., with responsibility for Market Development PLEASE DESCRIBE ORMA T NEVADA, INC. ORMA T Nevada Inc. is the third largest operator of geothermal power plant projects in the United States, as well as the leading manufacturer of modular geothermal power plants. The Company has supplied over 700 MW in nearly 20 countries and owns and operates geothermal power plants in 5 countries worldwide providing close to 500 MW total. Currently ORMAT has some 200 employees in the U.A. and supplies 290 MW total to investor owned utilities in Nevada, California and Hawaii. WHY IS ORMA T INTERESTED IN THIS PROCEEDING? ORMA T is both a geothermal project developer and a supplier of power plant equipment to third party developers, which includes providing debt financing for the purchase of our power plant equipment. As such we have an interest in fostering geothermal power project development in as many states as possible in the U. DOES ORMAT HAVE A SPECIFIC INTEREST IN U.S. GEOTHERMAL' PROJECT? Yes. We are in discussions with U.S. Geothermal regarding our possible participation in the supply of a modular geothermal power plant to their Raft River project. HAVE YOU REVIEWED THE COMPLAINT IN THIS PROCEEDING? DIRECT TESTIMONY OF DANIEL N. SCHOCHET IPUC Case Nos. IPC-O4-08 and IPC-O4- ORMA T has reviewed the Complaint to the Idaho Public Utilities Commission against Idaho Power Company by U.S. Geothermal, Inc. The purpose of our review was to consider how the three proposed provisions by Idaho Power Company will influence the ability of U.S. Geothermal, Inc. to raise debt financing for the Raft River Facility. WILL THE ISSUES RAISED IN THE COMPLAINT HAVE AN EFFECT ON THE FINANCING OF THE PROJECT? Yes. In our view, all three of the Idaho Power Company proposals cited in the Complaint will have a negative effect on U.S. Geothermal's ability to secure debt financing for its Raft River Facility. WHY IS THAT? When a lender considers financing a project such as the Raft River Facility, the primary consideration is the security and dependability of the Facility s projected revenue stream that will be used to service the debt financing costs. Anything that negatively impacts the revenue stream, or that increases the risk that the revenue stream may not materialize may preclude the ability of U.S. Geothermal to attract financing. TURNING TO THE SPECIFIC COUNTS CONTAINED IN THE COMPLAINT WOULD YOU PLEASE EXPLAIN THE IMP ACT OF IDAHO POWER'S PROPOSAL TO LIMIT PURCHASES FROM THE FACILITY TO 10 PEAK MEGA WATTS RATHER THAN 10 AVERAGE MEGA WATTS? Geothermal power plants, particularly zero emission air-cooled geothermal plants, unlike large water cooled fossil fuel plants, produce power which varies with ambient temperature. Limiting the purchase to 10 MW peak would simply mean that, based on a 10 MW winter peak and an 8 MW summer peak, the average power sales for the year DIRECT TESTIMONY OF DANIEL N. SCHOCHET IPUC Case Nos. IPC-O4-08 and IPC-O4- would be approximately 9 MW. Similarly increasing the plant capacity to 10 MW in the summer would mean that the increased winter generation could not be sold at the ESA price. Either scenario increases the cost of electricity production unnecessarily. IS THE ISSUE RAISED BY THE SECOND COUNT OF THE COMPLAINT ALSO A CONCERN? Yes it is. In our experience, where these types of provisions are found in a power purchase contract, there is typically a "true up" period allowed, which is not present in the Idaho Power Company proposal. The potential liquidated damages will significantly increase the risk associated with financing the project. WOULD YOU PLEASE EXPLAIN HOW THE "REGULATORY OUT" PROVISION WOULD AFFECT FINANCING? Allowing Idaho Power Company to terminate the ESA in the event of changes to Idaho regulatory laws would probably preclude the ability to obtain debt financing for the Facility. Our experience is that lenders are not willing to take the risk that the Facility might lose its revenue stream before its debt is retired. WOULD YOU PLEAZE SUMMARIZE YOUR TESTIMONY? Capping the Facility s sales at 10 peak megawatts, rather than 10 average megawatts, will artificially limit U.S. Geothermal's access to debt financing. The "liquidated damages and "regulatory out" provisions are even more serious. Both would greatly increase the risk assumed by a debtor and, in our opinion, could make the facility difficult or impossible to finance. DOES THIS CONCLUDE YOUR TESTIMONY? Yes, it does. DIRECT TESTIMONY OF DANIEL N. SCHOCHET IPUC Case Nos. IPC-O4-08 and IPC-O4- CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this day of June 2004, I caused to be served a true and correct copy of the foregoing document by the method indicated below and addressed to the following: Jean Jewell Idaho Public Utilities Secretary 472 W. Washington Street O. Box 83720 Boise, ID 83720-0074 S. Mail Hand Delivered Overnight Mail Facsimile Barton L. Kline Idaho Power Company 1221 W. Idaho Street O. Box 70 Boise, ID 83707 S. Mail Hand Delivered Overnight Mail Facsimile Peter J. Richardson Richardson & O'Leary 99 E. State Street, Ste. 200 O. Box 1849 Eagle, ID 83616 S. Mail Hand Delivered Overnight Mail Facsimile DIRECT TESTIMONY OF DANIEL N. SCHOCHET IPUC Case Nos. IPC-O4-08 and IPC-O4- DANIEL N. SCHOCHET CURRENT POSITION:VICE PRESIDENT, ORMA T TECHNOLOGIES, INC. PROFESSIONAL EXPERIENCE: 1975 to Present:Various positions within the ORMAT group of Companies, including Director of International Marketing, Vice President General Manager of ORMA T Nevada, and Vice President Business Development. Assignments have included directing marketing and customer service operations, establishing geothermal development division and managing geothermal project development operations in the USA and overseas. Since 1980 these activities included managing geothermal resource acquisition and assessment permitting, defining exploration, drilling and testing regimes, feasibility studies, conceptual definition of power plant systems, project financing, permitting and regulatory relationships, and developing new project opportunities. In the period between 1980 and 20002, ORMA T has installed over 700 MW of geothermal power plant projects in 20 countries, ranging in size from 3 OOk W to 13 OMW, utilizing geothermal resources from 2100 F to 6000 F. Member of the Board of Directors of the Geothermal Energy Association (International Vice President), Member of the Board of Directors of the Geothermal Resources Council, past Member of the Board of Directors of the International Geothermal Association, and ORMA T company representative for the National Association of Corrosion Engineers and the Power Sources Manufacturers Association. 1953 to 1975:Held a number of technical and management positions in the aerospace electrical power and biomedical research industries. Assignments included aerospace engineering and research, reliability engineering, management of engineering testing and evaluation laboratories, international project management and international marketing. EDUCATION: Master of Science, Electrical Engineering (MSEE) Columbia University School of Engineering, New York Bachelor of Electrical Engineering (BEE) Cooper Union School of Engineering, New York, NY Exhibit No. Case Nos. IPC-E-O4-O8 and IPC-E-O4- D. Schochet, U.S. Geothermal June 9, 2004