20181212Technical Hearing Transcript Vol I.pdf

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ORIGINAL CSB REPORTING
C e rt ifu d S h ort h an d Rep o rte rs
Post Office Box9774
Boise,Idaho 83707
csbreportinq@yahoo. com
Ph: 208-890-5198 Fax: l-888-623-6899
Reporter:
Constance Bucy,
CSR
BEEORE THE IDAHO PUBLTC UTILITIES COMMTSS]ON
IN THE MATTER OF THE JOINT
APPLICATION OE HYDRO ONE LIMITED
AND AVISTA CORPORATION FOR
APPROVAL OE MERGER AGREEMENT
CASE NOS. AVU-E-17-09
AVU-G-17-05
F4
.-.-(p
c=trry n-)(*) rrl
N) rn
=.T' \\
=rnN)(f,
co
cr"iBEFORE
COMMISSIONER PAUL KJELLANDER (Presiding)
COMMISSIONER ER]C ANDERSON
COMMISSIONER KRISTINE RAPER
PLACE:Commisslon Hearing Room
412 West Washington StreetBoise, Idaho
DATE:November 26, 20Lg
VOLUMEI-Pagesl-i-2B
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CSB REPORT]NG
208.890.5198
Eor the Staff:
Eor Avista Corporation:
For Hydro One Limited:
For Clearwater Paper
Corporation:
For Idaho Forest Group:
For CAPAI:
APPEARANCES
Brandon Karpen, Esq.
Deputy Attorney General
412 West Washington
Boise, fdaho 83720-0014
David Meyer, Esg.Avista Corporation
Post Office Box 3121
Spokane, Washington 99220
EJ.izabeth Thonas, Esg.
and Kari Vander Stoep, Esq.
K&L Gates, LLP
925 Fourth Avenue, Sul-te 2900Seattle, Washington 98104-1158
-and-
Deborah A. Fergruson, Esq.
FERGUSON DURHAM, PLLC
223 North 5th StreetSuite 325Boise, Idaho 83102
Peter iI. Richardson, Esq.
Rj-chardson Adams, PLLC
515 North 21th Street
Bolse, Idaho 83702
Ronald L. [IiJ.Iians, Esq.
WILLIAMS BRADBURY
P.O. Box 3BB
Boise, Idaho 83701
Brady M. Purdy, Esq.Attorney at Law
2OL9 North 17th StreetBoise, Idaho 83102
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APPEARANCES
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CSB REPORTING
208.890.5198
APPEARANCES (Continued)
For Idaho Conservation
League:
Benjamin ,J. Otto, Esq.
Idaho Conservatlon League
1L0 North 6th St.reetBoise, Idaho 83702
For Avista Customer
Group:
No:man M. SemankorEsq.
PARSON BEHLE & LAT]MER
800 West Main StreetSuite 1300Boise, Idaho 83702
For IDWR:Garrick L. Baxter, Esg.
Deputy Attorney General
322 East Front StreetBoise, Idaho 83720-0098
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APPEARANCBS
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208.890. s198
]NDEX
WITNESS EXAMINATION BY PAGE
Thomas D. Vrloods
(Hydro One)
Ms. Thomas (Direct)
Prefiled Supp. TestimonyPrefiled Rebuttal- TestimonyMr. Otto (Cross )Mr. firlilliams (Cross )Mr. Karpen (Cross)
Mr. Semanko (Cross)
Commissioner Kj ellander
Commissioner Raper
Commissioner Anderson
Ms. Thomas (Redirect)
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104
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L22
EXHIBITS
NUMBER DESCRIPTION PAGE
EOR HYDRO ONE LIM]TED:
9 - Curriculum Vitae for Tom Woods Premarked
Admitted T2
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INDEX/EXHIBITS
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BOTSE, TDAHO, MONDAY, NOVEMBBR 26, 2018, 9:30 A. M
COMMISSTONER KELLANDER: We1I, good
morning.
hearing
known as
This 1s the time and place
in Case Nos. AVU-E-l7-09 and
1n the matter of the joint
and Avista Corporation
for a technical
AVU-c-17-05,
application of
al-so
Hydro
the
Chairing
Eric
Raper
to the
One Limited for approval of
merger agreement. I'm Paul Kjellander. I'l-1 be
today's proceedings. To my right is Commissioner
Anderson and to my left is Commissioner Kristine
who will also be sweari-ng witnesses as they come
witness stand.
As we
wlth the appearances
the applicant..
begin this morning, we'11 start off
of the parties and we'11 begin with
MR. MEYBR: Thank you, Mr. Chair. David
Meyer for Avj-sta Corporation.
COMMISSIONER KELLANDER: Thank you,
Mr. Meyer. We'11
Elizabeth Thomas of K&L Gates for
you, Your Honor. Yes,
Hydro One Limited and
Vander Stoep, also a
Ferguson.
with me in counsel chair is Kari
partner at K&L Gates and Deborah
MS. FERGUSON: Deborah Ferguson, IocalIy,
MS
just move
THOMAS:
forward.
Thank
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1ocal counse].
COMMISSIONER KELLANDER: Deborah Ferguson
and are we to assume thatrs a common spelling?
MS. FERGUSON: Yes, it is.
COMMISSIONER KELLANDER: Great . Mi-ne' s
not. Let's move to the back row.
MR. PURDY: Brad Purdy on behalf of the
Community Action Partnership Association of ldaho, and
with me is the executive director of CAPAI Wil Gehl-.
COMMISSIONBR KELLANDER: So Brad, have we
identified a micing consideration already?
MR. PURDY: IInaudibIe. ]
COMMISSIONER KELLANDER: Okay, and we'11
accept that for where it is, but when it's your turn,
we'll make sure we have a microphone in front of you.
Thank you very much.
MR. OTTO: Ben Otto with the Idaho
Conservation League.
COMMISSIONER KELLANDER: BCN.
MR. READING: Don Reading representing
Clearwater Paper
MR. RICHARDSON: Thank you, Mr. Chairman.
This is Peter Richardson with the firm Richardson Adams
here on behalf of the Clearwater Paper Corporation.
COMMISSIONER KELLANDER: Thank you.
CSB REPORTING
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MR. WILLIAMS: Ron Williams on behal-f of
Idaho Forest Group.
MR. SEMANKO: Norman Semanko,
Behle & Lati-mer, on behalf of Avista Customer
Thank
Parsons
Group.
YOU, and
Mr.Semanko,
COMMISS]ONER KELLANDER :
is there a microphone near
MR. SEMANKO: There is.
COMMI SSIONER KELLANDER :
you?
Okay, what you'1I
redneed to do is you'll need to touch it such that the
button actually tights.
MR. SEMANKO:
werre better. Thank you.
COMMISSIONER KELLANDER: Thank you.
MR. BAXTER:Garrick Baxter, Deputy
Idaho Department of WaterAttorney General-, for
Resources and I have wi-th me today Shelley Keen, one of
the administrators for the Department.
COMMISSIONER KELLANDER: Thank you.
MR. KARPEN: Brandon Karpen on behalf of
Commission Staff.
COMMISSIONER KELLANDER: Thank you very
much. Have we missed anyone? If not, are there any
preliminary matters that need to come before us this
morning?
MS. THOMAS: Yes, Your Honor, Elizabeth
I l-iked it off . I think
the
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CSB REPORTING
208.890.5198
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Thomas here for Hydro One Limited. We would like to
submit an errata to the joint application that was filed
back j-n 20L1. This will be filed jointly by Avista and
Hydro One. The purpose of the erraLa is to update the
organizational chart that was included as Appendix 1 to
the 2071 application. There are couple of changes. One
reflects the ownership, the immediate parent of Avista
Corporation. As proposed in 2071, that would have been a
Delaware LLC.
In Staff 's testimony this fal-l, Staff
identified a concern as to whether Idaho Code Section
6l-327 had been satisfied, and in discussions with Staff,
we came to understand that if we woul-d make the immediate
parent company of the Avista Corporation, Lf we made the
immediate parent company an Idaho LLC instead of a
Delaware LLC, Staff's concerns with Idaho Code Section
6L-327 would be wholly resolved, so we have done that and
the new organizationa1 chart reflects that the immediate
parent company is an ldaho LLC.
The other change that was made was that
back in 20L1, w€ had two intermediate LLCs. One was
called Olympus One LLC
Olympus Two LLC. With
those two LLCs became
and the other one was called
unnecessary and so they've
eliminated, and that change was actually made prior to
tax reform in the United States,
been
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208.890. s198
5
the April 2018
now updated the
elimination of
original and
counsef for
settl-ement in this case, but we've just
that it shows theorg chart
those two LLCs as weIl, and we have an
seven here to file and I've given copies to
SO
all the parties. I believe
COMMISSIONBR KELLANDER :
they have them.
Okay. Why the
l-ast mi-nute?
MS. THOMAS: The concern that Staff raised
was recent and it took a few days to work through it
so it was only just within the last few days that it
understood we were going to make this change and use
Idaho LLC instead of a Del-aware LLC.
and
was
an
any comments
in?
COMMISSIONER KELLANDER: Okay, do we have
on the errata? Does anyone want to weigh
MR. KARPEN: I guess on behal-f of Staff , I
would not characterl-ze it. as a recent event; however, I
wou.l-d say that it was recently resol-ved. This has been
an ongoing issue on beha1f of Staff for about a
month-and-a-ha1f, perhaps even as soon as or as early as
this faIl; however, on behalf of Staff, I can al-so
represent that this does resolve our issues with regard
to 6L-321.
COMMISSIONER KELLANDER: So then the
characterization of wholly resolved in fact does wholIyil25
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208.890.5r98
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resolve your concern with 67-327?
MR. KARPEN: On behalf of Staff, that's
correct.
COMMISSIONER KELLANDER: Okay, thank you.
So without objection, then, we'I1 accept the errata.
MS. THOMAS: Thank you, Your Honor.
COMMISSIONER KELLANDER: Thank you, and by
the wdy, how many copies do we have here?
MS. THOMAS: That's the original plus
seven copies.
COMMISSIONER KELLANDER: Okay, original
plus seven, that.'s wonderful, but I think that if you
could figure thls out so that all three Commissioners get
a copy of this.
MS. VANDER STOEP: That's what I just
distributed.
COMMISSIONER KELLANDER: You did
distribute that?
MS. VANDER STOEP: Yes.
COMMISSIONER KELLANDER: Okay, thank you.
getsGoing forward
introduced to
if you could maybe just wait until it
distribute that, that woul-d be a p1us.
or not itThank
might
far as
you. So we
be easier to
the errata
have a question as
just put this in
is concerned, what
to whether
as an exhibj-t, but as
exhibit number would'l 25
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CSB REPORTING
208 .8 90 . 5198
1
we be on? We'l-l just accept it as an errata. One way or
the other it will end up in the record, so thank you
much.
Any other prellminary matters that need to
come before us this morning?
MR. SEMANKO: Mr. Chairman, two things:
First of all-, I don't want to leave the impression on the
record that Avista Customer Group's concerns with regard
to satisfaction of 6L-327 have been wholly resolved by
addi-ng an additional line in an organization chart, but
more importantly, consistent with Rul-e 284, L and 2,
advise the Commissioners, the parties, and the witnesses
that during cross-examination today, we intend to refer
to three different documents that are currentl-y in the
record and do have copies of excerpts if that proves
to our comments which are thenecessary/ the two
Decision and Order
exhibits
of the Ontario Energy Board in the
. No. 2, the
Power merger, and then
particular matter.
but wanted to make parties
to those and do have copies
we'l-I be referring to this
Oril-lia Power merger matter, No. 1
Commission's Order in the Scottish
third is the Montana Order in this
Those are all 1n
aware that we'lI
of the pertinent
morning and this
the record,
be referring
portions that
afternoon.
COMMISSIONER KELLANDER: Thank you, and(l 25
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just so that we can speed things up when we get to that,
if we could go ahead and have copj-es of those before you
plan to use those, that would be a plus for us.
MR. SEMANKO: Very well- .
MR. MEYER: YeS,
parties were very cooperative i-n
a wi-tness matri-x with the order
cross-examination estimates that
have any other
before us? Mr
hopefully will provide
this, unless you have
shoul-d note two items
first relates to Mr.
COMMISSTONER KELLANDER :
preliminary matters that
Meyer.
Thank you. Do we
need to come
just one matter. The
helping to put together
of witnesses,
are just that and this
as we work through
in that
a road map
other ideas
on this sequence
David Leroy. He
regard. I
witnesses. The
asked that he
.m. today, if
of order, and
by
Yes.
of
has
be on the stand and finished before 3:00 p
possible, so we would have to take him out
the other one, I believe, is a witness from CAPAI, and as
we've noted there,Wil, I think you
or 2:00 tomorrow;
have to be done
IS that right?
is as stated
either 2z0O today
Other than that,
here.
the sequence, f think,
COMMISSIONER KELLANDER :
Mr. Meyer, and as we get close to the
could probably have a conversation as
Thank you,
l-unch break, we
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CSB REPORTING
208.890. s198
9 wooDs (Di)
Hydro One Limited
we're ready for
kind of depends
Mr. Leroy to come in after lunch. It
on where we sit with the witnesses.
MR. MEYER: That makes sense. Thank
you.
COMMISSIONER KELLANDER: Thank you. Any
other preliminary matters that
before we get started? If not,
first witness.
MS. THOMAS: We
Chairman Tom Woods as our first
Hydro One Limited.
need to come before us
then, 1et's call- the
woul-d like to call
witness, Chairman of
THOMAS D. WOODS,
produced as a witness at the instance of Hydro One
Limited, having been first duly sworn to tel1 the truth,
was examined and testif ied as foll-ows:
D]RECT EXAMINATION
BY MS. THOMAS:
O Mr. Woods, could
name, your business address, and
with Hydro One Limited?
A Tom Woods. Irm a
you please state your
your present position
retired business
executive servi-ng on various boards of directors,25
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i-ncluding Hydro One where I Chalr. The business address,
f'm probably not going to be able to remember that. You
have that, L:.z. 463 Bay Street is it?
o 483.
A 483 Bay Street in Toronto, Canada.
O How long have you served as the Chair of
Hydro One Limlted?
A I've been the Chair since the middl-e of
August. I was interim Chair for one month before that.
O What are your duties and responsibilities
as Chair?
A It's reaIly no different than any other
board of directors. The main role of the Chair is to
coordinate the board, and we have 10 people on the board.
We'l-I have 11 when we appoint a permanent CEO; to serve
in a fiduciary capacity representing investors, all-
investors, with management; to ul-timately approve a
strategic plan; to oversee risk management; to manage not
the day-to-day, but f woul-d say the week-to-week or
month-to-month activities of the CEO.
O Can you describe your educational and
professional background?
A Yes, I'm an undergraduate engineer from
Unj-versj-ty of Toronto. I then did an MBA at Harvard
Business School right after that; graduated in 1977. I
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wooDs (Di)
Hydro One Limited
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208.890.5198
wooDs (Di)
Hydro One Limited
immediately
whlch was an
joined a company in Canada called Wood Gundy,
j-nvestment bank, and in those days,
investment banks coul-d not be owned by commerclal- banks
in the same ways the rules applied in the United States
akin to your Glass-Steaga1l Act.
Wood Gundy was bought by one of the five
big
part
banks in Canada in 1988 called CIBC, so f then became
of CIBC, so as between Wood Gundy and CIBC, I spent
my entire career with those two organizations, 3f years;
retired about four years ago.
O Did you sponsor supplemental testimony
that was fil-ed on September 24Lh, 2018?
A Yes.
O If I asked you the questions set forth in
that supplemental testimony today, would you give the
answers that are printed there?
A Yes.
0 Dld you sponsor supplemental rebuttal
testimony that was filed on November 74, 20L8?
A Yes.
O And again, if I
that rebuttal testimony, would
are there?
A Yes.
asked you the questions in
answers thatyou give the
O Did you sponsor Exhibit 9, which is yourI25
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wooDs (Di)
Hydro One Limited
CV as part of your September 24 testimony?
A Yes.
0 fs that exhibit still accurate?
A Yes.
MS. THOMAS: Your Honor, with that, Hydro
One woul,d move for the admission of Mr. Woods'
supplemental- testimony, his rebuttal- testimony, and his
Exhibit 9, Schedule 1.
COMMISSIONER KELLANDER: Thank you, and
without objection, we'l-l- spread the testimony across the
record as if read and admlt the exhibits.
(Hydro One Limited Exhiblt No. 9 was
admitted into evidence. )
(The fol-lowing prefiled supplemental and
rebuttal testimonies of Mr. Thomas Woods are spread upon
the record. )
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present
A.
business
Please
posit ion
My name
address
state your
with Hydro
is Thomas
is 483 Bay
M5G
I. TNTRODUCTION
name, business address and
One Limited.
D. (Tom) Woods, and my
Street, South Tower, Bth
2P5. I am the Chair of theEIoor,
Board
Toronto, Ontario
for Hydro One
fifed direct
Limited ( "Hydro One"; . I
O. Have you
this proceeding?
A. No.
and rebuttal testimony in
a. Are you sponsori-ng any exhibits that accompany
your testimony?
A. Yes. Attached to my testimony is:
' Exh. No. 9, Schedule 1 - Curriculum Vitae
('rcvrr) of Thomas D. Woods
A table of contents for my testimony is as follows:
of Directors
I lNTRODUCTTON.1
6
V. COMMITMENT TO MERGER
1 I served as interim Chair since August 74, 2018. On September 7, 2078,
Hydro One announced that I was appoj-nted as the new Chalr j-n a unanimous
vote by Hydro One's Board of Dj,rectors. See AVU-E-17-09, AVU-G-17-05,
Suppfemental Report on Hydro One Management Changes (Sep. 7, 2018).
I7
19
Woods, Supp 1
Hydro One Limited
.C,LJ
13
IT. BACKGROUND.. ....2
I]I. NEW HYDRO ONE BOARD.
IV. SELECTION OF NEW CEO FOR HYDRO ONE.
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Sumrrary of Testimony
O. Please summarize your testimony.
A. My testimony
of directors ( "Board" ) ,
accordance
Board was selected, and descrlbes
Hydro One's new board
how Hydro One's new
the timeline and
se1ection process for Hydro One's new Chj-ef Executive
Officer ("CEO"). I also explain that on September 79,
2018, the Hydro One Board of Dj-rectors passed a
resol-ution acknowledging and af f irming, for and on behal-f
of Hydro One: (i) Hydro One's obligations under the
Merger Agreement and with respect to the merger-related
commitments to be performed by Hydro One and/or its
subsidiaries if the Proposed Transactj-on is consummated
pursuant
intention
to the Merger Agreement; and (ii) Hydro One's
to consummate the Merger; in each case in
with the terms of, and subject to the
conditions set out in, the Merger Agreement and the
merger-rel-ated commitments .
II. BACKGROUND
O. When did you join Hydro One's Board?
A. On August L4, 2078, Hydro One announced its new
1O-member Board. As described in more detail in the
prefiled Supplemental- Testimony of James Scarlett,
Executive Vice("Scarlett Testimony"),
President and Chief
Hydro One's
introduces
SUMMATIZES
Woods, Supp 2
Hydro One Limited
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Woods, Supp 3
Hydro One Limited
Legal Officer, the Province of Ontario ("Province") and
Hydro One agreed on July 77, 20L8, that Hydro One's
existing Board woul-d resign by August 15 and Hydro One's
CEO woul-d retire, effective immediatefy. The July 77,
20LB Letter Agreement between the Province and Hydro One
("Ju1y 201,8 Letter Agreement," Exh. No. 10, Schedul-e 1to
Scarlett Testimony) provided that the Province and Hydro
One's fj-ve other largest shareholders would nominate and
announce by August
One's Board. Since
15, 2018, the new directors for Hydro
July 11, 2078 the Province has
nominated four of the new directors. Three
shareholders other than
of Hydro
the ProvinceOne's five largest
participated in an
nominated the other
Agreement,
coordinated
Ad Hoc Nominating Committee and have
six new di-rectors. I was nominated
by the Province to loin the
O. How was the Ad Hoc
A
after the July 2078 Letter Agreement was
Province and Hydro One?
FoIlowing execution
the former Chair of
Hydro One Board.
Nominating Committee formed
signed by the
of the July 2078 Letter
the Hydro One Board
the establishment of the Ad Hoc
Committee (consistent with the process set
4.1 of the Governance Agreement between the
Hydro One (Exh. No. 10, Schedule 3 to Scarlett
Testimony) ) . Section 4.1 provides that the Ad Hoc
Nominating Committee is to be
Nominating
out in Section
Province and
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compr-ised of one representative of each of the five
largest beneficial owners of Hydro One's common shares
(other than the Province).
largest shareholders, it is
Canadian ownership reportlng
shareholders to report their
In determining the five
important to note that
requirements only obligate
fol-lowing an agreement reached
the Ad Hoc Nominating Committee.
become a hol-der of 10 percent
sharehol-dings when they
or more of any class of its
In addition, the Ontariovoting or equity securities.
ELectricity Act, 7998 and Hydro One's articles of
lncorporation preclude any person or company (or
combj-nation of persons or companies acting jointly or in
concert) , other than the Province, from owning, or
exercising controf or direction over, more than 10
percenL of any cl-ass or series of voting securities,
incl-uding common shares of Hydro One. As such, no one
owns more than 10 percent of Hydro One's common shares
other than the Province. As a resul-t, the former Chair
needed t.o rely on market knowledge and due diligence to
ldentify Hydro One's five largest sharehol-ders (other
than the Province). Representatives of three of the said
five shareholders agreed to participate on the Ad Hoc
Nominating Committee.
O. How were you sel-ected to serve as Interim Board
Chair?
A.
between
was selected
Province and
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O. How were you selected to serve as Board Chair?
A. f was appointed as the new Chair in a unanimous
vote by Hydro One's Board of Directors in September 2078.
a. Please describe your professional- background
and previous experience serving on corporate boards.
A. My CV is attached as Exh. No. 9, Schedule 1. I
previously had a 37-year career with CIBC and Wood Gundy,
the predecessor firm of CIBC World Markets. I started in
Investment Banking, advising companies raising financing
in the equity and debt capital markets as well- as mergers
and acquisitions, and l-ater was Head of Canadj-an
Corporate Banking, Chief Financial Officer, Chlef Risk
Officer and Vice Chairman.
I al-so serve on the boards of Bank of America
Corporation, Alberta Investment Management Corporation,
Providence St. Joseph's St. Michael's Heal-th Care (Board
Chair) , and CIBC Chil-dren's Foundatj-on. Previous
directorships include TMX Group Inc., DBRS Limited,
Jarislowsky Fraser Limited, and Covenant House (Board
Chair). I have a Bachelor of Applied Science in
Industrial- Engineering from Universj-ty of Toronto, and an
MBA from Harvard Business School.
O. Why are you qualified to serve on Hydro One's
Board?
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A. As required by Section 4.2 of the Governance
Agreement between the Province and Hydro One, all
individuals on the Hydro One Board must meet certain
criterla. Eirst, I am independent of Hydro One and the
Provj-nce, dS required by Sections 4.2.2 and 4.2.3 of the
Governance Agreement. Second, I meet the requirements of
Section 4.2.1 of the Governance Agreement, which provide
that Hydro One directors must have: (i) significant
experience and expertise in business or that is
appllcable to business, (ii) served in a senior executlve
or leadership positlon, (iii) broad exposure to and
understanding of the Canadian or international- business
community, (iv) skills for directing the management of a
company, and (v) motivation and availability, in each
case to the extent requisite for a business of the
complexity, sj-ze and scafe of the business of Hydro One
and on a basis consj-stent with the highest standards for
directors of leadlng Canadian publicly listed companies.
Third, I meet the requirements of applicable securities
and other l-aws and the requirements of the Toronto Stock
Exchange, ds required by Section 4.2.4 of the Governance
Agreement.
III. NEW HYDRO ONE BOARD
O. Besides you, who are the other directors
nominated by the Province?
Woods, Supp 6
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A. The followlng lndividuals al-so were nominated
by the Province.
Cherie Brantz Ms. Brant is a Partner at Dickinson
Wright's Toronto law office where she has an Indigenous
law practice with a focus on commercial real- estate,
energy and transmission and First Nations economic
development.
several First
develop
address
counsel,
largest
resulting
LP's share
Ms. Brant is both
Mohawks of the Bay of
Indian Territory. She
approximately 2.42 of Hydro One.
Mohawk and Ojibway from the
Quinte and Wikwemikong Unceded
also serves on t.he board of the
Ms. Brant provides strategic counsel to
Nations and industry clients seeking to
First Nations and to understand andprolects with
Indigenous
Ms. Brant
rights and interests. As lead
was lnstrumental- in formlng one of the
Eirst. Nations-led limited partnerships in Canada
in the Ontario First Nations Sovereign Wealth
purchase of
Anishnawbe Health Foundation and is a member of the
Canadian Council for Aboriginal Business, Research
Advisory Board and the Aboriginal Energy Working Group
the Independent Electricity System Operator. Previous
directorships incl-ude Women's College Hospital and
Trill-ium Gift of Life.
Ms. Brant has a Bachelor of Environmental Studies,
Urban and Regional Planni-ng
of Waterloo
Program from the University
of
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and a Juris Doctor from the University of Toronto. She
is a member of the Ontario Bar Association and the Law
Society of Upper Canada.
BLair Cower-Smith: Mr. Cowper-Smith is the
principal- and founder of Erin Park Business Solutj-ons, a
Canadian advisory and consulting firm. Previously, he
was Chief Corporate Affairs Officer of Ontario Municipal
Employees Retirement System (OMERS) and a member of the
Senj-or Executive Team where his responsibifities included
regulatory affairs, law and governance. Prior to joining
OMERS, he was a Senior Partner at McCarthy Tetrault LLP
where his practice focused on mergers and acquisitions,
infrastructure, governance and private equity.
Board experience incl-udes numerous advisory
assignments, including governance advisory assignments,
with boards of directors including OMERS, Stelco,
Hammerson, and incl-udes existing or prior director
appointments and board committee leadership roles with
companies l-ike Porter Air1ines, 407 ETR, the Einancial-
Services Regulatory Authority and Face the Future
Foundation. He served untlf recently on the Public
Policy Committee
Governance and on
of the Canadian Coalition for Good
the Securities Advisory Committee of
the Ontario Securi-ties Commi-ssion. He co-founded The
Canadian Council- for Public and Private Partnershlps
which led to a
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long-term interest in infrastructure policy and del-ivery
of infrastructure based services to Canadians.
Mr. Cowper-Smith has a Bachelor of Laws (LLB) and
Master of Laws (LLM) from Osgoode HaIl- Law School- at York
University. He is a member of the Law Soclety of Upper
Canada and hol-ds the director designation through the
Institute of Corporate Directors and is a regular faculty
presenter for the Directors College.
RusseI Robertson: Mr. Robertson is a corporate
director and former Executive Vice President and Head,
Anti-Money Laundering, BMO Financial Group ("BMO"). Mr.
Robertson has served as Chief Financial Officer, BMO
Einancial Group and Executj-ve Vlce PresJ-dent, Business
Integration where he oversaw the integration of Harris
Bank and MeI Bank forming BMO Harris Bank. Before
joining BMO, he spent over 35 years as a Chartered
Professionaf Accountant holding various senlor positions
including the positions of Vice-Chair, Deloitte & Touche
LLP (Canada) and Canadian Managing Partner, Arthur
Andersen LLP (Canada).
Mr. Robertson al-so serves on the boards of Bausch
Health Companj-es Inc.
Prevj-ous directorships
Partners, Inc.
Mr. Robertson has
and Turquoise Hill Resources.
include Virtus fnvestment
a Bachel-or of Arts (Honours) in25
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Business Administration from the Ivey School of Business
at
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the University of Western Ontario. He is a Chartered
Professional- Accountant (FCPA, ECA) and a Fellow of the
Institute of Chartered Accountants (Ontario). He is also
a member of the Institute of Corporate Directors.
O. Who are the six directors nominated by the Ad
Hoc Nominating Committee?
A. The following six lndividuals were nominated by
the Ad Hoc Nominating Commlttee.
Anne Giardini, O.C., Q.C.: Ms. Giardini is a
corporate director and Chancel-l-or of Simon Eraser
University. She previously had a 20-year career with
Weyerhaeuser Company Limited ("Weyerhaeuser"), including
as Canadian President. Before her tenure as Presj-dent,
she was Vice President and General Counsel at
Weyerhaeuser where she worked on corporate, 1ega1, policy
and strategic matters. Ms. Giardini has been a newspaper
col-umnist and is the author of two novels.
Ms. Giardini also serves on the boards of Nevsun
Resources Ltd., Canada Mortgage & Housing Corporation,
World Wildl-ife Eund (Canada), BC Achievement Foundation,
Translink and the Greater Vancouver Board of Trade.
Previous directorships include Thompson Creek Metals
Company, Inc. and Weyerhaeuser.
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Ms. Giardini has
University, a Bachel-or
British Columbia and a
of Cambridge (Trinity
l-aw in British Columbia
Washington State). In
an Officer of the Order
a BA in Economics from Simon l.raser
of Laws from the University of
Master of Law from the University
Ha]I). She is licensed to practice
1n Ontario and( and
2076,
formerly
Ms. Giardini was appointed
of Canada.
David Hay:Mr. Hay is a corporate director. He is
former Vice-Chalr and Manaqing Dj-rector of CIBC World
Markets Inc. with power, util-ities and infrastructure as
a major focus. Formerly, he was President and CEO of New
Brunswick Power Corporation, Managing Director of
Delgatie Incorporated and held senj-or investment banking
roles, including Senior Vice-President and Director
responsible for mergers and acquisitions with Merril-l-
Lynch Canada and Managing Director of European mergers
and acquisitions with Merrill Lynch International. He
spent the early part of his career as a practicing lawyer
and taught part-time at both the University of Toronto
and University of New Brunswick.
Mr. Hay also serves on the boards of EPCOR, SHAD
(Chair), the Council of Clean and ReIiable Energy and as
Beaverbrook ArtChair of the Acquisition Committee of the
Ga11ery. Prior
Hydro-Electric
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System Limited (Vice Chair)I 25
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Mr. Hay has a Bachelor of Laws from Osgoode HaII Law
School, York University and a Bachelor of Arts from the
University of Toronto (Victoria College). He also holds
a professional- director designation from the Institute of
Corporate Directors (ICD.D) .
Tinothy Hodqson:Mr. Hodgson is a Managing Partner
of Alignvest Capital Management. Prior to that, Mr.
Hodgson was Special Advisor to Governor Mark Carney at
Bank of Canada. Mr. Hodgson al-so held various positions
in New York, London, Silicon Val1ey and Toronto with
Goldman Sachs and served as Chief Executi-ve Officer of
Goldman Sachs Canada. Mr. Hodgson has held rol-es with
Salomon Brothers, Price Waterhouse & Co. and Merrill
Lynch Canada.
Mr. Hodgson also serves on the boards of A1i-gnvest
Acquisition II Corporation (Chair), PSP Investments and
MEG Energy Corp. Previous directorships include
Allgnvest Acquisition Corporation, KGS-A1pha Capital
Markets L.P., The Global Risk Institute, The Ivey School
of Business, The Next36, Bridgeport Hea1th and CanWest
Media Works Inc.
Mr. Hodgson has a Bachelor of Commerce from the
University of Manltoba and a Masters of Busj-ness
Administratj-on from The Richard lvey School of Business
at Western University. He is a Chartered Accountant and
a member of the Institute of Corporate Directors.25
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Jessi ca McDonal-d: Ms. McDonald is Interim President
and CEO of Canada Post Corporation. Previous rol-es
incl-ude President and CEO of British Columbia Hydro &
Power Authority and Executi-ve Vice President of HB Gl-obal-
Advisors Corp., as well as a successful practice in
mediation and negotiatlon on major commercial- and
industrial- projects. In addition, Ms. McDonal-d has hel-d
many positions with the B.C. government, including the
most senior public service position in the provincial
government as Deputy Minister to the Premj-er, Cabinet
Secretary and Head of the BC Public Service, responsible
for overseej-ng all aspects of government operations.
Ms. McDonald al-so serves on the boards of Canada
Post Corporation, Coeur Mining Inc. and Trevali Mining
Corporation, and is on the Member Council- of Sustainable
Development Technology Canada. Previous directorships
include Powertech Labs (Chair) and Powerex Corp.
Ms. McDonal-d has a Bachelor of Arts (Political
Science) from the Unj-versity of British Columbia. She is
also a member of the Institute of Corporate Dj-rectors of
Canada.
WiJ-lian Sheffield: Mr. Sheffield is a corporate
director. He is the former CEO of Sappi Ei-ne Papers,
headquartered in South Africa. Previously, he hefd
senior rofes with Abitibi-Consolidated, Inc. and
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He began his career in the steel- industry and held
Generaf Manager, Industrial Engineering and Col-d MiII
Operating roles at Stelco, Inc.
Mr. Sheffield also serves on the boards of Houston
Wire & Cable Company, Ve1an, Inc., Burnbrae Farms Ltd.,
Longview Aviation Capital and Pamily Enterprise Xchange.
Previous directorships incl-ude Canada Post Corporation,
Ontario Power Generation, Corby Distilleries, Royal Group
Technol-ogies and SHAD.
Mr. Sheffield has a Bachelor of Scj-ence (Chemistry)
from Carleton University and an MBA from McMaster
University. He holds a professional director
certification from the Institute of Corporate Directors
and a simi1ar designation from the
of Corporate Directors in the U.S.
Eamily Enterprise Advisors Program
University of British Col-umbia.
Mel-issa Sonberg: Ms. Sonberg
National- Associati-on
He al-so completed the
(FEA) at the
director and Adjunct Professor and
is a corporate
Execut ive- in-Re s idence
at McGil-1 University's Desautel Faculty of Management.
She spent the early part of her career 1n the hea.l-thcare
industry before joining Air Canada, where she hel-d
leadership positions in a range of customer facing,
operational and corporate functions. Ms. Sonberg was
part of the founding executive team of Aeroplan, now part
of AIMIA. Ms. Sonberg held25
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Hydro One Limited
positlons of Senior Vice President, Human Resources &
Corporate Affalrs and
Brands, Communications
Ms. Sonberg al-so
Senior Vice President, G1oba1
and External- Affairs at AIMIA.
serves on the boards of Exchange
fncome Corporation, MD Fj-nancial Holdings, Inc., Canadian
Professional- Sa1es Association, Group Touchette, Women in
Capital Markets and Equitas International Centre for
Human Rights. Previous directorships incl-ude Rideau,
Inc., Via RaiI Canada, University of Ottawa,
fnternational Advisory Board and the McGitI University
Health Centre.
Ms. Sonberg has a Bachelor of Science (Psychol-ogy)
from McGill University and a Masters of Health
Administration from the University of Ottawa. She is a
Certified Human Resource Executive and hol-ds a
professional- director certification from the Institute of
Corporate Dj-rectors.
O. Did the Province play any rol-e in the selection
of the Ad Hoc Nominating Committeers six nominees?
A. No.
O. Do al-l of the Board nomj-nees sel-ected by the
Province and the Ad Hoc Nomlnating Committee meet the
requirements of Sections 4.2.1, 4 .2.2, 4.2.3, and 4.2.4
of the Governance Agreement previously described in your
testimony?A. Yes.o 25
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O. Were there addltional criteria considered by
the Province and Ad Hoc Nominating Committee in selecting
their nominees besides the requirements of Sections
4.2.\,4.2.3, and 4.2.4 of the Governance
Agreement?
A. Yes. Section 4.2.5 of the Governance Agreement
provides that the Provj-nce and Ad Hoc Nominating
Committee, in selecting their nominees, should consider
the aspirational goals established in Hydro Oners Ski1ls
Matrix, Board Diversity Policy or any other policy
relating to the composition of the Board forming part of
Hydro One's governance policies, procedures and practices
listed in Schedule 'rCrr to the Governance Agreement.
Further, Section 4.2.6 of the Governance Agreement
provides that the majority of the Board must at all times
be resident Canadians (as defined in the Business
Corporations Act (Ontario) ("OBCA") ). Neither the
Province nor the Ad Hoc Nominating Committee wiIl
nominate any person for election or appointment as a
Director tf, as a resul-t of that nominee being elected or
appointed as a Director, this requirement would not be
met.
O. Does the new Board meet the requirements of
Sections 4.2.5 and 4.2.6 of the Governance Agreement?
Yes.
Now that the Province and Ad Hoc Nominating
4.2.2,
A
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Committee have sel-ected Hydro One's new Board, what
additional steps must be taken to confirm these
nomi-nations ?
A. On August 13, 2018, the Hydro One Board passed
resolutions in a sequential fashion appointing all 10
replacement directors. Each of the newly appointed
directors shal-l- serve on the Board until the earlier of
the 2019 annual meeting of sharehol-ders of Hydro One or
until hls or her successor is elected or appointed in
accordance with the Governance Agreement and OBCA. No
other steps are required to confirm the appointment of
the new directors.
IV.
o. will
for Hydro One?
A. Yes.
Agreement, the
O. How
Hydro One?
A. The
be one of the new Board's
coming weeks and months.
a CEO Selection Committee, which will
Executive Recruiting firm. Internal
SELECTION OF NEW CEO FOR HYDRO ONE
the new Hydro One Board sel-ect a new CEO
Pursuant to Section 3.3 of the Governance
Hydro One Board selects Hydro One's CEO.
will the new Board select the new CEO for
sel-ection of a new CEO for Hydro One will-
highest priorities in the
The Board Chair wil-l- establish
in turn appoint an
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candidates wil-l- be intervi-ewed, and a preferred candidate
will be selected. Negotiations
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effort to enter into an agreement
a. Can you predict when the
announce the new CEO for Hydro One?
A. At this time, I cannot predict when this
with the preferred candidate will-
announcement wil-l- be
corporation the size
negotiations with the
then take place in an
to be appointed CEO.
Hydro One Board wiIl
made. As with any CEO search for a
of Hydro One, the search and
finalist may take several months.
One have an interj-m or acting CEO?
One's former Chief Einancial-
t^ra a named Hydro One's acting
11. Mr. Dobson will continue
a. Does
A. Yes.
Officer, Paul
President and CEO on July
President and CEO while
Hydro
Hydro
Dobson,
to serve as acting
new Board conducts
Are the interests
or investors at
for Hydro One's
of Hydro One's
risk durlng the
Hydro One's
new CEO.
customers,
search for a
a search
0.
employees,
permanent
A.Absolutely not. I have the greatest respect
for Mr. Dobson and believe he wil-l- manage Hydro One as
its acting CEO with the utmost lntegrity and skill during
the Board's CEO search process. The Hydro One Board
should not rush its selection process, and it has no need
to do so with the continuing leadership of Mr. Dobson and
the other executives and managers who have continued to
serve Hydro One's
CEO?
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Hydro One Limited
customers, employees, and investors since July 11.
O. Are you aware of any directive from the
Province that woul-d cal-1 into question the merger or
would suggest that Hydro One woufd not honor the
commitments made in the merger agreement itself or in the
Settl-ement Stipulation and Agreement negotiated by all
parties and filed with the Idaho Public Utiliti-es
Commission on April !3, 20L8?
A. No, I am not.
V. COMMIIUENT TO MERGER
O. Does the newly approved Hydro One Board of
Directors commj-t to the Hydro
of the Settlement conditions?
One-Avista merger and alf
A. Yes. On September !9, 2018, the Hydro One Board
of Dj-rectors passed a resol-uti-on acknowledging and
affirming, for and on behalf of Hydro One: (f) Hydro
One's obligations under the Merger Agreement and with
respect to the merger-related commitments to be performed
by Hydro One and/or its subsidiaries if the Proposed
Transaction is consummated pursuant to the Merger
Agreement; and (ii) Hydro One's intention to consummate
the Merger,' in each case in accordance with the terms of,
and subject to the conditions set out in, the Merger
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0. Does this conclude your testimony?
A. Yes it does.
Woods, Supp 20
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I. INTRODUCTION
O. Pl-ease state your name, busj-ness address and
present position with Hydro One Limited.
A. My name is Thomas D. (Tom) Woods, and my
business address is 483 Bay Street, South Tower, 8th
Floor, Toronto, Ontario M5G 2P5. I am the Chair of the
Board of Directors for Hydro One Llmited ("Hydro One").
O. Have you f1led direct, rebuttal, or
supplemental testimony in this proceeding?
A. Yes. I filed supplemental testimony on
September 24, 2018.
O. Are you sponsoring any exhibits that accompany
your testimony?
A. No.
A tabl-e of contents for my testimony is as follows:
]. INTRODUCT]ON 1
II. PROVINCIAL INELUENCE OVER HYDRO ONE 2
III. PROV]NCIAL INFLUENCE OVER AVISTA B
Sr:mmary oJ feEliqenI
O. Please summarize your testimony.
A. The Province of Ontario ("Province") exercises
business affairs andl-imited authority over Hydro One's25
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wil-f have no authority over Avista after the merger. As
Hydro One's
the abitity
other than
largest shareholder, the Province does have
to infl-uence Hydro One's governance, but,
its authority over executive compensation
the Hydro One AccountabiJ-ity Act, thepursuant
Province
One.
to
does not have management authority over Hydro
II. PROVINCIAI INFLI'ENCE OVER HYDRO ONE
O. In direct testimony filed
Staff witness Terri Carlock states
on November
on page 10,
the
6th,
Iines
20-22, that "the
of Ontario over Hydro One are not c1ear." Do you have a
response to that statement?
A. Yes.
O. What is your response?
A. As a starting point, the Governance Agreement
between Hydro One and the Provincel expressly limits the
Province's rol-e with respect to Hydro One to that of an
investor, and not a manager, and subsequent to the June
election, the Province ratified and reaffirmed its
obligations under the Governance Agreement.2 Further, in
my
limits to the infl-uence of Province
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1 see AVU-E-17-09,/AVU-G-1?-05 - Suppl-emental- Testimony of James Scarlett,
Exh. No. 10, Schedule 3 (Sept. 24, 2078) ("Scarlett Supplemental Testimony")
(see S 2.7.3 in Governance Agreement).
2 5"" ScarLett Supplemental Testimony, Exh. No. 10, Schedule 1 (S 16 in July
Ll, 2018 Letter Agreement).
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experience to date as Chair of the
Directors ("Board"), the Province
Hydro One
has acted
Board of
only
One,
as an
investor in, and not as a manger of, Hydro
consistent with the Governance Agreement. In fact, I took
on the role as a director on that premise and, since
becoming a director and then Chair, T have worked with
Hydro One's experienced and talented management, and not
the Province, on all of Hydro One's strategic business
decisions. In short, the new government is looking to the
new Board and existing managemenL to run the company, not
the other way around.
a.
interfere
A
officials
Hydro One
since that
intervene
Do you have
with Hydro
concerns that the Province will-
Onets
No. Based on my
management 1n the future?
communlcations with Provincial
prlor to my acceptance of a posltion on the
Board, and based on communications and events
time, I
in Hydro
expect that the
One management
limited manner
Province will not
other than
on certaln compensation
One AccountabiTity
participating
matters as set
Act.3
O
officials
Board. Can
r_n a
forth in the Hydro
You mentioned communications with Provincial
prior to accepting a position on the Hydro One
you describe the selection process?
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3 See Scarlett Supplementaf Testimony, Exh. No. 10, Schedul-e 2.
Woods, Supp. Reb. 3a
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new
JuIy
A. Yes. I was the
ten-person Hydro One
2018, I received a
first person to be named to the
Board. On or around the 4th of
recruiting firm
four directors
Province pursuant
contacted me based
on other boards. I
to the Governance Agreement. The
on my business experience
had not previously met the
by the
firm
and service
Premierr 4
him and get
those meetings I
intention of
caII from the executive
involved in identlfying and selecting
to be named to the Hydro One Board
Doug Ford, and to me it was important to meet
an understanding of hls thinking and plan regarding Hydro
One before I decided whether I was willing to serve as a
director of the company. I had two meetings with hj-m over
the course of three or four days.
During the first meeting, I also met the Premier's
chief of staff and the head of civil- service. That
meeting lasted about an hour. I then met Mr. Eord a
second time with a broader group. After
was confident that the Province had no
influencing Hydro One beyond the Premier's election
promises and - this
new Hydro One Board
After about a week
j-mportant to me that the
abl-e to act independently.
was very
would be
Province's appointment to
haIf, I agreed to accept the
the Board.
4 A premier ln Canada is the equivalent of a governor j-n the Unj-ted States.
and a
a 25
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O. Do you know whether your fel-Iow Board members
also evafuated the Board's ability to act independent.ly?
A. Yes. I am not certain I spoke with each and
I do know that severalevery one of
of us talked
the other nine, but
other directors all
the ability to act independently. The
had simil-ar l-evel-s of comfort that
not infl-uence the Hydro One Board orthe Province would
business affairs moving forward.
O. Did you have any interaction with the Premier's
polit.ical party prior to being contacted by the
recrulting firm?
No. When I was appointed as a director of Hydro One
some people made the incorrect assumption that I was
affil-iated with the Progressive Conservative Party, which
is Mr. Ford's party. But f have had no invofvement with
that party or any other political party in Canada.
O. You mentioned the Hydro One AccountabiJ-ity Act.
Do you believe the Act coul-d impair Hydro One's ability
to attract and retain tal-ented executive management?
A. No, for several reasons. First, the Province
wil-l- not set pay for Hydro One's executives under the
Hydro
Hydro
One AccountabiLity Act. The Act states that the
framework for the Board, CEO, and
Act) in
new compensation
other executives (as
defined in the
about
One Board will establ-lsh a
o )\
47 Woods, Supp. Reb. 5
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Woods, Supp. Reb. 6
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consuftation wlth the Province and Hydro One's other five
largest sharehol-ders, and provides the Management Board
of Cabinet with approval rights over the executive
compensation framework. Second, the executive search firm
that is helping Hydro One's Board identify suitable
candidates for the CEO position has reported that they
are attracting good candidates. In coordination with the
executive search firm, the Board has conducted several
interviews and is close to being abl-e to make an offer.
Third, other than the authority to approve the
compensation framework for certain executive level-
employees, the Act dld not provlde the Province with any
rol-e in management of Hydro One. Hydro One otherwise has
the unfettered ability to operate its business. Sectlon
2.1.3 of the Governance Agreement stil-I provides that the
Province is an investor in, and not a manager of, Hydro
One. Further, the Province made clear in Section !6 of
the July 11, 20lB Letter Agreement between Hydro One and
the Provi-nce that the Governance Agreement remains in
ful-l- f orce and ef f ect:
Reaffirmation: By entering into this Agreement, the
Province ratifies and reaffirms its obligations
under the Governance Agreement and agrees that,
except as specifically set out in this Agreementwith respect to the subject matter hereof, (i) theexecution, delivery and effectiveness of this
Agreement or any other documents delivered in
connection herewith shall- not amend, modify or
operate as a waiver or forbearance of any right,25
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power, obligation, remedy or provision under the
Governance Agreement, and (ii) such agreement shall-
continue in full- force and effect. s
O. Are you a\^/are of any reason to believe that the
Hydro One Board might feel beholden to the Province
moving forward?
A. Certainly not, for severa1 reasons. Eirst, the
Board members have a fiduciary duty under Canadian l-aw to
act in the best interests of the corporation, which means
al-l- of Hydro One's stakeholders and not a single
sharehol-der above aIl- others.
Second, the Hydro One Board comprises a
dj-stinguished panel of highly successful- individuals with
extensive experience serving as board members for large
corporations. The di-rectorsr r6sum6s and experr_ences
none of themspeak for themselves and demonstrate that
(including myself) wiII be behol-den to the Province, or
any other shareholder for that matter.
Third,
director has
as evidenced by their r6sum6s, each new
One. For that
a number of opportunities outside of Hydro
reasonr Do single director wil-l- be
act in a particular way, whether at the
Province or another sharehol-der, for fear
or hls Boardof losing her
5 Se" Scarfett Suppl-emental- Testimony, Exh. No. 10, Schedufe 1
motivated to
behest of the
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position-especially if doing so would be contrary to
Hydro One's best interests and the Board member's
fiduciary responsibilities, and reflect poorly on the
dlrector's reputation.
Fourth, the Governance Agreement prevents the
selection of Hydro One Board members that would be
behol-den to the Provj-nce. Each director 1s independent of
Hydro One and the Province.
III. PROVINCIAI TNFLT'ENCE O\IER AVTSTA
O. Do you know whether or how the Province
influences the appointment of the independent members of
Avista's Board?6
A. The Provi-nce will- have
of the independent directors to
Board and wil-1 have no infl-uence
operations of Avista.
the selection of the
2078,
flve
no role in selecting any
the post-merger Avj-sta
over the post-merger
On November 'l ,Hydro One and Avista announced
independent directors to serve
Board.T It is a formidableon the post-merger Avlsta
group
the U
of independent directors, al-l with connections to
S.
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6 See AVU-E-17-09/AVU-G-17-05 - Direct Testimony of Terri Carlock, p9. 16,
fines 4-9 ("As is appropriate for a parent company, Hydro One wil-l appoint
the majority of Avista's Board of Directors. Whife some of these directors
wifl be independent under the SEC's definition of that term, it j-s unknown
how the Province of Ontario influences those appointments.").
7 See AVU-E-17-09, AVU-G-17-05, Rebuttal- Testlmony of Scott L. Morris, Exh.
No. 16, Schedule 1 (Nov. 14, 2078).25
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Pacific Northwest, and none of whom were selected by the
Province or have any relationship wi-th or to the
Province. Indeed, a number of them serve on the current
Avista Board and wil-I continue to serve Avi-sta with the
utmost integrity and business acumen.
O. Are you aware of any other measures that ensure
the Province wil-l- not influence Avista?
A. Yes.
O. What are those measures?
A. The ring-fencing, governance, and financial
commitments made by Hydro One and Avista protect Avj-stars
independence and financial strength and ensure that the
Province cannot and wil-l- not interfere with Avista's
management, strategic direction, and financia1 health.
These commitments are detailed in the rebuttal-
testimonies of James Scarlett and Chris Lopez filed on
November L4, 2018.
O. Earl-j-er you discussed the Hydro One
Accountabifity Act and the Provj-nce's role in setting
Hydro One executive compensation under the Act. Can you
confirm that the Act will not apply to Avista if the
merger is approved?
A. Yes, I can. The Act does not apply to Avj-sta,
as it expressly excludes Hydro One subsidj-aries
"J-ncorporated in a jurisdiction outside of Canada. " In
Woods, Supp. Reb. 9
Hydro One Limit.ed
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addition, Hydro One and Avi-sta have agreed to revise
Commitment No. 2 Lo give the
Woods, Supp. Reb. 9a
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Woods, Supp. Reb. 10
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post-merger Avista Board sole responsibility for setting
compensation level-s for Avista's employees and
executives.
O. Coul-d the Province amend the Hydro One
Accountability Act to apply to Avj-sta, thereby nullifying
the revised commitment?
A. No. The Province cannot pass laws that apply
di-rectly to Avlsta. The scope of Provincial- legislative
authority is fimited to the Provj-nce of Ontario. Rather,
if the merger closes, Hydro Oners ownership of Avista
will be constrained by the commitments, the Commission's
approval order, and the laws of the United States and the
five states in which Avista operates.
O. Does this conclude your rebuttal- testimony?
A. Yes it does.
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(The folfowing proceedings were had in
open hearing. )
COMMISSIONER KELLANDER: And are you
submitting him now for cross-examination?
MS. THOMAS: Yes, he is.
COMMISSIONER KELLANDER :Thank you very
we' l-l- f ind the
talking to
much, and let's move to the back row and
person whot s
someone, Mr.
least prepared
Purdy.
MR. PURDY:
COMMISSIONER
because he's
I'm sorry. No, I have none.
KELLANDER: Thank you. Mr.
Otto.
MR. OTTO: I do have one question.
BY MR. OTTO:
O Mr. Woods, why does Hydro One want to buy
Avista?
A Since
in discusslons with
before my time, the
commonality, if you
The main reasons or
compatibility of the
the company Hydro One began engaging
Avista 1n early 2011, and thi-s was
company identified a very common a
wiII, in strategy, culture, business.
the main strategic reasons are the
culture, similar businesses, but
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al-so the opportunity for Hydro One to diversify its base,
both geographically, product or service. We don't have
any gas. Avista does, but an opportunity to learn and to
cross-fertilize ideas as between the two companies. We
think Hydro One has a lot to gain and we've learned that
Avista feel-s the same way.
MR. OTTO: Thank you. No further
questions.
COMMISSIONER KELLANDER: Thank you.
Mr. Richardson.
MR. RICHARDSON: Thank you, Mr. Chairman.
No questions.
COMMISSIONER KELLANDER: Thank you.
Mr. Wil-l-iams.
MR. WILLIAMS: Thank you, Mr. Chairman.
CROSS_EXAMINATION
BY MR. WILLIAMS:
a
A
O
and your CV,
l-evels as a
corporations
Good morning, Mr.
Good morning.
According to your
you've served with
di-rector and officer
Woods.
supplemental- testimony
distinction at hiqh
of several- large
and observed combinations of corporationso25
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and mergers. Have you ever observed or become aware of a
circumstance where a corporation makes commitments to
gain regulatory approval and then later on begins some
foot-dragging or backsliding on those commitments?
A No.
0 Do you understand why a fear of
foot-dragging or backsliding by Hydro One could be a
concern to Avista customers who have no established
relationship with Hydro One?
A Yes, I can understand that concern, yes.
O And do you understand through various
sett.l-ement commj-tments that Hydro One has submitted to
the jurisdiction of this Commission?
A Yes, I understand that.
O Okay. Do we have your word and pledge in
this case in your capacity as Chair that you will use
your authority to ensure that Hydro One does not engage
in foot-dragging or backsliding with respect to
commitments it has made to Avista's ratepayers in this
case?
A Yes, you have my assurance.
O And if such evidence comes forward on
backsl-iding or foot-dra99ing, you'd make yourself
personally available to this Commission?
A Yes, I would.
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MR. WILLIAMS: AlI right, oo further
questions.
COMMISSIONER KELLANDER: Thank you. Mr.
Baxter.
MR. BAXTER: Thank you, Mr. Chairmanr Do
questions for the Department
COMMISSIONER KELLANDER: Thank you, and
Iet's move, then, to Staff. Irm moving to Staff.
CROSS_EXAMINATION
BY MR. I(ARPEN :
O Yes,
about
in your
al-most
Mr. Woods, in reference to your CV, f
served on.
those boards
think there's 30 or so boards you've
any ofI'm curious,
partially or
entity?
A
' experience, are
majority owned by a government
Let's see. The number actually is 20, not
I coul-d look atthat it matters, 20 boards. None that
the list if you'd like. There's nothing quite like this
I think it's fair to say.
O Okay, and any of those other boards that
you're ofl, do any of them have any prohibitions on
ownership; for example, a prohibition on any single
shareholder owni-ng more than 10 percent of any voting25
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securities ?
A
percent. I
0
mean,
Yes, I believe Bank of America has a 10
think that's the case.
Does it have a rul-e with
largest shareholder staying the largest
regard to the
shareholder?
A No.
O As far as the ownership with regard to the
Province of Ontario, I think it's about 48 percenti is
that about right?
A Close enough, 41, yeah.
O Okay. Do you in your experience on a
number of these other boards, have you had any experj-ence
where the large shareholder is able to remove an entj-re
board?
A I'm not familiar wlth an agreement akin to
the governance agreement which provided that right, but I
take
your
the
no.
1n any company, I guess a large sharehol-der could
a vote to the shareholders and do that, but I think
questi-on probably is, 1s there a simj-l-ar case with
governance agreement. None that I'm famlliar with,
O Okay, and how
extend to say you don't have
are able to pass legislation
the business?
about that woul-d probably
shareholders thatlarge
affect the operation of
any
that
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A On the other boards frve served on?
O Correct.
A No, and I should just clarify for people,
of that list, which is in my CV, I think there are only
five or slx publicly-traded companies and most of the
others are not for profits or private companies, but the
answer to your questJ-on is as I stated.
O Okay, and then fina1ly, on page 4 of your
supplement.al testimony, you note that you were selected
as the interim board Chair following an agreement reached
between the Province and the Ad Hoc Nominating Committee.
Under the governance agreement, shoul-dn't the board chair
be selected by the committee in whole and not inf.l-uenced
by the Province?
A Well-, you' re right . It ' s a littl-e
technical. I'l-1 try to keep it brief to be he1pfu1.
Under the governance agreement, as you know, in that, it
was agreed the board would be 10 people. The Province
got to pick four. The investor group, those that
participated, three of the top five agreed to participate
and pick six. It was felt that just to kick thj-ngs off
in the first meeting someone shoul-d be the chair, so a
representative of the government and the former or the
outgoing Chair of Hydro One, David Dennison, spoke to
each other and said, "Why don't we have agreement on who
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should be the interim chair, announce it to the
marketplace
to go. "
so people know how the first meeti-ng is going
At the first meeting, then, what you just
said happened. One of the lawyers who was on the board,
Mr. Cowper Smith, volunteered to coordinate a process to
select a permanent chalr, which was just as you said. He
asked for expressions of interest. I said I would serve.
There were no other people that put their hand up. I
l-eft the room. There was a discussion and I was
appointed in the middl-e of September, I guess, having
been interim Chair from August until Sept.ember. We had
some onboarding sessions in the middle, but the first
official- meeting was in September, so what you just said
actually did happen, but to kick things off, there was an
agreement to have someone, namely myself, be the j-nterim
Chair.
O Okay; so going forward, would you
anticipate the Province to play that kind of role going
forward; i.e., an agreement be made between the
Nominating Committee and the Province?
A No. I have a board now and just
to be cl-ear, and maybe
meanr w€
this is not necessary, but the
Province and Mr. Dennj-son representing the investors came
to an agreement. The Province said, "What about Mr.25
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Woods beinq the Chair?"
David said, "Eine." I know David and so
it wasn't the Province saying it has to be Mr. Woods. I
said I didn't have to be the Chair, I was happy to serve,
but going forward in that we have a board, the board
itsel-f woul-d continue to appoint the chair on an annual
basis.
MR. KARPEN: Okay. No further
questions.
COMMISSIONER KELLANDER: Thank you. Mr
Semanko.
MR. SEMANKO: Thank you, Mr. Chairman
CROSS_EXAMINATION
BY MR. SEMANKO:
Mr. Woods, welcome to Boise.
Thank you.
I have a few questions for you this
O
A
o
morning.
First of
can you tell
circumstances
I appreciate
aI1, picking
you
up
theus under governance
where the Province can
spending the
the Iast set
time with us.
of questions,
agreement, are there
dictate the outcome
on
of a particular matter?
A I'm not a lawyer and perhaps if you wantt25
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to refer me to a section if I overlook it,
as I think you're well aware, the Province
2015 when the governance
the rlght to replace the
of the CEO, and there's
agreement was put
entire board with
please do, but
starting in
in place has
the exception
a technlcal mechanj-c around that,
so that governance agreement, as you know, I think you
know, remains in p1ace.
I'm just trying to think if there are
other unique situatlons that confer rights on the
Province. That 1s certaj-nly the one that stands to mind
as the first and that was put in, as you may know, to
protect j-nvestors when the company was privatized back in
2015, because if the government chose to replace the
board, which it ultimately did as we know in the summer
of this year, investors would be guaranteed 60 percent of
the board members, so that was something the investors
wanted when the company was privatized back in 2075, but
I'm trying to think if there are there's nothing that
rises to that l-evel of profile that I can think of,
unless there's something you have in mj-nd that I can
react to.
O That was very he1pfuI, thank you; so did I
hear you right that four out of the 10 board members are
appointed by --
A By the government25
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O -- by the government?
A of Ontario.
a Forty percent?
A Forty percent, y€s.
O Are there any matters that come before the
board regularly or otherwise that require two-thirds
vote?
A Again, I'm not a lawyer. Every vote werve
had as it happens has been unanimous. A11 10 directors
under the faws of Canada have a fiduciary
serve the interests of the company; i.e.,
which 1s a little different
obligation to
af l-
than U.S. wherestakeholders,
it's just the shareholders, so to be frank, I don't
really know whether it's
percent, but it. has not
worked in the interests
two-thirds or 51 percent or 90
been an issue. Al-1 of us have
of al-l- stakehol-ders.ActualIy,
shouldn't be
wi-th respect to the CEO, and we
it's a two-thirds vote on
just to try and be helpful, again, I know I
guessing on this,
should check this,
that, but I'm not
ODo
I thi-nk
I think
sure, but it's been unanimous so far.
you know whether the annua1 vote on the
retention of the person in your position requires a
two-thirds vote?
A I probably should know that. I just canft
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O If it does, would the Province of Ontario
have a controlling vote in that instance?
A No, Do, they have four
one of them, so I presume Ird have to
they woul-d only have three votes, but
think of it that way. There would be
don't know whether it's unanimous or
appointees and Irm
recuse myself, so
we don't rea11y
nine votes and I
two-thirds. We can
come back to
o
l-iberally to
that i-n front
A
o
you on that.
Good enough; so
your supplemental
of you?
Yes, I do.
So on page 2, you
introducing
there a new
I'm going to refer quite
testimony. Do you have
mention in your
us to the new board andtestimony that you're
the new CEO. Why is board and why is there a
new CEO? Do those in order. Why is there a new board?
A There's a new board because the government
chose to exercise its rights under that governance
agreement. That's the techni-cal reason. I can -- we1I,
l-et me just go on and stop me if I'm going too far too
fast, and I shoul-d te1l you, you may or may not know
thls, I think it was in my testimony, I had no prior
invofvement with this political party. f've had no
involvement with any poIltical party, but based on my
understanding of how the party fel-t during the campaign,t 25
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they chose based on, as I understand it, feedback they
received with voters of Ontario to make a change in Hydro
One, all with an objective of, I think and these are
my words, not the party's words sending a message that
things had to change with respect to the industry on
pricing, and Hydro One was given some profile in that.
They were aware that they had the right under the
governance agreement to replace the board and they took
that right, knowing that they would have just 40 percent
of the appolntees to the board. That's the background.
O And why is there a new CEO being put in
place?
A This became an j-ssue during the campaign.
The current CEO Mr. Schmidt had an increase in his
compensation, I think it was, either late 20L1 or early
201,8. That became a bit of a fl-ash point during the
election campaign, rightly or wrongly, fairly or
unfairly. It became an issue that the party, the
Progressive Conservative Party, hiqhlighted. I actually
do not know whether that was a feeling that there was not
sufficient consul-tatj-on or whether it was for any other
reason.
media, the
Schmidt to
As a resul-t, ds you may have read in the
Premi-er indicated that he woul-d l-ike Mr.
depart. He used dlfferent words, but that was25
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essentially the message. I'm sure the government knew or
the party knew, they were not in government at the time
on the campaign trai1, that technically, they did not
have the right to termj-nate the CEO. Some of the words
used on the campaign might have implied that, but there
was, fair to say as you perhaps know, there was
sufficient pressure bei-ng placed on this issue that Mr.
Schmidt, who I hadn't met by the wdy, I met him years
dgo, decided to depart voluntarily just given the reality
of the situation and the interests of the company.
O In your summary portion of your testimony
on page 2, you refer to a September 19th, 2078,
resolution acknowledging and affj-rming the merger
agreement. Do you recall that?
A Yes.
O Is that a written resol-ution?
A Yes, it is.
O Do we have a copy of that in the record
anywhere that you're aware of?
A I'm not sure. We can get it if we don't.
MS. THOMAS: We do not have a copy. We
can make one availabl-e.
0 BY MR. SEMANKO: Do you know why it's not
in the record, sir?
A I don't know. I don't see any reason why
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it shouldn't be.
MR. SBMANKO: Is
get before we proceed further?
dj-sconcerting, to say the l-east
throughout.
that something we could
I find that
ft's referred to
the resolution?
It will take a
COMMISSIONER KELLANDER: Letrs see, you
said you could get
NIq
minutes to locate
us a copy of
THOMAS: Yes.
it
few
Certainly
but it
and make copies and such.
the end of the l-unch break,we could have it by
will take a IittIe time.
COMMISSIONER KELLANDER: From what Irm
hearing from counsel, he would like to have that now so
he could refer to it directly; is that the case?
MS. THOMAS: I be]ieve the text of the
resolution is i-n the record.
COMMISSIONER KELLANDER: Letrs see if we
can identify that and perhaps that will help us move
along.
MS. THOMAS: We'l-l take a moment and do
that.
COMMISSIONER KELLANDER: We'l-l- take a
five-minute recess.
(Recess. )
COMMISSIONER KELLANDER: We'II go back onI25
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the record and before we l-eft, there
copy of the resolution. Let's see,
get what you needed?
was a request for a
Mr. Semanko, did you
MR. SEMANKO: So Mr. Chairman, I apologize
for the deIay, counsef for
the text of the resol-ution
Hydro One has
is contained
informed me that
Woods supplemental testimony and I do
reference to the resolution there. I
on page 79 of the
and perhaps this
testimony, that
see there's
guess f would ask,
Scarl-ettf s
we get an actual copy of the resolution.
I understand itrs spread in the minutes of a board
meeting, but this is not a copy of the resolution, so if
we could maybe get that later, I'11- bypass that l-ine of
questionlng on this witness if that's okay to allow that
time.
COMMISSIONER KELLANDER: Okay, any
response?
MS. THOMAS: The resol-ution as such i-s not
a standal-one document, but we will provide a copy of the
document that the board had before it when it passed the
resolution.
COMMISSIONER KELLANDER: Okay, thank you;
sor then,
Semanko,
can be handl-ed in Mr.
fet's go ahead and move forward and Mr.
please continue
O BY MR. SEMANKO: Mr. Woods, oD the bottom25
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of page 2 on to page 3 of your testJ-mony, you talk about
the letter agreement of July l-1th , 201-8, with the
Province. Do you recall that testimony?
A Yes.
O Why did Hydro One need to enter into this
addltional- agreement? You al-ready had the governance
agreement, right, with the Province,' correct?
A Yes, the governance agreement contj-nued in
force. The letter agreement, if I recall correctly,
deal-t predomlnantly with the terms of Mr. Schmidt's
departure and what vesting of some of his long-term
compensation. I think it was about a 1O-page document.
Most of it, as I recal-l-, related to Mr. Schmidt; however,
there was a paragraph, I'm going by memory here, that
reiterated that the governance agreement as between the
Province and the company remained in p1ace.
O Would it be fair to say that the letter
agreement sets forth Hydro One's arrangement with the
Province with regard to future governance of the
corporation?
MS. THOMAS: Your Honor, the l-etter
agreement is an exhibit to Mr. Scarlettrs testimony. If
it woul-d be helpful to Mr. Woodsr we can provide him with
a copy of it.
COMMISSIONER KELLANDER: I don't mind if
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you provide him a copy of
approach the witness, get
(Ms. Thomas
MR. SEMANKO:
it, so if you'd l-ike to
him a copy.
approached
Could the
the witness. )
court reporter
read back the l-ast question that I asked, please?
(The l-ast questi-on was read back by the
Notary Publ-ic. )
THE WITNESS: Well-, 1et me find the
reference to the governance agreement, which is the
document that does what you just said, but there's a
reiteration of it continuing to be in effect. Let me
just find that, unless you know exactly where that is and
you want to point that out to me. Here we are. It looks
l-ike on page there's no page numbers, but item No. 76,
do you see that, a reaffirmation? Okay, let me just read
it quickly to myself, ratifj-es and reaffirms its
obligations under the governance agreement and agrees
that, except as specifically set out in this agreement
with respect to the subject matter thereof hereof
rather. There's one, two subpoints. The execution shall-
not amend, modi-fy or operate any right, power, remedy or
provision under the governance agreement, so basically
it's my reading as a non-lawyer that just says even
though the two parties have agreed to this letter, we are
reiterating the continued effectiveness , if that's the25
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right word, of the governance agreement, and that was
certainl-y my understanding of this whol-e process.
a BY MR. SEMANKO: So would it be fair to
say that the governance agreement as reaffirmed in the
l-etter agreement provides the arrangement between the
Province and Hydro One with regard to future governance
of the corporation?
A Yes; however, I think it says except as
specifically set out in this agreement, so governance
agreement stays in
letter agreement.
O Fair
place, except as referred to in the
owns stocks 1n Hydro
enough, thank you; so the Province
One; correct?
A Correct.
a And is that stock an ownershlp interest in
the corporation?
A Common sharesr so that's the ownership
interest, that's correct.
O And what is the current percentage of
ownership by the Province?
A Approximately 47 percent.
0 Has it been higher?
A I think it was a l-ittle higher.
f can't remember. We can get that information.
let me sort of add to that. I mean, of course,
You know,
We11,
it wast25
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of shares, so it went from 100 down
to some number down to 4f, so
100 percent prior to 2075. They
of shares and they had at least
O So let me get
ago the corporation was 100
Province?
A Correct.
owned?
electrical
sol-d the initial block
one subsequent offering
to some number down
it's been declining.
this cl-ear; so three years
the
companyto
percent owned by the
0 And for how long was 1t 100 percent
A WeII, there was a reorganization of
industry in Ontario in 1998, I belj-eve,
correction, where the Province owned asubj ect
cal-1ed
assets
distribution assets.
That company held the generation
transmission assets and some of the
Generation and transmission and a
Ontario Hydro.
as wefl as the
bit of the distrlbution was broken up in, I believe,
1998. The generation continued and stil-I today for the
most part is owned by the Province. Hydro One as of
20L5, the public company, holds essentially all the
transmission and about 13 percent of the distribution
assets in the Province.
O So are you aware of any campaign promises
that were made by the current Premier or any legislation
that's been proposed that would reduce the ownership oft25
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the Province in the corporation bel-ow 40 percent?
A No.
O Are you aware of any campaign promises
made by other candidates who were not successful in this
past el-ection seeking to increase the percentage?
A You're testing my memory there. We have a
party in Ontario and throughout Canada called the New
Democratic Party, which is a more l-eft-l-eading party.
Something teIIs me, and we can check this, that they had
raised the topic of increasing that or maybe even taking
it back into government hands, but I just can't remember
specifically. That woul-d be not out of line with the
philosophy of the New Democratic Party.
O When is the next el-ectj-on for premier in
Ontario?
A Typically every five years, so we're about
six months in, so roughly four-and-a-half years from now.
It could be a l-ittl-e sooner than that.
A So things coul-d change in four-and-a-half
years ?
A Or they could remain the same.
O Based on the recent track record, campaign
promises have been acted upon by the Premier; correct?
A I think generally speaking. I haven't
kept track, but generally speaklng, the party has
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reminded voters that they have taken action on several of
the topics
scorecard.
O
that they have promised and f haven't got a
So under the governance agreement in its
the corporation, the Province is
not as a manager; correct?
role as a shareholder in
acting asa shareholder,
I believe
In that
the Provi-nce retained
so.
same governance agreement, hasn't
wholly its legislative authority
A
a)
over Hydro One?
A The Province of Ontario is no different on
this than any other government in the Western World to be
able to introduce leglslation on any topic that it sees
fit.
the governance agreement ino
front of you,
A
accomplished,
wltnes s ?
Do you have
sir?
f do not.
MR. SEMANKO:
please?
THE WITNESS:
MS. VANDER STOEP: May
Can we get that
Liz,
to
I can get it out of my
bag. Is that the easiest way do it?
COMMISSIONER KELLANDER: No, please stay
up there. We'11 see if somebody can bring it to
I approach
you.
the
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(Ms. Vander Stoep approached the witness. )
COMMISSIONER KELLANDER: Please, thank
you.
THE WITNESS: Thank you.
COMMISSIONER KELLANDER: Do you need a
second, Mr. Woods, to l-ook that over?
THE WTTNESS: Thank you. I'm familiar
with that.I'11 just wait for
O BY MR. SEMANKO:
a reference.
So Mr. Ialoods,
of contents,
if you
the page
top.
could go to right after the table
that is labeled "Governance Agreement" at the
Yes, I see that.
So in Recital A, can you read
A
o the flrst
four words there?
A "The Province has determined. "
O And then in B, it says, "The Province and
structure for
a significant
correct?
Hydro One wish
Hydro One given
and responsible
A
to estabfish the governance
the Province's position as
shareholder of Hydro One";
I see that,yes.
so what IO Al-1 right,'want to ask you about
is on page do you have page numbers at the bottom of
yours, Schedule 3?
A I have
O Okay;
page numbers at the top, yes.
so Iet's go to page 9t25
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A Yes, I have it.
O So 2.L.3.
A 2.!, yes, I see that.
O What does that tell- you?
A I' l-l- read it. Tt's a sentence. "The
Province shall-, with respect to its ownership lnterest in
Hydro One, engage in
One and the Hydro One
a manager. tt
way, "
to the
the business and affairs
Entities as an investor
of Hydro
and not as
O And that says with respect to its
ownership interest; correct?
A Oh, did I not say that?
O You read 1t correctly. f'm asking you.
A Yes, that' s correct.
O So the next section, 2 2, Interpretation
"For clarity, theof Governance Principles, 2
Governance Princlples, " and
first part of (d), please?
2.7 says,
then in (d), can you read the
A It's a long section, I I 11 just read
tell- me when to stop, so the lead-in, "For clarity, the
Governance Principles do not restrlct the Province in any
and then it's a smal-I (i),
regulation of Hydro One or
(i) says,
any Hydro
" i-n relation
One
Entity"
O Let me stop you there. What is a Hydrot5
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One entity?
A The definition of entity is in here
somewhere. f assume -- wel-l, 1et me read it. Let me get
the definition to be precise. Page 2 --
0 ft's page 3 at the bottom.
A It's not defined
a Hydro One Entity, L.7.24.
A Oh, "Hydro One Entity means any Person
controlled directly or indirectly by Hydro One where
'control-' has the meaning gi-ven to that term in the
take-over bid rul-es under Ontarlo securities Laws. "
O Woul-d that include wholly-owned
subsidj-aries of Hydro One?
A Let me just read this again. It means any
person controll-ed where control- has the meaning given to
them in the I'm assuming it does. f don't know
whether Avj-sta woul-d be caught by that or whether that's
excluded somewhere, but my non-lawyer interpretation of
that would say that it includes whoIly-owned
subsidiaries.
O Okay; so 2.2.1(d) we've established does
not restrict the Provj-nce in any way under sub (i) in
re1ation to the regulation of Hydro One or any Hydro One
Entity; correct?
A Thatrs what the words say.
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O So letf s go to sub (i j- j, ) there.
A Yes.
O What does that
A Sub (iii) says,
enforcement of Ontario Laws
say?
"in rel-ation to the
any Hydro One
amendment of
o
A
o
A
mean.
applicable
enactment,
to Hydro One or
promulgation orEntity or the
such Laws. tt
So that's not
One
restricted; correct?
I'm sorry?
Thatfs not restricted; correct?
Not restricted, I'm not sure what you
O " (d) do not restrict the Province in any
way (ij-i) in relatj-on to the enforcement. "
A That's what the words say. I'm not sure
how I can add to that, "do not restrict the Province in
any way in relation
applicable to Hydro
to the enforcement of Ontario Laws
or any Hydro One
2 talks, does it
Entity. "
not, about the
obj ectives
woul-d with
O Now, 2
Province intending to
through legislatj-on
respect to any other
that correct?
A Yes,
2
O Is that what
achieve its policy
or regulation as it
utility operating in Ontario; is
that's what the words say.
you were referring to25
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earlier?
A Essentially, that's right. I mean, my
statement was the obvious general statement that
governments retain the right to introduce legislation at
their pleasure and this is a little bit more specific in
that 1t ties into utilities operating in Ontario.
O So 2.2.2 that we just reviewed is separate
from 2.2.7(d) ; correct?
A It's a separate paragraph. Itm not sure
how I can help you any more than that.
O Is 2.2.1(d) specific to Hydro One and
Hydro One entities?
A Wel-I, yes , 2.2. 1 (d) , sub (j-ii) refers to
no restriction on Hydro One or Hydro One entity, correct.
Again, I don't know whether entity in some other document
carves out Avista. There's plenty of carve-outs in this
proposed transactj-on, but
0 A11 right,
any more of t.he governance
that for Mr. Scarlett. I
that is the way the words read.
I think I'm going to spare you
some of
does Hydro
agreement and save
appreciate that; so
One have an interest in its who1Iy-owned subsidiaries?
A I'm not sure if there's a subtlety that
I'm missing, but an interest in a whoIly-owned subsidiary
means 100 percent equity ownership, so f'm not sure. Is
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missing?
O I'm si-mply asking you a question to try
and establish some facts. Does Hydro One have an
interest in its whol1y-owned
A I think, yes,
unfess there's something that
want to be
subsidiaries ?
I wou1d think so. I mean,
you're trying to get at
that I'm not catchj-ng, the answer is yes.
O And post closing, would that include
Avista?
A Just repeat the complete question.
sure there's a subtlety on entity that
I just
I rm not
mr_ssr-ng.
0 After the closing of this transaction,
wil-I Hydro One have an interest in its wholIy-owned
subsidiary Avista?
A Subject to check, I bel-ieve there's an
intermediate company cal-Ied Olympus. There may be more
than one company and this is all, I think, disclosed or
we can certainl-y get it to you, so I'm virtually certain
in saying it would not be Hydro One and Avista. There's
at least one company in between.
O So my question was, woul-d Hydro One have
an interest in Avista after the closing?
A I do not believe a direct interest, but
what I think of as a non-lawyer an indirect interesto25
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Hydro One Limited
through an
the facts,
O
intermediate company or more. I'm not sure of
but
you talk about
One' s articl-es
than 10 percent
testimony?
A Yes, I do.
O Do you know why the Act and the bylaws
preclude ownership over 10 percent by anyone else?
A I don't know the specific reason. I mean,
there's public poficy that 1n Canada, and I think in
other countries, I bel-ieve has an objectj-ve to have wide
ownership in Canada in the medj-a busj-ness, for example,
and I think at one time maybe still in the airline
business, so 10 percent is not uncommon as a public
polj-cy objective to ensure widespread ownership.
O So Mr. Karpen asked you about the 40
percent
A Yes.
O so why do you suppose the Act and the
bylaws preclude anyone else from owning more than 10
percent and dictate that the Province must own at l-east
40 percent? What's the purpose of that?
A I don't know how I can say it a different
at l-east one company.
Thank you. On page 4 of your testi-mony,
the Ontarj-o El-ectricity Act and Hydro
precluding any person from owning more
of Hydro One. Do you recall that
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Hydro One Limited
way. Again,
I'm familiar
I don't know what the thinking was in 1998.
with
policy objective
inferring that is
other industries where the pub11c
was to have widespread ownershipr so I'm
the case here. That's my assumption.
O But if the Province has to own at l-east 40
percent and under your governance agreement, they're
given a preemptive right to acquire 45 percent of
anything new, how is that spreading the ownership, so to
speak?
A The public policy at the time was for the
government to own at l-east 40 percent. Beyond that, I'm
assuming there was an objective to have widespread
ownership. f 'm not denying the rea1J-ty of the 40 percent
interest. Irm just saying beyond that, it appears to be
an objective to limit other shareholders going beyond 10
percent.
O Could a purpose of the Act and the bylaws
be for the Province to maintain some l-evel- of control-
over the corporation?
A I don't think so. I think 10 percent is
quite common in several- industries in Canada, so I think
it would just be consistent with other industries.
O The 40 percent?
A No, the 10 percent.
O I'm asking about the 40 percent.25
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Hydro One Limlted
A
0
maintain some
corporation?
A
What is your question?
Could a purpose
l-evel- of control-
of that requirement be to
by the Province over the
assumlng
control-.
the objective
invol-ved back in 2075, the
100 percent l-ower, should
percent was established.
di-scussion about control-
You know, I know your question, I'm
your questi-on, hinges on the definition of
f'm not a lawyer. I don't know whether that is
or not. I am assuming
Province
that, and I wasnrt
felt that moving from
lower boundary, 40have some
I don't know that there was any
or words to that effect.
0 I appreciate that, thank you; so on page 6
of your testimony at the top, you mention certain things
that are required by the governance agreement, I think,
with regard to qualifications of directors. Do you
recall that testimony?
A Yes, I do.
O So the question I have after revj-ewJ-ng
this testimony is, is it your view as the Chair of the
board of Hydro One that the governance agreement is an
essential controlling document for Hydro One?
A Again, I know you're probing on precision
of words here. Essential- controlling document, I would
frame it as it's a very important reality that thlst25
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company is living with. Secondly, f would say it was put
in place to protect investors, to clarify the
rel-ationship, and as a board, we are living with that
document and it's not a particular constraint. It's just
a recognition of the understanding that this company was
taken public under back in 2015. I don't see it as a
control-ling document. I think it's a clarification of
the relationship.
O And that agreement is solely between Hydro
One and the Provincei correct?
A Yes.
A Again,
connotation. I'm assuming so, but
a legal answer
O Isit only enforceable
enforceable has
know what law
by those parties?
a 1ega1
I'd prefer Mr.
to that.
applies to the
Scarl-ett to give you
a Do you
construction of that agreement?
Mr. Scarl-ett could tell- you. I'm assuming
don't know.Ontarlo, but I
O Thank you,' so on page J, you mention some
of the individuals that were nominated by the Province to
the board. My question is with regard to l-ines 11
through 74 when you're talking about Ms. Brant, it says,
"Eirst Nations-fed l-imited partnerships in Canada
resulting in the Ontario First Nations Soverei-gn Weal-th
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Hydro One Limited
LP's share purchase of approximaLely 2.4
One. " Do you recal-l- that testimony?
A Yes.
O Where does that fit in in
One? Second? Third?
percent of Hydro
the hierarchy of
Fourth? Do youownership in Hydro
know?
Arr
the government.
would be amongst the highest apart from
O Would it be second?
A I donrt know whether it's second. It
wou1d be right up there.
O And are Eirst Nations tribal governments
in Ontario?
A Yes. They may be in other provinces as
well. I t.hink that's a more generj-c description, I
believe. No, it's capitalized, so it's not a generic
description.
O Irm sorry, I should have asked you in
Canada.
A Yes, perhaps beyond. I don't know that
the well, 1et me just stop there.
O Al-l- right; so l-et's go to page L6 of your
supplemental testimony; so l1nes 10 through 12, you
mention Hydro One's governance policj-es, procedures and
practices listed in Schedu1e C to the governancet25
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Hydro One Limited
agreement
or is it
to your
somethj-ng
A No,
agreement, so, again, how essentiaf is the governance
merely a guideline
the only guideline, but
Itrs a legal agreement. We
Ontario Buslness
operations? fs it
more than that?
it's a legal agreement. It's more
than a guideline. It's not
wel-1, it' s not a guideline.
have other guidelines.
O Why isn't the
Corporations Act which you refer to in the next paragraph
Why do yousufficient for the
need this agreement
A AsI
wasn't i-nvof ved in
governance of Hydro One?
with the Province?
touched on before, and agaln, I
20L5, but my understanding from
speaking with individuals who were involved that this was
an added degree of comfort for investors and for both
Hydro One and the Province to clarify the rel-ationship.
This was a government-owned company going public and I am
tol-d the sections described in the governance agreement
were helpful clarification and reassurance to all parties
before it went public, so in addition to the OBCA, this
was viewed as being helpfu1.
O So are you familiar with or invol-ved in
any corporations in Ontario that are governed under the
Business Corporatlons Act?
A Let me see. This is the only publict25
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Hydro One Limited
company I'm involved with at the moment in Ontario, so I
think the answer to that is no.
O Any other companies in Canada that are
subj ect to the same l-aw?
A Well, the OBCA 1s a Provincial, so there
would be simil-ar, but I think that's probably your
question.
O It is.
Yeah, I'm only involved in two public
and one is in the Unlted States and so
A
companies
the answer
today
r_s no.
O On page 77, you discuss the new CEO
sel-ection process. Lines 19 through 24 you talk about it
being the highest priorlty in the comj-ng weeks and
months, that there's a selection committee being
established, executive recruitlng flrm being picked, and
then interviews and negotiations. Do you recall- that
testimony?
A Yes, I do.
0 Where 1s that in the process currently?
A ft's well- advanced. We have interviewed a
number of prospective candidates. We're getting down to
the end of the process. We've got a smal-l number of
candidates who we feel- are attractive and we're getting
near the end.25
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Hydro One Limited
O So there are negotiations currently
ongoing?
A Yes.
0 Is the Province involved in any way,
shape, or form with those negotiations?
A Not wj-th respect to the candidates. We
have not discussed candidates with the Provi-nce. This is
the exclusive purview of the
been in discussions with the
board of directors. We have
Province on the
framework, which you may recall is referred
compensation
to in the
Hydro Accountability Act that came out in the summer, so
the two have to come together, so they are involved to
that degree, but not with respect to the nami-ng or indeed
the names of prospective candidates.
O And you were selected interim board Chair
before you became permanent board Chair through an
agreement with the Province; is that correct?
A The Province and the outgoing Chair
representing the investors came to the agreement that
until- a permanent board chair was selected that I wou1d
be the interim Chair, really to lead the first meeting
and it was somewhat short-lived, because the first item
on the agenda in the first meeting was to appoint the
permanent chair, so in effect, I was the j-nterj-m Chair
for a period of about a month, but there was no realI25
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activity apart from settlng up onboarding sessions and
coordinatinq with the other nine members of the board.
O Thank you. Page 19 of your testimony,
you're asked a lengthy question at the top of page 79
asking if you're aware of any directive from the Province
that would cal-f lnto question the merger, et cetera, et
cetera, and you answer no, youtre not aware of any such
directive. Do you recall- that testimony?
A Yes, I do.
O Can the Province issue such a directive?
A I believe in Bill- 2 there is a reference
to directives, but I believe it's limited to
compensation. ft's a very short section in Bill- 2, two
or three pages, so we can verify that. Having sai-d that,
the reality is back to the discussion we had a few
moments ago on legislation, the Province can issue
legi-sIation, so that's the ultimate directive, I suppose.
We have had none of that in the four months that I have
been involved. I do not expect that to happen. The
success of this board wil-l be vj-ewed by the Province ds,
I feel, to reflect well on the Province. f think it's in
both our interests for there to be a continuati-on of the
no interference circumstance that I have seen in the l-ast
four months.
O And on the flip side of that relationshj-p,
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Hydro One Limited
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Hydro One Limited
I 25
85
can Hydro One control what the Province of Ontario
chooses to do?
A You know, Mr. Semanko, I think that's just
a different way of asking the question can they issue
legislation and as Irve saj-d, they can issue legislation
any time they want. I don't think that's going to
happen. I don't think it's in their interest for that to
happen, but any government in the Western World can issue
legislation, and we referred to sections relating
specifically to utilitiesr so that coul-d happen. I do
not think 1t will happen.
O I appreciate that, but my question is
what, if aDy, contro1 does the corporation have over the
Province of Ontario?
A There's no 1egal control for the reasons I
just mentioned. I think there's a de facto alignment
here in that the Province wants this company to be
successful. fs that a control? I actually vj-ew it as a
control. I think we have aligned interests here. Does
that meet the definition of control? There's no Iega1
controf, but I think -- and that's why I took this role
and that's why the other nine members of the board took
the role to operate this company independent of
government, subject to the governance agreement, subject
to Bill 2.
I 1
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O So would it be fair to say following up on
that answer that Hydro One has an arrangement with the
Province with regard to governance of the corporati-on?
A An arrangement , if l-et me be direct.
We have to live with the governance agreement. We have
to l-ive with Bill 2, but our interests are very much
al-igned, so is that an arrangement? I guess so, but it's
quite transparent and buttressed by continual
conversations as between the company and the
qovernment.
O And with regard to the board resolution
that you referred to on page L9, just to clear the record
up here since there aren't any quote marks or references
to a specific document, is that your recoll-ectj-on of what
the board resolution provides, lines 74 through 23?
A Yes.
O Do you know if j-t's verbatim from the
resolution?
A Do I know? I have not compared this with
the resolution. I'm relyj-ng on counsef to have
transcribed it accurately, but there's nothing in there
that raised my antenna that something might have been
transcribed incorrectly. That's my recol-l-ection and we
can check it.
O Do you recal-l if thatrs a complete
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Hydro One Limited
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Hydro One Limited
description of the resol-ution or i-s there more?
A If m assumj-ng there wou1d not be more that
was substantive; otherwise, 1t would be there, but I
can't tel-l you
it woufdn't be
o
that with certainty. No reason to think
complete.
Chairman Woods,would you consider the
Province of Ontario to be a passive j-nvestor in Hydro
One?
A Again, we seem to be honed in on words,
which f don't mean to minimize, because words are
important, I view -- f meanr oD a continuum of passivity,
I suppose. I mean, index funds are completely passive.
Small- shareholders are somewhat passive, smal1 holdings
of shareholders. Large shareholders, 11ke the First
Nations, for example, I've had two meetings with that
representative, they're very interested in what we're
doing and f've given them information. No material
non-public information has been passed. The Province I
meet with regularly, so are they passive? No, I don't
vi-ew them as passive. Are they active and i-ntrusive?
No, so I hope that continuum helps me anyway think about
maybe how to answer your question about passive, so the
short answer is they're not passive in the way an index
fund or a small holdlng shareholder woul-d be. They're
very interested and we want to have a good relationship.otr
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Hydro One Limited
0 How often do you meet with the Province?
A Irve been meeting in the four months
probably once every two weeks. At the beginning probably
once a week.
O fs there a particul-ar purpose for those
meetings?
A Just dial-ogue; keeping them up to date on
progress; how the board is coming along with our
committee structure; keeping them posted j-n general terms
on the CEO search; more just checking in. Thisr ds you
know, is a new government. The point of contact I have
is an experienced civil- servant, but someone new to this
portfolio, so it was important to the company and me that
I have regular dialogue. These are short meetings, more
update meeti-ngs.
O So during any of these regular meetings
have you discussed this merger?
A Yes, f have discussed with this individual-
progress on regulatory hearings such as this, timing of
expected approvals and closi-ng, but no materj-al
non-public information has been conveyed.
Sure, and who is that person?u
A
R-h-o-d-e-s.
0
Stephen
He's the
And has
Rhodes, Stephen with a p-h and
Deputy Minister of Energy.
he expressed any interest in this25
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Hydro One Limited
merger during
A
your discussions with him?
frrterest in that he likes to be kept up to
have other
pubIicly, that
date, but
members of
he has made it very cl-earr ds
government-elected of ficials
this is a matter for Hydro One and not a matter for
government.
O Is he supportive? fs he opposed to it?
Does he not care?
A .fust as I said, there I s been no opinlon
expressed that I'm aware of or that I have heard. There
have been press conferences where this has been asked, or
at least one press conference, maybe more, but one I'm
familiar with, where the Minister and the Premier
explicitly said this is a matter for Hydro One.
O Thank you; so on page I'm sorry, I'm
into your rebuttal testimony now. Page 3 of your
rebuttal- testimony, do you have that in front of you?
I'm sorry to switch gears on you.
A That' s al-I right.
O I'm trying to move aIong. Lines 11
through 19, you're asked if
Province wil-I interfere 1n
l-ine L6 you
intervene in
sdyr "f expect
Hydro
participating l_n a
have concerns if the
One's management and at
the Provi-nce wilf not
you
Hydro
that
One management other than
l-imited manner on certain compensationt25
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Hydro One Limited
matter as set forth in the Hydro One Accountability Act."
Do you recall- that testimony?
A Yes.
0 So the Province did intervene in Hydro One
management when it comes to the board and the CEO;
correct?
A Again, werre on words again. f would
frame it I'm not trying to be evasive here, but the
facts are the governance agreement gave the government
the right to replace the board and it did that. With
respect to the CEO, there's I don't think there's
anything specific in the governance agreement on that,
and I apologize for repeating myself, but it just helps
me orient, because the word i-ntervene, I feel like you're
looking to me to say yes or no to that word and f'm
having troubl-e doing that. I think it fol-l-owed the
process in the governance agreement.
The governance agreement worked. It was a
process. We
effective.
now have a board that I think is very
I think the government is
so thatrs the
quite satisfied
with the path we are oD,way I look at it.
I don't vj-ew it as binary, intervene or didn't intervene.
I view it as a consul-tative process. They dld take steps
that were quite unusuaf, but those steps were
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O Understood, I appreciate that, and they
did intervene in a limited manner on certain compensation
matters as set forth in the Act; correct?
A Again, with respect, I think you're, I
don't want to sdy, playing with words, but if you read
the words, I expect the Province wil-I not intervene,
okay. Now, just forgive me. Maybe you are correct.
Other than participating, does other than imply that we
feel- they are intervening, I don't know. I mean, they
have rights under the governance agreement to approve the
compensation that we propose. f don't view that as
intervening. I mean, maybe f can see how a reader might
interpret that.
Everything I have witnessed in my
discussions with the Province is that we are aligned.
Compensation is important. We will- be putting framework
to them shortly. We know that the Province has approval
rj-ghts on that, but we think we're going to be able to
come to an agreement that wil-l- allow this company to
attract and retain very talented peopler so j-s that
i-t's intervention ifintervention? Perhaps it is, but
you
in
want to take that word that we are comfortable with
this relationship
O Thank YOU,
me ifestablished, correct
going forward.
and I think we've already
I'm wrong, but that both the25
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Hydro One Limited
removaf, replacement of the board, and the CEO and this
compensation j-ssue were campaign promj-ses by the current
Premier; is that not correct?
A Just repeat those three again,
certainly.
0 The
the CEO and dealing
all promises of the
removal, replacement of the board, and
with these compensation matters were
Premier,' correct ?
A WeII, I have distinct memory that the
board; distinctPremier sald he wanted to replace
CEO to
the
memory that he
that there was speclfic reference
compensation matters, but that was I mean,I grant
I'm notthat was central- to the whole topicr so
to quibble on that, but it was rea11y the first two
were the main profile items in the campaign.
O Do you recall whether Premier Ford made
wanted the depart. I don't know
in the campaign to
YOu,
going
that
other campaign promises related to Hydro One?
A Not specifically to Hydro One. As you may
know, there were, and I woul-d tend to say that there
were, promises. Now, what the timing of those would be
remains to be seen as it relates to electricity prices in
the Province being reduced by L2 percent. That was quite
a profile item in the campaign, yes. Not specific to
Hydro One, but to the industry generally.25
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O So just to be cl-ear, the board and the CEO
were both gone l-ess than two weeks after Premier Eord was
sworn in; correct?
A The election was June the 7th. I think
the departures were July the 11th. I just can't recall
when he was sworn in, but it was in that intervening
perlod. Perhaps it was two weeks.
a In any event, it was pretty quickly;
correct ?
A WeII, it was sometime between June 7th and
July 11th. However you want to characterize it, it was
quick.
O Are you famil-iar with the campaign promise
by Premier Eord with regard to reducing rates for
consumers, electric utility consumers, in the Province of
Ontario?
A Yes, that's what I just mentioned, yes.
a So are you aware of any steps,
conversatj-ons belng taken, being held with regard to that
topic?
A
discussions
generators,
well as the
Yes. My understanding
are being held within the
the transmitters, and the
is extensive
industry, the
distributorsr ds
organization call-ed IESO, which is an acronym
our peoplefor an oversight body for transmission, and25
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Hydro One Limited
are involved in those discussions. I'm not personally
involved, but there
can contain costs to
are ideas being generated on how we
consumers in Ontario.
O So these discussions Hydro One
involved in, are they precipitated by Premier
campaign promise?
A I think it's
escafated by that given the
been held on thj-s topic for
escafated given the profile
fair to say they've been
is directly
Ford' s
Discussions have
but they've been
issue has received
was sworn in, yes.
profile.
some time,
that this
during the campaign and since Mr. Ford
O Is the Province involved in these
di scus s ions ?
A You know, I don't know. I'm not involved
myself. Again, in an effort to he1p, subject to
checking, I suspect there have been l-ots of dj-scussions
without the Province. The Province has got expectations
be proactive on this. They
some of those meetings. I'm
think it's fair to sdy,
here that the industry will
may well be at the table in
not sure. They're not I
subject to Mr. Dobson later when you cross-examine him
correcting me, the industry wants to and wants to be seen
to being proactive on this rather than having the
Province say you must do this. This is import.ant in the
Province and we're trying to play our part.25
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O So could these discussions cul-mj-nate in
legislation?
A
legislative
discussion
CASC.
As I said, there could well be. They have
rightsr ds I said earlier. Therers been no
that I am aware of that that woul-d be the
O Could these discussj-ons culminate in a new
letter agreement?
A A new letter agreement. I suppose
anything is possible. I think that would be unlikely.
0 Was the current July 11th letter agreement
not a response to threatened legislation?
A As I said, j-t was in an effort to deal
with Mr. Schmidt's compensation. I don't know the
background about whether that was part of the
negotiation. It's possible that if the Province felt
that the company was not prepared to act expeditiously on
this, they always had that legislati-ve right, but it was
done on a negotiated basis.
O On page 4, you spend some time talking
about your decision to agree to take on the position
you're in. Do you recal-l that testimony?
A Yes.
O And you said that it was very important
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independently. Do you recall that?
A Yes.
given the profile that this board has
I wanted to be sure that I'd given it
because it was an unusual step for a
as we discussed 30 minutes ago or so,
ref lect on it. I consul-ted with some
friends and advisors and met with the
decide to step down,
and had in Ontario,
a Lot of thought,
board to be replaced
so I just wanted to
of my cl-osest
Premier, met with
O
A
I've done a
Why was that a concern
In my consideration of
fot of thlnklng and
a board andawkward if you join
that I just described about
for you?
boards general-1y,
research, because it's
then
some of his staff, and made the decision that this was
important, challenglng, perhaps, because at the time I
did not have the benefit of the four months that I've
involved now looking back andbeen
Ievel-
word,
qulte
tempted
but it
feeling
Iack of,
the comfort
to use your
approached it
I mean, ftm
intervention
methodlcally
to say in the
was more than
or interferencer so I
and I don't know that
same way
that just
I approached any board,
given the profile.
page 5 of your rebuttal
asked if you believe thetestimony
Hydro One
abllity to
a Thank you; so on
at the bottom, you're
Accountabillty Act could impair Hydro One's
attract and retain talented management. Do25
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you recall that
A
r)
that executive
testimony?
Yes.
Is it your understanding under the Act
compensation has to be approved by the
Provi-nce?
A Yes, and that's what
before. In the three pages in the
I was referring to
Act, there is
approvrng a
of what that
reference to management board of cabinet
compensation framework. The delineation
framework would l-ook like we're still discussing, but
it's fair to say that the Provj-nce has to be satisfied
that the compensation we're paying to executives as
def ined and we're assumj-ng that means all- vice
presidents, which wou1d be some 30 or 40 people. Whether
in benchmark numbers or names, w€ havenrt reso1ved that
degree of detail. It has to have the support of the
Province, y€S.
O So I'm l-osing track, but this morning
we've dj-scussed in terms of the relationship between
Hydro One and the Province, the governance agreement, the
letter agreement, the Hydro One Act, are there other
documents that evidence the relationship between Hydro
One and the Province besides those three?
A Those from a governance point of view,
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don't think that' s what you're talking about, but as it
and compensation, thoserelates to governance and board
are the three, correct.
O Are you aware of any others coming down
the pj-ke?
A No.
O Is your company obligated to fol-Iow the
l-aws of Ontario?
A I believe -- perhaps I should know this,
but I believe we're constituted under the laws of
Ontarlo, but Mr. Scarlett can verify that.
O So if the J-ndependence of the board
somehow disappears, you're free to leave; correct?
A A board member is free to leave any
time.
O How about customers, are they free to
leave ?
That sounds fike a provocative question.
Strike that. That's what happens when you
ask a questj-on thatrs not a prepared question.
A I' ll- f orget you said that.
O Al-1 right, page B, Provj-ncial- Influence
Over Avista, you're asked, "Do you know whether or how
the Province infl-uences the appointment of the
independent members of Avista's board?"
A
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And your answer
have no role in selecting any
"The Province will-says,
of the
directors to the post-merger Avista
independent
board"; is that
correct?
A Yes, it I s correct.
O Okay, and the Province wil-l- have no
lnfluence over the post-merger operations of Avista, do
you believe that's correct?
A Just remj-nd -- I mean, I'm sure it is, but
what line are you on?
a Ifm sorry, fines 13 through L6.
A Sel-ecting the
O No influence over the post-merger
operations of Avista.
A Yes, that is correct.
0 Is that regardless of what the Premi-er may
choose to do or the legislature?
A Regardless, again, this 1s getting into
J-ega1 territory, but f am assured, and I have no reason
to doubt this, that the Province has no legal right to
legislate anything relating to Avista. Mr. Scarl-ett can
give a much better answer, I suppose. That was the
underpinning for my testimony that you just read.
O Wou1d your testimony change if the
Province had the ability to affect Hydro Onerso25
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who1ly-owned subsidiaries?
A I think the anchor, if f can use that
word, to the board's comfort here is that the board has
the independent right to oversee the operations of Hydro
One, including subsidiaries, J-ncluding everything except
things that are explicitly set forth in legislation or
the l-etter agreement or the governance agreement, so any
subsidiary, Avista or otherwise, would fall- into that
same category. We the board have the unilateral purview
over that.
O So under the governance agreement, does
the board have the sole purview over termination of the
CEO?
A You know, I'd have to refer to I'm
assuming it does. I just can't remember whether it's
explicitly stated there. We view that as our right for
sure. Whether itrs the governance agreement or just
statutory l-aw under the OBCA, I don't know where that's
handled.
O So was it foreseeable that the CEO coul-d
be removed through a process other than the governance
agreement before it happened? Was that foreseeable?
A Was it foreseeable. This is before my
time. I think it was unexpected. The governance
agreemenL, my recollection makes no -- well-, f'm certain
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Hydro One Limited
of this. I suspect you are as wel-l-. The governance
agreement gave the Province the right to replace the
entire board without the CEO, so technically, under the
governance agreement, there was no right to replace the
CEO. As werve discussed, this became an j-ssue. The
Premier on a number of occasions indicated that he would
Iike the CEO to depart. He used different words. f'm
just repeating what. I said beforer so explicitly, therers
nothing
Scarlett
in the governance agreement, subject to Mr.
correcting me when he's up here, but the dynamic
Schmidt decided toof the campaign was such that Mr
retlre.
O I think you understand the reason I'm
asking these questions. Your statement on l-ine 13 says,
"The Province wil-l- have"; correct? That's future
Iooking; correct?
A Yes.
O How can you know
universes in the future of what
all of the possible
the Province may or may
Hydro One?
fair point. I think all-
be
not choose to do with
A Okay,
of this has to be set
government in
legislation.
That's why we
against the backdrop of any
the Western World can introduce
I do not think that is going to happen.
took this, so these statements have to
regard to
[o, it's a
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read against that backdrop.
O So what if in some future campaign
four-and-a-half years from now one of the candidates for
premj-er thinks it's horrific that executives of one of
the wholIy-owned subsidiaries of Hydro One residj-ng in
the states, Spokane, have executive compensation way and
above what has been establ-ished for executj-ves through
the arrangements we've just discussed and says, "I'm
going to fix that," and he wins or she wj-ns, what could
happen then?
A Nothing. My understanding is that such a
candidate, if successful, would have no ability to make
that. happen. Again, Mr. Scarlett can te1l you why, but
there's quite robust ring-fencing to ensure that those
are Avista responsibilities and nothing can be done in
the Province of Ontario to do what you just said.
O So is it your understanding that the
recently-passed Act that affects compensatj-on
speclflcally exempts Avista from potential coverage?
A Yes.
O Thatrs written into the Act?
A I believe so, yeah. I mean, we can refer
to it.
O Is it possible a future act won't include
that exemption?
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A I hate to sound like I'm repeating myself,
but any government has the right to introduce any
legislation. I do not think that wil-l- happen.
0 Does the governance agreement not preserve
the power of Ontario over Hydro One and all Hydro One
af f il-iates ?
A There's nothing in the governance
agreement that takes that legislative right away. I do
not think it's going to change.
O So would the Province of Ontarj-o have the
ability to require Hydro One and its wholly-owned
subsidiaries to se11 any particul-ar hydro assets to raise
money for the Province as a shareholder of Hydro One?
A Not without speclfic legislation, which I
do not think will- happen. They maintain that legislati-ve
right to do what any government has the right to do. I
believe this government has taken the steps it chose to
take to put Hydro One on a slightly dlfferent path than
it was before to rej-nforce the fact that costs, including
compensation, are important; appointed four of us to be
their representatives; as agreed to the six other people,
they had rights to approve them, subject to the criterj-a,
and, you know, itrs up to us to run this company
successfully and I think if we do, it reflects well- on
the Province.
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Hydro One Limlted
MR. SEMANKO: I appreciate your time.
That's al-l the questions I
THE WITNESS:
COMM]SSIONER
move now to the Commissi-on
have. Thank you very much.
Thank you.
KELLANDER: Thank you. Letrs
to see if there are any
do have aquestions before we head to redirect and I
couple, Mr. Woods.
EXAMINATION
BY COMMISSIONER KELLANDER:
O You had referenced that one of the reasons
for the merger was compatible culture, so what impact
does the board have on that culture?
A I would say, Mr. Chair, a reinforcj-ng
ro1e. I think the senior management is reaIly the core
of the culture, not just the senior management, the
leadership senior management, so a board can reinforce
that. I personally met the five independent directors
that we're proposlng and I think they'd work very well
with the directors of Hydro One and at some point we'd
fike to get them together, so I think it's important, but
CEOs rea11y run these organizations and their management
teams, many of whom have already met, have both walked
away feeling good about the cultures that we have and theo25
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WOODS (Com)
Hydro One Limited
similarities.
which you're the Chair, has
A I think, you
sunrmer have caused a l-ittl-e
the CEO depart.s, you have
affected just how people
been some media articles
O So in terms of the culture of Hydro One of
the culture changed?
know, the events of the
uncertainty.
to recruit a new
Obviously, when
CEO, so that's
company. Some of
rea11y unfounded.
have a presence.
feel about the company. Therefs
that have been critical of the
think, were quite unfair and
what the board has done is to
those, I
I think
I'm i-n the office virtually every day
a non-executive, but I think in
a great acting CEO in Mr.
the l-ast four or five months,
that I'm in Toronto. frm
this situation, we've got
Dobson, but I thlnk over
there's a period here that we've got to bounce back from.
The core culture, interestingly, we had
I guess the board had been in place about two weeks and
after one of our onboarding sessions, we had a reception
for the 35 or 40 vice presidents and it's a fantastic
group of people, and I'm not just saying that, and beyond
that group, the people in the fi-eIds, I won't get on my
podium for too 1ong, but just to let you know why these
things are similar and why the boards can play a
supporting role, Ontario and Washington, Oregon, Idaho,
and Montana, same geographic area, 400,000 square miIes,25
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WOODS (Com)
Hydro One Limited
same population, largely rural-.
The people doing the hard work in the
fields, and I'm not going to go overboard on this
analogy, are very simil-ar. We had 30 people, 15 from
each organizaLion, in Minneapolis meet a month ago and
the ideas that have started to percolate there are
fantastic, so the cultures are similar, but we have to
bounce back from this. I think when werre ready to
announce the CEO, that will start the process and the
board is going to be there to support it, but it's rea11y
the management team that drives this.
O Okay, but as far as the
at
board's position,
is back when thethen, I guess what I'm trying to get
merger was initial-Iy announced, there was a lot of tal-k
about the cuftural slmil-arities, So it's safe to say that
there are some unknowns with regards to what at least the
culture of the board might be
A Well-, f | 11 tell
going forward?
You,
Again,I'm not going to get
on my soapbox, but we've had probably in four months
eight or nine meetings and probably 30 committee
meetings, So it's a different board, it's a smaller
board, but it's quite an active board, so I think that
will settle down as we get a CEO and a renewed management
team that has the focus of developing a strategyr so
I've never been on a
board that's worked as hard.
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we I re going through what f see as a transition period
here, but it's one where the board has taken, I think, a
real leadership role.
O Let me move away from that a bit and thank
you. In my limited experience with owning stock,
occasj-onally I get something in the mail and there's a
vote of shareholders and there's a box that needs to be
checked either yes or no based on the issue that might be
in front of us, and I can tell you in my househol-d I'm
not the one that gets to check that box, but f'm
wondering, though, with the Province, who actually checks
the box? Who is that individual that checks that box and
votes those shares?
A From a technical point of view, f don't
know, but I can tell you the oversight responsibility
rests in the Minister of Energy. Now, he has a longer
titIe, natural resources, mining, and First Nations, Mr.
Greg Rickford, so he has oversight responsibility and Irm
assuming he would be the one or one of hi-s people wou1d
vote the shares.
O So he would dj-rect them to check the box.
Who appoints him?
A The Premier. He's an el-ected official,
but the Premier appoints him.
O The Premier appoints him?
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Hydro One Limited
A Yes.
O So that appointing authority has some
degree of significance, then?
A Yes.
O Okay; so as you get ready to check that
box and you're that indlvidual, who do you consult with?
f 'm assuming j-t's not an open public process. How do
they know what direction the Province wants to go as it
relates to voting on shares? Who has that infl-uence?
Who do they have conversations with?
A The civil servants, the professional-
bureaucracy is the word that is used sometimes
pejoratively, but they're very hard working. These are
the permanent employees of the government in the Ministry
of the Energy headed by Mr. Rhodes, so there woul-d be
constant dialogue as between the professional- civil
servants and what are known as the political staffr So
Mr. Rickford has his political staff, the way any
minister does in the Province, and he has the benefit of
the hundreds of people in the full-time energy department
who are the day-to-day contacts with in our case Hydro
One, but other companies that. they oversee.
0 So staff has that much influence over the
way the vote is cast?
A WelI, you phrased it as to who they25
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Hydro One Limited
wou1d have influence, y€s, probably, in terms of and
this wouldn't, you'd probably appreciate, afl cul-minate
on the day the box has to be checked. This is, if not
dai-1y, certainly a couple of times a week consultations
as between the Minister and the staff, so if there were
an issue, there would be dialogue hopefully before it got
to the day where they -- and to be frank, the notion of
the Minister not being supportive, you know, if there was
any j-ssues, that would get to us well before checking the
box, but that's the dynamic that actually happens.
O I guess what I'm trying to get at is in
terms of before that box is checked and those votes are
cast for the Province, there's the potentj-al, then, for
the Provincial- government to
for the Premier to make some
position known if they had a
maybe make some phone caI1s,
phone calls to make their
position?
Mr. Chair, that's correct.
with Mr. Rhodes and I meet
A YeS, I think,
we haveThe regular meetings
the Mlnister probably
would become known, and I'd
once every five or six weeks, that
ask him, "Are there any
about ? "issues that you
o
Letrs look, if
and it's on the
're concerned
I'l-l- move away from that and thank you.
we could, to your supplemental- rebuttal
top of page 3. ft actually starts with a
2 and f 'm not goi-ng to dig into thequestj-on on page25
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WOODS (Com)
Hydro One Limited
weeds there so much, but you talk about the governance
agreement and I guess what Irm trying to get to is what
penalties are there to the Province if it chooses to
shift its focus instead of acting only as an investor
decides it wants to act as a manager. Are there any
penalties out there?
A My view, whlch builds on what I said
before, Mr. Chair, is that the government took what is an
unusual step. Yes, it was permitted under the governance
agreement. My own belief is that if they took a slmil-ar
step again, that would be very significant. I've not had
this discussion with government, but they've taken what
many consider to be a bold move to, I think, send a
message that the energy industry in Ontarlo has to
change, so I think the penalty would be a perception that
they failed in the decision and the course they set soon
after the efection.
The Premier has been quite vocal- in saying
Ontario is open for buslness. The steps he took, some
thought that that might be viewed negatively in the
context of open
percept j-ons, but
had to be taken.
for business and there were some negative
thatothers felt that that was a step
I
which I hope touches
of, you know, a poor
thlnk a hypothetical second step,
on your questj-on, would be a penalty
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Hydro One Limited
reverse field and appoint another board,
the extreme, and I thi-nk there is a real
I suppose, in
penalty there.
of times to yourO So you referred a couple
thisfour months in this positlon, and is drinking from a
fire hose and f appreciate what you're going through and
there's a l-ot of talk about trust in terms of going
forward, it seems l1ke that's a lot of trust 1n four
months from someone who wasn't connected politically
beforehand and now you've had an opportunity to
experience some of the political ramifications on the
backside of al-l- that, lt seems like a l-ot of trust in
four months based on, at least in the written testimony,
just a few meetings. How do you reconcil-e that if you're
me in terms of seeing a four-month window of opportunity
as an opportunity to develop that kind of trust?
A That's a good question. I mean, I donrt
want to dodge the question by saying we1I, the fact is
we're doing the best we can. I mean, itrs not just a few
meetings. I mean, there are phone call-s. There's
dialogue. The indivlduals in government obvj-ous1y have a
l-ot of other things to do rather than just talk to us,
but the meetings we have had Ifve walked away with a
comfort Ievel, but a recognition that 1n politics things
can change.
I've got a very high degree of comfort25
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]evel-, though, that it's in the governmentfs interest to
work closely with us in an industry that is amongst its
highest priorit.ies, not just on compensation and CEO and
pricing, but just on the overa1l reframing or resetting
is the word that I use, he doesn't use that, this
industry and whether 72 percent 1s achieved or eight
percent, but some progress, I think, is what this
government has undertaken to the voters to do and we want
to be part of it, and we think it's in the Province's
interest to have us ful1y engaged from the beginning,
which they tell- us we are rather than have to take
another fork in the road a month from now or a year from
now, and we're dolng everything we can to ensure that
they're satisfied that we have a good relationship
without abrogating our fiduciary responsibil-ities to al-I
the shareholders, so it's a bit of a balancing act and
it's not perfect, but I'm quite satisfied wlth the
progress we've made in the four months.
O Thank you. In your supplemental- rebuttal
on page 6, it actually starts on page 5, f'm not going to
ask you to read that, but it deals with the consultation
with the Province and I'm just wondering, how does
consuftation with the company's largest shareholder
actually work? I mean, if you consult with the Province
and if it wants to go a different direction or simply
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doesnrt l-ike the proposal that you might be bringing to
them, donrt you risk some peril of retribution if you
ignore their advice?
A It's interesting, we haven't had that so
far. I suppose if I don't know that politicians are
the same everywhere in the world, but I think there's
probably a core el-ement of commonality here and I have
the greatest respect for three mil-1ion people or
two-and-a-hal-f mil-Ilon people that voted for the Premi-er,
so f've got the greatest respect for them. At any one
time they are dealing with a dozen issues or dozens of
issues. Hydro One in the campaign was a fairly high
priority, like in the top two or three issues that seemed
to be in the media. Today it's, Iike, not sort of a
but it's viewed by thepriority.
government
have with
the relationship they
as quite constructive.
To your specific question, I think 1f we
were to get to an issue of where we just simply
disagreed, I mean like any issue that they're dealing
with every day, I suppose they'd have to decide was this
so important that they wanted to make a change with the
board, they'd have the right to do that. We have not had
anything close to that. We've had situations where we've
consulted and we've maybe not had the same perspective
It's a priority,
as being contained and
us, I think, is viewed
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and they've accepted our vj-ew; nothing that has risen to
the level of staking of positions and arguing for days,
but they understand the responsibility we have to
shareholders and they've respected that.
O Thank you, and I guess along those same
Iines and given the fact of what we saw l-ast July with
the whol-e departure of the board and the CEO, could you
envj-sion a scenario where, 1et's sdy, through that
consultation that you might have with the Province that
the threat of a very public battl-e with the Province
would lead the board to perhaps acquiesce to the
Provj.nce's demands to avoid any negative reaction from,
let's sdy, industry analysts who might downgrade the
company if they went a different path or they saw the
battfe as being something that represented some other
sort of regulatory uncertainty, that by going against the
Province, the fact that it could potentially create a
bigger problem and so in terms of the l-esser of two evils
to acquiesce to the Province as opposed to going the path
that may have been their first choice or maybe even
perhaps the better choice?
A lt's a very good questJ-on. I mean, it's
like anything el-se, when do you "settl-e." I think we've
got a board that's both pragmatic, but determined to,
partly because of the profile this company has in
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Ontario, to do whatever we can and f'm sounding like frm
dodging it and I dontt mean to, but to be determined if
we get into such a situation to advance our case as
emphatically, but l-istening as we11, because they're a
very J-mportant partner and we do not want to harm this
company. Conceivably, could we get to a point where as a
board we say to ourselves, you know, ds much as we hate
to do this, we just can't accept that so we have to
resi-gn.
Now, no board wants to do that and we
would not do that 11ght1y. Werve never tal-ked about a
situation where that woul-d happen, so it's a balance
between recognizing somewhat the circumstances we're in,
taking some comfort that in four months we have a
constructive dialogue and we havenrt had an issue where
that's had to develop, but recognizLnq we've got to
strike a balance. We have to have a good relationship,
but we cannot abrogate our responsibil-ities to
shareholders, so we'd be both pragmatic, but wou1d we
settl-e on something that was real1y important, oo, I
think we'd have a hard doing that. Would we settle on
something that is kind of nice to have in a non-public
situation, we might dig in. Perhaps we might give a
littl-e ground, so j-t's both pragmatJ-c, but, you know,
fundamental to the fiduciary responsibilities we've
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Hydro One Limited
got.
COMMISSIONER KELLANDER: Thank you. Are
there any other questions from members of t.he Commission?
Commissioner Raper.
EXAMINATION
BY COMMISSIONER RAPER:
O Thank you, Mr. Woods. To fo11ow on to
some of what Chair Kjellander was saying, first, what I
heard you sayj-ng repeatedly with your dialogue with Mr.
Semanko was you don't anticipate interference, but I also
didn't hear you say there \^/as anything in place to
prevent interference; is that correct?
A Other than flo, they can j-ntroduce
legislation, and I hate to keep repeating it, other than,
although we've never tal-ked about this with government, a
recognition, I beli-eve, that if there were interference,
that might have consequences to the government, because
there's a limit beyond which I think a government can go
if it has, I donrt want to calf it a mantra, but a
campalgn platform of having Ontario open for business, so
I think there's a notional- l-imit there. f t' s a bit
ephemeral in terms of where to draw that line, but I
think there's an understanding that we jointly have to25
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Hydro One Llmited
work together.
0
change,
goes out
some desire
Sure, but if that government were to
then that sort of reasoning, I thj-nk, kind of
the window, does 1t not, that there would be
for consistency in order to not negatively
impact the impressions that are bej-ng made?
A The government has unilateral- legislative
right, the current government or a new government.
O Okay, and to the point of the government
enacting new legislation, and I can point to your
testimony, but you don't have to flip to it, we're on
supplemental rebuttal page 10, you were asked, the
question was, "Could the Province amend the Hydro One
Accountability Act to apply
the revlsed commitment?"
to Avista, thereby nul-lifying
You said, "No. The Province cannot pass
l-aws that appfy directly to Avista. " I appreciate that
answer for what it is. The Provj-nce, though, could they
pass legislation that applies to Hydro One that coul-d
have a trickl-e-down effect on Avista as one of its
subs idiaries ?
A My understandj-ng, Mr. Scar1ett will- give
better answer, is the ring-fenclng and commitments we
have made prohibit that. A lot of discussion I
understand has taken place about how to prevent that if
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it were to happen and brieflngs I've had is I'm very
comfortable that that woul-d not affect Avista, but
therer s been l-ots of work done on that.
O So if a new board were placed, if we had a
sim-ilar scenario in the future, it's your opinion that
that woul-d not impact Avista?
A Yes.
O Okay.
A Ultimately because of the ring-fencing,
yes.
O Okay. The last thing Irm trying to square
in my brain and that is you've made references to the
sitting board now, kind of towards their integrity, their
independence. You've said their reframing and resetting,
that they don't want to harm the company, but that the
energy industry has to change, and you've said how
effective the new board has been so far. What I'm trying
to square in my brain is that when this case was filed,
we had an old board that no longer exists and we were
tol-d that it was a wel-l--run company that would be
beneficial for Avista to become a part of, and the
presumption, I guess, is that the Premj-er removing the
board and CEO, he didn't agree with those assertions and
so he sought new leadership for the company, so I guess
my question is, I appreciate what you think the new board
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is, was the former board not acting in the best interest,
because the testimony that I have in our record implies
differently?
A Very good question again. I know six of
the people on the previous board very well and they are
of utmost integrity and character and business
capability, so I've got no reason to thlnk that they
didn't well-, Iet me put it in the positive. I am sure
just knowing those people that they ran this company with
the best. interest of all- shareholders. Having said that.,
I've also heard from government that voters as they
travel-ed across the country were quite concerned about
the future, particularly as it relates to pricing.
Hydro One is just roughly 15 percent of
the costs of power in the whole Province. I think the
increases in compensation that were put in place just
before the early stages of the campaign got some profile.
I'm not going to criticize the board for that, but I
suspect it's fair to say that that caught the attention
of the government and, you know, they sej-zed upon that
i-ssue during the campaign discussions, so I've got no
reason to think the board didn't act in the interest of
the company. Cou1d there have been more consul-tation?
Would any of that consultation have meant anythlng? I
don't know, but the confl-uence of al-l- of those events in
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Hydro One Limited
the political world led to where we are today.
COMMISSIONER RAPER: Thank you very much.
That's aI1 I have.
THE Wf TNESS: You' re wel-come.
COMMISSIONER KELLANDER: Commissioner
Anderson.
COMMISSIONER ANDERSON: Thank you,
Chai-rman
EXAMINATION
BY COMM]SSIONER ANDERSON:
Thank you, Chairman Vfoods, for joi-ning us
today. I briefly want to ask a question in
your comfort l-evel that you spoke of earl-ier
regards to
and your
with theconfidence in your discussions that you had
current Provincial- government and a IittIe
fol-1ow-on with Commission Raper's question,
bit of a
but in ldaho,
the current sitting J-egislature cannot bind a future
legislature. They don't have that authority and you
talked about the unilateral- control that the Provinci-al
government
future one,
does have to do whatever they wish and the
also, but am I clear in your testimony that
government feel-s oneif the current sitting Provincial
way about legislation, is there any abllity for them to)tr.
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Hydro One Limlted
bind a future legislature moving forward and would that
impact your comfort level if in fact they were able to
not bind them?
A Well, Mr. Scarlett can give you a good
answer, but I do not bel-ieve that any government can bind
a future government simply because they can introduce new
legislation, but I don't know whether you want to get a
nod from my colleague now or whether you want to do that
Iater.
O Nodding is fine.
A Where is he? Have I got that right,
Jamie?
MR SCARLETT: Yes.
THE WITNESS: Cannot bind a future
terms of that governance agreement?
A I think that the answer is any
government.
OBY
then, through the
future Provincial
can introduce any legislation
to that is yes. I think j-t' s
that is yes.
Thank
you did mention that
COMMISSIONER ANDERSON: So in fact,
governance agreement that we have, a
government coul-d in fact change the
it chooses, so
un1ikely, but
government
the answer
the answer to
you, and so just so that I'm clear,
there were certain in the25
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Hydro One Limited
political arena there were some parties that were much
more inclined to take greater control of Hydro One in the
l-ast campaign.
A It's a recol-lecti-on, maybe a l-itt1e bit
more than vague, but I think the New Democratic Party, we
can confirm thls, espoused maybe having Hydro One back in
government hands completely, and I'm just not certain of
that, but philosophlcally, that is the event, tf you
wiI1, of Social-ist governments generally that there
should be Crown ownership in companies like this, but it
was not, to my recol-lection, a major campaign issue on
the part of the New Democrats, but I do think this did
come up.
COMMISSIONER ANDERSON: Thank you,
Chairman. That's all my questions.
COMMISSIONER KELLANDER: Thank you. hle'11
move now to redirect.
MS. THOMAS: Thank you, Mr. Chairman.
REDIRECT EXAMINATION
BY MS. THOMAS:
O Mr. Woods,
was asking you about what
Provi-nce had the right to
do you recal-l- when Mr. Semanko
was required, whether the
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Hydro One board? Do you reca11 that l-ine of testimony
along those lines?
A Yes, I recall that testimony.
O Does the Province have the right to
instruct the dj-rectors it has appointed as to how they
shoul-d vote?
A Does it have the right to. Short of
the answer to that is no. I mean, our 1ega1 obligation
is to all -- wel-l-, to the company, which means all
stakeholders, which means aII shareholders, so short of
introducing legislation, they do not.
O What, if any, control does the Province
retain over the 40 percent of the board it appoints once
they've taken office?
A Simply the right to replace the board
again. We are as f said, our responsibility is to al-l
stakeholders.
O Do you recall- the line of questioni-ng from
Mr. Semanko about whether the governance agreement covers
off on future governance at Hydro One and I think your
answer was yes, except as set forth in the letter
agreement?
A Yes.
O And you recal-l- he also asked you about how
much stock the Provi-nce owned?
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Hydro One Limited
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Hydro One Limited
A
which is about
o
stock in Hydro
the closing of
A
to 42.
approximately how much the
owned by the Province after
transaction?
I don't recall that, but y€S, 41 percent,
$5 billi-on.
Do you know
One wil-I be
the Avista
Approximately 42 percent, So from 41 down
O And once that
been raised, do you know what
stock the Province is al-lowed
42 percent threshold has
the maximum percentage of
to own will be?
A I think maximum is it 45?
O Do you remember looking at
45,
the
yes.
governance
Hydro Oneagreement and answering some
entities in Section 2.2.L?
A Yeah, I do.
questions about
0 Do you know whether the
power to enact legislation to regulate
the Province of Ontario?
A I have been told that it
do that by 1egal counsel.
Province has any
activities outside
has no right to
O And in talking about the protection
against
itself
the possibility of Provincial influence on Avista
or on Avista's customers, you did tal-k about
restrictj-ons on the power to regulate outside Ontario.
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as to the compensatlon provisions for entities outside
Ontario. Are there also commitments in the l-ist of
stipulated commitments among Hydro One, Avj-sta, IPUC
Staff, and several other parties to this proceeding that
would help protect against Provincial influence on Hydro
One I'm sorry, on Avista?
A A long question. I think -- I think what
you're talking about is the ring-fencing.
O I'm just asking, are there commitments?
A There are 79 commitments. Several of them
address that, yes.
O Mr. Semanko al-so asked you questions about
the 10 percent cap on ownership of shares in Hydro One by
entities other than Hydro One. Do you remember that l-ine
of questioning?
A Yes.
0 Do you remember he asked you whether it
might be for the Province to retain control and you said
you didn't think so?
A Yes. Wel-l, I 'm trying to remember
precisely. It was for other public policy reasons,
yes.
O And, again, all your directors are
independent; is that correct?
A Yes.
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O And none votes at the direction of the
Province; is that al-so correct?
A Right.
O And you noted -- so is it al-so possible
that the Province wanted to retain a 40 percent ownership
interest in order to provide itself with a 40 percent
revenue stream of the profits from Hydro One?
A It' s possibJ-e. I wasnrt involved in that.
I mean, there's always the trade-off governments make to
monetize and take the money and
versus keeping it and having a
That may well have been part of
invol-ved at the time.
O You responded to
Kjellander in terms of the
invest it el-sewhere
dividend flow through.
the thinking. I wasn't
a question from Chair
relationship with the Province
of opinlon and I thlnk youand a potentlal
testified to the
di f ference
effect that the Hydro One board would
advance its
attempt to
testimony?
A
o
position, but you
strike a balance.
woul-d also listen and
Do you recal-l- that
large shareholder for other
A Genera}ly.
Large shareholder, government has a leglslative right,
Yes
Would the same be true with
publicly-traded
This is a litt.l-e
any other
companies ?
unusual-.
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but generally speaking, large sharehol-ders with the same
prohibition about not providing material non-public
information, the larger the sharehol-der the more inclined
a board or management is to engage in dj-al-ogue.
MS. THOMAS: Thank you. f have no further
redirect, Your Honor.
COMMISSIONER KELLANDER: Thank you very
time ago
Christians
that we had
lions were
much and, Mr. Woods, I think I recall a long
that there was a statement that the earliest
l-ions and I think the time
you on
hungry,
decent
but
and
excuse you
testimony.
and we appreciate your
got the hungriest
the stand may have indicated that the
I thought this
responses most
from the stand
ability of
appreciated,
the questions was
so we're goi-ng to
(The witness left the stand. )
COMMISSIONER KELLANDER: Where
at a quarter to 1"2200 is if I l-et you go now,
a wonderful opportunity to beat the rush to a
and, hopefully, get back here to start up at
o'clock, and I believe it was a request that
move Mr. Leroy
lunch. I don't
return at 1:00,
it then.
to t.he stand as quickly as
know if that has changed,
we sit now
you'11 have
restaurant
we try to
posslble after
b,ut when we
if things have changed, we'l-1 deal with
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MR. MEYER: AII right, thank you.
right; so weCOMMTSSIONER KELLANDER: A11
wilf be adjourned until 1:00.
(Lunch recess. )
)r-
728 COLLOQUY