20180706Joint Reply Comments .pdf

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David J. Meyer, ISB No. 8317
Vice President and Chief Counsel of
Regulatory and Governmental Affairs
Avista Corporation
l4l I E. Mission Avenue
P.O.Box3727
Spokane, Washington 99220
Phone: [phone], Fax: [phone]
IN THE MATTER OF THE JOINT
APPLICATION OF HYDRO ONE
LIMITED AND AVISTA CORPORATION
FOR APPROVAL OF MERGER
AGREEMENT
'qICHIVED
Elizabeth rhomas, partner :Ii$ jill _6 fril g:22
K&L Gates LLP . i 1.1i
;; ,:, -:i'-;iitiiiliii,:^lf f+On Behalf of Hydro One Limited
and Olympus Equity LLC
925 Fourth Avenue, Suite 2900
Seattle, WA 98104-l158
Phone: [phone], Fax: [phone]
AVISTA'S AIID HYDRO ONE'S
MOTION FOR LEAVE TO FILE
REPLY COMMENTS TO THE
AVISTA CUSTOMER GROUP
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO AVU-E-17-09
AVU-G-r7-05
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I COME NOW, Avista Corporation ("Avista") and Hydro One Limited ("Hydro One"),
2 jointly referred to as the "Applicants", and move for leave to file the affached "Avista and Hydro
3 One Joint Reply to Comments of Avista Customer Group" (the "Reply Comments") to those
4 "Comments filed by the Avista Customer Group" ( "ACG") on June 27, 2018 (the "ACG
5 Comments").
6I.
7 By Order No.34061, the Idaho Public Utilities Commission (the "Commission")
8 provided an opportunity on June 20, 2018 for comments from the Parties in support of the
9 Stipulation.l June 27,2018 was the next date set aside for "public comments and Reply
I Supportive comments were filed by Avista/Hydro One, Commission Staff, the Community Action Partnership
Association of Idaho (*CAPAI"), the Idaho Conservation League (*ICL"), the industrial customers ("Clearwater"
and "Idaho Forest Group"), and a union advocacy group of the Washington and Northern Idaho District Council of
Laborers (*WNIDCL') (each, a "Party" and collectively. the "Parties").
AVISTA AND HYDRO ONE'S MOTION FOR LEAVE TO FILE REPLY COMMENTS TO
THE AVISTA CUSTOMER GROUP Page I
I Comments." At the time, it was not envisioned that another entity, the newly-formed and self-
2 styled "Avista Customer Group," would seek late intervenor status, with full rights of
3 participation in the scheduled July 23,2018 Technical Hearing, or that they would file written
4 comments (presumably as a participating "Party," rather than simply as a member of the public-
5 at-large).
6 Accordingly, the schedule otherwise provides no opportunity for the Applicants to
7 respond to ACG's comments in opposition. By this Motion, the Applicants seek leave to file the
8 attached Reply Comments (Auachment A), addressing the ACG Comments.2
9 II.
l0 Even though there are real questions of standing and prejudicial delay in the late-filed
l1 Petition, the Applicants do not object to the proposed intervention, so long as the issues are not
12 unduly broadened beyond what was set forth in the ACG Comments. That was the ACG's best
l3 opportunity to define, in writing, its interests. (See Answer of Avista and Hydro One to Petition
14 to Intervene of Avista Customer Group, filed together with this Motion.) The ACG Comments
l5 defined the ACG's interests as the impacts of "potential cost or rate increases resulting from the
16 proposed merger[.]" Page l.
17 Both Avista and Hydro One strongly believe in the importance of public input. We
18 welcome and encourage all customers of Avista in Idaho to participate and to be heard,
19 regardless of the positions taken. We recognize the importance of creating a full and complete
20 record upon which the Commission can make its decision. We are more than happy to address
2l any questions and concerns, as customers express their views. To further that record, the
2 In the Applicants' Joint Comments filed on June 20,20l8,they addressed many of the public comments otherwise
provided during public hearings in Moscow, Sandpoint, and Coeur d'Alene.
AVISTA AND HYDRO ONE'S MOTION FOR LEAVE TO FILE REPLY COMMENTS TO
THE AVISTA CUSTOMER GROUP Page 2
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I Applicants have filed this "Motion For Leave to Respond to Comments of Avista Customer
2 Group," together with the Reply Comments.
3 III.
4 Good cause exists for the Commission to grant this Motion. The attached Reply
5 Comments squarely address the ACG Comments filed on June 27, 2018. The ceation of a better
6 record will be served by entertaining these comments, further answering the expressed concerns
7 of the ACG. It will serve to'Join" the issues for purposes of the July 23,2018 hearing and to
8 allow for a more efficient and thorough discussion of the issues at time of hearing. No Party will
9 be prejudiced by the filing of Applicants' Reply Comments as of this date, because it is well
l0 before the scheduled July 23,2018 Technical Hearing date.
11 Moreover, by entertaining robust written comments at this time, on both sides of the
12 issues, the Commission will more easily be able to issue a timely order on the Applicants'
13 merger, supplanting the need for any further briefing on the issues. (Applicants had requested a
14 final order by August 14,2418.)
+Li15 Respectfully submitted this {day of JuIy,2018.
HYDRO ONE LIMITED AVISTA CORPORATION
n %)twox By:
By:David ISB No. 8317
Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
Admiued pro hac vice
On Behalf of Hydro One Limited and
Olympus Equity LLC
Attorney for Avista Corporation
AVISTA AND HYDRO ONE'S MOTION FOR LEAVE TO FILE REPLY COMMENTS TO
THE AVISTA CUSTOMER GROUP Page 3
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ATTACHMENT A
David J. Meyer, ISB No. 8317
Vice President and Chief Counsel of
Regulatory and Governmental Affairs
Avista Corporation
l4l I E. Mission Avenue
P.O.Box3727
Spokane, Washington 99220
Phone: [phone], Fax: [phone]
IN THE MATTER OF THE JOINT
APPLICATION OF HYDRO ONE
LIMITED AND AVISTA CORPORATION
FOR APPROVAL OF MERGER
AGREEMENT
, ,,,:[ [ tvI ti
Elizabeth Thomas, parth6.3 -'J. -5 fli{ g: 22Kari Vander Stoep, Partner
K&L Gates LLP ! . .. i -ii
On Behalf of Hydro One Limited' r "' I :' i : l' ll i C ii
and Olympus Equity LLC
925 Fourth Avenue, Suite 2900
Seattle, WA 98104-l158
Phone: [phone], Fax: [phone]
CASE NO AVU-E-17-09
AVU-G-t7-05
AVISTA AND HYDRO ONE JOINT
REPLY TO COMMENTS OF AVISTA
CUSTOMER GROUP
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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I I. INTRODUCTION
2 On June 27,2018, the Avista Customer Group, (hereinafter "ACG") filed "Comments of
3 the Avista Customer Group" (the "ACG Comments") with the Idaho Public Utilities
4 Commission ("IPUC" or the "Commission") regarding the Joint Application of Hydro One
5 Limited ("Hydro One") and Avista Corporation ("Avista") (collectively, the "Applicants") for
6 Approval of Merger Agreement (the "Application"). The Applicants submit this reply to the
7 ACG's Comments. The sole interest identified by ACG is the impact of "potential cost or rate
8 increases resulting from the proposed merger[.]"I ACG makes two related arguments: (l)
9 Somehow rates of Avista's customers will be higher as a result of this transaction, based on
I ACG Comments at p. I
ATTACHMENT A - AVISTA AND HYDRO ONE JOINT REPLY TO COMMENTS OF
AVISTA CUSTOMER GROUP
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ATTACHMENT A
higher costs; and (2) Issues concerning Hydro One's acquisition of Orillia Power in Ontario have
some bearing on this transaction. Neither is true.
RATES AND COSTS WILL NOT BE HIGHER AS A RESULT OF THE
TRANSACTION
Applicants seek Commission approval for their merger (the "Proposed Transaction").
The ACG Comments focus on Idaho Code $61-328 (3)(b),2 which requires a finding that "the
transaction will not cause the cost of or rates for supplying electrical service to increase" for the
Commission to grant approval.
ACG asserts that the Applicants have not demonstrated that the "eg! of and rates for
supplying service will not be increased by reason of such transaction."3 (Emphasis added.) In
fact, the opposite is true. As it relates to "rates," the Parties to the Stipulation and Settlementa
filed with the Commission on April 13,2018 (the "Settlement Stipulation") in this proceeding
have agreed that customers' rates will not increase, but rather will actually decrease, if the
Commission approves the merger transaction. Included in the Settlement Stipulation's list of
agreed-upon commitments is Commitment No. 19, "Rate Credits":
Avista and Hydro One are proposing to flow through to Avista's retail customers in Idaho
a Rate Credit of approximately $15.8 million over a 5-year period, beginning at the time
the merger closes. The Total Rate Credit to customers for the five years following the
closing will be approximately $3.2 million per year. A portion of the annual total Rate
Credit will be offsetable, in the amount of $527,510. During the 5-year period the
financial benefits will be flowed through to customers either through the separate Rate
Credit described above or through a reduction to the underlying cost of service as these
benefits are reflected in the test period numbers used for ratemaking. At the time of the
close, the $3.2 million benefit will be provided to customers through a separate Rate
2 See ACG Comments atp.2.
3 Ibid.
a See Answer of Avista and Hydro One to Petition to Intervene of Avista Customer Group at p. 3 for a full list of the
Parties.
ATTACHMENT A - AVISTA AND HYDRO ONE JOINT REPLY TO COMMENTS OF
AVISTA CUSTOMER GROUP
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ATTACHMENT A
Credit, as long as the reduction in costs (of up to $527,510 annually) has not already been
reflected in base retail rates for Avista's customers. [Footnotes omitted.]
Thus the Parties to the Settlement Stipulation are proposing that Avista's customers see a
reduction in rates if the Commission approves the merger transaction - not an increase
Idaho Code $61-328 (3Xb) also requires that "costs" not increase as a result of the
7 transaction. A number of commitments in the Settlement Stipulation assure that costs will not
8 increase by virtue of this transaction. First, Commitment No. 17 ensures that costs associated
9 with the Proposed Transaction are excluded from rates:
l0 17. Treatment of Transaction Costs:
a. Costs associated with the Proposed Transaction will be separately tracked as non-
utility costs with no charges, either allocated or direct, to be recovered from
Avista customers. After the consummation of the Proposed Transaction, any
remaining transaction costs or other costs of Olympus Holding Corp. or Hydro
One will not appear on Avista's utility books, i.e., such costs will be recorded as
non-utility. Avista shall fumish the Commission with journal entries and
supportine detail showing the nature and amount of all costs of the Proposed
Transaction (including but not limited to management time, BOD time, in-house
and outside counsel time, any consultants engaged, etc.) since the Proposed
Transaction was first contemplated, as well as the accounts charged, within 120
days of a Commission order in this docket.
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b. Avista will exclude, and Hydro One agrees Avista will exclude,from Avista
general rate cases, or any other method of cost recovery, all costs related to the
Proposed Transaction including but not limited to: (i) all legal work from in-house
counsel and outside counsel; (ii) any financial advisory fees associated with the
Proposed Transaction; (iii) the acquisition premium; (iv) costs related to M&A
consulting and advice; (v) preparation of and materials for presentations relating
to the Proposed Transaction; (vi) any senior executive compensation or any
Avista board of director time tied to a change of control of Avista; and (vii) any
other costs directly related to the Proposed Transaction.
c. Technology expenditures and investments related to software and hardware
compatibility issues between Avista and Hydro One and its affiliates shall not be
recovered from Idaho ratepayers except to the extent such costs are offset by
savings over time. [Emphasis added.]
ATTACHMENT A - AVISTA AND HYDRO ONE JOTNT REPLY TO COMMENTS OF
AVISTA CUSTOMER GROUP
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ATTACHMENT A
I The Parties have agreed that no costs associated with the transaction can be included in
2 Idaho customerso rates.s And there are safeguards to assure that does not happen (e.g., periodic
3 reporting and the opportunity to review all journal entries). As we discussed in our Joint
4 Comments in Support of the Settlement Stipulation filed on June 20,2018 ("Applicants'Joint
5 Comments"), all costs associated with evaluating and implementing the Proposed Transaction
6 are being separately tracked and recorded below-the-line to a non-operating account using a
7 "Direct Assignment Protocol" (the "Protocol"), which is Exhibit No. 7, Schedule 3 to Mr.
8 Ehrbar's direct testimony and is attached to these comments for convenience. The Protocol
9 addresses the accounting for costs both gior-lq the closing of the transaction, as well as the
l0 accounting for costs following the closing. To the extent Avista employees dedicate time and
I I incur costs related to the operations of Hydro One, those costs will be directly assigned and
12 billed to Hydro One, and will not be borne by Avista's customers. Likewise, should Hydro One
l3 employees dedicate time and incur costs associated with Avista's operations, such costs would
14 be directly assigned and billed to Avista. If a Hydro One employee's time and costs are related
l5 to Avista's resulated utility operations. the costs would be subject to review and to approval b),
l6 the Commission prior to being recovered in retail rates. It will be the responsibility of Avista to
17 demonstrate that any costs from Hydro One to Avista are prudent and necessary in a general rate
l8 case. Until such time, any such costs would not be included in customers' rates. And, it is to be
l9 remembered that there will be no net increase in costs resulting from the Proposed Transaction.
20 Moreover, the Settlement Stipulation ensures that Avista's cost of capital will not
2l increase as a result of the merger. Commitment No. 25 provides in part:
5 In addition, travel costs are subject to a new cap, ensuring that costs borne by ratepayers will essentially be flat
regardless of any increase in actual costs. Commitment No. 18.
ATTACHMENT A - AVISTA AND HYDRO ONE JOINT REPLY TO COMMENTS OF
AVISTA CUSTOMER GROUP
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ATTACHMENT A
Avista will not advocate for, and Hydro One agrees 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.
Avista's customers are further protected from any potential merger-related cost increases
through a hold-harmless provision. Commitment No. 47 provides in part:
Hydro One, its affiliates, and subsidiaries including Avista will hold Avista customers
harmless from any business and financial risk exposures associated with Olympus
Holding Co.p., Hydro One, and Hydro One's other affiliates. ...
Hydro One, its affiliates, and subsidiaries including Avista commit that Avista's regulated
utility customers will be held harmless from the liabilities of any unregulated activity of
Avista or Hydro One and its affiliates. In any proceeding before the Commission
involving rates of Avista, the fair rate of return for Avista will be determined without
regard to any adverse consequences that are demonstrated to be attributable to
unregulated activities. Measures providing for separate financial and accounting
treatment will be established for each unregulated activity.
The ACG's Comments assume that the Commission, Staff and all Parties in a general rate
case will not do their job and will eliminate any costs that are not necessary to provide service to
Avista's customers. Indeed, to the contrary, it is fair to assume that the Commission will
perform its duties in accordance with the law, assisted by experts charged with assuring that rates
only recover costs necessary to serve Avista's customers.
ACG asserts that Avista's and Hydro One's cost allocation provisions are not sufficiently
robust and cites the ScottishPower acquisition of PacifiCorp as an example of adequately robust
provisions.6 ACG misses the mark because in this proceeding, unlike in the ScottishPower
proceeding, Hydro One will not be allocating costs down to Avista, but rather will only directly
assign costs as set forth in the Protocol. If Hydro One had proposed to allocate corporate
overhead costs down to Avista, then it might make sense to require a cost allocation
6 ACG Comments at pp. 3 and 7
ATTACHMENT A - AVISTA AND HYDRO ONE JOINT REPLY TO COMMENTS OF
AVISTA CUSTOMER GROUP
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ATTACHMENT A
methodology prior to the Commission's decision. But because no costs will be allocated, no
methodology is needed.
In the future, if and when opportunities arise for the consolidation of certain Avista and
Hydro One utility functions, where the utilities have an opportunity to benefit from specialized
expertise or to achieve efficiencies, it may be appropriate to develop additional or different direct
assignment or allocation protocols, as has been committed to in Commitment No. 24. Key
provisions of Commitment No. 24 include:
Commitment 24
Cost Allocations Related to Corporate Structure and Affiliate Interests: Avista agrees to
provide, and Hydro One agrees Avista will provide, cost allocation methodologies used
to allocate to Avista any costs related to Hydro One or its other affiliates and subsidiaries,
and commits that there will be no cross-subsidization by Avista customers of unregulated
activities.
Avista will bear the burden of proof in any general rate case that any corporate and
affiliate cost allocation methodology is reasonable for ratemaking purposes. Neither
Avista nor Hydro One or its affiliates and subsidiaries will contest the Commission's
authority to disallow, for retail ratemaking purposes in a general rate case, unreasonable,
or misallocated costs from or to Avista or Hydro One or its other affiliates and
subsidiaries. [Emphasis added.]
This commitment makes clear that there will be no cost recovery without an agreed-upon cost
allocation methodology in place.
Finally, Avista has committed to preparing a Master Services Agreement ("MSA"),
itemizing and explaining corporate cost allocation methods used to set rates.T The MSA will be
fully described and supported in testimony and workpapers in Avista's first general rate case
submitted after the Application is approved by the Commission. Without that in place, there
cannot be cost recovery. Thereafter, the MSA will be filed along with any general rate case
7 The commitment to prepare an MSA is set forth atp.24 of Applicants' Joint Comments.
ATTACHMENT A - AVISTA AND HYDRO ONE JOINT REPLY TO COMMENTS OF
AVISTA CUSTOMER GROUP
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I subsequently filed with the Commission. This filing will capture, highlight and explain all
2 changes since the MSA was last provided to the Commission. The entirety of the MSA and its
3 components are subject to review and to approval by the Commission in subsequent proceedings
4 before the Commission to confirm that cost-drivers, accounting methods, assumptions, and
5 practices result in fair, just and reasonable utility rates - and that no costs of Hydro One are
6 inappropriately passed through to Avista's customers.
7 Moreover, the Commission, Staff, and other parties have the ability to review thoroughly
8 Avista's financial records. This is addressed in Commitment No. 23, which provides in part:
Access to and Maintenance of Books and Records: Hydro One, Olympus Holding Corp.
and its subsidiaries, including Avista, will provide reasonable access to Avista's books
and records; access to financial information and filings; access rights with respect to the
documents supporting any costs that may be allocable to Avista; and access to Avista's
board minutes, audit reports, and information provided to credit rating agencies
pertaining to Avista.
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Hydro One, Olympus Holding Corp. and its subsidiaries, including Avista, will maintain
the necessary books and records so as to provide documents relating to all corporate,
affiliate, or subsidiary transactions with Avista, or that result in costs that may be
allocable to Avista [Emphasis added.]
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20 Further, the Applicants have agreed to provide an Annual Report on Commitments, which is
2l detailed in Commitment No. 32
Annual Report on Commitments: By May 1,2019 and each May I thereafter through
May l, 2029, Avista will file, and Hydro One agrees Avista will file, a report with the
Commission regarding the status of compliance with each of the commitments as of
December 3l of the preceding year. The report will, at a minimum, provide a
description of the performance of each of the commitments, will be filed in Case No.
AVU-E-17-09/AVU-G-17-05 and served to all Parties to the docket. If any
commitment is not being met, relative to the specific terms of the commitment, the
report must provide proposed corrective measures and target dates for completion of
such measures. Avista will make publicly available at the Commission non-
confidential portions of the report.
ATTACHMENT A - AVISTA AND HYDRO ONE JOINT REPLY TO COMMENTS OF
AVISTA CUSTOMER GROUP
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ATTACHMENT A
I Through this Commitment, the Applicants will report on a number of issues, which include
2 informational updates on all of the financial and cost commitments, as well as any updates on its
3 Protocol and/or the development of a cost allocation protocol.
4 Finally, it is important to remember it is neither Avista, nor Hydro One, that sets rates for
5 Idaho customers; rather, the Commission sets Idaho retail rates. Those rates are developed based
6 on a thorough and substantial evidentiary record of expert written and oral testimony, exhibits,
7 and workpapers that include detailed accounting and cost allocation records - all of which relate
8 only to the cost to provide service to Avista's Idaho jurisdictional customers. Costs related to
9 Avista providing service in other jurisdictions served by Avista, which include Oregon,
l0 Washington, Montana and Alaska, are not included in Idaho retail ratemakine. Likewise, Avista
I I and Hydro One would never seek, nor would the Commission ever allow, the inclusion of Hydro
12 One's utility costs in Idaho rates, nor would the Commission meld or somehow average Hydro
13 One's retail rates with Avista's jurisdictional rates. To do so would depart from the very essence
14 of cost-based ratemaking and would violate the law.8 The Applicants agree.
15 II. HYDRO ONE'S ACOUISITION OF ORILLIA POWER
16 ACG's discussion of Hydro One's proposed acquisition of Orillia Power Distribution
17 Corporation (the "Orillia LDC") is irrelevant because Hydro One's proposed acquisition of the
l8 Orillia LDC is vastly different from its proposed merger with Avista. Hydro One's acquisition
19 of Orillia LDC would involve the full integration of another Ontario utility into Hydro One --
8 Matt Evans, Public Information Officer for the Commission, echoed this sentiment, as was quoted on June 28,
20lSintheCoeurd'AlenePress. Therehestatedthat"...(o)nlytheIPUCcansetratesinldaho,andthey'rebased
solely on the cost of providing good service based on local costs. What happens in Canada or anywhere else can
never have any bearing on that." See
http://www.cdapress.com/steve_cameron_a_brand_new_day/20180628/opinionjull_the_plug_on_avista_merger h
ysteria.
ATTACHMENT A - AVISTA AND HYDRO ONE JOTNT REPLY TO COMMENTS OF
AVISTA CUSTOMER GROUP
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ATTACHMENT A
I Orillia customers would become Hydro One customers. The operations of the Orillia LDC
2 would, post-close, be fully integrated and absorbed into Hydro One's utility, Hydro One
3 Networks [nc., and as such, into Hydro One's rate base. Hydro One's transaction with Avista is
4 quite different because Avista will continue to operate as a standalone utility post-close. Avista
5 will be govemed by its own board, operated by its own management, and subject to the
6 continuing jurisdiction of its current regulators after the merger. Avista will continue to have its
7 own customers, rate base, rates and service in a wholly separate geographic location.
8 In its application for approval to acquire the Orillia LDC, Hydro One submitted all
9 information required by the Ontario Energy Board's ("OEB") Handbook to Electricity
l0 Distributor and Transmitter Consolidations (the "Handbook") including information requested
I I in previous OEB merger and acquisition decisions, and sufficiently and reasonably responded to
12 related procedural orders. ACG's statements that Hydro One "refused to supply cost information
13 to the" OEB and that Hydro One failed to establish that there would be no harm to Orillia LDC
14 ratepayers arising from the proposed transaction are inaccurate. ACG states that the, "OEB
15 ordered Hydro One to file further material, in the form of evidence or submissions on its
16 expectations of the overall cost structures following the deferred rebasing period and of the
17 impact on Orillia Power customers. No new evidence was filed." In fact, Hydro One complied
18 with the order by filing submissions on the expectations of the overall cost structures following
19 the deferred rebasing period. See Hydro One Networks Inc.'s Submission dated February 15,
20 2018 in response to Procedural Order 7.e However, the OEB rejected Hydro One's application
2l to acquire the Orillia LDC on the basis of a test not contemplated in the Handbook and not
e Available at http://www.rds.oeb.calHPECMWebDrawer/Record/59995 lffile/document.
ATTACHMENT A . AVISTA AND HYDRO ONE JOTNT REPLY TO COMMENTS OF
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ATTACHMENT A
1 applied in prior decisions. Hydro One has filed a motion to review and to vary the OEB's
2 decision on the Orillia application, as has the City of Orillia. In any event, the decision and
3 Hydro One's motion have nothing to do with the Avista merger or with the rates that will be
4 charged to Avista's Idaho customers post-close.
5 UI. CONCLUSION
ACG's argument that there is some risk that costs or rates for Avista's customers could
increase fails for two reasons. First, through the Settlement Stipulation entered into by industrial
and residential customer representatives, as well as Commission Staff, community organizations,
Avista and Hydro One, the Parties have provided for a rate decrease as well as a set of
interlocking conditions to ensure that the merger will not result in cost increases. Certain costs,
such as transaction costs, are wholly excluded from rates. All costs are subject to scrutiny by the
Commission, its Staff and parties to rate cases on an ongoing basis. Second, Hydro One's
proposed transaction with the Orillia LDC has no bearing on this proceeding because Orillia
would be fully integrated in to Hydro One while Avista will continue as a standalone utility; and
because ACG has misunderstood the facts of the Orillia proceeding.
DATED this 5th day of July,2018.
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HYDRO ONE LIMITED AVISTA CORPORATION
/2 %oyrrax By:
David J , Esq.,ISB No. 8317
Attorney for Avista Corporation
Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
Admittedpro hac vice
On Behalf of Hydro One Limited and
Olympus Equity LLC
ATTACHMENT A - AVISTA AND HYDRO ONE JOINT REPLY TO COMMENTS OF
AVISTA CUSTOMER GROUP
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cry7*
Date: September 7,2017
To:
From:
All Employees
Kelly Norwood
Subject: Protocol for Direct Assignment of Costs Associated with Hydro One's Acquisition of
Avista Corp.
Accountinslor Cos-ts Related to Hvdro One Prior to Closinq
Prior to the date of closing of the Hydro One's acquisition of Avista Corp, presently anticipated
to be in the second half of 2078, all costs associated with due diligence and other activities will
continue to be recorded below the line to a non-utility account (FERC Account No. 426500).
The following table summarizes the accounting for such expenses:
EERC Acct Seryice Jurisdicition EB AISq!9!C!p!!9n
Pruject
Numbgr Pm-l9ct Dgsqrialion Debit
426500 ZZ ZZ Miscellaneous Income Deduction 77705316 Hydro One Avista Acquisition XXXX
Dircct Assignment of Costs to Hvdro One Post-Closins
Following the date of closing, to the extent Avista employees dedicate time and incur costs
supporting the operation of Hydro One, those costs would be separately tracked and directly
assigned to Hydro one.rl2
In the future, if opportunities arise for the consolidation of certain Avista and Hydro One utility
functions, where the utilities have an opportunity to benefit from specialized expertise or to
achieve efficiencies, the following situations may arise whereby Administrative Services may be
provided between and among the Company and its Utilities, a) the Companies may directly
assign or allocate any corporate or administrative costs, common costs, or costs incurred for the
benefit of the Utility or Utilities, to a Utility or the Utilities, b) the Companies may procure any
rTime and costs incurred include, but are not limited to activities for the following: a) services by the Board of Directors, and
executive, management, professional, technical and clerical employees; b) financial and accounting services, corporate
govemance and compliance services, legal services, audit services, information and tcchnolory services, treasury services,
investor relations services, governmental and regulatory services, human resources services, communications services, payroll
processing services,
employee benefits pa(icipation, procurement and fleet management, tax and related services, contract negotiation and
adminisffation services, insurance and risk management services, environmental services and engineering and technical services;
c) ths use of ofiice facilities, including but not limited to office space, furniture, equipment, machinery, supplies, computers and
computer software, communications equipment, insurance policies and other personal property; d) the use of automobiles,
airplanes, other vehicles and equipment;
2 Likewise, if Hydro Onc employees were to provide support for Avista's utility operations, such costs would be directly
assigned to Avista. The Company expects such assignment of costs, both to Hydro One and from Hydro Onc, to be relatively
small since Avista will continue to operate as a standalone utilit1,. Exhibit No. 7
Case Nos. AVU-E-I7- & AVU-G-l7-
P.Ehrbar, Avista
Schedule 3, Page 1 of2llPage
li,'i?stsr,a
corporate or administrative services from a Utility or the Utilities for the Company's benefit, or
c) the Companies may procure any corporate or administrative services from each other or agree
to directly assign or allocate common costs to each other.3
With regard to the accounting process for assigning and billing corporate or administrative costs,
these employee costs would be charged to suspense accounts (Defened Debit Account No. 186),
loaded for benefits, and would then be established as a receivable (FERC Account No. 146) when
billed to Hydro One. If other resources are expended during the course of this work, such as
travel or consulting services, these costs are also charged to suspense accounts and billed to
Hydro One. All corporate services provided, and costs incurred, would be direct billed to Hydro
One at cost and no margin or profit shall be included and no assets allocated, provided that any
amount billed to Hydro One shall be adjusted to the extent necessary to comply with any U.S.
federal or Canadian transfer pricing or similar tax law. Avista will use the same methodology for
direct assignment of costs to the proposed Hydro One subsidiary operations, as we currently do
for existing subsidiary operations.
A summary of the accounting for post-closing costs directly assigned to Hydro One is provided
below.
HYdro OEe Trensactiong
To record fransaction when employee charges time or incurs costs related to E@g:
IERC Pmjecl
Acct SGnics Jurisdiciliotr !'f,RC Acca Dcrcriptiotr ltumbcr Prticcl llcrcripri,on Dcbil Cndit
IE6XXX ZZ ZZ Miscellaneous Defened Debits 777XXXX Sub Billing- Hydro One XXXX
To record transaction to establish a receivable from Hvdro One:
TERC
ACcI Serricc
Prcjcct
,l"risdicition Ff,ltC Asct D crintlon Dcbir crcdi3
ZZ
ZZ
t46XXX
l86XXX
zz
zz
Accouts Rcceivable Assoc Company - Hydro Onc
Miscelaneous Deferred Debih
7?7X)Co< Sub Billing - Hydro One XXXX
777XJ0O< Sub Billing - Hydro One XXXX
To record transaction of a payment made to Avista Corp from Hvdro One:
FERC Project
Arct Scrlice Jurirdicition FERC Acct Dcrnriothn Number Pmicct Dcs-crintion Dcbit Crtditl3l)OO( Z ZZ Cash XXXXI46XXX Z,Z 'l;L Accous Rcccivsblc Assoc Compeny - Hydro Onc ?71)M< Sub Billing - Hydm Onc XXXX
For questions regarding direct assignment of costs associated with Hydro One or any other
subsidiary costs, please contact Jeanne Pluth, Manager of Regulatory Accountirg 495-2204, or
Jennifer Smith, Senior State and Federal Regulatory Analyst at495-2098.
3 The Company would file proposals with the Commission as required.
Case Nos. AVU-E-I7-
Exhibit No. 7
& AVU-G.I7-
P.Ehrbar, evista
Schedule 3, Page2 of2
2lP age