20180501Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:BRANDON KARPEN
DEPUTY ATTORNEY GENERAL
DATE: MAY 1,2018
SUBJECT:JOINT APPLICATION OF HYDRO ONE LIMITED AND AVISTA
CORPORATION FOR APPROVAL OF MERGER AGREEMENT;
CASE NOS. AVU.E-17.09 AND AVU-G.T7.05.
On July 19,2017, Avista announced that it had entered into a merger agreement with
Hydro One ("Applicants"). On September 74, 2017, the Applicants filed the above captioned
joint application for approval of the merger. Approval of the Application would result in Avista
becoming a wholly owned subsidiary of a Hydro One holding company. Idaho Forest Group,
Clearwater Paper, Idaho Conservation League (lCL), the Community Action Partnership
Association of ldaho, and the Washington and Northern Idaho District Council of Laborers
intervened as parties. The Commission set deadlines for the parties to file testimony, scheduled a
public workshop, and set a technical hearing date of June 27 ,2018. See Order No. 33950.
On April 4, 2018, the parties engaged in settlement discussions at the Commission
Office. On April 13,2018, the Applicants filed a Motion for Approval of Stipulation notifying
the Commission that the parties had reached a full settlement.
PROPOSED SETTLEMENT
The parties represent that the Stipulation and Settlement in whole is in the public interest
and is fair, just and reasonable. The parties acknowledge that the Commission is not bound by
these representations and that the Commission will independently review the proposed
settlement to decide whether to approve it, reject it, or state conditions under which to accept it.
1DECISION MEMORANDUM
By way of summary, the Stipulation and Settlement proposes to fully resolve the case as
follows.l
The Commission approve the proposed merger of Avista with Hydro One. In supporting
the proposal, the parties negotiated and support, and the Applicants agree to the following
conditions:
l. Governance and Operational Commitments
All decision-making authority over Avista operations will belong to the Board of
Directors of the Avista Corporation, and not to Hydro One. Any change in this authority will
require a two-thirds vote of the Avista Board, and approval of local regulatory agencies. Avista
will retain all current executive management of Avista, subject to voluntary retirements, and
standard business rational.
Following approval or the merger, the Avista Board will consist of nine members: two
designated by Hydro One; three independent directors who reside in the Pacific Northwest;2
three current members of Avista's current board; and Avista's current CEO will remain and
serve as chairman of the board following closing.
Avista will maintain branding, and the Avista headquarters will remain in Spokane.
Avista offices will remain in their current territory locations. Avista will maintain or expand
capital investments for community economic development. The Company will further maintain
its current wbrkforce, with the same compensation and benefits.
2, Rate Commitments
There will be no rate increase because of the merger. Rather, Avista's Idaho customers
will receive a $15.8 million rate credit over a five-year period, or $3.2 million per year. All costs
associated with the transaction will be tracked separately and will not appear on Avista's utility
books. Customers will not pay for any transaction or transition cost, including all legal work,
advisory fees, acquisition premiums, documentation and materials, executive compensation, and
any cost directly related to the transaction. Any technology expenditures required for
compatibility within the merged entity will be excluded from rates.
I The complete settlement stipulation, the Application and supporting workpapers, testimonies and exhibits are
available for public inspection during regular business hours at the Commission offices, and are also available on the
Comm ission' s web s ite at u. rv u,.p tlQ-id alio.gay.
2 The Pacific Northwest is defined as Alaska, Idaho, Montana, Oregon, and Washington State.
2DECISION MEMORANDUM
3. Regulatory Commitments
Hydro One and its subsidiaries recognize the authority of Idaho, and the Idaho
Commission, and have committed to comply, as required, will all applicable Idaho laws and
Commission orders. Further, Hydro One and its subsidiaries commit to maintain and make
available all books, records, and financial information to the Commission. Avista will maintain
separate books and records. Hydro One committed to not use lack ofjurisdiction to deny access
to any records.
4. Financiol Integrity Commitments
Hydro One will provide equity to support Avista's capital structure, and Avista will
maintain separate debt to support its utility operations. Avista will maintain its pension funding
policy, and Hydro One will not seek to change it. Avista will comply with all Securities
Exchange Commission and Sarbanes-Oxley reporting requirements, as required by law.
5. Ring Fencing Provisions
Applicants agree to several provisions aimed at shielding Avista from any negative
potential financial issues of Hydro One. These include authority over possible bankruptcy
proceedings, a non-consolidation proviso that a bankruptcy court would not order the substantive
consolidation of the assets and liabilities of Avista with Hydro One, and that Hydro One would
not seek to include Avista in a potential bankruptcy without the consent of two-thirds of Avista's
board. Additionally, the Applicants agree that Avista's assets will not be pledged by Avista or
any of its affiliates, including Hydro One, for the benefit of any entity besides Avista.
Hydro One agreed to a "hold harmless" provision, under which Hydro One will hold
Avista's customers harmless from any business and financial risk exposures associated with
Hydro One, and any Hydro One affiliate. The hold harmless provision states that in any
proceeding before the Commission involving rates, the rate of return will be determined without
regard to unregulated activities. Additionally, Avista will not enter into an inter-company debt
transaction, or lend money to Hydro One without prior Commission approval.
6. Resource Planning and Environmental Commitments
Avista will continue to offer renewable power programs in consultation with
stakeholders. However, in all resource planning and acquisition efforts, Avista will also evaluate
demand-side resources, renewable energy, Power Purchase Agreements, and all other resources
consistent with the Commission's resource evaluation rules and policies.
DECISION MEMORANDUM J
7. Energy EfJiciency, Weatherization, and Conservution Commitments
Hydro One will arrange funding of $5.3 million over a ten-year period to fund energy
efficiency, weatherization, conservation, and low-income assistance programs. The funds will be
directed by the Energy Efficiency, Weatherization, Conservation, and Low-Income Assistance
Committee ("EWCL"). The EWCL is a new committee consisting of Avista, Commission Staff,
the Lewiston CAP, ICL, the Idaho Forest Group, and Clearwater Paper. The EWCL will
determine if programs should receive this funding to address energy efficiency, weatherization,
conservation, and low-income needs in Avista's Idaho service territory.
As part of the proposed settlement, the parties agree that Avista will work with
Clearwater and Idaho Forest Group to qualify certain projects for funding under Tariff Schedule
90 (DSM), and submit any non-qualifying portions of those projects to the EWCL to consider for
further funding.
Hydro One and Avista will work with the Lewiston CAP to improve the penetration of
low-income programs. Avista will also work to fund bill payment assistance for low-income
customers, and will continue to offer the Fee Free Payment Program to residential customers.
8, Miscellaneous Commitments
Following closing, there will be a one-time $7 million contribution to Avista's charitable
foundation. For five-years after the close the transaction, Avista will maintain a $4 million
annual budget for charitable contributions, and will also contribute $2 each year to Avista's
charitable foundation. Avista agrees it will work to distribute these monies across its service
territory proportionally across jurisdictions.
For accounting purposes, Hydro One and Avista agree to support a December 31,2027,
depreciation end of life relating to Avista's ownership in Colstrip Units 3 and 4. The Applicants
also agree that they will support accelerated depreciation in Avista's interest in Colstrip Units 3
and 4 in Avista's pending Federal Tax Revision case, Case No. GNR-U-18-01; Avista's
Application to Change Its Electric and Natural Gas Depreciation Rate, Case Nos. AVU-E-18-03,
AVU-G-18-02; and in its 20lg lntegrated Resource Plan.3
Finally, the settlement also includes a most favored nations clause that allows the
Commission to consider, and adopt in Idaho any commitments the Applicants agree to in other
I Avista's 2019 IRP will analyze multiple retirement dates for Colstrip Units 3 and 4, not limited to, the "end of
useful life" date determined in AVUE-18-03, AVU-G-18-02.
4DECISION MEMORANDUM
jurisdictions. This provision applies even if such commitments are agreed to after the
Commission enters its order in this docket.
STAFF RECOMMENDATION
Staff recommends that the Commission issue notice of the proposed settlement, process
the proposed settlement by modified procedure, and vacate prefile testimony deadlines, and the
technical hearing set for lune27,20l8. Staff further recommends that the Commission conduct
three public hearings, and issue an Order that adopts the following schedule:
DATE ACTIVITY
June 12,2018 Public Hearing at 1912 Center, 412 E .3rdt St.,
Moscorv, Idaho,6:00-8:00 PM (PDT)
June 13,2018 Sandpoint I.{igh School, 410 S. Division Ave.,
Sandpoint. Idaho. 6:00-8:00 PM (PDT)
June 14,2018 Midtou,n Meeting Center, 1505 North Fiflh St.,
Coeur D'Alene, Idaho, 6:00-8:00 PM (PDT)
June 20, 2018 Deadline for comments in support of the stipulation
June 27, 2018 Deadline for public comments and reply comments,
if any
COMMISSION DECISION
Does the Commission wish to issue notice of the proposed settlement, to process the
proposed settlement by modified procedure, and vacate prefile testimony deadlines, and the
technical hearing set for June 27 ,2018?
Does the Commission wish to conduct public hearings, and adopt the recommended
schedule as described above?
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5DECISION MEMORANDUM