20180525Oregon Stipulation and Settlement.pdf

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Avista Corp.
1411 East Mission P.O.Box3727
Spokane. Washington 99220-0500
Telephone [phone]
TollFree 800-727-9170
ldaho Public Utilities Commission
Oflice of the Secretary
HECEIVED
MAY 2 5 2018
Boise, ldaho
May 25,2018
Diane Hanian, Secretary
Idaho Public Utilities Commission
Statehouse Mail
W. 472 Washington Street
Boise, Idaho 83720
RE: AVU-E-17-09/AVU-G-17-05 Settlement documents in the Oregon Merger Proceedings
Dear Ms. Hanian:
Please find attached an electronic copy of the Stipulation and Settlement in the Hydro One/Avista
Merger case in Oregon (Docket No. UM 1897).
Sincerely
/s/ Paul Kimball
Paul Kimball
Regulatory Analyst
Enclosure
o O ldaho Public Utilities Commission
Offico ol the SocretaryRECEIVED
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BEFORE THE PUBLIC UTILITY COMMISSION
OF OREGON
uM 1897
Boise, ldaho
In the Matter of
STIPULATION
HYDRO ONE LIMITED,
Application for Authorization to Exercise
Substantial Influence over the Policies and
Actions of AVISTA CORPORATION.
L This all-party stipulation ("Stipulation") concems the Application of Hydro One Limited
("Hydro One"), acting through its indirect subsidiary, Olympus Equity LLC, for an order
authorizing Hydro One to exercise substantial influence over the policies and actions of Avista
Corporation ("Avista") (the "Application").
2. As set forth below, this Stipulation is entered into by and among all the parties to this
case for the purpose of resolving all issues in this proceeding.
PARTIES
3. The Stipulation is entered into by and among all of the parties in this case: Hydro One
and Avista ("Applicants"); the Staff of the Public Utility Commission of Oregon ("Staff'); the
Oregon Citizens' Utility Board ("CUB"); the Alliance of Westem Energy Consumers
("AWEC")l; and the Laborers' International Union of North America with its affiliated District
Council and Local Unions ("L[UNA")2, (together the "Parties" and individually a "Party").
BACKGROUND
4. On September 14, 2017,Hydro One and Avista filed the Application with the Public
Utility Commission of Oregon ("Commission"). Pursuant to the Application, Olympus Equity
LLC would acquire all of the outstanding common stock of Avista, and Avista would thereafter
I Formerly known as the Northwest Industrial Gas Users ("I{WIGU').
2 LIUNA was represented by the Oregon and Southern Idaho District Council of Laborers ("OSIDCL').
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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 referred to as
the "Proposed Transaction"). 3
5. The Commission convened a prehearing conference in this docket in Salem, Oregon on
October 4,2017, before Administrative Law Judge Patrick Power. At the prehearing conference,
the Commission granted the petitions to intervene filed by AWEC,a CUB, and LIUNA.
6. In accordance with the procedural schedule adopted at the prehearing conference, all
Parties attended the first scheduled settlement conference held in Salem, Oregon, on March 15,
20 I 8. Additional settlement conferences were held in Salem on April 23 and May 4, 20 I 8.
Based on discussions at these settlement conferences and related communications, the Parties
have reached an agreement on commitments attached as Appendix A to this Stipulation
(hereinafter "Commitments") that provide a basis upon which the Parties recommend
Commission approval of the Proposed Transaction in Oregon.
STIPULATION
The Parties Recommend Approval under ORS 757.51 I
7. By entering into this Stipulation, the Parties agree that Hydro One and Avista, by
agreeing to comply with and implement all Commitments listed in Appendix A, have satisfied
the "net benefit" standard and will cause no harm to Oregonians as required by ORS 757.511 for
approval of the Application. Therefore, the Parties recommend that the Commission issue an
order adopting the Stipulation and authorizing Hydro One and Avista to proceed with their
merger as outlined in the Application, subject to the provisions of this Stipulation and the
3 On July 19,2017, Avista, a Washington corporation, Hydro One, a Province of Ontario corporation, Olympus
Holding Corp. (also referred 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.
4 At that time, NWIGU.
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I Commitments in Appendix A to this Stipulation.
2 8. The Parties agree that the Commitments in Appendix A replace the commitments offered
3 by Hydro One and Avista in the Application and the conditions proposed by Staff, AWEC, and
4 CUB in their respective Reply Testimonies.
5 9. The Parties recognize that the list of Commitments in Appendix A is the result of
6 compromise between the Parties, and no Party is deemed to have agreed to an individual
7 commitment in isolation.
8 General Terms of the Stipulation
9 10. The Parties submit this Stipulation to the Commission and request that the Commission
l0 approve the Stipulation as presented.
I I I l. Appendix A to this Stipulation contains the complete list of binding Commitments that
12 Hydro One and Avista agree to implement and comply with upon consummation of the Proposed
l3 Transaction. By virtue of executing this Stipulation, Hydro One and Avista agree to perform all
14 of the Commitments set forth in Appendix A according to the provisions of each Commitment as
l5 set forth therein.
16 12. Except as provided in individual Commitments in Appendix A of this Stipulation, the
17 effective date of the Commitments set forth in Appendix A to this Stipulation shall be the date of
l8 the closing of the Proposed Transaction.
19 13. In the process of obtaining approval of the Proposed Transaction in other states, the
20 Oregon Commitments may be expanded or modified as a result of regulatory decisions or
2l settlements. The Parties agree that the Commission shall have an opportunity and the authority
22 to consider and to adopt in Oregon any commitments or conditions that the Applicants agree to
23 in other jurisdictions, even if such commitments and conditions are agreed to after the
24 Commission enters its order in this docket. To facilitate the Commission's consideration and
25 adoption of the commitments and conditions from other jurisdictions, the Parties recommend that
26 the Commission issue an order approving this Stipulation as soon as practical, but reserve in such
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I order the explicit right to re-open the Commitments set forth in Appendix A in order to reflect
2 commitments and conditions accepted in another state jurisdiction. The Most Favored Nation
3 Commitment in Appendix A sets forth the process and limitations for addressing changes to
4 commitments agreed to in other jurisdictions.
5 14. The Parties agree that the Post-Closing Corporate Structure set forth on page 2 of
6 Appendix I to the Application will be simplihed to eliminate Olympus 1 LLC and Olympus 2
7 LLC. Accordingly, the Post-Closing Corporate Structure will be as set forth in Table I of
8 Appendix A to this Stipulation.
9 15. Hydro One and Avista understand that the Commission's approval of the Stipulation, the
l0 Commitments, and the Application, as modified by the Stipulation and Commitments in
I I Appendix A, shall not bind the Commission in other, future proceedings with respect to the
12 determination of prudence, just and reasonable character, rate or ratemaking treatment, or public
l3 interest of services, accounts, costs, investments, any particular construction project,
l4 expenditures, or actions referenced in the Commitments.
l5 16. The Parties agree to support this Stipulation as a settlement of all issues in this
l6 proceeding and to recommend approval of the Proposed Transaction in this proceeding subject
17 only to the agreed-upon Commitments in Appendix A. The Parties understand that this
l8 Stipulation is not binding on the Commission in ruling on the Application.
19 17. The Parties agree that this Stipulation represents a compromise in the positions of the
20 Parties. As such, without the written consent of all Parties, evidence of conduct or statements,
2l including but not limited to term sheets or other documents created solely for use in settlement
22 conferences in this docket, and conduct or statements made at settlement conferences, are
23 confidential and not admissible in this or any subsequent proceeding, unless independently
24 discoverable or offered for other purposes allowed under ORS 40.190.
25 18. The Parties shall cooperate in submitting this Stipulation promptly to the Commission for
26 acceptance and in developing supporting testimony. This Stipulation will be offered into the
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record of this proceeding as evidence pursuant to OAR 860-001-0350(7). The Parties agree to
support this Stipulation throughout this proceeding and any appeal (if necessary), and to provide
witnesses to sponsor this Stipulation at any hearing to review the Stipulation (if specifically
required by the Commission), and to recommend that the Commission issue an order adopting
this Stipulation and the Commitments contained in Appendix A.
19. This Stipulation is entered into by each Party as of the date entered below. Subject to
Paragraph 20, the obligations of the Parties under the body of this Stipulation are effective as of
the date it has been fully executed by all Parties.
20. The Parties have negotiated this Stipulation as an integrated document. If the
Commission rejects all or any material part of this Stipulation, or adds any material commitment
or condition to any final order that is not consistent with this Stipulation, each Party reserves its
right: (i) to withdraw from the Stipulation, upon written notice to the Commission and the other
Parties within five (5) business days of service of the final order that rejects this Stipulation, in
whole or material part, or adds such material commitment or condition; (ii) pursuant to OAR
860-001-0350(9), to present evidence and argument on the record in support of the Stipulation,
including the right to cross-examine witnesses, introduce evidence as deemed appropriate to
respond fully to issues presented, and raise issues that are incorporated in the settlements
embodied in this Stipulation; and (iii) pursuant to ORS 756.561and OAR 860-001-0720, to seek
rehearing or reconsideration, or pursuant to ORS 756.6L0 to appeal the Commission order.
Nothing in this paragraph provides any Party the right to withdraw from this Stipulation as a
result of the Commission's resolution of issues that this Stipulation does not resolve.
21. By entering into this Stipulation, no Party shall be deemed to have approved, admitted, or
consented to the facts, principles, methods, or theories employed by any other Party in arriving at
the terms of this Stipulation, other than those specifically identified in the body of this
Stipulation or in Appendix A hereto. No Party shall be deemed to have agreed that any provision
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I of this Stipulation is appropriate for resolving issues in any other proceeding, except as
2 specifically identified in this Stipulation.
3 22. The Parties may execute this Stipulation in counterparts, which together will constitute
4 one agreement. A signed signature page sent by email is as effective as an original document.
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I This Stipulation is entered into by each Party on
2 nvnno oNE LIMTTED
the date entered below such Party's signature.
AVISTA CORT'ORATION
David J. Meyer
Chief Counsel for Regulatory and
Governmental Affairs
ALLIANCE OT WESTERN ENEITGY
CONSUMERS
By:
Chad M. Stokes
Cable l-luston LLP
ORTGON CITIZENS' UTILITY BOARD
(cuB)
By:
Michael Ooetz
Attomey for CUB
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B
Elizabeth
-,.^7
Partner, K&L Gates LLP
Partner, K&L Gates LLPKari
5 On Behalf of Hydro One Limited and
Olympus Equity LLC
-')- tDate: t'fit".1 .;) i- ,t)u/ K---7
STAT'F OF THE PUBLIC UTILITY9 COMMISSION OF OREGON
l0 By:
r ! Kaylie KleinI I Assistant Attorney Ceneral
t2
Date:
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14 oREGoN AND sourHERN IDAHo
t 5 DTSTRICT COUNCTL 0r LASORERS
l6 By:
David Fujimoto17 Weinberg Roger & Rosenfuld, APC
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I This Stipulation is entered into by each Party on the date entered below such Party's signature.
2 uvnRo oNE LIMITED AvISTA coRpoRATIoN
By;t7/
fr {.MiJi;i;i
a
)By
4 Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP5 On Behalf of Hydro One Limited and
_ Olympus Equity LLC
6
Chief Counselfor Regulatory and
Covemmental Affairs
Date: 4d*, /S: ZOID
f)av
- Date:
8
l0 By:
STAFF OF THE PUBLIC UTILITY9 COMMISSION OF OREGON
ALLIANCE OF WESTERN ENERGY
CONSUMERS
By
Chad M. Stokes
Cable Huston LLP
OREGON CITIZENS' UTILITY BOARD
(cuB)
By:
MichaelGoetz
Attorney for CUB
Date
I I Kaylie Klein
Assistant Attorney General
t2
Date
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14 oREGoN AND sourHERN rDAHo
15 DTSTRICT COUNCTL OF LABORERS
l6 By:
David Fujimoto17 Weinberg Roger & Rosenfeld, APC
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I 'Ihis Stipulation is entered into by each Party on the date entered below such Party's signature.
2 uvnRo oNE LIMITED AvISTA coRpoRATIoN
-)By:
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4 Elizabeth Thornas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP5 On Behalf of l{ydro One Limited and
- Olympus Equity LLC
6
Date:
David J. Meyer
Chief Counsel for Regulatory and
Govemmental Affairs
ALLIANCE OF WESTERN ENERGY
CONSUMERS
By:
Chad M. Stokes
Cable Huston LLP
Date
OREGON CITIZENS' UTILITY BOARI)
(CUB}
By:
Michael Goetz
Attorney for CUB
STAFF OF THE PUBLIC UTILITY
COMMISSION OF OREGON
By:
Assistant General
Date
OREGON AND SOUTHERN IDAHO
DISTI{IC'T COUNCII, OF LABORtrRS
By:
David Fujimoto
Weinberg Roger & Rosenfeld, APC
501421215 v5
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I This Stipulation is entered into by each Party on the date entered below such Party's signature.
2 uvnno oNB LIMITED AvISTA coRpoRATroN
By:Ilv-,
4 Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP5 On Behalf of Hydro One Limited and
- Olyrnpus Equity LLC
o
- Date:
8
STAIIF OF TTIE PUBLIC UTILITY9 COMMISSION OF OREGON
10 By:
I I Kaylie Klein
Assistant Attomey General
12
Date:
13
14 oREGoN AND sourHBRN IDAHo
l s DrsTRrcr couNCIL oF LABORERS
16 I3Y
David Fujimoto17 Weinberg Roger & Rosenfeld, APC
18 Date:
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David J. Meyer
Chief Counsel for Regulatory and
Governmental Affairs
Date:
ALLIANCB WBSTtrRN ENERGY
Chad
Cable Huston LLP
Ilv:
Date:s/zr/rs
OREGON CITIZENS' UTILITY BOARD
(cuB)
By:
MichaelGoetz
Attorney for CUB
Date
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This Stipulation is entered into by each Pa(y on the date entered below such Party's signature.
HYDRO ONE LIMITED AVISTA CORPORATION
By:
Elizabeth Thomas, Partner, K&L Cates LLP
Kari Vander Stoep, Partner, K&L Cates LLP
On Behalf of Hydro One Limited and
Olynpus Equity LLC
David J. Meyer
Chief Counsel for Regulatory and
Govemmental Affairs
Date:
STAFF OF THE PUBLIC UTILITY
COMMISSION OF ORECON
ALLIANCE OF WESTERN ENERGY
CONSUMERS
By:By:
Kaylie Klein
Assistant Attorney General
Chad M. Stokes
Cable Huston LLP
Date:
OREGON AND SOUTHERN IDAHO
DISTRICT COUNCIL OF LABORERS
OREGON CITIZENS' UTILITY BOARD
(cuB)
By:By:
David Fujimoto MichaelCoetz
Attomey for CUBWeinherg Roger & Rosenfeld, APC
<:-
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Page 7 * STIPULATIOhI - Ln4 1897
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I This Sdpul.lion is cntsrrd into by cach Party on thc datc cntcrcd bclov such Party's siEntrrc.
2 TYDROONELNflIED
3 By,-
, Elizabeth Thomas, P4rutcr, K&L Grtes LLP
' Kryi Vmdcr Stoep, Plrtrcr, K&L Gatcs LLP
5 On Bchalf of Hydro Onc Limitcd and
Olyrnpus Equity LLC
6
7
AVISTA CORPORATION
David J. Mcyer
ChicfCounscl for Rcgulatory and
Govcrnrnerul AIIairs
l"!ora.
ALLIANCE OF WESTENN ENERGY
CONSUMERS
By:
-
Chad M, Stokes
Cable Huston LLP
11nlr.
I srarrorrgE PT BLIC urtLITY
9 COMMISSIONOFOREGON
10 By:
I(avlic Klcin
I I Asiistsnr Anom€y Gcoerol
l2 ao-.
13
14 ORf,GON AII{D SOUTHERN IDAIIO
DETruCT COT'NCIL OF LABORERSl5
ro By:
-
'- David Fujimoto
1 7 \lteinberg Roger & Rosenfcld, APC
ORTGON
(cuB)
By:
Attorncy forCUB
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PagcT- STIPULATION .UM 1897
50lazr2t5 6
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Docket No. UM 1897
Avista and Hydro One Commitments
Table of Contents
Page
B. Applicability
A. Definitions
1.
2.
3,
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Application of Commitments in Oregon.
No Amendment of Any Commitment Without Commission Approval
Treatment of Confidential lnformation.........
1
7
7
7
7
7
7
7
8
8
8
C. Governance
4. Executive Management.............
5. Avista Board of Directors (BOD)
6. Olympus Equity, LLC Board of Directors
D. Future Transactions
7. Long-Term Ownership
8. Avista and Alaska Energy and Resources Co. (AERC) Corporate
Relationship
9.Reorganization and Sale Triggers.....
E. Safety and Service Quality Measures
Safety and Reliability Standards and Service Quality Measures
Avista Call Center ...............
Avista Oregon Regulatory Affairs and Liaison Staff
Opening and Closing Oregon Bi|ls....,.....
Oregon Winter Protection Program
Native American Communities............
Oregon Low lncome Weatherization
Oregon Low-lncome Rate Assistance Program (LIRAP)
Addressing Other Low-lncome Customer |ssues............
Explanation of Oregon Billing Errors
Oregon Customer Satisfaction..............
I
I
9
I
..........10
..........10
..........10
.10
.10
.10
.11
.11
.11
.11
Docket No. UM 1897 lOregon Commitments / Page i
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Level of Oregon Customer Complaints to the Commission
Oregon Live Customer Service..............
Oregon Emergency Response Time.....
Oregon Service Appointment Scheduling ...........
New Oregon Gas Supply
Oregon Billing lnquiries...
Oregon Customer Service lnvestigations.......,.....
Oregon Service Guarantee Credits.....
Oregon Security Deposits
Oregon Annual Service Quality Reports
Oregon Customer Report Card .........
Oregon SENDOUT Seats
On Bill Repayment Program (OBRP)
o
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
H. Taxes
G. Rate Credit
40
12
12
12
13
13
13
13
13
14
14
14
15
15
15
16
16
17
17
18
18
18
19
Revenue Requirement.............
Ratemaking Cost of Debt and Equity
Business and Financial Risks
U nregulated Activities
Environmental Liabilities of Parent......
Foreign Exchange and Hedging on Dividends Payments and Allocations
Rate Credits to Oregon Ratepayers
41 Taxes.......19
44.Capital Support .20
45. Common Equity Floor (CEF) in Capital Structure 20
46. Avista Debt and Preferred Stock......., ........21
47 First Mortgage Bonds (FMB)........22
Docket No. UM 1897 lOregon Commitments / Page ii
o a
Continued Credit Ratings ..........23
Revolving Credit Facilities and Associated Letters of Credit.........................23
Restrictions on Upward Dividends and Distributions............... .....23
SEC Reporting Requirements... .................24
Compliance with the Sarbanes-Oxley Act........... ........24
Sources of Funds for Hydro One Commitments and Guarantees (Other than
for Customer Service, Communities and Charitable Purposes) ...................25
J. Bankruptcy Ring-Fencing.. ..................25
54.Avista Cash Flows.....,.,25
55 Golden Share......25
56 Vote of lndependent Directors Also Required _27
57 Non-Consolidation Opinion .....27
58. Olympus Holding Corp. and Olympus Equity LlC......... ..............28
59. Restriction on Pledge of Utility Assets .......28
60. Major Shareholder (Beneficial Ownership) Reporting........... .......29
61. Restriction on Acquisitions and Dispositions..,............ .................29
62. No lnter Company Debt........ ....30
63. No lnter Company Lending .......30
K. Access to lnformation......... ................30
64. Access to and Maintenance of Books, Records and Other lnformation........30
65. Budgets...
48.
49.
50.
51.
52.
53.
66. Appearance Before the Commission
L. Accounting
67 Separate Books and Records
Cost Allocations and Affiliate lnterests
Prevention of Cross Subsidization ...........
Master Services Agreement (MSA)....
Complete Corporate Organizational Chart and Contact
N. North American Free Trade Agreement (NAFTA)
North American Free Trade Agreement (NAFTA).
.....31
.............31
31
31
36
.32
.33
.36
.36lnformation
72
Docket No. UM 1897 lOregon Commitments / Page iii
36
68.
69.
70.
71.
o o
O. Avista Status Quo......... .....36
73. Generally Accepted Accounting Principles and Standards (GAAP).............. 36
74. Travel Expenses ..37
Avista Management Direction.............. ......37
CapitallnvestmentforSafePipelinesandControls.............. .....-.37
Equal or Better Access to Financial Markets in the U.S. and Canada ..........37
Venue for and Resolution of Disputes.............37
Headquarters .....38
Local Staffing .....38
Pension and Post Retirement Expenses and Assets
General Operations and Maintenance (O&M)for Community Development
Economic Development.............
Membership in Organizations
FERC Reporting Requirements ........
86. Participation in National and Regional Forums ...........38
87. Compliance with Existing and Future ORS, OAR and Commission Orders..39
P. Corporate Gitizenship......... ................39
88, Oregon Charitable Contributions............. ....................39
89. Other Community Contributions,........ ........39
90. General Community Contributions and lnvolvement............. .......39
91. Sources of Funds for Hydro One and Avista Commitments..........................39
Q. Future Rates 40
92 Treatment of Net Cost Savings.........40
93 Continuation of Base Rates Established in UG-325 40
94. Preparation for Next General Rate Case (GRC) in Oregon .........40
95. Treatment of Goodwill, Transaction Costs, and Transition Costs .................40
96. Costs for Future M&A or Reorganization........ ............41
R. Environmental, Renewable Energy, and Energy Efficiency................................41
97. Greenhouse Gas and Carbon lnitiatives.............. .......41
98. Cost of Greenhouse Gas Emissions ..........42
99. Greenhouse Gas lnventory Report....
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
38
38
38
38
38
Docket No. UM 1897 lOregon Commitments / Page iv
42
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Efficiency Goals and Objectives.........
Low Environmental lmpact Options
lnforming the Commission
Sharing Best Planning Methods.....................
lndustrial Conservation and Efficiency
Electric, Natural Gas and Fuel Cell Transport
o
100
101
102
103
104
105
.42
.42
.42
.42
.42
.43
...43
...44
...44
,.,44
106. Expanded Natural Gas Transportation Service.......
107. Low-lncome Energy Efficiency Planning
Contract Labor
Union and Other Labor Relationships.........
T. Reporting and Enforcement........... ....44
Commitments Binding ...............44
Commission Enforcement of Commitments............ ....44
Submittal to State Court Jurisdiction for Enforcement of Commission Orders
.,,.,..........45
Annual Reporting on Commitments ...........45
Resolution of Violations: Expedited Resolution of Minor and Procedural
Compliance lssues... ................45
U. Most Favored Nations 46
115. Most Favored Nations...............46
V. Addendum 1 - Contract Labor, Oregon Commitments......... .............48
108
109
1 10.
111.
112.
113.
114.
Docket No. UM 1897 lOregon Commitments / Page v
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A. Definitions
Affiliate means any entity in the post-close corporate chain of entities between Hydro
One and Avista, including Hydro One, for purposes of all commitments herein; provided,
however, that "Affiliated lnterest" shall have the meaning set forth in ORS 757.015 for
purposes of requirements established by ORS 757.105 or ORS 757.495 regardless of
whether such requirements are also imposed by these commitments.l
AVA and Avista are used interchangeably and shall refer to Avista Corporation. While
some commitments herein are flagged as applying only to Avista's Oregon-regulated
Local Natural Gas Distribution Company (Oregon LDC), when commitments are silent
as to application, they shall apply to Avista Corporation as a whole (for example, those
commitments regarding corporate finance and capital structure apply to Avista as a
whole).
Beneficial Ownership shall have the meaning provided in OAR 860-027-1075(1)(a).
Gapital Structure shall mean proportions of common equity (common equity calculated
as for Oregon ratemaking purposes) and Long-Term Debt with maturities exceeding 1
year, adding up to 100 percent for a named (or place-holder) corporation.
CEF has the meaning assigned to it in Commitment 45.
Commission or OPUC means the Public Utility Commission of Oregon.
Credit Ratings as used in these commitments shall mean both Standard and Poor's
Global Ratings (S&P)and Moody's lnvestor Service (Moody's) Long-Term (LT) Secured
Debt credit rating, except as otherurrise specifically provided in individual commitments.
See Rating Agencies.
$ or Dollar unless othenruise specified means U.S. Dollars (USD).
Golden Share shall mean the sole share of Preferred Stock authorized by the
Commission and held by an independent third party. As described in further detail in
Commitment 55, Avista will not be able to declare voluntary bankruptcy without the vote
of the holder of the Golden Share and in matters of voluntary bankruptcy, the Golden
Share will override all other outstanding shares of all types or classes of stock. The
holder of the Golden Share solely represents the interests of Avista's utility customers.2
1 Lower case "affiliates" is also used in these commitments to indicate that the commitment applies to all
affiliates of Hydro One and Avista, as opposed to simply the "Affiliates" in the chain of entities between
Hydro One and Avista.
2 To be clear, the purpose of the Golden Share is to help ensure that the Avista utility would not place
itself into bankruptcy voluntarily unless such a decision was consistent with the interests of utility
customers. This purpose is consistent with past ORS 757.511 dockets approved by the Commission (see
UM 1804, Order 17-526 at 7 and the joint supporting testimony)and is essential in this particular case
because the sole shareholder of Avista, at the top of the corporate chain, is Hydro One; thus, were the
Docket No. UM 1897 lOregon Commitments / Page 1
o
II
GRC means general rate case
H1 or Hydro One shall refer to Hydro One Limited.
lndependent Directors shall mean directors who meet the standards of "independent
directors" under section 303A.02 of the New York Stock Exchange Listed Company
Manual with respect to Hydro One and its subsidiaries including Avista. The
lndependent Directors must have had no material relationship with Parent or its
subsidiaries or affiliated entities currently or within the previous 3 years. Former officers
of Avista who otherurrise meet these qualifications qualify as lndependent Directors.
Please see "C. Governance" for applicable commitments.
lnvestment Grade means a BBB- or higher credit rating by S&P and a Baa3 or higher
credit rating by Moody's. See the table below for ratings from S&P and Moody's that
are investment grade, which apply to all types of debt securities (not just FMB as shown
in Table 2):
S&P Moody's
Investment
Grade
Credit
Ratings
AAA Aaa
AA+Aa1
AA Aa2
AA-Aa3
A+A1
A M
A-A3
BBB+Baal
BBB Baa2
BBB-
Long-Term Debt is the issuance or renewal of a note or evidence of indebtedness
maturing more than one year after date of such issue or renewal.
M&A means mergers and acquisitions.
Major Shareholder shall have the meaning provided in OAR 860-027-0175(1 )(c).
Pacific Northwest Region means the Pacific Northwest states in which Avista serves
retail electric or natural gas customers, currently the states of Alaska, ldaho, Montana,
Oregon and Washington.
holder of the Golden Share to vote in the interests of "Avista shareholders," it would be voting in the
interest of Hydro One, negating the protection the Golden Share is designed to provide. lf Hydro One and
Avista encounter difficulty locating a holder of the Golden Share that can agree to the requirements of
these commitments, they may appear before the Commission for consideration of a remedy for the
situation.
Docket No. UM 1897 lOregon Commitments / Page 2
Baa3
a I
Parent shall mean Hydro One Limited and its subsidiaries in the post-close corporate
structure between Hydro One and Avista (as those companies in between may change
over time; but see commitments regarding ORS 757.511 and 757.480).
Parties (or Party individually) shall be defined herein as: Hydro One Limited, Avista
Corporation, Public Utility Commission of Oregon Staff (Staff), Oregon Citizens' Utility
Board (CUB), Alliance of Western Energy Consumers (AWEC), and Oregon and
Southern ldaho District Council of Laborers (OSIDCL).3 a
Pre-Merger means prior to the close of the Proposed Transaction.
Proposed Transaction shall mean the transaction proposed in the Joint Application of
Avista and Hydro One filed on September 14,2017, assigned Commission Docket No.
UM 1897. However, the commitments reached by the Parties shall override all prior
versions of commitments filed in this docket.
Rating Agencies shall mean both S&P's and Moody's, or their successors, without
substitution. However, if S&P or Moody's has no successor and is no longer in
existence, then the substitute for the Rating Agency with no successor will be Fitch
Ratings (Fitch). lf Fitch has no successor and is no longer in existence, Avista will
select a replacement acceptable to the Commission.
Transaction Costs shall mean all the costs necessary to plan, evaluate, find
agreement, gain regulatory approval, finance, and execute the Proposed Transaction.
This type of cost includes legal and brokerage or investment banking fees and other
costs which would not be incurred were the transaction never contemplated.
Transaction costs are those incremental costs paid to advance or consummate the
transaction. Examples of transaction costs include, but are not limited to: Avista
employee'time and expenses; Avista change-of-control payments; any tax liability
incurred as a result of the transaction; and third-party costs, including bank advisors,
external legal advisors, rating agencies, and expert witnesses and consultants in each
case paid to advance or consummate the transaction. Transaction costs are not
includable in Avista customer rates.
Transition Costs shall mean all costs necessary posttransaction, to meld or find
synergies in corporate cultures and processes, optimize purchasing, more broadly
deploy resources and technologies, and generally make the aggregated corporation
more efficient and more effective at meeting both divisional and comprehensive goals.
This type of consolidation can include costs from technology costs of hardware,
software, migration, conversion and training to public relations costs incurred to make
legal, accounting, information technologies, communications and other integral
corporate activities operate smoothly and efficiently both internally and across corporate
lndustrial Customers of Northwest Utilities (ICNU), and Northwest lndustrial Gas Users (NWIGU)
merged to form Alliance of Western Energy Consumers (AWEC) in 2018.
Oregon and Southern ldaho District Council of Laborers (OSIDCL)was formerly known as Laborers'
lnternational Union of North America (LiUNA)-District Council.
Docket No. UM 1897 lOregon Commitments / Page 3
3
4
o
divisions. No transition costs may be included in Avista rates; the net positive of
transition costs (savings minus transition costs) will be reviewed in a future rate case.
o
Docket No. UM 1897 lOregon Commitments / Page 4
o o
Table 1
Revised Post-CIosing Corporate Structure5
Hydro One agrees to eliminate Olympus 1 LLC and Olympus 2 LLC from the corporate
structure. The new structure that will exist as at the effective time of closing of the
Proposed Transaction is illustrated below:
Hydro One Ltmit"d
lnE.
24A6267
Hydro One I'letworks
lnc.
Equity l-LC
Enlargement and clarification of Avista
Corporation and Subsidiaries is provided at right:
6
t?
@
5
6
Table 1 reflects the corporate structure as at the effective time of the closing of the Proposed
Transaction.
Avista's corporate structure as in S&P Global Market Intelligence on lMarch 23,2018.
Docket No. UM 1897 lOregon Commitments / Page 5
Avi:ta Corporation
{Warhington
Avi:ta Corporation
Subsidiaries
A[,l&'
Can Sub
{{}ntario Ci:rp*ratian}
0lynrpus H*k*ngL*rp. ,
lA*latrar*
Hydro One Romots
Ontario lnc.
Hydro One Tehcom
lnc.
Comn'lr^rnitiel lnc.
1-.I lss.Csror.rs
I to,l;llurruu,,o
i--.--,*"**
E':rr rffi
o o
Table 2
Gommon Equity FIoor Requirement
Credit Ratings are those for First Mortgage Bonds (FMB)?
Common Equity is calculated as for Oregon Ratemaking Purposes
FMB Credit
Ratings S&P Moody's Common
Equity Floor
!
n
,G
e rs,atd
m ee
n
t
A
R
a
t
e
d
AAA
44%
AA+Aa1
AA Aa2
AA-
A+A1
A A2 46%A-A3
L
o
w
BBB+ .Baal I
48%BBB Baa2
BBB-Baa3
a Co. willfile Plan w Commission
Below
!nvestment
Grade
BB+
(or below)
Ba1
(or below)No Dividend
7 lf the Rating Agencies do not provide a rating for FMBs, the rating for Senior Secured Debt will be used
for the purposes of Table 2.
Docket No. UM 1897 lOregon Commitments / Page 6
Aaa
Aa3
o
B. Applicability
Application of Commitments in Oregon
Unless otherwise stated, all commitments herein are binding upon Avista, Hydro
One, and all companies in between in the post-close corporate organization chart
(as those companies in between may change over time; but see commitments
regarding ORS 757.511 and 757.480).
No Amendment of Any Commitment Without Commission Approval
Avista and Parent commit that no amendments, revisions, or modifications will be
made to the any of the commitments herein without prior Commission approval.
Also see "Most Favored Nation" Commitment.
Treatment of Confidential lnformation
Nothing in these commitments prevents Avista or Parent from requesting
confidential or highly confidential treatment of information.
C. Governance
Executive Management
Subject to the remaining provisions of this commitment and subject to voluntary
retirements and resignations that may occur, Avista and Parent agree that Avista
will retain all current executive management of Avista for a period of three years.
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 post-Proposed Transaction Avista board retains its current ability to
dismiss executive management of Avista and other Avista personnel for standard
corporate reasons. Any decision to hire, dismiss or replace the Chief Executive
Officer of Avista shall be within the discretion of the Avista Board of Directors,
and shall not require any approval of Hydro One or any of its affiliates (other than
Avista), notwithstanding anything to the contrary in the merger agreement, and
its exhibits and attachments, between Hydro One and Avista.
Avista Board of Directors (BOD)
Avista and Hydro One agree that after closing of the Proposed Transaction,
Avista will have a separate board of directors from Hydro One that consists of
nine (9) members, determined as follows:
Five Hydro One Designated Directors:
Two executives of Hydro One or any of its subsidiaries, and
Three lndependent Directors who are residents of the Pacific Northwest
Region.
o
1
2
4
5
Docket No. UM 1897 lOregon Commitments / Page 7
3.
6.
a o
Four Avista Designated Directors:
Three directors who as of immediately prior to the closing of the Proposed
Transaction are members of the Board of Directors of Avista, including the
Chairman of Avista's Pre-Merger Board of Directors (if such person is
different from the Chief Executive Officer of Avista), and
Avista's Chief Executive Officer.
At least two of the Avista directors must be lndependent Directors.
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. lf any Avista designee resigns, retires or othenruise ceases to serve
as a director of Avista for any reason, the remaining Avista designees shall have
the sole right to nominate a replacement director to fill such vacancy, and such
person shall thereafter become an Avista designee.
Hydro One shall have the unfettered right to designate, remove and replace the
Hydro One designees as directors of the Avista Board with or without cause or
notice at its sole discretion, subject to the requirement that:
(i) two of such directors are executives of Parent or any of its subsidiaries;
and(ii) three of such directors are lndependent Directors who are residents of the
Pacific Northwest region, while such requirement is in effect (subject in the
case of clause (ii) hereof to Hydro One determining, in good faith, that it is
not able to appoint an lndependent Director who is a resident of the
Pacific Northwest region in a timely manner, in which case Hydro One
may replace any such director with an employee of Hydro One or any of
its subsidiaries on an interim basis, not exceeding six months, after which
time Hydro One shall replace such interim director with an lndependent
Director who is a resident of the Pacific Northwest region).
Olympus Equity, LLG Board of Directors
At least one of the members of the board of directors of Olympus Equity LLC will
be an lndependent Director. The same individual may serve as an lndependent
Director of both Avista and Olympus Equity LLC.
D. Future Transactions
Long-Term Ownership
Hydro One and Avista agree not to sell Avista's Oregon natural gas operations
for three (3) years following the Commission's approval of the Proposed
Transaction. During that time, Avista and Hydro One agree to provide safe and
reliable service and commit to keeping Avista's Oregon natural gas operations in
the same or better condition than existed prior to the Proposed Transaction.
7
Docket No. UM 1897 lOregon Commitments / Page 8
8
a o
Avista and Alaska Energy and Resources Co. (AERC) Corporate
Relationship
Avista and Parent agree they will continue to provide timely courtesy copies,
information and reporting to the Commission of AERC/Alaska Electric Light and
Power Co. (AELP) resource (long-term) plans and plan updates submitted to the
Regulatory Commission of Alaska (RCA), and topical energy information as
described herein when Avista or Parent find such information relevant or material
to Oregon, or when requested by the Commission or Staff. This continues
Avista's tradition of contributing to informed Northwest regulation.
Parent and Avista agree that if AERC, or components thereof, such as but not
limited to AELP is transferred from its current position under Avista, Hydro One
must give notice to the Commission and provide pro forma documents showing
the proportion of debt and equity to be removed from Avista. This information will
be used for the purpose of potential adjustments in Avista's next GRC.
Reorganization and Sale Triggers
Parent and Avista agree to comply with and interpret ORS 757.511 (Application
for authority to exercise influence over utility) as triggered if any of the entities in
the post-Proposed Transaction chain of corporate entities between Hydro One
and Avista, and including Hydro One, undergoes a corporate reorganization or if
any of those entities enter into a transaction that results in the addition of a new
entity in the chain of entities that may exercise any substantial influence over
Avista.
Additionally, Parent and Avista agree to interpret ORS 757.480 (Approval needed
prior to disposal, mortgage or encumbrance of certain operative utility property or
consolidation with another public utility)to require Commission approval of any
transaction which results in a merger of Avista with another public utility, without
regard to whether that public utility provides service in Oregon.
E. Safety and Service Quality Measures
Safety and Reliability Standards and Service Quality Measures
Avista and Parent agree that neither the proposed Hydro One merger, nor future
acquisitions, may diminish delivery of safe and reliable utility service in Oregon
as compared to Avista's performance pre-close of the Proposed Transaction.
Avista and Parent agree that Avista will continue to fully comply with US Code of
Federal Regulations (CFR)Title 49 Parts 190 to 199 (Pipeline Safety), as
applicable.
9
10.
Docket No. Ult/ 1897 lOregon Commitments / Page 9
o o
Avista and Parent agree that Avista will maintain and improve, to the extent
reasonably practicable, Avista's natural gas safety and reliability and resilience
standards, policies, and service quality measures.
Additionally, Parent and Avista agree that Avista commits to providing the
following Service Quality, Safety and Planning measures:
Customer Seruice Qualitv
11. Avista Call Center
Avista will maintain a call center managed by high-performing personnel to
ensure the maintenance of high quality service and customer standards in
Oregon. Personnel at such call centers will have training and experience
commensurate with Avista's Oregon pre-Proposed Transaction customer service
system and standards.
12. Avista Oregon Regulatory Affairs and Liaison Staff
Avista regulatory liaison staff will retain high-performing personnel. Personnel
will have training and experience in Oregon regulatory matters, commensurate
with Avista's operations in Oregon prior to the Proposed Transaction.
13. Opening and Closing Oregon Bills
Avista and Parent commit that Avista will prepare all opening and closing bills
using actual reads acquired manually or electronically in accordance with
Oregon's administrative rules, unless the open or close date is within +/- 5 days
of regular normal cycle read, whereupon a prorated read may be used.
14.Oregon Winter Protection Program
Avista and Parent agree that by October 31,2018, Avista will submit to the
Commission for approval a proposal for a Winter Protection Program against'
winter shut-offs for low-income, elderly and other at-risk customers that explains
how Avista balanced collection and customer service goals, and where
applicable drew on Hydro One experience.
15. Native American Communities
Avista commits, and Hydro One agrees, that Avista will seek to appropriately
engage Native American communities.
16. Oregon Low lncome Weatherization
Hydro One and Avista agree that Avista will increase current funding for Avista
Oregon low-income weatherization programs by making a payment of
$1,275,000, to be paid in equal increments over a 5 year period to the agencies
that are in charge of the Avista Oregon Low lncome Energy Efficiency Program
(AOLIEE). The first annual payment will begin in the calendar year following
Docket No. UM 1897 lOregon Commitments / Page 10
o o
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and will not be booked to utility accounts; in
other words, in no way or form will the cost of this commitment appear in Avista's
regulated utility earnings. 8
Hydro One and Avista agree that Avista will undertake a targeted effort with a
goal of improving the penetration of Avista low-income programs in Oregon with
a focus on underserved, vulnerable, and high energy burden households.
Further, Avista commits to keep sufficient data analysis to clearly articulate what
program elements and methods were effective as well as to identify opportunities
for delivering more beneficial outcomes with resources available,
17. Oregon Low-lncome Rate Assistance Program (LIRAP)
Hydro One and Avista agree that Avista shall increase funding for LIRAP for
Oregon customers as provided in this commitment. Hydro One and Avista agree
that Avista will provide a payment of $500,000 payable at the rate of $100,000
per year with the first annual payment beginning in the calendar year following
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and will not be booked to utility accounts; in
other words, in no way or form will the cost of this commitment appear in Avista's
regulated utility earnings. e.
18. Addressing Other Low-lncome Customer Issues
Avista and Parent commit that Avista will continue to work with low-income
agencies to address other issues of low-income customers, including funding for
bill payment assistance.
Explanation of Oregon Billing Errors
Avista and Parent commit that for the first three years following close of the
Proposed Transaction Avista shall report to the Commission's Consumer
Services Section any incidence of a billing error that results in the issuance of a
corrected bill if the correction is $35 or more, and an explanation for the causes
of the error.
19.
20 Oregon Customer Satisfaction
Avista and Parent commit that the level of customer satisfaction with telephone
service, as provided by Avista's Contact Center, will be at least 90 percent,
where:
8 The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
e The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
Docket No. UM 1897 I Oregon Commitments / Page 11
o
a. The measure of customer satisfaction is based on customers who respond
to Avista's quarterly survey of customer satisfaction, known as the Voice
of the Customer, as conducted by its independent survey contractor;
b. The measure of satisfaction is based on customers participating in the
survey who report the level of their satisfaction as either "satisfied" or "very
satisfied"; and
c. The measure of satisfaction is based on the statistically-significant survey
results for both electric and natural gas service for Avista's entire service
territory for each quarter surveyed, and will also separately be reported for
Oregon customers only.
21.Level of Oregon Customer Complaints to the Commission
Avista commits, and Parent agrees, that the number of complaints filed with the
Commission by Avista's natural gas customers will not exceed the rate of 0.3
complaints per 1,000 customers for the calendar year.10
22. Oregon Live Customer Service
Avista commits, and Parent agrees, that the percentage of customer calls
answered by a live representative within 60 seconds will be at least 80 percent
per month, where:
a. The measure of response time is based on results from Avista's Contact
Center, and is initiated when the customer requests to speak to a
customer service representative or presses a key to bypass an IVR
system if in use; and
b. Response time is based on the combined results for both electric and
natural gas customers for Avista's entire service territory.
23 Oregon Emergency Response Time
Avista and Parent commit that Avista's average response time to a natural gas
system emergency in Oregon will not exceed 55 minutes for the calendar year
(or consistent with future Commission standards), where:
a. Response time is measured from the time of the customer call to the
arrival of a field service technician; and
b. "Natural gas system emergency" is defined as an event when there is a
natural gas explosion or fire, fire in the vicinity of natural gas facilities,
o
Note that the current 5 year average rate is 0.145 percent. This target is moved by Staff to slightly
over 200% of current performance metrics.
10
Docket No. UM 1897 lOregon Commitments / Page 12
o o
police or fire are standing by, leaks identified in the field as "Grade 1," high
or low gas pressure problems identified by alarms or customer calls,
natural gas system emergency alarms, carbon monoxide calls, natural gas
odor calls, runaway furnace calls, or delayed ignition calls.
24 Oregon Service Appointment Scheduling
Avista and Parent commit that Avista will keep mutually agreed upon
appointments for natural gas service re-lights, connections and reconnections
where a service line is already installed, scheduled in the time windows of either
8:00 a.m. - 12:00 p.m. (morning), or 12:00 p.m. - 5:00 p.m. (afternoon), except
for the following instances:
a. When the customer or applicant cancels the appointment;
b. The customer or applicant fails to keep the appointment; or
c. Avista reschedules the appointment with at least 24-hours' notice.
25.New Oregon Gas Supply
Avista and Parent commit that Avista will provide a cost estimate to the customer
or applicant for new natural gas supply within 10 business days upon receipt of
all the necessary information from the customer or applicant.
26. Oregon Billing lnquiries
Avista and Parent commit that Avista will respond to all billing inquiries at the
time of the initial contact, and for those inquires that require further investigation,
Avista will investigate and respond to the customerwithin 10 business days.
Oregon Customer Service !nvestigations
Avista and Parent commit that Avista will investigate customer-reported problems
with a meter, or conduct a meter test within 15 business days of the request, and
report the results to the customer within 15 business days from the date of the
report or request.
27.
28 Oregon Service Guarantee Credits
(Expires 3 years from closing of the Proposed Transaction)
Avista commits, and Parent agrees, that for failure to meet a customer service
guarantee for service provided to a gas customer, Avista will apply a $50 credit to
the customer's account. For failure to meet a customer service guarantee for
service provided to an applicant, Avista will mail a check for $50 to the applicant.
Avista will timely provide the qualifying customer credit or applicant check without
any requirement on the part of the customer or applicant to either apply for, or
request, the applicable credit or check. Payment of service guarantee credits
Docket No. UM 1897 I Oregon Commitments / Page 13
oo
29.
and any service quality penalties shall be excluded from revenue requirements in
GRCs.
Tracking of Avista's performance on the customer service guarantees, including
the application of customer credits, will begin on January 1,2019.
Oregon Security Deposits
Avista and Parent agree that Avista commits to eliminate security deposits for
new Avista residential customers at close of Proposed Transaction, and to return
existing security deposits to Oregon customers who have a deposit held longer
than 6 months. ln any subsequent Avista GRC before the Commission, any
Party may request the Commission Order in that rate case to modify or remove
this commitment if that Party successfully argues that the application of this
commitment had an unreasonable impact on Avista's uncollectible debt.
Oregon Annual Service Quality Reports
Avista and Parent commit that Avista will include the results of its Service Quality
Measures Program in an annual report to be filed with the Commission on or
before April 30th of each year.
30.
31. Oregon Customer Report Card
Avista commits, and Parent agrees, that within 90 days of Avista filing its Annual
Service Quality Measures Report, Avista will send a Service Quality Measures
Program Report Card to its customers, which will include the following:
a. Results for each of Avista's customer service measures, compared with
the respective performance benchmarks;
b. Results for each of the customer service guarantees, compared with the
respective benchmarks, and including the number of events for each
measure where a credit was provided, and the total dollar amount of the
credits paid for each measure; and
c. Performance highlights for the year
d. Avista will issue its first Report Card to customers on or before July 31,
2020.
e. Avista, or any interested party, may separately petition the Commission,
for approval of changes to the customer service guarantees, and reporting
thereon, as set forth in Commitments 20-31, to assure that such
commitments continue to accomplish their intended purposes.
Docket No. UM 1897 lOregon Commitments / Page 14
o
SENDOUT Software Suite for Commission Staff. CUB and AWEC
32. Oregon SENDOUT Seats
Parent and Avista agree that Avista will provide, for a period of 10 years, $30,000
annually for the purpose of obtaining SENDOUT seats for Commission Staff,
CUB, and AWEC for SENDOUT dispatch optimization and gas portfolio cost
assessment and reliability software with SENDOUT or a division of ABB. The
Parties agree that this $30,000 commitment is not recoverable in customer rates
and will not be booked to utility accounts; in other words, in no way or form will
the cost of this commitment appear in Avista's regulated utility earnings. 11
Nothing in this commitment precludes Avista from replacing SENDOUT with a
different comparable service provided that Avista continues to provide the
$30,000 annual contribution for Staff, CUB, and AWEC use of SENDOUT or
such comparable service for the agreed upon ten-year period.
33. On Bill Repayment Program (OBRP)
Hydro One will arrange funding of the approximately $100,000 (system-wide
basis) initial investment in software upgrades and $5,000 in administrative costs
to implement an on-bill repayment program. Under no circumstance willAvista's
ratepayers be responsible for any default related to the OBRP.
OBRP is a passthrough 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:
Provides all capital and bears full risk;
Manages delinquent files and collections off-bill;
Handles loans/balances separate from utility financial systems; and
Meets consumer lending regulatory requirements.
F. Hold Harmless
34.Revenue Requirement
Parent and Avista agree that Avista will hold Avista Oregon customers harmless
if the Hydro One-Avista merger results in a higher revenue requirement for Avista
11 The Parties'expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
o
a
a
a
a
Docket No. UM 1897 lOregon Commitments / Page 15
35.
o a
than if the merger had not occurred. Avista bears the burden of showing no
increase in the revenue requirement consistent with this commitment.
Ratemaking Cost of Debt and Equity
Avista and Parent agree that 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 Cost of Long-Term Debt will be no higher than
such costs would have been, absent Hydro One's ownership, assuming
Avista's Credit Ratings as such ratings were in effect on the day before
the Proposed Transaction closes and applying those credit ratings to then-
current debt;
b. Avista bears the burden to prove prudent in a future GRC any increased
cost of Long-Term Debt associated with existing Avista debt retired,
repaid, or replaced as a part of the Proposed Transaction; and
c. Determination of the authorized Return on Equity (ROE) in future GRCs
will include selection and use of one or more proxy group(s) of companies
engaged in businesses substantially similar to Avista's Oregon LDC
operations, without any limitation related to Avista's ownership structure.
Business and Financial Risks
Hydro One and Avista agree that Parent and 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.
Avista and Parent agree that Avista and Olympus Holding Corp. will provide
notice to current and prospective lenders describing the ring-fencing controls in
these commitments and stating that such controls provide no recourse to Avista
assets as collateral or security for debt issued by Hydro One or any of its
subsidiaries; this provision does not prohibit Avista from pledging its own assets
as collateral or security for Avista debt. Avista and Parent will file with the
Commission prior to close of the Proposed Transaction a copy of said notice.
Should any regulatory, taxing or other governmental entity or subdivision thereof
in the United States of America or elsewhere make a determination that any
company organizationally situated between Avista and Hydro One, individually or
collectively:
i. Lacks a genuine business purpose;
36.
Docket No. Utvl 1897 lOregon Commitments / Page 16
o
ii. Fails to constitute a separate and distinct business and not a single
economic unit containing one or more intermediate companies and
Avista;
iii. Exhibits substantial and material entanglement of operations or finance
with Avista;
iv. Fails to comply with all tax and other monetary obligations, including
but not limited to the timely obtaining of pertinent taxing authority
letters of determination authorizing the form and nature of any tax
management construct for the specific company housing the tax
management construct for the specific intended purpose directionally
specific to the application executed;
v. ls determined to be inadequately capitalized for its business purposes,
or
vi. Engages in financial hedging or other risk management predicated on
historical correlations which do not hold true in future markets,
however disrupted or distressed, then:
Avista and its ratepayers will be held harmless from any claim, suit, action, loss,
damage, or legal liability, including all expenses, penalties, judgements fees
(including attorney fees), interest, charges, expert representation costs, and
amounts actually and reasonably incurred in connection with any litigation,
defense, penalty, or fine.
U nregulated Activities
a. Avista commits, and Parent agrees, that Avista's regulated utility
customers will be held harmless from the liabilities of any unregulated
activity of Hydro One and its subsidiaries and affiliates, including Avista.
ln any proceeding before the Commission involving Avista rates, the
revenue requirement for Avista will be determined without recovery of
costs related to unregulated activities.
b. Avista commits, and Parent agrees, that Avista and AELP will continue to
be operated consistent with Commission Order 14-112, including
Attachment B, entered April 1, 2014 in Docket Numbers UF 4283 and Ul
343.
Environmental Liabilities of Parent
Hydro One will hold Avista and Avista ratepayers harmless from any
environmental obligations or liabilities of Hydro One or its affiliates other than
Avista, including those associated with harmful substances such as asbestos or
polychlorinated biphenyls (PCBs) and environmental cleanup and restoration.
Docket No. UM 1897 lOregon Commitments / Page 17
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38
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39 Foreign Exchange and Hedging on Dividends Payments and Allocations
Avista and Parent agree that Avista ratepayers will be held harmless from any
currency exchange or related cash flow smoothing or hedging costs pertaining to
activities beyond Avista's Oregon utility operations and not usual and customary
prior to close of the Proposed Transaction.
G. Rate Credit
40 Rate Credits to Oregon Ratepayers
Avista and Hydro One will flow through to Avista's retail customers in Oregon a
Rate Credit of $7,541 ,15912 over a S-year period, beginning at the time the
Proposed Transaction closes. The Parties agree that the rate credits shall be
spread to customers on an equal percentage of margin basis.
The total Rate Credit to customers for the five years following the closing would
be $1 ,508,232 per year. A portion of the annual total Rate Credit could be
offsetable, in the amount of $226,235.13 During the S-year period, the financial
benefits will flow through to customers through the Rate Credit described above
on customers' bills. The offsetable portion may be achieved through a reduction
to the underlying cost of service as reflected in the test period numbers used for
ratemaking.
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,
12 The total rate credit for Oregon will be $7,541 ,159. The rate credit will be allocated in Oregon on the
basis of Year End Customers for the year ending December 31"t, 2016. ln 2016, Avista's Oregon Service
Territory had 100,472 customers. Avista total number of customers was 717 ,579 in 2016. Therefore,
Oregon customers represented 14% of Avista total number of customers.
13 The offsetable portion of the Rate Creditwas calculated as 15% of the jurisdictionaltotalof the rate
credit.
Docket No. UM 1897 lOregon Commitments / Page 18
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Rate Credit
Oregon Annual Credit
Years 1-5
Oregon Total Credit
Total Credit $1,508,232 $7,541,159
Offsetable Credit $226,235 $1,131,174
t
The $7.54 million represents the "floor" of benefits that will be flowed through to
Avista's customers, either through the Rate Credit or through benefits otherurrise
included in base retail rates. To the extent the ldentifiable benefits exceed the
annual offsetable Rate Credit amounts, these additional benefits will be flowed
through to customers in base retail rates in GRCs 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. lt 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.
H. Taxes
41. Taxes
a. Federal, state, and local taxes and assessments included in customer
rates shall be no greater than they would be had Avista not been acquired
by Hydro One.
b. Tax benefits that would not exist absent the Proposed Transaction may be
addressed in future proceedings before the Commission; however, until
that time, Avista, in compliance with ORS 757.511(4Xb), shall make a
filing with the Commission for approval to establish a balancing account to
track income tax expense, subject to Commission approval and
Commission conditions. Avista shall also submit an application to the
Commission to establish an ORS 757.259 deferral to track Avista's
income tax expenses and revenues (including tax benefits resulting from
the Proposed Transaction), the net revenues of which could be deliverable
to Avista's Oregon customers if a Party prevails in a future proceeding
before the Commission. Avista shall make its initial ORS 757.259 filing as
soon as practicable after the Commission issues its final order in this
docket, but prior to closing of the Proposed Transaction. Avista shall
continue to renew its application for an ORS 757 .259 deferral annually.
This commitment does not require Parent to pass Parent-related tax
benefits to Avista customers unless ordered by the Commission in a later
proceeding, nor does it permit Parent to pass Parent-related tax expenses
to Avista customers.
42. Tax Cuts and Jobs Act
a) Avista and Parent agree that Avista will identify and quantify the impact on
Avista of the December 22,2017 U.S. "Tax Cuts and Jobs Act," which
lowered U.S. corporate federal income tax rates from 35 percent to 21
Docket No. UM 1897 lOregon Commitments / Page 1g
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44
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percent and modified or eliminated certain federal income tax deductions.
Avista will report on this impact in compliance with other Commission
proceedings. Within this reporting, Avista will identify specific metrics of
concern to Rating Agencies.
b) Regarding the deferral of net tax benefits associated with the Tax Cuts
and Job Act, currently docketed as UM 1918 and UM 1923, Avista agrees
that it will waive, and not seek to apply, an earnings test (see ORS
757.259(5)) when Avista decides, or is required by the Commission, to
amortize the deferred tax benefit into customer rates; in other words,
Avista will not use any of the deferred tax benefits to achieve its
authorized ROE of 9.4% (ROE in 2018 and beyond). The Parties agree
that the amount of the tax benefit has not yet been determined, but will be
determined consistent with the Commission's direction in the UM 1918
and UM 1923 dockets, and other applicable docket(s) should one be
opened.
l. Financial Ring-Fencing
Cost of Capital
Avista and Parent agree that Avista's Cost of Capital, including Avista's Rate of
Return (ROR), common equity, and Long-Term Debt, shall not be more costly
after the close of Proposed Transaction than they would have been absent the
Proposed Transaction. Consistent with Commitment 35(a), Avista bears the
burden of proving that increases in Avista's Cost of Capital, including Avista's
ROR, common equity, and Long-Term Debt, is caused by circumstances or
developments that are unrelated to the financial risks or other characteristics of
the Proposed Transaction.
Capital Support
Hydro One will provide equity injections to support Avista's capital structure
thereby allowing Avista to access its usual and customary financial markets
under reasonable terms and on a sustainable basis. This commitment should
include commercial paper programs, FMBs, credit facilities, letters of credit or
usual debt capital market transactions as exhibited in Avista's business activity
prior to execution of the Proposed Transaction, unless other comparable, lower-
cost methods exist in the future.
Common Equity Floor (CEF) in Capital Structure
The applicable CEF shall correspond to the applicable Credit Ratings for FMBs
as determined in Table 2 in accordance with the following paragraph of this
45.
Docket No, UM 1897 lOregon Commitments / Page 20
46
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commitment. Hydro One will make such equity injections as necessary to
maintain the applicable CEF consistent with Table 2.
When S&P and Moody's Credit Ratings are within one notch of each other, the
CEF will be determined by the higher of those ratings. When the difference
between S&P and Moody's is greater than 1 notch, the CEF will be determined
by the rating level that is one notch below the higher of the S&P and Moody's
ratings.
lf Avista or Parent finds that the actual or projected CEF will drop below one-half
of one percent above the required target based on the applicable Credit Ratings
in Table 2, then Avista and Parent will:
a) Within 5 business days, notify the Commission explaining why.
b) Within 30 days of providing notice, provide a plan and timeline
("Compliance Plan")that is subject to Commission review, modification,
rejection, or approvalfor maintaining Avista's common equity ratio at or
above the required CEF.
c) Subsequent to the filing of the Compliance Plan, Avista shall file progress
reports every 90 calendar days detailing its efforts to restore its equity
component to the required CEF or above, in addition to detailing how
Avista has met each requirement in the Compliance Plan.
d) lf Hydro One and Avista find it reasonably likely that Avista common equity
ratio could fall below one half of one percent above the required CEF in
Table 2 based on a preceding or projected thirteen month average, Avista
and Parent shall provide a report to Staff with its projections and take the
steps listed above.
Avista Debt and Preferred Stock
Avista and Parent agree that any debt, commercial paper programs, revolving
credit facilities and preferred stock of Avista will be maintained separately to
support Avista utility operations.
Parent and Avista agree that no incremental new debt related to financing the
transaction at closing or thereafter for this or future Parent or affiliate M&A will be
in any way incurred, guaranteed, or pledged with Avista assets or otherwise by
Avista. Avista's financial integrity will be protected from the separate operations
of the Parent and its affiliates. Should any entity claim or assert othenrrrise in any
forum, whether regulatory, political, legal or othenrvise, the Parent will assert that
said debt or other financial instrument and any penalties or interest or other
Docket No. UM 1897 lOregon Commitments / Page 21
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obligations thereon is the sole responsibility of the Parent and its subsidiaries
other than Olympus Holding Corp. and all entities in the chain below it.
Neither Parent nor Avista will include in any of their debt or credit agreements
cross-default provisions between the debt of Avista and the debt of Parent or any
current and future Affiliates, or any government or political subdivision thereof
with a direct or indirect ownership interest in the Parent. Parent and Avista agree
that in no way may the assets of Avista be used to guarantee the finances,
securities, transactions, or credit of any government or subdivision thereof, and
that the acquisition of power to exercise substantial influence over Avista by any
person or entity in the future may only occur subject to Commission approval as
required by ORS 757.511 and as specified in these commitments.
Except as provided in commitments 62 and 63 Avista will enter into no inter-
company debt transactions with, or lend money to, or borrow money from:
Parent, or current or future affiliates, or any government or political subdivision
thereof with a direct or indirect ownership interest in the Parent.
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approval of the Commission:
a) Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or its
affiliates;
b) Assume any obligation or liability as guarantor, endorser, surety, or
othenvise for Parent or its affiliates;
c) Transfer any of Avista utility assets or property to Parent or its affiliates, or
any government or political subdivision thereof;
d) Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or its affiliates;
e) Enter into cross-default provisions involving Parent or its affiliates; or
f) Participate in a money pool
47. First Mortgage Bonds (FMB)
Avista and Parent agree that Avista will also maintain adequate: (a) interest
coverage and (b) pool of qualified Avista assets to maintain the ability to issue
FMB.
Docket No. UM 1897 lOregon Commitments / Page 22
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48.
49
50
Continued Gredit Ratings
Avista and Parent agree that Avista debt (other than private placement debt), will
continue to be rated by both S&P and Moody's without substitution, except as
provided under the definition of Rating Agencies. Avista will make Rating
Agencies' credit ratings and all related presentations to or from Avista and Rating
Agencies, and Rating Agencies' reports and analysis peftaining to Avista,
available to the Commission upon the Commission's request,
Revolving Credit Facilities and Associated Letters of Credit
Parent and Avista agree that Avista will prudently manage its revolving credit
facilities and, as part of the renewal of the current credit facilities, will proactively
arrange for multiple one year maturity extensions and accordion features
allowing enlargement of facilities to protect Avista from unnecessary credit risk, if
available at a reasonable cost in the market. Further, Parent and Avista agree to
prudently diversify institutions participating in revolving Avista credit facilities to
preclude concentration in any one country or institution.
Avista will share no credit facilities with Parent or affiliates or any government or
political subdivision thereof with a direct or indirect ownership interest in the
Parent.
Restrictions on Upward Dividends and Distributions
No upward dividends, distributions or like payments are authorized from Avista
(special, one-time, or othenryise) to Olympus Equity LLC if any of the following
conditions are present:
a) The ratio of Avista's earnings before interest, tax, depreciation and
amortization (EBITDA) to Avista's interest expense is not greater than or
equal to 3.0;
b) Avista's CEF as calculated for ratemaking purposes in Oregon is less than
set forth in Table 2 based on FMB credit ratings. Table 2's application is
further described in Commitment 45, "Common Equity Floor (CEF) in
Capital Structure" (for example, if Avista's S&P FMB rating is "A" AND
Moody's FRB rating is "A2", then the CEF shall be 46%); or
c) Avista's S&P or Moody's long-term (local currency) issuer credit ratings
drop below lnvestment Grade. Note that subsection (c) is an exception to
the definition of Credit Ratings, but not an exception to the definition of
lnvestment Grade.
For five years after the closing of the Proposed Transaction, Avista and Parent
agree to decline to request any extraordinary or special upward dividends or
Docket No. UM 1897 lOregon Commitments / Page 23
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payouts. Further as an exception to ORS Chapter 757 inclusive of ORS 757.420,
Avista and Parent consent that the Commission shall have 60 days to review any
application for a special upward dividend made beyond five years post Proposed
Transaction, and agree that comprehensive supporting justification will be filed with
the Commission in support of any said future application.
Without prior Commission approval, Avista and Parent agree that Avista's regular
quarterly dividends from Avista to Olympus Equity LLC, or othenruise upward
toward Hydro One, may grow at a Compound Annual Growth Rate (CAGR) of no
more than seven (7) percent CAGR.14
ln all cases, Parent and Avista agree that Hydro One shall notify the Commission
of:
i. Any intention to transfer more than five (5) percent of Avista retained
earnings, out of Avista, at least seven (7) days prior to starting this
transfer;
Any intention to transfer more than ten (10) percent of Avista retained
earnings out of Avista over a six-month period, at least 30 days prior to
starting those transfers;
ilt Any intention to declare a special cash dividend payment at least 30 days
before declaring the special cash dividend or like transfer of funds; and
Its most recent quarterly cash dividend payment within 30 days after
declaring each dividend.
Annual Affiliated lnterest (Al) reports must itemize all Parent M&A divestitures,
and reorganization activities since the prior annual Al report.
SEG Reporting Requirements
Following closing of the Proposed Transaction, Avista will continue to make its
own applicable separate filings with the U.S. Securities and Exchange
Commission (SEC).
Compliance with the Sarbanes-Oxley Act
Following the closing of the Proposed Transaction, Avista and Parent will comply
with applicable requirements of the Sarbanes-Oxley Act with regard to all activity
at Avista and Olympus Equity, LLC.
See page 21 of Avista's investor presentation, "Positioned for Performance - An overview of Q3
2017 and beyond" released in December 2017 for the 2013 through 2017 4 percent to 5 percent
trend of annual dividend growth.
Docket No. UM 1897 lOregon Commitments / Page 24
IV
51
52
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53.Sources of Funds for Hydro One Commitments and Guarantees (Other than
for Customer Service, Communities and Charitable Purposes)
a. Within 18 months of the close of the Proposed Transaction, Hydro One
will establish and maintain a Canadian $2 billion universal shelf
prospectus in Canada which will allow it to issue debt, common equity and
preferred equity.
b. Hydro One agrees to increase its Canadian $250 million credit facility to at
least $500 million, increasing its liquidity and enabling it to fund any equity
injection required at Avista on short notice.
c. Hydro One agrees that Avista will continue to be able to issue FMBs, and
that Hydro One will be supportive of Avista's FMB credit ratings.
d. Hydro One agrees that it will not allow Avista's S&P or Moody's longterm
(local currency) issuer credit ratings to drop below lnvestment Grade.
Note that this is an exception to the definition of Credit Ratings, but not an
exception to the definition of lnvestment Grade.
J. Bankruptcy Ring-Fencing
54 Avista Gash Flows
Avista commits, and Parent agrees, that prior to upward dividends from Avista to
Olympus Equity LLC, Avista cash flows will not be comingled in common
accounts with cash flows for other purposes at either of Olympus Equity, LLC or
Hydro One, including all Hydro One subdivisions and affiliates. Hydro One will
ensure that all of the Parent's corporate entities maintain accounts and
subaccounts that are separate from Avista accounts and subaccounts, sufficient
to cause handling of cash flows to be entirely consistent with Avista's corporate
purposes.
55. Golden Share
Entering into voluntary bankruptcy shall require the affirmative vote of a "Golden
Share" of Avista stock. The Golden Share is defined in the Definitions section of
these commitments and is 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 Hydro One or any of its affiliates
including Avista, or is any lender to Hydro One or its affiliates, or Avista or its
affiliates. The holder of the Golden Share must be approved by the Commission
ln matters of voluntary bankruptcy, this Golden Share will override all other
Docket No. UM 1897 lOregon Commitments / Page 25
a
outstanding shares of all types or classes of stock and the holder of the Golden
Share solely represents the interests of Avista's utility customers.l5
The cost of the Golden Share is considered a transaction cost and not included
in rates. Once a viable candidate for holder of the Golden Share is identified,
Avista must report to the Commission the following:
a) The name and contact information of the holder of the Golden Share;
b) How this person/entity meets the definition and purpose of the Golden
Share holder as explained in the commitments herein; and
c) Provide a copy of the draft agreement between the purchaser and Avista
After receiving Commission approval of the holder of the Golden Share, Avista
shall file the following:
The Report of Securities lssued and Disposition of Net Proceeds promptly
after the sale; and
ii. Final copies of:
1. The Board resolution authorizing the transaction;
2. The resolutions of the Board and the shareholder approving and
adopting the Amended and Restated Articles of lncorporation of
Avista, including the rights and preferences of the Golden Share;
3. A copy of the Amended and Restated Articles of lncorporation of
Avista;
4. A copy of the Golden Share certificate; and
5. A copy of the agreement between the holder of the Golden Share
and Avista.
Further, Avista will seek Commission approval prior to consenting to any future
sale, trade, or transfer of the Golden Share by the Commission-approved-holder
thereof. Avista will provide supplemental information at that time in a manner
and form consistent with that which was provided in the review of the initial
purchaser in this docket.
15 See Definitions Section for further explanation and case references.
Docket No. UM 1897 lOregon Commitments / Page 26
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56. Vote of Independent Directors Also Required
Avista and Parent agree that the organizational documents of Avista and
Olympus Equity LLC will provide that Avista and Olympus Equity LLC will not,
and their organizational documents will not permit Avista or Olympus Equity LLC
to, consent to the institution of voluntary bankruptcy proceedings or to the
inclusion of Avista in bankruptcy proceedings of Parent, absent a twothirds
majority vote of all Avista directors, including the affirmative vote of a majority of
the lndependent Directors at Avista, which must include the affirmative vote of at
least two of the Avista designated lndependent Directors.
Avista and Parent agree that Avista will present the organizational documents of
Avista and Olympus Equity, LLC to the Commission before the Commission's
decision in this proceeding.
ln addition to an affirmative vote of a majority of the lndependent Directors, the
vote of the holder of the Golden Share shall also be required for Avista to enter
into a voluntary bankruptcy.
Non-Consolidation Opinion
As soon as it is obtained, but by no later than ninety (90) days after the Proposed
Transaction closing, Avista and Hydro One will file a non-consolidation opinion
with the Commission which concludes, subject to customary assumptions, that
the commitments herein are sufficient that any U.S. bankruptcy court or
Canadian bankruptcy court would not order the substantive consolidation of the
assets and liabilities of Avista with those of Hydro One or any of its affiliates or
subsidiaries. Avista commits to promptly file such opinion with the Commission
as soon as it is obtained.
57
lf the ring-fencing provisions in these commitments are not sufficient to obtain a
non-consolidation opinion, Hydro One and Avista will immediately take the
following actions:
a. Notify the Commission of this inability to obtain a non-consolidation
opinion.
b. 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.
c. Obtain a non-consolidation opinion, and otherwise complete above steps.
Docket No. UM 1897 lOregon Commitments / Page 27
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58
Hydro One and Avista recognize that OPUC adoption of the stipulation in this
docket and the list of commitments herein is conditioned on and subject to Hydro
One and Avista filing a satisfactory non-consolidation opinion with the OPUC.
Olympus Holding Gorp. and Olympus Equity LLC
Olympus Holding Corp.'s indirect subsidiaries will include Olympus Equity LLC
and Avista. See the post-acquisition corporate organizational chart in Table 1.
Following closing of the Proposed Transaction, all of the common stock of Avista
will be owned by Olympus Equity LLC, a limited liability company.
Avista will become a wholly-owned subsidiary of Olympus Equity LLC, a
bankruptcy-remote Special Purpose Entity (SPE) established for the purpose of
ring-fencing Avista, with the intention of removing Avista (and all of its current
subdivisions and holdings in all states)from the bankruptcy estate of Parent and
other divisions and affiliates. Olympus Equity LLC will issue no preferred stock;
will not issue nor carry notes, bonds, or other forms of indebtedness; and will not
engage in financial derivatives, hedging, or like financial activities beyond those
entirely consistent with the above stated purpose of the bankruptcy-remote SPE.
Olympus Equity LLC, Avista and Avista's subsidiaries will not hold other Parent
corporation investments or financial obligations without prior Commission
approval.
Hydro One will provide copies of the articles of incorporation and bylaws for
Olympus Holding Corp. and of the membership agreement for Olympus Equity's
LLC to the Commission prior to the Commission's decision in this matter. ln the
instance that any of the articles of incorporation or bylaws of the abovementioned
companies conflict with any commitment listed herein, Olympus Holding Corp.
and Olympus Equity LLC agree to amend such documents to reconcile the
conflict so that the terms of the commitments herein prevail.
Avista and Parent commit that Olympus Equity LLC will not operate or own any
business and will limit its activities to investing in and attending to its
shareholdings in Avista.
Avista and Parent further commit that the revised articles of incorporation and
bylaws of Olympus Holding Corp, and Olympus Equity LLC, reflecting their
specific business purposes will be provided to the Commission prior to the
Commission's decision on the Proposed Transaction.
Restriction on Pledge of Utility Assets
Absent a Commission order providing otheruyise, Avista and Hydro One agree
that under no circumstance will Avista loan, pledge, or transfer Avista utility
Docket No. UM 1897 lOregon Commitments / Page 28
59
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assets to Hydro One, Olympus Holding Corp., or any of Parent's subsidiaries or
affiliates, other than Avista, without Commission approval. ln addition, Avista
and Hydro One agree that Avista's assets will not be loaned, pledged, or
transferred by Avista or any of its affiliates, including Hydro One and Olympus
Holding Corp. and any of their subsidiaries or affiliates.
60 Major Shareholder (Beneficial Ownership) Reporting
Avista and Parent agree that Avista will submit a written report on Major
Shareholders con sistent with OAR 860-0 27 -0 1 7 5(2) (M ajor Sha reholders
Report).
When holdings of all entities are not available because filings for those certain
entities have not yet been made or are not available, Avista and Parent agree
that Avista will use best available information in a preliminary filing to the
Commission by the due date provided for in OAR 860-027-0175, supplemented
by a final filing to the Commission no later than June 1 of each year.
61. Restriction on Acquisitions and Dispositions
Parent and Avista agree to comply with ORS 757.511 and ORS 757.480 as
applicable and as described in the commitments herein. Hydro One, its Affiliates,
and subsidiaries including Avista will notify the Commission subsequent to the
board of Hydro One, its Affiliates or subsidiaries including Avista approving, and
as soon as practicable following any public announcement, of:
a. Any acquisition by Hydro One, its Affiliates and subsidiaries including
Avista of a regulated or unregulated business that is equivalent to five (5)
percent or more of Hydro One's capitalization; or
b. Any change in control or ownership of Avista, inclusive of any change of
upstream ownership of Avista among subsidiaries and Affiliates of Hydro
One, providing detail of the holding.
This commitment does not prohibit Parent or its affiliates other than Avista from
holding diversified businesses.
Neither Avista nor Olympus Holding Corp. will assert in any future proceedings
that the Commission is without jurisdiction over any transaction that results in a
change of control over Avista pursuant to ORS 757.511 and ORS 757.480, or as
those statutes are described in the commitments herein.
Docket No. UM 1897 lOregon Commitments / Page 29
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62,No lnter Gompany Debt
Avista and Parent agree that, without prior Commission approval, Avista will not
enter into any inter-company debt transactions with Olympus Holding Corp.,
Hydro One, or any of their subsidiaries or affiliates.
No lnter Company Lending
Avista and Parent agree that, without prior Commission approval, Avista will not
lend money to Olympus Holding Corp., Hydro One, or any of their subsidiaries or
affiliates.
K. Access to lnformation
Access to and Maintenance of Books, Records and Other Information
The following commitment applies to information that is reasonably calculated to
lead to the discovery of admissible evidence pertaining to, or that may directly or
indirectly affect or relate to, Avista, the Oregon-regulated utility: Avista and
Parent will provide access to all materials specified in subparagraphs a - d below
Where practicable, this information will be made available directly to the
Commission or at Avista's Headquarters in Spokane.
The Proposed Transaction and Hydro One's post-closing corporate structure will
not result in reduced access to books and records for Commission Staff and
other parties to regulatory proceedings necessary to investigate, examine, or
verify transactions with Avista, or that result in costs that may be allocable to
Avista.
Nothing in the Proposed Transaction and corporate structure thereafter will limit
or affect the Commission's rights with respect to inspection of Avista's and
Olympus Holding Corp.'s accounts, books, papers and documents pursuant to
and in compliance with all applicable Oregon laws and administrative rules.
Avista and Parent will provide the Commission with access to
a. All books of account, budgets, integrated resource planning, documents,
data, records, accounting, and financial information which may pertain to
transactions between Avista and Hydro One or any Hydro One U.S.
affiliate and subdivision.
b. Avista Board of Director (BOD) and Parent BOD meeting minutes and
presentations for BOD meetings, Avista and Parent committees and
subcommittees thereof, as well as investor presentations and transcripts
for Avista and Parent.
63.
64.
Docket No. Ulttl 1897 lOregon Commitments / Page 30
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c. Such other records of Avista and Parent including 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
subdivisions to assign costs to Avista and amounts subject to allocation or
direct charges consistent with the Commission's rules and regulations.
d. All information provided by and to common stock, bond, or bond rating
analysts, and Rating Agencies, which directly or indirectly pertains to
Avista or any affiliate that exercises influence over Avista. Such
information includes, but is not limited to, opinions, reports and
presentations made to or provided by common stock analysts and bond
rating analysts. Avista's records of such matters will be kept at Avista's
headquarters in Spokane.
Hydro One and its Affiliates agree that they will not raise lack of jurisdiction as a
means of denying such access, and agree to cooperate fully with such
Commission investigations and requests for information.
Budgets
On or before December 31 of each year, Avista shall make available to the
Commission a final copy of its annual capital budget(s)for the succeeding year.
Hydro One will provide an annual budget of all transactions between Hydro One
and Avista.
Appearance Before the Gommission
Hydro One and Avista will seek to maintain a visibly constructive relationship with
the Commission and will make their employees and officers available to testify,
present or participate in workshops before the Commission at the Commission's
request to provide information of interest to the Commission on matters related to
Avista's operations in Oregon, Avista will keep the Commission informed on
material matters related to Avista's operations in Oregon consistent with
Commission statutes and rules.
L. Accounting
Separate Books and Records
Avista and Parent, including all Hydro One U.S. Affiliates and subdivisions, will
maintain the necessary itemized books and records in form that can be viewed,
printed, and duplicated so as to document all corporate, Affiliate, or subsidiary
transactions with Avista, or that result in costs that may be allocable to Avista.
Documentation shall be maintained such that all costs subject to allocation and
the basis for the application of the allocation methodology can be specifically
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Docket No. UM 1897 lOregon Commitments / Page 31
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identified, particularly with respect to origin and cost drivers.
Avista and Parent further agree that Avista will maintain separate books and
records inclusive of all documentation relating to costs allocated to and from its
Parent and Affiliates, with such accounting information and financial books and
records kept at Avista's headquarters in Spokane, Washington.
Avista will maintain its own accounts and subaccounts, books, computers, data,
documents, and documentation with supporting records separate from the
Parent's accounting system, with such accounting information and financial
books and records kept at Avista headquarters in Spokane, Washington.
Avista assets, cash flows, and financial accounts may not be co-mingled with
Parent or Parent's subsidiaries or operations resulting after the merger.
M. Cost Allocations
68. Cost Allocations and Affiliate lnterests
Avista and Parent agree that Avista will provide cost allocation methodologies
used to allocate to Avista any costs related to Parent, including to Olympus
Holding Corp. or its other subsidiaries, and commit that there will be no cross-
subsidization by Avista customers of unregulated activities.
Avista and Parent agree as follows:
Hydro One and Avista will not cross-subsidize between the regulated and
unregulated businesses or between any regulated businesses, and shall
comply with the Commission's applicable statutes, orders, and rules with
respect to such matters.
Hydro One shall not subsidize its activities by allocating to or directly
charging Avista expenses not authorized by the Commission to be so
allocated or directly charged.
a
a
a
a For any services rendered to Avista or each cost category subject to
allocations to Avista by Hydro One or any of its affiliates, Hydro One must
be able to demonstrate that such service or cost category is necessary to
Avista for the performance of its regulated operations, is not duplicative of
services already being performed with Avista, and is reasonable and
prudent and results in a benefit to Oregon customers.
To determine the reasonableness of allocation factors used by Hydro One
to assign costs to Avista and amounts subject to allocation or direct
Docket No. UM 1897 lOregon Commitments / Page 32
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charges, the Commission or its staff may investigate the accounts of
Hydro One and its subsidiaries which are the bases for charges to Avista.
Hydro One agrees to cooperate fully with such Commission investigations
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approval of the Commission:
a. Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or
affiliates;
b. Assume any obligation or liability as guarantor, endorser, surety, or
othenrrrise for Parent or affiliates;
c. Transfer any of its utility assets or property to Parent or affiliates, or any
government or political subdivision thereof with a direct or indirect
ownership interest in the Parent, except as and when required by ORS
757.511 and ORS 757.480 or expressed in the commitments herein; or
d. Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or affiliates.
Avista will bear the burden of proof in any GRC that any corporate and affiliate
cost allocation methodology is reasonable for ratemaking purposes consistent
with Commission statutes, orders, and rules. Neither Avista nor Olympus
Holding Corp. or its subsidiaries will contest the Commission's authority to
disallow, for ratemaking purposes in a GRC, unreasonable, or misallocated costs
to Avista.
With respect to the ratemaking treatment of affiliate transactions affecting Avista,
Olympus Holding Corp,, Hydro One and all its U.S. subsidiaries, will comply with
the Commission's rules and practice. However, nothing in this commitment limits
Avista from also proposing a different ratemaking treatment for the Commission's
consideration, or limits the positions that any other party to the proceeding may
take with respect to ratemaking treatment.
Prevention of Cross Subsidization
Avista and Parent agree to comply with ORS 757.015 through 757.495, as
applicable, and OAR 860-027-0040 through 860-027-0042, as applicable, for
transactions between Avista and Parent including subdivisions and Affiliates.
Further, Avista and Parent agree that the Commission may investigate the
accounting records of Parent and Affiliates that are the bases for charges to
Avista, to determine the reasonableness of the costs and the allocation factors
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69.
Docket No. UM 1897 lOregon Commitments / Page 33
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used by the Parent or its subdivisions to assign costs to Avista and amounts
subject to allocation or direct charges. Parent and Affiliates will cooperate fully
with such Commission investigations.
Parent and Avista will maintain robust systems to track employee, officer,
director, agent, and attorney time not spent for Avista utility purposes, which cost
thereof shall not be allocated to Avista.
Parent and Avista will comply with all applicable Commission statutes, orders,
and rules regarding Affiliated lnterest transactions, including timely filing of
applications and reports.
Avista will not cross-subsidize between the regulated and unregulated
businesses or between any regulated businesses, and shall comply with the
Commission's applicable orders and rules with respect to such matters.
a. For services rendered to Avista or each cost category subject to allocation
to Avista by Hydro One or any of its affiliates, Avista must be able to
demonstrate that such service or cost category is: i) necessary to Avista
for the reasonable performance of its regulated operations in Oregon, ii) is
not duplicative of services already being performed within Avista, and iii) is
reasonable and prudent.
b. Cost allocations to Avista will be directly charged whenever possible, and
shared or indirect costs will be allocated based upon the primary cost-
driving factors.
c. Hydro One and its subsidiaries will have in place an accounting system
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
d. All costs subject to allocation will be documented, such that they can be
specifically identified, particularly with respect to their origin.
e. Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval. The Master Services Agreement (MSA) or equivalent will be
updated to include the corporate and affiliate cost allocation
methodologies between Hydro One, Avista and their affiliates. The MSA
will be filed with the Commission for review and approval, no later than 90
days after close of the transaction. Thereafter, amendments to the MSA
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Docket No. UM 1897 lOregon Commitments / Page 34
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will also be filed with the Commission as material changes occur, or
othenarise attached to the annual June Affiliated lnterest (Al) report.
f. Avista and Hydro One commit to using asymmetrical pricing as required
by oAR 860-027-0048(4).
Any allocation of costs, corporate and Affiliate investments, expenses, or
overheads between Avista and Parent or an Affiliate will comply with the
following principles:
Cost allocations to Avista will be directly charged whenever possible, and
shared or indirect costs will be allocated based upon primary,
demonstra ble, and transparent cost-d rivi n g factors.
Parent and all subsidiaries and Affiliates will maintain accounting systems
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
iii All costs subject to allocation will be Documented and flagged by origin, so
as to be specifically identified, tracked, and trended. Failure to adequately
support any allocated cost may result in denial of its recovery in rates.
Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval.
Avista's MSA or equivalent, itemizing and explaining corporate cost
allocation methods used for rate setting, will be updated to include the
corporate and affiliate cost allocation methodologies between Parent (and
Hydro One if different), Avista, and Affiliates and filed with the Commission
no later than 90 days after execution of the reorganization. Thereafter, the
MSA will be appended to the annual June Affiliated lnterest report filed
with the Commission. This annualfiling will capture, highlight and explain
all changes from the prior year. The entirety of the MSA and its
components are subject to review by Staff in subsequent proceedings
before the Commission to confirm that cost drivers, accounting methods,
assumptions, and practices result in fair, just and reasonable utility rates.
Avista will update, and re-file for approval, the MSA and Al Reporting
reflecting Parent (and Hydro One if different) organizational detail and the
outcome of Docket No. UM 1897.
VI Costs which would have been denied recovery in rates had they been
incurred by Avista will likewise be denied recovery whether they are
Docket No. UM 1897 lOregon Commitments / Page 35
iv
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allocated directly or indirectly through subsidiaries of Parent other than
Avista.
vii. Avista will file timely applications and reports in compliance with
ORS 757.015 through 757 .495 and OAR 860-027-0040 through 860-027-
0042.
viii. Parent and Avista commit that they will interpret ORS 757.015 and
757.495 to require Commission approval of any contract between Avista
and (1) any affiliate of Hydro One or (2) any affiliate of Parent. This shall
include the MSA discussed herein.
ix Avista bears the burden of showing that a particular expense may be
allocated to Avista ratepayers.
Master Services Agreement (MSA)
Please see Commitment 69.
Complete Corporate Organizational Chart and Contact !nformation
Avista and Parent agree that Avista will file usual and customary Affiliated
lnterest (Al) reports with the Commission each June. Avista's Al reports filed
with the Commission will contain a complete copy of the current corporate
organizational chart between Hydro One and Avista, including contact
information for those entities, a narrative description of each Affiliate, annual
revenue for each Affiliate, and transactions with each Affiliate; and identify in the
chart any entities that do business with, share charges with, or have an
ownership interest of five percent or more in Avista.
N. North American Free Trade Agreement (NAFTA)
North American Free Trade Agreement (NAFTA)
Avista and Parent agree that the Commission would have jurisdiction in any
future proceedings regarding any unrecovered liabilities to the State of Oregon
that may result from NAFTA Chapter Eleven mediations, arbitrations, or any
other litigation brought by Hydro One's shareholders under NAFTA. Only the
Commission or the Oregon Attorney General may initiate such proceeding.
O. Avista Status Quo
Generally Accepted Accounting Principles and Standards (GAAP)
Avista and Parent agree that Avista and Olympus Equity LLC will follow GAAP
for Oregon regulatory purposes except when othenruise directed by Commission
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70
71.
72.
73.
Docket No. UM 1897 lOregon Commitments / Page 36
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orders and policies, Oregon Revised Statutes (ORS), and Oregon Administrative
Rules (OAR).
74. Travel Expenses
Avista and Parent agree that Avista's corporate travel expenses recovered in
rates, including variable costs of flying the Avista corporate jet and commercial
travel for all Avista and Parent directors and executives will not exceed 105
percent of 2017 expenses adjusted annually for inflation. However, regardless of
the terms of this commitment, Avista still carries the burden of demonstrating the
reasonableness and inclusion in rates of any travel expense.
75 Avista Management Direction
Avista and Parent agree that Avista management will continue to ensure that
delivery of safe and reliable high quality utility service at just and reasonable
rates in Oregon is included in its mission and is a top corporate priority post-
merger.
76 Capital lnvestment for Safe Pipelines and Controls
Avista and Parent agree that Avista will maintain its existing levels of capital
investment where needed to improve the safety of regulated pipelines and
associated controls for the next ten years. Over that period, Parent agrees to
provide capital, receiving usual Commission rate case treatment, as necessary to
improve the safety of pipelines and associated controls.
77 Equal or Better Access to Financial Markets in the U.S. and Canada
Avista and Parent agree to make reasonable commercial efforts to prioritize
access for Avista to financial markets at equal or lower cost than absent the
Proposed Transaction for Long-Term Debt and Credit Facilities in the U.S.
Hydro One agrees to consider listing on the New York Stock Exchanges (NYSE)
as and when appropriate and advisable.
Parent agrees to make reasonable commercial efforts to investigate and arrange
innovative financing opportunities that include independent opportunities for
Avista financing, utilizing the same investment banks and arranged sellers in the
U.S. and Canada, where Avista is responsible for Avista's issuances and
proportional cost, but afforded proportional access to larger aggregate securities
offerings to achieve lower all-in issuance cost.
78. Venue for and Resolution of Disputes
Avista and Parent agree that the venue for disputes regarding the operation of
Avista will be in state and federal regulatory bodies or courts of competent
jurisdiction, as applicable, in Oregon, Washington, ldaho, Montana or Alaska.
Docket No. UM 1897 lOregon Commitments / Page 37
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82
83.
84.
79 Headquarters
Avista and Parent agree that Avista will maintain its headquarters in Spokane,
Washington. Any change in the location of Avista headquarters will require
Commission approval.
80 Loca! Staffing
Avista will maintain Avista's 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, consistent with Pre-Merger levels.
81.Pension and Post Retirement Expenses and Assets
Avista and Parent agree that Avista will maintain its pension funding policy in
accordance with sound actuarial practice, and comply with Commission Orders
regarding best practices on pension policies. Hydro One will not seek to change
Avista's pension funding policy or to obtain funds from Avista's pension and post-
retirement assets.
General Operations and Maintenance (O&M) for Community Development
Operations and maintenance funds dedicated to economic development and
non-utility strategic opportunities will be recorded below{he-line to a non-
operating account.
Economic Development
Parent and Avista agree that Avista will approach economic development, in a
manner consistent with Avista's past practices.
Membership in Organizations
Avista will maintain the dues paid by it to various industry trade groups and
membership organizations, where participation is related to the delivery of safe
and reliable utility services. However, recovery of all membership and
organizational dues will be reviewed in a GRC consistent with Commission
orders and rules.
85. FERC Reporting Requirements
Avista and Parent agree that Avista will continue to meet all the applicable
Federal Energy Regulatory Commission (FERC) reporting requirements with
respect to annual and quarterly reports (e.9., FERC Forms 1, 2, 3-Q) after
closing of the Proposed Transaction.
86. Participation in National and Regional Forums
Avista and Parent agree that Avista will continue to participate, in national and
regional forums regarding transmission issues, pricing policies, siting
requirements, and interconnection and integration policies, and such forums as
Docket No. UM 1897 lOregon Commitments / Page 38
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87.
88
89
90
91
necessary to provide safe and reliable electrical and natural gas service and to
protect the interest of Avista customers.
Compliance with Existing and Future ORS, OAR and Commission Orders
Avista and Parent will comply with applicable Oregon Revised Statutes (ORS),
Oregon Administrative Rules (OAR), and Commission Orders. All existing
Commission Orders with respect to Avista or its predecessor, Washington Water
Power Co., will remain in effect until changed by the Commission including those
regarding Avista's acquisition of AERC.
P. Corporate Citizenship
Oregon Gharitable Contributions
Hydro One and Avista agree that Avista will contribute charitable donations to
Oregon-based organizations. Avista agrees it will, over time, distribute charitable
donations in proportion to each state's portion of the system in which Avista
operates.
Other Community Contributions
Hydro One will make a one-time $7,000,000 contribution to Avista's charitable
foundation at closing, a portion of which will be allocated to Oregon proportionate
to relative revenues in Oregon.
Commitment 90 contains an additional commitment relating to charitable
contributions.
General Community Contributions and lnvolvement
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, which will not be recoverable in customer
rates. No approval from any regulatory bodies with jurisdiction over the
commitments is required for any changes to this commitment after the sixth year
following closing of the Proposed Transaction; however, any such changes will
continue to require a twothirds (2/3) vote of the Avista Board. Avista agrees it
will, over time, distribute this annual charitable contributions budget across its
entire service territory in proportion to each state's portion of the system.
Sources of Funds for Hydro One and Avista Commitments
Throughout the list of commitments herein, any commitment that states that
Hydro One or Avista will provide funding is a firm commitment to provide the
exact dollar amount specified, over the time period specified, and for the
purposes specified. To the extent Avista has retained earnings that are available
Docket No. UM 1897 I Oregon Commitments / Page 39
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for payment of dividends to Olympus Equity LLC consistent with the ring-fencing
provisions of this list of commitments, such retained earnings may be used.
Q. Future Rates
Treatment of Net Cost Savings
Avista and Hydro One agree that any net cost savings that Avista achieves 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.
Continuation of Base Rates Established in UG-325
Avista last adjusted base rates on November 1,2017, in Docket No. UG-325.
Avista agrees that these base rates will remain in effect until at least January 1,
2020.
Preparation for Next General Rate Case (GRC) in Oregon
Avista and Hydro One agree that Avista will attach to its next GRC filing in
Oregon, an Officer of Avista Corporation attestation that all Transaction Costs
associated with the Hydro One merger have not been included in the GRC filing,
and includes a granular assessment of (2) net Transition Costs and (3) cost
savings for Oregon customers obtained as a result of the Hydro One merger and
its subsequent synergies.
Treatment of Goodwill, Transaction Costs, and Transition Costs
Avista and Parent agree that Avista and Parent will not seek to recover in rates
any acquisition adjustment, control premium, goodwill, or transaction costs
associated with the Proposed Transaction. Further:
a. After the consummation of the Proposed Transaction, any remaining
transaction costs or other costs associated with the Hydro One merger will
not appear on Avista's regulated utility books in any form. Olympus
Holding Corp. and Hydro One transaction costs or other costs associated
with the Hydro One merger have not and will never appear on Avista's
utility books.
b, 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, costs of
necessary filings and recordings, etc.) since the Proposed Transaction
o
92
93
94.
95
Docket No. UM 1897 lOregon Commitments / Page 40
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was first contemplated, as well as the accounts charged, within 90 days of
a Commission order in this docket.
c. Avista will exclude from Avista GRCs, 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 and any other goodwill;
(iv) M&A consulting and advice, including that of investment banks;
(v) Preparation of materials or presentations relating to the Proposed
Transaction including all costs of related regulatory proceedings;
(vi) Any senior executive time and compensation or any Avista Board of
Director time measured in lowest practicable USD increments
associated with the Hydro One merger; and
(vii) Any other costs associated with the Proposed Transaction.
No costs of goodwill of the Parent or affiliates will be includable in Avista rates,
including rate base, cost of capital, or operating expenses, Write-downs or write-
offs of goodwill will not be included in the calculation of net income for dividend or
other distribution payment purposes.
Parent will not elect to apply pushdown accounting for this merger so that the
merger will have no impact on Avista's assets being acquired, and any
incremental goodwill will not be allocated to, or recognized within Avista's
balance sheet.
Costs for Future M&A or Reorganization
Parent and Avista will exclude from Avista GRCs, or any other method of cost
recovery, all future costs related to the Parent's future business endeavors and
mergers, acquisitions (M&A), restructuring, or formation of holding companies.
R. Environmental, Renewable Energy, and Energy Efficiency
Greenhouse Gas and Carbon lnitiatives
Avista and Parent will support Avista's current Natural Gas IRP Greenhouse Gas
and Carbon lnitiatives. Avista and Parent agree that Avista will continue to seek
I
96
97.
Docket No. UM 1897 lOregon Commitments / Page 41
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cost effective and least risk opportunities to reduce greenhouse gas and carbon
emissions in Oregon.
98. Cost of Greenhouse Gas Emissions
Where consistent with Commission orders, Avista commits to Oregon Natural
Gas IRP modeling of a range of potential costs for greenhouse gas emissions,
and will work with its IRP stakeholders to determine appropriate values to model
o
99 Greenhouse Gas lnventory Report
Avista and Parent agree that Avista will comply with greenhouse gas inventory
and other reporting requirements in Oregon.
100. Efficiency Goals and Objectives
Avista and Parent agree that Avista will support Avista's current IRP Energy
Efficiency lnitiatives. Avista and Parent agree that Avista will continue to seek
cost effective and least risk opportunities for energy efficiency in Oregon.
101. Low Environmental lmpact Options
Where consistent with Commission orders and when likely practicable, Avista will
evaluate opportunities for lower environmental impact services to customers in
Oregon, with its IRP stakeholder input.
'|.02. lnforming the Commission
Avista and Parent agree that Avista will inform the Commission of natural gas
(energy) initiatives and observations of Avista, that are material to Avista's
natural gas operations in Oregon, on a timely informational basis, when Avista
feels material changes are pending or have occurred, or that material best
practices or pitfalls in the natural gas industry have been identified.
103. Sharing Best Planning Methods
Avista and Parent agree that Avista will share with the Commission on a timely
informational basis best IRP and other planning methods discovered across its
other state jurisdictions. Avista and Parent agree that Avista will describe the
framework of findings and provide supporting materials when not burdensome or
proprietary.
104. lndustrial Gonservation and Efficiency
Recognizing that the Energy Trust of Oregon (ETO) currently administers
Avista's voluntary industrial energy efficiency programs, Avista and Parent agree
that Avista will make good faith efforts to identify industrial conservation and
efficiency opportunities in Oregon that are material to Avista's natural gas
operations in Oregon, and to communicate material observations to the
Commission and AWEC. ln the event of U.S. federal stimulus, Avista commits to
Docket No. UM 1897 lOregon Commitments / Page 42
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make good faith efforts to prepare and document planned energy projects with
Avista leadership, or to participate in such projects where available and material
to Avista's natural gas operations in Oregon, so as to comply with stimulus and
IRP requirements while reducing financing and other costs.
105. Electric, Natural Gas and Fue! Cell Transport
Avista and Parent agree that Avista will communicate to the Commission
practicable opportunities to facilitate environmentally beneficial transportation in
Oregon.
106. Expanded Natural Gas Transportation Service
The Parties agree that customers presently served on sales Schedules 424 and
440 should be able to elect to take service, for a minimum of one year, under
new transportation service Schedules 425 or 439. Avista commits that this
Commitment will not impact other customers, is margin neutral, and does not
require hedging. The Parties agree with the parameters of the expanded natural
gas transportation service schedules as outlined below:
a. Eligibility - For Schedules 425, qualifying sales customers must have a
minimum annual average usage of 29,000 therms, as stated on Schedule
424. For Schedules 439, qualifying sales customers must have a
minimum annual average usage of 50,000 therms, as stated on Schedule
440.
b. The base rates for Transportation Schedules 425 and 439 will be the
same as the base rates on Schedules 424 and 440, respectively.
c. For purposes of all future "adder schedule filings" (DSM, Decoupling,
LIRAP, etc.), cost of service studies, and rate spread and rate design
proposals, Schedule 424 will be grouped with Schedules 425 and
Schedule 440 will be grouped with Schedules 439.
d. The Parties further agree that customers served on Transportation
Schedules 425 and 439 will be subject to Avista's natural gas decoupling
mechanism.
e. Schedules 425 and 439 will contain the same provisions contained in
Avista's tariff sheets 456,4 through 456C, which relate to the transportation
of customer-owned natural gas.
f. The Parties agree that Avista will file Schedules 425 and 439 as described
above as part of the compliance filing approved as part of the merger
proceeding.
Docket No. UM 1897 lOregon Commitments / Page 43
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g. ln the event that the Commission rejects or suspends the proposed
revised Schedules 425 and 439, the Parties agree to support Commission
approval of tariff provisions with substantially similar terms.
107. Low-lncome Energy Efficiency Planning
Avista will continue to work with its advisory groups on the appropriate level of
funding for low income energy efficiency programs.
S. Contract Labor
1 08.Contract Labor
Please refer to Commitment 109. ln addition, Avista, Parent, and Oregon and
Southern ldaho District Council of Laborers (OSIDCL) agree that Avista has
resolved all issues in this proceeding that pertain to the Oregon and Southern
ldaho District Council of Laborers (OSIDCL). See "Addendum 1 - Contract
Labor, Oregon Commitments", supported by OSIDCL with and all other Parties
regarding recommended contract labor conditions.
109. Union and Other Labor Relationships
Avista and Parent agree that Avista will honor its existing labor contracts and will
meet the labor participation, safety and training commitments provided herein.
Avista 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. Avista will maintain compensation and benefits related practices
consistent with the requirements of the Merger Agreement.
See Addendum 1 for Oregon contract labor provisions
T. Reporting and Enforcement
110. Commitments Binding
Parent and Avista acknowledge that the commitments herein are fully binding on
each of them individually, severally and on their successors in interest.
111.Commission Enforcement of Commitments
Avista and Parent understand and agree that the Commission has authority to
enforce the commitments herein. lf a commitment is violated, the Commission
may impose such penalty as the Commission finds appropriate for the severity of
the violation.
The scope of this commitment includes the authority of the Commission to
Docket No. UIVI 1897 lOregon Commitments / Page 44
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request and where necessary to require attendance of witnesses from Avista and
Parent. Avista and Parent agree they will not interpose any legal objection they
might otherwise have to the Commission's jurisdiction to require the appearance
of any such witnesses.
112. Submittal to State Court Jurisdiction for Enforcement of Commission
Orders
Avista and Parent will file with the Commission prior to closing the Proposed
Transaction an affidavit affirming that Avista and Parent will submit to the
jurisdiction of Oregon courts for enforcement of violations of these commitments
and subsequent Commission orders affecting Avista and Parent.
113. Annual Reporting on Commitments
ln addition to providing copies of closing documentation on usual and customary
elements of completion of the Proposed Transaction to the Commission, Avista
and Parent agree that by June 1 5,2019 and each June 15 thereafter through
June 1 5,2028 inclusive, Avista and Parent agree that Avista will file a report with
the Commission on how Avista and Parent are complying or have complied with
each of the commitments herein as of December 31 of the preceding year (a total
of 11 annual reports). The report will, at a minimum, provide a description of the
performance of each of the commitments.
Failure to comply with a commitment will be brought before the Commission for
determination of appropriate remedy and penalty.
114. Resolution of Violations: Expedited Resolution of Minor and Procedural
Compliance lssues
lf the Commission or any Party determines that any commitment has not been
complied with or is not being complied with, it will first provide notice to Avista
and/or Hydro One, as applicable, and may thereafter provide notice to the
Commission. Within 7 days of notice to the Commission, Staff will have an
opportunity to propose an informal remedy to Avista and/or Hydro One, as
applicable, if such remedy is reasonably likely to return full compliance within 14
days of Staff's notice to Avista and/or Hydro One of its proposal. lf Avista and/or
Hydro One, as applicable, choose not to implement Staff's proposal, or if no such
informal remedy is available because full compliance within 14 days is not
reasonably likely, Avista and/or Hydro One's alleged failure to comply will be
brought before the Commission for determination of an appropriate remedy.
Docket No. UM 1897 lOregon Commitments / Page 45
115.
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U. Most Favored Nations
Most Favored Nations
All Parties including Avista and Hydro One agree that the Commission shall have
an opportunity and the authority to consider and adopt in Oregon any
commitments to which Avista and Hydro One have stipulated or otherwise
agreed to in another state commission jurisdiction, even if such conditions are
agreed to after the Commission enters its order in this Oregon Docket No. UM
1897.
Avista and Hydro One agree further that that any Party other than Avista and
Hydro One may ask that all Parties convene to discuss at earliest practicable
convenience, where time is of the essence, if and how such conditions adopted
by a commission in another state proceeding should be integrated with any
stipulated list of conditions already agreed to by Parties so as to present the
Commission with a revised Oregon stipulated set of conditions.
Process for Consideration of Most Favored Nation's Commitments
a. Within five calendar days after Avista and Hydro One file a stipulation with
new or amended commitments with a commission in another state
jurisdiction, Avista and Hydro One will send a copy of the stipulation and
commitments to all Oregon Parties.
b. Within five calendar days after a commission in another state jurisdiction
issues an order that accepts a stipulation to which Avista and Hydro One
are parties, or an order with a stipulated set of conditions for approval of
the Proposed Transaction, that order, together with all conditions for
approval of the Proposed Transaction, will be filed with the Commission
and served on all parties to this Oregon docket by the most expeditious
means practical.
c. Within 10 calendar days after another state jurisdiction filing discussed in
(b) above ("Final Filing"), Parties other than Hydro One and Avista may
file with the Commission any response such other Parties 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 thereof except such non-substantive changes as are necessary
to make the commitment or condition applicable to Oregon) should be
adopted in Oregon.
Docket No. UM 1897 lOregon Commitments / Page 46
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d. Within five calendar days after any such response filing, Avista and Hydro
One may file a reply with the Commission.
e. lf any of the dates above fall on Saturday, Sunday, or a holiday, the next
business day will be considered as the due date.
f. 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.
g. The Commission may then review the filings and issue an order indicating
which other-state-commitments it chooses to adopt.
Limitations on Adjustment
Only commitments specific to gas service may form the basis for
adjustments specific to gas service.
ii 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 Oregon in relation to its corresponding total company
business function. The Parties agree that the Oregon Rate Credit, as
specified herein, satisfies this corresponding business function standard.
For purposes of this provision, "financial commitments or commitments
having a financial impact" do not include ring fencing provisions.
IV
Docket No. UM 1897 lOregon Commitments / Page 47
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V. Addendum 1 - Gontract Labor, Oregon Commitments
1. On a prospective basis, and for a period of 10 years ending March 7,2028 unless
revised by the Commission in the interest of both cost and quality to Avista utility
customers, Avista will require the use of Oregon and Southern ldaho District
Council of Laborers,' including any future successor organization, (OSIDCL)
members for the type of work that is ordinarily and customarily performed by
OSIDCL on natural gas replacement and all natural gas work. This will not apply to
work performed under contracts 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.
2. On a prospective basis, and for a period of 10 years ending March 7,2028, Avista
will require the use of OSIDCL members for all flagging work, unless othenrvise
performed by Avista employees represented by IBEW Local 659. This will not
apply to work performed under contracts already in effect as of March 7 ,2018.
3. OSIDCL will provide for signatory contractors laborers who are OSIDCL members
that are qualified pursuant to applicable OSHA 1910 regulations and all other
applicable training. OSIDCL will provide OSIDCL members knowledgeable in the
DOT Title 49 Code of Federal Regulations, Part 192, and all applicable state
pipeline safety regulations. Contractors shall be required to provide proof of
compliance with this requirement to Avista.
4. On a prospective basis, Avista will require contractors to utilize Oregon and
Southern ldaho Laborers-Employers Train ing Trust ("OS I LETT") for required
training, if applicable courses are offered by OSILETT and are reasonably
accessible in the locality where the work is to be performed.
5. Avista will meet and confer with OSIDCL to discuss possible involvement in all
future hydroelectric projects that are within the sphere of OSIDCL's expertise.
6. Avista will encourage contractors to utilize union labor, including, without limitation
and as applicable, members of OSIDCL, 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.
7. 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, train i ng programs, docu mented 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
o
Docket No. Ul\tl 1897 lOregon Commitments / Page 48
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personnel are appropriately trained, qualified, and able to safely and reliably
perform work for Avista.
8. Work covered by these commitments does not include any work that is customarily
performed by Avista employees represented by IBEW Local 659 but that is
contracted out pursuant to the IBEW 659 collective bargaining agreement with
Avista. lt also does not include any work that is performed by Avista employees,
regardless of the type of work involved.
9. Avista will meet and confer with OSIDCL at least six months prior to March 7,2028
to discuss extending or modifying the terms set forth herein.
Docket No. UM 1897 lOregon Commitments / Page 49