20181114Dobson Rebuttal.pdf

ldaho Fublic Utilities Commission
Office of the SecretaryRECEIVED
ON BEHALF OF AVISTA CORPORATION
DAVID .]. MEYER
VICE PRESTDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
P.O. BOX 3727
I4LL EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
DAVID . MEYER@AVISTACORP . COM
ON BEHAIJF OF HYDRO ONE IJIMITED
EL]ZABETH THOMAS, PARTNER
KARI VANDER STOEP, PARTNER
K&L GATES LLP
925 FOURTH AVENUE, SUITE 29OO
SEATTLE, WA 981014-1158
TELEPHONE: [phone]s80
FACSIMILE: (206) 370-6L90
L]Z . THOMAS@KLGATES . COM
I(ARI . VANDERSTOEP@KLGATES . COM
IN THE MATTER OF THE JOINT
APPLICATION OF HYDRO ONE L]MITED
(ACT]NG THROUGH ITS INDIRECT
SUBSTDIARY, OLYMPUS EQUITY LLC)
AND
AVISTA CORPORAT]ON
FOR AN ORDER AUTHORIZ]NG PROPOSED
TRANSACTION
FOR HYDRO ONE LIMITED
BEFORE THE IDAHO PT'BI,IC U:TII,ITIES COMMISSION
CASE NO.
CASE NO.
Boise, ldaho
AVU-E- L7 -09
AVU-G- 17- 05
REBUTTAL TESTIMONY
OF
PAUL M. DOBSON
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r. IN:TRODUCTION
O. Please state your name, business address and
preeent poeitions with Hydro One Limited.
A. My name is PauI M. Dobson, and my business address
is 483 Bay Street, South Tower, 8th Floor, Toronto, Ontario
5 M5c 2P5. I am t,he acting President and Chief Executive Officer
7 ( "CEO" ) f or Hydro One l,imit.ed ( "Hydro One" ) . I
8 Q. Have you fiLed direct, rebuttal, and supplemental
9 testimony in this proceeding?
l-0 A. Yes. I filed supplemental testimony on September
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L2 O. Are you sponsoring any exhibits Ehat accompany your
13 testimony?
L4 A. No.
l-5 A table of contents for my testimony is as follows:
15 DESCRIPTION Page
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I INTRODUCTION...
COMPLTANCE WTTH
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II.IDAHO CODE 55].-328 z
1 Prior to September 6, 20L8, I was also Lhe Chief Financial Officer("CFO") of Hydro One. On Septedber 6, 2018, Christopher Lopez was
appointed as Acting CFO of Hydro One. I will continue my role as HydroOne's Acting President and CEO. See AVU-E-1,7-09, AVU-c-1?-05,
Supplemental Report on Hydro One Management. Changes (Sep. 7, 2018).
Dobson, Rebuttal I
Hydro One l,imited
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Summary of Testimony
O. Please sununarize your testimony.
A. Hydro One agrees with t.he Idaho publ-ic Ut.ilit.ies
Commission Staff ( "Staff" ) testimony that: (a) the
LransacLion is in t.he public int.erest, (b) the cost of and
rates for supplying service will not, be increased by reason
of the transacLion, and (c) Hydro One has the bona fide intent
and financial ability to operate and maintain Avista in public
service in fdaho, all- as required by Idaho Code $Sr-:ze.
II. COMPI,TANCE WITH TDAHO CODE 551-328
O. In direct Eestimony filed on November 6th, Staff
wit,ness Terri Carlock is asked the following question on page
4, lines 9-L0: "Do you believe the requirementE of Idaho Code
561--328 will be met?" Are you familiar with that testimony?
A. Yes, I am.
O. In response to that question, Ms. Carlock states,
on page 4, lines LL-252
Yes, I believe Idaho Code 562'328(3) requirements
will be met. The transaetion is consistent with the
pr-rblic inLerest because the StipuLated Commitments
protect Idaho customerE, provide financial rate
credits, provide funding for other cust,omer
benefits and enhance programs. The Stipulated
Commitments also aaaure that the cost of and rates
for supplying service wilL not be increased by
reason of such transact,ion. Rating ag:ency reports
and publicty available financial statements
document that Hydro One has the bona fide financial
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Dobson, Supp.
Hydro One
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Limited
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ability to operate and maintain said property in
the public service. The testimony of Hydro One and
the Stipulated Commitments reinforce that Hydro One
has the bona fide intent to operate and maintain
said property in the pubIic service.
Do you agree with Ms. Car1ock that this transaction meets
the approval requirements of fdaho Code $51-328?
A. Yes, I agree that the transaction meets the
requirements for approval under Idaho Code $51--328.
A. Wit,h respect to Idaho Code $51-328(3)(a), Ms.
Carlock staEes the following, on page 7 , Line 20, through
page 8, line 3, of her November 6th testimony:
. For the transaction to be in the public
interest, overall there must be no harm. Throughout
tshis caae, it has been the intent of Staff to see
customers receive a net overall financial benefit.
Commitments including ring-fencing provisions have
been agreed to in the Settlement by most Idahoparties that I believe will provide financial
benefits that Iikely will not occur absent the
merger whiLe protecting cusEomers from negative
operational, structural or financial harm.
Do you agree with Ms. Carlock's
public interest prong of Idaho Code
testimony regarding the
$5L-328 (3) (a) ?
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whol-eheartedly agree
no harm standard and
that the transaction
provides an overallthegoes beyond
benefit to Avista customers. In addition to the benefits
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29 following additional benefits to Avista's Idaho customers,
receive a30 among others: (1) Avista's Idaho customers will
Dobson, Supp.
Hydro One
Reb. 3
Limited
l- rat,e credit totaling approximately $15.8 million i Q)
2 approximately $5.3 million in funding for energy efficiency,
3 weatherization, conservation, and Iow-income assistance
4 programs; and (3) increased charitable contributions, aI1 of
5 which would not occur absent the proposed transaction.2
6 Q. ME. Carlock discusses the proposed transacLion,g
7 compliance wit,h Idaho Code Section 5L-328 (3) (b) in a couple
8 of places in her November 5th testimony. First, on page 3,
9 line L4, through page 4, line 8, ME. Carlock states:
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Arry cuetomer rate increase must be approved by theIdaho Commission before Avista can increaEe rates
to Idaho Avista customers. Idaho Code 551-328
requires that "the cost of and rates for supplyingeervice will not be increased by reason of euchtransaction".
In the normal course of its responsibilities Staff
audits all costs to verify t,he costs are actually
incurred, correctly recorded but more importantly
that aII costs are reasonably incurred to provide
services to Idaho customers. Greater scrutiny is
made for any transactionE, activiEies or
allocations to Awista from any affiliated entsities.
In this instance following the merger, an affiLiate
would include Hydro One, any subsidiary, or jointly
owned entitieE directly assigning or allocating
coets Eo Avista. Staff will verify that no costs
are included in customer rateg t,hat are not at the
Iower of the actual cost or market comparison.
Although this is a normal parE of the SEaff audit
functioa it is also part of the ring-fencing
provisions and the commitments from Aviet,a and
Hydro One.
2 These benefits and
Section Ir of scott L
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others are more ful1y described and discussed in. Morris' Rebuttal Testimony filed on November !4,
Dobson, Supp. Reb. 4
Hydro One Limited
1 Are you familiar with this testimony?
2 A. Yes.
3 Q. Ms. Carlock next, addressee Ehe costs and rates of
4 service on page 5 of her November 6th testimony. on page 5,
5 lines 1-3, she is asked: "How can you be assured that cugtomer
6 rates will not increase at Avista as a regult of the merger
7 trangaction?" Mg. Carlock responds, lines 4-2t, as follows:
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The regulatory responsibility of the Commission
Staff and uLtimately the Commissioners making Ehe
final decisions for the Idaho Public Utilities
Commission will not ehange. Staff will continue to
rigorously review capital invegtments, ongoing
operating costs, changes in revenues and the
overall operations of Avista. When unreasonable
costs are identified or operating decigions by
managemenL do not support just and reagonable costs
to provide safe and reliable utilitsy serviceg to
cugtomers at reasonable rateE, Staff recommends
financial adjustments and changes to programs
during proceedings before the Commission. Thig will
not change depending on the ownership of Avista.
The requirement and commitments asEure customer
ratee will not increase as a reEuIE of the mergertransaction. It isn't however an assurance thatrates will not increase due to normal operating
requiremenEs and cosE increaseg.
Are you famiLiar with that testimony?
A. Yes.
A. Do you agree with Ms. Carlock tshat the transaction
meets the requirements of Idaho Code $51-328 (3) (b) ?
A. Yes, I agree that the cost of service and rates
wiII not increase as a result of the Proposed Transaction. In
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Dobson, Supp.
Hydro One
Reb. 5
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1 addition to t.he Idaho Public Utilities Commission's and
2 Staff's roles in ensuring that rates are just and reasonable,
3 Hydro One has provided assurances, in Commitment No. t6, that
4 customer rates wiII not j-ncrease as a resulL of t.he Proposed
5 Transaction. Commitment No. L6 reads as follows:
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16. Treatment of Net CosE Savings:Hydro One
commits that Avista customer rates wilI not
increase as a result of the Proposed Transaction.
Hydro One wil-I hold Avista cusLomers harmless from
any such rate increase. FurLher, any net cost
savings that Avista may achieve as a result of the
Proposed Transaction will be refl-ected in
subsequent rate proceedi-ngs, as such savings
material-ize. To the extent the savings are
reflected in base retail rates they will offset the
Rate Credit to customers, up to the offsetabl-e
portion of the Rate Credit.
In addition, under Commitment No. 65, Avista is
prohibited from seeking cost recovery for any of the
commitments funded or arranged by Hydro One, and Hydro One
may not. seek Lo recover those funds from rat.epayers in Canada
or the United States. Commitment No. 66 reads as follows:
66. Sources of Funds for Hydro One Commitments:
Throughout this l-ist of merger commitments, any
commitment t.hat states Hydro One wiII arrange
funding is not contingent on Hydro One's ability to
arrange funding, particularly from outside sources,
but is a firm commitment to provide the dollar
amount specified over t.he time period specified and
for the purposes specified. To the extent Avista
has retained earnings that are available for
payment of dividends to Olympus Equity LLC
consistent. wit.h the ring fencing provisions of this
list of merger commitments, such retained earnings
may be used. Funds available from other Hydro One
affil-iates may be used without limitation. Avista
Dobson, Supp. Reb. 6
Hydro One Limited
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wiII not seek cost recovery for any of the
commitments funded or arranged by Hydro One in this
Iist of mergier commitments. Hydro One will not
seek cost recovery for such funds from ratepayersin Canada or the United States.
O. with respect to Idaho Code $5L-328 (3) (c) , Staff
4, lines L9-25, that:witness Ms. Carlock concludes, on page
Rating agency reports and pubi.icly avaiLabLe
financial statements document that Hydro One has
the bona fide financial ability Eo operate and
maintain said property in the pu.blic gervice. The
testimony of Hydro One and the Stipulated
Commitmente reinforce that Hydro One hag the bona
fide intent to operate and maintain said property
in the public service.
Are you familiar wit,h that testimony?
A. Yes
O. Do you agree with Ms. Carlock's conclusiong
regarding Hydro One's bona fide intent and financial abiLity
to operate and maintain Avista in pr:bLic service?
A. Yes, I certainly agree t.hat. Hydro one has both the
bona fide intent and the financial ability to operate and
maintain Avista in public service in Idaho. Mr. Lopez, Hydro
One's acting Chief Financial Officer, addresses Hydro One's
bona fide intent and financial ability to operate and maintain
Avista in public service in further det.ail in his rebuttal
testimony in Section III of Christ.opher F. Lopez's Rebuttal
Testimony filed on November 14 , 20L8.
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Dobson, Supp.
Hydro One
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O. Do you have any reason to believe that the Province
of Ontario would affect Hydro One's bona fide intent and/or
financial ability to operate and maintain Avista in public
service in ldaho?
A. No. As discussed in the rebuttal testimony of Mr.
V{oods, Chair of the Hydro One Board of Directors,3 the
Province is an investor in and not a manager of Hydro One.
The Province, ds Hydro One's largest shareholder, has some
ability to influence Hydro One's giovernance. Apart. from its
authority over certain execuLive compensation matters under
L}:e Hydro One AccountabiTity Act, however, the Province does
not have the aut.hority to manage Hydro One's business affairs,
including Hydro One's bona fide intent and financial ability
to run Avista aft.er the close of the proposed transaction.
O. Does this conclude your rebuttal testimony?
A. Yes it does.
r.9ee AVU-E-17-09/Avu-G-1,7-05 - Rebuttal Testimony of Thomas D. Woods at
SS II-III (Nov. L4, 2018).
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