20170914Thies Direct.pdf

ON BEIIALE OF AVISTA CORPORATION
DAV]D J. MEYER
VICE PRESTDENT AND CH]EF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFA]RS
AVISTA CORPORATION
P.O. BOX 3727
TATL EAST MISS]ON AVENUE
SPOKANE, VIASHTNGTON 99220-3121
TELEPHONE: [phone]
FACSIMILE: [phone]
DAVI D. MEYERGAVISTACORP . COM
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ON BETIATF OE HYDRO ONE IJIMITED
ELIZABETH THOMAS, PARTNER
KARI VANDER STOEP, PARTNER
K&L GATES LLP
925 EOURTH AVENUE, SUrTE 2900
SEATTLE, WA 981014-1158
TELEPHONE: [phone]
FACSIMILEz [phone]
L] Z . THOMASGKLGATES . COM
KAR] . VANDERSTOEPGKLGATES . COM
BEEORE THE IDAHO PT'BLIC UTILITIES COMMISSION
IN THE MATTER OF THE JO]NT
APPLICAT]ON OE HYDRO ONE LIMITED
(ACTING THROUGH ITS INDIRECT
SUBSIDIARY, OLYMPUS EQU]TY LLC)
AND
AVISTA CORPORATION
EOR AN ORDER AUTHORIZ]NG PROPOSED
TRANSACTION
CASE NO.
CASE NO.
AVU-E-17-O?
AVU-G-11 -!5
D]RECT TESTIMONY
OE
MARK T. THIES
EOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
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I. INTRODUCTION
A. P1ease state your nam€:, business address, and
present position with Avista Corporation.
A. My name is Mark T. Thies. My business address is
1411 East Mission Avenue, Spokane, Washington. I am employed
by Avista Corporation ("Avista") as Senior Vice President,
Chi-ef Financial Officer and Treasurer.
A. Please describe your education and business
e:q>erience.
A. I received a Bachelor of Arts deqree in 1985 with
Administration from Saint11 majors in Accounting and Business
I2 Ambrose College in Davenport, fowa, and became a Certified
Public Accountant in 7981. f 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 Financial Officer (CFO). Prior to joining
Avista, I was Executive Vice President and CFO for Black Hil-1s
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areas of20 regulated efectric and natural gas service to
27 Montana, South Dakota and Vflyoming. f j oined Black HiI]-s
Corporation in 1997 upon l-eaving InterCoast Energy Company in
Des Moines, fowa, where I was the manager of accounting.
Previous to that I was a senior auditor for Arthur Andersen
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& Co. in Chicago, IlJ-inois.
A. Wtrat are your duties as Senior Vice President, Chief
Financial Officer ("CFO") and Treasurer of Avista?
A. I have overall responsibility for the financial-
management and financial health of Avista. In particular, my
present responsibil-ities include oversi-ght of the finance,
accounting, tax, financial planning, budgeting, strategy,
risk and insurance of Avi-sta.
9. Please suunarize your testimony.
A. My testimony begins with an overview of Avista from
a financial perspective. I explain the terms of the Proposed
Transaction, and the benefits of the transaction to Avista,
its customers, and other stakeholders from my CFO perspective.
My testimony will focus primarily on the commj-tments offered
by Avj-sta and Hydro One (hereafter referred to as "Joint
Applicants") addressing capitaJ- structure, credit ratings,
accounting, Commission oversight and ring-fencing protection.
I will- also address the various approvals that are
necessary prior to consummation of the transaction, the timing
of the filings, and the anticipated timing of the closing of
the transaction. EinaIly, I wilf 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 the closing of the Proposed Transaction.
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A table of contents for my testimony is as follows:
Description Page
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IV.
V.
VI.
VII.
Introduction
Financial Overview of Avista
Terms of the Proposed Transaction
Benefits to Avista and Its Stakeholders
Commitments Offered by Avista and Hydro One
Required Approvals for the Proposed Transaction
Avista's Operations Between Signing and Closing
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11 A. Are you sponsoring' any exhibits with your
12 testimony?
13 A. Yes. Exhibit No. 3, Schedule 1 includes a copy of
74 Avista's financial statements contained within its Form 10-K
15 filed with the Securities and Exchange Commission (SEC) for
1,6 the fiscal year ending December 31, 20I6. Exhibit No. 3,
Ll Schedule 2 ts a copy of Avista's Eorm 10-Q filed with the SEC
18 for the quarterly period ending June 30, 20L7. Exhibit No.
19 3, Schedul-e 3 includes a copy of the Merger Agreement, dated
20 JuIy 19, 201-1. Exhibit No. 3, Schedule 4 includes the "Master
21, List of Commitments" being offered by Avi-sta and Hydro One,
22 as part of our request for approval of the Proposed
23 Transaction.
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II. ETNAI{CIAI, OVERVIEW OE AVTSTA
9. Before discussing the specifics of the Proposed
Transaction, and how Avista wilJ. be affected by the Proposed
Transaction, would you please provide some preliminary
cornments on Avista's current financia]. situation?
A. Yes. Avista is operating the business efficiently
for our customers, ensuring that our energy service is
reliabl-e and customers are satisfied, while at the same time
keeping costs as .l-ow
well-run business is
as reasonably possible. An efficient,
not only important Lo our customers but
al-so important to investors. V[e plan and execute on a capital
financing plan that provides a prudent capital structure and
liquidity necessary for our operations. We honor our
f inancial- commitments and we cont j-nue to rely on external
capital for sustained utility operations. We initiate
regulatory processes to seek timely recovery of our costs with
the goal of achieving earned returns cl-ose to those all-owed
by regulators in each of the states we serve. These el-ements
- cost management, capital and revenues that support
operations - are key determinants to the rating agencj-es whose
credit ratings are critical- measures of our f j-nancial
situation.
f have attached a copy of Avista's Form 10-K filed with
the SEC for the fiscal year ending December 3I, 2016 as
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1 Exhibit No. 3, Schedule 1, for ease of reference to additional
2 details related to Avista's utility and non-utility
3 operations. In addition, Avista's Form 10-Q filed with the
4 SEC for the quarterly period ending June 30, 2077 is attached
5 as Exhibit No. 3, Schedul-e 2 .
6 Q. Wtrat steps is Avista taking to maintain and improve
7 its financial health?
B A. VrIe are working to assure there are adequate funds
9 for operations, capital expenditures and debt maturities. We
10 obtain a portion of these funds through the issuance of long-
11 term debt and common equity. We actively manage risks related
72 to the issuance of long-term debt through our interest rate
13 risk mitigation plan and we maintain a proper bal-ance of debt
74 and common equity through regular issuances and other
15 transactions. We actj-vely manage energy resource risks and
16 other financial uncertainties inherent in supplying reliable
l1 energy services to our customers. We create financial pJ-ans
18 and forecasts to model our income, expenses and investments,
79 providing a basis for prudent financial planning.
20 Avista currently has a sound fi-nancial profile and it is
2L very important for Avista to maintain and enhance its
22 financial position in order to access debt and equity
23 financing as Avista funds significant future capital
24 investments and refinances maturing debt.
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A. Wtrat is Avista's recent and planned capital.
aq>enditure Ievels?
A. Illustration No. 1 bel-ow summarizes the capital
expenditure fevels for Avista Utilities on a system basis for
recent years, as well as planned expenditures through 2021.
Illustration No. 1
Capital E:<penditures
$4s0
$400
$3s0
$300
as $2so\=s $200
$150
$100
$50
$o 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
r Electric T&D r Other I ET Growth r Generation r Gas Environmental
* The higher feveT of capitaT expenditure in 2075 was driven by
storm costs for the November windstorm, and costs related to a
renegotiation of the Coyote Springs Lonq Term Service Aqreement,
which occurred fate in the year-
The capital expendi-ture l-evel is expected to remain
constant at $405 million annually from 201,7 through 2021,. For
comparison purposes, Avista Utilities' regulated utility rate
baser ofl a system basis, was $3.0 bil]ion at June 30, 2017.
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1 Q. IYhat is the basis for Avista's planned level of
2 c,apLtal e:rpenditures?
3 A. The leve1 of capital investment in recent years has
4 been driven primarily by the business need to fund a greater
5 portion of the departmental requests for new capital
6 investments that, in the past, were unfunded. Each year the
7 departments across Avista assess the near-term needs to
B maintain and upgrade the utility infrastructure and
9 technology necessary to continue to provide safe, reliable
10 service to customers, as well as maintain a high l-eveI of
11 customer sati-sfacti-on.The proposed capital spending level
five years is reviewed and approved72 for
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each year of the next
senior management of Avista, and is presented to the
14 Finance Committee of the Board of Directors.
15 A. What are Avista's expected long-term debt issuances
16 in the next several years?
11 A. To provide adequate funding for the capital
18 expendi-tures noted above and to repay maturing long-term debt,
19 we are forecasting the issuance of long-term debt of
20 approximately $900 mill-ion for the period 2071 through 2027.
2! A. Are there other debt obligations that Avista must
22 consider?
23 A. Yes. In addition to long-term debt, Avista's $400
24 mil-l-ion revolving credit facility expires in ApriI 2021.
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Avista relies on this credit faciJ-ity to provide, among other
things, funding to cover daity and month-to-month variations
in cash fIows, interim funding for capital expenditures, and
credit support in the form of cash and letters of credit that
are required for energy resources commitments and other
contractual obligations. A strong financial position wj-Il- be
necessary to gain access to a new or renewed revol-ving credit
facility under reasonable terms prior to expj-ration of the
existing facility.
A. Wtrat is Avista's current and planned capital
structure?
A. Avista's current capital structure includes
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approximately
maintain a
50% common equity and 50% debt,and we plan to
the future.
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similar capital structure to
Maintaining a strong common equity ratio has several- benefits
for customers. We are dependent on raising funds in capital
markets throughout all business cycles. These cycles include
times of contraction and expansion. A sol-id financial profile
will- assist us in accessing debt capital markets on reasonabfe
terms in both favorabl-e financial markets and when there are
disruptions in the f inancj-al- markets.
Additionally, this common equity ratio is a component in
supporting our current credit ratings, and our long-term goal
of having a corporate credit rating of BBB+. A rating of BBB+
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woufd be consistent with the natural gas and electrj-c industry
average. Avista's current credit ratings, assigned by
Standard & Poor's (S&P) and Moody's Investor Service (Moody's)
are as follows:
S&P Moody's
Corporate Credit Rating BBB Baal
Senior Secured Debt A-A2
Outlook Positive Stable
As shown in Il-lustration No. 2 bel-ow, the average
credit rating for U.S10corporate
Utilities is BBB+ and the most
average and most conrmon ratings
higher, respectively, than Avista's
Illustration No. 2
Regulated Gas
common rating
are one and
and Electric
is A-. The
two notches
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s&P's Distribution oI corporat€ cr€dit RatinSs
As of April 2017
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80
60
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A+ above A A-BBB+BBB-BB+ and lower
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Strong credit ratings are an important component to
Avista having access to capital markets on reasonable terms.
Moving further away from non-investment grade (BB+) provides
more stability for Avista, which is also beneficial for
customers.
A. Please e:<pIain the inplieations of the credit
ratings in terms of Avista's ability to access capital.
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markets.
A.
returns.
rating can
which the
Credit ratings impact investor demand and expected
More specifically, when we issue debt, the credit
affect the determination of the interest rate at
debt will be issued. The credit rating can also
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13 affect the type of investor who wiII be interested in
14 purchasing the debt. For each type of investment a potential
15 investor could make, the investor looks at the quality of that
76 investment in terms of the risk they are taking and the
11 priority they would have for payment of principal and interest
1B in the event that the organization experiences severe
L9 financial stress. Investment risks incl-ude, but are not
20 l-imited to, Iiquidity risk, market risk, operational risk,
2I regulatory risk, and credit risk. These risks are considered
22 by S&P, Moody's and investors in assessing our
23 creditworthiness.
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Iikely to buy corporate bonds (as opposed to U.S. Government
bonds), a stronger credit rating wil-I attract more investors,
and a weaker credit rating could reduce or eliminate the
number of potential investors. Thus, weaker credit ratings
may resuft in a company having more difficulty accessing
capital markets and/or incurrj-ng 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.
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11 III. TERMS OE THE PROPOSED TR,AI{SACTION
72 A. I[trat are the te::ms of the Proposed Transaction?
13 A. On JuIy 19, 2011 Avista, and Hydro One Limited
L4 ("Hydro One"), Olympus Holding Corp. (*US Parent"), and
15 Olympus Corp. ("Merger Sub") entered into a Merger Agreement.
The proposed merger was unanimously approved by the Boards of
Directors of both Avista and Hydro One.
FoIlowing aII 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-1 cease, and
Avista will be the surviving corporati-on and will become a
wholly-owned subsidiary of Olympus Equity LLC, an indirect,
wholly-owned subsidiary of Hydro One.
I wil-l refer to the proposed acquisition of Avista by
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Hydro One as the "Proposed Transaction." A copy of the Merger
Agreement is attached as Exhibit No. 3, Schedule 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 which Hydro One,
through its affiliates, including Olympus Equity LLC, will
acquire aI1 of the outstanding shares of Avista.
Mr. Morris has addressed, among other things, the
governance, management and post-closing operations of Avista.
The balance of my testimony wil-I focus primarily on the
financial aspects of the Proposed Transaction.
A. Wtrat consideration will Avista's shareholders
receive upon the closing of the Proposed Transaction?
A. Under the terms of the all-cash transaction, Avista
shareholders wiII receive $53.00 per common share, less any
applicable tax withholding. Fol-Iowing the closing, Avista's
current shareholders wiII cease to have any ownership interest
in Avista or rights as Avista shareholders.
A. How does the leveI of consideration cotrtpare with
the market price of Avista's conmon stock prior to the sigrring
of the Merger Ag'reenent?
A. The $53.00 per share represents a twenty-four
percent (242) premium to Avistafs closing price on July 18,
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billion, comprised of an equity purchase
of approximately
price of $3.4
billion, and the assumption $1.9 billion of
Avista debt. The $1.9 bil-l-ion of Avista's debt obligations
assumed by Hydro One will remain at Avista.
A. How will the purchase be funded by Hydro One and
its affiliates?
A. There is no financing condition to the merger.
Hydro One intends to finance the aggreqate cash consideration
payable at the closing of the Proposed Transaction, and
related expenses, with a combination of some or all of the
14 following:
of $42.7 4 per share.
A. Wtrat is the total purchase priee?
A. The aggregate purchase price is approximately $5.3
net proceeds from the sale by a direct, whoJ-}y-
owned subsidiary of Hydro One of C$1.54 bj-Ifion of
convertible unsecured subordinated debentures,
that are convertibl-e into common shares of Hydro
One;
net proceeds of any subsequent bond or other debt
offerings;
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amounts drawn under the
operating credit facility
and
c$250,000,000to Hydro One,'
existing
avail-abIe
existing cash on hand and other sources availabfe
to Hydro One.
One's overall-financing plan for the purchase is
to maintain Hydro One's strongand targeted
grade status, and includes the issuance of C$1.54
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1 billion of equity, as j-ndicated above. Mr. Lopez provides
2 additional- detai1s re1ated to the financing plan.
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A. Upon the closing of the Proposed Transaction, will
Avista continue to be a publicly traded company?
A Upon consuflrmation
wilI no longer have
of the Proposed
common stock that
Transaction,
j-s publi-c1y
and will no
or any other
Avista
Ionger be traded on, the New York Stock Exchange
securities exchange, and will be deregistered under the
traded. Its common stock will be delisted from,
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11 A. WiJ.J. Avista maintain its own capital structure
t2 folJ.owing the elosing?
13 A. Yes. Avista wil-1 maintain its own capital structure
1,4 after the Proposed Transaction is consummated, and will
15 continue to fund its ongoing operations with both debt and
76 equity sources. As wifl be explained later in my testimony,
71 Avista and Hydro One have offered a commitment, as part of
1B our request for approval of the Proposed Transaction, to
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20 structure. Maintaining a strong equity layer plays a
2L significant role in supporting financia] metrics that support
22 access to debt capital under reasonable terms.
23 9. WiJ.l Avista continue to carry credit ratings from
24 rating agencies?
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Moody's.
at least
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financial
Yes. Avista is currently rated by both S&P and
Avista wil-I continue to carry credit ratings from
one nationally recognized rating agency.
WiJ.I the basis of presentation of Avista's
statements change as a result of the consummation
of the Proposed Transaction?
A. Avista's financial statements will continue to be
maj-ntained and presented in accordance with GeneraIIy
Acceptable Accounting PrincipJ-es and Eederal- Energy
Regulatory Commission (*EERC") accounting rules.
A. Will Avista continue to be a regrrJ.ated utility upon
72 compJ.etion of the Proposed Transaction?
13 A. Yes. Avista will continue to be subject to the
regulation of this Commission, other state commissions and,
among other agencies, EERC.
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1.1 IV. BENEEITS TO AVISTA AND ITS STAKEHOLDERS
18 A. From your perspective as CEO, what are the benefits
19 to Avista and its stakeholders?
20 A. As highlighted in Mr. Morris's testimony, the
21 number of investor-owned el-ectric and natural gas utilities
22 in North America has decreased significantly over the years
23 through consol-idation. Through consolidation, these larger
24 util-ities have the opportunity to spread costs, especially
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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 wiIl provide opportunities for efficiencj-es in
the long-term through the sharing of best practices,
technology and innovation. The Proposed Transactj-on wilI
provide benefits to Avista's customers that otherwise would
not occur.
These benefits will- not only be
by debt holders and
business increases
viewed favorably by
customers, but also rating agencies. An
10 efficient, well-run the opportunity to
11 achieve f inanc j-al- metrics to support f avorab.Ie credit
12 ratings.
13 As explained by Mr. Morris,
1-4 will- not only allow Avista and its
the merger with Hydro One
customers to benefit from
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being a part of a larger organization (the benefits of scale),
but at the same time preserves l-ocal- control of Avista and
the retentj-on of Avista's culture and its way of doing
business. Vf,e believe this preservation of l-ocal 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.
A. WiJ.l the Proposed Transaction affect the credit
ratings of Avista?
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1 A. The credit ratings of Avista are not expected to
2 change immediately as a result of the Proposed Transaction.
3 However, over the longer term there is a potential for
4 improved credit ratings at Avista. For example, on July 19,
5 2OI'7, S&P affj-rmed Avista's Iong-term ratings and revised the
6 outlook to positive from stable upon the announcement of the
7 Proposed Transaction. S&P indicated the outlook revision on
B Avista reflects the potential- for higher ratings upon the
9 completion of the acqui-sition. S&P noted, among other things,
10 that, "Our assessment is based on our view that Avista will
11 be an important member of the HOL fHydro One Limited] group,
72 highJ-y unlikely to be sold, and integral to overal-I group
13 strategy and operations. "
74 Moody's also affirmed Avista's long-term ratings with a
15 stabl-e outlook upon the announcement of the Proposed
76 Transaction.
11 A. How will the Proposed Transaction affect Avista's
18 access to the debt markets?
19 A. Avista wil-l- continue to access the capital- markets
20 for long-term fixed income securities, such as senior secured
2l notes, mortgage bonds, unsecured debt and hybrid securities
22 such as the junior subordinated notes. Avista will afso
23 continue to access short-term funds directly through the
24 credit facility. Eol-Iowing the closing of the Proposed
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1 Transaction, Avista wilI access the capital markets in what
neutral to improved creditis currently being viewed as
support.
A. How will the Proposed Transaction affect Avista's
access to equity capital?
A. Once the Proposed Transaction is completed, Avista
wilI no longer need to access the capital markets for equity.
The equity wilI 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. Hydro One's recent equity
(convertible debentures) financing j-n July 2071 was over-
subscribed by over 100%.
Through the commitments I will present later, Avista and
Hydro One have agreed to maj-ntain a capital structure that
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71 demonstrated ability to support such a commitment, as
18 explained by Mr. Lopez.
19 9. Iilhat are the e:<peeted cost savings associated with
20 the Proposed Transaction?
2L A. As explained by Mr. Morris, the Proposed
22 Transaction is desi-gned such that following the closing there
23 will be little to no change in Avista's day to day operations,
24 as compared to prior to the Proposed Transaction. The
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Proposed Transaction does not target the elimination of jobs,
or cost-cutting that could lead to a deterioration of customer
service, customer satisfaction, safety, or reliabi-Ii-ty.
There wi1I, however, be some cost savings following 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:
TalcJ.e No. 1 - Estimated Inmediate Cost Savings - Post-Closing
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Board of Director Costs
D&O Insurance
Investor Relations
Accounting
Proxy
Annual Report
Costs Excluded for Ratemaking
Total
$ 538,000
439,000
365,000
245,000
200,000
199,000
(267,000)
s 1,709,000
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15 9. PJ.ease briefly e:rplain each of the estimated cost
16 savings in Table 1 above.
l1 A. The estimated cost savings are expected to be
18 achieved as foffows:
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Board of Director Costs:EoIlowing the closing,
Avista's Board of Directors will have fewer non-
employee members which will result in lower costs,
i. e. , more of the directors wil-I be employees of
either Avista or Hydro One, and will not receive
separate compensation for their participation on
the Avista Board. fn addition, the Board will be
reduced from ten to nine members.
Directors and Officers (DeO) Insurance:FolIowing
officerthe closing, Avista's dj-rector and
Thies, Di 19
Avista Corporation
21
2B
T
Z
3
A.)
5
6
j-nsurance is expected to be covered under
One's policy, which will result in reduced
for Avista.
Investor Re].ations:
Hydro
costs
will
This
no longer have
will result in
Eolfowing the closing, Avista
publicly traded coflrmon stock.
reduced costs for Avi-sta.
7
B
9
10
a 4gggq4E4g: Following the closing, there will be
a reduction in the hours necessary for Avista's
externaf auditors to audit Avista's books of
record, which wiII resuft in reduced costs.
Proxy: Fol-Iowing the closing, Avista wilI no longer
be required to prepare and file an annual proxy
report.
Annual. Report:EoIIowing the closing, Avista wilI
11
t2
13
74
15
76
no longer be required to prepare and fil-e an annual
report to shareholders.
77 A. Please e:q>Iain the ($267,000) entry in TabJ.e No. 1
18 identified as "Costs Excluded for Ratemaking'. "
I9 A. During ratemaking proceedings some of the costs in
20 the categories in Table No. 1 above are excluded from retaj-I
27 rates, either through a settl-ement stipulation among parties
22 approved by the Commission, or by separate order of the
Commission. The ($261 r 000) represents the estimated amount
currently excluded from retail rates. The net total of $1.7
mill-ion j-n Table No. 1 reflects the expected immediate savings
to customers following the cl-ose of the Proposed Transaction.
Additional- details of the calcul-ation of these savings are
provided in my workpapers.
These cost savings are the basis for the offsetabl-e
portion of the Rate Credit expJ-ained by Mr. Morris, and
23
24
Z5
26
21
2B
29
Thies,
Avista
Di 20
Corporation
30
1 proposed by Joint Applicants beginning at the closing of the
2 Proposed Transaction. Mr. Ehrbar explains how the Rate Credit
3 is proposed to be spread to Avj-sta's electric and natural gas
4 customers.
5 We believe additional ef f icj-encies (benef its ) wil-I be
6 realLzed over time from the sharing of best practices,
7 technology and innovation between the two companies. It will
B take time, however, to identify and capture those benefits.
9 Mr. Morris explains that the proposed financj-al benefits to
10 customers will increase from $2.65 million per year for the
11 first five years following the cJ-osing, to $3.65 million per
72 year for the last five years of the 1O-year period. This
13 increased leve] of benefits in the l-ast five years reflects
L4 the increased opportunity to achieve greater benefits over
15 time. The level- of annual neL cost savings (and/or net
1-6 benefits) will be tracked and reported on an annual basis.
11
18 V. COMMITI{ENTS OEEERED BY AVISTA E}ID HYDRO ONE
19 A. iloint Applicants have proposed a number of
20 cormnitments as part of the iloint AppJ.ication. I[ould you
27 please provide an overview of these comnitments?
22 A. Yes. As part of the Joint AppJ-icants' request for
23 approval of the Proposed Transaction, Hydro One and Avista
24 have offered commitments in addition to the Delegation of
Thies,
Avista
Di 27
Corporation
1
2
3
4
5
6
1
9
Authori-ty in the Merger Agreement. (See Exhibits A and B to
the Merger Agreement attached as Exhibit No. 3, Schedule 3.)
The commitments included
commitments offered by
commitments are grouped
in the Joint Application total 55
Hydro One
together
and Avista. The 55
into the categories
55 commitments isidentified be]ow. The Master List of all
attached as Exhibit No. 3, Schedul-e 4
A. Reservation of Certain Authority to the Avista
Board of Directors
10 1. Governance
2. Management and Employee
3. Local Presence/Community Involvement
B. Rate Commitments
C. Regulatory Commitments
D. Einancial Integrity Commitments
E. Ring-fencing Commj-tments
F. Environmental, Renewable Energy, and Energy
Ef f iciency Commitments
G. Community and Low-fncome Assistance Commj-tments
11
t2
13
14
15
16
71
1B
l9
20 Each of the commitments will be explained by one or more
sponsoring testimony in
List of Commitments in
27 of the Avista and Hydro One witnesses
22 this proceeding. V[ithin
Exhibit No. 3, Schedule
the Master
23 4, the witnesses addressing the
Thies,
Avi s ta
DL ZZ
Corporation
24 commitments are identified.
1
2
3
4
5
6
1
B
9
A. What are the specific comritments you are
addressing in your testimony?
A. I am addressing the following commitments offered
by Avista and Hydro One:
Rate Comritrnents:
. Treatment of Net Cost Savings - Commitment No. 16
. Treatment of Transaction Costs - Commitment No. 71
. Rate Credits - Commitment No. 18
Regrulatory Comitnents :
. State Regulatory Authority and Jurisdiction
Commitment No. 19
. Separate Books and Records - Commitment No. 27
. Access to and Maintenance of Books and Records
Commitment No. 22
. Ratemaking Cost of Debt and Equi-ty - Commitment No.
24
. Avista Capital Structure - Commitment No. 25
. Commission Enforcement of Commitments Commitment
No. 29
. Submi-ttal to State Court Jurisdiction for
Enforcement of Commission Orders Commitment No.
30
Financial Integrity Conunitments :
. Capital Structure Support - Commitment No. 33
Thies,
Avista
Di 23
Corporation
10
11
72
13
T4
15
t6
-t1
18
t9
20
27
22
ZJ
24
1
2
3
4
5
6
1
8
9
. Utility-Level Debt and Preferred Stock - Commitment
No. 34
. Continued Credit Ratings - Commitment No. 35
. Restrictions on Upward Dividends and Distributions
- Commitment No. 36
. Pension Funding - Commitment No. 31
. SEC Reporting Requi-rements - Commitment No. 38
. Compliance with the Sarbanes-Oxley Act - Commitment
No. 39
Ring-Eencing Cornrnitments :
. Independent Directors - Commitment No. 40
. Non-Consol-idation Opinion - Commitment No. 47
. Restriction on Pledge of Utility Assets
Commitment No. 43
. HoId Harmless,' Notice to Lenders; Restriction on
Acquisitions and Dispositions - Commitment No. 44
. No Amendment of Ring-Fencing Provisi-ons
Commitment No. 46
Thies,
Avi s ta
Di 24
Corporation
10
11
t2
13
t4
15
16
t1
1B
19
20 Rate Commitrnents:
2t 9. P1ease expJ.ain the Rate Cornmitments offered by
22 Avista and Hydro One.
23 A. The first Rate Commitment is related to the
24 "Treatment of Net Cost Savings" (Commitment No. 16). Avj-sta
1 and Hydro Onel expect to experience cost savings in
2 essentially two stages. First, there wifl- be immediate
3 reductj-ons in costs associated with Avista no longer having
4 publicly traded common stock, fewer non-employee board
5 members, and other cost savings I i-dentified earlier. Second,
6 Avista and Hydro One expect to achieve cost savings and
7 efficiencies in the long-term through the sharing of best
B practices, information technology, innovation and purchasing
9 power. These longer-term savi-ngs will- 1ike1y take years to
10 achieve.
11 The immediate cost savings are proposed to be flowed
72 through to customers in the form of an immediate Rate Credit
13 over a 10-year period, beginning at the closing of the
L4 transaction. The Rate Credit proposal was explained by Mr.
15 Morris, and Mr. Ehrbar explains how the Rate Credit is
76 proposed to be spread among Avista's electric and natural gas
71 customers.
18 The longer-term net cost savings r or net benefits, that
Avista and Hydro One achieve as a result of the Proposed
Transaction wiII be refl-ected in future rate proceedings, as
the savings occur over time.
79
20
rThe Master List of Commitments in Exhibit No. 3, Schedufe 4 refers to a
number of different corporate entj-tles such as Olympus Equity LLC.,
Olympus Holding Corp., etc. fn some instances my testimony wiff use
"Hydro One" for convenience. The appropriate Hydro One entity is
identified in the appllcable commitment in the Master List of
Commitments.
Thies, Di 25
Avista Corporation
27
1 Q. I[trat is the conunitment related to \rTreatment of
2 Transaction Costs" (Cortnituent No. L7l?
3 A. Under Commitment No. !J, the costs related to t.he
4 transaction itsel-f will not be included in the retail rates
5 charged to Avista's customers. These costs incl-ude, but are
6 not l-imited to, 1) Iegal and f inancial- advispry fees
7 associated with the Proposed Transaction, 2) the acquisition
B premium, 3) any seni-or executive compensation tied to a change
9 of control- of Avista, and 4) any other costs directly related
10 to the Proposed Transaction.
11 The transaction-rel-ated costs j-ncurred by Avista are
72 being recorded below-the-Iine to a nonoperating account, and
13 will not be included in the future retail rates of Avista's
74 customers. Likewise, the transactj-on-related costs incurred
15 by Hydro One will- not be included j-n Avista's customers'
76 retai-f rates.
1-1 A. Please e:<plain the \\Rate Credits" (Corunitsrent No.
18 18) proposed by iloint Applicants.
19 A. As explained by Mr. Morris, the proposed annual Rate
20 Credit is 52.65 million per year for the first five years
21, following the closing of the transaction, and j-t increases to
22 $3.65 million per year for the last five years - for a total
23 of $31.5 milfion over the 10-year period. These annual rate
24 credits are system amounts, and woul-d be allocated by service
Thies, Di 26
Avista Corporation
1
2
3
4
5
6
1
B
9
and state jurisdictj-on.
Joint Applicants are proposi-ng that the Rate Credit
applicable to fdaho customers be passed through to customers
through separate tariffs: Schedule 73 for electric customers,
and Schedule 113 for natural gas customers, as explained by
Mr. Ehrbar.
9. Is any portion of the proposed Rate Credit
offsetable?
A. Yes. A portion of the proposed Rate Credit for the
1O-year period is offsetabl-e. That is, when cost savings or
net benefj-ts directly related to the transaction are already
reflected in base retaif rates for customers, the separate
Rate Credit on Schedules 73 and 113 wiII be reduced by an
amount up to the offsetable portion of the Rate Credit. The
$1.7 million of immediate costs savings I explained earlier
represents the offsetable portion of the $2.65 million annual
Rate Credit for the first five years. For the last five
years, $2.7 mil-Iion of the $3.65 mil-Iion is offsetable. To
the extent that Avista demonstrates there are net cost
savlngs, oL net benefi-ts, directly associated with the
transaction that are already embedded in base retail rates,
22 the Rate Credit for the fi-rst five years would be reduced by
Rate Credit for the Iast five
to $2.7 million.
23 up to $1.7 million, and the
24 years would be reduced by up
10
11
72
13
74
15
16
71
18
I9
20
2L
Thies,
Avista
Di 21
Corporation
1
2
3
4
trJ
6
1
8
9
The proposed $31.5 million benefit for the 10-year peri-od
represents the "fl-oor" of benefits customers wilI receivei 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 mil-lion will be received by customers
either through a separate Rate Credit on tariff Schedules 73
and L73, or by the benefits being reflected in base retail
rates.
10 ReguJ.atory Cotttttritments :
11 A. PJ.ease e:qrlain the various Regrulatory Corunitments
offered by Avista and Hydro One.
A. The first Regulatory Commitment is related to
"State Regulatory Authority and Jurisdiction" (Commitment No.
19). For this commitment Olympus Holding Corp. and Avista
agree to comply with al-l- applicable Iaws, including those
refated to transfers of property, affiliated interests, and
securities and the assumption of obligations and l-iabilities.
A. What is the commitment regarding \\Separate Books
and Records" (Comnitment No. 2Ll?
A. Avista has committed to maintaining separate books
and records for Avista.
9. Please er<plain the conmritment related to \\Access to
and Maintenance of Books and Records" (Comnitment No. 221?
I2
13
74
15
76
t1
1B
79
20
27
))
23
Thies,
Avista
Di- 28
Corporation
24
1
2
3
4
5
6
1
B
9
A. Under thi-s commitment, Olympus Holding Corp. and
Commission and interested parties wiIIAvista agree that
have reasonable access to Avista's books and records,
financial informatj-on 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 includes access to
Avista's board minutes, audi-t reports, and information
provided to credit rating agencies pertaining to Avista.
Olympus Holding Corp. and its subsidiaries, including Avj-sta,
will also maintai-n the necessary books and records so as to
provide an audit trail for al-I corporate, affiliate, or
subsidiary transactions with Avista r or that result in costs
that may be allocabl-e to Avista.
The Proposed Transaction wilI not result in reduced
access to the necessary books and records that relate to
transactj-ons with Avista, or that result in costs that may be
allocable to Avista. Avista wil] provide Commissj-on Staff
and other parties to regulatory proceedings reasonable access
to books and records (including those of Olympus Holding Corp.
or any affili-ate or subsidiary companies) required to verify
or examine transactions with Avista, or that result in costs
the
10
11
t2
13
t4
15
76
l1
1B
20
22 that be allocable to Avista. Further, Olympus Holding
19
2T
may
and23 Corp.Avj-sta wil-l provide the Commission with access to
24 written information provided by and to credit rating agencies
Thies, Di 29
Avista Corporation
1 that pertains to Avista. Olympus Holding Corp. and each of
2 LLs subsidiaries wilI also provide the Commission with access
3 to written j-nformation provided by and to credit rating
4 agencies that pertains to Olympus Holding Corp.'s
5 subsidiaries to the extent such j-nformatj-on may affect Avista.
6 Q. What are the iloint Applicants proposing regrarding
7 "Ratemaking Cost of Debt and Equity" (Comnitment No. 24t?
I A. Under this commitment, Avista agrees that it wil-l
9 not advocate for a hi-gher cost of debt or equity as compared
10 to what Avista's cost of debt or equity would have been absent
11 Hydro One's ownership. For future ratemaking purposes:
72
13
74
15
76
77
18
t9
20
27
22
a Determi-nation of Avista's debt costs wilI be no
higher than such costs would have been assuming
Avista's credit ratings by at Ieast one industry
recogni-zed rating agency, including, but not
limited to, S&P, Moody's, Fitch or Morningstar, in
effect on the day before the Proposed Transaction
closes and applying those credit ratings to then-
current debt, unless Avista proves that a Iower
credit rating is caused by circumstances or
developments not the result of financial risks or
other characteristics of the Proposed Transactioni
Avista bears the burden to prove prudent in a future
general rate case any pre-payment premium or
increased cost of debt associated with existing
Avista debt retired, repaid, or replaced as a part
of the Proposed Transaction,' and
C Determination of the alfowed return on equity in
future general rate cases wilf incfude sefection
and use of one or more proxy group(s) of companies
engaged in businesses substantially similar to
Avista, without any limitation refated to Avista's
ownership structure.
A. P1ease describe the conunitnent regarding "Avista
ZJ
24
atrZJ
ZO
21
b
28
29
30
31
32
33
Thies,
Avista
Di 30
Corporation
34
1 Capital. Structure" (Cormnitment No. 251 proposed by the Joint
2 Applicants.
3 A. At all times following the closing of the Proposed
4 Transaction, Avista will have a coflrmon equity ratio of not
5 less than 44 percent, as calculated for ratemaking purposes,
6 except to the extent the Commissj-on establishes a Iower equity
7 ratio for Avista for ratemaking purposes.
B Q. P1ease e:rplain iloint Applicants' corunitment related
9 to "Comission Enforcement of Comitments" (Cornmit-ment No.
10 291?
11 A. Hydro One and Avista understand that the Commission
72 has authority to enforce these commitments j-n accordance with
13 their terms. If there is a violation of the terms of these
14 commitments, then the offending party may, at the discretion
15 of the Commission, have a period of thirty (30) calendar days
16 to cure such violation. The scope of this commitment includes
71 the authority of the Commission to compel the attendance of
1B wltnesses from Olympus Holding Corp. and its subsi-diaries with
19 pertj-nent information on matters affecting Avista.
20 9. Will OJ.ympus Holding Corp. provide a '\Submittal. to
27 State Court ilurisdiction for Enforcenent of Cormnission
22 Orders" as a part of this transaction (Cormnitment No. 30)?
23 A. Yes. Olympus Holding Corp. wiII file with the
24 Commission, prior to the closi-ng of the Proposed Transaction,
Thies, Di 31
Avista Corporation
1
2
3
4
5
6
1
8
9
an affidavit affirming that it wiIl submit to the jurisdiction
of the relevant state courts for enforcement of the
Commission's orders adopting these commitments and subsequent
orders affecting Avista.
Einancial Integr ity Cornrritments:
A. Iflhat is Hydro One's comitment related to \Capital.
Structure Support" (Cornnritment No. 33)?
A. Once the Proposed Transaction is completed, Avista
wilI no longer need to access the capital markets for equity.
The equity wj-II be supported through retained earnings, and
equity investment from Hydro One. As explained by Mr. Lopez,
Hydro One has a strong bal-ance sheet and ready access to both
debt and equi-ty markets.
Through Commitment 33 Hydro One will support a capital
10
11
72
13
74
15
16 structure that includes a strong common equity ratio, and
11 Hydro One has a demonstrated abiJ-ity to support such a
is an important1B commitment.
t9 component
to aIl-ow
22
This strong
supporting.ln
common equity ratio
financiaf metrics that are designed
20 Avista access to debt financing under reasonable
27 terms and on a sustainable basis.
23
A. Please expJ.ain iloint AppJ'icants' cormnitment related
to *Utility-Level Debt and Preferred Stock" (Conqritment No.
34) .
Thies,
Avista
Di 32
Corporation
24
1
2
3
4
5
6
1
A. Under this commitment, Avista wil-1 contj-nue to
maintain its own separate debt and preferred stock to support
its utility operations. Avj-sta currently does not have
outstanding preferred stock, and any future issuances will- be
dependent on the circumstances at the time.
A. PLease e:q>Iain iloint AppJ.icants' conrnitnent related
to "Continued Credit Rating's" (Comitment No. 35) .
A. Under this commitment, each of Hydro One and Avista
wil-I continue to be rated by at least one nationally
recognized statistical "Rating Agency." Hydro One and Avj-sta
will use reasonabl-e best efforts to obtain and maintain a
separate credit rating for Avista from at least one Rating
Agency within ni-nety (90) days following the closing of the
Proposed Transaction. If Hydro One and Avista are unable to
obtain or maintain the separate rating for Avj-sta, they wil-I
make a filing with the Commission explaining the basis for
their faj-Iure to obtain or maintain such separate credit
rating for Avista, and parties wil-I have an opportunity to
participate and propose additional commitments.
A. PJ.ease orpJ.ain the conmitment by Joint AppJ.ieants
related to t\Restrictions on Upward Dividends and
Distributions" (Commitment No. 36) .
A. The commitment by Avista and Hydro One regarding
Commitment 36 is as follows:
Thies,
Avista
Di 33
Corporation
B
9
10
11
t2
13
t4
15
I6
71
1B
t9
20
2l
22
23
24
1
2
3
4
5
6
1
B
9
10
11
12
13
14
15
L6
L1
2 If either (i) Avista's corporate credit/issuer
rating as determined by at feast one industry
recognized rating agency, including, but not
limited to, S&P, Moody's, Eitch, or Morningstar is
investment grade or (ii) the ratio of Avista's
EBITDA to Avj-sta's interest expense is greater than
or equal to 3.0, then distrlbutions from Avista to
Olympus Equity LLC shall not be limj-ted so Iong 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 distrj-bution,
except to the extent the Commission establishes a
lower equity ratio for ratemaking purposes. Both
the EBITDA and equity ratio shall be cafcufated on
the same basis that such calculations would be made
for ratemaking purposes for regulated utility
operations.
18
19
20
Under any other circumstances, distributions from
Avista to Olympus Equity LLC are aflowed only with
prior Commission approval.
2t 9. I{trat is iloint Applicants' cornmitment related to
22 \rPension Funding" (Conmitrnent No. 371?
23 A. Under this commitment, Avista wilI maintain its
24 pension funding policy in accordance with sound actuarial
practice.
A. PLease er<pJ.ain the cornnritment reJ.ated to \\SEC
Reporting Requirements" (Conunitment No. 38) .
A. FoIIowing the closing of the transaction, Avista
wiIl file required reports with the SEC.
A. P1ease e:<plain the conmitment related to
\\Compliance with the Sarbanes-Oxley Act" (Comnitnrent No. 39) .
A. Eollowing the closing of the Proposed Transaction,
Avista will comply with applicable requirements of the
25
26
21
2B
30
JZ
b
29
31
Thies,
Avista
Di 34
Corporation
33
1
2
3
4
5
6
1
o
9
Sarbanes-Oxley Act.
Ring'-Fencing Comnitments :
A. Before you begin with the specific Ring-Eencing
Cormnitments, what does the ter:sr "ring-fencing" mean?
A. fn the context of mergers and acquisitions, ring-
fencing refers to financial and corporate structuring in a
transaction that resul-ts in a newly acquired company (in this
case, Avista) being isolated from the upstream corporate
structure of its new owners (Hydro One and its affiliates).
A. Please e:q>lain the Ring-Fencing Cormnitments offered
by Avista and Hydro One.
10
11
t2
13
74
15 Ring-Eencing
( Commitment76 Commitment is rel-ated to "Independent Dj-rectors"
77 No. 40).
18 Under Commitment No . 40, at least one of the nine members
t9 of the board of directors of Avista will be an Independent
20 Director who i-s not a member, stockholder, di-rector (except
27 as an independent director of Avista or OJ-ympus Equity LLC),
22 officer, or employee of Hydro One or its affiliates. At least
23 one of the members of the board of directors of Olympus Equity
24 LLC will- be an Independent Director who is not a member,
A. I wil-I explain a number of
Commitments offered by Avista and Hydro
wilf address addi-tiona] Commitments. The
the Ring-Eencing
One, and Mr. Lopez
first
Thies,
Avista
Di 35
Corporation
1
2
3
4
5
6
1
9
stockholder, director (except as an independent director of
OJ-ympus
One or
Equi-ty LLC or Avista), officer, or employee of Hydro
Independent Director
The organizational
same indj-vi-dual- may serve as an
Avista and Olympus Equity LLC.
documents for Avista wifl not permit
Avista, without the consent of a two-thj-rds majority of al-l-
its directors, i-ncluding the affirmative vote of the
Independent Director (or if at that time Avista has more than
one Independent Director, the affj-rmative vote of at least
its affifiates. The
of both
10 one of Avista's Independent Directors) , to consent to the
11 institution of bankruptcy proceedings or the inclusj-on of
12 Avista in bankruptcy proceedings
13 A. Iilhat is iloint Applicants' cormnitnent reLated to a
74 "Non-Consolidation Opinion" (Conunitment No. 4Ll?
15 A. A non-consolidation opinion
L6 from outside counsel concluding that
t1
1B
19
provisions are sufficient that a bankruptcy
order the substantive consolidation of
Iiabj-Iities of a utility wi-th those of the
is a legal document
certain ring-fencing
court would not
the assets and
utility's parent
or subsidiaries.20
2t
22
company or the parent company's
Under Commitment No. 47, Avista
f oJ-lowing:
a
affiliates
23
24
25
26
and Hydro One commit to the
Within ninety (90) days of the Proposed Transaction
closing, Avista and Olympus Holding Corp. wifl file
a non-consolidation opinion with the Commission
which concludes, subject to customary assumpti-ons
Thies, Di 36
Avista Corporation
1
2
3
4
5
6
and exceptions, that the ring-fencing provisions
are sufficient that a bankruptcy court woufd not
order the substantive consolidation of the assets
and Iiabilities of Avista with those of Olympus
HoJ-ding Corp. or its affiliates or subsidiaries(other than Avista and j-ts subsidiaries).
Olympus Holding Corp. must file an affidavit withthe Commission stating that neither Olympus HoldingCorp. nor any of j-ts subsidiaries, will seek toinclude Avista in a bankruptcy without the consentof a two-thirds majority of Avista's board ofdirectors including the affj-rmative vote ofAvista's independent director r or, if at that timeAvista has more than one independent director, theaffirmative vote of at least one of Avista's
independent directors.
If the ring-fencing provisions in these commitments
are not sufficient to obtain a non-consol-idation
opinion, Olympus Holding Corp. and Avista agree to
promptly undertake the folfowing actions:
(i) Notify the Commission of this inability toobtain a non-consolidati-on opinion.
1
B
9
10
11
T2
13
t4
15
16
b
71
1B
t9
20
2t
22
23
24
25
ZO
21
(ii) Propose and implement, upon Commj-ssion
approval, such additional ring-fencingprovisions around Avista as are sufficient toobtain a non-consol-idation opinion subject to
customary assumptions and exceptions.
2B (ij-i) Obtain a non-consolidation opinion.
29 9. Do you believe that the ring-fencing provisions
30 being proposed ar€! sufficient to obtain such a non-
31 consolidation opinion?
32 A Yes.
33 A. PJ.ease arplain Joint Applicants, conunibnent related
34 to rrRestriction on Pledge of Utility Assets" (Conunitment No
3s 43) .
commitment, Avista wil-1 agree to
Thies, Di 31
Avista Corporation
36 A. Under this
1
2
3
4
5
6
7
B
prohibitions against foans or pledges of Avista's utility
assets to Hydro One, Olympus Holdi-ng Corp., or to any of their
subsidiaries or affiliates, without Commission approval.
A. P1ease e:<plain iloint Applicants' corunitnrent
referred to as "Hold Ha::rrless; Notice to Lenders,' Restriction
on Acquisitions and Dispositions" (Connnitment No. 441.
A. Avista and Hydro One commit to the following
regarding Commitment No. 44:
a Avista wiII generally hold Avj-sta customers
harmfess from any business and financial risk
exposures associated with Olympus Holding Corp.,
Hydro One, and Hydro One's other affiliates.
Pursuant to this commitment., Avista and Olympus
Holding Corp. wil-1 file with the Commission, prior
to closing of the Proposed Transaction, a form of
notice to prospective lenders describing the ring-
fencing provisions included i-n these commitments
stating that these provisions provide no recourse
to Avista assets as collateral or security for debt
issued by Hydro One or any of its subsidiaries,
other than Avista.
In furtherance of this commitment:
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1 Avj-sta commits that Avista's regulated uti-lity
customers wiIl be held harmless from the
Iiabilities of any unregulated activity of
Avista or Hydro One and its affiliates. In any
proceeding before the Commission involving
rates of Avista, the fair rate of return for
Avista wiII be determined without regard to
any adverse consequences that are demonstrated
to be attributable to unregulated activj-ties.
Measures providing for separate financial- and
accounting treatment will be establ-ished for
each unregulated activity.
Olympus Holding Corp. and Avista will- notify
the Commission subsequent to OJ-ympus HoJ-ding
Corp.'s board approval and as soon as
Thies, Di 38
Avista Corporation
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practicabl-e following any public announcement
of: (1) any acquisition by Olympus Holding
Corp. of a regulated or unregulated businessthat is equivalent to five (5) percent or more
of the capital-ization of Avista; or (2) the
change in effective controf or acquisition of
any material part of Avista by any other firm,
whether by merger, combination, transfer of
stock or assets. Notice pursuant to this
provision is not and will not be deemed an
admissj-on or expansion of the Commission's
authority or jurisdiction over any transaction
or in any matter or proceeding whatsoever.
Within sixty (60) days following the notice
required by this subsection (c) (ii) (2), Avista
and Olympus Holding Corp. or its subsidiaries,
as appropriate, will seek Commission approval
of any sale or transfer of any material part
of Avista. The term "material part of Avista"
means any sale or transfer of stock
representing ten percent (10%) or more of the
equity ownership of Avj-sta.
Neither Avista nor Olympus Holding Corp. wilI
assert in any future proceedings that, by
virtue of the Proposed Transaction and the
resulting corporate structure, the Commission
is without jurisdiction over any transaction
that results in a change of control of Avista.
3
d
3 6 A. EinaJ.J.y, pJ.ease errp1ain iloint App1icants'
31 corunibnent related to rrNo Amendment of Ring-Eencingr
38 Provisions" (Conmitment No. 461 .
39 A. Under this commitment, Olympic Holding Corp. and
40 Avista commit that no material amendments, revisions or
Thies,
Avista
Di 39
Corporati-on
If and when any subsidiary of Avista becomes a
subsidiary of Hydro One or one of its subsidiaries
other than Avista, Avista wiII so advise the
Commission within thirty (30) days and wj-Il submit
to the Commission a written document setting forth
Avista's proposed corporate and affiliate cost
allocation methodologies .
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modifications wil-I be made to the ri-ng-fencing provisions as
specified in these regulatory commitments without prior
Commission approval, pursuant to a limited re-opener for the
sole purpose of addressi-ng the ring-fencing provisions.
vI. REQUIRED APPROVALS FOR THE PROPOSED TRAITSACTTON
A. PJ.ease describe the regrrlatory filings and
approval.s needed to consunrmate the Proposed Transaction.
A. As a condition to consuflrmation of the Proposed
Transaction, Avista must obtain approvals, consents or
wai-vers from, or make filings with, a number of regulatory
authorities, as well as the satisfaction of customary closing
approvals are required
Transportation Commission
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13 conditions. With regard to state regulatory Commi-ssions,
t4 from the Washington Util-ities and
15 (WUTC), the fdaho PubIic Utilities
16 Commission (IPUC), the PubIic Utility Commission of Oregon
I1 (OPUC), the Public Service Commission of the State of Montana
18 (MPSC), and the Regulatory Commission of Alaska (RCA) .
19 Avista must also obtain approvals from FERC under the
20 Federal Power Act, and from the Federal- Communications
27 Commj-ssion under the Communications Act of 7934, as amended
22 by the Tel-ecommunications Act of 7996.
ZJ Eurthermore, filings must be made with the Department of
24 Justice and the Federal- Trade Commission pursuant to the Hart-
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Avista
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Corporation
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Scott-Rodj-no Act, and with the U.S. Committee on Eoreign
Investment in the Unj-ted States, pursuant to the Exon-Florj-o
Amendment to the Defense Production Act of 1950.
The Proposed Transaction also must be approved by
Avista's shareholders. A proxy statement will be filed by
Avista with the SEC in September 2077, in preparation for a
vote of Avista's shareholders.
A. Do .Toint Applicants believe they wiJ.J. satisfy all
the regrrlatory requirements needed for the Proposed
10 Transaction to be consunmrated?
11 A. Yes. Avista and Hydro One believe we wj-II receive
the required consents and approval-s needed to complete the
Proposed Transaction. Closing is anticipated to occur in the
second half 201,8 .
Avj-sta and Hydro One request that the Commission schedule
a review of the Proposed Transaction in a time frame that will-
allow approval by the Commission on or before August 14, 2078.
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79 VII. AVISTA OPERATIONS BETTVEEN SIGNING AI{D CLOSING
20 A. How does Avista plan to operate its business untiJ.
27 the closing'of the Proposed Transaction?
22 A. Until the closing of the Proposed Transaction
23 Avista wiII operate independentJ-y of Hydro One. Avista's
24 operations will contj-nue in the ordinary and usuaL course of
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Corporation
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business, consistent with past practice, and in accordance
with the provisions of the Merger Agreement.
Avista wi-II use commercially reasonable efforts to
preserve its business operations, maintain existi-ng rel-ations
with j-ts employees and third parties, and continue aIl
materiaf governmental permits, franchises and other
operational authorizations .
A. WilI Avista continue to have the discretion to pay
a dividend to its shareholders?
A. Yes. Avista has historicalJ-y paid quarterly cash
dividends on common stock, and the l-ast dividend was decl-ared
on August 71, 2077 (payable September 15, 2077) . Under the
terms of the Merger Agreement, Avista may continue paying its
regular quarterly cash dividends, incl-uding a "stub" dividend
in the quarter in which the merger is consummated. Until the
closing, the deci-sion to pay a dividend will- continue to be
at the sole discretion of Avista's 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.
A. Does this conclude your pre-fiIed, direct
testimony?
A. Yes, it does.
Thies,
Avista
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Corporation
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