20171129UM 1897 Hydro-One DR 001-136 MJM_RA General Background.docx

September 21, 2017
ELIZABETH THOMAS, PARTNER
JAMES SCARLETT
KARI VANDER STOEP, PARTNER
EXECUTIVE VICE PRESIDENT &
K&L GATES LLP
CHIEF LEGAL OFFICER
925 FOURTH AVENUE, SUITE 2900
HYDRO ONE
SEATTLE, WA 98104-1158
483 BAY ST, 8TH FL, SOUTH TOWER
[e-mail]
TORONTO, ONTARIO, M5G 2P5
[e-mail]
[e-mail]
DIRK MIDDENTS, PARALEGAL
S. KYLE MERSKY, SENIOR ADVISOR
K&L GATES LLP
OFFICE OF THE PRESIDENT & CEO
925 FOURTH AVENUE, SUITE 2900
HYDRO ONE INC.
SEATTLE, WA 98104-1158
483 BAY ST, 8TH FL, SOUTH TOWER
[e-mail]
TORONTO, ONTARIO, M5G 2P5
[e-mail]
RE:
Docket No.
Staff Request Nos.
Response Due By
UM 1897
DR 1 – DR 136
October 5, 2017
Please provide responses to the following request for data by the due date. Please note that all responses must be posted to the PUC Huddle account. Contact the undersigned before the response due date noted above if the request is unclear or if you need more time. In the event any of the responses to the requests below include spreadsheets, the spreadsheets should be in electronic form with cell formulae intact.
Topic or Keyword: Regulatory FrameworkPlease provide the following:A current Hydro One corporate organization chart of companies including small subdivisions, and Corporate title, section, phone and email for Hydro One corporate officers, managers, key employees, and executive support staff.Please provide complete contact listings for each of the following persons, including phone, email, and postal mail contact information:James D. Scarlett, Exec. VP & Chief Legal OfficerFerio Publiese, Exec. VP, Customer Care & Corp. AffairsKari L. Vander Stoep, Partner – K&L Gates (Outside Counsel) Seattle OfficeMayo M Schmidt, President, CEO, Chair of BODChristopher Lopez, Senior VP FinanceGregory K. Kiraly, Chief Operating Officer (COO)Bruce M. Mann, CPA VP Investor RelationsGregory K. Kiraly, COOPaul H. Barry, Exec. VP Strategy & Corp. Dev.Judy McKellar, Exec VP & CHROMaureen Wareham, VP, Corp. Sec. and Chief Ethics OfficerWhere applicable, please also provide contact information for support or regulatory/corporate affairs staff persons who are authorized to receive communications on behalf of any of the persons listed in Staff Data Request No. 2.Does the Hydro One Board of Directors (BOD) have a Finance Committee or similar subgroup? If so, please explain how Hydro One management keeps that committee or subgroup appraised of its strategic financial plans and activity.Please describe the process by which the Hydro One BOD approves the capital and financial structure of the Company.Please describe the process by which the Hydro One BOD approves the declaration and payment of dividends.Please describe how the government of Ontario (Ontario) exerts influence over the Hydro One BOD and executive team reflective of its ownership stake.Please describe what role, if any, Ontario plays in directing the Hydro One BOD in overseeing the process for appointment, removal, and replacement of Hydro One executive officers, their compensation and the succession planning processes of the Company.Please explain in detail the purpose and function of the proposed Olympus Holding Co. a) at close, and b) 10 years post completion of the merger.Please explain in detail the purpose and function of the proposed Olympus 1, LLC a) at close, and b) 10 years post completion of the merger.Please explain in detail the purpose and function of the proposed Olympus 2, LLC a) at close, and b) 10 years post completion of the merger.Please explain in detail the purpose and function of the proposed Olympus Equity, LLC a) at close, and b) 10 years post completion of the merger.Regarding Appendix 2, page 42, please provide a simply-phrased narrative explaining who would pay whom what breakup fees under what conditions were the merger not to close.Regarding Hydro One BOD delegation to senior management the authority for expenditures and transactions, what are the specified limits at which BOD approval becomes required?What ties, if any, does Hydro One have with oil sands development, operations, generation, and supporting transmission?May Public Utility of Oregon Staff (Staff) contact Dr. Kathryn J. Jackson, current Hydro One BOD member and also a Portland General Electric BOD member; Phillip Orsino, current Hydro One BOD Member and also former President and Chief Executive Officer of Jeld-Wen,Inc. when it was a large Oregon-headquartered company; and Jane L. Peverett, current Hydro One BOD member and also a NW Natural Gas BOD member,in order to better understand what is similar and different for utilitiesoperating in Oregon vs. in Ontario?
If yes, please provide current contact information for each of the above three persons that Hydro One permits Staff to contact in informal discussions.Please discuss Ontario’s Fair Hydro Plan and how it (a) operationally and (b) financially affects Hydro One. In this narrative, please explain whether this reduction in rates is only a pass through for Hydro One, or if any part of charges or former pass through fees (such as volumetric charges, transportation and delivery charges, or monthly service charges) must be absorbed by Hydro One. Please discuss how holding electricity rates no higher than the rate of inflation for four years impacts Hydro One’s expectations regarding its general rate cases and cost recovery in this four year period.Please discuss whether the Ontario Fair Hydro Plan involves any intergenerational cost shifting or incremental borrowing now at the long-term cost of future customers. Please clarify if such shifting is part of, or impacts in any way, Hydro One’s financing.To sustain Ontario Crown electricity generation, is preference given to OPG-generated electricity in Ontario that is higher cost than prevailing prices in Quebec?Please explain illustration 1 on Avista/200 Thies/5 with respect to Oregon gas LDC operations.The Northumberland Strait Submarine Transmission System deploying two 180-Megawatt (MW) underwater cables between New Brunswick and Prince Edward Island (PEI)was energized on August 29, 2017. Canada's federal government contributed C$68.9 million to the project and PEI will pay about C$73.6 million. PEI will own the cables but lease them to Fortis, Inc.-owned Maritime Electric Co. Ltd.
In comparison to the above project, is there A) provincial and/or B) Canadian federal support for any of Hydro One’s recent, currently under construction, or planned capital projects?If the response is yes to Staff Data Request No. 22, please explain what form of support is provided for what projects under what programs.If the response is no to Staff Data Request No. 22, please explain if this sort of support is provided only to provinces and/or Crown corporations.Please provide a narrative, formulas, MS Excel spreadsheet examples, and most recent scorecards contrasting current Ontario Performance Based Regulation (PBR) vs. former cost based regulation. In this narrative, please explain how PBR will or will not change Hydro One strategic and operational foci. Also in this explanation, please address any price caps and how cost savings are shared between Hydro One and customers when cost reductions are achieved.Does Hydro One anticipate any stranded costs under PBR or incentive based regulation? If this will not be a concern until 2019 or later, please discuss what protections are built into PBR to protect Hydro One cash flows.From Hydro One’s perspective, please describe how its incentives change under PBR will change from the prior cost based regulatory framework?Were there any PBR incentives that will not be well aligned with both customer perceived value and Hydro One’s operational cost effective reliability? Please explain.Under PBR, what costs are assigned a Z-factor or deemed to not be under Hydro One’s control and therefore passed through to customers?Please describe each of the performance indicators that Hydro One will be measured on in PBR and who does the measuring and assessment, and explain what is required for Hydro One to meet or exceed expectations with respect to each indicator/factor.Please describe in general terms the steps involved for Hydro One to have a general rate increase in Ontario now vs. how rates will be set and updated in the future after 2019.Please discuss and explain the Ontario Trillium Trust and how that fits into Hydro One governance.Please recap and further describe the Hydro One Initial Public Offering (IPO) and subsequent secondary offerings. In this narrative, please explain further each of the covenants and controls Ontario retains regarding Hydro One.Please provide documentation of the covenants, minimum ownership, rights of first refusal, term sheets and other privileges Ontario holds regarding ownership and control over Hydro One. With this documentation, please include any list of conditions and controls that were strengthened in order to protect Ontario ratepayer interests leading up to the Hydro One IPO and additional stock sales.Please provide a spreadsheet in MS Excel form listing and providing hyperlinks to Hydro One’s last five years of reports to each provincial and national entity with which the Hydro One is required to file annual, quarterly, and current material information reports, including, but not limited to financial, regulatory, and investor reports.Please provide a spreadsheet in MS Excel form listing and providing hyperlinks to Hydro One’s last five years of general rate cases showing pertinent docket numbers, final orders, and the dates final orders were entered.Please discuss:a) Hydro One’s post 2019 incentive based rate model for future OEB regulation, b) how Hydro One is regulated for 2017 (cost-of-service, etc.), and c) how Hydro One is transitioning between these regulatory frameworks.Please specifically identify and provide an internet hyperlink or current copy of the inflation adjustment factor that will be applied in Hydro One’s incentive regulatory construct.Please discuss how Hydro One arrives at its projection of a 5.3 percent rate base CAGR over the next five years, explaining inputs and any dependence on acquisitions.Please explain further the bullet on page 7 of Hydro One’s Post Second Quarter 2017 Investor Overview reading, “… recent OEB decision in place transitioning residential distribution rates to fully fixed (decoupling).” In this explanation, please provide pertinent docket and order references and a copy of the text of the order addressing and providing any background for this decision.Please provide the cost of capital parameters for Hydro One for September 30, 2017, set for Hydro One as these are finalized. With these parameters please provide referent inputs and a spreadsheet showing how the parameters were calculated.Please discuss whether and to what extent the relatively low 1.5% Hydro One 10-year transmission CAGR and 3.1% 10-year distribution CAGR or aggregate Hydro One 2.9% 10-year CAGR for Hydro One’s portion of end customer billing shields Hydro One from impacts of the Fair Hydro Plan and other current rollback of rates.Please provide the docket and order references, decision text and any supporting analysis for each of Hydro One’s 2017 allowed: a) ROE of 8.78 percent, and b) deemed 40% equity / 60 percent debt capital structure. With these materials please also explain whether debt in this case includes any debt with maturities under one year, imputed debt, or contracts with debt-like properties. In this explanation, please compare the above capital structure to that shown on of Hydro One/400 Lopez/Page 7 walking through the bases of the differences.Please discuss whether from Hydro One’s perspective, Hydro One’s expertise with fiber optic communications allows for greater utilization of Avista Corp. current and planned transmission lines beyond utility purposes such as internal communications and troubleshooting within Avista. Within this discussion, please explain whether the fiber optic resources of Hydro One are associated with top “lightning” lines principally along electric transmission.Please provide a spreadsheet in MS Excel form listing and providing hyperlinks to Hydro One’s last five years of integrated resource planning (IRP) / capital spending plans showing docket numbers, final order numbers, and other pertinent reference numbers or identification.Please discuss the Premier’s Advisory Council on Government Assets and this body’s relationship to Hydro One.Please confirm the statement on lines 22-23 of Hydro One/400 Lopez/Page 10 that, “TheOEB has no jurisdiction to review and approve issuance of new equity Hydro One. In this discussion please identify any provincial or national agency that must approve of or be notified of Hydro One equity issuances. Herein please further clarify that each of:a) the Provincial Ministry of Energy, b) EOB, c) IESO, d) National Energy Board, f) North American Electric Reliability Corporation, g) Northeast Power Coordinating Council and h) Premier’s Advisory Council on Government Assets each has no jurisdiction over Hydro One securities issuances, or describe what notifications and approvals are necessary.Please provide a searchable electronic copy of each financial presentation made by Hydro One to, or received by Hydro One from, representatives of any investment bank, broker-dealer, equity analyst, investment-services firm, current or potential investor, or Provincial representativesince January 1, 2014.Please provide, in electronic spreadsheet format, the Company's complete financial statements (e.g., balance sheet, income statement, cash flow statement, statement of shareholders’ equity, and statement of comprehensive income) on an annual (or year-end for the balance sheet) actual basis for the past calendar year and on an actual plus forecast basis for the current calendar year (or year-end for the balance sheet), specifically including the information requested below. If information associated with any of the following specific requests is not available, please explain why. If this information is provided in MS Excel form in your application, please point to these exectronic spreadsheet files.Please provide, in electronic spreadsheet format, the Company's complete financial statements (e.g., balance sheet, income statement, cash flow statement, statement of shareholders’ equity, and statement of comprehensive income) on an annual (or year-end for the balance sheet) pro forma basis for each calendar year from 1998 to the last closed financial year. If information associated with any of the following specific requests is not available, please explain why.Return on equity (ROE) for provincial-regulated property; andROE for unregulated property.Please discuss each merger and acquisition in which Hydro One participated since January 1, 1998.Please provide some background on how Hydro One Sault Ste. Marie electric transmission fits in the Hydro One corporate structure.Please provide background on whether Hydro One Brampton Networks was formerly Hydro One, Limited’s electric distribution to urban areas prior to 2016? And please describe further whether in 2016, Enersource Corp., Horizon Utilities Corp., and PowerStream, Inc. merged and purchase Hydro One Brampton Networks Inc., to form a large municipally-owned electricity distribution company. In this explanation, please explain the role, if any, the OEB had in reviewing the Mergers, Acquisitions, Amalgamations and Divestitures (MAADs) application, thereof.What percentage of Hydro One, Limited’s capitalization did Hydro One Brampton Networks represent at the time it was restructured / municipalized in 2016?What major cities were removed from Hydro One’s aggregate service territory when Hydro One Brampton Networks was restructured / municipalized in 2016?Please identify and discuss the roles of ratepayer advocacy groups / organizations in Ontario including what inputs they have on utility scorecards Please discuss each restructuring affecting Hydro One since January 1, 1995.Please provide the legislative designation and text of the basis for Hydro One’s statement on page 2 of its Post Second Quarter 2017 Investor Overview containing:
“… legislated governance agreement ensuring autonomous commercial operations with the Province as an investor and not a manager.”Please discuss Hydro One’s acquisitions since its IPO, including small distribution companies and coops, explaining how these acquisitions contributed to a) Corporate and b) provincial strategy.Please list and discuss the 90 LDC electric utilities consolidated by Hydro One since 1998. In this discussion, please explain whether Hydro One has taken over distressed small distribution systems at the direction of Ontario.Please provide further background on each of the following planned or completed acquisitions addressing the: A) status, B) premium (if any) paid in the C) acquisition price, amount of purchase debt financed, and overview of the acquisition, D) how it contributes (or will contribute) to Hydro One earnings and E) whether and when what parts of the acquisition were or will be rate based.Acquisition of Hydro One Sault Ste. Marie – Great Lakes Power Transmission completed on October 31, 2016, as bulleted on pages 6 and 14 of Hydro One’s Post Second Quarter 2017 Investor Overview;Acquisition of Orilla Power Distribution announced on August 15, 2016, as bulleted on page 14 of Hydro One’s Post Second Quarter 2017 Investor Overview,Acquisition of Norfolk LDC;Acquisition of Haldimand LDC; andAcquisition of Woodstock LDC.Please provide a spreadsheet in MS Excel format showing the following for Hydro One since January 1, 1998:Authorized and earned return on equity, Average annual capital structure breakout between common equity, Preferred stock if any, and Long-term debt with maturity over one-year. When considering long-term debt, please exclude imputed debt, and contractual obligations with debt-like properties that credit rating agencies may include in rating metrics. Please also explain how Hydro One addresses any convertible securities in the Company’s response.Please provide a summary narrative from Hydro One’s perspective of the interplay between Hydro Quebec long-term hydro contracts to Ontario loads, Independent Electric System Operator (IESO), Ontario Power Generation, Inc. (OPG) nuclear and hydro baseload generation, the Ontario Ministry of Energy, and Hydro One.Please explain in detail the purpose and function of each of the four Olympus corporate entities proposed in the target capital structure post-merger.Please provide a MS Excel spreadsheet breakout by voltage of Hydro One’s very high voltage (over 200 kV) transmission lines and substation equipment.Has Hydro One determined that Avista’s and Hydro One’s systems are working with sufficiently similar high voltage transmission line and substation equipment to create purchasing economies of scale? If so, please explain and include indicative pricing from suppliers like ABB Group showing the difference in pricing by quantity of inputs to transmission and substation equipment. Please include a discussion of Avista’s current purchasing arrangements, singular or in connection with groups of utilities, and why such methods do not provide the same economies.Has Hydro One determined that Avista’s and Hydro One’s information technology and computer systems are sufficiently similar as to allow both to use the same software solutions at lower cost than were each to purchase the same software or different software separately? If so, please explain.Please discuss, please clarify if Hydro One has any energy storage experience or management expertise.Has Avista presented to Hydro One any other feasibility studies looking at Avista opportunities were the U.S. to undergo a large infrastructure stimulus program? If so, please provide a copy of the most recently studies presented to Hydro One by Avista.Please provide the text of the legislation requiring the province of Ontario not to fall below 40% ownership of Hydro One and precluding any other shareholder from owning more than ten percent of Hydro One’s shares. Please also provide the title of the statute for further reference.Please provide the text of any legislation requiring the province of Ontario to be uninvolved in the business decisions of Hydro One. Please also provide the title of the statute for further reference.Is Hydro One prohibited from owning generation assets in Ontario?If so, please provide a brief narrative providing the title of and explaining what statutes or rules prevent Hydro One from owning generation assets.If not, please provide a list of all generation assets owned by Hydro One including remote diesel / oil fired generation identifying the subsidiary owning each asset.Please explain what time-of-use pricing Hydro One employs or interacts with today, if any, and what pilot projects if any, Hydro One is participating in looking at alternatives to time-of-use pricing.Does Hydro One see Fortis, Inc. (Fortis) and Emera, Inc. (Emera) as role models in Hydro One’s growth strategy? In this discussion, please explain whether the Oregon Commission should look at the Fortis acquisitions of ITC Holdings Corp. and the Emera purchase of TECO Energy, Inc. as similar to Hydro One’s long-term strategy?Please provide a table in MS Excel showing for each general rate increase Hydro One requested since the IPO, including:Docket or reference number assigned by each pertinent reviewing regulatory body;Regulator and lead staff person for that general rate case (GRC);Date Hydro One Requested the GRC;Order or reference number of the regulatory decision;The date the regulatory decision was entered into the record;Effective date of the GRC;Cost of Long-Term Debt authorized, if applicable;Return on Common Equity authorized, if applicable;Rate of Return authorized, if applicable; and Attached copy of final regulatory order in the GRC.Please provide an MS Excel spreadsheet listingHydro One’s affiliatesfrom the perspective of its primary regulatory body overseeing affiliated interests.Please provide a copy of each of the last three affiliated interest reports that Hydro One provided to its regulator, identifying the regulator if that is not shown as part of the filing. If this type of reporting is not required of Hydro One, please explain further.Please provide a spreadsheet showing for each of the past five calendar years:Each entity that held beneficial ownership of five percent or more of Hydro One’s common equity,Whether that entity to date has been a passive investor,The highest percent holding of Common Stock held in that period, and Source of ownership information relied upon.Please discuss Hydro One’s stock pricing on a quarterly basis from January 1, 2016, explaining the negative 11.4 percent 52 week trending against the Standard and Poor’s 500 (S&P 500 ) index, S&P 500 Utilities Sub-Index and AVA trends as tracked by the Wall Street Journal (WSJ). Please distinguish trending before and after the merger announcement in your discussions.Please discuss Hydro One’s: A) Company and B) Current Management experience operating an electric Utilities with high penetration of variable renewable energy generation.
Topic or Keyword: Dividends and Payout RatiosPlease describe the Hydro One’s current dividend policy and any planned changes to the current policy. In this narrative, please explain with respect to Hydro One, the roles and authority of:Ontario Energy Board (OEB) as a whole;OEB Management team consisting of Chair and Vice Chairs;OEB Executive Committee and Staff;Hydro One Board of Directors (BOD),Her Majesty’s Government of Ontario (Ontario).
addressing both Premier and Ontario Ministry of Energy; andThe Ontario Ombudsman as referenced in Avista/600 Pugliese/5.Please clarify whether the Premier of Ontario or the legislature can call for and expect a higher dividend payout ratio or higher compound annual growth rate of dividends than:Prevailing across Hydro One’s closest 10 peer investor-owned and publicly-traded North American utilities (IOU), andPrevailing across Hydro One’s closest 10 peer U.S. IOUs,Other Crown Corporations like BC Hydro, Hydro Quebec, and Ontario Power Generation.Please provide (showing calculations and graph) in a MS Excel workbook the most recent historical five-year: payout ratios, dividends, dividend yield, and compound annual growth rate (CAGR) for each of:Hydro OneAvista CorporationAverages for Hydro One’s closest 10 peer investor-owned and publicly-traded North American utilities (IOU), andAverages for Hydro One’s closest 10 peer U.S. IOU.Please discuss Hydro One’s target dividend payout ratio of 70- to 80 percent of net income compared to Avista and Northwest IOU payout ratios. In this discussion please explain how Hydro One simultaneously addresses both growth through acquisitions and high dividend cash flows to investors including Ontario.Please provide documentation of Hydro One’s existing dividend policy inclusive of any briefings or presentations to Hydro One BOD, Hydro One management, OEB, and each other regulatory body receiving same, including agencies and oversight committees of Ontario.Please provide the work papers showing the calculations behind Hydro One’s expectation of accretion in the first year, as listed on page one of Hydro One’s July 2017 press release. Please provide electronic Excel work papers with cell formulae intact. Please provide a copy of the governanceagreement between Hydro One and Ontario.Please provide a brief history of the governance agreement including when it was created, if it has been amended, and whether it is legally binding.In the governance agreement between Hydro One and Ontario, please list which decisions must be approved by Board of Directors in advance versus in arrears?Please provide a narrative explanation and any calculations performed to determine that the acquisition of Avista will increase long-term earnings per share for Hydro One.Please describe the voting and other rights of any outstanding preferred stock of Hydro One; and provide a breakdown of the ownership of each quantity held of each series described.Based on the most current projections ofHydro One and analysts that the Utilities’ rely on, please provide a spreadsheet showing annual growth rates for:Earnings per share,Book value per share,Dividends per share, andAverage annual number of shares outstanding (the divisor).Hydro One anticipates for each of the next five calendar years beginning with the current year (2017-2021).Please provide the data requested in the immediately prior DR for each of the five subsequent calendar years (2022-2026). If this information exceeds the Utilities’ projections, please provide the data available and explain.Please provide:Hydro One’ssupporting documentation in electronic format citing any analysts or financial resources relied on in responding to DRs 71-72;The amount per share and the payment date of the first dividend for each calendar year; andThe currency of all projections clearly distinguishing between C$ and US$.
Topic or Keyword: Long-Term (LT) Debt with Maturities over One-YearPlease provide, in electronic spreadsheet format, a table calculating Hydrro One’s actual cost of LT Debt for each LT Debt security with a maturity over 1-year, providing the following information for each security:Coupon rate;Description of the security;CUSIP or other tracking reference;Issuance date;Maturity date;Original life (years, months, days);Years to maturity;Original issue principal amount;Currently outstanding principal amount;Amount of any premium or discount at issuance;Redemption Expenses; Issuance expenses; Net proceeds to the Hydro One in dollars showing currency;Net proceeds to Company as percent of principal amount (e.g., 99.34%);Any loss or gain from hedging assigned to the debt series, explained further in a footnote;All-in Cost (%);Annual debt service cost
(multiplying the All-in Cost by the principal amount currently outstanding).Whether the bonds / notes / other securities were issued in private placement;Whether the debt or obligations were First Mortgage Bonds (FMB);Whether the Debt was convertible to stock with a footnote describing the pertinent conditions;Other special features further described in a footnote; andForeachplanned / pro forma issuance, please show assumptions used.For each of the four most recent debt security issuances with a maturity over one-year, please provide:Credit rating agency that provided services and creditratings;Primary holders of these securities if known to Hydro One;Hydro One’s assessment of whether these securities experienced active secondary market trading, or tended to be held, as to maturity such as by an insurance company.Please explain whether Hydro One is able to issue first mortgage bonds (FMB) supported by adequate interest coverage and a qualified pool of assets. In this discussion, please explain what amounts and proportion of Hydro One’s non-convertible debt with maturities over one-year are FMB out of the total amount of such outstanding debt.If Hydro One does not issue FMB or issues unsecured debt in lieu thereof, please explain what premium that represents over secured FMB and explain Hydro One’s debt issuance strategy.If the Company has engaged in any currency exchange rate or interest rate hedging activities or derivative contracts in the last five calendar years, please:Explain the nature and general conditions of, and provide a copy of, each agreement or contract;Provide each analysis, in electronic spreadsheet format, the Company performed prior to engaging in each of these transactions, including the date each such analysis was performed;Explain how the transaction was settled, for what amount, and in what currency; andExplain how the loss or gain was treated, for example: “the loss of C$1.2 million was recorded as an issuance expense on the next 4.2% series of 30-year bonds.”Please provide a copy of the Company’s current policies and guidelines related to the issuance of LT Debt and hedging in conjunction therewith.Regarding Avista/100 Morris/4 @6 Assumption of $1.9 billion of debt, please explain how precisely Avista will be recapitalized. In this explanation, please clarify if Avista will benefit from issuing new FMBs at current low market rates or in private placement at low current spreads of like maturity FMBs, lowering the cost of long-term debt for Avista.Please explain the methods by which Avista would issue its planned $900 million debt and maintain a balanced capital structure like described for June 30, 2017, in Avista/300 Thies/6.
Topic or Keyword: Currency Exchange / Foreign Exchange (4X)How does Hydro One currently address Canadian Dollar fluctuation against other currencies, namely the U.S. Dollar, to control currency or exchange rate risk?How does Hydro One plan (post-merger) to address Canadian Dollar fluctuation against other currencies, namely the U.S. Dollar, to control currency or exchange rate risk? In this explanation, please discuss whether larger USD denominated cash flows with the acquisition of Avista requires a change in 4X strategy.Please provide and explain the cost per CA $million that Hydro One Ltd has incurred for what amount of foreign currency cash flows in each of the past 10 years. Please also provide any internal reports of 4X activity and policy for this time frame.Please provide a copy of Hydro One Ltd governing documents addressing currency hedging goals, operation time horizon with defined terms like “Short-Term” and “Long-Term,” and any normalization methodologies. For any normalization ratios or smoothing, please provide a MS Excel spreadsheet example of the last three most recently closed periods for which each process or set of calculations was made.
Topic or Keyword: Common Equity Please list each advisory, research, credit, or other similar report or commentary, of which Hydro One is aware of and has the Company as a primary topic that was issued by any investment bank, commercial bank, broker-dealer, investment firm, equity analyst, investment advisory firm, or other providers of similar services since January 1 of 2014. Please include the issuer and date issued for each listed report, and a copy of each responsive document in the Company’s possession.Regarding coverage of Hydro One by any broker-dealer, investment firm, equity analyst, or investment advisory firm, please list the approximate dates, on a forward-looking basis for the next 12 months, on which the Company anticipates issuance of a report or commentary, including identification of the issuer. Please list each financial, risk and strategic development consultant used by Hydro One or its subsidiaries since January 1 of 2014. Please include a copy of the consultant’s analytical results, testimony, and any associated reports or exhibits. Please provide work papers, in electronic spreadsheet format, supporting the consultant’s analytical results or exhibits.Please describe how Hydro One establishes a discount rate or rates for analyzing new investments in each of: (a) generation, (b) transmission, (c) storage, (d) distribution, and (e) other investments. Please explain any methodological differences in determining the discount rate(s) between these investment categories.Please explain whether current covenants and rights of Ontario prevent Hydro One from using an equity forward to float new common equity.Please explain what barriers in terms of cost, requirements and resources exist to Hydro One to:Trade on the New York Stock Exchange (NYSE);Provide American Depositary Receipts (ADR) issued by a U.S. Bank facilitating trading of existing Hydro One Canadian stock in U.S. financial markets; andTrade on the Frankfurt Stock Exchange (FWB).Please explain what steps, if any, Hydro One has in place to allow current Avista equity investors to transition to and easily follow Hydro one stock.Does Hydro One have a dividend reinvestment plan (DRIP) for Hydro One shares? If so, how has this plan changed to accommodate U.S. investors in the last two years?What quantity of shares of Preferred Stock has Hydro One BOD authorized and how much of that is outstanding before a) just before the IPO and b) now? If any preferred stock is outstanding, please provide a MS Excel Spreadsheet showing its quarterly activity and characteristics since the IPO.Regarding Hydro One/400 Lopez/10, please clarify what cost and barriers would be involved in listing Hydro One on the New York Stock Exchange (NYSE)
Topic or Keyword: Capital Structure Please provide, in electronic spreadsheet format, the Company’s dollar value and percentage composition of capital structure on an actual basis as of December 31, 2016,for each month following, and on a pro forma basis as of December 31,2017.
Topic or Keyword: Credit Facilities For each credit facility outstanding as of December 31, 2017please provide:Bank commitment amount;Pricing;A copy of the credit agreement(s);The Bank(s) or financial institution(s) providing the credit facility;Syndication agent;Administrative agent;Upfront fee;Syndication agent fee;Administrative agent fee; andFacility annual fee.Please explain any costs based on credit ratings, including what costs apply should ratings be split between referent credit rating agencies.
Topic or Keyword:Credit Rating Agencies Please provide the current ratings including secured long-term debt ratings for Hydro One and discuss the current rating methodology used by Standard & Poor’s, and by Moody’s, in comparison to DBRSof Toronto to rate Hydro One. Please include a detailed definition, calculations and values of each financial metric as used by each agency.Please provide a copy of each financial presentation, as well as accompanying exhibits, requests for analysis or data, responses to requests for analysis,and any correspondence, made by Hydro One to any rating agency since January 1,2014.Please explain what support in terms of Avista retained earnings and Hydro One capital investment in Avista if any Hydro One plans to provide to raise Avista’s credit ratings with Moody’s and S&P by at least 1 notch above current ratings as referenced on Avista/300 Thies/7.Regarding Hydro One/410 Lopez/13, what costs and difficulties would be involved were Avista to need to maintain both Moody’s and S&P ratings reflecting usual Commission expectations.
Topic or Keyword: Pension ObligationsPlease provide Hydro One’s calculations for annual pension and post-retirement medical expense for each year since the IPO. Please identify discount rates and expected return on assets and each other input, and explain what issues or challenges, if any, were associated with transition from Crown corporation status.Please explain what persons Hydro One bears responsibility for with respect to pensions, medical and other post-retirement expenses post-merger, and what if any legacy responsibilities exist at what percent level of funding set aside to meet such obligations.
Topic or Keyword: Elements of Proposed MergerA) How much money is being provided to, or set aside for, Avista officers to support the proposed acquisition of Avista? (B) What are the terms of the officer and executive management incentives to Avista? (C) Who is identified as potentially receiving such incentives at Avista?Is Scott Morris’ Avista BOD Chairmanship guaranteed for more than one year? If so, please provide details.What experience does Hydro One have in operating a natural gas system? Please provide a detailed narrative of examples.Please identify the types of resources and specific gas utility assets each of Hydro One’s management team has experience with, clarifying in what capacity each was responsible.How many shares of Avista stock does Hydro One currently possess directly or indirectly?Are both Vanguard and Blackrock passive regarding the proposed merger?Please provide a narrative description of the efficiencies of scale that Hydro One expects to result from the acquisition of Avista. Please include a list of specific areas or departments of Hydro One’s business, and Avista’s business, that would benefit from the efficiencies of scale.What Information Technology (IT) assets does Hydro One expect could potentially provide synergies through sharing and economies of scale between Hydro One and Avista? Please list the name and function of any IT systems currently operated by Hydro One which could also be used by Avista, or vice versa.Please provide each: a) valuation, b) risk assessment and c) cash flow analysis of Avista Corp. that Hydro One has in its possession along with any work papers, supporting spreadsheets, narratives and executive summaries and presentations.Please clarify who performed and who funded each analysis in the immediately prior data request.Please: a) explain all terminal value and net present value calculations addressed in the prior two DRs, and b) provide supporting formulas and examples in complete spreadsheets.Please discuss what authorizations and approvals would be required for Hydro One to infuse each of the following amounts into Avista:US$500 million; andUS$1 billion.Please explain what non-recourse reserve dollars or assets are dedicated to and set aside, if any, to guarantee Avista credit ratings, certainty of liquidity, access to financial markets, and attractiveness as a contractual counterparty that does not require other financial guarantees. To place this question in context, please consider, Berkshire Hathaway, Inc.’s US$1 billion guarantee in MidAmerican Energy’s 2005 acquisition of PacifiCorp from Scottish Power plc.
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/s/ John Crider and Marc Hellman – Staff AdministratorsStaff Initiators:Matt [e-mail]503-378-6164
Rose [e-mail]503-378-8718