20181114Leroy Supplemental Rebuttal.pdf

ON BEHAI,F OF AVISTA CORPORATION
DAVTD J. MEYER
V]CE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
P.O. BOX 3727
L4LL EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE : (s09) 49s-43L6
FACSIMTLE: [phone]
DAVID . MEYER@AVISTACORP . COM
ON BEHALF OF HYDRO ONE LIMITED
ELIZABETH THOMAS, PARTNER
KARI VANDER STOEP, PARTNER
K&L GATES LLP
925 FOURTH AVENUE, SUITE 29OO
SEATTLE, WA 981014-1158
TELEPHoNE: [phone]
FACSfMfLE: [phone]
LIZ. THOMAS@KLGATES . COM
KARI . VANDERSTOEP@KLGATES. COM
IN THE MATTER OF THE .JOINT
APPLICATION OF HYDRO ONE LIMITED
(ACTING THROUGH ITS IND]RECT
SUBSIDIARY, OLYMPUS EQUITY LLC)
AND
AVISTA CORPORATTON
FOR AN ORDER AUTHORIZ]NG PROPOSED
TRANSACTION
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
ldaho Pubiic Utilities Comm
Office ol the SecretaryRECEIVED
ocT r 'l 20t8
BEFORE THE IDAHO PTJBLIC UTILITIES COMMISSTON
Boise,ldaho
CASE NO. AVU-E-L7-09
CASE NO. AVU-G-17-05
SUPPLEMENTAL
REBUTTAL TESTIMONY
OF
DAVID H. LEROY
Leroy, Supp. Reb.
David H. Leroy, Attorney at
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]- I. IMTRODUCTION
2 Q. Please state your name, business address, and
3 present position?
4 A. I am David H. Leroy, attorney at Iaw of Leroy Law
5 Offices, P.O. Box 193, Boise, fdaho 83701-.
6 O. What is your professional background?
7 A. I am a LgTL doctorate graduate of the University
8 Of Idaho College Of Law and was admitted to the Idaho Bar
9 that year, some 47 years ago. I hold a post-doctoral degree,
10 Master of Laws, from New York University and was admitted to
11 that State's Bar tn L972. I have been in both t.he public and
L2 private practice of law for nearly half a century.
13 O. Do you have public policy experience?
L4 A. Yes. I served two terms as Ada County Prosecuting
15 Attorney in the 7.9701s, a term as Idaho Attorney General and
15 presided over the fdaho State Senate as Lieutenant Governor
17 from 1983 to 7987. In the absence of the Governor from t.he
18 state during that period, f served as Acting Governor of
19 Idaho for 254 days.
20 f was a presidential appointee, confirmed by the United
2l States Senate, during the administration of President G.H.W.
22 Bush, with the title of United States Nuclear Waste
23 Negotiator.
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Subsequent to that service, I have featured the
practice of administrative law in my legal career and am
frequently hired by cl-ient.s, public and private, including
members, committ.ees and even chambers of the Idaho State
Legislature to give them opinions on matters of statutory
int.erpretation. I have also argued or briefed cases
frequently before the Idaho Supreme Court and various
federal courts and have appeared three times before t.he
Unit.ed States Supreme Court.
O. Have you previously testified as an expert witness
in legal or political mattere?
A. Yes. On dozens of occasions before trial- courts,
Iocal boards or commissions, staLe agencies, the Idaho
Legislature and committees of the United States House of
Representatives and Senate, it has been my duty and privilege
to give testimony on widely varied matters of fact. and
opinion.
O. What is your connection to the insEant case?
A. I was engaged by Avista Corporation ("Avista") t.o
give it an independent interpretation as to the application
or non-application of Idaho Code S51-327 to the proposed
sale of Avista to Hydro One Limited ("Hydro One"), as such
transaction is pending approval before the Idaho PubIic
Utilities Commission (the "Commission" )
Leroy, Supp. Reb.
David H. Leroy, Att.orney at
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O. What, is meant by an "Independent Opinion"?
A. By that term I mean that I had no prior familiarity
with the issues involved, ro predisposition as to the
questions presented and advised the client that I would make
and render judgments independently of any party's preferred
outcome. f explained that I would coll-ect data from all
available sources and broadly research a1I extant statutory,
regulatory and case precedent to reach a reasoned
conclusion.
O. Are you sponsoring any exhibits in this testimony?
A. Yes, f am. I will refer to the following Exhibits:
Exh. No. 15, Schedule 1
of October L7 , 201-8.
My Engagement Letter
Exh. No. 15, Schedule 2
October 25, 2018.
My Legal Opinion of
Exh. No. 15, Schedule 3 - Extracts of the
Legi slative .fournal s of the Idaho House of
Representatives and Idaho State Senate, January
22, l-951-.
Exh. No. 15, Schedule 4
Chapter 3.
Idaho Session Law 1-951,
Exh. No. 15, Schedule 5 - An Extract from the
Report of the fdaho Attorney General 1951 -7952,
pages 10 and 1l-.
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o Exh. No. 15, Schedule
Idaho Daily Statesman,
6 - An ExtracL from the
January 23, 1951, page 6.
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David u. Leroy, Attorney at
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A. fn reaching your opinion what resources did you
consuLt?
A. In addition to those items l-isted as Schedules 3
t.hrough 5 above, I reviewed t.he ,Joint Application for an
Order AuthorizLng Proposed Transaction in this case, the
transcripts of public hearings held by the Commission in
Moscow, Sandpoint. and Coeur d'Alene, the Supplemental
Testimony of K. Collins Sprague (Avista), six prior refevant
decisions or final orders of the Commission issued between
Support. of Stipulation and
Hydro One.
f a1so, as noted in t.he
f ound several- useful- Idaho
SettlemenL filed by AvisLa and
Opinion itsel-f , researched and
and rel-ated f ederal appellate
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15 cases, two early briefs on appeal and examined the wording
16 of Idaho Code 551-327 itself in the conLexL of those cases
17 and histories.
18 I also reached out to Commission staff counsel to
L9 receive a briefing as to t.he background of this case and
20 those statutory issues of most concern to them. I a1so left
27 two unreturned phone messages for the lawyer identified to
22 me as lead counsel for the Avista CusLomer Group, hoping to
23 obtain from that group any ot.her legal guidance, references
24 or reasoning.
Leroy, Supp. Reb.
David U. Leroy, Attorney at
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O. Would you begin by reciting the language of Idaho
Code S5L-327?
A. Yes. It reads as follows:
ACQUIS]TION BY CERTA]N PUBLIC AGENCIES
PROHIBITED. No title to or interest in any public
utility (as such term is defined in chapter 1
title 61, Idaho Code) property located in this
state which is used in the generation,
transmission, distribution or supply of el-ectric
power and energy to the public or any portion
thereof, shall be transferred or transferable to,
or acquired by, directly or indirectly, by any
means or device whatsoever, any government or
municipal corporation, guasi-municipal
corporation, or governmental or political unit,
subdivision or corporation, organized or existing
under the l-aws of any other state; or any person/
firm, association, corporation or organization
acting as trustee, nominee/ agent or
representative for, or in concert or arrangement
with, dfly such government or municipal
corporation, quasi-municipal corporation, or
governmental or political unit, subdivision or
corporation; or any company, association,
organizaLion or corporat.ion, organized or
existing under the laws of this state or any other
state, whose issued capital stock, or other
evidence of ownership, membership or other
int.erest therein, or in the property thereof , is
owned or controlled, directly or indirectly, by
any such government or municipal corporation,quasi-municipal corporation, or governmental orpolitical unit, subdivision or corporation; or
any company, association, organization or
corporation, organized under the laws of any other
state, noL coming under or within the definition
of an el-ectric public utility or electrical
corporation as contained in chapter L, title 6a,
Idaho Code, and subject to the jurisdiction,
regulation and control of the public utilities
commission of the state of fdaho under the public
util-ities l-aw of this state; provided, nothing
herein shall prohibit the transfer of any such
property by a public utility to a cooperative
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David H. Leroy, Attorney at.
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electrical corporation organized under the laws
of another staLe, which has among its members
mutuaf nonprofit or cooperative efectricaf
corporaLions organized under the l-aws of the state
of Idaho and doing business in this state, if such
public ut.ility has obtained authorizatj-on from
the public utilities commission of the state of
Idaho pursuant to section 6L-328, Idaho Code.
(Emphasis added)
What questions did you examine?
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A In particular, both Avista and the Commission
13 Staff were especially concerned as to whether the language
L4 of Idaho Code 551-327 which refers to the preclusion of the
15 ownership of utillty property used to generate or supply
76 e1ectric energy by any government or corporation existing
L7 under the laws of "any other state" would apply to the
18 Province of Ontario, since Hydro One was formerly a Canadian
79 provincial entity. In addition, as the Province would remain
20 t,he holder of approximately 432 of the stock outstanding in
27 Hydro One, both Avista and the Commission staff wished to
22 know whether such ownership constituted "direct or indirect"
23 control by a government.
24 O. Were you able to reach an opinion on the concept of
25 whether a Canadian province was a "State" under the language
26 of Idaho Code 551-327?
27 A. Yes. In my opinion the Idaho Legislature referred
28 only to entities organized under the Iaws of another of the
29 States of the United States of America and did not refer
Leroy, Supp. Reb. 6
David H. Leroy, Attorney at Law
1 thereby to foreign nations or their subdivisions by the term
2 "states. " As made cfear by the legislative history, it did
3 not contemplate Canadian Provinces. Therefore, the Province
4 of Ontario is not a "state" within the meaning of the
5 statute.
6 Q. What is the basis for your opinion?
7 A. Upon undertaking this assignment pursuanL to my
8 Letter of Engagement (Exh. No. 15, Schedule 1), I initially
9 examined the statute in its original form, House Bill Number
l-0 26 which became Session Laws of 7957, Chapter 3 (Exh. No.
11 15, Schedule 4) . The ,Journal-s of the fdaho Legislature for
L2 the House and the Senate, January 22, 1951 (col-Iectively
13 Exh. No. 15, Schedule 3) show that Idaho Code 561-327 was
L4 passed under suspension of the rules through both chambers
15 in a single day. The Report. of the Attorney General- (Exh.
L5 No. 15, Schedule 5) clarifies the "statute was patently aimed
l7 at. preventing acquisition by Publ-ic Utilit Districts of the
LB State of Washington of the operating properties of the
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Washington Water Power Company ( "WWP" ) located in Northern
Idaho. " (Emphasis added)
Although no official notes or transcripts of committee
hearings or fl-oor debates on the Bill exist, the Idaho Daily
Statesman of .fanuary 23, 1951- contained verbatim and summary
descriptions from the passage process which confirmed and
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expanded upon the Attorney General's comment. Most
specifically, the Legislators are recorded as fearing a l-oss
of property tax revenue and, Lo a lesser degree, Commission
regulatory conLrol, if the utility operating property became
owned by Washingt.on St.ate utility districts. The following
is excerpted from t.he January 23, 1951 edition of the Idaho
Statesman, at p. 5 (See Exh. No. 15, Schedul-e 5) :
Then Rep. David Doane (Ada), assistant
Republican fl-oor Ieader, opened the debate for
the bill's supporters. He explained that the
major purpose was to protect power users of Idaho,
particularly those in North Idaho, 'to be sure
that the electric utility properties be owned in
Idaho and not escape LaxaLion.'
He told the house t.hat. there was now pending
negotiations between the Washington Water Power
company and the PUD group from Washington for t.he
sale of the former's north Idaho properties.
'How soon they are going through with the
dea1, w€ don' t know, " said Doane, 'but it is
essent.ial that this bill be passed right away.'
This context makes it clear that the phrase "state"
intended most broadly t.o apply
subdivisions of Idaho's sister
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25 to, the units or municipal
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staLes - notably
simple meaning,
province or al-ien
O. Is there
this legislation?
Washington. In
"state" means
nation.
its ordinary, plain and
"state," not a foreign
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additional evidence providing contexE for
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David H. Leroy, At.torney at
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A. Yes. The "Thirty-First Biennial Report of the
Attorney Genera] of fdaho (1951 - L952)", at p.10, (see Exh.
No. 15, Schedule 5) describes the genesis of t.his
Iegislation, noting that it was "patently aimed" at
preventing acquisition by Washington public utility
districts ("PUD's") of the operating property of Washington
Water Power ("WWP", the company name changed from WWP to
Avista) in State of Idaho:
The 1951- l,egisl-ature enacted a sLatute
which: forbade acquisition by a municipal
corporation of another state of facilities for
the generation or transmission of electrj-ca1
energy in Idaho. The staLute was patently aimed
at preventing acquisition by Publ-ic Utility
District. of the St.at.e of Washington of the
operating properties of the Washington Water
Power Company locat.ed in Nort.h Idaho, The
enactment of the statute was productive of the
most t.ime consuming litigation in which the office
has been engaged in the period report.ed in this
report. Our efforts were directed at the problem
of securing enf orcement of t.he new staLuLe.
O. Has this Commission expressed a position on foreign
ownership?
A. Yes. My understanding is that the Commission has
not been historically concerned when foreign-rel-ated
utilities, some with shareholding by governmental unit.s or
subdivisions organized under the laws of other nations, have
been invol-ved in prior utility regulatory acquisitions,
merely because some foreign ownership was involved. To the
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David H. Leroy/ Attorney at
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contrary,
" increased
"American"
"scottish
ScotIand. 1
Ontario's
reasonabfe
the Commission has recognized the reality that
globalizaLton" has made the concept of an
company more obscure and that an entity named
Power" does not constitute the government of
Idaho Code 551-327 has no bearing on Province of
involvemenL with Hydro One by virtue of any
interpretation of "state".
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O. Were you able to reach an opinion on the second
guestion as to what concept of
10 control is precluded by Idaho Code
11 A. Even if "sLaLe" could
' g'overnmental corporate
s6l--327?
be somehow construed to
under Idaho
L2 cover Lhe Province of Ontario, there st.itl is no "direcL or
13 indirect" Lransfer of propert.y from Avista to the Province
L4 of Ontario or even to Hydro
15 statute (Idaho Code 561-327),
one within the meaning of the
16 and modern concept of "effecLive control-"
Iaw. The emerging
of a corporation
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by some block or combination of minority shareholders was
not within the intended definition of the statute as adopted
by the Idaho Legislature in 1951. Nor would the Idaho Supreme
Court, per its prior decisions, imput.e such a concept. to the
statutory words in Idaho Code S51-327 of "contro1led,
i Black's Law Dictionary, 1Qth Editions, (201-4), p.403
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directly
that 1aw,
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or indirectly. " Control of a corporaLion, under
means majority shareholdi ng.
What is the basie for your opinion?
A. Idaho Code 561--327, as noted, was designed to
prevent a loss of tax revenue and regulatory authority. The
words of the Iaw "acquired by, directly or indirectly" and
"owned or controlled, directly or indirectly" were chosen t.o
prevent those ends. Neither the Commission nor the taxpayers
of the State of Idaho suffer any such debility here as a
result of the retained minority stock holding of the Province
of Ontario, since Avista remains fully subject to local
taxation and regulatory enforcement obligations.
V{here "ef f ective , " or l-ess than maj ority corporate
control has been proscribed or intended by the Idaho
Legislature, the wording of such statutes have specifically
so stated, with detailed descriptions. In the absence of
such extended language, using the pIain, simple and ordinary
test of the Idaho Supreme Court, "control" within 6l-327
means "ownership of more than 50? of the shares of a
corporation."z The threat perceived and prevented by House
BiIl 25 in 1951 was the complete divestiture of utility
assets to the ownership and control of a government entity.
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2B1ack's Law Dictionary, 10th Edj-tions, (2014), p.403
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The Idaho Supreme Court, has not, in the best of my
knowledge, applied a more relaxed understanding of
"corporate control" where a majority ownershi-p was noL
present, at least absent specific statutory language to that
effect.
its indirect subsidiary, Olympus
is a governmenL entity owned or
directly or indirectly by the Province of
simple "maj orit,y of ownership" testOntario, within the
10 envisioned by Idaho Code S51-327.
11 O. Wtrat, then, is the meaningr of the reference to
1,2 "indirect" control is Ehe statute?
13 A. As is typical in any Iegislature drafting, t,he
14 objective is to prevent the doing of something that is
1-5 specif icalIy proscribed in the statute, by use of a strat.agem
L6 that "skirts" the legislat.ure by some other means. For
L7 example, were t.he Washington PUD's to set up a special
18 purpose entity (non-PUD) to directly "own" the property of
L9 WWP, t.hey could have attempted to "skirt" Idaho Code 561-
20 327.
21- A. To what degree of professional certainty do you
22 hold these opinions?
23 A. I am very comfortabl-e, given the sources examined,
24 legislative history and reasoning expressed above and with
Leroy, Supp. Reb . L2
David H. Leroy, Attorney at Law
None of
Equity LLC
cont.ro11ed,
Hydro One,
or Avist.a
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the additional detail as explained in my
that the conclusions reached are soIid,
Leroy, Supp. Reb.
David H. Leroy, Attorney at
written opinion,
substantial and
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defensible.
predictable
protect the
conservative
construction of statutes
The Commission endeavors to be consistent and
in its
public
body
decision-making process to assure and
interest. The Idaho Supreme Court is a
which practices and defends strict
and the discernment legislative
expressed are consisLent with my
and objectivity and with the
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intent. My opinions here
professional experience
traditions of the Court.
Testimony of
Admini strator,
11 O. Since issuing your written opinion on October 26,
12 20L8, has any other matter arisen or testimony been presented
13 which should be discussed as to these issues?
L4 A. Yes. f have now also read the November 6th, 2018
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Terri Carl-ock, Idaho PUC Utilities Division
which provides the Staff analysis of the
2 and 3 of herL7 proposed Avista transaction. At pages
18 comments, Ms. Carlock addresses, without any real discussion
or elaboration, the issue of "foreign ownership." She raised
the concern that Idaho Code 551-327 "may" provide a total
bar to the proposed merger, but is quick to note that she is
not an attorney, and is simply offering Staff's belief that
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"the Commission shoul-d analyze this possibility prior to
making a final determination."3
I believe t.hat my research, reasoning and opinions as
explained above are welI-supported and can be relied upon by
the Commission to reach a final determination that Idaho
Code S51-327 is not applicable t.o this transaction.
A. In Eurrunary, how should the Commission regard this
issue?
A As the utility operating property remains in
Commission retains unfetteredAvista's ownership, the
regulatory control- over t.he entity and no loss of state
property taxation base is experienced. Accordingly, t.he
Legislature's concerns addressed in Idaho Code 561-327 do
not come into play with this transaction.
O. Does that conclude your testimony?
A. rt does.
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3 Carlock tesLimony at p. 11