20180925Avista to Staff 17-42.pdf

JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED:
AVU-E.17-09 / AVU.G-I7-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-017(AVA) TELEPHONE:
EMAIL:
,; ^ _ll
Septem6ei i7;mlr
JamesScpr{ett(},{1,)., .
Adele Pailiusa'Gfl'I ' "
Law
416.345.6310 ,,
apantusa@hydroone. com
REQUEST:
In its Joint Application, Avista and Hydro One maintained that Hydro One is not controlled by and
functions independently from the government of the Province of Ontario. However, the newly elected
govefflment of the Province of Ontario removed the CEO and the Board of Directors. Further, Hydro
One has agreed to consult with the Province in future matters of executive compensation. Please explain
how these recent developments align with the claim that Hydro One operates independently and as a
separate entity from the Province of Ontario.
RESPONSE:
The Governance Agreement (the "Governance Agreement") between Hydro One and Her Majesty The
Queen in Right of Ontario (the "Province") dated November 5, 2015 (see StaflPR_017(AVA)
Attachment A) allows the Province to seek a shareholder meeting to remove and initiate replacement of
the entire Board (other than the CEO) by delivering a removal notice and requiring Hydro One to hold a
shareholders' meeting (see Section 4.7 of the Governance Agreement). The replacement of the Board
and the CEO was one of the campaign promises made by Premier Doug Ford during the election
campaign for the election that took place on June 7,2018. In light of this, the Board of Hydro One
determined that it would be in the best interests of Hydro One to voluntarily resign to facilitate the
orderly replacement of the Board in a sequential manner on an expedited basis. The process for
replacing the Board was documented in the July ll,2018 letter agreement between Hydro One and the
Province (see StaflPR_O17(AVA) Attachment B) (the "Letter Agreement"). In doing so, the Province
and Hydro One complied with the spirit and intent of the Governance Agreement. In order to serve the
best interests of the company, the parties agreed to forego the requirement to hold a shareholders'
meeting thereby expediting the process and reducing uncertainty.
After entering into the Letter Agreement, and consistent with the process outlined in the Governance
Agreement, an ad hoc nominating committee comprising one representative of each of Hydro One's five
largest shareholders (in this case the Ad Hoc Nominating Committee comprised representatives from 3
of the 5 largest shareholders not including the Province) was formed to nominate six directors of the new
Board; the Province nominated four directors. The new directors were announced on August 14,2018,
and the Chair was announced on September 7,2018.
The Governance Agreement requires that the CEO be appointed by the Board and annually have his
appointment confirmed by a special resolution of the Board (i.e., two-thirds of the votes cast at a
directors' meeting, or consented to in writing by all directors). In light of the events outlined above, the
CEO, Mayo Schmidt, retired from his positions on July 11,2018, having determined that it would be in
the best interests of Hydro One and its stakeholders to do so. The new Board will appoint a replacement
CEO, who will become the l lth Board member consistent with the Governance Agreement.
I
On Monday, July 16,2078, the new Provincial government introduced the Urgent Priorities Act, 2018,
which, included as Schedule 1, the Hydro One Accountability Act, 2018 (the o'Act"). The Act requires
the board of Hydro One to establish a new compensation framework for the Board of Directors, CEO,
and other executives of Hydro One and its subsidiaries in consultation with the Province and the other
five largest shareholders. The Act does not apply to subsidiaries incorporated in a jurisdiction outside of
Canada and as such, would not apply to Avista. This new legislation does not change the fact that
Hydro One is a publicly traded commercial entity separate from the Province of Ontario.
Pursuant to Section 16 of the July ll,2018 Letter Agreement between Hydro One and the Province,
except for the provisions of the Act which are principally limited to compensation matters pertaining to
Hydro One and its subsidiaries incorporated within Canada, the Province ratified and reaffrrmed its
commitment to the Governance Agreement of November 5, 2015 between Hydro One and the Province.
The Governance Agreement requires that the Province act as an investor and not a manager of Hydro
One, and the Province's decision-making authority in respect of Hydro One is restricted to that of any
other investor with respect to voting its shares in any decisions that are brought forward for shareholder
approval. The Province also has the right to nominate 40 percent of the Board of Directors (other than
the CEO), but all directors remain subject to an annual vote by all shareholders of Hydro One.
2
JURISDICTION
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E-I7-09 / AVU-G-I7-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-018(AVA) TELEPHONE:
EMAIL:
September 19,2018
James Scarlett (H1)
Adele Pantusa (Hl)
Law
416.345.6310
apantusa@hydroone. com
REQUEST:
The Joint Application states that Hydro One has 15 directors. Please reconcile with the update filed on
August 15,2018, that states that Hydro One's Board of Directors consists of 10 people and will be
increasedto ll people.
RESPONSE:
Pursuant to a letter agreement dated July 17,2018 between Hydro One Limited ("Hydro One") and Her
Majesty The Queen in Right of Ontario, as represented by the Ministry of Energy, Northern
Development and Mines (the "Province") (see StaflPR_017(AVA) Attachment B) (the "Letter
Agreement"), Hydro One's President and Chief Executive Officer ("CEO") retired effective July 11,
2018, and the remaining 13 directors agreed to a process to facilitate the orderly replacement of the
entire existing Board of Directors whereby they resigned through a staged resolution process on August
13,2018. Consistent with Section 4.7 of the Governance Agreement between the Province of Ontario
and Hydro One Limited dated November 5, 2015 (see Staff_PR_017(AVA) Attachment A) (the
"Governance Agreement")), Board vacancies were filled by 4 directors nominated by the Province and 6
directors nominated by an Ad Hoc Nominating Committee of Hydro One's top three largest
shareholders other than the Province and the new Board fixed the number of directors at 10. The new
Board is in the process of recruiting for a new President and CEO. In conjunction with the appointment
of the President and CEO, the Board will approve an increase in the number of directors to 11 (from 10)
and the President and CEO will be appointed as the 11th director.
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E-I7-09 / AVU-G-17-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-019(AVA) TELEPHONE:
EMAIL:
September 17,2018
James Scarlett (H1)
Adele Pantusa (H1)
Law
4t6.345.63t0
apantusa@hydroone. com
REQUEST:
Please explain the decision to increase the Hydro One Board of Directors from 10 to 1 1 people. In this
explanation, please explain:
a. If this was at the direction of the Province of Ontario.
b. Who or what entity will appoint the additional director.
c. If this additional director is appointed by the Province of Ontario, please identify the
percentage of directors that will be appointed by the Province of Ontario. Please specify
whether this percentage includes or does not include the CEO as a member of the Board.
RESPONSE:
a. The number of directors on Hydro One's new Board of Directors was agreed upon by Hydro
One and the Her Majesty The Queen in Right of Ontario (the "Province") in their July 11,2018 Letter
Agreement (see StaflPR_017(AVA) Attachment B) (the "Letter Agreement"). As specified in the
Letter Agreement, the new Board will initially consist of 10 members. Consistent with Section 4.7 of the
Govemance Agreement between Hydro One and the Province dated November 5, 2015 (see
Staff PR_017(AVA) Attachment A) (the o'Governance Agreement"), the Letter Agreement mandated
that the Province will nominate four replacement directors and the remaining six nominees will be
identified through an Ad Hoc Nominating Committee comprised of representatives of Hydro One's
largest shareholders other than the Province. The new Board would then be responsible for appointing a
new chief executive officer who will also be appointed as the eleventh member of the replacement
Board.
b. Pursuant to Section 13 of the Letter Agreement between Hydro One and the Province, the
replacement directors appointed pursuant to the process laid out in the Letter Agreement shall, following
their appointment, identiff, select and appoint a replacement CEO in accordance with Section 3.3 of the
Governance Agreement, and this new CEO will be the I lth director.
c. Please see our response to b. above. The CEO is not appointed by the Province
JURISDICTION
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E-I7 -09 I AVU-G-17-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-020(AVA) TELEPHONE:
EMAIL:
September 17 ,2018
James Scarlett (H1)
Adele Pantusa (H1)
Law
416.34s.6310
apantusa@hydroone. com
REQUEST:
Please explain Hydro One's understanding about why its fifth largest shareholder did not participate as a
member of the Ad Hoc Nominating Committee, which was tasked with selecting members for the
interim Board of Directors.
RESPONSE:
Hydro One does not know why the fifth largest shareholder did not participate as a member of the Ad
Hoc Nominating Committee. The shareholder declined to be a member of the Ad Hoc Nominating
Committee and was within its rights to do so under Section 4.7 of the Governance Agreement between
Hydro One and Her Majesty The Queen in Right of Ontario dated November 5, 2015 (see
staft_PR_0 I 7(AVA) Attachment A).
JUzuSDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E-17-09 / AVU-G-17-05 WITNESS:
IPUC RESPONDER:
Production Request DEPARTMENT:Staff-021(AVA) TELEPHONE:
EMAIL:
September 11,2018
James Scarlett (Hl)
Adele Pantusa (Hl)
Law
4t6.345.63t0
apantusa@hydroone. com
REQUEST:
Please identify all Board members who have previously held positions with or worked for the Province
of Ontario. Please provide the name of each board member, the position[s] they held with the Province
of Ontario, and the amount of time they held each position.
RESPONSE:
None of the new Hydro One Board members have previously held positions with or worked for any of
the ministries of the Province of Ontario within the last 5 years.
JURISDICTION
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: September 14,2018
AVU-E-17-09 / AVU-G-17-05 WITNESS: James Scarlett (H1)IPUC RESPONDER: Adele Pantusa (H1)
Production Request DEPARTMENT: LawStaff-022(AVA) TELEPHONE: [phone]t0EMAIL: [e-mail]
REQUEST:
While Hydro One and Avista have provided detailed information on the selection process for the new
Board of Directors, far less specificity about the selection process for the new CEO has been provided.
Please describe in detail the Hydro One CEO selection process, including:
a. Who or what entity directs the process,
b. Identify all steps in the process, and specific which of those steps require input,
participation, and/or approval from the Province of Ontario,
c. The expected timeline for filling the CEO position.
RESPONSE:
(a)Pursuant to Section 3.3 of the Governance Agreement (the "Governance Agreement") between
Hydro One and Her Majesty The Queen in Right of Ontario (the "Province") dated November 5,
2015 (see Staf{_PR_017(AVA) Attachment A) and section 13 of the July ll, 2018 letter
agreement between Hydro One and the Province (see Staff_PR_017(AVA) Attachment B) (the
"Letter Agreement"), the Hydro One Board of Directors selects Hydro One's CEO.
(b) The Board Chair will establish a CEO Selection Committee, which will in turn appoint an
Executive Recruiting firm. Internal and external candidates will be interviewed, and a preferred
candidate will be selected. Negotiations with the preferred candidate will then take place in an
effbrtto enter into an agreementto be appointed CEO. Pursuantto Section 16 of the July ll,
2018 Letter Agreement between Hydro One and the Province, except for the provisions of the
Hydro One Accountability Act,2018, which are principally limited to compensation matters
pertaining to Hydro One and its subsidiaries incorporated within Canada, the Province ratified
and reaffirmed its commitment to the Governance Agreement of November 5,2015 between
Hydro One and the Province, which Governance Agreement remains in fulI force and effect.
Section 3.3 of the Governance Agreement establishes that the authority to select Hydro One's
CEO rests solely with the Hydro One Board of Directors.
(c) The Board will proceed with all deliberate speed in the process of finding a CEO. In the
meantime, Hydro One's Chief Financial Officer, Paul Dobson, was named Hydro One's acting
CEO on July 11. Mr. Dobson will continue to serve as acting CEO while Hydro One's new
Board conducts a search for Hydro One's new CEO.
Mr. Dobson is a CPA, CMA. Prior to joining Hydro One, he worked at CIBC for 10 years in
finance, strategy and business development roles in both Canada and the United States. Since
2003, Mr. Dobson has held senior leadership positions in finance, operations, information
technology and customer service across the Centrica Group, the parent company of Direct
Energy. Prior to joining Hydro One in 2078, Mr. Dobson served as CFO for Direct Energy Ltd.
I
(Direct Energy), Houston, Texas, where he was responsible for overall financial leadership of a
$ 15 billion revenue business with three million customers in Canada and the United States.
2
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: September 20,2018
AVU-E-I7-09 IAVU-G-17-05 WITNESS: Chris Lopez (Hl)IPUC RESPONDER: Adele Pantusa (H1)
Production Request DEPARTMENT: LawStaff-023(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
REQUEST:
Please identify Hydro One's ten largest shareholders, including the Province of Ontario, and the
percentage of Hydro One each shareholder owns.
RESPONSE:
Based on Hydro One's due diligence, Hydro One's ten largest shareholders, including the Province, as at
August 31,2018 are as follows:
Province 47.4%
CI Investments Inc.3.6%
Ontario First Nations SW LP 2.4%
1832 Asset Management LP 2.4%
Maple-Brown Abbott Ltd 2.3%
2.0%Fidelity Management & Research Company
Burgundy Asset Management Ltd.1.5%
RBC Dominion Securities, Inc.1.4%
1.4%Ontario Power Generation Pension Fund
The Vanguard Group, Inc.1.4%
Millennium Management LLC t.3%
Shareholder 7, of Hydro One shares held
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E- 1 7 -09 I AVU-G.I 7-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Stafl024(AVA) TELEPHONE:
EMAIL:
September 77,2018
James Scarlett (Hl)
Adele Pantusa (Hl)
Law
416.345.63t0
apantusa@hydroone. com
REQUEST:
The Joint Application states that "As of July 31,2017, the Province owned 49.9% of Hydro One's shares
with the remainder of shares held by private investors. Based on facts known today and assuming the
Proposed Transaction is completed, the Province's level of ownership of Hydro One will decline to
below 45oh," please describe if this continues to be accurate, including discussion about any agreements
regarding the Province of Ontario's future stake in Hydro One.
RESPONSE:
The statement continues to be true except that as at August 31,2018, the Province owns approximately
47.4% of Hydro One's common shares. As at July 3l,2017,the Province did own 49.9% of Hydro
One's shares. On January 2,2018, the Province announced the sale of 14,391,012 common shares of
Hydro One Limited, representing approximately 2.4Yo of the outstanding common shares, to OFN
Power Holdings LP, a limited partnership wholly-owned by Ontario First Nations Sovereign Wealth LP,
which is in turn owned by 129 First Nations in Ontario at a purchase price of $18 per share for a total
purchase price of $259,038,216. This transaction fulfills the Province's commitment in its
agreement-in-principle with the Chiefs-in-Assembly on behalf of the First Nations in Ontario, which
was previously announced on July 12,2016. Immediately prior to the closing of the transaction, the
Province owned 296,803,660 common shares of Hydro One Limited, representing approximately 49.9%
of the common shares of Hydro One Limited. After completing the transaction, the Province owned
282,412,648 common shares of Hydro One, representing approximately 47.4Yo of the common shares of
Hydro One Limited.
With respect to the Province of Ontario's future stake in Hydro One, based on facts known today and
assuming the Proposed Transaction is completed, the Province's level of ownership of Hydro One will
decline to approximately 42o/o. The Province has also agreed in the Governance Agreement not to
acquire previously issued voting securities if after that acquisition, the Province would own more than
45o/o of any class or series of voting securities (including common shares of Hydro One).1
The Province will likely continue to own at least 40o/o of Hydro One's shares for the foreseeable future.
The Ontario Electricity Act, 1998 restricts the Province from selling voting securities (including
common shares of Hydro One) if it would own less than 40%o of the outstanding number of voting
securities of that class or series after the sale. If as a result of the issuance of additional voting securities
of any class or series by Hydro One, the Province would own less than 40o/o of the outstanding number
of voting securities of that class or series, then the Province shall, subject to certain requirements, take
lThisrestrictiondoesnotapplytotheacquisitionbytheProvinceofvotingsecuritiesasaresultoftheenforcementbytheProvinceofany
security interest securing payment ofdebt obligations owing to the Province or to certain acquisitions ofvoting securities by entities related
to the Province or by third party managed funds or as passive investments. This restriction also does not require the Province to sell any of
the common shares of Hydro One that it currently owns, nor does it limit the Province from acquiring voting securities on an issuance by
Hydro One, including pursuant to the exercise by the Province of its pre-emptive right.
I
steps to acquire as many voting securities of that class or series of voting securities as are necessary to
increase the Province's ownership to not less than 40Yo of the outstanding number of voting securities of
that class or series. In order to assist the Province in meeting its ownership obligations under the
Electricity Act, 1998, under Section 6 of the Governance Agreement (the "Governance Agreement")
between Hydro One and the "Province dated November 5,2015 (see StaflPR_O17(AVA) Attachment
A), Hydro One has granted the Province a pre-emptive right to subscribe for and purchase up to 45Yo of
any proposed issuance by Hydro One of voting securities or securities that are convertible or
exchangeable into voting securities (other than certain specified excluded issuances). Any offered
securities not subscribed for and purchased by the Province pursuant to its pre-emptive right may be
issued to any other person pursuant to the proposed offering.
Lastly, in 2015, prior to completion of the initial public offering of Hydro One, Hydro One Inc. and its
subsidiaries (and by virtue of a deeming provision in the Electricity Act, 199B) ceased to be subject to a
number of Ontario statutes that apply to entities owned by the Province, including the Auditor General
Act (Ontario) and the Auditor General's right to audit therein. The Auditor General lcr specifically
states that, for purposes of this Act, Hydro One Inc. and its subsidiaries (and Hydro One) are deemed not
to be agencies of the Crown or Crown controlled corporations. The only obligation that Hydro One Inc.
and its auditors continue to have under the Auditor General Acl is to provide financial information to the
Province for the Province's public reporting purposes; however, Hydro One is not required by such
residual obligation to give information and access to records that relate to a period for which Hydro One
has not yet disclosed to the public its audited or unaudited financial statements.
2
JUzuSDICTION
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: September 18, 2018
AVU-E-17-09 / AVU-G-17-05 WITNESS: Chris Lopez (Hl)IPUC RESPONDER: Adele Pantusa (Hl)
Production Request DEPARTMENT: LawStaff-025(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
REQUEST:
Hydro One and Avista's stock value fell and its credit rating was downgraded after the CEO and Board
of Directors resignations were announced. Please explain if or how Hydro One's compromised
financial position affects its ability to finance the merger.
RESPONSE:
The resignation of the Board of Directors of Hydro One and the retirement of its CEO have not
left Hydro One in a compromised financial position and Hydro One is still fully able to finance the
merger. Hydro One Inc. has an "A- (CreditWatch Negative)" long-term credit rating from S&P, a"Baal
(Stable Outlook)" rating on senior unsecured debt from Moody's, and an "A (High) (Stable Outlook)"
rating from DBRS. In addition, Hydro One Limited has an "A- (CreditWatch Negative)" issuer credit
rating from S&P. These investment grade credit ratings indicate that the company has access to capital
on reasonable terms and conditions.
Further, Hydro One's second quarter results, announced on August 14,2018, underscore its
financial stability. Hydro One reported earnings per share (EPS) of Canadian $0.34 and adjusted EPS of
Canadian $0.33, compared to Canadian $0.20 in the prior year, an increase of 70o/o and 65Yo,
respectively.' In Q2 2018, Hydro One obtained Canadian $4.4 billion in credit lines and Hydro One Inc.
issued Canadian $l.4 billion in long-term debt. The long-term debt included a Canadian $750 million
3 I -year tranche that was issued at 3.63Yo, Hydro One's lowest ever coupon on a 30 or longer year issue.
While Hydro One's stock price has changed, it is impossible to know all the causes for the
changes. More importantly, this decline does not impact Hydro One's ability to finance the Proposed
Transaction. Hydro One's stock price decreased Canadian $1.21 (or 6.0%) in the month ended July 3l to
close at Canadian $ 19.00. This decline was greater than the average decline of 3.9o/o in the Utilities -
Regulated sector for the same period.' During the month of August, Hydro One's stock price stabilized,
and closed at Canadian $ 19.28 on August 3 I . The stock price has continued to firm, closing at $ 19.85 on
September 18.
These changes in Hydro One's stock price have no meaningful impact on Hydro One's ability to
finance the merger. Since May 2018, Hydro One's access to capital and its ability to finance Avista
remains largely unchanged. Hydro One expects the convertible debentures to be fully converted to
equity at the previously agreed equity price around the time of the closing of the Proposed Transaction.
The equity from the convertible debentures, and the planned US$2.6 billion debt financing, which is
supported by the US$2.6 billion in bridge financing, is sufficient to fund the transaction.
' N.*, Release, Hydro One Reports Strong Second Quarter Results, (Aug. 14, 201 8),
http://hydroone.mediaroom.coml20l8-08-14-Hydro-One-Reports-Strong-Second-Quarter-Results (last visited Aug. 14,
20 r 8).
' N.*, Bites Canadian Markets, Monthly; Hydro One loses CAD620 million (USf.474 million) in MCap in July, biggest drop
in Utilities - Regulated sector (July 31,2018), LexisNexis Newsdesk (subscription req'd).
JUzuSDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E-I7-09 / AVU-G-I7-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-026(AVA) TELEPHONE:
EMAIL:
September 20,2018
Chris Lopez (Hl)
Adele Pantusa (Hl)
Law
416.345.63t0
apantusa@hydroone. com
REQUEST:
Please explain how the proposed Hydro One rate reduction and newly compromised financial position
might affect the ability of Hydro One to:
a. Operate and maintain Avista operations in Idaho, and
b. Enact the rate credits and contributions stipulated in the settlement agreement.
RESPONSE:
Hydro One has not proposed any electricity rate reductions. We assume that the IPUC Staff is
referring to the l2%o electricity rate reductions proposed by the Provincial government led by Premier
Doug Ford.
With respect to Hydro One's financial position, as explained in Hydro One's response to Staff
Production Request Number 25, Hydro One's financial position has not been compromised by recent
developments in Ontario. Moreover, Hydro One does not anticipate that any electricity rate reductions
proposed by the Province of Ontario will have any impact on Hydro One's ability to either: a) operate
and maintain Avista operations in Idaho, or b) fund the rate credit and contributions stipulated in the
Idaho Stipulated Settlement.
With respect to operations in Idaho, Hydro One remains an effective and competent parent
company for Avista. The numerous ring-fencing commitments agreed to in Idaho and discussed in
Hydro One's response to IPUC Staf{_PR_42 were developed to ensure, among other things, that Avista
would not be subjected to influence by the Province of Ontario. Indeed, Avista's ability to operate and
maintain its business would not have been directly affected by any of the recent actions by the Province
of Ontario. Moreover, Hydro One's market capitalization is approximately three times the size of Avista
and will provide Avista with improved access to capital markets. Being part of the larger Hydro One
organization will also provide Avista with increased scale that may enhance its ability to compete for
capital with larger utility holding companies in the U.S. Further, the companies are culturally aligned,
Hydro One is a strategic investor, rather than a financial investor, and its interests are aligned with
Avista's for long-term success. To this end, Hydro One has made a number of commitments to preserve
Avista's ability to run its business on an ongoing basis, for the benefit of Avista's customers.
Hydro One's ability to fund the commitments agreed to in the Idaho Stipulated Settlement,
including the rate credit and contributions agreed to in the Idaho Stipulated Settlement, has not been
affected by recent developments.
First, with respect to the approximately $15.8 million rate credit provided in Stipulated
Commitment No. 19, that credit will simply flow through to Avista customers in the bills issued by
Avista without Hydro One having to take any action. Shortly after the merger, Avista will file a tariff
rider requesting approval, which will ensure Avista's Idaho customers begin receiving the benefit of the
rate credit immediately. Although no funds will flow from Hydro One to Avista, Hydro One will bear
the burden of the rate credit, as it will reduce the earnings potentially available to Hydro One as
dividends. The rate credit constitutes the bulk of Hydro One's funding commitments.
Second, Stipulated Commitment No. 66 establishes that if Avista has retained earnings that
I
would otherwise be available to Hydro One as dividends, those retained earnings can be used to fund
Stipulated Commitment Nos. ll, 58, 61,70: "To the extent Avista has retained earnings that are
available for payment of dividends to Olympus Equity LLC consistent with the ring fencing provisions
of this list of merger commitments, such retained earnings may be used." In essence, funds otherwise
available for payment of dividends to Olympus Equity LLC and on up the chain will instead be directed
to (i) funding the approximately $5.3 million in funding over a 1O-year period to energy efficiency,
weatherization, conservation, and low income assistance programs (Stipulated Commitment No. 58);
(ii) a one-time investment of $4,500,000 for a Colstrip community transition fund (Stipulated
Commitment No. 70); and (iii) the charitable contributions in Stipulated Commitment Nos. 1 I and 61.
With this approach, we do not expect a need for cash to flow from Hydro One to Avista.
Third, the Commission will have full enforcement authority over the binding commitments
included in the Stipulated Settlement. Stipulated Commitment No. 33 establishes that Hydro One and/or
its subsidiaries are bound by the Stipulated Commitments, Stipulated Commitment No. 30 subjects
Hydro One and/or its subsidiaries to the jurisdiction of the Commission for enforcement of the Stipulated
Commitments, and Stipulated Commitment No. 3l provides that"Hydro One, Olympus Holding Corp.,
and Avista will jointly file with the Commission prior to closing the Proposed Transaction an ffidavit
ffirming that they will submit to the jurisdiction of the relevant state courts for enforcement of the
Commission's orders adopting the commitments made by and binding upon them and their ffiliates
where noted, and subsequent orders affecting Avista." Therefore, Hydro One, as Avista's sole
shareholder, andlor its subsidiaries, have submitted to the jurisdiction of the Commission and Idaho
courts for the enforcement of all of the Stipulated Commitments, including those that require Hydro One
funding.
Fourth, the Province of Ontario will not have jurisdiction to directly affect, interact with, or
directly interfere with the management and strategic direction of Avista if the merger is consummated.
Rather, if the merger is consummated, Hydro One's ownership of Avista will be constrained by the
Stipulated Commitments, any commitments included in the Commission's order approving the merger,
and the laws of the United States and the five states in which Avista operates (Oregon, Washington,
Idaho, Montana, and Alaska).
Finally, to the extent that there is concern that the Province will not provide the funding for these
commitments, it should be noted that these obligations are those of Hydro One, not of its shareholders.
As such, the Province will not be involved in meeting these commitments.
2
JUzuSDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: September 17,2018
AVU-E-17-09 IAVU-G-17-05 WITNESS: James Scarlett (H1)IPUC RESPONDER: Adele Pantusa (H1)
Production Request DEPARTMENT: LawStaff-027(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
REQUEST:
Please provide the date of and an electronic link to Hydro One's most recent SEC filing.
a. Please explain the drivers or requirements behind the most recent SEC hling.
b. Please identify and explain all material changes from Hydro One's last SEC filing and its
latest SEC filing.
RESPONSE:
Hydro One Inc.
Hydro One Inc.'s fHydro One Limited's ("Hydro One") wholly-owned subsidiary] most recent SEC
filing, dated September 7,2018, is a Form 6-K attaching press releases regarding the appointment of the
Chair of the Board of Directors of Hydro One Inc. and Hydro One and the appointment of the Acting
Chief Financial Officer of Hydro One Inc. and Hydro One. It can be found at the following link:
httos://www.sec.eov/Arch ives/edea r/data/11144451000119312518268855/0001193125-18-268855-index. ht
m.
a. Hydro One Inc.'s most recent SEC filing was filed in compliance with its continuous disclosure
obligations under securities legislation to publicly disclose all material information.
b. As noted above, Hydro One Inc.'s latest SEC filing is dated September 7,2078, and can be found at
the following link:
h tt p s : //www. se c. sov/A rc h ives/e d ga r / d ata / 11 193 12518268855/0001 193 12s-18-268855-inde
x.htm. This filing is a Form 6-K attaching press releases regarding the appointment of the Chair of
the Board of Directors of Hydro One Inc. and Hydro One and the appointment of the Acting Chief
Financial Officer of Hydro One Inc. and Hydro One.
The last material change report that Hydro One Inc. filed with the SEC is dated August 14,2018, and
can be found at the following link:
https://www.sec.eov/Archives/edea r/data/1114445/0001L9312518248833/0001193125-18-248833-inde
x.htm. This filing is a Form 6-K attaching a material change report announcing a new board of
directors of Hydro One Inc. and Hydro One.
Hydro One Limited
Hydro One's most recent SEC filing, dated September 5,2018, is a withdrawal request for the
prospectus filed on June 8, 2018. It can be found at the following link:
https://www,sec.eov/Archives/edea r/data/1"712356/0001- L93 L251"82671"66/0001"1931.25-18-2671"66-index. ht
m.
I
a. Hydro One's most recent SEC filing was made in order to effect a withdrawal of the prospectus filed
on June 8,2078. The Registration Statement was originally filed with the SEC in connection with
proposed offerings of debt securities. The Registration Statement had not been declared effective as
of Septemb er 5,2078, and accordingly no securities had been issued thereunder.
b. There are no material changes to report from Hydro One's last SEC filing and its latest SEC filing.
2
JUzuSDICTION
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E.I 7 -09 I AVU-G- 17.05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-028(AVA) TELEPHONE:
EMAIL:
September 71,2018
James Scarlett (H1)
Adele Pantusa (Hl)
Law
416.345.6310
ap antusa@hydro o n e. c o m
REQUEST:
Please provide the Governance Agreement signed between the Province of Ontario and Hydro One on
July I l, 2018.
a. Please explain who or what drove the need for the Governance Agreement.
b. Please identify and explain any impact the Governance Agreement will or may have on
Avista's employees.
c. Please identify and explain any impact the Governance Agreement will or may have on
the Merger Agreement between Avista and Hydro One.
d. Please identify and explain any impact the Governance Agreement will or may have on
the Settlement Stipulation signed by parties.
RESPONSE:
The Governance Agreement (the "Governance Agreement") between Hydro One and Her Majesty The
Queen in Right of Ontario (the "Province") dated November 5, 2015 is Staff PR_017(AVA)
Attachment A.
The July I I ,2018 letter agreement between Hydro One and the Province (which is a document separate
from the above-referenced Governance Agreement) is Staff PR_017(AVA) Attachment B (the "Letter
Agreement").
Hydro One is assuming that the reference to the "Governance Agreement" in this production request is
intended to refer to the July 1 7,2018 Letter Agreement. On this basis, the responses to the remainder of
the production request are as follows and are based on the Letter Agreement:
a. Section 4.7 of the Governance Agreement allows the Province to seek a shareholder meeting to
remove and initiate replacement of the entire Board (other than the CEO) by delivering a
removal notice and requiring Hydro One to hold a shareholders' meeting. The replacement of
the Board and the CEO was one of the campaign promises made by Premier Doug Ford during
the election campaign for the election that took place on June 7, 2018. In light of this, the Board
of Hydro One determined that it would be in the best interests of Hydro One to voluntarily resign
to facilitate the orderly replacement of the Board in a sequential manner on an expedited basis.
The process for replacing the Board was documented in the Letter Agreement. In doing so, the
Province and Hydro One complied with the spirit and intent of the Governance Agreement. In
order to serve the best interests of the company, the parties agreed to forego the requirement to
hold a shareholders' meeting thereby expediting the process and reducing uncertainty.
After entering into the Letter Agreement, and consistent with the process outlined in the
Governance Agreement, an ad hoc nominating committee comprising one representative of each
I
of Hydro One's five largest shareholders (in this case the Ad Hoc Nominating Committee
comprised representatives from 3 of the 5 largest shareholders not including the Province) was
formed to nominate six directors of the new Board; the Province nominated four directors. The
new directors were announced on August 74,2018, and the Chair was announced on September
7 ,2018.
The Governance Agreement requires that the CEO be appointed by the Board and annually have
his appointment confirmed by a special resolution of the Board (i.e., two-thirds of the votes cast
at a directors' meeting, or consented to in writing by all directors). In light of the events outlined
above, the CEO, Mayo Schmidt, retired from his positions on July 11,2018, having determined
that it would be in the best interests of Hydro One and its stakeholders to do so. The new Board
will appoint a replacement CEO, who will become the I lth Board member consistent with the
Governance Agreement.
Pursuant to Section 16 of the Letter Agreement between Hydro One and the Province, except for
the provisions of the Hydro One Accountability Act, 2018 which are principally limited to
compensation matters pertaining to Hydro One and its subsidiaries incorporated within Canada,
the Province ratified and reaffirmed its commitment to the Govemance Agreement.
b. The Letter Agreement has no direct impact on Avista employees. All actions taken pursuant to
the Letter Agreement involve only the replacement of Hydro One's Board and retirement of
Hydro One's CEO.
c. The Letter Agreement has no direct impact on the Merger Agreement between Hydro One and
Avista. Nothing in the Letter Agreement addresses the Merger Agreement in any way, and
Hydro One has stated on multiple occasions since the Letter Agreement was executed that it
remains bound by the Merger Agreement and remains committed to the merger.
d. The Letter Agreement has no direct impact on the Settlement Stipulation signed by the parties.
Nothing in the Letter Agreement addresses the Settlement Stipulation filed in this case, and
Hydro One has stated on multiple occasions since the Letter Agreement was executed that it
remains committed to the merger.
2
JUzuSDICTION
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: September 16,2018
AVU-E-17-09 / AVU-G-17-05 WITNESS: James Scarlett (Hl)IPUC RESPONDER: Adele Pantusa (H1)
Production Request DEPARTMENT: LawStaff-029(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
Please provide a copy of the Hydro One Accountability Act of 2018. Please identify:
a. The date it became law.
b. Please explain the driving force behind this Act.
c. Please explain how the Act changed the Province of Ontario's relationship with Hydro
One.
d. Please identify and explain any impact the Act will or may have on the Merger
Agreement between Avista and Hydro One.
Please identify and explain any impact the Act will or may have on the Settlement Stipulation signed by
parties.
RESPONSE:
The Hydro One Accountability Act,20l8 (the "Act") is attached as Staff PR_029(AVA) Attachment A.
a. The Act became law on August 15, 2018.
b. It appears that the Act was the result of a campaign promise made by Premier Ford of the
Progressive Conservative Party to address executive compensation at Hydro One. The Act does
not apply to executives of Hydro One's subsidiaries incorporated outside of Canada and hence,
would not apply to Avista if the merger is consummated.
c. Pursuant to Section 16 of the July 11, 2018 letter agreement between Hydro One and the
Province (see Staff PR_017(AVA) Attachment B) (the "Letter Agreement"), except for the
provisions of the Act which are principally limited to compensation matters pertaining to Hydro
One and its subsidiaries incorporated within Canada, the Province ratified and reaffirmed its
commitment to the Governance Agreement (the "Governance Agreement") between Hydro One
and Her Majesty The Queen in Right of Ontario (the "Province") dated November 5, 2015 (see
Sta[PR_017(AVA) Attachment A), which Governance Agreement remains in full force and
effect.
d. The Act will have no direct impact on the merger agreement between Avista and Hydro One. As
noted above, the Act specifically states that it does not apply to Hydro One's subsidiaries
incorporated outside of Canada.
e. The Act will have no direct impact on the Settlement Stipulation signed by parties because the
Act applies only to Hydro One's subsidiaries incorporated in Canada.
REQUEST:
JURISDICTION
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: September 17,2018
AVU-E-17-09 IAVU-G-I7-05 WITNESS: James Scarlett (Hl)
IPUC RESPONDER: Adele Pantusa (Hl)
Production Request DEPARTMENT: LawStaff-030(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
REQUEST:
In its Joint Application, Avista and Hydro One state that "The Province of Ontario is a shareholder and
pursuant to its govemance agreement with Hydro One, it does not hold or exercise any managerial
oversight over Hydro One." However, Hydro One's most recent SEC filing includes the new
Governance Agreement which changes Hydro One's governance and management structure and
includes new merger terms for Avista executives. Please explain how the revised Governance
Agreement and merger terms for Avista align with the claim that the Province of Ontario does not
exercise any managerial oversight over Hydro One.
RESPONSE:
We are assuming the reference to the "new Governance Agreement" refers to the July Il,2018 letter
agreement (see Staff_PR_0I7(AVA) Attachment B) (the "Letter Agreement") between Hydro One and
Her Majesty The Queen in Right of Ontario, as represented by the Ministry of Energy, Northern
Development and Mines (the "Province"). A material change report describing the Letter Agreement
was filed with the SEC on July 72,2018. The Letter Agreement does not include "new merger terms for
Avista executives" but rather documents the agreement between Hydro One and the Province for the
orderly replacement of the board of directors of Hydro One and the retirement of Mayo Schmidt as the
chief executive officer effective July I 1 .
Section 4.7 of the Governance Agreement (the "Governance Agreement") between Hydro One and the
Province dated November 5,2015 (see StaflPR_O17(AVA) Attachment A) allows the Province to seek
a shareholder meeting to remove and initiate replacement of the entire Board (other than the CEO) by
delivering a removal notice and requiring Hydro One to hold a shareholders' meeting. The replacement
of the Board and the CEO was one of the campaign promises made by Premier Doug Ford during the
election campaign for the election that took place on June 7,2018. In light of this, the Board of Hydro
One determined that it would be in the best interests of Hydro One to voluntarily resign to facilitate the
orderly replacement of the Board in a sequential manner on an expedited basis. The process for
replacing the Board was documented in the Letter Agreement. In doing so, the Province and Hydro One
complied with the spirit and intent of the Governance Agreement. In order to serve the best interests of
the company, the parties agreed to forego the requirement to hold a shareholders' meeting, thereby
expediting the process and reducing uncertainty. All actions taken pursuant to the Letter Agreement
involve only the replacement of Hydro One's Board and retirement of Hydro One's CEO.
In respect of the claim that the Province does not exercise any managerial oversight over Hydro One,
Section l6 of the Letter Agreement between Hydro One and the Province, except for the provisions of
the Hydro One Accountability Act, 2018 which are principally limited to compensation matters
pertaining to Hydro One and its subsidiaries incorporated within Canada, the Province ratified and
reaffirmed its commitment to the Governance Agreement.
I
The Governance Agreement requires that the Province act as an investor and not a manager of Hydro
One, and the Province's decision-making authority in respect of Hydro One is restricted to that of any
other investor with respect to voting its shares in any decisions that are brought forward for shareholder
approval. The Province also has the right to nominate 40 percent of the Board of Directors (other than
the CEO), but all directors remain subject to an annual vote by all shareholders of Hydro One.
2
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E-17-09 / AVU-G-17-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-03I(AVA) TELEPHONE:
EMAIL:
September 16,2018
James Scarlett (Hl)
Adele Pantusa (H1)
Law
4t6.34s.6310
apantusa@hydroone. com
REQUEST:
Did the Province of Ontario previously have the ability to remove or otherwise force the retirement of
the CEO and Directors of the Board? Please provide a detailed explanation. Please explain how the
Hydro One Accountability Act, the July 11, 2018, Governance Agreement, or another recent action
relates to this power/authority.
RESPONSE:
With respect to the Board of Directors of Hydro One, the Province of Ontario (the "Province") has the
right to remove the Board of Directors pursuant to Section 4.7 of the Governance Agreement (the
"Governance Agreement") between Hydro One and Her Majesty The Queen in Right of Ontario dated
November 5,2015 (see Staff PR_017(AVA) Attachment A), as detailed in Hydro One's response to
Idaho Staff Production Requests l7 and 30. With respect to the CEO, Section 3.3 of the Governance
Agreement requires that the CEO be appointed by the Board of Directors and annually have his
appointment confirmed by a special resolution of the Board (i.e., two-thirds of the votes cast at a
directors' meeting, or consented to in writing by all directors). The former CEO, Mayo Schmidt, retired
from his positions, having determined that it would be in the best interests of Hydro One and its
stakeholders to do so.
Except as set out in the July 71,2018 letter agreement between Hydro One and the Province (see
Staff PR_017(AVA) Attachment B) (the "Letter Agreement"), the Letter Agreement does not change
the Province's right to remove the Board as set out in Section 4.7 of the Govemance Agreement.
Pursuant to Section 16 of the Letter Agreement, except for the provisions of the Hydro One
Accountability Act (the "Act") which are principally limited to compensation matters pertaining to
Hydro One and its subsidiaries incorporated within Canada, the Province ratified and reaffirmed its
commitment to the Governance Agreement, which Governance Agreement remains in full force and
effect. In addition, the Act also has not changed the Province's right to remove the Board. The Act
deals with the compensation framework (and related disclosure obligations) for the directors, Chief
Executive Officer, and executives of Hydro One Limited and its subsidiaries (except subsidiaries
incorporated in jurisdictions outside Canada).
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: September 17,2018
AVU-E-17-09 IAVU-G-17-05 WITNESS: James Scarlett (Hl)IPUC RESPONDER: Adele Pantusa (Hl)
Production Request DEPARTMENT: LawStaff-032(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
REQUEST:
Staff understands that this is the second time in l6 years that the entire Hydro One Board has resigned.
Please fully explain the circumstances under which the Board previously resigned.
RESPONSE:
The entire Hydro One Inc. Board resigned in June 2002 after the Province of Ontario, which was Hydro
One Inc.'s sole shareholder at the time,l introduced Bill 80, Hydro One Inc. Directors and Officers Act,
2002, S.O. 2002, c.3. Bill 80 was introduced to renegotiate Hydro One executive salaries and severance
packages and became law on June27,2002. The press release announcing this change is attached hereto
as staff PR_032(AVA) Attachment A.
I Hydro One was a Crown Corporation until 2015, when the Province sold over 50 percent of Hydro One's stock in a series of public
offerings.
JURISDICTION:
CASE NO:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU.E-I7 -09 I AVU-G-I7-05 WITNESS:
REQUESTER: IPUC RESPONDER:
DEPARTMENT:
TELEPHONE:
EMAIL:
September 18,2018
James Scarlett (H1)
Collins Sprague (AVA)
Adele Pantusa (Hl)
Collins Sprague (AVA)
Law
416.345.6310 (H1)
apantusa@hydroone. com
TYPE:
REQUEST NO.:
Production Request
Staff-033(AVA)
REQUEST:
During the recent political campaign, the newly elected Premier of Ontario pledged to remove the
CEO and Board of Directors at Hydro One and reduce electric rates by 12 percent.
a. Please confirm when or deny that Hydro One was aware of these campaign
pledges.
b. Please confirm when or deny that Avista was aware of these campaign pledges.
RESPONSE:
a. Hydro One was made aware of Premier Doug Ford's intention to remove its CEO
during a campaign event on April 10, 2018. The campaign promise to remove
Hydro One's CEO and Board of Directors was officially announced on April 12,
201 8.
b. Since the Proposed Transaction was announced last year, Avista has monitored
print media in Ontario on a daily basis during the work week. Consequently,
Avista was aware of the campaign pledges made by the leader of the Ontario
Progressive Conservative Party to remove the CEO and Board of Directors of
Hydro One and to reduce electric rates by twelve percent on or about the time that
they were made. In late November 2017, the Progressive Conservative Party
announced their party platform containing an additional 12 per cent reduction to
electricity bills to address voter concern about "high hydro rates." In April, 2018,
the Progressive Conservative Party announced a promise to "fire" the leadership
of Hydro One. On May 30, the Progressive Conservative Party released its revised
platform. This new version of the Progressive Conservative Party platform
included the previous pledge to reduce electric rates by l2o/o as well as a new
promise to remove the CEO and Board of Hydro One. From our vantage point,
Avista was uncertain as to what to expect from the election or its outcome.
JURISDICTION
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: September 18,2018
AVU-E-17-09 / AVU-G-17-05 WITNESS: James Scarlett (Hl)IPUC RESPONDER: Adele Pantusa (H1)
Production Request DEPARTMENT: LawStaff-034(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
REQUEST:
Please explain why Avista and Hydro One did not reveal that Hydro One and its executive management,
executive compensation, and rates were major issues in the most recent Province of Ontario election.
RESPONSE:
Hydro One, and energy policy in general, have regularly been a focus of the media in Ontario. In this
most recent election, statements regarding Hydro One were publicly made by the various political
parties and candidates running during the election. It was only after the final settlement conference
between the Idaho parties in this proceeding on April 4,2018, that electricity rates in Ontario and Hydro
One's executive management and compensation became a more prominent issue. The first mention
regarding a change of Hydro One's management happened on April 10, 2018.
Shortly after the June 7, 2018 election, Hydro One and Avista notified the Idaho Public Utilities
Commission ("IPUC") of the outcome of the election and the campaign promises made by the Ontario
Progressive Conservative Party regarding Hydro One in their June 20,2018 Avista and Hydro One Joint
Comments in Support of Stipulation and Settlement in the Idaho proceedings (see StaflPR_034(AVA)
Attachment A, pages 15 and 16 and Exhibit A). On June 20, 2018, Hydro One still did not know how
the election could impact Hydro One, but chose to update the IPUC regarding campaign promises made
by the new Premier well before the evidentiary hearing scheduled for July 23,2018.
Since the filing of the June 20, 2018 comments in support of the settlement, Hydro One and Avista have
regularly updated the IPUC on the actions of the Ontario government with respect to the management
and Board of Directors of Hydro One. See Staff PR_034(AVA) Attachment B (July 18,2018letter
from Hydro One to the IPUC regarding the July 11,2018 Letter Agreement); Staf[_PR_034(AVA)
Attachment C (July 20, 2018 Hydro One letter regarding Standard & Poor's Report);
Staf{_PR_034(AVA) Attachment D (August 15,2018 Report on Hydro One Management Changes);
Staff PR_034(AVA) Attachment E (September 10,2018 Supplemental Report on Hydro One Chair and
Management Changes); SIa[PR_034(AVA) Attachment F (September 14,2018 Supplemental Report
on Hydro One S&P Rating).
Hydro One does not believe that it failed to reveal issues with respect to Hydro One that have occurred
as a result of the June 7,2018 election. Election campaigns in Canada are shorter than in the United
States and starting in June, 2018, Hydro One and Avista informed the IPUC of the recent developments
as it became clear they may impact Hydro One, well before the scheduled evidentiary hearing or any
potential decision on the merger.
1
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: September 21,2018
AVU-E-17-09 IAVU-G-17-05 WITNESS: James Scarlett (Hl)
IPUC RESPONDER: Adele Pantusa (Hl)
Production Request DEPARTMENT: LawStaff-035(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
REQUEST:
After the election, the new government of the Province of Ontario stated that it "is committed to
reducing residential hydro rates by 12 percent." https://business.financialpost.com/news/fp-
street/hydro-one-intervention-an-example-of-governance-best-practices-ontario-government
a. Please explain in detail the authority held by the Premier and the Province of Ontario
regarding electric rate changes.
b. Please disclose and describe any discussions Hydro One has had with the Province of
Ontario regarding rate changes.
RESPONSE:
a. The Ontario Energy Board ("OEB") is an agent of the Province which regulates natural gas and
electricity utilities in Ontario. Among other things, the OEB sets rates and licenses all participants in
the Province's electricity and natural gas sectors as set out inthe Ontario Energt Board Act, 1998 (*OEB
Act"). While the OEB is an independent agency, it is still subject to provincial legislation and
government directives. The Hydro One Accountability Act, 2018 amended the OEB Act to require the
OEB to exclude any amount in respect of compensation paid to the CEO and executives from consumer
rates for Hydro One or its subsidiaries.
b. Since the election Hydro One has had general discussions with the Province about the company's
efforts to continue to reduce its operating, maintenance and administration costs, and also about the
countervailing impact on rates of the recently declining electricity volumes and continuing need for
capital investment.
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARE,D
AVU-E-I 7 -09 I AVU-G-I7-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-036(AVA) TELEPHONE:
EMAIL:
September 17,2018
James Scarlett (Hl)
Adele Pantusa (Hl)
Law
416.34s.6310
apantusa@hydroone. com
REQUEST:
Please explain if the newly elected government of the Province of Ontario supports or opposes Hydro
One's acquisition of Avista. Please explain Hydro One's understanding of the basis for this support or
opposition.
RESPONSE:
The Province of Ontario is not a party to the merger agreement between Hydro One and Avista and
Hydro One has no knowledge of whether the Province of Ontario supports or opposes Hydro One's
acquisition of Avista.
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU.E.17-09 / AVU.G-I7-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-037(AVA) TELEPHONE:
EMAIL:
September 17,2018
Paul Dobson (Hl)
Adele Pantusa (Hl)
Law
416.345.6310
apantusa@hydroone. com
REQUEST:
Please explain if the acquisition of Avista by Hydro One was intended to provide a revenue stream to
supplement Hydro One's constrained ability to raise or maintain current rates in its service territory.
RESPONSE:
The acquisition of Avista is a strategic investment: (a) it expands Hydro One's reach into a new
geographical market and into the gas distribution business, (b) it creates geographic diversification and
(c) it increases scale. This is a transaction that brings together two industry leading regulated utilities
with over 230 years of collective operational experience as well as shared corporate cultures and values.
The combination creates one ofNorth America's largest regulated utilities with over CAD $35 billion in
assets (as at March 31, 2018) and a leader in electricity transmission and distribution as well as natural
gas local distribution businesses. Like Avista, Hydro One earns a regulated rate of return and the
regulatory constraints on rates are a universal fact of the utility business, not something specific to
Hydro One. This deal is in no way intended to subsidize the rates of Hydro One customers, but rather, it
is part of a strategy of diversification and growth with a partner that is a strong cultural match.
JUzuSDICTION
CASE NO:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU.E-17-09 / AVU-G-I7-05 WITNESS:
REQUESTER: IPUC
TYPE:
REQUEST NO
Production Request
staff-038(AVA)
RESPONDER:
DEPARTMENT:
TELEPHONE:
EMAIL:
September 17,2018
James Scarlett (H1)
Scott Morris (AVA)
Adele Pantusa (H1)
Pat Ehrbar (AVA)
Law
4t6.345.6310
apantusa@hydroone. com
REQUEST:
Staff understands that Hydro One has been a perennial political issue in Ontario and that this situation
appears to have become more fraught since Hydro One privatization in 2015 and the subsequent
significant increase in electric rates. Please explain how Avista's acquisition by a company repeatedly
affected by unstable political circumstances is in the public interest of Avista's Idaho customers.
RESPONSE:
Hydro One remains a strong and suitable parent company for Avista and the deal continues to be in the
public interest. The benefits of the transaction for Avista ratepayers remain unchanged. As was stated
in the Joint Application dated September 14,2011, the companies are culturally aligned. Hydro One's
market capitalization is approximately three times the size of Avista and will provide Avista with
improved access to capital markets. Hydro One is a strategic investor, rather than a financial investor,
and its interests are aligned with Avista's for long-term success. To this end, Hydro One has made a
number of commitments to preserve Avista's ability to run its own business on an ongoing basis, for the
benefit of Avista's customers. Since the Joint Application, Hydro One and Avista joined other Idaho
parties in reaching the Settlement Stipulation filed on April 13, 2018 in this docket, and agreed to
significant commitments that will have both immediate and long-term positive impacts on Avista's
Idaho customers. Hydro One stands by these commitments. The Ontario election, the July 11,2018
letter agreement between Hydro One and the Province (see Staf[_PR_017(AVA) Attachment B) (the
"Letter Agreement"), and subsequent events have no effect on these commitments and benehts.
Further, while the cost of electricity for a typical residential customer in Ontario has more than doubled
over the last ten years, those increases have not been driven by Hydro One, which is solely a distribution
and transmission utility. Over that same 10-year period, customer costs for Hydro One's transmission
and distribution delivery services have increased by an average of less than3Yo annually. The costs that
have led to the doubling of electricity costs for residential customers over the past l0 years were the
result of cost increases at electricity generation companies that were required to comply with Provincial
green power initiatives. Hydro One, as the entity that sends the bill to customers, is often incorrectly
blamed for the entirety of the bill, regardless of Hydro One's actual impact on the total bill. To the extent
that this may subject Hydro One to the politics in Ontario, the ring-fencing commitments outlined in the
response to Staff Production Request 42 were designed to ensure that Avista's customers will not be
impacted b), Ontario politics.
As discussed in response to this Production Request and others, it is important to remember all of the
reasons why both Avista and Hydro One believe this transaction is in the public interest. As Avista has
stated in testimony and comments in this proceeding, there are specific provisions in the Merger
Agreement and Idaho Stipulated Commitments that will allow Avista to preserve its culture and the way
it does business for the long-term, including the retention of its employees and management team. This
includes a continued focus on providing reliable service to customers and high customer satisfaction at
a reasonable cost. Provisions in the Merger Agreement and Idaho Stipulated Commitments are also
designed to increase the level of support provided by Avista to the local communities it serves, including,
among other things, charitable giving and continued support of economic development. Below is a list
of such commitments:
. $ I 5 .8 million in customer rate credits over a 5-year period;. $5.3 million in low-income, weatheization, and miscellaneous energy efficiency initiatives over
a l0-year period;
. Keeping Avista's headquarters in Spokane;o Maintaining Avista's brand;. Keeping Avista's office locations in each of its service areas, with no less of a significant
presence in each location than that in place prior to the merger;
o Maintaining Avista Utilities' staffing and presence in the communities in which Avista operates
at levels sufficient to maintain the provision of safe and reliable service and cost-effective
operations and consistent with pre-acquisition levels;
o Retaining Avista's existing management team;o Maintaining existing compensation and benefit practices;
. Honoring existing labor contracts, and negotiating and entering into agreements with bargaining
unit employees;o Maintaining at least Avista's existing levels of community involvement and support initiatives;
o Maintaining a $4.0 million annual budget for charitable contributions (funded by both Avista
and the Avista Foundation) for five years after the close of the Proposed Transaction, as
compared to an approximate $2.5 million level prior to the merger;
o Making a $2.0 million annual contribution to the Avista Foundation (following a contribution to
the Foundation of $7.0 million at the time the merger closes);o Maintaining at least the level of economic development that existed prior to the merger,
including the expenditure of funds to support regional economic development and related
strategic opportunities consistent with past practices;
o Maintaining existing levels of capital allocations for capital investment in strategic and economic
development, including property acquisitions in the university district, support of local
entrepreneurs and seed-stage investments;
o Continued development and funding of Avista's existing and future innovation activities; ando Maintaining dues paid by Avista to various industry trade groups and membership organizations.
In the end, the agreed-upon commitments are designed to ensure that Avista's culture and its way of
doing business will continue for the long-term, inuring to the benefit of customers. The Proposed
Transaction will preserve and ultimately improve customer service, customer satisfaction, safety,
reliability, charitable giving, economic development and innovation in the communities Avista serves.
Avista is protected from "unstable political circumstances" by virtue of numerous commitment that
ensure that this Commission has the full power and authority to enforce compliance with all
commitments. These protections include: Commitment No. 0l- Authority Reserved, Commitment No.
20 - State Regulatory Authority and Jurisdiction, Commitment No. 21 - Compliance with Existing
Commission Orders, Commitment No. 30 - Commission Enforcement of Commitments, and
Commitment No. 3l - Submittal to State Court Jurisdiction for Enforcement of Commission Orders.
We would be willing to accept a commitment that expressly recognizes that this Commission has
ongoing jurisdiction over this merger, and may, at any time, for good cause, entertain a request to alter
or amend the commitments, if necessary to afford Idaho customers sufficient protection. This ongoing
oversight, together with required ongoing reporting to the Commission over time, will assure that the
opportunity exists for this Commission to take any necessary action.
And finally, this Commission always retains its ability under existing statutes, to require the Companies
to appear and "show cause" why the Companies are not in full compliance with its commitments, or
whether additional assurances are necessary.
JUzuSDICTION
CASE NO.:
REQUESTER:
TYPE:
REQUEST NO.:
HYDRO ONE LIMITED
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: 911812018
AVU-E-I7-091G-17-05 WITNESS: James Scarlett (H1)
Mark Thies (AVA)IPUC RESPONDER: Adele Pantusa (H1)
Patrick Ehrbar (AVA)
Production Request DEPT: Law/Regulatory Affairs
Staff - 39 (AVA) TELEPHONE: [phone]
509.495.8620EMAIL: [e-mail]
Pat. ehrbar@avistaconc. corn
REQUEST:
Staff understands that Chapter I I of the North American Free Trade Agreement G\fAFTA)
allows investors to petition for private arbitration against a state based on international law. Staff
is concerned that the international arbitration could overrule or impede the Idaho Commission's
authority.
a. Please confirm or clarify that Staff s understanding of Chapter 1l NAFTA aligns with Hydro
One's understanding.
b. Please confirm or clarify that Staff s understanding of Chapter 11 NAFTA aligns with
Avista' s understanding.
c. Please explain Hydro One's understanding of how Chapter I I NAFTA could impact Avista's
Idaho customers.
d. Please explain Avista's understanding of how Chapter I I NAFTA could impact Avista's
Idaho customers.
RESPONSE:
a. Staff s understanding of Chapter I I of NAFTA does not align with Hydro One's
understanding. NAFTA Chapter 11 cannot affect the scope of the Idaho Public Utilities
Commission's (the "Commission") authority over Avista. NAFTA Chapter I I only provides for
monetary awards or restitution of expropriated property and, therefore cannot be used to alter or
nullify a Commission decision or regulation.l In reviewing the Fortis/CH Energy Group merger,
the New York Public Service commission stated the following: "[A] state regulatory agency
acting lawfully within its statutory authority is not liable to a claim of damages under NAFTA
unless an entity covered by the treaty can demonstrate that it made its investment in the state
pursuant to express commitments by the agency which were subsequently broken."2
' See NAFTA Art. I 135(l)(a),(b).
2 Joint Pelition for Approval of the Acquisition of CH Energt Group, Inc. by Fortis, Inc. and Related Transactions,
New York Public Service Commission Case l2-M-092, Order Authorizing Acquisition at 33 (Jun. 26, 2013) (see
Staff PR*039(AVA) Attachment A) and Recommended Decision of Administrative Law Judges at 46 (May 3,
2013) (see StaflPR_039(AVA) Attachment B).
Page I of2
To date, the United States has been a defendant 17 times under NAFTA Chapter I l, and none of
those claims involved a foreign utility protesting a state utility commission's decision. Not only
has the U.S. State Department never lost a NAFTA Chapter I I claim brought by a foreign
investor, but also it has never settled such a claim.
b. Avista agrees with Hydro One's interpretation in a. above.
c. For these reasons, Hydro One's understanding is that NAFTA Chapter 1l cannot affect the
scope of the Commission's authority over Avista, and Hydro One does not believe NAFTA
Chapter 1l would have an impact on Avista's Idaho's customers.
d. Avista agrees with Hydro One's interpretation in c. above.
Page 2 of 2
JURISDICTION:
CASE NO.:
REQUESTER:
TYPE:
REQUEST NO.:
HYDRO ONE LIMITED
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: 911612018
AVU-E-17-091G-17-05 WITNESS: James Scarlett (H1)
Mark Thies (AVA)
IPUC RESPONDER: Adele Pantusa (H1)
Patrick Ehrbar (AVA)
Production Request DEPT: Law/Regulatory Affairs
Staff - 40 (AVA) TELEPHONE: [phone]
509.495.8620EMAIL: [e-mail] /
Pat. ehrbar@avistacorp. corn
REQUEST:
Staff understands that NAFTA is currently being re-negotiated and Canada has yet to sign the
new proposed agreement.
a. Please explain Hydro One's understanding about the extent to which the concepts addressed in
Chapter 11 will be included, modified, or removed in the re-negotiated version of NAFTA.
b. Please explain Avista's understanding about the extent to which the concepts addressed in
Chapter 1l will be included, modified, or removed in the re-negotiated version of NAFTA.
c. Please support your explanations with relevant evidence.
RESPONSE:
a. Hydro One's understanding of the renegotiations of NAFTA between Canada and the U.S. are
limited to what information has been released to the public. To the extent that Chapter 1l is
being renegotiated it appears that any changes to Chapter 11 will be likely to reduce, not expand,
the scope of relief available to investors. Please see Staf{_PR_040(AVA) Attachment A for an
example of a published report on the negotiations. Given this understanding, and because
existing Chapter l1 provisions do not pose a credible risk of impeding the Idaho Public Utilities
Commission's authority, Hydro One does not foresee changes to NAFTA's Chapter 11 that
would change Hydro One's understanding of NAFTA Chapter 1l or its impact on Avista's Idaho
customers.
b. Avista agrees with Hydro One's interpretation in a. above
c. Please see part a. above.
Page I of I
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E-I7.09 I AVU-G-17-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-041(AVA) TELEPHONE:
EMAIL:
September 14,2018
James Scarlett (H1)
Adele Pantusa (Hl)
Law
416.345.63t0
apantusa@hydroone. com
REQUEST:
Please provide specific examples of ring-fencing provisions adopted or suggested in other jurisdictions
or by Hydro One and Avista in this case that could insulate Avista's customers in Idaho from the effects
of international arbitration.
RESPONSE:
First,ldaho Stipulated Commitment Nos. 20,21, 30, and 31 in the all-party settlement filed in this
proceeding on April 13,2018, commit Hydro One and its subsidiaries, including Avista, to complying
with all past and future orders of the Idaho Public Utilities Commission (the "Commission") and relevant
Idaho statutes and regulations, and submit themselves to the jurisdiction of the Commission and Idaho
state courts:
20. State Reeulatory Authority and Jurisdiction: Hydro One and its subsidiaries, including
Avista, as applicable and as appropriate, will comply with all applicable laws, including those
pertaining to transfers of property, affiliated interests, and securities and the assumption of
obligations and liabilities. As required by and consistent with applicable laws, venue for
resolution of proceedings related to these matters will be at the appropriate state utility
commission(s). Hydro One and its subsidiaries, including Avista, will make their employees
and officers available to testify before the Commission at the Commission's request to provide
information relevant to the matters within its jurisdiction.
21. Compliance with Existing Commission Orders: Hydro One and its subsidiaries, including
Avista, acknowledge that all existing orders issued by the Commission with respect to Avista or
its predecessor, Washington Water Power Co., will remain in effect, and are not modified or
otherwise affected by the Proposed Transaction.
Hydro One and its subsidiaries, including Avista, as applicable and as appropriate, will comply
with all applicable future Commission orders that remain in force.
30. Commission Enforcement of Commitments: Hydro One and its subsidiaries, including
Avista, understand that the Commission has authority to enforce these commitments in
accordance with their terms. If there is a violation of the terms of these commitments, then the
offending party may, at the discretion of the Commission, have a period of thirty (30) calendar
days to cure such violation.
The scope of this commitment includes the authority of the Commission to compel the
attendance of witnesses from Olympus Holding Corp. and its affiliates, including Hydro One,
Page I of2
with pertinent information on matters affecting Avista. Hydro One and Olympus Holding Corp.
and its subsidiaries waive their rights to interpose any legal objection they might otherwise have
to the Commission's jurisdiction to require the appearance of any such witnesses.
31. Submittal to State Court Jurisdiction for Enforcement of Commission Orders: Hydro
One, Olympus Holding Corp., and Avista will jointly file with the Commission prior to closing
the Proposed Transaction an affidavit affirming that they will submit to the jurisdiction of the
relevant state courts for enforcement of the Commission's orders adopting the commitments
made by and binding upon them and their affiliates where noted, and subsequent orders affecting
Avista.
Second, Oregon Stipulated Commitment No. 72, fied as part of the all-party settlement agreement in
Oregon Public Utility Commission Docket No. UM 1897 on May 25,2078, specifically ensures that the
Oregon Public Utility Commission will retain jurisdiction over any issue that could arise in a NAFTA
Chapter 1 I arbitration:
72. North American Free Trade Agreement (NAFTA)
Avista and Parent agree that the Commission would have jurisdiction in any future proceedings
regarding any unrecovered liabilities to the State of Oregon that may result from NAFTA
Chapter Eleven mediations, arbitrations, or any other litigation brought by Hydro One's
shareholders under NAFTA. Only the Commission or the Oregon Attorney General may initiate
such proceeding.
Oregon Stipulated Commitment J2 conftrms that Hydro One and Avista recognize that NAFTA does
not curtail the authority of the Oregon Public Utility Commission to promulgate and enforce relevant
rules and regulations, that Hydro One and Avista explicitly recognize that the Commission's authority
over Avista's operations will remain unchanged by the Proposed Transaction, that the Parties will
comply with all applicable laws and regulations, and that Hydro One and Avista recognize the Oregon
Public Utility Commission's jurisdiction. Hydro One and Avista certainly are willing to add a similar
commitment in Idaho.
ThLd, Oregon Stipulated Commitment No. 78 also explicitly states that all disputes involving Avista
will be resolved in the appropriate state and federal regulatory bodies or courts in the United States:
78. Venue for and Resolution of Disputes
Avista and Parent agree that the venue for disputes regarding the operation of Avista will be in
state and federal regulatory bodies or courts of competent jurisdiction, as applicable, in Oregon,
Washington, Idaho, Montana or Alaska.
Oregon Stipulated Commitment No. 78 ensures that a NAFTA Chapter I I arbitration will not have
jurisdiction over disputes regarding the operation of Avista. Hydro One and Avista certainly are willing
to add a similar commitment in Idaho.
Page 2 of2
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED
AVU-E-17-09 / AVU-G-17-05 WITNESS:IPUC RESPONDER:
Production Request DEPARTMENT:Staff-042(AVA) TELEPHONE:
EMAIL:
September 21,2018
James Scarlett
Adele Pantusa (Hl)
Law
4t6.34s.6310
apantusa@hydroone. com
REQUEST:
Please provide specific examples of ring-fencing provisions adopted or suggested in other jurisdictions
or by Hydro One and Avista in this case that could insulate Avista's customers in Idaho from the effects
of political, management, or rate changes at Hydro One.
RESPONSE:
A. Current Idaho Stipulated Commitments that Address Staff s Concerns
Hydro One and Avista believe that existing commitments in Idaho would insulate Avista's customers in
Idaho from any potential effects of political, management, or rate changes at Hydro One.
Avista Governance
Stipulated Commitment Nos. 2,3,9, and l0 protect Avista's independence and ensure that the Province
cannot directly interfere with Avista's management and strategic direction.
Stipulated CommitmentNo. 3 provides that only two of the nine members of Avista's post-merger board
can be executives of Hydro One or any of its subsidiaries. The other three Hydro One designees must be
independent of Hydro One, Avista, and Hydro One's other affiliates, and be residents of the Pacific
Northwest. Further, of the four Avista designees, three initially will be from Avista's pre-merger board,
including the Chairman of Avista's pre-merger board, and the fourth will be Avista's CEO. If any Avista
designee resigns, retires, or otherwise ceases to serve as a director of Avista, then the remaining Avista
designees will have the sole right to replace the departing Avista designee.
Presuming that one of the two Hydro One executives on Avista's post-merger board was directed by the
Hydro One Board to bring to the Avista post-merger board an initiative that would benefit Hydro One
and/or Ontario but diminish Avista's financial resources and service, the seven remaining members of
Avista's post-merger board, all of whom will not be executives of Hydro One, would have sufficient
votes to reject that initiative.
Stipulated Commitment No. 3 states:
3. Board of Directors.'After the closing of the Proposed Transaction, Avista's board will consist
of nine (9) members, determined as follows: (i) two (2) directors designated by Hydro One who
are executives of Hydro One or any of its subsidiaries; (ii) three (3) directors who meet the
standards for "independent directors" - under section 303A.02 of the New York Stock Exchange
Listed Company Manual (the "lndependent Directors") and who are residents of the Pacific
Northwest region, to be designated by Hydro One (collectively, the directors designated in
clauses (i) and (ii) hereof, the "Hydro One Designees"), subject to the provisions of Clause 2 of
Exhibit A to the Merger Agreement; (iii) three (3) directors who as of immediately prior to the
closing of the Proposed Transactional are members of the Board of Directors of Avista,
including the Chairman of Avista's Board of Directors (if such person is different from the Chief
Executive Officer of Avista); and (iv) Avista's Chief Executive Officer (collectively, the
directors designated in clauses (iii) and (iv) hereof, the "Avista Designees"). The initial
Chairman of Avista's post-closing Board of Directors shall be the Chief Executive Officer of
Avista as of the time immediately prior to closing for a one year term. If any Avista Designee
resigns, retires or otherwise ceases to serve as a director of Avista for any reason, the remaining
Avista Designees shall have the sole right to nominate a replacement director to fill such
vacancy, and such person shall thereafter become an Avista Designee.
The term "Pacific Northwest region" means the Pacific Northwest states in which Avista serves
retail electric or natural gas customers, currently Alaska, Idaho, Montana, Oregon and
Washington.
Stipulated Commitment Nos. 2,9, and 10 also ensure the independence of Avista's post-merger board
and the continued service of Avista's executive management and long-term presence in the Pacific
Northwest:
2. Executive Management: Avista will seek to retain all current executive management of
Avista, subject to voluntary retirements that may occur. This commitment will not limit Avista's
ability to determine its organizatronal structure and select and retain personnel best able to meet
Avista's needs over time. The Avista board retains the ability to dismiss executive management
of Avista and other Avista personnel for standard corporate reasons (subject to the approval of
Hydro One Limited ("Hydro One") for any hiring, dismissal or replacement of the CEO).
9. Avista's Headquarters: Avista will, and Hydro One agrees Avista will, maintain (a) its
headquarters in Spokane, Washington; (b) Avista's office locations in each of its other service
territories, and (c) no less of a significant presence in the immediate location of each of such
office locations than what Avista and its subsidiaries maintained immediately prior to
completion of the Proposed Transaction.
10. Local Staffing: Avista will maintain Avista Utilities' staffing and presence in the
communities in which Avista operates at levels sufficient to maintain the provision of safe and
reliable service and cost-effective operations and consistent with pre-acquisition levels.
Hvdro One's Financial Support for Avista
Stipulated Commitment No. 15 provides the Idaho Public Utilities Commission (the "Commission") the
tools necessary to ensure Hydro One's long-term financial support of Avista's safety and reliability
standards, service quality measures, and customer service metrics.
In addition to the protections provided by the independence of Avista's post-merger board, Stipulated
Commitment No. 15 limits the Avista post-merger board's and Hydro One's ability to remove or reduce
any associated penalty provisions for 10 years after the date of the merger:
15. Safety und Reliability Standards and Service Quality Measures: Avista has established
Service Quality Performance Standards, Customer Guarantees and a Service Quality Measure
Report Card for its customers in Washington. Avista is currently working with the Idaho
Commission Staff to develop similar performance standards, customer guarantees and a
Page2ofll
reporting mechanism for its customers in Idaho. Following Idaho Commission approval of such
standards, customer guarantees and a reporting mechanism, Avista will not seek, and Hydro One
agrees Avista will not seek, to remove or reduce any associated penalty provisions for ten (10)
years after the date of the merger.
Stipulated Commitment Nos. 26, 34-39, and 66 require Hydro One to financially support Avista and
limit the Avista post-merger board's and Hydro One's ability to withdraw dividends from Avista if
Avista's financial health is in jeopardy:
26. Avista Capital Structure: At all times following the closing of the Proposed Transaction,
Avista's actual common equity ratio will be maintained at a level no less than 44 percent. This
commitment does not restrict the Commission from ordering a hypothetical capital structure.
34. Capital Structure Support: Hydro One will provide equity to support Avista's capital
structure that is designed to allow Avista access to debt financing under reasonable terms and on
a sustainable basis.
35. Utility-Level Debt and Preferued Stock: Avista will maintain separate debt and preferred
stock, if any, to support its utility operations.
36. Continued Credit Ratings: Each of Hydro One and Avista will continue to be rated by at
least one nationally recognized statistical "Rating Agency." Hydro One and Avista will use
reasonable best efforts to obtain and maintain a separate credit rating for Avista from at least one
Rating Agency within the ninety (90) days following the closing of the Proposed Transaction. If
Hydro One and Avista are unable to obtain or maintain the separate rating for Avista, they will
make a filing with the Commission explaining the basis for their failure to obtain or maintain
such separate credit rating for Avista, and parties to this proceeding will have an opportunity to
participate and propose additional commitments.
37. Credit Ratings Notification.' Hydro One and Avista agree to notify the Commission within
two business days of any downgrade of Avista's credit rating to a non-investment grade status by
S&P, Moody's, or any other such ratings agency that issues such ratings with respect to Avista.
38. Restrictions on Upward Dividends and Distributions:
a. If either (i) Avista's corporate credit/issuer rating as determined by both Moody's and
S&P, or their successors, is investment grade, or (ii) the ratio of Avista's EBITDA to
Avista's interest expense is greater than or equal to 3.0, then distributions from Avista to
Olympus Equity LLC shall not be limited so long as Avista's equity ratio is equal to or
greater than 44 percent on the date of such Avista distribution after giving effect to such
Avista distribution, except to the extent the Commission establishes a lower equity ratio
for ratemaking purposes. Both the EBITDA and equity ratio shall be calculated on the
same basis that such calculations would be made for ratemaking purposes for regulated
utility operations.
b. Under any other circumstances, distributions from Avista to Olympus Equity LLC are
allowed only with prior Commission approval.
If Avista does not have an investment-grade rating from both Moody's and S&P, or from
one of these entities, or its successor, if only one issues ratings with respect to Avista, and
Page3ofll
c
the ratio of EBITDA to Avista's interest expense is less than 3.0, no dividend distribution
to Olympus Equity LLC or its successors will occur.
39. Pension Funding.'Avista will maintain its pension funding policy in accordance with sound
actuarial practice. Hydro One will not seek to change Avista's pension funding policy.
66. Sources of Funds for Hydro One Commitments: Throughout this list of merger
commitments, any commitment that states Hydro One will arrange funding is not contingent on
Hydro One's ability to arrange funding, particularly from outside sources, but is a firm
commitment to provide the dollar amount specified over the time period specif,red and for the
purposes specified. To the extent Avista has retained earnings that are available for payment of
dividends to Olympus Equity LLC consistent with the ring fencing provisions of this list of
merger commitments, such retained earnings may be used. Funds available from other Hydro
One affiliates may be used without limitation. Avista will not seek cost recovery for any of the
commitments funded or arranged by Hydro One in this list of merger commitments. Hydro One
will not seek cost recovery for such funds from ratepayers in Canada or the United States.
Bsn kr uptcv Protections
Stipulated Commitment Nos. 42-51provide the Commission the tools to ensure Hydro One will not
draw Avista into bankruptcy. In addition to the protections provided by the independence of Avista's
post-merger board, Stipulated Commitment Nos. 42-51 ensure Hydro One will not draw Avista into
bankruptcy except under extremely limited circumstances. The text of these commitments is included
below.
42. Golden Share: Entering into voluntary bankruptcy shall require the affirmative vote of a
"Golden Share" of Avista stock. The Golden Share shall mean the sole share of Preferred Stock
of Avista as authorized by the Commission. This share of Preferred Stock must be in the custody
of an independent third-party, where the third-party has no financial stake, affiliation,
relationship, interest, or tie to Avista or any of its affiliates, or any lender to Avista, or any of its
affiliates. This requirement does not preclude the third-party from holding an index fund or
mutual fund with negligible interests in Avista or any of its affiliates. In matters of voluntary
bankruptcy, this Golden Share will ovenide all other outstanding shares of all types or classes of
stock.
43. Independent Directors: At least one of the nine members of the board of directors of Avista
will be an Independent Director who, consistent with Commitment 3, meets the standards under
3034.02 of the New York Stock Exchange Listed Company Manual. At least one of the
members of the board of directors of Olympus Equity LLC will be an Independent Director who,
consistent with Commitment 3, meets the standards under 303A,02 of the New York Stock
Exchange Listed Company Manual. The same individual may serve as an Independent Director
of both Avista and Olympus Equity LLC. The organizational documents for Avista will not
permit Avista, without the consent of a two-thirds majority of all its directors, including the
affirmative vote of the Independent Director at Avista (or if at that time Avista has more than one
Independent Director, the affirmative vote of at least one of Avista's Independent Directors), to
consent to the institution of bankruptcy proceedings or the inclusion of Avista in bankruptcy
proceedings. In addition to an affirmative vote of this Independent Director, the vote of the
Golden Share shall also be required for Avista to enter into a voluntary bankruptcy.
4 4. No n-Consolidation Opinion :
Page 4 ofll
a. Within ninety (90) days of the Proposed Transaction closing, Avista and Olympus Holding
Co.p. will file, and Hydro One agrees they will file, a non-consolidation opinion with the
Commission which concludes, subject to customary assumptions and exceptions, that the
ring-fencing provisions are sufficient that a bankruptcy court would not order the substantive
consolidation of the assets and liabilities of Avista with those of Olympus Holding Corp. or its
affiliates or subsidiaries (other than Avista and its subsidiaries).
b. Hydro One and Olympus Holding Co.p. must file an affidavit with the Commission stating
that neither Hydro One, Olympus Holding Corp. nor any of their subsidiaries, will seek to
include Avista in a bankruptcy without the consent of a two-thirds majority of Avista's board of
directors including the affirmative vote of Avista's independent director, or, if at that time Avista
has more than one independent director, the affirmative vote of at least one of Avista's
independent directors. If the ring-fencing provisions in these commitments are not sufficient to
obtain a non-consolidation opinion, Olympus Holding Co.p. and Avista agree to promptly
undertake, and Hydro One agrees to cause them to undertake, the following actions:
i. Notify the Commission of this inability to obtain a non-consolidation opinion.
Propose and implement, upon Commission approval, such additional ring-fencing
provisions around Avista as are sufficient to obtain a non-consolidation opinion
subject to customary assumptions and exceptions.
Obtain a non-consolidation opinion
45. Olympus Equtty LLC: Olympus Holding Corp.'s indirect subsidiaries will include Olympus
Equity LLC and Avista. See the post-acquisition organizational chart in Attachment C to the
Master List of Commitments in Idaho. Following closing of the Proposed Transaction, all of the
common stock of Avista will be owned by Olympus Equity LLC, a new Delaware limited
liability company. Olympus Equity LLC will be a bankruptcy-remote special purpose entity, and
will not have debt.
46. Restriction on Pledge of afifiU Assets: Avista agrees to, and Hydro One will cause Avista to
agree to, prohibitions against loans or pledges of utility assets to Hydro One, Olympus Holding
Co.p., or any of their subsidiaries or affiliates, without Commission approval. In addition, the
Applicants agree that Avista's assets will not be pledged by Avista or any of its affiliates,
including Hydro One and Olympus Holding Corp. and any of their subsidiaries or affiliates, for
the benefit of any entity other than Avista.
47. Hold Harmless; Notice to Lenders; Restriction on Acquisitions and Dispositions:
a. Hydro One, its affiliates, and subsidiaries including Avista will hold Avista customers
harmless from any business and financial risk exposures associated with Olympus
Holding Corp., Hydro One, and Hydro One's other affiliates.
b. Pursuant to this commitment, Avista will file, and Hydro One agrees Avista will file,
with the Commission, prior to closing of the Proposed Transaction, a form of notice to
prospective lenders describing the ring-fencing provisions included in these
commitments stating that these provisions provide no recourse to Avista assets as
ll
Page5ofll
collateral or security for debt issued by Hydro One or any of its subsidiaries, other than
Avista.
c. In furtherance of this commitment:
Hydro One, its afhliates, and subsidiaries including Avista commit that Avista's
regulated utility customers will be held harmless from the liabilities of any
unregulated activity of Avista or Hydro One and its affiliates. In any proceeding
before the Commission involving rates of Avista, the fair rate of return for Avista
will be determined without regard to any adverse consequences that are
demonstrated to be attributable to unregulated activities. Measures providing for
separate financial and accounting treatment will be established for each unregulated
activity.
ii. Hydro One, its affiliates, and subsidiaries including Avista will notify the
Commission subsequent to Hydro One's, its affiliates', or subsidiaries' including
Avista's board approval and as soon as practicable following any public
announcement of: (l) any acquisition by Hydro One, its affiliates, and subsidiaries
including Avista of a regulated or unregulated business that is equivalent to five (5)
percent or more of Hydro One's capitalization; or (2) any change in control or
ownership of Avista, except that the notice of a change to the upstream ownership of
Avista or Olympus Holding Corp. among wholly owned subsidiaries of Hydro One
may be provided in either an updated organizational chart included in the annual
report filing described in Commitment 32 or in a separate notice filing. Notice
pursuant to this provision is not and will not be deemed an admission or expansion of
the Commission's authority or jurisdiction over any transaction or in any matter or
proceeding whatsoever.
Within sixty (60) days following the notice required by this subsection (c)(ii)(2),
Avista and Olympus Holding Corp. or its affiliates, as appropriate, will seek
Commission approval of any sale or transfer of any material part of Avista, or of any
transaction or series of transactions, regardless of size, that would result in a person
or entity, other than a wholly owned subsidiary of Hydro One, directly or indirectly,
acquiring a controlling interest in Avista or Olympus Holding Corp. The term
"material part of Avista" means any sale or transfer of stock representing ten percent
(10%) or more of the equity ownership of Avista,
iii. Hydro One, Olympus Holding Corp. and Avista will provide notification of and file
for Commission approval of the divestiture, spin-off, or sale of any integral Avista
asset, including power plants, as required by ldaho Code $61-328. This notification
and approval requirement does not limit any jurisdiction that the Commission may
have.
Neither Avista nor Hydro One will assert in any future proceedings that, by virtue of
the Proposed Transaction and the resulting corporate structure, the Commission is
without jurisdiction over any transaction that results in a change of control of Avista.
IV
d. If and when any subsidiary of Avista becomes a subsidiary of Hydro One or one of its
subsidiaries other than Avista, Avista and Hydro One will so advise the Commission
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within thirty (30) days and will submit to the Commission a written document setting
forth Avista's proposed corporate and affiliate cost allocation methodologies.
48. Olympus Holding Corp. and Olympus Equity LLC Sub-entities: Olympus Holding Corp.
will not operate or own any business and will limit its activities to investing in and attending to
its shareholdings in Olympus Equity LLC, which, in tum, will not operate or own any business
and will limit its activities to investing in and attending to its shareholdings in Avista.
49, No Amendment of Ring-Fencing Provisions: Hydro One, Olympus Holding Corp. and
Avista commit that no material amendments, revisions or modihcations will be made to the
ring-fencing provisions as specified in these regulatory commitments without prior Commission
approval pursuant to a limited re-opener for the sole purpose of addressing the ring-fencing
provisions.
50. No Inter Compony Debt: Avista will noti$, the Commission before entering into any
inter-company debt transactions with Olympus Holding Corp., Hydro One, or any of their
subsidiaries or affiliates. Avista shall comply with Idaho Code $61-901, et seq. for any debt
transactions over a one year term.
51. No Inter Company Lending.' Without prior Commission approval, Avista will not lend
money to Olympus Holding Corp., Hydro One, or any of their subsidiaries or affiliates
Hvdro One and Avista Compliance with the Commitments
StipulatedCommitmentNos. 1,20,27,30-33,and49 ensurethatthecommitmentsapplytoHydroOne,
cannot be amended without Commission approval, and provide the Commission (and U.S. courts, if
necessary) authority to enforce the commitments:
1. Authority Reserved: Consistent with and subject to the terms of Exhibits A and B to the
Merger Agreement (refened to as "Delegation of Authority") contained in Appendix 5 of the
Joint Application, decision-making authority over commitments 2-15 below is reserved to the
Board of Directors of Avista Corporation ("Avista") and not to Hydro One. Any change to the
policies stated in commitments 2-15 requires a two-thirds (213) vote of the Avista Board,
provided that Avista must obtain approval for such changes from all regulatory bodies with
jurisdiction over the Commitments before such changes can go into effect, and provide written
notice to all parties to Case No. AVU-E-7-09lAYU-G-17-05 of such request for approval.
20. State Regulotory Authority ond Jurisdiction: Hydro One and its subsidiaries, including
Avista, as applicable and as appropriate, will comply with all applicable laws, including those
pertaining to transfers of property, affiliated interests, and securities and the assumption of
obligations and liabilities. As required by and consistent with applicable laws, venue for
resolution of proceedings related to these matters will be at the appropriate state utility
commission(s). Hydro One and its subsidiaries, including Avista, will make their employees and
officers available to testify before the Commission at the Commission's request to provide
information relevant to the matters within its jurisdiction.
21. Compliance with Existing Commission Orders: Hydro One and its subsidiaries, including
Avista, acknowledge that all existing orders issued by the Commission with respect to Avista or
its predecessor, Washington Water Power Co., will remain in effect, and are not modified or
otherwise affected by the Proposed Transaction.
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Hydro One and its subsidiaries, including Avista, as applicable and as appropriate, will comply
with all applicable future Commission orders that remain in force.
30. Commission Enforcement of Commitmezfs.' Hydro One and its subsidiaries, including
Avista, understand that the Commission has authority to enforce these commitments in
accordance with their terms. If there is a violation of the terms of these commitments, then the
offending party may, at the discretion of the Commission, have a period of thirty (30) calendar
days to cure such violation.
The scope of this commitment includes the authority of the Commission to compel the
attendance of witnesses from Olympus Holding Corp. and its affiliates, including Hydro One,
with pertinent information on matters affecting Avista. Hydro One and Olympus Holding Corp.
and its subsidiaries waive their rights to interpose any legal objection they might otherwise have
to the Commission's jurisdiction to require the appearance of any such witnesses.
31. Submittal to State Court Jurisdictionfor Enforcement of Commission Orders.'Hydro One,
Olympus Holding Corp., and Avista will jointly file with the Commission prior to closing the
Proposed Transaction an affidavit affirming that they will submit to the jurisdiction of the
relevant state courts for enforcement of the Commission's orders adopting the commitments
made by and binding upon them and their affiliates where noted, and subsequent orders affecting
Avista.
32. Annual Report on Commitments: By May l, 2019 and each May 1 thereafter through May l,
2029, Avista will file, and Hydro One agrees Avista will file, a report with the Commission
regarding the status of compliance with each of the commitments as of December 31 of the
preceding year. The report will, at a minimum, provide a description of the performance of each
of the commitments, will be filed in Case No. AVU-E-L7-09lAYU-G-17-05 and served to all
parties to the docket. If any commitment is not being met, relative to the specific terms of the
commitment, the report must provide proposed corrective measures and target dates for
completion of such measures. Avista will make publicly available at the Commission
non-confidential portions of the report.
33. Commitments Binding: Hydro One, Olympus Holding Corp. and its subsidiaries, including
Avista, acknowledge that the commitments being made by them are binding only upon them and
their affiliates where noted, and their successors in interest. Hydro One and Avista are not
requesting in this proceeding a determination of the prudence, just and reasonable character, rate
or ratemaking treatment, or public interest of the investments, expenditures or actions referenced
in the commitments, and the parties in appropriate proceedings may take such positions
regarding the prudence, just and reasonable character, rate or ratemaking treatment, or public
interest of the investments, expenditures or actions as they deem appropriate.
If Hydro One or any other entity in the chain of Avista's ownership determines that Avista or any
other entity has failed to comply with an applicable Commitment, the entity making such
determinations shall take all appropriate actions to achieve compliance with the Commitment.
49. No Amendment of Ring-Fencing Provisions: Hydro One, Olympus Holding Corp. and
Avista commit that no material amendments, revisions or modifications will be made to the
ring-fencing provisions as specified in these regulatory commitments without prior Commission
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approval pursuant to a limited re-opener for the sole purpose of addressing the ring-fencing
provisions.
B. Oregon Commitments that Could Address Staff s Concerns
Although Hydro One and Avista believe the current Idaho commitments are sufficiently robust to
insulate Avista's customers in Idaho from any potential effects of political, management, or rate changes
at Hydro One, Hydro One and Avista would be willing to adopt any of the following Oregon
commitments in Idaho:
Oreson Stipulated Commitment No. 4 (compare Idaho Stipuloted Commitment No. 2l
Executive Management
Subject to the remaining provisions of this commitment and subject to voluntary retirements and
resignations that may occur, Avista and Parent agree that Avista will retain all current executive
management of Avista for a period of three years. This commitment will not limit Avista's
ability to determine its organizatronal structure and select and retain personnel best able to meet
Avista's needs over time. The post-Proposed Transaction Avista board retains its current ability
to dismiss executive management of Avista and other Avista personnel for standard corporate
reasons. Any decision to hire, dismiss or replace the Chief Executive Officer of Avista shall be
within the discretion of the Avista Board of Directors, and shall not require any approval of
Hydro One or any of its affiliates (other than Avista), notwithstanding any.thing to the contrary in
the merger agreement, and its exhibits and attachments, between Hydro One and Avista.
Avista Board of Directors (BOD)
Avista and Hydro One agree that after closing of the Proposed Transaction, Avista will have a
separate board of directors from Hydro One that consists of nine (9) members, determined as
follows:
Five Hydro One Designated Directors:
Two executives of Hydro One or any of its subsidiaries, and
Three Independent Directors who are residents of the Pacific Northwest Region.
Four Avista Designated Directors:
Three directors who as of immediately prior to the closing of the Proposed Transaction are
members of the Board of Directors of Avista, including the Chairman of Avista's Pre-Merger
Board of Directors (if such person is different from the Chief Executive Officer of Avista),
and
Avista's Chief Executive Officer.
At least two of the Avista directors must be Independent Directors
The initial Chairman of Avista's post-closing Board of Directors shall be the Chief Executive
Officer of Avista as of the time immediately prior to closing for a one year term. If any Avista
designee resigns, retires or otherwise ceases to serve as a director of Avista for any reason, the
remaining Avista designees shall have the sole right to nominate a replacement director to fill
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Oreson Stipulated Commitment No. 5 (compore ldaho Stipulated Commitment No. 3l
such vacancy, and such person shall thereafter become an Avista designee. Hydro One shall have
the unfettered right to designate, remove and replace the Hydro One designees as directors of the
Avista Board with or without cause or notice at its sole discretion, subject to the requirement
that:
(i) two of such directors are executives of Parent or any of its subsidiaries; and
(ii) three of such directors are Independent Directors who are residents of the Pacific
Northwest region, while such requirement is in effect (subject in the case of clause (ii) hereof
to Hydro One determining, in good faith, that it is not able to appoint an Independent
Director who is a resident of the Pacific Northwest region in a timely manner, in which case
Hydro One may replace any such director with an employee of Hydro One or any of its
subsidiaries on an interim basis, not exceeding six months, after which time Hydro One shall
replace such interim director with an Independent Director who is a resident of the Pacific
Northwest regton): prot,itlcd. lnv'evcr, tlrul lhi,s' exception to clause (ii) hcrco.l' ,s'hull nol
uppl_t,if, ut ary tintc u circumstanc'e ari,res, and tltu'ing lhe pendenc),o.f'an-t; suclt
cir<:um.slonc'e, v'hcrcl\.' the Province rlf Onlcu"io ("Onlurio".) exerci,yc,y its righls u,; ct
shurelnlrler ol'Purenl. uses legisluljt'e uullutrilt'or ucl,s in utty'ollrcr munnar v.'hulsoever,
tltat re.tull,s', or v,oulcl result, in Onlurio appointing norninees to tlte boorcl o./'directors oJ'
Purent thsl con,vtilute, rtr v.'ould con,ylilule a rnoiority'of'the directors of such hottrd).
Note that the additional language underlined and in italics was not included in Oregon Stipulated
Commitment No. 5 filed on May 25,2018. However, Hydro One and Avista proposed this addition in
their Oregon supplemental testimony filed on August 30,2018, and in their Washington supplemental
testimony filed on September 6,2018.
Oregon Stipulated Commitment No. 38 (no comparable commitment in ldahol
E nvironmentul Liabilities of Parent
Hydro One will hold Avista and Avista ratepayers harmless from any environmental obligations
or liabilities of Hydro One or its affiliates other than Avista, including those associated with
harmful substances such as asbestos or polychlorinated biphenyls (PCBs) and environmental
cleanup and restoration.
Oreson Stipulated Commitment No. 39 (no comparable commitment in ldahol
Foreign Excltange and Hedging on Dividends Payments and Allocations
Avista and Parent agree that Avista ratepayers will be held harmless from any curency exchange
or related cash flow smoothing or hedging costs pertaining to activities beyond Avista's Oregon
utility operations and not usual and customary prior to close of the Proposed Transaction.
Oregon Stipulated Com o Stipulated Commilment
Cost of Capital
Avista and Parent agree that Avista's Cost of Capital, including Avista's Rate of Return (ROR),
common equity, and Long-Term Debt, shall not be more costly after the close of Proposed
Transaction than they would have been absent the Proposed Transaction. Consistent with
Commitment 35(a), Avista bears the burden of proving that increases in Avista's Cost of Capital,
including Avista's ROR, common equity, and Long-Term Debt, is caused by circumstances or
Page l0 ofll
developments that are unrelated to the financial risks or other characteristics of the Proposed
Transaction.
Oregon Stipulated Commitment No. 54 (no comparable commitment in Idahol
Avista Cash Flows
Avista commits, and Parent agrees, that prior to upward dividends from Avista to Olympus
Equity LLC, Avista cash flows will not be comingled in common accounts with cash flows for
other purposes at either of Olympus Equity, LLC or Hydro One, including all Hydro One
subdivisions and affiliates. Hydro One will ensure that all of the Parent's corporate entities
maintain accounts and subaccounts that are separate from Avista accounts and subaccounts,
sufficient to cause handling of cash flows to be entirely consistent with Avista's corporate
purposes.
Oregon Stioulated Commitment No. 72 (no comparable commitment in ldaho)
North American Free Trade Agreement (NAFTA)
Avista and Parent agree that the Commission would have jurisdiction in any future proceedings
regarding any unrecovered liabilities to the State of Oregon that may result from NAFTA
Chapter Eleven mediations, arbitrations, or any other litigation brought by Hydro One's
shareholders under NAFTA. Only the Commission or the Oregon Attorney General may initiate
such proceeding.
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