20180620Comments.pdf

BRANDON KARPEN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03s7
IDAHO BAR NO. 7956
RECEIVED
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT
APPLICATION OF HYDRO ONE LIMITED
AND AVISTA CORPORATION FOR
APPROVAL OF MERGER AGREEMENT
COMMENTS OF THE
COMMISSION STAFF
ON SETTLEMENT
STIPULATION
The Staff of the Idaho Public Utilities Commission submits the following comments in
the above captioned matter.
BACKGROUND
On July 19,2017, Avista announced that it had entered into a merger agreement with
Hydro One (Applicants). On September 14, 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 (ICL), the Community Action Partnership
Association of Idaho (CAPAI), and the Washington and Northern Idaho District Council of
Laborers intervened as parties. 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.
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CASE NO. AVU.E.I7.Og
AVU-G-17-05
1STAFF COMMENTS JUNE 2O,2OI8
The following comments are provided in support of the proposed settlement.
STIPULATION AND SETTLEMENT
1. 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 rationale.
Following approval of the merger, the Avista Board will consist of nine members: two
designated by Hydro One; three independent directors who reside in the Pacific Northwest;l
three current members of Avista's curent 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 workforce, 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 Pacific Northwest is defined as Alaska, Idaho, Montana, Oregon, and Washington State.
2STAFF COMMENTS JUNE 20,2OI8
3. Regulatory Commitments
Hydro One and its subsidiaries recognizethe 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. Financial 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 provision 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.
JSTAFF COMMENTS JLrNE 20,2018
7. Energy EfJiciency, lVeatherization, and Conservation 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 Agency, 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 Agency 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 of the transaction, Avista will maintain a $4 million
annual budget for charitable contributions, and will also contribute $2 million 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-I8-01; Avista's
Application to Change Its Electric and Natural Gas Depreciation Rate, Case Nos. AVU-E-18-03,
AVU-G-I8-02; and in its 20lg lntegrated Resource Plan.2
2 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 AVU-E-18-03, AVU-G-18-02.
4STAFF COMMENTS JUNE 20,2OI8
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
jurisdictions. This provision applies even if such commitments are agreed to after the
Commission enters its order in this docket.
STAFF REVIEW
Staff began its investigation as soon as the announcement was made on July 19,2017,
that Avista Corporation had entered a Merger Agreement with Hydro One Limited. Staff was
concerned that the assets of the operating utility and its customers be protected. Like with any
other sale or merger, Staffls investigation centered on meeting the requirements of Idaho Code
$ 6l-328 to assure the transaction is in the public interest. Section 6l-328 requires authorization
by order of the Commission before an electric public utility owning, controlling or operatin g any
property located in Idaho used in the generation, transmission, distribution or supply of electric
power or energy to the public may merge, sell, lease, assign or transfer, directly or indirectly,
such property, or the operation, management or control thereof. Section 6l-328 requires that
before authorizing such a transaction, the Commission must find: (1) the transaction is consistent
with the public interest; (2) the transaction will not cause the cost of rates for supplying
electricity to increase; and (3) that Hydro One has the intent and financial ability to operate and
maintain Avista's operations in Idaho. Staff believes all three requirements are met and
demonstrated in the Stipulation and Settlement.
The investigation included analyzing potential changes to the utility structure, protecting
Avista assets, retaining positive operations, assuring customer rates would not increase due to the
transaction in fact the merger will result in rate credits re<iucing customer rates, and obtaining
other positive benefits for customers. In addition to its review and analysis of the Application
and Proposed merger, Staff analyzed over 300 Production Request Responses requested in this
case by the Staff and intervenors. Staff also reviewed simultaneous cases in Washington and
Oregon. All customer comments and concerns were considered and evaluated. Staff believes
the Stipulation and Settlement between all parties to this case include terms to properly provide
necessary protections and benefits to all customers.
The merger will improve Avista's access to capital. Hydro One is rated "A" by Standard
and Poors (S&P) for Hydro One's long-term credit rating. Moody's rating is "A3" for Hydro
One senior unsecured regular bonds. Avista's Corporate Credit Rating is "BBB" by S&P and
5STAFF COMMENTS JUNE 2O,2OI8
"Baal" by Moody's. Avista is rated ooA-" for senior secured debt. The majority of operations
for both Avista and Hydro One are generated from rate-regulated operations. Based on credit
ratings alone, the risks for both Avista and Hydro One are similar. Hydro One could have lower
financing costs with its better ratings.
Commitment numbers I - 15 provide utility operating protections by retaining decision
making with the Avista Board of Directors. The ownership will change but the management
team, employees, and business operations will stay the same. This benefits customers and the
communities served by retaining local decision-making authority for business operations and
community involvement. Commitment 11 establishes a minimum annual budget for charitable
contributions for at least five years. Any contribution payments made are not included in Idaho
customer rates but benefits are still received. Commitment 15 provides for the continued
development of performance standards and customer guarantees to protect and benefit
customers.
Commitment numbers l6 - 19 provide benefits in customer rates. Customer rates will
include net cost savings from the merger but all costs related to the merger will be excluded from
rates. Avista retail electric and gas customers will receive merger rate credits for five years. The
annual credits of approximately $3.2 Million reduce customer bills from the level they would
have been otherwise absent the merger.
Commitment numbers 20 - 5l provide regulatory, financial, and ring-fencing provisions
to protect customers from any negative actions that may occur with Hydro One. While many of
these commitments specifically spell out existing authorities and protections, others establish
new levels of protection for Avista Idaho customers. Idaho law will still be followed with all
legal requirements met. The Idaho Public Utilities Commission (IPUC) will retain jurisdiction
and all IPUC orders, both existing and future orders, must be followed by Avista and all parent
affiliated entities related to or impacting Idaho rate-regulated operations. All reporting and
record keeping requirements will continue to be met at the state and federal levels. This includes
annual reports, accounting records and requirements, Securities Exchange Commission (SEC)
and Sarbanes Oxley requirements. Ring-fencing provisions have been added including the
Golden Share and an Independent Director. The Golden Share is an important protection for
Avista and its customers in the event of any bankruptcy filings. The name may seem nefarious
but the provision is designed to protect Avista in the event of a voluntary Hydro One bankruptcy
proceeding. A Golden Share provision is a common merger and acquisition term.
6STAFF COMMENTS JUNE 20,2018
The remaining commitments provide resource and service provisions. Commitment 58
establishes new funding of $5.3 Million for energy efficiency, weatherization, conservation, and
low-income assistance programs. These funds will enhance opportunities beyond current
programs to benefit all customers. A new stakeholders committee of customer groups, Staff and
Avista will be formed to determine how these funds will be utilized. The Fee Free Payment
Program and Service Rules will continue to benefit customers. Meter placement and protection
policies and practices will continue to be reviewed to make improvements.
Colstrip Units 3 and 4 are coal plants currently being evaluated for early retirement by
many parties in multiple states. The accounting depreciable life, depreciation expense and
decommissioning costs will be evaluated in separate cases. See AVU-E-18-03 and
AVU-G- l8-02.
Commitment 73 is a most favored nations clause. It will allow Idaho parties and
ultimately the Idaho Commission to adopt all agreed upon commitments by the Applicants in
other states to be adopted in Idaho. This provision applies even after an Idaho order is issued.
STAFF RECOMMENDATION
Staff recommends the Commission find that the Stipulation and Settlement is in the
public interest and is fair, just and reasonable. Staff recommends it be adopted in full.
Respectfully submitted this ?*day ofJune 2018.
Deputy Attorney General
Technical Staff: Terri Carlock
i:umisc/comments/avue I 7.9_avug I 7.5bktc settlement comments
7STAFF COMMENTS JI_INE 20,2018
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 2OTH DAY OF JTINE 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF ON
SETTLEMENT STIPULATION, IN CASE NOS. AVU-E-17-09/AVU-G-17-05, By
E-MAILING AND MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BO){ 3727
SPOKANE W A 99220-3727
E-MAIL: [e-mail]
avi stadockets@avistacorp. com
ELIZABETH THOMAS
KARI VANDER STOEP
DIRK MIDDENTS
K&L GATES LLP
925 FOURTH AVE STE 29OO
SEATTLE WA 98104-1I58
E-MAIL: liz.thomas@,klgates.com
kari.vanderstoep@kl gates. com
dirk.middents@,kleates. com
RONALD L WILLIAMS
WILLIAMS BRADBURY
PO BOX 388
BOISE ID 8370I
E-MAIL: ron@,willian, sbradbury.com
ELECTRONIC ONLY
DEAN J MILLER
E-MAIL: deanjmiller@,cableone.net
PETER J RICHARDSON
RICHARDSON ADAMS PLLC
515 N 27TH STREET
BOISE ID 83702
E-MAIL : [e-mail]
ELECTRONIC ONLY
PATRICK EHRBAR DIR
AVISTA CORPORATION
E-MAIL: [e-mail]
ELECTRONIC ONLY
JAMES SCARLETT
HYDRO ONE
E-MAIL: j [e-mail]
LARRY A CROWLEY
THE ENERGY STRATEGIES INSTITUTE
5549 S CLIFFSEDGE AVENUE
BOISE ID 837I6
E-MAIL: crowleyla(alaol.com
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE
ELECTRONIC ONLY
CLEARWATER PAPER CORP.
carol. haugen@clearwaterpaper. com
marv@malewallen. con-r
j ohn j acobs@clearwaterpaper. com
david. wren@clearwaterpaper. com
nathan. smith@clearwaterpaper. com
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
7IO N 6TH STREET
BOISE ID 83702
E-MAIL: [e-mail]
BRAD I\4 PURDY
ATTORNEY AT LAW
2OI9 N 17TH STREET
BOISE ID 83702
E-MAIL: [e-mail]
DANIELLE FRANCO-MALONE
SCHWERIN CAMPBELL BARNARD
IGLITZIN & LAVITT LLP
18 W MERCER ST STE 4OO
SEATTLE WA 98I 19-3971
E-MAIL: [e-mail]
J, //,4*,
SECRETA*'{-
CERTIFICATE OF SERVICE