20171129ICNU Second Set of Data Requests to Hydro One.docx

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James Scarlett
S. Kyle Mersky
Hydro One Limited
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Re:Joint Application of Hydro One Ltd. and Avista Corporation for an Order Authorizing Proposed Transaction
Docket U-170970
Ladies and Gentlemen:Enclosed please find the Industrial Customers of Northwest Utilities’(“ICNU”) Second Set of Data Requests to Hydro One Limited (“Hydro One”)in the above-referenced matter. Hydro Onehas ten business days to respond to these Data Requests. Please provide your responses by no later than November 6, 2017.Thank you for your attention to this matter. If you have any questions, please do not hesitate to call.Sincerely,
/s/ Haley M. Thomas
Haley M. Thomascc: U-170970Service List
BEFORE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION
In the Matter of the Joint Application of
HYDRO ONE LIMITED and
AVISTA CORPORATION
For an Order Authorizing Proposed
Transaction.
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DOCKET U-170970
THE INDUSTRIAL CUSTOMERS OF NORTHWEST UTILITIES’ SECOND SET OF DATA REQUESTS TO HYDRO ONEDated: October 23, 2017Please provide responses to these Data Requests byNovember 6, 2017.
DATA REQUESTS
Refer to ¶ 30 of the Joint Application. Please explain Hydro One’s understanding or definition of the term “pure play,” within the characterization of Hydro One as a “pure play transmission and distribution utility.”
Refer to ¶¶ 15 and 43 of the Joint Application. Please explain and provide (or identify, within the Document Room) documents supporting the calculation of a C$9.5 billion total asset increase for Hydro One, following the merger, including how the US$5.3 (or, approximately C$6.7) billion purchase price of Avista should be factored or understood within that calculation.
Refer to ¶ 45, Illustration No. 1 of the Joint Application, which contains a diagram depicting the “primary operating subsidiaries” of Hydro One. Please provide a diagram depicting all subsidiaries of Hydro One, including any not classified as “primary operating.”
Refer to ¶ 60 n.12 of the Joint Application, which explains that Hydro One has created three intermediate subsidiaries, between Avista/Olympus Equity LLC and the Can Sub, for Canadian tax planning purposes and to manage intercorporate fund flows. Please provide a narrative explanation of how:
The creation of three intermediate subsidiaries is beneficial for Canadian tax purposes;
The creation of three intermediate subsidiaries helps manage intercorporate fund flows; and
The tax and fund flow benefits combine, if at all, to further support the three-intermediary subsidiary structure (e.g., is the sum greater than the parts).
Please note that, at this time,ICNU is seeking only a high-level narrative explanation for each of the foregoing subparts, which may suffice to better understand the intermediary corporate structure.
Refer to ¶ 70 of the Joint Application. Please provide a narrative explanation regarding “the innovation, research and development” of Hydro One that Avista could leverage, particularly in respect to industrial or large end-use “customers’ growing expectations for choice of energy supply and tools to manage energy consumption and costs.”
Refer to ¶¶ 71-72 & n.14 of the Joint Application. Would the costs of annual tracking and reporting of annual net cost savingsbe flowed through to Avista customers, or should these post-merger tracking and reporting costs be understood as falling within Proposed Transaction costs that will not be flowed through—i.e., “None of the costs associated with the Proposed Transaction will be flowed through to the customers of Avista or Hydro One”?
Refer to Joint Application, App. 5 at ¶ 1. Please confirm that, under the referenced “Governance Requirements” terms, current Avista Chairman of the Board and Chief Executive Officer (“CEO”) Scott Morris would continue to serve as Chairman of the “Subsidiary Board,” following the merger, “for a one year term.” If Hydro One does not confirm, please explain.
Has Hydro One been informed by Avista about any plans of Mr. Morris to retire as Avista CEO? If yes, please provide a narrative explanation and any supporting documents.
Refer to Joint Application, App. 5 at ¶ 1, and App. 8, Commitment No. 2. Please confirm that:
The Avista CEO is described among the Avista or “Company Designees” on the “Subsidiary Board”;
Remaining Company Designees are described as having “the sole right to nominate a replacement director to fill” a Board vacancy created by the resignation or retirement of an Avista CEO;
The hiring or replacement of any Avista CEO would subject to the approval of Hydro One;
The “sole right” of remaining Company Designees to nominate a replacement director to fill the Avista CEO position on the Subsidiary Board will not progress beyond the nomination stage, unless Hydro One approves the replacement CEO; and
Following Mr. Morris’s term as Avista CEO, one of the four “Company Designees” on the “Subsidiary Board” will always be subject to Hydro One approval.
If Hydro One does not confirm any of the foregoing subparts, please explain as to each non-confirmed subpart.
Refer to Joint Application, App. 5 at ¶¶ 1 and 3. Please confirm that, following the initial one-year term of Mr. Morris as Chairman of the Avista or “Subsidiary Board” after the merger, Hydro One would have the power to designate a Hydro One executive as Chairman of the Avista Board. If Hydro One does not confirm, please explain.
Refer to Joint Application, App. 5 at ¶ 5. Are there any constraints upon where a meeting of the Subsidiary Board could be located? If yes, please provide (or identify, within the Document Room) supporting documentation for any constraints identified.
Refer to Joint Application, App. 7 at 1 & n.2, which states that, following the merger closing, Avista will be directly assigned the costs incurred “if Hydro Oneemployees were to provide support for Avista’s utility operations.” Please explain and provide (or identify, within the Document Room) any supporting documents as to how:
“Hydro One employees” should be understood within the referenced text of the Direct Assignment Protocol—e.g., as including Hydro One Limited and any subsidiaries, or as limited to Hydro One Limited and only certain subsidiaries;and
“support for Avista’s utility operations” should be understood within the referenced text of the Direct Assignment Protocol—e.g., whether Hydro One Limited support for Olympus 1 LLC might be construed as indirectly supporting Avista, or whether only support directly to Avista Corporation and its subsidiaries would qualify.
Refer to Joint Application, App. 7. Please confirm that the capitalized words “Company/Companies” and “Utility/Utilities” within the Direct Assignment Protocol may refer to both Avista and Hydro One. If Hydro One does not confirm, please explain.
Refer to Joint Application, App. 8, Commitment No. 1. Please confirm that:
Commitment No. 1 is not itself subject to the requirement for “commitments 215” that a two-thirds vote of the Avista Board is necessary for a commitment change;
A simple majority vote from a quorum of the Avista Board would be sufficient to change the policies stated in Commitment No. 1; and
A simple majority vote from a quorum of the Avista Board would be sufficient to change the policies stated in Commitment Nos. 16-55.
If Hydro One does not confirm any of the foregoing subparts, please explain as to each non-confirmed subpart.
Referto Joint Application, App. 8. As to each of the following commitments, please explain why that named subsidiary of Hydro One is subject to the specific commitment, while any “upstream” Hydro One subsidiaries and Hydro One Limited itself are not specifically committed (e.g., why “Olympus Holding Corp.” is committing to comply with applicable laws in Commitment No. 19, but neither Hydro One Limited nor Can Sub have committed to apply with applicable laws; or, why Hydro One is not committing “that no material amendments, revisions or modifications will be made to the ring-fencing provisions,” as stated in Commitment No. 46, without prior WUTC approval):
Commitment No. 19;
Commitment No. 20;
Commitment No. 22 (including why Olympus Holding Corp. will “provide the Commission with access to written information … that pertains to Olympus Holding Corp.’s subsidiaries to the extent such information may affect Avista,” but has not committed to providing the Commission with access to written information that may affect Avista,which pertains to Olympus Holding Corp. itself);
Commitment No. 23
Commitment No. 29 (the portion limiting the authority of the Commission to compel witness attendance only to Olympus Holding Corp. and its subsidiaries);
Commitment No. 30;
Commitment No. 41;
Commitment No. 45; and
Commitment No. 46.
Refer to Lopez, Exh. CFL-1T at 11:21-12:4. Please explain how the stated debt financing plans fit within the description of the merger purchase transaction, as described by Avista witness Mark Thies, Exh. MTT-1T at 10:21-11:2.
Refer to Lopez, Exh. CFL-1T at 17:12-17 and Joint Application, App. 8, Commitment No. 44(a). Please explain why Mr. Lopez testifies that Commitment No. 44 includes a provision that “Avista customers must be held harmless from any business and financial risk exposures associated with Olympus Holding Corp., Hydro One, and Hydro One’s other affiliates,” although Commitment No. 44 commits to only “generally hold Avista customers harmless from any business and financial risk exposures associated with Olympus Holding Corp., Hydro One, and Hydro One’s other affiliates.” (Emphases added).
Refer to Lopez, Exh. CFL-1T at 17:20-22, 19:15-19, and Joint Application, App. 8, Commitment No. 45. Please confirm that:
Commitment No. 45 does not preclude Olympus 1 LLC, or any other Hydro One subsidiary upstream from Olympus 2 LLC, from operating or owning other businesses or limiting its activities to Olympus Equity LLC concerns;
Avista customers will be held harmless only “from the liabilities of any unregulated activity of Avista or Hydro One and its affiliates”; and
Avista customers would not be held harmless from the liabilities of any regulated activity of Hydro One and its affiliates, including Olympus 1 LLC and any upstream subsidiaries.
Refer to Lopez, Exh. CFL-1T at 24:9-10 and WUTC Docket U-072375, Order 08 at ¶ 93 (Dec. 30, 2008). Please state, and provide supporting calculations of, the basis point impact of Hydro One’s acceptance of a lower rate of return for the portion of the total Rate Credit that is not offsetable, using similar assumptions to those stated by the Commission in Order 08 at ¶ 93.
Refer to Lopez, Exh. CFL-1T at 25:12-19 and WUTC Docket U-072375, Order 08 at ¶ 93. Please confirm that:
The PSE Rate Credit considered by Hydro One contained only a 12% offsetable portion, while the Rate Credit for Avista customers proposed by Hydro One contains a 70% offsetable portion;and
Approval of the PSE merger considered by Hydro One was subject to a “no harm” standard in Washington at that time, while the merger between Hydro One and Avista is now subject to a “net benefit” standard in Washington.
If Hydro One does not confirm any of the foregoing subparts, please explain as to each non-confirmed subpart.
Referto Lopez, Exh. CFL-1T at 26:1-15 and WUTC Docket U-072375, Order 08 at ¶ 93. Does Hydro One still consider its Rate Credit proposal to be “equivalent to the credits provided to PSE customers” and structured “in a similar manner,”after taking into specific consideration the Commission’s finding that 88% ($88 million of $100 million) of the PSE Rate Credit was not offsetable? If yes, please explain.