20180924Morris Supplemental Direct.pdf

ldaho public Utilities CommissionOffice of the SecretaryRECEIVED--''
sEP 2 + 2018o
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ON BEIIALE OF AVISTA CORPORATION
DAV]D J. MEYER
VICE PRESIDENT AND CH]EF COUNSEL EOR
REGULATORY & GOVERNMENTAL AFFATRS
P.O. BOX 3721
]-4]-L EAST MISSION AVENUE
SPoKANE, VIASHfNGTON 99220-3121
TELEPHONE : [phone]
FACSIMILE: [phone]
DAVT D . MEYERGAV] STACORP . COM
Boise, ldaho
ON BEHAIE OF HYDRO ONE LIMTTED
ELIZABETH THOMAS, PARTNER
KART VANDER STOEP, PARTNER
K&L GATES LLP
925 FOURTH AVENUE, SUITE 2900
SEATTLE, WA 981014-1158
TELEPHoNE: [phone]
EACSIMILE: [phone]
LIZ . THOMASGKLGATES. COM
KARI . VANDERSTOEPGKLGATES. COM
BEEORE THE TDAHO PT'BLIC UTTLITIES COMMISSION
IN THE MATTER OF THE JOINT
APPL]CATTON OF HYDRO ONE LIMITED
(ACTING THROUGH ITS IND]RECT
SUBSIDIARY, OLYMPUS EQU]TY LLC)
AND
AVISTA CORPORAT]ON
EOR AN ORDER AUTHORIZING PROPOSED
TRANSACTION
CASE
CASE
NO.
NO.
AVU-E- 11 -09
AVU-G-17-05
SUPPLEMENTAL TESTIMONY
OF
SCOTT L. MORRIS
FOR AVISTA CORPORAT]ON
(ELECTRIC AND NATURAL GAS)
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I. INTRODUCTION
A. Will you please state your narne, business address,
and position with Avista Corporation?
A. My name is Scott L. Morris and I am employed as
the Chief Executive Officer of Avista Corporation
("Avista"), at l4ll East Mission Avenue, Spokane,
Washington. I also serve as the Chairman of the Board of
Avista.
A. Are you the same Scott L. Morris who sponsored
pre-fiJ.ed direct testimony on behalf of Avista Corporation
(Avista) ?
A. Yes, I sponsored Dj-rect Testimony and Exhibit !,
Schedules 1 through 3.
9. Are you sponsoring any exhibits in this
supplemental testimony?
A. Yes, I am sponsoring Exhibit 11, Schedule 1, which
j-s a map that shows foreign ownership of Amerj-can utilities.
It is provided for no other purpose than to show the extent
of foreign ownership of utilities in this country, and that
such a phenomenon is not unique to this transaction (the
"Proposed Transaction"). I am also sponsoring Exhibit 77,
Schedufe 2, which is notice to Hydro One of Avista's
extension of the September 30, 20lB deadline for closing
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II.
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REASONS FOR THE PROPOSED TRANSACTION
MERGER PROTECTIONS
FORE]GN OWNERSHIP OF UNITED STATES UT]L]TIES
A. Please sr.uflrnrize your Supplemental. Testimony.
A. The intent of my Supplemental Testimony is to
reaffirm Avista's commitment to the Proposed Transaction
fo1lowing the July 11, 2018 agreement entered into by Hydro
One and the Province of Ontario for the purpose of the
orderly replacement of the Board of Directors of Hydro One
as well as the retj-rement of Mayo Schmidt as the chief
executive officer. As I will- discuss in this Supplemental
Testimony, specific merger protections, by way of agreed-
upon commitments (each, a "stipulated Commj-tment",
collectively "Stipulated Commj-tments") contained within the
filed Settfement Stipulation ("Stipulation"), protect Avista
from political interference or j-nfluence by the Province of
Ontario, preserve Avista's self-gJovernance, and protect
Avista and our customers from harm. The structural-
23 safeguards included as part of this
A table of contents for my testimony is as fol-Iows:
INTRODUCT ]ON
Transaction
changes in
that all of
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Proposed
time and
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the reasons previously stated in support of the merger remain
equally true today, and that approval is in the public
interest.
A. Do you stiJ.J. believe that this merg:er is in the
best interest of Customers?
A. Yes, I strongly believe so. This merger was never
about who sits in the Chief Executive Officer (*CEO") chair
at Hydro One
change from
or who is on its Board of Directors. That wil-l
time to
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time - as each company refreshes its
structural safeguards, in the form of
negotiated with the parties, are meant11 multiple commitments
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13 both Hydro One and Avista, as wefl as changes in government.
1-4 The underlying rationale for this merger remains the same:
15 The need to preserve and enhance Avista's ability to provide
L6 cost-effective and rel-iable service to its customers, in a
71 rapidly evoJ-ving industry, by partnering with an
18 organrzation that shares Avista's values - al-I with Avista's
19 autonomy intact.
20 9. Therefore, knowing what you now know, would you
21, stiJ.J. recomend that this merger take place?
22 A. Yes.
23 A. Has Hyd-o One, for its part, reaffirmed its
24 comit:nent to this merger?
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A. Yes, it has. As Hydro One witness Mr. V{oods
testifies, on September 1-9, 2018, the new
affirmed Hydro One's obligations under the
and with respect to
performed by Hydro
Proposed Transaction
Hydro One Board
Merger Agreement
Agreement;
Mergeri in
the merger-related commitments to be
One and/or its subsidiaries if the
is consunrmated pursuant to the Merger
and (ii) Hydro One's intention to consummate the
each case j-n accordance with the terms of, and
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subject to the conditions set out in, the Merger Agreement
and the merger-related commitments.
A. To that end, has Avista extended the deadline for
closing this transaction beyond the Septeml.er 30, 2OLg
deadline set forth in the merger agreement?
A. Yes, it has. Section 1.7 (b) (i) of the merger
agreement (Appendix 2 to Joint Application) allows either
party to extend the deadline for up to an additional six (6)
months, If necessary to satisfy all of the conditions for
closing. On September 19, 2078, Avista provided notice to
Hydro One, extending the deadl-ine to March 29, 2019, see
Exhibit No. 7I, Schedule 2.
A. Do Avista and Hydro One still want to receive all
regulatory approvals and close this transaction by year'end?
A. Yes. By mid-December, we will have a final order
in Washington, as is required by statute, and we have a
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schedule in Oregon that all-ows for a decision in December.
Other than Idaho, those are the only two remaining regulatory
jurisdictions that need to act on this merger.
The parties in fdaho have agreed upon a schedule that
may allow for an Order in fdaho that woul-d alfow for a
closing by year-end, if this Commission so chooses. A year-
end cl-osing would al-l-ow for better accounting and reporting,
than would a later closing refl-ecting a partial year in the
first quarter of 2019. Mr. Thies, in his supplemental
testimony, also speaks to this.
9. What else has Avista done to faciJ.itate approval
in this jurisdiction?
A. Recognizrng that any prolonged merger approval
process presents a dynamic situation, Avista has since
entered j-nto an agreement with the Idaho Department of Water
Resources ("IDUIR"), an intervenor in this proceeding, that
addresses the treatment of Avista's water rights in Idaho in
a manner acceptable to the IDWR. Mr. Bruce Howard, an Avista
witness, will testify to the terms of that agreement and
wifl sponsor it as Exhibit No. 14, Schedule 1. As a result,
the IDWR has concluded that the public interestr ds it
relates to Avista's water use, will not be adversely affected
by the merger, under Idaho Code S61-328 and 542-1701 (6) .
(See fetter of IDWR to Commission, dated August 10, 201-8, a
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copy of which is included as Exhibit No. 74, Schedul-e 1.)
This is indicative of Avista's willinqness to work with all
affected parties.
A. Wtrat other issues has Avista addressed?
A. Avista has considered the application of Idaho
Code S61-321 Lo this transaction, as it relates to the
transfer of properties to any public agency that is organlzed
or exists under the laws of any other state. Avista witness
Mr. Kevin C. Sprague ("Col1ins"), Senj-or Director of
Government Relations, will present testimony explaining the
Iegislative history of this provision, its purpose, and why
it doesn't apply in this case.
In short, the legislative history makes it abundantly
clear that the purpose of the statute, passed i-n 1951, was
to prevent Public Utility Districts in Washington from
acquiring the properties of the [Iashington Vflater Power
Company Iocated j-n Idaho - and nothing else. Hydro One is an
investor-owned utility and not a municipal utility, so even
if the Iegislation somehow reached Canadian entities it
would not apply to Hydro One.
A. Have Avista and Hydro One responded to other
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23 A. Yes. Avista and Hydro One have explained recent
24 events in Ontario and how there are sufficient protections
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in place to protect Idaho customers. Additional- discovery
was made of the companies, and through those responses, and
by means of supplemental
addressed those issues head
testimony, the Companies have
our willingness to listen and
on. Again, this demonstrates
respond to concerns raised by
the d.y, I have to be abl-e tothe parties. At the end of
look each Commissioner in the eye and say that this merger
is the right thing to do. I can do that.
A. Ilhat additional commitments are you willing to
offer, that don't
Stipulation?
A. Avista and
al.ready appear in the Settlement
Hydro One are proposing to amend the
of Authority to add protectj-on of the
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existing Delegation
Avista Board if the Province takes some action in the future
to control- a majority of the Hydro One board. If that
happens, Hydro One will l-ose its ability to replace any of
its three Independent Director designees on the Avista board
with a Hydro One executive or employee. This essentially
provides "downstream" protection for Avista and its
customers. Avista and Hydro One propose to amend the
Delegation of Authority (Appendix 5 of Joint Application) as
foll-ows:
Shareholder shall- have the unfettered right to
designate, remove and replace the Shareholder
Designees as directors of the Surviving
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Corporation with or without cause or notice at its
sole discreti-on, subject to the requirement that
(i) two (2) of such directors are executives of
Parent or any of its Subsj-diaries and (ii) three
(3) of such directors are fndependent Directors
who are residents of the Pacific Northwest Region,
while such requirement j-s in effect (subject in
the case of clause (fi) hereof to Shareholder
determining, in good faith, that it is not able to
appoint an Independent Director who is a resident
of the Pacific Northwest Region in a timely manner,
in which case Shareholder may replace any such
director with an employee of Parent or any of its
Subsidiaries on an interim basis, not exceeding
six months, after which time Shareholder shaII
replace such interim director with Independent
Director who is a resident of the Pacific Northwest
Reg ion; provided, however, that this exception to
cfause (ii) hereof shall- not apply if, at any time
a circumstance arises,and during the pendency of
any such circumstance,whereby the Province of
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shareholder of Parent,uses leqislative authority
or acts in an other manner whatsoever that
results,or would result, in Ontario appointing
nominees to the board of directors of Parent that
constitute,or would constitute a maiority of the
di-rectors of such board
A. Wtrat is the puqpose of the new text in the
Delegation of Authority?
A. This proposed amendment to the Delegation of
Authority is designed to protect the independence of the
Avista board in the event that the Province takes some action
in the future to control a majority of the Hydro One
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1 Board. If that event occurs, this amendment is triggered
and blocks Hydro One's limited right to replace any of its
three Independent Director designees on the Avista board
with a Hydro One executive or employee.
A. Notwithstanding the above discussion, are Avista
and Hydro One offering'an additional comaitnent based on the
recent changes in management at Hydro One?
A. Yes. As discussed in the "Comments of Avista and
Hydro One as Joint Applicants in Reference to Management
Changes at Hydro One" filed on July 18, 2078, Hydro One and
Avista provided the following new commitment:
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reg'arding Avista employee compensation shal-I be
made by the Avista Board consistent with the terms
of the Merger Agreement between Hydro One and
Avista, and current market standards and
prevailing practices of rel-evant U.S. electric and
gas utility benchmarks. The determination of the
levef of any compensation (including equity
awards) approved by the Avista Board with respect
to any employee in accordance with the foregoing
shall not be subject to change by Hydro One or the
Hydro One Board."
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provides further protection to
that it is only the Avista Board,Avista's employees,
and not the Hydro
such
One Board nor the Province of Ontario,
which wil-I determine how Avista wiII be abl-e to continue to
recruit and retain the most highly qualified employee talent
base for our customers.
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A. Are there stiIl other new comnitments the
Companies are willing to make?
A. Yes. We would modify
that the Avista Board would have
dismiss or replace the Chief
Commitment No. 2 Lo assure
the sole ability to hire,
Executive. Accordingly,
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Commitment No. 2 is modified to read as follows:
Executive Management:
Avista will seek to retain aII current executive
management of Avista, subject to voluntary
retirements that may occur. Thj-s commitment wiII
not limit Avista's ability to determine its
organj-zational structure and select and retain
personnel best able to meet Avista's needs over
time. The Avista board retains the abili-ty to
dismiss executive management of Avista and other
Avista personne] for standard corporate reasons
(subjeeE Ee Ehe appreval ef Hydre ene LimiEed
[Any decision to hire,
dismj-ss or replace the Chief Executive Officer of
Avista shal-I be within the discretion of the
Avista Board of Directors, and shall not require
any approval of Hy4rlOne or any of its affiliates
(other than Avista), notwithstanding anything to
the contlary in the merqer @exhibits and attachments between H ro One and
Avista. l
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30 A. Given recent events in the Province of Ontario
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32 protected are Avista's Idaho customers?
33 A. Very protected. If I weren't confident of this,
34 I wouldn't recommend to my Board to continue with thj-s
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2 conLinue to see benefits over time - and that rational-e has
3 not changed. More to the point, those same customers are
4 also protected from any risk of Provincial involvement in
5 the affairs of Avista.
6 It makes sense to careful-Iy distinguish between risks
7 (political or otherwise) involving Hydro One's affairs and
B operations in Canada and risks impacting Avista j-n its
9 service territories.
10 My emphasis is on the potential risks of any Provincial
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Avista. At the end of the day, it may not matter what happens
in Ontario, if we have done our job right (and I think we
have) in constructing commitments and safeguards, with the
help of aIl- parties, that protect customers and the
communities we serve.
A. How have the Parties achieved such protections and
structural safegrrards?
A. The building blocks of these protections assure
20 that this Commission remai-ns front and center in enforcing
these consist27 the merger commitments. Eor ease of reference,
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1) Authority is reserved to the Commission with the
respect to j-nterpretation and enforcement of al-I
commitments:
Commitment No. 1 Authority Reserved: Consistent
with and subject to the terms of Exhibits A and B
to the Merger Agreement (referred to as
"Delegation of Authority") contained in Appendix
5 of the Joint Applicati-on, decision-making
authority over commitments 2-75 below is reserved
to the Board of Directors of Avista Corporation("Avista") and not to Hydro One. Any change to
the policies stated in commitments 2-75 requires
a two-thirds (2/3) vote of the Avista Board,
provi-ded that Avista must obtain approval for such
changes from all regulatory bodies with
;urisdiction over the Commitments before such
changes can go into effect, and provide written
notice to all parties to Case No. AVU-E-17-09/AVU-
G-17-05 of such request for approval:
Commitment No. 20 State Regulatory Authority and
Hydro One and j-ts subsidiaries, incfuding Avista,
as applicable and as appropriate, will comply wj-th
aI1 applicable laws, j-ncluding those pertaining to
transfers of property, affiliated interests, and
securities and the assumption of obligations and
Iiabilities. As required by and consistent with
applicable laws, venue for resofution of
proceedings related to these matters will- be at
the appropriate state utility commission (s) .
Hydro One and its subsidiaries, including Avista,
wiII make their employees and officers available
to testify before the Commission at the
Commission's request to provide information
relevant to the matters within its jurisdiction.
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Jurisdiction:
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Commitment No. ?l lgrypfiaqqe with Existing
Commission Orders: Hydro One and its subsidiaries,
including Avista, acknowledge that all existing
orders issued by the Commission with respect to
Avista or its predecessor, Washington Water Power
Co., wj-II remain in effect, and are not modified
or otherwise affected by the Proposed Transaction.
Hydro One and j-ts subsidiaries, including Avista,
as applicabJ-e and as appropriate, wifl comply
with alI applicable future Commission orders that
remain in force.
3) Commission retains full authority to enforce
commitments, including compelJ-ing witnesses from
Hydro One to appear:
Commitment No. 30 Commission Enforcement of
Commitments:Hydro One and j-ts subsidiaries,
including Avista, understand that the Commission
has authority to enforce these commitments in
accordance with their terms. If there is a
violatj-on of the terms of these commitments, then
the offending party may, at the discretion of the
Commission, have a period of thirty (30) calendar
days to cure such violation.
The scope of this commitment includes the
authority of the Commj-ssion to compel the
attendance of witnesses from Olympus Holding Corp.
and its affiliates, incJ-uding Hydro One, with
pertinent information on matters affecting Avista.
Hydro One and Olympus Holding Corp. and its
subsidiaries waive their rights to interpose any
legal ob;ection they might otherwise have to the
Commission's jurisdj-ction to require the
appearance of any such witnesses.
With these protections
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40 affairs of Avista, because,
in placer w€ needn't speculate
Provincial interference in the
at the end of the day, this
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powers to regulate in the public interest.
And it is not just Avista and the other parties who
want this - Hydro One, I believe, wants this as well-. ft
wants Avista to have the freedom it needs to effectively
manage its utility without outside interference, because
only in that way wiII it derive value from a well-run company
that wiIl benefit its shareholders.
A. Are these the only comitments that safegruard
10 Avista customers?
11 A. No. As f wiII discuss l-ater in my testimony, there
are multiple commitments that assure that Avista wiII
continue to operate without outside interference, - e.9.,
maintenance of corporate headquarters, existing management
team and employees, a majority of independent directors on
Avista's board. These are found in the express "delegation
of authority" to Avista, and are embedded in the first
fifteen commitments set forth in the Settlement Stipul-ation.
The purpose of highlighting the earlier commitments was
to underscore the authority of this Commission to enforce
(or modify if need be) the commitments that preserve its
jurisdictions and regulate aIl matters in the public
interest.
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Mr. Jamie Scarl-ett, of Hydro One, wiIl further discuss
the potential adoption of certain commitments from the OPUC
Settlement Stipulation:
4. Executive Management
5. Avista Board of Dj-rectors (BOD)
72. North American Eree Trade Agreement (NAFTA)
78. Venue for and Resolution of Disputes
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And for his part, Mr.
the potential adoption of
Settfement Stipul-ation :
Lopez, of Hydro One, will discuss
these commitments from the OPUC
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39. Foreign Exchange and Hedging on Dividends Payments
and Allocations
43. Cost of Capital
54. Avista Cash Flows
II. REASONS FOR THE PROPOSED TRANSACTION
A. Are the reasons for the Proposed Transaction still
as coryeJ.ling now as they srere when you agreed to the merger
with Hydro One?
A. Absolutely. In my pre-fi1ed direct testimony
(Morris Testimony, pp. 72-71), I explained that the merger
with Hydro One will- alfow Avista and its customers to benefit
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same time preserving l-ocal- control ofscale), while at
Avista and the retention of Avista's employees and
management team, as well as its culture and way of doing
business. That is unchanged as a resul-t of the management
changes at Hydro One.
Vflith regard to scale, Avista's perspectj-ve was that the
number of investor-owned el-ectric and/or natural gas
utilities in North America has decreased significantly over
the years through consolidation. When comparing the size of
investor-owned util-ities from largest to smallest, Avista is
one of the smallest investor-owned utilities remaining in
North America. A bar chart indicative of the investor-owned
utilities in North America, from largest to smallest, is
attached to my direct testimony in Exhibit No. 77, Schedule
1. The merger of Avista and Hydro One wiII place the
combined company toward the middle of the range of investor-
owned utilities, in terms of size. Avista's view is that,
through consofj-dation, larger utilities have the opportunity
to spread costs, especially the costs of new technology,
over a broader customer base and a broader set of
22 infrastructure to the benefit of customers.
23 Hydro One has more than 1.3 million electric
distribution customers, and Avista has approximately 378r 000
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electrj-c customers and approximately 342,000 natural gas
customers (approxi-mately 102,000 of which reside in Oregon
as of the end of 2071). This combinatj-on will provide
opportunities for efficiencies in the long-term through the
sharing of best practices, technology and innovation.
Avista's view was that the merger will provide benefits to
Avista's customers that otherwise would not occur. That view
is unaffected by the management changes at Hydro One.
As previously noted, many of these benefits of scale
wil-l- not occur in the near-term following the closing of the
Proposed Transaction, but are expected to occur over the
long-term. After all approvals are received and the
companies merge, both companies have stated that they will
work together to identify, evaluate and execute on
opportunities to reduce costs for both companj-es through,
among other things, the sharing of technology, best
practices, and business processes. To the extent that such
savings materialize, the benefits from these cost savings
wil-1 be ref lected in subsequent rate proceedj-ngs.
In the end, Avista's choice to merge with Hydro One
wil-I aflow Avista and its customers to benefit from being a
part of a larger organization, while at the same time
preserving local control of Avista as well as its culture
and its way of doing business. Agreements to preserve
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Avista, essentially as it is today, for the long-term are
memorial-ized in the Merger Agreement. The Proposed
Transaction also provj-des benefits to Avista's customers,
employees, sharehofders, and the communities Avista serves;
including immediate financial benefits to Avista's
customers. Those have been exhaustively discussed in prior
testimony supporting the Stipulation.
III. MERGER PROTECTIONS
A. Certainly. Eirst, Avista wil-l have a nine-member
board separate from Hydro One that wil-l- govern Avista's
management and operations. Stipulated Commitment No. 3
ensures that Avista's post-merger Board of Directors and
exi-sting executive feadership wil-I manage Avista - not Hydro
One's Board.
I believe that the unique construct of the Board, which
consists of four Avista designees (at Ieast two of whom are
Independent Directors and five Hydro One desj-gnees (at Ieast
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Avista Corporation
10 A. Many of the Stipulated Comitments offered in the
11 Stipulated Comnritments yrercr desig'ned to preserve Avista
12 self-g'overnance and demonstrate the separation between
13 Avista and Hydro One Please describe these governance
and how they are affected by events74 Stipulated Comritments,
15 in Ontario.
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three of whom are Independent
Pacific Northwest), wifl have
Directors residing in the
separation from influence by Hydro
Ontario) .
enough independence and
One (and the Province of
9. Certain of these Stipulated Conmritments were
deveJ.oped to ensur€: that Avista cannot be subjected to
political interference or influence by the Province. Do you
be1ieve these Stipulated Corsnitments are adequately desig'ned
to prevent the Province or any other party from exercising
inappropriate control over Avista?
A. Yes. I believe the structure of Avista's board
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13 Province. Although the Province is permitted under the
74 Governance Agreement to nominate 402 of Hydro One's Board
15 members, those Board members must be independent of the
16 Province and, other than the CEO, Hydro One. Hydro One's
11 management and Board, and not the Provj-nce, wiII be
1B responsible for selecting five of Avista's nine Board
19 members (three of whom must be independent and reside in the
20 Pacifj-c Northwest) .
27 9. Do you believe there are adeguate financial and
22 bankruptcy ring fencing' Stipulated Cornnritments to protect
23 a].]. Parties and customers?
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A. Yes. The Stipulated Commitments appended to the
Stipulation contain a substantial number of financial and
bankruptcy/rLng-fencing protections that wil-I protect the
financial health of Avista. Neither Hydro One, nor the
Province, can deprive Avista of its capital and assets.
There are Stipulated Commitments that (i) Avista wil-I
continue to have its own credit ratj-ngs, (ii) assure that
Hydro One will- provide equity capital injections to support
Avista's capital- structure and all-ow Avista to access debt
financing under reasonable terms and on a sustainable basis,
and (iii) provide restrictions on dividends and
distributions that help preserve Avista's financial
integrity. Hydro One and Avista also committed to issue a
single share of preferred stock referred to as the Golden
Share to an independent third party to address any bankruptcy
concerns. AI1 of these Stipulated Commitments are further
discussed in Mr. Thies' Supplemental Testimony.
A. Are there other specific Stipulated Comitments
that serve to protect against outside control of the Province
of Ontario?
A. Yes. There are several Stipulated Commitments
that assure al-I the existing pieces that make Avista "Avista"
wil-l- remain j-n pJ-ace. More specifically, the following
Stipulated Commitments highlight this. Stipulated
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Commitment No. 2 speaks to Avista's executive management, as
discussed earfier. Stipulated Commitment No. 9 speaks to
maintaining Avista's headquarters location:
Avista wi1}, and Hydro One agrees Avista wiII,
maintain (a) its headquarters in Spokane,
Washington; (b) Avista's office Iocations in each
of its other service territories, and (c) no less
of a sj-gnj-ficant presence in the immediate focation
of each of such office locations than what Avista
and its subsidiaries maintained immediately prior
to completion of the Proposed Transaction.
12 Stipulated Commitment No. 10 addresses focal staffing:
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Avista wiIl maintaj-n Avista Utilities' staffing
and presence in the communities in which Avista
operates at levels suffj-cient to maintain the
provision of safe and reliable service and cost-
effective operations and consistent with pre-
acquisition levels.
And Sti-pulated Commitment No. 39 protects pensi-on and post
retirement expenses and assets:
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Avista wilI maintain its pension funding policy in
accordance with sound actuarial practice. Hydro
One will not seek to change Avista's pension
funding policy.
25 I befieve this preservation of Avista's headquarters,
way of doing business, among other26 its culture and its
21 things,
Avista's
are important commitments to our employees and
2B customers, as they continue to expect and
reliable service and a hiqh level- of customer29 experience
30 satisfaction. This demonstrates our commitment to best
31 serve the public interest, gj-ven our rich herj-tage of serving
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2 Q. Do you believe the Stipulated Comitnents fi1ed in
3 the Stipulation ensure that Avista could not be negatively
4 iqFracted in any way, and that these Stipulated Cormitments
5 preserve Avista self-goveanance and locaI control for the
6 purpose of maintaining safe and reliable service to Avista's
7 utility eustorners?
8 A. Yes. In my view the Stipulated Commitments
9 offered in the Stipulation were negotiated and designed to
l-0 provide separate governance and financial ring-fencing
11 between Avista and Hydro One, and to preserve Avista's
72 headquarters in Spokane, along wj-th retention of exist j-ng
13 management and employees. Al-l- of the protections described
74 above in addition to all of the other Stipulated Commitments
15 included in the Stipulation ensure that Avista wiIl continue
16 as a financially sound, stand-alone utility and will bind
Ll Hydro One, regardJ-ess of political developments and change
1B in management. In short, aIl of these Stipulated Commitments
79 were designed by the Parties to "stand the test of time. "
20 Eurthermore, Avista and Hydro One have committed that
2l none of the Stipulated Commitments can be amended without
22 approval from Avista's state regulators (see Stipulated
23 Commitment No. 30, "Commission Enforcement of Commitments"),
24 whj-ch assures that the Commission wiII continue to regulate
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Avista as it always has, to ensure that Avista's customers
are protected and continue to only pay fair, just, and
reasonabl-e rates.
IV. EOREIGN OVTNERSHIP OF T'NITED STATES UTILITIES
A. There have been g'eneral concerns among a smalJ.
group of customers in certa.in portions of Avista's service
territory about a foreign company purchasing an American
utiJ.ity. Do you share ttrese concerns?
A. No, I do not. First, afI of the protections
11 discussed brj-efly above dictate how Avista wil1, or wiII not
12 be, affected by Hydro One's ownership. Second, this is not
13 the first transaction in the United States where a foreign
enti-ty purchased all or a portion of an American utility.
Approximately 30 States have utilities that are owned by
foreign entities, including many that are owned by Canadian
entities (util-ities, pension funds, etc. ) . Exhibit No. 17,
Schedule 1 provides a map showing where there is foreign
ownership of American utilities. In addition, we are unaware
of any issues resulting from foreign ownership. ft is also
j-mportant to remember that the Proposed Transaction has also
been cleared by the Committee on Foreign Investment in the
United States (CFIUS). In the end, I belj-eve the purchase
of Avista by Hydro One should not be seen as something new,
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novel or scary - such transactions are actually quite common,
and if designed wel-l-, have and wil-I continue to provide
benefits for American utility customers. And, as Hydro One
and Avista witness Mr. Reed notes in his testimony (Reed
Supp Testimony), this Proposed Transaction has been designed
with "state-of-the-art" protections.
A. Do you have any concJ.uding coments?
A. Yes. As I stated earlier, I understand that the
recent events in Ontario were unexpected. However, when the
smoke clears and one l-ooks at this Proposed Transaction10
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fundamental has
Transaction stilI
of the Stipulated Commitments,nothing
Proposedochanged.
holds
The reason for the
Hydro One will in essence be the
along
this
fully support
in the public
1,4 primary sharehol-der of Avista, but the Avista Board,
15 with Avista management under the oversight of
76 Commission, will continue to operate a well-run utility for
the benefit of our customers. The Parties carefully crafted
protections and commitments to withstand the test of tj-me,
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believe it is20 the Proposed Transaction,
22
interest (especially given the rate credits, 1ow-income
funding, and community support), and request the Commission
approve the Proposed Transaction.
A. Any conclusions?
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A. By
Hydro One's
a set of robust commitments that
way of summary, and as noted by Avista's and
witness John Reed, the parties have arrived at
are "state of the art",
need of our
based on his review of other mergers. We have been
responsive to all concerns and are eager to get on with the
business of partnering with
customers.
Hydro One to best service the
9. Does this conclude your Supplemental Testimony?
A. Yes.
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