20180126Avista to Staff_DR_139(H1).docx

HYDRO ONE LIMITED
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:OREGONDATE PREPARED:10/11/2017
CASE NO.:UM 1897WITNESS:Mayo Schmidt
REQUESTER:PUC StaffRESPONDER: Adele PantusaTYPE:Data RequestDEPT: Law
REQUEST NO.:Staff – 139(H1)TELEPHONE:[phone]EMAIL:[e-mail]
REQUEST: Please further explain Hydro One’s plans for investment in Avista.RESPONSE:
Under the Delegation of Authority (Exhibits A - “Governance Requirements” and B - “Post-Closing Matters” and “Approval Requirements” attached to the Merger Agreement (see Appendix 5 to the Joint Application)), Avista’s Board of Directors retains its authority to review, authorize and approve certain specified matters related to Avista, without any obligation to obtain separate authorization or approval from the Hydro One Board. Among the matters retained by the Avista Board pursuant to the Merger Agreement are decisions to do the following:
1. Keeping Avista’s headquarters in Spokane;
2. Keeping Avista’s brand the same;
3. Keeping Avista’s office locations in each of its service areas, with no less of a significant presence in each location than that in place prior to the merger;
4. Preventing workforce reductions resulting from the Proposed Transaction;
5. Retaining Avista’s existing management team;
6. Maintaining existing compensation and benefit practices;
7. Negotiating and entering into agreements with bargaining unit employees;
8. Maintaining Avista’s safety and reliability standards and policies and service quality measures in a manner that is substantially comparable to, or better than, those prior to the merger;
9. Maintaining Avista’s community involvement and support initiatives at levels equal to or greater than those prior to the merger;
10. Maintaining a $4.0 million annual budget for charitable contributions (funded by both Avista and the Avista Foundation) as compared to an approximate $2.5 million level prior to the merger;
11. Making a $2.0 million annual contribution to the Avista Foundation (following an initial contribution to the Foundation of $7.0 million at the time the merger closes);
12. Maintaining at least the level of economic development that existed prior to the merger, including the expenditure of funds to support regional economic development and related strategic opportunities consistent with past practices;
13. Maintaining existing levels of capital allocations for capital investment in strategic and economic development, including property acquisitions in the university district, support of local entrepreneurs and seed-stage investments;
14. Continued development and funding of Avista’s existing and future innovation activities; and
15. Maintaining dues paid by Avista to various industry trade groups and membership organizations.
The Delegation of Authority is designed to ensure that local knowledge and control will preserve reliable service and a high level of customer satisfaction for the benefit of Avista’s customers. Changes to these provisions in the Merger Agreement require a two-thirds majority vote of the Avista board.
As additional information, please note the following:
Capital Structure
Illustration No. 2 of the testimony of Avista’s witness Thies is a description of Avista's actual capital structure as of June 30, 2017. Hydro One and Avista expect to maintain Avista's capital structure shown in Illustration No. 2 during the twelve (12) months after the Proposed Transaction is completed. Avista is expected to have its own long-term and short-term debt. Avista will continue to issue debt financing, as needed. Hydro One will provide equity to support Avista’s capital structure that is designed to allow Avista access to debt financing under reasonable terms on a sustainable basis.
Bond Ratings
In Section VI of the Application (see footnote 6) and Section IX, paragraph 60, Hydro One and Avista anticipate that the impact of the transaction on the bond ratings and capital costs of Avista will be neutral or positive. (See also Testimony in Section IV of Avista witness Thies.)
Allocations
To the extent Avista employees dedicate time and incur costs related to the operations of Hydro One, those costs would be directly assigned and billed to Hydro One, and would not be borne by Avista’s customers. Likewise, should Hydro One employees dedicate time and incur costs associated with Avista’s operations, such costs would be directly assigned and billed to Avista. If a Hydro One employee’s time and costs are related to Avista’s regulated utility operations, the costs would be subject to review and approval by the Commission prior to being recovered in retail rates. The protocol for the direct assignment of costs between the two companies, and the accounting treatment for the costs is included in the memorandum attached as Appendix 7 to the Joint Application.
Planned Changes
Hydro One does not have plans for any changes that would have a significant impact on the policies, management, operations or rates of Avista. (See Section XI of the Joint Application covering Post-Closing Avista Governance, Management and Operations.)
Asset Disposition
Hydro One has no plans to sell, exchange, pledge or otherwise transfer any of Avista's physical assets being acquired in the Proposed Transaction. Any sale of Avista's utility jurisdictional assets would be subject to Commission approval by the Oregon Public Utility Commission.
See also Appendix 4 to the Joint Application for a Master List of Commitments agreed upon by Hydro One and Avista.