20170803Osorio Affidavit.pdf

I -3 F'i'l 3: h j
Gregory M. Adams (lSB No. 7454)
Peter J. Richardson (lSB No. 3 195)
Richardson Adams, PLLC
515 N.27th Street, 83702
Boise, Idaho
Telephone : [phone]
Fax: [phone]
greg@richardsonadams. com
peter@richardsonad am s.com
Attorneys for Clark Canyon Hydro, LLC
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
oF IDAHO POWER COMPANY TO )
APPROVE OR REJECT ENERGY SALES )
AGREEMENT WITH CLARK CANYON )
HYDRO, LLC, FOR THE SALE AND )
PURCHASE OF ELECTRIC ENERGY )
FROM THE CLARK CANYON PROJECT )
CASE NO. IPC-E-14-15
AFFIDAVIT OF ALINA
OSORIO ON BEHALF OF
CLARK CANYON HYDRO,
LLC
I, Alina Osorio, do declare, under penalty of perjury and based on personal knowledge,
the following and if called to testify, would and could competently testify thereto:
l. I am over the age of 18, and I am President of ICP U.S. Hydro Holdings, Inc.,
which is the managing member of the Clark Canyon Hydro, LLC ("Clark Canyon").
2. With regard to Clark Canyon, my primary responsibilities include the oversight of
the projects' contractual arrangements and development efforts, and I have personal knowledge
of the development efforts of the Clark Canyon facility and related correspondences and
negotiations discussed in this affidavit.
AFFIDAVIT OF ALINA OSORIO ON BEHALF OF CLARK CANYON HYDRO, LLC
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D
3. Clark Canyon is a planned hydropower generation facility that would harness the
energy potential at the existing Clark Canyon dam on the Beaverhead River in Beaverhead
County, Montana. The dam is operated by the U.S. Bureau of Reclamation for irrigation
purposes, but it does not currently have any electric generation installed.
4. Efforts to harness the electric energy output of the existing dam began several
years ago. On August 26,2009, the Federal Energy Regulatory Commission ("FERC") issued
the first license for the Clark Canyon project to construct and operate a run-of-release
hydropower facility, as Project No. 12429, 128 FERC n 62,129.
5. Clark Canyon sought to sell the output of the proposed facility to Idaho Power
Company ("[daho Power"), and on July 19,2011, the Idaho Public Utilities Commission
("Commission") approved an Energy Sales Agreement ("the 2011 ESA") with Idaho Power in
docket number IPC-E-l l-09. As part of this 201I ESA, Clark Canyon agreed that Idaho Power
would own 50 percent of the renewable energy certificates ("RECs") produced by the facility.
6. On December 31,2013, due to difficulties in development efforts by Clark
Canyon's owner at the time, Clark Canyon and Idaho Power entered into an agreement to amend
the scheduled operation date in the 2011 ESA with ldaho Power. As part of this agreement,
Clark Canyon forfeited $211,500 in liquidated damages as a penalty for missing the initial
scheduled operation date, and replenished the $211,500 amount held as delay security going
forward.
7. In this timeframe, Clark Canyon's ownership changed and my company was
forced to take a more active managerial role in the project. Clark Canyon is an indirect wholly-
owned subsidiary of ICP US Hydro Holdings, Inc. ("[CP"). Clark Canyon previously was
owned by Symbiotics, LLC ("Symbiotics"), which also acted as agent for Clark Canyon
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regarding FERC licensing and compliance matters, and ICP was a debt investor in the parent of
Symbiotics, Riverbank Power Corp., which convertible debt was advanced for purposes of
financing two hydropower projects, including the Clark Canyon Project. During 2013,
Symbiotics and its affiliates became insolvent, and ICP converted its debt to equity in Clark
Canyon. lnitially, ICP retained the key Symbiotics employees that had been involved in Clark
Canyon, including the main principal and primary FERC contact with respect to Clark Canyon.
However, ICP determined that it needed to supplement these efforts with a more active role in
the projects due to issues that had arisen under the prior management structure.
8. On March 31,2014, after discussions with representatives of ldaho Power
regarding past issues with the project and options available, Clark Canyon and ldaho Power
executed a Memorandum of Understanding ("MOU") to terminate 201I ESA and execute a new
ESA with unique terms set forth in the MOU. I executed the MOU on behalf of Clark Canyon.
9. The MOU stated that the new ESA would preserve Idaho Power's right to
ownership of 50 percent of RECs.
10. The MOU also called for the execution of a new ESA containing the then-
effective seasonal hydropower rates in all months except for March and April, when the rates
would instead be a surplus energy rate calculated from a non-firm market price.
I l. At the time of the MOU, the parties also discussed selection of an appropriate
scheduled operation date to include in the new ESA. I was unaware at that time of any
significant facts that could likely impair the FERC license, and believed the project's
construction could be completed by 2017. ldaho Power expressed no concerns with the specific
date that Clark Canyon selected so long as it was a date by which the project could reasonably
complete construction and begin commercial operation. At the time of execution of the MOU,
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the parties included a new scheduled operation date of January 1,2017 in the MOU.
12. In the days following execution of the MOU, the parties continued to discuss the
reasonable scheduled operation date to include in the new ESA. I recall discussing this issue
with Mr. Randy Allphin and Mr. Jerry Jardine of Idaho Power. My team at Clark Canyon and I
were concerned January 1,2017 may not be an achievable date, due to difficulty of completing
construction and testing in the winter months. However, I was still unaware of any latent defects
in the ongoing communications with FERC under the FERC license that might lead FERC to
revoke the license or otherwise cause a further delay in the construction of the facility. Idaho
Power expressed no concerns with the specific date that Clark Canyon selected and agreed to
include in the new ESA (the "2014 ESA") a scheduled operation date of Jun e 1 ,2017 .
13. In summary, my understanding at the time of the MOU and final discussions of
the 2014 ESA was that the parties intended to select a scheduled operation date that was
reasonably achievable by Clark Canyon, and based on information known by myself and
representatives of Idaho Power at that time the June 1 ,2017 date appeared reasonable. Based on
our discussion, I do not believe that Idaho Power would have objected to a later scheduled
operation date such as one in 2019.
14. The 2014 ESA also included provisions stating that Idaho Power will own 50
percent of the RECs. Additionally, Idaho Power has not refunded the $211,500 security deposit
previously posted by Clark Canyon, which to the best of my knowledge it retains to this date, as
delay security for the 2014 ESA.
15. I executed the 2014 ESA on May 28,2014, and Idaho Power's representative
executed it on May 30, 2014. Idaho Power filed the 2014 ESA with the Commission for
approval on June 4,2014.
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16. By this time, Clark Canyon had proceeded through all the studies and agreements
necessary with Idaho Power to interconnect the facility to Idaho Power's Peterson substation.
Clark Canyon and Idaho Power had executed Generator Interconnection Agreement and by the
time of execution of the 2014 ESA Clark Canyon paid an initial deposit of $765,000 for the
interconnection construction and paid additional amounts in actual costs over a period of months,
for total payment to ldaho Power of $1,1 14,545.29. To this date, Clark Canyon remains in ldaho
Power's interconnection queue with a fully executed Generator Interconnection Agreement, and
my understanding from ldaho Power's communications is that the interconnection construction
is complete for a 4.7MW facility.
17. On June 27,20l4,just weeks after selection of the new scheduled operation date
and submittal of the 2014 ESA to the Commission, FERC Staff issued a Notice of Probable
License Termination for failure to commence construction by the date required in the license,
which was August 25, 2013.
18. FERC's Notice of Probable Termination was unexpected to me. As noted
previously, when ICP took over ownership of Clark Canyon it retained the key Symbiotics
employees that had been involved in Clark Canyon, including the main principal and primary
FERC contact with respect to Clark Canyon
19. I had acted upon the belief that those individuals managing the contacts with
FERC had maintained adequate communications with FERC on the development activities. I
generally believed that the project had met FERC's requirements for commencement of
construction by purchasing site-specific turbines for the facility. However, FERC Staff had
apparently taken issue with the completion of application materials and other correspondences to
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commence construction in that manner under FERC regulations, which formed the basis of the
Notice of Probable Termination.
20. I was not aware that FERC had any concerns regarding Clark Canyon's license
prior to issuance of FERC Stafls Notice of Probable Termination. FERC had not issued a letter
to Clark Canyon in the month prior to commencement of construction deadline, which we
understood to be its typical practice prior to terminating a license for failure to commence
construction. In the absence of such a letter, at the time, I had no reason to believe that Clark
Canyon had not commenced construction when it executed an enforceable contract for the
project turbines and other components. By the fall of 2013, Clark Canyon had actually received
much of the equipment fabricated by the manufacturer of the equipment. Clark Canyon had been
in regular communication with FERC Staff, and there had never been any indication relayed to
me that the project was in jeopardy of failing to meet the commencement of construction
deadline. ln sum, the Notice of Probable Termination issued by FERC Staff on lune 27, 2014
was a surprise.
21. Had I known there was a risk that FERC would terminate the license or otherwise
impose any other regulatory delays at the time we selected the scheduled operation date in the
2014 ESA, we would have included a scheduled operation date in the 2014 ESA that allowed
additional years in the future to allow a reasonable timeframe to resolve those regulatory issues.
22. After FERC issued its Notice of Probable Termination, on July 4, 2014, I
promptly filed a notice with FERC requesting that FERC change the contacts on file to myself
and an employee within my direct contact to ensure that future communication breakdowns
would not occur without my knowledge, and we have remained in diligent contact with FERC
since that time.
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23. On July 31, 2014, Mr. Rick Sterling, Commission Staff assigned to the ESA
approval proceeding, contacted me by telephone to express concern with the FERC Notice of
Probable License Termination. Mr. Sterling indicated that the 2014 ESA contains a requirement
that the FERC license be in effect and was concerned that the new development would
compromise Clark Canyon's ability to meet its obligations under the 2014 ESA. Mr. Sterling
proposed suspending ESA approval docket due to FERC termination notice to allow time to
correct and clarify the discrepancies between the FERC proceedings and the 2014 ESA prior to
Commission consideration and approval. I agreed with Staffls proposal on behalf of Clark
Canyon, and representatives of Idaho Power also agreed to move to suspend the proceeding.
24. On August 5,2014, the Commission issued its Order No. 33088, suspending the
case for approval of the 2014 ESA.
25. Clark Canyon expended substantial expense and efforts to preserve the first FERC
license, but was unable to convince FERC not to terminate the license. On March 19,2015,
FERC terminated the license, 150 FERC fl 61,195. This rehearing process took significantly
longer than Clark Canyon expected, almost nine months just to receive the final termination. In
its order, FERC suggested Clark Canyon could obtain a new FERC license or the United States
Congress could enact legislation reinstating the prior license.
26. At this point, all activities to continue with construction at the site, including the
7.9-mile 69-kV project line from the facility to Idaho Power's Peterson substation, had to cease.
To illustrate, the construction activities authorized by the initial license that FERC curtailed
through termination of the license included the following: (a) installation of a steel lining in the
existing concrete outlet conduit with a 9-foot-diameter bifurcation to the new powerhouse; (b)
construction of a l5-foot by 35-foot valve house at the end of the existing outlet conduit, with a
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7-foot-diameter flow-through valve on the outlet conduit and a 9-foot-diameter isolation valve
located on the penstock conduit; (c) installation of a 9-foot-diameter, 25-foot-long steel penstock
bifurcated into an 8-foot-diameter, 4O-foot-long steel penstock and a 6-foordiameter, 3O-foot-
long steel penstock to direct flow to two turbines; (d) construction of a 30-foot by 50-foot
concrete powerhouse, located at the toe of the dam adjacent to the spillway stilling basin,
containing two vertical-shaft Francis turbines with individual installed capacities of 3.0 and 1.7
MW, for a combined installed capacity of 4.7 MW, a minimum hydraulic capacity of 87.5 cubic
feet per second ("cfs"), and a maximum hydraulic capacity of 700 cfs; (e) construction of a 300-
foot-long project access road, extending from an existing non-project access road, leading to a
3O-foot by 30-foot concrete parking pad and transformer adjacent to the powerhouse; and (f)
construction of a 7.9-mile-long, 69-kilovolt overhead transmission line connecting to Idaho
Power Company's Peterson Flat substation.
27. After FERC terminated the first license, Clark Canyon expended substantial
resources on two parallel fronts: (l) to obtain legislative reinstatement of the license, and (2) to
obtain a new license. Clark Canyon did so with the expectation that it would be able to still sell
to Idaho Power under the 2014 ESA's agreed-to rates.
28. On the legislative front, the efforts were near achievement of fully enacted
legislation in the United States Congress reinstating the FERC license due to efforts of
Congressional delegations from both Idaho and Montana, with numerous bills being introduced
to reinstate the license.
29. On the regulatory front, Clark Canyon worked expeditiously to obtain a new
FERC license in just over two years, which ultimately mooted the legislative efforts. These
efforts to secure the new FERC license included resolution of an appeal in Montana state court of
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the Montana Department of Environmental Quality's Clean Water Act Section 401 certification
by a local group, Upper Missouri Waterkeeper, concerned with pre-existing water quality issues
on the Beaverhead River.
30. Aftertermination of the FERC license, I recall having one additional update call
with Mr. Sterling where I told him that Clark Canyon is seeking both a relicensing and
legislative fix to either have the old license reinstated or receive a new one, however, I had no
further updates on positive progress to report.
31. On March 31,2017, FERC issued a new license, Project No. 14677, 158 FERC fl
62,269.
32. On April 26,2017, Clark Canyon notified Idaho Power representatives of the new
FERC license, and has discussed the status of the project with Idaho Power and Commission
Staff. Clark Canyon has notified Idaho Power and Commission staff of the currently planned
configuration disclosed in the new FERC license, which is a 4.7 MW project with two turbines
of 2.35 MW capacity with the same energy production profile as the 2014 ESA.
33. To date, Clark Canyon has expended substantial resources on its development
efforts both before and after the suspension of the schedule to approve the 2014 ESA.
34. Total expenditures of approximately $9.4 million were made prior to signing the
2014 ESA, as detail below:
Engineering
BOR Design Review Fees
Interconnection Fees
Turbine Purchase
Precon structi on/Penstock
LegallTravel/Admin
$ 3,000,000
$ 1,700,000
$ 1,100,000
$ 2,200,000
$ 800,000
$ 600,000
TOTAL $ 9,400,000
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35. Total expenditures and a summary of different expense items since the
Commission's August 5,2014 order staying2014 ESA approval are approximately $1.2 million,
as detailed below:
Engineering
Legal/Advisory/Audit
Permitting/Licensing
Components
Travel/Admin
$ 500,000
$ 285,000
$ 265,000
$ 130,000
$ 20,000
TOTAL $ 1,200,000
36. As I noted earlier, Idaho Power accepted over $1 million in interconnection
construction fees and completed the interconnection construction at the Peterson Substation.
Additionally, all turbine and generator components, which had to be uniquely designed for just
this project, have been manufactured by Dong Fang. Embedded parts have been shipped to the
United States and are being stored in the contractor's yard. Moving parts are ready for shipment
from China. Clark Canyon has spent over $2.2 million to date on these turbines and generators,
as well as over $3 million in engineering designs for the facility.
37. Clark Canyon has also reached agreements with a contractor based in Boise,
Idaho to construct the project and with a lender to provide construction financing to complete
construction and bring the project online if the Commission approves the 2014 ESA with a
scheduled operation date that corresponds to the delay created by FERC's termination of the
FERC license and the suspension of the ESA approval case before the Commission.
38. With the new FERC license allowing resumption of on-site construction, Clark
Canyon estimates that it could bring the project to commercial operation by December 31,2019.
That would be approximately a two-year delay from the initially proposed scheduled operation
date in the2014 ESA submitted to the Commission, plus the delay we expect in getting the2014
ESA approved by the Commission, which is necessary prior to further completion of
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construction financing and activities to complete construction.
39. However, if the 2014 ESA were not corected to accommodate the delay
associated with the unexpected termination of the FERC license and the ESA were terminated,
Idaho Power's currently effective avoided cost rates for a new ESA would not be economically
viable for the Clark Canyon project.
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I declare under penalty of perjury under the laws of the United States and under laws of the state
ofldaho that the foregoing is true and correct.
DATED this 3 I day of July 201 7.
By
Alina
Province of Ontario, Canada
On this 31 day of July 2017, before me, a Notary Public in and for the Province of
Ontario, Canada, personally appeared Alina Osorio, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person who executed this instrument and
acknowledged it to be her free and voluntary act and deed for the uses and purposes mentioned
in the instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official sealthe day and year
first above written.
)
)
)
ss
,{ry
Iana Namestnikova
Notary Public in and for the Province of Ontario
My Commission does not expire
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CERTIFICATE OF SERVICES
I HEREBY CERTIFY that on the 3'd day of August 2017, a true and correct copy of the within
and foregoing AFFIDAVIT OF ALINA OSORIO ON BEHALF OF CLARK CANYON
HYDRO, LLC in Idaho Public Utilities Commission Docket No. IPC-E-14-15 was served by
electronic mail and First-Class mail, postage prepaid, to:
Diane Hanian (hand delivery)
Idaho Public Utilities Commission
472 W. Washington Street
Boise,Idaho 83702
[e-mail]. gov
Daphne Huang
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
Boise,Idaho 83702
daphne. huang@puc. idaho. gov
Adams
for Clark Canyon Hydro, LLC
Donovan Walker
Idaho Power Company
l22l W.ldaho Street
Boise, Idaho 83702
dwalker@idahopower. com
[e-mail]