20181114Woods Rebuttal.pdf

ON BEHALF OF AVISTA CORPORATION
DAVID J. MEYER
V]CE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
P.O. BOX 3121
]-ALL EAST MISSION AVENUE
SPOKANE, WASHTNGTON 99220-3721
TELEPHoNE: [phone]
EACSIMILE: [phone]
DAVI D . MEYERGAVI STACORP . COM
ON BEHALE OF HYDRO ONE IJIMITED
ELIZABETH THOMAS, PARTNER
KARI VANDER STOEP, PARTNER
K&L GATES LLP
925 FOURTH AVENUE, SUITE 29OO
SEATTLE, WA 981014-1158
TELEPHoNE: [phone]
FACSIMILE: [phone]
L] Z . THOMASGKLGATES . COM
KARI . VANDERSTOEPGKLGATES . COM
IN THE MATTER OF THE JOINT
APPL]CAT]ON OF HYDRO ONE LIMITED
(ACTING THROUGH ITS INDIRECT
SUBS]DIARY, OLYMPUS EQUITY LLC)
AND
AVISTA CORPORATION
FOR AN ORDER AUTHORIZING PROPOSED
TRANSACT]ON
FOR HYDRO ONE LIMITED
ldaho Public Utilities
Office of the SecretaryRECEIVED
0ilT r q 2018
Boise, ldaho
BEEORE THE IDAHO PT'BTIC UTIIITIES COMMISSION
CASE NO.
CASE NO.
AVU-E-11 -09
AVU-G-17-05
REBUTTAL TESTIMONY
OF
THOMAS D. WOODS
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I. INTRODUCTION
A. Please state your n€une, business address and
present position with Hydro One Limited.
A. My name is Thomas D. (Tom) Woods,
address is 483 Bay Street, South Tower, Bth
and my
F1oor,
bus iness
Toronto,
DirectorsOntario M5G 2P5. I am the Chair of the Board of
for Hydro One Limited ("Hydro One").
A. Have you fiJ.ed direct, rebuttal, or supplemental
testimony in this proceeding?
Yes. I filed supplemental testimony on SeptemberA
24, 2078.
a.
testimony?
A
A tab]e of
Are you sponsoring any exhibits that accompany your
No
contents for my testimony is as follows:
I. INTRODUCTION 1
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II. PROVINC]AL ]NFLUENCE
III. PROVINCIAL INELUENCE
OVER HYDRO ONE
OVER AVISTA....
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22 Surmnary of Iestimony
a. Please surmnarize your testimony.
Zq A. The Province of Ontario ("Province") exercises
25 limited authority over Hydro One's business affairs and wil-l
Woods, Supp. Reb. 1
Hydro One Limited
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have no authority over Avista after the merger. As Hydro One's
largest shareholder, the Province does have, the ability to
other than itsinfluence Hydro One's governance,
compensation
but,
authority over executive pursuant to the Hydro
One AccountabiLity Act, the Province does not have management
authority over Hydro One
II. PROVINCIAI INFLUENCE OVER HYDRO ONE
A. In direct testimony fiJ-ed on November 6th, Staff
10 witness Terri Carlock states on page 10, lines 20-22, that
11 "the ].imits to the influence of the Province of Ontario over
12 Hydro One are not cIear." Do you have a response to that
13 statement?
74 A. Yes.
15 A. I{hat is your response?
16 A. As a starting point, the Governance Agreement
71 between Hydro One and the Provincel expressly Iimits the
1B Province's rol-e with respect to Hydro One to that of an
L9 investor, and not a manager, and subsequent to the June
20 election, the Province ratified and reaffirmed its
27 obligations under the Governance Agreement.2 Eurther, in my
1 See AVU-E-17-09/AVU-G-17-05 - Supplemental Testimony of James Scarfett,
Exh. No. 10, Schedufe 3 (Sept . 24, 20lB) ("Scarlett Supplemental
Testimony") (see S 2.7.3 j-n Governance Agreement).2 See Scarl-ett Supplemental Testi-mony, Exh. No. 10, Schedufe 1 (S 16 in
July 11, 2O1B Letter Agreement.).
Woods, Supp. Reb. 2
Hydro One Limited
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experience to date as Chair of the Hydro One Board of
Directors ("Boar^d"), the Province has acted only as an
investor in, and not as a manger of, Hydro One, consistent
with the Governance Agreement.
a director on that premise and,
In fact, I took on the role as
then Chair, I have worked with
since becoming a director and
Hydro One's experienced and
talented management, and not the Provincer oo alI of Hydro
One's strategic business decisions. In short, the new
government is looking to the new Board and existing management
to run the company, not the other way around.
A. Do you have concerns that the Province wiLl
interfere with Hy&o One's management in the future?
A. No. Based on my communications with Provincial
officials prior to my acceptance of a position on the Hydro
One Board, and based on communications and events since that
time, I expect that the Province wi-l-I not intervene in Hydro
One management other than participating in a Iimited manner
on certain compensation matters as set forth in the Hydro One
Accountability Act.3
A. You mentioned communications with Provincia1
officia1s prior to acceptingr a position on the Hydro One
Board. Can you describe the selection process?
3 See Scarl-ett Supplemental Testimony, Exh. No. 10, Schedule 2.
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A. Yes. I was the first person to be named to the new
ten-person Hydro One Board. On or around the 4th of July 2078,
I received a caIl from the executive recruiting firm involved
in ident.ifying and selecting four directors to be named to
the Hydro One Board by the Province pursuant to the Governance
Agreement. The firm contacted me based on my business
experience and service on other boards. I had not previously
met the Premier, a Doug Ford, and to me it was important to
meet him and get an understanding of his thinking and plan
regarding Hydro One before f decided whether I was willing to
serve as a director of the company. I had two meetings with
him over the course of three or four days.
During the first meeting, I also met the Premier's chief
of staff and the head of civil service. That meeting lasted
about an hour. I then met Mr. Ford a second time with a
broader group. After those meetings I was confident that the
Province had no intention of influencing Hydro One beyond the
Premier's election promises and - this was very important to
me that the new Hydro One Board would be able to act
independently. After about a week and a ha1f, I agreed to
accept the Province's appointment to the Board.
a A premi-er in Canada is the equivalent of a governor in the United States.
Woods, Supp. Reb. 4
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1 Q. Do you know whether your feJ.J.ow Board members also
2 evaluated the Board's abiJ'ity to act independent1y?
3 A. Yes. I am not certain I spoke with each and every
4 one of the other nine, but I do know that several- of us talked
5 about the ability to act independently. The other directors
6 all had similar level-s of comfort that the Province would not
7 infl-uence the Hydro One Board or business affairs moving
B forward.
9 Q. Did you have any interaction with the Premier's
10 poJ.itical. party prior to being contacted by the recruiti-ng
11 firm?
t2 No. When I was appointed as a director of Hydro One some
I was affiliated13 people made the incorrect assumption that
14 with the Progressive Conservative Party, which is Mr. Eord's
party. But I have had no invol-vement with that party or any
other political party in Canada.
9. You mentioned the llydro One AccountabiTity Act. Do
you believe the Act could impair Hydro One's abiJ.ity to
attract and retain talented executive manag'ement?
A. No, for several- reasons. First, the Province will
not set pay for Hydro One's executives under the Hydro One
Accountability Act. The Act states that the Hydro One Board
will establish a new compensation framework for the Board,
CEO, and other executives (as defined in the Act) in
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consultation with the
Iargest sharehol-ders,
Cabinet with approval
framework. Second, the
Province and Hydro One's other five
and provides the Management Board of
rights over
executive search firm that is
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the executive compensation
Hydro One's Board identify suitable candidates for
helping
the CEO
position has reported that t.hey are attracting good
candidates. In coordination with the executive search firm,
the Board has conducted several interviews and is close to
being able to make an offer.
Third, other than the authority to approve the
compensation framework for certain executive level employees,
the Act did not provide the Provj-nce with any role in
management of Hydro One. Hydro One otherwise has the
unfettered ability to operate its business. Section 2.I.3 of
the Governance Agreement stiII provides that the Province is
an investor in, and not a manager of, Hydro One. Further, the
Province made clear in Secti-on 16 of the JuIy 11, 2018 Letter
Agreement between Hydro One and the Province that the
Governance Agreement remains in full force and effect:
Reaffirmation:By entering into this Agreement, the
Province ratifies and reaffirms its obligations
under the Governance Agreement and agrees that,
except as specifically set out in this Agreement
with respect to the subject matter hereof, (i) the
execution, delivery and effectiveness of this
Agreement or any other documents delivered in
connection herewith shall not amend, modify or
operate as a waiver or forbearance of any right,
Woods, Supp. Reb. 6
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power, obligation, remedy or provision under the
Governance Agreement, and (ii) such agreement shall
continue in fuII force and effect.s
A. Are you aware of any reason to believe that the
Hydro One Board might feel beholden to the Province moving
forward?
A. Certainly not, for several reasons. First, the
Board members have a fiduciary duty under Canadian l-aw to act
in the best j-nterests of the corporation, which means all of
Hydro One's stakeholders and not a single shareholder above10
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!2 Second, the Hydro One Board compri-ses a distinguished
13 panel of hi-ghly successful- individuals with extensj-ve
14 experience serving as board members for large corporations.
15 The directors' r6sum6s and experiences speak for themselves
16 and demonstrate that none of them (including myself) will be
L1 beholden to the Province r or any other shareholder for that
1B matter.
19 Third, as evidenced by their r6sum6s, each new director
20 has a number of opportunities outside of Hydro One. For that
motivated to act in a27 reason, no single director wilI be
22 particular wdy, whether at the behest of the Province or
another shareholder, for fear of Iosing her or his Board
s See Scarlett Supplemental Testimony, Exh. No. 10, Schedule l-.
Woods, Supp. Reb. 7
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position-especi-a1Iy if doing so would be contrary to Hydro
One's best interests and the Board member's fiduciary
responsibilities, and refl-ect poorly on the director's
reputation.
Fourth, the Governance Agreement prevents the selectj-on
of Hydro One Board members that woul-d be beholden to the
Province. Each director is independent of Hydro One and the
Province.
III. PROVINCIAI INELUENCE OVER AVISTA
9. Do you know whether or how the Province infJ.uences
the appointment of the independent members of Avista's Board?6
A. The Province wiII have no role in selecting any of
the independent directors to the post-merger Avista Board and
wilI have no influence over the post-merger operations of
Avista.
On November J, 2018, Hydro One and Avista announced the
sel-ection of the five independent directors to serve on the
post-merger Avista Board. T It is a formidable group of
independent directors, all with connections to the U.S.
6 See AVU-E-17-09/AVU-G-17-05 - Direct Testi-mony of Terri Carlock, pS.
\6, lines 4-9 ("As is appropriate for a parent company, Hydro One wil-l-
appoint the majority of Avlsta's Board of Directors. Whife some of these
directors w1l-1 be independent under the SEC's definitlon of that term, 1t
is unknown how the Province of Ontario influences those appointments.").7 See AVU-E-17-09, AVU-G-17-05, Rebuttal Testimony of Scott L. Morris,
Exh. No. 16, Schedule 1 (Nov. 14, 2018).
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1 Pacific Northwest, and none of whom were sel-ected by the
Province or have any relationship
Indeed, a number of them serve on
and wiII continue to serve Avista
and business acumen.
with or to the Province.
the current Avista Board
with the utmost integrity
A. Are you aware of any other measures that ensure the
Province will not influence Avista?
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A. Yes.
A. Ilhat are those measures?
10 A. The ring-fencing, governance, and financial-
11- commitments made by Hydro One and Avista protect Avista's
12 independence and financial strength and ensure that the
13 Province cannot and will not interfere with Avista's
L4 management, strategic direction, and financial health. These
15 commitments are detailed in the rebuttal testimonies of James
76 Scarlett and Chris Lopez filed on November 14, 20L8.
71 A. EarJ.ier you discussed the llydro One Accountability
18 Act and the Province's role in setti-ng Hydro One executive
79 compensation under the Act. Can you confirm that the Act will
20 not apply to Avista if the merger is approved?
2l A. Yes, I can. The Act does not apply to Avista, as it
22 expressly excludes Hydro One subsidiaries "incorporated in a
23 jurisdiction outside of Canada." In addition, Hydro One and
24 Avista have agreed to revise Commitment No. 2 Lo give the
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post-merger Avista Board sole responsibility for setting
compensation leve1s for Avista's employees and executives.
A. Cou1d the Province amend the Hydro One
AccountabiTity Act Lo apply to Avista, thereby nuJ.J.ifying the
revised commitment?
A. No. The Province cannot pass laws that apply
directty to Avista. The scope of Provincial Iegislative
authority is limited to the Province of Ontario. Rather, if
the merger closes, Hydro One's ownership of Avista will be
constrained by the commitments, the Commission's approval
order, and the laws of the United States and the five states
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this conclude your rebuttal testimony?A. Does
L4 A. Yes it does.
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