20181119Oregon-Washington Settlement Docs.pdf

Avleta Corp.
141 1 Esst Mission P.O. Box 3727
Spokane. Washington 99220-0500
Telephone [phone]
TollFree 800-727-9170
November 19,2018
Diane Hanian, Secretary
Idaho Public Utilities Commission
W.472 Washington Steet
Boise,Idaho 83720
RE: AVU-E-17-09/AVU-G-17-05 Settlement documents in the Oregon Merger Proceedings
and the ll/ashington Merger Proceedings
Dear Ms. Hanian:
Please find attached an elechonic copy of the First Amendment and Appendices A & B, to the
Stipulation and Settlement in the Hydro One/Avista Merger docket in Oregon (Docket llM 1897).
Also enclosed the Revised Appendix 5 to Joint Application (Delegation of Authority) and Revised
Appendix A (in both clean & redline) to the Settlement Stipulation in Washington (Docket U-
170970).
Sincerely,
Paul Kimball
Manager Compliance & Discovery
Enclosure
CC: All parties electronically
bl,l'Ji\
F,EC il IVED
BEFORE THE PUBLIC UTILITY COMMISSION
'- i' .:,
OF OREGON
PFI ?: 31
uM 1897
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ln the Matter of
FIRST AMENDMENT TO STIPULATION
HYDRO ONE LIMITED,
Application for Authorization to Exercise
Substantial Influence over the Policies and
Actions of AVISTA CORPORATION.
PARTIES
This First Amendment to Stipulation is entered into by and among all of the parties in this
case, with the exception ofthe Oregon Citizens' Utility Board ("CUB"): Hydro One ("Applicant")
and Avista; the Staff of the Public Utility Commission of Oregon ("Staff'); the Alliance of Western
Energy Consumers ("AWEC")l; and the Laborers' International Union of North America with its
affiliated District Council and Local Unions ("LIUNA")2. (Hereinafter referred to as the
"Signatory Parties"; "Party" refers to all parties to this docket inclusive of CUB)
BACKGROUND
1. On May 25,2018, all Parties (including CUB) entered into, and filed, a Stipulation
meant to resolve all issues in this proceeding and recommending approval of Hydro One's
Application to exercise substantial influence over Avista Corporation.
2. Attached to the May 25 Stipulation as Appendix A, were a set of agreed-upon
Stipulated Commitnents, numbering 115 in total, that allowed all Parties (including CUB), to lend
their support to the Stipulation.
I Formerly known as the Northwest Industrial Gas Users ('NWIGU").
2 LITINA was represented by the Oregon and Southem Idaho District Council of Laborers ("OSIDCL").
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Page 1 - FIRST AMENDMENT TO STIPULATION - UM 1897
1 3. On July I1,2018, Hydro One announced that they had agreed with the Province of
2 Ontario to the orderly replacement of the board of directors of Hydro One and the retirement of
3 Mayo Schmidt as the chief executive officer. (Hereinafter referred to as "management changes".)
4 4. A revised procedural schedule was then adopted on July 25, 2018, calling for
s supplemental testimony addressing the impact of management changes at Hydro One on Avista
6 and its customers as well as the prospect for future Provincial involvement in the affairs of Hydro
7 One. Staff Witness Muldoon submitted Reply Testimony on September 20,2018, suggesting in
8 part that the Applicant consider requesting a Commissioner Workshop.3 The Applicant filed a
9 Motion for Convening a Commissioner Workshop, which was granted, and a workshop was held
10 on October 22,2018. The workshop served as an opportunity for the Commissioners and the
ll Parties to meet both the Acting CEO (Mr. Dobson) and the Chairman of the Board (Mr. Woods)
12 of Hydro One, as well as to identify any issues of concern to the Commissioners.
13 STIPULATION
t4 5. Based on supplemental testimony submitted by the Parties, the results and direction
15 provided at the Commissioner Workshop, as well as continuing discussions, the Signatory Parties
16 have reached a final settlement agreement that includes revisions and additions to the set of
r7 Stipulated Commitments originally attached as Appendix A to the May 25,2018 Stipulation.
18 These revised and additional commitments (hereinafter referred to as o'Revised Stipulated
19 Commitments") address the impact of management changes and the potential for Provincial
20 involvement in the affairs of Hydro One and Avista. The Revised Stipulated Commitrnents are
2t attached as Appendix A to this First Amendment to Stipulation. The Revised Stipulated
22 Commitments contain all of the I 15 commitrnents reached earlier in this proceeding (subject to
3 Exh. Staff6oo/\4u1doon 8
Page2 - FIRST AMENDMENT TO STIPULATION - UM 1897
1 minor revisions to Commitment Nos. 4, 5, and 112) as well as new Commitment Nos. I 16, II7,
and 118, and therefore supersedes the list of commitments attached as Appendix A to the May 25,
2018 Stipulation. In all other respects, the provisions of the May 25,2018 Stipulation remain in
full force and effect, with the exception that CUB no longer supports the Stipulation, even as
amended.
6. On November 6,2018, the Parties filed a Motion to modify the current procedural
schedule to cancel the hearings scheduled for November I 5-l 6, 201 8, and allowing for the filing,
on or before November 16,2018, of the Revised Stipulated Commitments that form Appendix A
to this First Amendment to Stipulation and a joint explanatory brief in support. On November 8,
2018, Administrative Law Judge Power granted this Motion.
7 . Appendix A to the First Amendment to Stipulation consolidates all of the Revised
Stipulated Commitments into final form and is attached.
8. Appendix B to the First Amendment to Stipulation shows, in red-lined form, the
changes that have been made to the orieinal Appendix A to the May 25,2018 Stipulation, for ease
of comparison, and is also attached.
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Page 3 - FIRST AMENDMENT TO STIPULATION - UM 1897
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This First Amendment to Stipulation is entered into by the Signatory Parties on the date
entered below each party's signature.
HYDRO ONE LIMITED AVISTA CORPORATION
%]trox
Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
On Behalf of Hydro One Limited and
Olympus Equity LLC
Meyer
Chief Counsel for Regulatory and
Govemmental Affairs
Date: Date fur ,2o tQ
STAFF OF THE PUBLIC UTILITY
COMMISSION OF OREGON
ALLIANCE OF WESTERN ENERGY
CONSUMERS
By:By:
Kaylie Klein
Assistant Attorney General
Chad M. Stokes
Cable Huston LLP
Date:
OREGON AND SOUTHERN IDAHO
DISTRICT COUNCIL OF LABORERS
By:
David Fujimoto
Weinberg Roger & Rosenfeld, APC
Date:
Page I - FIRST AMENDMENT TO STIPULATION - UM 1897
./.n
hofa.
2
This First Amendment to Stipulation is entered into by the Signatory Parties on the date
entered below each party's signature.
HYDRO ONE LIMITED AVISTA CORPORATION
J
Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
On Behalf of Hydro One Limited and
Olympus Equity LLC
David J. Meyer
Chief Counsel for Regulatory and
Governmental Affairs
. STAFF OF THE PUBLIC UTILITY
COMMISSION OF OREGON
Date
ALLIAI\CE OF WESTERN ENERGY
CONSUMERS
Chad M. Stokes
Cable Huston LLP
By:l<a/Alr!, kl ,"-,.'By:
Kaylie Kleir/
Assistant Attorney General
Date I
OREGON AND SOUTHERN IDAHO
DISTRICT COUNCIL OF LABORERS
By:
David Fujimoto
Weinberg Roger & Rosenfeld, APC
Date
Page 4 - FIRST AMENDMENT TO STIPULATION - UM 1897
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f)atp.
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This First Amendment to Stipulation is entered into by the Signatory Parties on the date
entered below each party's signature.
HYDRO ONE LIMITED AYISTA CORPORATION
By:B
Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
On Behalf of Hydro One Limited and
Olympus Equity LLC
David J. Meyer
Chief Counsel for Regulatory and
Governmental Affairs
T)ate'
STAFF OF THE PUBLIC UTILITY
COMMISSION OF OREGON
ALLIANCE OF WESTERN ENERGY&-**CONSUMERS
By:
Kaylie Klein
Assistant Attomey General
Date:Date:tt- l2 - Zotd
OREGON AND SOUTHERN IDAHO
DISTRICT COUNCIL OF LABORERS
By:
David Fujimoto
Weinberg Roger & Rosenfeld, APC
Date:
By:
Chad M. Stokes
Cable Huston LLP
Page 4 - FIRST AMENDMENT TO STIPULATION - UM 1897
I-)qfe'
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This First Amendment to Stipulation is entered into by the Signatory Parties on the date
entered below each party's signature.
HYDRO ONE LIMITED AVISTA CORPORATION
By
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Elizabeth Thomas, Partner, K&L Gates LLP
Kari Vander Stoep, Partner, K&L Gates LLP
On Behalf of Hydro One Limited and
Olympus Equity LLC
David J. Meyer
Chief Counsel for Regulatory and
Governmental Affairs
Date: Date:
STAFF OF THE PUBLIC UTILITY
COMMISSION OF OREGON
By
Kaylie Klein
Assistant Attorney General
Dole.
OREGON AND SOUTHERN IDAHO
DISTRICT COUNCIL OF LABORERS
By:
David Fujimoto
Weinberg Roger & Rosenfeld, APC
ALLIANCE OF WESTERN ENERGY
CONSUMERS
By
Chad M. Stokes
Cable Huston LLP
Date , ///, s/tr
Page 4 - FIRST AMENDMENT TO STIPULATION - UM 1897
n^r^,
Appendix A to the First Amendment to Stipulation
Docket No. UM 1897
Revised Avista and Hydro One Commitments
Table of Contents
Page
A. Definitions 1
Application of Commitments in Oregon. .......7
No Amendment of Any Commitment Without Commission Approva|..............7
Treatment of Confidential lnformation.7
B. Applicability ........7
1
2
3
C. Governance .........7
4. Executive Management 7
5.Avista Board of Directors (BOD)
Olympus Equity, LLC Board of Directors .......
8
....9
D. Future Transactions I
7. Long-Term Ownership ................9
8. Avista and Alaska Energy and Resources Co. (AERC) Corporate
Relationship ......9
9. Reorganization and Sale Triggers I
E. Safety and Service Quality Measures ................10
10. Safety and Reliability Standards and Service Quality Measures .................. 10
11.Avista Call Center................................... 1 0
12. Avista Oregon Regulatory Affairs and Liaison Staff 10
13. Opening and Closing Oregon Bi11s.......... .................... 11
14. Oregon Winter Protection Program ............11
15. Native American Communities............ .......11
16. Oregon Low lncome Weatherization......11
Oregon Low-lncome Rate Assistance Program (LIRAP) .......
Addressing Other Low-lncome Customer lssues....
19. Explanation of Oregon Billing Errors 12
20. Oregon Customer Satisfaction 12
6.
17
18
,.,,',,.,,,.,11
..,.,,.,,,.,,12
Appendix A to the First Amendment to Stipulation
21. Level of Oregon Customer Complaints to the Commission
22. Oregon Live Customer Service
23. Oregon Emergency Response Time.........
24. Oregon Service Appointment Scheduling.
25. New Oregon Gas Supply
26. Oregon Billing lnquiries...
27. Oregon CustomerService lnvestigations............,.,.14
28. Oregon Service Guarantee Credits...14
29. Oregon Security Deposits........14
30. Oregon Annual Service Quality Reports ..,.,14
31. Oregon Customer Report Card ............. 1 5
32. Oregon SENDOUT Seats
33. On Bill Repayment Program (OBRP).....
34. RevenueRequirement...
35. Ratemaking Cost of Debt and Equity ..,....'.,17
36. Business and Financial Risks
.............16
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13
13
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14
16
17
1837. Unregulated Activities
38. Environmental Liabilities of Parent.........18
39. Foreign Exchange and Hedging on Dividends Payments and Allocations....19
G. Rate Credit 19
40. Rate Credits to Oregon Ratepayers.................19
H. Taxes 20
41.Taxes.......20
42. Tax Cuts and Jobs Act...............20
43. Cost of Capital
44 Capital Support .,.,.,,.,.,.21
45 Common Equity Floor (CEF) in Capital Structure .21
46 Avista Debt and Prefened Stock.........,,.,.,.,.,.22
47.
Appendix A to the First Amendment to Stipulation
48. Continued Credit Ratings..
49. Revolving Credit Facilities and Associated Letters of Credit.......
.,...,.,..24
50. Restrictions on Upward Dividends and Distributions.......
51. SEC Reporting Requirements
24
24
25
25
56. Vote of lndependent Directors Also Required
57. Non-ConsolidationOpinion
58. Olympus Holding Corp. and Olympus Equity LLC ....29
59. Restriction on Pledge of Utility Assets 29
60. Major Shareholder (Beneficial Ownership) Reporting .......30
61 Restriction on Acquisitions and Dispositions...................
62. No lnter Company Debt............
63. No lnter Company Lending.......
K. Access to lnformation......... ...............31
64. Access to and Maintenance of Books, Records and Other lnformation........ 31
65. Budgets
52. Compliance with the Sarbanes-Oxley Act....
53. Sources of Funds for Hydro One Commitments and Guarantees (Other than
for Customer Service, Communities and Charitable Purposes)26
26
26
26
28
28
J. Bankruptcy Ring-Fencing...
54 Avista Cash Flows....
55. Golden Share.
30
31
31
32
69. Prevention of Cross Subsidization .....
70. Master Services Agreement (MSA)....
....34
71. Complete Corporate Organizational Chart and Contact lnformation.............37
N. North American Free Trade Agreement (NAFTA)37
66. Appearance Before the Commission 32
67. Separate Books and Records 32
M. Cost Allocations 33
68 Cost Allocations and Affiliate lnterests...33
37
72 North American Free Trade Agreement (NAFTA),.,,..'.37
Appendix A to the First Amendment to Stipulation
O. Avista Status Quo......... .....37
73. Generally Accepted Accounting Principles and Standards (GAAP).............. 37
74. Travel Expenses ..........38
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76
77
Avista Management Direction ..................
78. Venue for and Resolution of Disputes...............38
79. Headquarters
80. Local Staffing
81. Pension and Post Retirement Expenses and Assets..........39
82. General Operations and Maintenance (O&M) for Community Development 39
83. Economic Development............. ................39
84. MembershipinOrganizations....39
85. FERC Reporting Requirements 39
86. Participation in National and Regiona! Forums ...........39
87. Compliance with Existing and Future ORS, OAR and Commission Orders..40
P. Corporate Citizenship.
..........38
Capital lnvestment for Safe Pipelines and Contro|s.............. .......38
Equal or Better Access to Financial Markets in the U.S. and Canada ..........38
..........39
..........39
88 Oregon Charitable Contributions.............
89. Other Community Contributions
90. General CommunityContributionsand lnvolvement...........
91. Sources of Funds for Hydro One and Avista Commitments
Q. Future Rates
40
40
40
40
40
41
92. Treatment of Net Cost Savings....................
93. Continuation of Base Rates Established in UG-325......41
94. Preparation for Next General Rate Case (GRC) in Oregon 41
95. Treatment of Goodwill, Transaction Costs, and Transition Costs .................41
96. Costs for Future M&A or Reorganization ..,.,.,'.42
R. Environmental, Renewable Energy, and Energy Efficiency 42
97 Greenhouse Gas and Carbon lnitiatives...
.'.......,...'.,..,, 41
............42
98 Cost of Greenhouse Gas Emissions
99 Greenhouse Gas lnventory Report ........
............43
43
Appendix A to the First Amendment to Stipulation
100. Efficiency Goals and Objectives.......43
43
43
43
43
44
44
101. Low Environmental lmpact Options
102. lnforming the Commission
103. Sharing Best Planning Methods.....
104. lndustrial Conservation and Efficiency.
105. Electric, Natural Gas and Fuel CellTransport.
106. Expanded Natura! Gas Transportation Service.....
107. Low-lncome Energy Efficiency Planning .45
108. Contract Labor......45
109 Union and Other Labor Relationships.......................... 45
T. Reporting and Enforcement 45
45
45
110. Commitments Binding
111. Commission Enforcement of Commitments............
112. Submittal to State Court Jurisdiction for Enforcement of Commission Orders
.............46
113. Annual Reporting on Commitments ...........46
114. Resolution of Violations: Expedited Resolution of Minor and Procedural
Compliance lssues...46
U. Most Favored Nations 47
115. Most Favored Nations......47
1 16. Notice and Petition...48
117. No Substantial Provincial lnfluence........
118. Hydro One Governance Agreement.......
...........49
50
V. Addendum 1 - Contract Labor, Oregon Commitments......... .............52
Appendix A to the First Amendment to Stipulation
A. Definitions
Affiliate means any entity in the post-close corporate chain of entities between Hydro
One and Avista, including Hydro One, for purposes of all commitments herein; provided,
however, that "Affiliated lnterest" shall have the meaning set forth in ORS 757.0151or
purposes of requirements established by ORS 757.105 or ORS 757.495 regardless of
whether such requirements are also imposed by these commitments.l
AVA and Avista are used interchangeably and shall refer to Avista Corporation. While
some commitments herein are flagged as applying only to Avista's Oregon-regulated
Local Natural Gas Distribution Company (Oregon LDC), when commitments are silent
as to application, they shall apply to Avista Corporation as a whole (for example, those
commitments regarding corporate finance and capital structure apply to Avista as a
whole).
Beneficial Ownership shall have the meaning provided in OAR 860-027-1075(1)(a).
Capital Structure shall mean proportions of common equity (common equity calculated
as for Oregon ratemaking purposes) and Long-Term Debt with maturities exceeding 1
year, adding up to 100 percent for a named (or place-holder) corporation.
CEF has the meaning assigned to it in Commitment 45.
Commission or OPUC means the Public Utility Commission of Oregon.
Credit Ratings as used in these commitments shall mean both Standard and Poor's
Global Ratings (S&P) and Moody's lnvestor Service (Moody's) Long-Term (LT) Secured
Debt credit rating, except as othenrvise specifically provided in individual commitments.
See Rating Agencies.
$ or Dollar unless othenrvise specified means U.S. Dollars (USD).
Golden Share shall mean the sole share of Preferred Stock authorized by the
Commission and held by an independent third party. As described in further detail in
Commitment 55, Avista will not be able to declare voluntary bankruptcy without the vote
of the holder of the Golden Share and in matters of voluntary bankruptcy, the Golden
Share wil! override all other outstanding shares of al! types or classes of stock. The
holder of the Golden Share solely represents the interests of Avista's utility customers.2
' Lower case "affiliates" is also used in these commitments to indicate that the commitment applies to all
affiliates of Hydro One and Avista, as opposed to simply the "Affiliates" in the chain of entities between
Hydro One and Avista.
' To be clear, the purpose of the Golden Share is to help ensure that the Avista utility would not place
itself into bankruptcy voluntarily unless such a decision was consistent with the interests of utility
customers. This purpose is consistent with past ORS 757.511 dockets approved by the Commission (see
UM 1804, Order 17-526 at 7 and the joint supporting testimony) and is essential in this particular case
because the sole shareholder of Avista, at the top of the corporate chain, is Hydro One; thus, were the
Appendix A to the First Amendment to Stipulation
GRC means general rate case.
Hl or Hydro One shall refer to Hydro One Limited.
Independent Directors shall mean directors who meet the standards of "independent
directors" under section 303A.02 of the New York Stock Exchange Listed Company
Manual with respect to Hydro One and its subsidiaries including Avista. The
lndependent Directors must have had no material relationship with Parent or its
subsidiaries or affiliated entities currently or within the previous 3 years. Former officers
of Avista who otherwise meet these qualifications qualify as lndependent Directors.
Please see "C. Governance" for applicable commitments.
lnvestment Grade means a BBB- or higher credit rating by S&P and a Baa3 or higher
credit rating by Moody's. See the table below for ratings from S&P and Moody's that
are investment grade, which apply to all types of debt securities (not just FMB as shown
in Table 2):
S&P Moody's
lnvestment
Grade
Credit
Ratings
AAA Aaa
AA+A.a1
AA Aa2
AA.Aa3
A+A1
A M
A3
BBB+
BBB Baa2
Baa3
Long-Term Debt is the issuance or renewal of a note or evidence of indebtedness
maturing more than one year after date of such issue or renewal.
M&A means mergers and acquisitions.
Major Shareholder shall have the meaning provided in OAR 860-027-0175(1)(c).
Pacific Northwest Region means the Pacific Northwest states in which Avista serves
retail electric or natural gas customers, currently the states of Alaska, ldaho, Montana,
Oregon and Washington.
holder of the Golden Share to vote in the interests of "Avista shareholders," it would be voting in the
interest of Hydro One, negating the protection the Golden Share is designed to provide. lf Hydro One and
Avista encounter difficulty locating a holder of the Golden Share that can agree to the requirements of
these commitments, they may appear before the Commission for consideration of a remedy for the
situation.
A-
Baal
BBB-
Appendix A to the First Amendment to Stipulation
Parent shall mean Hydro One Limited and its subsidiaries in the post-close corporate
structure between Hydro One and Avista (as those companies in between may change
over time; but see commitments regarding ORS 757.511 and 757.480).
Parties (or Party individually) shall be defined herein as: Hydro One Limited, Avista
Corporation, Public Utility Commission of Oregon Staff (Staff), Oregon Citizens' Utility
Board (CUB), Alliance of Western Energy Consumers (AWEC), and Oregon and
Southem ldaho District Council of Laborers (OSIDCL).3 4
Pre-Merger means prior to the close of the Proposed Transaction.
Proposed Transaction shall mean the transaction proposed in the Joint Application of
Avista and Hydro One filed on September 14,2017, assigned Commission Docket No.
UM 1897. However, the commitments reached by the Parties shall override al! prior
versions of commitments filed in this docket.
Rating Agencies shal! mean both S&P's and Moody's, or their successors, without
substitution. However, if S&P or Moody's has no successor and is no longer in
existence, then the substitute for the Rating Agency with no successor will be Fitch
Ratings (Fitch). lf Fitch has no successor and is no longer in existence, Avista will
select a replacement acceptable to the Commission.
Transaction Costs shall mean all the costs necessary to plan, evaluate, find
agreement, gain regulatory approval, finance, and execute the Proposed Transaction.
This type of cost includes legal and brokerage or investment banking fees and other
costs which would not be incurred were the transaction never contemplated.
Transaction costs are those incrementa! costs paid to advance or consummate the
transaction. Examples of transaction costs include, but are not limited to: Avista
employee time and expenses; Avista change-of-contro! payments; any tax liability
incurred as a result of the transaction; and third-party costs, including bank advisors,
extemal legal advisors, rating agencies, and expert witnesses and consultants in each
case paid to advance or consummate the transaction. Transaction costs are not
includable in Avista customer rates.
Transition Gosts shall mean all costs necessary post-transaction, to meld or find
synergies in corporate cultures and processes, optimize purchasing, more broadly
deploy resources and technologies, and generally make the aggregated corporation
more efficient and more effective at meeting both divisional and comprehensive goals.
This type of consolidation can include costs from technology costs of hardware,
software, migration, conversion and training to public relations costs incurred to make
legal, accounting, information technologies, communications and other integral
corporate activities operate smoothly and efficiently both internally and across corporate
3 lndustrial Customers of Northwest Utilities (ICNU), and Northwest lndustrialGas Users (NWIGU)
merged to form Alliance of Western Energy Consumers (AWEC) in 2018.o Oregon and Southern ldaho District Council of Laborers (OSIDCL) was formerly known as Laborers'
lnternational Union of North America (LiUNA)-District Council.
Appendix A to the First Amendment to Stipulation
divisions. No transition costs may be included in Avista rates; the net positive of
transition costs (savings minus transition costs) wil! be reviewed in a future rate case.
Appendix A to the First Amendment to Stipulation
Table 1
Revised Post-Closing Corporate Structures
Hydro One agrees to eliminate Olympus 1 LLC and Olympus 2 LLC from the corporate
structure. The new structure that wil! exist as at the effective time of closing of the
Proposed Transaction is illustrated below:
Enlargement and clarification of Avista
Corporation and Subsidiaries is provided at right:
u Table 1 reflects the corporate structure as at the effective time of the closing of the Proposed
Transaction.6 Avista's corporate structure as in S&P Global Market lntelligence on March 29,2018.
6
Imlt__J
Can Sub
(Ontario Corporation)
2486267
Ontario lnc.
Corporation)
Olympus Holding Corp.
(Delaware
Hydro One Netlvorks
lnc.
Hydro One Remote
Communities lnc.
Avista Corporation
(Washington
Avista Corporation
Subsidiaries
AYblr CqDorxm
l0/0/rllbuuffit
Arilr.CaFlal Atn(
MUntn(
l.o,tdir ttr&t 5r*lri{ts
u:(rtCo.
Hydro One Limited
(Ontario Corporation)
Hydro One lnc.
Hydro One Telecom
lnc.
Appendix A to the First Amendment to Stipulation
Table 2
Gommon Equity Floor Requirement
Credit Ratings are those for First Mortgage Bonds (FMB)?
Common Equity is calculated as for Oregon Ratemaking Purposes
FMB Credit
Ratings S&P Moody's Common
Equity FIoor
I
n
,G
e rs_atd
m ee
n
t
A
R
a
t
e
d
AAA Aaa
44%
AA+Aa1
AA Aa2
AA-Aa3
A+A1
A 46%A.A3
L
o
w
BBB+ 'Baal I
48%BBB Baa2
BBB-Baa3
a Co. willfile Plan w Gommission
Below
lnvestment
Grade
BB+
(or below)
Bal
(or below)No Dividend
' lf the Rating Agencies do not provide a rating for FMBs, the rating for Senior Secured Debt will be used
for the purposes of Table 2.
A2
1
2
Appendix A to the First Amendment to Stipulation
B. Applicability
Application of Commitments in Oregon
Unless othenrvise stated, all commitments herein are binding upon Avista, Hydro
One, and all companies in between in the post-close corporate organization chart
(as those companies in between may change over time; but see commitments
regarding ORS 757.511 and 757.480).
No Amendment of Any Commitment Without Commission Approval
Avista and Parent commit that no amendments, revisions, or modifications will be
made to the any of the commitments herein without prior Commission approval.
Also see "Most Favored Nation" Commitment.
Treatment of Confidential lnformation
Nothing in these commitments prevents Avista or Parent from requesting
confidential or highly confidential treatment of information.
C. Governance
Executive Management
Subject to the remaining provisions of this commitment and subject to voluntary
retirements and resignations that may occur, Avista and Parent agree that Avista
will retain all current executive management of Avista for a period of three years.
This commitment will not limit Avista's ability to determine its organizationa!
structure and select and retain personnel best able to meet Avista's needs over
time. The post-Proposed Transaction Avista board retains its current ability to
dismiss executive management of Avista and other Avista personnel for standard
corporate reasons. Any decision to hire, dismiss or replace the Chief Executive
Officer of Avista shall be within the discretion of the Avista Board of Directors,
and shall not require any approval of Hydro One or any of its affiliates (other than
Avista), notwithstanding anything to the contrary in the merger agreement, and
its exhibits and attachments, between Hydro One and Avista.
Any decisions regarding Avista employee compensation shall 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
relevant U.S. electric and gas utility benchmarks. The determination of the level
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.
3.
4.
5.
Appendix A to the First Amendment to Stipulation
Avista Board of Directors (BOD)
Avista and Hydro One agree that after closing of the Proposed Transaction,
Avista will have a separate board of directors from Hydro One that consists of
nine (9) members, determined as follows:
Five Hydro One Designated Directors:
Two executives of Hydro One or any of its subsidiaries, and
Three lndependent Directors who are residents of the Pacific Northwest
Region.
Four Avista Designated Directors:
Three directors who as of immediately prior to the closing of the Proposed
Transaction are members of the Board of Directors of Avista, including the
Chairman of Avista's Pre-Merger Board of Directors (if such person is
different from the Chief Executive Officer of Avista), and
Avista's Chief Executive Officer
At least two of the Avista directors must be lndependent Directors.
Avista and Hydro One shall consult with each other prior to the designation of any
lndependent Directors.
The initial Chairman of Avista's post-closing Board of Directors shall be the Chief
Executive Officer of Avista as of the time immediately prior to closing for a one
year term. The Avista designees shall have the unfettered right to designate,
remove and replace the Avista designees as directors of the Avista Board with or
without cause or notice at its sole discretion.
Hydro One shall have the unfettered right to designate, remove and replace the
Hydro One designees as directors of the Avista Board with or without cause or
notice at its sole discretion, subject to the requirement that:
(i) two of such directors are executives of Parent or any of its subsidiaries;
and(ii) three of such directors are lndependent Directors who are residents of the
Pacific Northwest region, while such requirement is in effect (subject in the
case of clause (ii) hereof to Hydro One determining, in good faith, that it is
not able to appoint an lndependent Director who is a resident of the
Pacific Northwest region in a timely manner, in which case Hydro One
may replace any such director with any person, including an employee or
executive of Hydro One or any of its subsidiaries on an interim basis, not
exceeding six months, provided that Hydro One designees who are
employees or executives of Hydro One or any of its subsidiaries shall in
no case constitute a majority of the directors of Avista, after which time
Hydro One shall replace any such interim director with an lndependent
Director who is a resident of the Pacific Northwest region). lf, at any time
7
6.
8.
Appendix A to the First Amendment to Stipulation
a circumstiance arises, and during the pendency of any such
circumstance, whereby the Province of Ontario ("Ontario") exercises its
rights as a shareholder of Hydro One, uses legislative authority or acts in
any other manner whatsoever, that results, or would result, in Ontario
appointing nominees to the board of directors of Hydro One that
constitute, or would constitute a majority of the directors of such board,
then Hydro One's authority to replace an lndependent Director with an
employee or executive on an interim basis is suspended for the pendency
of such circumstance.
Olympus Equity, LLC Board of Directors
At least one of the members of the board of directors of Olympus Equity LLC will
be an lndependent Director. The same individual may serve as an lndependent
Director of both Avista and Olympus Equity LLC.
D. Future Transactions
Long-Term Ownership
Hydro One and Avista agree not to sell Avista's Oregon natural gas operations
for three (3) years following the Commission's approval of the Proposed
Transaction. During that time, Avista and Hydro One agree to provide safe and
reliable service and commit to keeping Avista's Oregon natural gas operations in
the same or better condition than existed prior to the Proposed Transaction.
Avista and Alaska Energy and Resources Co. (AERC) Corporate
Relationship
Avista and Parent agree they will continue to provide timely courtesy copies,
information and reporting to the Commission of AERC/Alaska Electric Light and
Power Co. (AELP) resource (long-term) plans and plan updates submitted to the
Regulatory Commission of Alaska (RCA), and topical energy information as
described herein when Avista or Parent find such information relevant or material
to Oregon, or when requested by the Commission or Staff. This continues
Avista's tradition of contributing to informed Northwest regulation.
Parent and Avista agree that if AERC, or components thereof, such as but not
limited to AELP is transferred from its current position under Avista, Hydro One
must give notice to the Commission and provide pro forma documents showing
the proportion of debt and equity to be removed from Avista. This information will
be used for the purpose of potential adjustments in Avista's next GRC.
Reorganization and Sale Triggers
Parent and Avista agree to comply with and interpret ORS 757.511 (Application
for authority to exercise influence over utility) as triggered if any of the entities in
9.
Appendix A to the First Amendment to Stipulation
the post-Proposed Transaction chain of corporate entities between Hydro One
and Avista, and including Hydro One, undergoes a corporate reorganization or if
any of those entities enter into a transaction that results in the addition of a new
entity in the chain of entities that may exercise any substantial influence over
Avista.
Additionally, Parent and Avista agree to interpret ORS 757.480 (Approval needed
prior to disposal, mortgage or encumbrance of certain operative utility property or
consolidation with another public utility) to require Commission approval of any
transaction which results in a merger of Avista with another public utility, without
regard to whether that public utility provides service in Oregon.
E. Safety and Service Quality Measures
10.Safety and Reliability Standards and Service Quality Measures
Avista and Parent agree that neither the proposed Hydro One merger, nor future
acquisitions, may diminish delivery of safe and reliable utility service in Oregon
as compared to Avista's performance pre-close of the Proposed Transaction.
Avista and Parent agree that Avista will continue to fully comply with US Code of
Federal Regulations (CFR) Title 49 Parts 190 to 199 (Pipeline Safety), as
applicable.
Avista and Parent agree that Avista will maintain and improve, to the extent
reasonably practicable, Avista's natural gas safety and reliability and resilience
standards, policies, and service quality measures.
Additionally, Parent and Avista agree that Avista commits to providing the
following Service Quality, Safety and Planning measures:
Customer Seruice Qualitv
11. Avista Call Center
Avista will maintain a call center managed by high-performing personnelto
ensure the maintenance of high quality service and customer standards in
Oregon. Personnel at such call centers will have training and experience
commensurate with Avista's Oregon pre-Proposed Transaction customer service
system and standards.
12. Avista Oregon Regulatory Affairs and Liaison Staff
Avista regulatory liaison staff will retain high-performing personnel. Personne!
will have training and experience in Oregon regulatory matters, commensurate
with Avista's operations in Oregon prior to the Proposed Transaction.
Appendix A to the First Amendment to Stipulation
Hydro One and Avista agree that Avista will undertake a targeted effort with a
goal of improving the penetration of Avista low-income programs in Oregon with
a focus on underserved, vulnerable, and high energy burden households.
Further, Avista commits to keep sufficient data analysis to clearly articulate what
program elements and methods were effective as well as to identify opportunities
for delivering more beneficial outcomes with resources available.
17.Oregon Low-lncome Rate Assistance Program (LIRAP)
Hydro One and Avista agree that Avista shall increase funding for LIRAP for
Oregon customers as provided in this commitment. Hydro One and Avista agree
that Avista will provide a payment of $500,000 payable at the rate of $100,000
per year with the first annual payment beginning in the calendar year following
t The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
13. Opening and Glosing Oregon Bills
Avista and Parent commit that Avista will prepare all opening and closing bills
using actual reads acquired manually or electronically in accordance with
Oregon's administrative rules, unless the open or close date is within +/- 5 days
of regular normal cycle read, whereupon a prorated read may be used.
'14. Oregon Winter Protection Program
Avista and Parent agree that by October 31,2018, Avista will submit to the
Commission for approval a proposalfor a Winter Protection Program against
winter shut-offs for low-income, elderly and other at-risk customers that explains
how Avista balanced collection and customer service goals, and where
applicable drew on Hydro One experience.
15. Native American Gommunities
Avista commits, and Hydro One agrees, that Avista will seek to appropriately
engage Native American communities.
16. Oregon Low lncome Weatherization
Hydro One and Avista agree that Avista will increase current funding for Avista
Oregon low-income weatherization programs by making a payment of
$1,275,000, to be paid in equal increments over a 5 year period to the agencies
that are in charge of the Avista Oregon Low lncome Energy Efficiency Program
(AOLIEE). The first annual payment will begin in the calendar year following
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and wi!! not be booked to utility accounts; in
other words, in no way or form wi!! the cost of this commitment appear in Avista's
regulated utility earnings. 8
Appendix A to the First Amendment to Stipulation
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and will not be booked to utility accounts; in
other words, in no way or form will the cost of this commitment appear in Avista's
regulated utility earnings. e.
18. Addressing Other Low-lncome Customer lssues
Avista and Parent commit that Avista will continue to work with low-income
agencies to address other issues of low-income customers, including funding for
bill payment assistance.
19. Explanation of Oregon Billing Errors
Avista and Parent commit that for the first three years following close of the
Proposed Transaction Avista shall report to the Commission's Consumer
Services Section any incidence of a billing enor that results in the issuance of a
corrected bill if the correction is $35 or more, and an explanation for the causes
of the error.
20 Oregon Customer Satisfaction
Avista and Parent commit that the leve! of customer satisfaction with telephone
service, as provided by Avista's Contact Center, will be at least 90 percent,
where:
a. The measure of customer satisfaction is based on customers who respond
to Avista's quarterly survey of customer satisfaction, known as the Voice
of the Customer, as conducted by its independent survey contractor;
b. The measure of satisfaction is based on customers participating in the
survey who report the level of their satisfaction as either "satisfied" or "very
satisfied"; and
21.
c. The measure of satisfaction is based on the statistically-significant survey
results for both electric and natural gas service for Avista's entire service
tenitory for each quarter surveyed, and will also separately be reported for
Oregon customers only,
Level of Oregon Customer Complaints to the Gommission
Avista commits, and Parent agrees, that the number of complaints filed with the
Commission by Avista's natural gas customers will not exceed the rate of 0.3
complaints per '1,000 customers for the calendar year.10
n The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.10 Note that the current 5 year average rate is 0.145 percent. This target is moved by Staff to slightly over
200% of current performance metrics.
Appendix A to the First Amendment to Stipulation
22. Oregon Live Customer Service
Avista commits, and Parent agrees, that the percentage of customer calls
answered by a live representative within 60 seconds will be at least 80 percent
per month, where:
a. The measure of response time is based on results from Avista's Contact
Center, and is initiated when the customer requests to speak to a
customer service representative or presses a key to bypass an IVR
system if in use; and
b. Response time is based on the combined results for both electric and
natural gas customers for Avista's entire service territory.
23. Oregon Emergency Response Time
Avista and Parent commit that Avista's average response time to a natural gas
system emergency in Oregon will not exceed 55 minutes for the calendar year
(or consistent with future Commission stiandards), where:
a. Response time is measured from the time of the customer call to the
arrival of a field service technician; and
b. "Natural gas system emergency" is defined as an event when there is a
natural gas explosion or fire, fire in the vicinity of natural gas facilities,
police or fire are standing by, leaks identified in the field as "Grade 1," high
or low gas pressure problems identified by alarms or customer calls,
natural gas system emergency alarms, carbon monoxide calls, natural gas
odor calls, runaway furnace calls, or delayed ignition calls.
24. Oregon Service Appointment Scheduling
Avista and Parent commit that Avista will keep mutually agreed upon
appointments for natural gas service re-lights, connections and reconnections
where a service line is already installed, scheduled in the time windows of either
8:00 a.m. - 12:00 p.m. (moming), or 12:OO p.m. - 5:00 p.m. (aftemoon), except
for the following instiances:
a. When the customer or applicant cancels the appointment;
b. The customer or applicant fails to keep the appointment; or
c. Avista reschedules the appointment with at least 24-hours' notice
25. New Oregon Gas Supply
26
Appendix A to the First Amendment to Stipulation
Avista and Parent commit that Avista will provide a cost estimate to the customer
or applicant for new natural gas supply within 10 business days upon receipt of
all the necessary information from the customer or applicant.
Oregon Billing lnquiries
Avista and Parent commit that Avista will respond to all billing inquiries at the
time of the initial contact, and for those inquires that require further investigation,
Avista will investigate and respond to the customer within 10 business days.
27 Oregon Customer Service lnvestigations
Avista and Parent commit that Avista will investigate customer-reported problems
with a meter, or conduct a meter test within 15 business days of the request, and
report the results to the customer within 15 business days from the date of the
report or request.
28. Oregon Service Guarantee Credits
(Expires 3 years from closing of the Proposed Transaction)
Avista commits, and Parent agrees, that for failure to meet a customer service
guarantee for service provided to a gas customer, Avista will apply a $50 credit to
the customer's account. For failure to meet a customer service guarantee for
service provided to an applicant, Avista will mail a check for $50 to the applicant.
Avista will timely provide the qualifying customer credit or applicant check without
any requirement on the part of the customer or applicant to either apply for, or
request, the applicable credit or check. Payment of service guarantee credits
and any service quality penalties shall be excluded from revenue requirements in
GRCs.
Tracking of Avista's performance on the customer service guarantees, including
the application of customer credits, wil! begin on January 1,2019.
29 Oregon Security Deposits
Avista and Parent agree that Avista commits to eliminate security deposits for
new Avista residential customers at close of Proposed Transaction, and to return
existing security deposits to Oregon customers who have a deposit held longer
than 6 months. ln any subsequent Avista GRC before the Commission, any
Party may request the Commission Order in that rate case to modify or remove
this commitment if that Party successfully argues that the application of this
commitment had an unreasonable impact on Avista's uncollectible debt.
30. Oregon Annual Service Quality Reports
Appendix A to the First Amendment to Stipulation
Avista and Parent commit that Avista will include the results of its Service Quality
Measures Program in an annual report to be filed with the Commission on or
before April 30th of each year.
31. Oregon Customer Report Gard
Avista commits, and Parent agrees, that within 90 days of Avista filing its Annual
Service Quality Measures Report, Avista will send a Service Quality Measures
Program Report Card to its customers, which will include the following:
a. Results for each of Avista's customer service measures, compared with
the respective performance benchmarks;
b. Results for each of the customer service guarantees, compared with the
respective benchmarks, and including the number of events for each
measure where a credit was provided, and the total dollar amount of the
credits paid for each measure; and
c. Performance highlights for the year
d. Avista will issue its first Report Card to customers on or before July 31,
2020.
e. Avista, or any interested party, may separately petition the Commission,
for approval of changes to the customer service guarantees, and reporting
thereon, as set forth in Commitments 20-31, to assure that such
commitments continue to accomplish their intended purposes.
Appendix A to the First Amendment to Stipulation
SENDOUT Software Suite for Commission Staff. CUB and AWEC
32. Oregon SENDOUT Seats
Parent and Avista agree that Avista will provide, for a period of 10 years, $30,000
annually for the purpose of obtaining SENDOUT seats for Commission Staff,
CUB, and AWEC for SENDOUT dispatch optimization and gas portfolio cost
assessment and reliability software with SENDOUT or a division of ABB. The
Parties agree that this $30,000 commitment is not recoverable in customer rates
and will not be booked to utility accounts; in other words, in no way or form will
the cost of this commitment appear in Avista's regulated utility earnings. 11
Nothing in this commitment precludes Avista from replacing SENDOUT with a
different comparable service provided that Avista continues to provide the
$30,000 annual contribution for Staff, CUB, and AWEC use of SENDOUT or
such comparable service for the agreed upon ten-year period.
33.On Bill Repayment Program (OBRP)
Hydro One will arrange funding of the approximately $100,000 (system-wide
basis) initial investment in software upgrades and $5,000 in administrative costs
to implement an on-bill repayment program. Under no circumstance willAvista's
ratepayers be responsible for any default related to the OBRP.
OBRP is a pass-through billing service for energy efficiency loans, where Avista
would collect loan payments on customers'bills then transmit the sum monthly to
the third-party lender. Only non-profit lenders would be eligible, offering low rates
for energy efficiency loans. The lender has no ability to shut off power (due to
non-payment) and all lending activity is managed separate from the utility, where
the lender:
Provides all capital and bears full risk;
Manages delinquent files and collections off-bill;
Handles loans/balances separate from utility financial systems; and
Meets consumer lending regulatory requirements.
F. Hold Harmless
34 Revenue Requirement
Parent and Avista agree that Avista will hold Avista Oregon customers harmless
if the Hydro One-Avista merger results in a higher revenue requirement for Avista
tt The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
a
a
a
a
35
36
Appendix A to the First Amendment to Stipulation
than if the merger had not occurred. Avista bears the burden of showing no
increase in the revenue requirement consistent with this commitment.
Ratemaking Gost of Debt and Equity
Avista and Parent agree that 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. For future ratemaking purposes:
a. Determination of Avista's Cost of Long-Term Debt wil! be no higher than
such costs would have been, absent Hydro One's ownership, assuming
Avista's Credit Ratings as such ratings were in effect on the day before
the Proposed Transaction closes and applying those credit ratings to then-
current debt;
b. Avista bears the burden to prove prudent in a future GRC any increased
cost of Long-Term Debt associated with existing Avista debt retired,
repaid, or replaced as a part of the Proposed Transaction; and
c. Determination of the authorized Return on Equity (ROE) in future GRCs
will include selection and use of one or more proxy group(s) of companies
engaged in businesses substantially similar to Avista's Oregon LDC
operations, without any limitation related to Avista's ownership structure.
Business and Financial Risks
Hydro One and Avista agree that Parent and Avista will hold Avista customers
harmless from any business and financia! risk exposures associated with
Olympus Holding Corp., Hydro One, and Hydro One's other affiliates.
Avista and Parent agree that Avista and Olympus Holding Corp. will provide
notice to current and prospective lenders describing the ring-fencing controls in
these commitments and stating that such controls provide no recoulse to Avista
assets as collateral or security for debt issued by Hydro One or any of its
subsidiaries; this provision does not prohibit Avista from pledging its own assets
as collateral or security for Avista debt. Avista and Parent will file with the
Commission prior to close of the Proposed Transaction a copy of said notice.
Should any regulatory, taxing or other governmental entity or subdivision thereof
in the United States of America or elsewhere make a determination that any
company organizationally situated between Avista and Hydro One, individually or
collectively:
i. Lacks a genuine business purpose;
Appendix A to the First Amendment to Stipulation
Fails to constitute a separate and distinct business and not a single
economic unit containing one or more intermediate companies and
Avista;
Exhibits substantial and material entanglement of operations or finance
with Avista;
Fails to comply with all tax and other monetary obligations, including
but not limited to the timely obtaining of pertinent taxing authority
letters of determination authorizing the form and nature of any tax
management construct for the specific company housing the tax
management construct for the specific intended purpose directionally
specific to the application executed;
ls determined to be inadequately capitalized for its business purposes,
or
vi. Engages in financial hedging or other risk management predicated on
historical correlations which do not hold true in future markets,
however disrupted or distressed, then:
Avista and its ratepayers will be held harmless from any claim, suit, action, loss,
damage, or legal Iiability, including all expenses, penalties, judgements fees
(including attorney fees), interest, charges, expert representation costs, and
amounts actually and reasonably incurred in connection with any litigation,
defense, penalty, or fine.
37 Unregulated Activities
a. Avista commits, and Parent agrees, that Avista's regulated utility
customers will be held harmless from the liabilities of any unregulated
activity of Hydro One and its subsidiaries and affiliates, including Avista
ln any proceeding before the Commission involving Avista rates, the
revenue requirement for Avista will be determined without recovery of
costs related to unregulated activities.
b. Avista commits, and Parent agrees, that Avista and AELP will continue to
be operated consistent with Commission Order 14-112, including
Attachment B, entered April 1,2014 in Docket Numbers UF 4283 and Ul
343.
38. Environmental Liabilities of Parent
Hydro One will hold Avista and Avista ratepayers harmless from any
environmental obligations or liabilities of Hydro One or its affiliates other than
Avista, including those associated with harmful substances such as asbestos or
polychlorinated biphenyls (PCBs) and environmental cleanup and restoration.
IV
V
Appendix A to the First Amendment to Stipulation
39. Foreign Exchange and Hedging on Dividends Payments and Allocations
Avista and Parent agree that Avista ratepayers will be held harmless from any
currency exchange or related cash flow smoothing or hedging costs pertaining to
activities beyond Avista's Oregon utility operations and not usual and customary
prior to close of the Proposed Transaction.
G. Rate Credit
40.Rate Credits to Oregon Ratepayers
Avista and Hydro One will flow through to Avista's retail customers in Oregon a
Rate Credit of $7,541,15912 over a S-year period, beginning at the time the
Proposed Transaction closes. The Parties agree that the rate credits shall be
spread to customers on an equal percentage of margin basis.
The total Rate Credit to customers for the five years following the closing would
be $1 ,508,232 per year. A portion of the annual total Rate Credit could be
offsetable, in the amount of $226,235.13 During the S-year period, the financia!
benefits willflow through to customers through the Rate Credit described above
on customers'bi!!s. The offsetable portion may be achieved through a reduction
to the underlying cost of service as reflected in the test period numbers used for
ratemaking.
To the extent Avista demonstrates in a future rate proceeding that cost savings,
or benefits, directly related to the Proposed Transaction are already being flowed
through to customers through base retail rates, the separate Rate Credit to
customers would be reduced by an amount up to the offsetable Rate Credit
amount.
t' The total rate credit for Oregon will be $7,541,159. The rate credit will be allocated in Oregon on the
basis of Year End Customers for the year ending December 31"t, 2016. ln 2016, Avista's Oregon Service
Territory had 100,472 customers. Avista total number of customers was 717,579 in 2016. Therefore,
Oregon customers represented 14o/o of Avista total number of customers.
'' The offsetable portion of the Rate Credit was calculated as 15% of the jurisdictional total of the rate
credit.
Rate Credit
Oregon Annual Credit
Years 1-5
Oregon Total Credit
Total Credit $1,509,232 $7,541,159
Offsetable Credit $226,235 $1,131,174
41.
Appendix A to the First Amendment to Stipulation
The $7.54 million represents the "floor'' of benefits that will be flowed through to
Avista's customers, either through the Rate Credit or through benefits otherwise
included in base retail rates. To the extent the identifiable benefits exceed the
annual offsetable Rate Credit amounts, these additional benefits will be flowed
through to customers in base retail rates in GRCs as they occur. Avista and
Hydro One believe additional efficiencies (benefits) will be realized over time
from the sharing of best practices, technology and innovation between the two
companies. lt wil! take time, however, to identify and capture these benefits.
The level of annual net cost savings (and/or net benefits) will be tracked and
reported on an annual basis, and compared against the offsetable level of
savings.
H. Taxes
Taxes
a.Federa!, state, and localtaxes and assessments included in customer
rates shall be no greater than they would be had Avista not been acquired
by Hydro One.
b. Tax benefits that would not exist absent the Proposed Transaction may be
addressed in future proceedings before the Commission; however, until
that time, Avista, in compliance with ORS 757.511(4Xb), shall make a
filing with the Commission for approval to establish a balancing account to
track income tax expense, subject to Commission approval and
Commission conditions. Avista shall also submit an application to the
Commission to establish an ORS 757.259 deferral to track Avista's
income tax expenses and revenues (including tax benefits resulting from
the Proposed Transaction), the net revenues of which could be deliverable
to Avista's Oregon customers if a Party prevails in a future proceeding
before the Commission. Avista shall make its initial ORS 757.259 filing as
soon as practicable after the Commission issues its final order in this
docket, but prior to closing of the Proposed Transaction. Avista shall
continue to renew its application for an ORS 757.259 deferral annually.
This commitment does not require Parent to pass Parent-related tax
benefits to Avista customers unless ordered by the Commission in a later
proceeding, nor does it permit Parent to pass Parent-related tax expenses
to Avista customers.
Tax Cuts and Jobs Act
a) Avista and Parent agree that Avista will identify and quantify the impact on
Avista of the December 22,2017 U.S. "Tax Cuts and Jobs Act," which
lowered U.S. corporate federal income tax rates from 35 percent to 21
42
Appendix A to the First Amendment to Stipulation
percent and modified or eliminated certain federa! income tax deductions
Avista will report on this impact in compliance with other Commission
proceedings. Within this reporting, Avista will identify specific metrics of
concern to Rating Agencies.
b) Regarding the deferra! of net tax benefits associated with the Tax Cuts
and Job Act, currently docketed as UM 1918 and UM 1923, Avista agrees
that it will waive, and not seek to apply, an earnings test (see ORS
757.259(5)) when Avista decides, or is required by the Commission, to
amortize the deferred tax benefit into customer rates; in other words,
Avista will not use any of the deferred tax benefits to achieve its
authorized ROE of 9.4% (ROE in 2018 and beyond). The Parties agree
that the amount of the tax benefit has not yet been determined, but will be
determined consistent with the Commission's direction in the UM 1918
and UM 1923 dockets, and other applicable docket(s) should one be
opened.
l. Financial Ring-Fencing
43. Cost of Capital
Avista and Parent agree that Avista's Cost of Capital, including Avista's Rate of
Return (ROR), common equity, and Long-Term Debt, shal! not be more costly
after the close of Proposed Transaction than they would have been absent the
Proposed Transaction. Consistent with Commitment 35(a), Avista bears the
burden of proving that increases in Avista's Cost of Capita!, including Avista's
ROR, common equity, and Long-Term Debt, is caused by circumstances or
developments that are unrelated to the financial risks or other characteristics of
the Proposed Transaction.
44.Capita! Support
Hydro One will provide equity injections to support Avista's capital structure
thereby allowing Avista to access its usual and customary financial markets
under reasonable terms and on a sustainable basis. This commitment should
include commercial paper programs, FMBs, credit facilities, letters of credit or
usual debt capital market transactions as exhibited in Avista's business activity
prior to execution of the Proposed Transaction, unless other comparable, lower-
cost methods exist in the future.
45. Common Equity Floor (CEF) in Gapital Structure
The applicable CEF shall correspond to the applicable Credit Ratings for FMBs
as determined in Table 2 in accordance with the following paragraph of this
46
Appendix A to the First Amendment to Stipulation
commitment. Hydro One will make such equity injections as necessary to
maintain the applicable CEF consistent with Table 2.
When S&P and Moody's Credit Ratings are within one notch of each other, the
CEF will be determined by the higher of those ratings. When the difference
between S&P and Moody's is greater than 1 notch, the CEF will be determined
by the rating level that is one notch below the higher of the S&P and Moody's
ratings.
lf Avista or Parent finds that the actual or projected CEF will drop below one-half
of one percent above the required target based on the applicable Credit Ratings
in Table 2, then Avista and Parent will:
a) Within 5 business days, notify the Commission explaining why.
b) Within 30 days of providing notice, provide a plan and timeline
("Compliance Plan") that is subject to Commission review, modification,
rejection, or approvalfor maintaining Avista's common equity ratio at or
above the required CEF.
c) Subsequent to the filing of the Compliance Plan, Avista shall file progress
reports every 90 calendar days detailing its efforts to restore its equity
component to the required CEF or above, in addition to detailing how
Avista has met each requirement in the Compliance Plan.
d) !f Hydro One and Avista find it reasonably likely that Avista common equity
ratio could fall below one half of one percent above the required CEF in
Table 2 based on a preceding or projected thirteen month average, Avista
and Parent shall provide a report to Staff with its projections and take the
steps Iisted above.
Avista Debt and Preferred Stock
Avista and Parent agree that any debt, commercial paper programs, revolving
credit facilities and prefened stock of Avista wil! be maintained separately to
support Avista utility operations.
Parent and Avista agree that no incremental new debt related to financing the
transaction at closing or thereafter for this or future Parent or affiliate M&A will be
in any way incurred, guaranteed, or pledged with Avista assets or otherwise by
Avista. Avista's financial integrity will be protected from the separate operations
of the Parent and its affiliates. Should any entity claim or assert otherwise in any
forum, whether regulatory, political, legal or otherwise, the Parent will assert that
said debt or other financial instrument and any penalties or interest or other
47
Appendix A to the First Amendment to Stipulation
obligations thereon is the sole responsibility of the Parent and its subsidiaries
other than Olympus Holding Corp. and all entities in the chain below it.
Neither Parent nor Avista will include in any of their debt or credit agreements
cross-default provisions between the debt of Avista and the debt of Parent or any
current and future Affiliates, or any government or political subdivision thereof
with a direct or indirect ownership interest in the Parent. Parent and Avista agree
that in no way may the assets of Avista be used to guarantee the finances,
securities, transactions, or credit of any govemment or subdivision thereof, and
that the acquisition of power to exercise substantial influence over Avista by any
person or entity in the future may only occur subject to Commission approval as
required by ORS 757.511 and as specified in these commitments.
Except as provided in commitments 62 and 63 Avista will enter into no inter-
company debt transactions with, or lend money to, or borrow money from:
Parent, or current or future affiliates, or any govemment or political subdivision
thereof with a direct or indirect ownership interest in the Parent.
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approval of the Commission:
a) Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or its
affiliates;
b) Assume any obligation or liability as guarantor, endorser, surety, or
otherwise for Parent or its affiliates;
c) Transfer any of Avista utility assets or property to Parent or its affiliates, or
any government or political subdivision thereof;
d) Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or its affiliates;
e) Enter into cross-default provisions involving Parent or its affiliates; or
f) Participate in a money pool.
First Mortgage Bonds (FMB)
Avista and Parent agree that Avista will also maintain adequate: (a) interest
coverage and (b) pool of qualified Avista assets to maintain the ability to issue
FMB.
Appendix A to the First Amendment to Stipulation
48. Gontinued Credit Ratings
Avista and Parent agree that Avista debt (other than private placement debt), will
continue to be rated by both S&P and Moody's without substitution, except as
provided under the definition of Rating Agencies. Avista will make Rating
Agencies' credit ratings and all related presentations to or from Avista and Rating
Agencies, and Rating Agencies' reports and analysis pertaining to Avista,
available to the Commission upon the Commission's request.
49.Revolving Credit Facilities and Associated Letters of Credit
Parent and Avista agree that Avista will prudently manage its revolving credit
facilities and, as part of the renewal of the current credit facilities, will proactively
arrange for multiple one year maturity extensions and accordion features
allowing enlargement of facilities to protect Avista from unnecessary credit risk, if
available at a reasonable cost in the market. Further, Parent and Avista agree to
prudently diversify institutions participating in revolving Avista credit facilities to
preclude concentration in any one country or institution.
Avista will share no credit facilities with Parent or affiliates or any government or
political subdivision thereof with a direct or indirect ownership interest in the
Parent.
50 Restrictions on Upward Dividends and Distributions
No upward dividends, distributions or like payments are authorized from Avista
(special, one-time, or othenrvise) to Olympus Equity LLC if any of the following
conditions are present:
a) The ratio of Avista's earnings before interest, tax, depreciation and
amortization (EBITDA) to Avista's interest expense is not greater than or
equalto 3.0;
b) Avista's CEF as calculated for ratemaking purposes in Oregon is less than
set forth in Table 2 based on FMB credit ratings. Table 2's application is
further described in Commitment 45, "Common Equity Floor (CEF) in
Capital Structure" (for example, if Avista's S&P FMB rating is "A" AND
Moody's FRB rating is "A2", then the CEF shal! be 46%); or
c) Avista's S&P or Moody's long-term (local currency) issuer credit ratings
drop below lnvestment Grade. Note that subsection (c) is an exception to
the definition of Credit Ratings, but not an exception to the definition of
lnvestment Grade.
For five years after the closing of the Proposed Transaction, Avista and Parent
agree to decline to request any extraordinary or special upward dividends or
Appendix A to the First Amendment to Stipulation
payouts. Further as an exception to ORS Chapter 757 inclusive of ORS 757.420,
Avista and Parent consent that the Commission shall have 60 days to review any
application for a special upward dividend made beyond five years post Proposed
Transaction, and agree that comprehensive supporting justification will be filed with
the Commission in support of any said future application.
Without prior Commission approval, Avista and Parent agree that Avista's regular
quarterly dividends from Avista to Olympus Equity LLC, or otherwise upward
toward Hydro One, may grow at a Compound Annual Growth Rate (CAGR) of no
more than seven (7) percent CAGR.14
ln all cases, Parent and Avista agree that Hydro One shall notify the Commission
of:
i. Any intention to transfer more than five (5) percent of Avista retained
eamings, out of Avista, at least seven (7) days prior to starting this
transfer;
Any intention to transfer more than ten (10) percent of Avista retained
earnings out of Avista over a six-month period, at least 30 days prior to
starting those transfers;
Any intention to declare a special cash dividend payment at least 30 days
before declaring the special cash dividend or like transfer of funds; and
Its most recent quarterly cash dividend payment within 30 days after
declaring each dividend.
Annua! Affiliated lnterest (Al) reports must itemize all Parent M&A divestitures,
and reorganization activities since the prior annual Al report.
51 SEC Reporting Requirements
Following closing of the Proposed Transaction, Avista will continue to make its
own applicable separate filings with the U.S. Securities and Exchange
Commission (SEC).
52 Compliance with the Sarbanes-Oxley Act
Following the closing of the Proposed Transaction, Avista and Parent will comply
with applicable requirements of the Sarbanes-Oxley Act with regard to al! activity
at Avista and Olympus Equity, LLC.
'o See page 21of Avista's investor presentation, "Positioned for Performance - An overview of Q3 2017
and beyond" released in December 2017 for the 2013 through 2017 4 percent to 5 percent trend of
annual dividend growth.
IV
53.
55
Appendix A to the First Amendment to Stipulation
Sources of Funds for Hydro One Commitments and Guarantees (Other than
for Customer Service, Gommunities and Charitable Purposes)
a. Within 18 months of the close of the Proposed Transaction, Hydro One
will establish and maintain a Canadian $2 billion universal shelf
prospectus in Canada which will allow it to issue debt, common equity and
preferred equity.
b. Hydro One agrees to increase its Canadian $250 million credit facility to at
least $500 million, increasing its liquidity and enabling it to fund any equity
injection required at Avista on short notice.
c. Hydro One agrees that Avista will continue to be able to issue FMBs, and
that Hydro One will be supportive of Avista's FMB credit ratings.
d. Hydro One agrees that it will not allow Avista's S&P or Moody's long-term
(local currency) issuer credit ratings to drop below lnvestment Grade.
Note that this is an exception to the definition of Credit Ratings, but not an
exception to the definition of lnvestment Grade.
J. Bankruptcy Ring-Fencing
54. Avista Cash Flows
Avista commits, and Parent agrees, that prior to upward dividends from Avista to
Olympus Equity LLC, Avista cash flows will not be comingled in common
accounts with cash flows for other purposes at either of Olympus Equity, LLC or
Hydro One, including all Hydro One subdivisions and affiliates. Hydro One will
ensure that all of the Parent's corporate entities maintain accounts and
subaccounts that are separate from Avista accounts and subaccounts, sufficient
to cause handling of cash flows to be entirely consistent with Avista's corporate
purposes.
Golden Share
Entering into voluntary bankruptcy shall require the affirmative vote of a "Golden
Share" of Avista stock. The Golden Share is defined in the Definitions section of
these commitments and is the sole share of Preferred Stock of Avista as
authorized by the Commission. This share of Preferred Stock must be in the
custody of an independent third-party, where the third-party has no financial
stake, affiliation, relationship, interest, or tie to Hydro One or any of its affiliates
including Avista, or is any lender to Hydro One or its affiliates, or Avista or its
affiliates. The holder of the Golden Share must be approved by the Commission.
ln matters of voluntary bankruptcy, this Golden Share will override all other
Appendix A to the First Amendment to Stipulation
outstanding shares of all types or classes of stock and the holder of the Golden
Share solely represents the interests of Avista's utility customers.ls
The cost of the Golden Share is considered a transaction cost and not included
in rates. Once a viable candidate for holder of the Golden Share is identified,
Avista must report to the Commission the following:
a) The name and contact information of the holder of the Golden Share;
b) How this person/entity meets the definition and purpose of the Golden
Share holder as explained in the commitments herein; and
c) Provide a copy of the draft agreement between the purchaser and Avista.
After receiving Commission approval of the holder of the Golden Share, Avista
shall file the following:
i. The Report of Securities lssued and Disposition of Net Proceeds promptly
after the sale; and
ii. Final copies of:
1. The Board resolution authorizing the transaction;
2. The resolutions of the Board and the shareholder approving and
adopting the Amended and Restated Articles of lncorporation of
Avistia, including the rights and preferences of the Golden Share;
3. A copy of the Amended and Restated Articles of lncorporation of
Avista;
4. A copy of the Golden Share certificate; and
5. A copy of the agreement between the holder of the Golden Share
and Avista.
Further, Avista wil! seek Commission approval prior to consenting to any future
sale, trade, or transfer of the Golden Share by the Commission-approved-holder
thereof. Avista will provide supplemental information at that time in a manner
and form consistent with that which was provided in the review of the initial
purchaser in this docket.
'u See Definitions Section for further explanation and case references
Appendix A to the First Amendment to Stipulation
56. Vote of lndependent Directors Also Required
Avista and Parent agree that the organizational documents of Avista and
Olympus Equity LLC will provide that Avista and Olympus Equity LLC will not,
and their organizational documents will not permit Avista or Olympus Equity LLC
to, consent to the institution of voluntiary bankruptcy proceedings or to the
inclusion of Avista in bankruptcy proceedings of Parent, absent a two-thirds
majority vote of all Avista directors, including the affirmative vote of a majority of
the lndependent Directors at Avista, which must include the affirmative vote of at
least two of the Avista designated lndependent Directors.
Avista and Parent agree that Avista will present the organizational documents of
Avista and Olympus Equity, LLC to the Commission before the Commission's
decision in this proceeding.
ln addition to an affirmative vote of a majority of the lndependent Directors, the
vote of the holder of the Golden Share shall also be required for Avista to enter
into a voluntary bankruptcy.
57. Non-GonsolidationOpinion
As soon as it is obtained, but by no later than ninety (90) days after the Proposed
Transaction closing, Avista and Hydro One willfile a non-consolidation opinion
with the Commission which concludes, subject to customary assumptions, that
the commitments herein are sufficient that any U.S. bankruptcy court or
Canadian bankruptcy court would not order the substantive consolidation of the
assets and liabilities of Avista with those of Hydro One or any of its affiliates or
subsidiaries. Avista commits to promptly file such opinion with the Commission
as soon as it is obtained.
lf the ring-fencing provisions in these commitments are not sufficient to obtain a
non-consolidation opinion, Hydro One and Avista will immediately take the
following actions:
a. Notify the Commission of this inability to obtain a non-consolidation
opinion.
b. Propose and implement, upon Commission approval, such additional ring-
fencing provisions around Avista as are sufficient to obtain a non-
consolidation opinion subject to customary assumptions and exceptions.
c. Obtain a non-consolidation opinion, and otherwise complete above steps.
58
Appendix A to the First Amendment to Stipulation
Hydro One and Avista recognize that OPUC adoption of the stipulation in this
docket and the list of commitments herein is conditioned on and subject to Hydro
One and Avista filing a satisfactory non-consolidation opinion with the OPUC.
Olympus Holding Corp. and Olympus Equity LLC
Olympus Holding Corp.'s indirect subsidiaries will include Olympus Equity LLC
and Avista. See the post-acquisition corporate organizational chart in Table 1.
Following closing of the Proposed Transaction, all of the common stock of Avista
will be owned by Olympus Equity LLC, a limited liability company.
Avista will become a wholly-owned subsidiary of Olympus Equity LLC, a
bankruptcy-remote Special Purpose Entity (SPE) established for the purpose of
ring-fencing Avista, with the intention of removing Avista (and a!! of its current
subdivisions and holdings in al! states) from the bankruptcy estate of Parent and
other divisions and affiliates. Olympus Equity LLC will issue no preferred stock;
will not issue nor carry notes, bonds, or other forms of indebtedness; and wil! not
engage in financial derivatives, hedging, or like financia! activities beyond those
entirely consistent with the above stated purpose of the bankruptcy-remote SPE.
Olympus Equity LLC, Avista and Avista's subsidiaries will not hold other Parent
corporation investments or financial obligations without prior Commission
approval.
Hydro One will provide copies of the articles of incorporation and bylaws for
Olympus Holding Corp. and of the membership agreement for Olympus Equity's
LLC to the Commission prior to the Commission's decision in this matter. ln the
instance that any of the articles of incorporation or bylaws of the abovementioned
companies conflict with any commitment listed herein, Olympus Holding Corp.
and Olympus Equity LLC agree to amend such documents to reconcile the
conflict so that the terms of the commitments herein prevail.
Avista and Parent commit that Olympus Equity LLC will not operate or own any
business and wil! limit its activities to investing in and attending to its
shareholdings in Avista.
Avista and Parent further commit that the revised articles of incorporation and
bylaws of Olympus Holding Corp, and Olympus Equity LLC, reflecting their
specific business purposes will be provided to the Commission prior to the
Commission's decision on the Proposed Transaction.
Restriction on Pledge of Utility Assets
Absent a Commission order providing othenrvise, Avista and Hydro One agree
that under no circumstance will Avista loan, pledge, or transfer Avista utility
59
60
61.
Appendix A to the First Amendment to Stipulation
assets to Hydro One, Olympus Holding Corp., or any of Parent's subsidiaries or
affiliates, other than Avista, without Commission approval. ln addition, Avista
and Hydro One agree that Avista's assets will not be loaned, pledged, or
transferred by Avista or any of its affiliates, including Hydro One and Olympus
Holding Corp. and any of their subsidiaries or affiliates.
Major S hareholder (Benefi cial Owners h i p) Reporti n g
Avista and Parent agree that Avista will submit a written report on Major
Sha rehold ers consistent with OAR 860-0 27 -0 17 5(2) ( Majo r Sha reholders
Report).
When holdings of all entities are not available because filings for those certain
entities have not yet been made or are not available, Avista and Parent agree
that Avista will use best available information in a preliminary filing to the
Commission by the due date provided for in OAR 860-027-0175, supplemented
by a final filing to the Commission no later than June 1 of each year.
Restriction on Acquisitions and Dispositions
Parent and Avista agree to comply with ORS 757.511 and ORS 757.480 as
applicable and as described in the commitments herein. Hydro One, its Affiliates,
and subsidiaries including Avista will notify the Commission subsequent to the
board of Hydro One, its Affiliates or subsidiaries including Avista approving, and
as soon as practicable following any public announcement, of:
a. Any acquisition by Hydro One, its Affiliates and subsidiaries including
Avista of a regulated or unregulated business that is equivalent to five (5)
percent or more of Hydro One's capitalization; or
b. Any change in control or ownership of Avista, inclusive of any change of
upstream ownership of Avista among subsidiaries and Affiliates of Hydro
One, providing detail of the holding.
This commitment does not prohibit Parent or its affiliates other than Avista from
holding diversified businesses.
Neither Avista nor Olympus Holding Corp. will assert in any future proceedings
that the Commission is without jurisdiction over any transaction that results in a
change of control over Avista pursuant to ORS 757.511 and ORS 757.480, or as
those statutes are described in the commitments herein.
62.
63.
Appendix A to the First Amendment to Stipulation
No Inter Company Debt
Avista and Parent agree that, without prior Commission approval, Avista will not
enter into any inter-company debt transactions with Olympus Holding Corp.,
Hydro One, or any of their subsidiaries or affiliates.
No lnter Company Lending
Avista and Parent agree that, without prior Commission approval, Avista will not
lend money to Olympus Holding Corp., Hydro One, or any of their subsidiaries or
affiliates.
K. Access to Information
64. Access to and Maintenance of Books, Records and Other lnformation
The following commitment applies to information that is reasonably calculated to
lead to the discovery of admissible evidence pertaining to, or that may directly or
indirectly affect or relate to, Avista, the Oregon-regulated utility: Avista and
Parent will provide access to all materials specified in subparagraphs a - d below
Where practicable, this information will be made available directly to the
Commission or at Avista's Headquarters in Spokane.
The Proposed Transaction and Hydro One's post-closing corporate structure will
not result in reduced access to books and records for Commission Staff and
other parties to regulatory proceedings necessary to investigate, examine, or
verify transactions with Avistia, or that result in costs that may be allocable to
Avista.
Nothing in the Proposed Transaction and corporate structure thereafter will limit
or affect the Commission's rights with respect to inspection of Avista's and
Olympus Holding Corp.'s accounts, books, papers and documents pursuant to
and in compliance with all applicable Oregon laws and administrative rules.
Avista and Parent will provide the Commission with access to:
a. All books of account, budgets, integrated resource planning, documents,
data, records, accounting, and financial information which may pertain to
transactions between Avista and Hydro One or any Hydro One U.S.
affi liate and subdivision.
b. Avista Board of Director (BOD) and Parent BOD meeting minutes and
presentations for BOD meetings, Avista and Parent committees and
subcommittees thereof, as well as investor presentations and transcripts
for Avista and Parent.
Appendix A to the First Amendment to Stipulation
c. Such other records of Avista and Parent including affiliates that are the
bases for charges to Avista, to determine the reasonableness of the costs
and the allocation factors used by Hydro One and its affiliates or
subdivisions to assign costs to Avista and amounts subject to allocation or
direct charges consistent with the Commission's rules and regulations.
d. AII information provided by and to common stock, bond, or bond rating
analysts, and Rating Agencies, which directly or indirectly pertains to
Avista or any affiliate that exercises influence over Avista. Such
information includes, but is not limited to, opinions, reports and
presentations made to or provided by common stock analysts and bond
rating analysts. Avista's records of such matters will be kept at Avista's
headquarters in Spokane.
Hydro One and its Affiliates agree that they will not raise lack of jurisdiction as a
means of denying such access, and agree to cooperate fully with such
Commission investigations and requests for information.
65. Budgets
On or before December 31 of each year, Avista shal! make available to the
Commission a final copy of its annual capital budget(s) for the succeeding year.
Hydro One will provide an annual budget of all transactions between Hydro One
and Avista.
66. Appearance Before the Commission
Hydro One and Avista will seek to maintain a visibly constructive relationship with
the Commission and will make their employees and officers available to testify,
present or participate in workshops before the Commission at the Commission's
request to provide information of interest to the Commission on matters related to
Avista's operations in Oregon. Avista will keep the Commission informed on
material matters related to Avista's operations in Oregon consistent with
Commission statutes and rules.
L. Accounting
67 Separate Books and Records
Avista and Parent, including all Hydro One U.S. Affiliates and subdivisions, will
maintain the necessary itemized books and records in form that can be viewed,
printed, and duplicated so as to document all corporate, Affiliate, or subsidiary
transactions with Avista, or that result in costs that may be allocable to Avista.
Documentation shall be maintained such that all costs subject to allocation and
the basis for the application of the allocation methodology can be specifically
68.
Appendix A to the First Amendment to Stipulation
identified, particularly with respect to origin and cost drivers
Avista and Parent further agree that Avista will maintain separate books and
records inclusive of all documentation relating to costs allocated to and from its
Parent and Affiliates, with such accounting information and financia! books and
records kept at Avista's headquarters in Spokane, Washington.
Avista will maintain its own accounts and subaccounts, books, computers, data,
documents, and documentation with supporting records separate from the
Parent's accounting system, with such accounting information and financial
books and records kept at Avista headquarters in Spokane, Washington.
Avista assets, cash flows, and financial accounts may not be co-mingled with
Parent or Parent's subsidiaries or operations resulting after the merger.
M. Cost Allocations
Cost Allocations and Affiliate Interests
Avista and Parent agree that Avista will provide cost allocation methodologies
used to allocate to Avista any costs related to Parent, including to Olympus
Holding Corp. or its other subsidiaries, and commit that there will be no cross-
subsidization by Avista customers of unregulated activities.
Avista and Parent agree as follows:
Hydro One and Avista will not cross-subsidize between the regulated and
unregulated businesses or between any regulated businesses, and shall
comply with the Commission's applicable statutes, orders, and rules with
respect to such matters.
Hydro One shall not subsidize its activities by allocating to or directly
charging Avista expenses not authorized by the Commission to be so
allocated or directly charged.
o
a For any services rendered to Avista or each cost category subject to
allocations to Avista by Hydro One or any of its affiliates, Hydro One must
be able to demonstrate that such service or cost category is necessary to
Avista for the performance of its regulated operations, is not duplicative of
services already being performed with Avista, and is reasonable and
prudent and results in a benefit to Oregon customers.
To determine the reasonableness of allocation factors used by Hydro One
to assign costs to Avista and amounts subject to allocation or direct
a
a
Appendix A to the First Amendment to Stipulation
charges, the Commission or its staff may investigate the accounts of
Hydro One and its subsidiaries which are the bases for charges to Avista.
Hydro One agrees to cooperate fully with such Commission investigations.
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approval of the Commission:
a. Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or
affiliates;
b. Assume any obligation or liability as guarantor, endorser, surety, or
othenrise for Parent or affiliates;
c. Transfer any of its utility assets or property to Parent or affiliates, or any
government or political subdivision thereof with a direct or indirect
ownership interest in the Parent, except as and when required by ORS
757.511 and ORS 757.480 or expressed in the commitments herein; or
d. Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or affiliates.
Avista will bear the burden of proof in any GRC that any corporate and affiliate
cost allocation methodology is reasonable for ratemaking purposes consistent
with Commission statutes, orders, and rules. Neither Avista nor Olympus
Holding Corp. or its subsidiaries will contest the Commission's authority to
disallow, for ratemaking purposes in a GRC, unreasonable, or misallocated costs
to Avista.
With respect to the ratemaking treatment of affiliate transactions affecting Avista,
Olympus Holding Corp., Hydro One and all its U.S. subsidiaries, will comply with
the Commission's rules and practice. However, nothing in this commitment limits
Avista from also proposing a different ratemaking treatment for the Commission's
consideration, or limits the positions that any other party to the proceeding may
take with respect to ratemaking treatment.
69. Prevention of Cross Subsidization
Avista and Parent agree to comply with ORS 757.015 through 757.495, as
applicable, and OAR 860-027-0040 through 860-027-0042, as applicable, for
transactions between Avista and Parent including subdivisions and Affiliates.
Further, Avista and Parent agree that the Commission may investigate the
accounting records of Parent and Affiliates that are the bases for charges to
Avista, to determine the reasonableness of the costs and the allocation factors
Appendix A to the First Amendment to Stipulation
used by the Parent or its subdivisions to assign costs to Avista and amounts
subject to allocation or direct charges. Parent and Affiliates will cooperate fu!!y
with such Commission investigations.
Parent and Avista will maintain robust systems to track employee, officer,
director, agent, and attomey time not spent for Avista utility purposes, which cost
thereof shall not be allocated to Avista,
Parent and Avista will comply with all applicable Commission statutes, orders,
and rules regarding Affiliated lnterest transactions, including timely filing of
applications and reports.
Avista will not cross-subsidize between the regulated and unregulated
businesses or between any regulated businesses, and shall comply with the
Commission's applicable orders and rules with respect to such matters.
a. For services rendered to Avista or each cost category subject to allocation
to Avista by Hydro One or any of its affiliates, Avista must be able to
demonstrate that such service or cost category is: i) necessary to Avista
for the reasonable performance of its regulated operations in Oregon, ii) is
not duplicative of services already being performed within Avista, and iii) is
reasonable and prudent.
b. Cost allocations to Avista will be directly charged whenever possible, and
shared or indirect costs will be allocated based upon the primary cost-
driving factors.
c. Hydro One and its subsidiaries will have in place an accounting system
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
d. All costs subject to allocation will be documented, such that they can be
specifically identified, particularly with respect to their origin.
e. Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval. The Master Services Agreement (MSA) or equivalent will be
updated to include the corporate and affiliate cost allocation
methodologies between Hydro One, Avista and their affiliates. The MSA
will be filed with the Commission for review and approval, no later than 90
days after close of the transaction. Thereafter, amendments to the MSA
Appendix A to the First Amendment to Stipulation
will also be filed with the Commission as material changes occur, or
otherwise attached to the annua! June Affiliated lnterest (Al) report.
f. Avista and Hydro One commit to using asymmetrical pricing as required
by OAR 860-027-0048(4).
Any allocation of costs, corporate and Affiliate investments, expenses, or
overheads between Avista and Parent or an Affiliate will comply with the
following principles:
Cost allocations to Avista will be directly charged whenever possible, and
shared or indirect costs will be allocated based upon primary,
d emonstra bl e, a nd tra n sparent cost-d rivin g factors.
ii. Parent and all subsidiaries and Affiliates will maintain accounting systems
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
All costs subject to allocation will be Documented and flagged by origin, so
as to be specifically identified, tracked, and trended. Failure to adequately
support any allocated cost may result in denial of its recovery in rates.
Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval.
Avista's MSA or equivalent, itemizing and explaining corporate cost
allocation methods used for rate setting, will be updated to include the
corporate and affiliate cost allocation methodologies between Parent (and
Hydro One if different), Avista, and Affiliates and filed with the Commission
no later than 90 days after execution of the reorganization. Thereafter, the
MSA will be appended to the annual June Affiliated lnterest report filed
with the Commission. This annualfiling will capture, highlight and explain
all changes from the prior year. The entirety of the MSA and its
components are subject to review by Staff in subsequent proceedings
before the Commission to confirm that cost drivers, accounting methods,
assumptions, and practices result in fair, just and reasonable utility rates.
Avista will update, and re-file for approval, the MSA and Al Reporting
reflecting Parent (and Hydro One if different) organizational detail and the
outcome of Docket No. UM 1897.
Costs which would have been denied recovery in rates had they been
incuned by Avista will likewise be denied recovery whether they are
IV
V
VI
vil
Appendix A to the First Amendment to Stipulation
allocated directly or indirectly through subsidiaries of Parent other than
Avista.
Avista will file timely applications and reports in compliance with
ORS 757.015 through 757 .495 and OAR 860-027-0040 through 860-027-
0042.
viii.Parent and Avista commit that they will interpret ORS 757.015 and
757.495 to require Commission approval of any contract between Avista
and (1) any affiliate of Hydro One or (2) any affiliate of Parent. This shall
include the MSA discussed herein.
ix. Avista bears the burden of showing that a particular expense may be
allocated to Avista ratepayers.
70.Master Services Agreement (MSA)
Please see Commitment 69.
71. Complete Corporate Organizational Chart and Contact lnformation
Avista and Parent agree that Avista willfile usua! and customary Affiliated
lnterest (Al) reports with the Commission each June. Avista's Al reports filed
with the Commission will contain a complete copy of the current corporate
organizational chart between Hydro One and Avista, including contact
information for those entities, a narrative description of each Affiliate, annual
revenue for each Affiliate, and transactions with each Affiliate; and identify in the
chart any entities that do business with, share charges with, or have an
ownership interest of five percent or more in Avista.
N. North American Free Trade Agreement (NAFTA)
72. North American Free Trade Agreement (NAFTA)
Avista and Parent agree that the Commission would have jurisdiction in any
future proceedings regarding any unrecovered liabilities to the State of Oregon
that may result from NAFTA Chapter Eleven mediations, arbitrations, or any
other litigation brought by Hydro One's shareholders under NAFTA. Only the
Commission or the Oregon Attorney General may initiate such proceeding.
O. Avista Status Quo
73. Generally Accepted Accounting Principles and Standards (GAAP)
Avista and Parent agree that Avista and Olympus Equity LLC will follow GAAP
for Oregon regulatory purposes except when otherwise directed by Commission
Appendix A to the First Amendment to Stipulation
orders and policies, Oregon Revised Statutes (ORS), and Oregon Administrative
Rules (OAR).
74. Travel Expenses
Avista and Parent agree that Avista's corporate travel expenses recovered in
rates, including variable costs of flying the Avista corporate jet and commercial
travel for all Avista and Parent directors and executives will not exceed 105
percent of 2017 expenses adjusted annually for inflation. However, regardless of
the terms of this commitment, Avista still canies the burden of demonstrating the
reasonableness and inclusion in rates of any travel expense.
75.Avista Management Direction
Avista and Parent agree that Avista management wil! continue to ensure that
delivery of safe and reliable high quality utility service at just and reasonable
rates in Oregon is included in its mission and is a top corporate priority post-
merger.
76 Capital lnvestment for Safe Pipelines and Controls
Avista and Parent agree that Avista will maintain its existing levels of capital
investment where needed to improve the safety of regulated pipelines and
associated controls for the next ten years. Over that period, Parent agrees to
provide capital, receiving usual Commission rate case treatment, as necessary to
improve the safety of pipelines and associated controls.
77 Equal or Better Access to Financial Markets in the U.S. and Canada
Avista and Parent agree to make reasonable commercial efforts to prioritize
access for Avista to financial markets at equal or lower cost than absent the
Proposed Transaction for Long-Term Debt and Credit Facilities in the U.S.
Hydro One agrees to consider listing on the New York Stock Exchanges (NYSE)
as and when appropriate and advisable.
Parent agrees to make reasonable commercial efforts to investigate and arrange
innovative financing opportunities that include independent opportunities for
Avista financing, utilizing the same investment banks and arranged sellers in the
U.S. and Canada, where Avista is responsible forAvista's issuances and
proportional cost, but afforded proportional access to larger aggregate securities
offerings to achieve lower all-in issuance cost.
Venue for and Resolution of Disputes
Avista and Parent agree that the venue for disputes regarding the operation of
Avista will be in state and federal regulatory bodies or courts of competent
jurisdiction, as applicable, in Oregon, Washington, ldaho, Montana or Alaska.
78
Appendix A to the First Amendment to Stipulation
79. Headquarters
Avista and Parent agree that Avista will maintain its headquarters in Spokane,
Washington. Any change in the location of Avista headquarters will require
Commission approval.
80 Local Staffing
Avista will maintain Avista's staffing and presence in the communities in which
Avista operates at levels sufficient to maintain the provision of safe and reliable
service and cost-effective operations, consistent with Pre-Merger levels.
81 Pension and Post Retirement Expenses and Assets
Avista and Parent agree that Avista will maintain its pension funding policy in
accordance with sound actuarial practice, and comply with Commission Orders
regarding best practices on pension policies. Hydro One will not seek to change
Avista's pension funding policy or to obtain funds from Avista's pension and post-
retirement assets.
82 General Operations and Maintenance (O&M) for Community Development
Operations and maintenance funds dedicated to economic development and
non-utility strategic opportunities will be recorded below-the-line to a non-
operating account.
Economic Development
Parent and Avista agree that Avista will approach economic development, in a
manner consistent with Avista's past practices.
Membership in Organizations
Avista will maintain the dues paid by it to various industry trade groups and
membership organizations, where participation is related to the delivery of safe
and reliable utility services. However, recovery of all membership and
organizational dues will be reviewed in a GRC consistent with Commission
orders and rules.
85 FERC Reporting Requirements
Avista and Parent agree that Avista will continue to meet all the applicable
Federal Energy Regulatory Commission (FERC) reporting requirements with
respect to annual and quarterly reports (e.9., FERC Forms 1, 2, 3-Q) after
closing of the Proposed Transaction.
86. Participation in National and Regional Forums
Avista and Parent agree that Avista will continue to participate, in national and
regional forums regarding transmission issues, pricing policies, siting
requirements, and interconnection and integration policies, and such forums as
83.
84.
87
88
89
90.
91.
Appendix A to the First Amendment to Stipulation
necessary to provide safe and reliable electrica! and natural gas service and to
protect the interest of Avista customers.
Compliance with Existing and Future ORS, OAR and Commission Orders
Avista and Parent will comply with applicable Oregon Revised Statutes (ORS),
Oregon Administrative Rules (OAR), and Commission Orders. Al! existing
Commission Orders with respect to Avista or its predecessor, Washington Water
Power Co., will remain in effect until changed by the Commission including those
regarding Avista's acquisition of AERC.
P. Corporate Citizenship
Oregon Charitable Contributions
Hydro One and Avista agree that Avista will contribute charitable donations to
Oregon-based organizations. Avista agrees it will, over time, distribute charitable
donations in proportion to each state's portion of the system in which Avista
operates.
Other Community Contributions
Hydro One will make a one-time $7,000,000 contribution to Avista's charitable
foundation at closing, a portion of which wil! be allocated to Oregon proportionate
to relative revenues in Oregon.
Commitment 90 contains an additionalcommitment relating to charitable
contributions.
General Community Contributions and lnvolvement
For five years after the close of the Proposed Transaction, Avistia will maintain a
$4,000,000 annual budget for charitable contributions (funded by both Avista and
the Avista Foundation) and additionally a $2,000,000 annual contribution will be
made to Avista's charitable foundation, which will not be recoverable in customer
rates. No approval from any regulatory bodies with jurisdiction over the
commitments is required for any changes to this commitment after the sixth year
following closing of the Proposed Transaction; however, any such changes will
continue to require a two-thirds (2/3) vote of the Avista Board. Avista agrees it
will, over time, distribute this annual charitable contributions budget across its
entire service territory in proportion to each state's portion of the system.
Sources of Funds for Hydro One and Avista Commitments
Throughout the list of commitments herein, any commitment that states that
Hydro One or Avista wil! provide funding is a firm commitment to provide the
exact dollar amount specified, over the time period specified, and for the
purposes specified. To the extent Avista has retained earnings that are available
Appendix A to the First Amendment to Stipulation
for payment of dividends to Olympus Equity LLC consistent with the ring-fencing
provisions of this list of commitments, such retained eamings may be used.
Q. Future Rates
92. Treatment of Net Cost Savings
Avista and Hydro One agree that any net cost savings that Avista achieves as a
result of the Proposed Transaction will be reflected in subsequent rate
proceedings, as such savings materialize. To the extent the savings are
reflected in base retail rates they will offset the Rate Credit to customers, up to
the offsetable portion of the Rate Credit.
Continuation of Base Rates Established in UG-325
Avista last adjusted base rates on November 1,2017, in Docket No. UG-325.
Avista agrees that these base rates will remain in effect until at least January 1,
2020.
93.
94. Preparation for Next General Rate Case (GRC) in Oregon
Avista and Hydro One agree that Avista will attach to its next GRC filing in
Oregon, an Officer of Avista Corporation attestation that allTransaction Costs
associated with the Hydro One merger have not been included in the GRC filing,
and includes a granular assessment of (2) net Transition Costs and (3) cost
savings for Oregon customers obtained as a result of the Hydro One merger and
its subsequent synergies.
95. Treatment of Goodwill, Transaction Gosts, and Transition Costs
Avista and Parent agree that Avista and Parent wi!! not seek to recover in rates
any acquisition adjustment, control premium, goodwill, or transaction costs
associated with the Proposed Transaction. Further:
a. After the consummation of the Proposed Transaction, any remaining
transaction costs or other costs associated with the Hydro One merger will
not appear on Avista's regulated utility books in any form. Olympus
Holding Corp. and Hydro One transaction costs or other costs associated
with the Hydro One merger have not and will never appear on Avista's
utility books.
b. Avista shall fumish the Commission with journal entries and supporting
detail showing the nature and amount of all costs of the Proposed
Transaction (including but not Iimited to management time, BOD time, in-
house and outside counseltime, any consultants engaged, costs of
necessary filings and recordings, etc.) since the Proposed Transaction
Appendix A to the First Amendment to Stipulation
was first contemplated, as well as the accounts charged, within 90 days of
a Commission order in this docket.
c. Avista will exclude from Avista GRCs, or any other method of cost
recovery, al! costs related to the Proposed Transaction including but not
limited to:
(i) All legalwork from in-house counse! and outside counsel;
(ii) Any financial advisory fees associated with the Proposed
Transaction;
(iii) The acquisition premium and any other goodwill;
(iv) M&A consulting and advice, including that of investment banks;
(v) Preparation of materials or presentations relating to the Proposed
Transaction including all costs of related regulatory proceedings;
(vi) Any senior executive time and compensation or any Avista Board of
Director time measured in lowest practicable USD increments
associated with the Hydro One merger; and
(vii) Any other costs associated with the Proposed Transaction.
No costs of goodwill of the Parent or affiliates will be includable in Avista rates,
including rate base, cost of capital, or operating expenses. Write-downs or write-
offs of goodwill will not be included in the calculation of net income for dividend or
other distribution payment purposes.
Parent will not elect to apply pushdown accounting for this merger so that the
merger will have no impact on Avista's assets being acquired, and any
incrementalgoodwillwill not be allocated to, or recognized within Avista's
balance sheet.
96. Costs for Future M&A or Reorganization
Parent and Avista will exclude from Avista GRCs, or any other method of cost
recovery, all future costs related to the Parent's future business endeavors and
mergers, acquisitions (M&A), restructuring, or formation of holding companies.
R. Environmental, Renewable Energy, and Energy Efficiency
Greenhouse Gas and Carbon lnitiatives
Avista and Parent will support Avista's current Natural Gas IRP Greenhouse Gas
and Carbon lnitiatives. Avista and Parent agree that Avista will continue to seek
97
Appendix A to the First Amendment to Stipulation
cost effective and least risk opportunities to reduce greenhouse gas and carbon
emissions in Oregon.
98. Cost of Greenhouse Gas Emissions
Where consistent with Commission orders, Avista commits to Oregon Natural
Gas IRP modeling of a range of potential costs for greenhouse gas emissions,
and will work with its IRP stakeholders to determine appropriate values to model.
99.Greenhouse Gas Inventory Report
Avista and Parent agree that Avista will comply with greenhouse gas inventory
and other reporting requirements in Oregon.
100. Efficiency Goals and Objectives
Avista and Parent agree that Avista wil! support Avista's current IRP Energy
Efficiency lnitiatives. Avista and Parent agree that Avista will continue to seek
cost effective and least risk opportunities for energy efficiency in Oregon.
101. Low Environmental lmpact Options
Where consistent with Commission orders and when likely practicable, Avista will
evaluate opportunities for lower environmental impact services to customers in
Oregon, with its IRP stakeholder input.
102. lnforming the Commission
Avista and Parent agree that Avista will inform the Commission of natural gas
(energy) initiatives and observations of Avista, that are materialto Avista's
naturalgas operations in Oregon, on a timely informational basis, when Avista
feels material changes are pending or have occurred, or that material best
practices or pitfalls in the natura! gas industry have been identified.
103. Sharing Best Planning Methods
Avista and Parent agree that Avista will share with the Commission on a timely
informational basis best !RP and other planning methods discovered across its
other state jurisdictions. Avista and Parent agree that Avista will describe the
framework of findings and provide supporting materials when not burdensome or
proprietary.
104. lndustrial Conservation and Efficiency
Recognizing that the Energy Trust of Oregon (ETO)currently administers
Avista's voluntary industrial energy efficiency programs, Avista and Parent agree
that Avista will make good faith efforts to identify industrial conservation and
efficiency opportunities in Oregon that are material to Avista's natural gas
operations in Oregon, and to communicate material observations to the
Commission and AWEC. ln the event of U.S. federal stimulus, Avista commits to
Appendix A to the First Amendment to Stipulation
make good faith efforts to prepare and document planned energy projects with
Avista leadership, or to participate in such projects where available and material
to Avista's natural gas operations in Oregon, so as to comply with stimulus and
IRP requirements while reducing financing and other costs.
105. Electric, Natural Gas and Fuel Cell Transport
Avista and Parent agree that Avista will communicate to the Commission
practicable opportunities to facilitate environmentally beneficialtransportation in
Oregon.
106. Expanded Natural Gas Transportation Service
The Parties agree that customers presently served on sales Schedules 424 and
440 should be able to elect to take service, for a minimum of one year, under
new transportation service Schedules 425 or 439. Avista commits that this
Commitment will not impact other customers, is margin neutral, and does not
require hedging. The Parties agree with the parameters of the expanded natural
gas transportation service schedules as outlined below:
a. Eligibility - For Schedules 425, qualifying sales customers must have a
minimum annual average usage of 29,000 therms, as stated on Schedule
424. For Schedules 439, qualifying sales customers must have a
minimum annual average usage of 50,000 therms, as stated on Schedule
440.
b. The base rates for Transportation Schedules 425 and 439 will be the
same as the base rates on Schedules 424 and 440, respectively.
c. For purposes of all future "adder schedule filings" (DSM, Decoupling,
LIRAP, etc.), cost of service studies, and rate spread and rate design
proposals, Schedule 424 will be grouped with Schedules 425 and
Schedule 440 will be grouped with Schedules 439.
d. The Parties further agree that customers served on Transportation
Schedules 425 and 439 will be subject to Avista's natural gas decoupling
mechanism.
e. Schedules 425 and 439 wil! contain the same provisions contained in
Avista's tariff sheets 456A through 456C, which relate to the transportation
of customer-owned natural gas.
f. The Parties agree that Avista will file Schedules 425 and 439 as described
above as part of the compliance filing approved as part of the merger
proceeding.
Appendix A to the First Amendment to Stipulation
g. ln the event that the Commission rejects or suspends the proposed
revised Schedules 425 and 439, the Parties agree to support Commission
approval of tariff provisions with substantially similar terms.
107. Low-lncome Energy Efficiency Planning
Avista will continue to work with its advisory groups on the appropriate level of
funding for low income energy efficiency programs.
S. Contract Labor
108. Contract Labor
Please refer to Commitment 109. ln addition, Avista, Parent, and Oregon and
Southern ldaho District Council of Laborers (OSIDCL) agree that Avista has
resolved all issues in this proceeding that pertain to the Oregon and Southern
ldaho District Council of Laborers (OSIDCL). See "Addendum 1 - Contract
Labor, Oregon Commitments", supported by OSIDCL with and al! other Parties
regarding recommended contract labor conditions.
109. Union and Other Labor Relationships
Avista and Parent agree that Avista will honor its existing labor contracts and will
meet the labor participation, safety and training commitments provided herein.
Avista has the authority to negotiate, enter into, modify, amend, terminate or
agree to changes in any collective bargaining agreement or any of Avista's other
material contracts with any labor organizations, union employees or their
representatives. Avista will maintain compensation and benefits related practices
consistent with the requirements of the Merger Agreement.
See Addendum 1 for Oregon contract labor provisions.
T. Reporting and Enforcement
110. Commitments Binding
Parent and Avista acknowledge that the commitments herein are fully binding on
each of them individually, severally and on their successors in interest.
111.Commission Enforcement of Commitments
Avista and Parent understand and agree that the Commission has authority to
enforce the commitments herein. lf a commitment is violated, the Commission
may impose such penalty as the Commission finds appropriate for the severity of
the violation.
The scope of this commitment includes the authority of the Commission to
Appendix A to the First Amendment to Stipulation
request and where necessary to require attendance of witnesses from Avista and
Parent. Avista and Parent agree they will not interpose any legal objection they
might otherwise have to the Commission's jurisdiction to require the appearance
of any such witnesses.
112. Submittal to State Court Jurisdiction for Enforcement of Gommission
Orders
Avista, and Parent, on behalf of itself and its subsidiaries in the post-close
corporate structure between Parent and Avista (as those companies in between
may change over time), wil! each file with the Commission prior to closing the
Proposed Transaction an affidavit affirming that they will submit to the jurisdiction
of the Oregon courts for enforcement of violations of the Stipulated Commitments
and subsequent Commission orders affecting Avista and Parent, and agree to
the application of Oregon law with respect to such matters.
113. Annual Reporting on Commitments
ln addition to providing copies of closing documentation on usual and customary
elements of completion of the Proposed Transaction to the Commission, Avista
and Parent agree that by June 1 5,2019 and each June 15 thereafter through
June 1 5,2028 inclusive, Avista and Parent agree that Avista will file a report with
the Commission on how Avista and Parent are complying or have complied with
each of the commitments herein as of December 31 of the preceding year (a total
of 11 annual reports). The report will, at a minimum, provide a description of the
performance of each of the commitments.
Failure to comply with a commitment will be brought before the Commission for
determination of appropriate remedy and penalty.
1'14. Resolution of Violations: Expedited Resolution of Minor and Procedural
Compliance lssues
lf the Commission or any Party determines that any commitment has not been
complied with or is not being complied with, it will first provide notice to Avista
and/or Hydro One, as applicable, and may thereafter provide notice to the
Commission. Within 7 days of notice to the Commission, Staff will have an
opportunity to propose an informal remedy to Avista and/or Hydro One, as
applicable, if such remedy is reasonably likely to return full compliance withln 14
days of Staffs notice to Avista and/or Hydro One of its proposal. lf Avista and/or
Hydro One, as applicable, choose not to implement Staffs proposal, or if no such
informal remedy is available because full compliance within 14 days is not
reasonably likely, Avista and/or Hydro One's alleged failure to comply will be
brought before the Commission for determination of an appropriate remedy.
Appendix A to the First Amendment to Stipulation
U. Most Favored Nations
115. Most Favored Nations
All Parties including Avista and Hydro One agree that the Commission shall have
an opportunity and the authority to consider and adopt in Oregon any
commitments to which Avista and Hydro One have stipulated or otherwise
agreed to in another state commission jurisdiction, even if such conditions are
agreed to after the Commission enters its order in this Oregon Docket No. UM
1897.
Avista and Hydro One agree further that that any Party other than Avista and
Hydro One may ask that all Parties convene to discuss at earliest practicable
convenience, where time is of the essence, if and how such conditions adopted
by a commission in another state proceeding should be integrated with any
stipulated list of conditions already agreed to by Parties so as to present the
Commission with a revised Oregon stipulated set of conditions.
Process for Consideration of Most Favored Nation's Commitments
a. Within five calendar days after Avista and Hydro One file a stipulation with
new or amended commitments with a commission in another state
jurisdiction, Avista and Hydro One will send a copy of the stipulation and
commitments to al! Oregon Parties.
b. Within five calendar days after a commission in another state jurisdiction
issues an order that accepts a stipulation to which Avista and Hydro One
are parties, or an order with a stipulated set of conditions for approval of
the Proposed Transaction, that order, together with all conditions for
approval of the Proposed Transaction, will be filed with the Commission
and served on all parties to this Oregon docket by the most expeditious
means practical.
c. Within 10 calendar days after another state jurisdiction filing discussed in
(b) above ("Final Filing"), Parties other than Hydro One and Avista may
file with the Commission any response such other Parties wish to make,
including their position as to whether any of the covenants, commitments
and conditions from the other jurisdictions (without modification of the
language thereof except such non-substantive changes as are necessary
to make the commitment or condition applicable to Oregon) should be
adopted in Oregon.
Appendix A to the First Amendment to Stipulation
d. Within five calendar days after any such response filing, Avista and Hydro
One may file a reply with the Commission.
e. lf any of the dates above fall on Saturday, Sunday, or a holiday, the next
business day will be considered as the due date.
f. The Parties agree to support in their filings the issuance by the
Commission of an order regarding the adoption of such commitments as
soon as practical thereafter, recognizing that the Proposed Transaction
cannot close until final state orders have been issued approving the
Proposed Transaction.
g. The Commission may then review the filings and issue an order indicating
which other-state-commitments it chooses to adopt.
Limitations on Adjustment
Only commitments specific to gas service may form the basis for
adjustments specific to gas service.
ii. Only commitments specific to electric service may form the basis for
adjustments specific to electric service.
iii. Any commitments relating to support of communities in Montana are not
subject to this provision.
As Avista does not operate as a utility in Alaska, any commitments made
in Alaska are not subject to this provision.
For purposes of financial commitments or commitments having a financial
impact, commitments should be proportionate to Avista's corresponding
business function in Oregon in relation to its conesponding total company
business function. The Parties agree that the Oregon Rate Credit, as
specified herein, satisfies this conesponding business function standard.
For purposes of this provision, "financia! commitments or commitments
having a financial impact" do not include ring fencing provisions.
Notice and Petition
ln the event of the enactment or adoption of any legislation, rule, policy, or
directive by government at any level or by any governmental entity or official in
Canada (a "Legislative Action") that affects Avista's operations because of
Avista's corporate relationship with Parent, or affects Parent's compliance with
any commitment in this stipulation, any of the parties to this proceeding may
petition the Commission at any time to consider whether the Commission should
t.
IV
V
1 16.
117.
a
Appendix A to the First Amendment to Stipulation
amend its finalorder in UM 1897, including reopening and strengthening any of
the Stipulated Commitments (inclusive of the financial ring-fencing commitments
and/or the governance commitments), or requiring the addition of new
commitments, and neither Parent nor any of its subsidiaries, including Avista, will
oppose initiation of such a proceeding. Parent wil! report to the Commission any
such Legislative Action in Canada that, in Parent's reasonable judgment, affects
Avista's operations because of Avista's corporate relationship with Parent, or
affects Parent's compliance with any commitment in this stipulation, as soon as
practicable after it is publicly announced as being effective by the government or
governmental entity or official. Nothing in this Commitment 116 shall be
interpreted to limit the positions or arguments that Avista or Parent may take or
advance in any such proceeding, including the right to argue that a petition
presents insufficient grounds or evidence. Prior to filing a petition with the
Commission under this Commitment 116, a party must provide Parent and Avista
at least 30 days advance written notice and an opportunity to meet and confer
about resolutions other than filing with the Commission under this commitment.
Nothing in this commitment is intended to restrict the rights of the parties to
petition the Commission concerning its order(s) in this docket, or to limit the
authority of the Commission.
No Substantial Provincial lnfluence
Parent and Avista will advise each member of the Avista Board of Directors prior
to being seated post Proposed Transaction and annually thereafter that the
Province may not attempt to, directly or indirectly, acquire the power to exercise
any substantial influence'o over the policies and actions of Avista. Parent and
Avista wil! require each of their respective director designees to execute a new
affidavit filed annually on June 1 of each year with the Commission that attests
that the individual director will notify the Commission immediately if they have
any reason to believe that the Province is directly or indirectly seeking to exercise
or is exercising any substantial influence over the policies and actions of Avista
through the Avista Board or otherwise.
b. lf a member of the Avista Board of Directors provides notice to the Commission
pursuant to subparagraph a of this Commitment 117, the Commission may
initiate a proceeding to determine whether the Commission should amend its
final order in UM 1897, including reopening and strengthening of any of the
Stipulated Commitments (inclusive of the financial ring-fencing commitments
and/or the governance commitments), or requiring the addition of a new
commitment to address the Province's attempt to, directly or indirectly, exercise
16 "substantial influence" as used in this commitment has the meaning set forth in ORS 757.511 and as
interpreted by the Public Utility Commission of Oregon.
Appendix A to the First Amendment to Stipulation
substantia! influence over the policies and actions of Avista, and neither Hydro
One, nor any of its subsidiaries, including Avista, will oppose the Commission's
authority to proceed as outlined in this Commitment 117.
c. Parent's authority to replace an Independent Director on the Avista Board with an
employee or executive on an interim six-month basis is suspended for the
pendency of any proceeding initiated pursuant to subparagraph b of this
Commitment 117.
118. Hydro One Governance Agreement
a. Prior to close of the Proposed Transaction, the board of directors of Hydro
One (the "Board") shall adopt a resolutionlT providing that in the event the
Board, or any director thereon, is informed or becomes aware that there is a
proposal or steps being considered or taken to amend, effectively modify, or
eliminate the Governance Agreement, whether by legislation, mutual
agreement of the parties thereto or otherwise, Hydro One will immediately
notify the Commission and, to the extent feasible, will provide the
Commission with information available to the Board regarding the proposal.
The Board will confirm annually its obligations under this commitment, which
confirmation will be signed by the Hydro One Chair and provided to the
Commission.
b. lf Hydro One provides notice to the Commission pursuant to subparagraph a.
of this Commitment 118, the Commission may initiate a proceeding to
determine whether the actions described in subsection a to amend, effectively
modify, or eliminate the Governance Agreement would result in the Province
seeking to exercise or exercising substantial influence over the policies and
actions of Avista, and if so, whether the Commission should amend its final
order in UM 1897, including reopening and strengthening any of the
Stipulated Commitments (inclusive of the financial ring-fencing commitments
and/or the governance commitments), or requiring the addition of new
commitments to address the Province's attempt to, directly or indirectly,
exercise or exercising substantial influence over the policies and actions of
Avista, and neither Hydro One nor any of its subsidiaries, including Avista, will
oppose the Commission's authority to proceed as outlined in this
subparagraph b. of this Commitment 1 18.
" Under Canadian corporate law, a resolution of a company's board of directors is evidence of an action
taken at a board meeting. The board of directors has the power to bind the company, and as a result, the
resolution required by Commitment 118 is evidence that the Hydro One board of directors has agreed to
bind Hydro One to the obligations of Commitment 118.
Appendix A to the First Amendment to Stipulation
c. Hydro One's authority to replace an lndependent Director on the Avista Board
with an employee or executive on an interim six-month basis is suspended for
the pendency of any proceeding initiated pursuant to subparagraph b. of this
Commitment 1 18.
Appendix A to the First Amendment to Stipulation
V. Addendum 1 - Contract Labor, Oregon Gommitments
1. On a prospective basis, and for a period of 10 years ending March 7 ,2028 unless
revised by the Commission in the interest of both cost and quality to Avista utility
customers, Avista will require the use of Oregon and Southern ldaho District
Council of Laborers,' including any future successor organization, (OSIDCL)
members for the type of work that is ordinarily and customarily performed by
OSIDCL on natural gas replacement and all natural gas work. This will not apply to
work performed under contracts already in effect as of March 7, 2018. This
agreement wi!! not apply to (a)atmospheric corrosion; (b) locating; and (c) leak
survey. This agreement will also not apply to work performed where signatory
contractors are not available (unavailability is typically due to locations being in
remote areas), or choose not to bid on projects; provided that work performed in
such areas will be paid at equivalent wages and benefits.
2. On a prospective basis, and for a period of 10 years ending March 7,2028, Avista
wil! require the use of OSIDCL members for all flagging work, unless otherwise
performed by Avista employees represented by IBEW Local 659. This will not
apply to work performed under contracts already in effect as of March 7 ,2018.
3. OSIDCL will provide for signatory contractors laborers who are OSIDCL members
that are qualified pursuant to applicable OSHA 1910 regulations and all other
applicable training. OSIDCL will provide OSIDCL members knowledgeable in the
DOT Title 49 Code of Federa! Regulations, Part 192, and all applicable state
pipeline safety regulations. Contractors shal! be required to provide proof of
compliance with this requirement to Avista.
4. On a prospective basis, Avista will require contractors to utilize Oregon and
Southern ldaho Laborers-Employers Train ing Trust ('OS I LETT") for req u ired
training, if applicable courses are offered by OSILETT and are reasonably
accessible in the locality where the work is to be performed.
5. Avista will meet and confer with OSIDCL to discuss possible involvement in all
future hydroelectric projects that are within the sphere of OSIDCL's expertise.
6. Avista will encourage contractors to utilize union labor, including, without limitation
and as applicable, members of OSIDCL, Pipefitters and Steamfitters, and IBEW,
on Avista projects as part of its bidding solicitation process on all other construction
work, including but not limited to capitalwork on hydro facilities, and will evaluate
the use of such members in the staffing plans of bidding contractors as an element
of Avista's bid evaluation process.
7. Avista will continue to prioritize the hiring of qualified contractor personnel through
the bidding process, by requiring analysis of not only the price proposals submitted
by contractors, but a variety of other factors, including minimum staffing
requirements as applicable, training programs, documented qualification programs,
safety track records, OSHA 300 reportables, and other safety records as
appropriate. Review of these components is intended to verify that the contractor
is able to supply a sufficient workforce to meet Avista's needs, and that their
Appendix A to the First Amendment to Stipulation
personne! are appropriately trained, qualified, and able to safely and reliably
perform work for Avista.
8. Work covered by these commitments does not include any work that is customarily
performed by Avista employees represented by IBEW Local 659 but that is
contracted out pursuant to the IBEW 659 collective bargaining agreement with
Avista. lt also does not include any work that is performed by Avista employees,
regardless of the type of work involved.
9. Avista will meet and confer with OSIDCL at least six months prior to March 7,2028
to discuss extending or modifying the terms set forth herein.
Appendix B to the First Amendment to Stipulation
Docket No. UM 1897
Revised Avista and Hydro One Commitments
Table of Contents
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11 , AYiEto Coll Ceftt€r,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,rr:,,, 10
10
13 OP€oihg ohd CloSirlg Of€9oll Bi11S,,,,,,,,,,,,,-,,,=,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 11
1 'l , Orggen Winter PreteGtien Pregram,,,,,,,,,,,',,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,rrr,,,, 11
15, Notiv€ A[Il€liGoll CoolfilHhiti€S,,,,,,,,,,,,r,-,,-,r,,,r,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,11
16, Oregen tew ln6emg Weath€riZatien,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,--,,,,,,,,,,,11
17, Oregen tew lneeme Rate Assistanee Pregram (tlRAP) ,,,,,,,,,,,,,,,,,,,,,,-,,,,,,12
18, Addressing Other tew lnGeme Custemer 1ssues,,,,,,,,,,,,,,, ,,,,,,,--,,,,,,,,,,,,,,,,12
12
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page i
12
Appendix B to the First Amendment to Stipulation
33, On Bill Ropoyn"l€ht PfogF8ffl (OBRP),,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,16
F- HOld HofffilgSS -,-r,r,r,rr,--rr,r,rr,,,-r,.-rr-----------r--r-r-rrrr-rr-r-r----rrrr-r--r-rr-rr-r--r-,--,,,,r,rrrr--,r-, 16
34, R€v€oU€ Re9Uirelr]eht,,,,,,,,,,,,,,,,,,,,,,,,r=,,,,,,--,,,,,.r,,,,,,,,r, ,,, ,,,,,,,,,,,,,,,,,,,,,,,,,,16
35, Raten'lekiog Cest gf D€bt ehd E9uity,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,',,,,,,,,,,,,,,,,,,,,17
36, Business efld Fiflol'l€iol Risks,,,,,,,,,,,,,,r,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 17
38, Envif6llffl€filtel tiobiliti€s of Pol€ht,,,,,,,,,,,,,,,,,,,,,,,,,,,,-,,,,,,,,,,=,,,,,,,,,,,,,,,,,,,,,,,18
39, Fereign Exehange and Hedging en Dividends Payments and Alleeatiens ,,, 19
19
19
rJ T--^- 'n
14, eoPit8l SUPPOII,,,,,,,,,,,,,,,,,,,,,rr,,,r,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,21
issi+
i
3
3
3
3
4
4
4
4
4
5
5
6
1
1
1
1
1
1
1
I
1
1
1
1
Revised '1 1-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page ii
37, Unre€,ulQt€d AGtiVitieS,,,,,,,,,,,,,,,,,,,,,,,,,,,r,,-,r,,,,,t,',,,,,,,,,,r,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,18
',l3, CeSt of eePitQl ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,rr,,,r,,,,,,,,,,,,,r,,,,,,,r:,,,,,,,,,,,,,,,,,r,,,,21
15, Cemmen EQuity FlooF(CEF) in Capital StruGture ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,21
46, AYiSte D€bt 3od Pf€f€ffBd Sto€k,,,,,,,,,,,,, ,,,,,,,,,,,, ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,22
Appendix B to the First Amendment to Stipulation
52, Cemplianee with the Sarbanes-Oxlgy AGt,,,,,,,,,,,,,,,,,,,,"=,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,25
53- Seurees ef Funds fer Hydre One Cemmitments and Guarantees (Other than
fer Custemer Seryi6e; Cemmunities and Charitable Purpeses),,,,,',',,,',',',,,26
26
26
8
30
61, Restrictien en AGquisitiens and Dispesitiens,,,,,,,,,,,,,,,,,,,,,,,,,,,,-,,.,,,,,,,,,,,,,,,,30
31
63, Ne lllt€f CgI]1PQoy t€fldiog r,,,,r,,,,,,,,,,,,,,,,,,,,,,,,:,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 31
31
64, Aeeess te and Maintenanee ef Beeks; Reeerds and Other lnfermatien,,,,:, 31
67, S€Polot€ BookS 3od R€GofdS,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,r,,,,,,,,,r,,,,,,,,,,,,,,,,,,,,,,,,, ,,,,32
M=€est4#eeat* 33
68, Cest Alle€etiens ood Affiliet€ lotgr€stS,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,33
69, PF€YgFtioFl €f CfoSS SUbsidiZotioll ,,,r,,, ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,34
70, Master Serviees Agreemeflt (MSA),,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,37
71, Cernplete Cerperate Organizatienal Cha* and eentaet lnfermatien,,,,,,,,,,,,,37
N- Nerth Ameriean Free Trade Agreetnent (NAFTA) ,,,,,-,-,,,,,-,,,,,,,,,,,,,-,,,,,,,,,,,-,,-,,,,,37
7
Revised 11-6-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page iii
50, Restrietiens en Upward Dividends and Distributiens,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,24
Appendix B to the First Amendment to Stipulation
37
73, Generally Aeeepted Aeeeunting Prineiples and Standards (GAAP),,,,,,,,,,,,,,37
75, Avi6t3 M€rl?9€ol€flt Di]'€Gtiofl ,-,,,,,,,,,,,,,,,-,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,r,,,,'r,,,,,,,,,,',38
76, Capital lnvestment fef Safe Pipelines and eentre|s,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 38
77, Equal er Better Aeeess te Finaneial Markets in the US, and Canada ,,-,,,,,,38
78, Venue fel ofld R€s€lutioh of DisPUt€s,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,38
81 , Pensien and Pest Reti{ernent Expenses and Assets,,,,,,,,,,,,,,,,:,,,,,,--,,,,,,, 39
39
86, Partieipati€fl ifl Netietl?l efld R€gieflal Ferurns,,,,.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,39
0
P- GOrperat€ CitiZ€oShiPr--------r--r---- ,r,r-r--,-rr-rr-,r,-,-,,,,-r,rr---rr-------r------.---.--,r-rtr--------- 40
0
91 , SeHr€es ef Funds fer Hydro One and Avista Cemmitments,,,,,,,,,,,,,,,,,,,,,,,,,,40
1
93, eentinuatien ef Bese Rates Established in UG 325 ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,41
94, Preparatien fer Next General Rate Case (GRC) in Oregen ,,,,,,,,,,,,,,,,,,,,,,,,,,41
95, Treatment ef Geedwill; TranEaetien eests, and Transitien Cests ,,,,,,,,,,,,,,,,,41
R- Envirenmentalr Renewable Energyi and Energy Effieieney,,,,,,,,-,,-,,-,,,,,,-,0,,,,,,,,42
97, Grgenheuse Gas and Carbgn 1nitiatives,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,r,,--,,,,,,, 42
98, Cest ef Gr€€hhous€ Gos Efflissi€Fls,-,, ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,43
3
1
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page iv
Appendix B to the First Amendment to Stipulation
101, t€w Ellvir€rlrl'l€r'ltel lfl.lPeGt OPti€hS ,,,,,,,,,,',,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 43
103, Sh€lril'lg B€st PlSl'lflillg M€thods,,,r,,,',,,,,,,,,,,,,,,,,,,,,,,,, ,,,,,,,,,,', ,,,,,,,"r,,,,,,,,,,,43
1 1 l, Reselutien ef Vielatiens; Expedited Reselutien ef Miner and Preeedural
ColltlPliolle€ lssu€S,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,r,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,46
7
1 15, M€St F?VoI€d NOtiofIS,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,47
V- ACd€hdum 1 Gentraet taberi Oregen Commitm€nts,,,,,,,,-,,,,,-,-,,,,,,.,,-,,,,,,,,-,,,52
A. Definitions ................................................................................................................. 1
B. Applicabilitv .............................................................................................,................7
1 Aoolication of Commitments in Oreoon 7
2 No endment of Anv Commitm \A/ithnr rf Cnmmiqqinn An tql 7
3. Treatment of Confidential 1nformation............................................................. 7
C. Governance...............................,...............................................................................7
4 Executive [Vlanaoement 7
5 Avista Board of Directors (BOD)..8
6. Olvmpus Equitv. LLC Board of Directors ........................................................9
Revised 1 1 -6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page v
113, Aflfluol R€Poltillg €fl Gofflfflitffl€hts,,,,,,,',,,,,,,,,,,,,,,,',,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,46
Appendix B to the First Amendment to Stipulation
D. Future Transactions .................................................................................................9
7 lono-Term Own ershi o
8. Avista and Alaska Enerqy and Resources Co. (AERC) Coroorate
Relationshio
I
I
IIReoroanization and Sale Triooers -.-.-.
E. Safety and ServrceQualjly ![easures
10 Safetv and Reliabilitv Standards and Service Orralitv [/easrrres
10
10
15. Native American Communities...................................................................... 1 1
16. Oreoon Low lncome .,.,.,,11
17. Oreoon Low-lncome Rate Assi nce Proqram (LIRAP) .......12
18. Addressino Other Low-lncome C lssues.......,..,.,...12
19. Exolanation of Oreoon Billino 12
20. Oreoon Customer Satisfaction ..,.,.,12
21. Level of Oreqon Customer Complaints to the Commission .......................... 13
2?Oreoon I ive Customer Service 13
23 Oreoon Fmeroencv Resnonse Time 13
24 Oreoon Service Annointment Scheclr llino 13
25 New Oreoon Gas Srrnnlv 14
26 Oreoon Billino lnorriries-- -.14
?7 Oreoon Crrstomer Service lnvestioations 14
28 Oreoon Service Guarantee Credits 14
29. Oreqon Securitv Deposits....,,,,,,,.,.,14
30. Oreoon Annual Service Oualitv Ports 15
31. Oreoon Customer Reoort Card....... 1 5
32 Oreoon SFNDOTJT Seafs 16
33 On Bill Renavment Prooram (OBRP)16
Revised 11-6-20'18
Docket No. UM 1897 I Revised Oregon Commitments / Page vi
1 1 . Avista Call Center......................................................................................... 10
12. Avista Oreqon Requlatorv Affairs and Liaison Staff ......................................10
13. Openinq and Closinq Oreqon Bi11s................................................................ 11
14. Oreqon Winter Protection Proqram............................................................... 1 1
Appendix B to the First Amendment to Stipulation
34 Revenue Requirement :16
35 Ratemakino Cost of lleht and Fnuitv 17
37 I Jnreor rlated Activities 18
38 Fnvironmental I iahilities of Parent 18
39 Foreion Fxchanoe and Hedoino on Diviclends Pavments and Allocations 19
H. Taxes .......................................................................................................................20
41 . Taxes ............................................................................................................ 20
42.Tax Cuts and Jobs Act...........20
44. Capital Support .....,....,.21
45. Common Eo uitv Floor (CEF)in lStructure )1
46. Avista Debt ncl Preferred Stock ,2
47. First Mortqaqe Bonds (FMB).........................................................................23
48. Continued Credit Ratinqs..............................................................................24
49. Revolvinq Credit Facilities and Associated Letters of Credit.........................24
50. Restrictions on Upward Dividend and Distributions.24
51 . SEC Reportinq Requirements....................................................................... 25
52. Compliance with the Sarbanes-Oxlev Act.....................................................25
53. Sources of Funds for Hvdro One Commitments and Guarantees (Other than
for Customer Service, Communities and Charitable Purposes)...................26
J. Bankruptcv Rinq-Fencinq....................................................................................... 26
54. Avista Cash Flows ........................................................................................26
55. Golden Share................................................................................................ 26
56. Vote of lndependent Directors Also Required...............................................28
57. Non-Consolidation Opinion............ .-.-28
58. Olvmpus Holdino Corp. and Olvmpus Equitv LLC,.,..:.-
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page vii
29
59. Restriction on Pledqe of Utilitv Assets ..........................................................29
Appendix B to the First Amendment to Stipulation
60. Maior Shareholder (Beneficial Ownership) Reportinq...................................30
61 . Restriction on Acquisitions and Dispositions................................................. 30
62. No lnter Company Debt................................................................................ 31
63. No lnter Companv Lendinq ........................................................................... 31
K. Access to lnformation ............................................................................................ 31
64. Access to and Maintenance of Books. Records and Other lnformation........31
66. Appearance Before the Commission ............................................................32
L. Accountinq .............................................................................................................. 32
67. Separate Books and Records....................................................................... 32
M. Cost A11ocations.....................................................................................................33
68. Cost Allocations and Affiliate 1nterests..........................................................33
69. Prevention of Cross Subsidi2ation................................................................34
70. Master Services Aqreement (MSA)............................................................... 37
U. Complete Corporate Orqanizational Chart and Qontact lnformation............. 37
N. North American Free Trade Aqreement (NAFJA)37
72. North American Free Trade Aq (NAFTA)
O. Avista Status Quo
73. Generallv Accepted Accountinq Principles and Standards (GAAP)
74.Travel Exoenses.
,37
37
38
38
76 Caoital lnvestment for Safe Pio nes and Controls .38
77 Foual or Better Access to Financial lMarkets in the ll S and Canada 38
7A Venrre for and Resolrrtion of Disnutes 38
79 Headorrarlers. -.-.-.39
80 I ocal Staffino 39
81 Pension and Post Retirement Expenses and 4qsets ...................39
82. General Operations an 39
83. Economic Deve1ooment....................................................
84. Membership in Orqanizations ....,.....................................
39
39
3985trFRC Renortino Reorrirements
Docket No. UM 1897 I Revised Oregon Commitments / Page viii
Revised 1 1 -6-2018
Appendix B to the First Amendment to Stipulation
86. Participation in National and Regional Forums 39
87. Compliance with Existinq and Fulure ORS. OAR and Commiss 0
P. Corporate Citizenship......... ............-40
RR Orcann Charifahlc Cnnfrihr rtinnq.40
Rq Other Commrrnitrr Contrihr rtinnq 40
qo General Cnmmr rnifrr (lontrihr rtin anrl lnrrnlrrarnanf 40
q 1 Sor rrcpq of Fr rnrlc, fnr Hvdrn One nrl Arricfa (lnrnrnitrnonfe 40
9)Treatmant of Net SavinosCost 41
93 Continuation of Base Rates isherl in tlG-325 41
94 Prenaration for Nevt General Rate Case (GRC) in Oreoon 41
95. Treatment of Goodwill. Transaction Costs, and Transition Costs .................41
96. Costs for Future M&A or Reorqanization ......................................................42
R. Environmental. Renewable Enerqv. and Enerqv Efficiencv................................42
97.Greenhouse Gas and Carbon lnitiatives.............. .......42
OR Cnef nf Grcc nhnr rqc Gaq Emi 43
qq Grccnhorrs,e Gaq nvpntnnr 43
100. Efficiencv Goals and Obiectives ..43
1O1 I ow Fnvironmental lmnaet Onlions 43
102. lnforminq the Commission 43
104. lndustrial Conservation and Efficiencv 43
06- Exoanded Natural Gas Tra1 s 44
107. Low-lncom EEnerov Efficien CV Planninar 45
1OR Contraet I ahor 45
1Oq llnion and Other I ahor Relationshins 45
111. Commission Enforcement of Commitments
Revised 1 1-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page ix
45
105. Electric. Natural Gas and Fuel Cell Transport...............................................44
Appendix B to the First Amendment to Stipulation
112. Submittal to State Court Jurisdiction for Enforcement of Commission Orders
,46
461 13. Annual Reportinq on Commitments ............................
114. Resolution of Violations: Exoedited Resolution of Minor and Procedural
Compliance 1ssues.......................................................................................46
U. Most Favored Nations ............................................................................................47
115. Jt/ost Favored Nations...............47
116. Notice and Petition 48
117 No Substantial Provincial lnfluence.....-..--.--49
118. Hvdro One Governance Aoreement 50
V. Addendum 1 - Contract Labor. Oreqon Commitments.......................................52
Revised 1 1-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page x
Appendix B to the First Amendment to Stipulation
A. Definitions
Affiliate means any entity in the post-close corporate chain of entities between Hydro
One and Avista, including Hydro One, for purposes of all commitments herein; provided,
however, that "Affiliated lnterest" shall have the meaning set forth in ORS 757.015 for
purposes of requirements established by ORS 757.105 or ORS 757.495 regardless of
whether such requirements are also imposed by these commitments.'
AVA and Avista are used interchangeably and shal! refer to Avista Corporation. While
some commitments herein are flagged as applying only to Avista's Oregon-regulated
Local Natural Gas Distribution Company (Oregon LDC), when commitments are silent
as to application, they shall apply to Avista Corporation as a whole (for example, those
commitments regarding corporate finance and capital structure apply to Avista as a
whole).
Beneficial Ownership shall have the meaning provided in OAR 860-027-1075(1)(a).
Capital Structure shall mean proportions of common equity (common equity calculated
as for Oregon ratemaking purposes) and Long-Term Debt with maturities exceeding 1
year, adding up to 100 percent for a named (or place-holder) corporation.
GEF has the meaning assigned to it in Commitment 45.
Commission or OPUC means the Public Utility Commission of Oregon.
Gredit Ratings as used in these commitments shall mean both Standard and Poor's
Global Ratings (S&P) and Moody's lnvestor Service (Moody's) Long-Term (LT) Secured
Debt credit rating, except as othenruise specifically provided in individual commitments.
See Rating Agencies.
$ or Dollar unless otherwise specified means U.S. Dollars (USD).
Golden Share shall mean the sole share of Preferred Stock authorized by the
Commission and held by an independent third party. As described in further detail in
Commitment 55, Avista will not be able to declare voluntary bankruptcy without the vote
of the holder of the Golden Share and in matters of voluntary bankruptcy, the Golden
Share will override all other outstanding shares of all types or classes of stock. The
holder of the Golden Share solely represents the interests of Avista's utility customers.2
' Lower case "affiliates" is also used in these commitments to indicate that the commitment applies to all
affiliates of Hydro One and Avista, as opposed to simply the "Affiliates" in the chain of entities between
Hydro One and Avista.
'To be clear, the purpose of the Golden Share is to help ensure that the Avista utility would not place
itself into bankruptcy voluntarily unless such a decision was consistent with the interests of utility
customers. This purpose is consistent with past ORS 757.511 dockets approved by the Commission (see
UM 1804, Order 17-526 at 7 and the joint supporting testimony) and is essential in this particular case
Docket No. UM 1897 I Revised Oregon Commitments / Page 1
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
GRC means general rate case.
H1 or Hydro One shall refer to Hydro One Limited.
lndependent Directors shall mean directors who meet the standards of "independent
directors" under section 303A.02 of the New York Stock Exchange Listed Company
Manual with respect to Hydro One and its subsidiaries including Avista. The
lndependent Directors must have had no material relationship with Parent or its
subsidiaries or affiliated entities currently or within the previous 3 years. Former officers
of Avista who otherwise meet these qualifications qualify as lndependent Directors.
Please see "C. Governance" for applicable commitments.
lnvestment Grade means a BBB- or higher credit rating by S&P and a Baa3 or higher
credit rating by Moody's. See the table below for ratings from S&P and Moody's that
are investment grade, which apply to all types of debt securities (not just FMB as shown
in Table 2):
S&P Moody's
!nvestment
Grade
Credit
Ratings
AAA Aaa
AA+Aa1
AA Aa2
AA-Aa3
A+A1
A M
A.A3
BBB+Baal
BBB Baa2
BBB-Baa3
Long-Term Debt is the issuance or renewal of a note or evidence of indebtedness
maturing more than one year after date of such issue or renewa!.
M&A means mergers and acquisitions.
Major Shareholder shall have the meaning provided in OAR 860-027-0175(1)(c).
because the sole shareholder of Avista, at the top of the corporate chain, is Hydro One; thus, were the
holder of the Golden Share to vote in the interests of "Avista shareholders," it would be voting in the
interest of Hydro One, negating the protection the Golden Share is designed to provide. lf Hydro One and
Avista encounter difficulty locating a holder of the Golden Share that can agree to the requirements of
these commitments, they may appear before the Commission for consideration of a remedy for the
situation.
Revised 1 1-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 2
Appendix B to the First Amendment to Stipulation
Pacific Northwest Region means the Pacific Northwest states in which Avista serves
retail electric or natural gas customers, currently the states of Alaska, ldaho, Montana,
Oregon and Washington.
Parent shall mean Hydro One Limited and its subsidiaries in the post-close corporate
structure between Hydro One and Avista (as those companies in between may change
over time; but see commitments regarding ORS 757.511 and 757.480).
Parties (or Party individually) shall be defined herein as: Hydro One Limited, Avista
Corporation, Public Utility Commission of Oregon Staff (Staff), Oregon Citizens' Utility
Board (CUB), Alliance of Western Energy Consumers (AWEC), and Oregon and
Southern tdaho District Council of Laborers (OSIDCL).34
Pre-Merger means prior to the close of the Proposed Transaction.
Proposed Transaction shall mean the transaction proposed in the Joint Application of
Avista and Hydro One filed on September 14,2017, assigned Commission Docket No.
UM 1897. However, the commitments reached by the Parties shall override all prior
versions of commitments filed in this docket.
Rating Agencies shall mean both S&P's and Moody's, or their successors, without
substitution. However, if S&P or Moody's has no successor and is no longer in
existence, then the substitute for the Rating Agency with no successor will be Fitch
Ratings (Fitch). lf Fitch has no successor and is no longer in existence, Avista will
select a replacement acceptable to the Commission.
Transaction Costs shall mean all the costs necessary to plan, evaluate, find
agreement, gain regulatory approval, finance, and execute the Proposed Transaction.
This type of cost includes legal and brokerage or investment banking fees and other
costs which would not be incurred were the transaction never contemplated.
Transaction costs are those incremental costs paid to advance or consummate the
transaction. Examples of transaction costs include, but are not limited to: Avista
employee time and expenses; Avista change-of-control payments; any tax liability
incurred as a result of the transaction; and third-party costs, including bank advisors,
external legal advisors, rating agencies, and expert witnesses and consultants in each
case paid to advance or consummate the transaction. Transaction costs are not
includable in Avista customer rates.
Transition Costs shall mean all costs necessary post-transaction, to meld or find
synergies in corporate cultures and processes, optimize purchasing, more broadly
deploy resources and technologies, and generally make the aggregated corporation
more efficient and more effective at meeting both divisional and comprehensive goals.
3
-ln6ustrial
Customers of Northwest Utilities (ICNU), and Northwest lndustrial Gas Users (NWIGU)
merged to form Alliance of Western Energy Consumers (AWEC) in 2018.a
-grggon
and Southern ldaho District Council of Laborers (OSIDCL) was formerly known as
Laborers' lnternational Union of North America (LiUNA)-District Council.
Docket No. UM 1897 I Revised Oregon Commitments / Page 3
Revised 11-6-2018
I
Appendix B to the First Amendment to Stipulation
This type of consolidation can include costs from technology costs of hardware,
software, migration, conversion and training to public relations costs incurred to make
legal, accounting, information technologies, communications and other integral
corporate activities operate smoothly and efficiently both internally and across corporate
divisions. No transition costs may be included in Avista rates; the net positive of
transition costs (savings minus transition costs) will be reviewed in a future rate case.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 4
Appendix B to the First Amendment to Stipulation
Table 1
Revised Post-CIosing Corporate Structures
Hydro One agrees to eliminate Olympus 1 LLC and Olympus 2 LLC from the corporate
structure. The new structure that will exist as at the effective time of closing of the
Proposed Transaction is illustrated below:
Hydro One Limited
(Ontario Corporation!
Hydro One lnc.
2446267
Ontario lnc.
Olympus Holding Corp.
(Delaware Hydro One Telecom
lnc.
Hydro One Remote
Communities lnc.
Olympus lquity LLC
(Delaware Umited
Enlargement and clarification of Avista
Corporation and Subsidiaries is provided at right:
5 ---Table 1 reflects the corporate structure as at the effective time of the closing of the Proposed
Transaction.
6 ---Avista's corporate structure as in S&P Global Market lntelligence on March 29,2018.
b
Can Sub
(Ontario Corporation)
Hydro One Networks
lnc.
Avista Corporation
(Washington
0:l'r !.fiitiaR
tkrrib
Revised 1 1-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 5
I.I^**l
(''*.^:*"J
@ rtntl
I
I
Avista Corporation
Subsidiaries
Appendix B to the First Amendment to Stipulation
Table 2
Common Equity Floor Requirement
Gredit Ratings are those for First Mortgage Bonds (FMB)7
Gommon Equity is calculated as for Oregon Ratemaking Purposes
FMB Gredit
Ratings S&P Moody's Common
Equity Floor
I
n
,G
e r
S.atd
m ee
n
t
A
R
a
t
e
d
AAA Aaa
44o/o
AA+Aa1
AA Aa2
AA.Aa3
A+A1
A 46%A.A3
L
o
w
BBB+ 'Baal I
48%BBB Baa2
BBB-Baa3
a Go. willfile Plan w Gommission
Below
lnvestment
Grade
BB+
(or below)
Bal
(or below)No Dividend
' lf the Rating Agencies do not provide a rating for FMBs, the rating for Senior Secured Debt will be used
for the purposes of Table 2.
Revised 1'1-6-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 6
M
1
2
Appendix B to the First Amendment to Stipulation
B. Applicability
Application of Commitments in Oregon
Unless otherwise stated, all commitments herein are binding upon Avista, Hydro
One, and all companies in between in the post-close corporate organization chart
(as those companies in between may change over time; but see commitments
regarding ORS 757.511 and 757.480').
No Amendment of Any Commitment Without Commission Approval
Avista and Parent commit that no amendments, revisions, or modifications will be
made to the any of the commitments herein without prior Commission approval.
Also see "Most Favored Nation" Commitment.
Treatment of Confidential lnformation
Nothing in these commitments prevents Avista or Parent from requesting
confidential or highly confidential treatment of information.
C. Governance
Executive Management
Subject to the remaining provisions of this commitment and subject to voluntary
retirements and resignations that may occur, Avista and Parent agree that Avista
will retain all current executive management of Avista for a period of three years.
This commitment will not limit Avista's ability to determine its organizational
structure and select and retain personnel best able to meet Avista's needs over
time. The post-Proposed Transaction Avista board retains its current ability to
dismiss executive management of Avista and other Avista personnel for standard
corporate reasons. Any decision to hire, dismiss or replace the Chief Executive
Officer of Avista shall be within the discretion of the Avista Board of Directors,
and shall not require any approval of Hydro One or any of its affiliates (other than
Avista), notwithstanding anything to the contrary in the merger agreement, and
its exhibits and attachments, between Hydro One and Avista.
Any decisions reqardinq Avista emplovee compensation shall be made bv the
Avista Board consistent with the terms of the Merqer Aoreement between Hvdro
One and Avista. and current market standards and prevailino practices of
relevant U.S. electric and qas utility benchmarks. The determination of the level
of anv compensation (includinq equitv awards) approved bv the Avista Board
with respect to any emplovee in accordance with the foreqoinq shall not be
subiect to chanoe bv Hvdro One or the Hvdro One Board.
3.
4.
Revised 11-6-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 7
5.
Appendix B to the First Amendment to Stipulation
Avista Board of Directors (BOD)
Avista and Hydro One agree that after closing of the Proposed Transaction,
Avista will have a separate board of directors from Hydro One that consists of
nine (9) members, determined as follows:
Five Hydro One Designated Directors:
Two executives of Hydro One or any of its subsidiaries, and
Three lndependent Directors who are residents of the Pacific Northwest
Region.
Four Avista Designated Directors:
Three directors who as of immediately prior to the closing of the Proposed
Transaction are members of the Board of Directors of Avista, including the
Chairman of Avista's Pre-Merger Board of Directors (if such person is
different from the Chief Executive Officer of Avista), and
Avista's Chief Executive Officer.
At least two of the Avista directors must be lndependent Directors.
Avista and Hvdro One shall consult with each other prior to the desionation of anv
I ndeoendent Directors.
The initia! Chairman of Avista's post-closing Board of Directors shall be the Chief
Executive Officer of Avista as of the time immediately prior to closing for a one
year term. lf any Avista designee resigns; retires er ethennrise eeases te serve
The Avista designees shall
have the seleunfetterecl right to
@and
without cause or notice at its sole discretion.
Hydro One shall have the unfettered right to designate, remove and replace the
Hydro One designees as directors of the Avista Board with or without cause or
notice at its sole discretion, subject to the requirement that:
(i) two of such directors are executives of Parent or any of its subsidiaries;
and(ii) three of such directors are lndependent Directors who are residents of the
Pacific Northwest region, while such requirement is in effect (subject in the
case of clause (ii) hereof to Hydro One 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 Hydro One
may replace any such director with anv person. includinq an employee or
executive of Hydro One or any of its subsidiaries on an interim basis, not
exceeding six months, provided that Hydro One desiqnees who are
emplovees or executives of Hvdro One or anv of its subsidiaries shall in
Revised 11€-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 8
I
6
7
Appendix B to the First Amendment to Stipulation
no case constitute a maioritv of the directors of Avista. after which time
Hydro One shall replace anv such interim director with an lndependent
Director who is a resident of the Pacific Northwest region). lf, at anv time
a circumstance arises. and durino the pendencv of anv such
circumstance, wherebv the Province of Ontario ("Ontario") exercises its
riqhts as a shareholder of Hvdro One. uses leqislative authoritv or acts in
anv other manner whatsoever. that results. or would result. in Ontario
appointinq nominees to the board of directors of Hvdro One that
constitute. or would constitute a maioritv of the direltar$alsuelt baad-
then Hvdro One's authoritv to replace an lndependent Director with an
employee or executive on an interim basis is suspended for the oendencv
of such circumstance.
Olympus Equity, LLG Board of Directors
At least one of the members of the board of directors of Olympus Equity LLC wil!
be an lndependent Director. The same individual may serve as an lndependent
Director of both Avista and Olympus Equity LLC.
D. Future Transactions
Long-Term Ownership
Hydro One and Avista agree not to sell Avista's Oregon natural gas operations
for three (3) years following the Commission's approval of the Proposed
Transaction. During that time, Avista and Hydro One agree to provide safe and
reliable service and commit to keeping Avista's Oregon natural gas operations in
the same or befter condition than existed prior to the Proposed Transaction.
Avista and Alaska Energy and Resources Co. (AERC) Corporate
Relationship
Avista and Parent agree they will continue to provide timely courtesy copies,
information and reporting to the Commission of AERC/Alaska Electric Light and
Power Co. (AELP) resource (long-term) plans and plan updates submitted to the
Regulatory Commission of Alaska (RCA), and topical energy information as
described herein when Avista or Parent find such information relevant or material
to Oregon, or when requested by the Commission or Staff. This continues
Avista's tradition of contributing to informed Northwest regulation.
Parent and Avista agree that if AERC, or components thereof, such as but not
limited to AELP is transferred from its current position under Avista, Hydro One
must give notice to the Commission and provide pro forma documents showing
the proportion of debt and equity to be removed from Avista. This information will
be used for the purpose of potential adjustments in Avista's next GRC.
9. Reorganization and Sale Triggers
8
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 9
Appendix B to the First Amendment to Stipulation
Parent and Avista agree to comply with and interpret ORS 757.511 (Application
for authority to exercise influence over utility) as triggered if any of the entities in
the post-Proposed Transaction chain of corporate entities between Hydro One
and Avista, and including Hydro One, undergoes a corporate reorganization or if
any of those entities enter into a transaction that results in the addition of a new
entity in the chain of entities that may exercise any substantial influence over
Avista.
Additionally, Parent and Avista agree to interpret ORS 757.480 (Approval needed
prior to disposal, mortgage or encumbrance of certain operative utility property or
consolidation with another public utility) to require Commission approval of any
transaction which results in a merger of Avista with another public utility, without
regard to whether that public utility provides service in Oregon.
E. Safety and Service Quality Measures
10.Safety and Reliability Standards and Service Quality Measures
Avista and Parent agree that neither the proposed Hydro One merger, nor future
acquisitions, may diminish delivery of safe and reliable utility service in Oregon
as compared to Avista's performance pre-close of the Proposed Transaction.
Avista and Parent agree that Avista will continue to fully comply with US Code of
Federa! Regulations (CFR) Title 49 Parts 190 to 199 (Pipeline Safety), as
applicable.
Avista and Parent agree that Avista will maintain and improve, to the extent
reasonably practicable, Avista's natural gas safety and reliability and resilience
standards, policies, and service quality measures.
Additionally, Parent and Avista agree that Avista commits to providing the
following Service Quality, Safety and Planning measures:
Customer Seruice Qualitv
11. Avista Call Center
Avista will maintain a call center managed by high-performing personnel to
ensure the maintenance of high quality service and customer standards in
Oregon. Personnel at such call centers will have training and experience
commensurate with Avista's Oregon pre-Proposed Transaction customer service
system and standards.
12. Avista Oregon Regulatory Affairs and Liaison Staff
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 10
Appendix B to the First Amendment to Stipulation
Avista regulatory liaison staff will retain high-performing personnel. Personnel
will have training and experience in Oregon regulatory matters, commensurate
with Avista's operations in Oregon prior to the Proposed Transaction.
13. Opening and Closing Oregon Bills
Avista and Parent commit that Avista will prepare all opening and closing bills
using actual reads acquired manually or electronically in accordance with
Oregon's administrative rules, unless the open or close date is within +/- 5 days
of regular normal cycle read, whereupon a prorated read may be used.
14. Oregon Winter Protection Program
Avista and Parent agree that by October 31,2018, Avista will submit to the
Commission for approval a proposalfor a Winter Protection Program against
winter shut-offs for low-income, elderly and other at-risk customers that explains
how Avista balanced collection and customer service goals, and where
applicable drew on Hydro One experience.
15 Native American Communities
Avista commits, and Hydro One agrees, that Avista will seek to appropriately
engage Native American communities.
16.Oregon Low lncome Weatherization
Hydro One and Avista agree that Avista will increase current funding for Avista
Oregon low-income weatherization programs by making a payment of
$1,275,000, to be paid in equal increments over a 5 year period to the agencies
that are in charge of the Avista Oregon Low lncome Energy Efficiency Program
(AOLIEE). The first annual payment will begin in the calendar year following
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and will not be booked to utility accounts; in
other words, in no way or form will the cost of this commitment appear in Avista's
regulated utility earnings. 8
Hydro One and Avista agree that Avista will undertake a targeted effort with a
goal of improving the penetration of Avista low-income programs in Oregon with
a focus on underserved, vulnerable, and high energy burden households.
Further, Avista commits to keep sufficient data analysis to clearly articulate what
program elements and methods were effective as well as to identify opportunities
for delivering more beneficial outcomes with resources available.
8 The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 11
Appendix B to the First Amendment to Stipulation
17.Oregon Low-lncome Rate Assistance Program (LIRAP)
Hydro One and Avista agree that Avista shall increase funding for LIRAP for
Oregon customers as provided in this commitment. Hydro One and Avista agree
that Avista wil! provide a payment of $500,000 payable at the rate of $100,000
per year with the first annual payment beginning in the calendar year following
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and will not be booked to utility accounts; in
other words, in no way or form will the cost of this commitment appear in Avista's
regulated utility earnings. e.
18. Addressing Other Low-lncome Customer lssues
Avista and Parent commit that Avista will continue to work with low-income
agencies to address other issues of low-income customers, including funding for
bill payment assistance.
19. Explanation of Oregon Billing Errors
Avista and Parent commit that for the first three years following close of the
Proposed Transaction Avista shall report to the Commission's Consumer
Services Section any incidence of a billing error that results in the issuance of a
corrected bill if the correction is $35 or more, and an explanation for the causes
of the error.
Oregon Customer Satisfaction
Avista and Parent commit that the level of customer satisfaction with telephone
service, as provided by Avista's Contact Center, will be at least 90 percent,
where:
20.
a. The measure of customer satisfaction is based on customers who respond
to Avista's quarterly survey of customer satisfaction, known as the Voice
of the Customer, as conducted by its independent survey contractor;
b. The measure of satisfaction is based on customers participating in the
survey who report the level of their satisfaction as either "satisfied" or "very
satisfied"; and
c. The measure of satisfaction is based on the statistically-significant survey
results for both electric and natural gas service for Avista's entire service
territory for each quarter surveyed, and will also separately be reported for
Oregon customers only.
e The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
Docket No. UM 1897 I Revised Oregon Commitments / Page 12
Revised 1 1-6-2018
Appendix B to the First Amendment to Stipulation
21. Level of Oregon Customer Complaints to the Commission
Avista commits, and Parent agrees, that the number of complaints filed with the
Commission by Avista's natural gas customers wil! not exceed the rate of 0.3
complaints per 1,000 customers for the calendar year.1o
22. Oregon Live Customer Service
Avista commits, and Parent agrees, that the percentage of customer calls
answered by a live representative within 60 seconds will be at least 80 percent
per month, where:
a. The measure of response time is based on results from Avista's Contact
Center, and is initiated when the customer requests to speak to a
customer service representative or presses a key to bypass an IVR
system if in use; and
b. Response time is based on the combined results for both electric and
natural gas customers for Avista's entire service territory.
23 Oregon Emergency Response Time
Avista and Parent commit that Avista's average response time to a natural gas
system emergency in Oregon wil! not exceed 55 minutes for the calendar year
(or consistent with future Commission standards), where:
a. Response time is measured from the time of the customer call to the
arrival of a field service technician; and
b. "Natural gas system emergency" is defined as an event when there is a
natural gas explosion or fire, fire in the vicinity of natural gas facilities,
police or fire are standing by, leaks identified in the field as "Grade 1," high
or low gas pressure problems identified by alarms or customer calls,
natural gas system emergency alarms, carbon monoxide calls, natural gas
odor calls, runaway furnace calls, or delayed ignition calls.
24. Oregon Service Appointment Scheduling
Avista and Parent commit that Avista will keep mutually agreed upon
appointments for natural gas service re-lights, connections and reconnections
where a service line is already installed, scheduled in the time windows of either
8:00 a.m. - 12:00 p.m. (morning), or 1200 p.m. - 5:00 p.m. (afternoon), except
for the following instances:
| 10
-pete
that the cunent 5 year average rate is 0.145 percent. This target is moved by Staff to
slightly over 200% of current performance metrics.
Docket No. UM 1897 I Revised Oregon Commitments / Page 13
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
a. When the customer or applicant cancels the appointment;
b. The customer or applicant fails to keep the appointment; or
c. Avista reschedules the appointment with at least 24-hours' notice.
25. New Oregon Gas Supply
Avista and Parent commit that Avista will provide a cost estimate to the customer
or applicant for new natural gas supply within 10 business days upon receipt of
all the necessary information from the customer or applicant.
26.Oregon Billing lnquiries
Avista and Parent commit that Avista will respond to all billing inquiries at the
time of the initial contact, and for those inquires that require further investigation,
Avista will investigate and respond to the customer within 10 business days.
27 Oregon Gustomer Service lnvestigations
Avista and Parent commit that Avista will investigate customer-reported problems
with a meter, or conduct a meter test within 15 business days of the request, and
report the results to the customer within 15 business days from the date of the
report or request.
28 Oregon Service Guarantee Credits
(Expires 3 years from closing of the Proposed Transaction)
Avista commits, and Parent agrees, that for failure to meet a customer service
guarantee for service provided to a gas customer, Avista will apply a $50 credit to
the customer's account. For failure to meet a customer service guarantee for
service provided to an applicant, Avista will mai! a check for $50 to the applicant.
Avista will timely provide the qualifying customer credit or applicant check without
any requirement on the part of the customer or applicant to either apply for, or
request, the applicable credit or check. Payment of service guarantee credits
and any service quality penalties shall be excluded from revenue requirements in
GRCs.
Tracking of Avista's performance on the customer service guarantees, including
the application of customer credits, will begin on January 1,2019.
29 Oregon Security Deposits
Avista and Parent agree that Avista commits to eliminate security deposits for
new Avista residentia! customers at close of Proposed Transaction, and to return
existing security deposits to Oregon customers who have a deposit held longer
than 6 months. ln any subsequent Avista GRC before the Commission, any
Party may request the Commission Order in that rate case to modify or remove
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 14
30
31
Appendix B to the First Amendment to Stipulation
this commitment if that Party successfully argues that the application of this
commitment had an unreasonable impact on Avista's uncollectible debt.
Oregon Annual Service Quality Reports
Avista and Parent commit that Avista will include the results of its Service Quality
Measures Program in an annual report to be filed with the Commission on or
before April 30th of each year.
Oregon Customer Report Card
Avista commits, and Parent agrees, that within 90 days of Avista filing its Annual
Service Quality Measures Report, Avista will send a Service Quality Measures
Program Report Card to its customers, which will include the following:
a. Results for each of Avista's customer service measures, compared with
the respective performa nce benchmarks;
b. Results for each of the customer service guarantees, compared with the
respective benchmarks, and including the number of events for each
measure where a credit was provided, and the total dollar amount of the
credits paid for each measure; and
c. Performance highlights for the year.
d. Avista will issue its first Report Card to customers on or before July 31,
2020.
e. Avista, or any interested party, may separately petition the Commission,
for approval of changes to the customer service guarantees, and reporting
thereon, as set forth in Commitments 20-31, to assure that such
commitments continue to accomplish their intended purposes.
Revised 1'1-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 15
Appendix B to the First Amendment to Stipulation
SENDOUT Software Suite for Commission Staff. CUB and AWEC
32. Oregon SENDOUT Seats
Parent and Avista agree that Avista will provide, for a period of 10 years, $30,000
annually for the purpose of obtaining SENDOUT seats for Commission Staff,
CUB, and AWEC for SENDOUT dispatch optimization and gas portfolio cost
assessment and reliability software with SENDOUT or a division of ABB. The
Parties agree that this $30,000 commitment is not recoverable in customer rates
and will not be booked to utility accounts; in other words, in no way or form wil!
the cost of this commitment appear in Avista's regulated utility earnings. 11
Nothing in this commitment precludes Avista from replacing SENDOUT with a
different comparable service provided that Avista continues to provide the
$30,000 annual contribution for Staff, CUB, and AWEC use of SENDOUT or
such comparable service for the agreed upon ten-year period.
33.On Bill Repayment Program (OBRP)
Hydro One will arrange funding of the approximately $100,000 (system-wide
basis) initial investment in software upgrades and $5,000 in administrative costs
to implement an on-bill repayment program. Under no circumstance will Avista's
ratepayers be responsible for any default related to the OBRP.
OBRP is a pass-through billing service for energy efficiency loans, where Avista
would collect loan payments on customers' bills then transmit the sum monthly to
the third-party lender. Only non-profit lenders would be eligible, offering low rates
for energy efficiency loans. The lender has no ability to shut off power (due to
non-payment) and all lending activity is managed separate from the utility, where
the lender:
Provides all capital and bears full risk;
Manages delinquent files and collections off-bill;
Handles loans/balances separate from utility financial systems; and
Meets consumer lending regulatory requirements.
F. Hold Harmless
34. Revenue Requirement
" The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
a
a
a
a
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 16
35.
36.
Appendix B to the First Amendment to Stipulation
Parent and Avista agree that Avista will hold Avista Oregon customers harmless
if the Hydro One-Avista merger results in a higher revenue requirement for Avista
than if the merger had not occurred. Avista bears the burden of showing no
increase in the revenue requirement consistent with this commitment.
Ratemaking Cost of Debt and Equity
Avista and Parent agree that 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. For future ratemaking purposes:
a. Determination of Avista's Cost of Long-Term Debt will be no higher than
such costs would have been, absent Hydro One's ownership, assuming
Avista's Credit Ratings as such ratings were in effect on the day before
the Proposed Transaction closes and applying those credit ratings to then-
current debt;
b. Avista bears the burden to prove prudent in a future GRC any increased
cost of Long-Term Debt associated with existing Avista debt retired,
repaid, or replaced as a part of the Proposed Transaction; and
c. Determination of the authorized Return on Equity (ROE) in future GRCs
will include selection and use of one or more proxy group(s) of companies
engaged in businesses substantially similar to Avista's Oregon LDC
operations, without any limitation related to Avista's ownership structure.
Business and Financial Risks
Hydro One and Avista agree that Parent and Avista will hold Avista customers
harmless from any business and financial risk exposures associated with
Olympus Holding Corp., Hydro One, and Hydro One's other affiliates.
Avista and Parent agree that Avista and Olympus Holding Corp. will provide
notice to current and prospective lenders describing the ring-fencing controls in
these commitments and stating that such controls provide no recourse to Avista
assets as collateral or security for debt issued by Hydro One or any of its
subsidiaries; this provision does not prohibit Avista from pledging its own assets
as collateral or security for Avista debt. Avista and Parent will file with the
Commission prior to close of the Proposed Transaction a copy of said notice.
Should any regulatory, taxing or other governmenta! entity or subdivision thereof
in the United States of America or elsewhere make a determination that any
company organizationally situated between Avista and Hydro One, individually or
collectively:
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 17
37
38.
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
i. Lacks a genuine business purpose;
ii. Fails to constitute a separate and distinct business and not a single
economic unit containing one or more intermediate companies and
Avista;
iii. Exhibits substantial and material entanglement of operations or finance
with Avista;
iv. Fails to comply with all tax and other monetary obligations, including
but not limited to the timely obtaining of pertinent taxing authority
letters of determination authorizing the form and nature of any tax
management construct for the specific company housing the tax
management construct for the specific intended purpose directionally
specific to the application executed;
v. ls determined to be inadequately capitalized for its business purposes,
or
vi. Engages in financial hedging or other risk management predicated on
historica! correlations which do not hold true in future markets,
however disrupted or distressed, then:
Avista and its ratepayers will be held harmless from any claim, suit, action, loss,
damage, or legal liability, including all expenses, penalties, judgements fees
(including attorney fees), interest, charges, expert representation costs, and
amounts actually and reasonably incurred in connection with any litigation,
defense, penalty, or fine.
U nreg u lated Activities
a. Avista commits, and Parent agrees, that Avista's regulated utility
customers will be held harmless from the liabilities of any unregulated
activity of Hydro One and its subsidiaries and affiliates, including Avista
ln any proceeding before the Commission involving Avista rates, the
revenue requirement for Avista will be determined without recovery of
costs related to unregulated activities.
b. Avista commits, and Parent agrees, that Avista and AELP will continue to
be operated consistent with Commission Order 14-112, including
Attachment B, entered April 1,2014 in Docket Numbers UF 4283 and U!
343.
Environmental Liabilities of Parent
Hydro One will hold Avista and Avista ratepayers harmless from any
environmental obligations or liabilities of Hydro One or its affiliates other than
Docket No. UM 1897 I Revised Oregon Commitments / Page 18
Rate Credit
Oregon Annual Credit
Years 1-5
Oregon Total Credit
Total Credit $1,508,232 $7,541,159
Offsetable Credit $226,235 $1,131,174
Appendix B to the First Amendment to Stipulation
Avista, including those associated with harmful substances such as asbestos or
polychlorinated biphenyls (PCBs) and environmental cleanup and restoration.
39. Foreign Exchange and Hedging on Dividends Payments and Allocations
Avista and Parent agree that Avista ratepayers will be held harmless from any
currency exchange or related cash flow smoothing or hedging costs pertaining to
activities beyond Avista's Oregon utility operations and not usual and customary
prior to close of the Proposed Transaction.
G. Rate Credit
40 Rate Credits to Oregon Ratepayers
Avista and Hydro One will flow through to Avista's retail customers in Oregon a
Rate Credit of $7,541 J5912 over a S-year period, beginning at the time the
Proposed Transaction closes. The Parties agree that the rate credits shall be
spread to customers on an equal percentage of margin basis.
The total Rate Credit to customers for the five years following the closing would
be $1 ,508,232 per year. A portion of the annual total Rate Credit could be
offsetable, in the amount of $226,235.13 During the S-year period, the financial
benefits wil!flow through to customers through the Rate Credit described above
on customers' bills. The offsetable portion may be achieved through a reduction
to the underlying cost of service as reflected in the test period numbers used for
ratemaking.
To the extent Avista demonstrates in a future rate proceeding that cost savings,
or benefits, directly related to the Proposed Transaction are already being flowed
through to customers through base retail rates, the separate Rate Credit to
t' The total rate credit for Oregon will be $7,541 ,159. The rate credit will be allocated in Oregon on the
basis of Year End Customers for the year ending December 31st, 2016. ln 2016, Avista's Oregon Service
Territory had 100,472 customers. Avista total number of customers was717,579 in 2016. Therefore,
Oregon customers represented 14o/o of Avista total number of customers.
'' The offsetable portion of the Rate Credit was calculated as 15% of the jurisdictional total of the rate
credit.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 19
41
Appendix B to the First Amendment to Stipulation
customers would be reduced by an amount up to the offsetable Rate Credit
amount.
The $7.54 million represents the "floor'' of benefits that will be flowed through to
Avista's customers, either through the Rate Credit or through benefits otherwise
included in base retail rates. To the extent the identifiable benefits exceed the
annual offsetable Rate Credit amounts, these additional benefits will be flowed
through to customers in base retail rates in GRCs as they occur. Avista and
Hydro One believe additional efficiencies (benefits) will be realized over time
from the sharing of best practices, technology and innovation between the two
companies. lt will take time, however, to identify and capture these benefits.
The level of annual net cost savings (and/or net benefits) will be tracked and
reported on an annual basis, and compared against the offsetable level of
savings.
H. Taxes
Taxes
a. Federal, state, and local taxes and assessments included in customer
rates shall be no greater than they would be had Avista not been acquired
by Hydro One.
b. Tax benefits that would not exist absent the Proposed Transaction may be
addressed in future proceedings before the Commission; however, unti!
that time, Avista, in compliance with ORS 757.511(4Xb), shall make a
filing with the Commission for approval to establish a balancing account to
track income tax expense, subject to Commission approval and
Commission conditions. Avista shal! also submit an application to the
Commission to establish an ORS 757.259 deferral to track Avista's
income tax expenses and revenues (including tax benefits resulting from
the Proposed Transaction), the net revenues of which could be deliverable
to Avista's Oregon customers if a Party prevails in a future proceeding
before the Commission. Avista shall make its initial ORS 757.259 filing as
soon as practicable after the Commission issues its final order in this
docket, but prior to closing of the Proposed Transaction. Avista shall
continue to renew its application for an ORS 757.259 deferra! annually.
This commitment does not require Parent to pass Parent-related tax
benefits to Avista customers unless ordered by the Commission in a later
proceeding, nor does it permit Parent to pass Parent-related tax expenses
to Avista customers.
42. Tax Cuts and Jobs Act
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 20
Appendix B to the First Amendment to Stipulation
a) Avista and Parent agree that Avista will identify and quantify the impact on
Avista of the December 22,2017 U.S. "Tax Cuts and Jobs Act," which
lowered U.S. corporate federal income tax rates from 35 percent to 21
percent and modified or eliminated certain federal income tax deductions.
Avista will report on this impact in compliance with other Commission
proceedings. Within this reporting, Avista wil! identify specific metrics of
concern to Rating Agencies.
b) Regarding the deferral of net tax benefits associated with the Tax Cuts
and Job Act, currently docketed as UM 1918 and UM 1923, Avista agrees
that it willwaive, and not seek to apply, an earnings test (see ORS
757.259(5)) when Avista decides, or is required by the Commission, to
amortize the deferred tax benefit into customer rates; in other words,
Avista will not use any of the deferred tax benefits to achieve its
authorized ROE of 9.4% (ROE in 2018 and beyond). The Parties agree
that the amount of the tax benefit has not yet been determined, but will be
determined consistent with the Commission's direction in the UM 1918
and UM 1923 dockets, and other applicable docket(s) should one be
opened.
l. Financial Ring-Fencing
43. Cost of Capital
Avista and Parent agree that Avista's Cost of Capita!, including Avista's Rate of
Return (ROR), common equity, and Long-Term Debt, shall not be more costly
after the close of Proposed Transaction than they would have been absent the
Proposed Transaction. Consistent with Commitment 35(a), Avista bears the
burden of proving that increases in Avista's Cost of Capital, including Avista's
ROR, common equity, and Long-Term Debt, is caused by circumstiances or
developments that are unrelated to the financial risks or other characteristics of
the Proposed Transaction.
44 Gapital Support
Hydro One will provide equity injections to support Avista's capital structure
thereby allowing Avista to access its usual and customary financial markets
under reasonable terms and on a sustainable basis. This commitment should
include commercial paper programs, FMBs, credit facilities, letters of credit or
usual debt capital market transactions as exhibited in Avista's business activity
prior to execution of the Proposed Transaction, unless other comparable, lower-
cost methods exist in the future.
45. Common Equity Floor (CEF) in Capital Structure
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Docket No. UM 1897 I Revised Oregon Commitments / Page 21
46.
Appendix B to the First Amendment to Stipulation
The applicable CEF shall correspond to the applicable Credit Ratings for FMBs
as determined in Table 2 in accordance with the following paragraph of this
cqmmitment. Hydro One will make such equity injections as necessary to
maintain the applicable CEF consistent with Table 2.
When S&P and Moody's Credit Ratings are within one notch of each other, the
CEF will be determined by the higher of those ratings. When the difference
between S&P and Moody's is greater than 1 notch, the CEF wil! be determined
by the rating level that is one notch below the higher of the S&P and Moody's
ratings.
lf Avista or Parent finds that the actual or projected CEF wil! drop below one-half
of one percent above the required target based on the applicable Credit Ratings
in Table 2, then Avista and Parent will:
a) Within 5 business days, notify the Commission explaining why.
b) Within 30 days of providing notice, provide a plan and timeline
("Compliance Plan") that is subject to Commission review, modification,
rejection, or approval for maintaining Avista's common equity ratio at or
above the required CEF.
c) Subsequent to the filing of the Compliance Plan, Avista shall file progress
reports every 90 calendar days detailing its efforts to restore its equity
component to the required CEF or above, in addition to detailing how
Avista has met each requirement in the Compliance Plan.
d) lf Hydro One and Avista find it reasonably likely that Avista common equity
ratio could fall below one half of one percent above the required CEF in
Table 2 based on a preceding or projected thirteen month average, Avista
and Parent shall provide a report to Staff with its projections and take the
steps listed above.
Avista Debt and Preferred Stock
Avista and Parent agree that any debt, commercial paper programs, revolving
credit facilities and preferred stock of Avista wil! be maintained separately to
support Avista utility operations.
Parent and Avista agree that no incremental new debt related to financing the
transaction at closing or thereafter for this or future Parent or affiliate M&A will be
in any way incurred, guaranteed, or pledged with Avista assets or othenrise by
Avista. Avista's financial integrity will be protected from the separate operations
of the Parent and its affiliates. Should any entity claim or assert othenruise in any
Revised 1 1-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 22
47.
Appendix B to the First Amendment to Stipulation
forum, whether regulatory, political, legal or otherwise, the Parent will assert that
said debt or other financial instrument and any penalties or interest or other
obligations thereon is the sole responsibility of the Parent and its subsidiaries
other than Olympus Holding Corp. and all entities in the chain below it.
Neither Parent nor Avista will include in any of their debt or credit agreements
cross-default provisions between the debt of Avista and the debt of Parent or any
current and future Affiliates, or any government or political subdivision thereof
with a direct or indirect ownership interest in the Parent. Parent and Avista agree
that in no way may the assets of Avista be used to guarantee the finances,
securities, transactions, or credit of any government or subdivision thereof, and
that the acquisition of power to exercise substantial influence over Avista by any
person or entity in the future may only occur subject to Commission approval as
required by ORS 757.511 and as specified in these commitments.
Except as provided in commitments 62 and 63 Avista will enter into no inter-
company debt transactions with, or lend money to, or borrow money from:
Parent, or current or future affiliates, or any government or politica! subdivision
thereof with a direct or indirect ownership interest in the Parent.
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approval of the Commission:
a) Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or its
affiliates;
b) Assume any obligation or liability as guarantor, endorser, surety, or
otherwise for Parent or its affiliates;
c) Transfer any of Avista utility assets or property to Parent or its affiliates, or
any government or political subdivision thereof;
d) Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or its affiliates;
e) Enter into cross-default provisions involving Parent or its affiliates; or
0 Participate in a money pool.
First Mortgage Bonds (FMB)
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Docket No. UM 1897 I Revised Oregon Commitments / Page 23
48
49
50
Appendix B to the First Amendment to Stipulation
Avista and Parent agree that Avista will also maintain adequate: (a) interest
coverage and (b) pool of qualified Avista assets to maintiain the ability to issue
FMB.
Continued Credit Ratings
Avista and Parent agree that Avista debt (other than private placement debt), wil!
continue to be rated by both S&P and Moody's without substitution, except as
provided under the definition of Rating Agencies. Avista will make Rating
Agencies' credit ratings and all related presentations to or from Avista and Rating
Agencies, and Rating Agencies' reports and analysis pertaining to Avista,
available to the Commission upon the Commission's request.
Revolving Credit Facilities and Associated Letters of Credit
Parent and Avista agree that Avista will prudently manage its revolving credit
facilities and, as part of the renewa! of the current credit facilities, will proactively
arrange for multiple one year maturity extensions and accordion features
allowing enlargement of facilities to protect Avista from unnecessary credit risk, if
available at a reasonable cost in the market. Further, Parent and Avista agree to
prudently diversiflt institutions participating in revolving Avista credit facilities to
preclude concentration in any one country or institution.
Avista will share no credit facilities with Parent or affiliates or any government or
political subdivision thereof with a direct or indirect ownership interest in the
Parent.
Restrictions on Upward Dividends and Distributions
No upward dividends, distributions or like payments are authorized from Avista
(special, one-time, or otherwise) to Olympus Equity LLC if any of the following
conditions are present:
a) The ratio of Avista's earnings before interest, tax, depreciation and
amortization (EBITDA) to Avista's interest expense is not greater than or
equalto 3.0;
b) Avista's CEF as calculated for ratemaking purposes in Oregon is less than
set forth in Table 2 based on FMB credit ratings. Table 2's application is
further described in Commitment 45, "Common Equity Floor (CEF) in
Capital Structure" (for example, if Avista's S&P FMB rating is "A" AND
Moody's FRB rating is "A2", then the CEF shall be 46%); or
c) Avista's S&P or Moody's long-term (local currency) issuer credit ratings
drop below lnvestment Grade. Note that subsection (c) is an exception to
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Docket No. UM 1897 I Revised Oregon Commitments / Page 24
Appendix B to the First Amendment to Stipulation
the definition of Credit Ratings, but not an exception to the definition of
lnvestment Grade.
For five years after the closing of the Proposed Transaction, Avista and Parent
agree to decline to request any extraordinary or special upward dividends or
payouts. Further as an exception to ORS Chapter 757 inclusive of ORS 757.420,
Avista and Parent consent that the Commission shall have 60 days to review any
application for a special upward dividend made beyond five years post Proposed
Transaction, and agree that comprehensive supporting justification will be filed with
the Commission in support of any said future application.
Without prior Commission approval, Avista and Parent agree that Avista's regular
quarterly dividends from Avista to Olympus Equity LLC, or othenrvise upward
toward Hydro One, may grow at a Compound Annua! GroMh Rate (CAGR) of no
more than seven (7) percent CAGR.14
ln all cases, Parent and Avista agree that Hydro One shall notify the Commission
of:
i. Any intention to transfer more than five (5) percent of Avista retained
earnings, out of Avista, at least seven (7) days prior to starting this
transfer;
Any intention to transfer more than ten (10) percent of Avista retained
earnings out of Avista over a six-month period, at least 30 days prior to
starting those transfers;
Any intention to declare a special cash dividend payment at least 30 days
before declaring the special cash dividend or like transfer of funds; and
Its most recent quarterly cash dividend payment within 30 days after
declaring each dividend.
AnnualAffiliated lnterest (Al) reports must itemize all Parent M&A divestitures,
and reorganization activities since the prior annualAl report.
51.SEG Reporting Requirements
Following closing of the Proposed Transaction, Avista will continue to make its
own applicable separate filings with the U.S. Securities and Exchange
Commission (SEC).
52. Compliance with the Sarbanes-Oxley Act
| 1a
-Sge
page 21 of Avista's investor presentation, "Positioned for Performance - An overview of Q3
2017 and beyond" released in December 2017 for the 2013 through 2017 4 percent to 5 percent trend of
annual dividend growth.
Docket No. UM 1897 I Revised Oregon Commitments / Page 25
il
iii
IV
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53.
54
55
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
Following the closing of the Proposed Transaction, Avista and Parent will comply
with applicable requirements of the Sarbanes-Oxley Act with regard to al! activity
at Avista and Olympus Equity, LLC.
Sources of Funds for Hydro One Commitments and Guarantees (Other than
for Customer Service, Communities and Gharitable Purposes)
a. Within 18 months of the close of the Proposed Transaction, Hydro One
wil! establish and maintain a Canadian $2 billion universal shelf
prospectus in Canada which will allow it to issue debt, common equity and
preferred equity.
b. Hydro One agrees to increase its Canadian $250 million credit facility to at
least $500 million, increasing its liquidity and enabling it to fund any equity
injection required at Avista on short notice.
c. Hydro One agrees that Avista will continue to be able to issue FMBs, and
that Hydro One will be supportive of Avista's FMB credit ratings.
d. Hydro One agrees that it will not allow Avista's S&P or Moody's long-term
(local currency) issuer credit ratings to drop below lnvestment Grade.
Note that this is an exception to the definition of Credit Ratings, but not an
exception to the definition of lnvestment Grade.
J. Bankruptcy Ring-Fencing
Avista Cash FIows
Avista commits, and Parent agrees, that prior to upward dividends from Avista to
Olympus Equity LLC, Avista cash flows will not be comingled in common
accounts with cash flows for other purposes at either of Olympus Equity, LLC or
Hydro One, including all Hydro One subdivisions and affiliates. Hydro One will
ensure that all of the Parent's corporate entities maintain accounts and
subaccounts that are separate from Avista accounts and subaccounts, sufficient
to cause handling of cash flows to be entirely consistent with Avista's corporate
purposes.
Golden Share
Entering into voluntary bankruptcy shall require the affirmative vote of a "Golden
Share" of Avista stock. The Golden Share is defined in the Definitions section of
these commitments and is the sole share of Preferred Stock of Avista as
authorized by the Commission. This share of Preferred Stock must be in the
custody of an independent third-party, where the third-party has no financial
stake, affiliation, relationship, interest, or tie to Hydro One or any of its affiliates
including Avista, or is any lender to Hydro One or its affiliates, or Avista or its
Docket No. UM 1897 I Revised Oregon Commitments / Page 26
Appendix B to the First Amendment to Stipulation
affiliates. The holder of the Golden Share must be approved by the Commission
ln matters of voluntary bankruptcy, this Golden Share will override all other
outstanding shares of all types or classes of stock and the holder of the Golden
Share solely represents the interests of Avista's utility customers.l5
The cost of the Golden Share is considered a transaction cost and not included
in rates. Once a viable candidate for holder of the Golden Share is identified,
Avista must report to the Commission the following:
a) The name and contact information of the holder of the Golden Share;
b) How this person/entity meets the definition and purpose of the Golden
Share holder as explained in the commitments herein; and
c) Provide a copy of the draft agreement between the purchaser and Avista
After receiving Commission approval of the holder of the Golden Share, Avista
shal! file the following:
i. The Report of Securities lssued and Disposition of Net Proceeds promptly
after the sale; and
ii. Final copies of:
1. The Board resolution authorizing the transaction;
2. The resolutions of the Board and the shareholder approving and
adopting the Amended and Restated Articles of lncorporation of
Avista, including the rights and preferences of the Golden Share;
3. A copy of the Amended and Restated Articles of lncorporation of
Avista;
4. A copy of the Golden Share certificate; and
5. A copy of the agreement between the holder of the Golden Share
and Avista.
Further, Avista will seek Commission approval prior to consenting to any future
sale, trade, or transfer of the Golden Share by the Commission-approved-holder
thereof. Avista will provide supplemental information at that time in a manner
and form consistent with that which was provided in the review of the initial
purchaser in this docket.
'u See Definitions Section for further explanation and case references
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 27
Appendix B to the First Amendment to Stipulation
56. Vote of lndependent Directors AIso Required
Avista and Parent agree that the organizational documents of Avista and
Olympus Equity LLC will provide that Avista and Olympus Equity LLC will not,
and their organizational documents will not permit Avista or Olympus Equity LLC
to, consent to the institution of voluntary bankruptcy proceedings or to the
inclusion of Avista in bankruptcy proceedings of Parent, absent a two-thirds
majority vote of all Avista directors, including the affirmative vote of a majority of
the lndependent Directors at Avista, which must include the affirmative vote of at
least two of the Avista designated lndependent Directors.
Avista and Parent agree that Avista will present the organizational documents of
Avista and Olympus Equity, LLC to the Commission before the Commission's
decision in this proceeding.
ln addition to an affirmative vote of a majority of the lndependent Directors, the
vote of the holder of the Golden Share shall also be required for Avista to enter
into a voluntary bankruptcy.
57 Non-Consolidation Opinion
As soon as it is obtained, but by no later than ninety (90) days after the Proposed
Transaction closing, Avista and Hydro One willfile a non-consolidation opinion
with the Commission which concludes, subject to customary assumptions, that
the commitments herein are sufficient that any U.S. bankruptcy court or
Canadian bankruptcy court would not order the substantive consolidation of the
assets and liabilities of Avista with those of Hydro One or any of its affiliates or
subsidiaries. Avista commits to promptly file such opinion with the Commission
as soon as it is obtained.
lf the ring-fencing provisions in these commitments are not sufficient to obtain a
non-consolidation opinion, Hydro One and Avista will immediately take the
following actions:
a. Notify the Commission of this inability to obtain a non-consolidation
opinion.
b. Propose and implement, upon Commission approval, such additional ring-
fencing provisions around Avista as are sufficient to obtain a non-
consolidation opinion subject to customary assumptions and exceptions.
c. Obtain a non-consolidation opinion, and otherwise complete above steps.
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Docket No. UM 1897 I Revised Oregon Commitments / Page 28
Appendix B to the First Amendment to Stipulation
Hydro One and Avista recognize that OPUC adoption of the stipulation in this
docket and the list of commitments herein is conditioned on and subject to Hydro
One and Avista filing a satisfactory non-consolidation opinion with the OPUC.
58. Olympus Holding Gorp. and Olympus Equity LLC
Olympus Holding Corp.'s indirect subsidiaries will include Olympus Equity LLC
and Avista. See the post-acquisition corporate organizationa! chart in Table 1.
Following closing of the Proposed Transaction, a!! of the common stock of Avista
will be owned by Olympus Equity LLC, a limited liability company.
Avista wil! become a wholly-owned subsidiary of Olympus Equity LLC, a
bankruptcy-remote Specia! Purpose Entity (SPE) established for the purpose of
ring-fencing Avista, with the intention of removing Avista (and al! of its current
subdivisions and holdings in a!! states) from the bankruptcy estate of Parent and
other divisions and affiliates. Olympus Equity LLC wil! issue no preferred stock;
will not issue nor carry notes, bonds, or other forms of indebtedness; and will not
engage in financial derivatives, hedging, or like financial activities beyond those
entirely consistent with the above stated purpose of the bankruptcy-remote SPE.
Olympus Equity LLC, Avista and Avista's subsidiaries will not hold other Parent
corporation investments or financial obligations without prior Commission
approval.
Hydro One will provide copies of the articles of incorporation and bylaws for
Olympus Holding Corp. and of the membership agreement for Olympus Equity's
LLC to the Commission prior to the Commission's decision in this matter. ln the
instance that any of the articles of incorporation or bylaws of the abovementioned
companies conflict with any commitment listed herein, Olympus Holding Corp.
and Olympus Equity LLC agree to amend such documents to reconcile the
conflict so that the terms of the commitments herein prevail.
Avista and Parent commit that Olympus Equity LLC will not operate or own any
business and will limit its activities to investing in and attending to its
shareholdings in Avista.
Avista and Parent further commit that the revised articles of incorporation and
bylaws of Olympus Holding Corp, and Olympus Equity LLC, reflecting their
specific business purposes will be provided to the Commission prior to the
Commission's decision on the Proposed Transaction.
59 Restriction on Pledge of Utility Assets
Absent a Commission order providing otherwise, Avista and Hydro One agree
that under no circumstance will Avista loan, pledge, or transfer Avista utility
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Docket No. UM 1897 I Revised Oregon Commitments / Page 29
Appendix B to the First Amendment to Stipulation
assets to Hydro One, Olympus Holding Corp., or any of Parent's subsidiaries or
affiliates, other than Avista, without Commission approval. ln addition, Avista
and Hydro One agree that Avista's assets will not be loaned, pledged, or
transferred by Avista or any of its affiliates, including Hydro One and Olympus
Holding Corp. and any of their subsidiaries or affiliates.
60. Major Shareholder (Beneficial Ownership) Reporting
Avista and Parent agree that Avista will submit a written report on Major
Sha rehold ers con sistent with OAR 860-0 27 -017 5(2) ( Major S ha rehold ers
Report).
When holdings of all entities are not available because filings for those certain
entities have not yet been made or are not available, Avista and Parent agree
that Avista will use best available information in a preliminary filing to the
Commission by the due date provided for in OAR 860-027-0175, supplemented
by a final filing to the Commission no later than June 1 of each year.
61.Restriction on Acquisitions and Dispositions
Parent and Avista agree to comply with ORS 757.511 and ORS 757.480 as
applicable and as described in the commitments herein. Hydro One, its Affiliates,
and subsidiaries including Avista will notify the Commission subsequent to the
board of Hydro One, its Affiliates or subsidiaries including Avista approving, and
as soon as practicable following any public announcement, of:
a. Any acquisition by Hydro One, its Affiliates and subsidiaries including
Avista of a regulated or unregulated business that is equivalent to five (5)
percent or more of Hydro One's capitalization; or
b. Any change in control or ownership of Avista, inclusive of any change of
upstream ownership of Avista among subsidiaries and Affiliates of Hydro
One, providing detail of the holding.
This commitment does not prohibit Parent or its affiliates other than Avista from
holding diversifi ed businesses.
Neither Avista nor Olympus Holding Corp. will assert in any future proceedings
that the Commission is without jurisdiction over any transaction that results in a
change of contro! over Avistia pursuant to ORS 757.511 and ORS 757.480, or as
those statutes are described in the commitments herein.
Revised 1 1-6-20'18
Docket No. UM 1897 I Revised Oregon Commitments / Page 30
62
Appendix B to the First Amendment to Stipulation
No lnter Company Debt
Avista and Parent agree that, without prior Commission approval, Avista will not
enter into any inter-company debt transactions with Olympus Holding Corp.,
Hydro One, or any of their subsidiaries or affiliates.
63 No lnter Company Lending
Avista and Parent agree that, without prior Commission approval, Avista will not
lend money to Olympus Holding Corp., Hydro One, or any of their subsidiaries or
affiliates.
K. Access to lnformation
64. Access to and Maintenance of Books, Records and Other lnformation
The following commitment applies to information that is reasonably calculated to
lead to the discovery of admissible evidence pertaining to, or that may directly or
indirectly affect or relate to, Avista, the Oregon-regulated utility: Avista and
Parent will provide access to all materials specified in subparagraphs a - d below.
Where practicable, this information will be made available directly to the
Commission or at Avista's Headquarters in Spokane.
The Proposed Transaction and Hydro One's post-closing corporate structure will
not result in reduced access to books and records for Commission Staff and
other parties to regulatory proceedings necessary to investigate, examine, or
verify transactions with Avista, or that result in costs that may be allocable to
Avista.
Nothing in the Proposed Transaction and corporate structure thereafter will limit
or affect the Commission's rights with respect to inspection of Avista's and
Olympus Holding Corp.'s accounts, books, papers and documents pursuant to
and in compliance with all applicable Oregon laws and administrative rules.
Avista and Parent will provide the Commission with access to
a. All books of account, budgets, integrated resource planning, documents,
data, records, accounting, and financial information which may pertain to
transactions between Avista and Hydro One or any Hydro One U.S.
affiliate and subdivision.
b. Avista Board of Director (BOD) and Parent BOD meeting minutes and
presentations for BOD meetings, Avista and Parent committees and
subcommittees thereof, as well as investor presentations and transcripts
for Avista and Parent.
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Docket No. UM 1897 I Revised Oregon Commitments / Page 31
65
66
67
Appendix B to the First Amendment to Stipulation
c. Such other records of Avista and Parent including affiliates that are the
bases for charges to Avista, to determine the reasonableness of the costs
and the allocation factors used by Hydro One and its affiliates or
subdivisions to assign costs to Avista and amounts subject to allocation or
direct charges consistent with the Commission's rules and regulations.
d. All information provided by and to common stock, bond, or bond rating
analysts, and Rating Agencies, which directly or indirectly pertains to
Avista or any affiliate that exercises influence over Avista. Such
information includes, but is not limited to, opinions, reports and
presentations made to or provided by common stock analysts and bond
rating analysts. Avista's records of such matters will be kept at Avista's
headquarters in Spokane.
Hydro One and its Affiliates agree that they wil! not raise lack of jurisdiction as a
means of denying such access, and agree to cooperate fully with such
Commission investigations and requests for information.
Budgets
On or before December 31 of each year, Avista shall make available to the
Commission a final copy of its annual capital budget(s) for the succeeding year.
Hydro One will provide an annual budget of all transactions between Hydro One
and Avista.
Appearance Before the Commission
Hydro One and Avista will seek to maintain a visibly constructive relationship with
the Commission and wil! make their employees and officers available to testifu,
present or participate in workshops before the Commission at the Commission's
request to provide information of interest to the Commission on matters related to
Avista's operations in Oregon. Avista will keep the Commission informed on
materia! matters related to Avista's operations in Oregon consistent with
Commission statutes and rules.
L. Accounting
Separate Books and Records
Avista and Parent, including all Hydro One U.S. Affiliates and subdivisions, will
maintain the necessary itemized books and records in form that can be viewed,
printed, and duplicated so as to document all corporate, Affiliate, or subsidiary
transactions with Avista, or that result in costs that may be allocable to Avista.
Documentation shall be maintained such that all costs subject to allocation and
the basis for the application of the allocation methodology can be specifically
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 32
68.
a
Revised 1 1-6-2018
Appendix B to the First Amendment to Stipulation
identified, particularly with respect to origin and cost drivers.
Avista and Parent further agree that Avista will maintain separate books and
records inclusive of a!! documentation relating to costs allocated to and from its
Parent and Affiliates, with such accounting information and financial books and
records kept at Avista's headquarters in Spokane, Washington.
Avista wil! maintain its own accounts and subaccounts, books, computers, data,
documents, and documentation with supporting records separate from the
Parent's accounting system, with such accounting information and financial
books and records kept at Avista headquarters in Spokane, Washington.
Avista assets, cash flows, and financial accounts may not be co-mingled with
Parent or Parent's subsidiaries or operations resulting after the merger.
M. Cost Allocations
Cost Allocations and Affiliate lnterests
Avista and Parent agree that Avista will provide cost allocation methodologies
used to allocate to Avista any costs related to Parent, including to Olympus
Holding Corp. or its other subsidiaries, and commit that there will be no cross-
subsidization by Avista customers of unregulated activities.
Avista and Parent agree as follows:
Hydro One and Avista will not cross-subsidize between the regulated and
unregulated businesses or between any regulated businesses, and shall
comply with the Commission's applicable statutes, orders, and rules with
respect to such matters.
Hydro One shall not subsidize its activities by allocating to or directly
charging Avista expenses not authorized by the Commission to be so
allocated or directly charged.
a
For any services rendered to Avista or each cost category subject to
allocations to Avista by Hydro One or any of its affiliates, Hydro One must
be able to demonstrate that such service or cost category is necessary to
Avista for the performance of its regulated operations, is not duplicative of
services already being performed with Avista, and is reasonable and
prudent and results in a benefit to Oregon customers.
To determine the reasonableness of allocation factors used by Hydro One
to assign costs to Avista and amounts subject to allocation or direct
Docket No. UM 1897 I Revised Oregon Commitments / Page 33
Appendix B to the First Amendment to Stipulation
charges, the Commission or its staff may investigate the accounts of
Hydro One and its subsidiaries which are the bases for charges to Avista.
Hydro One agrees to cooperate fully with such Commission investigations,
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approval of the Commission:
a. Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or
affiliates;
b. Assume any obligation or liability as guarantor, endorser, surety, or
otherwise for Parent or affiliates;
c. Transfer any of its utility assets or property to Parent or affiliates, or any
government or political subdivision thereof with a direct or indirect
ownership interest in the Parent, except as and when required by ORS
757.511 and ORS 757.480 or expressed in the commitments herein; or
d. Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or affiliates.
Avista will bear the burden of proof in any GRC that any corporate and affiliate
cost allocation methodology is reasonable for ratemaking purposes consistent
with Commission statutes, orders, and rules. Neither Avista nor Olympus
Holding Corp. or its subsidiaries will contest the Commission's authority to
disallow, for ratemaking purposes in a GRC, unreasonable, or misallocated costs
to Avista.
With respect to the ratemaking treatment of affiliate transactions affecting Avista,
Olympus Holding Corp., Hydro One and all its U.S. subsidiaries, will comply with
the Commission's rules and practice. However, nothing in this commitment limits
Avista from also proposing a different ratemaking treatment for the Commission's
consideration, or limits the positions that any other party to the proceeding may
take with respect to ratemaking treatment.
69. Prevention of Cross Subsidization
Avista and Parent agree to comply with ORS 757.015 through 757.495, as
applicable, and OAR 860-027-0040 through 860-027-OO42, as applicable, for
transactions between Avista and Parent including subdivisions and Affiliates.
Further, Avista and Parent agree that the Commission may investigate the
accounting records of Parent and Affiliates that are the bases for charges to
Avista, to determine the reasonableness of the costs and the allocation factors
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 34
Appendix B to the First Amendment to Stipulation
used by the Parent or its subdivisions to assign costs to Avista and amounts
subject to allocation or direct charges. Parent and Affiliates will cooperate fu!!y
with such Commission investigations.
Parent and Avista will maintain robust systems to track employee, officer,
director, agent, and attorney time not spent for Avista utility purposes, which cost
thereof shall not be allocated to Avista.
Parent and Avista will comply with all applicable Commission statutes, orders,
and rules regarding Affiliated lnterest transactions, including timely filing of
applications and reports.
Avista will not cross-subsidize between the regulated and unregulated
businesses or between any regulated businesses, and shal! comply with the
Commission's applicable orders and rules with respect to such matters.
a. For services rendered to Avista or each cost category subject to allocation
to Avista by Hydro One or any of its affiliates, Avista must be able to
demonstrate that such service or cost category is: i) necessary to Avista
for the reasonable performance of its regulated operations in Oregon, ii) is
not duplicative of services already being performed within Avista, and iii) is
reasonable and prudent.
b. Cost allocations to Avista will be directly charged whenever possible, and
shared or indirect costs will be allocated based upon the primary cost-
driving factors.
c. Hydro One and its subsidiaries will have in place an accounting system
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
d. All costs subject to allocation will be documented, such that they can be
specifically identified, particularly with respect to their origin.
e. Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval. The Master Services Agreement (MSA) or equivalent will be
updated to include the corporate and affiliate cost allocation
methodologies between Hydro One, Avista and their affiliates. The MSA
will be filed with the Commission for review and approval, no later than 90
days after close of the transaction. Thereafter, amendments to the MSA
Docket No. UM 1897 I Revised Oregon Commitments / Page 35
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
will also be filed with the Commission as materia! changes occur, or
otherwise attached to the annual June Affiliated lnterest (Al) report.
f. Avista and Hydro One commit to using asymmetrical pricing as required
by oAR 860-027-0048(4).
Any allocation of costs, corporate and Affiliate investments, expenses, or
overheads between Avista and Parent or an Affiliate will comply with the
following principles:
Cost allocations to Avista wil! be directly charged whenever possible, and
shared or indirect costs will be allocated based upon primary,
demonstra ble, a nd tra nspa rent cost-d rivi ng facto rs.
I Parent and all subsidiaries and Affiliates will maintain accounting systems
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
iii. All costs subject to allocation will be Documented and flagged by origin, so
as to be specifically identified, tracked, and trended. Failure to adequately
support any allocated cost may result in denial of its recovery in rates.
Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval.
Avista's MSA or equivalent, itemizing and explaining corporate cost
allocation methods used for rate setting, will be updated to include the
corporate and affiliate cost allocation methodologies between Parent (and
Hydro One if different), Avista, and Affiliates and filed with the Commission
no later than 90 days after execution of the reorganization. Thereafter, the
MSA will be appended to the annual June Affiliated lnterest report filed
with the Commission. This annualfiling will capture, highlight and explain
all changes from the prior year. The entirety of the MSA and its
components are subject to review by Staff in subsequent proceedings
before the Commission to confirm that cost drivers, accounting methods,
assumptions, and practices result in fair, just and reasonable utility rates.
Avista will update, and re-file for approval, the MSA and Al Reporting
reflecting Parent (and Hydro One if different) organizational detai! and the
outcome of Docket No. UM 1897.
vi. Costs which would have been denied recovery in rates had they been
incurred by Avista will likewise be denied recovery whether they are
IV
V
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Docket No. UM 1897 I Revised Oregon Commitments / Page 36
71
70
72.
73.
Appendix B to the First Amendment to Stipulation
allocated directly or indirectly through subsidiaries of Parent other than
Avista.
vii Avista willfile timely applications and reports in compliance with
ORS 757.015 through 757 .495 and OAR 860-027-0040 through 860-027-
0042.
viii. Parent and Avista commit that they will interpret ORS 757.O15 and
757.495 to require Commission approval of any contract between Avista
and (1) any affiliate of Hydro One or (2) any affiliate of Parent. This shall
include the MSA discussed herein.
tx.Avista bears the burden of showing that a particular expense may be
allocated to Avista ratepayers.
Master Services Agreement (MSA)
Please see Commitment 69.
Complete Corporate Organizational Chart and Contact lnformation
Avista and Parent agree that Avista willfile usual and customary Affiliated
lnterest (Al) reports with the Commission each June. Avista's Al reports filed
with the Commission will contain.a complete copy of the current corporate
organizational chart between Hydro One and Avista, including contact
information for those entities, a narrative description of each Affiliate, annua!
revenue for each Affiliate, and transactions with each Affiliate; and identify in the
chart any entities that do business with, share charges with, or have an
ownership interest of five percent or more in Avista.
N. North American Free Trade Agreement (NAFTA)
North American Free Trade Agreement (NAFTA)
Avista and Parent agree that the Commission would have jurisdiction in any
future proceedings regarding any unrecovered liabilities to the State of Oregon
that may result from NAFTA Chapter Eleven mediations, arbitrations, or any
other litigation brought by Hydro One's shareholders under NAFTA. Only the
Commission or the Oregon Attorney General may initiate such proceeding.
O. Avista Status Quo
Generally Accepted Accounting Principles and Standards (GAAP)
Avista and Parent agree that Avista and Olympus Equity LLC will follow GAAP
for Oregon regulatory purposes except when otherwise directed by Commission
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 37
74.
75
76.
Appendix B to the First Amendment to Stipulation
orders and policies, Oregon Revised Statutes (ORS), and Oregon Administrative
Rules (OAR).
Travel Expenses
Avista and Parent agree that Avista's corporate travel expenses recovered in
rates, including variable costs of flying the Avista corporate jet and commercial
travel for all Avista and Parent directors and executives will not exceed 105
percent of 2017 expenses adjusted annually for inflation. However, regardless of
the terms of this commitment, Avista still carries the burden of demonstrating the
reasonableness and inclusion in rates of any travel expense.
Avista Management Direction
Avista and Parent agree that Avista management will continue to ensure that
delivery of safe and reliable high quality utility service at just and reasonable
rates in Oregon is included in its mission and is a top corporate priority post-
merger.
Capital lnvestment for Safe Pipelines and Controls
Avista and Parent agree that Avista wil! maintain its existing levels of capital
investment where needed to improve the safety of regulated pipelines and
associated controls for the next ten years. Over that period, Parent agrees to
provide capital, receiving usual Commission rate case treatment, as necessary to
improve the safety of pipelines and associated controls.
77 Equal or Better Access to Financial Markets in the U.S. and Canada
Avista and Parent agree to make reasonable commercial efforts to prioritize
access for Avista to financial markets at equal or lower cost than absent the
Proposed Transaction for Long-Term Debt and Credit Facilities in the U.S.
Hydro One agrees to consider listing on the New York Stock Exchanges (NYSE)
as and when appropriate and advisable.
Parent agrees to make reasonable commercial efforts to investigate and arrange
innovative financing opportunities that include independent opportunities for
Avista financing, utilizing the same investment banks and arranged sellers in the
U.S. and Canada, where Avista is responsible for Avista's issuances and
proportional cost, but afforded proportional access to larger aggregate securities
offerings to achieve lower all-in issuance cost.
78. Venue for and Resolution of Disputes
Avista and Parent agree that the venue for disputes regarding the operation of
Avista will be in state and federal regulatory bodies or courts of competent
jurisdiction, as applicable, in Oregon, Washington, ldaho, Montana or Alaska.
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Docket No. UM 1897 I Revised Oregon Commitments / Page 38
Appendix B to the First Amendment to Stipulation
79. Headquarters
Avista and Parent agree that Avista will maintain its headquarters in Spokane,
Washington. Any change in the location of Avista headquarters will require
Commission approval.
80. Local Staffing
Avista will maintain Avista's staffing and presence in the communities in which
Avista operates at levels sufficient to maintain the provision of safe and reliable
service and cost-effective operations, consistent with Pre-Merger levels.
81 Pension and Post Retirement Expenses and Assets
Avista and Parent agree that Avista will maintain its pension funding policy in
accordance with sound actuarial practice, and comply with Commission Orders
regarding best practices on pension policies. Hydro One will not seek to change
Avista's pension funding policy or to obtain funds from Avista's pension and post-
retirement assets.
82 General Operations and Maintenance (O&M) for Gommunity Development
Operations and maintenance funds dedicated to economic development and
non-utility strategic opportunities will be recorded below-the-line to a non-
operating account.
83.Economic Development
Parent and Avista agree that Avista will approach economic development, in a
manner consistent with Avista's past practices.
84. Membership in Organizations
Avista will maintain the dues paid by it to various industry trade groups and
membership organizations, where participation is related to the delivery of safe
and reliable utility services. However, recovery of all membership and
organizational dues will be reviewed in a GRC consistent with Commission
orders and rules.
85 FERC Reporting Requirements
Avista and Parent agree that Avista will continue to meet all the applicable
Federal Energy Regulatory Commission (FERC) reporting requirements with
respect to annual and quarterly reports (e.9., FERC Forms 1, 2, 3-Q) after
closing of the Proposed Transaction.
86. Participation in National and Regional Forums
Avista and Parent agree that Avista will continue to participate, in national and
regional forums regarding transmission issues, pricing policies, siting
requirements, and interconnection and integration policies, and such forums as
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 39
87
88.
Appendix B to the First Amendment to Stipulation
necessary to provide safe and reliable electrical and natural gas service and to
protect the interest of Avista customers.
Compliance with Existing and Future ORS, OAR and Commission Orders
Avista and Parent will comply with applicable Oregon Revised Statutes (ORS),
Oregon Administrative Rules (OAR), and Commission Orders. All existing
Commission Orders with respect to Avista or its predecessor, Washington Water
Power Co., will remain in effect until changed by the Commission including those
regarding Avista's acquisition of AERC.
P. Corporate Citizenshap
Oregon Charitable Contributions
Hydro One and Avista agree th-at Avista will contribute charitable donations to
Oregon-based organizations. Avista agrees it will, over time, distribute charitable
donations in proportion to each state's portion of the system in which Avista
operates.
89. Other Community Contributions
Hydro One will make a one-time $7,000,000 contribution to Avista's charitable
foundation at closing, a portion of which will be allocated to Oregon proportionate
to relative revenues in Oregon.
Commitment 90 contains an additiona! commitment relating to charitable
contributions.
90. General Community Contributions and lnvolvement
For five years after the close of the Proposed Transaction, Avista will maintain a
$4,000,000 annual budget for charitable contributions (funded by both Avista and
the Avista Foundation) and additionally a $2,000,000 annual contribution will be
made to Avista's charitable foundation, which will not be recoverable in customer
rates. No approval from any regulatory bodies with jurisdiction over the
commitments is required for any changes to this commitment after the sixth year
following closing of the Proposed Transaction; however, any such changes will
continue to require a two-thirds (2/3) vote of the Avista Board. Avista agrees it
will, over time, distribute this annual charitable contributions budget across its
entire service territory in proportion to each state's portion of the system.
91 Sources of Funds for Hydro One and Avista Commitments
Throughout the list of commitments herein, any commitment that states that
Hydro One or Avista will provide funding is a firm commitment to provide the
exact dollar amount specified, over the time period specified, and for the
purposes specified. To the extent Avista has retained earnings that are available
Revised 1'1-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 40
Appendix B to the First Amendment to Stipulation
for payment of dividends to Olympus Equity LLC consistent with the ring-fencing
provisions of this list of commitments, such retained earnings may be used.
Q. Future Rates
92 Treatment of Net Cost Savings
Avista and Hydro One agree that any net cost savings that Avista achieves as a
result of the Proposed Transaction will be reflected in subsequent rate
proceedings, as such savings materialize. To the extent the savings are
reflected in base retai! rates they will offset the Rate Credit to customers, up to
the offsetable portion of the Rate Credit.
93. Gontinuation of Base Rates Established in UG-325
Avista last adjusted base rates on November 1,2017, in Docket No. UG-325.
Avista agrees that these base rates will remain in effect until at least January 1,
2020.
94. Preparation for Next General Rate Case (GRC) in Oregon
Avista and Hydro One agree that Avista will attach to its next GRC filing in
Oregon, an Officer of Avista Corporation attestation that all Transaction Costs
associated with the Hydro One merger have not been included in the GRC filing,
and includes a granular assessment of (2) net Transition Costs and (3) cost
savings for Oregon customers obtained as a result of the Hydro One merger and
its subsequent synergies.
95 Treatment of Goodwill, Transaction Costs, and Transition Costs
Avista and Parent agree that Avista and Parent will not seek to recover in rates
any acquisition adjustment, contro! premium, goodwill, or transaction costs
associated with the Proposed Transaction. Further:
a. After the consummation of the Proposed Transaction, any remaining
transaction costs or other costs associated with the Hydro One merger will
not appear on Avista's regulated utility books in any form. Olympus
Holding Corp. and Hydro One transaction costs or other costs associated
with the Hydro One merger have not and will never appear on Avista's
utility books.
b. Avista shallfurnish the Commission with journal entries and supporting
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, costs of
necessary filings and recordings, etc.) since the Proposed Transaction
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Docket No. UM 1897 I Revised Oregon Commitments / Page 41
Appendix B to the First Amendment to Stipulation
was first contemplated, as well as the accounts charged, within 90 days of
a Commission order in this docket.
c. Avista will exclude from Avista GRCs, or any other method of cost
recovery, all costs related to the Proposed Transaction including but not
limited to:
(i) All lega! work from in-house counsel and outside counsel;
(ii) Any financial advisory fees associated with the Proposed
Transaction;
(iii) The acquisition premium and any other goodwill;
(iv) M&A consulting and advice, including that of investment banks;
(v) Preparation of materials or presentations relating to the Proposed
Transaction including all costs of related regulatory proceedings;
(vi) Any senior executive time and compensation or any Avista Board of
Director time measured in lowest practicable USD increments
associated with the Hydro One merger; and
(vii) Any other costs associated with the Proposed Transaction.
No costs of goodwill of the Parent or affiliates wil! be includable in Avista rates,
including rate base, cost of capital, or operating expenses. Write-downs or write-
offs of goodwill wil! not be included in the calculation of net income for dividend or
other distribution payment purposes.
Parent will not elect to apply pushdown accounting for this merger so that the
merger wil! have no impact on Avista's assets being acquired, and any
incremental goodwillwill not be allocated to, or recognized within Avista's
balance sheet.
96. Costs for Future M&A or Reorganization
Parent and Avista will exclude from Avista GRCs, or any other method of cost
recovery, allfuture costs related to the Parent's future business endeavors and
mergers, acquisitions (M&A), restructuring, or formation of holding companies.
R. Environmental, Renewable Energy, and Energy Efficiency
97 Greenhouse Gas and Carbon lnitiatives
Avista and Parent will support Avista's current Natural Gas IRP Greenhouse Gas
and Carbon lnitiatives. Avista and Parent agree that Avista will continue to seek
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 42
Appendix B to the First Amendment to Stipulation
cost effective and least risk opportunities to reduce greenhouse gas and carbon
emissions in Oregon.
98 Gost of Greenhouse Gas Emissions
Where consistent with Commission orders, Avista commits to Oregon Natural
Gas IRP modeling of a range of potential costs for greenhouse gas emissions,
and will work with its IRP stakeholders to determine appropriate values to model
99 Greenhouse Gas lnventory Report
Avista and Parent agree that Avista will comply with greenhouse gas inventory
and other reporting requirements in Oregon.
100. Efficiency Goals and Objectives
Avista and Parent agree that Avista will support Avista's current IRP Energy
Efficiency lnitiatives. Avista and Parent agree that Avista will continue to seek
cost effective and Ieast risk opportunities for energy efficiency in Oregon.
101. Low Environmental lmpact Options
Where consistent with Commission orders and when likely practicable, Avista will
evaluate opportunities for lower environmental impact services to customers in
Oregon, with its IRP stakeholder input.
102. lnforming the Commission
Avista and Parent agree that Avista will inform the Commission of natural gas
(energy) initiatives and observations of Avista, that are material to Avista's
natural gas operations in Oregon, on a timely informational basis, when Avista
feels material changes are pending or have occurred, or that material best
practices or pitfalls in the natural gas industry have been identified.
103. Sharing Best Planning Methods
Avista and Parent agree that Avista will share with the Commission on a timely
informational basis best IRP and other planning methods discovered across its
other state jurisdictions. Avista and Parent agree that Avista will describe the
framework of findings and provide supporting materials when not burdensome or
proprietary.
104. lndustrial Conservation and Efficiency
Recognizing that the Energy Trust of Oregon (ETO) currently administers
Avista's voluntary industrial energy efficiency programs, Avista and Parent agree
that Avista will make good faith efforts to identify industrial conservation and
efficiency opportunities in Oregon that are material to Avista's natural gas
operations in Oregon, and to communicate material observations to the
Commission and AWEC. ln the event of U.S. federal stimulus, Avista commits to
Revised 1 1 -6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 43
Appendix B to the First Amendment to Stipulation
make good faith efforts to prepare and document planned energy projects with
Avista leadership, or to participate in such projects where available and material
to Avista's natural gas operations in Oregon, so as to comply with stimulus and
!RP requirements while reducing financing and other costs.
105. Electric, Natural Gas and Fuel Cell Transport
Avista and Parent agree that Avista will communicate to the Commission
practicable opportunities to facilitate environmentally beneficial transportation in
Oregon.
106. Expanded Natural Gas Transportation Service
The Parties agree that customers presently served on sales Schedules 424 and
440 should be able to elect to take seryice, for a minimum of one year, under
new transportation service Schedules 425 or 439. Avista commits that this
Commitment will not impact other customers, is margin neutral, and does not
require hedging. The Parties agree with the parameters of the expanded natural
gas transportation service schedules as outlined below:
a. Eligibility - For Schedules 425, qualifying sales customers must have a
minimum annual average usage of 29,000 therms, as stated on Schedule
424. For Schedules 439, qualifying sales customers must have a
minimum annual average usage of 50,000 therms, as stated on Schedule
440.
b. The base rates for Transportation Schedules 425 and 439 will be the
same as the base rates on Schedules 424 and 440, respectively.
c. For purposes of all future "adder schedule filings" (DSM, Decoupling,
LIRAP, etc.), cost of service studies, and rate spread and rate design
proposals, Schedule 424 wlll be grouped with Schedules 425 and
Schedule 440 will be grouped with Schedules 439.
d. The Parties further agree that customers served on Transportation
Schedules 425 and 439 will be subject to Avista's natural gas decoupling
mechanism.
e. Schedules 425 and 439 wil! contain the same provisions contained in
Avista's tariff sheets 456A through 456C, which relate to the transportation
of customer-owned natural gas.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 44
f. The Parties agree that Avista willfile Schedules 425 and 439 as described
above as part of the compliance filing approved as part of the merger
proceeding.
Appendix B to the First Amendment to Stipulation
g. ln the event that the Commission rejects or suspends the proposed
revised Schedules 425 and 439, the Parties agree to support Commission
approval of tariff provisions with substantially similar terms.
107. Low-lncome Energy Efficiency Planning
Avista will continue to work with its advisory groups on the appropriate level of
funding for low income energy efficiency programs.
S. Gontract Labor
108. Contract Labor
Please refer to Commitment 109. ln addition, Avista, Parent, and Oregon and
Southern ldaho District Council of Laborers (OSIDCL) agree that Avista has
resolved all issues in this proceeding that pertain to the Oregon and Southern
ldaho District Council of Laborers (OSIDCL). See "Addendum 1 - Contract
Labor, Oregon Commitments", supported by OSIDCL with and al! other Parties
regarding recommended contract labor conditions.
109. Union and Other Labor Relationships
Avista and Parent agree that Avista will honor its existing labor contracts and will
meet the labor participation, safety and training commitments provided herein.
Avista has the authority to negotiate, enter into, modify, amend, terminate or
agree to changes in any collective bargaining agreement or any of Avista's other
material contracts with any labor organizations, union employees or their
representatives. Avista will maintain compensation and benefits related practices
consistent with the requirements of the Merger Agreement.
See Addendum 1 for Oregon contract labor provisions.
T. Reporting and Enforcement
110. Commitments Binding
Parent and Avista acknowledge that the commitments herein are fully binding on
each of them individually, severally and on their successors in interest.
111. Commission Enforcement of Commitments
Avista and Parent understand and agree that the Commission has authority to
enforce the commitments herein. lf a commitment is violated, the Commission
may impose such penalty as the Commission finds appropriate for the severity of
the violation.
The scope of this commitment includes the authority of the Commission to
Docket No. UM 1897 I Revised Oregon Commitments / Page 45
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
request and where necessary to require attendance of witnesses from Avista and
Parent. Avista and Parent agree they wil! not interpose any legal objection they
might othenrvise have to the Commission's jurisdiction to require the appearance
of any such witnesses.
112.Submittal to State Court Jurisdiction for Enforcement of Gommission
Orders
Avista. and Parent+vi+l. on behalf of itsel
corporate structure between Parent and Avista (as those companies in between
mav chanqe over time). will file with the Commission prior to closing the
Proposed Transaction an affidavit affirming that Avista-anC*are+rLthev will
submit to the jurisdiction of the Oregon courts for enforcement of violations of
and subsequent Commission
orders affecting Avista and Parent-., and aqree to the
with respect to such matters.
113. Annual Reporting on Commitments
ln addition to providing copies of closing documentation on usual and customary
elements of completion of the Proposed Transaction to the Commission, Avista
and Parent agree that by June 15,2019 and each June 15 thereafter through
June 1 5,2028 inclusive, Avista and Parent agree that Avista will file a report with
the Commission on how Avista and Parent are complying or have complied with
each of the commitments herein as of December 31 of the preceding year (a total
of 1 1 annual reports). The report will, at a minimum, provide a description of the
performance of each of the commitments.
Failure to comply with a commitment will be brought before the Commission for
determination of appropriate remedy and penalty.
114. Resolution of Violations: Expedited Resolution of Minor and Procedural
Compliance lssues
!f the Commission or any Party determines that any commitment has not been
complied with or is not being complied with, it willfirst provide notice to Avista
and/or Hydro One, as applicable, and may thereafter provide notice to the
Commission. Within 7 days of notice to the Commission, Staff will have an
opportunity to propose an informal remedy to Avista and/or Hydro One, as
applicable, if such remedy is reasonably Iikely to return full compliance within 14
days of Staffs notice to Avista and/or Hydro One of its proposal. lf Avista and/or
Hydro One, as applicable, choose not to implement Staffs proposal, or if no such
informal remedy is available because full compliance within 14 days is not
reasonably likely, Avista and/or Hydro One's alleged failure to comply will be
brought before the Commission for determination of an appropriate remedy.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 46
Appendix B to the First Amendment to Stipulation
U. Most Favored Nations
115. Most Favored Nations
All Parties including Avista and Hydro One agree that the Commission shall have
an opportunity and the authority to consider and adopt in Oregon any
commitments to which Avista and Hydro One have stipulated or otherwise
agreed to in another state commission jurisdiction, even if such conditions are
agreed to after the Commission enters its order in this Oregon Docket No. UM
1897.
Avista and Hydro One agree further that that any Party other than Avista and
Hydro One may ask that all Parties convene to discuss at earliest practicable
convenience, where time is of the essence, if and how such conditions adopted
by a commission in another state proceeding should be integrated with any
stipulated list of conditions already agreed to by Parties so as to present the
Commission with a revised Oregon stipulated set of conditions.
Process for Consideration of Most Favored Nation's Commitments
a. Within five calendar days after Avista and Hydro One file a stipulation with
new or amended commitments with a commission in another state
jurisdiction, Avista and Hydro One will send a copy of the stipulation and
commitments to all Oregon Parties.
b. Within five calendar days after a commission in another state jurisdiction
issues an order that accepts a stipulation to which Avista and Hydro One
are parties, or an order with a stipulated set of conditions for approval of
the Proposed Transaction, that order, together with all conditions for
approval of the Proposed Transaction, will be filed with the Commission
and served on all parties to this Oregon docket by the most expeditious
means practical.
c. Within 10 calendar days after another state jurisdiction filing discussed in
(b) above ("Final Filing"), Parties other than Hydro One and Avista may
file with the Commission any response such other Parties wish to make,
including their position as to whether any of the covenants, commitments
and conditions from the other jurisdictions (without modification of the
language thereof except such non-substantive changes as are necessary
to make the commitment or condition applicable to Oregon) should be
adopted in Oregon.
Docket No. UM 1897 I Revised Oregon Commitments / Page 47
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
d. Within five calendar days after any such response filing, Avista and Hydro
One may file a reply with the Commission.
e. lf any of the dates above fall on Saturday, Sunday, or a holiday, the next
business day will be considered as the due date.
f. The Parties agree to support in their filings the issuance by the
Commission of an order regarding the adoption of such commitments as
soon as practical thereafter, recognizing that the Proposed Transaction
cannot close until final state orders have been issued approving the
Proposed Transaction.
g. The Commission may then review the filings and issue an order indicating
which other-state-commitments it chooses to adopt.
Lim itations on Adjustment
i. Only commitments specific to gas service may form the basis for
adjustments specific to gas service.
ii. Only commitments specific to electric service may form the basis for
adjustments specific to electric service.
iii Any commitments relating to support of communities in Montana are not
subject to this provision.
As Avista does not operate as a utility in Alaska, any commitments made
in Alaska are not subject to this provision.
For purposes of financial commitments or commitments having a financia!
impact, commitments should be proportionate to Avista's corresponding
business function in Oregon in relation to its corresponding total company
business function. The Parties agree that the Oregon Rate Credit, as
specified herein, satisfies this corresponding business function standard.
For purposes of this provision, "financial commitments or commitments
having a financial impact" do not include ring fencing provisions.
116. Notice and Petition
ln the event of the enactment or adoption of anv leqislation. rule. policv. or
directive bv qovernment at anv level or bv anv oovernmental entitv or official in
Canada (a "Leqislative Action") that affects Avista's operations because of
Avista's corporate relationship with Parent. or affects Parent's compliance with
any commitment in this stipulation. any of the parties to this proceedinq mav
petition the Commission at anv time to consider whether the Commission should
IV
V
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 48
Appendix B to the First Amendment to Stipulation
amend itsfinal order in UM 1897. includinq reopeninq and strenotheninq anvof
the Stipulated Commitments (inclusive of the financial rino-fencinq commitments
and/or the qovernance commitments), or requirinq the addition of new
commitments, and neither Parent nor anv of its subsidiaries. includinq Avista. will
oppose initiation of such a proceedinq. Parent will report to the Commission anv
such Leqislative Action in Canada that, in Parent's reasonable iudoment. affects
Avista's operations because of Avista's corporate relationship with Parent. or
affects Parent's compliance with anv commitment in this stipulation. as soon as
practicable after it is publiclv announced as beino effective bv the qovernment or
qovernmental entitv or official. Nothino in this Commitment 116 shall be
interpreted to limit the positions or arquments that Avista or Parent mav take or
advance in anv such proceedinq. incl rdino the rioht to aroue that a oetition
sents insufficient unds or evidence. Prior
Commission under this Commitment 116. a partv must provide Parent and Avista
at least 30 davs advance written notice and an opportunitv to meet and confer
about resolutions other than filinq with the Commission under this commitment.
Nothinq in this commitment is intended to restrict the riqhts of the parties to
petition the Commission concerninq its order(s) in this docket. or to limit the
authoritv of the Commission.
117. No Substantia! Provincia! lnfluence
a. Parent and Avista will advise each member of the Avista Board of Directors orior
to beino seated post Proposed Transaction and annuallv thereafter that the
Province mav not attempt to. directlv or indirectlv, acouire the power to exercise
any substantial influencel6 over the policies and actions of Avista. Parent and
Avista will require each of their respective director desiqnees to execute a new
affidavit filed annuallv on June 1 of each vear with the Commission that attests
that the individual director will notify the Commission immediatelv if thev have
any reasen to leliere that thePrqvince is directly or indirectlv seekinq to exercise
or is exercisino anv substantial influence over the policies and actions of Avista
throuqh the Avista Board or othenvise.
b. lf a member of the Avista Board of Directors provides notice to the Commission
pursuant to subparaoraoh a of this Commitment 1 17. the Commission mav
initiate a proceedinq to determine whether the Commission should amend its
final order in UM 1897. includinq reopeninq and strenqtheninq of anv of the
Stipulated Commitments (inclusive of the financial rinq-fencino commitments
and/or the oovernance commitments). or requirinq the addition of a new
16 "substantial influence" as used in this commitment has the meaninq set forth in ORS 757.511 and as
interpreted bv the Public Utilitv Commission of Oreqon.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 49
Appendix B to the First Amendment to Stipulation
commitment to address the Province's attempt to. directlv or indirectlv. exercise
substantial influence over the policies and actions of Avista. and neither Hvdro
One, nor anv of its subsidiaries. includinq Avista, will oppose the Commission's
authoritv to oroceed as outlined in this Commitment 1 17
c. Parent's authority to replace an lndependent Director on the Avista Board with an
emplovee or executive on an interim six-month basis is suspended for the
pendencv of anv proceedinq initiated pursuant to subparaqraph b of this
Commitment 1 17.
118. Hvdro One Governance Aqreement
a. Prior to close of the Proposed Transaction. the board of directors of Hvdro
One (the "Board") shall adopt a resolutionlT providino that in the event the
Board. or anv director thereon. is informed or becomes aware that there is a
prooosal or steos beino considered or taken to amend. effectivelv modifv. or
eliminate the Governance Aoreement. whether bv leqislation. mutual
aqreement of the parties thereto or otherwise. Hvdro One will immediatelv
notifu the Commission and. to the extent feasible. will provide the
Commission with information available to the Board reqardinq the proposal.
The Board will confirm annuallv its obliqations under this commitment, which
confirmation will be siqned bv the Hydro One Chair and provided to the
Commission.
b. lf Hvdro One provides notice to the Commission pursuant to suboaraqraph a.
of this Commitment 118. the Commission mav initiate a proceedinq to
determine whether the actions described in subsection a to amend. effectivelv
modify. or eliminate the Governance Aqreement would result in the Province
seekinq to exercise or exercisinq substantial influence over the policies and
actions of Avista. and if so, whether the Commission should amend its final
order in UM 1897. includinq reopeninq and strenqtheninq any of the
Stioulated Commitments (inclusive of the fi nancial rinq-fencinq commitments
and/or the qovernance commitments). or requirino the addition of new
commitments to address the Province's attempt to. directlv or indirectlv.
exercise or exercisinq substantial influence over the policies and actions of
Avista. and neither Hvdro One nor anv of its subsidiaries. includinq Avista. will
17 Under Canadian corporate law. a resolution of a companv's board of directors is evidence of an action
taken at a board meetino. The board of directors has the power to bind the comoanv, and as a result, the
resolution reouired bv Commitment 118 is evidence that the Hvdro One board of directors has aqreed to
bind Hvdro One to the obliqations of Commitment 118.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 50
Appendix B to the First Amendment to Stipulation
oppose the Commission's authoritv to proceed as outlined in this
subparaqraph b. of this Commitment 1 18.
c. Hvdro One's authoritv to replace an lndependent Director on the Avista Board
with an emplovee or executive on an interim six-month basis is suspended for
the pendencv of anv proceedinq initiated pursuant to subparaqraph b. of this
Commitment 118.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 51
Appendix B to the First Amendment to Stipulation
V. Addendum 1 - Gontract Labor, Oregon Gommitments
1. On a prospective basis, and for a period of 10 years ending March 7 ,2028 unless
revised by the Commission in the interest of both cost and quality to Avista utility
customers, Avista will require the use of Oregon and Southern ldaho District
Council of Laborers,' including any future successor organization, (OSIDCL)
members for the type of work that is ordinarily and customarily performed by
OSIDCL on natural gas replacement and all natural gas work. This will not apply to
work performed under contracts already in effect as of March 7,2018. This
agreement wil! not apply to (a) atmospheric corrosion; (b) locating; and (c) leak
survey. This agreement wil! also not apply to work performed where signatory
contractors are not available (unavailability is typically due to locations being in
remote areas), or choose not to bid on projects; provided that work performed in
such areas will be paid at equivalent wages and benefits.
2. On a prospective basis, and for a period of 10 years ending March 7,2028, Avista
will require the use of OSIDCL members for allflagging work, unless otherwise
performed by Avista employees represented by IBEW Local 659. This will not
apply to work performed under contracts already in effect as of March7,2018.
3. OSIDCL will provide for signatory contractors laborers who are OSIDCL members
that are qualified pursuant to applicable OSHA 1910 regulations and all other
applicable training. OSIDCL will provide OSIDCL members knowledgeable in the
DOT Title 49 Code of Federal Regulations, Part 192, and all applicable state
pipeline safety regulations. Contractors shall be required to provide proof of
compliance with this requirement to Avista.
4. On a prospective basis, Avista will require contractors to utilize Oregon and
Southern ldaho Laborers-Employers Training Trust ("OSILETT") for required
training, if applicable courses are offered by OSILETT and are reasonably
accessible in the locality where the work is to be performed.
5. Avista will meet and confer with OSIDCL to discuss possible involvement in all
future hydroelectric projects that are within the sphere of OSIDCL's expertise.
6. Avista will encourage contractors to utilize union labor, including, without limitation
and as applicable, members of OSIDCL, Pipefitters and Steamfitters, and !BEW,
on Avista projects as part of its bidding solicitation process on all other construction
work, including but not limited to capital work on hydro facilities, and will evaluate
the use of such members in the staffing plans of bidding contractors as an element
of Avista's bid evaluation process.
7. Avista wil! continue to prioritize the hiring of qualified contractor personnel through
the bidding process, by requiring analysis of not only the price proposals submitted
by contractors, but a variety of other factors, including minimum staffing
requirements as applicable, training programs, documented qualification programs,
safety track records, OSHA 300 reportables, and other safety records as
appropriate. Review of these components is intended to verify that the contractor
is able to supply a sufficient workforce to meet Avista's needs, and that their
Revised '11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 52
Appendix B to the First Amendment to Stipulation
personnel are appropriately trained, qualified, and able to safely and reliably
perform work for Avista.
8. Work covered by these commitments does not include any work that is customarily
performed by Avista employees represented by IBEW Local 659 but that is
contracted out pursuant to the IBEW 659 collective bargaining agreement with
Avista. lt also does not include any work that is performed by Avista employees,
regardless of the type of work involved.
9. Avista will meet and confer with OSIDCL at least six months prior to March 7 ,2028
to discuss extending or modifying the terms set forth herein.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 53
Appendix A to the First Amendment to Stipulation
Docket No. UM 1897
Revised Avista and Hydro One Commitments
Table of Contents
Page
A. Definitions
1.
2.
1
7
7
7
7
7
7
I
I
I
I
B. Applicability
C. Governance
Application of Commitments in Oregon.
No Amendment of Any Commitment Without Commission Approva!.
3. TreatmentofConfidential lnformation.........
4. Executive Management
5. Avista Board of Directors (BOD)
6. Olympus Equity, LLC Board of Directors
D. Future Transactions
7.Long-Term Ownership.
8.Avista and Alaska Energy and Resources Co. (AERC) Corporate
L Reorganization and Sale Triggers.
E. Safety and Service Quality Measures
10. Safety and Reliability Standards and Service Quality Measures
11. Avista Call Center
I
I
12 Avista Oregon Regulatory Affairs and Liaison Staff ...... ............... 10
13. Opening and Closing Oregon Bills.
14. Oregon Winter Protection Program
15. NativeAmericanCommunities............
16. Oregon Low lncome Weatherization
17. Oregon Low-lncome Rate Assistance Program (LIRAP)
18. Addressing Other Low-lncome Customer lssues....
19. Explanation of Oregon Billing Errors
20. Oregon CustomerSatisfaction.........
10
10
10
11
11
11
11
11
12
12
12
Appendix A to the First Amendment to Stipulation
21.Level of Oregon Customer Complaints to the Commission ..........................12
22.Oregon Live Customer Service..............13
23.Oregon Emergency Response Time..........................13
24. Oregon Service Appointment Scheduling..
25.New Oregon Gas Supply
26. Oregon Billing lnquiries...
27. Oregon Customer Service lnvestigations
28. Oregon Service Guarantee Credits.........
29. Oregon Security Deposits
30. Oregon Annual Service Quality Reports
31. Oregon Customer Report Card.............
32. Oregon SENDOUT Seats .........16
33. On Bill Repayment Program (OBRP).... .....16
F. Hold Harmless ....................16
34. RevenueRequirement.............16
35. Ratemaking Cost of Debt and Equity .....17
.13
14
14
14
14
14
15
36. Business and Financial Risks...
37. Unregulated Activities
38. Environmental Liabilities of Parent.18
39. Foreign Exchange and Hedging on Dividends Payments and Allocations....19
G. Rate Credit ........19
40. Rate Credits to Oregon Ratepayers.......... .................. 19
41. Taxes 20
42.Tax Cuts and Jobs Act...........20
l. Financial Ring-Fencing 21
43 Cost of Capital 21
44. Capital Support 21
45. Common Equity Floor (CEF) in Capital Structure 21
46. Avista Debt and Preferred Stock........ ........22
17
18
47. First Mortgage Bonds (FMB)....... ...............23
Appendix A to the First Amendment to Stipulation
48.Continued Credit Ratings.,.,.,.24
49.Revolving Credit Facilities and Associated Letters of Credit.........................24
50.Restrictions on Upward Dividends and Distributions ,.,...24
51. SECReportingRequirements........,.,.,,..,25
52.Compliance with the Sarbanes-Oxley Act.............,..,.,..,25
53. Sources of Funds for Hydro One Commitments and Guarantees (Other than
for Customer Service, Communities and Charitable Purposes)...................26
J. Bankruptcy Ring-Fencing. ..................26
54. Avista Cash Flows
55. Golden Share.......
56 Vote of lndependent Directors Also Required.......... .................... 28
57. Non-Consolidation Opinion ,.,28
58. Olympus Holding Corp. and Olympus Equity LLC ......29
59 Restriction on Pledge of Utility Assets ......,,,.,,.,.,.,,,,.,29
60. Major Shareholder (Beneficial Ownership) Reporting
61. RestrictiononAcquisitionsand Dispositions.........
62. No lnter Company Debt
63. No lnter Company Lending ..............31
K. Access to lnformation......... ...............31
64. Access to and Maintenance of Books, Records and Other lnformation........ 31
65. Budgets... .................32
66. Appearance Before the Commission 32
L. Accounting 32
Cost Allocations and Affiliate lnterests
Prevention of Cross Subsidization ...........
Master Services Agreement (MSA)....
Complete Corporate Organizational Chart and Contact lnformation
N. North American Free Trade Agreement (NAFTA)
...26
...26
30
30
31
68
69
70
71
33
34
37
37
37
72. North American Free Trade Agreement (NAFTA) .......37
Appendix A to the First Amendment to Stipulation
O. Avista Status Quo......... .....37
73. Generally Accepted Accounting Principles and Standards (GAAP).............. 37
74. Travel Expenses ........38
75. Avista Management Direction ................. 38
76. Capital lnvestment for Safe Pipelines and Contro1s....................38
77. Equal or Better Access to Financial Markets in the U.S. and Canada ..........38
78. Venue for and Resolution of Disputes ...38
79. Headquarters
80. Local Staffing
............39
............39
Economic Development................
84. Membershipin Organizations....39
85.FERC Reporting Requirements ............................39
86. Participation in National and Regional Forums....39
87. Compliance with Existing and Future ORS, OAR and Commission Orders..40
P. Corporate Citizenship......... ................40
88.Oregon Charitable Contributions..............40
89. OtherCommunityContributions.........
90. General Community Contributions and lnvolvement.
..........40
.....40
91. Sources of Funds for Hydro One and Avista Commitments..........................40
Q. Future Rates 41
92. Treatment of Net Cost Savings.............41
81.
82.
83.
93.
94.
95.
96.
Pension and Post Retirement Expenses and Assets ..........,........39
General Operations and Maintenance (O&M) for Community Development 39
....39
,,.41
.,,41
...41
,,,42
Cost of Greenhouse Gas Emissions
Greenhouse Gas lnventory Report
..........43
43
Continuation of Base Rates Established in UG-325.............
Preparation for Next General Rate Case (GRC) in Oregon
Treatment of Goodwill, Transaction Costs, and Transition Costs
Costs for Future M&A or Reorganization ........
R. Environmental, Renewable Energy, and Energy Efficiency................................42
97. Greenhouse Gas and Carbon lnitiatives .42
98
99
Appendix A to the First Amendment to Stipulation
100. Efficiency Goals and Objectives.
101. Low Environmenta! lmpact Options
102. lnforming the Commission
103. SharingBestPlanningMethods...............
104. lndustrial Conservation and Efficiency.
105. Electric, Natural Gas and Fuel Cel! Transport.
106. Expanded Natural Gas Transportation Service.......
107. Low-lncome Energy Efficiency Planning
S. Contract Labor
108. Contract Labor
109. Union and Other Labor Relationships
T. Reporting and Enforcement
110. Commitments Binding
111. Commission Enforcement of Commitments............
43
43
43
43
43
44
44
45
45
45
45
45
45
45
50
52
112. Submittal to State Court Jurisdiction for Enforcement of Commission Orders
46
113. Annual Reporting on Commitments .................... 46
114. Resolution of Violations: Expedited Resolution of Minor and Procedural
Compliance lssues............... 46
U. Most Favored Nations .......47
115. MostFavoredNations...............
116. Noticeand Petition..............
117. No Substantial Provincial 1nfluence..........
118. Hydro One Govemance A9reement.......................
V. Addendum 1 - Contract Labor, Oregon Gommitments
...47
.............. 48
.............. 49
Appendix A to the First Amendment to Stipulation
A. Definitions
Affiliate means any entity in the post-close corporate chain of entities between Hydro
One and Avista, including Hydro One, for purposes of all commitments herein; provided,
however, that "Affiliated lnterest" shall have the meaning set forth in ORS 757.015 for
purposes of requirements established by ORS 757.105 or ORS 757.495 regardless of
whether such requirements are also imposed by these commitments.l
AVA and Avista are used interchangeably and shall refer to Avista Corporation. While
some commitments herein are flagged as applying only to Avista's Oregon-regulated
Local Natural Gas Distribution Company (Oregon LDC), when commitments are silent
as to application, they shall apply to Avista Corporation as a whole (for example, those
commitments regarding corporate finance and capital structure apply to Avista as a
whole).
Beneficial Ownership shall have the meaning provided in OAR 860-027-1075(1Xa).
Capital Structure sha!! mean proportions of common equity (common equity calculated
as for Oregon ratemaking purposes) and Long-Term Debt with maturities exceeding 1
year, adding up to 100 percent for a named (or place-holder) corporation,
CEF has the meaning assigned to it in Commitment 45.
Commission or OPUC means the Public Utility Commission of Oregon.
Credit Ratings as used in these commitments shall mean both Standard and Poor's
Global Ratings (S&P) and Moody's lnvestor Service (Moody's) Long-Term (LT) Secured
Debt credit rating, except as othenrise specifically provided in individual commitments.
See Rating Agencies.
$ or Dollar unless otherwise specified means U.S. Dollars (USD).
Golden Share shall mean the sole share of Preferred Stock authorized by the
Commission and held by an independent third party. As described in further detail in
Commitment 55, Avista will not be able to declare voluntary bankruptcy without the vote
of the holder of the Golden Share and in matters of voluntary bankruptcy, the Golden
Share will override all other outstanding shares of all types or classes of stock. The
holder of the Golden Share solely represents the interests of Avista's utility customers.2
t Lower case "affiliates" is also used in these commitments to indicate that the commitment applies to all
affiliates of Hydro One and Avista, as opposed to simply the "Affiliates" in the chain of entities between
fydro One and Avista.
'To be clear, the purpose of the Golden Share is to help ensure that the Avista utility would not place
itself into bankruptcy voluntarily unless such a decision was consistent with the interests of utility
customers. This purpose is consistent with past ORS 757.511 dockets approved by the Commission (see
UM 1804, Order 17-526 at 7 and the joint supporting testimony) and is essential in this particular case
because the sole shareholder of Avista, at the top of the corporate chain, is Hydro One; thus, were the
Appendix A to the First Amendment to Stipulation
GRC means genera! rate case.
Hl or Hydro One shall refer to Hydro One Limited.
Independent Directors shall mean directors who meet the standards of "independent
directors" under section 3034.02 of the New York Stock Exchange Listed Company
Manual with respect to Hydro One and its subsidiaries including Avista. The
lndependent Directors must have had no material relationship with Parent or its
subsidiaries or affiliated entities currently or within the previous 3 years. Former officers
of Avista who otherwise meet these qualifications qualify as lndependent Directors.
Please see "C. Governance" for applicable commitments.
lnvestment Grade means a BBB- or higher credit rating by S&P 49] a Baa3 or higher
credit rating by Moody's. See the table below for ratings from S&P and Moody's that
are investment grade, which apply to all types of debt securities (not just FMB as shown
in Table 2):
S&P Moody's
lnvestment
Grade
Credit
Ratings
AAA Aaa
AA+
AA Pa2
AA-Aa3
A+A1
A M
A-A3
BBB+Baal
BBB Baa2
BBB-Baa3
Long-Term Debt is the issuance or renewal of a note or evidence of indebtedness
maturing more than one year after date of such issue or renewal.
M&A means mergers and acquisitions.
Major Shareholder shall have the meaning provided in OAR 860-027-0175(1)(c).
Pacific Northwest Region means the Pacific Northwest states in which Avista seryes
retai! electric or natural gas customers, currently the states of Alaska, ldaho, Montana,
Oregon and Washington.
holder of the Golden Share to vote in the interests of "Avista shareholders," it would be voting in the
interest of Hydro One, negating the protection the Golden Share is designed to provide. lf Hydro One and
Avista encounter difficulty locating a holder of the Golden Share that can agree to the requirements of
these commitments, they may appear before the Commission for consideration of a remedy for the
situation.
Aa1
Appendix A to the First Amendment to Stipulation
Parent shall mean Hydro One Limited and its subsidiaries in the post-close corporate
structure between Hydro One and Avista (as those companies in between may change
over time; but see commitments regarding ORS 757.511 and 757.480).
Parties (or Party individually) shall be defined herein as: Hydro One Limited, Avista
Corporation, Public Utility Commission of Oregon Staff (Staff), Oregon Citizens' Utility
Board (CUB), Alliance of Western Energy Consumers (AWEC), and Oregon and
Southern ldaho District Council of Laborers (OSIDCL).3 4
Pre-Merger means prior to the close of the Proposed Transaction.
Proposed Transaction shall mean the transaction proposed in the Joint Application of
Avista and Hydro One filed on September 14,2017, assigned Commission Docket No.
UM 1897. However, the commitments reached by the Parties shall override all prior
versions of commitments filed in this docket.
Rating Agencies shall mean both S&P's and Moody's, or their successors, without
substitution. However, if S&P or Moody's has no successor and is no longer in
existence, then the substitute for the Rating Agency with no successor will be Fitch
Ratings (Fitch). lf Fitch has no successor and is no longer in existence, Avista will
select a replacement acceptable to the Commission.
Transaction Costs shall mean all the costs necessary to plan, evaluate, find
agreement, gain regulatory approval, finance, and execute the Proposed Transaction.
This type of cost includes legal and brokerage or investment banking fees and other
costs which would not be incurred were the transaction never contemplated.
Transaction costs are those incremental costs paid to advance or consummate the
transaction. Examples of transaction costs include, but are not limited to: Avista
employee time and expenses; Avista change-of-control payments; any tax liability
incuned as a result of the transaction; and third-party costs, including bank advisors,
external lega! advisors, rating agencies, and expert witnesses and consultants in each
case paid to advance or consummate the transaction. Transaction costs are not
includable in Avista customer rates.
Transition Costs shall mean all costs necessary post-transaction, to meld or find
synergies in corporate cultures and processes, optimize purchasing, more broadly
deploy resources and technologies, and generally make the aggregated corporation
more efficient and more effective at meeting both divisiona! and comprehensive goals.
This type of consolidation can include costs from technology costs of hardware,
software, migration, conversion and training to public relations costs incurred to make
legal, accounting, information technologies, communications and other integral
corporate activities operate smoothly and efficiently both internally and across corporate
3 lndustrial Customers of Northwest Utilities (ICNU), and Northwest lndustrial Gas Users (NWIGU)
merged to form Alliance of Western Energy Consumers (AWEC) in 2018.o Oregon and Southern ldaho District Council of Laborers (OSIDCL) was formerly known as Laborers'
lntemational Union of North America (LiUNA)-District Council.
Appendix A to the First Amendment to Stipulation
divisions. No transition costs may be included in Avista rates; the net positive of
transition costs (savings minus transition costs)will be reviewed in a future rate case
Appendix A to the First Amendment to Stipulation
Table 1
Revised Post-Glosing Gorporate Structures
Hydro One agrees to eliminate Olympus 1 LLC and Olympus 2 LLC from the corporate
structure. The new structure that will exist as at the effective time of closing of the
Proposed Transaction is illustrated below:
Enlargement and clarification of Avista
Corporation and Subsidiaries is provided at right:
5 Table 1 reflects the corporate structure as at the effective time of the closing of the Proposed
Transaction
Olympus Holding Corp.
(Delaware lnc.
Hydro One Tetecom
Hydro one Remote
Olympus Equity LLC
(Delaware Limited
Arbta Cfiporatff
10/0/1tu|il:tx&ir
Adn.qdd
6 Avista's corporate structure as in S&P Global Market lntelligence on March 23,2018.
Hydro One Limited
(Ontario Corporation)
2486267
Hydro One lnc,Ontario lnc.
6
tr@tr@
Avista Corporation
Subsidiaries
Avista Corporation
(Washington
Corporation)
Can Sub
{ontario Corporation}
Hydro One Networks
lnc.
Appendix A to the First Amendment to Stipulation
Table 2
Common Equity Floor Requirement
Gredit Ratings are those for First Mortgage Bonds (FMB)7
Common Equity is calculated as for Oregon Ratemaking Purposes
FMB Credit
Ratings S&P Moody's Common
Equity Floor
I
n,G
e rs_atd
m ee
n
t
A
R
a
t
e
d
AAA Aaa
44o/o
AA+Aa1
AA Aa2
AA-Aa3
A+A1
A M
460/oA.43
L
o
w
BBB+ .Baal 0
48%BBB Baa2
BBB.Baa3
a Co. willfile Plan w Commission
Below
lnvestment
Grade
BB+
(or below)
Bal
(or below)No Dividend
7 lf the Rating Agencies do not provide a rating for FMBs, the rating for Senior Secured Debt will be used
for the purposes of Table 2.
1
Appendix A to the First Amendment to Stipulation
B. Applicability
Application of Commitments in Oregon
Unless otherwise stated, allcommitments herein are binding upon Avista, Hydro
One, and all companies in between in the post-close corporate organization chart
(as those companies in between may change over time; but see commitments
regarding ORS 757.511 and 757.480).
No Amendment of Any Commitment Without Commission Approval
Avista and Parent commit that no amendments, revisions, or modifications will be
made to the any of the commitments herein without prior Commission approval.
Also see "Most Favored Nation" Commitment.
Treatment of Confidential lnformation
Nothing in these commitments prevents Avista or Parent from requesting
confidential or highly confidential treatment of information.
C. Governance
Executive Management
Subject to the remaining provisions of this commitment and subject to voluntary
retirements and resignations that may occur, Avista and Parent agree that Avista
will retain all current executive management of Avista for a period of three years.
This commitment will not limit Avista's ability to determine its organizational
structure and select and retain personnel best able to meet Avista's needs over
time. The post-Proposed Transaction Avista board retains its current ability to
dismiss executive management of Avista and other Avista personnel for standard
corporate reasons. Any decision to hire, dismiss or replace the Chief Executive
Officer of Avista shall be within the discretion of the Avista Board of Directors,
and shall not require any approval of Hydro One or any of its affiliates (other than
Avista), notwithstanding anything to the contrary in the merger agreement, and
its exhibits and attachments, between Hydro One and Avista.
Any decisions regarding Avista employee compensation shall 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
relevant U.S. electric and gas utility benchmarks. The determination of the level
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.
3
2.
4.
5
Appendix A to the First Amendment to Stipulation
Avista Board of Directors (BOD)
Avista and Hydro One agree that after closing of the Proposed Transaction,
Avista will have a separate board of directors from Hydro One that consists of
nine (9) members, determined as follows:
Five Hydro One Designated Directors:
Two executives of Hydro One or any of its subsidiaries, and
Three lndependent Directors who are residents of the Pacific Northwest
Region.
Four Avista Designated Directors:
Three directors who as of immediately prior to the closing of the Proposed
Transaction are members of the Board of Directors of Avista, including the
Chairman of Avista's Pre-Merger Board of Directors (if such person is
different from the Chief Executive Officer of Avista), and
Avista's Chief Executive Officer.
At least two of the Avista directors must be lndependent Directors.
Avista and Hydro One shall consult with each other prior to the designation of any
lndependent Directors.
The initial Chairman of Avista's post-closing Board of Directors shall be the Chief
Executive Officer of Avista as of the time immediately prior to closing for a one
year term. The Avista designees shall have the unfettered right to designate,
remove and replace the Avista designees as directors of the Avista Board with or
without cause or notice at its sole discretion.
Hydro One shall have the unfettered right to designate, remove and replace the
Hydro One designees as directors of the Avista Board with or without cause or
notice at its sole discretion, subject to the requirement that:
(i) two of such directors are executives of Parent or any of its subsidiaries;
and(ii) three of such directors are lndependent Directors who are residents of the
Pacific Northwest region, while such requirement is in effect (subject in the
case of clause (ii) hereof to Hydro One determining, in good faith, that it is
not able to appoint an lndependent Director who is a resident of the
Pacific Northwest region in a timely manner, in which case Hydro One
may replace any such director with any person, including an employee or
executive of Hydro One or any of its subsidiaries on an interim basis, not
exceeding six months, provided that Hydro One designees who are
employees or executives of Hydro One or any of its subsidiaries shall in
no case constitute a majority of the directors of Avista, after which time
Hydro One shall replace any such interim director with an Independent
Director who is a resident of the Pacific Northwest region). !f, at any time
Appendix A to the First Amendment to Stipulation
a circumstance arises, and during the pendency of any such
circumstance, whereby the Province of Ontario ("Ontario") exercises its
rights as a shareholder of Hydro One, uses legislative authority or acts in
any other manner whatsoever, that results, or would result, in Ontario
appointing nominees to the board of directors of Hydro One that
constitute, or would constitute a majority of the directors of such board,
then Hydro One's authority to replace an lndependent Director with an
employee or executive on an interim basis is suspended for the pendency
of such circumstance.
Olympus Equity, LLC Board of Directors
At least one of the members of the board of directors of Olympus Equity LLC wi!!
be an lndependent Director. The same individual may serve as an lndependent
Director of both Avista and Olympus Equity LLC.
D. Future Transactions
Long-Term Ownership
Hydro One and Avista agree not to sell Avista's Oregon natural gas operations
for three (3) years following the Commission's approva! of the Proposed
Transaction. During that time, Avista and Hydro One agree to provide safe and
reliable service and commit to keeping Avista's Oregon natural gas operations in
the same or better condition than existed prior to the Proposed Transaction.
Avista and Alaska Energy and Resources Co. (AERC) Corporate
Relationship
Avista and Parent agree they will continue to provide timely courtesy copies,
information and reporting to the Commission of AERC/Alaska Electric Light and
Power Co. (AELP) resource (long-term) plans and plan updates submitted to the
Regulatory Commission of Alaska (RCA), and topica! energy information as
described herein when Avista or Parent find such information relevant or material
to Oregon, or when requested by the Commission or Staff. This continues
Avista's tradition of contributing to informed Northwest regulation.
Parent and Avista agree that if AERC, or components thereof, such as but not
limited to AELP is transferred from its current position under Avista, Hydro One
must give notice to the Commission and provide pro forma documents showing
the proportion of debt and equity to be removed from Avista. This information will
be used for the purpose of potential adjustments in Avista's next GRC.
Reorganization and Sale Triggers
Parent and Avista agree to comply with and interpret ORS 757.511 (Application
for authority to exercise influence over utility) as triggered if any of the entities in
7
8.
9.
6.
Appendix A to the First Amendment to Stipulation
the post-Proposed Transaction chain of corporate entities between Hydro One
and Avista, and including Hydro One, undergoes a corporate reorganization or if
any of those entities enter into a transaction that results in the addition of a new
entity in the chain of entities that may exercise any substantial influence over
Avista.
Additionally, Parent and Avista agree to interpret ORS 757.48O (Approval needed
prior to disposa!, mortgage or encumbrance of certain operative utility property or
consolidation with another public utility) to require Commission approva! of any
transaction which results in a merger of Avista with another public utility, without
regard to whether that public utility provides service in Oregon.
E. Safety and Service Quality Measures
10.Safety and Reliability Standards and Service Quality Measures
Avista and Parent agree that neither the proposed Hydro One merger, nor future
acquisitions, may diminish delivery of safe and reliable utility service in Oregon
as compared to Avista's performance pre-close of the Proposed Transaction.
Avista and Parent agree that Avista will continue to fully comply with US Code of
Federal Regulations (CFR) Title 49 Parts 190 to 199 (Pipeline Safety), as
applicable.
Avista and Parent agree that Avista will maintain and improve, to the extent
reasonably practicable, Avista's natural gas safety and reliability and resilience
standards, policies, and service quality measures.
Additionally, Parent and Avista agree that Avista commits to providing the
following Service Quality, Safety and Planning measures:
Customer Seruice Qualitv
11. Avista Call Center
Avista will maintain a call center managed by high-performing personnelto
ensure the maintenance of high quality service and customer standards in
Oregon. Personnel at such call centers will have training and experience
commensurate with Avista's Oregon pre-Proposed Transaction customer service
system and standards.
12. Avista Oregon Regulatory Affairs and Liaison Staff
Avista regulatory liaison staff will retain high-performing personnel. Personnel
will have training and experience in Oregon regulatory matters, commensurate
with Avista's operations in Oregon prior to the Proposed Transaction.
Appendix A to the First Amendment to Stipulation
13 Opening and Glosing Oregon Bills
Avista and Parent commit that Avista will prepare all opening and closing bills
using actual reads acquired manually or electronically in accordance with
Oregon's administrative rules, unless the open or close date is within +/- 5 days
of regular normal cycle read, whereupon a prorated read may be used.
14.Oregon Winter Protection Program
Avista and Parent agree that by October 31,2018, Avista will submit to the
Commission for approval a proposal for a Winter Protection Program against
winter shut-offs for low-income, elderly and other at-risk customers that explains
how Avista balanced collection and customer service goals, and where
applicable drew on Hydro One experience.
15. Native American Communities
Avista commits, and Hydro One agrees, that Avista will seek to appropriately
engage Native American communities.
16.Oregon Low lncome Weatherization
Hydro One and Avista agree that Avista will increase current funding for Avista
Oregon low-income weatherization programs by making a payment of
$1,275,000, to be paid in equal increments over a 5 year period to the agencies
that are in charge of the Avista Oregon Low lncome Energy Efficiency Program
(AOLIEE). The first annual payment will begin in the calendar year following
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and will not be booked to utility accounts; in
other words, in no way or form will the cost of this commitment appear in Avista's
regulated utility earnings. 8
Hydro One and Avista agree that Avista will undertake a targeted effort with a
goal of improving the penetration of Avista low-income programs in Oregon with
a focus on underserved, vulnerable, and high energy burden households.
Further, Avista commits to keep sufficient data analysis to clearly articulate what
program elements and methods were effective as well as to identify opportunities
for delivering more beneficial outcomes with resources available.
17.Oregon Low-lncome Rate Assistance Program (LIRAP)
Hydro One and Avista agree that Avista shall increase funding for LIRAP for
Oregon customers as provided in this commitment. Hydro One and Avista agree
that Avista will provide a payment of $500,000 payable at the rate of $100,000
per year with the first annual payment beginning in the calendar year following
t The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
Appendix A to the First Amendment to Stipulation
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and will not be booked to utility accounts; in
other words, in no way or form will the cost of this commitment appear in Avista's
regulated utility earnings. e.
18. Addressing Other Low-lncome Customer lssues
Avista and Parent commit that Avista will continue to work with low-income
agencies to address other issues of low-income customers, including funding for
bill payment assistance.
19.Explanation of Oregon Billing Errors
Avista and Parent commit that for the first three years following close of the
Proposed Transaction Avista shall report to the Commission's Consumer
Services Section any incidence of a billing enor that results in the issuance of a
corrected bi!! if the correction is $35 or more, and an explanation for the causes
of the error.
20. Oregon Gustomer Satisfaction
Avista and Parent commit that the level of customer satisfaction with telephone
service, as provided by Avista's Contact Center, wil! be at least 90 percent,
where:
a. The measure of customer satisfaction is based on customers who respond
to Avista's quarterly survey of customer satisfaction, known as the Voice
of the Customer, as conducted by its independent survey contractor;
b. The measure of satisfaction is based on customers participating in the
survey who report the level of their satisfaction as either "satisfied" or "very
satisfied"; and
c. The measure of satisfaction is based on the statistically-significant survey
results for both electric and natura! gas service for Avista's entire service
territory for each quarter surveyed, and will also separately be reported for
Oregon customers only.
21. Level of Oregon Customer Complaints to the Commission
Avista commits, and Parent agrees, that the number of complaints filed with the
Commission by Avista's natura! gas customers will not exceed the rate of 0.3
complaints per 1,000 customers for the calendar year.10
e The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
'0 Note that the current 5 year average rate is 0.145 percent. This target is moved by Staff to slightly over
200o/o of current performance metrics.
Appendix A to the First Amendment to Stipulation
22. Oregon Live Customer Service
Avista commits, and Parent agrees, that the percentage of customer calls
answered by a live representative within 60 seconds will be at least 80 percent
per month, where:
a. The measure of response time is based on results from Avista's Contact
Center, and is initiated when the customer requests to speak to a
customer service representative or presses a key to bypass an IVR
system if in use; and
b. Response time is based on the combined results for both electric and
natural gas customers for Avista's entire service territory.
23.Oregon Emergency Response Time
Avista and Parent commit that Avista's average response time to a natural gas
system emergency in Oregon will not exceed 55 minutes for the calendar year
(or consistent with future Commission standards), where:
a. Response time is measured from the time of the customer call to the
arrival of a field service technician; and
b. "Natural gas system emergency" is defined as an event when there is a
natural gas explosion or fire, fire in the vicinity of natural gas facilities,
police or fire are standing by, leaks identified in the field as "Grade 1," high
or low gas pressure problems identified by alarms or customer calls,
natural gas system emergency alarms, carbon monoxide calls, natural gas
odor calls, runaway furnace calls, or delayed ignition calls.
24.Oregon Service Appointment Scheduling
Avista and Parent commit that Avista will keep mutually agreed upon
appointments for natural gas service re-lights, connections and reconnections
where a service line is already installed, scheduled in the time windows of either
8:00 a.m. - 12:00 p.m. (morning), or 12;00 p.m. - 5:00 p.m. (afternoon), except
for the following instances:
a. When the customer or applicant cancels the appointment;
b. The customer or applicant fails to keep the appointment; or
c. Avista reschedules the appointment with at least 24-hours' notice
25. New Oregon Gas Supply
Appendix A to the First Amendment to Stipulation
Avista and Parent commit that Avista will provide a cost estimate to the customer
or applicant for new natural gas supply within 10 business days upon receipt of
all the necessary information from the customer or applicant.
26 Oregon Billing lnquiries
Avista and Parent commit that Avista will respond to al! billing inquiries at the
time of the initial contact, and for those inquires that require further investigation,
Avista will investigate and respond to the customer within 10 business days.
27 Oregon Customer Service lnvestigations
Avista and Parent commit that Avista will investigate customer-reported problems
with a meter, or conduct a meter test within 15 business days of the request, and
report the results to the customer within 15 business days from the date of the
report or request.
28. Oregon Service Guarantee Credits
(Expires 3 years from closing of the Proposed Transaction)
Avista commits, and Parent agrees, that for failure to meet a customer service
guarantee for service provided to a gas customer, Avista will apply a $50 credit to
the customer's account. For failure to meet a customer service guarantee for
service provided to an applicant, Avista wil! mail a check for $50 to the applicant.
Avista wil! timely provide the qualifying customer credit or applicant check without
any requirement on the part of the customer or applicant to either apply for, or
request, the applicable credit or check. Payment of service guarantee credits
and any service quality penalties shall be excluded from revenue requirements in
GRCs.
Tracking of Avista's performance on the customer service guarantees, including
the application of customer credits, will begin on January 1,2019.
29 Oregon Security Deposits
Avista and Parent agree that Avista commits to eliminate security deposits for
new Avista residential customers at close of Proposed Transaction, and to return
existing security deposits to Oregon customers who have a deposit held longer
than 6 months. ln any subsequent Avista GRC before the Commission, any
Party may request the Commission Order in that rate case to modify or remove
this commitment if that Party successfully argues that the application of this
commitment had an unreasonable impact on Avista's uncollectible debt.
30. Oregon Annual Service Quality Reports
31.
Appendix A to the First Amendment to Stipulation
Avista and Parent commit that Avista wi!! include the results of its Service Quality
Measures Program in an annual report to be filed with the Commission on or
before April 30th of each year.
Oregon Gustomer Report Card
Avista commits, and Parent agrees, that within 90 days of Avista filing its Annual
Service Quality Measures Report, Avista will send a Service Quality Measures
Program Report Card to its customers, which will include the following:
a. Results for each of Avista's customer service measures, compared with
the respective performance bench marks;
b. Results for each of the customer service guarantees, compared with the
respective benchmarks, and including the number of events for each
measure where a credit was provided, and the total dollar amount of the
credits paid for each measure; and
c. Performance highlights for the year.
d. Avista will issue its first Report Card to customers on or before July 31,
2020.
e. Avistia, or any interested party, may separately petition the Commission,
for approval of changes to the customer service guarantees, and reporting
thereon, as set forth in Commitments 20-31, to assure that such
commitments continue to accomplish their intended purposes.
Appendix A to the First Amendment to Stipulation
SENDOUT Software Suite for Commission Staff. CUB and AWEC
32. Oregon SENDOUT Seats
Parent and Avista agree that Avista will provide, for a period of 10 years, $30,000
annually for the purpose of obtaining SENDOUT seats for Commission Staff,
CUB, and AWEC for SENDOUT dispatch optimization and gas portfolio cost
assessment and reliability software with SENDOUT or a division of ABB. The
Parties agree that this $30,000 commitment is not recoverable in customer rates
and will not be booked to utility accounts; in other words, in no way or form will
the cost of this commitment appear in Avista's regulated utility earnings. 11
Nothing in this commitment precludes Avista from replacing SENDOUT with a
different comparable service provided that Avista continues to provide the
$30,000 annual contribution for Staff, CUB, and AWEC use of SENDOUT or
such comparable service for the agreed upon ten-year period.
33.On Bill Repayment Program (OBRP)
Hydro One will arrange funding of the approximately $100,000 (system-wide
basis) initial investment in software upgrades and $5,000 in administrative costs
to implement an on-bill repayment program. Under no circumstance willAvista's
ratepayers be responsible for any default related to the OBRP.
OBRP is a pass-through billing service for energy efficiency loans, where Avista
would collect loan payments on customers'bills then transmit the sum monthly to
the third-party lender. Only non-profit lenders would be eligible, offering low rates
for energy efficiency loans. The lender has no ability to shut off power (due to
non-payment) and all lending activity is managed separate from the utility, where
the !ender:
a
o
Provides all capital and bears full risk;
Manages delinquent files and collections off-bill;
Handles loans/balances separate from utility financial systems; and
Meets consu mer lend ing regu latory req u irements.
F. Hold Harmless
a
34.Revenue Requirement
Parent and Avista agree that Avista will hold Avista Oregon customers harmless
if the Hydro One'Avista merger results in a higher revenue requirement for Avista
11 The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
35.
Appendix A to the First Amendment to Stipulation
than if the merger had not occurred. Avista bears the burden of showing no
increase in the revenue requirement consistent with this commitment.
Ratemaking Cost of Debt and Equity
Avista and Parent agree that Avista will not advocate for a higher cost of debt or
equity capital as compared to what Avista's cost of debt or equi$ capital would
have been absent Hydro One's ownership. For future ratemaking purposes:
a. Determination of Avista's Cost of Long-Term Debt will be no higher than
such costs would have been, absent Hydro One's ownership, assuming
Avista's Credit Ratings as such ratings were in effect on the day before
the Proposed Transaction closes and applying those credit ratings to then-
current debt;
b. Avista bears the burden to prove prudent in a future GRC any increased
cost of Long-Term Debt associated with existing Avista debt retired,
repaid, or replaced as a part of the Proposed Transaction; and
c. Determination of the authorized Return on Equity (ROE) in future GRCs
will include selection and use of one or more proxy group(s) of companies
engaged in businesses substantially similar to Avista's Oregon LDC
operations, without any limitation related to Avista's ownership structure.
Business and Financial Risks
Hydro One and Avista agree that Parent and Avista will hold Avista customers
harmless from any business and financial risk exposures associated with
Olympus Holding Corp., Hydro One, and Hydro One's other affiliates.
Avista and Parent agree that Avista and Olympus Holding Corp. will provide
notice to current and prospective lenders describing the ring-fencing controls in
these commitments and stating that such controls provide no recourse to Avista
assets as collateral or security for debt issued by Hydro One or any of its
subsidiaries; this provision does not prohibit Avista from pledging its own assets
as collateral or security for Avista debt. Avista and Parent will file with the
Commission prior to close of the Proposed Transaction a copy of said notice.
Should any regulatory, taxing or other governmental entity or subdivision thereof
in the United States of America or elsewhere make a determination that any
company organizationally situated between Avista and Hydro One, individually or
collectively:
36.
i. Lacks a genuine business purpose;
Appendix A to the First Amendment to Stipulation
ii. Fails to constitute a separate and distinct business and not a single
economic unit containing one or more intermediate companies and
Avista;
iii. Exhibits substantial and material entanglement of operations or finance
with Avista;
iv. Fails to comply with all tax and other monetary obligations, including
but not limited to the timely obtaining of pertinent taxing authority
letters of determination authorizing the form and nature of any tax
management construct for the specific company housing the tax
management construct for the specific intended purpose directionally
specific to the application executed;
v. ls determined to be inadequately capitalized for its business purposes,
or
vi. Engages in financial hedging or other risk management predicated on
historical correlations which do not hold true in future markets,
however disrupted or distressed, then:
Avista and its ratepayers will be held harmless from any claim, suit, action, loss,
damage, or legal liability, including all expenses, penalties, judgements fees
(including attorney fees), interest, charges, expert representation costs, and
amounts actually and reasonably incurred in connection with any litigation,
defense, penalty, or fine.
37 U nregulated Activities
a. Avista commits, and Parent agrees, that Avista's regulated utility
customers will be held harmless from the liabilities of any unregulated
activity of Hydro One and its subsidiaries and affiliates, including Avista.
!n any proceeding before the Commission involving Avista rates, the
revenue requirement for Avista wil! be determined without recovery of
costs related to unregulated activities.
b. Avista commits, and Parent agrees, that Avista and AELP will continue to
be operated consistent with Commission Order 14-112, including
Attachment B, entered April 1,2014 in Docket Numbers UF 4283 and Ul
343.
38. Environmental Liabilities of Parent
Hydro One will hold Avista and Avista ratepayers harmless from any
environmental obligations or liabilities of Hydro One or its affiliates other than
Avistia, including those associated with harmful substances such as asbestos or
polychlorinated biphenyls (PCBs) and environmental cleanup and restoration.
Appendix A to the First Amendment to Stipulation
39 Foreign Exchange and Hedging on Dividends Payments and Allocations
Avista and Parent agree that Avista ratepayers will be held harmless from any
currency exchange or related cash flow smoothing or hedging costs pertaining to
activities beyond Avista's Oregon utility operations and not usual and customary
prior to close of the Proposed Transaction.
G. Rate Gredit
40 Rate Credits to Oregon Ratepayers
Avista and Hydro One will flow through to Avista's retail customers in Oregon a
Rate Credit of $7,541 ,15912 over a S-year period, beginning at the time the
Proposed Transaction closes. The Parties agree that the rate credits shall be
spread to customers on an equal percentage of margin basis.
The total Rate Credit to customers for the five years following the closing would
be $1 ,508,232 per year. A portion of the annua! total Rate Credit could be
offsetable, in the amount of $226,235.13 During the S-year period, the financiat
benefits wi!! flow through to customers through the Rate Credit described above
on customers'bills. The offsetable portion may be achieved through a reduction
to the underlying cost of service as reflected in the test period numbers used for
ratemaking.
To the extent Avista demonstrates in a future rate proceeding that cost savings,
or benefits, directly related to the Proposed Transaction are already being flowed
through to customers through base retail rates, the separate Rate Credit to
customers would be reduced by an amount up to the offsetable Rate Credit
amount.
" The total rate credit for Oregon will be $7,541,159. The rate credit will be allocated in Oregon on the
basis of Year End Customers for the year ending December 31"t, 2016. ln 2016, Avista's Oregon Service
Territory had 100,472 customers. Avista total number of customers was717,579 in 2016. Therefore,
Oregon customers represented 14% of Avista total number of customers.
'' The offsetable portion of the Rate Credit was calculated as 15% of the jurisdictional total of the rate
credit.
Rate Credit
Oregon Annual Credit
Years 1-5
Oregon Total Credit
Total Credit $1,508,232 $7,541 ,159
Offsetable Credit $226,235 $1,131,174
Appendix A to the First Amendment to Stipulation
The $7.54 million represents the "floo/' of benefits that will be flowed through to
Avista's customers, either through the Rate Credit or through benefits otherwise
included in base retail rates. To the extent the identifiable benefits exceed the
annua! offsetable Rate Credit amounts, these additional benefits will be flowed
through to customers in base retail rates in GRCs as they occur. Avista and
Hydro One believe additional efficiencies (benefits) will be realized over time
from the sharing of best practices, technology and innovation between the two
companies. lt will take time, however, to identify and capture these benefits.
The level of annual net cost savings (and/or net benefits) will be tracked and
reported on an annual basis, and compared against the offsetable level of
savings.
H. Taxes
41.Taxes
a. Federal, state, and local taxes and assessments included in customer
rates shall be no greater than they would be had Avista not been acquired
by Hydro One.
b. Tax benefits that would not exist absent the Proposed Transaction may be
addressed in future proceedings before the Commission; however, until
that time, Avista, in compliance with ORS 757.511(4Xb), shall make a
filing with the Commission for approval to establish a balancing account to
track income tax expense, subject to Commission approval and
Commission conditions. Avista shall also submit an application to the
Commission to establish an ORS 757.259 deferral to track Avista's
income tax expenses and revenues (including tax benefits resulting from
the Proposed Transaction), the net revenues of which could be deliverable
to Avista's Oregon customers if a Party prevails in a future proceeding
before the Commission. Avista shall make its initial ORS 757.259 filing as
soon as practicable after the Commission issues its final order in this
docket, but prior to closing of the Proposed Transaction. Avista shall
continue to renew its application for an ORS 757.259 deferral annually.
This commitment does not require Parent to pass Parent-related tax
benefits to Avista customers unless ordered by the Commission in a later
proceeding, nor does it permit Parent to pass Parent-related tax expenses
to Avista customers.
42. Tax Guts and Jobs Act
a) Avista and Parent agree that Avista will identify and quantify the impact on
Avista of the December 22,2017 U.S. "Tax Cuts and Jobs Act," which
lowered U.S. corporate federal income tax rates from 35 percent to 21
43
Appendix A to the First Amendment to Stipulation
percent and modified or eliminated certain federal income tax deductions.
Avista will report on this impact in compliance with other Commission
proceedings. Within this reporting, Avista will identify specific metrics of
concern to Rating Agencies.
b) Regarding the deferra! of net tax benefits associated with the Tax Cuts
and Job Act, currently docketed as UM 1918 and UM 1923, Avista agrees
that it will waive, and not seek to apply, an earnings test (see ORS
757.259(5)) when Avista decides, or is required by the Commission, to
amortize the defened tax benefit into customer rates; in other words,
Avista will not use any of the deferred tax benefits to achieve its
authorized ROE of 9.4% (ROE tn 2018 and beyond). The Parties agree
that the amount of the tax benefit has not yet been determined, but will be
determined consistent with the Commission's direction in the UM 1918
and UM 1923 dockets, and other applicable docket(s) should one be
opened.
l. Financial Ring-Fencing
Cost of Capita!
Avista and Parent agree that Avista's Cost of Capital, including Avista's Rate of
Return (ROR), common equity, and Long-Term Debt, shall not be more costly
after the close of Proposed Transaction than they would have been absent the
Proposed Transaction. Consistent with Commitment 35(a), Avista bears the
burden of proving that increases in Avista's Cost of Capital, including Avista's
ROR, common equity, and Long-Term Debt, is caused by circumstances or
developments that are unrelated to the financial risks or other characteristics of
the Proposed Transaction.
Capital Support
Hydro One will provide equity injections to support Avista's capital structure
thereby allowing Avista to access its usual and customary financial markets
under reasonable terms and on a sustainable basis. This commitment should
include commercial paper programs, FMBs, credit facilities, letters of credit or
usual debt capital market transactions as exhibited in Avista's business activity
prior to execution of the Proposed Transaction, unless other comparable, lower-
cost methods exist in the future.
Common Equity Floor (CEF) in Capital Structure
The applicable CEF shall correspond to the applicable Credit Ratings for FMBs
as determined in Table 2 in accordance with the following paragraph of this
44.
45.
46
Appendix A to the First Amendment to Stipulation
commitment. Hydro One will make such equity injections as necessary to
maintain the applicable CEF consistent with Table 2.
When S&P and Moody's Credit Ratings are within one notch of each other, the
CEF will be determined by the higher of those ratings. When the difference
between S&P and Moody's is greater than 1 notch, the CEF will be determined
by the rating level that is one notch below the higher of the S&P and Moody's
ratings.
lf Avista or Parent finds that the actual or projected CEF will drop below one-half
of one percent above the required target based on the applicable Credit Ratings
in Table 2, then Avista and Parent will:
a) Within 5 business days, notify the Commission explaining why.
b) Within 30 days of providing notice, provide a plan and timeline
("Compliance Plan") that is subject to Commission review, modification,
rejection, or approvalfor maintaining Avista's common equity ratio at or
above the required CEF.
c) Subsequent to the filing of the Compliance Plan, Avista shall file progress
reports every 90 calendar days detailing its efforts to restore its equity
component to the required CEF or above, in addition to detailing how
Avista has met each requirement in the Compliance Plan.
d) lf Hydro One and Avista find it reasonably likely that Avista common equity
ratio could fall below one half of one percent above the required CEF in
Table 2 based on a preceding or projected thirteen month average, Avista
and Parent shal! provide a report to Staff with its projections and take the
steps listed above.
Avista Debt and Preferred Stock
Avista and Parent agree that any debt, commercial paper programs, revolving
credit facilities and prefened stock of Avista will be maintained separately to
support Avista utility operations.
Parent and Avista agree that no incremental new debt related to financing the
transaction at closing or thereafter for this or future Parent or affiliate M&A will be
in any way incurred, guaranteed, or pledged with Avista assets or otherwise by
Avista. Avista's financial integrity will be protected from the separate operations
of the Parent and its affiliates. Should any entity claim or assert othenruise in any
forum, whether regulatory, political, legal or otherwise, the Parent will assert that
said debt or other financial instrument and any penalties or interest or other
Appendix A to the First Amendment to Stipulation
obligations thereon is the sole responsibility of the Parent and its subsidiaries
other than Olympus Holding Corp. and all entities in the chain below it.
Neither Parent nor Avista will include in any of their debt or credit agreements
cross-default provisions between the debt of Avista and the debt of Parent or any
current and future Affiliates, or any government or political subdivision thereof
with a direct or indirect ownership interest in the Parent. Parent and Avista agree
that in no way may the assets of Avista be used to guarantee the finances,
securities, transactions, or credit of any government or subdivision thereof, and
that the acquisition of power to exercise substantial influence over Avista by any
person or entity in the future may only occur subject to Commission approval as
required by ORS 757.511 and as specified in these commitments.
Except as provided in commitments 62 and 63 Avista will enter into no inter-
company debt transactions with, or lend money to, or bonow money from:
Parent, or current or future affiliates, or any government or political subdivision
thereof with a direct or indirect ownership interest in the Parent.
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approval of the Commission:
a) Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or its
affiliates;
b) Assume any obligation or liability as guarantor, endorser, surety, or
otherwise for Parent or its affiliates;
c) Transfer any of Avista utility assets or property to Parent or its affiliates, or
any government or political subdivision thereof;
d) Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or its affiliates;
e) Enter into cross-default provisions involving Parent or its affiliates; or
f) Participate in a money pool.
47. First Mortgage Bonds (FMB)
Avista and Parent agree that Avista will also maintain adequate: (a) interest
coverage and (b) pool of qualified Avista assets to maintain the ability to issue
FMB.
Appendix A to the First Amendment to Stipulation
48. Continued Credit Ratings
Avista and Parent agree that Avista debt (other than private placement debt), will
continue to be rated by both S&P and Moody's without substitution, except as
provided under the definition of Rating Agencies. Avista will make Rating
Agencies' credit ratings and all related presentations to or from Avista and Rating
Agencies, and Rating Agencies' reports and analysis pertaining to Avista,
available to the Commission upon the Commission's request.
49. Revolving Credit Facilities and Associated Letters of Credit
Parent and Avista agree that Avista wil! prudently manage its revolving credit
facilities and, as part of the renewal of the current credit facilities, will proactively
arrange for multiple one year maturity extensions and accordion features
allowing enlargement of facilities to protect Avista from unnecessary credit risk, if
available at a reasonable cost in the market. Further, Parent and Avista agree to
prudently diversify institutions participating in revolving Avista credit facilities to
preclude concentration in any one country or institution.
50.Restrictions on Upward Dividends and Distributions
No upward dividends, distributions or like payments are authorized from Avista
(special, one-time, or otherwise) to Olympus Equity LLC if any of the following
conditions are present:
a) The ratio of Avista's earnings before interest, tax, depreciation and
amortization (EBITDA) to Avista's interest expense is not greater than or
equalto 3.0;
b) Avista's CEF as calculated for ratemaking purposes in Oregon is less than
set forth in Table 2 based on FMB credit ratings. Table 2's application is
further described in Commitment 45, "Common Equity Floor (CEF) in
Capital Structure" (for example, if Avista's S&P FMB rating is "A" AND
Moody's FRB rating is "A2", then the CEF shall be 46%); or
c) Avista's S&P or Moody's long-term (local currency) issuer credit ratings
drop below lnvestment Grade. Note that subsection (c) is an exception to
the definition of Credit Ratings, but not an exception to the definition of
lnvestment Grade.
For five years after the closing of the Proposed Transaction, Avista and Parent
agree to decline to request any extraordinary or special upward dividends or
Avista will share no credit facilities with Parent or affiliates or any government or
political subdivision thereof with a direct or indirect ownership interest in the
Parent.
Appendix A to the First Amendment to Stipulation
payouts. Further as an exception to ORS Chapter 757 inclusive of ORS 757.420,
Avista and Parent consent that the Commission shall have 60 days to review any
application for a special upward dividend made beyond five years post Proposed
Transaction, and agree that comprehensive supporting justification will be filed with
the Commission in support of any said future application.
Without prior Commission approval, Avista and Parent agree that Avista's regular
quarterly dividends from Avista to Olympus Equity LLC, or otherwise upward
toward Hydro One, may grow at a Compound Annual Growth Rate (CAGR) of no
more than seven (7) percent CAGR.14
ln all cases, Parent and Avista agree that Hydro One shall notify the Commission
of:
i. Any intention to transfer more than five (5) percent of Avista retained
earnings, out of Avista, at least seven (7) days prior to starting this
transfer;
Any intention to transfer more than ten (10) percent of Avista retained
eamings out of Avista over a six-month period, at least 30 days prior to
starting those transfers;
Any intention to declare a special cash dividend payment at least 30 days
before declaring the special cash dividend or like transfer of funds; and
Its most recent quarterly cash dividend payment within 30 days after
declaring each dividend.
AnnualAffiliated lnterest (A!) reports must itemize all Parent M&A divestitures,
and reorganization activities since the prior annual Al report.
51 SEC Reporting Requirements
Following closing of the Proposed Transaction, Avista will continue to make its
own applicable separate filings with the U.S. Securities and Exchange
Commission (SEC).
52 Compliance with the Sarbanes-Oxley Act
Following the closing of the Proposed Transaction, Avista and Parent will comply
with applicable requirements of the Sarbanes-Oxley Act with regard to all activity
at Avista and Olympus Equity, LLC.
'o See page 21 of Avista's investor presentation, "Positioned for Performance - An overview of Q3 2017
and beyond" released in December 2017 for the 2013 through 2017 4 percent to 5 percent trend of
annual dividend growth.
il.
IV
Appendix A to the First Amendment to Stipulation
53. Sources of Funds for Hydro One Gommitments and Guarantees (Other than
for Customer Service, Communities and Charitable Purposes)
a. Within 18 months of the close of the Proposed Transaction, Hydro One
will establish and maintain a Canadian $2 billion universal shelf
prospectus in Canada which will allow it to issue debt, common equity and
preferred equity.
b. Hydro One agrees to increase its Canadian $250 million credit facility to at
least $500 million, increasing its liquidity and enabling it to fund any equity
injection required at Avista on short notice.
c. Hydro One agrees that Avista will continue to be able to issue FMBs, and
that Hydro One will be supportive of Avista's FMB credit ratings.
d. Hydro One agrees that it will not allow Avista's S&P or Moody's long-term
(local currency) issuer credit ratings to drop below !nvestment Grade.
Note that this is an exception to the definition of Credit Ratings, but not an
exception to the definition of Investment Grade.
J. Bankruptcy Ring-Fencing
54. Avista Cash Flows
Avista commits, and Parent agrees, that prior to upward dividends from Avista to
Olympus Equity LLC, Avista cash flows will not be comingled in common
accounts with cash flows for other purposes at either of Olympus Equity, LLC or
Hydro One, including all Hydro One subdivisions and affiliates. Hydro One will
ensure that al! of the Parent's corporate entities maintain accounts and
subaccounts that are separate from Avista accounts and subaccounts, sufficient
to cause handling of cash flows to be entirely consistent with Avista's corporate
purposes.
55.Golden Share
Entering into voluntary bankruptcy shall require the affirmative vote of a "Golden
Share" of Avista stock. The Golden Share is defined in the Definitions section of
these commitments and is the sole share of Preferred Stock of Avista as
authorized by the Commission. This share of Preferred Stock must be in the
custody of an independent third-party, where the third-party has no financial
stake, affiliation, relationship, interest, or tie to Hydro One or any of its affiliates
including Avista, or is any lender to Hydro One or its affiliates, or Avista or its
affiliates. The holder of the Golden Share must be approved by the Commission
ln matters of voluntary bankruptcy, this Golden Share will override all other
outstanding shares of all types or classes of stock and the holder of the Golden
Share solely represents the interests of Avista's utility customers.ls
The cost of the Golden Share is considered a transaction cost and not included
in rates. Once a viable candidate for holder of the Golden Share is identified,
Avista must report to the Commission the following:
a) The name and contact information of the holder of the Golden Share;
b) How this person/entity meets the definition and purpose of the Golden
Share holder as explained in the commitments herein; and
c) Provide a copy of the draft agreement between the purchaser and Avista
After receiving Commission approval of the holder of the Golden Share, Avista
shall file the following:
i. The Report of Securities lssued and Disposition of Net Proceeds promptly
after the sale; and
Final copies of:
1. The Board resolution authorizing the transaction;
2. The resolutions of the Board and the shareholder approving and
adopting the Amended and Restated Articles of lncorporation of
Avista, including the rights and preferences of the Golden Share;
3. A copy of the Amended and Restated Articles of lncorporation of
Avista;
4. A copy of the Golden Share certificate; and
5. A copy of the agreement between the holder of the Golden Share
and Avista.
Further, Avista will seek Commission approval prior to consenting to any future
sale, trade, or transfer of the Golden Share by the Commission-approved-holder
thereof. Avista will provide supplemental information at that time in a manner
and form consistent with that which was provided in the review of the initial
purchaser in this docket.
15 See Definitions Section for further explanation and case references
Appendix A to the First Amendment to Stipulation
56
Appendix A to the First Amendment to Stipulation
Vote of lndependent Directors Also Required
Avista and Parent agree that the organizational documents of Avista and
Olympus Equity LLC will provide that Avista and Olympus Equity LLC will not,
and their organizational documents will not permit Avista or Olympus Equity LLC
to, consent to the institution of voluntary bankruptcy proceedings or to the
inclusion of Avista in bankruptcy proceedings of Parent, absent a two-thirds
majority vote of all Avista directors, including the affirmative vote of a majority of
the lndependent Directors at Avistia, which must include the affirmative vote of at
least two of the Avista designated lndependent Directors.
Avista and Parent agree that Avista will present the organizationa! documents of
Avista and Olympus Equity, LLC to the Commission before the Commission's
decision in this proceeding.
ln addition to an affirmative vote of a majority of the lndependent Directors, the
vote of the holder of the Golden Share shall also be required for Avista to enter
into a voluntary bankruptcy.
Non-Consolidation Opinion
As soon as it is obtained, but by no later than ninety (90) days after the Proposed
Transaction closing, Avista and Hydro One willfile a non-consolidation opinion
with the Commission which concludes, subject to customary assumptions, that
the commitments herein are sufficient that any U.S. bankruptcy court or
Canadian bankruptcy court would not order the substantive consolidation of the
assets and liabilities of Avista with those of Hydro One or any of its affiliates or
subsidiaries. Avista commits to promptly file such opinion with the Commission
as soon as it is obtained.
lf the ring-fencing provisions in these commitments are not sufficient to obtain a
non-consolidation opinion, Hydro One and Avista will immediately take the
following actions:
a. Notify the Commission of this inability to obtain a non-consolidation
opinion.
b. Propose and implement, upon Commission approval, such additional ring-
fencing provisions around Avista as are sufficient to obtain a non-
consolidation opinion subject to customary assumptions and exceptions.
c. Obtain a non-consolidation opinion, and othenrvise complete above steps.
57.
Appendix A to the First Amendment to Stipulation
Hydro One and Avista recognize that OPUC adoption of the stipulation in this
docket and the list of commitments herein is conditioned on and subject to Hydro
One and Avista filing a satisfactory non-consolidation opinion with the OPUC.
58. Olympus Holding Corp. and Olympus Equity LLC
Olympus Holding Corp.'s indirect subsidiaries will include Olympus Equity LLC
and Avista. See the post-acquisition corporate organizational chart in Table 1.
Following closing of the Proposed Transaction, all of the common stock of Avista
will be owned by Olympus Equity LLC, a limited liability company.
Avista will become a wholly-owned subsidiary of Olympus Equity LLC, a
bankruptcy-remote Special Purpose Entity (SPE) established for the purpose of
ring-fencing Avista, with the intention of removing Avista (and all of its current
subdivisions and holdings in all states) from the bankruptcy estate of Parent and
other divisions and affiliates. Olympus Equity LLC will issue no preferred stock;
will not issue nor carry notes, bonds, or other forms of indebtedness; and will not
engage in financial derivatives, hedging, or like financial activities beyond those
entirely consistent with the above stated purpose of the bankruptcy-remote SPE.
Olympus Equity LLC, Avista and Avista's subsidiaries will not hold other Parent
corporation investments or financial obligations without prior Commission
approval.
Hydro One will provide copies of the articles of incorporation and bylaws for
Olympus Holding Corp. and of the membership agreement for Olympus Equity's
LLC to the Commission prior to the Commission's decision in this matter. ln the
instance that any of the articles of incorporation or bylaws of the abovementioned
companies conflict with any commitment listed herein, Olympus Holding Corp.
and Olympus Equity LLC agree to amend such documents to reconcile the
conflict so that the terms of the commitments herein prevail.
Avista and Parent commit that Olympus Equity LLC wil! not operate or own any
business and will limit its activities to investing in and attending to its
shareholdings in Avista.
Avista and Parent further commit that the revised articles of incorporation and
bylaws of Olympus Holding Corp, and Olympus Equity LLC, reflecting their
specific business purposes will be provided to the Commission prior to the
Commission's decision on the Proposed Transaction.
59 Restriction on Pledge of Utility Assets
Absent a Commission order providing otherwise, Avista and Hydro One agree
that under no circumstance will Avista loan, pledge, or transfer Avista utility
60.
61.
Appendix A to the First Amendment to Stipulation
assets to Hydro One, Olympus Holding Corp., or any of Parent's subsidiaries or
affiliates, other than Avista, without Commission approval. ln addition, Avista
and Hydro One agree that Avista's assets will not be loaned, pledged, or
transferred by Avista or any of its affiliates, including Hydro One and Olympus
Holding Corp. and any of their subsidiaries or affiliates.
Major Shareholder (Beneficial Ownersh i p) Reporti n g
Avista and Parent agree that Avista will submit a written report on Major
Sha rehold ers consistent with OAR 860-0 27 -0 17 5(2) ( Major S ha reholders
Report).
When holdings of all entities are not available because filings for those certain
entities have not yet been made or are not available, Avista and Parent agree
that Avista wil! use best available information in a preliminary filing to the
Commission by the due date provided for in OAR 860-027-0175, supplemented
by a final filing to the Commission no later than June 1 of each year.
Restriction on Acquisitions and Dispositions
Parent and Avista agree to comply with ORS 757.511 and ORS 757.480 as
applicable and as described in the commitments herein. Hydro One, its Affiliates,
and subsidiaries including Avista will notify the Commission subsequent to the
board of Hydro One, its Affiliates or subsidiaries including Avista approving, and
as soon as practicable following any public announcement, of:
a. Any acquisition by Hydro One, its Affiliates and subsidiaries including
Avista of a regulated or unregulated business that is equivalent to five (5)
percent or more of Hydro One's capitalization; or
b. Any change in control or ownership of Avista, inclusive of any change of
upstream ownership of Avista among subsidiaries and Affiliates of Hydro
One, providing detail of the holding.
This commitment does not prohibit Parent or its affiliates other than Avista from
holding diversified businesses.
Neither Avista nor Olympus Holding Corp. will assert in any future proceedings
that the Commission is without jurisdiction over any transaction that results in a
change of control over Avista pursuant to ORS 757.511 and ORS 757.480, or as
those statutes are described in the commitments herein.
Appendix A to the First Amendment to Stipulation
62 No lnter Company Debt
Avista and Parent agree that, without prior Commission approval, Avista will not
enter into any inter-company debt transactions with Olympus Holding Corp.,
Hydro One, or any of their subsidiaries or affiliates.
63. No lnter Company Lending
Avista and Parent agree that, without prior Commission approval, Avista will not
lend money to Olympus Holding Corp., Hydro One, or any of their subsidiaries or
affiliates.
K. Access to lnformation
64. Access to and Maintenance of Books, Records and Other lnformation
The following commitment applies to information that is reasonably calculated to
lead to the discovery of admissible evidence pertaining to, or that may directly or
indirectly affect or relate to, Avista, the Oregon-regulated utility: Avista and
Parent will provide access to all materials specified in subparagraphs a - d below.
Where practicable, this information will be made available directly to the
Commission or at Avista's Headquarters in Spokane.
The Proposed Transaction and Hydro One's post-closing corporate structure will
not result in reduced access to books and records for Commission Staff and
other parties to regulatory proceedings necessary to investigate, examine, or
verify transactions with Avista, or that result in costs that may be allocable to
Avista.
Nothing in the Proposed Transaction and corporate structure thereafter will limit
or affect the Commission's rights with respect to inspection of Avista's and
Olympus Holding Corp.'s accounts, books, papers and documents pursuant to
and in compliance with all applicable Oregon laws and administrative rules.
Avista and Parent will provide the Commission with access to
a. All books of account, budgets, integrated resource planning, documents,
data, records, accounting, and financial information which may pertain to
transactions between Avista and Hydro One or any Hydro One U.S.
affiliate and subdivision.
b. Avista Board of Director (BOD) and Parent BOD meeting minutes and
presentations for BOD meetings, Avista and Parent committees and
subcommittees thereof, as well as investor presentations and transcripts
for Avista and Parent.
65
Appendix A to the First Amendment to Stipulation
c. Such other records of Avista and Parent including affiliates that are the
bases for charges to Avista, to determine the reasonableness of the costs
and the allocation factors used by Hydro One and its affiliates or
subdivisions to assign costs to Avista and amounts subject to allocation or
direct charges consistent with the Commission's rules and regulations.
d. All information provided by and to common stock, bond, or bond rating
analysts, and Rating Agencies, which directly or indirectly pertains to
Avista or any affiliate that exercises influence over Avista. Such
information includes, but is not limited to, opinions, reports and
presentations made to or provided by common stock analysts and bond
rating analysts. Avista's records of such matters will be kept at Avista's
headquarters in Spokane.
Hydro One and its Affiliates agree that they will not raise lack of jurisdiction as a
means of denying such access, and agree to cooperate fully with such
Commission investigations and requests for information.
Budgets
On or before December 31 of each year, Avista shall make available to the
Commission a final copy of its annual capital budget(s) for the succeeding year.
Hydro One will provide an annual budget of all transactions between Hydro One
and Avista.
Appearance Before the Commission
Hydro One and Avista will seek to maintain a visibly constructive relationship with
the Commission and will make their employees and officers available to testify,
present or participate in workshops before the Commission at the Commission's
request to provide information of interest to the Commission on matters related to
Avista's operations in Oregon. Avista will keep the Commission informed on
material matters related to Avista's operations in Oregon consistent with
Commission statutes and rules.
L. Accounting
Separate Books and Records
Avista and Parent, including all Hydro One U.S. Affiliates and subdivisions, will
maintain the necessary itemized books and records in form that can be viewed,
printed, and duplicated so as to document all corporate, Affiliate, or subsidiary
transactions with Avista, or that result in costs that may be allocable to Avista.
Documentation shall be maintained such that all costs subject to allocation and
the basis for the application of the allocation methodology can be specifically
66
67
68
Appendix A to the First Amendment to Stipulation
identified, particularly with respect to origin and cost drivers
Avista and Parent further agree that Avista will maintain separate books and
records inclusive of all documentation relating to costs allocated to and from its
Parent and Affiliates, with such accounting information and financial books and
records kept at Avista's headquarters in Spokane, Washington.
Avista will maintain its own accounts and subaccounts, books, computers, data,
documents, and documentation with supporting records separate from the
Parent's accounting system, with such accounting information and financial
books and records kept at Avista headquarters in Spokane, Washington.
Avista assets, cash flows, and financialaccounts may not be co-mingled with
Parent or Parent's subsidiaries or operations resulting after the merger.
M. Cost Allocations
Cost Allocations and Affiliate lnterests
Avista and Parent agree that Avista will provide cost allocation methodologies
used to allocate to Avista any costs related to Parent, including to Olympus
Holding Corp. or its other subsidiaries, and commit that there will be no cross-
subsidization by Avista customers of unregulated activities.
Avista and Parent agree as follows:
Hydro One and Avista will not cross-subsidize between the regulated and
unregulated businesses or between any regulated businesses, and shall
comply with the Commission's applicable statutes, orders, and rules with
respect to such matters.
Hydro One shall not subsidize its activities by allocating to or directly
charging Avista expenses not authorized by the Commission to be so
allocated or directly charged.
a
a
a
For any services rendered to Avista or each cost category subject to
allocations to Avista by Hydro One or any of its affiliates, Hydro One must
be able to demonstrate that such service or cost category is necessary to
Avista for the performance of its regulated operations, is not duplicative of
services already being performed with Avista, and is reasonable and
prudent and results in a benefit to Oregon customers.
To determine the reasonableness of allocation factors used by Hydro One
to assign costs to Avista and amounts subject to allocation or direct
69.
Appendix A to the First Amendment to Stipulation
charges, the Commission or its staff may investigate the accounts of
Hydro One and its subsidiaries which are the bases for charges to Avista.
Hydro One agrees to cooperate fully with such Commission investigations
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approva! of the Commission:
a. Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or
affiliates;
b. Assume any obligation or liability as guarantor, endorser, surety, or
otherwise for Parent or affiliates;
c. Transfer any of its utility assets or property to Parent or affiliates, or any
government or political subdivision thereof with a direct or indirect
ownership interest in the Parent, except as and when required by ORS
757.511 and ORS 757.480 or expressed in the commitments herein; or
d. Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or affiliates.
Avista will bear the burden of proof in any GRC that any corporate and affiliate
cost allocation methodology is reasonable for ratemaking purposes consistent
with Commission statutes, orders, and rules. Neither Avista nor Olympus
Holding Corp. or its subsidiaries will contest the Commission's authority to
disallow, for ratemaking purposes in a GRC, unreasonable, or misallocated costs
to Avista.
With respect to the ratemaking treatment of affiliate transactions affecting Avista,
Olympus Holding Corp., Hydro One and all its U.S. subsidiaries, will comply with
the Commission's rules and practice. However, nothing in this commitment limits
Avista from also proposing a different ratemaking treatment for the Commission's
consideration, or limits the positions that any other party to the proceeding may
take with respect to ratemaking treatment.
Prevention of Cross Subsidization
Avista and Parent agree to comply with ORS 757.015 through 757.495, as
applicable, and OAR 860-027-0040 through 860-027-0042, as applicable, for
transactions between Avista and Parent including subdivisions and Affiliates.
Further, Avista and Parent agree that the Commission may investigate the
accounting records of Parent and Affiliates that are the bases for charges to
Avista, to determine the reasonableness of the costs and the allocation factors
Appendix A to the First Amendment to Stipulation
used by the Parent or its subdivisions to assign costs to Avista and amounts
subject to allocation or direct charges. Parent and Affiliates will cooperate fully
with such Commission investigations.
Parent and Avista wil! maintain robust systems to track employee, officer,
director, agent, and attorney time not spent for Avista utility purposes, which cost
thereof shall not be allocated to Avista.
Parent and Avista will comply with all applicable Commission statutes, orders,
and rules regarding Affiliated lnterest transactions, including timely filing of
applications and reports.
Avista will not cross-subsidize between the regulated and unregulated
businesses or between any regulated businesses, and shall comply with the
Commission's applicable orders and rules with respect to such matters.
a. For services rendered to Avista or each cost category subject to allocation
to Avista by Hydro One or any of its affiliates, Avista must be able to
demonstrate that such service or cost category is: i) necessary to Avista
for the reasonable performance of its regulated operations in Oregon, ii) is
not duplicative of services already being performed within Avista, and iii) is
reasonable and prudent.
b. Cost allocations to Avista will be directly charged whenever possible, and
shared or indirect costs will be allocated based upon the primary cost-
driving factors.
c. Hydro One and its subsidiaries will have in place an accounting system
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
d. All costs subject to allocation will be documented, such that they can be
specifically identified, particularly with respect to their origin.
e. Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval. The Master Services Agreement (MSA) or equivalent will be
updated to include the corporate and affiliate cost allocation
methodologies between Hydro One, Avista and their affiliates. The MSA
will be filed with the Commission for review and approval, no later than 90
days after close of the transaction. Thereafter, amendments to the MSA
Appendix A to the First Amendment to Stipulation
will also be filed with the Commission as material changes occur, or
otherwise attached to the annual June Affiliated lnterest (Al) report.
f. Avista and Hydro One commit to using asymmetrical pricing as required
by OAR 860-027-0048(4).
Any allocation of costs, corporate and Affiliate investments, expenses, or
overheads between Avista and Parent or an Affiliate will comply with the
following principles:
Cost allocations to Avista will be directly charged whenever possible, and
shared or indirect costs will be allocated based upon primary,
demonstrable, and transparent cost-driving factors.
ii. Parent and all subsidiaries and Affiliates wil! maintain accounting systems
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
iii. A!! costs subject to allocation will be Documented and flagged by origin, so
as to be specifically identified, tracked, and trended. Failure to adequately
support any allocated cost may result in denial of its recovery in rates.
Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval.
Avista's MSA or equivalent, itemizing and explaining corporate cost
allocation methods used for rate setting, will be updated to include the
corporate and affiliate cost allocation methodologies between Parent (and
Hydro One if different), Avista, and Affiliates and filed with the Commission
no later than 90 days after execution of the reorganization. Thereafter, the
MSA will be appended to the annual June Affiliated lnterest report filed
with the Commission. This annualfiling will capture, highlight and explain
all changes from the prior year. The entirety of the MSA and its
components are subject to review by Staff in subsequent proceedings
before the Commission to confirm that cost drivers, accounting methods,
assumptions, and practices result in fair, just and reasonable utility rates.
Avista will update, and re-file for approval, the MSA and A! Reporting
reflecting Parent (and Hydro One if different) organizational detai! and the
outcome of Docket No. UM 1897.
Costs which would have been denied recovery in rates had they been
incurred by Avista will likewise be denied recovery whether they are
l.
iv
V
VI
vii
viii
Appendix A to the First Amendment to Stipulation
allocated directly or indirectly through subsidiaries of Parent other than
Avista.
Avista willfile timely applications and reports in compliance with
ORS 757.015 through 757 .495 and OAR 860-027-0040 through 860-027-
0042.
Parent and Avista commit that they will interpret ORS 757.015 and
757 .495 to require Commission approval of any contract between Avista
and (1) any affiliate of Hydro One or (2) any affiliate of Parent. This shall
include the MSA discussed herein.
ix. Avista bears the burden of showing that a particular expense may be
allocated to Avista ratepayers.
Master Services Agreement (MSA)
Please see Commitment 69.
Complete Gorporate Organizational Chart and Contact lnformation
Avista and Parent agree that Avista willfile usua! and customary Affiliated
lnterest (Al) reports with the Commission each June. Avista's Al reports filed
with the Commission will contain a complete copy of the cunent corporate
organizational chart between Hydro One and Avista, including contact
information for those entities, a narrative description of each Affiliate, annual
revenue for each Affiliate, and transactions with each Affiliate; and identify in the
chart any entities that do business with, share charges with, or have an
ownership interest of five percent or more in Avista.
N. North American Free Trade Agreement (NAFTA)
70
71
72 North American Free Trade Agreement (NAFTA)
Avista and Parent agree that the Commission would have jurisdiction in any
future proceedings regarding any unrecovered liabilities to the State of Oregon
that may result from NAFTA Chapter Eleven mediations, arbitrations, or any
other litigation brought by Hydro One's shareholders under NAFTA. Only the
Commission or the Oregon Attorney General may initiate such proceeding.
O. Avista Status Quo
73. Generally Accepted Accounting Principles and Standards (GAAP)
Avista and Parent agree that Avista and Olympus Equity LLC will follow GAAP
for Oregon regulatory purposes except when otherwise directed by Commission
Appendix A to the First Amendment to Stipulation
orders and policies, Oregon Revised Statutes (ORS), and Oregon Administrative
Rules (OAR).
74. Travel Expenses
Avista and Parent agree that Avista's corporate travel expenses recovered in
rates, including variable costs of flying the Avista corporate jet and commercial
travel for all Avista and Parent directors and executives will not exceed 105
percent of 2017 expenses adjusted annually for inflation. However, regardless of
the terms of this commitment, Avista stil! canies the burden of demonstrating the
reasonableness and inclusion in rates of any travel expense.
75.Avista Management Direction
Avista and Parent agree that Avista management will continue to ensure that
delivery of safe and reliable high quality utility service at just and reasonable
rates in Oregon is included in its mission and is a top corporate priority post-
merger.
76.Gapital Investment for Safe Pipelines and Controls
Avista and Parent agree that Avista will maintain its existing levels of capita!
investment where needed to improve the safety of regulated pipelines and
associated controls for the next ten years. Over that period, Parent agrees to
provide capital, receiving usua! Commission rate case treatment, as necessary to
improve the safety of pipelines and associated controls.
77 Equal or Better Access to Financial Markets in the U.S. and Canada
Avista and Parent agree to make reasonable commercial efforts to prioritize
access for Avista to financial markets at equal or lower cost than absent the
Proposed Transaction for Long-Term Debt and Credit Facilities in the U.S.
Hydro One agrees to consider listing on the New York Stock Exchanges (NYSE)
as and when appropriate and advisable.
Parent agrees to make reasonable commercial efforts to investigate and arrange
innovative financing opportunities that include independent opportunities for
Avista financing, utilizing the same investment banks and arranged sellers in the
U.S. and Canada, where Avista is responsible for Avista's issuances and
proportional cost, but afforded proportiona! access to larger aggregate securities
offerings to achieve lower all-in issuance cost.
78. Venue for and Resolution of Disputes
Avista and Parent agree that the venue for disputes regarding the operation of
Avista will be in state and federal regulatory bodies or courts of competent
jurisdiction, as applicable, in Oregon, Washington, ldaho, Montana or Alaska.
Appendix A to the First Amendment to Stipulation
79. Headquarters
Avista and Parent agree that Avista will maintain its headquarters in Spokane,
Washington. Any change in the location of Avista headquarters will require
Commission approval.
Local Staffing
Avista will maintain Avista's staffing and presence in the communities in which
Avista operates at levels sufficient to maintain the provision of safe and reliable
service and cost-effective operations, consistent with Pre-Merger levels.
81. Pension and Post Retirement Expenses and Assets
Avista and Parent agree that Avista will maintain its pension funding policy in
accordance with sound actuaria! practice, and comply with Commission Orders
regarding best practices on pension policies. Hydro One will not seek to change
Avista's pension funding policy or to obtain funds from Avista's pension and post-
retirement assets.
80.
82 General Operations and Maintenance (O&M) for Community Development
Operations and maintenance funds dedicated to economic development and
non-utility strategic opportunities will be recorded below-the-line to a non-
operating account.
83. Economic Development
Parent and Avista agree that Avista wil! approach economic development, in a
manner consistent with Avista's past practices.
84. Membership in Organizations
Avista will maintain the dues paid by it to various industry trade groups and
membership organizations, where participation is related to the delivery of safe
and reliable utility services. However, recovery of all membership and
organizational dues will be reviewed in a GRC consistent with Commission
orders and rules.
85. FERC Reporting Requirements
Avista and Parent agree that Avista will continue to meet all the applicable
Federal Energy Regulatory Commission (FERC) reporting requirements with
respect to annual and quarterly reports (e.9., FERC Forms 1, 2, 3-Q) after
closing of the Proposed Transaction.
Participation in National and Regional Forums
Avista and Parent agree that Avista will continue to participate, in national and
regional forums regarding transm ission issues, pricing policies, siting
requirements, and interconnection and integration policies, and such forums as
86.
Appendix A to the First Amendment to Stipulation
necessary to provide safe and reliable electrical and natura! gas service and to
protect the interest of Avista customers.
87 Compliance with Existing and Future ORS, OAR and Commission Orders
Avista and Parent will comply with applicable Oregon Revised Statutes (ORS),
Oregon Administrative Rules (OAR), and Commission Orders. All existing
Commission Orders with respect to Avista or its predecessor, Washington Water
Power Co., will remain in effect until changed by the Commission including those
regarding Avista's acquisition of AERC.
P. Corporate Citizenship
88.Oregon Charitable Contributions
Hydro One and Avista agree that Avista will contribute charitable donations to
Oregon-based organizations. Avista agrees it will, over time, distribute charitable
donations in proportion to each state's portion of the system in which Avista
operates.
89. Other Community Contributions
Hydro One will make a one-time $7,000,000 contribution to Avista's charitable
foundation at closing, a portion of which will be allocated to Oregon proportionate
to relative revenues in Oregon.
Commitment 90 contains an additional commitment relating to charitable
contributions.
90.Genera! Community Contributions and lnvolvement
For five years after the close of the Proposed Transaction, Avistia will maintain a
$4,000,000 annual budget for charitable contributions (funded by both Avista and
the Avista Foundation) and additionally a $2,000,000 annual contribution will be
made to Avista's charitable foundation, which will not be recoverable in customer
rates. No approvalfrom any regulatory bodies with jurisdiction over the
commitments is required for any changes to this commitment after the sixth year
following closing of the Proposed Transaction; however, any such changes will
continue to require a two{hirds (2/3) vote of the Avista Board. Avista agrees it
wil!, over time, distribute this annual charitable contributions budget across its
entire service territory in proportion to each state's portion of the system.
Sources of Funds for Hydro One and Avista Commitments
Throughout the list of commitments herein, any commitment that states that
Hydro One or Avista will provide funding is a firm commitment to provide the
exact dollar amount specified, over the time period specified, and for the
purposes specified. To the extent Avista has retained earnings that are available
91.
Appendix A to the First Amendment to Stipulation
for payment of dividends to Olympus Equity LLC consistent with the ring-fencing
provisions of this list of commitments, such retained earnings may be used.
Q. Future Rates
92.Treatment of Net Cost Savings
Avista and Hydro One agree that any net cost savings that Avista achieves as a
result of the Proposed Transaction will be reflected in subsequent rate
proceedings, as such savings materialize. To the extent the savings are
reflected in base retail rates they wil! offset the Rate Credit to customers, up to
the offsetable portion of the Rate Credit.
93. Gontinuation of Base Rates Established in UG-325
Avista last adjusted base rates on November 1,2017, in Docket No. UG-325.
Avista agrees that these base rates wil! remain in effect until at Ieast January 1,
2020.
94.Preparation for Next Genera! Rate Case (GRC) in Oregon
Avista and Hydro One agree that Avista will attach to its next GRC filing in
Oregon, an Officer of Avista Corporation attestation that all Transaction Costs
associated with the Hydro One merger have not been included in the GRC filing,
and includes a granular assessment of (2) net Transition Costs and (3) cost
savings for Oregon customers obtained as a result of the Hydro One merger and
its su bsequent synergies.
95 Treatment of Goodwil!, Transaction Costs, and Transition Costs
Avista and Parent agree that Avista and Parent will not seek to recover in rates
any acquisition adjustment, control premium, goodwill, or transaction costs
associated with the Proposed Transaction. Further:
a. After the consummation of the Proposed Transaction, any remaining
transaction costs or other costs associated with the Hydro One merger will
not appear on Avista's regulated utility books in any form. Olympus
Holding Corp. and Hydro One transaction costs or other costs associated
with the Hydro One merger have not and will never appear on Avista's
utility books.
b. Avista shallfumish the Commission with journa! entries and supporting
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, costs of
necessary filings and recordings, etc.) since the Proposed Transaction
96
97
Appendix A to the First Amendment to Stipulation
was first contemplated, as well as the accounts charged, within 90 days of
a Commission order in this docket.
c. Avista will exclude from Avista GRCs, 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 and any other goodwill;
(iv) M&A consulting and advice, including that of investment banks;
(v) Preparation of materials or presentations relating to the Proposed
Transaction including all costs of related regulatory proceedings;
(vi) Any senior executive time and compensation or any Avista Board of
Director time measured in lowest practicable USD increments
associated with the Hydro One merger; and
(vii) Any other costs associated with the Proposed Transaction.
No costs of goodwill of the Parent or affiliates will be includable in Avista rates,
including rate base, cost of capital, or operating expenses. Write-downs or write-
offs of goodwill will not be included in the calculation of net income for dividend or
other distribution payment purposes.
Parent will not elect to apply pushdown accounting for this merger so that the
merger will have no impact on Avista's assets being acquired, and any
incrementalgoodwillwill not be allocated to, or recognized within Avista's
balance sheet.
Costs for Future M&A or Reorganization
Parent and Avista will exclude from Avista GRCs, or any other method of cost
recovery, all future costs related to the Parent's future business endeavors and
mergers, acquisitions (M&A), restructuring, or formation of holding companies.
R. Environmental, Renewable Energy, and Energy Efficiency
Greenhouse Gas and Carbon lnitiatives
Avista and Parent wil! support Avista's current Natural Gas IRP Greenhouse Gas
and Carbon lnitiatives. Avista and Parent agree that Avista will continue to seek
Appendix A to the First Amendment to Stipulation
cost effective and least risk opportunities to reduce greenhouse gas and carbon
emissions in Oregon.
98. Cost of Greenhouse Gas Emissions
Where consistent with Commission orders, Avista commits to Oregon Natura!
Gas IRP modeling of a range of potential costs for greenhouse gas emissions,
and will work with its IRP stakeholders to determine appropriate values to model
99.Greenhouse Gas lnventory Report
Avista and Parent agree that Avista wil! comply with greenhouse gas inventory
and other reporting requirements in Oregon.
100. Efficiency Goals and Objectives
Avista and Parent agree that Avista will support Avista's current IRP Energy
Efficiency lnitiatives. Avista and Parent agree that Avista will continue to seek
cost effective and least risk opportunities for energy efficiency in Oregon.
101. Low Environmental lmpact Options
Where consistent with Commission orders and when likely practicable, Avista will
evaluate opportunities for lower environmental impact services to customers in
Oregon, with its IRP stakeholder input.
102. lnforming the Commission
Avista and Parent agree that Avista will inform the Commission of natural gas
(energy) initiatives and observations of Avista, that are material to Avista's
natural gas operations in Oregon, on a timely informational basis, when Avista
feels material changes are pending or have occurred, or that material best
practices or pitfalls in the natural gas industry have been identified.
103. Sharing Best Planning Methods
Avista and Parent agree that Avista will share with the Commission on a timely
informationa! basis best IRP and other planning methods discovered across its
other state jurisdictions. Avista and Parent agree that Avista will describe the
framework of findings and provide supporting materials when not burdensome or
proprietary.
104. lndustrial Gonservation and Efficiency
Recognizing that the Energy Trust of Oregon (ETO)currently administers
Avista's voluntary industrial energy efficiency programs, Avista and Parent agree
that Avista will make good faith efforts to identify industrial conservation and
efficiency opportunities in Oregon that are materialto Avista's natural gas
operations in Oregon, and to communicate materialobservations to the
Commission and AWEC. ln the event of U.S. federal stimulus, Avista commits to
Appendix A to the First Amendment to Stipulation
make good faith efforts to prepare and document planned energy projects with
Avista leadership, or to participate in such projects where available and material
to Avista's natural gas operations in Oregon, so as to comply with stimulus and
IRP requirements while reducing financing and other costs.
105. Electric, Natural Gas and Fuel Cell Transport
Avista and Parent agree that Avista wil! communicate to the Commission
practicable opportunities to facilitate environmentally beneficial transportation in
Oregon.
106. Expanded Natural Gas Transportation Service
The Parties agree that customers presently served on sales Schedules 424 and
440 should be able to elect to take seryice, for a minimum of one year, under
new transportation service Schedules 425 or 439. Avista commits that this
Commitment will not impact other customers, is margin neutral, and does not
require hedging. The Parties agree with the parameters of the expanded natural
gas transportation service schedules as outlined below:
a. Eligibility - For Schedules 425, qualitying sales customers must have a
minimum annual average usage of 29,000 therms, as stated on Schedule
424. For Schedules 439, qualifying sales customers must have a
minimum annual average usage of 50,000 therms, as stated on Schedule
440.
b. The base rates for Transportation Schedules 425 and 439 will be the
same as the base rates on Schedules 424 and 440, respectively.
c. For purposes of al! future "adder schedule filings" (DSM, Decoupling,
LIRAP, etc.), cost of service studies, and rate spread and rate design
proposals, Schedule 424will be grouped with Schedules 425 and
Schedule 440 will be grouped with Schedules 439.
d. The Parties further agree that customers served on Transportation
Schedules 425 and 439 will be subject to Avista's natura! gas decoupling
mechanism.
e. Schedules 425 and 439 wil! contain the same provisions contained in
Avista's tariff sheets 456A through 456C, which relate to the transportation
of customer-owned natural gas.
f. The Parties agree that Avista will file Schedules 425 and 439 as described
above as part of the compliance filing approved as part of the merger
proceeding.
Appendix A to the First Amendment to Stipulation
g. ln the event that the Commission rejects or suspends the proposed
revised Schedules 425 and 439, the Parties agree to support Commission
approval of tariff provisions with substantially similar terms.
107. Low-lncome Energy Efficiency Planning
Avista will continue to work with its advisory groups on the appropriate level of
funding for low income energy efficiency programs.
S. Contract Labor
108. Contract Labor
Please refer to Commitment 109. ln addition, Avista, Parent, and Oregon and
Southern ldaho District Council of Laborers (OSIDCL) agree that Avista has
resolved all issues in this proceeding that pertain to the Oregon and Southern
ldaho District Council of Laborers (OSIDCL). See "Addendum 1 - Contract
Labor, Oregon Commitments", supported by OSIDCL with and all other Parties
regarding recommended contract labor conditions.
109. Union and Other Labor Relationships
Avista and Parent agree that Avista will honor its existing labor contracts and will
meet the labor participation, safety and training commitments provided herein.
Avista has the authority to negotiate, enter into, modify, amend, terminate or
agree to changes in any collective bargaining agreement or any of Avista's other
material contracts with any labor organizations, union employees or their
representatives. Avista will maintain compensation and benefits related practices
consistent with the requirements of the Merger Agreement.
See Addendum 1 for Oregon contract labor provisions.
l'. Reporting and Enforcement
110. Commitments Binding
Parent and Avista acknowledge that the commitments herein are fully binding on
each of them individually, severally and on their successors in interest.
11',|.Commission Enforcement of Gommitments
Avista and Parent understand and agree that the Commission has authority to
enforce the commitments herein. lf a commitment is violated, the Commission
may impose such penalty as the Commission finds appropriate for the severity of
the violation.
The scope of this commitment includes the authority of the Commission to
Appendix A to the First Amendment to Stipulation
request and where necessary to require attendance of witnesses from Avista and
Parent. Avista and Parent agree they will not interpose any legal objection they
might otherwise have to the Commission's jurisdiction to require the appearance
of any such witnesses.
112. Submittal to State Court Jurisdiction for Enforcement of Commission
Orders
Avista, and Parent, on behalf of itself and its subsidiaries in the post-close
corporate structure between Parent and Avista (as those companies in between
may change over time), will each file with the Commission prior to closing the
Proposed Transaction an affidavit affirming that they will submit to the jurisdiction
of the Oregon courts for enforcement of violations of the Stipulated Commitments
and subsequent Commission orders affecting Avista and Parent, and agree to
the application of Oregon law with respect to such matters.
113. Annual Reporting on Gommitments
ln addition to providing copies of closing documentation on usua! and customary
elements of completion of the Proposed Transaction to the Commission, Avista
and Parent agree that by June 1 5,2019 and each June 15 thereafter through
June 1 5,2028 inclusive, Avista and Parent agree that Avista will file a report with
the Commission on how Avista and Parent are complying or have complied with
each of the commitments herein as of December 31 of the preceding year (a total
of 11 annual reports). The report will, at a minimum, provide a description of the
performance of each of the commitments.
Failure to comply with a commitment will be brought before the Commission for
determination of appropriate remedy and penalty.
114. Resolution of Violations: Expedited Resolution of Minor and Procedural
Compliance lssues
lf the Commission or any Party determines that any commitment has not been
complied with or is not being complied with, it will first provide notice to Avista
and/or Hydro One, as applicable, and may thereafter provide notice to the
Commission. Within 7 days of notice to the Commission, Staff will have an
opportunity to propose an informal remedy to Avista and/or Hydro One, as
applicable, if such remedy is reasonably likely to return full compliance within 14
days of Staffs notice to Avista and/or Hydro One of its proposal. lf Avista and/or
Hydro One, as applicable, choose not to implement Staffs proposal, or if no such
informal remedy is available because full compliance within 14 days is not
reasonably likely, Avista and/or Hydro One's alleged failure to comply will be
brought before the Commission for determination of an appropriate remedy.
1 15.
Appendix A to the First Amendment to Stipulation
U. Most Favored Nations
Most Favored Nations
All Parties including Avista and Hydro One agree that the Commission shall have
an opportunity and the authority to consider and adopt in Oregon any
commitments to which Avista and Hydro One have stipulated or otherwise
agreed to in another state commission jurisdiction, even if such conditions are
agreed to after the Commission enters its order in this Oregon Docket No. UM
1897.
Avista and Hydro One agree further that that any Party other than Avista and
Hydro One may ask that all Parties convene to discuss at earliest practicable
convenience, where time is of the essence, if and how such conditions adopted
by a commission in another state proceeding should be integrated with any
stipulated list of conditions already agreed to by Parties so as to present the
Commission with a revised Oregon stipulated set of conditions.
Process for Consideration of Most Favored Nation's Commitments
a. Within five calendar days after Avista and Hydro One file a stipulation with
new or amended commitments with a commission in another state
jurisdiction, Avista and Hydro One will send a copy of the stipulation and
commitments to all Oregon Parties.
b. Within five calendar days after a commission in another state jurisdiction
issues an order that accepts a stipulation to which Avista and Hydro One
are parties, or an order with a stipulated set of conditions for approval of
the Proposed Transaction, that order, together with all conditions for
approval of the Proposed Transaction, will be filed with the Commission
and served on all parties to this Oregon docket by the most expeditious
means practical.
c. Within 10 calendar days after another state jurisdiction filing discussed in
(b) above ("Final Filing"), Parties other than Hydro One and Avista may
file with the Commission any response such other Parties wish to make,
including their position as to whether any of the covenants, commitments
and conditions from the other jurisdictions (without modification of the
language thereof except such non-substantive changes as are necessary
to make the commitment or condition applicable to Oregon) should be
adopted in Oregon.
Appendix A to the First Amendment to Stipulation
d. Within five calendar days after any such response filing, Avista and Hydro
One may file a reply with the Commission.
e. lf any of the dates above fall on Saturday, Sunday, or a holiday, the next
business day will be considered as the due date.
f. The Parties agree to support in their filings the issuance by the
Commission of an order regarding the adoption of such commitments as
soon as practical thereafter, recognizing that the Proposed Transaction
cannot close until final state orders have been issued approving the
Proposed Transaction.
g. The Commission may then review the filings and issue an order indicating
which other-state-commitments it chooses to adopt.
Limitations on Adjustment
Only commitments specific to gas service may form the basis for
adjustments specific to gas service.
ii. Only commitments specific to electric service may form the basis for
adjustments specific to electric service.
iii. Any commitments relating to support of communities in Montana are not
subject to this provision.
As Avista does not operate as a utility in Alaska, any commitments made
in Alaska are not subject to this provision.
For purposes of financial commitments or commitments having a financial
impact, commitments should be proportionate to Avista's corresponding
business function in Oregon in relation to its corresponding tota! company
business function. The Parties agree that the Oregon Rate Credit, as
specified herein, satisfies this corresponding business function standard.
For purposes of this provision, "financial commitments or commitments
having a financial impact" do not include ring fencing provisions.
116. Notice and Petition
ln the event of the enactment or adoption of any legislation, rule, policy, or
directive by govemment at any level or by any govemmental entity or official in
Canada (a "Legislative Action") that affects Avista's operations because of
Avista's corporate relationship with Parent, or affects Parent's compliance with
any commitment in this stipulation, any of the parties to this proceeding may
petition the Commission at any time to consider whether the Commission should
IV
V
117.
a.
Appendix A to the First Amendment to Stipulation
amend its final order in UM 1897, including reopening and strengthening any of
the Stipulated Commitments (inclusive of the financial ring-fencing commitments
and/or the governance commitments), or requiring the addition of new
commitments, and neither Parent nor any of its subsidiaries, including Avista, will
oppose initiation of such a proceeding. Parent will report to the Commission any
such Legislative Action in Canada that, in Parent's reasonable judgment, affects
Avista's operations because of Avista's corporate relationship with Parent, or
affects Parent's compliance with any commitment in this stipulation, as soon as
practicable after it is publicly announced as being effective by the government or
governmental entity or official. Nothing in this Commitment 116 shall be
interpreted to limit the positions or arguments that Avista or Parent may take or
advance in any such proceeding, including the right to argue that a petition
presents insufficient grounds or evidence. Prior to filing a petition with the
Commission under this Commitment 116, a party must provide Parent and Avista
at least 30 days advance written notice and an opportunity to meet and confer
about resolutions other than filing with the Commission under this commitment.
Nothing in this commitment is intended to restrict the rights of the parties to
petition the Commission conceming its order(s) in this docket, or to limit the
authority of the Commission.
No Substantial Provincial lnfluence
Parent and Avista will advise each member of the Avista Board of Directors prior
to being seated post Proposed Transaction and annually thereafter that the
Province may not attempt to, directly or indirectly, acquire the power to exercise
any substantia! influence'6 over the policies and actions of Avista. Parent and
Avista will require each of their respective director designees to execute a new
affidavit filed annually on June 1 of each year with the Commission that attests
that the individual director will notify the Commission immediately if they have
any reason to believe that the Province is directly or indirectly seeking to exercise
or is exercising any substantial influence over the policies and actions of Avista
through the Avista Board or otherwise.
b. lf a member of the Avista Board of Directors provides notice to the Commission
pursuant to subparagraph a of this Commitment 117, the Commission may
initiate a proceeding to determine whether the Commission should amend its
final order in UM 1897, including reopening and strengthening of any of the
Stipulated Commitments (inclusive of the financial ring-fencing commitments
and/or the governance commitments), or requiring the addition of a new
commitment to address the Province's attempt to, directly or indirectly, exercise
16 "substantial influence" as used in this commitment has the meaning set forth in ORS 757.511 and as
interpreted by the Public Utility Commission of Oregon.
Appendix A to the First Amendment to Stipulation
substantial influence over the policies and actions of Avista, and neither Hydro
One, nor any of its subsidiaries, including Avista, will oppose the Commission's
authority to proceed as outlined in this Commitment 117 .
c. Parent's authority to replace an lndependent Director on the Avista Board with an
employee or executive on an interim six-month basis is suspended for the
pendency of any proceeding initiated pursuant to subparagraph b of this
CommitmentllT.
118. Hydro One Governance Agreement
a. Prior to close of the Proposed Transaction, the board of directors of Hydro
One (the "Board") shal! adopt a resolutionlT providing that in the event the
Board, or any director thereon, is informed or becomes aware that there is a
proposal or steps being considered or taken to amend, effectively modify, or
eliminate the Governance Agreement, whether by legislation, mutual
agreement of the parties thereto or othenrvise, Hydro One wil! immediately
notify the Commission and, to the extent feasible, will provide the
Commission with information available to the Board regarding the proposal.
The Board will confirm annually its obligations under this commitment, which
confirmation will be signed by the Hydro One Chair and provided to the
Commission.
b. !f Hydro One provides notice to the Commission pursuant to subparagraph a.
of this Commitment 1 18, the Commission may initiate a proceeding to
determine whether the actions described in subsection a to amend, effectively
modify, or eliminate the Governance Agreement would result in the Province
seeking to exercise or exercising substantial influence over the policies and
actions of Avista, and if so, whether the Commission should amend its final
order in UM 1897 , including reopening and strengthening any of the
Stipulated Commitments (inclusive of the financial ring-fencing commitments
and/or the governance commitments), or requiring the addition of new
commitments to address the Province's attempt to, directly or indirectly,
exercise or exercising substantial influence over the policies and actions of
Avistia, and neither Hydro One nor any of its subsidiaries, including Avista, wil!
oppose the Commission's authority to proceed as outlined in this
subparagraph b. of this Commitment 1 18.
" Under Canadian corporate law, a resolution of a company's board of directors is evidence of an action
taken at a board meeting. The board of directors has the power to bind the company, and as a result, the
resolution required by Commitment 118 is evidence that the Hydro One board of directors has agreed to
bind Hydro One to the obligations of Commitment 118.
Appendix A to the First Amendment to Stipulation
c. Hydro One's authority to replace an lndependent Director on the Avista Board
with an employee or executive on an interim six-month basis is suspended for
the pendency of any proceeding initiated pursuant to subparagraph b. of this
Commitment 1 18.
Appendix A to the First Amendment to Stipulation
V. Addendum I - Contract Labor, Oregon Gommitments
1. On a prospective basis, and for a period of 10 years ending March 7,2028 unless
revised by the Commission in the interest of both cost and quality to Avista utility
customers, Avista will require the use of Oregon and Southern ldaho District
Council of Laborers,' including any future successor organization, (OSIDCL)
members for the type of work that is ordinarily and customarily performed by
OSIDCL on natural gas replacement and all natural gas work. This will not apply to
work performed under contracts already in effect as of March 7 ,2018. This
agreement will not apply to (a) atmospheric corrosion; (b) locating; and (c) leak
survey. This agreement will also not apply to work performed where signatory
contractors are not available (unavailability is typically due to locations being in
remote areas), or choose not to bid on projects; provided that work performed in
such areas will be paid at equivalent wages and benefits.
2. On a prospective basis, and for a period of 10 years ending March 7,2028, Avista
will require the use of OSIDCL members for all flagging work, unless otherwise
performed by Avista employees represented by IBEW Local 659. This will not
apply to work performed under contracts already in effect as of March 7,2018.
3. OSIDCL will provide for signatory contractors laborers who are OSIDCL members
that are qualified pursuant to applicable OSHA 1910 regulations and all other
applicable training. OSIDCL will provide OSIDCL members knowledgeable in the
DOT Title 49 Code of Federal Regulations, Part 192, and al! applicable state
pipeline safety regulations. Contractors shall be required to provide proof of
compliance with this requirement to Avista.
4. On a prospective basis, Avista will require contractors to utilize Oregon and
Southern Idaho Laborers-Employers Training Trust ('OSILETT") for required
training, if applicable courses are offered by OSILETT and are reasonably
accessible in the locality where the work is to be performed.
5. Avista will meet and confer with OSIDCL to discuss possible involvement in al!
future hydroelectric projects that are within the sphere of OSIDCL's expertise.
6. Avista will encourage contractors to utilize union labor, including, without limitation
and as applicable, members of OSIDCL, Pipefitters and Steamfitters, and IBEW,
on Avista projects as part of its bidding solicitation process on all other construction
work, including but not limited to capitalwork on hydro facilities, and will evaluate
the use of such members in the staffing plans of bidding contractors as an element
of Avista's bid evaluation process.
7. Avista will continue to prioritize the hiring of qualified contractor personnel through
the bidding process, by requiring analysis of not only the price proposals submitted
by contractors, but a variety of other factors, including minimum staffing
requirements as applicable, training programs, documented qualification programs,
safety track records, OSHA 300 reportables, and other safety records as
appropriate. Review of these components is intended to verify that the contractor
is able to supply a sufficient workforce to meet Avista's needs, and that their
Appendix A to the First Amendment to Stipulation
personnel are appropriately trained, qualified, and able to safely and reliably
perform work for Avista.
8. Work covered by these commitments does not include any work that is customarily
performed by Avista employees represented by IBEW Local 659 but that is
contracted out pursuant to the IBEW 659 collective bargaining agreement with
Avista. lt also does not include any work that is performed by Avista employees,
regardless of the type of work involved.
9. Avista will meet and confer with OSIDCL at least six months prior to March 7,2028
to discuss extending or modifying the terms set forth herein.
Appendix B to the First Amendment to Stipulation
Docket No. UM 1897
Revised Avista and Hydro One Commitments
Table of Contents
Page
Afefinitiens,,. l
7
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10, Safety and Reliability Standards and Serviee Quality Measures ,,,,,,,,,,,,,,,,,,10
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13, Opgllillg ood ele8ifig Of€tggo Bi118,,,,,,r,,,,,,,,,,.,.,,,,,,,,,,,,,.,,.,,,,.,,,,,,.,,,,,,,,,,,,,,, 11
14, Oregen Winter Pfetgetiell Pregram,,,,,=,,,,,,=,,,rr,,, ,,,.,,,,,, ,,,,,.,,,,,,=,.,.,=,,,,,,,,,,,11
15r NotiY€ Alrl€|riG€lo C€)IrIYlH[iti€S,,,r,,,r,.,,,,,,.,,,,,,,,,,,-,,,,,,,,,,,,,,,,,,,,,,,,-,,,,r,,,r,r,-,,r 11
16, OreggD tow lrlGelTl€ W€oth€fi-otiofl,-,=,,,,,,,.,=,,.,,,,,,,,,,,=,=,,,,,,,,,,,,,,,,,,,,,,,,,,, 1 1
17, Oregen tew lnGeme Rate AtEittianee Pregram (tlRAP),,,-,,,,,,,,,,.,,,,,,,,,,,,.,,12
18, Addreesing Other tew lflGerne Cu8temer 1seuee,,,,,.,,,,,,,,,,,,.,,,,,,,,,,.,,,,,,,,,,,, 12
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Revised 11$-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page i
Appendix B to the First Amendment to Stipulation
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38, Envirgnmental tigbilitigs gf Pergnt,,,=,,=,,,=.,.,,,,,.,,,,,,,,.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
39, Fereign Exehange and Hedging en Dividends Payments and Alleeatiens,,,,
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Docket No. UM 1897 I Revised Oregon Commitments / Page ii
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
a
49, Reyelving Credit Faeilities and Aeeeeiated tetters ef Credit,,,,.,.,,,,,,,=,.,,,,,,,,24
a
51 SEC R€lPgrtiJlg ReQUifOIrl€otG,,,,,=,.=,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,r,,,,,,,,,=,.,=,,,,,25
52, CeIrPliQIl€€ with th€ Serbellg8 Oxl€Y AGt ,,.,-,,,,,,,,,,,-,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,.,,25
fer Custemer Seryiee; Cernmunities and tharitable Purneseg),,,,,,,,.,,,,,,,,,, 26
54, AYiStiO CeSh FIOWE ,,,,,,,,,,,,,r-rrrr,,,.,.,,,,,,,,,,,,,,,,,,,.,,,,,,,,,,,,,,,,,,,,,,,,,-rr,,,,,,,.,,,,,,26
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71, Cemplete Cerperate Organi-atienal Chart and Centaet lnfermatien,,,,,,,,,,,,,37
N. Nerth Ameri€an Fre€ TfoCe tgreement (NAFTA) -,--,,-,-,-,-,-,-,-,.-,-..-, ,,,,,,,-,,,-,,-,,,37
37
Revised 11$-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page iii
Appendix B to the First Amendment to Stipulation
37
73, Generally Aeeepted Aeeeunting Prineiplee and Standards (GAr\P),,,,,,,,,,,,,,37
74, Tf€lY€! ExPBoSgS rr,=,r,,,r,,r=rr..r,r,r.,,r,r,.rr,r,r,r,,,,,,,,.,,,,r,r,r.,.,,rrr,r,rr.rrr.,,,,.r...,.r,rr,38
75, AYiEtiO MSllegglrl€Ilt Dif€Gtiefl ,,,,,r,,,r,,,,,,,,,,-,,,,-,,,,,,,,,,,,r,,,,,,,,,.,,=,,,,,,-,,,,,=r,,,38
76 Gapital lnye8tment fer Safe Pipeline8 and Cenke|8,,,,,,,,,,,,,,,.,,.,,,,,,,,,,,,,,,,,.,38
77, Equal er Better Aeeess te Finaneial Markets in the U,S, and Canada ,,,,,,,,,, 38
39
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39
87, Cemplianee with Exieting and Future ORS, OAR and Cemmieeien Orders,,40
P- C,9lP9lot€ CitiIgJlShiPr-rrrr-rrrr--r-rrr--r-rr-.-.-rr--rrrr-.,.-.,rrrr-rr------rr,r..rrrr..r.-r----r--rrr.r-r,r-r 40
0
0
0
0
1
1
1
1
95, Treatmentef Geedwill; Transaetien Ceste; and Transitien Ceste,.,,,,,,.,,,,,,,, 41
2
z
97, Gfggnhguse Gas and Carben lnitiatives,==,.,.,r,,,,,,,,,,,,,,,'rr,,,.. ,,,,,,,,.,,,,.,.,.,,,,42
3
3
Revised 11$-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page iv
Appendix B to the First Amendment to Stipulation
100r EffieienGy Ge€ll8 eod ObjgGtiY€E ,r,,,rrrr,,=.=.,,=,.,==r,,,,,r.,,,--r,,,.,,,-rr=,.,,r,r=,.,,:= 13
101, tew Envirgolrglltio! lIrP€l€t ePtighE ,-,,,,',,,,,.,,,.,,,,,,,,,,,,,,,,,,,,=,,,.,,,,.,,,,,,=,,0,,.,, l3
103, Sharing BgEtPlorlrlihS M€thodGr,-,,=,,,,,,,,,,0,,,,-,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,43
10 l, InduGtriel Gofl8€tfYatieo efld Effieigl'|Gy,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, l3
105, ElgGtriG; N€ltutol GQS ohd Fuol Cgll Transpert.,,,,=.,,,,,,,,,,,,,,,,,,.,,,,,,,,.,,,,,,,,,,,,44
106, Expanded Natural Ges Transpertatien Serviee,,,,,,,.,,=,,,,,,,,,,,,,,,,,.,.,,,=.,,.,,,,,, l4
107, tew lneeme Energy Effieieney Planning,,,,,,-,,,,,,:,,,,,,,,,,,,,,,,,,,,,,,,.,,,,,,,,,,,,, l5
5
T, RePerting anC EllferG€Jll€Jlt -,--r-r-r--r-,-.-rrrr-.-rr.r,-,r..rr,r,=,,r,",rr,,' ,,,rrr,-,-,-,rr..,,r-r,rr,r,rr, 45
111, Cemmissioo EoferG€Irl€otof Colflrflitments,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,45
112, Submittal te State eeurt Jurisdietien fer Enfereement ef Cemmissien Orders
B. Applicabili'v ..............................................................................................................7
1 . Application of Commitments in Oreqon........................................................... 7
No Amendment of Anv Commitment Withorrt Commission Annroval
3. Treatment of Confidential Information............................................................. 7
C. Governance...............................................................................................................7
4. Executive Manaoement .........................................- ,.,....7
5. Avista Board of Directors (BOD)..................................................................... 8
6.Olvmous Equitv. LLC Board of Directors ........................................................9
7?
Docket No. UM 1897 I Revised Oregon Commitments / Page v
Revised 'l"l$-20'18
Appendix B to the First Amendment to Stipulation
7 lono-Term Ownershin I
8. Avista and Alaska Enerqv and Resources Co. (AERC) Corporate
o
9. Reorqanization and Sale Triqqers .................................................................. 9
E. Safetv and Service Qualitv Measures ................................................................... 10
10. Safety and Reliability Standards and Service Qualitv Measures .................. 10
11. Avista Call Center 10
12.AvistaoreqonRequlatoryAffairsandLiaisonStaff''----10
13. Openinq and Closinq Oregon Bills 11
14 Orennn Winfer Prnlcntio nPrr)nr2m 11
17.Oreoon Low-lncome Rate Pronram fl IRAP\12
18. Address ino Other Low-lncome Crrsfomer lssues 12
1q Fvnlanation of Oreoon Rillino Frrors 12
20. Oreqon Customer Satisfaction 12
21.Level of Oreqon Customer Complaints to the Qommission .13
22 Orcnnn I ive Cr rqtnmer Spnrir:c 13
2?Oreonn Emernrrnev Resnonse T A 13
24 Oreoon Service Aooointment S r rlino 13
)5 Ncw Oreoon Gas Sunnlv 14
26 Oreoon Billino lnouiries 14
27 Oreoon Customer Serviee lnvestioations 14
28. Oreqon Service Guarantee Credits............................................................... 14
29. Oreqon Securitv Deoosits.............................................................................14
30. Oreqon Annual Service Quality Reports....................................................... 15
31. Oreqon Customer Report Card .........15
n ENDOUT Seats 16
B P 16
F. Hold Harmless
Revised 1'l{-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page vi
16
15. Native American Communities...................................................................... 11
16. Oreqon Low lncome Weatheri2ation............................................................. 1 1
Appendix B to the First Amendment to Stipulation
34 Revenue Reouirem ent
35 Ratema kino Cost of Debt and Eouitv
16
17
1736Brrsiness and Financial Risks
37. Unrequlated Activities ................18
38. Environmental Liabilities of Parent...... .......18
39. Foreiqn Exchanqe and Hedqinq on Dividends Pavments and Allocations....19
G. Rate Credit 19
40. Rate Credits to Oreqon ........19
41
42. Tax Cuts and Jobs Act.................................................................................. 20
l. Financial Rinq-Fencinq............................................................................................21
43. Cost of ,1
44. Caoital Suooort 21
45. Common Eouitv Floor (CEF) in pital Structure
46. Avista Debt and Preferred Stock.22
47. First lMortoaoe Bonds (FMB)23
48. ContinuedCreditRatinos.......----.24
49 Revolvino Credit Facilities and ated Letters of Credit....24
50. Restrictions on Upward Dividends and Distributions.....................................24
52. Compliance with the Sarbanes-Oxlev Act.....................................................25
53. Sources of Funds for Hvdro One Commitments and Guarantees (Other than
for Customer Service. Communities and Charitable Purposes)...................26
J. Bankruptcv Rinq-Fencinq.......................................................................................26
54. Avista Cash Flows ........................................................................................26
55. Golden Share................................................................................................ 26
56. Vote of lndeoendent Directors Also Required...............................................28
57 Non-Consoliclation Oninion
58. Olvmpus Holdinq Corp. and Olvmpus Equitv LLC ........................................29
59. Restriction on Pledqe of Utilitv Assets ..........................................................29
28
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page vii
,n
,1
Appendix B to the First Amendment to Stipulation
60. Maror Shareholder (Beneficial ershi n) Renortino 30
3061. Restriction on Acouisitions and snositions
1
63. No lnter Companv Lendinq ........................................................................... 31
K. Access to 1nformation............................................................................................31
64. Access to and Maintenance of Books. Records and Other lnformation........31
66 Annearance Before the Commission 32
L. Accountinq ..............................................................................................................32
67. Separate Books and Records ....................................................................... 32
M. Cost A11ocations.....................................................................................................33
68. Cost Allocations and Affiliate lnterests .......33
69. Prevention of Cross Subsidization ...........34
70. MasterServicesAqreementlMsA)........37
71. Com lete Co rate izational Chart and Contact I
N. North American Free Trade Aqreement (NAFTA) ................................................37
72 North Ameriean Free Trade Aoreemenf {NAFTA\37
O. Avista Status Quo...................................................................................................37
73. Generallv Accepted Accountino Principles and Standards (GAAP).............. 37
74. Travel Expenses...........................................................................................38
75. A Ma naoement Direction ---?c
76. Caoital nvestment for Safe Pioel nes and Controls 38
3877Foual or Better Aeeess to Finaneial [/arkets in the ll S and Canar]a
78. Venue for and Resolution of Disoutes...........................................................38
79. Headquarters ................................................................................................ 39
80. Local Staffinq ................................................................................................ 39
81. Pension and Post Retirement Expenses and Assets.............. .....39
82. General Operations and Maintenance (O&M) for Communitv Development 39
83. Economic Deve|opment................................................................................39
84. Membership in Orqanizations ..39
85. FERC Reportinq Requirements
Revised 1'16-20't8
Docket No. UM 1897 I Revised Oregon Commitments / Page viii
39
Appendix B to the First Amendment to Stipulation
R6 Partieination in National and Reo al Farr rrnc 39
87 Comoliance with Existino and F rre ORS OAR and Commission Orders 40
P. Corporate Citi2enship.............................................................................................40
88. Oreoon Charitable Contributions .40
R9 Other Commr rnitv Contrihr rtions 40
qo General Communitv Contributions and lnvolvement 40
q 1 -Sarrrnes of Frrnds for Hvdro One nrl Arriclq (lnrnrnifmonfe 40
Q. Future Rates .....41
9)Treatment of Net Cost Savinos 41
g3 Continuation of Base Rates Fstahlishecl in tlG-325 41
g4 Prenaration for Next General Rate Case (GRC) in Oreoon 41
95. Treatment of Goodwill. Transaction Costs. and Transition Costs.................41
96. Costs for Future M&A or Reorqanization ......................................................42
R. Environmental. Renewable Enerqv. and Enerqv Efficiencv................................42
97. Greenhouse Gas and Carbon 1nitiatives....................................................... 42
98. Cost of Greenhouse Gas Emissions............................................................. 43
99. Greenhouse Gas lnventory Reoort...............................................................43
100. Efficiencv Goals aod Obieclives ......... .......43
101. Low Environmental lmpact Options 43
102.lnforminq the Commission ..............43
103. Shariuq Best Planninq Met 43
104.lndustrial Conservation and Efficiencv.................43
'105.Electric, Natural Gas and Fuel Cell Transport...,.,.,.'.,44
106 Exoanded Natural Gas Tran on Scruir:e 44
1 07 Low-ncome Enerov Efficiencv P nrno 45
109. Union and Other Labor Relationships 45
T. Reportinq and Enforcement 45
1 10.Commitments Bindinq...45
111 Commission Enforcement of Co mitmentq
Revised 1 1 -6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page ix
45
Appendix B to the First Amendment to Stipulation
112. Submittal to State Court Jurisdiction for Enforcement of Commission Orders
46
1 13. Annual Reoortino on Commitments 46
114. Resolution of Violations: Expedited Resolution of Minor and Procedural
Comnliance lssrres 46
1 16. Notice and Petition............... ..... 48
117. No Substantial Provincial lnfluence.49
118. Hydro One Governance Aqreement............... .............50
V. Addendum 1 - Cqntract Labor. Ore^qon Commitments 52
Revised 11-6-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page x
Appendix B to the First Amendment to Stipulation
A. Definitions
Affiliate means any entity in the post-close corporate chain of entities between Hydro
One and Avista, including Hydro One, for purposes of all commitments herein; provided,
however, that "Affiliated lnterest" shall have the meaning set forth in ORS 757.015 for
purposes of requirements established by ORS 757 .105 or ORS 757.495 regardless of
whether such requirements are also imposed by these commitments.l
AVA and Avista are used interchangeably and shall refer to Avista Corporation. While
some commitments herein are flagged as applying only to Avista's Oregon-regulated
Local Natural Gas Distribution Company (Oregon LDC), when commitments are silent
as to application, they shal! apply to Avista Corporation as a whole (for example, those
commitments regarding corporate finance and capital structure apply to Avista as a
whole).
Beneficial Ownership shall have the meaning provided in OAR 860-027-1075(1)(a).
Capital Structure shall mean proportions of common equity (common equity calculated
as for Oregon ratemaking purposes) and Long-Term Debt with maturities exceeding 1
year, adding up to 100 percentfor a named (or place-holder) corporation.
CEF has the meaning assigned to it in Commitment 45.
Commission or OPUC means the Public Utility Commission of Oregon.
Credit Ratings as used in these commitments shall mean both Standard and Poor's
Globa! Ratings (S&P) and Moody's lnvestor Service (Moody's) Long-Term (LT) Secured
Debt credit rating, except as otherwise specifically provided in individual commitments.
See Rating Agencies.
$ or Dollar unless otherwise specified means U.S. Dollars (USD).
Golden Share shall mean the sole share of Preferred Stock authorized by the
Commission and held by an independent third party. As described in further detail in
Commitment 55, Avista will not be able to declare voluntary bankruptcy without the vote
of the holder of the Golden Share and in matters of voluntary bankruptcy, the Golden
Share will override all other outstanding shares of all types or classes of stock. The
holder of the Golden Share solely represents the interests of Avista's utility customers.2
' Lower case "affiliates" is also used in these commitments to indicate that the commitment applies to all
affiliates of Hydro One and Avista, as opposed to simply the "Affiliates" in the chain of entities between
Hydro One and Avista.
' To be clear, the purpose of the Golden Share is to help ensure that the Avista utility would not place
itself into bankruptcy voluntarily unless such a decision was consistent with the interests of utility
customers. This purpose is consistent with past ORS 757.511 dockets approved by the Commission (see
UM 1804, Order 17-526 at 7 and the joint supporting testimony) and is essential in this particular case
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 1
Appendix B to the First Amendment to Stipulation
GRC means general rate case.
H1 or Hydro One shall refer to Hydro One Limited.
Independent Directors shall mean directors who meet the standards of "independent
directors" under section 303A.02 of the New York Stock Exchange Listed Company
Manual with respect to Hydro One and its subsidiaries including Avista. The
lndependent Directors must have had no material relationship with Parent or its
subsidiaries or affiliated entities currently or within the previous 3 years. Former officers
of Avista who othenrvise meet these qualifications qualify as lndependent Directors.
Please see "C. Governance" for applicable commitments.
lnvestment Grade means a BBB- or higher credit rating by S&P 49[ a Baa3 or higher
credit rating by Moody's. See the table below for ratings from S&P and Moody's that
are investment grade, which apply to all types of debt securities (not just FMB as shown
in Table 2):
S&P Moody's
lnvestment
Grade
Credit
Ratings
AAA Aaa
AA+Aa1
AA Aa2
AA-Aa3
A+A1
A M
A-A3
BBB+Baal
BBB Baa2
BBB-Baa3
Long-Term Debt is the issuance or renewal of a note or evidence of indebtedness
maturing more than one year after date of such issue or renewal.
M&A means mergers and acquisitions.
Major Shareholder shall have the meaning provided in OAR 860-027-0175(1)(c).
because the sole shareholder of Avista, at the top of the corporate chain, is Hydro One; thus, were the
holder of the Golden Share to vote in the interests of "Avista shareholders," it would be voting in the
interest of Hydro One, negating the protection the Golden Share is designed to provide. lf Hydro One and
Avista encounter difficulty locating a holder of the Golden Share that can agree to the requirements of
these commitments, they may appear before the Commission for consideration of a remedy for the
situation.
Revised 116-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 2
Appendix B to the First Amendment to Stipulation
Pacific Northwest Region means the Pacific Northwest states in which Avista serves
retai! electric or natural gas customers, currently the states of Alaska, Idaho, Montana,
Oregon and Washington.
Parent shall mean Hydro One Limited and its subsidiaries in the post-close corporate
structure between Hydro One and Avista (as those companies in between may change
over time; but see commitments regarding ORS 757.511 and 757.480).
Parties (or Party individually) shal! be defined herein as: Hydro One Limited, Avista
Corporation, Public Utility Commission of Oregon Staff (Staff), Oregon Citizens' Utility
Board (CUB), Alliance of Western Energy Consumers (AWEC), and Oregon and
Southern ldaho District Council of Laborers (OSIDCL).'"
Pre-Merger means prior to the close of the Proposed Transaction.
Proposed Transaction shall mean the transaction proposed in the Joint Application of
Avista and Hydro One filed on September 14, 2017, assigned Commission Docket No.
UM 1897. However, the commitments reached by the Parties shall override all prior
versions of commitments filed in this docket.
Rating Agencies shal! mean both S&P's and Moody's, or their successors, without
substitution. However, if S&P or Moody's has no successor and is no longer in
existence, then the substitute for the Rating Agency with no successor will be Fitch
Ratings (Fitch). lf Fitch has no successor and is no longer in existence, Avista will
select a replacement acceptiable to the Commission.
Transaction Costs shall mean all the costs necessary to plan, evaluate, find
agreement, gain regulatory approval, finance, and execute the Proposed Transaction.
This type of cost includes legal and brokerage or investment banking fees and other
costs which would not be incuned were the transaction never contemplated.
Transaction costs are those incrementa! costs paid to advance or consummate the
transaction. Examples of transaction costs include, but are not limited to: Avista
employee time and expenses; Avista change-of-control payments; any tax liability
incurred as a result of the transaction; and third-party costs, including bank advisors,
external legal advisors, rating agencies, and expert witnesses and consultants in each
case paid to advance or consummate the transaction. Transaction costs are not
includable in Avista customer rates.
Transition Costs shall mean all costs necessary post-transaction, to meld or find
synergies in corporate cultures and processes, optimize purchasing, more broadly
deploy resources and technologies, and generally make the aggregated corporation
more efficient and more effective at meeting both divisional and comprehensive goals
| 3
-lndustrial
Customers of Northwest Utilities (ICNU), and Northwest lndustrial Gas Users (NWIGU)
merged to form Alliance of Western Energy Consumers (AWEC) in 2018.
| 4
-6regon
and Southern ldaho District Council of Laborers (OSIDCL) was formerly known as
Laborers' lnternational Union of North America (LiUNA)-District Council.
Revised '11$-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 3
Appendix B to the First Amendment to Stipulation
This type of consolidation can include costs from technology costs of hardware,
software, migration, conversion and training to public relations costs incurred to make
legal, accounting, information technologies, communications and other integral
corporate activities operate smoothly and efficiently both internally and across corporate
divisions. No transition costs may be included in Avista rates; the net positive of
transition costs (savings minus transition costs) will be reviewed in a future rate case.
Revised 11{-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 4
Appendix B to the First Amendment to Stipulation
Table 1
Revised Post-Closing Gorporate Structures
Hydro One agrees to eliminate Olympus 1 LLC and Olympus 2 LLC from the corporate
structure. The new structure that will exist as at the effective time of closing of the
Proposed Transaction is illustrated below:
Enlargement and clarification of Avista
Corporation and Subsidiaries is provided at right:
| 5
-1sble
1 reflects the corporate structure as at the effective time of the closing of the Proposed
Transaction.
I u
-nrista's
corporate structure as in S&P Global Market lntelligence on March 23,2018.
b
r{ro(+tl
'I
Ariru(r r&oa
XIl,tdii,rf;t*
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 5
Hydro One Limited
(Ontario Corporation)
Can Sub
(Ontario Corporation)
24a6267
Ontario lnc.
Hydro Onc Telecom
lnc.
\
I
Hydro One lnc.
Hydro One Netlvorks
lnc.
Hydro One Remote
Communities lnc.
I
Avista Corporation
(Washington
Corporationl
Avista Corporation
Subridiaries
Appendix B to the First Amendment to Stipulation
Table 2
Common Equity Floor Requirement
Credit Ratings are those for First Mortgage Bonds (FMB)7
Common Equity is calculated as for Oregon Ratemaking Purposes
FMB Credit
Ratings S&P Moody's Common
Equity Floor
n
,G
e rs.atd
m ee
n
t
A
R
a
t
e
d
AAA
Ma/o
AA+Aa1
AA Aa2
AA-Aa3
A1
A M 46YoA.A3
L
o
w
BBB+ .Baal I
48o/oBBBBaa2
BBB-Baa3
a Co. willfile Plan w Commission
Below
lnvestment
Grade
BB+
(or below)
Ba1
(or below)No Dividend
' lf the Rating Agencies do not provide a rating for FMBs, the rating for Senior Secured Debt will be used
for the purposes of Table 2.
Revised 11$-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 6
Aaa
A+
1
2
Appendix B to the First Amendment to Stipulation
B. Applicability
Application of Commitments in Oregon
Unless otherwise stated, all commitments herein are binding upon Avistia, Hydro
One, and al! companies in between in the post-close corporate organization chart
(as those companies in between may change over time; but see commitments
regarding ORS 757.511 and 757.480).
No Amendment of Any Commitment Without Commission Approval
Avista and Parent commit that no amendments, revisions, or modifications will be
made to the any of the commitments herein without prior Commission approval.
Also see "Most Favored Nation" Commitment.
Treatment of Confidential lnformation
Nothing in these commitments prevents Avista or Parent from requesting
confidentia! or highly confidential treatment of information.
C. Governance
Executive Management
Subject to the remaining provisions of this commitment and subject to voluntary
retirements and resignations that may occur, Avista and Parent agree that Avista
will retain all current executive management of Avista for a period of three years.
This commitment will not limit Avista's ability to determine its organizationa!
structure and select and retain personnel best able to meet Avista's needs over
time. The post-Proposed Transaction Avista board retains its current ability to
dismiss executive management of Avista and other Avista personnel for stiandard
corporate reasons. Any decision to hire, dismiss or replace the Chief Executive
Officer of Avista shall be within the discretion of the Avista Board of Directors,
and shall not require any approval of Hydro One or any of its affiliates (other than
Avista), notwithstanding anything to the contrary in the merger agreement, and
its exhibits and attachments, between Hydro One and Avista.
Anv decisions reqardinq Avista emplovee compensation shall be made bv the
Avista Board consistent with the terms of the Merqer Aqreement between Hvdro
One and Avista. and current market standards and orevailino oractices of
relevant U.S. electric and qas utilitv benchmarks. The determination of the level
of anv comoensation (includinq eouitv awards) aporoved bv the Avista Board
with respect to any employee in accordance with the foreooinq shall not be
subiect to chanqe bv Hvdro One or the Hvdro One Board.
4.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 7
3.
5
Appendix B to the First Amendment to Stipulation
Avista Board of Directors (BOD)
Avista and Hydro One agree that after closing of the Proposed Transaction,
Avista wil! have a separate board of directors from Hydro One that consists of
nine (9) members, determined as follows:
Five Hydro One Designated Directors:
Two executives of Hydro One or any of its subsidiaries, and
Three lndependent Directors who are residents of the Pacific Northwest
Region.
Four Avista Designated Directors:
Three directors who as of immediately prior to the closing of the Proposed
Transaction are members of the Board of Directors of Avista, including the
Chairman of Avista's Pre-Merger Board of Directors (if such person is
different from the Chief Executive Officer of Avista), and
Avista's Chief Executive Officer.
At least two of the Avista directors must be lndependent Directors.
Avista and Hvdro One shall consult with each other prior to the desionation of anv
I ndeoendent Di rectors.
The initial Chairman of Avista's post-closing Board of Directors shall be the Chief
Executive Officer of Avista as of the time immediately prior to closing for a one
year term. l{ any Avistia designee resigns, retires er etherwise eeases te serve
The Avista designees shall
have the seleunfettered right to neminate a reptaeem
@and
without cause or notice at its sole discretion.
Hydro One shall have the unfettered right to designate, remove and replace the
Hydro One designees as directors of the Avista Board with or without cause or
notice at its sole discretion, subject to the requirement that:
(i) two of such directors are executives of Parent or any of its subsidiaries;
and(ii) three of such directors are lndependent Directors who are residents of the
Pacific Northwest region, while such requirement is in effect (subject in the
case of clause (ii) hereof to Hydro One determining, in good faith, that it is
not able to appoint -an lndependent Director who is a resident of the
Pacific Northwest region in a timely manner, in which case Hydro One
may replace any such director with anv person. includinq an employee or
executive of Hydro One or any of its subsidiaries on an interim basis, not
exceeding six months, provided that Hvdro One desiqnees who are
emplovees or executives of Hvdro One or anv of its subsidiaries shall in
Revised 116-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 8
6
7
8
Appendix B to the First Amendment to Stipulation
no case constitute a maioritv of the directors of Avista. after which time
Hydro One shall replace anv such interim director with an lndependent
Director who is a resident of the Pacific Northwest region). lf, at anv time
a circumstance arises. and durino the pendencv of anv such
circumstance. wherebv the Province of Ontario ("Ontario") exercises its
riqhts as a shareholder of Hvdro One. uses leqislative authoritv or acts in
anv other manner whatsoever. that results. or would result. in Ontario
appointino nominees to the board of directors of Hvdro One that
constitute. or would constitute a majoritv of the directors of such board.
then Hvdro One's authoritv to reolace an lndependent Director with an
emplovee or executive on an interim basis is suspended for the pendency
of such circumstance.
Olympus Equity, LLC Board of Directors
At least one of the members of the board of directors of Olympus Equity LLC will
be an lndependent Director. The same individual may serve as an lndependent
Director of both Avista and Olympus Equity LLC.
D. Future Transactions
Long-Term Ownership
Hydro One and Avista agree not to sellAvista's Oregon natural gas operations
for three (3) years following the Commission's approval of the Proposed
Transaction. During that time, Avista and Hydro One agree to provide safe and
reliable service and commit to keeping Avista's Oregon natural gas operations in
the same or better condition than existed prior to the Proposed Transaction.
Avista and Alaska Energy and Resources Co. (AERG) Gorporate
Relationship
Avista and Parent agree they will continue to provide timely courtesy copies,
information and reporting to the Commission of AERC/Alaska Electric Light and
Power Co. (AELP) resource (long-term) plans and plan updates submitted to the
Regulatory Commission of Alaska (RCA), and topical energy information as
described herein when Avista or Parent find such information relevant or material
to Oregon, or when requested by the Commission or Staff. This continues
Avista's tradition of contributing to informed Northwest regulation.
Parent and Avista agree that if AERC, or components thereof, such as but not
limited to AELP is transfened from its current position under Avista, Hydro One
must give notice to the Commission and provide pro forma documents showing
the proportion of debt and equity to be removed from Avista. This information will
be used for the purpose of potentia! adjustments in Avista's next GRC.
9. Reorganization and Sale Triggers
Revised 1 1-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 9
Appendix B to the First Amendment to Stipulation
Parent and Avista agree to comply with and interpret ORS 757.511 (Application
for authority to exercise influence over utility) as triggered if any of the entities in
the post-Proposed Transaction chain of corporate entities between Hydro One
and Avista, and including Hydro One, undergoes a corporate reorganization or if
any of those entities enter into a transaction that results in the addition of a new
entity in the chain of entities that may exercise any substantial influence over
Avista.
Additionally, Parent and Avista agree to interpret ORS 757.480 (Approval needed
prior to disposal, mortgage or encumbrance of certain operative utility property or
consolidation with another public utility) to require Commission approval of any
transaction which results in a merger of Avista with another public utility, without
regard to whether that public utility provides service in Oregon.
E. Safety and Service Quality Measures
10. Safety and Reliability Standards and Servlce Quality Measures
Avista and Parent agree that neither the proposed Hydro One merger, nor future
acquisitions, may diminish delivery of safe and reliable utility service in Oregon
as compared to Avista's performance pre-close of the Proposed Transaction.
Avista and Parent agree that Avista will continue to fully comply with US Code of
Federal Regulations (CFR) Title 49 Parts 190 to 199 (Pipeline Safety), as
applicable.
Avista and Parent agree that Avista will maintain and improve, to the extent
reasonably practicable, Avista's natural gas safety and reliability and resilience
standards, policies, and service quality measures.
Additionally, Parent and Avista agree that Avista commits to providing the
following Service Quality, Safety and Planning measures:
Customer Service Qualitv
11. Avista Call Center
Avista will maintain a call center managed by high-performing personnelto
ensure the maintenance of high quality service and customer standards in
Oregon. Personnel at such call centers will have training and experience
commensurate with Avista's Oregon pre-Proposed Transaction customer service
system and standards.
12. Avista Oregon Regulatory Affairs and Liaison Staff
Docket No. UM 1897 I Revised Oregon Commitments / Page 10
Revised 1 'l-6-2018
Appendix B to the First Amendment to Stipulation
Avista regulatory liaison staff will retain high-performing personnel. Personnel
will have training and experience in Oregon regulatory matters, commensurate
with Avista's operations in Oregon prior to the Proposed Transaction.
13 Opening and Closing Oregon Bills
Avista and Parent commit that Avista will prepare all opening and closing bills
using actual reads acquired manually or electronically in accordance with
Oregon's administrative rules, unless the open or close date is within +/- 5 days
of regular normal cycle read, whereupon a prorated read may be used.
14.Oregon Winter Protection Program
Avista and Parent agree that by October 31,2018, Avista will submit to the
Commission for approval a proposalfor a Winter Protection Program against
winter shut-offs for low-income, elderly and other at-risk customers that explains
how Avista balanced collection and customer service goals, and where
applicable drew on Hydro One experience.
15. Native American Gommunities
Avista commits, and Hydro One agrees, that Avista will seek to appropriately
engage Native American communities.
16.Oregon Low lncome Weatherization
Hydro One and Avista agree that Avista will increase current funding for Avista
Oregon low-income weatherization programs by making a payment of
$1,275,000, to be paid in equal increments over a 5 year period to the agencies
that are in charge of the Avista Oregon Low lncome Energy Efficiency Program
(AOLIEE). The first annual payment will begin in the calendar year following
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and will not be booked to utility accounts; in
other words, in no way or form will the cost of this commitment appear in Avista's
regulated utility earnings. 8
Hydro One and Avista agree that Avista will undertake a targeted effort with a
goal of improving the penetration of Avista low-income programs in Oregon with
a focus on underserved, vulnerable, and high energy burden households.
Further, Avista commits to keep sufficient data analysis to clearly articulate what
program elements and methods were effective as well as to identify opportunities
for delivering more beneficia! outcomes with resources available.
t The Parties' expectation is that this commitment will be funded through a reduction in retained eamings
or shareholder dividends
Revised 1 1S-20'18
Docket No. UM 1897 I Revised Oregon Commitments / Page 11
Appendix B to the First Amendment to Stipulation
17.Oregon Low-lncome Rate Assistance Program (LIRAP)
Hydro One and Avista agree that Avista shall increase funding for LIRAP for
Oregon customers as provided in this commitment. Hydro One and Avista agree
that Avista wil! provide a payment of $500,000 payable at the rate of $100,000
per year with the first annual payment beginning in the calendar year following
closing of the Proposed Transaction. The Parties agree that this commitment is
not recoverable in customer rates and will not be booked to utility accounts; in
other words, in no way or form wil! the cost of this commitment appear in Avista's
regulated utility earnings. e.
18. Addressing Other Low-lncome Customer lssues
Avista and Parent commit that Avista will continue to work with low-income
agencies to address other issues of low-income customers, including funding for
bill payment assistance.
19 Explanation of Oregon Billing Errors
Avista and Parent commit that for the first three years following close of the
Proposed Transaction Avista shall report to the Commission's Consumer
Services Section any incidence of a billing error that results in the issuance of a
corrected bill if the correction is $35 or more, and an explanation for the causes
of the error.
20 Oregon Customer Satisfaction
Avista and Parent commit that the level of customer satisfaction with telephone
service, as provided by Avista's Contact Center, will be at least 90 percent,
where:
a. The measure of customer satisfaction is based on customers who respond
to Avista's quarterly survey of customer satisfaction, known as the Voice
of the Customer, as conducted by its independent survey contractor;
b. The measure of satisfaction is based on customers participating in the
survey who report the level of their satisfaction as either "satisfied" or "very
satisfied"; and
c. The measure of satisfaction is based on the statistically-significant survey
results for both electric and natural gas service for Avista's entire service
territory for each quarter surveyed, and will also separately be reported for
Oregon customers only.
e The Parties' expectation is that this commitment will be funded through a reduction in retained eamings
or shareholder dividends.
Docket No. UM 1897 lRevised Oregon Commitments / Page 12
Revised 11$-2018
Appendix B to the First Amendment to Stipulation
21 Level of Oregon Customer Complaints to the Commission
Avista commits, and Parent agrees, that the number of complaints filed with the
Commission by Avista's natural gas customers will not exceed the rate of 0.3
complaints per 1,000 customers for the calendar year.'0
Oregon Live Customer Service
Avista commits, and Parent agrees, that the percentage of customer calls
answered by a live representative within 60 seconds will be at least 80 percent
per month, where:
a. The measure of response time is based on results from Avista's Contact
Center, and is initiated when the customer requests to speak to a
customer service representative or presses a key to bypass an IVR
system if in use; and
22
b. Response time is based on the combined results for both electric and
natural gas customers for Avista's entire service territory.
23. Oregon Emergency Response Time
Avista and Parent commit that Avista's average response time to a natural gas
system emergency in Oregon will not exceed 55 minutes for the calendar year
(or consistent with future Commission standards), where:
a. Response time is measured from the time of the customer call to the
arrival of a field service technician; and
b. "Natural gas system emergency" is defined as an event when there is a
natural gas explosion or fire, fire in the vicinity of natural gas facilities,
police or fire are stianding by, leaks identified in the field as "Grade 1," high
or low gas pressure problems identified by alarms or customer calls,
natural gas system emergency alarms, carbon monoxide ca!!s, natural gas
odor calls, runaway furnace calls, or delayed ignition calls.
24.Oregon Service Appointment Scheduling
Avista and Parent commit that Avista will keep mutually agreed upon
appointments for natural gas service re-lights, connections and reconnections
where a service line is already installed, scheduled in the time windows of either
8:00 a.m. - 12:00 p.m. (morning), or 12:00 p.m. - 5:00 p.m. (afternoon), except
for the following instances:
| 10
-11ete
that the current 5 year average rate is 0.145 percent. This target is moved by Staff to
slightly over 2O0o/o of current performance metrics.
Docket No. UM 1897 lRevised Oregon Commitments / Page 13
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
a. When the customer or applicant cancels the appointment;
b. The customer or applicant fails to keep the appointment; or
c. Avista reschedules the appointment with at least 24-hours' notice.
25 New Oregon Gas Supply
Avista and Parent commit that Avista will provide a cost estimate to the customer
or applicant for new natural gas supply within 10 business days upon receipt of
all the necessary information from the customer or applicant.
26 Oregon Billing lnquiries
Avista and Parent commit that Avista will respond to all billing inquiries at the
time of the initial contact, and for those inquires that require further investigation,
Avista will investigate and respond to the customer within 10 business days.
27 Oregon Customer Service !nvestigations
Avista and Parent commit that Avista will investigate customer-reported problems
with a meter, or conduct a meter test within 15 business days of the request, and
report the results to the customer within 15 business days from the date of the
report or request.
28. Oregon Service Guarantee Credits
(Expires 3 years from closing of the Proposed Transaction)
Avista commits, and Parent agrees, that for failure to meet a customer service
guarantee for service provided to a gas customer, Avista will apply a $50 credit to
the customer's account. For failure to meet a customer service guarantee for
service provided to an applicant, Avista will mail a check for $50 to the applicant.
Avista will timely provide the qualifying customer credit or applicant check without
any requirement on the part of the customer or applicant to either apply for, or
request, the applicable credit or check. Payment of service guarantee credits
and any service quality penalties shall be excluded from revenue requirements in
GRCs.
Tracking of Avista's performance on the customer service guarantees, including
the application of customer credits, will begin on January 1,2019.
29 Oregon Security Deposits
Avista and Parent agree that Avista commits to eliminate security deposits for
new Avista residential customers at close of Proposed Transaction, and to return
existing security deposits to Oregon customers who have a deposit held longer
than 6 months. ln any subsequent Avista GRC before the Commission, any
Party may request the Commission Order in that rate case to modify or remove
Docket No. UM 1897 lRevised Oregon Commitments / Page 14
Revised 11-6-2018
30
31
Appendix B to the First Amendment to Stipulation
this commitment if that Party successfully argues that the application of this
commitment had an unreasonable impact on Avista's uncollectible debt.
Oregon Annual Service Quality Reports
Avista and Parent commit that Avista will include the results of its Service Quality
Measures Program in an annual report to be filed with the Commission on or
before April 30th of each year.
Oregon Customer Report Gard
Avista commits, and Parent agrees, that within 90 days of Avista filing its Annual
Service Quality Measures Report, Avista will send a Service Quality Measures
Program Report Card to its customers, which will include the following:
a. Results for each of Avista's customer service measures, compared with
the respective performance benchmarks;
b. Results for each of the customer service guarantees, compared with the
respective benchmarks, and including the number of events for each
measure where a credit was provided, and the total dollar amount of the
credits paid for each measure; and
c. Performance highlights for the year.
d. Avista will issue its first Report Card to customers on or before July 31,
2020.
e. Avista, or any interested party, may separately petition the Commission,
for approval of changes to the customer service guarantees, and reporting
thereon, as set forth in Commitments 20-31, to assure that such
commitments continue to accomplish their intended purposes.
Revised 11{-20'18
Docket No. UM 1897 I Revised Oregon Commitments / Page 15
Appendix B to the First Amendment to Stipulation
SENDOUT Softziare Suite for Commission Staff. CUB and AWEC
32. Oregon SENDOUT Seats
Parent and Avista agree that Avista will provide, for a period of 10 years, $30,000
annually for the purpose of obtaining SENDOUT seats for Commission Staff,
CUB, and AWEC for SENDOUT dispatch optimization and gas portfolio cost
assessment and reliability software with SENDOUT or a division of ABB. The
Parties agree that this $30,000 commitment is not recoverable in customer rates
and will not be booked to utility accounts; in other words, in no way or form will
the cost of this commitment appear in Avista's regulated utility earnings. 11
Nothing in this commitment precludes Avista from replacing SENDOUT with a
different comparable service provided that Avista continues to provide the
$30,000 annual contribution for Staff, CUB, and AWEC use of SENDOUT or
such comparable service for the agreed upon ten-year period.
33. On Bill Repayment Program (OBRP)
Hydro One will arrange funding of the approximately $100,000 (system-wide
basis) initial investment in software upgrades and $5,000 in administrative costs
to implement an on-bill repayment program. Under no circumstance willAvista's
ratepayers be responsible for any default related to the OBRP.
OBRP is a pass-through billing service for energy efficiency loans, where Avista
would collect loan payments on customers' bills then transmit the sum monthly to
the third-party lender. Only non-profit lenders would be eligible, offering low rates
for energy efficiency loans. The lender has no ability to shut off power (due to
non-payment) and all lending activity is managed separate from the utility, where
the lender:
Provides all capital and bears full risk;
Manages delinquent files and collections off-bill;
Handles loans/balances separate from utility financial systems; and
Meets consumer lending regulatory requirements.
F. Hold Harmless
34. Revenue Requirement
" The Parties' expectation is that this commitment will be funded through a reduction in retained earnings
or shareholder dividends.
a
o
a
Revised 1 1 -6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 16
35
36
Appendix B to the First Amendment to Stipulation
Parent and Avista agree that Avista wil! hold Avista Oregon customers harmless
if the Hydro One-Avista merger results in a higher revenue requirement for Avista
than if the merger had not occurred. Avista bears the burden of showing no
increase in the revenue requirement consistent with this commitment.
Ratemaking Cost of Debt and Equity
Avista and Parent agree that 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. For future ratemaking purposes:
a. Determination of Avista's Cost of Long-Term Debt will be no higher than
such costs would have been, absent Hydro One's ownership, assuming
Avista's Credit Ratings as such ratings were in effect on the day before
the Proposed Transaction closes and applying those credit ratings to then-
current debt;
b. Avista bears the burden to prove prudent in a future GRC any increased
cost of Long-Term Debt associated with existing Avista debt retired,
repaid, or replaced as a part of the Proposed Transaction; and
c. Determination of the authorized Return on Equity (ROE) in future GRCs
will include selection and use of one or more proxy group(s) of companies
engaged in businesses substantially similar to Avista's Oregon LDC
operations, without any limitation related to Avista's ownership structure.
Business and Financial Risks
Hydro One and Avista agree that Parent and Avista will hold Avista customers
harmless from any business and financial risk exposures associated with
Olympus Holding Corp., Hydro One, and Hydro One's other affiliates.
Avista and Parent agree that Avista and Olympus Holding Corp. will provide
notice to cunent and prospective lenders describing the ring-fencing controls in
these commitments and stating that such controls provide no recourse to Avista
assets as collateral or security for debt issued by Hydro One or any of its
subsidiaries; this provision does not prohibit Avista from pledging its own assets
as collateral or security for Avista debt. Avista and Parent wil! file with the
Commission prior to close of the Proposed Transaction a copy of said notice.
Should any regulatory, taxing or other governmental entity or subdivision thereof
in the United States of America or elsewhere make a determination that any
company organizationally situated between Avista and Hydro One, individually or
collectively:
Revised 1 16-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 17
37
38.
Revised 11S-2018
Appendix B to the First Amendment to Stipulation
i. Lacks a genuine business purpose;
ii. Fails to constitute a separate and distinct business and not a single
economic unit containing one or more intermediate companies and
Avista;
iii. Exhibits substantial and material entanglement of operations or finance
with Avista;
iv. Fails to comply with al! tax and other monetary obligations, including
but not limited to the timely obtaining of pertinent taxing authority
letters of determination authorizing the form and nature of any tax
management construct for the specific company housing the tax
management construct for the specific intended purpose directionally
specific to the application executed;
v. ls determined to be inadequately capitalized for its business purposes,
or
vi. Engages in financial hedging or other risk management predicated on
historical correlations which do not hold true in future markets,
however disrupted or distressed, then:
Avista and its ratepayers will be held harmless from any claim, suit, action, loss,
damage, or legal liability, including all expenses, penalties, judgements fees
(including attorney fees), interest, charges, expert representation costs, and
amounts actually and reasonably incurred in connection with any Iitigation,
defense, penalty, or fine.
Unregulated Activities
a. Avista commits, and Parent agrees, that Avista's regulated utility
customers will be held harmless from the liabilities of any unregulated
activity of Hydro One and its subsidiaries and affiliates, including Avista.
ln any proceeding before the Commission involving Avista rates, the
revenue requirement for Avista will be determined without recovery of
costs related to unregulated activities.
b. Avista commits, and Parent agrees, that Avista and AELP will continue to
be operated consistent with Commission Order 14-112, including
Attachment B, entered April 1,2014 in Docket Numbers UF 4283 and Ul
343.
Environmental Liabilities of Parent
Hydro One will hold Avista and Avista ratepayers harmless from any
environmental obligations or liabilities of Hydro One or its affiliates other than
Docket No. UM 1897 lRevised Oregon Commitments/ Page 18
Appendix B to the First Amendment to Stipulation
Avista, including those associated with harmful substances such as asbestos or
polychlorinated biphenyls (PCBs) and environmental cleanup and restoration.
39 Foreign Exchange and Hedging on Dividends Payments and Allocations
Avista and Parent agree that Avista ratepayers will be held harmless from any
currency exchange or related cash flow smoothing or hedging costs pertaining to
activities beyond Avista's Oregon utility operations and not usual and customary
prior to close of the Proposed Transaction.
G. Rate Credit
40 Rate Credits to Oregon Ratepayers
Avista and Hydro One willflow through to Avista's retail customers in Oregon a
Rate Credit of $7,541 ,15912 over a S-year period, beginning at the time the
Proposed Transaction closes. The Parties agree that the rate credits shall be
spread to customers on an equal percentage of margin basis.
The total Rate Credit to customers for the five years following the closing would
be $1 ,508,232 per year. A portion of the annual total Rate Credit could be
offsetable, in the amount of $226,235.13 During the S-year period, the financial
benefits wil!flow through to customers through the Rate Credit described above
on customers' bills. The offsetable portion may be achieved through a reduction
to the underlying cost of service as reflected in the test period numbers used for
ratemaking.
To the extent Avista demonstrates in a future rate proceeding that cost savings,
or benefits, directly related to the Proposed Transaction are already being flowed
through to customers through base retai! rates, the separate Rate Credit to
t' The total rate credit for Oregon will be $7,541,159. The rate credit will be allocated in Oregon on the
basis of Year End Customers for the year ending December 31st, 2016. ln 2016, Avista's Oregon Service
Territory had 100,472 customers. Avista total number of customers was 717,579 in 2016. Therefore,
Oreoon customers reoresented 14% of Avista total number of customers.
13 T6e offsetable portion of the Rate Credit was calculated as 15% of the jurisdictional total of the rate
credit.
Rate Credit
Oregon Annual Credit
Years 1-5
Oregon Total Credit
Total Credit $1,508,232 $7,541.159
Offsetable Credit $226,235 $1,131,174
Revised 116-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 19
41.
Appendix B to the First Amendment to Stipulation
customers would be reduced by an amount up to the offsetable Rate Credit
amount.
The $7.54 million represents the "floor'' of benefits that will be flowed through to
Avista's customers, either through the Rate Credit or through benefits otherwise
included in base retail rates. To the extent the identifiable benefits exceed the
annua! offsetable Rate Credit amounts, these additional benefits will be flowed
through to customers in base retail rates in GRCs as they occur. Avista and
Hydro One believe additional efficiencies (benefits)will be realized over time
from the sharing of best practices, technology and innovation between the two
companies. lt will take time, however, to identify and capture these benefits.
The level of annua! net cost savings (and/or net benefits) will be tracked and
reported on an annual basis, and compared against the offsetable level of
savings.
H. Taxes
Taxes
a.Federal, state, and local taxes and assessments included in customer
rates shall be no greater than they would be had Avista not been acquired
by Hydro One.
b. Tax benefits that would not exist absent the Proposed Transaction may be
addressed in future proceedings before the Commission; however, until
that time, Avista, in compliance with ORS 757.511(4Xb), shall make a
filing with the Commission for approval to establish a balancing account to
track income tax expense, subject to Commission approval and
Commission conditions. Avistia shall also submit an application to the
Commission to establish an ORS 757.259 deferral to track Avista's
income tax expenses and revenues (including tax benefits resulting from
the Proposed Transaction), the net revenues of which could be deliverable
to Avista's Oregon customers if a Party prevails in a future proceeding
before the Commission. Avista shall make its initial ORS 757.259 filing as
soon as practicable after the Commission issues its final order in this
docket, but prior to closing of the Proposed Transaction. Avista shall
continue to renew its application for an ORS 757.259 deferral annually.
This commitment does not require Parent to pass Parent-related tax
benefits to Avista customers unless ordered by the Commission in a later
proceeding, nor does it permit Parent to pass Parent-related tax expenses
to Avista customers.
42. Tax Cuts and Jobs Act
Docket No. UM 1897 I Revised Oregon Commitments / Page 20
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
a) Avista and Parent agree that Avista will identify and quantify the impact on
Avista of the December 22,2017 U.S. "Tax Cuts and Jobs Act," which
lowered U.S. corporate federal income tax rates from 35 percent to 21
percent and modified or eliminated certain federal income tax deductions.
Avista will report on this impact in compliance with other Commission
proceedings. Within this reporting, Avista will identify specific metrics of
concern to Rating Agencies.
b) Regarding the deferral of net tax benefits associated with the Tax Cuts
and Job Act, currently docketed as UM 1918 and UM 1923, Avista agrees
that it will waive, and not seek to apply, an earnings test (see ORS
757.259(5)) when Avista decides, or is required by the Commission, to
amortize the deferred tax benefit into customer rates; in other words,
Avista will not use any of the deferred tax benefits to achieve its
authorized ROE of 9.4% (ROE in 2018 and beyond). The Parties agree
that the amount of the tax benefit has not yet been determined, but will be
determined consistent with the Commission's direction in the UM 1918
and UM 1923 dockets, and other applicable docket(s) should one be
opened.
l. Financial Ring-Fencing
43 Cost of Capital
Avista and Parent agree that Avista's Cost of Capital, including Avista's Rate of
Return (ROR), common equity, and Long-Term Debt, shall not be more costly
after the close of Proposed Transaction than they would have been absent the
Proposed Transaction. Consistent with Commitment 35(a), Avista bears the
burden of proving that increases in Avista's Cost of Capital, including Avista's
ROR, common equity, and Long-Term Debt, is caused by circumstances or
developments that are unrelated to the financial risks or other characteristics of
the Proposed Transaction.
4. Capital Support
Hydro One will provide equity injections to support Avista's capital structure
thereby allowing Avista to access its usual and customary financial markets
under reasonable terms and on a sustainable basis. This commitment should
include commercial paper programs, FMBs, credit facilities, letters of credit or
usual debt capita! market transactions as exhibited in Avista's business activity
prior to execution of the Proposed Transaction, unless other comparable, lower-
cost methods exist in the future.
45. Common Equity Floor (CEF) in Capital Structure
Revised '11$-20'18
Docket No. UM 1897 I Revised Oregon Commitments / Page 21
46
Appendix B to the First Amendment to Stipulation
The applicable CEF shall correspond to the applicable Credit Ratings for FMBs
as determined in Table 2 in accordance with the following paragraph of this
commitment. Hydro One will make such equity injections as necessary to
maintain the applicable CEF consistent with Table 2.
When S&P and Moody's Credit Ratings are within one notch of each other, the
CEF will be determined by the higher of those ratings. When the difference
between S&P and Moody's is greater than 1 notch, the CEF wil! be determined
by the rating level that is one notch below the higher of the S&P and Moody's
ratings.
!f Avista or Parent finds that the actua! or projected CEF will drop below one-half
of one percent above the required target based on the applicable Credit Ratings
in Table 2, then Avista and Parent will:
a) Within 5 business days, notify the Commission explaining why.
b) Within 30 days of providing notice, provide a plan and timeline
("Compliance Plan") that is subject to Commission review, modification,
rejection, or approvalfor maintaining Avista's common equity ratio at or
above the required CEF.
c) Subsequent to the filing of the Compliance Plan, Avista shall file progress
reports every 90 calendar days detailing its efforts to restore its equity
component to the required CEF or above, in addition to detailing how
Avista has met each requirement in the Compliance Plan.
d) lf Hydro One and Avista find it reasonably likely that Avista common equity
ratio could fall below one half of one percent above the required CEF in
Table 2 based on a preceding or projected thirteen month average, Avista
and Parent shall provide a report to Staff with its projections and take the
steps listed above.
Avista Debt and Preferred Stock
Avista and Parent agree that any debt, commercial paper programs, revolving
credit facilities and preferred stock of Avista will be maintained separately to
support Avista utility operations.
Parent and Avista agree that no incremental new debt related to financing the
transaction at closing or thereafter for this or future Parent or affiliate M&A will be
in any way incurred, guaranteed, or pledged with Avista assets or otherwise by
Avista. Avista's financial integrity will be protected from the separate operations
of the Parent and its affiliates. Should any entity claim or assert otherwise in any
Revised 11$-2018
Docket No. UM 1897 I Revised Oregon Commitments I Page 22
47
Appendix B to the First Amendment to Stipulation
forum, whether regulatory, political, legal or otherwise, the Parent will assert that
said debt or other financial instrument and any penalties or interest or other
obligations thereon is the sole responsibility of the Parent and its subsidiaries
other than Olympus Holding Corp. and all entities in the chain below it.
Neither Parent nor Avistia wi!! include in any of their debt or credit agreements
cross-default provisions between the debt of Avista and the debt of Parent or any
current and future Affiliates, or any government or political subdivision thereof
with a direct or indirect ownership interest in the Parent. Parent and Avista agree
that in no way may the assets of Avista be used to guarantee the finances,
securities, transactions, or credit of any government or subdivision thereof, and
that the acquisition of power to exercise substantial influence over Avista by any
person or entity in the future may only occur subject to Commission approval as
required by ORS 757.511 and as specified in these commitments.
Except as provided in commitments 62 and 63 Avista will enter into no inter-
company debt transactions with, or lend money to, or borrow money from:
Parent, or current or future affiliates, or any government or political subdivision
thereof with a direct or indirect ownership interest in the Parent.
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approval of the Commission:
a) Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or its
affiliates;
b) Assume any obligation or liability as guarantor, endorser, surety, or
otherwise for Parent or its affiliates;
c) Transfer any of Avista utility assets or property to Parent or its affiliates, or
any government or political subdivision thereof;
d) Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or its affiliates;
e) Enter into cross-default provisions involving Parent or its affiliates; or
0 Participate in a money pool.
First Mortgage Bonds (FMB)
Revised 116-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 23
48
49.
50
Appendix B to the First Amendment to Stipulation
Avista and Parent agree that Avista will also maintain adequate: (a) interest
coverage and (b) pool of qualified Avista assets to maintain the ability to issue
FMB.
Continued Gredit Ratings
Avista and Parent agree that Avista debt (other than private placement debt), will
continue to be rated by both S&P and Moody's without substitution, except as
provided under the definition of Rating Agencies. Avista wil! make Rating
Agencies' credit ratings and all related presentations to or from Avista and Rating
Agencies, and Rating Agencies' reports and analysis pertaining to Avista,
available to the Commission upon the Commission's request.
Revolving Gredit Facilities and Associated Letters of Credit
Parent and Avista agree that Avista will prudently manage its revolving credit
facilities and, as part of the renewal of the current credit facilities, will proactively
arrange for multiple one year maturity extensions and accordion features
allowing enlargement of facilities to protect Avista from unnecessary credit risk, if
available at a reasonable cost in the market. Further, Parent and Avista agree to
prudently diversifu institutions participating in revolving Avista credit facilities to
preclude concentration in any one country or institution.
Avista will share no credit facilities with Parent or affiliates or any government or
political subdivision thereof with a direct or indirect ownership interest in the
Parent.
Restrictions on Upward Dividends and Distributions
No upward dividends, distributions or like payments are authorized from Avista
(special, one-time, or otherwise) to Olympus Equity LLC if any of the following
conditions are present:
a) The ratio of Avista's earnings before interest, tax, depreciation and
amortization (EBITDA) to Avista's interest expense is not greater than or
equalto 3.0;
b) Avista's CEF as calculated for ratemaking purposes in Oregon is less than
set forth in Table 2 based on FMB credit ratings. Table 2's application is
further described in Commitment 45, "Common Equity Floor (CEF) in
Capital Structure" (for example, if Avista's S&P FMB rating is "A" AND
Moody's FRB rating is "A2", then the CEF shall be 46%); or
c) Avista's S&P or Moody's long{erm (local currency) issuer credit ratings
drop below lnvestment Grade. Note that subsection (c) is an exception to
Revised 114-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 24
Appendix B to the First Amendment to Stipulation
the definition of Credit Ratings, but not an exception to the definition of
lnvestment Grade.
For five years after the closing of the Proposed Transaction, Avista and Parent
agree to decline to request any extraordinary or special upward dividends or
payouts. Further as an exception to ORS Chapter 757 inclusive of ORS 757.420,
Avista and Parent consent that the Commission shall have 60 days to review any
application for a special upward dividend made beyond five years post Proposed
Transaction, and agree that comprehensive supporting justification will be filed with
the Commission in support of any said future application.
Without prior Commission approval, Avista and Parent agree that Avista's regular
quarterly dividends from Avista to Olympus Equity LLC, or otherwise upward
toward Hydro One, may grow at a Compound Annual Growth Rate (CAGR) of no
more than seven (7) percent CAGR.l4
ln all cases, Parent and Avista agree that Hydro One shall notify the Commission
of:
i. Any intention to transfer more than five (5) percent of Avista retained
earnings, out of Avista, at least seven (7) days prior to starting this
transfer;
Any intention to transfer more than ten (10) percent of Avista retained
earnings out of Avista over a six-month period, at least 30 days prior to
starting those transfers;
Any intention to declare a specia! cash dividend payment at least 30 days
before declaring the special cash dividend or like transfer of funds; and
Its most recent quarterly cash dividend payment within 30 days after
declaring each dividend.
AnnualAffiliated lnterest (A!) reports must itemize all Parent M&A divestitures,
and reorganization activities since the prior annua! Al report.
51.SEC Reporting Requirements
Following closing of the Proposed Transaction, Avista will continue to make its
own applicable separate filings with the U.S. Securities and Exchange
Commission (SEC).
52. Compliance with the Sarbanes-Oxley Act
| la
-5se
page 21 of Avista's investor presentation, "Positioned for Performance - An overview of Q3
2017 and beyond" released in December 2017 tor the 2013 through 2017 4 percent to 5 percent trend of
annual dividend growth.
ll
il
IV
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Docket No. UM 1897 I Revised Oregon Commitments / Page 25
Appendix B to the First Amendment to Stipulation
Following the closing of the Proposed Transaction, Avista and Parent will comply
with applicable requirements of the Sarbanes-Oxley Act with regard to all activity
at Avista and Olympus Equity, LLC.
53 Sources of Funds for Hydro One Commitments and Guarantees (Other than
for Customer Service, Communities and Charitable Purposes)
a. Within 18 months of the close of the Proposed Transaction, Hydro One
will establish and maintain a Canadian $2 billion universal shelf
prospectus in Canada which will allow it to issue debt, common equity and
preferred equity.
b. Hydro One agrees to increase its Canadian $250 million credit facility to at
least $500 million, increasing its liquidity and enabling it to fund any equity
injection required at Avista on short notice.
c. Hydro One agrees that Avista will continue to be able to issue FMBs, and
that Hydro One will be supportive of Avista's FMB credit ratings.
d. Hydro One agrees that it will not allow Avista's S&P or Moody's long-term
(local currency) issuer credit ratings to drop below lnvestment Grade.
Note that this is an exception to the definition of Credit Ratings, but not an
exception to the definition of lnvestment Grade.
J. Bankruptcy Ring-Fencing
54. Avista Cash Flows
Avista commits, and Parent agrees, that prior to upward dividends from Avista to
Olympus Equity LLC, Avista cash flows will not be comingled in common
accounts with cash flows for other purposes at either of Olympus Equity, LLC or
Hydro One, including all Hydro One subdivisions and affiliates. Hydro One will
ensure that all of the Parent's corporate entities maintain accounts and
subaccounts that are separate from Avista accounts and subaccounts, sufficient
to cause handling of cash flows to be entirely consistent with Avista's corporate
purposes.
55 Golden Share
Entering into voluntary bankruptcy shall require the affirmative vote of a "Golden
Share" of Avista stock. The Golden Share is defined in the Definitions section of
these commitments and is the sole share of Preferred Stock of Avista as
authorized by the Commission. This share of Preferred Stock must be in the
custody of an independent third-party, where the third-party has no financial
stake, affiliation, relationship, interest, or tie to Hydro One or any of its affiliates
including Avista, or is any lender to Hydro One or its affiliates, or Avista or its
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Docket No. UM 1897 lRevised Oregon Commitments / Page 26
Appendix B to the First Amendment to Stipulation
affiliates. The holder of the Golden Share must be approved by the Commission
In matters of voluntary bankruptcy, this Golden Share wil! override al! other
outstanding shares of all types or classes of stock and the holder of the Golden
Share solely represents the interests of Avista's utility customers.ls
The cost of the Golden Share is considered a transaction cost and not included
in rates. Once a viable candidate for holder of the Golden Share is identified,
Avista must report to the Commission the following:
a) The name and contact information of the holder of the Golden Share;
b) How this person/entity meets the definition and purpose of the Golden
Share holder as explained in the commitments herein; and
c) Provide a copy of the draft agreement between the purchaser and Avista.
After receiving Commission approval of the holder of the Golden Share, Avista
shall file the following:
i. The Report of Securities lssued and Disposition of Net Proceeds promptly
after the sale; and
ii. Final copies of:
1. The Board resolution authorizing the transaction;
2. The resolutions of the Board and the shareholder approving and
adopting the Amended and Restated Articles of lncorporation of
Avista, including the rights and preferences of the Golden Share;
3. A copy of the Amended and Restated Articles of lncorporation of
Avista;
4. A copy of the Golden Share certificate; and
5. A copy of the agreement between the holder of the Golden Share
and Avista.
Further, Avista will seek Commission approval prior to consenting to any future
sale, trade, or transfer of the Golden Share by the Commission-approved-holder
thereof. Avista will provide supplemental information at that time in a manner
and form consistent with that which was provided in the review of the initial
purchaser in this docket.
'u See Definitions Section for further explanation and case references.
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Docket No. UM 1897 lRevised Oregon Commitments / Page 27
Appendix B to the First Amendment to Stipulation
56. Vote of lndependent Directors Also Required
Avista and Parent agree that the organizational documents of Avista and
Olympus Equity LLC will provide that Avista and Olympus Equity LLC will not,
and their organizational documents will not permit Avista or Olympus Equity LLC
to, consent to the institution of voluntary bankruptcy proceedings or to the
inclusion of Avista in bankruptcy proceedings of Parent, absent a two-thirds
majority vote of all Avista directors, including the affirmative vote of a majority of
the lndependent Directors at Avista, which must include the affirmative vote of at
least two of the Avista designated lndependent Directors.
Avista and Parent agree that Avista will present the organizational documents of
Avista and Olympus Equity, LLC to the Commission before the Commission's
decision in this proceeding.
ln addition to an affirmative vote of a majority of the lndependent Directors, the
vote of the holder of the Golden Share shall also be required for Avista to enter
into a voluntary bankruptcy.
57 Non-Consolidation Opi nion
As soon as it is obtained, but by no later than ninety (90) days after the Proposed
Transaction closing, Avista and Hydro One will file a non-consolidation opinion
with the Commission which concludes, subject to customary assumptions, that
the commitments herein are sufficient that any U.S. bankruptcy court or
Canadian bankruptcy court would not order the substantive consolidation of the
assets and liabilities of Avista with those of Hydro One or any of its affiliates or
subsidiaries. Avista commits to promptly file such opinion with the Commission
as soon as it is obtained.
lf the ring-fencing provisions in these commitments are not sufficient to obtain a
non-consolidation opinion, Hydro One and Avista will immediately take the
following actions:
a. Notify the Commission of this inability to obtain a non-consolidation
opinion.
b. Propose and implement, upon Commission approval, such additional ring-
fencing provisions around Avista as are sufficient to obtain a non-
consolidation opinion subject to customary assumptions and exceptions.
c. Obtain a non-consolidation opinion, and otherwise complete above steps.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 28
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59
Appendix B to the First Amendment to Stipulation
Hydro One and Avista recognize that OPUC adoption of the stipulation in this
docket and the list of commitments herein is conditioned on and subject to Hydro
One and Avista filing a satisfactory non-consolidation opinion with the OPUC.
Olympus Holding Gorp. and Olympus Equity LLC
Olympus Holding Corp.'s indirect subsidiaries will include Olympus Equity LLC
and Avista. See the post-acquisition corporate organizational chart in Table 1.
Following closing of the Proposed Transaction, a!! of the common stock of Avista
will be owned by Olympus Equity LLC, a limited liability company.
Avista will become a wholly-owned subsidiary of Olympus Equity LLC, a
bankruptcy-remote Special Purpose Entity (SPE) established for the purpose of
ring-fencing Avista, with the intention of removing Avista (and all of its current
subdivisions and holdings in all states) from the bankruptcy estate of Parent and
other divisions and affiliates. Olympus Equity LLC will issue no preferred stock;
wil! not issue nor carry notes, bonds, or other forms of indebtedness; and wi!! not
engage in financial derivatives, hedging, or like financial activities beyond those
entirely consistent with the above stated purpose of the bankruptcy-remote SPE.
Olympus Equity LLC, Avista and Avista's subsidiaries will not hold other Parent
corporation investments or financial obligations without prior Commission
approval.
Hydro One will provide copies of the articles of incorporation and bylaws for
Olympus Holding Corp. and of the membership agreement for Olympus Equity's
LLC to the Commission prior to the Commission's decision in this matter. ln the
instance that any of the articles of incorporation or bylaws of the abovementioned
companies conflict with any commitment listed herein, Olympus Holding Corp.
and Olympus Equity LLC agree to amend such documents to reconcile the
conflict so that the terms of the commitments herein prevail.
Avista and Parent commit that Olympus Equity LLC will not operate or own any
business and will limit its activities to investing in and attending to its
shareholdings in Avista.
Avista and Parent further commit that the revised articles of incorporation and
bylaws of Olympus Holding Corp, and Olympus Equity LLC, reflecting their
specific business purposes wil! be provided to the Commission prior to the
Commission's decision on the Proposed Transaction.
Restriction on Pledge of Utility Assets
Absent a Commission order providing otherwise, Avista and Hydro One agree
that under no circumstance wil! Avista loan, pledge, or transfer Avista utility
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Docket No. UM 1897 I Revised Oregon Commitments / Page 29
60
61
Appendix B to the First Amendment to Stipulation
assets to Hydro One, Olympus Holding Corp., or any of Parent's subsidiaries or
affiliates, other than Avista, without Commission approval. ln addition, Avista
and Hydro One agree that Avista's assets will not be loaned, pledged, or
transferred by Avista or any of its affiliates, including Hydro One and Olympus
Holding Corp. and any of their subsidiaries or affiliates.
Major Shareholder (Beneficial Ownersh i p) Reporti ng
Avista and Parent agree that Avista will submit a written report on Major
Sharehold ers consistent with OAR 860-0 27 -0 17 5(2) ( Major Sha reholders
Report).
When holdings of all entities are not available because filings for those certain
entities have not yet been made or are not available, Avista and Parent agree
that Avista will use best available information in a preliminary filing to the
Commission by the due date provided for in OAR 860-027-0175, supplemented
by a finalfiling to the Commission no later than June 1 of each year.
Restriction on Acquisitions and Dispositions
Parent and Avista agree to comply with ORS 757.511 and ORS 757.480 as
applicable and as described in the commitments herein. Hydro One, its Affiliates,
and subsidiaries including Avista will notify the Commission subsequent to the
board of Hydro One, its Affiliates or subsidiaries including Avista approving, and
as soon as practicable following any public announcement, of:
a, Any acquisition by Hydro One, its Affiliates and subsidiaries including
Avista of a regulated or unregulated business that is equivalent to five (5)
percent or more of Hydro One's capitalization; or
b. Any change in control or ownership of Avista, inclusive of any change of
upstream ownership of Avista among subsidiaries and Affiliates of Hydro
One, providing detail of the holding.
This commitment does not prohibit Parent or its affiliates other than Avista from
holding diversifi ed businesses,
Neither Avista nor Olympus Holding Corp. will assert in any future proceedings
that the Commission is without jurisdiction over any transaction that results in a
change of control over Avista pursuant to ORS 757.511 and ORS 757.480, or as
those statutes are described in the commitments herein.
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Docket No. UM 1897 I Revised Oregon Commitments / Page 30
Appendix B to the First Amendment to Stipulation
62. No lnter Gompany Debt
Avista and Parent agree that, without prior Commission approval, Avista will not
enter into any inter-company debt transactions with Olympus Holding Corp.,
Hydro One, or any of their subsidiaries or affiliates.
63. No lnter Company Lending
Avista and Parent agree that, without prior Commission approval, Avista will not
lend money to Olympus Holding Corp., Hydro One, or any of their subsidiaries or
affiliates.
K. Access to lnformation
64. Access to and Maintenance of Books, Records and Other lnformation
The following commitment applies to information that is reasonably calculated to
lead to the discovery of admissible evidence pertaining to, or that may directly or
indirectly affect or relate to, Avista, the Oregon-regulated utility: Avista and
Parent wil! provide access to al! materials specified in subparagraphs a - d below.
Where practicable, this information wil! be made available directly to the
Commission or at Avista's Headquarters in Spokane.
The Proposed Transaction and Hydro One's post-closing corporate structure will
not result in reduced access to books and records for Commission Staff and
other parties to regulatory proceedings necessary to investigate, examine, or
verify transactions with Avista, or that result in costs that may be allocable to
Avista.
Nothing in the Proposed Transaction and corporate structure thereafter will limit
or affect the Commission's rights with respect to inspection of Avista's and
Olympus Holding Corp.'s accounts, books, papers and documents pursuant to
and in compliance with all applicable Oregon laws and administrative rules.
Avista and Parent will provide the Commission with access to:
a. All books of account, budgets, integrated resource planning, documents,
data, records, accounting, and financial information which may pertain to
transactions between Avista and Hydro One or any Hydro One U.S.
affiliate and subdivision.
b. Avista Board of Director (BOD) and Parent BOD meeting minutes and
presentations for BOD meetings, Avista and Parent committees and
subcommittees thereof, as well as investor presentations and transcripts
for Avista and Parent.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 31
65
66.
67
Appendix B to the First Amendment to Stipulation
c. Such other records of Avista and Parent including affiliates that are the
bases for charges to Avista, to determine the reasonableness of the costs
and the allocation factors used by Hydro One and its affiliates or
subdivisions to assign costs to Avista and amounts subject to allocation or
direct charges consistent with the Commission's rules and regulations.
d. All information provided by and to common stock, bond, or bond rating
analysts, and Rating Agencies, which directly or indirectly pertains to
Avista or any affiliate that exercises influence over Avista. Such
information includes, but is not limited to, opinions, reports and
presentations made to or provided by common stock analysts and bond
rating analysts. Avista's records of such matters will be kept at Avista's
headquarters in Spokane.
Hydro One and its Affiliates agree that they will not raise lack of jurisdiction as a
means of denying such access, and agree to cooperate fully with such
Commission investigations and requests for information.
Budgets
On or before December 31 of each year, Avista shall make available to the
Commission a final copy of its annual capital budget(s) for the succeeding year.
Hydro One will provide an annual budget of all transactions between Hydro One
and Avista.
Appearance Before the Commission
Hydro One and Avista will seek to maintain a visibly constructive relationship with
the Commission and wil! make their employees and officers available to testiff,
present or participate in workshops before the Commission at the Commission's
request to provide information of interest to the Commission on matters related to
Avista's operations in Oregon. Avista will keep the Commission informed on
material matters related to Avista's operations in Oregon consistent with
Commission statutes and rules.
L. Accounting
Separate Books and Records
Avista and Parent, including all Hydro One U.S. Affiliates and subdivisions, will
maintain the necessary itemized books and records in form that can be viewed,
printed, and duplicated so as to document all corporate, Affiliate, or subsidiary
transactions with Avista, or that result in costs that may be allocable to Avista.
Documentation shall be maintained such that all costs subject to allocation and
the basis for the application of the allocation methodology can be specifically
Revised 11$-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 32
Appendix B to the First Amendment to Stipulation
identified, particularly with respect to origin and cost drivers.
Avista and Parent further agree that Avista will maintain separate books and
records inclusive of all documentation relating to costs allocated to and from its
Parent and Affiliates, with such accounting information and financial books and
records kept at Avista's headquarters in Spokane, Washington.
Avista wil! maintain its own accounts and subaccounts, books, computers, data,
documents, and documentation with supporting records separate from the
Parent's accounting system, with such accounting information and financial
books and records kept at Avista headquarters in Spokane, Washington.
Avista assets, cash flows, and financialaccounts may not be co-mingled with
Parent or Parent's subsidiaries or operations resulting after the merger.
M. Cost Allocations
68. Cost Allocations and Affiliate lnterests
Avista and Parent agree that Avista will provide cost allocation methodologies
used to allocate to Avista any costs related to Parent, including to Olympus
Holding Corp. or its other subsidiaries, and commit that there will be no cross-
subsidization by Avista customers of unregulated activities.
Avista and Parent agree as follows:
Hydro One and Avista wil! not cross-subsidize between the regulated and
unregulated businesses or between any regulated businesses, and shall
comply with the Commission's applicable statutes, orders, and rules with
respect to such matters.
a Hydro One shall not subsidize its activities by allocating to or directly
charging Avista expenses not authorized by the Commission to be so
allocated or directly charged.
For any services rendered to Avista or each cost category subject to
allocations to Avista by Hydro One or any of its affiliates, Hydro One must
be able to demonstrate that such service or cost category is necessary to
Avista for the performance of its regulated operations, is not duplicative of
services already being performed with Avista, and is reasonable and
prudent and results in a benefit to Oregon customers.
a
o
a To determine the reasonableness of allocation factors used by Hydro One
to assign costs to Avista and amounts subject to allocation or direct
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 33
69.
Appendix B to the First Amendment to Stipulation
charges, the Commission or its staff may investigate the accounts of
Hydro One and its subsidiaries which are the bases for charges to Avista.
Hydro One agrees to cooperate fully with such Commission investigations.
Avista commits, and Hydro One agrees, that neither Avista nor Avista's
subsidiaries will, without the approval of the Commission:
a. Make loans or transfer funds (other than dividends and payments
pursuant to the MSA or equivalent cost allocation manual) to Parent or
affiliates;
b. Assume any obligation or liability as guarantor, endorser, surety, or
otherwise for Parent or affiliates;
c. Transfer any of its utility assets or property to Parent or affiliates, or any
government or political subdivision thereof with a direct or indirect
ownership interest in the Parent, except as and when required by ORS
757.511 and ORS 757.480 or expressed in the commitments herein; or
d. Seek to pledge Avista's assets as backing for any hedging, indebtedness,
or securities of Parent or affiliates.
Avista will bear the burden of proof in any GRC that any corporate and affiliate
cost allocation methodology is reasonable for ratemaking purposes consistent
with Commission statutes, orders, and rules. Neither Avista nor Olympus
Holding Corp. or its subsidiaries will contest the Commission's authority to
disallow, for ratemaking purposes in a GRC, unreasonable, or misallocated costs
to Avista.
With respect to the ratemaking treatment of affiliate transactions affecting Avista,
Olympus Holding Corp., Hydro One and all its U.S. subsidiaries, will comply with
the Commission's rules and practice. However, nothing in this commitment limits
Avista from also proposing a different ratemaking treatment for the Commission's
consideration, or limits the positions that any other party to the proceeding may
take with respect to ratemaking treatment.
Prevention of Cross Subsidization
Avista and Parent agree to comply with ORS 757.015 through 757.495, as
applicable, and OAR 860-027-0040 through 860-027-0042, as applicable, for
transactions between Avista and Parent including subdivisions and Affiliates.
Further, Avista and Parent agree that the Commission may investigate the
accounting records of Parent and Affiliates that are the bases for charges to
Avista, to determine the reasonableness of the costs and the allocation factors
Revised 11-6-20'18
Docket No. UM 1897 lRevised Oregon Commitments / Page 34
Appendix B to the First Amendment to Stipulation
used by the Parent or its subdivisions to assign costs to Avista and amounts
subject to allocation or direct charges. Parent and Affiliates will cooperate fully
with such Commission investigations.
Parent and Avista will maintain robust systems to track employee, officer,
director, agent, and attorney time not spent for Avista utility purposes, which cost
thereof shall not be allocated to Avista.
Parent and Avista wi!! comply with all applicable Commission statutes, orders,
and rules regarding Affiliated lnterest transactions, including timely filing of
applications and reports.
Avista will not cross'subsidize between the regulated and unregulated
businesses or between any regulated businesses, and shall comply with the
Commission's applicable orders and rules with respect to such matters.
a. For services rendered to Avista or each cost category subject to allocation
to Avista by Hydro One or any of its affiliates, Avista must be able to
demonstrate that such service or cost category is: i) necessary to Avista
for the reasonable performance of its regulated operations in Oregon, ii) is
not duplicative of services already being performed within Avista, and iii) is
reasonable and prudent.
b. Cost allocations to Avista will be directly charged whenever possible, and
shared or indirect costs will be allocated based upon the primary cost-
driving factors.
c. Hydro One and its subsidiaries will have in place an accounting system
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
d. All costs subject to allocation will be documented, such that they can be
specifically identified, particularly with respect to their origin.
e. Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval. The Master Services Agreement (MSA) or equivalent will be
updated to include the corporate and affiliate cost allocation
methodologies between Hydro One, Avista and their affiliates. The MSA
will be filed with the Commission for review and approval, no later than 90
days after close of the transaction. Thereafter, amendments to the MSA
Revised 11-6-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 35
Appendix B to the First Amendment to Stipulation
will also be filed with the Commission as material changes occur, or
otherwise attached to the annual June Affiliated Interest (Al) report.
f . Avista and Hydro One commit to using asymmetrical pricing as required
by oAR 860-027-0048(4).
Any allocation of costs, corporate and Affiliate investments, expenses, or
overheads between Avista and Parent or an Affiliate will comply with the
following principles:
i. Cost allocations to Avista will be directly charged whenever possible, and
shared or indirect costs will be allocated based upon primary,
demonstrable, and transparent cost-driving factors.
Parent and all subsidiaries and Affiliates will maintain accounting systems
adequate to support the allocation and assignment of costs of executives
and other relevant personnel to or from Avista.
A!! costs subject to allocation will be Documented and flagged by origin, so
as to be specifically identified, tracked, and trended. Failure to adequately
support any allocated cost may result in denial of its recovery in rates.
Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
approval.
Avista's MSA or equivalent, itemizing and explaining corporate cost
allocation methods used for rate setting, will be updated to include the
corporate and affiliate cost allocation methodologies between Parent (and
Hydro One if different), Avista, and Affiliates and filed with the Commission
no later than 90 days after execution of the reorganization. Thereafter, the
MSA will be appended to the annual June Affiliated lnterest report filed
with the Commission. This annualfiling will capture, highlight and explain
all changes from the prior year. The entirety of the MSA and its
components are subject to review by Staff in subsequent proceedings
before the Commission to confirm that cost drivers, accounting methods,
assumptions, and practices result in fair, just and reasonable utility rates.
Avista will update, and re-file for approval, the MSA and Al Reporting
reflecting Parent (and Hydro One if different) organizational detail and the
outcome of Docket No. UM 1897.
VI Costs which would have been denied recovery in rates had they been
incurred by Avista will likewise be denied recovery whether they are
IV
V
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71
Appendix B to the First Amendment to Stipulation
allocated directly or indirectly through subsidiaries of Parent other than
Avista.
vii. Avista willfile timely applications and reports in compliance with
ORS 757.015 through 757 .495 and OAR 860-027-0040 through 860-027-
0042.
viii. Parent and Avista commit that they will interpret ORS 757.015 and
757.495 to require Commission approval of any contract between Avista
and (1) any affiliate of Hydro One or (2) any affiliate of Parent. This shall
include the MSA discussed herein.
tx Avista bears the burden of showing that a particular expense may be
allocated to Avista ratepayers.
70 Master Services Agreement (MSA)
Please see Commitment 69.
Gomplete Corporate Organizational Chart and Contact lnformation
Avista and Parent agree that Avista will file usual and customary Affiliated
lnterest (AI) reports with the Commission each June. Avista's Al reports filed
with the Commission will contain a complete copy of the current corporate
organizational chart between Hydro One and Avista, including contact
information for those entities, a narrative description of each Affiliate, annual
revenue for each Affiliate, and transactions with each Affiliate; and identify in the
chart any entities that do business with, share charges with, or have an
ownership interest of five percent or more in Avista.
N. North American Free Trade Agreement (NAFTA)
72.North American Free Trade Agreement (NAFTA)
Avista and Parent agree that the Commission would have jurisdiction in any
future proceedings regarding any unrecovered liabilities to the State of Oregon
that may result from NAFTA Chapter Eleven mediations, arbitrations, or any
other litigation brought by Hydro One's shareholders under NAFTA. Only the
Commission or the Oregon Attorney General may initiate such proceeding.
O. Avista Status Quo
73. Generally Accepted Accounting Principles and Standards (GAAP)
Avista and Parent agree that Avista and Olympus Equity LLC will follow GAAP
for Oregon regulatory purposes except when otherwise directed by Commission
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Docket No. UM 1897 I Revised Oregon Commitments / Page 37
Appendix B to the First Amendment to Stipulation
orders and policies, Oregon Revised Statutes (ORS), and Oregon Administrative
Rules (OAR).
74. Travel Expenses
Avista and Parent agree that Avista's corporate travel expenses recovered in
rates, including variable costs of flying the Avista corporate jet and commercial
travel for all Avista and Parent directors and executives will not exceed 105
percent of 2017 expenses adjusted annually for inflation. However, regardless of
the terms of this commitment, Avista still carries the burden of demonstrating the
reasonableness and inclusion in rates of any travel expense.
75.Avista Management Direction
Avista and Parent agree that Avista management will continue to ensure that
delivery of safe and reliable high quality utility service at just and reasonable
rates in Oregon is included in its mission and is a top corporate priority post-
merger.
76 Capital lnvestment for Safe Pipelines and Controls
Avista and Parent agree that Avista will maintain its existing levels of capital
investment where needed to improve the safety of regulated pipelines and
associated controls for the next ten years. Over that period, Parent agrees to
provide capitial, receiving usual Commission rate case treatment, as necessary to
improve the safety of pipelines and associated controls.
77 Equa! or Better Access to Financial Markets in the U.S. and Canada
Avista and Parent agree to make reasonable commercial efforts to prioritize
access for Avista to financial markets at equal or lower cost than absent the
Proposed Transaction for Long-Term Debt and Credit Facilities in the U.S.
Hydro One agrees to consider listing on the New York Stock Exchanges (NYSE)
as and when appropriate and advisable.
Parent agrees to make reasonable commercial efforts to investigate and arrange
innovative financing opportunities that include independent opportunities for
Avista financing, utilizing the same investment banks and ananged sellers in the
U.S. and Canada, where Avista is responsible for Avista's issuances and
proportional cost, but afforded proportional access to larger aggregate securities
offerings to achieve lower all-in issuance cost.
78.Venue for and Resolution of Disputes
Avista and Parent agree that the venue for disputes regarding the operation of
Avista will be in state and federal regulatory bodies or courts of competent
jurisdiction, as applicable, in Oregon, Washington, ldaho, Montana or Alaska.
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Docket No. UM 1897 lRevised Oregon Commitments / Page 38
Appendix B to the First Amendment to Stipulation
79. Headquarters
Avista and Parent agree that Avista will maintain its headquarters in Spokane,
Washington. Any change in the location of Avista headquarters will require
Commission approval.
80 Local Staffing
Avista will maintain Avista's staffing and presence in the communities in which
Avista operates at levels sufficient to maintain the provision of safe and reliable
service and cost-effective operations, consistent with Pre-Merger levels.
81 Pension and Post Retirement Expenses and Assets
Avista and Parent agree that Avista will maintain its pension funding policy in
accordance with sound actuarial practice, and comply with Commission Orders
regarding best practices on pension policies. Hydro One will not seek to change
Avista's pension funding policy or to obtain funds from Avista's pension and post-
retirement assets.
82 General Operations and Maintenance (O&M) for Community Development
Operations and maintenance funds dedicated to economic development and
non-utility strategic opportunities will be recorded below-the-line to a non-
operating account.
Economic Development
Parent and Avista agree that Avista will approach economic development, in a
manner consistent with Avista's past practices.
Membership in Organizations
Avista will maintain the dues paid by it to various industry trade groups and
membership organizations, where participation is related to the delivery of safe
and reliable utility services. However, recovery of all membership and
organizational dues will be reviewed in a GRC consistent with Commission
orders and rules.
85 FERC Reporting Requirements
Avista and Parent agree that Avista wi!! continue to meet all the applicable
Federal Energy Regulatory Commission (FERC) reporting requirements with
respect to annual and quarterly reports (e.9., FERC Forms 1, 2, 3-Q) after
closing of the Proposed Transaction.
86 Participation in National and Regional Forums
Avista and Parent agree that Avista wi!! continue to participate, in national and
regional forums regarding transmission issues, pricing policies, siting
requirements, and interconnection and integration policies, and such forums as
83.
84.
Revised '116-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 39
Appendix B to the First Amendment to Stipulation
necessary to provide safe and reliable electrical and natural gas service and to
protect the interest of Avista customers.
87 Compliance with Existing and Future ORS, OAR and Gommission Orders
Avista and Parent will comply with applicable Oregon Revised Statutes (ORS),
Oregon Administrative Rules (OAR), and Commission Orders. AII existing
Commission Orders with respect to Avista or its predecessor, Washington Water
Power Co., will remain in effect until changed by the Commission including those
regarding Avista's acquisition of AERC.
P. Corporate Citizenship
88.Oregon Charitable Contributions
Hydro One and Avista agree that Avista will contribute charitable donations to
Oregon-based organizations. Avista agrees it will, over time, distribute charitable
donations in proportion to each state's portion of the system in which Avista
operates.
89 Other Community Contributions
Hydro One will make a one-time $7,000,000 contribution to Avista's charitable
foundation at closing, a portion of which will be allocated to Oregon proportionate
to relative revenues in Oregon.
Commitment 90 contains an additiona! commitment relating to charitable
contributions.
90 General Community Contributions and lnvolvement
For five years after the close of the Proposed Transaction, Avista will maintain a
$4,000,000 annual budget for charitable contributions (funded by both Avista and
the Avista Foundation) and additionally a $2,000,000 annual contribution will be
made to Avista's charitable foundation, which will not be recoverable in customer
rates. No approvalfrom any regulatory bodies with jurisdiction over the
commitments is required for any changes to this commitment after the sixth year
following closing of the Proposed Transaction; however, any such changes will
continue to require a two-thirds (2/3) vote of the Avista Board. Avista agrees it
will, over time, distribute this annual charitable contributions budget across its
entire service territory in proportion to each state's portion of the system.
91. Sources of Funds for Hydro One and Avista Gommitments
Throughout the list of commitments herein, any commitment that states that
Hydro One or Avista will provide funding is a firm commitment to provide the
exact dollar amount specified, over the time period specified, and for the
purposes specified. To the extent Avista has retained earnings that are available
Revised 11S-20'18
Docket No. UM 1897 I Revised Oregon Commitments / Page 40
Appendix B to the First Amendment to Stipulation
for payment of dividends to Olympus Equity LLC consistent with the ring-fencing
provisions of this list of commitments, such retained earnings may be used.
Q. Future Rates
92.Treatment of Net Cost Savings
Avista and Hydro One agree that any net cost savings that Avista achieves as a
result of the Proposed Transaction will be reflected in subsequent rate
proceedings, as such savings materialize. To the extent the savings are
reflected in base retail rates they will offset the Rate Credit to customers, up to
the offsetable portion of the Rate Credit.
93. Continuation of Base Rates Established in UG-325
Avista last adjusted base rates on November 1,2017, in Docket No. UG-325.
Avista agrees that these base rates will remain in effect until at least January 1,
2020.
94. Preparation for Next General Rate Case (GRC) in Oregon
Avista and Hydro One agree that Avista will attach to its next GRC filing in
Oregon, an Officer of Avista Corporation attestation that all Transaction Costs
associated with the Hydro One merger have not been included in the GRC filing,
and includes a granular assessment of (2) net Transition Costs and (3) cost
savings for Oregon customers obtained as a result of the Hydro One merger and
its subsequent synergies.
95.Treatment of Goodwil!, Transaction Gosts, and Transition Costs
Avista and Parent agree that Avista and Parent will not seek to recover in rates
any acquisition adjustment, control premium, goodwill, or transaction costs
associated with the Proposed Transaction. Further:
a. After the consummation of the Proposed Transaction, any remaining
transaction costs or other costs associated with the Hydro One merger will
not appear on Avista's regulated utility books in any form. Olympus
Holding Corp. and Hydro One transaction costs or other costs associated
with the Hydro One merger have not and will never appear on Avista's
utility books.
b. Avista shallfurnish the Commission with journal entries and supporting
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 counseltime, any consultants engaged, costs of
necessary filings and recordings, etc.) since the Proposed Transaction
Docket No. UM 1897 lRevised Oregon Commitments / Page 41
Revised 11$-2018
96
Appendix B to the First Amendment to Stipulation
was first contemplated, as well as the accounts charged, within 90 days of
a Commission order in this docket.
c. Avista will exclude from Avista GRCs, 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 counse! and outside counsel;
(ii) Any financial advisory fees associated with the Proposed
Transaction;
(iii) The acquisition premium and any other goodwill;
(iv) M&A consulting and advice, including that of investment banks;
(v) Preparation of materials or presentations relating to the Proposed
Transaction including all costs of related regulatory proceedings;
(vi) Any senior executive time and compensation or any Avista Board of
Director time measured in lowest practicable USD increments
associated with the Hydro One merger; and
(vii) Any other costs associated with the Proposed Transaction.
No costs of goodwill of the Parent or affiliates will be includable in Avista rates,
including rate base, cost of capital, or operating expenses. Write-downs or write-
offs of goodwill will not be included in the calculation of net income for dividend or
other distribution payment purposes.
Parent will not elect to apply pushdown accounting for this merger so that the
merger will have no impact on Avista's assets being acquired, and any
incremental goodwill will not be allocated to, or recognized within Avista's
balance sheet.
Costs for Future M&A or Reorganization
Parent and Avista will exclude from Avista GRCs, or any other method of cost
recovery, allfuture costs related to the Parent's future business endeavors and
mergers, acquisitions (M&A), restructuring, or formation of holding companies.
R. Environmental, Renewable Energy, and Energy Efficiency
Greenhouse Gas and Carbon lnitiatives
Avista and Parent will support Avista's current Natural Gas IRP Greenhouse Gas
and Carbon lnitiatives. Avista and Parent agree that Avista will continue to seek
Docket No. UM 1897 I Revised Oregon Commitments / Page 42
97
Revised 11€-20'18
Appendix B to the First Amendment to Stipulation
cost effective and least risk opportunities to reduce greenhouse gas and carbon
emissions in Oregon.
98 Cost of Greenhouse Gas Emissions
Where consistent with Commission orders, Avista commits to Oregon Natural
Gas IRP modeling of a range of potential costs for greenhouse gas emissions,
and willwork with its IRP stakeholders to determine appropriate values to model.
99 Greenhouse Gas lnventory Report
Avista and Parent agree that Avista will comply with greenhouse gas inventory
and other reporting requirements in Oregon.
100. Efficiency Goals and Obiectives
Avista and Parent agree that Avista will support Avista's current IRP Energy
Efficiency lnitiatives. Avista and Parent agree that Avista will continue to seek
cost effective and least risk opportunities for energy efficiency in Oregon.
101. Low Environmental lmpact Options
Where consistent with Commission orders and when likely practicable, Avista will
evaluate opportunities for lower environmental impact services to customers in
Oregon, with its IRP stakeholder input.
'102. lnforming the Commission
Avista and Parent agree that Avista will inform the Commission of natural gas
(energy) initiatives and observations of Avista, that are material to Avista's
natural gas operations in Oregon, on a timely informational basis, when Avista
feels material changes are pending or have occurred, or that material best
practices or pitfalls in the natural gas industry have been identified.
103. Sharing Best Planning Methods
Avista and Parent agree that Avista will share with the Commission on a timely
informational basis best IRP and other planning methods discovered across its
other state jurisdictions. Avista and Parent agree that Avista will describe the
framework of findings and provide supporting materials when not burdensome or
proprietary.
104. lndustrial Conservation and Efficiency
Recognizing that the Energy Trust of Oregon (ETO) currently administers
Avista's voluntary industrial energy efficiency programs, Avista and Parent agree
that Avista wil! make good faith efforts to identify industrial conservation and
efficiency opportunities in Oregon that are material to Avista's natural gas
operations in Oregon, and to communicate material observations to the
Commission and AWEC. ln the event of U.S. federal stimulus, Avista commits to
Docket No. UM 1897 I Revised Oregon Commitments / Page 43
Revised 11-6-2018
Appendix B to the First Amendment to Stipulation
make good faith efforts to prepare and document planned energy projects with
Avista leadership, or to participate in such projects where available and material
to Avista's natural gas operations in Oregon, so as to comply with stimulus and
IRP requirements while reducing financing and other costs.
105. Electric, Natural Gas and Fuel Cell Transport
Avista and Parent agree that Avista wil! communicate to the Commission
practicable opportunities to facilitate environmentally beneficial transportation in
Oregon.
106. Expanded Natural Gas Transportation Service
The Parties agree that customers presently served on sales Schedules 424 and
440 should be able to elect to take service, for a minimum of one year, under
new transportation service Schedules 425 or 439. Avista commits that this
Commitment will not impact other customers, is margin neutral, and does not
require hedging. The Parties agree with the parameters of the expanded natural
gas transportation service schedules as outlined below:
a. Eligibility - For Schedules 425, qualifying sales customers must have a
minimum annual average usage of 29,000 therms, as stated on Schedule
424. For Schedules 439, qualifying sales customers must have a
minimum annual average usage of 50,000 therms, as stated on Schedule
440.
b. The base rates for Transportation Schedules 425 and 439 will be the
same as the base rates on Schedules 424 and 440, respectively.
c. For purposes of all future "adder schedule filings" (DSM, Decoupling,
LIRAP, etc.), cost of service studies, and rate spread and rate design
proposals, Schedule 424will be grouped with Schedules 425 and
Schedule 440 will be grouped with Schedules 439.
d. The Parties further agree that customers served on Transportation
Schedules 425 and 439 will be subject to Avista's natural gas decoupling
mechanism.
e. Schedules 425 and 439 will contain the same provisions contained in
Avista's tariff sheets 456A through 456C, which relate to the transportation
of customer-owned natural gas.
f . The Parties agree that Avista willfile Schedules 425 and 439 as described
above as part of the compliance filing approved as part of the merger
proceeding.
Docket No. UM 1897 I Revised Oregon Commitments / Page 44
Revised 1'1{-20'18
Appendix B to the First Amendment to Stipulation
g. ln the event that the Commission rejects or suspends the proposed
revised Schedules 425 and 439, the Parties agree to support Commission
approval of tariff provisions with substantially similar terms.
107. Low-lncome Energy Efficiency Planning
Avista will continue to work with its advisory groups on the appropriate level of
funding for low income energy efficiency programs.
S. Contract Labor
108. Contract Labor
Please refer to Commitment 109. ln addition, Avista, Parent, and Oregon and
Southern ldaho District Council of Laborers (OSIDCL) agree that Avista has
resolved all issues in this proceeding that pertain to the Oregon and Southern
ldaho District Council of Laborers (OSIDCL). See "Addendum 1 - Contract
Labor, Oregon Commitments", supported by OSIDCL with and all other Parties
regarding recommended contract labor conditions.
109. Union and Other Labor Relationships
Avista and Parent agree that Avista will honor its existing labor contracts and will
meet the labor participation, safety and training commitments provided herein.
Avista has the authority to negotiate, enter into, modify, amend, terminate or
agree to changes in any collective bargaining agreement or any of Avista's other
material contracts with any labor organizations, union employees or their
representatives. Avista will maintain compensation and benefits related practices
consistent with the requirements of the Merger Agreement.
See Addendum 1 for Oregon contract labor provisions.
I. Reporting and Enforcement
110. Gommitments Binding
Parent and Avista acknowledge that the commitments herein are fully binding on
each of them individually, severally and on their successors in interest.
111.Commission Enforcement of Commitments
Avista and Parent understand and agree that the Commission has authority to
enforce the commitments herein. lf a commitment is violated, the Commission
may impose such penalty as the Commission finds appropriate for the severity of
the violation.
The scope of this commitment includes the authority of the Commission to
Revised 11S-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 45
Appendix B to the First Amendment to Stipulation
request and where necessary to require attendance of witnesses from Avista and
Parent. Avista and Parent agree they will not interpose any legal objection they
might otherwise have to the Commission's jurisdiction to require the appearance
of any such witnesses.
112.Submittal to State Court Jurisdiction for Enforcement of Gommission
Orders
Avista, and Parent-w+ll. on behalf of itsel
corporate structure between Parent and Avista (as those companies in between
mav chanqe over time), will each file with the Commission prior to closing the
Proposed Transaction an affidavit affirming that Avista and Parent thev will
submit to the jurisdiction of the Oregon courts for enforcement of violations of
and subsequent Commission
orders affecting Avista and Parent. and aqree to the ap
with respect to such matters.
113. Annual Reporting on Commitments
ln addition to providing copies of closing documentation on usual and customary
elements of completion of the Proposed Transaction to the Commission, Avista
and Parent agree that by June 1 5,2019 and each June 15 thereafter through
June 15,2028 inclusive, Avista and Parent agree that Avista will file a report with
the Commission on how Avista and Parent are complying or have complied with
each of the commitments herein as of December 31 of the preceding year (a total
of 11 annual reports). The report will, at a minimum, provide a description of the
performance of each of the commitments.
Failure to comply with a commitment will be brought before the Commission for
determination of appropriate remedy and penalty.
114. Resolution of Violations: Expedited Resolution of Minor and Procedural
Gompliance lssues
lf the Commission or any Party determines that any commitment has not been
complied with or is not being complied with, it willfirst provide notice to Avista
and/or Hydro One, as applicable, and may thereafter provide notice to the
Commission. Within 7 days of notice to the Commission, Staff wil! have an
opportunity to propose an informal remedy to Avista and/or Hydro One, as
applicable, if such remedy is reasonably likely to return full compliance within 14
days of Staffs notice to Avista and/or Hydro One of its proposal. lf Avista and/or
Hydro One, as applicable, choose not to implement Staffs proposal, or if no such
informal remedy is available because full compliance within 14 days is not
reasonably likely, Avista and/or Hydro One's alleged failure to comply wil! be
brought before the Commission for determination of an appropriate remedy.
Docket No. UM 1897 lRevised Oregon Commitments / Page 46
Revised 1'16-2018
1 1s.
Appendix B to the First Amendment to Stipulation
U. Most Favored Nations
Most Favored Nations
All Parties including Avista and Hydro One agree that the Commission shall have
an opportunity and the authority to consider and adopt in Oregon any
commitments to which Avista and Hydro One have stipulated or otherwise
agreed to in another state commission jurisdiction, even if such conditions are
agreed to after the Commission enters its order in this Oregon Docket No. UM
1897.
Avista and Hydro One agree further that that any Party other than Avista and
Hydro One may ask that all Parties convene to discuss at earliest practicable
convenience, where time is of the essence, if and how such conditions adopted
by a commission in another state proceeding should be integrated with any
stipulated list of conditions already agreed to by Parties so as to present the
Commission with a revised Oregon stipulated set of conditions.
Process for Consideration of Most Favored Nation's Gommitments
a. Within five calendar days after Avista and Hydro One file a stipulation with
new or amended commitments with a commission in another state
jurisdiction, Avista and Hydro One will send a copy of the stipulation and
commitments to all Oregon Parties.
b. Within five calendar days after a commission in another state jurisdiction
issues an order that accepts a stipulation to which Avista and Hydro One
are parties, or an order with a stipulated set of conditions for approval of
the Proposed Transaction, that order, together with all conditions for
approval of the Proposed Transaction, will be filed with the Commission
and served on all parties to this Oregon docket by the most expeditious
means practical.
c. Within 10 calendar days after another state jurisdiction filing discussed in
(b) above ("Final Filing"), Parties other than Hydro One and Avista may
file with the Commission any response such other Parties wish to make,
including their position as to whether any of the covenants, commitments
and conditions from the other jurisdictions (without modification of the
language thereof except such non-substantive changes as are necessary
to make the commitment or condition applicable to Oregon) should be
adopted in Oregon.
Revised 11{-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 47
Appendix B to the First Amendment to Stipulation
d. Within five calendar days after any such response filing, Avista and Hydro
One may file a reply with the Commission.
e. lf any of the dates above fall on Saturday, Sunday, or a holiday, the next
business day will be considered as the due date.
f . The Parties agree to support in their filings the issuance by the
Commission of an order regarding the adoption of such commitments as
soon as practical thereafter, recognizing that the Proposed Transaction
cannot close until final state orders have been issued approving the
Proposed Transaction.
g. The Commission may then review the filings and issue an order indicating
which other-state-commitments it chooses to adopt.
Limitations on Adjustment
i. Only commitments specific to gas service may form the basis for
adjustments specific to gas service.
ii. Only commitments specific to electric service may form the basis for
adjustments specific to electric service.
iii. Any commitments relating to support of communities in Montana are not
subject to this provision.
iv. As Avista does not operate as a utility in Alaska, any commitments made
in Alaska are not subject to this provision.
V For purposes of financial commitments or commitments having a financial
impact, commitments should be proportionate to Avista's corresponding
business function in Oregon in relation to its corresponding total company
business function. The Parties agree that the Oregon Rate Credit, as
specified herein, satisfies this corresponding business function standard.
For purposes of this provision, "financial commitments or commitments
having a financial impact" do not include ring fencing provisions.
116. Notice and Petition
ln the event of the enactment or adoption of anv leqislation. rule. policv. or
directive bv oovernment at anv level or bv anv qovernmental entity or official in
Canada (a "Leqislative Action") that affects Avista's operations because of
Avista's corporate relationship with Parent, or affects Parent's compliance with
anv commitment in this stipulation. anv of the parties to this proceedinq may
petition the Commission at anv time to consider whether the Commission should
Revised 11S-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 48
Appendix B to the First Amendment to Stipulation
amend itsfinal order in UM 1897. includinq reooeninq and strenotheninq anv of
the Stipulated Commitments (inclusive of the financial rinq-fencinq commitments
and/or the qovernance commitments). or requirinq the addition of new
commitments. and neither Parent nor anv of its subsidiaries. includinq Avista. will
oppose initiation of such a proceedinq. Parent will report to the Commission anv
such Leqislative Action in Canada that. in Parent's reasonable iudqment. affects
Avista's operations because of Avista's coroorate relationshio with Parent. or
affects Parent's comoliance w
practicable after it is oubliclv announced as beinq effective bv the qovernment or
oovernmenta! entity or official. Nothinq in this Commitment 116 shall be
interpreted to limit the oositions or arquments that Avista or Parent mav take or
advance in any such oroceedino. includino the riqht to aroue that a petition
presents insufficient qrounds or evidence. Prior to filinq a petition with the
Commission under this Commitment 116. a partv must provide Parent and Avista
at least 30 davs advance written notice and an opportunitv to meet and confer
about resolutions other than filino with the Commission under this commitment.
Nothino in this commitment is intended to restrict the riohts of the parties to
petition the Commission concerninq its order(s) in this docket. or to limit the
authoritv of the Commission.
117. No Substantia! Provincial Influence
a. Parent and Avista will advise each member of the Avista Board of Directors prior
to beinq seated post Proposed Transaction and annually thereafter that the
Province mav not attempt to. directlv or indirectlv. acquire the power to exercise
anv substantial influencel6 over the policies and actions of Avista. Parent and
Avista will reouire each of their resoective director desiqnees to execute a new
affidavit filed annuallv on June 1 of each vear with the Commission that attests
that the individual director will notify the Commission immediatelv if thev have
anv reason to believe that the Province is directlv or indirectlv seekino to exercise
or is exercisinq anv substantial influence over the policies and actions of Avista
throuqh the Avista Board or otherwise.
b. lf a member of the Avista Board of Directors provides notice to the Commission
pursuant to subparaqraph a of this Commitment 117. the Commission mav
initiate a proceedino to determine whether the Commission should amend its
final order in UM 1897. includino reopeninq and strenqtheninq of anv of the
Stipulated Commitments (inclusive of the financial rinq-fencinq commitments
and/or the qovernance commitments). or requirinq the addition of a new
10 "substantial influence" as used in this commitment has the meanino set forth in ORS 757.511 and as
interoreted by the Public Utilitv Commission of Oreqon.
Revised 1 1-6-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 49
Appendix B to the First Amendment to Stipulation
commitment to address the Province's attempt to. directlv or indirectlv. exercise
substantial influence over the oolicies and actions of Avista. and neither Hvdro
One, nor any ofitssubsidlanes, includinq Avista, will oppose the
authoritv to proceed as outlined in this Commitment 1 17.
c. Parent's authoritv to replace an lndependent Director on the Avista Board with an
emplovee or executive on an interim six-month basis is suspended for the
pendencv of anv proceedino initiated pursuant to subparaoraoh b of this
Commitment 117.
118. Hvdro One Governance Aqreement
a. Prior to close of the Proposed Transaction. the board of directors of Hvdro
One (the "Board") shall adopt a resolutionlT providino that in the event the
Board. or anv director thereon. is informed or becomes aware that there is a
proposal or steps beinq considered or taken to amend. effectivelv modifu. or
eliminate the Governance Aoreement. whether bv leqislation. mutual
aqreement of the parties thereto or otherwise. Hvdro One will immediatelv
notifu the Commission and. to the extent feasible. will provide the
Commission with information available to the Board reqardino the proposal.
The Board will confirm annuallv its oblioations under this commitment. which
confirmation will be sioned bv the Hvdro One Chair and provided to the
Commission.
b. lf Hvdro One provides notice to the Commission oursuant to subparaqraph a.
of this Commitment 118. the Commission mav initiate a oroceedinq to
determine whether the actions described in subsection a to amend. effectivelv
modifu. or eliminate the Governance Aqreement would result in the Province
seekino to exercise or exercisinq substantial influence over the oolicies and
actions of Avista. and if so. whether the Commission should amend its final
order in UM 1897. includino reopenino and strenqtheninq anv of the
Stipulated Commitments (inclusive of the financial rino-fencinq commitments
and/or the qovernance commitments). or requirino the addition of new
commitments to address the Province's attemot to. directlv or indirectlv.
exercise or exercisinq substantial influence over the policies and actions of
Avista. and neither Hvdro One nor anv of its subsidiaries. includino Avista. will
17 Under Canadian coroorate law. a resolution of a companv's board of directors is evidence of an action
taken at a board meetinq. The board of directors has the power to bind the comoanv. and as a result. the
resolution required bv Commitment 1 18 is evidence that the Hvdro One board of directors has aqreed to
bind Hvdro One to the obliqations of Commitment 118.
Docket No. UM 1897 I Revised Oregon Commitments / Page 50
Revised 11$-2018
Appendix B to the First Amendment to Stipulation
oppose the Commission's authoritv to proceed as outlined in this
subparaoraph b. of this Commitment 118.
c. Hvdro One's authoritv to reolace an lndeoendent Director on the Avista Board
with an emplovee or executive on an interim six-month basis is suspended for
the pendency of anv proceedino initiated oursuant to subparaqraph b. of this
Commitment 1 18.
Revised 11-6-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 51
Appendix B to the First Amendment to Stipulation
V. Addendum 1 - Gontract Labor, Oregon Commitments
1. On a prospective basis, and for a period of 10 years ending March 7 ,2028 unless
revised by the Commission in the interest of both cost and quality to Avista utility
customers, Avista will require the use of Oregon and Southern ldaho District
Council of Laborers,' including any future successor organization, (OSIDCL)
members for the type of work that is ordinarily and customarily performed by
OSIDCL on natural gas replacement and all natural gas work. This will not apply to
work performed under contracts already in effect as of March 7 ,2018. This
agreement will not apply to (a) atmospheric corrosion; (b) locating; and (c) leak
survey. This agreement will also not apply to work performed where signatory
contractors are not available (unavailability is typically due to locations being in
remote areas), or choose not to bid on projects; provided that work performed in
such areas will be paid at equivalent wages and benefits.
2. On a prospective basis, and for a period of 10 years ending March 7,2028, Avista
will require the use of OSIDCL members for al!flagging work, unless otherwise
performed by Avista employees represented by IBEW Loca! 659. This will not
apply to work performed under contracts already in effect as of March 7 ,2018.
3. OSIDCL will provide for signatory contractors laborers who are OSIDCL members
that are qualified pursuant to applicable OSHA 1910 regulations and all other
applicable training. OSIDCL will provide OSIDCL members knowledgeable in the
DOT Title 49 Code of Federal Regulations, Part 192, and all applicable state
pipeline safety regulations. Contractors shall be required to provide proof of
compliance with this requirement to Avista.
4. On a prospective basis, Avista will require contractors to utilize Oregon and
Southern ldaho Laborers-Employers Training Trust ("OSILETT") for required
training, if applicable courses are offered by OSILETT and are reasonably
accessible in the locality where the work is to be performed.
5. Avista will meet and confer with OSIDCL to discuss possible involvement in al!
future hydroelectric projects that are within the sphere of OSIDCL's expertise.
6. Avista wil! encourage contractors to utilize union labor, including, without limitation
and as applicable, members of OSIDCL, Pipefitters and Steamfitters, and IBEW,
on Avista projects as part of its bidding solicitation process on all other construction
work, including but not limited to capitalwork on hydro facilities, and will evaluate
the use of such members in the staffing plans of bidding contractors as an element
of Avista's bid evaluation process.
7. Avista will continue to prioritize the hiring of qualified contractor personnel through
the bidding process, by requiring analysis of not only the price proposals submitted
by contractors, but a variety of other factors, including minimum staffing
requirements as applicable, training programs, documented qualification programs,
safety track records, OSHA 300 reportables, and other safety records as
appropriate. Review of these components is intended to verify that the contractor
is able to supply a sufficient workforce to meet Avista's needs, and that their
Revised 11$-2018
Docket No. UM 1897 lRevised Oregon Commitments / Page 52
Appendix B to the First Amendment to Stipulation
personnel are appropriately trained, qualified, and able to safely and reliably
perform work for Avista.
8. Work covered by these commitments does not include any work that is customarily
performed by Avista employees represented by IBEW Local 659 but that is
contracted out pursuant to the IBEW 659 collective bargaining agreement with
Avista. lt also does not include any work that is performed by Avista employees,
regardless of the type of work involved.
9. Avista will meet and confer with OSIDCL at least six months prior to March 7,2028
to discuss extending or modifying the terms set forth herein.
Revised 1 'l$-2018
Docket No. UM 1897 I Revised Oregon Commitments / Page 53
REVISED MASTER LIST OF COMIVTITMENTS IN WASHINGTON
Table of Contents
A. Reservation of Certain Authority to the Avista Board of Directors
1.
2.
J.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Authority Reserved:
Compensation and Benefits:
Avista's Headquarters
Local Staffing:
Membership Organizations
Safety and Reliability Standards and Service Quality Measures:
Page
Executive Management:
Board of Directors:
Avista's Brand and Plan for the Operation of the Business:.................
Capital Investment for Economic Development:
Continued Innovation:
Union Relationships:
..4
..4
..4
5
5
5
....5
..5
..6
Community Contributions: ....................
.6
.6
,6
.6
.6
.6
Community Involvement:
Economic Development:.,
Treatment of Net Cost Savings:7
Treatment of Transaction Costs:7
Rate Credits:.8
C. RegulatoryCommitments....................
State Regulatory Authority and Jurisdiction:................. .............................9
Compliance with Existing Commission Orders:.......... .........9
Separate Books and Records:.9
Access to and Maintenance of Books and Records:.9
Cost Allocations Related to Corporate Structure and Affiliate Interests:10
Ratemaking Cost of Debt and Equity: ..........11
Avista Capital Structure:11
FERC Reporting Requirements:t2
Participation in National and Regional Forums:
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page I of28
t2
29. Treatment of Confidential Information:..................... .........12
30.
31.
32.
33.
Commission Enforcement of Commitments:................ ............................12
Submittal to State Court Jurisdiction for Enforcement of Commission Orders:...................................12
Annual Report on Commitments:12
34.
35.
36.
37.
38.
39.
40.
41.
Capital Structure Support:l3
Utility-Level Debt and Preferred Stock: ........... ..................13
Continued Credit Ratings:13
Credit Ratings Notifi cation:13
Restrictions on Upward Dividends and l3
Pension Funding:t4
43. Independent Directors:14
45. Olympus Equity LLC:l5
46. Restriction on Pledge of Utility Assets:.......... ....................16
47. Hold Harmless; Notice to Lenders; Restriction on Acquisitions and Dispositions:16
48. Olympus Holding Corp. and Olympus Equity LLC Sub-entities:1.7
49. No Amendment of Ring-Fencing Provisions:17
51. No Inter Company Lending:t7
F. Environmental, Renewable Energy, and Energy Efficiency Commitments.......................................18
52. Renewable Portfolio Standard Requirements:18
53. Renewable Energy Resources:.... ..................18
54. Greenhouse Gas and Carbon Initiatives:19
55. Cost of Greenhouse Gas Emissions:19
56. Greenhouse Gas Inventory Report:r9
57. Efficiency Goals and Objectives:.... ..............19
58. Optional Renewable Power Program:..................... ............19
59. Energy Imbalance Market ("EIM"):19
60. Regulatory Integrated Resource Planning (IRP) Sideboards:19
61. Industrial Customers' Self Direct Conservation:
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page2 of28
l9
G. Community and Low-Income Assistance Commitments.............. ...........20
62. Transport Electrification:
63. Professional Home Energy Audit:
76
77
78
79
80
8l
82
On Bill Repayment:
Notice and Petition for Re-Hearing:
..20
..20
..23
..23
..24
..24
..25
..26
..28
65. Low-Income Energy Effrciency Funding:..21
66. Low-Income Rate Assistance Program (LIRAP):....... ........21
67 . Funding for Low-Income Participation in New Renewables:. ..................21
68. Addressing Other Low-Income Customer Issues ..21
69. Replacement of Manufactured Homes:..21
71. Security Deposits:..22
72. AMI Consumer Protection:..23
73. Improve Penetration of Low-Income Programs:..23
74. Tribal Communities: ...............23
H. MiscellaneousCommitments
75. Sources of Funds for Hydro One Commitments:
Colstrip Depreciation:
. Montana Community Transition Fund: ........... ...................24
Colstrip Transmission Planning:
Contract Labor:
Most Favored Nations:
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page 3 of28
A. Reservation of Certain Authority to the Avista Board of Directors
Authoritv Reserved: Consistent with and subject to the terms of Exhibits A and
B to the Merger Agreement (referred to as "Delegation of Authority") containedin Appendix 5 of the Joint Application, decision-making authority over
commitments 2-15 below is reserved to the Board of Directors of Avista
Corporation ("Avista") and any change to the policies stated in commitments 2-
15 requires a two-thirds(213) vote of the Avista Board, provided that, except as
otherwise provided for in a specific commitment, Avista must obtain approval
for such changes from all regulatory bodies with jurisdiction over the
Commitments before such changes can go into effect, and provide written notice
to all parties to Docket U-170970 of such request for approval:
Governance
I
Executive Management: Avista will seek to retain all current executive
management of Avista, subject to voluntary retirements that may occur. This
commitment will not limit Avista's ability to determine its organizational
structure and select and retain personnel best able to meet Avista's needs over
time. The Avista board retains the ability to dismiss executive management of
Avista and other Avista personnel for standard corporate reasons. Any decision
to hire, dismiss or replace the Chief Executive Officer of Avista shall be within
the discretion of the Avista Board of Directors, and shall not require any
approval of Hydro One or any of its affiliates (other than Avista),
notwithstanding anything to the conffary in the merger agreement, and its
exhibits and attachments, between Hydro One and Avista.
Avista Employee Compensation: Any decisions regarding Avista employee
compensation shall 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 relevant U.S. electric and gas utility benchmarks. The
determination of the level 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.
Board of Directors: After the closing of the Proposed Transaction, Avista's
board will consist of nine (9) members, determined as follows: (i) two (2)
directors designated by Hydro One who are executives of Hydro One or any of
its subsidiaries; (ii) three (3) directors who meet the standards for "independent
directors" - under section 303,4..02 of the New York Stock Exchange Listed
Company Manual (the "Independent Directors") and who are residents of the
Pacific Northwest region, to be designated by Hydro One (collectively, the
2.
J
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page 4 of28
directors designated in clauses (i) and (ii) hereof, the "Hydro One Designees"),
subject to the provisions of Clause 2 of Exhibit A to the Merger Agreement; (iii)
three (3) directors who as of immediately prior to the closing of the Proposed
Transactionl are members of the Board of Directors of Avista, including the
Chairman of Avista's Board of Directors (if such person is different from the
Chief Executive Officer of Avista); and (iv) Avista's Chief Executive Officer
(collectively, the directors designated in clauses (iii) and (iv) hereof, the "Avista
Designees"). Avista and Hydro One shall consult with each other prior to the
designation of any Independent Directors. The initial Chairman of Avista's post-
closing Board of Directors shall be the Chief Executive Officer of Avista as of
the time immediately prior to closing for a one year term. If any Avista Designee
resigns, retires or otherwise ceases to serve as a director of Avista for any reason,
the remaining Avista Designees shall have the sole right to nominate a
replacement director to fill such vacancy, and such person shall thereafter
become an Avista Designee.
The term "Pacific Northwest region" means the Pacific Northwest states in which
Avista serves retail electric or natural gas customers, culrently Alaska, Idaho,
Montana, Oregon and Washington;
Business Operations
Avista's Brand and Plan for the Operation of the Business: Avista will
maintain Avista's brand and Avista will establish the plan for the operation of the
business and its Subsidiaries;
Capital Investment for Economic Development: Avista will maintain its
existing levels of capital allocations for capital investment in strategic and
economic development items, including property acquisitions in the university
district, support of local entrepreneurs and seed-stage investments;
Continued Innovation: Avista will continue development and funding of its
and its subsidiaries' innovation activities;
Union Relationships: Avista will honor its labor contracts and has the authority
to negotiate, enter into, modify, amend, terminate or agree to changes in any
collective bargaining agreement or any of Avista's other material contracts with
any labor organizations, union employees or their representatives;
Compensation and Benefits: Avista will maintain compensation and benefits
related practices consistent with the requirements of the Merger Agreement;
I "Proposed Transaction" means the transaction proposed in the Joint Application of Avista and Hydro One
filed on September 14,2017.
4.
5
6.
7
8
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page 5 of28
Local Presence/Community lnvolvement
Avista's Headquarters: Avista will maintain (a) its headquarters in Spokane,
Washington; (b) Avista's office locations in each of its other service territories,
and (c) no less of a significant presence in the immediate location of each of such
office locations than what Avista and its subsidiaries maintained immediately
prior to completion of the Proposed Transaction;
l0 Local Staffing: Avista will maintain Avista Utilities' staffing and presence in
the communities in which Avista operates at levels sufficient to maintain the
provision ofsafe and reliable service and cost-effective operations and consistent
with pre-acquisition levels;
11.Communitv Contributions: For five years after the close of the Proposed
Transaction, Avista will maintain a $4,000,000 annual budget for charitable
contributions (funded by both Avista and the Avista Foundation) and additionally
a $2,000,000 annual contribution will be made to Avista's charitable foundation.
No approval from any regulatory bodies with jurisdiction over the Commitments
is required for any changes to this commitment from and after the sixth year
following closing; however any such changes will continue to require a two-
thirds (213) vote of the Avista Board;2
12. Communitv Involvement: Avista will maintain at least Avista's existing levels
of community involvement and support initiatives in its service territories;
including involvement with tribes and low-income service agencies and support
initiatives;
13.Economic Development: Avista will maintain at least Avista's existing levels
of economic development, including the ability of Avista to spend operations and
maintenance funds3 to support regional economic development and related
strategic opportunities in a manner consistent with Avista's past practices;
14,Membershin Orsanizations: Avista will maintain the dues paid by it to various
industry trade groups and membership organizations; and
15 Safetv and Reliabilitv Standards and Service Oualitv Measures: Avista will
maintain Avista's safety and reliability standards and policies and service quality
measures in a manner that is substantially comparable to, or better than, those
currently maintained.
2 Note that Commitment 64 contains an additional commitment relating to charitable contributions; pursuant to
that commitment Hydro One will cause Avista to make a one-time contribution of $7,000,000 to Avista's
charitable foundation at or promptly following closing of the Proposed Transaction.
3 Operations and maintenance funds dedicated to economic development and non-utility strategic opportunities
will be recorded below-the-line to a nonoperating account.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page 6 of28
9
Avista will not seek to remove or reduce existing penalty provisions associated
with its safety, reliability, or service quality measures for l0 years after the
merger.
If the 5-year rolling average of SAIFI or SAIDI in Washington exceeds 107.5o/o
of the average of their respective scores from 2013 to 2017 (excluding Major
Event Days (MEDs), consistent with Avista's service quality program, tariff
schedule 85), Hydro One and Avista commit to increase the rate credit for
Washington electric customers by $250,000 per year. This increased rate credit
will persist until the 5-year rolling average is less than the threshold stated above.
B. Rate Commitments
16. Treatment of Net Cost Savines: Any net cost savings that Avista may achieve
as a result of the Proposed Transaction will be reflected in subsequent rate
proceedings, as such savings materialize. To the extent the savings are reflected
in base retail rates they will offset the Rate Credit to customers, up to the
offsetable portion of the Rate Credit.
17.Pre-Transaction Test Year: The parties agree to the following provisions for
ratemaking purposes.
a. If Avista files for a rate case between the conclusion of Dockets UE-170485
and UG-170486 and December 31, 2018, Avista will present a normalized
test year using the most recent I2-month period available.
b. If Avista files for a rate case between January 1,201.9, and April 30,2019,
Avista must use a normalized test year of October I,2017 - September 30,
201 8.
c. If Avista f,rles for a rate case between May l, 2019, and April 30, 2021,
Avista must present two normalized test years, (1) October l, 2017 -
September 30, 2018 for informational purposes, and (2) the most recent 12-
month period available.
18. 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 furnish the
Commission with journal entries and supporting 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
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
PageT of28
contemplated, as well as the accounts charged, within 120 days of a
Commission order in this docket.
b. 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; (vii) any other costs
directly related to the Proposed Transaction.
t9 Rate Credits: Avista and Hydro One are proposing to flow through to Avista's
retail customers in Washington a Rate Credit of approximately $30.7 milliona
over a 5-year period, beginning at the time the merger closes. For customers on
Schedule 25, the credit will be spread by allocating ll3 of the total Schedule 25
credit monies to the first two energy blocks and 213 of the total credit monies to
the third block.
The Total Rate Credit to customers for the five years following the closing will
be approximately $6.1 millions per year. A portion of the annual total Rate
Credit will be offsetable, in the amount of $1.02 million6. 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 $6.1 million benefit will be provided to
customers through a separate Rate Credit, as long as the reduction in costs (of up
to $1.02 million annually) has not already been reflected in base retail rates for
Avista's customers.
To the extent Avista demonstrates in a future rate proceeding that cost savings, or
benefits, directly related to the Proposed Transaction are already being flowed
through to customers through base retail rates, the separate Rate Credit to
4 The exact agreed-upon figure is $30,715,050, which is equal to 5% of the Washinglon base revenue as of
02101118. Washington electric base revenue is $492,134,000, and Washington natural gas base revenue
(including natural gas costs - Schedules 150/155) is $122,167,000. Five percent of those revenues are
$24,606,7 00 (electri c) and $6, I 08,3 5 0 (natural gas).
s The exact amount agreed upon is $6,143,010 per year. The annual Washington electric Rate Credit for each
of the five years is $4,921,340. The annual Washington natural gas Rate Credit for each of the five years is
$1,221,670.
6 The offsetable portion ofthe Rate Credit is calculated using a pro rata share ofthejurisdictional total ofthe
rate credit (i.e. Washington's share of the offsetable Rate Credit is 60.29yo, therefore Washington's share of
the $ 1 .7 million offsetable portion is $ I .02 million).
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page 8 of28
customers would be reduced by an amount up to the offsetable Rate Credit
amount. The portion of the total Rate Credit that is not offsetable effectively
represents acceptance by Hydro One of a lower rate of return during the 5-year
period.
The $30.7 million represents the "floor" of benefits that will be flowed through
to Avista's customers, either through the Rate Credit or through benefits
otherwise included in base retail rates. To the extent the identifiable benefits
exceed the annual offsetable Rate Credit amounts, these additional benefits will
be flowed through to customers in base retail rates in general rate cases as they
occur. Avista and Hydro One believe additional efficiencies (benefits) will be
realized over time from the sharing of best practices, technology and innovation
between the two companies. It will take time, however, to identify and capture
these benefits. The level of annual net cost savings (and/or net benefits) will be
tracked and reported on an annual basis, and compared against the offsetable
level of savings.
Any application of offsetable savings will be reviewed by the Commission before
the offset is applied, and Avista bears the burden of proof to prove that savings
have materialized and the offset to rate credits should apply.
C. Regulatory Commitments
20. State Resulatorv Authoritv and Jurisdiction: Olympus Holding Corp. and its
subsidiaries, including Avista, as appropriate, will comply with all applicable
laws, including those pertaining to transfers of property (Chapter 80.12),
affiliated interests (Chapter 80.16), and securities and the assumption of
obligations and liabilities (Chapter 80.08).
2t Compliance with Existine Commission Orders: Olympus Holding Corp. 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., will remain in effect, and are not modified or otherwise affected by
the Proposed Transaction.
Olympus Holding Corp. and its subsidiaries, including Avista, will comply with
all applicable future Commission orders that remain in force.
Separate Books and Records: Avista will maintain separate books and records
from its affiliates.
Access to and Maintenance of Books and Records: 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.
22.
23.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page 9 of28
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.
The Proposed Transaction will not result in reduced access to the necessary
books and records that relate to transactions with Avista, or that result in costs
that may be allocable to Avista. Avista will provide Commission Staff and other
parties to regulatory proceedings reasonable access to books and records
(including those of Olympus Holding Corp. or any affiliate or subsidiary
companies) required to verify or examine transactions with Avista, or that result
in costs that may be allocable to Avista.
Nothing in the Proposed Transaction will limit or affect the Commission's rights
with respect to inspection of Avista's accounts, books, papers and documents in
compliance with all applicable laws. Nothing in the Proposed Transaction will
limit or affect the Commission's rights with respect to inspection of Olympus
Holding Corp.'s accounts, books, papers and documents pursuant to all
applicable laws; provided, that such right to inspection shall be limited to
Olympus Holding Corp.'s accounts, books, papers and documents that pertain
solely to transactions affecting Avista's regulated utility operations.
Olympus Holding Corp. and its subsidiaries, including Avista, will provide the
Commission with access to written information provided by and to credit rating
agencies that pertains to Avista. Olympus Holding Corp. and each of its
subsidiaries will also provide the Commission with access to written information
provided by and to credit rating agencies that pertains to Olympus Holding
Corp.'s subsidiaries to the extent such information may affect Avista.
Hydro One and its affiliates agree that the Commission may have access to all
the accounting records of Hydro One and its affiliates that are the bases for
charges to Avista, to determine the reasonableness of the costs and the allocation
factors used by Hydro One and its affiliates, or its subdivisions to assign costs to
Avista and amounts subject to allocation or direct charges. Hydro One and its
affiliates agree that they will not raise lack of jurisdiction as a means of denying
such access, and agree to cooperate fully with such Commission investigations.
Cost Allocations Related to Corporate Structure and Affiliate Interests:
Avista agrees to provide cost allocation methodologies used to allocate to Avista
any costs related to Olympus Holding Corp. or its other subsidiaries, ffid
commits that there will be no cross-subsidization by Avista customers of
unregulated activities.
The cost-allocation methodology provided pursuant to this commitment will be a
generic methodology that does not require Commission approval prior to it being
proposed for specific application in a general rate case or other proceeding
affecting rates.
24
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page l0 of28
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 Olympus Holding Corp. or its 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 Olympus
Holding Corp or its other subsidiaries.
With respect to the ratemaking treatment of affiliate transactions affecting
Avista, Hydro One, and Olympus Holding Corp. and its subsidiaries, as
applicable, will comply with the Commission's then-existing practice; provided,
however, that nothing in this commitment limits Avista from also proposing a
different ratemaking treatment for the Commission's consideration, or limit the
positions any other party may take with respect to ratemaking treatment.
Avista will notify the Commission of any change in corporate structure that
affects Avista's corporate and affiliate cost allocation methodologies. Avista will
propose revisions to such cost allocation methodologies to accommodate such
changes. Avista will not take the position that compliance with this provision
constitutes approval by the Commission of a particular methodology for
corporate and affiliate cost allocation.
Ratemakine Cost of Debt and Equitv: 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.
For future ratemaking purposes:
a. Determination of Avista's debt costs will be no higher than such costs would
have been assuming Avista's credit ratings by at least one industry
recognized rating agency, including, but not limited to, S&P, Moody's, Fitch
or Momingstar, as such ratings in effect on the day before the Proposed
Transaction closes and applying those credit ratings to then-current debt,
unless Avista proves that a lower credit rating is caused by circumstances or
developments not the result of financial risks or other characteristics of the
Proposed Transaction;
b. Avista bears the burden to prove prudent in a future general rate case any pre-
payment premium or increased cost of debt associated with existing Avista
debt retired, repaid, or replaced as a part ofthe Proposed Transaction; and
c. Determination of the allowed return on equity in future general rate cases will
include selection and use of one or more proxy group(s) of companies
engaged in businesses substantially similar to Avista, without any limitation
related to Avista's ownership structure.
Avista Capital Structure: At all times following the closing of the Proposed
Transaction, Avista's actual common equity ratio will be maintained at a level no
25
26.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page ll of28
less than 44 percent. This commitrnent does not restrict the Commission from
ordering a hypothetical capital structure.
FERC Reportins Requirements: Avista will continue to meet all the
applicable FERC reporting requirements with respect to annual and quarterly
reports (e.g., FERC Forms 1,2,3q) after closing of the Proposed Transaction.
Participation in National and Resional Forums: Avista will continue to
participate, where appropriate, in national and regional forums regarding
transmission issues, pricing policies, siting requirements, and interconnection and
integration policies, when necessary to protect the interest of its customers.
Treatment of Confidential Information: Nothing in these commitments will
be interpreted as a waiver of Hydro One's, its subsidiaries', or Avista's rights to
request confidential treatment of information that is the subject of any of these
commitments.
Commission Enforcement of Commitments: Hydro One and its subsidiaries,
including Avista, understand and agree that the Commission has authority to
enforce these commitments in accordance with their terms. If there is a violation
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 Commission to
compel the attendance of witnesses from Olympus Holding Corp. and its
affiliates, including Hydro One, with pertinent information on matters affecting
Avista. Hydro One, Olympus Holding Corp. and its subsidiaries waive their
rights to interpose any legal objection they might otherwise have to the
Commission's jurisdiction to require the appearance of any such witnesses.
Submittal to State Court Jurisdiction for Enforcement of Commission
Orders: Hydro One, on behalf of itself and its subsidiaries in the post-close
corporate structure between Hydro One and Avista (as those companies in
between may change over time), and Avista will file with the Commission prior
to closing the Proposed Transaction an affidavit affirming that they will submit
to the jurisdiction of Washington courts for enforcement of the Commission's
orders adopting these commitments and subsequent orders affecting Avista, and
will agree to the application of Washington law with respect to such matters.
Annual Report on Commitments: By May 1,2019 and each May I thereafter
through May 1, 2029, 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 Docket U-I70970 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
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page 12 of28
28
27.
29
30
31
32.
corrective measures and target dates for completion of such measures. Avista
will make publicly available at the Commission non-confidential portions of the
report.
Commitments Bindins: Hydro One, its subsidiaries in the post-close corporate
structure between Hydro One and Avista (as those companies in between may
change over time) and Avista, acknowledge that the commitments being made by
them are fully binding upon them and their successors in interest and upon their
affiliates where specifically noted. Hydro One and Avista are not requesting in
this proceeding a determination of the prudence, just and reasonable character,
rate or ratemaking treatment, or public interest of the investments, expenditures
or actions referenced in the commitments, and the parties in appropriate
proceedings may take such positions regarding the prudence, just and reasonable
character, rate or ratemaking treatment, or public interest of the investments,
expenditures or actions as they deem appropriate.
If Hydro One or any other entity in the chain of Avista's ownership determines
that Avista or any other entity has failed to comply with an applicable
Commitment, the entity making such determinations shall take all appropriate
actions to achieve compliance with the Commitment.
D. Financial Integrity Commitments
Capital Structure Support: Hydro One will provide equity to support Avista's
capital structure that is designed to allow Avista access to debt financing under
reasonable terms and on a sustainable basis.
35 Utilitv-Level Debt and Preferred Stock: Avista will maintain separate debt
and preferred stock, if any, to support its utility operations.
36.Continued Credit Ratinss: Each of Hydro One and Avista will continue to be
rated by at least one nationally recognized statistical "Rating Agency." Hydro
One and Avista will use reasonable best efforts to obtain and maintain a separate
credit rating for Avista from at least one Rating Agency within the ninety (90)
days following the closing of the Proposed Transaction. If Hydro One and Avista
are unable to obtain or maintain the separate rating for Avista, they will make a
filing with the Commission explaining the basis for their failure to obtain or
maintain such separate credit rating for Avista, and parties to this proceeding will
have an opportunity to participate and propose additional commitments.
37 Credit Ratines Notification: Hydro One and Avista agree to notify the
Commission within two business days of any downgrade of Avista's credit rating
to a non-investment grade status by S&P, Moody's, or any other such ratings
agency that issues such ratings with respect to Avista.
38. Restrictions on Upward Dividends and Distributions:
JJ
34.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page l3 of28
40.
a. If either (i) Avista's corporate credit/issuer rating as determined by both
Moody's and S&P, or their successors, is investment grade, or (ii) the ratio of
Avista's EBITDA to Avista's interest expense is greater than or equal to 3.0,
then distributions from Avista to Olympus Equity LLC shall not be limited so
long as Avista's equity ratio is equal to or greater than 44 percent on the date
of such Avista distribution after giving effect to such Avista distribution,
except to the extent the Commission establishes a lower equity ratio for
ratemaking purposes. Both the EBITDA and equity ratio shall be calculated
on the same basis that such calculations would be made for ratemaking
purposes for regulated utility operations.
b. Under any other circumstances, distributions from Avista to Olympus Equity
LLC are allowed only with prior Commission approval.
c. If Avista does not have an investment-grade rating from both Moody's and
S&P, or from one of these entities, or its successor, if only one issues ratings
with respect to Avista, and the ratio of EBITDA to Avista's interest expense
is less than 3.0, no dividend distribution to Olympus Equity LLC or its
successors will occur.
Pension Fundins: Avista will maintain its pension funding policy in accordance
with sound actuarial practice. Hydro One will not seek to change Avista's
pension funding policy.
SEC Reportins Requirements: Following the closing of the Proposed
Transaction, Avista will file required reports with the SEC.
Comnliance with the Sarbanes-Oxlev Act: Following the closing of the
Proposed Transaction, Avista will comply with applicable requirements of the
Sarbanes-Oxley Act.
E. Ring-Fencing Commitments
Golden Share: Entering into voluntary bankruptcy shall require the affirmative
vote of a "Golden Share" of Avista stock. The Golden Share shallmean the sole
share of Preferred Stock of Avista as authorized by the Commission. This share
of Preferred Stock must be in the custody of an independent third-party, where
the third-party has no financial stake, affiliation, relationship, interest, or tie to
Avista or any of its aff,rliates, or any lender to Avista, or any of its affiliates. This
requirement does not preclude the third-party from holding an index fund or
mutual fund with negligible interests in Avista or any of its affiliates. ln matters
of voluntary bankruptcy, this Golden Share will override all other outstanding
shares ofall types or classes ofstock.
Independent Directors: At least one of the nine members of the board of
directors of Avista will be an Independent Director who, consistent with
Commitment 3, meets the standards under 303A-02 of the New York Stock
Exchange Listed Company Manual. At least one of the members of the board of
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41.
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42.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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directors of Olympus Equity LLC will be an lndependent Director who,
consistent with Commitrnent 3, meets the standards under 303A.02 of the New
York Stock Exchange Listed Company Manual. The same individual may serve
as an independent director of both Avista and Olympus Equity LLC. The
orgarizational documents for Avista will not permit Avista, without the consent
of a two-thirds majority of all its directors, including the affirmative vote of the
independent director at Avista (or if at that time Avista has more than one
independent director, the affirmative vote of at least one of Avista's independent
directors), to consent to the institution of bankruptcy proceedings or the inclusion
of Avista in bankruptcy proceedings. In addition to an affirmative vote of this
independent director, the vote of the Golden Share shall also be required for
Avista to enter into a voluntary bankruptcy.
44. Non-ConsolidationOpinion:
a. Within ninety (90) days of the Proposed Transaction closing, Avista and
Olympus Holding Corp. will file a non-consolidation opinion with the
Commission which concludes, subject to customary assumptions and
exceptions, that the ring-fencing provisions are sufficient that a bankruptcy
court would not order the substantive consolidation of the assets and
liabilities of Avista with those of Olympus Holding Corp. or its affiliates or
subsidiaries (other than Avista and its subsidiaries).
b. Hydro One and Olympus Holding Corp. must file an affidavit with the
Commission stating that neither Hydro One, Olympus Holding Corp. nor any
of their subsidiaries, will seek to include Avista in a bankruptcy without the
consent of a two-thirds majority of Avista's board of directors including the
affirmative vote of Avista's independent director, or, if at that time Avista
has more than one independent director, the affirmative vote of at least one of
Avista's independent directors.
c. If the ring-fencing provisions in these commitrnents are not sufficient to
obtain a non-consolidation opinion, Olympus Holding Corp. and Avista agree
to promptly undertake the following actions:
Notify the Commission of this inability to obtain a non-consolidation
opinion.
Propose and implement, upon Commission approval, such additional
ring-fencing provisions around Avista as are sufficient to obtain a
non-consolidation opinion subject to customary assumptions and
exceptions.
iii. Obtain a non-consolidation opinion.
45.Olvmpus Equitv LLC: Olympus Holding Corp.'s indirect subsidiaries will
include Olympus Equity LLC and Avista. See the post-acquisition organizational
chart in Appendix B to the Settlement Stipulation. Following closing of the
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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l.
ll.
Proposed Transaction, all of the common stock of Avista will be owned by
Olympus Equity LLC, a new Delaware limited liability company. Olympus
Equity LLC will be a bankruptcy-remote special purpose entity, and will not
have debt.
46.Restriction on Pledge of Utilitv Assets: Avista agrees to prohibitions against
loans or pledges of utility assets to Hydro One, Olympus Holding Co.p., or any
of their subsidiaries or affiliates, without Commission approval. In addition, the
Applicants agree that Avista's assets will not be pledged by Avista or any of its
affiliates, including Hydro One and Olympus Holding Corp. and any of their
subsidiaries or affiliates, for the benefit of any entity other than Avista.
47. Hold Harmless: Notice to Lenders; Restriction on Acquisitions and
Dispositions:
a. Avista will hold Avista customers harmless from any business and financial
risk exposures associated with Olympus Holding Corp., Hydro One, and
Hydro One's other affiliates.
b. Pursuant to this commitment, Avista and Olympus Holding Corp. will file
with the Commission, prior to closing of the Proposed Transaction, a form of
notice to prospective lenders describing the ring-fencing provisions included
in these commitments stating that these provisions provide no recourse to
Avista assets as collateral or security for debt issued by Hydro One or any of
its subsidiaries, other than Avista.
Avista commits 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.
ll.Olympus Holding Corp. and Avista will notifu the Commission
subsequent to Olympus Holding Corp.'s board approval and as soon
as practicable following any public announcement of: (1) any
acquisition by Olympus Holding Corp. of a regulated or unregulated
business that is equivalent to five (5) percent or more of the
capitalization of Avista; or (2) any change in control or ownership of
Avista, except that the notice of a change to the upsfieam ownershipof Avista or Olympus Holding Corp. among wholly owned
subsidiaries of Hydro One may be provided in either an updated
organizational chart included in the annual report filing described in
l.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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c. ln furtherance of this commitment:
Commitment 32 or in a separate notice filing. Notice pursuant to this
provision is not and will not be deemed an admission or expansion of
the Commission's authority or jurisdiction over any transaction or in
any matter or proceeding whatsoever.
Within sixty (60) days following the notice required by this
subsection (c)(ii)(2), Avista and Olympus Holding Corp. or its
affiliates, as appropriate, will seek Commission approval of any sale
or transfer of any material part of Avista, or of any transaction or
series of transactions, regardless of size, that would result in a person
or entity, other than a wholly owned subsidiary of Hydro One,
directly or indirectly, acquiring a controlling interest in Avista or
Olympus Holding Corp. The term "material part of Avista" means
any sale or transfer of stock representing ten percent (10%) or more of
the equity ownership of Avista.
lll.Neither Avista nor Olympus Holding Corp. will assert in any future
proceedings that, by vinue of the Proposed Transaction and the
resulting corporate structure, the Commission is without jurisdiction
over any transaction that results in a change of control of Avista.
Olvmpus Holdins Corp. and Olvmpus Equitv LLC Sub-entities: Olympus
Holding Corp. will not operate or own any business and will limit its activities to
investing in and attending to its shareholdings in Olympus Equity LLC, which, in
turn, will not operate or own any business and will limit its activities to investing
in and attending to its shareholdings in Avista.
No Amendment of Ring-Fencins Provisions: Hydro One, Olympus Holding
Corp. and Avista commit that no material amendments, revisions or
modifications will be made to the ring-fencing provisions as specified in these
regulatory commitments without prior Commission approval pursuant to a
limited re-opener for the sole purpose of addressing the ring-fencing provisions.
No Inter Companv Debt: Avista will notify the Commission before entering
into any inter-company debt transactions with Olympus Holding Co.p., Hydro
One, or any of their subsidiaries or affiliates.
No Inter Companv Lending: Without prior Commission approval, Avista will
not lend money to Olympus Holding Co.p., Hydro One, or any of their
subsidiaries or affi liates.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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d. If and when any subsidiary of Avista becomes a subsidiary of Hydro One or
one of its subsidiaries other than Avista, Avista will so advise the
Commission within thirty (30) days and will submit to the Commission a
written document setting forth Avista's proposed corporate and affiliate cost
allocation methodologies.
F. Environmental, Renewable Energy, and Energy Efficiency Commitments
Renewable Portfolio Standard Requirements: Hydro One acknowledges
Avista's obligations under applicable renewable portfolio standards, and Avista
will continue to comply with such obligations.
Avista will acquire all renewable energy resources required by law and such
other renewable energy resources as may from time to time be deemed advisable
in accordance with Avista's integrated resource planning ("IRI"'; process and
applicable regulations.
53. Renewable Enerw Resources:
Avista's non-fossil fueled generation resources constitute more than 50% of its
generation portfolio, and Avista exceeds the renewable energy standards
currently applicable to the company under RCW 19.285.040(2).
Avista makes the following renewable energy commitments. Both commitments
are made only to the extent resources are reasonably commercially available and
are (1) necessary to meet load and (2) consistent with the lowest reasonable cost
resource portfolio pursuant to Avista's established IRP and pursuant to the
Commission's resource evaluation and acquisition rules and policies.
a. Avista will commit to initiating a Request for Proposal with the intent of
acquiring additional eligible renewable energy resources as part of this
process above and beyond the current renewable energy standards in law.
Avista will commit to obtain approximately 50 aMW of expected energy
from new eligible renewable resources by 2022. The aMW obtained under
this commitment may be used to satisfy any increase that may be caused by
changes to the renewable energy standards in law after the date an Order
approving this merger has been entered.
b. Avista will commit to obtain at least 90 aMW of expected energy from new
eligible renewables resources to become operational approximately within a
year of the timeframe that Colstrip 3 and 4 go offline.
"Resources" is understood to include Power Purchase Agreements ("PPAs").
Nothing in either commitment prohibits Avista from retaining or selling
renewable energy credits associated with such resources that are surplus to
Avista's needs to meet Washington Renewable Portfolio Standards targets.
Communications with customers shall accurately reflect the environmental
attributes associated with power delivered to such customers. Hydro One and
Avista acknowledge that Avista retains the burden of proof to demonstrate the
prudence of any resource acquisition.
The utility should work with an independent third-party consultant, with
expertise in renewable energy resources, to ensure that the utility has up-to-date
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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52.
resource cost and performance assumptions, as well as the appropriate learning
curves
Greenhouse Gas and Carbon Initiatives: Hydro One acknowledges Avista's
Greenhouse Gas and Carbon Initiatives contained in its current lntegrated
Resource Plan, and Avista will continue to work with interested parties on such
initiatives.
Cost of Greenhouse Gas Emissions: Unless it conflicts with any instructions
contained in the Commission's acknowledgement letter in response to Avista's
current integrated resource plan (IRP), beginning with the next IRP, Avista
commits to modeling a range of potential costs for greenhouse gas emissions, and
will work with its IRP Advisory Group to determine the appropriate values to
model.
Greenhouse Gas Inventorv Report: Avista will report greenhouse gas
emissions as required.
Efficiencv Goals and Obiectives: Hydro One acknowledges Avista's energy
efficiency goals and objectives set forth in Avista's 2017 Integrated Resource
Plan and other plans, and Avista will continue its ongoing collaborative efforts to
expand and enhance them.
Optional Renewable Power Program: Avista will continue to offer renewable
power programs in consultation with stakeholders.
Enersy Imbalance Market ('6EIM"): Avista is currently refreshing its EIM
analysis and will release it publicly by the end of 2018. Avista commits to hold
workshops with the Commission and interested stakeholders to review the
analysis and discuss the prudent next steps.
Resulatorv Integrated Resource Plannine flRP) Sideboards: Avista commits
to calculating a variable generation resource's contribution to capacity in terms
of that resource's contribution to resource adequacy and that resource's ability to
reduce the loss of load probability in some or all hours or days utilizing the
Effective Load Carrying Capability ("ELCC") methodology or an appropriate
approximation.
Industrial Customers' Self Direct Conservation: Avista shall provide a one-
time self-direct option for a large conservation project. The project shall have a
capital cost of at least $15 million but no more than $30 million and must be
commenced within five years of closing of the merger. After applying available
incentive funding through Avista's Schedule 91, Avista shall finance the
remaining capital cost of the project. The customer that pursues the conservation
project shall repay the financed portion of the project, including a carrying
charge equal to Avista's rate of return, through its Schedule 91 charges until full
amortization. ln the event that the customer defaults or ceases operations prior to
full amortization of the Avista-financed amount, the remaining balance will be
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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54.
55.
56
57
58
59
60
61.
recovered through Schedule 25 contributions to Schedule 9l until such time as
the remaining balance is fully amortized. No other customers will be impacted
financially from this commitment and all customers will benefit from the
increased energy efficiency acquisition.
62.Transnort Electrification: Avista commits and Hydro One agrees that Avista
commits, to expanding access to transportation electrification for all customers.
As part of the long-term electric vehicle supply equipment (EVSE) program that
Avista is developing following the completion of its pilot under UE-l60082, the
Joint Applicants commit to setting internal goals and objectives for Avista, in
coordination with the Joint Utility Electric Vehicle Stakeholder Group, that do
the following:
Significantly increase outreach and education to customers about the
benefits of electric vehicle ownership and use.
Ensure engagement with low-income customers and organizations that
serve low-income customers fully enables participation by these
customers and addresses historical issues of participation.
Significantly increase EVSE program components that serve and benefit
low-income residential customers, with a goal of 30% of residential
program funds being dedicated to projects that serve low-income
customers.
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Overcome barriers for EVSE siting with small business customers
Implement incentives that minimize or fully eliminate the cost of EVSE
for customers.
Professional Home Energv Audit: Avista commits to provide home energy
audits to 2,000 homes at $300 per home, over a l0-year period, in Washington.
Hydro One will arrange total funding of $600,000 for this commitment. With
more robust data available after the installation of AMI, Hydro One and Avista
agree to revisit this commitment to determine if the number of homes served
could be expanded.
G. Community and Low-Income Assistance Commitments
Communitv Contributions: Hydro One will cause Avista to make a one-time
$7,000,000 contribution to Avista's charitable foundation at or promptly
following closing.T
7 Note that Commitment I I contains additional provisions relating to Avista's charitable contributions.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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64.
Low-Income Enerw Efficiencv Fundins: Avista will continue to work with its
advisory groups on the appropriate level of funding for low income energy
efficiency programs.
Low-Income Rate Assistance Prosram (LIRAP): Hydro One and Avista
commit to continue Avista's LIRAP and related pilot programs.
Fundins for Low-Income Participation in New Renewables: Hydro One will
arrange funding totaling $5,000,000 over a period of up to ten (10) years for the
purpose of funding one or more renewable generation project(s) to benefit
Avista's low-income customers. The types of projects that may be funded
include, but are not limited to, on site renewable energy installations such as
photovoltaic equipment, community solar projects, and other renewable energy
equipment, in which the benefits will be directed to Avista's low-income
customers. The funds will be paid into a separate account to be managed and
disbursed by Avista at the direction of its Energy Assistance Advisory Group
(which includes third-party advisors such as The Energy Project, Public Counsel,
Commission Staff, and low-income agencies as well as Avista). The Energy
Assistance Advisory Group will determine the project selection (which includes
design and implementation). Eligible costs may include project construction,
consulting costs, and reasonable administration costs required for the
coordination of renewable energy projects.
Funding will be made available for eligible projects as they are identified and
approved by the Advisory Committee throughout the l0 year timeframe of the
commitments; provided, however, that funding will be made available, at a
minimum, on a pro rata basis over the period (i.e., one-tenth of the total each
year), but need not occur any more frequently than on a pro rata basis over the 10
year period. Funding commitments may be made at any time during the 10 year
period.
For example, if no funding is approved by the Advisory Committee until the
third year of the lO-year period, up to $1.5 million for Commitment 67 must be
made available in the third year. Nothing in this provision shall be interpreted to
preclude payment of funding in installments over time for large projects that are
approved early in the l0-year period. For example, a $5 million project could be
approved in Year 3 under Commitment 67 with $1.5 million due in Year 3 and
$0.5 million per year due each year for the next seven years, assuming no
funding had been made available under Commitment 67 in Year 1 or Year 2.
Avista will continue to
work with low-income agencies to address other issues of low-income customers,
including funding for bill payment assistance.
Replacement of Manufactured Homes: Hydro One will affange funding of
$2,000,000 over a lO-year period in Washington to replace manufactured homes.
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Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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68.
69.
At least half of the funds must be spent in the first five years. The demand side
management ("DSM") advisory group and Avista will work together to design
the program, and Avista will begin implementing the program within six months
of the date that the Proposed Transaction closes. The program will prioritize
replacement of homes manufactured before 1976.
To the extent any funds are not used over the l0-year period, these funds will be
redirected for additional funding for low-income weatheization programs.
Low Income Weatherization: Avista commits and Hydro One agrees that
Avista commits, to continue Avista's existing weatherization programs,
described in Schedules 90 and 190.
Hydro One will arange funding of $4,000,000 over 10 years to fund low income
weatherization in Washington. This funding is over and above existing funding
for low-income weathe rization.
For both existing funding and the new Hydro One funding, 20 percent of the
funds may be used for "direct" project coordination costs and l0 percent for
"indirect" general overhead costs of administering the weatherization program.
Funding will be made available for eligible projects as they are identified and
approved by the energy efficiency Advisory Committee throughout the l0 year
timeframe of the commitments; provided, however, that funding will be made
available, at a minimum, on a pro rata basis over the period (i.e., one-tenth of the
total each year), but need not occur any more frequently than on a pro rata basis
over the l0 year period. Funding commitments may be made at any time during
the l0 year period.
For example, if no funding is approved by the energy efficiency Advisory
Committee until the third year of the l0-year period, up to $1.2 million for
Commitment 70 must be made available in the third year. Nothing in this
provision shall be interpreted to preclude payment of funding in installments
over time for large projects that are approved early in the lO-year period. For
example, a $4 million project could be approved in Year 3 under Commitment
70 with $1.2 million due in Year 3 and $400,000 per year due each year for the
next seven years, assuming no funding had been made available under
Commitment 70 in Year I or Year 2.
Securitv Deposits: Avista commits and Hydro One agrees that Avista commits
to eliminate security deposits for new Avista residential customers and to return
existing security deposits to customers who have a deposit held longer than 6
months. After two years from Commission approval of the Proposed Transaction,
any party may request the Commission to modify or remove this commitment if
it determines that application of this commitment has an unreasonable impact on
Avista's uncollectible debt.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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72 AMI Consumer Protection: Avista commits and Hydro One agrees that Avista
commits to discussing implementation of prepayment billing and remote
disconnect at the Commission's upcoming AMI workshops, and agree not to
implement prepayment until authorized by the Commission after conclusion of
the AMI workshop, and related AMI dockets. Avista agrees to track the benefits
of remote disconnection/reconnection identified in its AMI business case,
starting with the AMI technology data collected from customers already
equipped with an AMI meter. tn addition, Avista commits that, it will not
remotely disconnect customers for non-payment when the National Weather
Service for that particular region has forecasted a daily high temperature of 38
degrees or less or a daily high temperature of 100 degrees or more. If, however,
the Commission adopts a rule prescribing a temperature threshold for remote
disconnection that is inconsistent with this commitment, the rule will supersede
this commitment.
73 Improve Penetration of Low-Income Prosrams: Hydro One and Avista will
undertake a targeted effort with a goal of improving the penetration rate of low-
income programs with a focus on underserved, wlnerable, and high energy
burden households. This commitnent will include expanding marketing,
outreach, and data analysis.
Tribal Communities: In implementing these conditions, Avista will reach outto tribal communities to encourage participation of members of such
communities in receiving the benefits of this settlement.
H. Miscellaneous Commitments
75. Sources of Funds for Hvdro One Commitments: Throughout this list of
merger commitments, any commitment that states Hydro One will affange
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 the time period specified and for the purposes specified. To the
extent Avista has retained eamings that are available for payment of dividends to
Olympus Equity LLC consistent with the ring fencing provisions of this list of
merger commitments, such retained eamings may be used. Funds available from
other Hydro One affiliates may be used without limitation. Avista will not seek
cost recovery for any of the commitments funded or arranged by Hydro One in
this list of merger commitments. Hydro One will not seek cost recovery for such
funds from ratepayers in Ontario.
76.Colstrip Depreciation: Hydro One and Avista agree to a depreciation schedule
for Colstrip Units 3 and 4 that assumes a remaining useful life of those units
through December 31, 2027. Existing undepreciated balance ($114.2 Million)
will be recovered as follows:
$16.7 Million - unprotected Excess DFIT/Deferral of January - April
2018 tax credit.
74.
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Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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a $45.3 Million - though an annual depreciation expense of approximately
$4.533 million (WA Share), which is the current level of annual
depreciation expense presently being recovered from ratepayers (i.e., no
increase to rates)
$52.2 Million - regulatory asset offset by the amortization of protected
Excess DFIT, i.e. over 36 years
See Attachment A to Appendix A (Master List of Commitments in Washington)
to the Settlement Stipulation, "Colstrip Commitment Summary and Description",
which is incorporated herein by reference.
Montana Communitv Transition Fund: Hydro One and Avista will arrange
funding of $3.0 Million towards a Colstrip community transition fund.
This commitment is not intended as a "cap" of the amount that Avista/Hydro One
may ultimately contribute to help the Colstrip community transition from coal-
fired generation.
Colstrip Transmission Plannins: Avista will work with the other Path 8 (MT-
to-NW) owners (Northwestem Energy and BPA) to resolve questions
surrounding the ability of new generation to use the Colstrip line once Colstrip
Units I and 2 retire, and also when Units 3 and 4 retire.
At least one year prior to any closure of Colstrip Units 3 and 4, Avista will
develop a transition plan for its Colstrip transmission assets. Avista will hold at
least one workshop with Commission Staff and stakeholders to determine the
transition plan's impacts to Washington ratepayers.
Avista will work with stakeholders and Commission Staff and file this transition
plan with the Commission. In developing this transition plan, to the extent
practicable, Avista should participate in 1) the workshops on this topic that PSE
and the Commission will be holding in 2018 (per the PSE GRC settlement), and
2) the BPA/Govemor Bullock Transmission Task Force that commenced work
on December 8,2017, and will work through the middle of 2018.
Hydro One agrees Avista will conduct the activities described in the foregoing
paragraphs.
On Bill Repavment: Hydro One will arrange funding of the approximately
$100,000 initial investment in software upgrades and $5,000 in administrative
costs. The option for repayment of the customer's share of the cost of a
replacement manufactured home (funded by third-party financial institutions)
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Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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will be included in the OBRP.8 Under no circumstance, will the ratepayer
population be responsible for any default related to the OBRP.
80. Contract Labor:
a. On a prospective basis, and for a period of 10 years ending March 7,2028,
Avista will require the use of WNIDCL members for the tlpe of work that is
ordinarily and customarily performed by WNIDCL on natural gas
replacement and all natural gas work. This will not apply to work performed
under contracts already in effect as of March 7,2018. This agreement will
not apply to (a) atmospheric corrosion; (b) locating; and (c) leak survey. This
agreement will also not apply to work performed where signatory contractors
are not available (unavailability is typically due to locations being in remote
areas), or choose not to bid on projects; provided that work performed in such
areas will be paid at equivalent wages and benefits.
b. On a prospective basis, and for a period of l0 years ending March 7, 2028,
Avista will require the use of WNIDCL members for all flagging work,
unless otherwise performed by Avista employees represented by IBEW Local
77. This will not apply to work performed under contracts already in effect as
of March 7,2018.
c. WNIDCL will provide for signatory contractors laborers that are qualified
pursuant to applicable OSHA l9l0 regulations and all other applicable
training. In addition, WNIDCL will provide WNIDCL members
knowledgeable in the DOT Title 49 Code of Federal Regulations,Part 192,
and all applicable state pipeline safety regulations. Contractors shall be
required to provide proof of compliance with this requirement to Avista.
d. On a prospective basis, Avista will require contractors to utilize NWLETT
for required training, if applicable courses are offered by NWLETT and are
reasonably accessible in the locality where the work is to be performed.
8 OBRP is a pass-through billing service for energy efficiency loans, where Avista would collect loan
payments on customers' bills then transmit the sum monthly to the third-party lender. Only non-profit lenders
would be eligible, offering low rates for energy efficiency loans. The lender has no ability to shut off power
(due to non-payment) and all lending activity is managed separate from the utility, where the lender:
o Provides all capital, bears full risk
o Manages delinquent files and collections off-bill
o Handles loans/balances separate from utility financial systems
o Meets consumer lending regulatory requirements.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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e. Avista will meet and confer with WNIDCL to discuss possible involvement
in all future hydroelectric projects that are within the sphere of WNIDCL's
expertise.
f. Avista will encourage contractors to utilize union labor, including, without
limitation and as applicable, members of the Laborers', Pipefitters and
Steamfitters, and IBEW, on Avista projects as part of its bidding solicitation
process on all other construction work, including but not limited to capital
work on hydro facilities, and will evaluate the use of such members in the
staffing plans of bidding contractors as an element of Avista's bid evaluation
process.
g. Avista will continue to prioritize the hiring of qualified contractor personnel
through the bidding process, by requiring analysis of not only the price
proposals submitted by contractors, but a variety of other factors, including
minimum staffing requirements as applicable, training programs, documented
qualification programs, safety track records, OSHA 300 reportables, and
other safety records as appropriate. Review of these components is intended
to verify that the contractor is able to supply a sufficient workforce to meet
Avista's needs, and that their personnel are appropriately trained, qualified
and able to safely and reliably perform work for Avista.
h. Work covered by these commitments does not include work that is
customarily performed by Avista employees represented by IBEW Local TT
but that is contracted out pursuant to IBEW Local 77's collective bargaining
agreement with Avista. It also does not include any work that is performed
by Avista employees, regardless of the type of work involved.
i. Avista will meet and confer with WNIDCL at least six months prior to March
7 ,2028 to discuss extending or modifying the terms set forth herein.
Most Favored Nations: The Applicants agree that upon the joint request of the
Non-Applicant Parties, or a request of less than all Non-Applicant Parties which
is unopposed by any Non-Applicant, the Commission shall have an opportunity
and the authority to consider and adopt in Washington any commitments to
which the Applicants agree in other jurisdictions, even if such commitments are
agreed to after the Commission enters its order in this docket. To facilitate the
Commission's consideration and adoption of the commitments from other
jurisdictions, the Parties recommend that the Commission issue an order
accepting this Stipulation as soon as practical, but to reserve in such order the
explicit right to re-open to add commitments accepted in another state
jurisdiction.
The Applicants further agree that upon the request of any Non-Applicant Party
prior to the Commission's action on this Stipulation, if Applicants agree with any
commitments in other jurisdictions, within five days of such a request,
Applicants will meet and confer with the Non-Applicant Parties to discuss
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Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
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whether such commitments should be added to the existing list of commitments
already agreed to by the Parties in this Stipulation.
Process for Consideration:
Within five calendar days after Applicants file a stipulation with new or amended
commitments with a commission in another state jurisdiction, Applicants will
send a copy of the stipulation and commitments to the Non-Applicant Parties.
Within five calendar days after a commission in another state jurisdiction issues
an order that accepts a stipulation to which Applicants are a party and imposes
new or modified commitments, that order, together with all commitments of any
type agreed to by Applicants in such other state, will be filed with the
Commission and served on all parties to this docket by the most expeditious
means practical.
Within ten calendar days after the last such filing from the other states ("Final
Filing"), the Non-Applicant Parties may file with the Commission any response
they wish to make, including their position as to whether any of the covenants,
commitments and conditions from the other jurisdictions (without modification
ofthe language thereof except such non-substantive changes as are necessary to
make the commitment or condition applicable to Washington) should be adopted
in Washington.
a
a
Within five calendar days after any such response filing, the Applicants may file
a reply with the Commission.
Ifany ofthe dates above fall on Saturday, Sunday, or a holiday, the next business
day will be considered as the due date.
The Parties agree to support in their filings the issuance by the Commission of an
order regarding the adoption of such commitments as soon as practical thereafter,
recognizing that the Proposed Transaction cannot close until final state orders
have been issued approving the Proposed Transaction.
Limitations on Adjustment:
Only commitments specific to gas service may form the basis for adjustments
specific to gas service.
Only commitments specific to electric service may form the basis for adjustments
specific to electric service.
Any commitments relating to support of communities in Montana are not subject
to this provision.
a
a
a
a
a
o
Revised Appendix A to Sefflement Stipulation (Exhibit JNT-3) - Clean
Page27 of28
As Avista does not operate as a utility in Alaska, any commitments made in
Alaska are not subject to this provision.
For purposes of financial commitments or commitments having a financial
impact, commitments should be proportionate to Avista's corresponding business
function in Washington in relation to its corresponding total company business
function. Accordingly, commitments should be allocated among Avista's WA,
ID and OR jurisdictions based on the following: l) Rate Credit is allocated based
on base revenues; 2) all other financial commitments are allocated using the
Company's jurisdictional "four factor" allocation methodology, routinely
employed for purposes of allocating common costs, as discussed in Mr. Ehrbar's
testimony in this proceeding. For purposes of this provision, "financial
commitments or commitments having a financial impact" do not include ring
fencing provisions.
Notice and Petition for Re-Hearing: In the event of the enactrnent or adoption
of any legislation, rule, policy, or directive by government at any level or by any
governmental entity or official in Canada (a "Legislative Action") that affects
Avista's operations because of Avista's corporate relationship with Hydro One,
or affects Hydro One's compliance with any commitment in this stipulation, any
of the parties to this proceeding may petition the Commission at any time for a
re-hearing that re-opens the record in Docket U-170970 to consider whether the
Commission should change its final order, and neither Hydro One nor any of its
subsidiaries, including Avista, will oppose initiation of such a proceeding.
Hydro One will report to the Commission any such Legislative Action in Canada
that, in Hydro One's reasonable judgement, affects Avista's operations because
of Avista's corporate relationship with Hydro One, or affects Hydro One's
compliance with any commitment in this stipulation, as soon as practicable after
it is publicly announced as being effective by the govemment or governmental
entity or official. Nothing in this Commitment 82 shall be interpreted to limit the
positions or arguments that Avista or Hydro One may take or advance in any
such proceeding, including the right to argue that a petition presents insufficient
grounds or evidence. Prior to filing a petition with the Commission under this
Commitment 82, a party must provide Hydro One and Avista at least 30 days
advance written notice and an opportunity to meet and confer about resolutions
other than filing with the Commission under this commitment. Nothing in this
commitment is intended to restrict the rights of the parties to petition the
Commission concerning its order(s) in this docket, or to limit the authority of the
Commission.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Clean
Page 28 of28
a
a
82
REVISED MASTER LIST OF COMMITMENTS IN WASHINGTON
Table of Contents
Page
A. Reservation of Certain Authority to the Avista Board of Directors...............
Executive Management:
Board of Directors
Avista's Brand and Plan for the Operation of the Business:.................
Capital Investment for Economic Development:
Continued Innovation:
Union Relationships:
Compensation and Benefits:..5
Avista's Headquarters
l.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Authority Reserved: .......4
.4
.4
.5
.5
.5
.5
.6
.6
.6
.6
.6
.6
,6
Local Staffing:
Community Contributions
Community Involvement:
Economic Development:.....................
Membership Organizations:.....................
Safety and Reliability Standards and Service Quality Measures:
B. RateCommitments..........
Treatment of Net Cost Savings:........
,7
7
Rate Credits:.8
C. RegulatoryCommitments
16.
17.
18.
t9.
State Regulatory Authority and Jurisdiction:
Compliance with Existing Commission Orders:
Separate Books and Records:
Access to and Maintenance of Books and Records:
Cost Allocations Related to Corporate Structure and Affrliate Interests:
Ratemaking Cost of Debt and Equity:
Avista Capital Structure:......
FERC Reporting Requirements: ..............
Participation in National and Regional Forums:
20.
21.
))
23.
24.
25.
26.
27.
28.
.9
.9
.9
.9
l0
ll
lt
t2
t2
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page I of28
Treatment of Confidential Information:.....................
Commission Enforcement of Commitments:................
Submittal to State Court Jurisdiction for Enforcement of Commission Orders
Annual Report on Commitments:
Commitments Binding:
D. f inancial Integrity Commitments
34. Capital Structure Support:
29
30
3l
32
33
t2
12
12
12
13
l3
13
l3
13
14
14
t4
t4
35. Utility-kvel Debt and Preferred Stock...........
36. Continued Credit Ratings:
37. Credit Ratings Notification:
38. Restrictions on Upward Dividends and Distributions:
39. Pension Funding
40. SEC Reporting Requirements:
41. Compliance with the Sarbanes-Oxley Act:
42. Golden Share:t4
Independent Directors:t4
Restriction on Pledge of Utility Assets:t6
Hold Harmless; Notice to Lenders; Restriction on Acquisitions and Dispositions:t6
Olympus Holding Corp. and Olympus Equity LLC Sub-entities:t7
Renewable Energy Resources
Greenhouse Gas and Carbon Initiatives:.....
Cost of Greenhouse Gas Emissions:
Greenhouse Gas Inventory Report:.,
Effrciency Goals and Objectives:....
Optional Renewable Power Program:.....................
Energy Imbalance Market ("EIM"):
Regulatory Integrated Resource Planning (IRP) Sideboards:
Industrial Customers' Self Direct Conservation
52
53
54
55
56
57
58
59
60
61
18
l8
l9
l9
l9
t9
19
l9
19
19
43.
44.
45.
46.
47.
48.
49.
50.
51.
F. Environmental, Renewable Energy, and Energy Efficiency Commitments.......................................18
Renewable Portfolio Standard Requirements:
Revised Apoendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page2 of28
G. Community and Low-Income Assistance Commitments
65. Low-Income Energy Efficiency Funding:.........21
.........2166. Low-Income Rate Assistance Program (LIRAP):......
67 . Funding for Low-Income Participation in New Renewables:. ..................21
68. Addressing Other Low-Income Customer Issues: ..............22
69. Replacement of Manufactured Homes: ........22
70. Low Income Weatherization:.................. ............................22
72. AMI Consumer Protection:..23
..23
..23
73. Improve Penetration of Low-Income Progtams:
74. Tribal Communities:
H. Miscellaneous Commitments................ ..........23
75. Sources of Funds for Hydro One Commitments:.............. ........................23
76. Colstrip Depreciation:..24
..2477. Montana Community Transition Fund:
78- Colstrip Transmission Planning:......
79. OnBillRepayment:
24
25
25
26
28
80. Contract Labor:
81. Most Favored Nations:
82. Petition for Re-Hearing:...................
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 3 of28
A. Reservation of Certain Authority to the Avista Board of Directors
Authoritv 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 Application, decision-making authority over
commitments 2-15 below is reserved to the Board of Directors of Avista
Corporation ("Avista") and any change to the policies stated in commitments 2-
15 requires a two-thirds (213) vote of the Avista Board, provided that Slggp!_ag
otherwise provided for in a specific commitment- Avista must obtain approval
for such changes from all regulatory bodies with jurisdiction over the
Commitments before such changes can go into effect, and provide written notice
to all parties to Docket U-170970 of such request for approval:
Governance
I
Avista Employee Compensation: Anv decisions regardinq Avista employee
compensation shall be made blr the Avista Board consistent with the terms of the
Merser Agreement between Hv(Ltq One anelArursU, arrd current market ftatdards
and prevailine practices of relevant U.S. electric and qas utility benchmarks. The
determination of the level of any compensation (includins equity awards)
approved by the Avista Board with respect to any employee in accordance with
the foresoins shall not be subject to chanqe by Hydro One or the H],dro One
Board.
Board of Directors: After the closing of the Proposed Transaction, Avista's
board will consist of nine (9) members, determined as follows: (i) two (2)
directors designated by Hydro One who are executives of Hydro One or any of
its subsidiaries; (ii) three (3) directors who meet the standards for "independent
directors" - under section 3034.02 of the New York Stock Exchange Listed
Company Manual (the "Independent Directors") and who are residents of the
Pacific Northwest region, to be designated by Hydro One (collectively, the
directors designated in clauses (i) and (ii) hereof, the "Hydro One Designees"),
subject to the provisions of Clause 2 of Exhibit A to the Merger Agreement; (iii)
three (3) directors who as of immediately prior to the closing of the Proposed
2.
J
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 4 of28
Executive Management: Avista will seek to retain all current executive
management of Avista, subject to voluntary retirements that may occur. This
commitment will not limit Avista's ability to determine its organizational
strucfure and select and retain personnel best able to meet Avista's needs over
time. The Avista board retains the ability to dismiss executive management of
Avista and other Avista personnel for standard corporate reasons: eubiee++++he
' One") lbr an)'+iring=M-€r
@; Anv decision to ltire. dismiss ot'replacc the.eht91'
Execulive Olllcer ot' Avista shall be within the discrelion of the Avista Boarcl of'
Direclors. and shall nol rccluire an.v apploval olH)rdrc One or an), of its alllliates
(otlier than Avista). notwithstandinq an),thing to the cclntrary in the merge!'
asreernent. and its exhibits and attachments. between Hydro One and Avista.
Transactionl are members of the Board of Directors of Avista, including the
Chairman of Avista's Board of Directors (if such person is different from the
Chief Executive Officer of Avista); and (iv) Avista's Chief Executive Officer
(collectively, the directors designated in clauses (iii) and (iv) hereof, the "Avista
Designees").
The initial Chairman of Avista's post-
closing Board of Directors shall be the Chief Executive Off,rcer of Avista as of
the time immediately prior to closing for a one year term. If any Avista Designee
resigns, retires or otherwise ceases to serve as a director of Avista for any reason,
the remaining Avista Designees shall have the sole right to nominate a
replacement director to fill such vacancy, and such person shall thereafter
become an Avista Designee.
The term "Pacific Northwest region" means the Pacific Northwest states in which
Avista serves retail electric or natural gas customers, currently Alaska, Idaho,
Montana, Oregon and Washington;
Business Operations
Avista's Brand and Plan for the Oneration of the Business: Avista will
maintain Avista's brand and Avista will establish the plan for the operation of the
business and its Subsidiaries;
Capital Investment for Economic Development: Avista will maintain its
existing levels of capital allocations for capital investment in strategic and
economic development items, including property acquisitions in the university
district, support of local entrepreneurs and seed-stage investments;
Continued Innovation: Avista will continue development and funding of its
and its subsidiaries' innovation activities;
Union Relationships: Avista will honor its labor contracts and has the authority
to negotiate, enter into, modify, amend, terminate or agree to changes in any
collective bargaining agreement or any of Avista's other material contracts with
any labor organizations, union employees or their representatives;
Compensation and Benefits: Avista will maintain compensation and benefits
related practices consistent with the requirements of the Merger Agreement;
I "Proposed Transaction" means the transaction proposed in the Joint Application of Avista and Hydro One
filed on September 14,2017.
4
5
6
7
8
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 5 of28
9
Local Presence/Community Involvement
Avista's Headouarters: Avista will maintain (a) its headquarters in Spokane,
Washington; (b) Avista's office locations in each of its other service territories,
and (c) no less of a significant presence in the immediate location of each of such
office locations than what Avista and its subsidiaries maintained immediately
prior to completion of the Proposed Transaction;
10.Local Staffine: Avista will maintain Avista Utilities' staffing and presence in
the communities in which Avista operates at levels sufficient to maintain the
provision of safe and reliable service and cost-effective operations and consistent
with pre-acquisition levels;
ll Communitv Contributions: For five years after the close of the Proposed
Transaction, Avista will maintain a $4,000,000 annual budget for charitable
contributions (funded by both Avista and the Avista Foundation) and additionally
a $2,000,000 annual contribution will be made to Avista's charitable foundation.
No approval from any regulatory bodies with jurisdiction over the Commitments
is required for any changes to this commitment from and after the sixth year
following closing; however any such changes will continue to require a two-
thirds (213) vote of the Avista Board;2
12.Communitv Involvement: Avista will maintain at least Avista's existing levels
of community involvement and support initiatives in its service territories;
including involvement with tribes and low-income service agencies and support
initiatives;
l3
t4.
Economic Development: Avista will maintain at least Avista's existing levels
of economic development, including the ability of Avista to spend operations and
maintenance funds3 to support regional economic development and related
strategic opportunities in a manner consistent with Avista's past practices;
Membership Orsanizations: Avista will maintain the dues paid by it to various
industry trade groups and membership orgarizations; and
15.Safetv and Reliabilitv Standards and Service Oualitv Measures: Avista will
maintain Avista's safety and reliability standards and policies and service quality
measures in a manner that is substantially comparable to, or better than, those
currently maintained.
2 Note that Commitment 64 contains an additional commitment relating to charitable contributions; pursuant to
that commitment Hydro One will cause Avista to make a one-time contribution of $7,000,000 to Avista's
charitable foundation at or promptly following closing of the Proposed Transaction.
3 Operations and maintenance funds dedicated to economic development and non-utility strategic opportunities
will be recorded below-theJine to a nonoperating account.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 6 of28
Avista will not seek to remove or reduce existing penalty provisions associated
with its safety, reliability, or service quality measures for l0 years after the
merger.
If the 5-year rolling average of SAIFI or SAIDI in Washington exceeds 1075%
of the average of their respective scores from 2013 to 2017 (excluding Major
Event Days (MEDs), consistent with Avista's service quality program, tariff
schedule 85), Hydro One and Avista commit to increase the rate credit for
Washington electric customers by $250,000 per year. This increased rate credit
will persist until the 5-year rolling average is less than the threshold stated above.
B. Rate Commitments
16.Treatment of Net Cost Savings: Any net cost savings that Avista may achieve
as a result of the Proposed Transaction will be reflected in subsequent rate
proceedings, as such savings materialize. To the extent the savings are reflected
in base retail rates they will offset the Rate Credit to customers, up to the
offsetable portion of the Rate Credit.
t7.Pre-Transaction Test Year: The parties agree to the following provisions for
ratemaking pu{poses.
a. If Avista files for a rate case between the conclusion of Dockets UE-170485
and UG-170486 and December 31, 2018, Avista will present a normalized
test year using the most recent l2-month period available.
b. If Avista files for a rate case between January 1,2019, and April 30,2019,
Avista must use a normalized test year of October I,2017 - September 30,
2018.
c. [f Avista files for a rate case between May l, 2019, and April 30, 2021,
Avista must present two normalized test years, (1) October l, 2017 -
September 30, 2018 for informational purposes, and (2) the most recent 12-
month period available.
18. 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, day 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 supporting 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
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) * Redline
PageT of28
contemplated, as well as the accounts charged, within 120 days of a
Commission order in this docket.
b. 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; (vii) any other costs
directly related to the Proposed Transaction.
19.Rate Credits: Avista and Hydro One are proposing to flow through to Avista's
retail customers in Washington a Rate Credit of approximately $30.7 milliona
over a S-year period, beginning at the time the merger closes. For customers on
Schedule 25, the credit will be spread by allocating 1/3 of the total Schedule 25
credit monies to the first two energy blocks and 213 of the total credit monies to
the third block.
The Total Rate Credit to customers for the five years following the closing will
be approximately $6.1 millions per year. A portion of the annual total Rate
Credit will be offsetable, in the amount of $1.02 million6. 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 $6.1 million benefit will be provided to
customers through a separate Rate Credit, as long as the reduction in costs (of up
to $1.02 million annually) has not already been reflected in base retail rates for
Avista's customers.
To the extent Avista demonstrates in a future rate proceeding that cost savings, or
benefits, directly related to the Proposed Transaction are already being flowed
through to customers through base retail rates, the separate Rate Credit to
4 The exact agreed-upon figure is $30,715,050, which is equal to 5% of the Washington base revenue as of
02l0lll8. Washington electric base revenue is $492,134,000, and Washinglon natural gas base revenue
(including natural gas costs - Schedules 150/155) is $122,167,000. Five percent of those revenues are
$24,606,700 (electric) and $6,108,350 (natural gas).
5 The exact amount agreed upon is $6,143,010 per year. The annual Washington electric Rate Credit for each
of the five years is $4,921 ,340. The annual Washington natural gas Rate Credit for each of the five years is
$1,221,670.
6 The offsetable portion ofthe Rate Credit is calculated using a pro rata share ofthejurisdictional total ofthe
rate credit (i.e. Washington's share of the offsetable Rate Credit is 60.29o/o, therefore Washington's share of
the $1.7 million offsetable portion is $1.02 million).
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 8 of28
customers would be reduced by an amount up to the offsetable Rate Credit
amount. The portion of the total Rate Credit that is not offsetable effectively
represents acceptance by Hydro One of a lower rate of return during the S-year
period.
The $30.7 million represents the "floor" of benefits that will be flowed through
to Avista's customers, either through the Rate Credit or through benefits
otherwise included in base retail rates. To the extent the identifiable benefits
exceed the annual offsetable Rate Credit amounts, these additional benef,rts will
be flowed through to customers in base retail rates in general rate cases as they
occur. Avista and Hydro One believe additional efficiencies (benefits) will be
realized over time from the sharing of best practices, technology and innovation
between the two companies. It will take time, however, to identify and capture
these benefits. The level of annual net cost savings (and/or net benefits) will be
tracked and reported on an annual basis, and compared against the offsetable
level of savings.
Any application of offsetable savings will be reviewed by the Commission before
the offset is applied, and Avista bears the burden of proof to prove that savings
have materialized and the offset to rate credits should apply.
C. Regulatory Commitments
State Reeulatorv Authoritv and Jurisdiction: Olympus Holding Corp. and its
subsidiaries, including Avista, as appropriate, will comply with all applicable
laws, including those pertaining to transfers of property (Chapter 80.12),
affrliated interests (Chapter 80.16), and securities and the assumption of
obligations and liabilities (Chapter 80.08).
21.Compliance with Existine Commission Orders: Olympus Holding Corp. 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., will remain in effect, and are not modified or otherwise affected by
the Proposed Transaction.
Olympus Holding Corp. and its subsidiaries, including Avista, will comply with
all applicable future Commission orders that remain in force.
Separate Books and Records: Avista will maintain separate books and records
from its affiliates.
Access to and Maintenance of Books and Records: 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.
20.
22.
23.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 9 of28
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.
The Proposed Transaction will not result in reduced access to the necessary
books and records that relate to transactions with Avista, or that result in costs
that may be allocable to Avista. Avista will provide Commission Staffand other
parties to regulatory proceedings reasonable access to books and records
(including those of Olympus Holding Corp. or any affiliate or subsidiary
companies) required to verify or examine transactions with Avista, or that result
in costs that may be allocable to Avista.
Nothing in the Proposed Transaction will limit or affect the Commission's rights
with respect to inspection of Avista's accounts, books, papers and documents in
compliance with all applicable laws. Nothing in the Proposed Transaction will
limit or affect the Commission's rights with respect to inspection of Olympus
Holding Corp.'s accounts, books, papers and documents pursuant to all
applicable laws; provided, that such right to inspection shall be limited to
Olympus Holding Corp.'s accounts, books, papers and documents that pertain
solely to transactions affecting Avista's regulated utility operations.
Olympus Holding Corp. and its subsidiaries, including Avista, will provide the
Commission with access to written information provided by and to credit rating
agencies that pertains to Avista. Olympus Holding Corp. and each of its
subsidiaries will also provide the Commission with access to written information
provided by and to credit rating agencies that pertains to Olympus Holding
Corp.'s subsidiaries to the extent such information may affect Avista.
Hydro One and its affrliates agree that the Commission may have access to all
the accounting records of Hydro One and its affiliates that are the bases for
charges to Avista, to determine the reasonableness of the costs and the allocation
factors used by Hydro One and its affiliates, or its subdivisions to assign costs to
Avista and amounts subject to allocation or direct charges. Hydro One and its
affiliates agree that they will not raise lack of jurisdiction as a means of denying
such access, and agree to cooperate fully with such Commission investigations.
Cost Allocations Related to Corporate Structure and Affiliate Interests:
Avista agrees to provide cost allocation methodologies used to allocate to Avista
any costs related to Olympus Holding Corp. or its other subsidiaries, and
commits that there will be no cross-subsidization by Avista customers of
unregulated activities.
The cost-allocation methodology provided pursuant to this commitment will be a
generic methodology that does not require Commission approval prior to it being
proposed for specific application in a general rate case or other proceeding
affecting rates.
24.
Revised Appendix A to Settlement Stipulation (E;hibit JNT-3) - Redline
Page 10 of28
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 Olympus Holding Corp. or its 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 Olympus
Holding Corp or its other subsidiaries.
With respect to the ratemaking treatment of afliliate transactions affecting
Avista, Hydro One, and Olympus Holding Corp. and its subsidiaries, as
applicable, will comply with the Commission's then-existing practice; provided,
however, that nothing in this commitment limits Avista from also proposing a
different ratemaking treatment for the Commission's consideration, or limit the
positions any other party may take with respect to ratemaking treatment.
Avista will notify the Commission of any change in corporate structure that
affects Avista's corporate and affiliate cost allocation methodologies. Avista will
propose revisions to such cost allocation methodologies to accommodate such
changes. Avista will not take the position that compliance with this provision
constitutes approval by the Commission of a particular methodology for
corporate and affiliate cost allocation.
Ratemakine Cost of Debt and Eouity: 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.
For future ratemaking purposes:
a. Determination of Avista's debt costs will be no higher than such costs would
have been assuming Avista's credit ratings by at least one industry
recognized rating agency, including, but not limited to, S&P, Moody's, Fitch
or Morningstar, as such ratings in effect on the day before the Proposed
Transaction closes and applying those credit ratings to then-current debt,
unless Avista proves that a lower credit rating is caused by circumstances or
developments not the result of financial risks or other characteristics of the
Proposed Transaction;
b. Avista bears the burden to prove prudent in a future general rate case any pre-
payment premium or increased cost of debt associated with existing Avista
debt retired, repaid, or replaced as a part ofthe Proposed Transaction; and
c. Determination of the allowed return on equity in future general rate cases will
include selection and use of one or more proxy group(s) of companies
engaged in businesses substantially similar to Avista, without any limitation
related to Avista's ownership structure.
Avista Canital Structure: At all times following the closing of the Proposed
Transaction, Avista's actual common equity ratio will be maintained at a level no
25
26.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page I I of28
less than 44 percent. This commitrnent does not restrict the Commission from
ordering a hlpothetical capital structure.
FERC Reportins Requirements: Avista will continue to meet all the
applicable FERC reporting requirements with respect to annual and quarterly
reports (e.9., FERC Forms 1,2,3q) after closing of the Proposed Transaction.
Participation in National and Resional Forums: Avista will continue to
participate, where appropriate, in national and regional forums regarding
transmission issues, pricing policies, siting requirements, and interconnection and
integration policies, when necessary to protect the interest of its customers.
Treatment of Confidential Information: Nothing in these commitments will
be interpreted as a waiver of Hydro One's, its subsidiaries', or Avista's rights to
request confidential treatment of information that is the subject of any of these
commitments.
Commission Enforcement of Commitments: Hydro One and its subsidiaries,
including Avista, understand riiil ;ir_ i, r' th&t the Commission has authority to
enforce these commitments in accordance with their terms. If there is a violation
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 Commission to
compel the attendance of witnesses from Olympus Holding Corp. and its
affiliates, including Hydro One, with pertinent information on matters affecting
Avista. ll,rtlr,i ()rr,, Olympus Holding Corp. and its subsidiaries waive their
rights to interpose any legal objection they might otherwise have to the
Commission's jurisdiction to require the appearance of any such witnesses.
Submittal to State Court Jurisdiction for Enforcement of Commission
Orders: HJdIs_q19- on bd14_L[_ql itself and_its subsidiaries, in the post-closc
colporate structure betu'een Hlzclro One and Ar,ista (as those companies in
bctwccrt rnay changc qyg1-Ufngtr 31idAv1$a
*nd-it; s+S.;idn+ies:+el*t++neh+di+g,4vista:s, will file with the Commission
prior to closing the Proposed Transaction an aflidavit affirming that theyi+ will
submit to the jurisdiction of @courts for enforcement
of the Commission's orders adopting these commitments and subsequent orders
affecting Avista-:UU!__rutll, aqree to the aoplication of. Washinston lau' with
respeclL t0 qqdt.[14UeD.
Annual Report on Commitments: By May 1,2019 and each May I thereafter
through May l, 2029, 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 Docket U-l70970 and
28.
27
29.
30.
31.
32.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
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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.
33. Commitments Bindins: Hydro One, its subsitlialies in the post-closc corlorirtc
ture between H One and Avista as those anies in between ma
change ol'er tinic)-Olynpt+s#oldiflt:€txp- ttrltli+r-r'uh;ieli*nes.,inelt+eliHg antl
Avista, acknowledge that the commitments being made by them are lullybinding
en{y-upon them and their successors in intercst_and upon their afliliates where
spccilically notedM{*+teret+. Hydro One and Avista are not
requesting in this proceeding a determination of the prudence, just and
reasonable character, rate or ratemaking treafinent, or public interest of the
investments, expendifures or actions referenced in the commitments, and the
parties in appropriate proceedings may take such positions regarding the
prudence, just and reasonable character, rate or ratemaking treatnent, or public
interest ofthe invesfinents, expenditures or actions as they deem appropriate.
If Hydro One or any other entity in the chain of Avista's ownership determines
that Avista or any other entity has failed to comply with an applicable
Commitment, the entity making such determinations shall take all appropriate
actions to achieve compliance with the Commitment.
D. Financial Integrity Commitments
Capital Structure Support: Hydro One will provide equity to support Avista's
capital structure that is designed to allow Avista access to debt financing under
reasonable terms and on a sustainable basis.
Utilitv-Level Debt and Preferred Stock: Avista will maintain separate debt
and preferred stock, if any, to support its utility operations.
Continued Credit Ratings: Each of Hydro One and Avista will continue to be
rated by at least one nationally recognized statistical "Rating Agency." Hydro
One and Avista will use reasonable best efforts to obtain and maintain a separate
credit rating for Avista from at least one Rating Agency within the ninety (90)
days following the closing of the Proposed Transaction. If Hydro One and Avista
are unable to obtain or maintain the separate rating for Avista, they will make a
filing with the Commission explaining the basis for their failure to obtain or
maintain such separate credit rating for Avista, and parties to this proceeding will
have an opportunity to participate and propose additional commitments.
37.Credit Ratines Notification: Hydro One and Avista agree to notify the
Commission within two business days of any downgrade of Avista's credit rating
to a non-investment grade status by S&P, Moody's, or any other such ratings
agency that issues such ratings with respect to Avista.
34
35
36
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Page 13 of28
38. Restrictions on Upward Dividends and Distributions:
a. If either (i) Avista's corporate credit/issuer rating as determined by both
Moody's and S&P, or their successors, is investment grade, or (ii) the ratio of
Avista's EBITDA to Avista's interest expense is greater than or equal to 3.0,
then distributions from Avista to Olympus Equity LLC shall not be limited so
long as Avista's equity ratio is equal to or greater than 44 percent on the date
of such Avista distribution after giving effect to such Avista distribution,
except to the extent the Commission establishes a lower equity ratio for
ratemaking purposes. Both the EBITDA and equity ratio shall be calculated
on the same basis that such calculations would be made for ratemaking
purposes for regulated utility operations.
b. Under any other circumstances, distributions from Avista to Olympus Equity
LLC are allowed only with prior Commission approval.
c. If Avista does not have an investment-grade rating from both Moody's and
S&P, or from one of these entities, or its successor, if only one issues ratings
with respect to Avista, and the ratio of EBITDA to Avista's interest expense
is less than 3.0, no dividend distribution to Olympus Equity LLC or its
successors will occur.
Pension Fundinq: Avista will maintain its pension funding policy in accordance
with sound actuarial practice. Hydro One will not seek to change Avista's
pension funding policy.
SEC Reportins Requirements: Following the closing of the Proposed
Transaction, Avista will file required reports with the SEC.
4I Compliance with the Sarbanes-Oxlev Act: Following the closing of the
Proposed Transaction, Avista will comply with applicable requirements of the
Sarbanes-Oxley Act.
E. Ring-Fencing Commitments
42. Golden Share: Entering into voluntary bankruptcy shall require the affirmative
vote of a "Golden Share" of Avista stock. The Golden Share shall mean the sole
share of Preferred Stock of Avista as authorized by the Commission. This share
of Preferred Stock must be in the custody of an independent third-party, where
the third-party has no financial stake, affiliation, relationship, interest, or tie to
Avista or any of its affiliates, or any lender to Avista, or any of its affrliates. This
requirement does not preclude the third-party from holding an index fund or
mutual fund with negligible interests in Avista or any of its affiliates. In matters
of voluntary bankruptcy, this Golden Share will override all other outstanding
shares ofall types or classes ofstock.
Independent Directors: At least one of the nine members of the board of
directors of Avista will be an Independent Director who, consistent with
39.
40.
43
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 14 of28
Commitment 3, meets the standards under 303A.02 of the New York Stock
Exchange Listed Company Manual. At least one of the members of the board of
directors of Olympus Equity LLC will be an lndependent Director who,
consistent with Commitment 3, meets the standards under 303A.02 of the New
York Stock Exchange Listed Company Manual. The same individual may serve
as an independent director of both Avista and Olympus Equity LLC. The
organizational documents for Avista will not permit Avista, without the consent
of a two-thirds majority of all its directors, including the affirmative vote of the
independent director at Avista (or if at that time Avista has more than one
independent director, the affirmative vote of at least one of Avista's independent
directors), to consent to the institution of bankruptcy proceedings or the inclusion
of Avista in bankruptcy proceedings. ln addition to an affirmative vote of this
independent director, the vote of the Golden Share shall also be required for
Avista to enter into a voluntary bankruptcy.
44. Non-ConsolidationOpinion:
a. Within ninety (90) days of the Proposed Transaction closing, Avista and
Olympus Holding Corp. will file a non-consolidation opinion with the
Commission which concludes, subject to customary assumptions and
exceptions, that the ring-fencing provisions are sufficient that a bankruptcy
court would not order the substantive consolidation of the assets and
liabilities of Avista with those of Olympus Holding Corp. or its affiliates or
subsidiaries (other than Avista and its subsidiaries).
b. Hydro One and Olympus Holding Corp. must file an affrdavit with the
Commission stating that neither Hydro One, Olympus Holding Corp. nor any
of their subsidiaries, will seek to include Avista in a bankruptcy without the
consent of a two-thirds majority of Avista's board of directors including the
affirmative vote of Avista's independent director, or, if at that time Avista
has more than one independent director, the affirmative vote of at least one of
Avista's independent directors.
c. If the ring-fencing provisions in these commitrnents are not sufficient to
obtain a non-consolidation opinion, Olympus Holding Corp. and Avista agree
to promptly undertake the following actions:
11.
l.Notify the Commission of this inability to obtain a non-consolidation
opinion.
Propose and implement, upon Commission approval, such additional
ring-fencing provisions around Avista as are sufficient to obtain a
non-consolidation opinion subject to customary assumptions and
exceptions.
iii. Obtain a non-consolidation opinion.
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45.Olvmpus Equitv LLC: Olympus Holding Corp.'s indirect subsidiaries will
include Olympus Equity LLC and Avista. See the post-acquisition organizational
chart in Appendix B to the Settlement Stipulation. Following closing of the
Proposed Transaction, all of the common stock of Avista will be owned by
Olympus Equity LLC, a new Delaware limited liability company. Olympus
Equity LLC will be a bankruptcy-remote special purpose entity, and will not
have debt.
46.Restriction on Pledse of Utilitv Assets: Avista agrees to prohibitions against
loans or pledges of utility assets to Hydro One, Olympus Holding Co.p., or any
of their subsidiaries or affiliates, without Commission approval. In addition, the
Applicants agree that Avista's assets will not be pledged by Avista or any of its
affiliates, including Hydro One and Olympus Holding Corp. and any of their
subsidiaries or affiliates, for the benefit of any entity other than Avista.
47 Hold Harmless: Notice to Lenders: Restriction on Acquisitions and
Dispositions:
a. Avista will hold Avista customers harmless from any business and financial
risk exposures associated with Olympus Holding Corp., Hydro One, and
Hydro One's other affiliates.
b. Pursuant to this commitment, Avista and Olympus Holding Corp. will file
with the Commission, prior to closing of the Proposed Transaction, a form of
notice to prospective lenders describing the ring-fencing provisions included
in these commitments stating that these provisions provide no recourse to
Avista assets as collateral or security for debt issued by Hydro One or any of
its subsidiaries, other than Avista.
c. In furtherance of this commitment
Avista commits 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.
1l Olympus Holding Corp. and Avista will notifu the Commission
subsequent to Olympus Holding Corp.'s board approval and as soon
as practicable following any public announcement of: (l) any
acquisition by Olympus Holding Corp. of a regulated or unregulated
business that is equivalent to five (5) percent or more of the
capitalization of Avista; or (2) any change in control or ownership of
Avista, except that the notice of a change to the upstream ownership
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 16 of28
l.
of Avista or Olympus Holding Corp. among wholly owned
subsidiaries of Hydro One may be provided in either an updated
organizational chart included in the annual report filing described in
Commitment 32 or in a separate notice filing. Notice pursuant to this
provision is not and will not be deemed an admission or expansion of
the Commission's authority or jurisdiction over any transaction or in
any matter or proceeding whatsoever.
Within sixty (60) days following the notice required by this
subsection (c)(ii)(2), Avista and Olympus Holding Corp. or its
affiliates, as appropriate, will seek Commission approval of any sale
or transfer of any material part of Avista, or of any transaction or
series of transactions, regardless of size, that would result in a person
or entity, other than a wholly owned subsidiary of Hydro One,
directly or indirectly, acquiring a controlling interest in Avista or
Olympus Holding Corp. The term "material part of Avista" means
any sale or transfer of stock representing ten percent (l0o/o) or more of
the equity ownership of Avista.
111.Neither Avista nor Olympus Holding Corp. will assert in any future
proceedings that, by virtue of the Proposed Transaction and the
resulting corporate structure, the Commission is without jurisdiction
over any transaction that results in a change of control of Avista.
d. If and when any subsidiary of Avista becomes a subsidiary of Hydro One or
one of its subsidiaries other than Avista, Avista will so advise the
Commission within thirty (30) days and will submit to the Commission a
wriffen document setting forth Avista's proposed corporate and affiliate cost
allocation methodologies.
Olvmpus Holdins Corp. and Olvmpus Equity LLC Sub-entities: Olympus
Holding Corp. will not operate or own any business and will limit its activities to
investing in and attending to its shareholdings in Olympus Equity LLC, which, in
turn, will not operate or own any business and will limit its activities to investing
in and attending to its shareholdings in Avista.
No Amendment of Rine-Fencine Provisions: Hydro One, Olympus Holding
Corp. and Avista commit that no material amendments, revisions or
modifications will be made to the ring-fencing provisions as specified in these
regulatory commitments without prior Commission approval pursuant to a
limited re-opener for the sole purpose of addressing the ring-fencing provisions.
No Inter Companv Debt: Avista will notify the Commission before entering
into any inter-company debt transactions with Olympus Holding Co.p., Hydro
One, or any of their subsidiaries or affiliates.
48.
49
50
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PagelT of28
No Inter Companv Lendins: Without prior Commission approval, Avista will
not lend money to Olympus Holding Corp., Hydro One, or any of their
subsidiaries or affi liates.
F. Environmental, Renewable Energy, and Energy Efliciency Commitments
Renewable Portfolio Standard Requirements: Hydro One acknowledges
Avista's obligations under applicable renewable portfolio standards, and Avista
will continue to comply with such obligations.
Avista will acquire all renewable energy resources required by law and such
other renewable energy resources as may from time to time be deemed advisable
in accordance with Avista's integrated resource planning ("IRI"') process and
applicable regulations.
53. Renewable Enerev Resources:
Avista's non-fossil fueled generation resources constitute more than 50% of its
generation portfolio, and Avista exceeds the renewable energy standards
currently applicable to the company under RCW 19.285.040(2).
Avista makes the following renewable energy commitments. Both commitments
are made only to the extent resources are reasonably commercially available and
are (1) necessary to meet load and (2) consistent with the lowest reasonable cost
resource portfolio pursuant to Avista's established IRP and pursuant to the
Commission's resource evaluation and acquisition rules and policies.
a- Avista will commit to initiating a Request for Proposal with the intent of
acquiring additional eligible renewable energy resources as part of this
process above and beyond the current renewable energy standards in law.
Avista will commit to obtain approximately 50 aMW of expected energy
from new eligible renewable resources by 2022. The aMW obtained under
this commitment may be used to satisfy any increase that may be caused by
changes to the renewable energy standards in law after the date an Order
approving this merger has been entered.
b. Avista will commit to obtain at least 90 aMW of expected energy from new
eligible renewables resources to become operational approximately within a
year of the timeframe that Colstrip 3 and 4 go offline.
"Resources" is understood to include Power Purchase Agreements ("PPAs").
Nothing in either commitment prohibits Avista from retaining or selling
renewable energy credits associated with such resources that are surplus to
Avista's needs to meet Washington Renewable Portfolio Standards targets.
Communications with customers shall accurately reflect the environmental
attributes associated with power delivered to such customers. Hydro One and
51
52
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Page l8 of28
Avista acknowledge that Avista retains the burden of proof to demonstrate the
prudence of any resource acquisition.
The utility should work with an independent third-party consultant, with
expertise in renewable energy resources, to ensure that the utility has up-to-date
resource cost and performance assumptions, as well as the appropriate learning
curves
Greenhouse Gas and Carbon Initiatives: Hydro One acknowledges Avista's
Greenhouse Gas and Carbon Initiatives contained in its current lntegrated
Resource Plan, and Avista will continue to work with interested parties on such
initiatives.
Cost of Greenhouse Gas Emissions: Unless it conflicts with any instructions
contained in the Commission's acknowledgement letter in response to Avista's
current integrated resource plan (IRP), beginning with the next IRP, Avista
commits to modeling a range of potential costs for greenhouse gas emissions, and
will work with its IRP Advisory Group to determine the appropriate values to
model.
Greenhouse Gas Inventorv Report: Avista will report greenhouse gas
emissions as required.
Efficiencv Goals and Obiectives: Hydro One acknowledges Avista's energy
efficiency goals and objectives set forth in Avista's 2017 lntegrated Resource
Plan and other plans, and Avista will continue its ongoing collaborative efforts to
expand and enhance them.
Optional Renewable Power Proeram: Avista will continue to offer renewable
power programs in consultation with stakeholders.
Enersv Imbalance Market ("EIM"): Avista is currently refreshing its EIM
analysis and will release it publicly by the end of 2018. Avista commits to hold
workshops with the Commission and interested stakeholders to review the
analysis and discuss the prudent next steps.
Resulatorv Intesrated Resource Plannins (IRP) Sideboards: Avista commits
to calculating a variable generation resource's contribution to capacity in terms
of that resource's contribution to resource adequacy and that resource's ability to
reduce the loss of load probability in some or all hours or days utilizing the
Effective Load Carrying Capability ("ELCC") methodology or an appropriate
approximation.
Industrial Customers' Self I)irect Conservation: Avista shall provide a one-
time self-direct option for a large conservation project. The project shall have a
capital cost of at least $15 million but no more than $30 million and must be
commenced within five years of closing of the merger. After applying available
incentive funding through Avista's Schedule 91, Avista shall finance the
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 19 of28
54.
55
56.
57
58.
59.
60.
61.
remaining capital cost of the project. The customer that pursues the conservation
project shall repay the financed portion of the project, including a carrying
charge equal to Avista's rate of return, through its Schedule 91 charges until full
amortization. ln the event that the customer defaults or ceases operations prior to
full amortization of the Avista-financed amount, the remaining balance will be
recovered through Schedule 25 contributions to Schedule 91 until such time as
the remaining balance is fully amortized. No other customers will be impacted
financially from this commitment and all customers will benefit from the
increased energy efficiency acquisition.
Transport Electrification: Avista commits and Hydro One agrees that Avista
commits, to expanding access to transportation electrification for all customers.
As part of the long-term electric vehicle supply equipment (EVSE) program that
Avista is developing following the completion of its pilot under UE-160082, the
Joint Applicants commit to setting internal goals and objectives for Avista, in
coordination with the Joint Utility Electric Vehicle Stakeholder Group, that do
the following:
Significantly increase outreach and education to customers about the
benefits of electric vehicle ownership and use.
Ensure engagement with low-income customers and organizations that
serve low-income customers fully enables participation by these
customers and addresses historical issues of participation.
Significantly increase EVSE program components that serve and benefit
low-income residential customers, with a goal of 30%o of residential
program funds being dedicated to projects that serve low-income
customers.
Overcome barriers for EVSE siting with small business customers.
Implement incentives that minimize or fully eliminate the cost of EVSE
for customers.
Professional Home Enerw Audit: Avista commits to provide home energy
audits to 2,000 homes at $300 per home, over a l0-year period, in Washington.
Hydro One will affange total funding of $600,000 for this commitment. With
more robust data available after the installation of AMI, Hydro One and Avista
agree to revisit this commitment to determine if the number of homes served
could be expanded.
62
a
a
a
a
a
63
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G. Community and Low-Income Assistance Commitments
Communitv Contributions: Hydro One will cause Avista to make a one-time
$7,000,000 contribution to Avista's charitable foundation at or promptly
following closing.T
Low-Income Energv Efliciencv Funding: Avista will continue to work with its
advisory groups on the appropriate level of funding for low income energy
efficiency programs.
Low-Income Rate Assistance Proqram (LIRAP): Hydro One and Avista
commit to continue Avista's LIRAP and related pilot programs.
Fundins for Low-Income Participation in New Renewables: Hydro One will
arrange funding totaling 55,000,000 over a period of up to ten (10) years for the
purpose of funding one or more renewable generation project(s) to benefit
Avista's low-income customers. The types of projects that may be funded
include, but are not limited to, on site renewable energy installations such as
photovoltaic equipment, community solar projects, and other renewable energy
equipment, in which the benefits will be directed to Avista's low-income
customers. The funds will be paid into a separate account to be managed and
disbursed by Avista at the direction of its Energy Assistance Advisory Group
(which includes third-party advisors such as The Energy Project, Public Counsel,
Commission Staff, and low-income agencies as well as Avista). The Energy
Assistance Advisory Group will determine the project selection (which includes
design and implementation). Eligible costs may include project construction,
consulting costs, and reasonable administration costs required for the
coordination of renewable energy projects.
Fundins will be made available for eliqible projects as thev are identified and
approved by the Advisory Committee throuehout the l0 year timeframe of the
commitments: provided. however. that fundine will be made available. at a
lnlnlmum, on a pro rata basis over the period (i.e.. one-tenth of the total each
64.
65.
66.
67.
year), but need not occur a uentlv than on a Dro rata basis over the l0
year period. Fundinq commitments may be made at anv time durins the l0 vear
period.
For example. if no fundine is approved bv the Advisorv Comrnittee until the
third year of the l0-year period. up to $1.5 million for Commitment 67 must be
made available in the third year. Nothine in this provision shall be intemreted to
preclude payment of fundins in installments over time for laree projects that are
approved earlv in the l0-vearperiod. For example. a $5 million project could be
7 Note that Commitment I I contains additional provisions relating to Avista's charitable contributions.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page?l of28
69
68
70.
approved in Year 3 under Comrnitment 67 with $1.5 million due in Year 3 and
$0.5 million per year due each year for the nex[ seven vears. assumins no
funding had bpcn quelqavailable under Commitment 67 in Year I or Year 2.
Addressine Other Low-Income Customer Issues: Avista will continue to
work with low-income agencies to address other issues of low-income customers,
including funding for bill payment assistance.
Replacement of Manufactured Homes: Hydro One will arrange funding of
$2,000,000 over a l0-year period in Washington to replace manufactured homes.
At least half of the funds must be spent in the first five years. The demand side
management ("DSM") advisory group and Avista will work together to design
the program, and Avista will begin implementing the progftIm within six months
of the date that the Proposed Transaction closes. The program will prioritize
replacement of homes manufactured before 1976.
To the extent any funds are not used over the l0-year period, these funds will be
redirected for additional funding for low-income weatherization programs.
Low Income Weatherization: Avista commits and Hydro One agrees that
Avista commits, to continue Avista's existing weatherization programs,
described in Schedules 90 and 190.
Hydro One will arange funding of $4,000,000 over l0 years to fund low income
weatherization in Washington. This funding is over and above existing funding
for low-income w eatheri zation.
For both existing funding and the new Hydro One funding, 20 percent of the
funds may be used for "direct" project coordination costs and 10 percent for
"indirect" general overhead costs of administering the weatherization program.
Fundins will be made available for elieible projects as they are identified and
approved by the enerey efficiency Advisory Committee throushout the l0 year
timeframe of the commitments: provided. however. that funding will be made
thqrzcif ehle ql q minirnrrlr ^n a nr^ r^l^i. ^.r-. tko no,/.nA (i o nnp-fanfh nf
total each year). but need not ocour any more frequentlv than on a Dro rata basis
nrrar fha I 11 .raar ^ori^.I F'.-rli-.t ^nffih ilrnenis nrcv he rxede Al an time duri n(t
the 10 year period
For example, if no fundine is approved by the energy elfrcbnly Adyisary
CommrttEe unlil the thud yqar of the l0-year period. up to $l
Commitmett 70 mgsl Le ma. e available in the third vear. Nothine in this
shall be i ed to of
over time for large proiects that are approved earlv in the l0-year period. For
example. a $4 million proiect could be approved in Year 3 under Commitment
70 with $1.2 million due in Year 3 and $400.000 per year due each year for the
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page22 of28
next seven years. assumine no funding had been made available under
Cornmitment 70 in Year 1 or Year 2
Securitv Deposits: Avista commits and Hydro One agtees that Avista commits
to eliminate security deposits for new Avista residential customers and to return
existing security deposits to customers who have a deposit held longer than 6
months. After two years from Commission approval of the Proposed Transaction,
any party may request the Commission to modify or remove this commitment if
it determines that application of this commitrnent has an unreasonable impact on
Avista's uncollectible debt.
AMI Consumer Protection: Avista commits and Hydro One agrees that Avista
commits to discussing implementation of prepayment billing and remote
disconnect at the Commission's upcoming AMI workshops, and agree not to
implement prepayment until authorized by the Commission after conclusion of
the AMI workshop, and related AMI dockets. Avista agrees to track the benefits
of remote disconnection/reconnection identified in its AMI business case,
starting with the AMI technology data collected from customers already
equipped with an AMI meter. [n addition, Avista commits that, it will not
remotely disconnect customers for non-payment when the National Weather
Service for that particular region has forecasted a daily high temperature of 38
degrees or less or a daily high temperature of 100 degrees or more. If, however,
the Commission adopts a rule prescribing a temperature threshold for remote
disconnection that is inconsistent with this commitment, the rule will supersede
this commitment.
Improve Penetration of Low-Income Programs: Hydro One and Avista will
undertake a targeted effort with a goal of improving the penetration rate of low-
income programs with a focus on underserved, vulnerable, and high energy
burden households. This commitment will include expanding marketing,
outreach, and data analysis.
Tribal Communities: In implementing these conditions, Avista will reach out
to tribal communities to encourage participation of members of such
communities in receiving the benefits of this settlement.
H. Miscellaneous Commitments
Sources of Funds for Hvdro One Commitments: Throughout this list of
merger commitments, ffiy commitment that states Hydro One will arange
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 the 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 with the ring fencing provisions of this list of
merger commitments, such retained eamings may be used. Funds available from
other Hydro One affiliates may be used without limitation. Avista will not seek
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page23 of28
71
72.
73
74.
75
76
77
cost recovery for any of the commitments funded or arranged by Hydro One in
this list of merger commitments. Hydro One will not seek cost recovery for such
funds from ratepayers in Ontario.
Colstrip Depreciation: Hydro One and Avista agree to a depreciation schedule
for Colstrip Units 3 and 4 that assumes a remaining useful life of those units
through December 31, 2027. Existing undepreciated balance ($114.2 Million)
will be recovered as follows:
$16.7 Million - unprotected Excess DFIT/Deferral of January - April
2018 tax credit.
$45.3 Million - through an annual depreciation expense of approximately
$4.533 million (WA Share), which is the current level of annual
depreciation expense presently being recovered from ratepayers (i.e., no
increase to rates)
$52.2 Million - regulatory asset offset by the amortization of protected
Excess DFIT, i.e. over 36 years
a
a
a
See Attachment A to Appendix A (Master List of Commitments in Washington)
to the Settlement Stipulation, "Colstrip Commitment Summary and Description",
which is incorporated herein by reference.
Montana Communitv Transition Fund: Hydro One and Avista will arrange
funding of $3.0 Million towards a Colstrip community transition fund.
This commitment is not intended as a "cap" of the amount that Avista/Flydro One
may ultimately contribute to help the Colstrip community transition from coal-
fired generation.
Colstrin Transmission Plannins: Avista will work with the other Path 8 (MT-
to-NW) owners (Northwestern Energy and BPA) to resolve questions
surrounding the ability of new generation to use the Colstrip line once Colstrip
Units I and 2 retire, and also when Units 3 and 4 retire.
At least one year prior to any closure of Colstrip Units 3 and 4, Avista will
develop a transition plan for its Colstrip transmission assets. Avista will hold at
least one workshop with Commission Staff and stakeholders to determine the
transition plan's impacts to Washington ratepayers.
Avista will work with stakeholders and Commission Staff and file this transition
plan with the Commission. In developing this transition plan, to the extent
practicable, Avista should participate in l) the workshops on this topic that PSE
and the Commission will be holding in 2018 (per the PSE GRC settlement), and
2) the BPA/Governor Bullock Transmission Task Force that commenced work
on December 8,2017, and will work through the middle of 2018.
78
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page24 of28
Hydro One agrees Avista will conduct the activities described in the foregoing
paragraphs.
79 On Bill Repavment: Hydro One will arrange funding of the approximately
$100,000 initial investment in software upgrades and $5,000 in administrative
costs. The option for repayment of the customer's share of the cost of a
replacement manufactured home (funded by third-party financial institutions)
will be included in the OBRP.8 Under no circumstance, will the ratepayer
population be responsible for any default related to the OBRP.
80. Contract Labor:
a. On a prospective basis, and for a period of 10 years ending March 7, 2028,
Avista will require the use of WNIDCL members for the type of work that is
ordinarily and customarily performed by WNIDCL on natural gas
replacement and all natural gas work. This will not apply to work performed
under contracts already in effect as of March7,2018. This agreement will
not apply to (a) atmospheric corrosion; (b) locating; and (c) leak survey. This
agreement will also not apply to work performed where signatory contractors
are not available (unavailability is typically due to locations being in remote
areas), or choose not to bid on projects; provided that work performed in such
areas will be paid at equivalent wages and benefits.
b. On a prospective basis, and for a period of 10 years ending March 7, 2028,
Avista will require the use of WNIDCL members for all flagging work,
unless otherwise performed by Avista employees represented by IBEW Local
77. This will not apply to work performed under contracts already in effect as
of March 7,2018.
c. WNIDCL will provide for signatory contractors laborers that are qualified
pursuant to applicable OSHA l9l0 regulations and all other applicable
training. In addition, WNIDCL will provide WNIDCL members
knowledgeable in the DOT Title 49 Code of Federal Regulations,Part 192,
and all applicable state pipeline safety regulations. Contractors shall be
required to provide proof of compliance with this requirement to Avista.
8 OBRP is a pass-through billing service for energy efficiency loans, where Avista would collect loan
payments on customers' bills then transmit the sum monthly to the third-party lender. Only non-profit lenders
would be eligible, offering low rates for energy efficiency loans. The lender has no ability to shut off power
(due to non-payment) and all lending activity is managed separate from the utility, where the lender:
o Provides all capital, bears full risko Manages delinquent files and collections off-bill
o Handles loans/balances separate from utility financial systems
o Meets consumer lending regulatory requirements.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page25 of28
d. On a prospective basis, Avista will require contractors to utilize NWLETT
for required training, if applicable courses are offered by NWLETT and are
reasonably accessible in the locality where the work is to be performed.
e. Avista will meet and confer with WNIDCL to discuss possible involvement
in all future hydroelectric projects that are within the sphere of WNIDCL's
expertise.
f. Avista will encourage contractors to utilize union labor, including, without
limitation and as applicable, members of the Laborers', Pipefitters and
Steamfitters, and [BEW, on Avista projects as part of its bidding solicitation
process on all other construction work, including but not limited to capital
work on hydro facilities, and will evaluate the use of such members in the
staffing plans of bidding contractors as an element of Avista's bid evaluation
process.
g. Avista will continue to prioritize the hiring of qualified contractor personnel
through the bidding process, by requiring analysis of not only the price
proposals submitted by conffactors, but a variety of other factors, including
minimum staffing requirements as applicable, training programs, documented
qualification programs, safety track records, OSHA 300 reportables, and
other safety records as appropriate. Review of these components is intended
to verify that the contractor is able to supply a sufficient workforce to meet
Avista's needs, and that their personnel are appropriately trained, qualified
and able to safely and reliably perform work for Avista.
h. Work covered by these commitments does not include work that is
customarily perfiormed by Avista employees represented by IBEW l-ocal77
but that is contracted out pursuant to IBEW Local TT's collective bargaining
agreement with Avista. It also does not include any work that is performed
by Avista employees, regardless of the tlpe of work involved.
i. Avista will meet and confer with WNIDCL at least six months prior to March
7,2028 to discuss extending or modifying the terms set forth herein.
Most Favored Nations: The Applicants agree that upon the joint request of the
Non-Applicant Parties, or a request of less than all Non-Applicant Parties which
is unopposed by any Non-Applicant, the Commission shall have an opportunity
and the authority to consider and adopt in Washington any commitments to
which the Applicants agree in other jurisdictions, even if such commitments are
agreed to after the Commission enters its order in this docket. To facilitate the
Commission's consideration and adoption of the commitments from other
jurisdictions, the Parties recommend that the Commission issue an order
accepting this Stipulation as soon as practical, but to reserve in such order the
explicit right to re-open to add commitments accepted in another state
jurisdiction.
81.
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page26 of28
The Applicants further agree that upon the request of any Non-Applicant Party
prior to the Commission's action on this Stipulation, if Applicants agree with any
commitments in other jurisdictions, within five days of such a request,
Applicants will meet and confer with the Non-Applicant Parties to discuss
whether such commitments should be added to the existing list of commitments
already agreed to by the Parties in this Stipulation.
Process for Consideration:
Within five calendar days after Applicants file a stipulation with new or amended
commitments with a commission in another state jurisdiction, Applicants will
send a copy of the stipulation and commitments to the Non-Applicant Parties.
Within five calendar days after a commission in another state jurisdiction issues
an order that accepts a stipulation to which Applicants are a party and imposes
new or modified commitments, that order, together with all commitments of any
tlpe agreed to by Applicants in such other state, will be filed with the
Commission and served on all parties to this docket by the most expeditious
means practical.
Within ten calendar days after the last such filing from the other states ("Final
Filing"), the Non-Applicant Parties may file with the Commission any response
they wish to make, including their position as to whether any of the covenants,
commitments and conditions from the other jurisdictions (without modification
ofthe language thereof except such non-substantive changes as are necessary to
make the commitment or condition applicable to Washington) should be adopted
in Washington.
Within five calendar days after any such response filing, the Applicants may file
a reply with the Commission.
Ifany ofthe dates above fall on Saturday, Sunday, or a holiday, the next business
day will be considered as the due date.
The Parties agree to support in their filings the issuance by the Commission of an
order regarding the adoption of such commitments as soon as practical thereafter,
recognizing that the Proposed Transaction cannot close until final state orders
have been issued approving the Proposed Transaction.
Limitations on Adjustment:
Only commitments specific to gas service may form the basis for adjustments
specific to gas service.
Only commitments specific to electric service may form the basis for adjustments
specific to electric service.
a
a
a
a
a
a
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page27 of28
a
a
Any commitments relating to support of communities in Montana are not subject
to this provision.
As Avista does not operate as a utility in Alaska, any commitments made in
Alaska are not subject to this provision.
For purposes of financial commitments or commitments having a financial
impact, commitments should be proportionate to Avista's corresponding business
function in Washington in relation to its corresponding total company business
function. Accordingly, commitments should be allocated among Avista's WA,
ID and OR jurisdictions based on the following: 1) Rate Credit is allocated based
on base revenues; 2) all other financial commitments are allocated using the
Company's jurisdictional'ofour factor" allocation methodology, routinely
employed for purposes of allocating common costs, as discussed in Mr. Ehrbar's
testimony in this proceeding. For purposes of this provision, "financial
commitments or commitments having a financial impact" do not include ring
fencing provisions.
82. Notice and Petition for Re-Heariue; Ln the qyqrt qfuhe enactment or adoption
of any lesislation. rule" policv. or directive by qovemment atgny lqyellt !y aty
sovernmental entity or official in Canada (a "Legislative Action'") that affects
Avista's operations because of Avista's corporate relationship with Hydro One.
or affbcts H-vdro One's compliance with anv commitment in this stipulation. any
of the pgrtiqs to this proceeditg Iltatlpetition the Commission at anv time for a
re-hearins that re-opens the record in Docket U- 170970 to consider whether the
Commission should chanse its final order" and neither Hydro One nor any of its
subsidiaries. includine Avista. will oopose initiation of such a proceedinq.
Hydro One will report to the Commission any such Legislative Action in Canada
that. in Hvdro One's reasonable iudqement. affects Avista's operations because
of Avista's corporate relationship with Hydro One. or affects Hydro One's
compliance with any commitment in this stipulation. as soon as practicable after
it is publicly announced as beins effective by the government or governrnental
entity or official. Nothine in this Commitment 82 shall be interpreted to lirnit the
lons or nts that Avista or H One ma take or advance in an
such proceedine. including the riqht to argue that a petition presents insufficient
erounds or evidence. Prior to filinq a petition with the Commission under this
Commitment 82. a party must provide Hvdro One and Avista at least 30 days
advance written notice and an opportunity to meet and confer about resolutions
other than filine with the Commission under this commitment. Nothins in this
commitmqll jg intended tq restriqt the riehts of thc jaftics ts pg{iorl tha
Commission concernins its order(s) in this docket. or to limit the authoritv of the
Cornmission.
o
a
Revised Appendix A to Settlement Stipulation (Exhibit JNT-3) - Redline
Page 28 of28
a
Revised Appendix 5 to Joint Application
SCHEDULE I
DELEGATION OF AUTHORITY
HYDRO ONE LIMITED BOARD OF DIRECTORS
!
Aooproo,qs or h.20181
In addition to all powers and authority reserved to the Board of Directors of Avista
Corporation (the "SUbSidiary_Eqrs!"), a Washinglon corporation (the "Sggiyi!C!gtpelA!ig["),
as a matter of law, including the Washington Business Corporation Act and pursuant to its
articles of incorporation and bylaws, as may be amended from time to time (the 'AfgaltzatiqAl
Documents"), the Board of Directors of Parent (as defined below) (the 'parent noarO") hereby
acknowledges and agrees that, to the fullest extent permitted by applicable law, decisions with
respect to the matters set forth on Schedule I attached hereto shall be expressly reserved to the
Subsidiary Board and the Subsidiary Board shall be expressly delegated the sole authority to
review, authorize and approve such matters (the "Deleeation of Autho '), without any
obligation to obtain any separate authorization or approval from the Parent Board, the board of
directors of Olympus Equity LLC, a Delaware limited liability company ("Shareholder"), any
Subsidiary of Parent that is an indirect parent of the Surviving Corporation, or any officer or
employee of any of Parent, Shareholder or any such Subsidiary (other than in such person's
capacity as a director of the Surviving Corporation, as applicable), prior to the execution and
delivery of any definitive, legally binding commitment or the taking of any other action with
respect to or in connection with the Delegation of Authority Matters by the Surviving
Corporation, its subsidiaries or any of their respective officers, employees or authorized
representatives; orovided, that, (i) decisions with respect to the matters set forth on Schedule II
attached hereto shall require the express approval of Shareholder in its capacity as the sole
shareholder of the common stock of the Surviving Corporation, and no authorization or approval
of such matters shall be made by the Subsidiary Board, nor shall any action be taken by the
Surviving Corporation with respect to such matters, without such express approval (the
"Shareholder Approval Matters"); and (ii) the foregoing delegation is subject to the govemance
provisions set forth on Schedule III being implemented and in full force and effect with respect
to the Surviving Corporation (the "Goyemansg_BgSuilgrnenlg"). Capitalized terms used but not
defined herein or on the attached Schedules shall have the meanings set forth in that certain
Agreement and Plan of Merger (the "MerggI 499€mg$"), by and among Hydro One Limited, a
corporation organized under the laws of the Province of Ontario C'&Ig!I), Ollnnpus Holding
Corp., a Delaware corporation, Olympus Corp., a Washington corporation ("Merggl!ub"), and
Avista Corporation, a Washington corporation (the "geEpAIy"), dated as of July 19,2017, and
this instrument is refened to herein as the "Dqlegaliel-afAu1h ."
The delegations of authority set forth herein are intended to assist the Subsidiary Board
and the officers ofthe Surviving Corporation and its subsidiaries in effectively performing their
duties, while enabling the Subsidiary Board to monitor performance and maintain control over
the management and decision-making of the Surviving Corporation and its Subsidiaries related
to or in connection with the Delegation of Authority Matters.
I To be adopted by the Parent Board ofDirectors substantially concurrent with the Closing ofthe transaction,
Revised Appendix 5 to Joint Application (Delegation of Authority) Page 1 of 9
Notwithstanding any express, implied or inherent grant of managerial and executive
authority to any officer of Shareholder, the Surviving Corporation or any of its subsidiaries, no
officer shall take or cause or permit Shareholder, the Surviving Corporation or any of its
subsidiaries to take action, or expend any money on behalfofthe Surviving Corporation or any
of its subsidiaries with respect to, any of the Delegation of Authority Matters, unless such action
or expenditure has been approved by the Subsidiary Board in accordance with the articles of
incorporation and bylaws of the Surviving Corporation and this Delegation of Authority. Any
actions taken by the Chief Executive Officer or Chief Financial Officer of the Surviving
Corporation following the approval by the Subsidiary Board in accordance with and pursuant to
this Delegation of Authority with respect to the Delegation of Authority Matters shall, for a1l
purposes and in all respects, and without any further action of Shareholder, the Surviving
Corporation, the Subsidiary Board, or any other person, be deerned to be the due and proper
actions of the Surviving Corporation.
The delegations ofauthority set forth herein with respect to the Delegation ofAuthority
Matters shall be deemed to include, in the case of each such delegation of authority, the authority
to perform such further acts and deeds, for and on behalfofthe Surviving Corporation, as may
be necessary, proper or advisable, in the judgment of the Subsidiary Board, to fully carry out the
actions and effectuate the intent and purposes ofthe matters described herein.
To the extent provisions with respect to the Delegation of Authority Matters, Shareholder
Approval Matters or Governance Requirements are inconsistent with one or more provisions of
the Washington Business Corporation Act, Parent and Shareholder intend that such provisions be
effective as an agreement among shareholders pursuant to RCW 238.07.320 and that such
agreement be valid as long as Shareholder is the sole shareholder of the common stock of the
Surviving Corporation.
Any amendment, revision, modification or repeal of any provision with respect to the
Delegation of Authority Matters, Shareholder Approval Matters or Governance Matters shall
require the prior approval of any applicable state utility regulatory authorities with jurisdiction
over the Surviving Corporation. Notwithstanding any contrary provision contained herein, the
Delegation of Authority Matters, Shareholder Approval Matters or Governance Matters are
subject to, and the provisions hereof shall be construed and interpreted in compliance with, all
applicable requirements of any order of any applicable state utility regulatory authority with
jurisdiction over the Surviving Corporation, including, specifically, any commitments made by
the Surviving Corporation in connection with any such orders.
DELEGATION OF AUTHORITY MATTERS SCHEDULE I
Operationa I Commi hnents
Decisions to:
1. maintain (a) the Surviving Corporation's headquarters in Spokane, Washington; (b) the
Surviving Corporation's office locations in each ofits other service territories, and (c) no less
of a significant presence in the immediate location of each of such office locations than what
the Company and its subsidiaries maintained immediately prior to the Effective Time;
2. maintain the Surviving Corporation's and its Subsidiaries' brand and establish the plan for
the operation ofthe business ofthe Surviving Corporation and its Subsidiaries;
3. maintain at least the Surviving Corporation's and its Subsidiaries' existing levels prior to the
Effective Time of community involvement and support initiatives in the existing service
territories ofthe Surviving Corporation and its Subsidiaries;
4. maintain a $4,000,000 annual budget for charitable contributions by the Surviving
Corporation, make a $7,000,000 initial contribution to the Surviving Corporation's charitable
foundation at or promptly following the Effective Time and make a $2,000,000 annual
contribution to the Surviving Corporation's charitable foundation;
5. maintain at least the Surviving Corporation's and its Subsidiaries' existing levels of
economic development as of the Effective Time, including the ability of the Surviving
Corporation to spend operations and maintenance funds to support regional economic
development and related shategic opportunities in a manner consistent urith the past practices
ofthe Surviving Corporation and its Subsidiaries;
6. maintain the Surviving Corporation's and its Subsidiaries' existing levels as ofthe Effective
Time of capital allocations for capital investment in strategic and economic development
items, including property acquisitions in the university district, support of local entrepreneurs
and seed-stage investrnents;
7. continue development and fiurding of the Surviving Corporation's and its Subsidiaries'
existing and future innovation activities; and
8. maintain the Surviving Corporation's and its Subsidiaries' safety and reliability standards
and policies and service quality measures in a manner that is substantially comparable to, or
better than, those currently maintained as of the Effective Time by the Company and its
Subsidiaries.
Governance Matters
Decisions to:l. retain the Surviving Corporation's existing executive management team to manage the
Surviving Corporation's business;
2. hire, dismiss or replace the Chief Executive Officer of the Surviving Corporation (and shall
not require any approval of Parent or its Subsidiaries, other than the approval of the
Subsidiary Board);
3. cause the Subsidiary Board to consist of nine (9) members, determined as follows: (i) two (2)
directors designated by Shareholder who are executives of Parent or any of its Subsidiaries;
(ii) three (3) Independent Directors who are residents of the Pacific Northwest Region, to be
designated by Shareholder (the "Shareholder Indeoendent Directors"), and, together with the
directors designated in clause (i) hereof, the "ShalehsldgI_Dgstg!99s"); (iii) three (3)
directors who as of immediately prior to the Effective Time are members of the Board of
Directors of the Company, including the Chairman of the Board of Directors of the Company
(if such person is different from the Chief Executive Officer of the Surviving Corporation);
and (iv) the Chief Executive Officer of the Surviving Corporation (collectively, the directors
designated in clauses (iii) and (iv) hereof, the "gQ![paDy_Dggiglees," at least two (2) of
whom must be Independent Directors (the "Company Independen ')), and (a) the
initial Chairman of the Board of Directors of the Surviving Corporation shall be the Chief
Executive Officer of the Company as of the time immediately prior to the Effective Time for
a one year term and (b) if any Company Designee resigns, retires or otherwise ceases to serve
as a director of the Surviving Corporation for any reason, the remaining Company Designees
shall have the sole right to nominate a replacement director to fill such vacancy, and such
person shall thereafter become a Company Designee; orovided, that in the case of the
Shareholder Independent Directors and the Company Independent Directors, the Company
and Parent shall consult with each other prior to the designation ofany such director; and
4. maintain the composition ofthe Subsidiary Board (including regional representation) and the
appointment of the Chairman of the Subsidiary Board in accordance with paragraph 3
immediately above.
As used herein, "Independent Director" means any director of the Surviving Corporation
who (i) meets the standards for "independent director" under section 303A.02 of the New York
Stock Exchange Listed Company Manual with respect to Parent and its Subsidiaries, including
the Surviving Corporation, (ii) has no material relationship with Parent, its Subsidiaries or
affiliated entities currently or in the prior three years, and (iii) if and to the extent required with
respect to a specific director, who meets such other qualifications as may be required by any
applicable state utility regulatory authority for an independent director. Notwithstanding
anything to the conhary in this definition of "lndependent Director," (a) a director who also
serves as an independent director of the Surviving Corporation or any of its Subsidiaries or the
Shareholder and who otherwise satisfies the criteria set forth above for an "Independent
Director," may still be considered independent within the meaning hereof, and (b) former
officers ofthe Company or the Surviving Corporation, who otherwise satisfu the criteria set forth
above for an "lndependent Director," may still be considered independent within the meaning
hereof.
As used herein, "EagifiCllorthwg$ggiq" means the Pacific Northwest states in which the
Surviving Corporation serves retail electric or natural gas customers, currently Alaska, Idaho,
Montana, Oregon and Washinglon.
Additional Matters
Decisions to:l. negotiate, enter into, modiff, amend, terminate or agree to changes in any collective
bargaining agreement or any other Company Material Contract with any labor organizations,
union ernployees or their representatives;
2. maintain compensation and benefits related practices consistent with the requirements of the
Merger Agreement;
3. maintain or make changes to director, officer or employee compensation or any aspects
thereof, such as amount, mix, form, timing etc., in each case that are consistent with cunent
market standards and prevailing practices of relevant U.S. electric and gas utility
benchmarks; and
4. maintain the dues paid by the Surviving Corporation to various industry trade groups and
membership organizations.
The authority of the Subsidiary Board to make decisions with respect to the foregoing
matters includes the authority to amend the foregoing commitments if the Subsidiary Board
determines by special resolution requiring the approval of two-thirds (213) of the directors,
including the affirmative vote of at least one (l) Company Designee, one (1) Shareholder
Designee (exclusive of the Shareholder Independent Directors) and two (2) Shareholder
Independent Directors, that an amendment would be in the best interest of the Surviving
Corporation, taking into account relevant regulatory considerations; provided. that any
amendment, revision, modification or repeal of any of the foregoing commitments receive the
prior approval of any applicable state utility regulatory authorities with jurisdiction over theSuwiving Corporation.
SCHEDULE II
SHAREHOLDER APPROVAL MATTERS
Operational Matters
Decisions to:l. enter into any agreement with respect to, or otherwise enter into any merger, consolidation,
amalgamation, share purchase or other business combination transaction, or any sale of all or
substantially all ofthe assets ofthe Surviving Corporation;
2. take any action that would reasonably be expected to lead to or result in (i) a material change
in the nature of the business of the Surviving Corporation or any of its Subsidiaries or (ii) the
carrying out by the Surviving Corporation or any of its Subsidiaries of any business other
than its current business as of the Effective Time;
3. take any steps to wind up, terminate or dissolve the corporate existence of the Surviving
Corporation or any ofits Subsidiaries;
4. declare, pay or withhold any distribution or dividend; and
5. make any commitment or enter into any agreement to do any of the foregoing.
Governance and Organizational Matters
Decisions to:
1. repeal, replace or amend in any respect the articles of incorporation, bylaws, or other
organizational documents ofthe Surviving Corporation or any ofits Subsidiaries;
2. increase or otherwise amend or change the authorized or issued capital of the Surviving
Corporation or any of its Subsidiaries;
3. make any change to the number of directors that constitute the full board of directors of the
Surviving Corporation; and
4. make any commitment or enter into any agreement to do any of the foregoing.
SCHEDALE III
GOVERNANCE REOUIREMENTS
The Organizational Documents shall provide for the following:l. the Subsidiary Board shall consist of nine (9) members, determined as follows: (i) two (2)
directors designated by Shareholder who are executives of Parent or any of its Subsidiaries;
(ii) three (3) Independent Directors who are residents of the Pacific Northwest Region, to be
designated by Shareholder (the "Shareholder Independfl '), and, together with the
directors designated in clause (i) hereof, the 'Shareholdgl_Desisneeg"); (iii) three (3)
directors who as of immediately prior to the Effective Time are members of the Board of
Directors of the Company, including the Chairman of the Board of Directors of the Company
(if such person is different from the Chief Executive Officer of the Surviving Corporation);
and (iv) the Chief Executive Officer of the Surviving Corporation (collectively, the directors
designated in clauses (iii) and (iv) hereof, the "CSt4Any._Deslg4ees," at least two (2) of
whom must be Independent Directors (the "Comnanv Indeoendent D '), and (a) the
initial Chairman of the Board of Directors of the Surviving Corporation shall be the Chief
Executive Offrcer of the Company as of the time immediately prior to the Effective Time for
a one year term and (b) if any Company Designee resigns, retires or otherwise ceases to serve
as a director of the Surviving Corporation for any reason, the rernaining Company Designees
shall have the sole right to nominate a replacement director to fill such vacancy, and such
person shall thereafter become a Company Designee;
2. the Company and Parent shall consult with one another prior to the designation of any
Shareholder Independent Director or any Company Independent Director;
3. Shareholder shall have the unfettered right to designate, remove and replace the
Shareholder Designees as directors of the Surviving Corporation with or without cause or
notice at its sole discretion, subject to the requiremort that (D two (2) of such directors
are executives of Parent or any of its Subsidiaries and (ii) three (3) of such directors are
Independent Directors who are residents of the Pacific Northwest Region, while such
requirement is in effect (subject in the case of clause (ii) hereof to Shareholder
determining, in good faith, that it is not able to appoint an lndependent Director who is a
resident of the Pacific Northwest Region in a timely manner, in which case Shareholder
may replace any such director with any person. includins an employee or executive of
Parent or ury oiitr Subsidiaries, on a, inte.im basis, not e*ceeding six.*m{@g!
that Shareholder Desienees who are emolovees or executives of Parent or any of its
Subsidiaries shall in no case constitute a maioritv of the directors of the Survivins
Corporation. after which time Shareholder shall replace anv such interim director with an
traepenOent Oirector who is a resident of the Pacihc Norti-west negionlf..Jlgf-Al$lSg
a circumstance arises. and durine the pendency of any such circumstance. wherebv the
Province of Ontario ("Ontario") exercises its rights as a shareholder of Parent. uses
legislative authoritv or acts in anv other manner whatsoever. that results. or would result.
in Ontario aopointine nominoes to the board of directors of Parent that constitute. or
would constitute a majoritv of the directors of such board. then Parent's authority to
replace an Independent Director with an emplovee or executive on an interim basis is
suspended for the oendencv of such circumstance. i--orevided-*er*er*et-+hef-this
exe@tien te eleuse (ii) her€€f ehal+net apply iC at any time a eireumstan€€ arises; and
io
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Commented [ET3]: lnserted closing pilenthesis and
showed deletion of semicolon
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4. following the initial one year term of the Chairman of the Board of the Surviving
Corporation, Shareholder shall have the right to designate the Chairman ofthe Board ofthe
Surviving Corporation, including electing to continue the terrn of the initial Chairman of the
Board of the Surviving Corporation;
5. at all times, the chief executive officers of the Surviving Corporation and Parent shall be
members of the Subsidiary Board;
6. not less than three (3) business days' notice shall be required to call a meeting of the
Subsidiary Board and such notice shall include an agenda of all iterns of business to be
addressed or subject to decision at such meeting ofthe Subsidiary Board, unless such notice
requirement or agenda requirement is expressly waived by Shareholder in writing; and
7. a quorum ofthe Subsidiary Board shall require (i) at least five (5) directors and (ii) that the
number of Shareholder Designees in attendance be equal to or greater than the number of
Company Designees in attendance, and shall include at least one Shareholder Designee who
is an executive ofParent or any ofits Subsidiaries.
Asusedherein,..bd@@I',meansanydirectoroftheSurvivingCorporation
who (i) meets the standards for "independent director" under section 3034.02 of the New York
Stock Exchange Listed Company Manual with respect to Parent and its Subsidiaries, including
the Surviving Corporation, (ii) has no material relationship with Parent, its Subsidiaries or
affiliated entities currently or in the prior three years, and (iii) if and to the extent required with
respect to a specific director, who meets such other qualifications as may be required by any
applicable state utility regulatory authority for an independent director. Notwithstanding
any'thing to the conhary in this definition of "Independent Director," (a) a director who also
serues as an independent director of the Surviving Corporation or any of its Subsidiaries or the
Shareholder and who otherwise satisfies the criteria set forth above for an "Independent
Director," may still be considered independent within the meaning hereof, and (b) former
officers of the Company or the Surviving Corporation, who otherwise satis$ the criteria set forth
above for an "Independent Director," may still be considered independent within the meaning
hereof.
As used herein, "PAgifigNo4lhwesl-Region''means the Pacific Northwest states in which the
Surviving Corporation serves retail electric or natural gas customers, currently Alaska, Idaho,
Montana, Oregon and Washington.
In addition to the foregoing, the Subsidiary Board intends to adopt a skills mahix (the "Ski!!g
Matrix) with respect to the qualifications of directors. No director nominee may be proposed to
replace an incumbent director il taking into account the selection criteria required above, and
any other proposed replacement directors who have already been confirmed, the Subsidiary
Board would not collectively satisff the Skills Matrix.