20181212Technical Hearing Transcript Vol IV.pdf

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ORIGINAL CSB RBPORTING
C ertiJied S horthand Reporters
Post Office Box9774
Boise,Idaho 83707
csbreoortine@yahoo. com
Ph: 208-890-5198 Fax: l-888-623-6899
Reporter:
Constance Bucy,
CSR
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT
APPL]CATION OF HYDRO ONE LIMITED
AND AVISTA CORPORATION FOR
APPROVAL OE MERGER AGREEMENT
CASE NOS. AVU_E_17_09
AVU-G-17-05
F-l
c;:)(3rTI(-)
I\I
-og
N)
BEFORE
COMMISSIONER PAUL KJELLANDER (Presiding)
COMM]SSIONER ER]C ANDERSON
COMM]SSIONER KRISTINE RAPER
PLACE:Commission Hearing Room
412 West Washinqton StreetBoise, Idaho
DATE November 21, 2078
VOLUME IV - Pages 1004 - 1268
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CSB REPORTING
208.8 90. s198
APPEARANCES
Eor the Staff:Brandon Karpen, Esq.
Deputy Attorney General-
412 West Washington
Boise, Idaho 83120-0074
For Avlsta Corporation:David Meyer, Esq.Avista Corporation
Post Office Box 3127
Spokane, Washington 99220
For Hydro One Limited:Elizabeth Thomas, Esq.
and Kari Vander Stoep, Esg.
K&L Gates, LLP
925 Fourth Avenue, Suite 2900SeattIe, Washington 98104-1158
-and-
Deborah A. Fergruson, Esg.
EERGUSON DURHAM, PLLC
223 North 6th StreetSuite 325Boise, Idaho 83102
Eor Clearwater Paper
Corporation:
Peter J. Richardson, Esq
Richardson Adams, PLLC
515 North 21th Street
Boise, Idaho 83702
For Idaho Forest Group:Ronald L. Williams,
WILLIAMS BRADBURY
P.O. Box 3BB
Boise, Idaho 83701
Esq.
For CAPAI:Brady M. Purdy, Esq.Attorney at Law
2079 North 17th Street
Boise, Idaho 83702
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APPEARANCES
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CSB REPORTING
208.890.5198
APPEARANCES (Continued)
For Idaho Conservation
League:
Benjamin ,J. Otto, Esq.fdaho Conservation League
170 North 6th Street
Boise, Idaho 83102
For Avista Customer
Group:
Norman M. Serranko , Esq.
PARSON BEHLE & LATIMER
800 West Main StreetSuite 1300
Boise, Idaho 83102
For IDWR:Garrick L. Baxter, Esq.
Deputy Attorney General
322 East Front StreetBoise, fdaho 83120-0098
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APPEARANCES
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CSB REPORT]NG
208 .8 90 . 5198
INDEX
WITNESS EXAMINATION BY PAGE
Shelley Keen
(IDWR)
Mr. Baxter (Direct)
Prefiled Direct TestimonyMr. Otto (Cross)
Mr. Semanko (Cross)
1005
1007
1014
1017
Bruce Howard
(Avista )
Mr. Meyer (Direct)
Pref il-ed Supp. TestimonyMr. Semanko (Cross)
1033
1035
1043
Patrick D
(Avist.a )
Ehrbar Mr. Meyer (Direct)
Prefiled Direct TestimonyPrefiled Rebuttal TestimonyMr. Wifliams (Cross)
Mr. Karpen (Cross)
Mr. Semanko (Cross)
Commissioner RaperMr. Meyer (Redirect)
1048
1050
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10 90
1095
l.091
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It71
Mark T. Thies
(Avista )
Mr. Meyer (Direct)
Prefifed Direct TestimonyPrefiled Supp. TestimonyMr. Meyer (Direct-Cont'd)
Mr. Williams (Cross)
Mr. Karpen (Cross)
Mr. Semanko (Cross)
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1205
1206
Kevin J. Christie
(Avista )
Mr. Meyer (Direct)
Prefiled Dlrect Testimony
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1273
Terri Carlock
( Staff)Mr. Karpen (Direct)
Prefil-ed Direct TestimonyMr. Karpen (Direct-Contrd)
Ms. Vander Stoep (Cross)Mr. Semanko (Cross)
7240
L242
7259
L260
L262
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]NDEX
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CSB REPORTING
208.890.5198
EXHIB]TS
NUMBER DESCRIPTION PAGE
FOR AVISTA CORPORATTON:
3 United States Securities &
Exchange Commission, Form 10-K,
Schedule L, as well as
Schedules 2 - 4
Premarked
Admitted 7723
7 - Avista Utillties, UtilityAllocator for CD AA (1 ) , alongwith Schedules 2 4
Premarked
Admitted 1049
t2 Servlces and Indemnity Agreement Premarked
Admi-tted 7L23
74 Letterto the
from Gary Spackman, IDWR,
IPUC, dated B/70/2018
Premarked
Admit.ted 1034
20 Potential Change of Control
Payments to Executive Officers
Identi fied
Admitted
]-200
l-207
EOR THE STAFF:
101 Revised Exhibit A, Master Listof Commitments in Idaho
Premarked
Admitted 7247
E'OR AVISTA CUSTOMER GROUP:
801 803 Admitted 7266
FOR THE IDAHO DEPARTMENT OF WATER RESOURCES:
901 Letter to the IPUC from Gary
Spackman dated August 10, 2018,
wj-th attached agreement
Premarked
Admitted 1006
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EXHIBITS
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CSB REPORT]NG
208 .8 90 . s198
COMM]SSIONER KELLANDER :We'l-l- go back on
broke for 1unch,
witness Ilst and II thlnk there was an inquiry about
believe that it was Mr. Semanko who
the
had a request. Mr.
Semanko, do you have a report to bring back to us?
MR. SEMANKO: I believe we've agreed, and
I'l-l- defer to the counsel- for IDWR and Avista on
the record. Good afternoon. Before we
but I bel-ieve we've agreed that the
Shelley Keen called by Mr. Baxter,
called by Avista.
followed by Mr. Howard
I'm sorry, who
called by Avista
Iist, I guess, to
Sounds
next witness
this,
would be
COMMTSS]ONER KELLANDER :
was that followed by?
MR. SEMANKO: Mr. Howard
and then we would go back to the magic
Mr. Ehrbar at that point.
COMMISSIONER KELLANDER :good.
appri sed?Does that comport with what
MR. KARPEN:
everyone el-se was
Yes.
COMM]SSIONER KELLANDER :
WelI, are there any other matters that
before us? Then why don't we go ahead
for fDWR cal-l- 1ts witness.
Excellent, okay.
need to come
and have counsel
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1004 COLLOQUY
BOISE, IDAHO, TUESDAY, NOVEMBER 21, 2018, 1:30 P. M.
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CSB REPORT]NG
208.890. s198
KEEN (Di)
IDWR
Keen to the stand.
produced as a
Department of
sworn to tel-l
follows:
MR. BAXTER: Mr. Chairman, we cal-l- SheIley
SHELLEY KEEN,
wi-tness at the instance of the fdaho
Water Resources, having been first duly
the truth, was examined and testified as
DIRECT EXAMINATION
BY MR. BAXTER:
O Good afternoon, Mr. Keen. My name is
Garrick Baxter and as you're aware, I'm an attorney for
the Department of Water Resources. I'm going to ask you
a few questions here today, okay?
A Yes.
O I know you have a bit
do try to remember to speak up so the
hear your responses. For the record,
of a cold, so please
court reporter can
can you please
state and speIl your ful-l name?
A Yes. My name is
is S-h-e-l--1-e-y. Last name is
O And by whom are
A I'm employed by
employed?
Idaho Department of
Shelley Keen
K-e-e-n.
First name
you
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1005
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CSB REPORT]NG
208.890. s198
KEEN (Di)
TDWR
Water Resources
a
Department ?
A
nx
direct testimony and
with the PUC in this
What is your current positi-on with the
I'm the Water AI]-ocation Bureau Chief .
And are you the same Shelley Keen whose
accompanying Exhibit 901 was filed
matter on November 6th, 20L8?
A Yes, I am
questions today
testimony, would
that are set out
O And if I were to ask you the same
in your prefiled
the same?your answers be
A Yes, they would.
MR. BAXTER: Al-l- right, Mr. Commissioner,
I would move at this point for the admission of the
prefiled testimony of Mr. Keen and for the admission of
Exhibit 901.
COMMISSIONER KELLANDER: Without
objection, we wil-I admit the testimony as if read upon
the record as well as the admission of the exhibit and
you said 901,, so there being no objection.
(Idaho Department of Water Resources
Exhibit No. 901 was admitted into evidence.)
(The following prefiled direct testj-mony
of Mr. Shel-l-ey Keen is spread upon the record.)
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O. Pl-ease state your name, job title and
busi-ness address.
A. My name is ShelJ-ey Keen. I am employed as
the Water Al-location Bureau Chief of the Idaho Department
of Water Resources ("IDWR"). My business address is 322
E. Front Street, Suj,te 648, Boise, ID 83720-0098.
O. Pl-ease briefly describe your educational-
background.
A. I graduated from Central Washington
Uni-versity, Ellensburg, Washlngton, with a Bachelor of
Arts Degree in Geography (Natural Resource Policy
emphasis) in 1988. I have al-so attended the University
of Idaho, Moscow, Idaho, where I completed 42 graduate
level semester credit hours i-n Geography and Public
Admi-nistration. I have al-so attended Boise State
University, Boise, Idaho, where I completed 9
undergraduate level- semester credits hours in Computer
fnformation Systems.
O. Pl-ease briefly describe your professional
experience with IDWR.
A. In started working for IDWR in 1990 as a
Water Resource Agent in the Adjudication Technical
Section. I then became a Water Rights Supervisor in the
Water Rights Section in 1994 and Water Rights Section
Manager in 2007. I became Water Al-Iocation Bureau Chief
Keen, Di 1
IDWR
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1007
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in 2018.
O. What are your duties as Water Allocation
Bureau Chief?
A. My duties include managing the water
appropriation and water right adjudication programs of
IDWR and supervising IDWR's four regional managers.
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Keen, Di 1a
IDWR
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Keen, Di 2
IDWR
O. What is the purpose of your testimony?
A. The purpose of my testimony is to provide
background on IDWR's water right settlement with Avista
Corporation ( "Avista" ) and to document that the
settlement ensures that the publ1c lnterest, ds it
refates to Avlsta's water use pursuant
adversely affectednot be
to its water
by the merger.
IDWR' s
rights, will
o.
participation
A.
What code sections govern
in this proceeding?
Idaho Code S 42-L10f(O) has specific
application to this proceeding and states:
Any authorization or order of the Idaho public
utilitles commission, under the provisions ofsection 6l-328, Idaho Code, approving the sa1e,
assignment or transfer of hydropower water rights
used in the generatlon of electric power shall be
issued only upon such conditions as the director ofthe department of water resources shall require as
necessary to prevent any change in use of water
under the water rights held for hydropower purposesthat woul-d cause injury to any water rights existing
on the date of the sa1e, assignment or transfer. Any
such conditions shal-1 ensure that the publicinterest, ds it pertalns to the use of water underthe hydropower water rights, will not be adverselyaffected. Conditions, if dny, imposed by thedirector shalI be subject to review under secti-on
42-1701A(4), Idaho Code.
Idaho Code S 6I-328 provides, in relevant part:
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Keen, Di 3
IDWR
The cornrnission shall include 1n any authorizatj-on or
order the conditions required by the director of the
department of water resources under sectj-on
42-7701(6), Idaho Code. The commission may attach to
its authorizati-on and order such other terms and
condltions as in its judgment the public convenience
and necessity may require.
O Can you provide an overview of how IDWR
became involved in this proceeding?
A. In July
Joint Application for
of 2078, IDWR was notified of the
an Order Authorizing Proposed
Transaction ("Joint Applicatj-on") filed by Avista and
Hydro One Limited ("Hydro One") with the Idaho Public
Utilities Commission ("PUC"). The Joint Application
sought the PUC's approval, pursuant to Idaho Code S
61-328, of a planned merger between Avista and Hydro One.
lmmediately, IDWR was concerned the merger could resul-t
in a change in the use of water authorized by Avista's
hydropower water rights, especially Avista's water rights
for power generation at Post Falls Dam. To ensure that
the public interest, ds it pertai-ns to Avista's use of
water under its water rights, would not be adversely
affected, IDWR moved to j-ntervene in the PUC proceeding.
The PUC subsequently granted IDVIR's petition to
intervene.
Whil-e IDWR's petition to intervene was pending
before the PUC, IDWR
dj-scussions regarding
and Avista hel-d settlement
Avista's water rights. IDWR and25
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Keen, Di 3a
IDWR
Avista reached an agreement that addressed fDWR's
concerns.Importantly, IDWR and Avista reached an
agreement regarding subordination of Avista's water
rights consistent with the historical operations at Post
Fafl-s Dam. IDWR
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Keen, Di 4
IDWR
95-4518, 95-9115, and 95-9119 shall be
Coeur d'A1ene-Spokane River Basin Adjudication with the
followinq subordination language
The use of water confirmed in this right shal-L bejunior and subordinate to permits, -1. jcenses , or
decrees for aLl- uses within the State of ldaho with
a priority date of, or earLier than, JuJy 25, 2078,diverted upstream from aJ-l- three points of diversjonfor this right.
The use of water confirmed in this riqht shal-L bejunior and subordinate to permits, Licenses , or
decrees for aLL uses , except for permits, licenses,or decrees for irrigation storage or power purposes /within the State of Idaho with a priority date later
than JuTy 25, 2018, diverted upstream from aLL threepoints of diversion for this right.
The use of water confirmed in Lhrs right shaLL notbe subordinate to permits, License, or decrees
within the State of Idaho diverted downstream from
al-l three points of diversion f or thrs right.
and Avista agreed that Avista's water right cl-aim nos.
recommended i-n the
adversely
the use of
the public
pursuant to
O. WiIl the proposed transaction
affect the public interest as it applies to
water under Avista's water rights?
A.
interest,
its water
proposed
No. The agreement ensures that
as it relates to Avista's water use
rights, will not be adversely affected by the
transaction between Avista and
Hydro One. The agreement safeguards existing and future
water users from changes in historical operations,
protects the summer l-ake25
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Keen, Di 5
IDWR
l-evel of Coeur d'Alene Lake, and supports the ongoing
operations of Post Fal-l-s Dam consistent with prior
agreements and the Idaho Department of Environmental-
Qual-ity 40L Certification.
O.
testimony?
A
which is a
Are you sponsoring any exhibits with your
Yes. I am sponsoring IDWR Exhibit No. 901,
letter from the Director of IDWR to the PUC
and the agreement between
O. What is IDWR
IDWR and Avi-sta.
requesting of
that if the
the PUC?
A.
pendlng
include
IDWR requests
transaction between
PUC approves
Hydro One, the
or exhibit to
the
Avista and PUC
the agreement
so that the
as an attachment any
such order resolution of this issue is
documented in the order.
o
point?
A
Do you have anything further to add at this
No I do not.
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CSB REPORTING
208.890. s198
KEEN (X)
IDWR
(The following proceedings were had in
open hearing. )
MR.BAXTER: Commissioner, I have no
of this witness and would tender thefurther questions
witness for cross-examination.
COMMISSIONER KELLANDER: Sounds good.
Mr. Karpen.
MR. KARPEN: I have no questions for this
witness, Mr. President.
COMMISSIONER KELLANDER: Mr. Meyer.
MR. MEYER: No questions.
COMMISSIONER KELLANDER: Anything from
Hydro One?
MS. VANDER STOEP: No.
COMMISSIONER KELLANDER: Let's go to the
back row. Mr. Otto
MR. OTTO: I do have just a few
questions.
COMMISSIONER KELLANDER: Certainly.
CROSS-EXAMINAT]ON
BY MR. OTTO:
o
A
Hel-lo, Mr.
He1fo.
Keen.
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CSB REPORTING
208 .890.5198
KEEN (X)
IDWR
O You've
Resources for quite a
A Almost
O Okay,
been with t.he Department of Water
number of years; correct?
28 years now.
and is it your understanding that
the entity charged
in Idaho's water
the Department of Water Resources is
with protecting the public interest
rights and al-l-ocation?
A That's correct.
agreement
concerns ?
lnstead of
aware that
O And your testj-mony here is that the
you've reached with Avista addresses your
A Yes, we believe that it does.
0 So I'm trying to ask just one question
several-, So please bear with me. Are you
just any member of the public has an
equivalent
responsJ-bility
rights in Idaho,
has ?
has been allocated the
to protect the public
whatequivalent to
equi-valent
interest of water
the Water Resources
A I'm not an attorney, so f 'm not sure I'm
familiar with what you're referring to.
O Fair enough. f'm just asking in your
long-term experience, are you aware that just any member
of the public has been delegated the responsibility to
protect the public interest in Idahors water resources at25
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that same level that your agency has been charged with
that responsibility?
A You know, my experience with the public
interest is through the water appropriation process that
requires filing an applicatj-on for a permit for a new
water right, and among the criteria that are requi-red to
be evaluated in connection with an applicatj-on for a new
water right is the local- public interest, and that is
fairly narrowly defined in Idaho Code TitIe 42, Chapter
2. I don't remember exactly, can't quote the statute, of
course, right off the top of my head, but in that
appropriation process, there's opportunity for others to
object or protest the j-ssuance of a permit and come
forward and express what they believe the public interest
in the water resource mlght be, and then the Department
has a responsibility to evaluate that information that is
brought forward, so that's my experience with the pubJ-ic
interest in the water appropriation process.
MR. OTTO: Sure, that's he1pful. Thank
you for explaining that existing process. No further
questions.
COMMISSIONER KELLANDER: Mr. Rj-chardson,
do you have anything resembllng cross?
MR. RICHARDSON: Thank you, Mr. Chairman.
I have no questions.
CSB REPORTING
208.890.5198
KEEN (X)
]DWR
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CSB REPORTING
208.890.5198
KEEN (X)
IDWR
COMMISSIONER KELLANDER: Thank you.
Mr. WiIIiams
MR. WILLIAMS: No questions.
COMMISSIONER KELLANDER: Let's go to Mr.
Semanko.
MR. SEMANKO: Thank you, Mr. Chairman.
CROSS-EXAMINATION
BY MR. SEMANKO:
0 Hello, Mr. Keen. In fuII disclosure, one
of your job duties with the Department of Water Resources
is as a hearing officer; correct?
A Thatrs correct.
O And Irve had occasion to appear before you
as a hearing officer; correct?
A That's correct.
O And more importantly, I may in the
future?
A We hope to see you, Mr. Semanko.
O And nothing Irm going to ask you is going
to affect that rel-ationship; right?
A That's for sure.
O Okay, I'm just kidding. A11 right; so you
heard Mr. Morrj-s' testimony this morning into the25
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CSB REPORT]NG
208.890.5198
KEEN (X)
IDWR
afternoon; correct?
A Yes, I did.
O Did you hear him tal-k about the two river
basins that Avista has hydro facilities, an interest oor
in Idaho?
A Yes, I heard that testimony.
O And are you familiar with what those two
river baslns are?
A Yes, the Spokane-Coeur d'Alene drainage
and the Clark Eork drainage in Idaho.
O And Avista has water rights in both of
those basins?
A Yes, they do. In preparation for our
discussions with Avista, dt the Department of Water
Resources, we l-ooked throuqh our records to evaluate just
where Avista had water rights and those are the two
J-ocations, Post Eal-1s and Cabinet Gorge where we found
that. Avista does have water rlght filings.
O Thank
have it with
the Scottish
YoU, I
Power
you; so I'm going to ask you if you
think you do, Exhibit 802, which is
Order No. 28273. Do you have that?
A Actually, I don't have that one with me,
MR. SEMANKO: Cou1d counsel provide that
or do you want me to give him one?
Mr. Semanko.
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CSB REPORTING
208.890.5198
KEEN (X)
IDWR
coPY, Mr
exhibit.
COMMISSIONER KELLANDER: If you have a
Semanko, it might be useful- since it was your
MR. SEMANKO: Thank you.
(Mr. Baxter approached the witness.)
O BY MR. SEMANKO: Do you have what's
labeled Order 28213, service date November 15th, L999,
Idaho Publ-ic Utilities Commission?
A have that
O
Yes, I
Coul-d you flip to page 51? It woul-d be
those excerpts.the second to the last page of
A Okay.
O First of all, as a littl-e foundation here,
are you familiar with the Scottish Power merger in front
of this Commission?
A I didn't have any invol-vement in that
proceeding and have only read a very little about it, so
not deeply f amil-iar with it.
O Good enough; so on page 51, these are
findings of the Commission. It says, "Not only are
PacifiCorp's hydro plants subject to sale or transfer
approval under 61-328, but so are the water rights
associated with those facilities because they are used in
the generation of electri-c power and are considered real
property. " My question is, is your understanding the25
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same with regard to Avi-sta's hydro facilities and water
rights in this matter?
MR. BAXTER: Objection as to the form of
this question. Counsel is asking him to form a Iega1
conclusion here.
COMMISSIONER KELLANDER: And it does sound
like that's
MR. SEMANKO: I can withdraw that and ask
a different question.
COMMISSIONER KELLANDER: Thank you.
0 BY MR. SEMANKO: Is it your understanding,
Mr. Keen, that the water rights associated with Avista's
hydro facil-ities are being transferred to another entity
in this proceeding?
A Mr. Semanko, Mr. Chairman, I don't know
whether that is happening or not. I havenrt seen any
particular filing to that end.
O Thatrs fair, thank you. The next
paragraph of this Order talks about Scottish Power and
PacifiCorp entering into two separate agreements
pertaining to water rights and it goes on to talk about
the Bear River/Bear Lake facilities and then further down
the Snake Rj-ver, a portion of the Snake Rj-ver. Do you
see that?
A Yes, I do see that.25
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IDWR
O So is it your understanding that there
for these two differentwere two different agreements
river basins in this particular matter?
A In my reading through thls document
earlier, that's what I did understand.
O And on the third line of that second
paragraph, it says the first such agreement, executed on
October 5th, had to do wlth the Bear River; correct?
A Yes, that's what it says.
O And then on the next page, or page 52, the
first full- paragraph says on October 22nd, Scottish Power
and PacifiCorp executed a "Memorandum of Agreement
Regarding Ashton-St. Anthony Projects" with the
Department; is that correct?
A Yes, that's correct.
O So l-etrs l-ook at your exhibit, the
agreement. It's styled, Agreement Regarding
Subordination of Avista's Post Fafls Hydroelectrj-c
Facility Water Rights,' correct?
A Yes, that's correct.
O And thatfs on the Spokane River Basin?
A Yes.
O Would it be fair to say that this is a
total and complete agreement between the Department and
Avj-sta regarding Avista's Post Falls hydroelectric25
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facility water rights?
A Yes, to my knowledge, thatrs the full
agreement.
u
administrative
A
And those
basin, do
I believe
water rights are in what
what we call Administrative Basin
Post
the Coeur d'Al-ene drainage.
your understanding that this
is reflected in the commitments
know, of the Department?
Falls facility is in
95 and that is the
you
the
Spokane and part of
O Isit
partj-cular agreement
have been proposed in by the applicants?
sure I understand what
are.
look at page 2 of the
that
this matter
A I'm sorry, f'm not
the commi-tments of the applicants
O That's fine. Let's
agreement
A Okay.
O that is the exhibit to your testimony.
No. 4 says that Avista also owns certain water rights for
power purposes at Cabinet Gorge dam, and you said that is
the Cl-ark Eork or did you say which river basin that is?
Which river basin is that?
A Yeah, I bel-ieve Cabinet Gorge is on the
Clark Eork.
O As well as water rlght numbers and then it
lists severa] numbers that start with 96. You mentioned25
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95, so is 96 somethinq different than 95?
A Yes, Basin 96 would not be the
Spokane-Coeur d'A1ene drainage, but would be further to
the north, would include the Cl-arke Fork and Pend Oreille
rivers.
agreement the fact
Basin adjudication
was part of the
that the Coeur
is proceeding?
I t.hink that's
impetus for this
d'Alene-Spokane River
right. The c1aims to
0so
A Yes,
Avista's hydropower water rights had been made in the
ongoing adjudication of the Coeur d'Alene-Spokane Rj-ver
Basin water rights, and the Department and Avista had
been in discussions about defining those water rights and
particularly the subordination provision when we learned
about this proposed transaction with Avlsta and Hydro
One, so that was an impetus for us to pursue this
agreement.
a And those woul-d be the water right or
water rights associated with Post FaIIs dam and Basin 95;
is that correct?
A That's correct.
a So back to Basin 96 and Cablnet Gorge dam,
the second sentence of 4 says, "IDWR and Avj-sta agree to
work, in good faith, toward reaching an agreement
regarding subordination of Avista's water rights att25
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IDWR
Cabinet Gorge dam Do you recafl that?
Yes.
What is the status of those discussions,
if any?
A The Department intends to
ll
of water in the Cl-ark
engage in the
Eork-Pendadj udication
Oreifle river
rights
in the
A
O
drainage future. Right now the
thinking is that maybe that mlght begin toward the end of
the year 2020, and so the Director's feeling was that
because those claims had not been f1Ied yet and we didn't
know what they were going to look like that the
appropriate time for pursuing the subordination
provisions, if dny, at Cabinet Gorge would be when those
cl-aims are filed and that basin is being adjudicated.
O So to be clear, that basin, the Cabinet
Gorge dam, Cl-ark Fork-Pend Oreille Basin, that Basin 96
is also set to be adjudicated?
A Yes, 1n the future, in the fairly near
future.
O So if an agreement 1s reached pursuant to
falth working toward an agreement under No. 4,the good
would it be
be a binding
A
dt, this No.
IDWRTs expectation that that agreement would
agreement between Avista and the Department?
I think this agreement that we're looking
4 provision, provides the obligation of the25
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IDWR
Department and Avista to work together to reach an
agreement at the appropriate time and what the terms of
that agreement might be and the binding nature of that
agreement, I think, haven't been established yet.
O Understood, thank you; so if an agreement
is reached j-n Basin 96 after this merger is done, does
the Department have any kind of position in terms of how
or whether that agreement should be brought to the
Commission?
A I donrt know the answer to that
question.
O Does the Department believe that the
operations in the Coeur d'Alene-Spokane River Basj-n
should conti-nue consistent with their historic
operations ?
agreement
operation
A I think the Department belj-eves that the
that we have here provides for the continued
consistent with the way it has been in the past
thein a couple
power water
curtailment
so I think
of ways:
rights at
One way ls that
Post FaIls have
of upstream junior water right
this agreement continues that.
historically,
not calfed for
hol-ders, and
I think it
of the summer waterprovides for the ongoing protection
Ievefs in Lake Coeur d'Afene, and l think lt provides for
through the subordination the continued opportunity for25
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the State of Idaho to be fl-exible i-n the all-ocation and
management of its water resources upstream from Post
Eall-s and the Spokane and Coeur d'Al-ene drainage.
a Thank you, I appreciate that. Does the
Department have similar expectations with regard to
hj-storic operations at Cabinet Gorge dam and with regard
to those water rights on the Cfark Fork drainage?
A I think that's an interesting question.
Cabinet Gorge dam is l-ocated less than half a mil-e, maybe
about four-tenths of
Idaho and we're not
existing Idaho water
diverted upstream
specific vafue of
a mile, lnside the Montana border in
aware through our research
rights in the Clark Eork
from Cabinet Gorge dam
at that
, and
of any
drainage
so the
subordinati-on location is a
1ittle bit uncertain to us, and I think it bears a little
more research and there might even be some advantage to
no subordination or lesser subordination at that location
relatively upstream in the drainage in fdaho, so I think
we're -- we intend to look at that in the future.
0 So does the question of whether a water
right is subordinated or not at a hydro facility impact
the operation of that hydro faciJ-ity?
A It impacts it to the extent that. the
facility if the upstream water rights are subordinated,
the hydropower generator could not make a pri-ority25
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dellvery cal-I against upstream junior appropriators.
O So when the Department and Avista work in
good faith toward reaching an agreement regarding
subordination of Avista's water rights at Cabinet Gorge
dam, will- any other parties be brought lnto or could they
be brought into those discussions?
A I suppose certainly other parties could be
brought into the discussion.
O f'm asking a broader parties question.
The universe of folks out there, not just in this room.
A Yeah; so certaj-nly, the Di-rector when that
ti-me comes will- make some determi-nati-ons about how that
process works and I don't know if we've considered those
details yet.
O Okay, cou1d you go back to page 51 of
Exhibit 802, please?
A Okay.
O So that second sentence in the second
paragraph that starts "The first such agreementr " are you
there?
A Yes.
O The first such agreement, executed October
5th, 7999,
parties to
PacifiCorp,
Bear River/Bear Lake, the next sentence, The
include Scottish Power,
Idaho through IDWR, the State of
the agreement
the State of25
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IDWR
Utah and the State of Wyoming. Do you see that?
A Yes, I do.
O Can you foresee a circumstance where the
State of Montana woul-d be a party to any agreement
regarding Cabinet Gorge dam and those water rights?
A In the case of the Scottish Power,
PacifiCorp, Idaho, Utah,and Wyoming
to i-nvolve
agreement, you know,
all of those statesI think there was
because the State is invol-ved in the Bear River
impetus
of Idaho
compact, a three-state compact, with Wyoming and Utah for
managing the
and I don't
State of Montana
water resources of the Bear River
know
drainage,
with theof an existing
for management
simil-ar compact
of the Clark Fork
drainage.
O So my question is, is it possible that
Montana could be brought into that discussj-on or wou1d
you not expect that to occur at all-?
A I don't know at this point.
O Can you elaborate a little bit on a
comment you made a little whil-e ago that it may be an
advantage to not subordinate these water rlghts?
A Sure. You know, again, subordination has
to do with the ability to make a de1ivery call against
upstream junior or newer appropriators, and having the
ability of a hydropower generator in Idaho who'sI25
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relatively close to another state cou1d theoretically in
some future interstate compact, interstate delivery
agreement, give opportunity for the downstream state to
cal-l f or water f rom the upstream state. That' s al-l- very
theoretical- at this point.
O I appreciate that. I understand I'm
carries over to
asking some
couple more
go to page
Rights?
A
o you about t9 and 20. 20
page. Is it correct that 19
refers to an agreement reached October 5th of 1,999
invol-ving the Bear River system?
A Give me just a moment to read through
that. Yes.
O And No. 20, an October 22nd, 1999,
agreement regardj-ng thls Ashton-St. Anthony projects
which are on the Snake River?
A Yes.
O Are you
were entered into after
aware that both these agreements
the hearing before the Commission
on the Scottish Power merger?
A Not having been invo1ved in those
hypothetical- things; so back to 802, just a
questions here. In Exhibit 802, if you coul-d
17, do you see the section titled, Water
Yes.
f'm asking
the next
25
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discussj-ons or how the agreements were accomplished, I
reaIly am not particularly aware of how that occurred.
O So back to page 51, the second
"Subsequent to the
PacifiCorp entered
pertalning to water
after; correct?
hearing, Scottish
separate agreements
so it appears they
paragraph,
Power and
occurred
technical-
into two
rights, "
A
O
Okay, I see that reference.
So here we've got one agreement before the
hearing on Post Eall-s dam; correct?
A Yes.
O And one potential agreement sometime after
this hearing,' correct?
A Yes.
WouldO
to you as a
commitments
1t be appropriate
officer before the
of like conditions
I'11 represent
Department that
in your orders,
condition to this
hearing
are kind
right, so would it be approprlate for a
merger to include from the Department's perspective a
requirement that any future agreement between Avista and
the Department regarding operations of Cabinet Gorge dam,
those water rights in Basin 96 shoul-d be part of this
agreement I'm sorry, part of this Order that would
come out, the commitments and the conditions of this
merger?25
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A I think the Director of the Department of
agreement felt like
be covered and I
Water Resources in entering into this
that it covered what was necessary to
don't know whether there were thoughts at that point
about bringing that agreement before the Commisslon.
0 Okay, I'm going to ask you one more
question and I think your answer is going to be yes or no
and if the answer is f've got to take it back to the
Director, that would be okay, too.
A A11 right.
O Woul-d the Department have a problem with
including this provision in the conditions for this
merger: Hydro One and Avista shafl abide by the terms of
the July 25thr, 2018, agreement regarding subordination of
Avista's Post Fa11s hydroelectric facility water rights.
Any agreement regarding subordination of Avista's water
rights at Cabinet Gorge dam as may be agreed to pursuant
to paragraph 4 of the agreed actions by the parties in
the July 25th agreement and al-I water right decrees
issued by the adjudication court in Idaho?
A I think the Director in entering into this
agreement fel-t like we had covered what needed to be
covered j-n terms of defining the water rights, and the
Dj-rector fel-t l-ike the agreement as i-t is ensures that
the proposed transaction will not affect the public25
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interest as it rel-ates to Avista's use of water at its
Post Fall-s facility and that a simil-ar agreement wil-l- be
reached at the appropriate time by the parti-es for
Cabinet Gorge. I think it preserves that opportunity, so
you could certaj-nl-y take anything back to the Director at
any time, but I do believe that the Director fel-t l1ke
this agreement covered what needed to be covered to
protect the public interest.
MR. SEMANKO: Thank you. I don't have any
other questions.
COMMISSIONER KELLANDER: Thank you. Are
there any questions from members of the Commission? No.
Oh, I think I did go to Staff. I didn't?
MR. KARPEN: No questions.
COMMISSIONER KELLANDER: Okay, just in
case we forgot, we'11 go there again.
MR. I(ARPEN: I appreciate it.
COMMISSIONER KELLANDER: Any questions
from members of the Commission?
Any redirect?
MR. BAXTER: No, Mr. Chairman. Thank
you.
appreciate your
today.
COMMISSIONER KELLANDER: Thank you. We
testimony and thanks for being here
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208.890.5198
HOWARD (Di)
Avista Corporation
THE WITNESS: Thank you.
(The witness left the stand. )
COMMISSIONER KELLANDER: And if I recafl
the agreement after we returned from
I believe, Mr. Howard that would be
stand.
Iunch, it would be,
called next to the
BRUCE F. HOWARD,
produced as a witness at the instance of the Avista
Corporation, having been first duly sworn to tel-l- the
truth, was examlned and testified as follows:
DIRECT EXAMINATION
BY MR. MEYER:
O For the record, please has he been
sworn in?
COMMISSIONER RAPER: Yes.
O BY MR. MEYER: For the record, please
state your name and your employer.
A Bruce Howard and frm employed by Avista.
O And have you submitted prefiled
supplemental- testimony in this case?
A Yes.
O Are you also sponsoring Exhibit No. 74?25
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HOWARD (Di)
Avista Corporation
A Iam
O Do you have changes to make to either of
those?
A No, I do not.
MR. MEYER: With that, I move the
admission of Exhibit t4 and ask that his testimony be
spread.
objection, we
the admission
COMMISSIONER KELLANDER: And without
will spread the testimony as if read and
of the exhibit.
(Avista Corporation Exhibit No. L4 was
evidence. )admitted into
(The fol-lowing prefiled
testimony of Mr. Bruce Howard is spread
supplemental-
upon the record. )
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Howard, Supp 1Avista Corporation
o.
present
A.
the Senior
Pl-ease state your name, business address, and
position with Avista Corporation.
My name is Bruce F. Howard. I am employed as
Director of Envj-ronmental- Affairs by Avista
I am responsible for envj-ronmental compliance,
with Avj-stars two hydroelectric licenses
the Federal- Energy Regulatory Commission
ful-filIing additional- settlement agreements
safety, dam
real estate
Corporati-on ("Avista") located at 1411 East Mission
Avenue, Spokane, Washington.
O. Please describe your education and business
experience.
A. I received a Bachelor of Science degree in
Natural Resources from Cornell University in 1980 and a
Master of Arts from the University of Texas in Geography
in 1986. I started working for Avista in 2000 as a
Corporate Environmental Audj-tor, became the Spokane River
License Manager in 2002 and started my current position
in 2008.
O. What are your duties as Senior Director of
Environmental Affairs of Avista?
A.
compliance
issued by
("FERC"),
with Tribes and agencies, hydro and public
safety, environmental policy and Avista's
matters, including property and rights-of-way
acquisition, property management and water rights.25
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Additionally, I manage AJT Mining Propertles, based in
Juneau.
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Howard, Supp 1aAvista Corporation
o 25
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Howard, Supp 2Avista Corporati-on
O. Please summarj-ze
A. The purpose of
agreement reached between
your testimony.
testimony is to introduce themy
the Idaho Department of Water
Resources ("IDWR")and Avista, which ensures that the
public j-nterest, ds it rel-ates to Avista's water use
pursuant to its water rights, will not
affected by the merger, and meets the
Idaho Code 542-1701(6) and S6I-328.
be adversely
requirements of
o.
testimony?
A.
Are you sponsoring any exhibits with your
Yes. I am sponsoring Exhibit No . 14, Schedule
1 whi-ch 1s a l-etter from the Idaho Department of Water
Idaho PublicRights (the "IDWR") addressed to the
Utilities Commission (the "IPUC") and the agreement
between IDWR and Avista.
O. Before
agreement reached
a brief history of events that which led to
discussing the
between Avista
speci fics
and IDWR,
of the
please provide
the
agreement.
A. Certainly. On JuIy 9, 201,8, the IDWR
intervened in Case No. AVU-E-17-09 and AVU-G-17-05, the
Joint Appllcation for an Order Authorizing Proposed
Transaction, pursuant to Idaho Code S61-328 and
542-L1 0l-(6). Idaho Code 542-17 01(0) provides, in
rel-evant part:25
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(6) (a)
public Any authorizatj-on or order of the Idahoutilities commission, under the provisions
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Howard
Avist aC
upp 2aorporation
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Howard, Supp 3Avista Corporation
of section 6l-328, Idaho Code, approving the saIe,
assignment or transfer of hydropower water rights
used in the generatj-on of electric power shall- be
issued only upon such conditlons as the director ofthe department of water resources sha}l require as
necessary to prevent any change i-n use of water
under the water rights held for hydropower purposes
that would cause injury to any water rights existing
on the date of the sal-e, assignment or transfer. Any
such conditions shall ensure that the public
interest, dS it pertalns to the use of water underthe hydropower water rights, will not be adverselyaffected. Conditj-ons, if dny, lmposed by thedirector shall be subject to review under section
42-L7 0IA(4), Idaho Code.
Idaho Code S61-328 provldes, in relevant part:
The commission shall include in any authorization ororder the conditions required by the director of the
department of water resources under sectj-on
42-I'7 01(6), Idaho Code. The commission may attach toits authorization and order such other terms andconditions as 1n its judgment the public convenience
and necessity may require.
As described in a letter to the IPUC written by Gary
Spackman, Director of the IDWR, and attached here as
Exhibit No. 74, Schedule I, IDWR's immediate concern was
that the merger "would disrupt the ongoing discussions
with Avista's water right cl-aims in the Coeur d'Afene-
Spokane River Basin Adjudlcation ("CSRBA") claim and
might impede or prevent the resol-ution of the issues. "
In addltion, IDWR was also concerned the merger cou1d
possibly "result in the change in the use of water
authorized by Avista's hydropower water rights."I 25
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Howard, Supp 4
Avista Corporation
Soon after IDWR's intervention, I began discussj-ons
with Director Spackman, his staff and representatives of
the Idaho Attorney General-'s office representing IDWR.
Over a series of discussions during the following several-
weeks, we reached a common understanding of interests.
Primarily, these were to affirm Avista's ongoing
operations of the Post Falls dam as reflected in the
Spokane River FERC license and to resol-ve IDWR's
subordination concerns.
O. What are the terms of the Agreement reached
between Avista and IDWR?
A. Specifical-Iy, IDWR and Avista have reached an
agreement regarding subordination of Avista's water
rights consistent with the historical- operations at Post
Falls dam. IDWR and Avista have agreed that Avista's
water right claim nos. 95-4518, 95-9115, and 95-9119
shal-l- be recommended in the CSRBA with the following
subordination language:
The use of water confirmed in this right shall bejunior and subordinate to permits, licenses r or
decrees for all uses within the State of Idaho witha priority date of, or earlier than, JuLy 25, 2018,diverted upstream from all three points of diversionfor this right.
The use of water confirmed in this right shall bejunior and subordinate to permits, licenses, ot
decrees for al-l uses, except for permits, licenses,or decrees for irrigation storage or power purposes,
within the State of Idaho with a priority date later
than JuIy 25, 2078, diverted upstream from all- threepoints of diversion for this right.25
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Howard, Supp 5Avista Corporation
The use of water confirmed in this right shal-l- not
be subordinate to permits, license, or decreeswithin the State of Idaho diverted downstream fromaf1 three points of diversion for this right.
O. Does IDWR believe that the proposed transaction
interest ?
IDWR in its fetter to the
"The agreement ensures that
adversely affects
A. No. As
the public
stated by
IPUC dated August 10, 2018,
the public interest, ds it relates to Avista's water use
pursuant to
affected by
Hydro One. "
1ts water rights, w111 not be adverseJ-y
the proposed transaction between Avista and
O. Does this conc1ude your pre-fi1ed, direct
testimony?
A. Yes, it does.
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CSB REPORTING
208.890. s198
HOWARD
Avj-sta Corporation
(The fol-l-owing proceedings were had in
open hearing. )
COMMISSIONER KELLANDER: Without
objection, then, are you tendering him for cross?
MR. MEYER: I am.
COMMISSIONER KELLANDER: Thank you, and
let's begin with Mr. Purdy
MR. PURDY: No questions, Mr. Chair.
Thank you.
COMMISSIONER KELLANDER: Thank you, Mr
Purdy. Mr. Otto.
MR. OTTO: No questions, Mr. Chair.
COMMISSIONER KELLANDER: Thank you. Mr
Richardson.
MR. RICHARDSON: Thank you, Mr. Chairman.
I have no questions.
COMMISSIONER KELLANDER: Mr. Williams.
MR. WILLIAMS: No questions.
COMMISSIONER KELLANDER: Letrs see, Mr.
Baxter.
MR. BAXTER: No questions, thank you.
COMMISSIONER KELLANDER: Irm dj-scovering
that these are readers, not seers. Mr. Karpen.
MR. KARPEN: No questi-ons. Thank you,
Mr. President.25
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CSB REPORT]NG
208.890.5198
HOWARD (X)
Avista Corporation
COMMISSIONER KELLANDER: And let's move to
Mr. Semanko.
BY MR. SEMANKO:
o
A
o
the testimony
A
Good afternoon, Mr. Howard. How are you?
Good, thanks. How about you?
Great; so were you in the Hearing Room for
of Mr. Keen?
f was.
0 Did you hear anything he said that you
would disagree with?
A I did not.
agreement
proposed
O Is it your understandlng that the
between Avista and IDWR is memoria]ized in the
commitments in this matter?
A It is.
a Can you go to or do you have in front of
commitment 19?you or accessible
A I do not have those in front of me right
now.
MR. MEYER: May I approach the witness?
COMMISSIONER KELLANDER: Yes.
(Mr. Meyer approached the witness. )25
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CROSS_EXAMINATION
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CSB REPORTING
208.890.5198
HOWARD (X)
Avlsta Corporation
O BY MR. SEMANKO: It was No. 19.
f have it in front of me now.
Thank you. Thank you, counsef. Once
you've had a chance to review that, refresh your memory,
can you tel1 us what Hydro One and Avista are agreeing to
do in that proposed commitment No. 19?
A Just exactly what the words say here, that
we wj-l-l abide by the terms of the July 25th , 2078,
agreement with the Idaho Department of Water Resources.
ft's an attachment to these measures.
O And that j-nvol-ves, does it not, Avistars
facilities and water rights on the Spokane River Basin?
A It does for the Post Ealls hydro
development.
O And you understand consistent with Mr.
Morris' testimony that there are al-so Avista hydro
facj-lities and water rights in the Cl-ark Fork drainage?
A I do.
O Is there currently an agreement between
the Department and Avista with regard to those
operatlons?
A For the C1ark for the Cabinet Gorge
facility?
O Correct.
A Separate from this setting, there is in
A
o
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CSB REPORTING
208.890.5198
HOWARD (X)
Avista Corporatj-on
the terms of we have a license issued by the Federal
Energy Regulatory Commission,
that were issued by the State
believe specifically by the
Resources.
. O And are you
water right licenses?
which contains measures
of ldaho, though I don't
Department of WaterIdaho
bound to operate under those
A We do operate our hydro facil-ities under
the water right l-icenses issued by the state, y€s.
a Woul-d you have any concern with a
provision being incl-uded in the commitments that
memorializes that; in other words, that Avista will
contj-nue to operate its facil-ities and water rights on
the Clark Fork consistent with the existing water rights
and historic practices?
A It depends. The you know, just giving
as an example, in recent years, we've upgraded facilities
at Cablnet Gorge and if those facilities, you know,
continue to be upgradedr we might apply for new water
rights and change those, so those matters aren't
necessarily static right now.
0 I guess the bottom line of my question,
and I know i-t's taking a long time to get to thls, is why
should the hydro facil-ities and water rights at Cabinet
Gorge and on the Clark Fork be treated any differently in25
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CSB REPORTING
208 .8 90. s198
HOWARD (X)
Avista Corporation
this agreement than the facil-ities and the water rights
on the Spokane Rj-ver?
A I agree with Mr.
comments. From our perspective
to define subordination for Cabinet
Keen's testimony and
as wel-l, it was premature
Gorge given that the
there are a numberadj udication
of issues.
hasn't started and that
f t's
dlfferent factual
a totally different setting, totally
issues with that facility.
O So once
there any requirement
enter into and reach a agreement regarding Cabinet
hydro facilities on the ClarkGorge and the wat.er rights,
Fork?
A The agreement was exactly as what was read
in Mr. Keen's testimony in terms of working together in
good f aith t.o reach such an agreement.
O So there may or may not be an agreement?
A I'd have to look back at the exact
language or please feel free to read it out, but the
commitment was to work together to reach an agreement.
O Toward reaching an agreement; so is it
your understanding that there will be an agreement?
A My understanding is exactly what the words
say in that numbered item.
MR. SEMANKO: Very good. I have no other
this merger proceeding is over, is
that Avista and the Department
final
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CSB REPORTING
208 .8 90 . 5198
HOWARD (X)
Avista Corporation
questions. Thank you for your time.
COMMISSIONER KELLANDER: Thank you, and
are there any questions from members of the Commission?
Any redirect?
MR. MEYER: No redirect.
COMMISSIONER KELLANDER: Thank you. We
appreci-ate your presence and thank you for your
testimony.
THE WITNESS: Thank you, Mr. Chairman.
(The witness left the stand. )
COMMISSIONER KELLANDER: And movj-ng right
a1ong, thank you everyone.
MR. BAXTER: Mr. Chairman?
COMMISSIONER KELLANDER: Yes.
MR. BAXTER: May I ask, are witnesses
excused after they testify? Can Mr. Keen be excused for
the rest of the day?
COMMISSIONER KELLANDER: Without
objection, no objection, you may l-eave. Thank you.
MR. KEEN: Thank you.
leaving,
forward,
COMMISSIONER KELLANDER: Not thank you for
but thank you for being here. Let's move
then. I bel-ieve we're back on track with the
next witness, which I believe is Patrick; is that
correct ?25
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CSB REPORTING
208.890-5198
EHRBAR (Di)Avlsta Corporation
MR. MEYER: It is, yes.
COMMISSIONER KELLANDER: Okay.
MR. MEYER: CalI to the stand Patri-ck
Ehrbar.
PATRICK D. EHRBAR,
produced as a witness at the instance of the Avista
Corporation, having been first duly sworn to tell- the
truth, was examined and testified as follows:
DIRECT EXAMINATION
BY MR. MEYER:
o
A
o
your empJ-oyer,
A
Good afternoon, Mr. Ehrbar.
Good afternoon.
For the record, please state your name,
and your position.
My employer is
of regulatory
Have you prefiled both direct
rebuttal testimony?
also sponsoring what has been
Sure. Patrick Ehrbar.
Avista Corporation and I'm the director
affairs.
O Thank you.
testimony and supplemental
A Yes, I have
O And are you
marked as Exhiblt No. 1?I 25
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208.890-5198
EHRBAR (Di)
Avista Corporation
A Yes.
O Do you have any changes or corrections to
make to either that prefiled testimony or that exhibit?
not.-H.Ido
SoifI were to ask you the same questi-ons
answers would be the same?in that testimony,
A They
MR.
your
woul-d.
MEYER:Okay, thank you. I move that
and that Exhibit No. 7 bethat testj-mony be spread
admitted.
COMMISSIONER KELLANDER: And without
obj ection,
as if read
we wil-l spread the testimony across the record
and admit the exhibit referenced, which was
what was again?
MR. MEYER: Seven.
COMMISSIONER KELLANDER: Seven, thank
you -
(Avista Corporation Exhibit No. 7 was
admitted into evidence. )
(The
rebuttal testimonies
upon the record. )
following prefiled dlrect and
of Mr. Patrick Ehrbar are spread
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Ehrbar, Di 1Avista Corporation
O. Pl-ease state your name, business address and
present position with Avista Corporation?
A. My name is Patrick D. Ehrbar and my business
address is 7471 East Mi-ssion Avenue, Spokane, Washi-ngton.
I am presently assigned to the State and Federal
Regulation Department as Director of Rates.
O. Woul-d you briefly describe your educational-
background and professi-onaI experience?
A. Yes. T am a 1995 graduate of Gonzaga
University wi-th a Bachel-ors degree in Business
Adminlstration. In 1997 I graduated from Gonzaga
University with a Masters degree j-n Business
Administration. I started with Avista in April 7991 as a
Resource Management Analyst in the Companyrs Demand Side
Management (DSM) department. Later, I became a Program
Manager, responsibl-e for energy efficiency program
offerings for the Company's educational- and governmental-
customers. In 2000 , T was sel-ected to be one of the
Company's key Account Executives. In this rol-e I was
responsible for, among other things, being the prlmary
point of contact for numerous commercial and industrial-
customers, including delivery of the Company's site
specific energy efficiency programs.
I joined the State and Eederal Regulation Department25
1050
I. INTRODUCTION
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as a Senior Regulatory Analyst tn 2001. Responsibilities
in that
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Ehrbar, Di 2Avista Corporation
role included being the discovery coordinator for the
Company's rate cases, line extension policy tariffs, ds
well as mj-scellaneous regulatory issues. In November
2009, T was promoted to Manager of Rates and Tariffs, and
later promoted to be Senior Manager of Rates and Tariffs.
In my current
requi-rements,
role my responsibil-ities
el-ectric and natural gas
incl-ude revenue
rate design,
rate adjustments,decoupling, power
customer usage and
administration.
O. What is
cost and natural gas
revenue analysis, and Rates
the scope of your testimony in this
proceeding?
A. My testimony wil-l- explain certain commitments
offered by Avista and Hydro One (hereafter jointly
referred to as "Joint Applicants") as part of our request
for approval of the Proposed Transaction. Among the
commitments is a proposed Rate Credit to customers
beginning following the closlng of the transaction, whlch
wil-l- provide immediate net benef its to customers. I wil-l
explaln how Joint Applicants are proposing to al-l-ocate
this benef it to Avj-staf s electric and natural- gas
customers. I will al-so explain other regulatory
commitments offered by the companies.
In additi-on, my testimony will explaj-n the proposed
accounting protocol for any affiliate transactions25
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between Avista and Hydro One followlng the closing of the
transaction.
Ehrbar, Di 2aAvista Corporatlon
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Fina11y, I will- explain why Joint Applicants believe this
filing for approval- of the Proposed Transaction shoul-d be
processed separately from the pending electric and
natural gas general rate cases, and should not be
consolidated.
O. Are you sponsoring any exhibits that accompany
your testimony?
A. Yes. I am sponsoring Exhibit No. '7, Schedul-e 1
which provides the derivation of the Company's standard
cost allocators, whlch are used to spread the proposed
Rate Credit among the Company's el-ectric and natural gas
customers in Idaho, Washington, and Oregon. Exhibit No.
'1, Schedule 2 shows the allocation of the proposed Rate
Credit to Avistars Idaho electric and natural gas
customers. Next, I am sponsoring Exhlbit No. '1, Schedule
3, which is a memorandum summarizi-nq the proposed
transactlonsaccounting protocol
between Avista and
for any affiliate
Hydro One following the closing of t.he
Schedule 4 incl-udestransaction. Eina1ly, Exhibit No. J,
proforma
the terms
el-ectric and natural gas tariffs that
and conditions of the proposed Rate
These exhibits were prepared under my
provlde
Credlt.
A
tabl-e of contents for my testimony is
supervr_sl-on.
as follows:
Ehrbar, Di 3Avista Corporation
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Description Page
I.
II.
]II.
Introduction
Rate Commitment No. 18
Regulatory Commitment Nos. 20, 23, 26-28,
37-32
Accounti-ng for Merger-Related Costs
Rel-ationship to Pending General Rate Cases
1
4
IV.
V.
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II. RJATE COMMIII{ENT NO. 18
O. Pl-ease explain the annual Rate Credit
(Commitment No. 18) proposed by Joint Applicants.
A. As explained by Mr. Morris, the proposed annual-
Rate Credit is $2.65 m1I1ion per year for the first five
years following the closing of the transaction, and the
Rate Credit increases to $3.65 milllon per year for the
last f ive years for a total- of $31.5 mil-l-ion over the
10-year period. These annual rate
amounts, and would be allocated by
credits are system
service and state
j urisdiction as descrj-bed later in my testimony.
Joint Applicants are proposing that the Rate Credit
applicable to Idaho customers be passed through to
customers through separate tariffs: Schedul-e 13 for
e1ectric customers and Schedu1e L73 for natural gas
customers.
O. Is any portion of the proposed Rate Credit
of f setabl-e ?
A. Yes. A portion of the proposed Rate Credit for
Ehrbar, Di 4
Avista Corporation
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the 1O-year period is offsetable. That is, when cost
savings .or
Ehrbar, Di 4a
Avista Corporation
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net benefits directly rel-ated to the t.ransaction are
already reflected in base retail rates for customers, the
Credit on Schedul-es 73 andseparate Rate
reduced by an
Rate Credit.
$2.65 mil-lion
is offsetable
amount up to
As Mr. Thies
annual Rate
the offsetabl-e
explains, $1.7
Credit for the
years,
To the
173 will be
portion of the
million of the
first five years
$2.7 million of
extent that
For the }ast five
the $3.65 million is offsetabl-e.
Avista demonstrates there are net cost savings, or net
the transaction thatbenefits, directly associated with
are already
Credit for
reflected in base retal1 rates, the Rate
the first five years wou1d be reduced by up to
$1.7 millj-on, and the Rate Credit for the last five years
would be reduced by up to $2.1 mill-ion.
The proposed $31.5 million benefit for the 10-year
period represents the "fl-oor" of benefits customers wil-1
receive; as additional merger savings occur, those would
be reflected as part of the cost of service captured in
subsequent
received by
general rate cases. The $31.5 million wil-I be
customers either through the separate Rate
by the benefitsCredit on tariff Schedules 73 and 113, or
being reflected in base retail- rates.
a. Please explain how the Rate Credlt is proposed
to be al-l-ocated among Avista I s electric and natural- gas
customers.25
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A. The cost savings rel-ated
descrlbed by Mr. Thies, generally
to the transaction,
fall into the category
of costs referred to as "common costs." Eor ratemaking
purposes,
electric
these coflrmon costs are allocated between
and natural gas customers, and by state
Washington, and Oregon) using
factors that have been used for many
jurisdiction (Idaho,
standard allocation
years to allocate common costs, and have been reviewed
periodically in general rate cases. l
Joint Applicants are proposing to al-locate the Rate
Credit to Avista's el-ectric and natural- gas customers,
and by state jurisdiction, using these same allocation
factors.2
0. Using these existing allocation methods, how
woul-d
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t2t13 1 The allocation methodologies used for purposes of allocating "common
costs" have been reviewed and approved by the utility commissions in Idaho,
Washington, and Oregon. In addition, these methodologies are employed in
each general- rate case fi-led by the Company in each jurisdiction.
2 The AEL&P operations in the City and Borough of Juneau, Alaska, operate
substantially independent of Avista Utll-ities, and the costs from which the
merqer-related cost savi-ngs are derived, are currently not being charged to
AEL&P. Therefore, there are no financial cost savings to fl-ow through to
AEL&P customers. For Avista's retail operations in Montana, Avista has
approximately 30 retail customers and total retail revenue of approximately
$74,000. Due to the very limited retail- operations by Avista in Montana,
for administrative efficiency the past practice by the Montana Pubfic
Service Commission has been to review the final- rates recently filed and
approved in the State of ldaho, and approve those for Avista's Montana
customers, when a request is made by Avista. The date of the l-ast approved
retail rates in Montana for Avista was April 21, 2017. Since that time
electric retail rates have increased in the State of Idaho, but Avista has
not proposed simil-ar increases for its Montana customers. Because Avistars
current retail rates for its Montana customers are already below its cost of
service, and for the sake of administrative efficiency, Avista and Hydro One
are not proposing to flow through a financiaf benefit to Avista's Montana
customers related to the Proposed Transaction. (If a proportionate benefit
to Montana customers were to be ca]culated based on the levef of retail
revenue, the total annual Rate Credit for al-I customers combined would be
approximately $190. )
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the Rate Credit
services, i.e.,
operations ?
be all-ocated f irst between Avista' s
between electric and naturaf gas
A. To al-l-ocate the Rate Credit to el-ectric and
natural gas operations, the Company uses what is referred
to as a "Eactor 'lu al-l-ocator. This factor is developed
using the following four components:
(1) Dlrect Operations & Maintenance ("O&M")
Administrative and General- (A&G) costs,
excluding labor and resource costs, that are
Northassigned to el-ectric service, natural gas
(Washington and Idaho) service and Oregonnatural gas service.
(2) Direct O&M and A&G labor costs that are
assigned to el-ectric service, natural gas North
(Washington and ldaho) service and Oregonnatural gas service.
(3) Number of customers for electric service,natural gas North (Washington and Idaho)
service and Oregon natural- gas service.
(4) Net direct plant that is assigned to el-ectricservice, natural gas North (Washington and
Idaho) service and Oregon natural gas servj-ce.
The cal-cufations to develop the Factor 7 allocator
are provided in Exhibit No. 7t Schedule 1.
O. Once the Rate Credit is allocated between
electric and natural gas operations, how is the credit
split between the state jurisdictions?
A. For Avista's electric operations, the Company
uses what is referred to as a "Eactor 4u allocator for
purposes of allocating common costs to Washington and
and
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Idaho. This factor is developed uslng the following four
factors:
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(1) Direct O&M and A&G costs, excluding labor and
resource costs that are assigned to Washington
and Idaho electric servi-ce.
(2) Direct O&M and A&G labor costs that are
assigned to Washington and Idaho efectri-c.
(3)for Washington and Idaho
(4)dlrect plant that is assigned to Washington
Idaho el,ectric servi-ce.
Number of customers
electric.
Net
and
For Avista's natural gas operations, the Company
uses a simll-ar natural gas "Factor 4" al-locator for
purposes of al-l-ocating natural gas service costs common
to Washington and Idaho.3 This factor is developed using
the following four factors:
(1) Direct O&M and A&G costs, excluding l-abor and
resource costs that are assigned to Washj-ngton
and Idaho naturaf gas service.
(2)Direct O&M and A&G labor costs that are
assigned to Washington and fdaho natural gas
service.
(3) Number of customers for Washington and Idahonatural- gas service.
(4)hla]-
and
direct plant thatIdaho natural- gas
is assigned to Washingtonservice.
The cal-cul-ations to devel-op the Factor 4 al-locators
are provided in Exhibit No. 7, Schedule 1.
O. And finaI1y, how are Joint Appllcants proposing
3 the al,Iocation of the Rate Credi-t to Oregon natural gas customers wi-l-l-
have already been determined using the Factor 7 allocator explained earfier.
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to spread the Rate Credit among the electric and natural
gas service schedules within each state?
A. Eor Avista's electric service schedules, the
Joi-nt Applicants are proposing to spread the Idaho
electric Rate Credit on a uniform percent of base revenue
basis. The Joint Applicants chose this method of rate
spread because it generally matches how the coilrmon costs
discussed earlier are presently being recovered from
customers. For the spread of the Rate Credlt within each
service schedule (i.e., rate design), the Joint
Applicants applied the Rate Credit to the volumetric
energy blocks on a uniform cents per kwh
the
basis. Page 2
proposed rateof Exhibit No. J, Schedule 2 provides
spread and rate design of the el-ectric
For Avj-sta's natural- gas service
Rate Credit.
Joint Applicants
natural gas Rate
basis. As with
Applicants chose
generally matches
schedules, the
are proposing to spread the Idaho
Credit on a uniform percent of margin
the electric rate spread, the Joint
this met.hod of rate spread because it
how the common costs discussed earlier
are presently being recovered from customers. Eor the
spread of the Rate Credit within each service schedul-e
(i.e., rate design), the Joint Applicants applied the
Rate Credit to the vol-umetric energy blocks on a uniform
cents per therm basis.2 provj-des the proposed
2 of Exhibit No. 'l , Schedule
spread and rate design
Page
rate
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of the natural gas Rate Credit.
customers'
When would those credits be refl-ected in
biJ-1ing rates?
Joint Applicants propose to have the Rate
into effect on the first day of the month
the month in which the transaction cl-oses.
O
A.
Credit go
followlng
example,
the Rate
Eor
if the transaction cl-oses on October 7, 2018,
Credit would go into effect on November 7, 20L8.
This timlng will al1ow time for Avista to fil-e conforming
tariffs with the Commission, and give the Commission
adequate time for review.
O. Have the Joint Applicants filed tariffs that
would implement the proposed Rate Credit?
A. Yes. The Joint Applicants have developed
electric and natural gas proforma tariffs outl-ining the
terms and conditions of proposed Rate Credit, and they
are incl-uded in Exhibit No. 1 | Schedul-e 4. Joint
Applicants would file conforming tariffs prior to the
Rate Credit effective date to implement the credit, if
the Commisslon approves the Proposed Transaction.
a. Will the per kWh or per therm Rate Credit be
static over the 10-year period?
A. No. Joint Applicants are proposing that the
allocation factors used to spread the Rate Credit by
service and by state be updated over time, such that the
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allocation factors used in the most recent general rate
of allocating the Rate Credit.
at the conclusion of a general
case are used for purposes
By updatlng these factors
rate case, they will- be consistent with the alfocation
factors used in establishing base retail rates for
customers at the time.
In addition, as expJ-alned earlier, as the annual
benefits to customers are rolled into base retail rates
over time, the separate Rate Credit on Schedules 73 and
713 will change.
rrr. REGITT,ATORY COMMTTIIENT NOS . 20 , 23, 26-28, 3L-32
O. What are the regulatory commitments offered by
Avista and Hydro One as part of Joint Applicants' request
for approval of the Proposed Transaction that you are
addressing in your testimony?
A. Joint Applicants are offering the following
regulatory commitments that f am supporting:
' Compliance with Existing Commission Orders -
Commitment No. 20
' Cost Allocations Rel-ated to Corporate
Structure and Affiliate Interests -
Commitment No. 23
' FERC Reporting Requirements - Commitment No.
26
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Avista Corporation
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Participation in National and Regional-
Eorums Commi-tment No. 27
Treatment of Confidential Informati-on
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Avista Corporatj-on
Commi-tment No. 28
' Annual Report on Commitments Commitment
No. 31
' Commitments Binding - Commitment No. 32
What is Joint Applicants' commitment rel-ated to
compliance with
No. 20) ?
existing Commission Orders (Commitment
A. Under this commitment, Olympus Holding Corp.
and its subsidiarj-es, including Avista, acknowledge that
all- of the existing orders issued by the Commi-ssion with
respect to Avista (or its predecessor, Washington Water
Power Co. ) remain in effect, and are not modified or
otherwise affected by the Proposed Transaction.
O. Pl-ease explain the commitment associated with
Cost A1l-ocations Related to Corporate Structure and
Affiliated Interests (Commitment No. 23).
A. In Commltment No. 23, Avista makes specific
commi-tments rel-ated to Cost allocations related to
corporate structure and affiliated interests. Avista
agrees to provide cost al-location methodologies used to
aJ-l-ocate to Avista any costs rel-ated to Olympus Holding
Corp. or
will be
its other subsidiaries, and commits that there
no cross-subsidization by Avista customers of
unregulated activities .
The cost-all-ocation methodol-ogy provided pursuant to
O
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this commitment will be a generic methodology that does
not
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Di 13
Corporation
require Commission approval prior to it being proposed
for specific appllcation i-n a general rate case or other
proceeding affectlng rates. Avista will- bear the burden
of proof in any general rate case that any corporate and
affil-iat.e cost allocation methodology is reasonable for
ratemaking purposes. Neither Avista nor Olympus Holding
Corp. or its subsldiaries wil-l- contest the Commission's
authorj-ty to disall-ow, for retail- ratemakj-ng purposes in
a general rate case, unreasonabl-e, or misal-l-ocated costs
from or to Avista or Olympus Holding Corp. or its other
subsidiaries.
With respect to the ratemaking treatment of
affil-iate transactj-ons affecting Avista, the Joint
Applicants will comply with the Commission's
then-existing practice; provided, however,
1n this commitment limits Avista from also
that nothing
proposang a
different ratemaking treatment for the Commission's
consideration, or l-imit the positj-ons any
take with respect to ratemaking treatment.
Avista will- notify the Commission of
corporate structure that affects Avista's
af f il-iate cost al-location methodologies.
propose revj-sions to such cost allocation
Avista will
other party may
any change in
corporate and
Avista will
methodol-ogies
not take theto accommodate
position that
approval by
such changes.
compliance with this provision constitutes25
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the Commission of a particular methodology for corporate
and affil-iate cost allocati-on.
O. For Commitment No. 26, "FERC Reporting
Requirements", what have Joint Applicants committed to as
a part of the Proposed Transaction?
A. Avista will continue to meet al-l- the applicable
FERC reporting requirements with respect to annual and
quarterly reports (e.9., FERC Form 1, 2, 3q) after
closing of the Proposed Transaction.
O. As it relates to Avista's "Participation in
National and Regional Forums", what have Joint Applicants
commj-tted to as a part of this transaction (Commitment
No. 27)Z
A. Under this commitment Avista agrees that it
will contj-nue to participate, where approprj-ate, in
natj-onal- and regional forums regarding transmission
issues, pricing policies, siting requirements, and
interconnection and integration policies, when necessary
to protect the interests of its customers.
a. P1ease explain the commitment addressing the
"Treatment of Confidential Informationr " (Commitment No.
28) .
A. Commitment No. 28 states that, "Nothing 1n
these commitments will be interpreted as a waiver of
Hydro One's, its subsidiaries', or Avista's rights to
request confidential
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treatment of information that is the subject of any of
these commitments. "
O. Pl-ease descrj-be Commitment No. 31, "Annual
Report on Commj,tments".
A. By May l, 2079 and each May 1 thereafter
through May l, 2023, Avista will fil-e a report with the
Commission regardj-ng the implementation of the
commitments as of December 31 of the preceding year. The
report will, dL a minimum, provide a description of the
performance of each of the commitments. If any commitment
is not being met, relative to the specific terms of the
commitment, the report will provide proposed corrective
measures and target dates for completion of such
measures.
O. Pl-ease describe Commitment No. 32, "Commitments
Binding".
A. While there is more specific language contained
within Commitment No. 32, in short, Hydro One and Avista
acknowledge that the commitments being made by Hydro One
and Avista are binding only upon them, their affil-iates
where noted, and their successors in interest. Further,
the Joint Applicants are not requesting in this
proceeding a det.ermination of the prudence, just and
reasonabl-e character, rate or ratemaking treatmentr or
public interest of the investments, expenditures or
actions referenced in the
Ehrbar, Di 15
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commitments, and that Parties in appropriate proceedings
to those items as theymay take such positions rel-ated
deem appropriate.
IV. ACCOI'NTING FOR MERGER-REI,ATED COSTS
0. Please describe how Avista is accounting for
the costs associated with the Proposed Transaction.
A. AlI costs associated with evaluating and
executing on the Proposed Transaction are being
separately tracked and recorded below-the-line to a
nonoperating account. This includes internal labor,
outside services, travel, and all other associated costs.
Attached as Exhibit No. '7, Schedule 3 is Avistars
"Direct Assignment Protocol, " developed by Avista for the
assignment of costs associ-ated with the Proposed
Transaction. The Protocol addresses the accounting for
costs both prior to the closing of the transaction, as
well- as the accounting for costs fol-lowing the closing.
O. Following the closing of the transaction, how
will Avista account for the costs associated with time
and expenses
employees for
companies?
A. To
and incur costs related
those
incurred by Avista employees and Hydro One
any services or work between the two
the extent Avista employees dedicate time
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costs will- be directly assigned and billed to Hydro One,
and woufd not be borne by Avistafs customers. Likewise,
shoul-d Hydro One employees dedlcate time and incur costs
associated with Avista's operations, such costs wouLd be
directly assigned and bil-l-ed to Avist.a. If a Hydro One
employee's time and costs are related to Avistars
regulated utillty operations, the costs would be subject
to review and approval by the Commission prior to being
recovered in retall rates. The Company expects such
assignment of costs, both to Hydro One and from Hydro
One, to be relatively small-, especi-a1Iy in the near-term,
since Avista will continue to operate as a standalone
utility.
At this point in time, there are no plans to combine
any speciflc utility operations. In the future, however,
if opportunities arise for the consolidation of certain
Avista and Hydro One utility functions, where the
utilities have an opportunity to benefit from specialized
expertise or to achieve efficiencies, it may be
appropriate to develop additional- or different direct
assignment or allocation protocols.
O. fs Avista currentl-y using the proposed Direct
Assignment Protocol with other existing affil-iate
companies of Avista?
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A. Yes. In 20L4 Avista acquired Alaska Energy and
Resources Company
el-ectric service
(AERC), including AEL&P, which provj-des
to customers in the City and Borough of
the same Protocol for theseJuneau, Alaska. We are usi-ng
companies as we wll-l- use for
Proposed Transaction.
the Avista/Hydro One
To the extent Avistars general office employees
to our existingspend time providing
subsldiaries, these
services and support
costs are charged to suspense
186), are l-oaded foraccounts (Deferred Debit Account No.
benefits, and are then establ-ished as a recei-vabl-e (EERC
Account No. 746) when billed to the subsidiary. If
other resources are expended during the course of this
work, such as travel or consulting services, these costs
are also charged to suspense accounts and billed to the
subsidiary. All corporate services provided, and costs
incurred, are direct bill-ed to subsidiaries at cost. No
additional margin or profit is included and no assets are
all-ocated. This assignment of Avista costs, which are
then billed back to the subsidiary at cost, serve to
reduce the utility's expenses.
As indicated earlier, if Hydro One's employees were
to provide support for Avista's utility operations, such
costs would be directly assigned to Avista. Avista will
use the same methodology for direct assignment of costs
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Avista Corporation
its relationship with Hydro One, as it is with AERC and
AEL&P, as per the attached "Protocol for Direct
Assignment" in Exhibit No. 7, Schedul-e 3.
V. REI.ATIONSHIP TO PEITDING GENERAI RATE CASES
O. Should the Proposed Transaction be consol-idated
with Avista's pending electric and natural gas general
rate cases (Case Nos. AVU-E-17-01 and AVU-G-17-01)?
A. No. As explained by Mr. Morris, following the
close of this transaction, there wj-ll be Iitt1e to no
change in the operations of Avista, as compared to
Avista's operations prior to the transaction.
There wil-l- be some cost savings immediately
fol-Iowing the closing of the transaction, such as reduced
expenses associated with Avista no longer having publicly
traded common stock, fewer non-employee members of the
Avista Board of Directors, and other cost savings
explained by Mr. Thies. These savings, however, will be
covered by the proposed Rate Credit. Avista and Hydro
One are proposing to f l-ow through to Avista's el-ectrj-c
and natural-retail customers a Rate Credit beginning
at the time
gas
the
separate tariff
costs which are
Proposed
Schedul-es
currently
retai-l rates or the current rate case,
Transaction cl-oses (through the
13 and 173). Therefore, the
embedded in ej-ther existing
which will bet25
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reduced as a dlrect result of the Proposed Transaction,
wiIl be immediately credlted back to customers beginning
at the time the Proposed Transaction closes, through the
Rate Credit.
Furthermore, the pending general rate cases are
scheduled to be completed on or before January L, 2018.
A decision on this Proposed Transaction filing Iikely
wil-l- not occur prior to this date. Thus, dt the time a
decision is due in the general rate cases, it will not be
known whether the Proposed Transaction wil-l- be approved,
and therefore whether there will, in fact, be any
merger-related cost savi-ngs.
O. Does this concl-ude your pre-filed, direct
testimony?
A. Yes it does.
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Ehrbar, Supp Reb. 1Avista Corporation
I. INTRODUCTION
O. Please state your name, business address and
present position with Avista Corporation ("Avista")?
A. My name is Patrick D. Ehrbar and my business
address is l4L7 East Mission Avenue, Spokane, Washington.
f serve as the Director of Regulatory Affairs.
O. Have you previously fil-ed testimony in this
proceeding?
A. Yes, I filed testimony that accompanied the
Joint Application for approval of the merger (the
"Proposed Transaction"). My testlmony explained, among
other things, the proposed accounti-ng protocoJ- for any
affil-iate transactions between Avlsta and Hydro One
Limited ("Hydro One") fol-l-owing the closing of the
transaction.
O. Are you sponsoring any exhibits that accompany
your testimony?
A. No, I am not.
O. Ms. Carfock on p. 3 of her Direct Testimony
explained several ways customers are protected from the
transactions between Avista and Hydro One r or events
impacting Hydro One, which wou1d cause customer rates to
increase. What were her concl-usions?
A. Ms. Car1ock states correctly that any "customer
rate increase must be approved by the Idaho Pub1icI25
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Utilities Commission (the "Commission") before Avista can
increase rates to Idaho Avista customers."l In addition,
she states that Staff wilf scrutinize "any transactions,
activities or allocations to Avista from any affil-iated
entities. "2 Even more emphatically, Ms. Carlock states:3
Staff will verify that no cost are included 1n
customer rate that are not at the lower of the
actual cost or market comparison. Although this is
al-soa normal part of the Staff audit function it ispart of the ring-fenclng provisions and the
commitments from Avista and Hydro One. (emphasis
added)
Finally, Ms. Carlock goes on to state:4
The regulatory responsibil-ity of the Commission
Staff and ultimately the Commissioners making thefinal- decisions for the Idaho Publ-ic Utilities
Commission wiIl not change.Staff wiIl continue to
vigorously revj-ew capital investments, ongoing
operatiqnal costs, changes in revenues and the
overall o erations of Avista. When unreasonable
costs are identified or operating decisions by
management do not support just and reasonabl-e costs
to provide safe and reliable utility services to
customers at reasonable rates, Staff recommends
financial- adjustments and changes to programs during
proceedings before the Commission.This w111 not
change depending on the ownership of Avista.
(emphasis added)
O. Do you agree with Ms. Carlock's concl-usions?
A. Absolutely. As I am sure the Commissioners
know, and I can attest to, Commission Staff does a
of Avi-sta's costs and operations inthorough
general
revaew
rate case
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1 Carlock, Di., p. 3, 11. L4-L6.
2 ra. p. 3, r-f . 23-2s .
3 ra. p. 4, l-f . 3-B .4 rd. p. 5, 1r. 4-16.
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proceedings.
0. Are there buift in protections in the
Stipulated Commitments that support the Joint. Applicants
and Ms. Carfock's conclusions?
A. Yes. There are two specific commitments I have
provided bel-ow that memorj-alize the fact that customer
rates wil-l not be affected by this transaction. First,
Stipulated Commitment No. 1,6 states:
Treatment of Net Cost Sa S: H ro One commits
that Av sta customer rates w 11 not increase as aresult of the Proposed Transaction.Hydro One wilI
increase. Further, any net cost savin gs that Avista
may achieve as a result of the Proposed Transactionwil-I be reflected in subsequent rate proceedings, as
such savings materialize. To the extent the savingsare reflected in base retail rates they will- offsetthe Rate Credit to customers, up to the offsetableportion of the Rate Credit. (emphasis added)
Stipulated Commj-tment No. L1 provides
from the inclusion of costs related to
f rom being incl-uded in customer rates:
further protections
this transactlon
Treatment of Transaction Costs:
a. Costs associated with the Proposed Transaction
wiIl be separately tracked as non-utifity costs with
no charges, either allocated or direct, to be
recovered from Avi-sta customers. After the
consummation of the Proposed Transaction, any
remalning transaction costs or other costs of
Olympus Holding Corp. or Hydro One wil-l- not appear
on Avista's utility books, i.e. such costs will be
recorded as non-utiIity. Avista shal1 furnish the
Commission with journal entries and supporting
detaif showing the nature and amount of all costs ofthe Proposed Transaction (including but not limitedto management time, BOD time, in-house and
25
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Avista Corporation
outside counsel- time, dny consul-tants engaged,
since the Proposed Transaction was first
contemplated, as wel-l- as the accounts charged,within 120 days of a Commission order in this
docket.
etc. )
b. Avlsta will excl-ude, and Hydro One agrees
Avista will exclude, from Avista general rate cases,
or any other method of cost recovery, all costs
rel-ated to the Proposed Transactj-on including butnot fimlted to: (i) al-l- lega1 work from in-house
counsel and outside counsel; (ii) any financial
advisory fees associated with the Proposed
Transaction,' (if i ) the acquislt j-on premium; (lv)
costs related to M&A consulting and advice (v)
preparation of and material-s for presentations
relating to t.he Proposed Transaction (vi) any seniorexecutive compensation or any Avista board ofdirector time tled to a change of control of Avista;
and (vii) any other costs directly related to the
Proposed Transaction.
c. Technology expenditures and investments relatedto software and hardware compatibility issues
between Avlsta and Hydro One and its affiliates
shall- not be recovered from Idaho ratepayers exceptto the extent such costs are offset by savings overtime. (emphasis added)
In the end, Avista and Hydro One have agreed, through the
revised set of Stipulated Commitments, that customers
wil-1 be hel-d harml-ess from the Proposed Transaction.
Further, Staff has provided strong support for the fact
that it will, ds is their practice, thoroughly eval-uate
Avista's books and records in general rate case
proceedings to ensure compliance.
O. The Avista Customer Group ("ACG") in its
Comments filed on June 27, 2018, stated that the .loint
Applicants
Idaho Code
have not met the statutory criteria under
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Avj-sta Corporati-on
as it relates to cost increases.S Do you share their
view?
A. No, I
that "the cost
do not. fdaho Code 6l-328(3b) states
of and rates for supplying service wil-1
not be increased by reason of such transactj-on. " A11 of
the parties, with the exception of the ACG, support the
Stipulated Commitments, which as discussed earlier
explicitly state that the cost to customers and their
rates will- not increase as a resuft of this transaction.
O. Dld ACG comment on the lack of a filed "cost
al-location methodology" ?6
A. Yes, ACG commented that Avista did not fil-e a
cost al-location methodology for the al-location of costs
to Avista. As I discuss later in my testi-mony,
Avista at
Hydro One
this time.wil-1 not allocate corporate costs to
Instead, costs wil-1 be dj-rectly assigned to Avista or
Hydro One. Attached as Exhibit No. 1, Schedule 3, to my
direct testimony is Avista's "Direct Asslgnment
Protocol, " developed by Avista for the assignment of
costs associated with the Proposed Transaction. As I
discussed in my Direct Testimony filed in September 2071,
the Direct Assignment Protocol- addresses the accounting
for costs both prior to the closing of the Proposed
Transaction, as wel-l- as the accounti-ng for costs
fol-l,owing the closing.25
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5 Comments of Avista Customer Group, p
6 rria.
2. (June 27, 20lB).
Ehrbar, Supp Reb. 5aAvista Corporation
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Avista Corporation
O. Following the cl-osing of
wil-l- Avi-sta account for the costs
the transaction, how
associated with tlme
and expenses
employees for
companies ?
incurred by Avista employees and Hydro One
any services or work between the two
A. To the extent Avista employees dedicate time
and incur costs related to the operations of Hydro One,
those costs wil-l- 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 wlth Avista's operations, such
costs would be directly assigned and bil-led to Avista.
If a Hydro One employee's time and costs are related to
Avista's regulated utilit.y operations, the costs wou1d be
subject to review and approval by the Commission prior to
being recovered in retail rates. Avista expects such
assignment of costs, both to Hydro One and from Hydro
One, to be relatively smal1, especially in the near-term,
since Avista will continue to operate as a standalone
utility.
At this point in time, there are no plans to combine
any specific utllity operations. In the future, however,
if opportunities arise for the consolidation of certain
Avista and Hydro One utility functions, where the
utilities have an opportunity to benefit from speciallzedexpertise or to25
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Ehrbar, Supp Reb. 1
Avista Corporation
achieve efficiencies, it may be appropriate to develop
additional or different direct assignment or al-Iocation
protocols.
0.
Assignment
companies
A.
Resources
and Power
customers
are using
Is Avlsta currently using the
Protocol with other existing
of Avista?
proposed Direct
affiliate
Yes. In
Company
(AEL&P)
in the City and Borough of Juneau, Alaska. We
the same Protocol for these compani-es as we
will use for the Avista/Hydro One Proposed Transaction.
O. Will Hydro One allocate corporate costs to
Avista, and if sor woul-d Avista then seek to recover
those allocated costs from customers?
A. No, Hydro One will not al-l-ocate corporate costs
to Avista at this time. In the alternative, had that not
been the case, ultimately it is still the Commission, and
not Avista/Hydro One, that would decide if such costs are
appropriate to inc1ude in customer rates.
It is important to also distinguish the "a1location"
of costs and the "direct assj-gnment" of costs. For
example, when I testify to "alfocation" of costs, what I
mean is that Hydro One will- not be al-locating to Avista
(and then Avista
201,4 Avista acquired AIaska Energy and
(AERC), including Alaska Electric Light
which provides electric servj-ce to
25
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Ehrbar, Supp Reb. BAvista Corporation
to its' customers) corporate overhead costs, such as
Hydro One Board of Director costs, Hydro One executj-ve
costs, other Hydro One corporate overheads, etc. Instead,
costs may be "directly assigned" to Avista in certain
circumstances. For example, the combined Hydro One and
Avista entity may be abl-e to procure less expensive
insurance policies than the two companies currently have
in effect today as two separate entities. In that
example, Hydro
insurance that
Commitment No. 24.
Commitment No. 24
One may procure such less expensive
woul-d cover both Hydro One and Avista,
to Avista our share of those costs,
are protected through Stipulated
Among other things Stipulated
states:
and
directly assign
remembering that those costs would be cheaper than the
status quo. Of course none of those costs would be
incl-uded in customer rates until aIlowed to do so by this
Commission, with Avi-sta having the burden of proof that
the costs are reasonabl-e.
O. You state that Hydro One will not al-l-ocate
costs to Avista "at this ti-me". What about i-n the
future?
A. It. is unknown whether there woul-d be a desire
for future allocation of Hydro One costs to Avista.
However, customers
Avista agrees to provide,and Hydro One agrees25
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Avista will p rovide, cost a1l-ocation methodologies
used to al1ocate to Avista any costs rel-ated to
Hydro One or its other affillates and subsidiaries,
and commits that. there will- be no
cross-subsidization by Avista customers of
unregulated activities. (emphasis added)
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Ehrbar, Supp Reb. 9Avista Corporation
Avista will not charge to customers expensesallocated or directly assigned by Hydro One exceptin rates byas specifically authorized for recovery
the Commission. (emphasis added)
Avista will bear the burden of proof in any general
rate case that any corporate and affiliate cost
alIocation methodology is reasonabfe for ratemaking
purposes. (emphasis added)
Avista wiII notif the Commission of an cha e r-n
corporate structure that affects Avista's corporate
and af f il-iate cost al-l-ocation methodologies. Avista
will propose revisions to such cost allocation
methodologies to accommodate such changes. Avista
will not take the position that compliance with this
provision constitutes approval by the Commission of
a particufar methodology for corporate and affiliate
cost al-Iocation. (emphasis added)
Again, while there are no plans for cost allocations
from Hydro One to Avista, should all-ocation methodologies
be necessary, they woul-d be provided to the Commission,
and the burden of proof for cost recovery would be on
Avista in a general rate case proceedi-ng.
O. Does Commission Staff believe that Idaho Code
6l-328 wil-l- be met?
A. Yes. Ms. Carlock states that "I bel-ieve Idaho
Code 561-328(3) requirements will- be met".7 Further, she
staLes that the "Stipulated Commitments also assure that
the cost of and rates for supplying service wil-l not be
7 Carlock, Di., p. 4, ll_. Ll-12t25
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increased by reason of such transaction. "B I agree with
her whol-eheartedly.
O. Does this conclude your Supplemental Rebuttal-
testimony?
A. Yes it does.
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CSB REPORTING
208.890-s198
EHRBAR (X)
Avista Corporation
(The fol-l-owing proceedings were had in
open hearing. )
MR. MEYER: Wj-th that, he's avail-abl-e for
CTOSS.
COMMISSIONER KELLANDER: A11 right, thank
you very much. Mr. Purdy.
MR. PURDY: No questions.
COMMISSIONER KELLANDER: MT. Otto.
MR. OTTO: No questions, Your Honor.
COMMISSIONER KELLANDER: Thank you.
Mr. Richardson.
MR. RICHARDSON: Thank you, Mr. Chairman.
I have no questions.
COMMISSIONER KELLANDER: Mr. Williams.
MR. WILLIAMS: Yes, Chair.
COMMISSIONER KELLANDER: Pl-ease proceed.
CROSS_EXAMINAT]ON
BY MR. WILLIAMS:
0 Good afternoon, Mr. Ehrbar.
Good afternoon.A
n turn to
settl-ement
If you would
and specifically,
discussions with Idaho Eorest
the stipulated
participate in
representatives that
did you
Group25
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l-ed to the inclusion of terms 50 and then some of the
provisions of provision 5B?
A Yes.
0 Could you briefly describe 60 and how 58
relates to 60?
A You beti so commitment No. 60 speaks to
Idaho Forest Group DSM assistance and what i-t outlines
there is that there are many projects that Idaho Forest
Group has done in the past, is currently looking at, and
potential future projects that they're looking at that
qualify for our Schedule 90 and 190 energy efficiency
rebate tariff funding, so they're energy efficiency
projects. They qualify for funding through our normal-
processes, but to the extent that there's incremental-
costs associated with those projects that aren't
otherwise covered by that tariff-based funding that the
funding seL forth in commitment 58 of approximately 5. 3
mill-ion that those projects could be brought to that
advisory group as set forth 1n that commitment for
potential fundlng.
O And with respect. to the first bul-let point
under No. 60, it has to do with installing plant
information data on energy usage at Idaho Forest Group's
two at its Lewiston pIant. If you know, do you have
information on the status of where that project is?
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CSB REPORTING
208.890-5198
EHRBAR (X)
Avista Corporation
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A I do; so I checked in on that and what I
was tol-d late l-ast week is that the PI Data project as
it's outl,ined here will be up and runnj-ng in the f irst
quarter of 2019.
O And thank you for your assistance on that,
and my understanding is that implementation of these two
provisions will at least in part be subject to your
supervi-sion.
A My direct supervision?
A Not the actual installation, but maybe
supervisj-on is the wrong word. You're kind of
monitori-ng, I guess.
A I do monitor it.
O A11 right, thank you, and would you agree
that incl-usi-on of these two terms in the stipulation was
a materia1 term that was critical to Idaho Forest Group's
support of the stipulation?
A It was.
O AIl right. Now, if you coul-d turn to
Exhibit No. J, Schedule 2, page 2, itrs attached to your
direct testimony.
A Schedul-e 2, page 2?
O Correct.
A I'm there.
O And if we could you tell me which
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208.890-5198
EHRBAR (X)
Avista Corporation
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208.890-s198
EHRBAR (X)
Avista Corporation
schedule Idaho Forest Group is on?
A Idaho Eorest Group is served on our
electric Schedule 25, Extra Large Genera.l- Service.
a And why don't you explaj-n brief 1y what
this schedule is.
A What this schedule sets forth is the rate
spread of the proposed rate credit
schedules, both for electric on the
naturaf gas service at the bottom
O A11 right, and the
the Schedule 25 customers in total
47,834; is that correct?
A
filed testimony
spread over ten
that time.
Y
what is it now?
A
On this sheet, which was
run to ground, so I
Schedule 25 over a
we can find out for
O It's
to the various service
top
the
of the page and
of page.
rate credit spread to
it'swe11,l_s
when the rate credit was
in my
ata
original
l-ower l-evel-
years, yes, that's what the amount was at
And you anticipated my next question,D(J
That i-s a great question that I did not
don't know what it is today for
five-year period for Schedule 25, but
you.
something so when I look at that
schedule and the revenue requirement, the base revenue
for that class, what is that revenue requirement for)tr,
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CSB REPORTING
208.890-5198
EHRBAR (X)
Avista Corporation
Schedule 25 1n this total annual forecast period?
It shows 19.9 million.
And do you have
A
u
Idaho Eorest Group's revenue is
a general idea of what
or would you accept,
three-and-a-hal-f milliontosubject to check, it's three
dollars ?
A I wou1d agree
check.
with that, subject to
O Roughly 16 percent?
A I would agree with that.
O So if your rate credit for that class is
$47r000, which we know that it's not, it's something
di-fferent, but if it were that amount, Idaho Forest
Group's rate credit
rate credit?
would be about I ,600 out of the total
A In this scenario set forth here, I would
agree with your numbers.
MR. WILLIAMS: A11 right. Mr. Chair, I
have no further questions.
COMMISSIONER KELLANDER: Thank you,
Mr. Will-iams. Let's move to Mr. Baxter.
MR. BAXTER: No questions, thank you.
COMMISSIONER KELLANDER: Mr. Karpen.
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EHRBAR (X)
Avista Corporation
CROSS-EXAM]NATION
BY MR. KARPEN:
O Good afternoon, Mr. Ehrbar.
A Good afternoon.
O I have kind of some general
about costs and rates. As you understand,
i-ncrease as a result of this transactlon?
A Rates will- not increase as
questions
will rates
a result of
this transaction, in fact will decrease as a result of
this transacti-on
a How about costs, will costs increase as a
result of this transaction?
A Costs will-
this transaction.
O Okay. Now,
statements, does that mean
increase?
not i-ncrease as a result of
when f say both of those
rates and costs will never
Idaho customers, as
will be refl-ected in
the cost to provide
change over time.
O Now,
Avista to Hydro One?
those go up or
future general
A No; so costs as it relates to
down over
serving
time, those
rate case filings, so
customers wil-l-service to Idaho
how about al-Iocation of costs from
At this time are there any25
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208.890-5198
EHRBAR (X)
Avista Corporation
proposaJ-s to al-l-ocate such costs?
A To allocate from Avj-sta to Hydro One?
A Right.
A There's no al-location of costs from Avista
to Hydro One, direct
O Now,
al-Iocation of costs from Avista to Hydro One?
A I donrt see an al-l-ocation of costs from
Avist.a to Hydro One and I don't know if you al-so mean
Hydro One down to Avista.
O Either way.
A Okay; so what I woul-d point to, I think
the governing document would be, and it was somewhat
referenced yesterday with Mr. Lopez's testimony, my
Exhibit 1, Schedule 1 -- excuse me, Exhibit 1, Schedule
3, is a direct assignment protocol, so to the extent that
Avista employees, like myself, do work for Hydro One, I
would directly assign my time in a below-the-1ine account
and that would be invoiced to Hydro One. Likewise, tf
Mr. Lopez, for
book his time
would ul-timately be
direct assignment of
al-l-ocation.
in the future could there be an
example, did work for Avista, he woul-d
to the proper
billed
costs,
account in Canada and that
down to Avista, so if t,here's
this exhibit outlines how
general corporatethat works, but in terms of
allocations, there are none.25
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)At
CSB REPORTING
208.890-s198
EHRBAR (X)
Avista CorporatJ-on
MR. KARPEN: Thank you. I have no further
questions for this witness.
COMMISSIONER KELLANDER: Thank you. Mr
Semanko.
MR. SEMANKO: Mr. Chai-rman.
CROSS_EXAMINATION
BY MR. SEMANKO:
a
A
o
you are al-so a
graduate?
A
not good.
O
team.
A
o
this hearing?
A
o
witnesses ?
A
Wel-come, good afternoon.
Good afternoon.
I see not to be outdone by Mr. Morris that
double Zaq, is that correct, double Zag
I'm a doubl-e Zag who likes USC, so thatrs
WeIl- , Gonzaga doesn't have a football
Yeah.
Have you been here through the entirety of
Yes, I have.
Have you heard the testimony of all the
Yes, I have.25
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208.890-5198
EHRBAR (X)
Avista Corporation
O
you disagree?
A
Ts there any of that testimony with which
No.
yesterday I bel-ieve j-t wasO
with regard
a question
protocol?
A
0
Do you recal-l-
to Mr. Lopez's or
from counsel about
assignment protocol
A Yes,
O And
during Mr. Lopez's redirect
a direct assignment
you have in fact submltted a direct
in this matter?
we have.
that's one of your exhibits?
Yes, we
fi I ing,
I do.
And
A Correct.
O Is that the same as -- wel-l-, 1et me back
up here. Under No. 24 in the commitments, if you cou1d
go to that, it's the old 23.
A ft's No. 24? I'm there.
0 Yeah. In that provision, take your time
reviewing it if you need to, but is not Avista going to
be submitting a cost allocation methodology at the time
of the next rate case?
n So pursuant to that commitment,
cost allocation manual in thatwould provide a
but what I would submit to you now because there are no
costs to be allocated, what I would submi-t. is the directLJ
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208.890-5198
EHRBAR (X)
Avista Corporation
assignment protocol or the latest versi-on as updated over
time.
a So my question is the direct assignment
protocol that you have submitted and the cost all-ocation
methodology that you would be providing under this No.
24, are those the same animal-s? Are those the same
thing? Are they different documents? Are they different
items ?
A At this point in time the methodoJ-ogy is
the direct assignment protocol, so j-t's not contemplated
at t.his that Hydro One would al-l-ocate any costs down to
Avista as we heard from other witnesses yesterday and so
the direct assignment protocol woul-d govern.
O So is it your testimony that if you were
requlred to submit a "cost al-location methodology" today,
it would l-ook just like the direct assignment protocol
you've already
A
o That's very heIpful, thank you. Is there
a reason why that hasn't been provided as a cost
allocation methodology?
A I woul-d say that it has been provided up
front in our original filing.
O So same thing, different name?
A Yes.
submitted?
That is correct.
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208.890-5198
EHRBAR (X)
Avista Corporation
O So you were present for my questions
yesterday with regard to whether a cost al-l-ocation
methodology or a proposed cost alIocation methodology
coufd be submltted in thls matter simi]ar to what
occurred in Scottish Power. Were you present for that?
A I was here.
O So woul-d your posltion be that in fact it
has been submitted in this matter?
A Yes, I
that in the Scottish
believe it has been submitted in
Power circumstance, there were going
costs from the parent down to
down to PacifiCorp. In this
There won't be any corporate
to be allocation of cofiImon
the utility, in this case
case, that's not an issue.
common costs
o
assignment.
assignment?
A
o
al-location between
all-ocated down to Avista.
So at this point there's no cost
There might be there is some direct
That's correct.
For how long will there be no cost
Hydro One and Avista?
A That's unknown at this time. For now the
direct assignment protocol is the methodology, but I
think as we heard yesterday, you know, tal-ks are just
starting on potential areas for potential benefits
rel-ated to purchasing, fl-eet, and ISIT, and whil-e I think25
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208.890-5198
EHRBAR (X)
Avista Corporation
those would be directly assj-gned down to the future,
there coul-d be somethj-ng different, and so at that point
under commitment 24, we would then provide a different
cost allocation methodology if there were to be one.
O So you're not aware
estimates or schedules with regard
allocations might be i-n years one
through ten or beyond?
A There are none. I
of any projections or
to what those cost
through five or six
see nothing.
O Do you have any idea when those might
exist ?
A No, I do not.
O Does the cost allocation affect the cost
structure of Avista?
A No. The cost structure as it rel-ates to
the cost related to servinq Idaho customers and those
costs are already known u.rd aooOed at in general rate
cases. To the extent that there's a directly assigned
cost that has some offsetting benefit, that there's a
greater benefj-t than what we have today, then we might
bring that to the Commission in a general rate proceeding
with the burden of proof on us to prove that those costs
and the offsetting benefits are prudent.
O Is that as true in the future if there are
cost al-locations between Hydro One and Avista?25
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CSB REPORTING
208.890-s198
EHRBAR (X)
Avista Corporation
a proposal
A Any
from the
most of the
company wou1d be
parties in this
vetted by all the
room, and then set
reviewr So if there
the burden of proof
costs that we ever seek to inc]ude in
part j-es,
by this
were to
with any
one
you
going
or six
to be cost
Commission after a thorough
be any costs in the future,
cost falls on the utllity seeking cost
recovery.
O And what is that burden?
A frm not a lawyer, but the fair, just,
reasonable, sufficient is typical and necessary in
providing service, safe and rel-iab1e service, to our
customers.
0 And that's j-n a rate case?
A That's in a general rate case.
O Do you know what the standard is for cost
increases in thls proceeding?
A There wil-l be no cost increases in this
proceeding.
0 So Irm confused. If you don't know
allocations in yearswhether there are
through five
know whether
through
there's going
ten or beyond, how can
to be additional costs
built into the cost structure of Avista?
A WelI, there's commitments set forth in the
stipulated commitments. I'd polnt to No. 16, No.11,25
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4
5
6
7
B
9
No. 24, and others that say that we cannot, even if there
were to be costs hypothetically, those commitments govern
the fact that we can't affect customers' rates because of
those costs.
O Very good, and how woul-d that manifest
itself under No. 76, for example, the hol-d harml-ess that
Hydro One would be providing if those costs did exist and
Avista customers have to be held harm1ess against that,
no rate j-ncrease because of that, how would Hydro One
hol-d harml-ess the partles?
A So if there are costs that don't have
associated benefits associat.ed with it that provide
benefit to our Idaho customers, those we wou1d seek to
recover potentially in a general rate case , tf there's a
matching of a benefit thatrs better than what service is
being provided today; So, for instance, cheaper insurance
policles or something along those lines. If there is
just a cost with no offsetting benefit, under these
commitments, we can't pass along those costs to
customers, so Hydro One eventually just earns a l-ower
rate of return because of Avista's operations.
O So you can say that the costs to Avj-sta
after the merger won't be any higher than before the
merger because of stipulation No. t6?
A As it rel-ates to Hydro One. Now, normal
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208.890-s198
EHRBAR (X)
Avista Corporation
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208.890-5198
EHRBAR (X)
Avista Corporation
costs to provide service to Idaho customers wilI
change.
O Understood.
testimony, on line 7!, if
think you're talking about
respect to the ratemakj-ng
On page 13
you could go
a rate case
treatment of
of your direct
to page 73, I
and you sdy, "Wj-th
af f il-iate
transactions affecting Avista, the Joint Applicants wil-I
comply with the Commj-ssion's then-existing practice"; so
my question is why is it that the joint applicants would
have to do that in a rate case? Why not just Avista?
A I think in that circumstance it is just
Avista in a general rate case, because Avista wil-I be the
one filing said rate cases. I think this language here
was just to affirm that Hydro One in support of Avista as
the joint applicants wil-l comply with the Commission's
then-existing practice, so it's an affirmatj-on.
O And, of course, Hydro One would be bound
by the commi-tments?
A Yes.
O Do you know what ro1e, if dtry, Hydro One
would have in the decision for Avista to go seek a rate
increase?
A I don't think they'I1 have any role.
O Is that based on any particular provision
or commitment or just your understanding?25
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CSB REPORTING
208 .8 90-5198
EHRBAR (X)
Avista Corporation
A No, I thlnk that's standard practice today
in that my team,our group, looks at
take that to senior
the need for general
management. Senior
with the board and
rate rel-ief .
management can
their input.
We
decide at that point
The current Avista board or the
Avista board with their oversight, they woul-d
proposed
determine
how the business is run.
O Very good. I'l-l- take you to page tl and
this provlsion appears a couple of times in your
testi-mony, I believe, but on line 9, you say that you
expect the assignment of costs to be rel-atj-ve1y smaII,
especially in the near term. Do you expect that they may
be larger in the long term, be larger in the long term?
A No, I canrt say that it would be, but we
bel-ieved in the near term, 1n the first few years, as
we're just getting up and running as a joint entity that
determining future cost savings and abilities to have
better efficiencies around ISIT and purchasing and a
f l-eet and the like will be minimal up f ront.
O On to Exhibit No. J, Schedule 3, which is
the direct assignment protocol
A Yes.
O so are you able to stipulate and agree
today that this is your current cost al-location
methodology between Hydro One and Avista?25
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A I would stipulate that this was the first
form of it. It has subsequently been updated with more
information, first and foremost replacing who wrote the
memo is Ke11y Norwood who has since retired, so it's been
updated over time, but the basics of what's in this
document are the same as today.
O Has that updated protocol been submitted
to the Commission?
A That I don't think so.
a V\iil1 you stlpulate that that document is
your current cost a1l-ocation methodology?
A Yes. In fact, I have it here, tf need be,
so this is the latest versi-on of the same document.
MR. SEMANKO: fs that something that we
could get into the record later? We don't necessarily
need to do it now, but counsel, would it be your view
that that woul-d replace Exhibit No. '7, Schedule 3?
MR. MEYER: WeI1, I think what we would
want to do, and we I re happy to provide it when we return
to Spokane and it might be noted as part of that one tab
on hls exhibit, but as a revised version of that. f'd
Ij-ke to have them both there sj-nce you did refer to the
other one. We can do that. We will do that, Lf that's
acceptable.
COMMISSIONER KELLANDER: That should work
CSB REPORTTNG
208 . B 90-5198
EHRBAR (X)
Avista Corporation
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208.890-5198
EHRBAR (X)
Avista Corporation
for us. Does that suffice for you, Mr. Semanko?
MR. SEMANKO: That's fine with me.
COMMISSIONER KELLANDER: Good.
O BY MR. SEMANKO: So substance-wise, is
there any update or difference? And I apologize if you
already said this. I was focused on who you said wrote
it, but
A
O
Sure. Nothing substantive has changed.
No categori-es have changed or percents
Yes.
And the provision in the Scottish Power
specifically refers to audits, do you recal-l-
or
A No, it tal-ks primarily about the same
bel-ow-the-l-ine accounts, that costs associated with this
transaction process, as well as any costs as we work
booked bel-ow the line.together, how those are
O And do you have a schedu1e for revisj-ng or
cost allocation methodology?
Not that I'm aware of.
updating this
Were you in the Hearing Room, I assume you
yesterday about audits?were, during the discussion
A
a
A
O
Order that
that ?
A
o
Generally.
Have you seen that Scottish Power25
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CSB REPORTING
208.890-s198
EHRBAR (X)
Avista Corporation
condition?
to do that? This is
point me to it?
will do that.
approach or, counsel-, would you like
802.
A Can you
o Yes, I
Can I
THE WITNESS: I have a copy of that.
O BY MR. SEMANKO: Irm sorry, I shoul-d
have asked if you had 802; so in 802, if you could go to
No. 2l on page L2 and just take a l-ook at that real-
quick.
A
O
Commission may
are the basis
Okay.
That provision does it not say that the
audit the records of Scottish Power which
for the
A Okay,
charges to PacifiCorp?
I'm sorry, I'm reading as the
Commission or its agents may audit the records of
Scottlsh Power.
0 I'm sorry,
A Okay.
O To assign
to allocation or
are you on No. 21 on page t2?
costs to PacifiCorp and amounts
direct charges, the Commissionsubj ect
or its
which
agents
are the
may audit the records of Scottish Power
basis for charges to PaciflCorp; correct?
A Correct -
O And Scottish Power wifl cooperate fully25
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208 . B 90-5198
EHRBAR (X)
Avista Corporation
with Commission audits?
A Correct.
O Wou1d you have
same provision being included
any concern with that exact
l_n these commitments, of
PacifiCorp and Hydro Onecourse, substitutlng Avlsta for
for Scottish Power?
A I think I wil-I answer similar to Mr. Lopez
in that one, I think the, lack of a betteryesterday
word, the
Power is
guts
buil-t
of what's in commitment 27 in Scottish
into the existing commitments in this
matter, and I don't know that I'm one that can say for
something withoutthe company whether we can just adopt
legal review.
O Thank you, and do you agree with the
previous testimony, I believe, of Mr. Lopez that other
than in the tltl-e, the word audit doesn't appear in the
commitments currently?
A I believe that's right, subject to check,
other than in the title of commitment 23.
0 The hol-d harmless provlsion you referred
to in commitment 16, is that a fairly recent addition of
the commitments, do you know?
A Yes. Again, subject to check, I believe
that was one of the new changes in this version of the
commitments versus the previously-filed commj-tment25
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CSB REPORTING
208.890-5198
EHRBAR (X)
Avista Corporatlon
list.
o
testimony now,
on page 7.
A
o
al-l-ocation and
and say that at
to Avista, and
costs, such as
So f'm on page B of your rebuttal
if you could go there, actually starting
Okay, I'm there.
You talk about distinguishing between
direct assignment, which we've covered,
the bottom there, will not be allocati-ng
then on the next page, corporate overhead
Hydro One board of di-rector costs, Hydro
One executive costs,
Are those the kinds
other Hydro One corporate overheads.
of things that can be al-l-ocated from
one company to another?
A I would say yes, that those are examples
of costs, but I was trying to make the point that costs
such as that, dny corporate costs at the Hydro One
corporate l-evel, will not be all-ocated down, unlike in
the Scottish Power example.
O And none of those costs are bej-ng
aflocated now?
A Correct.
a Or won't be after the merger is
approved?
A Correct.
O So do you know what the corporate overhead25
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CSB REPORT]NG
208.890-5198
EHRBAR (X)
Avista Corporation
costs are for Hydro One?
A I have not looked into anything related to
Hydro One's finances.
O Do you know what, sdy, 15 percent of that
number would be?
A
o
out ?
A
so I have not
O
costs and you
I don't.
fs that something that coul-d be figured
I would probably pose that to Hydro One,
been looklng at Hydro One's financials.
So if you had their overall corporate
had a percentage, you'd come out with a
number; correct?
A
a
A
o
Yes, that would be the math behind that.
But we don't have that?
Because they're not seeking to do that.
But you may have allocations in the
future ?
A May, but f donrt see that those costs
would be allocated down.
a AI1 right,' so at the bottom
8, you talk about commitment 24 and thatrs
1ALA
of that page
the current
A
o
Yes.
I believe; so on lines 26 through 27,25
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CSB REPORTING
208.890-5198
EHRBAR (X)
Avista Corporation
it says that there wil-I be no cross-subsidization by
Avista customers of unregulated activities. Do you see
that ?
A I do.
O Whatrs your understanding of why that
doesn't include protection from regulated activities?
A Can you phrase that differently?
O Why is 26 through 2"1 in stipulation 24
I'm sorry, commitment 24, why is that limited to no
cross-subsidization by Avista customers of unregulated
activities ?
ASo my
with
-- what f believe that we were
thls portion of the commi-tment wastrying to
that there
get at
wouldn't
terms of for Idaho
One with affil-iates
Avista Development or
it's not regulated in
can't be then brought
subs idi zat ion .
O Okay,
the next page, it
customers expenses
Commission in the
be l-et me try it another way. In
in particular, what happens with Hydro
of Avlsta that exist today through
other unregulated activities, if
the State of Idaho, those costs
into Idaho for purposes of
thank you, and
says that Avista
allocated unless
recovery of rates; correct?
A That's correct.
then continuing to
wil-I not charge to
it's approved by the
25
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CSB REPORTING
208.890-5198
EHRBAR (X)
Avista Corporation
a So looking at Scottish Power again in 802,
if you could go to No. 28 on page L2, it says that
Scottish Power wil-] not subsidize its activities. It
isn't 1imited to unregulated activities,' correct?
A That's how it reads.
O By allocating to or
not authorized
directly charging
by the Commission toPacifiCorp expenses
be so allocated or directly charged. There is no
reference to a ratemaking procedure there; correct?
A Not in that language.
O Is there any reason
No. 28 coufdn't be applied to this
A I think the intent
why the language of
transaction as well?
of 28 and what No. 28
is trying get at is covered in the commitments in this
matter as wel-I.
O Can you te11 us which ones?
A I would point to No. 24. I think the
intent. of 24 is the same as 28 with Scottish Power.
O So it covers unregulated
activities because of the language about
customers without Commission approval-?
A So I would go back to the
and regulated
no charge to the
bottom of page B
Hydroof my rebuttal where
One/Avista, we commit
it tal-ks on commitment 24 that
that there will be no
cross-subsidization by Avista customers of unregulatedt25
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CSB REPORTING
208 .8 90 . s198
EHRBAR (Com)
Avista Corporation
activities, so in this state, the regulated activity is
the Idaho electric and natural- gas business, so there
will be no subsidization by fdaho customers of any
activity of Hydro One or Avista's affiliates.
MR. SEMANKO: Al-I right, thank you. I
don't have any other questions, Mr. Chairman. Thank
you.
COMMISSfONER KELLANDER: Thank you. Are
there any questions from members of the Commission?
Commissioner Raper.
EXAMINAT]ON
BY COMM]SSIONER RAPER:
O Good afternoon, Mr. Ehrbar.
A Good afternoon.
O So Mr. Semanko went to great lengths to
distinguish between dj-rect assignment and cost
a1.l-ocation. Direct assignment is what I understand will-
occur immedj-ately after any merger were it to be approved
and then cost allocation potentially at some point in the
future; is that correct?
A Correct.
O V{hether the companies engage in direct
assignment of costs or in an allocation method, canI25
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CSB REPORTING
208.890. s198
EHRBAR (Com)
Avista Corporation
Avista put that into rates of the Idaho customers before
this Commisslon approves those to be put in rates of
Idaho customers?
A Absolutely not.
O Okay; so regardless of what method is used
or when that method changes, those costs will always have
to pass through this Commission for review?
A Pass through your Staff first, through
their careful- scrutiny, and then ultimately to the
Commission, yes.
O For approval?
A Absolutely.
O So with regard to the audit authori-ty that
Mr. Semanko was speaking to and whether there's audit
authorlty
Scottish
and the language he wanted included from the
Power merger paperwork, audit authority this
Commission afready has over Avista and will continue to
havei correct?
A Absolutely, correct.
O So if this Commission wanted to look at
Hydro One's paperwork in order to verify that costs had
been all-ocated correctly or otherwise disal-Iow those
costs to be recovered from its Idaho customers, do you
their
books to have Staff look and audit
interest to open
that paperwork?
see it as in the Hydro One's best
25
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CSB REPORTING
208.890. s198
EHRBAR (Com)
Avista Corporation
I do.
So does the legal function of this
Commission adequately cover, then, what would otherwise
be Mr. Semanko's concerns in Hydro One's records and our
A
o
ability to look through
the costs to the Idaho
A A11 the
those, audit those, and make sure
authorities you have today you
woul-d have in the future, so yes.
O Okay, and we already do that type of
review, do we not, because you already have other
j urisdictions ?
A Correct.
O And this Commission reviews not only our
paperwork and what
consumers were correct?
you're attempting to assign to our
audit paperwork and numbers and dol-l-arscustomers, but
associated with
we
other jurisdictions to make sure that the
all-ocation
regardless of whether
Hydro One in Canada?
A It wll-l-
0 So it's
regardless of whether
as they currentl-y are
to this jurisdiction is
A Correct, you do.
a Will that function
appropriate ?
virtually the same
it's Washington, Oregon, Montana or
be exactly the
in Hydro Oners
it exists in the
written, it's in
same.
best interest,
merger documents
Hydro One's best25
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CSB REPORTING
208 .8 90 . s198
EHRBAR (ReDi)
Avista Corporation
interest to open its books because the viability and
continued financial- success of Avj-sta and recovery of
those costs through the
One's best interest?
customers is ultimately in Hydro
A It's dependent upon that, yes, and in
their best interest.
COMMISSIONER RAPER: Thank you. That's
al-l I have.
questions
redirect.
THE WITNESS: Thank you.
COMMISSIONER KELLANDER: Any additional-
from members of the Commission? If not,
REDIRECT EXAMINATION
BY MR. MEYER:
O Mr. Ehrbar, you indlcated that you manage
the rates department?
A I do.
O And you also testified
of that department, you are basically
putting together rate filings?
A Correct.
that as the manager
in charge of
O And that is somethlng that Avista and you
threepersonally have been involved with repeatedly in25
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CSB REPORT]NG
208.890.5198
EHRBAR (ReDi)
Avista Corporation
different jurisdictions over the last decade?
A Thatrs correct.
O Would you agree that utilities, especially
j-n the current day and age, find that the filing of rate
cases, real1y, it's in the ordinary course of business?
It's what you do, what you need to do?
A That's correct.
MR. MEYER: A11 right. Now, may I
approach the witness?
COMMISSIONER KELLANDER: For what purpose?
MR. MEYER: Good question. I want to hand
to the witness
the wi-tness.
the drill. Okay, that's a
COMM]SSIONER
enough to get up there?
(Mr.Meyer
MEYER:MR
there, coul-d
Mr. Schmidt's
the Commlssloners turn
testimony, page 5 of
it's quicker,
COMMISSIONER KELLANDER: Please approach
MR. MEYER: You're going to
fair questi-on,
RAPER: Can you see well
put me through
though.
the witness. )approached
While I'm struggling to
to Exhibit No.
get up
2lo
oL, if
and f
don't
wiIl give
have extra
you
Appendix 2 Lo
a moment to do
5 of Schedule No. 2,
the joint application
so. I'm sorry, I
copies of all- these.25
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CSB REPORTING
208.890. s198
EHRBAR (ReDi)
Avista Corporation
MR. SEMANKO: Whose testimony
MR. MEYER: Mayo Schmidtrs, so
reference is to his Exhj-bit No. 2, Schedul-e 2
MR. MEYER:
Iike the
again?
the
page 5 of
maybe5. I'm sorry,
more than one
f can certainJ-y scrounge a copy,
copy.
COMMISSIONER KELLANDER: Itrs just a
book. Please proceed.
Okay, l-ots of books, lots of
record to ref l-ect that I've
matter of finding the right
paper; so I would
handed to wi-tness Ehrbar page 5 of 5 of Schedule 2 of
Exhibit No. 2 of Mayo Schmidt.
O By MR. MEYER: Do you have that before
you?
A Technically, I have page 10 of 10 of
Appendix 2 Lo the joint application, same thing.
O The same thing?
A Yes.
O It appears in two places?
A Yes.
O A11 right; so do you recogni-ze this
document for what it purports to be; that is to Sdy,
Approval Requirements whereby the sole sharehol-der in
this case, Hydro One, shal-l be required for any decision
to do any number of items?
A Yes.25
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CSB REPORTING
208 .890.5198
EHRBAR (RCD1)
Avista Corporation
o
you see any
rate cases?
A
o
As you
reference
look through that list of items, do
whatsoever to the filing of general
No,
But
I do not.
the parties knew how to specifically
which Hydro One thought needed toset forth those items
be approved by
A
them; correct?
That is correct.
MR. MEYER: Okay, that's all I have.
Thank you.
Mr. Ehrbar, we
for being hear
COMMISSIONER KELLANDER: Thank you and,
appreciate your testimony and thank you
today.
THE WITNESS: Thank you.
(the witness left the stand. )
COMMISSIONER KELLANDER: And that alfows
us have a little more room for the next witness. A11
right, Iet's go 10 minutes.
(Recess. )
COMMISSIONER KELLANDER: We're on the
record. A11 right; so prior
is the }ast break as we head
were ready for Avista's next
call- that witness.
to our break, what we hope
lnto the final- stretchr we
witness, if you'd l-ike to
MR. MEYER: Mr. Mark Thies.25
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CSB REPORTING
208.890.5198
TH]ES (Di)
Avista Corporati-on
MARK T. TH]ES,
produced as a witness at the instance of the Avista
Corporation, having been first duly sworn to tell- the
truth, was examj-ned and testified as follows:
D]RECT EXAMINATION
BY MR. MEYER:
O Mr. Thies, for the record, please state
your name your employer and your position.
A Mark Thies. My employer is Avista. My
posj-tion is senior vice president, chief financial-
officer, and treasurer.
O Thank you, and did you prefile direct
testimony, and the date here is important, 9/L4 of 'l'7?
A Yes.
O And did you afso fil-e supplemental- direct
testimony on 9/24/2018?
A
O
appear in those
the same?
A
Yes.
If f were to ask you the questi-ons that
items of testimony, would your answers be
wirh the exception in my initial-
direct testimony, we referred to atestimony, initial
rate credit, dt that time it was true and correct, of25
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CSB REPORT]NG
208.890.5198
THIES (Di)
Avista Corporation
31.5 mil1ion to be returned over ten years and now that
has changed through supplemental- discussions with all the
parties and that amount i-s also incl-uded in the record
and f can give a reference, if that's helpful
a Please do.
A to where that is. It is in the Avista
and Hydro One comments in support of stipulation and
settlement and itrs on page 12. Therers a table there
that identifies the new total system credit of just over
55 million and the Idaho credit of 15.8 million.
O So if one were to identify a single point
or single place where you could see the most recent
tabulation, dol-1ars, whether it's rate credit or
otherwise, would that be the source?
A Yes.
And, again,
The Avista
for the record, that is the
and Hydro One comments in
support of stipulation and settlement and it's page L2.
O Thank you. Are you also sponsorj-ng
Exhibits 3 and t2?
A Exhibits
O Three and 12.
A Yes.
O Is the lnformation true and correct in
those exhibits?
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A Yes.
MR. MEYER: Okay, I move for the entry of
Exhibits 3 and 12 and that the direct and suppl-emental
direct be spread as if read with the cl-arifications made
by this wj-tness.
COMMISSIONER KELLANDER: And without
objection, we will spread the testimony across the record
as if read and admit the exhibits.
(Avista Corporation Exhibit Nos. 3 and 72
were admitted into evidence. )
(The fol-Iowing prefiled direct and
supplementa1 testimonies of Mr. Mark Thies are spread
upon the record. )
CSB REPORTING
208.890.5198
THIES (Di)
Avista Corporation
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a. Please
I. INTRODUCTION
state your name, business address, and
with Avista Corporation.
is Mark T. Thies. My business address
present
is 1477 East Mission Avenue, Spokane, Washington. I am
employed by Avista Corporation ("Avista") as Senior Vice
President, Chief Financj-al Officer and Treasurer.
O. Please describe your education and business
experience.
A. I received a Bachelor of Arts degree in 1986
with majors in Accounting and Business Administration
from Saint Ambrose College in Davenport, Iowa, and became
a Certified Publ-ic Accountant in 1987. I have extensive
experience in finance, risk management, accounting and
administration within the utility sector.
I joined Avista in September of 2008 as Senior Vice
President and Chief Financj-al Offlcer (CEO) . Prior to
joining Avista, I was Executive Vice President and CFO
for Black Hil-ls Corporation, a diversified energy
company, providing regulated electric and natural- gas
service to areas of Montana, South Dakota and Wyoming. I
joined Bl-ack HiIls Corporation in 1991 upon leaving
InterCoast Energy Company in Des Moines, Iowa, where I
was the manager of accounting. Previous to that I was a
senior auditor for Arthur Andersen
position
My name
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O. What are your duties as Senior Vice President,
Chief Elnancial- Officer ( "CFO" ) and Treasurer of Avista?
A. I have overall- responsibility for the financlal
management and financial health of Avista. In
particular, my present responsibilities incl-ude oversight
of the finance, accounting, tax, fi-nancial planning,
budgeting, strategy, risk and insurance of Avista.
O. Pfease summarize your testimony.
A. My testlmony begins with an overview of Avista
from a financial perspective. I explain the terms of the
Proposed Transaction, and the benefits of the transactj-on
to Avista, its customers, and other stakehol-ders from my
CFO perspective. My testimony will focus primarily on
the commitments offered by Avista and Hydro One
(hereafter referred to as "Joint Applicants") addressj-ng
capi-ta1 structure, credit ratings, accounting, Commission
oversight and ring-fencing protection.
I will also address the varj-ous approvals that are
necessary prlor to consunrmation of the transaction, the
timing of the fillngs, and the anticipated timing of the
closing of the transaction. EinaIIy, I will explain how
Avista will operate in the intermediate period between
the signing of the Agreement and Pl-an of Merger
(hereafter referred to as "Merger Agreement") and theclosing of the Proposed Transaction.
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A table of contents for my testimony is as fol1ows:
Description Pagg
I.
II.
II]
IV.
V.
vI.
VII
Introduction 1
Fi-nancial- Overvi-ew of Avista 4
Terms of the Proposed Transaction 11
Benefits to Avista and Its Stakeholders 15
Commi-tments Offered by Avista and Hydro One 2l
Required Approvals for the Proposed Transactj-on 40
Avj-sta's Operations Between Signing and Closing 4l
O. Are you sponsoring any exhibits with your
testimony?
A. Yes. Exhibit No. 3, Schedule 1 includes a copy
of Avista's financial- statements contained within its
Form 10-K filed with the Securities and Exchange
Commj-ssion (SEC) for the fiscal- year ending December 31,
20L6. Exhibit No. 3, Schedule 2 ts a copy of Avistars
Eorm 10-Q filed with the SEC for the quarterly period
ending June 30, 2017. Exhibit No. 3, Schedule 3 includes
a copy
Exhi-bit
of the Merger Agreement, dated July 19, 2071 .
"Master List ofNo. 3, Schedul-e 4 includes the
Commitments" being offered by Avista and Hydro One, as
part of our request for approval of the Proposed
Transaction.
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II. FINA}ICIAT OVERVIEYT OF AVISTA
O. Before discussing the specifics of the Proposed
Transaction, and how Avista wil-l- be affected by the
Proposed Transaction, woul-d you please provide some
preliminary conrments on Avista I s current f inancia1
situation?
A. Yes. Avista is operati-ng the business
efficlently for our customers, ensuring that our energy
service is reliable and customers are satisfied, whil-e at
the same time keeping costs as l-ow as reasonably
possible. An efficient, well-run business is not only
important to our customers but also important to
investors. We plan and execute on a capital financing
plan that provi-des a prudent capital structure and
liquidity necessary for our operatj-ons. We honor our
financial commltments and we continue to rely on external
capital for sustained util-ity operations. We initiate
regulatory processes to seek timely recovery of our costs
with the goal of achieving earned returns cl-ose to those
al-Iowed by regulators in each of the states we serve.
These elements cost management, capital and revenues
that support operations - are key determinants to the
rating agencies whose credit rati-ngs are critical
measures of our financial situation.
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with the SEC for the fiscal- year ending December 31, 2076
AS
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Exhibit No. 3, Schedule 7, for ease of reference to
additi-onal detail-s related to Avista's
non-utj-l-ity operati-ons .
filed with the SEC for
30, 2011 is attached as
currently
important
In addition,
utility and
Avista's Form 10-Q
the quarterly period ending June
Exhibit No. 3, Schedule 2.
O. What steps is Avista taklng to maintaj-n and
improve its financial health?
A. We are working to assure there are adequate
funds for operations, capital expenditures and debt
maturities. We obtaln a portion of these funds throuqh
the issuance of long-term debt and common equity. We
actively manage risks rel-ated to the issuance of
long-term debt through our interest rate risk mitigation
plan and we maintain a proper balance of debt and common
equity through regular issuances and other transactions.
We actively manage energy resource risks and other
financial uncertainties inherent in supplying reliable
energy services to our customers. We create financial
plans and forecasts to model our income, expenses and
investments,
planning.
Avista
providlng a basis for prudent financial
it is very
has a sound financial profile and
for Avista to maintain and enhance
its financial position in order to access debt and equlty
financing as Avista funds significant future
investments and reflnances maturing debt.
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a. What is Avista's recent
expenditure l-evels?
A. Illustration No. 1 bel-ow
and planned capital
summarazes the capital
system basisexpenditure l-evels
for recent years,
2021.
Illustration No. 1
for Avista Utllities on a
as well as pJ-anned expenditures through
Capital E:cpenditures
* The higher TeveL of capitaT expenditure in 2015 was driven by
storfi costs for the November windstorn, and costs refated to a
renegotiation of the Coyote Springs Long Tern Service Agreement,
which occurred l-ate in the year.
The capital expenditure leveI is expected to remain
from 2011 through 2021.constant at $405 million annualJ-y
For comparison purposes, Avista Utilities'regulated
$3.0 bil-l-ion atutility rate base, on a system basis, was
$450
$400
$3s0
$300
$2s0
$200
$150
$1 00
$50
$0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
r Electric T&D r Other r ET I Growth r Generation t Gas Environmental
June 30, 20L1.
Thies, Di 6Avista Corporation
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o.
capital
A.
has been
What is the
expenditures ?
The l-evel of
basis for Avista's planned level of
capital investment in recent years
driven primarily by the business need to fund a
greater portion of the departmental requests for new
capital investments that, in the past, were unfunded.
Each year the departments across Avista assess the
near-term needs to maintain and upgrade the utility
infrastructure and technology necessary to continue to
provide safe, reliable servj-ce to customers, as wel-l- as
maintain a high level of customer satisfaction. The
proposed capital spending level- for each year of the next
five years is reviewed and approved by senior management
of Avista, and is presented to the Finance Committee of
the Board of Directors.
O. What are Avista's expected long-term debt
issuances in the next several years?
A. To provide adequate funding for the capital
expenditures noted above and to repay maturing long-term
debtr we are forecasting the issuance of long-term debt
of approximately $900 mil-lion for the period 20L1 through
2021.
O. Are there other debt obligations that Avista
must consider?
A. Yes. In addition to long-term debt, Avista's25
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cover daily
expendltures, and
letters of credit
interim funding for capital
support 1n the form of cash and
that are required for energy resources
commitments and other contractual obligations. A strong
financial position wil-I be necessary to gain access to a
new or renewed revolving credit facility under reasonable
terms prior to expiration of the existing facility.
O. What is Avista's current and planned capital
structure ?
A. Avj-sta's current capital structure includes
Avista relies
other things,
variations in
approximately
to malntai-n a
Maintaining a
benefits for
on this credit facility
funding to
cash flows,
credit
to provide, among
and month-to-month
50% common equity and 50%debt, and we plan
to the future.
has several-
simil-ar capital structure
strong common equity ratio
customers.We are dependent on raising
throughout all business cycles.funds in capital markets
These cycles include times of contraction and expans j-on.
in accessj-ng
in both
A so11d financial profile will assi-st us
debt capital markets on reasonable terms
favorable financial- markets and when there are
disruptions in the financlal markets.
Additionally, this common equity ratio is a
component in supporting our current credit ratings, and
our long-term goal of having a
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would be consistent with the natural gas and electric
industry average. Avista's current credit ratings,
assigned by Standard &
Servi-ce (Moody's) are
Poor's (S&P) and Moody's Investor
as follows:
s&P Moody's
Corporate Credit Rating BBB Baal
Senior Secured Debt A.A2
Outlook Positive Stable
As shown in IlJ-ustration No. 2 below, the average
corporate credit rating for U.S. Regulated Gas and
El-ectric Utilitles is BBB+ and the most common rating is
A-. The average and most common ratings are one and two
notches higher, respectively, than Avista's rating.
I].].ustration No. 2
(Chart 1s contained in hard copy
of the transcript. )
Thies, Di 9Avista Corporation
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Strong credit
Avista having
terms. Moving
(BB+) provides
beneficial for
ratings are an important component to
on reasonableaccess to capital markets
further away from non-investment
more stability for Avi-sta, whlch
customers.
interest in
severe financial
but are not limited
grade
is also
they would
the event
O. Please explain the
ratings in terms of Avistars
markets.
implications of the credit
ability to access capital
A. Credit ratings impact investor demand and
expected returns. More specifically, when we issue debt,
the credit rating can affect the determination of the
interest rate at which the debt will be issued. The
credit rating can al-so affect the type of investor who
wil-l- be interested in purchasing the debt. For each type
of i-nvestment a potential- investor could make, the
investor l-ooks at the quality of that investment in terms
of the risk they are taking and the priority
have for payment of principal and
that the organization experiences
stress. Investment risks include,
to, liquidity risk, market risk, operational risk,
regulatory risk, and credit risk. These risks are
considered by S&P, Moody's and investors j-n assessing our
creditworthine s s .
In challenging credit markets, where investors are
l-es s
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Iikely to buy corporate bonds (as opposed to U.S.
Government bonds), a stronger credit rating wil-l attract
more investors, and a weaker credit rating coul-d reduce
or el-imi-nate the number of potential- investors. Thus,
weaker credit ratings may result in a company having more
difficulty accessing capital markets and/or incurring
higher costs when accessing capital. A balanced capital
structure helps support access to both debt and equity
markets under reasonable terms, and on a sustainable
basis.
III. TERMS OF THE PROPOSED TRA}ISACTION
O. What are the terms of the Proposed Transaction?
A. On July 79, 2011 Avista, and Hydro One Limited
("Hydro One"), Olympus Holding Corp. ("US Parent"), and
Olympus Corp. ("Merger Sub") entered into a Merger
Agreement. The proposed merger was unanimously approved
by the Boards of Directors of both Avlsta and Hydro One.
Foll-owing all approvals, at the effective time on
the closing date, Merger Sub will- be merged with and into
Avista, and the separate existence of Merger Sub wil-l
cease, and Avista wiIl be the surviving corporatj-on and
wj-11 become a wholly-owned subsidiary of Olympus Equity
LLC, an indirect, whol1y-owned subsidiary of Hydro One.
I will refer to the proposed acquisition of Avlsta
by
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Hydro One as the "Proposed Transaction. " A copy of the
Merger Agreement is attached as Exhibit No. 3, Schedul-e
3. The post-closing corporate structure is presented in
Exhibit No. 4, Schedule 2, sponsored by Mr. Lopez.
The Merger Agreement sets forth the terms and
conditions of the Proposed Transaction, pursuant to whi-ch
Hydro One, through its affiliates, including Olympus
Equity LLC, will acquire al-l of the outstanding shares of
Avi-sta.
Mr. Morris has addressed, among other things, the
governance, management and post-closing operatJ-ons of
Avista. The balance of my testimony w111 focus primarily
on the financial aspects of the Proposed Transaction.
O. What consideration wil-1 Avista's sharehol-ders
receive upon the closing of the Proposed Transaction?
A. Under the terms of the all-cash transaction,
Avista shareholders will receive $53.00 per common share,
less any applicable tax withholding. Fol1owing the
cJ-osing, Avi-sta's current shareholders will- cease to have
any ownership interest i-n Avista or rights as Avista
sharehol-ders.
O. How does the l-evel of consideration compare
with the market price of Avista's common stock prior to
the signing of the Merger Agreement?
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2011 of $42.7 4 per share.
O. What is the total- purchase price?
A. The aggregate purchase price is approxj-mately
$5.3 bi1Iion, comprised of an equity purchase price of
$3.4 billion, and the assumption of approximately $1.9
billion of Avista debt. The $1.9 bil-lion of Avista's
debt obligations assumed by Hydro One will remain at
Avista.
O. How will the purchase be funded by Hydro One
and its affiliates?
A. There j-s no financing condition to the merger.
Hydro One intends to finance the aggregate cash
consj-deration payable at the closing of the Proposed
Transaction, and related expenses, with a combination of
some or all of the following:
net proceeds from the sale by a di-rect,
who1Iy-owned subsidiary of Hydro One of C$1.54
billion of convertible unsecured subordj-nated
debentures, that are convertibl-e into common
shares of Hydro One;
net proceeds of any subsequent bond or other
debt of f erings,'
amounts drawn under the existing C$250,000,000
operatlng credit facility avail-able to Hydro
One,' and
existing cash on hand and other sourcesavailable to Hydro One.
Hydro One I s overaf1 financing plan for the purchase is
structured and targeted to maintain Hydro One's strong
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investment grade status, and includes the issuance of
c$1.54
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billion of equity, as indicated above.
additional detai-1s rel-ated toprovides
plan.
0. Upon the closing of the Proposed Transaction,
will Avista continue to be a publlcly traded company?
A. Upon consummation of the Proposed Transaction,
Avista will no longer have common stock that is publicly
traded. Its conrmon stock will be del-isted from, and will
no longer be traded on, the New York Stock Exchange or
any other securities exchange, and will be deregistered
under the Securities Exchange Act.
O. Will Avista maintain its own capital structure
foll-owing the closing?
A. Yes. Avista will maintain its own capital
structure after the Proposed Transaction is consummated,
and will continue to fund lts ongoing operati-ons with
both debt and equity sources. As will be explained l-ater
in my testimony, Avista and Hydro One have offered a
commitment, as part of our request for approval of the
Proposed Transaction, to maintain a strong equlty
component j-n Avista's capital structure. Maintaining a
strong equity layer plays a significant role in
supporting financial metrics that support access to debt
capital under reasonabl-e terms.
O. Wj-lI Avista continue to carry credj-t ratings
from rating agencies?
Mr. Lopez
the fi-nancing
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A. Yes. Avista is currently rated by both S&P and
Moody's. Avista wil-l- continue to carry credit ratings
from at least one natlonally recognized rating agency.
O. Will the basis of presentation of Avista's
financial statements change as a result. of the
consummatlon of the Proposed Transaction?
A. Avista's financial- statements wil-l- continue to
be maintained and presented in accordance with GeneraIIy
Acceptabfe Accounting Principles and Federal Energy
Regulatory Commission ("FERC") accounting rul-es.
O. WilI Avista continue to be a regulated utility
upon completion of the Proposed Transaction?
A. Yes. Avista will continue to be subject to the
regulation of this Commission, other state commissions
and, among other agencies, FERC.
IV. BENEFITS TO AVISTA A}ID ITS STAKEHOLDERS
O. Erom your perspective as CFO, what are the
and its stakeholders?benefits to Avista
A. As hiqhlighted in Mr. Morris's testimony, the
number of investor-owned el-ectric and natural- gas
util-ities in North America has decreased significantly
over the years through consolidation. Through
consol-idation, these larger util-ities have the
opportunity to spread costs, especi-aIIy
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the costs of new technology, over a broader customer base
and a broader set of infrastructure. The partnership of
Avista and Hydro One will provide opportunities for
efficiencies in the J-ong-term through the sharing of best
practices, technology and j-nnovation. The Proposed
Transaction will provlde benefits to Avistars customers
that otherwise would not occur.
These beneflts will- not only be viewed favorabl-y by
customers, but also by debt hol-ders and rating agencies.
An efficient, well-run business increases the opportunity
to achieve financial- metrics to support favorable credit
ratings.
As explalned by Mr. Morris, the merger with Hydro
toOne will not only al-l-ow Avista and its customers
benefit from belng a part of a larger organization (the
benefits of scale), but at the same time preserves local-
controf of Avista and the retenti-on of Avistars culture
and its way of doi-ng business. V[e believe this
preservation of local control and management of Avista is
important to many stakeholders including, among others,
our customers, our employees, the communities we serve,
the vendors we do business with, l-enders, and rating
agencies.
O. Will the Proposed Transaction affect the credit
ratings of Avista?25
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Avi-sta Corporation
A. The credit ratings of Avista are not expected
to change immediately as a result of the Proposed
Transaction. However, over the longer term there is a
pot.ential for i-mproved credit ratings at Avista. Eor
example, oo JuIy 79, 2077, S&P affirmed Avj-sta's
long-term ratings and revised the outlook to positive
from stable upon the announcement of the Proposed
Transaction. S&P indicated the outlook revision on Avista
refl-ects the potential- for higher ratings upon the
completion of the acquisition. S&P noted, among other
things, that, "Our assessment is based on our view that
Avista will- be an important member of the HOL lHydro One
Limltedl group, highly unlikely to be soId, and integral
to overafl- group strategy and operations. "
Moody's al-so affirmed Avista's long-term ratings
with a stable outl-ook upon the announcement of the
Proposed Transaction.
0. How will- the Proposed Transaction affect
Avista's access to the debt markets?
A. Avista wil-l- continue to access the capital
markets for long-term fixed income securities, such as
senior secured notes, mortgage bonds, unsecured debt and
hybrid securities such as the junior subordinated notes.
Avi.sta will also conti-nue to access short-term funds
directly through the credit facility. Eol-l-owing the
closing of the Proposed
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Transaction, Avista will access the capital markets in
what is currently being viewed as neutral to improved
credit support.
O. How will the Proposed Transaction affect
Avista's access to equity capital?
A. Once the Proposed Transaction is completed,
Avista wil-I no longer need to access the capital markets
for equity. The equity will be supported through
retai-ned earnj-ngs, and equity investment from Hydro One.
As explained by Mr. Lopez, Hydro One has a strong balance
sheet and ready access to both debt and equity markets.
Hydro One's recent equity (convertibl-e debentures)
fj-nancing in July 2011 was over-subscribed by over 100%.
Through the commitments I wil-l present l-ater, Avista
and Hydro One have agreed to maintain a capital structure
that i-ncludes a strong common equity ratio, and Hydro One
has a demonstrated abllity to support such a commitment,
as explained by Mr. Lopez.
0. What are the expected cost savings associated
with the Proposed Transaction?
A. As explained by Mr. Morris, the Proposed
Transaction is designed such that following the closing
there will be l-ittl-e to no change in Avistars day to day
operations, as compared to prior to the Proposed
Transaction. The
Thies, Di 18
Avista Corporation
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Proposed Transaction does not target the elimination of
jobs, or cost-cutting that could lead to a deterioratj-on
of customer service, customer satisfaction, safety, or
reliability. There wilI, however, be some cost savings
foll-owing the closing of the Proposed Transaction.
An estimate of the cost savi-ngs, and the cost categories
in which they are expected, is shown in Table No. 1
below:
Table No 1 - Estimated Imediate Cost Savr.ng's - Post-Closinq'
Board of Director Costs
D&O Irsurance
Investor Relations
Accounting
Proxy
Anntnl Report
Costs Excluded for Ratemaking
Total
IN
$ 538,000
439,000
365,000
245,000
200,000
189,000
(267,000)
$ 1,709,000
a. Please briefly explain each of the estimated
Tab1e 1 above.cost savings
A. The estimated cost savings are expected to be
achi-eved as fol-f ows:
o Board of Director Costs:Following the
o
closing, Avista's Board of Directors wil-l have
fewer non-employee members which wil-I result in
lower costs, i.€., more of the directors wiII
be employees of either Avista or Hydro One, andwill not receive separate compensation for
their participation on the Avista Board. In
addition, the Board wil-l be reduced from ten to
nine members.
Directors and Officers (DeO) Insurance:
Eollowing the closing, Avistars director and
officer
Thies, DiAvista 79
Corporation
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o Investor Relations: Folfowing theAvista will no longer have publicly
common stock. This will resul-t incosts for Avista.
o Accounting:Following the
insurance is expected to
under Hydro One's policy,
reduced costs for Avista.
be covered
which wil-I result in
clos ing,
traded
reduced
closing, there will
necessary forto audit Avista'sresult in reduced
Avista will no
and file an
o
o
be a reduction in the hours
Avista's external auditors
books of record, which will
costs.
Proxy: Fol-lowing the closing,
longer be required to prepare
annual proxy report.
Annual Report: Following the closlng,Avista
and filewil-l no longer be required to prepare
an annual report to sharehol-ders.
I 25
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O. Please explain the GZAI,000) entry in Table
No. 1 identified as "Costs Excl-uded for Ratemaking."
A. During ratemaking proceedings some of the costs
in the categories in Table No. 1 above are excluded from
retail rates, either through a settlement stipulation
among parties approved by the Commission, or by separate
order of the Commission. The ($261,000) represents the
estj-mated amount currently excluded from retail rates.
The net total of $1.7 million in Table No. 1 reflects the
expected immediate savings to customers fol-lowing the
close of the Proposed Transaction. Additional detail-s of
the cal-cul-ation of these savings are provided in my
workpapers.
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These
portion of
cost savings are the basis for the offsetable
the Rate Credit explained by Mr. Morris, and
Thies, Di 20aAvista Corporation
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proposed by Joint Applicants beginning at the closing of
the Proposed Transaction. Mr. Ehrbar explaj-ns how the
Rate Credit is proposed to be spread to Avista's electric
and natural gas customers.
We believe additional efficiencies (benef its ) will-
of best practices,be realized over time from the sharing
technology and innovation between the two companj-es. It
capture thosewill take time, however, to ldentify and
benefits. Mr. Morris explains that
financial- benefits to customers wil-1
the proposed
increase from $2.65
million per year for the first five years following the
closing, to $3.65 million per year for the l-ast five
years of the 1O-year period. This increased level- of
benefits in the l-ast five years refl-ects the increased
opportunity to
Ievel of annual
achieve greater benefits over time. The
net cost savings (and/or net benefits)
will be tracked and reported on an annual basis
V. COMMIT!4ENTS OFEERED BY AVISTA A}ID HYDRO ONE
a. Joint
commitments as
please provide
A. Yes.
Applicants
part of the
an overview
for approval of the
Avi-sta have offered
Delegation of
As part of the Joint Applicants'
Proposed Transaction, Hydro
commitments in addition to
have proposed a number of
Joint Application. Would you
of these commitments?
request
One and
the25
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Thies, Di 22Avista Corporation
Authority in
to the Merger
Schedule 3. )
the Merger Agreement. (See Exhibits A and B
Agreement attached as Exhibit No. 3,
The commitments lncluded in the Joint
identified below. The Master List of all 55
Applicati-on total 55 commi-tments offered by Hydro One and
Avista. The 55 commitments are grouped together into the
categories
commitments is attached as Exhibit No. 3, Schedule 4.?
A. Reservation of Certain Authority to the Avista
Board of Directors
1. Governance
2. Management and Employee
3. Local Presence/Community Invol-vement
B. Rate Commitments
C. Regulatory Commitments
D. Financial Integrity Commitments
E. Ring-fencing Commitments
F. Environmental, Renewable Energy, and
Energy Efficiency Commitments
G. Community and Low-Income Assistance Commitments
Each of the commitments will- be explained by one or
more of the Avista and Hydro One witnesses sponsoring
testimony in this proceeding. Within the Master List of
Commitments in Exhibit No. 3, Schedule 4, the witnesses
addressing the commitments are identified.I 25
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Thies, Di 23Avlsta Corporation
O. What are the specific commitments you are
addressing in your testimony?
A. I am addressing the fol-lowing commitments
offered by Avista and Hydro One:
Rate Commitnents:
o Treatment of Net Cost Savings Commitment No.
t6
o Treatment of Transaction Costs - Commitment No.
71
o Rate Credits - Commitment No. 18
Regu1atory Co'nrtitnents :
o State Regulatory Authority and Jurisdiction
Commitment No. L9
o Separate Books and Records Commitment No. 2L
o Access to and Malntenance of Books and Records
- Commitment No. 22
o Ratemaking Cost of Debt and Equity Commitment
No. 24
o Avista Capital Structure Commitment No. 25
o Commlssion Enforcement of Commitments
Commitment No. 29
o Submittal to State Court Jurisdiction for
Enforcement of Commission Orders Commitment
No. 30
Financial Integrity Commitnents:
o Capltal Structure Support - Commitment No. 33I25
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o Utility-Level Debt and Preferred Stock -
Commitment No. 34
o Continued Credit Ratings Commitment No. 35
o Restrictions on Upward Dividends and
Distributions Commitment No. 35
o Pension Fundj-ng Commitment No. 37
o SEC Reporting Requirements Commitment No. 38
o Compliance with the Sarbanes-Ox1ey Act
Commitment No. 39
Ring-Fencing Comnitnents :
o Independent Dj-rectors - Commitment No. 40
o Non-Consol-idation Opinion Commitment No. 4l
o Restriction on P1edge of Utility Assets
Commitment No. 43
o Hol-d Harmless; Notice to Lenders; Restriction
on Acquisitions and Dispositions Commitment
No. 44
o No Amendment of Ring-Eencing Provisions
Commitment No. 46
Rate Commitments:
O. Please explain the Rate Commitments offered by
Avista and Hydro One.
A. The first Rate Commitment is rel-ated to the
"Treatment of Net Cost Savings" (Commi-tment No. 16).
Avistat25
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Thies, Di 25Avista Corporation
and Hydro Onel expect to experience cost savings in
essentially two stages. Eirst, there will be immediate
reductions in costs associated with Avista no longer
having publicly traded common stock, fewer non-employee
board members, and other cost savings I identified
earl-j-er. Second, Avista and Hydro One expect to achieve
cost savings and efficiencj-es in the long-term through
the sharing of best practices, j-nformation technology,
j-nnovation and purchasing power. These longer-term
savings will- IikeIy take years to achieve.
The immediate cost savings are proposed to be flowed
through to customers in the form of an immediate Rate
Credit over a 1O-year period, beginning at the closing of
the transaction. The Rate Credit proposal was explained
by Mr. Morris, and Mr. Ehrbar explains how the Rate
Credit is proposed t.o be spread among Avista's electric
and natural- gas customers.
The longer-term net cost savings, or net benefits,
that Avista and Hydro One achieve as a resul-t of the
Proposed Transaction wi.l-1 be refl-ected in future rate
proceedings, as the savings occur over time.
1 The Master List of Commj-tments in Exhibit No. 3, Schedule 4 refers to a
number of different corporate entities such as Olympus Equity LLC., Olympus
Holding Corp., etc. In some instances my testimony will use "Hydro One" for
convenience. The appropriate Hydro One entity is identified in the
applicable commitment in the Master Llst of Commitments.I 25
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O. What is the commitment related to "Treatment of
Transaction Costs " ( Commitment No . 7'l ) ?
A. Under Commitment No. 17, the costs re1ated to
the transaction itsel-f will not be included in the retail
rates charged to Avistars customers. These costs
include, but are not limited to, 1) legal and financial
advisory fees associated with the Proposed Transaction,
2) the acquisition premium, 3) any senior executive
compensation tied to a change of control of Avista, and
4) any other costs directly related to the Proposed
Transacti-on.
The transaction-rel-ated costs incurred by Avista are
being recorded bel-ow-the-li-ne to a nonoperating account,
and will not be included in the future retail rates of
Avista's customers. Likewise, the transaction-rel-ated
costs incurred by Hydro One will not be included in
Avista's customers' retail rates.
O. Please explain the "Rate Credits" (Commitment
No. 18) proposed by Joint Applicants.
A. As explained by Mr. Morris, the proposed annual
Rate Credit is $2.65 million per year for the first five
years fol-lowing the closing of the transaction, and it
j-ncreases to $3.65 million per year for the l-ast five
years - for a total of $31.5 mil-Iion over the 10-year
period. These annual- rate credits are system amounts,
and woul-d be allocated by service
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and state jurisdictlon.
Joint Applicants are proposing that the Rate Credit
applicable to Idaho customers be passed through to
customers through separate tariffs: Schedul-e 13 for
el-ectric customers, and Schedul-e 113 for natural gas
customers, as explained by Mr. Ehrbar.
O. Is any portion of the proposed Rate Credit
offsetable ?
A. Yes. A portion of the proposed Rate Credit for
the 1O-year period is offsetable. That is, when cost
savings or net benefits directly rel-ated to the
transaction are already reflected in base retail rates
for customers,
and 173 will be
portion of the
i-mmediate costs
the offsetabl-e
Credit for the
savings I
portion of
first five
the separate Rate Credit on Schedules 73
reduced by an amount up to the offsetable
Rate Credit. The $1.7 million of
years , $2.7 mil-l-ion of the
To the extent that Avista
the l-ast five
mill-ion.
explained earlier represents
the $2.65 million annual Rate
years. For the last five
$3.65 mil-lion is of fsetable.
demonstrates there are net cost
in base retail
savings, or net benefits, directly associated with the
transaction that are already embedded
Credit for the firstrates, the Rate
reduced by up to
five years would be
$1.7 milIi-on, and the Rate Credit for
years would be reduced by up to $2.125
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The proposed $31.5 million benefit for the 10-year
period represents the "floor" of benefits customers wil-l-
receive; as additional merger savings occur, those would
be reflected as part of the cost of service captured in
subsequent general rate cases. The $31.5 mill-ion will be
received by customers either through a separate Rate
Credlt on tariff Schedules 73 and 7'13, or by the benefits
being ref l-ected in base retail rates.
Reqrrlatory Commitments :
O. Please explain the various Regulatory
Commitments offered by Avlsta and Hydro One.
Commitment is related toA
" State
The first Regulatory
Regulatory Authority and Jurisdict j-on" ( Commitment
No. 19). For this commitment Olympus Holding Corp. and
Avista agree to comply with al-l applicable Iaws,
including those related to transfers of property,
affiliated interests, and securities and the assumption
of obligations and liabilities.
O. What is the commitment regarding "Separate
Books and Records" (Commitment No. 27)Z
A. Avista has commj-tted to maintaining separate
books and records for Avista.
O. Please explain the commj-tment related to
"Access to and Maintenance of Books and Records"
(Commitment No. 22)?
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A. Under this commitment, Olympus Holding Corp.
and Avista agree that the Commission and interested
parties will- have reasonabl-e access to Avistars books and
records, financial information and filings, and continue
to have audit rights with respect to the documents
supporting any costs that may be al-Iocable to Avista.
This also incl-udes access to Avi-stars board minutes,
audit reports, and information provided to credit rating
agencies pertaining to Avista. Olympus Holding Corp. and
its subsidiaries, including Avista, will also maj-ntain
the necessary books and records so as to provide an audit
trail for all- corporate, affiJ-late, or subsidiary
transactions with Avista, or that result in costs that
may be allocable to Avista.
The Proposed Transaction will not result in reduced
access to the necessary books and records that rel-ate to
transactions with Avista, ot that result in costs that
may be allocable to Avista. Avista will provide
Commission Staff and other parties to regulatory
proceedings reasonable access to books and records
(including those of Olympus Holding Corp. or any
affil-iate or subsidiary companies) required to verify or
exami-ne transactions with Avista, or that result in costs
that may be all-ocabl-e to Avista. Further, Olympus
Holding Corp. and Avista will provide the Commission wlth
Thies, Di 29Avista Corporation
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access to written information provided by and to credit
rating agencj-es
Thles, Di 29aAvista Corporation
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that pertains to Avista. Olympus Holding Corp. and each
of its subsj-diaries wilI al-so provlde the Commission with
access to written information provided by and to credit
rating agencies that pertains to Olympus Holding Corp.'s
subsidj-aries to the extent such information may affect
Avista.
O. What are the Joint Applicants proposing
regarding "Ratemaking Cost of Debt and Equity"
(Commitment No. 24)?
A. Under this commitmenL, Avista
will not advocate for a higher cost of
to what Avista's cost of debt
agrees that it
debt or equity as
or equity wou1d
For future
compared
have been absent Hydro One's ownership.
ratemaking purposes:
Determination of Avistars debt costs will- be nohigher than such costs would have been assumingAvista's credit ratings by at least oneindustry recognized rating agency, including,but not limited to, S&P, Moody's, Fitch orMorningstar, in effect on the day before the
Proposed Transaction closes and applying thosecredit ratings to then-current debt, unlessAvista proves that a lower credit rating is
caused by circumsLances or developments not theresul-t of financial- risks or othercharacteristics of the Proposed Transaction;
Avista bears the burden to prove prudent in afuture general rate case any pre-payment
premium or increased cost of debt associatedwith existing Avista debt retired, repal-d, or
replaced as a part of the Proposed Transactioni
and
c. Determination of the al1owed return on equity
a
b
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Thies, Di 30a
Avista Corporation
in future general rate cases wilI include
selecti-on and use of one or more proxy group(s)
of companies engaged in businesses
substantially similar to Avista, without anyIimltatlon related to Avista's ownershipstructure.
O. Please describe the commitment regarding "Avista
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Capital Structure" (Commitment No. 25) proposed by the
Joint Applicants.
A. At al-l- times fol-l-owing the closing of the
Proposed Transaction, Avista will- have a common equity
ratio of not fess than 44 percentr ds calculated for
ratemaking purposes/ except
establ-ishes a lower equity
to the extent the Commission
ratio for Avista for
ratemaking purposes.
O. Pl-ease explain Joint Applicants' commitment
related to "Commission Enforcement of Commitments"
(Commitment No.
A. Hydro
Commission has
2e) ?
authority to enforce these
accordance with their terms. If there is
the terms of these commitments, then the
frdy, at the discretion of the Commission,
One and Avista understand
(30) calendar days to cure such
this commitment includes the
that the
commitments in
a violation of
offending party
have a period
violation. Theof thirty
scope of
attendance of
authority of the
witnesses fromCommlssion to compel the
Olympus Holding Corp. and its subsidiaries with pertinent
information on matters affecting Avista.
O. Will Olympus Holding Corp. provide a "Submittal-
to State Court Jurisdiction for Enforcement of Commission
Orders" as a part of this transaction (Commitment No.
30)?t 25
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Avista
31a
Corporation
A. Yes. Olympus Holdlng
Commission, prior to the closing
Transaction,
Corp. wiff fil-e with the
of the Proposed
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Thies, Di 32Avista Corporati-on
an affidavit affirming that it will- submit to the
jurisdiction of the relevant state courts for enforcement
of the Commission's orders adopting these commitments and
subsequent orders affecting Avista.
Financial. Integr ity Commiturents:
O. What is Hydro One's commitment rel-ated to
"Capital Structure Support" (Commitment No. 33) ?
A. Once the Proposed Transaction is completed,
Avista will no longer need to access the capital markets
for equity. The equity wil-l- be supported through
retained earnings, and equity investment from Hydro One.
As explained by Mr. Lopez, Hydro One has a strong balance
sheet and ready access to both debt and equity markets.
Through Commitment 33 Hydro One will- support a
capital structure that i-ncl-udes a strong coflrmon equity
ratio, and Hydro One has a demonstrated ability to
support such a commitment. This strong common equity
ratio is an important component in supporting financj-al
metrics that are designed to allow Avista access to debt
financing under reasonabl-e terms and on a sustainabl-e
basi-s.
O. Pfease explain Joint Applicants' commitment
rel-ated to "Utility-LeveI Debt and Preferred Stock"
(Commitment No. 34) .25
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Thies, Di 33Avista Corporation
A.
maintain
support
not have
l_ ssuances
Under this commitment, Avista wiIl continue to
its own separate debt and preferred stock to
its utility operations. Avista currently does
outstanding preferred stock, and any future
will be dependent on the circumstances at the
time.
O. Please explain Joint Applicants' commitment
related to "Continued Credlt Ratings" (Commi-tment No.
3s).
A. Under this commitment, each of Hydro One and
Avista will contj-nue to be rated by at least one
nationally recoqnized statistical- "Rating Agency. " Hydro
One and Avista will use reasonabfe best efforts to obtain
and maintain a separate credlt rating for Avista from at
l-east one Rating Agency within ninety (90) days following
the closing of the Proposed Transaction. If Hydro One
and Avista are unable to obtain or maintain the separate
rating for Avista, they will make a filing with the
Commission explai-ning the basls for their failure to
obtain or maintain such separate credit ratj-ng for
Avista, and parties wil-l have an opportunity to
participate and propose additional commltments.
O. Please explain the commitment by Joint
Applicants rel-ated to "Restrictions on Upward Dividends
and Distributions" (Commitment No. 36).25
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A. The commitment by Avista and Hydro One
regarding Commitment 35 is as fol-l-ows:
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If either (i) Avista's corporate credit/issuerrating as determined by at least one j-ndustry
recognized rating agency, includi-ng, but notlimlted to, S&P, Moodyrs, Fitch, orMorningstar is investment grade or (ii) theratio of Avista's EBTTDA to Avistars interest
expense 1s greater than or equal to 3.0, thendistributions from Avlsta to Olympus Equity LLCshall not be l-imited so long as Avista's equityratio is equal to or greater than 44 percent onthe date of such Avista distribution aftergi-vlng effect to such Avlsta distribution,
except to the extent the Commission establ-ishesa lower equity ratio for ratemaking purposes.
Both the EBITDA and equity ratio shall be
cal-culated on the same basis that suchcalculations would be made for ratemaking
purposes for regulated utility operations.
Under any other circumstances, distributionsfrom Avista to Olympus Equity LLC are alfowedonly wlth prior Commission approval.
0. What is Jolnt Applicants' commitment related to
" Penslon Fundj-ng" (Commitment No. 31) ?
a
b
A.
pension
Under this commitment, Avj-sta will- maintain its
funding policy in accordance wlth sound actuarial
practice.
O. Please explain the commitment rel-ated to "SEC
Reporting Requirements" (Commitment No. 38).
A. Following the closing of the transaction,
Avlsta wilI file required reports with the SEC.
O. Please explain the commitment rel-ated to
"Compliance with the Sarbanes-Ox1ey Act" (Commitment No
3e).
A. Following the closing of the Proposed25
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Transaction, Avista will comply with applicable
requirements of the
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Avista Corporati-on
Sarbanes-Oxley Act.
Ring-Fe@:
O. Before you begin with the specific Ring-Fencing
Commi-tments, what does the term "ring-fencing" mean?
A. In the context of mergers and acquisitions,
ring-fencing
structuring
refers to financial and corporate
i-n a transactlon that resul-ts in a newly
i sol-atedacquired company (in this case, Avista) being
from the upstream corporate structure of its new owners
(Hydro One and its affiliates).
O. Pl-ease explain the Ring-Fencing Commitments
offered by Avista and Hydro One.
A. I will explain a number of the Ring-Eencing
Commitments offered by Avista and Hydro One, and Mr.
Lopez will address additional Commitments. The first
Ring-Fencing Commitment is related to "Independent
Directors" (Commitment No. 40).
Under Commitment No . 40, at l-east one of the nine
members of the board of directors of Avista will be an
Independent Director who is not a member, stockholder,
director (except as an independent director of Avista or
OJ-ympus Equity LLC) , officer, or employee of Hydro One or
its affiliates. At least one of the members of the board
of directors of
Director who is
Olympus Equity LLC will be an Independent
not a member,
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stockholder, director (except as an i-ndependent director
of Olympus Equity LLC or Avista) , officer, or employee of
Hydro One or its affil-iates. The same indivldual may
serve as an Independent Director of both Avista and
Olympus Equity LLC. The organizational- documents for
Avista wil-I not permit Avista, without the consent of a
two-thirds majority of al-l- its directors, incl-uding the
affirmative vote of the Independent Director (or if at
that time Avista has more than one Independent Director,
the affirmative vote of at least one of Avista's
Independent Directors), to consent to the institution of
bankruptcy proceedlngs or the inclusion of Avista 1n
bankruptcy proceedlngs.
O. What is Joint Applicants' commitment related to
a "Non-Consolidation Opinion" (Commitment No. 4l)?
A. A non-consolidation opinion is a 1egaI document
from outside counsef concluding that certain ri-ng-fencing
provisions are sufficient that a bankruptcy court would
not order the substantive consolidation of the assets and
liabitities of a utility with those of the utility's
parent company or the parent company's affiliates or
subsidiaries. Under Commitment No. 47, Avj-sta and Hydro
One commit to the fo1J-owing:
a Within ninety (90) days of the Proposed
Transaction closing, Avista and Olympus Holding
Corp. wil-1 file a non-consolidation opinion25
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with the Commission which
customary assumptions
concludes, subject to
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Avista Corporation
and exceptions, that the ring-fencingprovi-sions are sufficient that a bankruptcycourt would not order the substantiveconsolidation of the assets and liabili-ties ofAvista with those of Olympus Holding Corp. orits affiliates or subsidiarles (other thanAvista and 1ts subsidiaries) .
Olympus Holding Corp. must file an affidavitwith the Commission stating that neither
Olympus Holding Corp. nor any of itssubsldiaries, will seek to include Avista in a
bankruptcy without the consent of a two-thirdsmajority of Avista's board of directorsincluding the affirmative vote of Avista's
independent director r or, tf at that timeAvista has more than one independent director,the affirmative vote of at least one ofAvista's independent directors.
If the ring-fencing provisions in these
commitments are not sufficient to obtain a
non-consolidation opinion, Olympus Holding
Corp. and Avista agree to promptly undertakethe following actions:
(i) Notify the Commission of this inability toobtain a non-consolidation opinion.
(ii) Propose and implement, upon Commissionapproval, such additional ring-fencingprovisions around Avj-sta as are sufficientto obtain a non-consol-idation opinionsubject to customary assumptions and
exceptions.
iii) Obtain a non-consolidation opinion.
O. Do you believe that
being proposed are sufflcient
non-consol-idation opinion?
O
related to
the ring-fencing provisj-ons
to obtain such a
A Yes.
Please explain Joint Applicants' commitment
"Restriction on Pledge of Utility Assets"e 25
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(Commitment No.
A. Under
43).
this commitment, Avista will agree to
Thies, Di 31aAvista Corporation
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prohibi-tions against loans or pledges of Avista's utility
assets to Hydro One, Olympus Holding Corp., or to any of
their subsidiaries or affiliates, wlthout Commission
approval.
O. Please explain Joint Applicantsr commitment
referred to as "Hold Harml-ess; Notice to Lenders,'
Restriction on Acquisitions and Dispositions" (Commitment
No. 44).
A. Avista and Hydro One commit to the following
regarding Commitment No. 442
Avista will generally hold Avista customers
harmless from any business and financial risk
exposures associated with Olympus HoldingCorp., Hydro One, and Hydro Oners otheraffiliates.
Pursuant to this commitment, Avista and OlympusHolding Corp. wil-l- file with the Commission,prior to closing of the Proposed Transaction, a
form of notice to prospective lendersdescribing the ring-fencing provisions inc1uded
in these commitments stating that theseprovisions provide no recourse to Avista assets
as col-lateral- or security for debt issued by
Hydro One or any of its subsidiaries, other
than Avista.
c. In furtherance of this commitment:
Avista commj-ts that Avista's regulatedutility customers will- be held harml-ess
from the Iiabilities of any unregulatedactivity of Avj-sta or Hydro One and itsaffiliates. In any proceeding before the
Commission involving rates of Avj-sta, the
fair rate of return for Avista will- be
determined without regard to any adverse
consequences that are demonstrated to beattributable to unregulated activities.
b
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Measures providing for separate financial-
and accounting treatment wil-l- be
establ-ished for each unregulated activity.
2 Olympus Holding Corp. and Avlsta wil-1notify the Commission subsequent to
Olympus Holding Corp.'s board approval andas soon as
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practicable fo1lowing any public
announcement of: (1) any acquisition by
Olympus Holding Corp. of a regulated or
unregulated business that is equivalent tofive (5) percent or more of thecapj-talization of Avista; or (2) the
change in effective controf or acquisitionof any material part of Avista by anyother firm, whether by merger,
combj-nation, transfer of stock or assets.Notice pursuant to this provision is not
and will not be deemed an admission or
expansion of the Commission's authority orjurisdictlon over any transaction or in
any matter or proceeding whatsoever.
Within sixty (60) days following thenotice required by this subsection(c) (ii) (2), Avista and Olympus Holding
Corp. or its subsidiarj-es, dS appropriate,wil-l- seek Commission approval of any sal-eor transfer of any material part ofAvista. The term "material part ofAvista" means any sale or transfer of
stock representing ten percent (10%) or
more of the equity ownership of Avista.
Neither Avista nor Olympus Holding Corp.
wil-l- assert in any future proceedings
that, by virtue of the Proposed
Transaction and the resulting corporatestructure, the Commission is withoutjurisdiction over any transactj-on thatresufts in a change of control- of Avj-sta.
If and when any subsidiary of Avista becomes asubsidiary of Hydro One or one of itssubsidiaries other than Avista, Avista will so
advj-se the Commissj-on within thirty (30) days
and will submit to the Commission a written
document setting forth Avista's proposed
corporate and affil-iate cost al-l-ocation
methodologies.
a. Finally, please explain Joint
3
d
commitment related to "No Amendment of
Applicants'
Ring-Fencing
Provisions" (Commitment No. 46).I
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A. Under this commitment, Olympic Holding Corp.
and Avista commit that no material amendments, revisj-ons
or
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modifications will be made to the ring-fencing provisions
as specifi-ed in these regulatory commitments without
prior Commission approval, pursuant to a limited
re-opener for the sole purpose of addressing the
ring-fencing provisions.
vr. REQUTRED APPROVAT,S FOR THE PROPOSED TRjAIISACTTON
O. Please describe the regulatory filings and
approvals needed to consummate the Proposed Transaction.
A. As a condition to consunrmation of the Proposed
Transaction, Avista must obtain approvals, consents or
waj-vers from, or make filings with, a number of
regulatory authorities, dS well as the satisfaction of
customary closlng conditions. With regard to state
regulatory Commissions, approvals are required from the
Washington Utilities and Transportation Commission
(WUTC), the Idaho Publ-ic Utillties Commission (IPUC) , the
PubIic Utility Commission of Oregon (OPUC), the Publ-ic
Service Commission of the State of Montana (MPSC), and
the Regulatory Commission of Al-aska (RCA) .
Avista must al-so obtain approvals from FERC under
the Eederal- Power Act, and from the Federal
Communications Commission under the Communications Act of
7934, ES amended by the Telecommunications Act of t996.
Furthermore, filings must be made with the25
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Department of Justice and the Eederal- Trade Commission
pursuant to the Hart-
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Scott-Rodino Act, and with the U.S. Committee on Foreign
Investment in the United States, pursuant to the
Exon-Florio Amendment to the Defense Production Act of
1950.
The Proposed Transaction also must be approved by
Avista' s sharehol-ders. A proxy statement wil-I be f iled
by Avista with the SEC in September 20!7, in preparation
for a vote of Avista's sharehol-ders.
O. Do Jolnt Applicants believe they will- satisfy
al-1 the regulatory requirements needed for the Proposed
Transaction to be consuntmated?
A. Yes. Avista and Hydro One believe we wil-l-
receive the required
Proposed
consents and
Transaction.complete the
anticipated
Avista
to occur in the second
and Hydro One request
the Proposed
approvals needed to
Closing is
half 2018.
that the Commissi-on
Transaction in a ti-me
the Commission on or
schedul-e a review of
frame that will allow approval by
before August 74, 20L8.
VII. AVISTA OPERATIONS BETWEEN SIGIiTING A}iID CLOSING
0. How does Avista
until- the closing of
A. Until- the
Avista wiIl operate
closing of the
independently
operate its business
Transaction?
Proposed Transaction
of Hydro One. Avistars
the
plan to
Proposed
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operations will conti-nue in the ordinary and usual- course
of
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business, consistent
accordance with the
Avista will use
its business
wlth past
provi sions
commercially
operations,
practice, and
of the Merger
in
Agreement.
efforts to
preserve
rel-ati-ons
continue
and other
O.
with its employees and
all material- governmental permits,
operati-ona1 authorizations .
Will Avista continue to have the
reasonable
maintain existing
third parties, and
franchi ses
dlscretion to
pay a dividend to its sharehol-ders?
A. Yes. Avista has historically quarterly
dividend wascommon stock, and the
continue paying its
incJ-uding a " stub"
7J,2071 (payable September 15, 2011).
the Merger Agreement, Avista may
regular quarterly cash dividends,
dividend in the quarter in which the
cash dividends on
decl-ared on August
Under the terms of
merger i-s consunrmated.
to pay a dividend will
discretion of Avista's
paid
Iast
Until- the closing, the decision
continue to be at the sole
Board of Directors.
Under the Merger Agreement, the dividend may be
increased by no more than $0.06 per share per fiscal
year, wi-thout the prior written consent of Hydro One
O. Does this conclude your pre-fiIed, direct
testimony?
A. Yes, 1t does.
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O. Pl-ease state your name, business address, and
present position with Avista Corp.
A. My name 1s Mark T. Thies. My business address
is 1-41-l East Misslon Avenue, Spokane, Washington. I am
employed by Avista Corporation ("Avista") as Senior Vice
President, Chief Financial Officer and Treasurer.
O. Are you the same Mark T. Thies who sponsored
pre-filed direct testimony, on behalf of Avista
Corporation (Avista) ?
A. Yes, I sponsored Direct Testimony and Exhibit
No. 3, Schedul-e 1 through Schedule 4 in thls Docket.
O. Are you sponsoring any exhibits in this
testimony?
A. Yes, I am sponsoring Exhibit No. 72, Schedule
1-, which is the Go1den Share agreement ("Services and
Indemnity Agreement") between GSS Holdings (AGS), Inc.
("HoldCo"), a Delaware corporation, Global- Securj-tization
Services, LLC ("G1obal"), a Del-aware limited liability
company, and Avista. HoldCo is an affili-ate of Global.
Gl-obal formed Hol-dCo, ds a special purpose entity (SPE)
on July 17, 20LB for the sole purpose of holding one
share of limlted voting preferred stock in Avista.
0. What is the purpose of this Supplement.al-
Testimony?
A. The purpose of this Supplemental Testimony is
Thies, Supp 1Avista Corporation
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to reconfirm the benefits of this transaction (the
" Proposed
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Transaction" ) from a financial perspective and highlight
the extensive financial safeguards incorporated into the
agreed upon commitments (each, a "Stipulated Commitment",
collectively "Stipulated Commitments") in the Set.tl-ement
Stipulation ("Stipulation") filed on April 13, 20LB,
which were designed to protect and insulate Avista and
its customers from a change in management at Hydro One or
political landscape of the Province of
(the "Provi-nce") and ensure Avj-sta's ability to
utility.
Hydro One,
as a financially sound, stand-alone
changes
Ontario
continue
As
in the
I will discuss further be1ow, neither
nor the Province, can deprlve Avista of its necessary
capital and assets; indeed, quite the opposite is true.
Hydro One is duty-bound to provide sufficient capital to
aIlow Avista to provide safe, reIiable, and
cost-effective service.
O. Have any of the beneflts of the Proposed
Transactlon to Avista and its stakehol-ders changed as a
result of recent developments in Ontario?
A. No, the benefits highlighted in both my and Mr.
Morris' direct testimony have not changed. The number of
investor-owned electric and natural gas utilities in
North America has decreased significantly over the years
through consolidation. Through consolidation, these
larger utillties haveespecially the costs
the opportunity to spread costs,
of25
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new technology, over a broader customer base and a
broader set of infrastructure. The partnership of Avista
and Hydro One wilI provide opportunities for efficiencies
in the long-term through the sharing of best practices,
technology and innovation. The Proposed Transaction wiIl
provide benefits
woul-d not occur.
to Avista's customers that otherwise
These benefits will not
favorably by customers, but al-so by debt
rating agencies. An efficient, wel-l--run
only be viewed
holders and
bus iness
increases the opportunity to achieve financial- metrics to
support favorab.l-e credit ratings.
The merger with Hydro One wil-l not only al-low Avista
and its customers to benefit from being a part of a
larger organization (the benefits of scale), but at the
same time preserves local control- of Avista and the
retention of Avistars culture and its way of doing
business. We bel-ieve thls preservation of local control-
and management of Avista is important to many
stakeholders including, among others, our customers, our
employees, the communities we serve, the vendors we do
business with, lenders, and rating agencies. None of
this has changed as a result of recent developments in
Ontario.
0. Are there any new financial risks to Avista in
light of the recent management changes at Hydro One?25
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A. No. As I will dlscuss in further detail- be1ow,
there are extensive financial safeguards and ring-fencing
Sti-pulated
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Commitments agreed to
Stipulation that were
Avista wil-I continue
ut.i11ty.
O. WilI Avista
by a1I parties as part of the
intentionally designed to ensure
as a financially sound, stand-alone
continue to maintain its own
capital structure following the closing of the Proposed
Transaction?
A. Yes. Avista wll-l- maintain its own capital
is consummatedstructure after the Proposed
and will- continue to fund its ongoing operations with
both debt and equity sources.
O. Does Hydro One, or the Province, have the
ability to withhold equity contributions to Avista?
A. No. As described in StipuJ-ated Commitment No.
34, Hydro One will- provide equity injections to support
Avista's capital structure. This commitment to maintain a
strong equity component in Avistars capi-ta1 structure
plays a significant rol-e in supporting financial metrics
that ensure Avista's access to its usuaf and customary
financial markets under reasonabfe terms and on a
sustainable basis.
Transaction
O. Are there protections buil-t into
Commitments regardj-ng dividends from Avista
Equity LLC. ?
A. Yes. As agreed to in Stipulated
the Stipulated
to Olympus
Commitment No.25
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38, certain conditions must be met in order for Avista to
provide a dividend to Olympus Equity LLC. If either (i)
Avista's
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corporate credit/j-ssuer ratlng as determined by both
Moody's Investors Service ("Moody's") and Standard &
Poor's ("S&P"), or their successors, is investment grade,
or (ii) the ratio of Avistars EBITDA to Avistars interest
expense is greater than or equal to 3.0, then
dlstributions from Avista to Olympus Equity LLC sha11 not
be l-imited so long as Avista's equity ratio is equal to
or greater than 44 percent on the date of such Avista
distribution after giving effect to such Avista
distribution. If any of those
Avista desired to distribute a
conditions are not met, and
dividend to Olympus Equlty
LLC, such distribution
Idaho Publ-ic Utilities
would requi-re approval from the
Commission (the "Commission") .
from both Moody's and S&P, or
or its successor, if only one issues
to Avista, and the ratio of EBITDA to
expense
Olympus
o.
Avista's
is less than 3.0, no dlvidend
or its successors
If Avista does not have an investment-grade
from one of these
rati-ng
entities,
ratings with respect
Avista's interest
distribution to
will occur.
Stipulated Commitments that protect
assets from being pledged as
Equity LLC
Are there
customers'
coll-ateral ?
A. Yes. Avistars utj-Iity assets can be pledged as
collateral only for the benefit of Avista, not Hydro One,
as agreed to in Stipulated Commitment No. 46. Therefore,I 25
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neither Hydro One, nor the Province, can strip Avista of
its capital or
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loan, pledge, or transfer Avj-sta's assets to Hydro One or
any affiliates of Hydro One.
O. Could Hydro One cut Avista's capital budget?
A. Avista will- have necessary funds avai1able to
provide safe and rel-iable service to customers. Avista
and Hydro One agree that neither the proposed merger, nor
future acquisitions, frdy diminish the delivery of safe
and rellabIe utility service in Idaho as compared to
Avista's performance prior to the closing of the Proposed
Transacti-on. Avista wil1, under the l-eadership of the
Avista Board, make the necessary investments in order to
ensure safe and reliabl-e utility service, and will make
the necessary capital expenditures to effectuate that.
O. Are there any other safeguards that maintain
the integrity of Avista's financia] health?
A. Yes. There are several other financial
obligations included in Stipulated Commitment Nos. 34-41
that provide Avi-sta adequate protection of its financial
health. I will highlight a couple beIow, having already
discussed Stipulated Commitment Nos. 34 and 3B earlier.
As outl-ined in Stipulated Commitment No. 35, Avista
will maintain separate debt and preferred stock, if doy,
to support its utllity operations. Eurther, Stipulated
Commitment No. 36 states that each of Hydro One and
Avista wil-l- continue to be
Thies, Supp 6Avista Corporation
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Thies, Supp 7Avista Corporation
rated by at l-east one nationally recognized statistical
"Rating Agency. " If Hydro One and Avista are unable to
obtain or maintain the separate rating for Avista, they
will make a filing with the Commission explaining the
basis for their failure to obtain or maintain such
separate credit rating for Avista.
Stipulated Commitment No. 31 states that Hydro One
and Avista agree to notify the Commission within two
business days of any downgrade of Avista's credit rating
to a non-investment grade status by S&P, Moodyrs, or any
other such ratings agency that j-ssues such ratings with
respect to Avista. Additionally, Avista and Hydro One
have agreed that Avista will maintain its present pension
funding policy, continue to fil-e required reports with
the U.S. Securiti-es and Exchange Commission, and comply
with applicable Sarbanes-Oxley Act requirements.
O. Are there protections in place to protect
Avj-sta from being drawn into bankruptcy proceedings that
are not in the best interest of Avista and its customers?
A. Yes, there are various bankruptcy ring-fencing
provisions. Elrst, ds outlined in Stipulated Commitment
No. 42, Avista will
stock referred to as
issue a single share of preferred
the Golden Share to an independent
be required to
Additionally, as
third party. The vote of this share wil-l-
place Avista into volurrtary bankruptcy.25
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outlined in Stipulated Commitment No. 43,
into voluntary bankruptcy woul-d require
Avista's entry
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the consent of a two-thirds majori-ty of al-l- of its
directors, including the affirmative vote of at l-east one
of the independent directors (as defined by the New York
Stock Exchange rules). Stipulated Commitment No. 44
further requires a non-consolidation opinion filed with
the Commission to confirm the effecti-veness of the
ring-fencing measures to prevent the substantive
consolidation of the assets and liabilities of Avista
with those of Hydro One or any of its affiliates or
subsidiaries.
O. Has the holder of the "Go1den Share" been
selected?
A. Yes. Avista and Hydro One have sel-ected HoldCo
as the ho]der of the "Gof den Share".
O. Please explain how you bel-ieve Hol-dCo meets the
definition and purpose of the Golden Share holder as
provided
A.
in Stipulated Commitment No. 42.
Certainly. Stipulated Commitment No. 42,
reads, in pertinent partr dS foll-ows:
Enteri-ng into voluntary bankruptcy shalI require the
affirmative vote of a "Golden Share" of Avista
stock. The Golden Share shal-l- mean the sole share
of Preferred Stock of Avlsta as authorized by the
Commission. This share of Preferred Stock must be in
the custody of an independent third-party, where the
third-party has no financial- stake, afftliation,
relatj-onship, i-nterest, or tle to Avista or any of
its affiliates, or any lender to Avista, or any of
its affiliates. This requirement does not preclude
the thlrd-party from holding an index fund or mutualotrLJ
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fund with negligible interests
its affiliates. In matters of
in Avista or any ofvoluntary bankruptcy,
Thies, Supp BaAvista Corporation
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Thies, Supp 9Avista Corporation
this Golden
out standing
Share wil-l- override
shares of al-l- types
all other
or classes of stock.
The following informatj-on describes the hofder of this
share:
HoldCo is an affiliate of G]oba1. Eounded 1n
7996, Global is a privately held limitedliability company owned by its senior
management.
Global is a member of the Structured Finance
Industry Group, and the firm is dedicated toproviding professional and responsible
management of special structures such as the
Golden Share (see attached Exhibit No. 12,
Schedule 1 for more information about Global).
Ho1dCo does not and wil-l not conduct any
business activlties other than holding the
Golden Share, will not incur any liabilities
other than those necessary to carry out the
duties of holding the Golden Share, and will
not seff, assign, transfer, pledge, hypothecate
or otherwise convey the Golden Share.
GSS Holdings (CHGE) , Inc., another affiliate of
Global, holds a simil-ar Golden Share for
Central Hudson Gas & Electric Corporation.
GSS Holdings (NY Utllity) , Inc., another
affll-iate of GIobal, holds similar Golden
Shares for New York State Electric & Gas
Corporation and Rochester Gas and E1ectricCorporation.
GSS Holdings (NG) , Inc., another affiliate ofGlobal, holds similar Gol-den Shares for
National- Grid pIc companies Keyspan Gas EastCorporation, Niagara Mohawk Power Corporation,
and The Brooklyn Union Gas Company.
Cl-oser to home, do afflliate of Gl-obal- was
approved by the Oregon Publ-ic Utility
Commission as the
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Thies, Supp 10Avista Corporatj-on
holder of
Company' s
the Portland General Electric
Golden Share.
A copy of the Servi-ces and Indemnity Agreement has
12, Schedul-e 1 . Avista andbeen provi-ded as
Hydro One request
Exhibit No.
that
Hol-dCo as the holder of
the Commj-ssion expressly approve
the Golden Share as part of its
approval
a.
to close
year?
A
of the Proposed Transaction itself.
From Avista's perspective, why is it beneficial
the Hydro One transaction by the end of the
There are a number of reasons why closing this
especially at thetransacti-on at the end of a month, and
beneficial.end of a
lmagine,
calendar year,
Avista wll-l- be
As you can
certain
the transaction
IS
required to have
of the day thatprocedures
closes. A
completed
year-end
First,
AS
transaction cl-ose date has several
Avista wil-l- beadvantages.
audit of its financials as of the
required to a have an
transaction close date.
If that date is different t.han December 31st or January
l-st, multiple audits woul-d be requj-red. This resul-ts in
significant effort on the part of Avista staff as wel-l- as
third party costs to have an audit completed by an
independent auditor. Next, there is l-ess risk j-nvolved
with a month-end close, as the month-end close is part of
our normal process, whereas, a mid-month cl-ose is outside25
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chance for potential error
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(as system and report modificatj-ons woufd need to be
configured should closing occur in the mlddle of any
month). Third, more accurate valuation lnformation is
avail-able at year-end cutoff for purchase accounting,
than would occur in a mid-month, or non-end of the year
closing. In addltion, a valuation of the pension will- be
required as of the transaction close date. Avista woul-d
not need to have a mid-period pension valuation completed
by a third party actuary as wel-l- as the normal year-end
pension val-uation. Fina1ly, Avista would avoid a "stub
period" federal tax return, whlch again woul-d help save
costs and mlnimize potential errors. In the end, a
closing at the end of the year would provide limited
disruption to normal closing and reporting cycles, which
saves costs and resul-ts in more accurate financial-
reporting.
0. Do you have any concluding remarks?
A. Yes. A11 of the benefits of the Proposed
Transaction and structured safeguards remain intact,
notwlthstanding political developments in Ontario and
management changes at Hydro One. The Stipulated
Commitments negotiated by the parties were desi-gned to
achieve these protections and preserve the beneflts.
Nothing has changed in that regard.
A. Does that conclude your Supplemental Testimony?A. Yes, it does.
Thies, Supp 11Avista Corporatlon
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CSB REPORTING
208.890.5198
THIES (DT)
Avlsta Corporation
(The following proceedings were had in
open hearing. )
MR. MEYER: Your Honor, I have one last
bit of housekeeping with this wj-tness. There was an
earl-ier colloquy where questions were asked about
executive compensation for the named executj-ves and while
at the time we referred you to a Staff data request, I
think it was 43, that in and of itself on the face of the
response did
information excerpted on a single page and may we
Bench?
COMMISSIONER KELLANDER: You may. Is it
approach the
your intent to include that as an additional exhlbit?
MR. MEYER: Yes.
COMMISSIONER KELLANDER: What exhiblt
number are we up to?
MR. MEYER: Twenty.
COMMISS]ONER KELLANDER :
MR. MEYER: Yes, please.
COMMISSIONER KELLANDER :
Exhibit No. 20?
Yes, please.
not have that information. We do have that
(Avista Corporation
marked for identification. )
more.
Exhibit No. 20 was
MR. MEYER: r'I1 identify it a little
COMMISSIONER KELLANDER: Thank you.25
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CSB REPORTING
208.890.5198
THIES (Di)
Avista Corporation
BY MR. MEYER:
o
front of you?
A
o
63 in fact, out
20L1 ?
DIRECT EXAMINATION
(Continued)
Mr. Thies, do you have Exhibit No. 20 in
Yes.
Do
of
you recognize t.hat to be a page, page
a proxy filing made on October 2nd of
A Yes.
O And that Exhibit 20, that excerpted page,
purports to show the various
of which are accelerated for
officers; correct?
A Yes.
items of compensation, some
the named executlve
MR. MEYER: With that, I move the
admission of Exhibit 20 as wel-l-.
COMMISS]ONER KELLANDER: And wj.thout
objection, we wll-l- admit Exhibit 20.
(Avista Corporation Exhibit No. 20 was
admitted into evidence. )
MR. MEYER: Thank you, and with that,
Mr. Thies is availabl-e for cross.
COMMISSIONER KELLANDER: Let's look to the
back row, Mr. Purdy.25
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CSB REPORTING
208.890. s198
THrES (X)
Avista Corporation
MR. PURDY: I have nothing. Thank
COMMISSIONER KELLANDER: Thank you.
you.
Mr
Otto.
MR. OTTO: No quest j-ons.
COMMISSIONER KELLANDER: Mr. Richardson.
MR. RICHARDSON: Thank you, Mr. Chalrman
No questions.
COMMISSIONER KELLANDER: Thank you.
Mr. Williams.
MR. WILLIAMS: Yes,
question and the witness probably
THE WITNESS: Thank
I have just one
knows what it is.
you, Mr. Morris.
CROSS-EXAMINATION
BY MR. W]LLIAMS:
0 But to refresh your reflection, Mr. Morris
and I were discussing the company's Schedule 14(a) or its
fiting pursuant to Section 14 (a) of the Securlties and
Exchange Act of L934, and the proxy statement essentially
notifying the FCC and investors of the pending merger.
Do you have recollection of that document?
A Yes.
O And as part of that document, there are
prospective financial information that is provided on an25
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CSB REPORTTNG
208.890.s198
THIES (X)
Avista Corporation
estimated basis, and the question I asked Mr. Morris that
he deferred to you is that on that financial information
schedule that is found on page 45, it estimates Avista
Utilitiesf income for 20tB 129,I53,000 and for the
following year 2079, that j-ncome amount jumps to
150,842,000 and so my question to you would be what is
the reason for the estimate of a 16 percent increase in
net income as part
So
of a merger dj-sclosure?
of the disclosure inA
we put forth our
as part
forecast
bit of history, in 20L6,
State of Washington and
don't remember the exact
resul-t, so that caused us
primarily almost all due
we did not expect, and we
sharehol-ders at the time
and our estimate and
the proxy,
this is
also the forecast when we were in discussions wj-th Hydro
One that we provided of our expectations going forward
for our results of our operati-ons and our net income.
They lnclude many factors and many assumptions, some of
which are normal- growth in customers, normal i-ncreases in
expenses and then our expected capital expenditures as we
continue to deploy capital for our system, but in
addition in this forecast, I have to give you a l-ittle
we filed a rate order in the
it was for $30 plus mi11ion, I
number,
to have
but we got zero as a
to the State
1ug, again,
of Washington that
some
came out and told our
that we expected that to be a/) c-
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CSB REPORTING
208.890.5198
THTES (X)
Avista Corporati-on
couple of years before
file additional cases
we would have
recover,
to rea11y
the opportunity to
and to have the
bel-ieved
2020, so
portion
lag that
in Washlngton
opportunity to earn our allowed return.
In our forecast that we provided, we
that that first opportunity would be 2079 and
the increase is to the significant
recover, from the
that zero rate casewe have experienced due to
in '16 and continue to experience, and so we forecasted
at that time we woul-d recover that in '19. That's the
big change,' otherwise, it's just normal-. We have, you
know, a small growth in customers, smalI growth in our
expenses, and some normal- expectatj-ons in other rates.
We have our current rates in Idaho that have been set as
wel-I as Oregon.
a Did you have baked into that number any
cost savings that rel-ated to the merger?
A That forecast did not include anything
with respect to the merger. That was a forecast of
Avj-sta's expectati-ons, our results at that time of that
forecast and did not include anything related to the
merger.
MR. WILLIAMS: No further questi-ons.
COMMISSIONER KELLANDER: Thank you,
Mr. Will-iams. Mr. Baxter.
of the increase is
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CSB REPORTING
208.890. s198
THIES (X)
Avista Corporation
Karpen.
BY MR. I(ARPEN :
o
A
o
supplemental
of clarity.
cut Avista's
MR. BAXTER: No questions. Thank you.
COMMISSIONER KELLANDER: Thank you. Mr
MR. KARPEN: Yes.
CROSS_EXAMINATION
Good afternoon, Mr. Thies.
Good afternoon.
Can you please turn to page 6 of your
testimony? I have one question as a matter
At that point you're
budget and I
see a yes or
asked could Hydro One
capital believe it's a yes or
no answer and I donft
response provided.
A My apologies, the answer would be no. The
board of Avista approves the capital budget as we sit
today and we expect that as we go forward, as many
witnesses have testified, that the board of Avista will
continue to have the approval of running our business and
we woul-d expect that the board of Avista could do that,
so ho, Hydro One, I believe the answer would be no, Hydro
One cannot cut Avistars capital budget.
MR. KARPEN: Thank you. I have no further
no in the narrative
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CSB REPORTING
208.890.5198
THrES (X)
Avista Corporation
questions for this witness.
COMMISSIONER KELLANDER: Thank you. Mr.
Semanko.
MR. SEMANKO: Yeah, just a couple.
COMMISSIONER KELLANDER: Could you get
your microphone, please?
MR. SEMANKO: Yes, I'n sorry.
COMMISSIONER KELLANDER: That's fine.
MR. SEMANKO: I'm trying to avoid paper
shuffling on the record
CROSS_EXAMINATION
BY MR. SEMANKO:
O Mr. Thies, thank you for being here today.
A Thank you.
O This Exhibit 20, I appreciate this being
brought into the record. As Mr. Karpen stated, there are
a lot of public comments and f'm sure you've seen or are
aware of the talk about what executive compensation may
occur after the merger, if it occursr so this helps. A
couple of clarifying questions, though. I see the total
for Scott Morris that may be paid or may become payable
in connection with the consummation of the merger, and I
thj-nk this is consistent with his testimony, just under25
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CSB REPORTING
208.890.5198
THIES (X)
Avista Corporation
$17 million and for yourself a littl-e under $6 million.
My question is, al-l of these different categories that
are on this chart that add up to those amounts for each
of the five individuals, are there any of those or al-1 of
those that would be paid to you and the others at some
point in the fuLure absent the merger?
A So if we l-ook at just the lines, just
going from l-eft to right, the severance, oo, we would not
get a severance generally without the change in control
agreements. The val-ue of accel-erated equity, that is
equity awards that are outstanding at the time that may
or may not be paid in the future assuming the achievement
of the results of whatever those awards have. I mean,
certain of those awards have you know, you have to
have a certain net income or you have to have a certain
change. There are hurdles. I'm not getting the right
word, but there are achievements there that you need to
have. Those could be paid, but they are accel-erated at
target in this table.
The health benefits, I have no idea. The
outplacement,
been paid, and
the empJ-oyee.
gross-up under
aga1n, very smaII. No, that
tax gross-up
It's paid to
Section 280c.
is really not
the government
wou]d not have
even paid to
as a tax
paid
going to
That woul-d not be
absent this transaction and that's actually not
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CSB REPORTING
208.890.5198
THIES (X)
Avista Corporation
the employee. It is going to the IRS, I
O So of these, the one that
the value of acceLerated equity, subject
believe.
might be paid is
to what you just
said, the others Do, except health benefits you're not
sure?
question
that have
comments
I'11 take
A Yes.
O That's very he1pful,
I have and it also refates
been submitted, a lot of
submitted, with regard to
you to page 8 of
thanks. The other
to public comments
confusion, but still
the Gol-den Share, so
COMMISSIONER
your testimony.
KELLANDER: Was that the
supplemental?
that clarification.
there where you talk about
continues on, I believer on
Do you see on lj-ne 10
Golden Share and it
MR. SEMANKO: Supplemental, I'm sorry.
COMMISSIONER KELLANDER: Thank you for
O BY MR. SEMANKO:
the
to page 10, through 9 and
1? Are you familiar withlnto page 10, ending
that? Do you recall
A Yes.
O Alot
very elemental l-evel-.
that?
on line
that testimony?
of detail- there. Let's start at a
What 1s a Golden Share? What is
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CSB REPORTING
208.890.5198
THIES (X)
Avista Corporation
voluntary -- voluntarily file
forced bankruptcy, a voluntary
First, that takes a two-thirds
the
the interest
A The Go1den Share, and I am not a lawyer,
so I will preface that, the Golden Share is a protection
for the customers in having the company file for
approve that filing should
of all of the
for bankruptcy, not a
filing for bankruptcy.
majority of the board to
board believe that's in
parties, but
this Golden Share
file for voluntary
to make sure that
The board would have other constituents,
the sharehol-ders or communities or other constituents,
that would weigh in. The Golden Share does not and to
file voluntary bankruptcy, it requires the affirmative
vote of the holder of the Golden Share.
0 So does the holder of the Gol-den Share
have any powers or responsibilities besides what you've
testified hereto l-ive and in your written testimony?
A No.
O Are you aware of whether Golden Shares are
common across the industry, across the worJ-d, or is it
unique here?
A I am aware that it is not unique here.
How broadly we wou1d say conrmon, I'm aware of many other
is required to have a
bankruptcy and their
itrs for the benefit
then in addition,
positive vote to
sole purpose is
of the customers.
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CSB REPORTING
208.890. s198
THrES (X)
Avista Corporation
instances there are Golden Shares in different cases and
I believe in my testimony there are some identified, not
necessarily a complete Ilst, so depending on your
definition of common, it is not unusual-, but f can't say
it's in every dea1.
O And then fina11y, are you aware of any
jurisdictj-ons where the use of a Gol-den Share is not
allowed?
A Not to my knowledge.
MR. SEMANKO: That's all- the questions I
have. Thank you.
COMMISSIONER KELLANDER: Thank you, Mr.
Semanko. Are there any questions from members of the
Commission?
Any redirect?
MR. MEYER: None, thank
COMMISSIONER KELLANDER :
you.
Wel-l-, thank you
for your testimony.
THE WITNESS: Thank you.
(The witness l-eft the stand.)
COMMISSIONER KELLANDER: Appreciate your
and let's move on now to your next and final-presence
wi-tness on your list.
MR. MEYER: Thank you. I call to the
stand Mr. Kevin Christie.t 25
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a
CSB REPORTING
208.980.5198
CHRIST]E (Di)
Avista Corporation
KEVIN CHR]STIE,
produced as a witness at the instance of the Avista
Corporation, havlng
truth, was examined
been first duly sworn to tell the
and testified as follows:
DIRECT EXAMINAT]ON
BY MR. MEYER:
a For the record, would you please state
your name?
A Kevin Christie.
O And your employer and position?
A Avista is my employer and my position is
the vice president of externa1 affairs and chief customer
officer.
O All- right, and you have prepared and
prefiled direct testimony?
A I have.
O I understand you may have a correction to
that.
A I do, one small administrative
correction.
a If you'11 direct
and the line and al-l-ow everybody
A I wil-l-. On page
our attention to the page
to get there.
1 on line 5 and also25
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Iine L9, an update of my title from vice president of
customer solutions to vice president of external affairs
and chief customer officer.
O Do those complete your corrections?
A They do.
0 So if I were to ask you those questions
and your answers were gj-ven as corrected, would this be
accurate, true, and correct?
A Yes, it woul-d.
0 I woul-d ask that Mr. Christie's testimony
be entered as if read.
COMMISSIONER KELLANDER: Without
objection, we'11 spread his testimony across the record
as if read.
(The fo1lowing prefiled direct testimony
of Mr. Kevi-n Christie i-s spread upon the record.)
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CSB REPORT]NG
208.980.5198
CHRISTIE (Di)
Avista Corporation
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I. INTRODUCTION
O. Pl-ease state your name, employer and business
address.
A. My name is Kevin Christie and I am employed as
the Vice President of External Affairs and Chief Customer
Officer for Avista Utilities, dt 741,1 East Mission
Avenue, Spokane, Washington.
O. Wou1d you briefly describe your educational
background and professional- experience?
A. Yes. I graduated from Washington State
University with a Bachel-or's Degree in Business
Administration with an accounting emphasis. I have also
attended the University of Idaho Utility Executive Course
and the Finance for Senior Executives program at Harvard
Business School.
I joined the Company in 2005 as the Manager of
Natural Gas Planning. In 2001, I was appointed the
Director of Gas Supply, then in 2012 I was appointed as
the Senior Director of Finance. In 2074 I was appointed
to Senior Director of Customer Solutions and i-n 20L5 I
was appointed to my current position of Vice President of
External Affairs and Chief Customer Officer.
Prior to joining Avista, I was employed by Gas
Transmission Northwest (GTN). I was employed by GTN from
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and Development from 2003 to 2005 and the Director of
Pricing and Business Analysis
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from 2001 to 2003. From 2000 to 200L, I was employed by
PG&E Corporation (PG&E) as the Manager of Finance and
Assistant to the SVP, Treasurer and CFO. Before joining
PG&E, f was employed by Pacific Gas Transmission Company
(PGT) from 1994 to 2000. While at PGT, I held several
positions incl-uding Manager, Pricing and Business
Analysis and, Director of Regulatory Affairs.
0. What is the scope of your testimony?
A. I will provide an overview of the Company's
Customer Solutions organizaLton, our Customer Service and
support programs, and what we are doing to meet our
evolving customer expectations. I wil-l- al-so explain
certain commj-tments proposed by Avista and Hydro One
(hereafter jointly referred to as "Joint Applicants") as
part of the companies' request for approval of the
Proposed Transaction. I wlll- explain why thls Proposed
Transaction wilI provide the opportunity to preserve and
enhance customer service; and 1n that regard Hydro One
stands behind Avista to maintain and improve customer
service.
A table of the contents for my testimony is as
follows:
Description Page
I. Introduction
II. Overview of Avista's Customer Solutlons
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Operat j-ons
III. Customer Service and Support Programs
IV. Joint ApplJ-cants' Commitments
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II. OVERVIE?I OF AVISTAIS CUSTOMER SOLUTIONS OPERATIONS
O. Before discussing the specifics of the Proposed
Transaction, and how the Transactlon will- affect Avista,
please provide a brief overvj-ew of Avista's current
Customer Solutions operations.
A.
comprised
that work
Avista's Customer Solutions organization is
of customer-facing departments i.e., those
directly with our customers. Our organizatj-on
the Company's 378,000 electric and 342,000supports
naturaf
L29,000
Our team
lmplementing innovative
our customers' needs and
customers (as of June 30, 2011 ) of which,
81,000 respectively, were Idaho customers.
commi-tted to antlcipating, developing, and
and engaglng solutions that meet
expectations. In addition, w€
gas
and
is
are continually monitoring trends in the utility industry
in order to be proacti-ve in providing our customers with
solutions they may be interested in. Lastly, we have
renewed and enhanced our emphasi-s in creating a feedback
loop with our customers. For exampfe, we have been
testing
a social
surveying
in, like
self-service
media panel
customers
technol-ogy with customers, have used
for testing ideasr ds well as
on programs they have participated
our small business energy efficiency program.
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O. P1ease provide an overview of the departments
within the Customer Solutions organization that interact
with Avista's customers.
A. The fol-lowing are the primary departments that
interact with our customers:
Customer Service: The Customer Servj-ce department
is the primary interface between t.he Company and its
customers, incl-uding areas such as meter reading,bi1Iing, and the call center.
Community Outreach and Energy Assistance: The
Community Outreach and Energy Assistance department
is responsible for delivering and administering
energy assistance programs that reduce the energy
burden for our low income and vulnerabfe customers.
In addition, the department is responsible for
offering energy conservation and education to
1ow-i-ncome customers .
Energy Efficiency: The Energy Efficiency departmentis responsibl-e for delivering the Company's efectric
and natural gas energy efficiency programs. Itsprimary goal- is to meet or exceed the annual kWh and
therm savings goals in both the Company's Idaho and
Washington jurisdictions. Our natural- gas energyefficiency programs in Oregon are del-ivered by the
Energy Trust of Oregon (ETO). In addition to
del-ivering programs to reach the Company's savingsgoals, the Energy Efficiency department afsoprovides tools and education to help customerscontrol their energy costs and reduce their energy
"footpri-nt."
External Communi-cations: The External
Communications department is responsible for
customer communications and for the Company's
external facing technologles, which incfude the
Company's website and mobil-e applications.
Products and Services: The Products and Servi-ces
department is responsible for del-ivering new
products and services that our customers desire.
Through engagement and customer research, the
department is focused on delivering solutions that
meet our customers' evolvj-ng needs and expectations.
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Al-l- of these departments and the roles they serve
wil,l, remain in place following the closing of the
Proposed Transactions and, as I wll-l- explain later in my
testimony, following the closing of the Proposed
Transaction Avista wil-l- have increased opportunities and
resources to serve our customers and our 1ocal
communities.
III. CUSTOMER SERVICE & SUPPORT PROGRAMS
O. PIease describe Avista's Customer Service
department.
A. Avista's Customer Service department is the
primary interface between the Company and its customers
and includes Meter Readj-ng, Bi11ing, Credit and
Collections, and the Cal-l- Center. fn 2016, the CaIl
Center answered 126,644 call-s and fielded 66,124 ema1ls
and electronic
Company's three
Oregon. 1
Avista has
communications from customers across the
jurisdictions: Idaho, Washington, and
service centers located j-n Coeur d'Alene,
Idahoi Lewiston, Idaho and Spokane, Washington
networked together to operate as a single Call-
supporting Avista's customers. Each employee
in thelr role to
that are
Center
is trained
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1 The Caff Center and many of our other customer support programs also serve
our approximately 30 retail electric customers in Western Montana. Avistars
electric service in Juneau, Alaska, through Al-aska Efectric Light and Power
Company (AEL&P), operates independently of Avista Utiliti-es. Customer
service is provided by AEL&P empJ-oyees in Juneau, Alaska.
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work with customer accounts or
customers in aII three of the
take phone call-s from
Company' s j urisdictions.
in through a single number,comeA11 customer phone calls
1-800-22'l-9781 , and are answered by the next avail-abfe
representative,
l-ocated.
Our Voice
regardless of where the customer is
of the Customer (VOC) results for the
first quarter in 2017 show that 95% of our customers in
our Idaho, Washington and Oregon operating divisions that
had contact with Avistars Cal-l- Center were satisf ied or
very satisfied with the service they received.
O. What customer support programs does Avista
provide for its customers in ldaho?
A. Avista offers a number of programs for its
Idaho customers, such as Project Share for emergency
assistance to customers, a Customer Assj-stance Referra.l-
and Eval-uation Service (CARES) program, senior programs,
l-evel pay p1ans, and payment arrangements. Through these
programs, the Company works to ease the burden of energy
costs for customers that have the greatest need.
To assist our customers in their ability to pay, the
Company focuses on actions and programs in four primary
areas: 1) l-ow income and senior outreach programs; 2)
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programs that increase customers' ability to pay basic
costs of living.
O. Please briefly describe Project Share.
A. Project Share is a community-funded program
Avista sponsors to provide one-time emergency support to
families and/or individuals where Avista provides
service. Avista customers and shareholders help support
the fund with vol-untary contrlbutions that are
distributed through l-ocal community action agencies to
customers in need. Grants are available to those in
need, without regard to their heating source, and the
recipients are not required to be Avista electric or
natural gas customers.
O. What other tools does the Company offer to
bi-l-l-s ?assist customers in managing their
A. BiIl assi-stance is avail-able through LIHEAP,
many billingoffersand Project Share, the Company
options to make it easier for to manage their
include Comfort
or arrangements,
customers
bill-s. Choices avai-labIe to customers
Level BiIlingz, flexible payment
One of
plans
and preferred due
Customer Service
dates.
department j-s to
the goals
provide
of our
tool- s
2 Comfort Level Bj-l-fing (CLB) is a "payment pIan" designed to average the
bills over L2 months. It l-evel-s out the seasonal highs and l-ows to one l-evel
palment aJ-I year. It is based on the previous 12 months of billed usage.25
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and options
before they
to customers to help them manage their bills
face a financial hardship or crisis.
By
utili ze
accessing
our Bill
their account online, customers can
Analyzer tool, which
their usage to prior months
understand the key driving
increases, such as weather,
and increased or decreased
we
to
and
or years,
factors in any usage
billing days, rate
usage. Customers can
is the
helps them compare
as well as
changes,
also
access our Home Energy Analyzer tool, and complete a
survey about their specific usage to help fine tune
suggestions for energy savings and management.
O. Please summarize Avista's Customer Assistance
Referral and Evaluation Services (CARES) program.
A. In Idaho, Avista is currently working with 125
special needs customers and 55 Ii-fe-support customers in
the CARES program. Specially-trained representatives
provide referral-s to area agencies and churches for
customers with special needs for help with housing,
utilities, medical- assistance, etc. One of the benefits
have in util LZLnq CARES representatives
evafuate each customer, based on their
to educate them on what assistance is
within the community
ability
need,specific
available
A goal of the program is to enabl-e
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O. Does the Company perform any other outreach to
its customers?
A. Yes. The following are examples of outreach
customers:programs that are available to
1 Senior and Low-Income Outreach: Avista has
developed specific outreach efforts to reach
our more vul-nerabl-e fixed and 1ow-income
customers (with speciaJ- emphasis on seniors and
disabled customers) with bill payment
assistance and energy efficiency information
that emphasj-zes comfort and safety. Avista
accomplishes this outreach mainly through
Energy Workshops. During 2076, 22 workshops
were conducted reaching nearly 6J.9 seniors and
Iow-income individuals. All workshopparticipants were given Home Energy Efficlency
kits along with tips for Iow-cost/no-cost ways
to manage energy use. Each kit contains
energy-saving ltems such as LED light bu1bs,plastic window covering, draft stoppers forexterior light switches and outlets, v-seaI for
drafty doors and a polar fleece lap blanket.
The Company also conducts general outreach inpartnership with organizations that are in
contact with vulnerable individual-s through
resource fairs or in-home services. General-
outreach partnerships reached 5,563 individuals
through 31 activities. Through all of these
venues, individuals are provided with
information to effectively manage their home
energy use and the Company's bill assistance
programs.
Senior Publications: Avista has created a
one-page advertisement that has been placed insenior resource directories and targeted seniorpublications to reach seniors with information
about bill payment options, Avista CARES and
energy assistance.
Energy Fairs: fn 2076, Avista hosted one
energy fair in Cottonwood, Idaho which reached
45 customers. These outreach events provide
information and demonstrations on energy
assistance, energy efficiency and home
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weatherization to limited income famll-ies and
senior cltizens as well- as provided an
environment for customers to l-earn about bill
payment options and energy
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assistance, whil-e offering them tips and toolsto use to help manage their l-imited financial
resources.
IV. .TOINT APPLICATiTTS I COMMIII,IENTS
O. Have Avista and Hydro One offered commitments,
as part of their request for approval of the Proposed
Transaction, to ensure that Avj-sta's customer service and
customer support is preserved and improved following the
closing of the transaction?
A. Yes. As I have explained in my testimony above,
Avista has in place many programs and services designed
to provide a high level of customer service, customer
satisfaction, and support for our customers. Avista and
Hydro One are offering a number of commitments to ensure
that Avista's customer service, reliability, and other
aspects of the way Avista currently does business, is
preserved and enhanced following the closing of the
transaction.
f am sponsoring Commitment Nos. 9-15 (Loca1
Presence/Community Invol-vement Commitments), 41-52
(Environmental, Renewable Energy, and Energy Efficiency
Commitments), and 53-55 (Community and Low-Income
Assj-stance Commitments ) .
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Local Presence Communi Involvement
0. For Commitment No. 9, "Avista's Headquarters",
what have the Joint Applicants committed to as a part of
this transactlon?
A. Through Commitment No. 9, which is governed by
to the Mergerthe Delegation of Authority in Exhibit B
Agreement, Avista wil-I maintain (a) its
Spokane, Washington; (b) Avista's office
headquarters in
l-ocations in
each of its other service territories; and (c) no l-ess of
a signiflcant presence in the immediate l-ocation of each
of such office l-ocations than what Avista and its
subsidiaries maintained immediately prior to completion
of the Proposed Transaction.
O. For Commitment No. 10, "Local Staffing", what
have the Joint Applicants committed to as a part of this
transaction?
A. Through Commitment No. 10, which is governed by
the Delegation of Authority in the Merger Agreement,
Avj-sta wil-l- maintaln its staffing and presence in the
communities in which Avista operates at l-evel-s sufficient
to maintain the provi-sion of safe and rel-iabl-e service
and cost-effective operatj-ons and consistent with
pre-acquisition level-s .
O. Eor Commitment No. \1, "Community
Contributions",
to as a part of
what
r.hi s
have the Joint Applicants committed
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A. Through Commitment No. 71, which is governed by
the Delegation of Authority in the Merger Agreement,
Avista w1Il- maintain a $4,000,000 annual budget for
chari-tabl-e contributions (funded by both Avista and the
Avista Foundation). This is an increase from Avista's
average annual contributions in recent years of
approximately $2.5 mil-l-ion per year. In addition, a $2.0
milllon annual contribution will be made to the Avista
Foundation.3 The Avista Foundation provides funding to
non-profit organizations addressing the needs of
communities and citizens served by Avista and AEL&P. The
Avista Foundation al-so incl-udes a matching gifts program
for employees of Avista
O. For Commitment
and AEL&P.
No. 72, "Community Involvement",
as a part ofwhat have the Joint Applicants committ.ed to
this transaction?
A. Through Commitment No. 72, which is governed by
the Delegation of Authority in the Merger Agreement,
Avista will maintain at l-east Avista's existing levels of
community involvement and support initiatives in its
servi-ce territori-es.
3 The Avista Foundation was formed by Avista Corporation exclusively for
charitable, educational and scientific purposes withj-n the meaning of
Section 501(c) (3) of the Internal Revenue Code of 1986. The Avista
Foundation is overseen by an independent Board of Directors which manages
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O. For Commitment No. 73, "Economic Developmentrr,
what have the Joint Applicants committ.ed to as a part of
this transaction?
A. Through Commitment No. 13, which is governed by
the Delegation of Authority in the Merger Agreement,
Avista wil-l- maintain at least Avistars existing level-s of
economic development, including the ability of Avista to
spend operations and maintenance fundsa to support
reglonal economic development and related strategic
opportunities in a manner consistent with Avista's past
practices.
O. For Commitment No. 74, "Membership
Organizations", what have the Joint Applicants committed
to as a part of this transaction?
A. Through Commitment No. 74, which is governed by
the Delegation of Authority in the Merger Agreement,
Avista will maintain the dues paid by it to various
industry trade groups and membership organizations. These
costs will- continue to be accounted for consistent with
past practice. Under Avistars current Regulatory
Accounting Guidelines, a portion of these dues are
included in retail- rates, and the remainder is recorded
"befow-the-11ne" to a nonoperating account.
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4 Operations and maintenance funds dedicated to economic development and
non-util,ity strategic opportunities will be recorded "be1ow-the-1ine" to a
nonoperatinq account.
1230 Christie, Di 13aAvista Corporation
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O. For Commitment No. 15, "Safety and Reliability
Standards and Service Quality Measures", what have the
Joint Applicants committed to as a part of this
transaction?
A. Through Commitment No. 15, which is governed by
the Delegation of Authority in the Merger Agreement,
Avista will maintain Avistars safety and reliability
standards and policies and service quality measures in a
manner that is substantially comparable to, or better
than, those currentfy maintained.
O. What do these and other commitments suggest by
way of Avista's Local Presence and Community fnvolvement
fol-l-owing the closing of the Proposed Transaction?
A. Foflowing the closing, the communities Avista
serves wil-1 see increased charitable contributions and a
continuation of the strong support Avista provides in
will result ineconomic development and
benefits to the customers
innovation, which
serves. They wil-f see littl-e or no change in the day to
day operations of Avista, as compared to Avista's
operations prior to the transaction.
The Company will continue to operate under the same
Avista name. Provisj-ons of the Merger Agreement are
designed to ensure that Avista's culture and 1ts way of
doing business will cont.inue for the long-term.
and the communities Avista
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Environnental, Renewable Energy, and Energy Efficiency
O. For Commitment No. 4J, "Renewabl-e Portfolio
Standard Requirements", what have the Joint Applicants
committed to as a part of this transaction?
A. Hydro One acknowledges Avista's obligations
under applicable renewable portfolio standards, and
Avista will- continue to comply with such obligations.
O. For Commitment No. 48, "Renewabl-e Energy
Resources", what have the Joint Applicants committed to
as a part of this transaction?
A. Avista will acquj-re all renewabl-e energy
resources required by law and such other renewable energy
resources as may from time to time be deemed advisabl-e in
accordance with Avista's integrated resource planning
process and applicabl-e regulations.
O. For Commitment No. 49, "Greenhouse Gas and
Carbon Initiative", what have the Joint Applicants
committed to as a part of thi-s transaction?
A. Hydro One acknowledges Avista's Greenhouse Gas
and Carbon Initiatives contained in its current
Integrated Resource P1an, and Avista will contj-nue to
work with interested parties on such initiatives.
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76
Corporation
O.
Inventory
committed to as a part
Avista w1l-1
For Commitment No. 50, "Green House Gas
Report", what have the Jolnt Applicants
report greenhouse gas emissj-ons as
required. Avista began reporting greenhouse gas
inventories to the Oregon
Protection
Washington Department of
conti-nue to submit data
of this transaction?
Department of Ecology and the
Agency 1n 201-1-, and the
Ecoloqy in 2072. Avista will
for these inventories. Greenhouse
Environmental-
gas emassaons
to customers
O. For
Obj ectives " ,
as a part of
what have the Joint
"Efficiency
Applicants committed to
have and wil-l- continue to al-so be reported
through the annual Shared Value Report.
Goals andCommitment No. 51,
A. Hydro
efficiency goals
20L1 Integrated Plan and other plans, and Avista
collaborative efforts to expand
offered energy efficiency
the twenty-third year of the
tariff rider, a distribution
replicated in many other
are based on providing a
this transaction?
One acknowledges Avista's energy
and objectives set forth in Avista's
Resource
wil-1 continue its ongolng
and enhance them.
Avista has continuously
services since 1918. This is
Demand Side Management (DSM)
charge to fund DSM that is now
states. The Company's programs
financial incentive, or25
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Christie, Di I'7Avista Corporation
"rebater " for cost-effective efficiency measures with a
simple payback less than fifteen years. This incl-udes
approximately 300 measures that are packaged into about
30 programs for customer convenience. The Companyrs
programs are del-ivered across a full customer spectrum.
Virtually all customers have had the opportunity to
participate and many have directly benefited from the
program offerings. A11 customers have benefited through
enhanced resource cost-efficiencies as a result of this
portfollo approach.
O. Eor Commitment No. 52, "Optional- Renewabl-e
Power Rate", what have the Joint Applicants commj-tted to
as a part of this transaction?
A. Avista w1ll- continue to offer renewable power
programs in consultation with stakeholders. Customers may
apply for interconnection with the Company and receive
certification of their renewable energy system through a
Program Admlnistrator.5 Upon approval of completion of
installation of a qualifying renewable energy system and
meeting interconnection standards, the customerrs
generation wifl be interconnected and measured by the
Company. Generatj-on incentive payments are based on a
fiscal year of July 1st of one
5 the Company's Program Administrator is the Washington State University
Extension Energy Program.25
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year through June 30th of the following year. Incentive
payments are made to eligible customers, as determined by
the Program Administrator.
Cornnunity and Low-Income Assistance Commitments
O. For Commitment
have
No. 53, "Community
the Joint Applicants committedContributions", what
to as a part of this
A. A one-time
Avista's charitabl-e
transaction?
$7,000, 000 initial- contribution to
foundati-on (Avista Foundation) will
mil1ion. In
be made at or promptly following closing. This represents
a significant increase to the Foundation. This
contribution wilI increase the balance from the current
fevel- of approximately $9.2 million to $76.2
addition, dS j-ndicated earlier, following the
the Proposed Transaction, there wil-l be a $2.0
annuaf contribution to the Avi-sta Foundation.
closing of
million
AsI
explained earlier, the Avista Foundation is a community
investment program of Avista, which provides funding to
non-profit organizations addressing the needs of
communities and citizens served by Avista.
O. Eor Commitment No. 54, "Low-Income Energy
Efficiency Funding", what have the Joj-nt Appllcants
commltted to as a part of this transaction?
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A. Avista wil-l contj-nue to work with its advisory
groups on the appropriate level- of funding for l-ow income
energy efficiency programs.
O. For Commitment No. 55, "Addressing Other
Low-Income Customer Issues", what have the Joint
Applicants committed to as a part of this transaction?
A. Avista will- continue to work with low-income
agencies to address other issues of 1ow-income customers.
O. Pl-ease briefly summarize why this merger is a
good thing for Avista customers, particularly with regard
to the commitments you have sponsored.
A. The proposed merger is designed such that
following the closing there will be littl-e to no change
in the operations of Avista, and customers will see
benefits that otherwlse woul-d not occur. The transaction
is not designed to target the elimination of jobs, or
cost cutting that may lead to a deterloration of customer
service, customer satisfaction, safety, reliability, or a
deterioration of charitable glving, economic devel-opment
or innovati-on in the communities Avista serves. As
discussed by Avista Witnesses Mr. Thies and Mr. Ehrbar,
Avista and Hydro One are proposing to fl-ow through to
Avista's retail electric and natura1 gas customers in
Idaho, Washington and Oregon a fj-nancial- benefit of at
l-east $31.5
Christie, Di 19Avista Corporation
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mil-Iion over a 10-year period,
the merger closing. Moreover,
Witness Mr. Morris, customers
by Avista
see additional-
scale and
risk of a potential
party that may not
The communi-ties
beginning at
as discussed
will
the time of
benefits over time associated with
col-laboratj-on, while avoiding the
subsequent acquisition by another
share Avista's cul-ture and values.
Avista serves will see increased charitable contributions
and a continuation of the strong support Avista provides
in economic development and i-nnovation. Avista and Hydro
One employees wil-1 see increased opportunities as the two
companies pursue efficiencj-es and innovation through the
sharing of technology, best practi-ces and busj-ness
processes.
O. Does this conclude your pre-filed direct
testlmony?
A. Yes.
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CSB REPORTING
208.980.5198
CHR] ST IE
Avista Corporation
(The following proceedings were had in
open hearing. )
MR. MEYER: Thank you, and he is available
for cross.
COMMISS]ONER KELLANDER :
MR. PURDY: No questions.
COMMISSIONER KELLANDER :
Thank you.
Thank you.
Thank you,
Mr. Purdy
MR. OTTO: No questions.
COMMISSIONER KELLANDER: Thank you, Mr.
Otto. Mr. Richardson.
MR. RICHARDSON: I have no questions, Mr.
Chai-rman.
COMMISSIONER KELLANDER: Thank you. Mr.
WilIiams.
MR. WILLIAMS: No questions.
COMMISSIONER KELLANDER: Mr. Baxter.
MR. BAXTER: No questions.
COMMISSIONER KELLANDER: Mr. Karpen.
MR. KARPEN: No questions for this
witness. Thank you.
COMMISSIONER KELLANDER: And Mr.
Semanko.
MR. SEMANKO: I'm only disappointed that
Mr. Karpen didn't point out that Mr. Christie is aI25
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CSB REPORT]NG
208 .980. s19B
CHR]STIEAvista Corporatj-on
Coug
THE WITNESS: Go Cougs.
MR. SEMANKO but f have no questi-ons.
Thank you.
COMMISSIONER KELLANDER: No questions?
MR. SEMANKO: I have none.
COMMISSIONER KELLANDER: Itve got some.
Put your seat bel-t oo, I've got
questions from the Commj-ssion.
40 minutes' worth. No
No redirect.
MR. MEYER: No redirect.
COMMISSTONER KELLANDER: You are excused
and very fortunate.
THE WITNESS: Thank you.
COMMISSIONER KELLANDER: Thank
(The witness left the stand. )
MR. MEYER: And those complete
of witnesses for Avista and we'11 turn now, I
you.
the battery
think, to
Staff.
COMMISSIONER KELLANDER: That is exactly
where we're at and
witness that is on
so if we could get
MR.
I bel-ieve that there is one more
our l-ist today and that is wlth Staff,
that witness ca1Ied, Mr. Karpen.
KARPEN:Yes, thank you,
Terri Carlock.Mr. President. Staf f cal-l-s
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CSB REPORTING
208.890.5198
CARLOCK (Di)
Staff
produced as a witness
having been first duly
examined and testified
TERRI CARLOCK,
at the instance of the Staff,
sworn to tel-l the truth, was
as follows:
DIRECT EXAMINATION
BY MR. I(ARPEN :
O Good afternoon, Ms. Carlock. Can you
please state your name and titl-e for the record?
A Terri- Carlock. I'm the administrator of
the utilities division.
O And you're the administrator of the
utilities dlvision here at the Idaho PubIic Util-ities
Commi-ssion; is that correct?
A That is correct.
provided
20L8?
O Are you the same Terri Carlock who
testlmony in this matter on November 6th,
A Yes, I am
O Are you the same Terri Carlock that
provided Exhibit
AI
ODo
testimony?
101 to your testlmony?
you have any changes to make to that
am
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CSB REPORTING
208.890. s198
CARLOCK (Di)
Staff
you
in your
same?
A
o
provide in
written
I do not.
If I were to ask you the same questions as
the testimony today, as they're provided
testimony, would the answers be the
Yes, they woul-d.
MR. KARPEN: Thank
n
move, Mr. President, to spread
and Exhibit 101 on the record
IVI c
you. With
Carlock' s
that, I
testimony
f u1l-.as if read in
COMMISSIONER KELLANDER: Then without
objection, we'11 spread the testimony across the record
as if read and admit the exhibit.
MR. KARPEN: Thank you.
(Staff Exhibit No. 101 was admitted into
evidence. )
(The fol-lowing prefiled dj-rect testimony
of Ms. Terri Carlock is spread upon the record.)
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O. P1ease state your name and address for the
record.
A. My name is Terri Carlock. My business address
is 412 West Washington Street, Boise, Idaho.
O. By whom are you employed and in what capacity?
A. I am employed by the Idaho Public Utilities
Commission as the Utilities Division Administrator.
O. Pl-ease outline your educational- background and
experience.
A. T graduated from Boise State University in
1980, with B.B.A. Degrees in Accounting and Finance. f
have attended various regulatory, accounting, rate of
return, economics, finance, and ratings programs. Since
joining the Commission Staff in May 1980, I have
participated in audits, performed financial analysis on
various companies, analyzed asset sal-es and purchases
including all merger applications associated with
utilities operating in Idaho, participated in numerous
proceedings, and have presented testimony before this
Commission.
O. What is the purpose of your testimony?
A. The purpose of my testimony is to provide a
summary of the Staff analysis of the proposed
Avj-sta-Hydro One merger, outline concerns with the
proposed
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AVU-E- 71 - 09 /AVU-G- 1 7 - 0 5
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CARLOCK, T (Di) 1
STAFF
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AVU-E- 1,7 - 09 /AVU-G- 1 7 - 0 5
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CARLOCK, T (Di) 2
STAFF
potential
o.
merger, and discuss specific commitments to minimize
Avista Idaho customers.impacts
Pl-ease summarize your testimony.
A. My testj-mony identifies and supports the
Stipulated Commitments, including ring-fencing provisions
that Staff believes are requlred as a condition of
recommending approval of the proposed merger. The
Stipulated Commitments are attached as Exhiblt No. 101.
Staff Comments filed on June 20, 20L8, have been modified
with provisions that enhance Avista customer protections
in light of events that have taken place in the Province
of Ontario. Most of the concerns with the proposed
merger expressed by Staff, other parties in this case and
customers are mitigated. However, I also explain that
there are ongoing risks with the proposed merger where
the commitments may not provide adequate protection.
O. Are there concerns related to foreign ownership
of a regulated utility?
A. Yes that is one reason ring-fencing provisions
are established. Protection of Idaho customers is
critical. The utili-ty must continue to provide safe and
reliable service to customers at just and reasonable
rates.
With regard to foreign ownership in
Staff belleves Idaho Code S61-327 may provide
particular,
a total bar
on
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AVU-E- 1 7 -0 9 /AVU-G- 1 7 -0 5
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CARLOCK, T (Di) 3
STAFF
to the proposed merger. We bel-ieve the Commission shoul-d
analyze this possibility prior to making a final
determination.
However, I am not an attorney so my analysis
has been conducted as a technical expert. Likewise, my
primary focus has been the protection of Avista Idaho
customers wh11e providing them the proposed financlal and
program benefits from the merger and Stipulated
Commitments.
A. Please explain some ways customers are
protected from t.he transactions between Avista and
cause customer
Hydro
ratesOne or events impacting Hydro One to
to increase.
A. Any customer rate increase must be approved by
the fdaho Commissi-on before Avista can increase rates to
Idaho Avista customers. Idaho Code S61-328 requires that
will not be"the cost of and rates for supplying service
increased by reason of such transaction".
In the normal course of its respons ibi I ities
costs are actually
importantly that
provide services to
made for any
Staff audits aII costs to verify the
incurred, correctly recorded but more
al-l costs are reasonably incurred to
Idaho customers. Greater
transactions, activities
any affiliated entities.
scrutiny is
In this instance fol-lowing the
or allocations to Avista from
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AVU-E- 71 - 09 /AVU-G- 1 7 - 0 5
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CARLOCK, T (Di) 4
STAFE
merger, an afflliate would inc1ude Hydro One, any
subsidiary, or jointly owned entities directly assigning
or allocating costs to Avista. Staff will- verify that no
costs are included in customer rates that are not at the
lower of the actual cost or market comparJ-son. Although
audit function it isthis is a normal part of the
al-so part of the ring-fencing
Staff
provisions and the
commitments from Avista and Hydro One.
a. Do you believe the requirements of Idaho Code
561-328 will be met?
A. Yes, I bel-ieve Idaho Code 561-328 (3)
requlrements will be met. The transaction is consistent
with the public i-nterest because the Stipulated
Commitments protect Idaho customers, provide fi-nancial-
rate credits, provide funding for other customer benefits
and enhance programs. The Stipulated Commitments afso
assure that the cost of and rates for supplying service
wil-I not be increased by reason of such transactj-on.
Rating agency reports and publicly availabfe financial-
statements document that Hydro One has the bona fide
financial ability to operate and maintain said property
in the public service. The testimony of Hydro One and
the Stlpulated Commitments reinforce that Hydro One has
t.he bona fide j-ntent to operate and maintain said
property in the public service.I 25
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CARLOCK, T (Di) 5
STAFF
O. How can you be assured that customer rates will
not increase at Avista as a resul-t of the merger
transaction?
A. The regulatory responsibility of the Commission
Staff and ul-timately the Commissioners making the final-
decisions for the ldaho Public Utilities Commission wilI
not change. Staff will contj-nue to rigorously review
capltal investments, ongoing operating costs, changes in
revenues and the overal,l- operations of Avista. When
unreasonabl-e
by management
provide safe
at reasonabl-e
do not support just
and reliabl-e utility
and reasonable costs to
services to customers
costs are identlfied or operatj-ng decisions
adjustments and changes
before the Commission.
rates, Staff recommends financial
to programs during proceedings
This will noL change depending on
the ownership
The
rates will- not
transaction.
of Avista.
requirement and
increase as a
commitments assure customer
result of the merger
It isn't however an assurance that rates
will not increase due to normal operating requirements
and cost increases.
0. How can ldaho customers be assured that
decisions by the Province of Ontario do not negatively
impact Avista services in Idaho?
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AVU-E- 1 7 - 0 9 /AVU-G- 1 7 -0 5
7L/06/LB
CARLOCK, T (Di) 6
STAFF
A. The Province of Ontario is the largest
shareholder of Hydro One with 41 .4 percent ownership of
outstanding common stock. According to Hydro One, the
Province of Ontario ownership share will- be diluted to
42.3 percent at closing and golng forward it is expected
to continue to own between 402 - 452 of Hydro One. As
such, it can influence Hydro One both as the largest
shareholder though sharehol-der votes and as a
governmental entity creating laws that Hydro One must
follow. Recent activities in the Province of Ontario
demonstrates thls
For example, less
of Directors and
influence is a real- risk
than six months d9o, all
for Hydro One.
of the Board
the Chief Executive Officer (CEO) bowed
to pressure from the Province of Ontario and reslgned
establi shedrather than being
shareholder voting
Nomi-nees
removed following the
process.
for the new Board of Directors for
Hydro One consisted of four individual-s nominated by the
Province of Ontario and six individual-s nominated by an
Ad Hoc Nominating Committee. The Nominating Committee
was to be comprised of the largest flve shareholders
behind the Province of Ontario, three of these
shareholders participated to nominate the 60% majority of
the Hydro One Board. The Board of Directors, Acting CEO
and Management Team are in place and operating Hydro One.25
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AVU-E-17-0 9 /AVU-G-17 -0 5
7r/06/1,8
CARLOCK, T (Di) 1
STAFF
The Avista Board of Directors will consist of
nine members (see Commitment No. 3): (i) two directors
designated by Hydro One; (ii) three independent directors
nominated by Hydro One; and (iii) four Avista designees.
The Governance Commitments No. 2 and 3 assure Hydro One
as the sol-e shareholder of Avista or the Province of
Ontario as a majority sharehol-der of Hydro One do not
have unreasonable control to change the operations and
regulatory environment of Avista. Commitment No. 3 has
been strengthened to add citizenship and residency
the Avistarequirements for Independent Directors on
Board of Directors. Clause 2 of t.he Delegation of
Authori-ty was al-so strengthened to protect Avista if an
Independent Director is unable to be appointed to its
Board.
It is the duty of Avista regulators, including
the Idaho PubIic Ut.ilities Commission, to order
ring-fencing provisions that w1l-l prevent or at least
minimize negative financial- and operational risks on
Avista and Tdaho customers. For the transaction to be in
the public interest, overall there must be no harm.
Throughout this case, it has been the intent of Staff to
see customers receive a net overal-f financial benefit.
Commitments
agreed to in
believe wil-l
including rlng-fencing provisions have been
the Settl-ement by most Idaho parties that II25
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CARLOCK, T (Di) B
STAEE
provide
absent
negative operational, structural or
Staff has conducted what
financial benefits that 1ike1y w111 not occur
the merger whj-le protecting customers from
financial harm.
believes equates to
to evaluate the
ir
two rounds of exhaustive due diligence
proposed merger of Avista with Hydro One. The first
round occurred between the filing of the Application in
this case and the Stipulated Commitments fil-ed by the
parties in this case on April 13, 2078. The second round
has occurred foll-owing the Province of Ontario (Ontario)
elections and subsequent replacement of the Hydro One
Board of Directors and CEO. Staff was extremely
concerned and remains cautious about increased risks
around the control by Ontario. From JuIy to the filing
of this testimony, Staff has continued to evaluate the
proposed merger and cautiously evaluated if additional-
commitments and ring-fenci-ng provisions could adequately
protect Idaho customers. Financial protection, continued
provision of safe and rel-iable service, local control- and
many other items addressed in the Commitments are
essential.
O. The Stipulated Commitments ring-fence Avista
and its customers. What is the greatest financial, risk
for any company and how do ring-fencing provi-si-ons
protect customers against that risk?25
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CARLOCK, T (Di) 9
STAEF
to protect a company, in this case Avista,
other affiliate caused financial disasters
A. Bankruptcy is the
Ring-fencing provisions and
greatest f inanci-al risk.
commitments are establ-ished
from parent or
that can l-ead
3 . 0 t j-mes Avistar s interest expense,' and
ratio equal to or greater than 44q6 before
paid.
Code 561-328 prevents the safe of assets
Commission. Idaho Code
to bankruptcy. Here rlng-fencing provisions have been
designed to prevent the stripping of Avista assets,
incurring debt , oy pledging assets as coll-ateral- or
security for indebtedness. The Ring-Fencing Commitments
Nos. 42 51, the Financial Integrity Commitments Nos.
34 4l and the Regulatory Commitments Nos. 20 33 are
overal-] f inanclal protections. Whil-e allal-l part
of these commitments are important, the expanded
restrictions in Commltment No. 38, Restrictions on Upward
Dividends and Distributions is one of the more important
commitments to protect the financial health of Avista.
Requirements are firmly establ-ished for investment grade
credit ratings; earnings before interest, taxes,
depreciation, and amortization (EBITDA) being greater
of the
than or equal to
a conrmon equlty
dividends can be
Idaho
wlthout approval by the
561-901 et al requires
and stock certificates,
Idaho
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or other securities payable. The Stlpulated Commitments
reinforce these requirements and provide protective
restrictions to mai-ntain the financial health of Avista
and precl-ude Hydro One or any affil-iate entities from
causing harm to Avista and Avista Idaho customers.
O. P1ease expand on the ongoing risks and concerns
associated with the proposed merger.
A. The ongolng risks and concerns can never be
completely eliminated even though the Commitments provide
strong protections. Political actions by the Province of
Ontario have been unsettling and heightened the concerns
around undue interference or influence. There are three
areas I woufd like to discuss related to the political
risks.
First, it may be viewed by some that the
Applicants did not adequately report in a timely manner
and were not entirely fort.hcoming regarding the
independence of Hydro One from the Province of Ontario,
Hydro One as a campaign issue i-n Ontario, and the impact
of the el-ection on Hydro One. Second, the limits to the
infl-uence of the Province of Ontario over Hydro One are
not clear. Third, the practical impllcations of the
North American Free Trade Agreement (NAFTA) and/or its
successor, the U.S. Mexico Canada Agreement (USMCA)r on
Avi-sta and its customers are unknown and unknowabl-e.
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CARLOCK, T (Di) 11
STAFE
O. How did Applicant charactertze the relationship
prior tobetween Hydro One and the Province of Ontario
the removaf of the Board of Directors and CEO?
A. Mayo Schmidt, CEO of Hydro One, wrote in his
direct testi-mony that, "Hydro One is now governed by an
independent board, other than myself as CEO, and a
governance agreement that ensures autonomous commercial
operations, with the Province of Ontario as an investor
and not a manager." Dlrect at 10. Mr. Schmit went on to
say that "The Province of Ontario is a sharehol-der and
pursuant to its governance agreement with Hydro One it
does not hold or exercise any managerial oversiqht over
Hydro One." Direct at 10.
Eurthermore, in Comments to the Commission, the
Applicants represented that " Ia] l-though Hydro One's
largest sharehol-der is the Province of Ontario, the
Province does not hol-d or exercise any managerial
oversight over Hydro One." Applicantrs Joint Comments
at 2. Moreover, in addressing legitimate concerns of the
impact of the Province of Ontario could exercise over the
operations and management of Hydro One, the Applicants
labeled the possibility of dismissing the Board of
Directors and CEO as "hypothetical eventsr " even as such
events were in the processes of actually occurring.
O. Does Staff believe this characterization fu11y25
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CARLOCK, T (Di) L2
STAFF
and accurately refl-ected Hydro One's relationship with
the Province?
A. No. Shortly after the new provincial-
government was elected in Ontario, the Province passed
the Hydro One Accountabillty Act, renegotiated the
Governance Agreement bet.ween Hydro One and the Province,
and signed a Letter Agreement between Hydro One and her
Majesty the Queen in Right of Ontario. In combinati-on,
these documents removed the Board of Directors and CEO of
Hydro One, set forth new requirements for how the
replacement Board members and CEO woul-d be sel-ected, and
outl-ined new requirements on executive compensation.
Such far reaching authority - especially around the
determination of employee wages - from a single
shareholder demonstrates significant managerial oversight
of Hydro One.
Did the Applicants convey to Staff and PartiesO.
that Hydro
Ontario' s provincial election?
A. No. The first mention of Hydro One in the
campaign was the day before the sett1ement stipulation
was signed by parties in Idaho. However, Staff now knows
that Hydro One was one of the most prominent issues in
Ontario over the ensuing eight weeks. Despite the Idaho
Commission not yet lssuing an order on the settl-ement
One and its executives were issues in
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stlpulation, the Applicants did not disclose that Hydro
Oners management, compensation, and rates were a major
campaign i-ssue. Further, Staff and Parties became aware
of the removal of the Hydro One Board of Directors and
CEO only when it was publically reported in the news
media around July ll, 2018. The parties did not report
the events to the Commission until- July 18, 2018. This
is not tlmely or adequate disclosure to the Commission.
O. Mr. Morris's supplemental testimony stated that
"foreign ownership of IAmerican] util-ities... is not
unique. " Supplemental at 1. Do you believe that
statement fuIly and accurately reflects the circumstances
of the proposed merger in this case?
A. No. A foreign company owning an American
utility is very different from a foreign company whose
controlling shareholder is a foreign government buying an
American utility, which is the circumstance in the
proposed Avista and Hydro One merger.
John Reed, President and CEO of Concentric
Energy Advisory testified on behalf of Hydro One and
Avista in this proceeding that "Whil-e less coflrmon, there
are examples of foreign government ownership of U.S.
IOUs. " Supplemental at L9-20. Staff believes the
examples of water utilities in Arizona acquJ-red by EPCOR
Utilities, a water and wastewater utility owned by the
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STAFF
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City of Edmunton in Alberta, Canada are not similar to
the proposed Avista and Hydro One merger. The sLze,
l-ocation and type of utility service are significantly
different.
0. In addition to concerns about the Applicants'
characterization of Hydro One's independence from the
Province of Ontario, do you have other concerns?
A. Yes. In particular, I am concerned that there
does not appear to be a limit on the Province of
Ontario's authority over Hydro One.
Immediately after it was in office, the new
provincial government of Ontario removed the Board of
Directors, pressured the CEO to resign, and passed a law
establishing a government-approved executive compensation
framework which also specified how much of those costs
could be incl-uded in customer rates. While these were
rapid and drastic changes, nothing prevents the Province
of Ontario from passing additional l-aws directing the
operations of Hydro One. In particul-ar, the newly
e1ected Premier has proposed a 72 percent rate decrease
for Hydro One customers and ending certain power purchase
agreements. This leve1 of interference goes well beyond
the normal role of any sharehol-der.
O. Is the Province of Ontario's control over Hydro
One limited to its legislative and shareholder authority?
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CARLOCK, T (Di) 15
STAFF
A. No, Ontario's influence over Hydro One appears
to extend beyond the l-imits of its authority. For
example, the prevj-ous Governance Agreement did not give
Ontario the specific ability to fire the CEO of Hydro
One. However, the newly elected Premier of Ontario
campaigned on a pledge to remove the CEO, and the CEO
resigned when the Board of Directors was'removed.
Although Ontario did not have the explicit authority to
fire the CEO, the CEO resigned so the infl-uence appears
to extend beyond its explicit authority.
O. Do you believe the existing and additional
ring-fenclng provj-sions protect Avista from the cost
impacts of interference from the Province of Ontario on
Hydro One?
A. Most 1ike1y,
the Province of Ontario
yes. Additional- interference from
on Hydro One would Iikely further
Hydro One based on the negativedamage credit
credit watch.
ratings for
However, Avista and Hydro One have agreed
to maintain separate debt credit ratings. If Hydro Oners
credit rating is downgraded, it wil-l- not directly cause
downgraded credit ratlngs for Avista. The Stipulated
Commi-tments provide protections for this separation and
assures any higher costs resulting from events or Hydro
One operations will not resul-t in higher debt costs for
ratemaking purposes or higher customer rates.t 25
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O. Regardless of leadership changes at Hydro One,
do you believe that the independence of Avista's Board
protects Avista customers from turmoj-l- at Hydro One?
A. Potentially. As is appropriate for a parent
company, Hydro One w111 appolnt the majority of Avista's
Board of Directors. While some of these directors will
be independent under the SEC's definition of that term,
it is unknown how the Province of Ontario inffuences
those appointments. Several important ring-fencing
provisions require 2/3 vote approval from Avista's Board
of Directors. Achieving that threshold would likely mean
at l-east one of Avista's appointed independent directors
and al-l- of the Independent Directors appointed by Hydro
One similarl-y vote on the measure.
O. NAFTA is being renegotiated and its successor
trade agreement is the U.S. Mexico Canada Agreement
(USMCA). How can the merger agreement include
ring-fencing provisions against the USMC when the terms
of that trade agreement have not been ratified by the
participating governments ?
A. Specific rlng-fencing provisions cannot be
developed for a trade agreement that is not known or
finalized. However, any financial- impact on Avista Idaho
customers can be mitigated. Commitment No. 15 was added
whereby Hydro One and Avista forgo their rights to bring
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STAFF
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CARLOCK, T (Dr) l1
STAFF
any cl-aim under NAFTA or a
USMCA. If a cfaim is fil-ed
involves or impacts Avista,
Avista from any damages.
O. Pl-ease summari-ze
Stipulated Commitments
that can be currently
No. 14 allows a party
Commission if an event
similar provision under the
bya
Hydro
shareholder that
One will indemnify
your assessment of the risks
and benefits of the proposed merger to Avistafs Idaho
customers.
A. While not all risks can be quantified, the
provide the greatest protections
identified. Stipulated Commitment
to file a petition with the
occurs that affects Avista's
operations and/or customer rates because of Avista's
t corporate rel-ationship with Hydro One. This Commitment
will al-low the process to occur without objection. It
does not limit positions parties may present during that
process. Overall- the combined commitments will protect
the benefits, i-ncluding customer rate credits.
O. Does this concl-ude your direct testimony in
this proceeding?
A. Yes, it does.
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CSB REPORTING
208.890. s198
CARLOCK (Di)
Staff
(The following proceedings were had in
open hearing. )
DIRECT EXAMINATION
BY MR. KARPEN: (Continued)
O Now, Ms. Carlock, I do have a couple of
additional questions for you before I tender you for
cross. First of all, subsequent to providing your
testimony, I believe that there was an agreement between
the applicants and Staff regarding fdaho Code 6L-321.
Are you familiar with that agreement?
A Iam.
O Can you please share with the
Commissioners what that agreement was?
A My understanding of the agreement was that
if the Olympus Equity LLC was incorporated in Idaho
rather than Del-aware that that would alleviate the
concerns with Idaho Code Section 67-321.
0 Thank you. My second question is with
regard to Commission Staff's ability to audit. Your
understanding of the Commission's ability to audit, does
that depend on a utility's consent to being audited?
A It does not. We have J-egj-sJ-ative and rule
authority to audit and I cannot think of any instanceI25
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208.890.5198
CARLOCK (X)
Staff
where we have had significant
a Thank you, and
problems with doing that.
one final question, to be
proposed mergerclear, does
agreement ?
A
Staff support the
We do with the commitments as laid out.
MR. KARPEN: Thank you. Wlth that, I
tender this witness for cross-examination.
COMMISSIONER KELLANDER: Thank you for
that. Mr. Meyer.
MR. MEYER: No cross.
COMMISSIONER KELLANDER: Mr. Purdy.
MR
MS
PURDY: None.
VANDER STOEP: Your Honor, Hydro One
has just one question on cross.
COMMISSIONER KELLANDER: Certalnly.
BY MS. VANDER STOEP:
a Ms. Carlock, can you turn to page 2 of
your testimony?
A Okay.
O On lines
to foreign ownership in
Code 6L-327 may provide
24 and 25,
particular,
a total bar
it says, "With regard
IdahoStaff bel-ieves
to the proposedI25
L260
CROSS_EXAMINATION
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merger. rf Turning over to page 3, "We believe the
Commission should analyze this possibility prior to
making a final- determination. " Just to clarify, is tHat
j-ssue resolved in terms of your testimony now based on
your previ-ous testimony that you gave with respect
A In terms of my previous sorry for
cutting you off. In terms of my previous testimony, it
eliminates Staff's concern to provide a total bar. It
does not eliminate the statement that we believe the
Commission should analyze this possibility. I know that
the Chair has asked for Iegal briefs and they will follow
through on that.
MS. VANDER STOEP: Thank you.
COMMISSIONER KELLANDER: And Mr. Purdy.
MR. PURDY: I have no questions.
COMMISSIONER KELLANDER: Mr. Otto.
MR. OTTO: Mr. Karpen asked my questions,
so I have no further.
COMMISSIONER KELLANDER: Thank you. Thank
you, Mr. Karpen. Mr. Richardson.
MR. RICHARDSON: Thank you, Mr. Chairman.
I have no questions.
COMMISSIONER KELLANDER: Thank you.
Mr. Wil-liams.
MR. WILLIAMS: No questions.
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CARLOCK (X)
Staff
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208.890.5198
CARLOCK (X)
Staff
COMMISSIONER KELLANDER: Mr. Baxter.
MR. BAXTER: No questions, Your Honor.
COMMISSIONER KELLANDER: Mr. Semanko.
MR. SEMANKO: Yes, just briefly.
CROSS-EXAM]NATION
BY MR. SEMANKO:
O Thanks for your patJ-ence waiting to get up
there, MS. Carlock. Are you the same Carlock Staff
that's referred to 1et's go to Exhibit 802 on page 28.
There's a reference in the first full paragraph on page
28 to Carlock's testimony and Exhibit No. 101 in the
Scottish Power matter. Is that you?
A It would be, yes.
O So you were invol-ved as a Staff for PUC in
that merger?
A I was.
O Thank you; so are there and you're
familiar with all of these conditions and provislons in
the Scottish Power Order; correct?
A I am. I would have to l-ook at them. I
don't have them memorized at thj-s point, but f am
familiar with them, yes.
A So my simple question is being involved in25
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CSB REPORTING
208.890.5198
CARLOCK (X)
Staff
this matter, are
of the conditions
there any of the conditions or portions
that you
approvingwoul-d suggest should be included in any Order
this merger?
A I do not bel-ieve there are addi-tional
commitments that we have not received at thls point in
time.
O And are you famj-Iiar with the written
in the Scottlsh Power Order
that's been admitted in this matter that
analyzes, and in certain places agrees with
in this matter?
testimony
discusses,
your testimony
A
referring to?
O
A
Testimony by other parties you're
Yes.
Yes, I have read that
O Anything
others characterizing or
you disagree with?
in any of that testimony by
discussing your testimony that
not agree 100 percentAI
with some of the
probably would
statements, but I do agree with t.he
conclusions.
O Anything in particul-ar that you can think
of that you don't agree with?
A I believe that the one
MR. KARPEN: And I object. Actual1y, canI25
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CSB REPORTING
208.890.5198
CARLOCK (X)
Staff
Mr. Semanko be more particular in what he's asking? This
is quite broad.
MR. SEMANKO: I believe she had an answer
in mind.
COMMISSIONER KELLANDER: It seemed as if
she was prepared to respond, and so I'm
respond, and if she
going to allow
has gone a path
to object to more
her to go ahead and
that you feel
specifically,
as her attorney
please do so at
THE WITNESS:
point.
re-ask your
you
that
need
PIease
question.
O BY MR. SEMANKO: Is there anything in
particular that you recall- in those testimonies that you
don't agree with?
A f was not in total agreement that the
commitments should eliminate all- of Staff concerns, but I
do bel-ieve that the commitments w111 alleviate the
concerns to the magnitude possible and woul-d not be an
issue going forward with merger.
MR. SEMANKO: Very good, thank you. That
is al-l the questions I have. Thank you.
COMMISSIONER KELLANDER: Thank you, Mr.
Semanko. Are there any questj-ons from members of the
Commission? We've reached the point of exhaustion, which
is probably not a bad position to be in since this is the25
7264
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CSB REPORTING
208.890. s198
final witness.fs there any redirect?
MR. KARPEN: There is no redirect. Staff
rests.
COMMISSIONER KELLANDER: Ms. Carlock,
welcome to your final day here today only in, of course,
this case.
THE WITNBSS: I thought maybe you were
dismissing me.
COMMISSIONER KELLANDER: I wanted you to
know just how limited my dismissal- process was there.
Thanks. Thank you very much for being here today.
(The witness left the stand. )
COMMISSIONER KELLANDER: So unl-ess I'm
missing anything, that concl-udes our witnesses and with
that, just as I mentioned earlier in this case, we are
anticipating, in fact I've heard it referred to as a
mandate, So we'l-l- go ahead and call it that, I
powerful now that I can mandate, I do want to
days, and
10 would
feel- very
qAA 1ega1
1t to
asI
beI believe that Day
be looking at the
wou]d be December
briefs on Titl-e 67-327 and on that, we had limited
10 pages and
look at the calendar,
December 7th and we'd
we'd like to see that in 10
so that
close of business
7th for thoseMountain Time,
briefs, and in that,
to see that brief as
too, as f mentioned earlier, I want
it rel-ates to Hydro One, Avista, andt25
1265 COLLOQUY
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CSB REPORT]NG
208.890.5198
Olympus as wel-l-.
And the other point of interest, and I
dare to tread on this since it's been the subject of some
concern, but there's always the issue of when is the
intervenor funding deadline requirement and as per our
Rule, it's 764, and I would advise all of you to l-ook at
that and understand it, we're looking at 1,4 days once we
have the deadl-ine for submitting briefs is past, so
thatfs on December 7th at 5:00 p.m.r so if we add 14 days
to that, werre looking at December 21st, 5:00 p.m. cl-ose
of business Mountain Time, subject to check, but please
do your own homework, pay attention to that Rule, and
foIlow it.
You're also welcome to file those requests
for intervenor funding well in advance of that date, but
j-n keeplng with the Rule, those are the tlme lines we
have. With that,
of every bit of
I also want to reference that every one
testimony and
referenced are officially in the
that needs to come
the exhibits that were
record now, and 1s there
before the Commissionelseanything
before we adj ourn?
(A11 exhibits
identification were admitted
previously marked for
into evidence. )
MR. MEYER: No, Your Honor.
COMMISSIONER KELLANDER: Mr. Otto?25
7266 COLLOQUY
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CSB REPORTING
208.890.5198
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7261 COLLOQUY
MR. OTTO: Thank you, Mr. Commissioner,
just very quickly. We did f1l-e a public comment in this
case sorry, we filed comments on June 12Lln, because it
was modified procedure at that time, stating our reasons
for supporting the stipulation. Those are in the record.
I'm just reaffirming that those are there and we stand by
those comments. I'm happy to answer any questions. I
just wanted to state that.
COMMISSIONER KELLANDER: Thank you.
Anything else that needs to come before the Commission?
MR. SEMANKO: Mr. Chairman, you've made
the determinatj-on that there's no need for any closing
comments or closing arguments, written or otherwise;
correct?
COMMISSIONER KELLANDER: I have heard no
desi-re to have those and so unl-ess there's some desire to
wade down that path, I don't see any need.
MR. SEMANKO: No, none here. Thank you.
COMMISSIONER KELLANDER: Excellent. Is
there anything else that needs to come before the
Commisslon today? If not, I want to thank all of you for
your participation, your willingness to be respectful of
the process, and most importantly, for your civility
throughout. I appreciate it and thank you very much.
These proceedings are adjourned.(The Hearing adjourned at 3:40 p.m.)
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CSB REPORTING
208.890. s198
AUTHENT]CATION
This is to certify that the foregoing
proceedings held in the matter of the joint application
of Hydro One Limited and Avista Corporation for approval-
of merger agreement, commencing at 9:30 a.m., oD Monday,
November 26, and continuing through Tuesday, November 2f,
201,8, dL the Commission Hearing Room, 412 West Washington
Street, Boise, Idaho, is a true and correct transcript of
said proceedings and the original thereof for the fil-e of
the Commi-ssion.
Accuracy of all prefil-ed
submitted to the Reporter and
testimony AS
originally
herein at the direction of the Commission
responsibili-ty of the submitting parties.
incorporated
is the sofe
O*=t* 5
CONSTANCE
Certi fied
S. BUCY
Shorthand Reporter
COI{STANCE S BUCY
NOTARY PUBIIC. STATE OF IDMO
COMMISSION NUMBER 12995
MY CoMMTSSToN D(PTRES 0"&2024t25
7268 AUTHENT]CATION