20180126Avista to Staff Staff_DR_002 Attachment A.pdf

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THE MERGER
Overview
The Company is seeking the approval by its shareholders of the merger agreement the Company entered into on July 19, 2017 with Hydro One, US Parent,
and Merger Sub. Under the terms of the merger agreement and the plan of merger set forth therein, subject to the satisfaction or (if permissible under
applicable law) waiver of specified conditions, Merger Sub will be merged with and into the Company, with the Company surviving the merger as an
indirect, wholly owned subsidiary of Hydro One. The Board unanimously adopted resolutions (i) determining that it is in the best interests of the Company
and its shareholders for the Company to enter into the merger agreement, (ii) adopting the plan of merger set forth in the merger agreement and approving the
Company’s execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated by the merger agreement
and the plan of merger set forth therein, and (iii) resolving to recommend that the shareholders of the Company approve the merger agreement and the plan of
merger set forth therein and directing that the merger agreement be submitted to the Company’s shareholders for approval at a duly held meeting of the
Company’s shareholders for such purpose. Upon the consummation of the merger, each share of Company common stock issued and outstanding
immediately prior to the effective time, other than (i) shares owned by Hydro One, US Parent, Merger Sub or any of their respective subsidiaries and (ii) shares
held by a shareholder who did not vote in favor of the merger (or consent thereto in writing) and who is entitled to demand and properly demands payment of
fair value of such shares pursuant to, and complies in all respects with, the provisions of Washington law, will be converted into the right to receive $53.00 in
cash, without interest.
Background of the Merger
The Board and the Company’s executive management team (“Executive Management”) regularly review and evaluate the Company’s strategic plan as part of
their ongoing efforts to provide long-term value to the Company’s shareholders, taking into account economic, competitive, regulatory and other conditions,
as well as historical and projected industry trends and developments. As part of such regular reviews, the Board and Executive Management also consider and
evaluate options and alternatives designed to enhance shareholder value, including, from time to time, potential strategic transactions. In addition, in
connection with such reviews, the Board and Executive Management also engage in discussions from time to time with various investment banks with
knowledge of and expertise in the Company’s industry (including BofA Merrill Lynch, the Company’s financial advisor) about industry developments,
including the considerable merger and acquisition (“M&A”) activity that has occurred in the Company’s industry over the past several years. Through these
efforts, the Board and Executive Management believed they were generally aware of the potential opportunities for strategic transactions in its industry and
for the Company in particular.
In mid-October 2016, representatives of “Party A” contacted BofA Merrill Lynch, which was known to have a historical relationship with the Company, to
request a meeting to discuss Party A’s strategic interest in the Company. Representatives of BofA Merrill Lynch promptly informed Executive Management
of this conversation.
On November 2-4, 2016, a regular meeting of the Board was held in New York. At such meeting, among other operational and strategic topics, the Board and
Executive Management generally discussed and reviewed various strategic alternatives available to the Company at such time, including potential strategic
transactions.
At the Company’s request that BofA Merrill Lynch respond to Party A, on November 11, 2016, representatives of Party A and BofA Merrill Lynch met in
person to discuss Party A’s interest in a possible strategic transaction with the Company. Following the meeting, BofA Merrill Lynch updated Executive
Management regarding the meeting and members of Executive Management instructed BofA Merrill Lynch to follow-up with representatives of Party A to
schedule a telephone call to discuss various transaction considerations in connection with any potential strategic transaction with Party A.
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On December 1, 2016, the Company initially engaged BofA Merrill Lynch to act as financial advisor in connection with exploring and evaluating
considerations related to potential strategic alternatives, including in connection with Party A’s interest in a potential strategic transaction.
On December 6, 2016, financial advisors of “Party B” contacted Mark T. Thies, a Senior Vice President and the Chief Financial Officer of the Company (“Mr.
Thies”), to express interest in discussing a possible strategic transaction. Mr. Thies informed the financial advisors to Party B that the Company was currently
focused on certain pending regulatory matters and was not engaged in a sale process. Mr. Thies noted that if, as part of its ongoing review and evaluation of
opportunities to enhance shareholder value, the Board were to consider a potential strategic transaction, any such transaction would need to provide
significant shareholder value.
At the Company’s request, on December 7, 2016, representatives of Party A and BofA Merrill Lynch participated in a telephone call to discuss potential
transaction considerations, including the strategic rationale for a potential transaction and possible transaction structures. Following this meeting, BofA
Merrill Lynch promptly updated Executive Management regarding the meeting and, at the request of members of Executive Management, representatives of
Party A and BofA Merrill Lynch worked to arrange a meeting between the Company and Party A to be held in Chicago, Illinois on January 6, 2017.
On December 21, 2016, the Chief Executive Officer of “Party C” emailed Scott L. Morris, the Chairman, President and Chief Executive Officer of the
Company (“Mr. Morris”), to express interest in discussing various strategic alternatives with the Company. The next day, Mr. Morris replied via email that he
would be willing to schedule such a call.
On January 3, 2017, BofA Merrill Lynch delivered a memorandum to the Board disclosing certain relationships between BofA Merrill Lynch and its
affiliates, on the one hand, and the Company, Party A and Party B and certain of their respective affiliates, on the other hand, during the prior two years.
On January 4, 2017, after financial advisors for Party B coordinated the arrangements with Mr. Thies to schedule a call with Mr. Morris, Mr. Morris
participated in a telephone call with Party B’s Chief Executive Officer, who expressed an interest in a potential strategic transaction. Mr. Morris informed
Party B’s Chief Executive Officer that the Company was currently focused on certain pending regulatory matters and was not engaged in a sale process.
Mr. Morris also noted that if, as part of its ongoing review and evaluation of opportunities to enhance shareholder value, the Board were to consider a
potential strategic transaction, any such transaction would need to provide significant shareholder value and include appropriate commitments with respect
to the Company’s stakeholders to enhance the likelihood of obtaining required regulatory approvals.
Also on January 4, 2017, Mr. Morris participated in a telephone call with Party C’s Chief Executive Officer who expressed interest in discussing a possible
strategic transaction. Mr. Morris informed Party C’s Chief Executive Officer that the Company was currently focused on certain pending regulatory matters
and was not engaged in a sale process. Mr. Morris also noted that if, as part of its ongoing review and evaluation of opportunities to enhance shareholder
value, the Board were to consider a potential strategic transaction, any such transaction would need to provide significant shareholder value.
On January 6, 2017, representatives of Party A met in Chicago, Illinois with representatives of the Company, including Mr. Morris, Mr. Thies, Dennis P.
Vermillion, a Senior Vice President and the Environmental Compliance Officer of the Company and the President of Avista Utilities (“Mr. Vermillion”), and
representatives of BofA Merrill Lynch and expressed interest in discussing a potential strategic transaction with the Company. Mr. Morris informed Party A
that while the Company was currently focused on executing upon its long-term strategic plan and certain pending regulatory matters and was not engaged in
a sale process, the Company would be willing to continue further discussions with Party A, as part of its ongoing review and evaluation of opportunities to
enhance shareholder value. Mr. Morris also noted that if the Board were to consider a potential strategic transaction, any such transaction would need to
provide significant shareholder value and include

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appropriate commitments with respect to the Company’s stakeholders to enhance the likelihood of obtaining required regulatory approvals. Following this
meeting, representatives of the Company and Party A made arrangements for a meeting to occur in late January in New York.
On January 9, 2017, the Chief Executive Officer of Party C called Mr. Morris to indicate that he had discussed a possible merger of equals between Party C
and the Company with Party C’s board of directors and that Party C’s board of directors was supportive of continuing to pursue discussions with the
Company. Mr. Morris responded that the Company continued to be focused on certain pending regulatory matters and was not engaged in a sale process.
On January 10, 2017, Mr. Morris, Mr. Thies and Marian M. Durkin, a Senior Vice President and the General Counsel, Corporate Secretary and Chief
Compliance Officer of the Company (“Ms. Durkin”), had a telephone call with the Company’s lead director and another director on the Board to update them
on the January 6th meeting and further discussions with Party A, in addition to status updates regarding Party B and Party C.
On January 25, 2017, a representative of “Party D” contacted BofA Merrill Lynch to express Party D’s interest in a potential strategic transaction with the
Company. Following the call, BofA Merrill Lynch discussed the expression of interest with members of Executive Management of the Company and a
meeting was arranged for the next day in New York.
On January 26, 2017, Mr. Thies and a representative of BofA Merrill Lynch met in New York with a representative of Party D to discuss a potential strategic
transaction. At the meeting, no indicative price range was discussed and Mr. Thies informed the representative of Party D that the Company was currently
focused on certain pending regulatory matters and was not engaged in a sale process, but that if the Board, as part of its ongoing review and evaluation of
opportunities to enhance shareholder value, were to consider a potential strategic transaction, any such transaction would need to provide significant
shareholder value and include appropriate commitments with respect to the Company’s stakeholders to enhance the likelihood of obtaining required
regulatory approvals.
On January 27, 2017, representatives of the Company, including Mr. Thies and Ms. Durkin and other members of Executive Management, BofA Merrill
Lynch, Party A and its financial advisor met in New York to discuss anticipated regulatory approval matters in connection with a potential strategic
transaction.
On January 30, 2017, Mr. Morris participated in a telephone call with Party B’s Chief Executive Officer, who expressed an interest in a potential merger of
equals with the Company. Although specific transaction terms were not discussed, the proposed merger consideration described by Party B’s Chief Executive
Officer implied a low premium to the then-current trading price of the Company’s stock. Mr. Morris informed Party B’s Chief Executive Officer that the
Company was currently focused on certain pending regulatory matters and was not engaged in a sale process, but that if the Board, as part of its ongoing
review and evaluation of opportunities to enhance shareholder value, were to consider a potential strategic transaction, any such transaction would need to
provide significant shareholder value and include appropriate commitments with respect to the Company’s stakeholders to enhance the likelihood of
obtaining required regulatory approvals.
On February 2-3, 2017, a regular meeting of the Board was held in Spokane, Washington. At the meeting, a representative of Davis Wright Tremaine LLP, the
Company’s regular outside counsel (“DWT”), made a presentation to the Board detailing its fiduciary duties, certain legal considerations and requirements in
connection with its consideration and evaluation of potential strategic transactions and alternatives, including potential responses to inquiries received from
third parties about potential strategic transactions, various process considerations related to the Board’s consideration and evaluation of potential strategic
alternatives, and an overview of the Board’s role in any such process.
The Board then discussed with members of Executive Management and representatives of BofA Merrill Lynch the current status and future outlook of the
utility sector (including, an overview of key industry trends and the
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recent and current mergers and acquisitions environment in the sector), as well as the Company’s market position and a preliminary financial analysis of the
Company on a stand-alone basis (prepared by BofA Merrill Lynch based on management’s January 2017 five-year financial forecast). The Board also
discussed with members of Executive Management and representatives of BofA Merrill Lynch strategic alternatives that might reasonably be available to the
Company (and the benefits and risks of such alternatives), including remaining as a stand-alone public company, growth through acquisitions and a sale to a
third party. In connection with a consideration of strategic alternatives, the Board discussed with members of Executive Management and representatives of
BofA Merrill Lynch certain prospective buyers that were viewed as most likely to be interested in and capable of completing (from a financial and regulatory
perspective) a potential strategic transaction with the Company, including Party A, Party B, Party C, Party D and Hydro One. The Board reviewed with
members of Executive Management and representatives of BofA Merrill Lynch certain other transaction considerations, including strategic electric utility
combination opportunities and regional industry consolidation considerations.
At the same meeting, the Board and members of Executive Management discussed the expressions of interest from and recent discussions with Party A, Party
B, Party C and Party D regarding a potential strategic transaction with the Company. The Board and members of Executive Management then discussed the
relative benefits and risks of the various strategic alternatives then available to the Company, including declining to engage in further discussions with any
party, including Parties A, B, C and D, regarding a potential strategic transaction and instead continuing to focus on executing the Company’s strategic plan
on stand-alone basis, pursuing one or more of the strategic alternatives, engaging in further discussions with one or more of Parties A, B, C or D regarding a
potential strategic transaction or soliciting potential interest in a strategic transaction from one or more other third parties. Following deliberation on these
possible strategic alternatives, the Board directed members of Executive Management to continue discussions with Party A and to provide them with an
opportunity to conduct due diligence and attend a management presentation in advance of the potential submission of a more detailed transaction proposal,
but not to actively pursue parallel discussions regarding a potential strategic transaction with Party B, Party C or Party D at such time. The Board and
Mr. Morris also discussed potential strategic approaches regarding further communications with Parties B, C and D.
Following the meeting, Mr. Morris contacted the Chief Executive Officer of Party C and informed him that the Company and the Board were currently
focused on executing upon its long-term strategic plan and addressing certain pending regulatory matters but that he would follow up after the regularly
scheduled Board meeting in May if the Board determined that it wanted to proceed with further discussions at such time.
On February 7, 2017, the Company entered into a mutual nondisclosure agreement (“NDA”) with Party A that included a standstill provision.
On February 10, 2017, the Company formalized its engagement of BofA Merrill Lynch as financial advisor in connection with evaluating potential strategic
alternatives that might be available to the Company by executing an engagement letter with BofA Merrill Lynch.
On February 11, 2017, representatives of the Company, Party A and their respective advisors participated in a telephone call to discuss due diligence process
matters.
On February 14, 2017, the Board held a special telephonic meeting in which members of Executive Management of the Company and representatives of
Kirkland & Ellis LLP (“K&E”) participated. At the meeting, members of Executive Management updated the Board on the status of the discussions with Party
A regarding a potential strategic transaction. Mr. Morris provided the Board with a timeline of events, as generally summarized above, that had occurred
between the parties since the last Board meeting as well as the planned activities for the following two weeks as discussed herein. Mr. Morris also reviewed
the status of discussions regarding various key terms for the potential transaction with Party A, including matters relevant to the regulatory approval process
and enhancing transaction certainty and noted that such terms still needed to be further discussed and negotiated. Ms. Durkin provided a summary of Party
A’s corporate and governance structure. Members of Executive

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Management and the Board also discussed what approvals might be required for a potential transaction with Party A and the anticipated regulatory approval
process related thereto, as well as certain factors that would be relevant to increasing the likelihood that the approvals would be obtained from the applicable
regulatory authorities. At the conclusion of the meeting, the Board determined that members of Executive Management should continue to engage in
discussions with Party A and its advisors regarding a potential strategic transaction. The Board also tentatively set February 24, 2017 as the date for its next
meeting to get a further update on the discussions with Party A.
On February 15, 2017, a representative of Party D emailed Mr. Thies to provide copies of the materials such representative had shared with Mr. Thies at their
prior meeting in New York on January 26, 2017 and to request another meeting with Mr. Thies with such subsequent meeting to also include Mr. Morris.
Also on February 15, 2017, representatives of BofA Merrill Lynch and members of Executive Management of the Company, including Mr. Morris and
Mr. Thies, met with members of the executive management team of Party A along with their financial advisors, for a social dinner in Spokane, Washington,
which was intended to provide an opportunity for all of the participants to meet each other in an informal setting.
On February 16, 2017, an in-person meeting was held in Spokane, Washington, at which representatives from BofA Merrill Lynch and members of Executive
Management and representatives of Party A and its advisors were present. At the meeting, members of Executive Management gave a comprehensive
management presentation to representatives of Party A and its advisors. At such meeting, the Chief Executive Officer of Party A delivered a verbal proposal to
Mr. Morris of an all-cash acquisition of the Company by Party A with an indicative price range of $52-$55 per share, subject to completion of due diligence,
representing a premium of 31.6% to 39.2% based on the then-current trading price of the Company common stock of $39.52 per share.
On February 17, 2017, the Company made available to Party A certain non-public information about the Company via an electronic data room to assist Party
A in its evaluation of a potential strategic transaction.
On February 19, 2017, Mr. Thies responded to the email sent by a representative of Party D on February 15, 2017 and indicated he would discuss Party D’s
request for a subsequent meeting with Mr. Morris, but that the Company continued to be focused on certain pending regulatory matters.
Beginning on February 21, 2017 and continuing throughout the next few weeks, a series of due diligence calls occurred between representatives of Party A
and the Company on various subject areas, including human resources, financial, tax, environmental, operations and regulatory matters.
On February 22, 2017, K&E provided a draft merger agreement and a detailed summary of the key terms of the draft merger agreement to members of
Executive Management and solicited input from members of Executive Management regarding the draft merger agreement.
On February 23, 2017, a representative of Moelis & Company LLC (“Moelis”), which subsequently was selected as the financial advisor to Hydro One,
contacted a representative of BofA Merrill Lynch and informed him that the Chief Executive Officer of Hydro One would like to be introduced to Mr. Morris,
as Hydro One was interested in exploring strategic opportunities in the United States. Following the call, the representative of BofA Merrill Lynch promptly
informed members of Executive Management of the conversation.
On February 24, 2017, the Board held a special telephonic meeting. Representatives from K&E also attended the meeting. Mr. Morris updated the Board on
the recent expression of interest from Hydro One. Mr. Morris then summarized the developments in the discussions with Party A since the Board meeting on
February 14, 2017, including a summary of the February 15th management dinner and the February 16th management presentation. Mr. Morris also reviewed
with the Board the status of discussions with Party A on various key deal terms, including the indicative price range and terms relevant to the regulatory
approval process and affecting

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transaction certainty, and noted certain other terms that remained subject to further negotiations. Mr. Morris also noted that Party A indicated it was
evaluating the possibility of bringing in another investor to provide equity funding for a portion of the overall transaction consideration. Members of the
Executive Management team also summarized the due diligence being conducted by Party A and the Company. Mr. Morris also discussed with the Board the
anticipated regulatory approval process and certain factors that would be relevant to increasing the likelihood that the approvals could be obtained from the
applicable regulatory authorities. At the conclusion of the meeting, the Board continued to be supportive of the members of Executive Management
conducting further discussions regarding a potential strategic transaction with Party A.
On February 28, 2017, members of Executive Management had a conference call with the lead director of the Board and two other directors to provide a
general update on further discussions with Party A since the February 24th Board meeting.
On March 1, 2017, following input from members of Executive Management on certain terms, K&E provided a draft merger agreement to Party A’s outside
counsel.
On March 2, 2017, Mayo Schmidt (“Mr. Schmidt”), the Chief Executive Officer of Hydro One, emailed Mr. Morris to propose an introductory telephone call
to introduce himself and discuss Hydro One’s growth strategy, and to explore potential future collaborative business activities between the Company and
Hydro One.
On March 3, 2017, Mr. Morris replied via email to Mr. Schmidt that the Company was currently focused on certain pending regulatory matters, but indicated
the possibility of a meeting at a later date.
On March 6, 2017, representatives of the Company, Party A and their respective advisors participated in additional due diligence calls.
On the evening of March 6, 2017, representatives of Party A communicated on a telephone call to BofA Merrill Lynch that they needed to slow down the
transaction discussions, as they were reevaluating the indicative price proposal and that if they were to continue moving forward with the potential strategic
transaction they would need to bring on a new equity partner to help finance the cost of the transaction. Party A also indicated that they did not yet have any
such arrangement in place with such a potential partner. Following this telephone call, representatives of BofA Merrill Lynch reported the substance of such
communications to members of Executive Management.
On March 7, 2017, representatives of Party A spoke to members of Executive Management and reiterated that they needed to slow down the transaction
discussions, as they were reevaluating the indicative price proposal and that if they were to continue moving forward with the potential strategic transaction
they would need to bring on a new equity partner to help finance the cost of the transaction. Party A also indicated that they did not yet have any such
arrangement in place with such a potential partner.
On the evening of March 8, 2017, members of Executive Management and certain members of executive management of Party A participated in a telephone
call to discuss the current status of the potential strategic transaction with Party A.
On the morning of March 9, 2017, a representative of Party A spoke with a member of Executive Management and indicated that Party A was no longer in
position to submit an offer at the previously discussed indicative price range to acquire the Company.
Also on March 9, 2017, following the communications to BofA Merrill Lynch and the Company by representatives of Party A during the period between
March 6 and March 9, the Company ceased discussions with Party A regarding a possible strategic transaction.

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Also on March 9, 2017, a representative of Party D contacted Mr. Thies to propose a meeting with the Company to discuss a potential strategic transaction
during his upcoming travel to the Pacific Northwest region. Mr. Thies responded that the Company continued to be focused on certain pending regulatory
matters at that time, but that the Company was willing to listen to potential opportunities that would enhance shareholder value.
Also on March 9, 2017, members of Executive Management conducted a telephonic Board meeting to update the Board on the termination of discussions
with Party A. During the call, Mr. Morris reviewed utility industry market conditions and provided the Board with an update on the recent expressions of
interest that the Company had received regarding a potential strategic transaction, including from Hydro One. Following that update, the Board expressed its
support for Mr. Morris to meet with representatives of Hydro One. Following the Board meeting, at the request of the Company, representatives of BofA
Merrill Lynch contacted representatives of Moelis in response to Mr. Schmidt’s outreach and indicated that Mr. Morris would be willing to speak with
Mr. Schmidt concerning his previous email.
On March 13, 2017, members of Executive Management had a conference call with the lead director and another director of the Board to provide a further
general update on the status of recent expressions of interest that the Company had received regarding a potential strategic transaction, including from Hydro
One.
On March 16, 2017, at the request of the Company, representatives of Moelis and BofA Merrill Lynch participated in a telephonic meeting to discuss general
pricing parameters and other terms of a potential strategic transaction. Representatives of Moelis discussed with representatives of BofA Merrill Lynch that
recent market premiums, generally speaking, were in the range of 30% of the unaffected trading prices of the acquired utilities for strategic transactions in the
utility sector. The representatives of Moelis indicated that Hydro One would be prepared to consider an indicative price for the Company’s common stock in
such a range. Following this discussion, representatives of BofA Merrill Lynch reported the substance of such communications to members of Executive
Management. Based on the general pricing parameters of a potential strategic transaction indicated by Moelis, at the request of the Company, Moelis and
BofA Merrill Lynch also began to schedule the arrangements for an in-person meeting in Spokane, Washington between representatives of Hydro One and
the Company on March 30, 2017.
On March 23, 2017, members of Executive Management had a conference call with the lead director and another member of the Board to provide a further
general update on the status of recent expressions of interest that the Company had received regarding a potential strategic transaction, including from Hydro
One.
On March 28, 2017, Mr. Morris, Mr. Thies and Mr. Vermillion, met in Spokane, Washington with a representative of Party D to discuss a potential strategic
transaction. Mr. Morris informed the representative of Party D that the Company was currently focused on certain pending regulatory matters and was not
engaged in a sale process at such time.
On March 30, 2017, Mr. Schmidt and Paul Barry, the Executive Vice President, Strategy and Corporate Development of Hydro One (“Mr. Barry”), and a
representative of Moelis met with Mr. Morris, Mr. Thies, Mr. Vermillion and a representative of BofA Merrill Lynch in Spokane, Washington. At the meeting,
Mr. Schmidt expressed Hydro One’s interest in an all-cash acquisition of the Company and confirmed Hydro One’s interest in further advancing discussions
in the context of an indicative price range of $52-$53 per share, representing a premium of 33.6% to 36.2% based on the then-current trading price of the
Company common stock of $38.91 per share, subject to due diligence and the negotiation of terms.
On April 12, 2017, Mr. Schmidt contacted Mr. Morris via telephone and confirmed Hydro One’s continued interest in pursuing a strategic transaction with
the Company at the indicative price range discussed at the March 30, 2017 meeting and that continuing discussions towards the negotiation of a strategic
transaction on those terms had the support of Hydro One’s board of directors.

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On April 17, 2017, members of Executive Management had a conference call with the lead director of the Board to provide an update on the status of
discussions regarding a potential strategic transaction with Hydro One.
On April 24, 2017, Mr. Schmidt and Mr. Morris spoke again via telephone during which Mr. Schmidt again reconfirmed Hydro One’s continued interest in
pursuing a potential strategic transaction with the Company at the indicative price range discussed at the March 30, 2017 meeting. Mr. Schmidt also
indicated to Mr. Morris that Hydro One would need to complete certain pending strategic transactions before engaging further with the Company.
On May 5, 2017, members of Executive Management had a conference call with the lead director of the Board to provide a further general update on the
status of Hydro One’s continued interest in pursuing a potential strategic transaction with the Company.
On May 11, 2017, the Board held a regular, in-person meeting. Members of Executive Management reviewed and summarized the expressions of interest that
had been received from, and subsequent discussions with, Party B, Party D and Hydro One, as outlined herein, and discussed with the Board various potential
strategic alternatives then available to the Company. Following a discussion of the relative advantages and disadvantages of the strategic alternatives, the
Board determined that the Company should engage in further discussions with Hydro One about a potential strategic transaction. In reaching its
determination, the Board considered a number of factors, including the significant premium that the indicative price range proposed by Hydro One
represented over the Company’s recent and historical share price; the significant incremental value that would be received by the Company’s shareholders in
a transaction with Hydro One based on the indicative price range relative to the financial analyses of the Company on a stand-alone basis (based on
management’s then-current five-year financial forecast); the fact that the proposed all-cash consideration would provide certainty of value and liquidity to
the Company’s shareholders; the likelihood that an alternative buyer would be interested in and capable of completing a transaction with the Company at a
higher price and in a similar timeframe as Hydro One; and the risk that Hydro One might decline to continue discussions with the Company if the Company
were to engage in parallel discussions with one or more other prospective buyers.
On May 24, 2017, representatives of Hydro One’s senior management team and members of Executive Management of the Company, other than Mr. Morris
and Mr. Schmidt, met in Toronto, Canada for a social dinner, which was intended to provide an opportunity for all of the participants to meet each other in an
informal setting.
On May 25, 2017, the senior management of Hydro One, including Mr. Schmidt, made a presentation to members of Executive Management of the Company,
including Mr. Morris, in Toronto, Canada, regarding Hydro One’s business, operations and culture.
Also on May 25, 2017, Mr. Morris met with the chairman of the board of directors of Hydro One in Toronto, Canada, during which the chairman confirmed
the support of the board of directors of Hydro One for a potential strategic transaction with the Company.
On May 30, 2017, members of Executive Management had a conference call with the lead director of the Board to provide a further general update on the
status of Hydro One’s continued interest in pursuing a strategic transaction with the Company.
On May 31, 2017, the Company executed a mutual NDA with Hydro One that included a standstill provision.
On June 1, 2017, representatives of Hydro One and members of Executive Management of the Company, along with representatives of Moelis and BofA
Merrill Lynch, met in Spokane, Washington for a social dinner, which was intended to provide an opportunity for the participants to continue to meet in an
informal setting.

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On June 2, 2017, at the request of the Company, representatives of BofA Merrill Lynch sent representatives of Moelis the Company’s five-year financial
forecast, as prepared by management of the Company, which included the prospective financial information that is summarized below in “Prospective
Financial Information”.
Also on June 2, 2017, members of Executive Management and representatives of BofA Merrill Lynch met in-person in Spokane, Washington with
representatives of Hydro One, Moelis and certain other external advisors to Hydro One. At the meeting, members of Executive Management gave a
comprehensive management presentation to the representatives of Hydro One, Moelis and certain other external advisors to Hydro One, and provided its
prospective financial information to Hydro One, which included the same projections previously reviewed by the Board and shared with Moelis.
On June 5, 2017, the lead director met with members of Executive Management in Spokane, Washington for an update on the status of discussions with
Hydro One and details regarding the June 2nd meeting with representatives of Hydro One, Moelis and certain other external advisors to Hydro One.
Beginning on June 6, 2017, the Company made available to Hydro One and its advisors certain non-public information about the Company via an electronic
data room to begin Hydro One’s due diligence process, which included financial/accounting, legal, tax, regulatory, human resources and operational
diligence. In addition, beginning on June 6, 2017 and continuing over the course of the next month, representatives of the Company and Hydro One engaged
in various due diligence conference calls to facilitate Hydro One’s due diligence efforts.
On June 16, 2017, members of Executive Management participated in a telephone conference with representatives of BofA Merrill Lynch and K&E to discuss
certain key potential merger agreement terms that would need to be negotiated in connection with a potential transaction with Hydro One, including
provisions related to transaction closing certainty and allocation of regulatory risk.
On June 23, 2017, Mr. Morris and Mr. Thies met in Great Falls, Montana with Mr. Schmidt and Mr. Barry, to further discuss the terms of a potential strategic
transaction. At the meeting, Mr. Schmidt reaffirmed Hydro One’s indicative price range of $52-53 per share. In addition, at the meeting, Mr. Thies noted that
the Company’s stock price had increased since Hydro One first proposed such price range, which Mr. Schmidt acknowledged. In addition, the parties
discussed various governance matters and potential social commitments that Hydro One would be prepared to make in connection with a potential
transaction, which the parties viewed as important to enhance the likelihood of obtaining required regulatory approvals with respect to a potential
transaction.
On June 26, 2017, members of Executive Management had a conference call with the lead director of the Board to provide a general update on the status of
discussions with Hydro One regarding a potential strategic transaction with the Company.
On June 28, 2017, following discussions with and input from members of Executive Management regarding the key terms, K&E prepared a draft merger
agreement for a potential transaction with Hydro One, which BofA Merrill Lynch subsequently provided to Hydro One and its legal counsel, Bracewell LLP
(“Bracewell”).
On June 29, 2017, the Board held a telephonic special meeting, which was attended by members of Executive Management and representatives of K&E. At
the meeting, Mr. Morris updated the Board on the status of the discussions with Hydro One regarding a potential transaction, including the June 23 in-person
meeting. Mr. Morris informed the Board that Hydro One had reaffirmed its indicative price range of $52-53 per share, and that Mr. Thies had responded by
noting that the Company’s stock price had increased since Hydro One first proposed such price range, and summarized the parties’ discussions regarding
various governance matters and potential social commitments, including levels of economic development and charitable contributions that Hydro One
would be prepared to make in connection with a potential transaction, which were viewed as important to enhance the likelihood of obtaining regulatory
approvals with respect to a potential transaction. Such social commitments and governance matters were to be included in ancillary transaction
documentation attached as

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exhibits to the merger agreement. Members of Executive Management also updated the Board on Hydro One’s due diligence process, the Company’s due
diligence of Hydro One and the anticipated regulatory approval process and associated timeline with respect to a potential transaction. Members of
Executive Management also reviewed with the Board certain terms which remained subject to further discussions and negotiations with Hydro One,
including related to transaction certainty and the allocation of regulatory risk, and discussed the anticipated timeline and next steps for continuing the
discussions. At the conclusion of the meeting, the Board continued to be supportive of the members of Executive Management conducting further
discussions regarding a potential strategic transaction with Hydro One.
On July 3, 2017, representatives of the Company and Hydro One and their advisors met in-person in Rosemont, Illinois to discuss regulatory matters related
to a potential transaction. BofA Merrill Lynch participated by telephone.
On July 5, 2017, Mr. Schmidt met individually with members of the Executive Management of the Company in Spokane, Washington to express Hydro
One’s interest in maintaining the existing Executive Management team and to gauge such individuals’ receptivity to remaining with the Company if a
transaction were to be consummated, in light of the fact that Hydro One did not have any existing U.S. based operations. No specific compensation terms
were discussed in such meetings.
Also on July 5, 2017, Mr. Morris and Mr. Schmidt along with their respective directors of human resources, generally discussed employee matters and
potential retention strategies with respect to the Company employees in connection with a potential strategic transaction between the Company and Hydro
One.
Also on July 5, 2017, an initial draft of ancillary transaction documentation that addressed social commitments, operational matters and governance
requirements and which would be reflected in Exhibits A and B to the merger agreement (as described below under “The Merger Agreement—Effects of the
Merger; Directors and Officers; Certificate of Incorporation; Bylaws”), was delivered by the Company to Hydro One at the meetings described above. The
Company viewed the terms of such ancillary transaction documentation as important to enhance the likelihood of obtaining required regulatory approvals
with respect to a potential transaction.
On July 6, 2017, Bracewell provided K&E with a revised draft of the merger agreement, which K&E reviewed and discussed with members of Executive
Management.
On July 7, 2017, Mr. Morris, Mr. Thies, Mr. Schmidt and Mr. Barry had a telephone call to discuss the overall status and timing of a potential transaction,
including key business and legal points relating to the proposed transaction, such as various matters related to transaction closing certainty and the
regulatory approval process, in advance of a dinner meeting between the parties’ respective Chief Executive Officers and certain board members scheduled
for July 10, 2017.
On July 10, 2017, Mr. Morris and certain members of the Board had a dinner meeting with Mr. Schmidt and certain members of the board of directors of
Hydro One in Toronto, Canada. At the dinner, Mr. Morris and Mr. Schmidt discussed the parties’ agreement with respect to certain key transaction terms and
the continued commitment to finalizing a potential strategic transaction.
On July 11, 2017, Hydro One provided to the Company a revised draft of ancillary transaction documentation that addressed social commitments,
operational matters and governance requirements.
Also on July 11, 2017, following discussions with members of Executive Management, K&E provided Bracewell with a revised draft of the merger
agreement.
On July 13, 2017, K&E and Bracewell engaged in discussions in an effort to resolve the remaining open points in the draft merger agreement.

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Also on July 13, 2017, representatives of Hydro One and the Company engaged in discussions in an effort to resolve a number of the open transaction points,
including price and provisions related to transaction closing certainty and the allocation of regulatory risk.
On July 14, 2017, Bracewell provided K&E with revised drafts of the merger agreement and related ancillary transaction documentation. From July 14, 2017
to July 17, 2017, K&E and Bracewell engaged in a series of telephonic discussions on the remaining open points in the merger agreement and related
transaction documentation, during which K&E and Bracewell continued to exchange further drafts of such documents and as a result of which the transaction
documents were in substantially final form, subject to final approval of each of their respective clients’ boards of directors and final non-substantive technical
drafting changes.
On July 15, 2017, BofA Merrill Lynch delivered an updated memorandum to the Board disclosing certain relationships between BofA Merrill Lynch and its
affiliates, on the one hand, and the Company, Hydro One and certain of their respective affiliates, on the other hand, during the prior two years.
On July 16, 2017, representatives of Hydro One and the Company engaged in telephonic discussions and reached resolution on the remaining material open
transaction points, including a price per share of $53.00, subject to final approval of their respective boards of directors.
On July 17, 2017, the Board held a special in-person meeting in Spokane, Washington. Representatives of K&E and BofA Merrill Lynch were also in
attendance. At the meeting Mr. Morris updated the Board on the status of the recent discussions and negotiations regarding the proposed transaction between
the Company and Hydro One that had transpired since the last meeting of the Board. Ed Schlect, Vice President and Chief Strategy Officer of the Company
(“Mr. Schlect”), then gave a presentation regarding a high-level overview of the key financial, legal, regulatory and governance terms of the proposed
transaction, including a summary of various employee compensation and benefits matters addressed in the merger agreement, and the anticipated impact of
the proposed transaction on the Company’s key stakeholders. Following this presentation, a representative of K&E reviewed with the directors their fiduciary
duties and certain legal considerations in connection with evaluating a potential sale transaction, including the fact that the Board was not legally obligated
to explore a sale transaction, but that if it chooses to do so, it should seek to maximize shareholder value. In addition, K&E reviewed with the Board the
principal terms of the merger agreement, including the fiduciary out provisions to permit the Board to consider unsolicited proposals received following the
execution of the merger agreement, the provisions related to the parties’ respective regulatory obligations and the allocation of regulatory risk, related
remedies provisions, termination rights and closing conditions, as well as other key terms related to Hydro One’s intended social and governance
commitments, which were designed to enhance regulatory approval certainty. K&E also discussed the restrictions that the merger agreement would impose on
the Company’s interim operations between signing and consummation of the merger, which Mr. Thies also addressed. Following K&E’s presentation, a
member of Executive Management provided an overview of the regulatory approval strategy with respect to the state utility commissions, including the
anticipated timeline to procure such approvals in connection with the transaction.
Representatives of BofA Merrill Lynch then reviewed with the Board certain financial aspects of the proposed transaction. Representatives of BofA Merrill
Lynch also reviewed with the Board the various methodologies used by BofA Merrill Lynch in conducting its financial analysis. Representatives from BofA
Merrill Lynch also again reviewed with the Board certain other potential counterparties (including, Party A, B, and D) that had previously expressed interest
in a potential sale transaction with the Company and the nature of the contacts with such other counterparties.
Following these presentations and further discussions among the Board and members of Executive Management regarding the transaction terms and strategic
alternatives to finalizing a transaction with Hydro One (including the relative merits and drawbacks of such alternatives), the Board determined to meet again
on July 19, 2017 to formally consider adopting authorizing resolutions related to the proposed transaction with Hydro One.

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From July 17, 2017 to July 19, 2017, K&E and Bracewell engaged in a series of telephonic discussions and exchanged further drafts of the merger agreement
and related transaction documents with respect to various final technical drafting changes. On the morning of July 19, 2017, K&E and Bracewell confirmed
their clients’ mutual understanding that the merger agreement and related ancillary transaction documentation were each in final form, subject to the final
review and approval of each of their respective clients’ boards of directors later that day.
On July 19, 2017, the Board held a telephonic special meeting that was attended by members of Executive Management as well as representatives of K&E
and BofA Merrill Lynch. At such meeting, Mr. Morris updated the Board on the developments since the last Board meeting on July 17, 2017 and reported
that all of the transaction documentation had been fully negotiated and put into execution form, pending the Board’s approval. At the request of the Board, a
representative of BofA Merrill Lynch then delivered to the Board an oral opinion, which was confirmed by delivery of a written opinion dated July 19, 2017,
to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the consideration to be received in
the merger by holders of the Company’s common stock, was fair, from a financial point of view, to such holders. The full text of BofA Merrill Lynch’s written
opinion, dated July 19, 2017, which sets forth the assumptions made, procedures followed, factors considered and qualifications and limitations on the
review undertaken by BofA Merrill Lynch in connection with its opinion, is attached to this proxy statement as Annex B.
Following discussion, the Board then unanimously (i) determined that entry into the merger agreement is in the best interests of the Company and its
shareholders, (ii) adopted the plan of merger set forth in the merger agreement and approved the Company’s execution, delivery and performance of the
merger agreement and the consummation of the transactions contemplated by the merger agreement, (iii) resolved to recommend that the Company’s
shareholders approve the merger agreement and the plan of merger set forth therein, and (iv) directed that the merger agreement be submitted to a vote at a
meeting of the Company’s shareholders to consider the approval of the merger agreement and the plan of merger set forth therein, and the consummation of
the transactions therein.
On the afternoon of July 19, 2017, following the parties’ respective Board meetings, the Company and Hydro One executed the merger agreement. Following
the execution of the merger agreement, the Company and Hydro One issued a joint press release announcing the parties’ entry into the transaction.
Recommendation of Our Board; Reasons for Recommending the Approval of the Merger Agreement
On July 19, 2017, the Board convened a meeting at which it unanimously adopted resolutions (i) determining that it is in the best interests of the Company
and its shareholders for the Company to enter into the merger agreement, (ii) adopting the plan of merger set forth in the merger agreement and approving the
Company’s execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated by the merger agreement,
and (iii) resolving to recommend that the shareholders of the Company approve the merger agreement and the plan of merger set forth therein and directing
that the merger agreement be submitted to the Company’s shareholders for approval at a duly held meeting of the Company’s shareholders for such purpose.
In evaluating the merger agreement and the merger, the Board consulted with the Company’s senior management team and its legal and financial advisors,
and considered and evaluated a number of factors that it believed supported its decision to enter into the merger agreement, including, but not limited to, the
following factors:

• the Board’s knowledge and familiarity with the business, financial condition and results of operations of the Company, as well as the Company’s
financial plan and prospects if it were to remain an independent company, including the risks and uncertainties related thereto;

• the $53.00 per share price, which represented a 24% premium over the last sale price of the Company’s common stock of $42.74 on July 18,
2017, the last trading day prior to the Company’s public announcement that it had entered into the merger agreement;

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• the fact that the per share merger consideration is to be paid entirely in cash, which provides certainty of value and liquidity to the Company’s
unaffiliated shareholders, including because such shareholders will not be exposed to any risks and uncertainties relating to the Company’s and
Hydro One’s future value if the merger is consummated;

• the possible alternatives to the merger, including, in addition to remaining an independent company, entering into a strategic transaction with
another party, and the timing and likelihood of obtaining regulatory approvals of and consummating any such strategic transaction, all of which
alternatives the Board evaluated and determined were less favorable to the Company’s shareholders than the merger at a price of $53.00 per
share, given the potential benefits, risks and uncertainties associated with those alternatives;

• the opinion of BofA Merrill Lynch, dated July 19, 2017, to the Board as to the fairness, from a financial point of view and as of the date of the
opinion, of the merger consideration to be received in the merger by holders of Company common stock, as more fully described below in the
section entitled “—Opinion of Financial Advisor”;

• the absence of a financing condition in the merger agreement;
• the likelihood and anticipated timing of completing the proposed merger in light of the nature and scope of the conditions to completion;
• the obligations imposed on Hydro One under the merger agreement to use its reasonable best efforts to obtain the regulatory approvals;

• the post-closing commitments made by Hydro One in the merger agreement, including those described in “The Merger Agreement— Effects of
the Merger; Directors and Officers; Certificate of Incorporation; Bylaws” beginning on page 73, all of which the Board anticipated would be
favorably received by the applicable regulatory authorities and therefore increase the likelihood of completing the proposed merger;

• Hydro One’s strong financial position;

• the Company’s ability, pursuant to the merger agreement, to seek specific performance to prevent breaches of the merger agreement and to
enforce specifically the terms of the merger agreement and the plan of merger set forth therein;

• that under the merger agreement, the Company is permitted to declare and pay its regular quarterly cash dividends, increase its dividends by up
to $0.06 per year and pay a “stub” dividend in respect of the quarter in which the merger is consummated, without the prior consent of Hydro
One;

• the fact that the merger agreement provides that, in the event of a failure of the merger to be consummated under certain circumstances, Hydro
One will pay the Company a termination fee of $103 million, without the Company having to establish any damages;

• the fact that the Company will still be able to consider and respond to unsolicited acquisition proposals or engage in discussions or negotiations
regarding such proposals under certain circumstances;

• the Board’s ability, under certain circumstances, to change, withhold, withdraw, qualify or modify its recommendation that the Company’s
shareholders vote to approve the merger agreement and the plan of merger set forth therein; and

• the Company’s ability, under certain circumstances, to terminate the merger agreement in order to enter into an agreement providing for a
“superior proposal” (as defined in the merger agreement), and the fact that the termination fee of $103 million payable to Hydro One in such case
was determined by the Board to be reasonable in the context of similar fees payable in comparable transactions and in light of the overall terms
of the merger agreement, including the merger consideration, and would not reasonably be expected to deter unsolicited competing proposals.

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In the course of its deliberations, the Board also considered a variety of risks, uncertainties and other countervailing factors related to entering into the merger
agreement and the proposed merger, including:

• that the proposed merger might not be completed in a timely manner or at all, including the risk that the merger will not occur if any of the
regulatory approvals are not obtained;

• that the shareholders of the Company will have no ongoing equity in the surviving corporation following the proposed merger, meaning that the
shareholders will cease to participate in the Company’s future earnings or growth, or to benefit from any future increases in the value of the
Company’s common stock;

• the restrictions on the conduct of the Company’s business prior to the completion of the proposed merger contained in the pre-closing covenants
in the merger agreement, which may have a material adverse effect on the Company’s ability to respond to changing market and business
conditions or delay or prevent the Company from undertaking business opportunities that may arise or certain other actions it might otherwise
take or forego from taking with respect to the operations of the Company pending completion of the proposed merger;

• the risks and costs to the Company if the proposed merger is not consummated, including the significant diversion of management and employee
attention during the pendency of the transaction, the potential adverse effects on the Company’s relationship with its regulators, potential
employee attrition and the potential disruptive effect on business and customer relationships, and the potential that the market’s perception of
the Company’s prospects could be adversely affected;

• the fact that the merger agreement precludes the Company from soliciting competing proposals, imposes restrictions on the Company’s ability to
respond to unsolicited competing proposals and requires the Company to pay to Hydro One a termination fee of $103 million to accept a
superior proposal, which could discourage other third parties from making an unsolicited competing proposal to acquire the Company;

• that there can be no assurance that all conditions to the parties’ obligations to effect the merger will be satisfied prior to the end date set forth in
the merger agreement;

• that the receipt of cash in exchange for shares of Company common stock pursuant to the merger will be a taxable transaction for U.S. federal
income tax purposes for many Company shareholders;

• that if the proposed merger is not completed, the Company will be required to pay its own expenses associated with the merger agreement, the
merger and the other transactions contemplated by the merger agreement as well as, under certain circumstances, pay Hydro One a termination
fee of $103 million; and

• that certain of the Company’s directors and executive officers have interests in the merger that may be different from, or in addition to, the
interests of shareholders. For more information on the interests of the Company’s directors and executive officers in the merger, see the section
entitled “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 53.
The Board conducted an overall analysis of the reasons and factors described above and determined in its business judgment that, in the aggregate, the
potential benefits of the transactions contemplated by the merger agreement, including the merger, to the Company and the Company’s shareholders
outweighed the risks and potential negative consequences of the transactions.
The foregoing discussion of certain factors considered by the Board is intended to be illustrative, and is not exhaustive, but includes the material reasons and
factors considered by the Board in reaching its conclusions and recommendation in relation to the merger agreement and the plan of merger set forth therein.
The Board collectively reached the conclusion to unanimously approve the merger agreement and the plan of merger set forth therein, in light of the various
factors described above and other factors that the Board believed were

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appropriate. In view of the wide variety of factors considered by the Board in connection with its evaluation of the proposed merger and the complexity of
these matters, the Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any
particular factor, was favorable or unfavorable to the ultimate determination of the Board. Rather, the Board made its recommendation based on the totality of
information presented to it and the investigation conducted by it. In considering the factors discussed above, individual members of the Board may have
given different weights to different factors.
It should be noted that this explanation of the reasoning of the Board and certain information presented in this section is forward-looking in nature and
should be read in light of the factors set forth in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 19
of this proxy statement.
The Board recommends that the shareholders of the Company vote “FOR” approval of the merger agreement and the plan of merger set forth therein.
Prospective Financial Information
The Company does not as a matter of course make public projections as to future performance (with the exception of annual earnings guidance and capital
expenditures) due to the inherent unpredictability of the assumptions and estimates underlying such projections. However, in connection with the Board’s
evaluation of the merger and other strategic alternatives available to the Company, the Company’s management provided to the Board and, in connection
with its due diligence investigation, Hydro One, certain non-public, unaudited prospective financial information, which we refer to as “prospective financial
information.” The prospective financial information is referred to as the Company management forecasts in the section entitled “—Opinion of Financial
Advisor.”
Summaries of the prospective financial information are provided below. The prospective financial information reflects numerous judgments, estimates and
assumptions with respect to weather conditions, industry evolution, general business, economic, market and financial conditions and other future events, as
well as matters specific to the Company’s business, including without limitation, the risks and uncertainties noted in our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2017 in “Forward-Looking Statements” under the headings “Financial Risk,” “Utility Regulatory Risk,” “Energy Commodity
Risk,” “Operational Risk,” “Compliance Risk,” “Technology Risk,” “Strategic Risk” and “External Mandates Risk,” all of which are difficult to predict and
many of which are beyond the Company’s control.
The prospective financial information is subjective in many respects and is susceptible to multiple interpretations and periodic revisions based on actual
experience and business developments. As such, the prospective financial information constitutes forward-looking information and is subject to risks and
uncertainties that could cause actual results to differ materially from the results forecasted. For additional information regarding these risks and uncertainties,
see the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements” and other risk factors described in the
Company’s filings with the SEC that could cause actual results to differ materially from those shown below. The Company’s shareholders are urged to review
the Company’s most recent SEC filings for a description of the Company’s reported results of operations and financial condition and the prospective
financial information should be read together with the historical information contained in such filings. There can be no assurance that the projected results
will be realized or that actual results will not be significantly higher or lower than projected. The prospective financial information should not be considered
a reliable predictor of future results and should not be relied upon as such. The prospective financial information covers multiple years and such information
by its nature becomes less predictive with each successive year.

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The prospective financial information was based upon various assumptions which relate only to the periods presented and should not be relied upon for any
other purpose. The principal assumptions include:
Overall

• From 2017 through 2021, the issuance of approximately $915 million of long-term debt and $235 million of common stock to fund planned
capital expenditures, maturing long-term debt ($435 million) and to maintain an appropriate capital structure.
Avista Utilities

• The granting of reasonable periodic rate increases by regulatory agencies allowing us to recover our expenses and capital costs and providing us
an opportunity to earn a reasonable rate of return for shareholders.
• Capital expenditures for ongoing investments in updating and modernizing our electric and natural gas systems and infrastructure.

• Target common equity ratio of 48.5% in Washington and 50% in Idaho and Oregon.

• During the period 2017 through 2021, in Avista Utilities’ service area, we expect annual electric customer growth to average 1.1 percent, within
a forecast range of 0.7 percent to 1.5 percent. We expect annual natural gas customer growth to average 1.3 percent, within a forecast range of 0.8
percent to 1.8 percent. We anticipate retail electric load growth to average 0.6 percent, within a forecast range of 0.3 percent and 0.9 percent. We
expect natural gas load growth to average 1.2 percent, within a forecast range of 0.7 percent and 1.7 percent. The forecast ranges reflect (1) the
inherent uncertainty associated with the economic assumptions on which forecasts are based and (2) the historic variability of natural gas
customer and load growth.
AEL&P

• The granting of reasonable periodic rate increases by regulatory agencies allowing us to recover our expenses and capital costs and providing us
an opportunity to earn a reasonable rate of return for shareholders.
• Average annual capital expenditures of $8.5 million for the period 2017 through 2021.

• During 2017 through 2021, in AEL&P’s service area, we expect residential customer growth near 0 percent (no residential customer growth). We
also expect no significant growth in commercial and government customers over the same period. We anticipate average annual total load
growth will be in a narrow range around 0.3 percent, with residential load growth averaging 0.6 percent, commercial growth near 0 percent (no
load growth); and government growth near 0 percent.
The prospective financial information does not take into account any circumstances or events occurring after the date it was prepared, including the
announcement of the merger. The prospective financial information does not take into account the effect of any failure to occur of the merger and should not
be viewed as accurate or continuing in that context.
The prospective financial information was not prepared with a view toward public disclosure or toward complying with generally accepted accounting
principles, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants
for preparation and presentation of prospective financial information. In addition, the prospective financial information is unaudited and neither the
Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures
with respect to the prospective

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