20180328Washington Stipulation.pdf

Avista Corp.
1411 East Mission P.O. Box3727
Spokane. Washington 99220-0500
Telephone [phone]
TollFree 800-727-9170
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March 27,2018
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Diane Hanian, Secretary
Idaho Public Utilities Commission
Statehouse Mail
W. 472 Washington Street
Boise, Idaho 83720
RE: Joint Application of Hydro One Limited and Avista Corporation for Order Authorizing
Proposed Transaction Docket Nos. AVU-E-17-09 and AVU-G-17-05
Dear Ms. Holt:
Enclosed for filing with the Commission is an electronic copy of Avista Corporation's dba Avista
Utilities ("Avista or the Company") Settlement Stipulation in the Hydro One/Avista Merger docket
in Washington (Docket U-170970) that was filed today with the Washington Utilities and
Transportation Commission. An original andT copies will be provided via ovemight mail.
S
Senior Manager, Regulatory Policy
Avista Utilities
s09-49s-4975
linda. gervai s@avistacorp. com
Enclosure
CC : All Parties
^*tsra X
BEFORE THE
WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION
In the Matter of the Joint Application of
HYDRO ONE LIMITED (acting through
its indirect subsidiary, Olympus Equity
LLC)
and
SETTLEMENT STIPULATION AND
AGREEMENT
AVISTA CORPORATION
For an Order Authorizing Proposed
Transaction
I. PARTIES
l. This Settlement Stipulation and Agreement is entered into by and among the
following parties in this case: Hydro One Limited ("Hydro One"), acting through Olympus Equity
LLC an indirect, wholly-owned subsidiary, and Avista Corporation ("Avista") (sometimes
hereafter jointly referred to as "Joint Applicants" or the "Companies"), the Staff of the Washington
Utilities and Transportation Commission ("Staff'), the Public Counsel Unit of the Washington
Office of Attorney General ("Public Counsel"), Northwest Industrial Gas Users ("NWIGU"),
Industrial Customers of Northwest Utilities ("ICNU"), The Energy Project, Northwest Energy
Coalition ("NWEC"), Renewable Northwest ("RNW"), Natural Resources Defense Council
("NRDC"), Sierra Club, and Washington and Northern Idaho District Council of Laborers
("WNIDCL"), jointly referred to herein as "Parties" and individually as a o'Party."
2. Accordingly, this represents a "full settlement" under WAC 480-07-730(l). The
Parties, representing all who have intervened or appeared in these dockets, agree that this
DocketNo. U-170970
SETTLEMENT STIPULATION AND AGREEMENT - I
Settlement Stipulation (hereinafter "Settlement" and/or "Stipulation") is in the public interest and
should be accepted by the Commission as a full resolution of the issues in these dockets.
3. The Parties understand this Settlement is subject to review and disposition by the
Washington Utilities and Transportation Commission ("Commission").
II. RECITALS
4. On September 14, 2017, the Joint Applicants filed with the Commission a Joint
Application For An Order authorizing Proposed Transaction whereby Olympus Equity LLC would
acquire all of the outstanding common stock of Avista, and Avista would thereafter become a
direct, wholly-owned subsidiary of Olympus Equity LLC and an indirect, wholly-owned
subsidiary of Hydro One (the combination of these transactions is hereafter "Proposed
Transaction").I
5. The Commission convened a prehearing conference in this proceeding at Olympia,
Washington on October 20,2017, before Administrative Law Judge Dennis J. Moss. At the
prehearing conference, the Commission granted the petitions to intervene by ICNU, NWIGU, The
Energy Project, NWEC, RNW, NRDC, and the Sierra Club. The Commission, in Order 03,
subsequently granted intervention status to WNIDCL.
6. In accordance with the procedural schedule adopted at the prehearing conference
(Order 02), all Parties attended the scheduled settlement conference held in Olympia, Washington,
on February 6,2018. An additional settlement conference was held in Olympia on February 23,
On July 19, 2017, Avista, a Washington corporation, Hydro One, a Province of Ontario corporation, Olympus
Holding Corp. (also refered to hereafter as "US Parent"), a Delaware corporation, and Olympus Corp. ("Merger
Sub"), a Washington corporation and an indirect, wholly-owned subsidiary of US Parent, entered into an
Agreement and Plan of Merger. Following 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 shall thereupon cease, and Avista will
be the surviving corporation and will become a direct, wholly-owned subsidiary of Olympus Equity LLC and an
indirect, wholly-owned subsidiary of Hydro One.
SETTLEMENT STIPULATION AND AGREEMENT - 2
2018. Based on these discussions and related correspondence, the Parties have reached an
agreement on proposed commitments (attached as Appendix A to this Settlement Stipulation) that
provide a basis upon which the Parties recommend Commission approval of the Proposed
Transaction in Washington.
III. TERMS OF TI.IE SETTLEMENT STIPULATION
7. Appendix A to this Stipulation contains the complete list of commitments that the
Joint Applicants agree to make upon consummation of the Proposed Transaction (hereinafter
referred to as "Commitments"). By vinue of executing this Stipulation, the Joint Applicants agree
to perform all of the Commitments set forth in Appendix A according to the provisions of each
Commitment as set forth therein.
8. The effective date of the Commitments set forth in Appendix A to this Stipulation
shall be the date of the closing of the Proposed Transaction, provided that the date of the
Commission's final order in this matter is the effective date for Commitments requiring Hydro
One or its subsidiaries, including Avista, to take action before the closing of the Proposed
Transaction.
9. In the process of obtaining approval of the Proposed Transaction in other states, the
Commitments may be expanded or modified as a result of regulatory decisions or settlements. The
Parties agree that the Commission shall have an opportunity and the authority to consider and
adopt in Washington any commitments or conditions with which the Joint Applicants agree in
otherjurisdictions, even if such commitments and conditions are agreed to afterthe Commission
enters its order in this docket. To facilitate the Commission's consideration and adoption of the
commitments and conditions from other jurisdictions, the Parties recommend that the Commission
issue an order approving this Stipulation as soon as practical, but reserve in such order the explicit
SETTLEMENT STIPULATION AND AGREEMENT - 3
right to re-open the Commitments set forth in Appendix A in order to reflect commitments and
conditions accepted in another state jurisdiction. Commitment 81 (Most Favored Nation) in
Appendix A sets forth the process and limitations for addressing changes to commitments agreed
to in other jurisdictions
10. The Parties agree that with the Commitments set forth in Appendix A, the Proposed
Transaction meets the net benefit and public interest standards under RCW 80.01.040(3), RCW
80.12.020 and WAC 480-143-170 required for approval in Washington. RCW 80.12.020 provides
that Commission approval must be predicated on a finding that the Proposed Transaction would
provide a "net benefit" to customers:
Order required to sell, merge, etc.-Exemption.
(l) No public service company shall sell, lease, assign or otherwise dispose of the
whole or any part of its franchises, properties or facilities whatsoever, which are
necessary or useful in the performance of its duties to the public, and no public
service company shall, by any means whatsoever, directly or indirectly, merge or
consolidate any of its franchises, properties or facilities with any other public
service company, without having secured from the commission an order
authorizing it to do so. The commission shall not approve any transaction under
this section that would result in a person, directly or indirectly, acquiring a
controlling interest in a gas or electrical company without a finding that the
transaction would provide a net benefit to the customers of the company.
Moreover, RCW 80.01.040(3) directs the Commission to "[r]egulate in the public interest," and
WAC 480-143-170 reiterates that requirement:
Application in the Public Interest - If, upon the examination of any application
and accompanying exhibits, or upon a hearing concerning the same, the
commission finds the proposed transaction is not consistent with the public interest,
it shall deny the application.
I l. As described in the Commitments to this stipulation and in the Joint Testimony to
follow, the evidence demonstrates that the Proposed Transaction is in the public interest and should
be approved by the Commission. Furthermore, the Proposed Transaction will provide "net
SETTLEMENT STIPULATION AND AGREEMENT - 4
benefits" for Avista's customers in Washington, as reflected in the proposed Commitments
(attached as Appendix A to this Settlement Stipulation).
12. The Parties agree that, due to tax-related changes made by the Tax Cuts and Jobs
Act, H.R. I of the I l5th Congress, which shall be more fully described in testimony supporting
this Stipulation, the Post-Closing Corporate Structure set forth on page 2 of Appendix I to the
Joint Application should be simplified to eliminate Olympus I LLC and Olympus 2 LLC.
Accordingly, the Post-Closing Corporate Structure should be as set forth in Appendix B to this
Settlement Stipulation. The Parties recognize, however, that parallel changes must be made in the
dockets on the Proposed Transaction that are pending in Oregon, Idaho, Montana and Alaska. If
one or more of such parallel changes cannot be made, the Parties agree that the Post-Closing
Corporate Structure set forth on page 2 of Appendix I to the Joint Application is also acceptable.
Additionally, if the Tax Cuts and Jobs Act is repealed or amended such that further changes to the
Post-Closing Corporate Structure are necessary, the Joint Applicants will propose a revised
corporate structure, subject to Commission approval.
13. The Joint Applicants acknowledge that the Commission's approval of the
Stipulation, the Commitments, or the Joint Application shall not bind the Commission in other
proceedings with respect to the determination of prudence, just and reasonable character, rate or
ratemaking treatment, or public interest of services, accounts, costs, investments, any particular
construction project, expenditures, or actions referenced in the Commitments.
14. The Parties therefore agree to support this Stipulation as a settlement of all issues
in this proceeding and to recommend approval of the Proposed Transaction in this proceeding
subject to the agreed-upon Commitments. The Parties understand that this Stipulation is not
binding on the Commission in ruling on the Joint Application.
SETTLEMENT STIPULATION AND AGREEMENT - 5
15. The Parties agree that this Stipulation represents a compromise in the positions of
the Parties. As such, conduct, statements, and documents disclosed in the negotiation of this
Stipulation shall not be admissible as evidence in this or any other proceeding. By executing this
Stipulation, no Party shall be deemed to have approved, admitted, or consented to the facts,
principles, methods, or theories employed in arriving at the terms of this Stipulation, nor shall any
Party be deemed to have agreed that any provision of this Stipulation is appropriate for resolving
issues in any other proceeding, except those proceedings involving the enforcement or
implementation of the terms of this Stipulation.
16. The Parties shall cooperate in submitting this Stipulation promptly to the
Commission for acceptance, and shall cooperate in developing supporting testimony required by
WAC 480-07-740(2). The Parties agree to support the Stipulation throughout this proceeding,
provide one or more witnesses each to sponsor such Stipulation as well as legal representatives to
support the Stipulation at a Commission hearing (if necessary), and recommend that the
Commission issue an order adopting the Commitments referenced herein. In the event the
Commission rejects this Stipulation or accepts this Stipulation upon conditions not contained
herein, the provisions of WAC 480-07-750(2) shall apply.
17. Each Party retains the right to provide information to the public about this
Settlement Stipulation, after this Settlement Stipulation is filed with the Commission. Each Party
shall provide to each other Party a copy of each public announcement, news release or similar
communication (hereafter "public communication") that the issuing Party intends to make
regarding this Settlement Stipulation, as soon as practicable in advance of publication (hereafter
"disclosure requirement"). The disclosure requirement shall not apply to a Party that has provided
SETTLEMENT STIPULATION AND AGREEMENT - 6
a copy of a public communication addressing the Settlement Stipulation to other Parties prior to
filing the Settlement Stipulation.
18. This Stipulation is entered into by each Party as of the date entered below. Subject
to Paragraph 19, the obligations of the Parties under this Stipulation are effective as of the date it
has been fully executed by all Parties.
19. The obligations of the Joint Applicants under this Stipulation, with the exccption
of paragraphs 14 through 18, are subject to the Commission's approvalof the Joint Application in
this docket on terms and conditions acceptable to the Joint Applicants, in their sole discretion.
20. I'he Parties may execute this Stipulation in counterparts, which together will
constitute one agreement. A signed signature page sent by email is as effective as an original
document.
na-
DATED: fvfarcr, d1, 201 8
SETTLEMENT STIPULATION AND AGREEMENT - 7
HYDRO ONE LIMITED AVISTA CORPORATION
Ttrow*<By:
Elizabeth Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
On Behalf of Hydro One Limited and
Olympus Equity LLC
David J. Meyer
Chief Counsel for Regulatory and
Governmental Affairs
By
STAFF OF THE WASHINGTON
UTILITIES AI\D TRANSPORTATION
COMMISSION
By:
Jennifer Cameron-Ru lkowski
Assistant Attorney General
NORTHWEST INDUSTRIAL GAS
USERS
By:
Chad M. Stokes
Cable Huston LLP
THE ENERGY PROJECT
By:
Simon J. ffitch
Attorney at Law
THE PUBLIC COUNSEL UNIT OF THE
WASHINGTON OFFICE OF
ATTORNEY GENERAL
By:
Lisa W. Gafken
Assistant Attorney General
INDUSTRIAL CUSTOMERS OF
NORTHWEST UTILITIES
By:
Tyler C. Pepple
Davison Van Cleve, P.C.
NW ENERGY COALITION
RENEWABLE NORTHWEST
NATURAL RESOURCES DEFENSE
COUNCIL
By:
Jeffrey D. Goltz
Cascadia Law Group
On Behalf of NWEC/RNWAIRDC
WASHINGTON AND NORTHERN
IDAHO DISTRICT COUNCIL OF
SETTLEMENT STIPULATION AND AGREEMENT - 8
HYDRO ONE LIMITED
ts
Illizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
On Bchalf of Hydro Onc Limited and
Olympus Equity LLC
AVISTA CORPORATION
David
Chief Counsel for Regulatory and
Governmcntal Affairs
STAFF OF THE WASHINGTON
UTILITIES AND TRANSPORTATION
COMMISSION
By:
Jennifer Cameron-Rulkowski
Assistant Attorney Gcncral
NORTHWEST INDUSTRIAL GAS
USERS
By:
Chad M. Stokes
Cable Huston LLP
THE ENERGY PROJECT
By:
/3 ry,--'J vY'',
crl-
THE PUBLIC COUNSEL UNIT OF THE
WASHINGTON OFFICE OF
ATTORNEY GENERAL
By:
Lisa W. Gafken
Assistant Attorncy General
INDUSTRIAL CUSTOMERS OF
NORTHWEST UTILITIES
By'
Tylcr C. Pepple
Davison Van Cleve, P.C
NW ENERGY COALITION
RENEWABLE NORTHWEST
NATURAL RESOURCES DEFENSE
COUNCIL
By:
Jeffrcy D. Goltz
Cascadia Law Group
On Behalf of NWEC/RNWAIRDC
WASHINGTON AND NORTHERN
IDAHO DISTRICT COUNCIL OF
Simon J. ffitch
Attorncy at Law
SETTLEMENT STIPULATION AND AGREEMENT . 8
i
l/
HYDRO ONE LIMITED AVISTA CORPORATION
By
David J. Meyer
Chief Counsel for Rcgulalory and
Governmental Affairs
STATF OF THE WASHINGTON
UTILITIES AI{D TITAIISFORTATION
COMMISSilON
By
Jcnnifer Cameron-Rulko$rski
Arsishnt Attorney Gcnrd
NORTITWEST INDUSTRIAL GAS
USERS
By;
Chad M. Stokes
Cable HusM LLP
THE ENERGY PROJECT
By;
SimJ. fftch
Affitrey d[.aw
THE PUBLIC COUNSEL UNIT OF THE
WASIIINGTON OTTICtr OT
ATTORNEY GENERAL
By
Lisa W. Gaften
Assistanf Afiorney General
INDUSTRIAL CUSTOMERS OT
NORTHVYEST *1trJAIrS
By:
Tller C. Pepple
DaYfuon Vm Clevg P.C.
IYW ENERGY COALITION
RENEWABLE NORTH}VEST
NATURAL NESOURCES I'EIIENSE
COI'NCIL
By:
Jcffircy D. Croltz
Cascadia t"aw CrrorpOnB€halfofW
$ITN*EMEI{T STIPTJLANON AND AGREEMTHT . S
.."!l-
By: -Elizabe& Tbomas, Partner, K&L Gates LLP
Ikri Vander Stocp, Partrer, K&L Cates LLP
On Bchalf of Hydro OrE Limited ad
Olympus Equity LLC
HYDRO ONE LIMITED
Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Parfirer, K&L Gates LLP
On Behalf of Hydro One Limited and
Olympus Equity LLC
AYISTA CORPORATION
David J. Meyer
Chief Counsel for Regulatory and
Governmental Affairs
STAF'F OF TIIE WASI{INGTON
UTILITIES AND TRANSPORTATION
COMMISSION
By:
Jennifer Cameron-Rulkowski
Assi stant Attorney General
NORTI{WEST INDUSTRIAL GAS
USERS
By:
Chad M. Stokes
Cable Huston LLP
THE ENERGY PROJECT
By:
Simon J. ffitch
Attorney atLaw
TIIE PUBLIC COUNSEL UNIT OF TIIE
WASIIINGTON OFruCE OF
ATTORNEY GENERAL
Lisa . Gafken
Assistbnt Attorney General
INDUSTRIAL CUSTOMERS OF
NORTITWEST UTILITIES
By:
Tyler C. Pepple
Davison Van Cleve, P.C.
IIW ENERGY COALITION
RENEWABLE NORTITWEST
NATTIRAL RESOT'RCES DEtr'ENSE
COUNCIL
By:
Jeffrey D. Goltz
Cascadia Law Group
On Behalf of NWEC/RNWA{RDC
By:
SETTLEMENT STIPULATION AND AGREEMENT - 8
HYDRO ONE LIMITED AVISTA CORPORATION
By:
Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
On Behalf of Hydro One Lirnited and
Olympus Equity LLC
David J. Meyer
Chief Counsel for Regulatory and
Governmental Affairs
STAFF OF THE WASHINGTON
UTILITIES AND TRANSPORTATION
COMMISSION
THE PUBLIC COUNSEL UNIT OF THE
WASHINGTON OF'FICtr OF
ATTORNEY GENERAL
By By:
Jennifer Cameron-Rulkowski
Assistant Attomey General
Lisa W. Gafken
Assistant Attorney General
NORTH\ilEST INDUSTRIAL GAS INDUSTRIAL CUSTOMERS OF
NORTHWEST UTILITIESUSERS
By:By:
Chad M.Tyler C. Pepple
Davison Van Cleve, P.C.Cable Huston LLP
THE ENERGY PROJECT NW ENERGY COALITION
RENEWABLE NORTHWEST
NATURAL RESOURCT]S DEFENSE
COUNCIL
By:By:
Simon J. ffitch
Attorney atLaw
Jeffrey D. Goltz
Cascadia Law Group
On Behalf of NWEC/RNWNRDC
SETTLEMENT ST]PULATION AND AGREEMENT - 8
HYDRO ONE LIMITED
B
Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
On Behalf of Hydro One Limited and
Olympus Equity LLC
AVISTA CORPORATION
David J. Meyer
Chief Counsel for Regulatory and
Govemmental Affairs
STAFF OF THE WASTTINGTON
UTILITIFS AND TRANSFORTATION
COMMISSION
By:
Jennifer Cameron-Rulkowski
Assistant Attorney General
NORTHWEST INDUSTRIAL GAS
USERS
By:
Chad M. Stokes
Cable Huston LLP
THE ENERGY PROJECT
By:
Simon J. ffitch
Attorney at Law
TIIE PUBLIC COUNSEL UNIT OF TTTE
WASIIINGTON OFFICE OF
ATTORNEY GENERAL
By:
Lisa W. Gafken
Assistant Attorney General
INDUSTRIAL CUSTOMERS OF
NORTHWEST UTILITIES
By:
Tyler C.
Davison Van Cleve, P.C.
NW ENERGY COALITION
RENEWABLE NORTTIWEST
NATURAL RESOT]RCES DEFENSE
COUNCIL
By:
Jeffrey D. Goltz
Cascadia Law Group
On Behalf of NWEC/RNW/I.{RDC
SETTLEMENT STIPT'LATION AND AGREEMENT. 8
HYDRO ONE LIMITED AVISTA CORPORATION
By
Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
On Behalf of Hydro One Limited and
Olympus Equity LLC
David J. Meyer
Chief Counsel for Regulatory and
Governmental Affairs
STAFF OF THE WASHINGTON
UTILITIES AND TRANSPORTATION
COMMISSION
THE PUBLIC COUNSEL UNIT OF THE
WASHINGTON OFFICE OF
ATTORNEY GENERAL
By:By:
Jennifer Cameron-Rulkowski
Assistant Attomey General
Lisa W. Gafken
Assistant Attorney General
NORTITWEST INDUSTRIAL GAS
USERS
INDUSTRIAL CUSTOMERS OF
NORTHWEST UTILITIES
By:By:
Chad M. Stokes
Cable Huston Benedict
Tyler C. Pepple
Davison Van Cleve, P.C
THE ENERGY PROJECT NW ENERGY COALITION
RENEWABLE NORTHWEST
NATURAL RESOURCES DEFENSE
COUNCIL
By:By:t\^,-- (\^^sjsssL
(aL
Simon J. ffitch
Attorney at Law
Jeffrey D. Goltz
Cascadia Law Group
On Behalf of NWEC/RNWi\iRDC
SETTLEMENT STIPULATION AND AGREEMENT- 8
SIERRA CLUB LABORERS
By:
By:
Danielle Franco-Malone
Schwerin Campbell Barnard Iglitzin & Lavitt,
LLPTravis Ritchie
Staff Attomey
SETTLEMENT STIPULATION AND AGREEMENT - 9
SIERRA CLUB
By:
Travis Ritchie
Staff Attorney
WASHINGTON AND NORTHERN
IDAHO DISTRICT COUNCIL OF
LABORERS
By:
Danielle Franco-Malone
Schwerin Campbell Barnard lglitzin &Lavitt,
LLP
SETTLEMENT STIPULATION AND AGREEMENT - 9
A.
MASTER LIST OF COMMITMENTS IN WASHINGTON
Table of Contents
Page
Reservation of Certain Authority to the Avista Board of Directors.........................4
Authority Reserved:.. ........................ 4
Executive Management
Board of Directors: ......,
Avista's Brand and Plan for the Operation of the Business: ......
Capital Investment for Economic Development: ............
Continued Innovation:
Union Relationships: .............
Compensation and Benefits:
Avista's Headquarters:...............
Local Staffing:
Community Contributions: .............
Community lnvolvement:................
Economic Development: .............
Membershi p Or ganizations :.........,.
Safety and Reliability Standards and Service Quality Measures
B. Rate Commitments
16. Treatment of Net Cost Savings:................
17. Pre-Transaction Test Year:.........
18. Treatment of Transaction Costs:..
19. Rate Credits: ...............
C. Regulatory Commitments.............
l.
2.
aJ.
4.
5.
6.
7.
8.
...,4
.,,,4
,... 5
.... 5
.... J
.,', 5
....5
State Regulatory Authority and Jurisdiction: .................
Compliance with Existing Commission Orders:
Separate Books and Records: ...............
Access to and Maintenance of Books and Records:................
Cost Allocations Related to Corporate Structure and Affiliate Interests:...
9.
10.
11.
12.
13.
14.
15.
20.
21.
22.
23.
24.
5
5
5
6
6
6
6
6
6
7
7
7
9
9
9
9
9
0I
Appendix A to Seulement Stipulation Page I of26
Participation in National and Regional Forums:
Treatment of Confidential Information: ...........
Commission Enforcement of Commitments:
Submittalto State Court Jurisdiction for Enforcement of Commission Orders:
Annual Report on Commitments:........
33. Commitments Binding:..............
D. Financial Integrity Commitments.............
34. Capital Structure Support:
35. Utility-Level Debt and Preferred Stock:
36. Continued Credit Ratings:
37. Credit Ratings Notification:................
38. Restrictions on Upward Dividends and Distributions:
39. Pension Funding:
40. SEC Reporting Requirements:........
41. Compliance with the Sarbanes-Oxley Act:....
.................... 14
..,,,,,,,,,,,.,..,,,,, l4
,,,,,,,,,,,,',,,,,,,,, 1 4
,.,,..,,,,...,.,,..... 14
...................... 15
...,,,...,...,'....... l 5
25. Ratemaking Cost of Debt and Equity:................
26. Avista Capital Structure:...
27. FERC Reporting Requirements:..............
28.
29.
30.
31.
32.
..... I I
..... I I
.,,., ] l
..... 1I
..... I I
..... I I
.....12
.....12
12
t2
12
13
13
13
13
I3
13
14
E. Ring-FencingCommitments......
42. Golden Share:
43. Independent Directors:
44. Non-Consolidation Opinion:
45. Olympus Equity LLC:.........
46. Restriction on Pledge of Utility Assets:....
47. Hold Harmless; Notice to Lenders; Restriction on Acquisitions and Dispositions:.. 15
48. Olympus Holding Corp. and Olympus Equity LLC Sub-entities:............................. 17
49. No Amendment of Ring-Fencing Provisions
50. No Inter Company Debt:.........
5 l. No Inter Company Lending:....
l7
17
l7
F. Environmental, Renewable Energy, and Energy Efficiency Commitments ..........17
52. Renewable Portfolio Standard Requirements:.........
53. Renewable Energy Resources:
17
l7
Appendix A to Settlement Stipulation Page2 of26
54. Greenhouse Gas and Carbon Initiatives:
55. Cost of Greenhouse Gas Emissions:............
56. Greenhouse Gas Inventory Report:
57. Efficiency Goals and Objectives: ...........
58. Optional Renewable Power Program:
59. Energy Imbalance Market ("EIM"):
60. Regulatory Integrated Resource Planning (lRP) Sideboards: ...
61. Industrial Customers' Self Direct Conservation:.......................
62. Transport Electrification:............
63. Professional Home Energy Audit:
.... t8
.... 18
....18
.... 18
.... 18
....18
.... 19
.... I9
',,. I9
.... 20
G. Community and Low-Income Assistance Commitments.............
64. Community Contributions:.............
65. Low-Income Energy Efficiency Funding:......
66. Low-Income Rate Assistance Program (LIRAP):
67. Funding for Low-lncome Participation in New Renewables:.........
68. Addressing Other Low-Income Customer Issues:
69. Replacement of Manufactured Homes:
70. Low Income Weatherization:
7 l. Security Deposits:...
72. AMI Consumer Protection:............
73. Improve Penetration of Low-Income Programs:..
7 4. Tribal Communities:..............
H. MiscellaneousCommitments
75. Sources of Funds for Hydro One Commitments:
76. Colstrip Depreciation:
77. Montana Community Transition Fund
78. Colstrip Transmission Planning:.
79. On Bill Repayment: ....................
80. Contract Labor:
81. Most Favored Nations:
20
20
20
20
20
20
22
22
22
22
23
23
23
25
Appendix A to Settlement Stipulation Page 3 of 26
A. Reservation of Certain Authority to the Avista Board of Directors
Authoritv Reserved: Consistent with and subject to the terms of Exhibits A and
B to the Merger Agreement (referred to as "Delegation of Authority") contained
in Appendix 5 of the Joint Application, decision-making authority over
commitments 2-15 below is reserved to the Board of Directors of Avista
Corporation ("Avi.SIA") and any change to the policies stated in commitments 2-
l5 requires a two-thirds (213) vote of the Avista Board, provided that Avista must
obtain approval for such changes from all regulatory bodies with jurisdiction
over the Commitments before such changes can go into effect, and provide
written notice to all parties to Docket U-170970 of such request for approval:
Governance
Executive Management: Avista will seek to retain all current executive
management of Avista, subject to voluntary retirements that may occur. This
commitment will not limit Avista's ability to determine its organizational structure
and select and retain personnel best able to meet Avista's needs over time. The
Avista board retains the ability to dismiss executive management of Avista and
other Avista personnel for standard corporate reasons (subject to the approval of
Hydro One Limited ("Hydro One") for any hiring, dismissal or replacement of the
cEo);
Board of Directors: After the closing of the Proposed Transaction, Avista's board
will consist of nine (9) members, determined as follows: (i) two (2) directors
designated by Hydro One who are executives of Hydro One or any of its
subsidiaries; (ii) three (3) directors who meet the standards for "independent
directors" - under section 3034.02 of the New York Stock Exchange Listed
Company Manual (the "Independent Directors") and who are residents of the
Pacific Northwest region, to be designated by Hydro One (collectively, the
directors designated in clauses (i) and (ii) hereof, the "Hydro One Designees"),
subject to the provisions of Clause 2 of Exhibit A to the Merger Agreement; (iii)
three (3) directors who as of immediately prior to the closing of the Proposed
Transactionl are members of the Board of Directors of Avista, including the
Chairman of Avista's Board of Directors (if such person is different from the Chief
Executive Officer of Avista); and (iv) Avista's Chief Executive Officer
(collectively, the directors designated in clauses (iii) and (iv) hereof, the "Avista
Designees"). The initial Chairman of Avista's post-closing Board of Directors
shall be the Chief Executive Officer of Avista as of the time immediately prior to
closing for a one year term. If any Avista Designee resigns, retires or otherwise
ceases to serve as a director of Avista for any reason, the remaining Avista
I "Proposed Transaction" means the transaction proposed in the Joint Application of Avista and Hydro One filed
on September 14,2017.
1
2
aJ
Appendix A to Settlement Stipulation Page 4 of26
6
7
4
5
8
9
Designees shall have the sole right to nominate a replacement director to fill such
vacancy, and such person shall thereafter become an Avista Designee.
The term "Pacific Northwest region" means the Pacific Northwest states in which
Avista serves retail electric or natural gas customers, currently Alaska, Idaho,
Montana, Oregon and Washington;
Business Operations
Avista's Brand and PIan for the Oneration of the Business: Avista will
maintain Avista's brand and Avista will establish the plan for the operation of the
business and its Subsidiaries;
Capital Investment for Economic Development: Avista will maintain its
existing levels of capital allocations for capital investment in strategic and
economic development items, including property acquisitions in the university
district, support of local entrepreneurs and seed-stage investments;
Continued Innovation: Avista will continue development and funding of its and
its subsidiaries' innovation activities;
Union Relationshins: Avista will honor its labor contracts and has the authority
to negotiate, enter into, modify, amend, terminate or agree to changes in any
collective bargaining agreement or any of Avista's other material contracts with
any labor organizations, union employees or their representatives;
Compensation and Benefits: Avista will maintain compensation and benefits
related practices consistent with the requirements of the Merger Agreement;
Local Presence/Community Involvement
Avista's Headquarters: Avista will maintain (a) its headquarters in Spokane,
Washington; (b) Avista's office locations in each of its other service territories,
and (c) no less of a significant presence in the immediate location of each of such
office locations than what Avista and its subsidiaries maintained immediately prior
to completion of the Proposed Transaction;
Local Staffine: Avista will maintain Avista Utilities' staffing and presence in the
communities in which Avista operates at levels sufficient to maintain the provision
of safe and reliable service and cost-effective operations and consistent with pre-
acquisition levels;
l0
I l.Communitv Contributions: For five years after the close of the Proposed
Transaction, Avista will maintain a $4,000,000 annual budget for charitable
contributions (funded by both Avista and the Avista Foundation) and additionally
a $2,000,000 annual contribution will be made to Avista's charitable foundation.
No approval from any regulatory bodies with jurisdiction over the Commitments
is required for any changes to this commitment from and after the sixth year
Appendix A to Settlement Stipulation Page 5 of26
following closing; however any such changes will continue to require a two-thirds
(213) vote of the Avista Board;2
t2 Community Involvement: Avista will maintain at least Avista's existing levels
of community involvement and support initiatives in its service territories;
including involvement with tribes and low-income service agencies and support
initiatives;
13.Economic Development: Avista will maintain at least Avista's existing levels of
economic development, including the ability of Avista to spend operations and
maintenance funds3 to support regional economic development and related
strategic opportunities in a manner consistent with Avista's past practices;
14.Membership Orsanizations: Avista will maintain the dues paid by it to various
industry trade groups and membership organizations; and
l5 Safetv and Reliabilitv Standards and Service Oualitv Measures: Avista will
maintain Avista's safety and reliability standards and policies and service quality
measures in a manner that is substantially comparable to, or better than, those
currently maintained.
Avista will not seek to remove or reduce existing penalty provisions associated
with its safety, reliability, or service quality measures for l0 years after the merger.
If the 5-year rolling average of SAIFI or SAIDI in Washington exceeds 1075% of
the average of their respective scores from 2013 to 2017 (excluding Major Event
Days (MEDs), consistent with Avista's service quality program, tariff schedule
85), Hydro One and Avista commit to increase the rate credit for Washington
electric customers by $250,000 per year. This increased rate credit will persist
until the S-year rolling average is less than the threshold stated above.
B. Rate Commitments
16. Treatment of Net Cost Savinss: Any net cost savings that Avista may achieve
as a result of the Proposed Transaction will be reflected in subsequent rate
proceedings, as such savings materialize. To the extent the savings are reflected in
base retail rates they will offset the Rate Credit to customers, up to the offsetable
portion of the Rate Credit.
2 Note that Commitment 64 contains an additional commitment relating to charitable contributions; pursuant to
that commitment Hydro One will cause Avista to make a one-time contribution of $7,000,000 to Avista's
charitable foundation at or promptly following closing of the Proposed Transaction.
3 Operations and maintenance funds dedicated to economic development and non-utility strategic opportunities
will be recorded below-the-line to a nonoperating account.
Appendix A to Settlement Stipulation Page 6 of26
17.Test Year:The parties agree to the following provisions for
ratemaking purposes.
a. If Avista files for a rate case between the conclusion of Dockets UE-l70485
and UG-170486 and December 31,2018, Avista willpresent a normalized test
year using the most recent l2-month period available.
b. If Avista files for a rate case between January 1,2019, and April 30,2019,
Avista must use a normalized test year of October 1,2017 - September 30,
201 8.
c. If Avista files for a rate case between May I ,2019, and April 30,2021, Avista
must present two normalized test years, (l) October 1,2017 - September 30,
2018 for informational purposes, and (2) the most recent l2-month period
available.
18. Treatment of Transaction Costs:
a. Costs associated with the Proposed Transaction will be separately tracked as
non-utility costs with no charges, either allocated or direct, to be recovered
from Avista customers. After the consummation of the Proposed Transaction,
any remaining transaction costs or other costs of Olympus Holding Corp. or
Hydro One will not appear on Avista's utility books, i.e. such costs will be
recorded as non-utility. Avista shall furnish the Commission with journal
entries and supporting detail showing the nature and amount of all costs of the
Proposed Transaction (including but not limited to management time, BOD
time, in-house and outside counsel time, any consultants engaged, etc.) since
the Proposed Transaction was first contemplated, as well as the accounts
charged, within 120 days of a Commission order in this docket.
b. Avista will exclude from Avista general rate cases, or any other method of cost
recovery, all costs related to the Proposed Transaction including but not limited
to: (i) all legal work from in-house counsel and outside counsel; (ii) any
financial advisory fees associated with the Proposed Transaction; (iii) the
acquisition premium; (iv) costs related to M&A consulting and advice (v)
preparation of and materials for presentations relating to the Proposed
Transaction (vi) any senior executive compensation or any Avista board of
director time tied to a change of control of Avista; (vii) any other costs directly
related to the Proposed Transaction.
19. Rate Credits: Avista and Hydro One are proposing to flow through to Avista's
retail customers in Washington a Rate Credit of approximately $30.7 milliona over
4 The exact agreed-upon figure is $30,715,050, which is equal to 5% of the Washinglon base revenue as of
02l0lll8. Washington electric base revenue is $492,134,000, and Washington natural gas base revenue
(including natural gas costs - Schedules 150/155) is $122,167,000. Five percent of those revenues are
924,606,700 (electric) and $6,108,350 (natural gas).
Appendix A to Settlement Stipulation PageT of26
a s-year period, beginning at the time the merger closes. For customers on
Schedule 25,the credit will be spread by allocating l/3 of the total Schedule 25
credit monies to the first two energy blocks and 213 of the total credit monies to
the third block.
The Total Rate Credit to customers for the five years following the closing will be
approximately $6.1 millions per year. A portion of the annual total Rate Credit
will be offsetable, in the amount of $1.02 million6. During the S-year period the
financial benefits will be flowed through to customers either through the separate
Rate Credit described above or through a reduction to the underlying cost of
service as these benefits are reflected in the test period numbers used for
ratemaking. At the time of the close, the $6.1 million benefit will be provided to
customers through a separate Rate Credit, as long as the reduction in costs (of up
to $1.02 million annually) has not already been reflected in base retail rates for
Avista's customers.
To the extent Avista demonstrates in a future rate proceeding that cost savings, or
benefits, directly related to the Proposed Transaction are already being flowed
through to customers through base retail rates, the separate Rate Credit to
customers would be reduced by an amount up to the offsetable Rate Credit amount.
The portion of the total Rate Credit that is not offsetable effectively represents
acceptance by Hydro One of a lower rate of return during the 5-year period.
The $30.7 million represents the "floor" of benefits that will be flowed through to
Avista's customers, either through the Rate Credit or through benefits otherwise
included in base retail rates. To the extent the identifiable benefits exceed the
annual offsetable Rate Credit amounts, these additional benefits will be flowed
through to customers in base retail rates in general rate cases as they occur. Avista
and Hydro One believe additional efficiencies (benefits) will be realized over time
from the sharing of best practices, technology and innovation between the two
companies. It will take time, however, to identify and capture these benefits. The
level of annual net cost savings (and/or net benefits) will be tracked and reported
on an annual basis, and compared against the offsetable level of savings.
5 The exact amount agreed upon is $6,143,010 per year. The annual Washington electric Rate Credit for each
of the five years is $4,921,340. The annual Washington natural gas Rate Credit for each of the five years is
$1,221,670.
6 The offsetable portion of the Rate Credit is calculated using a pro rata share of the jurisdictional total of the
rate credit (i.e. Washington's share of the offsetable Rate Credit is 60.29o/o,therefore Washington's share of the
$1.7 million offsetable portion is $1.02 million).
Appendix A to Settlement Stipulation Page 8 of26
Any application of offsetable savings will be reviewed by the Commission before
the offset is applied, and Avista bears the burden of proof to prove that savings
have materialized and the offset to rate credits should apply.
C. Regulatory Commitments
State Reeulatorv Authoritv and Jurisdiction: Olympus Holding Corp. and its
subsidiaries, including Avista, as appropriate, will comply with all applicable laws,
including those pertaining to transfers of property (Chapter 80.12), affiliated
interests (Chapter 80.16), and securities and the assumption of obligations and
liabilities (Chapter 80.08).
Compliance with Existinq Commission Orders: Olympus Holding Corp. and
its subsidiaries, including Avista, acknowledge that all existing orders issued by
the Commission with respect to Avista or its predecessor, Washington Water
Power Co., will remain in effect, and are not modified or otherwise affected by the
Proposed Transaction.
Olympus Holding Corp. and its subsidiaries, including Avista, will comply with
all applicable future Commission orders that remain in force.
Separate Books and Records: Avista will maintain separate books and records
from its affiliates.
23.Access to and Maintenance of Books and Records: Olympus Holding Corp.
and its subsidiaries, including Avista, will provide reasonable access to Avista's
books and records; access to financial information and filings; access rights with
respect to the documents supporting any costs that may be allocable to Avista; and
access to Avista's board minutes, audit reports, and information provided to credit
rating agencies pertaining to Avista.
Hydro One, Olympus Holding Corp. and its subsidiaries, including Avista, will
maintain the necessary books and records so as to provide documents relating to
all corporate, affiliate, 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 relate to transactions with Avista, or 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 affiliate or subsidiary companies) required to verify
or examine transactions with Avista, or that result in costs that may be allocable to
Avista.
Nothing in the Proposed Transaction will limit or affect the Commission's rights
with respect to inspection of Avista's accounts, books, papers and documents in
compliance with all applicable laws. Nothing in the Proposed Transaction will
Iimit or affect the Commission's rights with respect to inspection of Olympus
Holding Corp.'s accounts, books, papers and documents pursuant to all applicable
laws; provided, that such right to inspection shall be limited to Olympus Holding
Corp.'s accounts, books, papers and documents that pertain solely to transactions
affecting Avi sta' s regulated uti I ity operations.
Appendix A to Settlement Stipulation Page 9 of26
20
21.
22.
Olympus Holding Corp. and its subsidiaries, including Avista, will provide the
Commission with access to written information provided by and to credit rating
agencies that pertains to Avista. Olympus Holding Corp. and each of its
subsidiaries will also provide the Commission with access to written information
provided by and to credit rating agencies that pertains to Olympus Holding Corp.'s
subsidiaries to the extent such information may affect Avista.
Hydro One and its affiliates agree that the Commission may have access to all the
accounting records of Hydro One and its affiliates that are the bases for charges to
Avista, to determine the reasonableness of the costs and the allocation factors used
by Hydro One and its affiliates, or its subdivisions to assign costs to Avista and
amounts subject to allocation or direct charges. Hydro One and its affiliates agree
that they will not raise lack ofjurisdiction as a means of denying such access, and
agree to cooperate fully with such Commission investigations.
Cost Allocations Related to Corporate Structure and Affiliate Interests:
Avista agrees to provide cost allocation methodologies used to allocate to Avista
any costs related to Olympus Holding Corp. or its other subsidiaries, and commits
that there will be no cross-subsidization by Avista customers of unregulated
activities.
The cost-allocation methodology provided pursuant to this commitment will be a
generic methodology that does not require Commission approval prior to it being
proposed for specific application in a general rate case or other proceeding
affecting rates.
Avista willbearthe burden of proof in any general rate case that any corporate and
affiliate cost allocation methodology is reasonable for ratemaking purposes.
Neither Avista nor Olympus Holding Corp. or its subsidiaries will contest the
Commission's authority to disallow, for retail ratemaking purposes in a general
rate case, unreasonable, or misallocated costs from or to Avista or Olympus
Holding Corp or its other subsidiaries.
With respect to the ratemaking treatment of affiliate transactions affecting Avista,
Hydro One, and Olympus Holding Corp. and its subsidiaries, as applicable, will
comply with the Commission's then-existing practice; provided, however, that
nothing in this commitment limits Avista from also proposing a different
ratemaking treatment for the Commission's consideration, or limit the positions
any other party may take with respect to ratemaking treatment.
Avista will notify the Commission of any change in corporate structure that affects
Avista's corporate and affiliate cost allocation methodologies. Avista willpropose
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 particular methodology for corporate and
affi liate cost allocation.
24
Appendix A to Seulement Stipulation Page l0 of26
Ratemakins Cost of Debt and Equity: Avista will not advocate for a higher cost
of debt or equity capital as compared to what Avista's cost of debt or equity capital
would have been absent Hydro One's ownership.
For future ratemaking purposes:
a. Determination of Avista's debt costs will be no higher than such costs would
have been assuming Avista's credit ratings by at least one industry recognized
rating agency, including, but not limited to, S&P, Moody's, Fitch or
Morningstar, as such ratings in effect on the day before the Proposed
Transaction closes and applying those credit ratings to then-current debt,
unless Avista proves that a lower credit rating is caused by circumstances or
developments not the result of financial risks or other characteristics of the
Proposed Transaction;
b. 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 ofthe Proposed Transaction; and
Determination of the allowed return on equity in future general rate cases will
include selection and use of one or more proxy group(s) of companies engaged
in businesses substantially similar to Avista, without any limitation related to
Avista's ownership structure.
Avista Capital Structure: At all times following the closing of the Proposed
Transaction, Avista's actual common equity ratio will be maintained at a level no
less than 44 percent. This commitment does not restrict the Commission from
ordering a hypothetical capital structure.
FERC Reportins Requirements: Avista will continue to meet all the applicable
FERC reporting requirements with respect to annual and quarterly reports (e.g.,
FERC Forms 1,2,3q) after closing of the Proposed Transaction.
Participation in National and Resional Forums: Avista will continue to
participate, where appropriate, in national and regional forums regarding
transmission issues, pricing policies, siting requirements, and interconnection and
integration policies, when necessary to protect the interest of its customers.
Treatment of Confidential Information: Nothing in these commitments will be
interpreted as a waiver of Hydro One's, its subsidiaries', or Avista's rights to
request confidential treatment of information that is the subject of any of these
commitments.
Commission Enforcement of Commitments: Hydro One and its subsidiaries,
including Avista, understand that the Commission has authority to enforce these
commitments in accordance with their terms. If there is a violation of the terms of
these commitments, then the offending party may, at the discretion of the
Commission, have a period of thirty (30) calendar days to cure such violation.
Appendix A to Settlement Stipulation Page 1 I of26
25
26
29
30.
c
27
28
The scope of this commitment includes the authority of the Commission to compel
the attendance of witnesses from Olympus Holding Corp. and its affiliates,
including Hydro One, with pertinent information on matters affecting Avista.
Olympus Holding Corp. and its subsidiaries waive their rights to interpose any
legal objection they might otherwise have to the Commission's jurisdiction to
require the appearance of any such witnesses.
31.Submittal to State Court Jurisdiction for Enforcement of Commission
Orders: Olympus Holding Corp., on its own and its subsidiaries' behalf,
including Avista's, will file with the Commission prior to closing the Proposed
Transaction 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.
32 Annual Renort on Commitments: By May 1,2019 and each May I thereafter
through May l, 2029, Avista will file a report with the Commission regarding the
status of compliance with each of the commitments as of December 3l of the
preceding year. The report will, at a minimum, provide a description of the
performance of each of the commitments, will be filed in Docket U-170970 and
served to all parties to the docket. If any commitment is not being met, relative to
the specific terms of the commitment, the report must provide proposed corrective
measures and target dates for completion of such measures. Avista will make
publicly available at the Commission non-confidential portions of the report.
JJ Commitments Bindins: Hydro One, Olympus Holding Corp. and its subsidiaries,
including Avista, acknowledge that the commitments being made by them are
binding only upon them and their affiliates where noted, and their successors in
interest. Hydro One and Avista are not requesting in this proceeding a
determination of the prudence, just and reasonable character, rate or ratemaking
treatment, or public interest of the investments, expenditures or actions referenced
in the commitments, and the parties in appropriate proceedings may take such
positions regarding the prudence, just and reasonable character,rate or ratemaking
treatment, or public interest of the investments, expenditures or actions as they
deem appropriate.
If Hydro One or any other entity in the chain of Avista's ownership determines
that Avista or any other entity has failed to comply with an applicable
Commitment, the entity making such determinations shall take all appropriate
actions to achieve compliance with the Commitment.
D. Financial Integrity Commitments
34. Capital Structure Supnort: Hydro One will provide equity to support Avista's
capital structure that is designed to allow Avista access to debt financing under
reasonable terms and on a sustainable basis.
Appendix A to Settlement Stipulation Page 12 of26
Utility-Level Debt and Preferred Stock: Avista will maintain separate debt and
prefered stock, if any, to support its utility operations.
Continued Credit Ratines: Each of Hydro One and Avista will continue to be
rated by at least one nationally recognized statistical "Rating Agency." Hydro One
and Avista will use reasonable best efforts to obtain and maintain a separate credit
rating for Avista from at least one Rating Agency within the ninety (90) days
following the closing of the Proposed Transaction. If Hydro One and Avista are
unable to obtain or maintain the separate rating for Avista, they will make a filing
with the Commission explaining the basis for their failure to obtain or maintain
such separate credit rating for Avista, and parties to this proceeding will have an
opportunity to participate and propose additional commitments.
Credit Ratines Notification: Hydro One and Avista agree to notify the
Commission within two business days of any downgrade of Avista's credit rating
to a non-investment grade status by S&P, Moody's, or any other such ratings
agency that issues such ratings with respect to Avista.
SEC Reportins Requirements: Following the closing of the Proposed
Transaction, Avista will file required reports with the SEC.
36
35
)l
39
38. Restrictions on Upward Dividends and Distributions:
a. If either (i) Avista's corporate credit/issuer rating as determined by both
Moody's and S&P, or their successors, is investment grade, or (ii) the ratio of
Avista's EBITDA to Avista's interest expense is greater than or equal to 3.0,
then distributions from Avista to Olympus Equity LLC shall not be limited so
long as Avista's equity ratio is equal to or greater than 44 percent on the date
of such Avista distribution after giving effect to such Avista distribution,
except to the extent the Commission establishes a lower equity ratio for
ratemaking purposes. Both the EBITDA and equity ratio shall be calculated
on the same basis that such calculations would be made for ratemaking
purposes for regulated utility operations.
b. Under any other circumstances, distributions from Avista to Olympus Equity
LLC are allowed only with prior Commission approval.
c. If Avista does not have an investment-grade rating from both Moody's and
S&P, or from one of these entities, or its successor, if only one issues ratings
with respect to Avista, and the ratio of EBITDA to Avista's interest expense is
less than 3.0, no dividend distribution to Olympus Equity LLC or its successors
will occur.
Pension Fundins: Avista will maintain its pension funding policy in accordance
with sound actuarial practice. Hydro One will not seek to change Avista's pension
funding policy.
40
Appendix A to Settlement Stipulation Page l3 of26
41.Compliance with the Sarbanes-Oxlev Act: Following the closing of the
Proposed Transaction, Avista will comply with applicable requirements of the
Sarbanes-Oxley Act.
E. Ring-Fencing Commitments
Golden Share: Entering into voluntary bankruptcy shall require the affirmative
vote of a "Golden Share" of Avista stock. The Golden Share shall mean the sole
share of Preferred Stock of Avista as authorized by the Commission. This share of
Preferred Stock must be in the custody of an independent third-party, where the
third-party has no financial stake, affiliation, relationship, interest, or tie to Avista
or any of its affiliates, or any lender to Avista, or any of its affiliates. This
requirement does not preclude the third-party from holding an index fund or
mutual fund with negligible interests in Avista or any of its affiliates. In matters
of voluntary bankruptcy, this Golden Share will override all other outstanding
shares of all types or classes of stock.
Independent Directors: At least 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 Olympus
Equity LLC), offrcer, or employee of Hydro One or its affiliates. At least one of
the members of the board of directors of Olympus Equity LLC will be an
independent director who is not a member, stockholder, director (except as an
independent director of Olympus Equity LLC or Avista), officer, or employee of
Hydro One or its affiliates. The same individual may serve as an independent
director of both Avista and Olympus Equity LLC. The organizational documents
for Avista will not permit Avista, without the consent of a two-thirds majority of
all its directors, including the affirmative vote of the independent director at Avista
(or if at that time Avista has more than one independent director, the affirmative
vote of at least one of Avista's independent directors), to consent to the institution
of bankruptcy proceedings or the inclusion of Avista in bankruptcy proceedings.
In addition to an affirmative vote of this independent director, the vote of the
Golden Share shall also be required for Avista to enter into a voluntary bankruptcy.
42
43
44. Non-Consolidation Opinion:
a. Within ninety (90) days of the Proposed Transaction closing, Avista and
Olympus Holding Corp. will file a non-consolidation opinion with the
Commission which concludes, subject to customary assumptions and
exceptions, that the ring-fencing provisions are sufficient that a bankruptcy
court would not order the substantive consolidation of the assets and liabilities
of Avista with those of Olympus Holding Corp. or its affiliates or subsidiaries
(other than Avista and its subsidiaries).
b. Hydro One and Olympus Holding Corp. must file an affidavit with the
Commission stating that neither Hydro One, Olympus Holding Corp. nor any
of their subsidiaries, will seek to include Avista in a bankruptcy without the
Appendix A to Settlement Stipulation Page 14 of26
consent of a two-thirds majority of Avista's board of directors including the
affirmative vote of Avista's independent director, or, if at that time Avista has
more than one independent director, the affirmative vote of at least one of
Avista's independent directors.
c. 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 undertake the following actions:
Notify the Commission of this inability to obtain a non-consolidation
opinion.
ll.Propose and implement, upon Commission approval, such additional
ring-fencing provisions around Avista as are sufficient to obtain a non-
consolidation opinion subject to customary assumptions and
exceptions.
iii. Obtain a non-consolidation opinion.
Olvmpus Equitv LLC: Olympus Holding Corp.'s indirect subsidiaries will
include Olympus Equity LLC and Avista. See the post-acquisition organizational
chart in Appendix B to the Settlement Stipulation. Following closing of the
Proposed Transaction, all of the common stock of Avista will be owned by
Olympus Equity LLC, a new Delaware limited liability company. Olympus Equity
LLC willbe a bankruptcy-remote specialpurpose entity, and will not have debt.
Restriction on Pledee of Utilitv Assets: Avista agrees to prohibitions against
Ioans or pledges of utility assets to Hydro One, Olympus Holding Corp., or any of
their subsidiaries or affiliates, without Commission approval. In addition, the
Applicants agree that Avista's assets will not be pledged by Avista or any of its
affiliates, including Hydro One and Olympus Holding Corp. and any of their
subsidiaries or affiliates, for the benefit of any entity other than Avista.
Hold Harmlessl Notice to Lenders; Restriction on Acquisitions and
Dispositions:
a. Avista will hold Avista customers harmless from any business and financial
risk exposures associated with Olympus Holding Corp., Hydro One, and Hydro
One's other affiliates.
b. Pursuant to this commitment, Avista and Olympus Holding Corp. will file with
the Commission, prior to closing of the Proposed Transaction, a form of notice
to prospective lenders describing the ring-fencing provisions included in these
commitments stating that these provisions provide no recourse to Avista assets
as collateral or security for debt issued by Hydro One or any of its subsidiaries,
other than Avista.
c. In funherance of this commitment:
l.
45
46.
47.
Appendix A to Settlement Stipulation Page 1 5 of26
Avista commits that Avista's regulated utility customers will be held
harmless from the liabilities of any unregulated activity of Avista or
Hydro One and its affiliates. In any proceeding before the Commission
involving rates of Avista, the fair rate of return for Avista will be
determined without regard to any adverse consequences that are
demonstrated to be attributable to unregulated activities. Measures
providing for separate financial and accounting treatment will be
established for each unregulated activity.
ll.Olympus Holding Corp. and Avista will notify the Commission
subsequent to Olympus Holding Corp.'s board approval and as soon
as practicable following any public announcement of: (l) any
acquisition by Olympus Holding Corp. of a regulated or unregulated
business that is equivalent to five (5) percent or more of the
capitalization of Avista; or (2) any change in control or ownership of
Avista, except that the notice of a change to the upstream ownership of
Avista or Olympus Holding Corp. among wholly owned subsidiaries
of Hydro One may be provided in either an updated organizational
chart included in the annual report filing described in Commitment 32
or in a separate notice filing. Notice pursuant to this provision is not
and will not be deemed an admission or expansion of the Commission's
authority or jurisdiction over any transaction or in any matter or
proceeding whatsoever.
Within sixty (60) days following the notice required by this subsection
(c)(ii)(2), Avista and Olympus Holding Corp. or its affiliates, as
appropriate, will seek Commission approval of any sale or transfer of
any material part of Avista, or of any transaction or series of
transactions, regardless of size, that would result in a person or entity,
other than a wholly owned subsidiary of Hydro One, directly or
indirectly, acquiring a controlling interest in Avista or Olympus
Holding Corp. The term "material part of Avista" means any sale or
transfer of stock representing ten percent (10%) or more of the equity
ownership of Avista.
lll.Neither Avista nor Olympus Holding Corp. will assert in any future
proceedings that, by virtue of the Proposed Transaction and the
resulting corporate structure, the Commission is without jurisdiction
over any transaction that results in a change of control of Avista.
d. If and when any subsidiary of Avista becomes a subsidiary of Hydro One or
one of its subsidiaries other than Avista, Avista will so advise the Commission
within thirty (30) days and will submit to the Commission a written document
setting forth Avista's proposed corporate and affiliate cost allocation
methodologies.
Appendix A to Settlement Stipulation Page 16 of26
l.
Olvmpus Holdins Corn. and Olvmpus Equitv LLC Sub-entities: Olympus
Holding Corp. will not operate or own any business and will limit its activities to
investing in and attending to its shareholdings in Olympus Equity LLC, which, in
turn, will not operate or own any business and will limit its activities to investing
in and attending to its shareholdings in Avista.
No Amendment of Ring-Fencins Provisions: Hydro One, Olympus Holding
Corp. and Avista commit that no material amendments, revisions or modifications
will be made to the ring-fencing provisions as specified in these regulatory
commitments without prior Commission approval pursuant to a limited re-opener
for the sole purpose of addressing the ring-fencing provisions.
No Inter Company Debt: Avista will notify the Commission before entering into
any inter-company debt transactions with Olympus Holding Co.p., Hydro One, or
any of their subsidiaries or affiliates.
No Inter Company Lendins: Without prior Commission approval, Avista will
not lend money to Olympus Holding Corp., Hydro One, or any of their subsidiaries
or affiliates.
Renewable Portfolio Standard Requirements: Hydro One acknowledges
Avista's obligations under applicable renewable portfolio standards, and Avista
will continue to comply with such obligations.
Avista will acquire all renewable energy resources required by law and such other
renewable energy resources as may from time to time be deemed advisable in
accordance with Avista's integrated resource planning ("lRI"'; process and
applicable regulations.
53. Renewable Enerw Resources:
Avista's non-fossil fueled generation resources constitute more than 50% of its
generation portfolio, and Avista exceeds the renewable energy standards currently
applicable to the company under RCW 19.285.040(2).
Avista makes the following renewable energy commitments. Both commitments
are made only to the extent resources are reasonably commercially available and
are (l) necessary to meet load and (2) consistent with the lowest reasonable cost
resource portfolio pursuant to Avista's established IRP and pursuant to the
Commission's resource evaluation and acquisition rules and policies.
a. Avista will commit to initiating a Request for Proposal with the intent of
acquiring additional eligible renewable energy resources as part of this process
above and beyond the current renewable energy standards in law. Avista will
commit to obtain approximately 50 aMW of expected energy from new eligible
renewable resources by 2022. The aMW obtained under this commitment may
48.
49
50.
5l
F. Environmental, Renewable Energy, and Energy Efficiency Commitments
52
Appendix A to Settlement Stipulation Page 17 of26
be used to satisfy any increase that may be caused by changes to the renewable
energy standards in law after the date an Order approving this merger has been
entered.
b. Avista will commit to obtain at least 90 aMW of expected energy from new
eligible renewables resources to become operational approximately within a
year of the timeframe that Colstrip 3 and 4 go offline.
"Resources" is understood to include Power Purchase Agreements ("PPAs").
Nothing in either commitment prohibits Avista from retaining or selling renewable
energy credits associated with such resources that are surplus to Avista's needs to
meet Washington Renewable Portfolio Standards targets.
Communications with customers shall accurately reflect the environmental
attributes associated with power delivered to such customers. Hydro One and
Avista acknowledge that Avista retains the burden of proof to demonstrate the
prudence of any resource acquisition.
The utility should work with an independent third-party consultant, with expertise
in renewable energy resources, to ensure that the utility has up-to-date resource
cost and performance assumptions, as well as the appropriate leaming curves
Greenhouse Gas and Carbon Initiatives: Hydro One acknowledges Avista's
Greenhouse Gas and Carbon Initiatives contained in its current Integrated
Resource Plan, and Avista will continue to work with interested parties on such
initiatives,
Cost of Greenhouse Gas Emissions: Unless it conflicts with any instructions
contained in the Commission's acknowledgement letter in response to Avista's
current integrated resource plan (lRP), beginning with the next IRP, Avista
commits to modeling a range of potential costs for greenhouse gas emissions, and
will work with its IRP Advisory Group to determine the appropriate values to
model.
Greenhouse Gas Inventorv Report: Avista will report greenhouse gas emissions
as required.
Efficiency Goals and Obiectives: Hydro One acknowledges Avista's energy
efficiency goals and objectives set forth in Avista's 2017 lntegrated Resource Plan
and other plans, and Avista will continue its ongoing collaborative efforts to
expand and enhance them.
Optional Renewable Power Program: Avista will continue to offer renewable
power programs in consultation with stakeholders.
Energy Imbalance Market ("EIM"): Avista is currently refreshing its EIM
analysis and will release it publicly by the end of 2018. Avista commits to hold
54.
55.
58
56.
57.
59.
Appendix A to Settlement Stipulation Page l8 of26
workshops with the Commission and interested stakeholders to review the analysis
and discuss the prudent next steps.
60. Regulatory Inteerated Resource P Avista commits
to calculating a variable generation resource's contribution to capacity in terms of
that resource's contribution to resource adequacy and that resource's ability to
reduce the loss of load probability in some or all hours or days utilizing the
Effective Load Carrying Capability ("ELCC") methodology or an appropriate
approximation.
Industrial Customers' Self Direct Conservation: Avista shall provide a one-
time self-direct option for a large conservation project. The project shall have a
capital cost of at least $15 million but no more than $30 million and must be
commenced within five years of closing of the merger. After applying available
incentive funding through Avista's Schedule 91, Avista shall finance the
remaining capital cost of the project. The customer that pursues the conservation
project shall repay the financed portion of the project, including a carrying charge
equal to Avista's rate of retum, through its Schedule 9l charges until full
amortization. In the event that the customer defaults or ceases operations prior to
full amortization of the Avista-financed amount, the remaining balance will be
recovered through Schedule 25 contributions to Schedule 9l until such time as the
remaining balance is fully amortized. No other customers will be impacted
financially from this commitment and all customers will benefit from the increased
energy effrciency acquisition.
6t
62 Transport Electrification: Avista commits and Hydro One agrees that Avista
commits, to expanding access to transportation electrification for all customers. As
part of the long-term electric vehicle supply equipment (EVSE) program that
Avista is developing following the completion of its pilot under UE-160082, the
Joint Applicants commit to setting internal goals and objectives for Avista, in
coordination with the Joint Utility Electric Vehicle Stakeholder Group, that do the
following:
Significantly increase outreach and education to customers about the
benefits of electric vehicle ownership and use.
Ensure engagement with low-income customers and organizations that
serve low-income customers fully enables participation by these customers
and addresses historical issues of participation.
Significantly increase EVSE program components that serve and benefit
Iow-income residential customers, with a goal of 30o/o of residential
program funds being dedicated to projects that serve low-income
customers.
Overcome bamiers for EVSE siting with small business customers.
a
a
a
Appendix A to Settlement Stipulation Page 19 of26
a Implement incentives that minimize or fully eliminate the cost of EVSE for
customers.
63 Professional Home Enersv Audit: Avista commits to provide home energy
audits to 2,000 homes at $300 per home, over a lO-year period, in Washington.
Hydro One will arrange total funding of $600,000 for this commitment. With more
robust data available after the installation of AMI, Hydro One and Avista agree to
revisit this commitment to determine if the number of homes served could be
expanded.
G. Community and Low-Income Assistance Commitments
Communitv Contributions: Hydro One will cause Avista to make a one-time
$7,000,000 contribution to Avista's charitable foundation at or promptly following
closing.T
Low-Income Energy Efficiencv Fundins: Avista will continue to work with its
advisory groups on the appropriate level of funding for low income energy
efficiency programs.
Low-Income Rate Assistance Prosram (LIRAP): Hydro One and Avista
commit to continue Avista's LIRAP and related pilot programs.
Fundins for Low-Income Participation in New Renewables: Hydro One will
arrange funding totaling $5,000,000 over a period of up to ten (10) years for the
purpose of funding one or more renewable generation project(s) to benefit Avista's
low-income customers. The types of projects that may be funded include, but are
not limited to, on site renewable energy installations such as photovoltaic
equipment, community solar projects, and other renewable energy equipment, in
which the benefits will be directed to Avista's low-income customers. The funds
will be paid into a separate account to be managed and disbursed by Avista at the
direction of its Energy Assistance Advisory Group (which includes third-party
advisors such as The Energy Project, Public Counsel, Commission Staft and low-
income agencies as well as Avista). The Energy Assistance Advisory Group will
determine the project selection (which includes design and implementation).
Eligible costs may include project construction, consulting costs, and reasonable
administration costs required for the coordination of renewable energy projects.
68 Addressing Other Low-Income Customer Issues: Avista will continue to work
with low-income agencies to address other issues of low-income customers,
including funding for bill payment assistance.
7 Note that Commitment I I contains additional provisions relating to Avista's charitable contributions.
64
65
66
67
Appendix A to Settlement Stipulation Page20 of26
Replacement of Manufactured Homes: Hydro One will anange funding of
$2,000,000 over a l0-year period in Washington to replace manufactured homes.
At least half of the funds must be spent in the first five years. The demand side
management ("DSM") advisory group and Avista will work together to design the
program, and Avista will begin implementing the program within six months of
the date that the Proposed Transaction closes. The program will prioritize
replacement of homes manufactured before 1976.
To the extent any funds are not used over the l0-year period, these funds will be
redirected for additional funding for low-income weatherization programs.
Low Income Weatherization: Avista commits and Hydro One agrees that Avista
commits, to continue Avista's existing weatherization programs, described in
Schedules 90 and 190.
Hydro One will arrange funding of $4,000,000 over 10 years to fund low income
weatherization in Washington. This funding is over and above existing funding for
low-income weatherizati on.
For both existing funding and the new Hydro One funding, 20 percent of the funds
may be used for "direct" project coordination costs and l0 percent for "indirect"
general overhead costs of administering the weatherization program.
Securitv Deposits: Avista commits and Hydro One agrees that Avista commits
to eliminate security deposits for new Avista residential customers and to return
existing security deposits to customers who have a deposit held longer than 6
months. After two years from Commission approval of the Proposed Transaction,
any party may request the Commission to modify or remove this commitment if it
determines that application of this commitment has an unreasonable impact on
Avista's uncollectible debt.
AMI Consumer Protection: Avista commits and Hydro One agrees that Avista
commits to discussing implementation of prepayment billing and remote
disconnect at the Commission's upcoming AMI workshops, and agree not to
implement prepayment until authorized by the Commission after conclusion of the
AMI workshop, and related AMI dockets. Avista agrees to track the benefits of
remote disconnection/reconnection identified in its AMI business case, starting
with the AMI technology data collected from customers already equipped with an
AMI meter. In addition, Avista commits that, it will not remotely disconnect
customers for non-payment when the National Weather Service for that particular
region has forecasted a daily high temperature of 38 degrees or less or a daily high
temperature of 100 degrees or more. If, however, the Commission adopts a rule
prescribing a temperature threshold for remote disconnection that is inconsistent
with this commitment, the rule will supersede this commitment.
Improve Penetration of Low-Income Proerams: Hydro One and Avista will
undertake a targeted effort with a goal of improving the penetration rate of low-
Appendix A to Settlement Stipulation Page2l of26
69
70
7l
72
73
income programs with a focus on underserved, vulnerable, and high energy burden
households. This commitment will include expanding marketing, outreach, and
data analysis.
74 Tribal Communities: In implementing these conditions, Avista will reach out to
tribal communities to encourage participation of members of such communities in
receiving the benefits of this settlement.
H. Miscellaneous Commitments
75 Sources of Funds for Hvdro One Commitments: Throughout this list of merger
commitments, any commitment that states Hydro One will arrange funding is not
contingent on Hydro One's ability to arrange funding, particularly from outside
sources, but is a firm commitment to provide the dollar amount specified over the
time period specified and for the purposes specified. To the extent Avista has
retained earnings that are available for payment of dividends to Olympus Equity
LLC consistent with the ring fencing provisions of this list of merger
commitments, such retained earnings may be used. Funds available from other
Hydro One affiliates may be used without limitation. Avista will not seek cost
recovery for any of the commitments funded or arranged by Hydro One in this list
of merger commitments. Hydro One will not seek cost recovery for such funds
from ratepayers in Ontario.
76. Colstrip Depreciatiou Hydro One and Avista agree to a depreciation schedule
for Colstrip Units 3 and 4 that assumes a remaining useful Iife of those units
through December 31,2027. Existing undepreciated balance ($l14.2 Million) will
be recovered as follows:
$ 16.7 Million - unprotected Excess DFIT/Deferral of January - April 201 8
tax credit.
$45.3 Million - through an annual depreciation expense of approximately
$4.533 million (WA Share), which is the current level of annual
depreciation expense presently being recovered from ratepayers (i.e., no
increase to rates)
$52.2 Million - regulatory asset offset by the amortization of protected
Excess DFIT, i.e. over 36 years
a
a
See Attachment A to Appendix A (Master List of Commitments in Washington)
to the Settlement Stipulation, "Colstrip Commitment Summary and Description",
which is incorporated herein by reference.
Montana Communitv Transition Fund: Hydro One and Avista will arrange
funding of $3.0 Million towards a Colstrip community transition fund.
77
Appendix A to Settlement Stipulation Page22 of26
This commitment is not intended as a o'cap" of the amount that Avista/Hydro One
may ultimately contribute to help the Colstrip community transition from coal-
fired generation.
78.Colstrip Transmission Plannins: Avista will work with the other Path 8 (MT-
to-NW) owners (Northwestern Energy and BPA) to resolve questions surrounding
the ability of new generation to use the Colstrip Iine once Colstrip Units I and 2
retire, and also when Units 3 and 4 retire.
At least one yearpriorto any closure of Colstrip Units 3 and4, Avista will develop
a transition plan for its Colstrip transmission assets. Avista will hold at least one
workshop with Commission Staff and stakeholders to determine the transition
plan's impacts to Washington ratepayers.
Avista will work with stakeholders and Commission Staff and file this transition
plan with the Commission. In developing this transition plan, to the extent
practicable, Avista should participate in l) the workshops on this topic that PSE
and the Commission will be holding in 2018 (per the PSE GRC settlement), and
2) the BPA/Govemor Bullock Transmission Task Force that commenced work on
December 8,2017 , and will work through the middle of 201 8.
Hydro One agrees Avista will conduct the activities described in the foregoing
paragraphs.
7e. @ Hydro One will arrange funding of the approximately
$100,000 initial investment in software upgrades and $5,000 in administrative
costs. The option for repayment of the customer's share of the cost of a
replacement manufactured home (funded by third-party financial institutions) will
be included in the OBRP.8 Under no circumstance, will the ratepayer population
be responsible for any default related to the OBRP.
80. Contract Labor:
a. On a prospective basis, and for a period of l0 years ending March 7,2028,
Avista will require the use of WNIDCL members for the type of work that is
ordinarily and customarily performed by WNIDCL on natural gas replacement
and all natural gas work. This will not apply to work performed under contracts
8 OBRP is a pass-through billing service for energy efficiency loans, where Avista would collect loan payments
on customers' bills then transmit the sum monthly to the third-party lender. Only non-profit lenders would be
eligible, offering low rates for energy efficiency loans. The lender has no ability to shut off power (due to non-
payment) and all lending activity is managed separate from the utility, where the lender:
o Provides all capital, bears full risk
o Manages delinquent files and collections off-bill
o Handles loans/balances separate from utility financial systems
o Meets consumer lending regulatory requirements.
Appendix A to Settlement Stipulation Page23 of26
already in effect as of March 7, 2018. This agreement will not apply to (a)
atmospheric corrosion; (b) locating; and (c) leak survey. This agreement will
also not apply to work performed where signatory contractors are not available
(unavailability is typically due to locations being in remote areas), or choose
not to bid on projects; provided that work performed in such areas will be paid
at equivalent wages and benefits.
b. On a prospective basis, and for a period of l0 years ending March 7,2028,
Avista will require the use of WNIDCL members for all flagging work, unless
otherwise performed by Avista employees represented by IBEW Local 77.
This will not apply to work performed under contracts already in effect as of
March 7,2018.
c. WNIDCL will provide for signatory contractors laborers that are qualified
pursuant to applicable OSHA l9l0 regulations and all other applicable
training. In addition, WNIDCL will provide WNIDCL members
knowledgeable in the DOT Title 49 Code of Federal Regulations, Part 1 92, and
all applicable state pipeline safety regulations. Contractors shall be required
to provide proof of compliance with this requirement to Avista.
d. On a prospective basis, Avista will require contractors to utilize NWLETT for
required training, if applicable courses are offered by NWLETT and are
reasonably accessible in the locality where the work is to be performed.
e. Avista will meet and confer with WNIDCL to discuss possible involvement in
all future hydroelectric projects that are within the sphere of WNIDCL's
expertise.
f. Avista will encourage contractors to utilize union labor, including, without
limitation and as applicable, members of the Laborers', Pipefitters and
Steamfitters, and IBEW, on Avista projects as part of its bidding solicitation
process on all other construction work, including but not limited to capital
work on hydro facilities, and will evaluate the use of such members in the
staffing plans of bidding contractors as an element of Avista's bid evaluation
process.
g. Avista will continue to prioritize the hiring of qualified contractor personnel
through the bidding process, by requiring analysis of not only the price
proposals submitted by contractors, but a variety of other factors, including
minimum staffing requirements as applicable, training programs, documented
qualification programs, safety track records, OSHA 300 reportables, and other
safety records as appropriate. Review of these components is intended to
verify that the contractor is able to supply a sufficient workforce to meet
Avista's needs, and that their personnel are appropriately trained, qualified and
able to safely and reliably perform work for Avista.
Appendix A to Settlement Stipulation Page24 of26
h. Work covered by these commitments does not include work that is customarily
performed by Avista employees represented by IBEW Local 77 but that is
contracted out pursuant to IBEW LocalTT's collective bargaining agreement
with Avista. It also does not include any work that is performed by Avista
employees, regardless of the type of work involved.
i. Avista will meet and confer with WNIDCL at least six months prior to March
7 ,2028 to discuss extending or modifying the terms set forth herein.
81.Most Favored Nations: The Applicants agree that upon the joint request of the
Non-Applicant Parties, or a request of less than all Non-Applicant Parties which is
unopposed by any Non-Applicant, the Commission shall have an opportunity and
the authority to consider and adopt in Washington any commitments to which the
Applicants agree in other jurisdictions, even if such commitments are agreed to
after the Commission enters its order in this docket. To facilitate the Commission's
consideration and adoption of the commitments from other jurisdictions, the
Parties recommend that the Commission issue an order accepting this Stipulation
as soon as practical, but to reserve in such order the explicit right to re-open to add
commitments accepted in another state jurisdiction.
The Applicants further agree that upon the request of any Non-Applicant Party
prior to the Commission's action on this Stipulation, if Applicants agree with any
commitments in other jurisdictions, within five days of such a request, Applicants
will meet and confer with the Non-Applicant Parties to discuss whether such
commitments should be added to the existing list of commitments already agreed
to by the Parties in this Stipulation.
Process for Consideration :
Within five calendar days after Applicants file a stipulation with new or amended
commitments with a commission in another state jurisdiction, Applicants will send
a copy of the stipulation and commitments to the Non-Applicant Parties.
Within five calendar days after a commission in another state jurisdiction issues
an order that accepts a stipulation to which Applicants are aparty and imposes new
or modified commitments, that order, together with all commitments of any type
agreed to by Applicants in such other state, will be filed with the Commission and
served on all parties to this docket by the most expeditious means practical.
Within ten calendar days after the last such filing from the other states ("Final
Filing"), the Non-Applicant Parties may file with the Commission any response
they wish to make, including their position as to whether any of the covenants,
commitments and conditions from the other jurisdictions (without modification of
the language thereofexcept such non-substantive changes as are necessary to make
the commitment or condition applicable to Washington) should be adopted in
Washington.
a
a
a
Appendix A to Settlement Stipulation Page25 of26
Within five calendar days after any such response filing, the Applicants may file a
reply with the Commission.
Ifany ofthe dates above fall on Saturday, Sunday, or a holiday, the next business
day will be considered as the due date.
The Parties agree to support in their filings the issuance by the Commission of an
order regarding the adoption of such commitments as soon as practical thereafter,
recognizing that the Proposed Transaction cannot close until final state orders have
been issued approving the Proposed Transaction.
Limitations on Adj ustment:
Only commitments specific to gas service may form the basis for adjustments
specific to gas service.
Only commitments specific to electric service may form the basis for adjustments
specific to electric service.
Any commitments relating to support of communities in Montana are not subject
to this provision.
As Avista does not operate as a utility in Alaska, any commitments made in Alaska
are not subject to this provision.
For purposes of financial commitments or commitments having a financial impact,
commitments should be proportionate to Avista's corresponding business function
in Washington in relation to its corresponding total company business function.
Accordingly, commitments should be allocated among Avista's WA, ID and OR
jurisdictions based on the following: l) Rate Credit is allocated based on base
revenues; 2) all other financial commitments are allocated using the Company's
jurisdictional "four factor" allocation methodology, routinely employed for
purposes of allocating common costs, as discussed in Mr. Ehrbar's testimony in
this proceeding. For purposes of this provision, "financial commitments or
commitments having a financial impact" do not include ring fencing provisions.
a
a
a
a
a
Appendix A to Settlement Stipulation Page26 of26
a
Attachment A to Appendix A of Settlement Stipulation in U-170970
Mereer Commitment No. 76 (Colstrip)
Summarv and Description
Avista owns a l5olo share of two coal-fired generation facilities located in Colstrip, Montana,
known as Colstrip Units 3 & 4, which have a combined capacity of about 1,480 MW. These two
facilities were placed in service in 1984 and 1986. No decommissioning date has been established
for these assets. Current rates include depreciation expense on Colstrip Units 3 & 4 with assumed
remaining useful lives of these units through December 31, 2034 and December 31, 2036,
respectively.
The Parties acknowledge that there presently is no plan to close Colstrip Units 3 & 4 by a specific
date, nor has Avista agreed to do so. The parties to the Settlement Stipulation in this docket (the
"Parties") agree, however, to a depreciation schedule for Colstrip Units 3 & 4 that assumes a
remaining useful life of those units through December 31,2027. The Parties agree to set
depreciation rates for Colstrip Units 3 & 4 at amounts that will yield an annual depreciation
expense of approximately $4.533 million (WA Share)l for the remaining depreciable lives of those
units, which is the current level of annual depreciation expense.
The Parties agree to adopt a depreciable balance of Colstrip Units 3 & 4 of $l 14.2 million. This
includes the currently recognized unrecovered plant balance, as well as estimated asset retirement
obligations previously not included in rates2. Nothing in this Settlement will preclude Avista from
seeking recovery of additional future asset retirement costs, based on a showing of prudency in
future general rate cases.
The $114.2 million balance will be recovered as follows:
$16.7 million (WA share) of "temporary" tax credits. These tax credits were
described in Bench RequestNo. 9 in Avista's current general rate case (Docket
Nos. UE-170485 and UG-170486).3
a
$45.3 million, through an annual depreciation expense of approximately $4.533
million (WA Share), which is the current level of annual depreciation expense.
$52.2 million, through the amortization of a Regulatory Asset (FERC Account No.
183.3) (approximately $1.5 million per year- WA share), offset entirely by the
amortization of protected Excess DFIT. The amortization schedule ofthe Regulatory
Asset will be structured to match the amortization schedule of protected Excess
DFIT, so that the amortization of protected Excess DFIT covers the remaining
depreciable balance.
I Annual depreciation expense is approximately $6.937 million on system-basis.
2 The asset retirement obligations are currently estimated at approximately $42.7 million (WA share). These costs
include decommissioning and remediation costs.
3 The tax credits were the result of H.R. I - Tax Cuts and Jobs Act signed into law in December 2017 .
a
a
Page I of2
Attachment A to Appendix A of Settlement Stipulation in U-170970
Nothing in this Settlement will preclude Avista from seeking recovery of routine future capital
maintenance costs incurred in the normal course of business beyond January 1,2018 not intended
to extend operationallife, based on a showing of prudency in future general rate cases.
The Regulatory Asseta, net of accumulated deferred federal income taxes, will be included in rate
base and will earn Avista's rate of return.
Beginning October 1,2018, Avistawill include the $1.5 million Colstrip amortization costs, in
customers' base rates, but which would be offset by the electric Rate Credit of $4.9 million, thereby
reducing customers' rates approximately $3.4 million. The incremental rate reduction on October
1,2018 would be spread to customers on a uniform percent of base revenue basis, and on an equal
percentage to the volumetric blocks in each schedule (the Rate Credit would be spread in
accordance with Commitment No. l9 "Rate Credit" for Schedule 25). Avista would effectuate this
through a compliance filing of its base tariffs and electric Rate Schedule 73 (for the Rate Credit).
A summary of the Colstrip costs and offsetting tax credits follows:
Summary of Colstrip Costs (WA Share)
Total Amount
Amortization
Period (Yearsl Annual Amount
Net Book Va I ue of Col stri p Units 3 & 4, i ncl udi ng
transmission assets, at December 3t,2017
Esti mated asset reti rement obl igations
Undepreci ated Ba I a nces :
s 71,s06,933
42,738,900
t74,245,833
Future depreciation expense recovered January 1,,2078 -
December 37,2027
Temporary Tax Credits
Net Colstrip Costs Recorded as Regulatory Asset
'4s,334,9221(r.6,700,000)
5 s2,270,9L1 35 s 1,4s0,303
Electric Rate Credit s (24,605,700) s S (4,e21,340)
Net lmpactto Customers Beginning October 7,2018 5 8,47L,037)
a The Colstrip accounts included as rate base include the following: FERC Account No. 101.0 - Plant Cost, FERC
Account No. 108.0 - Accumulated Depreciation, FERC Account No. 182.3 - Regulatory Asset ARO, FERC Account
No. 182.3 - Regulatory Asset Colstrip, FERC Account No. 230.0 - Colstrip ARO, and FERC Account No. 242.0 -
Colstrip Accounts Payable.
Page 2 of 2
Appendix B to Settlement Stipulation in U-L70970
Revised Post-Closing Corporate Structure
Hydro One Limited
(Ontario Corporation)
Hydro One lnc.
2486267
Ontario lnc.
Hydro One Telecom
lnc.
Hydro One Networks
lnc.
Hydro One Remote
Communities lnc.
Olympus Equity LLC
(Delaware Limited
Liability Company)
Avista Corporation
(Washington
Corporation)
Avista Corporation
Subsidiaries
Can Sub
(Ontario Corporation)
Olympus Holding Corp.
(Delaware
Corporation)