20171129UM 1897 Hydro-One DR 213-236.docx

November 14, 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 213– DR 236
November 28, 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: Follow Up to Telephonic Work Session (TWS) of Nov. 8, 2017Regarding TWS 044, which asked, “Please walk through the OEB Sep. 29, 2019 decision regarding Hydro One’s 2017-2018 Transmission Revenue Requirement as described in the attached press release– herein please explain any new performance or incentiveelements,”please provide a detailed walk through of the OEB Sep. 29, 2019 decision regarding Hydro One’s 2017-2018 Transmission Revenue Requirement.Please identify Hydro One’s proposed performance or incentive elements for transmission for its next rate case proceeding and discuss the targeted changes from cost-based rates, explaining what improvements these performance based rate (PBR) elements offer.In the OEB Sep. 29, 2019 decision regarding Hydro One’s 2017-2018 Transmission Revenue Requirement, were costs essential to any Ontario-based publicly traded company denied because those costs were not required for a comparator Hydro One Networks, Inc. as a former Crown Corporation? If so, please explain further and clarify whether some unavoidable costs that an Investor Owned and Publicly Traded Utility (IOU) must incur could become stranded costs were the OEB to maintain that interpretation.Regarding TWS 045, please provide (in MS Excel format) Avista Common-Sized pro forma financial statements for 2019 or the first year post-merger, where key numbers are shown as 100 percent, and other numbers are shown as a percent thereof as compared with a spreadsheet with the same treatment for 2016 Avista financial statements. Please show the difference between the Common Sized percentages between these years and discuss elements where the Common Sized percentages are expected to change substantially after the proposed merger.Regarding TWS 046, is Hydro One’s best estimate of the fair value of goodwill in the proposed acquisition of Avista CA$2.50 billion Canadian or using a conversion factor of 1.27, about US$1.97 billion? If not, please correct and return the above statement to best reflect Hydro One’s current estimate of goodwill at this time.Regarding TWS 077– This question is posed separately to each of the finance groups of Hydro One and Avista at the VP and Director of Finance level. What are your top 6 sources for financial news covering Canadian Markets and your top 6 sources for financial news and information covering Canadian energy (electric and natural gas) and water utilities? Please provide internet links where applicable.Regarding TWS 021, is it correct that after January 1, 2018, California, Ontario and Quebec will jointly participate in a cap-and-trade program in which there will be commonly bid and valued permits? If so, please describe further the background from January of 2016, the target goals Ontario is trying to achieve, and what the market mechanisms are from Hydro One’s perspective. In this explanation, please identify the resources and where applicable the hyperlinks where Hydro One gets pricing information for tradeable elements of the cap-and-trade program.As Ontario joins CA and Quebec in Cap-and-Trade what financial impact does that have on Hydro One?IF WA joined also, how would trading occur, with what savings for Avista?Regarding TWS 035, is it correct that neither Hydro One nor Avista has at this time explored the potential for development of high speed internet through transmission in the Avista footprint, and over planned potentially adjacent transmission such as the Energy Gateway, in the manner of Hydro One Telecom, Inc. in Ontario? Please explain.Regarding TWS 018,is it a fair assessment that only about a third of the money collected from about 1.3 million customers is for transmission and distribution services, putting Hydro One in the controversial role of collection agent for the Province of Ontario, even though Crown Corporation generation is not subject to Hydro One management? If not, please explain further; and include a narrative on how Hydro One manages its public image consistent with collection obligations.Regarding TWS 018–This question is submitted to both Avista and Hydro One separately. Please provide a list of third party resources used to help evaluate the merger, indicate which were retained at Hydro One expense, and the primary foci of each (such as financial, legal, or other with a brief explanation).Regarding TWS 071,please provide a brief background on the legislation and then walk through both primary parts of the solvency tests imposed by corporate laws governing Hydro One dividend issuance.Please provide a narrative comparing certain reporting activities that would be at the federal level in the US, but at the Ontario provincial level in Canada.Regarding TWS 011 – Please identify the two senior executives at Hydro One who have extensive natural gas experience, and discuss the years of gas experience each has as well as where and in what roles this experience was obtained.Regarding TWS 58 – Please correct and return Staff DR 227 Attachment A which is to show the recent history of share ownership of Hydro One to capture the current approximately 42% Provincial ownership of Hydro One, the relative Q4 2017 roles of 1st nations and union share holdings and the passive holdings of Blackrock, Vanguard and any other pertinent major holdings Please also include a narrative indicating the last date on which any stock programs like Dividend Reinvestment Programs (DRIP), incentive and other plans were last audited or reconciled from estimates including vesting provisions.
See Attachment A – an MS Excel file.Please correct and return the following understandings regarding Hydro One floatation of common equity today and in the future:The Province of Ontario must be notified and on constructive receipt of notification would have 30 days to consider a right of first refusal, and 10 additional days for decision-making for a total of 45 days of evaluation and decision making if Ontario currently holds less than 45 percent of outstanding common stock.If Ontario would hold 45 percent of outstanding shares post-flotation (including any Greenshoe underwriters’ option to sell investors more shares than originally planned by the issue), then the Province would require no advance notice and would enjoy no right of first refusal, other than at Hydro One’s discretion.If Ontario declines a right of first refusal, that Provincial opportunity is lost for that issuance.If the Province of Ontario falls below a holding of 40% of the common shares of Hydro One outstanding, then the Province must acquire additional shares (subject to no particular time deadline) to bring its holding back up to 40 percent of common shares.No other shareholder may acquire 10 percent or more of Hydro One’s Common Stock.Hydro One may do an equity forward in compliance with Toronto Exchange rules, if in doing so Hydro One can meet the above requirements.Hydro One may deploy DRIPs, Incentive and Retention Plans provided above conditions are satisfied.Other.Please recap the most current authorized and outstanding quantities of each class and category of common and preferred stock indicating each annual and quarterly interest or dividend paid and rights associated with each regarding voting or other matters.Please provide a narrative explanation of the timing and process the Companies expect to use to identify specific examples of synergies and efficiencies from the merger of Hydro One (a transmission and distribution utility) and Avista and AEL&P (which provide electric generation).HasHydro One has ever owned and operatedanatural gas distribution company (LDC). If so, please describe these operations and indicate if operating staff are still employed at Hydro One. Please also identify the business segment names and explain further the ownership and operation of those business segments today.Please explain in further detail the expected synergies between Hydro One existing operations and Avista Oregon local gas distribution operations.Please explain in detail the expected synergies with Hydro One’s telecommunications business and Avista. (Application p. 23).Please list and describe in detail any specific examples of the efficiencies that Hydro Oneexpects to result for Avista from the proposed merger within the following categories and explain the rationale supporting the conclusion:Cost AllocationsBusiness processesR&DCustomer ServicePlease walk through the proposed corporate organization chart from Hydro One LLC to Avista explaining in detail the role of each proposed entity in between.Please provide Jane Allen’s response to TWS 6, 10, 12, 13, 15, 16, 88, which in sum asked for an explanation of the material, or expected, financial benefits and/or other benefits that will result, or are expected to result, for Avista post-acquisition by Hydro One.
Please name your responsive file to include the Data Request number. Once you have posted your response to the Data Request to the PUC Huddle account, use the “Sharing” feature of Huddle to generate an email to authorized parties notifying them that the response has been posted. In the body of the generated email, list the Data Request number associated with your response.
You must mark confidential responses as such and post them to Huddle in the appropriate “Confidential” folder. Access to Confidential folders is limited to individuals who have signed the protective order. You should not send confidential documents (hard copy or electronic) separately to the Commission or its Staff; you should post confidential responses only to the Huddle account.
Should you need to request an extension to the due date for the data responses you will need to contact the staff attorney assigned to the case for approval.
Questions regarding the use of Huddle should be directed to [e-mail].
/s/ John Crider– Staff AdministratorStaff Initiators:Matt [e-mail]503-378-6164
Rose [e-mail]503-378-8718
Kathy [e-mail]503-378-4629
Marianne [e-mail]503-378-6117