20181106Carlock Direct.pdf

IDAHO PUBLIC UTILITIES COMMISSION
BEFORE THE RTCEIVED
zois t{0v -5 PH # 56
CASE NO. AVU.E.I7.O9
AVU-G-17-05
IN THE MATTER OF THE JOINT
APPLICATION OF HYDRO ONE LIMITED
AND AVISTA CORPORATION FOR
APPROVAL OF MERGER AGREEMENT
)
)
)
)
)
)
)
DIRECT TESTIMONY OF TERRI CARLOCK
IDAHO PUBLIC UTILITIES COMMISSTON
NOVEMBER 6, 2018
1
2
3
4
5
6
7
8
9
10
11
t2
13
t4
15
1"6
77
18
L9
20
2t
22
23
24
25
O. Please state your n€rme and address for the
record.
A. My name is Terri Carlock. My business address
is 472 WesL Washington Street, Boise, Idaho.
a. By whom are you employed and in what capacity?
A. I am employed by the fdaho Public Utilit,ies
Commission as t,he Utilities Division Administrator.
A. Please outline your educational background and
experience.
A. f graduated from Boise State University in
l-980, with B. B.A. Degrees in Accounting and Finance. I
have attended various regulatory, accounting, rat.e of
return, economics, finance, and ratings programs. Since
joining the Commission Staff in May 1980, I have
participated in audits, performed financial analysis on
various companies, analyzed asset sales and purchases
including all merger applications associated with
utilities operat.ing in Idaho, participated in numerous
proceedings, and have presented testimony before this
Commission.
A. What is the purpose of your testimony?
A. The purpose of my testimony is to provide a
summary of the Staff analysis of the proposed Avista-
Hydro One merger, outline concerns with the proposed
cAsE NOS. AVU-E-1-1-09/AVU-G-17-05tt/ 06 / 201,8
CARLOCK, T (Oi1 1
STAFF
1
2
3
4
5
5
7
B
9
t_0
11
t2
13
t4
15
16
t7
18
1,9
20
21
22
23
24
25
merger, and discuss specifj-c commitments to minimj-ze
potential impacts on Avista Idaho customers.
O. Please srxnmarize your testimony.
A. My testimony identifies and supports the
Stipulated Commit.ments, including ring-fencJ-ng provisions
that. Staff believes are requj-red as a condition of
recommending approval of the proposed merger. The
Stipulated Commitments are attached as Exhibit No. 101.
Staff CommenLs filed on June 20, 20]-8, have been modified
with provisions that enhance Avista customer protect.ions
in light of events that have taken place in the Province
of Ontario. Most of the concerns with the proposed
merger expressed by Staff, other parties in this case and
customers are mitigated. However, f also explain that
there are ongoing risks with the proposed merger where
the commitments may not provide adequate protection.
A. Are there concerns related to foreign ownership
of a regulated utilitya
A. Yes that is one reason ring-fencing provisions
are established. Protection of Idaho customers is
critical. The utility must continue to provide safe and
reliabl-e service to customers at just and reasonable
rates.
With regard to foreign ownership in particular,
Staff be1ieves Idaho Code 561-327 may provide a total bar
CASE NOS. AVU-E-l-7- O9IAVU-G-17-05
1,1,/o6/20L8
CARLOCK, T (Di) 2
STAFF
1
2
3
4
5
6
7
I
9
10
1l_
t2
13
L4
15
L6
1,7
18
1,9
20
2L
22
23
24
25
to the proposed merger. We bel-ieve the Commission should
analyze this possibility prior to making a final-
determination.
However, I am noL an atLorney so my analysj-s
has been conducted as a technj-cal expert,. Likewise, my
primary focus has been the protection of Avist.a Idaho
customers while providing them the proposed fj-nancial and
program benefits from the merger and Stipulated
Commitments.
O. P1ease explain some ways customers are
protected from the transactions between Avist,a and Hydro
One or events
to increase.
impaeting Hydro One to cause customer rates
A. Any customer rate increase must be approved by
the Idaho Commission before Avista can increase rates t.o
Idaho Avista customers. Idaho Code 561-328 requires that
"the cost of and raLes for supplying service will noL be
increased by reason of such transaction".
In the normal course of its responsJ-bilitles
Staff audits all costs to verify the costs are actually
incurred, correctly recorded but more importantly that
all costs are reasonably incurred to provide services to
Idaho customers. Greater scrutiny is made for any
transactions, activit.ies or allocations to Avista from
any affiliated entities. In this instance foll-owing the
cAsE NOS. AVU-E-L7- 09IAVU-G-17-05
11,/ 06 / 2ot8
CARLoCK, T (Di) 3
STAFF
1
z
3
4
5
6
l
8
9
10
11
L2
13
74
l_5
16
L7
18
79
20
2L
22
23
24
25
merg'er, an affiliat.e woul-d include Hydro One, any
subsJ-diary, or jointly owned entities directly assigning
or allocating costs to Avista. Staff will verify that no
costs are i-ncluded in customer rates that are not at the
lower of the actual cost or market comparison. Although
this is a normal part of the Staff audit function it is
also part of the ring-fencing provisj-ons and the
commitments from Avista and Hydro One.
O. Do you believe the requirements of Idaho Code
561-328 will be met?
A. Yes, I believe Idaho Code 551-328 (3)
requirements will be met. The transaction is consistent
with the public j-nterest because t.he Stipulated
Commitments protect Idaho customers, provide financial
rate credits, provide funding for other customer benefits
and enhance programs. The Stipulated Commitments also
assure that t.he cost of and rates for supplying service
will not be increased by reason of such transaction.
Rating agency reports and publicly available financi-a1
statements document that Hydro One has the bona fide
fj-nancial ability to operate and maj-ntain said property
in the public service. The test.imony of Hydro One and
the Stipulated Commitments reinforce that Hydro One has
the bona fide intent to operate and maintain said
property in the public service.
CARLOCK, T (Di) 4
STAFF
CASE NOS.
1-L/ 06 / 20]-8
AVU- E-L'l - 0 9/AVU-G- 17 - 0s
1
2
3
4
5
6
7
8
9
10
11
72
13
t4
15
1,6
l7
18
19
20
21,
22
23
24
25
a. How can you be assured that cust,omer rates will
not increase at Avista as a result of the merger
transaction?
A. The regulatory responsibility of the Commission
Staff and ultimately the Commissioners making the final
decisions for the fdaho Publ-ic Utilities Commission will-
not, change. Staff will continue to rigorously review
capital j-nvestmenLs, ongoing operating costs, changes in
revenues and the overall operations of Avista. When
unreasonable costs are identifled or operating decisions
by management do not support. just and reasonable costs to
provide safe and reliable utility services to customers
at reasonable rates, Staff recommends financial
adjustments and changes to programs durj-ng proceedings
before the Commission. This will not change depending on
the ownership of Avista.
The requirement and commitments assure customer
rates will not increase as a result of the merger
transaction. It isn't however an assurance that rates
will not increase due to normal operating requirements
and cost increases.
O. How can Idaho customers be assured that
decisions by the Province of Ontario do not negatively
impact Avista services in fdaho?
cAsE NOS. AVU-E-L7-09/AW-c-17-0s
t1-/06/201-8
CARLOCK, T (Di) 5
STAFF
l_
2
3
4
5
6
7
8
9
10
11
1,2
13
14
15
t6
1,7
18
t9
20
2L
22
23
24
25
A. The Province of Ontario is the largest
shareholder of Hydro One with 47.4 percent ownership of
outstanding common stock. According to Hydro One, the
Province of Ontario ownership share will be diluted to
42.3 percent at closing and going forward it is expected
t.o continue to own between 40? - 452 of Hydro One. As
such, it can influence Hydro One both as the largest.
shareholder though sharehol-der votes and as a
governmental entity creating laws that Hydro One must
foIlow. Recent activities in the Province of Ontario
demonstrates this influence is a real risk for Hydro One.
For example, less than six months &9o, all of the Board
of Directors and the Chief Executive Officer (CEO) bowed
to pressure from the Province of Ontario and resigned
rat.her than being removed foll-owing the established
shareholder voting process.
Nominees for the new Board of Directors for
Hydro One consisted of four individual-s nominated by the
Province of Ontario and six individuals nominated by an
Ad Hoc Nominating CommiLtee. The Nominating Committee
was to be compri-sed of the largest fj-ve sharehol-ders
behind the Province of Ontario, three of these
shareholders participated to nomj-nat.e the 6O? majority of
the Hydro One Board. The Board of Directors, Acting CEO
and Management Team are in place and operating Hydro One.
CASE NOS. AVU-E-17-09/AVU-G-17-05
L1,/06/201,8
CARLOCK, T (Di) 6
STAFF
t-
2
3
4
5
6
7
I
9
10
11
L2
13
1,4
15
76
1,7
18
l-9
20
2t
22
23
24
25
The Avista Board of Directors will consist of
nj-ne members (see Commitment No. 3) : (i) two direcLors
designated by Hydro One; (ii) three independent directors
nominated by Hydro One; and (ii-i) four Avista designees.
The Governance Commitments No. 2 and 3 assure Hydro One
as the sol-e shareholder of Avista or the Province of
Ontario as a majority shareholder of Hydro One do not
have unreasonable control to change the operations and
regulatory environment of Avista. Commit.ment No. 3 has
been strengthened to add citizenship and residency
requirements for Independent Direct.ors on the Avista
Board of Directors. Clause 2 of t.he Delegation of
Authority was also strengthened to protect Avista if an
Independent Dj-rector is unable to be appointed to it,s
Board.
It is the duty of Avista regulators, including
the Idaho Public Utilities Commission, to order ring-
fencing provisions that will prevent or at least minimize
negative financial- and operational rj-sks on Avista and
Idaho customers. For the transaction to be in the public
interest, overall there musL be no harm. Throughout t.his
case, it has been the intent of Staff to see customers
receive a net overall financial benefit.. Commitments
including ring-fencing provisions have been agreed to in
the Settlement by most Idaho part.ies that. I believe will
cAsE NOS. AVU-E-1,7 -o9IAVU-G-17-05
L1-/06/201-8
CARLOCK, T (Di) 7
STAFF
1
2
3
4
5
6
7
8
9
10
11
a2
13
14
15
t6
1,7
18
t9
20
21,
22
23
24
25
provide financial benefits that 1ike1y will- not occur
absent the merger while protecting customers from
negative operational, structural or financial- harm.
Staff has conducted what it believes equates to
two rounds of exhaustive due dilj-gence to evaluate the
proposed merger of Avista with Hydro One. The first
round occurred between the filing of the Applj-cation in
this case and the Stipulated Commitments filed by the
parties in this case on April 13, 2018. The second round
has occurred following t.he Province of Ontario (Ontario)
electj-ons and subsequent. replacement of the Hydro One
Board of Directors and CEO. Staff was extremely
concerned and remains cautious about increased risks
around the control by Ontario. From ,fu1y to the filing
of this testimony, Staff has continued to evaluate t.he
proposed merger and cautiously evaluated if addj-tional
commj-tments and ring-fencing provisions could adequately
protect Idaho customers. Financial protection, cont.inued
provision of safe and reliable service, Ioca1 control and
many other j-tems addressed in the Commit.ments are
essential.
A. The Stipulated Commitments ring-fence Avista
and its customers. What is t,he greatest financial risk
for any company and how do ring-fencing provisions
protect customers against that risk?
cAsE NOS. AVU-E-]-7-09/AVU-G-17-05
1,1,/ o6 / 20]-8
CARLOCK, T (Di) 8
STAFF
1
2
3
4
5
6
7
8
9
10
11
L2
13
1,4
15
t6
l7
18
t9
20
2t
22
23
24
25
A. Bankruptcy j-s the greatest financial risk.
Ring-fencing provisions and commitments are est.ablished
to protect a company, in this case Avista, from parent or
other affiliate caused financi-aI disasters that can lead
to bankruptcy. Here ring-fencing provi-sions have been
designed to prevent the stripping of Avista assets,
incurring debt, or pledging assets as co1lat.eral or
security for indebtedness. The Ring-Fencing Commitments
Nos. 42 51, the Financial Int.egrity Commitments Nos. 34
4L and the Regulatory Commitments Nos. 20 33 are aI1
part of the overall financial protections. While all of
these commitments are importanL, t.he expanded
restrictions in Commitment. No. 38, Restrictions on Upward
Dividends and Distributions is one of t,he more important
commitments to protect the financial health of Avlsta.
Requirements are firmly established for investment grade
credit ratings,' earnings before interest, taxes,
depreciation, and amortization (EBITDA) being greater
than or equal to 3.0 times Avj-sta's int.erest expense; and
a common equity ratio equal Lo or greater than 442 before
dividends can be paid.
Idaho Code 551-328 prevenLs the sale of assets
without approval by the Idaho Commission. fdaho Code
S51-901 et aI requires Commission approval to issue stock
and stock certificat,es, issue, assume or guarantee bonds
cAsE NOS. AVU-E-L'7-09/AVU-G-17-05tt/ 06 / 2ot8
CARLOCK, T (Di) 9
STAFF
1
2
3
4
5
6
7
I
9
t_0
11
1,2
13
t4
l_5
1,6
l7
18
t9
20
2L
22
23
24
25
or other securities payable. The Stipulated Commitments
rej-nforce these requj-rements and provide protective
restrictions to maintain the financial health of Avista
and preclude Hydro One or any affil-iate entities from
causing harm to Avista and Avista Idaho customers.
O. Please expand on the ongoing risks and concerns
aesociated with the proposed merger.
A. The ongoing risks and concerns can never be
completely eliminated even though the Commit.ments provide
strong protections. Politica1 act.ions by the Province of
Ontario have been unsettlj-ng and heightened the concerns
around undue interference or influence. There are three
areas I would like to discuss related to the political
risks.
First, it may be viewed by some that the
Applicants did not adequately report. in a timely manner
and were not entirely forthcoming regarding the
independence of Hydro One from the Province of Ontario,
Hydro One as a campaign issue in Ontario, and the impact
of the election on Hydro One. Second, the limits to the
influence of the Province of ontario over Hydro one are
not c1ear. Third, the practical implications of the
North American Free Trade Agreement (NAFTA) andfor its
successor, the U.S. Mexico Canada Agreement (USMCA), or
Avista and its customers are unknown and unknowable.
CASE NOS. AVU-E-L7-09/AVU-G-17-05
11"/ 05 / 2018
CARLOCK, T (Di) 1O
STAFF
1
2
3
4
5
6
7
8
9
10
11
1,2
13
L4
15
L6
t7
l-8
19
20
2L
22
23
24
25
A. How did Applicant characterl-ze the relationship
between Hydro One and the Province of Ontario prior to
the removal of the Board of Directors and CEO?
A. Mayo Schmidt, CEO of Hydro One, wrote in his
dj-rect testimony that, "Hydro One is now governed by an
independent board, other than myself as CEO, and a
governance agreement that ensures autonomous commercial
operations, with the Province of Ont,ario as an investor
and not a manager." Direct at 10. Mr. Schmit went on to
say that "The Province of Ont.ario is a shareholder and
pursuant to its governance agreemenL wit.h Hydro One it
does not hold or exercise any managerial oversight over
Hydro One." Direct at 10.
Furthermore, in Comments to t.he Commission, the
Applicants represented t.hat " [a] lt.hough Hydro One's
largest shareholder j-s the Province of Ontario, the
Province does not hold or exercise any managerial
oversight over Hydro One." Applicant's .Toint Comments
at 2. Moreover, in addressing legit.imate concerns of t.he
j-mpact of the Province of Ontario could exercise over the
operations and management of Hydro One, t.he Applicants
labeled the possibility of dismissing the Board of
Directors and CEO as "hypothetical- events," even as such
events were in the processes of actually occurring.
A. Does Staff believe this characterization fu1ly
cAsE NOS. AVU-E-17-09/AVU-G-17-0s
1-t/ 06 / 20]-8
CARLOCK, T (Di) 11
STAFF
1
2
3
4
5
6
7
B
9
10
11
1"2
13
14
15
L6
1,7
18
1,9
20
2L
22
23
24
25
and accurately reflect,ed Hydro One's relationship with
the Province?
A. No. Shortly aft.er the new provincial
government was elected in Ontarj-o, the Province passed
the Hydro One Accountability Act, renegotiated the
Governance Agreement between Hydro One and the Province,
and signed a Lett.er Agreement between Hydro One and her
Majesty the Queen in Right. of Ontario. In combination,
these documents removed the Board of Directors and CEO of
Hydro One, set f orth new requirements f or how t.he
replacement Board members and CEO would be selected, and
outlined new reguirements on executive compensation.
Such far reaching authority - especially around the
determination of employee wages - from a single
shareholder demonstrates significant managerial oversight
of Hydro One.
a. Did the Applicants convey to Staff and Parties
that Hydro One and its execut,ives were issues in
Ontario's provincial election?
A. No. The first mention of Hydro One in the
campaign was the day before the settfement stipulation
was signed by parties in Idaho. However, Staff now knows
that Hydro One was one of the most prominent issues in
Ontario over the ensuing eight weeks. Despite the Tdaho
Commission not yet issuing an order on t.he seLt.lement
CASE NOS . AVU-E- 1-7 - 09IAVU-G- l7 - 05
1,1,/o6/2018
CARLOCK, T (Di) 1.2
STAFF
1
z
3
4
5
6
7
8
9
10
11
L2
13
1"4
15
t6
l7
18
t9
20
21,
22
23
24
25
stipulation, the Applicants did not disclose that Hydro
One's management, compensation, and raLes were a major
campaign issue. Further, Staff and Partj-es became aware
of the removal of the Hydro One Board of Directors and
CEO only when it was publically reported in the news
media around ,fu1y 11, 201,8. The parties did not report
the events to the Commission unt.il ,Ju1y 18, 20L8. This
is not timely or adequate disclosure to the Commission.
A. Mr. Morcis's eupplemental testimony stated that,
"foreign ownership of [American] uti1ities... is not
unique." Supplemental at 1. Do you believe that
statement fu1ly and accurately reflects the circumstances
of the proposed merger in this case?
A. No. A foreign company owning an American
utility is very different from a foreign company whose
controlling shareholder is a foreign government buying an
American utility, which is t.he circumstance in the
proposed Avista and Hydro One merger.
John Reed, President and CEO of Concentric
Energy Advisory testified on behalf of Hydro One and
Avista in this proceeding that "While less common, t.here
are examples of foreign government ownership of U.S.
IOUs. " Supplemental- at 19-2A . Staf f believes t.he
examples of water ut.ilities in Arizona acquired by EPCOR
Utilities, a water and wastewater utility owned by the
cAsE NOS. AVU-E-L7-09/AVU-G-17-05
Lt/ 06 / zo:-a
CARLOCK, T (Di) 13
STAFF
t_
2
3
4
5
6
7
8
9
10
11
1,2
13
L4
15
15
t7
18
l_9
20
2t
22
23
24
25
City of Edmunton j-n Alberta, Canada are not similar to
the proposed Avista and Hydro One mergier. The size,
location and type of utility service are significantly
di-f ferent.
A. In addition to concerns about the Applicants'
characterization of Hydro One's independence from the
Province of Ontario, do you have other concerns?
A. Yes. In particular, T am concerned that there
does not appear t.o be a limit on the Province of
Ontario's authority over Hydro One.
Immediately after it was in office, the new
provincial government of Ontario removed the Board of
Directors, pressured the CEO to resign, and passed a 1aw
establishing a government.-approved executive compensation
framework which also specified how much of t.hose costs
could be incl-uded in customer rates. While these were
rapid and drastic changes, nothj-ng prevents the Province
of Ontario from passing additional laws directing the
operatj-ons of Hydro One. In particular, the newly
elected Premier has proposed a 1"2 percent rate decrease
for Hydro One customers and ending certain power purchase
agreements. This 1eve1 of j-nterference goes well beyond
the normal role of any shareholder.
A. fs the Province of Ontario's control over Hydro
One limited to its legislative and shareholder authority?
CARLOCK, T (Di) L4
STAFF
CASE NOS.
1-1-/05/20t8
AVU- E-17 - 0 9 /AVU- G- 1 7 - 0 5
1
2
3
4
5
6
7
8
9
10
11
t2
13
L4
15
16
!7
18
1,9
20
2L
22
23
24
25
A. No, Ontario's influence over Hydro One appears
to extend beyond the limits of its authority. For
example, the previous Governance Agreement did not give
Ontario t.he specific ability t.o fire the CEO of Hydro
One. However, the newly elected Premier of Ontario
campaigned on a pledge to remove the CEO, and the CEO
resigned when the Board of Directors was removed.
Although Ontario did not have the explicit authority to
fire the CEO, the CEO resigned so the influence appears
to extend beyond its explicit authority.
a. Do you believe the existing and additional
ring-fencing provisions protect Avista from the cost
impacts of interference from the Province of Ont,ario on
Hydro One?
A. Most 1ikeIy, yes. Additional int.erference from
t,he Province of Ontario on Hydro One would 1ike1y further
damage credit ratings for Hydro One based on the negative
credit watch. However, Avj-sta and Hydro One have agreed
to maj-ntain separate debt credit ratings. If Hydro One's
credit rating is downgraded, it will not directly cause
downgraded credit. rati-ngs for Avista. The Stipulated
Commitments provide prot.ections for this separation and
assures any higher costs resulting from events or Hydro
One operations wil-l- not result in higher debt costs for
ratemaking purposes or higher customer rates.
CARLOCK, T (Di) 15
STAFF
CASE NOS.
1-t/ o6 / 201-8
AVU- E-L'7 - 0 9 /AVU- G- 17 - 0 5
t-
2
3
4
5
6
7
8
9
10
11
l2
13
L4
15
t6
L7
18
t9
20
2L
22
23
24
25
O. Regardless of leadership changes at Hydro One,
do you believe that t,he independence of Avista, s Board
protects Avista customers from turmoil at Hydro One?
A. Potentially. As is appropriate for a parent
company, Hydro One wil-1 appoint the majority of Avista's
Board of Directors. While some of these directors will
be independent under the SEC's definition of that term,
it is unknown how the Province of Ontario influences
those appointments. Several- important ring-fencing
provisions require 2/3 vote approval from Avista's Board
of Dj-rectors. Achieving that threshold would 1ikeIy mean
at l-east one of Avista's appointed independent directors
and all of the Independent Directors appoi-nted by Hydro
One similarly vote on the measure.
O. NAFTA is being renegotiated and its succesaor
trade agireement is the U.S. Mexico Canada Agreement
(USMCA). How can the merger agreement include ring-
fencing provisions against the USMC when the t,erms of
that trade agreement have not been ratified by the
participating governments ?
A. Specific ring-fencing provisions cannot be
developed for a trade agreement that is not known or
final-ized. However, dtry financj-aI impact on Avista Idaho
customers can be mitigated. Commitment No. 75 was added
whereby Hydro One and Avista forgo their rights to bring
cAsE NOS. AVU-E-1-7-o9/AVU-G-17-05
t1-/06/201-8
CARLOCK, T (Di) L6
STAFF
1
2
3
4
5
6
7
I
9
10
11
a2
13
1,4
15
t6
L7
18
1_9
20
2t
22
23
24
25
any claim under NAFTA or a similar provision under the
USMCA. If a cl-aim is fil-ed by a shareholder that
involves or impacts Avista, Hydro One wil-l indemnify
Avista from any damages.
A. Please summarize your assessment of the risks
and benefits of the proposed merger to Avista's fdaho
customers.
A. While not all risks can be quantified, the
Stipulated Commitments provide the greatest protections
that can be currently identified. Stipulated Commitment
No. 74 a11ows a party to file a pet.ition wj-th the
Commission if an event occurs that affects Avi-sta's
operations and/or customer rates because of Avista's
corporate relationship with Hydro One. This Commitment
will- a1low t.he process to occur without objection. It.
does not limit positions partJ-es may present during that
process. Overall the combined commitments will protect
the benefits, including customer rate credj-ts.
a. Does this conclude your direct testimony in
this proceeding?
A. Yes, it does.
cAsE NOS. AW-E- t7 -09IAW-G-17-0s
L1-/ 06 / 2ot8
CARLOCK, T (Di) L7
STAFF
Revised Exhibit A
Table of Contents
Reservation of Certain Authority to the Avista Board of Directors
l. Authority Reserved: ....
2. Executive Management:............
3. Board of Directors
4. Avista's Brand and Plan for the Operation of the Business:
5. Capital Investment for Economic Development:.................
Revised 111612018
501915474 v19
Page
.............5
5
5
6. Continuedlnnovation:
7 . Union Relationships:..............
8. Compensation and Benefits:
9. Avista's Headquarters:..............
10. Local Staffing:
11. Community Contributions
12. Community Involvement:
I 3. Economic Development:..............
14. Membership Organizations: .........
15. Safety and Reliability Standards and Service Quality Measures:
Rate Commitments
16. Treatment of Net Cost Savings:..................
17. Treatment of Transaction Costs:
18. Travel Expenses:
19. Rate Credits:................
21. Compliance with Existing Commission Orders:......
22. Separate Books and Records:...............
23. Audit, Access to and Maintenance of Books and Records:..................
24. Cost Allocations Related to Corporate Structure and Affiliate Interests:
Idaho Settlement Proposal - Master List of Commitments Page I of 3o urntoitNo. lor
6
7
7
7
7
7
7
7
8
8
...8
.8
.8
.9
.9
20. State Regulatory Authority and Jurisdiction l0
ll
l1
11
t2
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
11106118 Page I of 4l
MASTER LIST OF COMMITMENTS IN IDAHO
Revised Exhibit A
25. Ratemaking Cost of Debt and Equity:.....
26. Avista Capital Structure:
27. FERC Reporting Requirements 14
28. Participation in National and Regional Forums:............14
29. Treatment of Confidential Information:........... ..........14
30. Commission Enforcement of Commitments:..t4
31. Submittal to State Court Jurisdiction for Enforcement of Commission Orders: ...............14
....... I 3
...,,.,|4
32. Annual Report on Commitments:
33. Commitments Binding:.................
t4
l5
l5
l5
15
l5
16
t7
t7
t7
t7
t7
t7
t7
18
18
18
Financial Integrity Commitments............. .........1 5
34. Capital Structure Support:.....
35. Utility-Level 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:
Ring-Fencing Commitments
42. Golden Share:........
43. Independent Directors:
44. Non-Consolidation Opinion
45. Olympus Equity LLC:..........
46. Restriction on Pledge of Utility Assets:.......
47. Hold Harmless; Notice to Lenders; Restriction on Acquisitions and Dispositions:
48. Olympus Holding Corp. and Olympus Equity LLC Sub-entities:
49. No Amendment:..................
50. No Inter Company Debt:.....
51. No Inter Company Lending:
Resource Planning Commitments
52. Renewable Energy Resources:.20
Idaho Sefflement Proposal - Master List of Commitments Page2 of 3o u*ntoitNo. lol
.20
.20
.20
.20
Revised 11/6/2018
501915474 v19
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
1 I 106118 Page 2 of 41
Revised Exhibit A
53. Regulatory lntegrated Resource Planning (IRP) Sideboards:........ ..................2
54. Energy Imbalance Market ("EIM"): ....
55. Transport Electrification: .....................
2l
1
.21
Environmental Commitments...... .......................22
56. Greenhouse Gas and Carbon lnitiatives:. ...................22
57. Greenhouse Gas Inventory Report:.. ......22
Energy Efficiency, Weatherization, Community and Low-Income Assistance
Commitments ............ .......22
58. Funding for Energy Efficiency, Weatherization, Conservation, and Low-lncome
Assistance Programs:
59. Clearwater Paper DSM Assistance:
60. Idaho Forest Group (fFG) DSM Assistance:
61. Community Contributions:
62. Addressing Other Low-Income Customer Issues:
Fee Free Payment Program:.......
...22
...22
...23
...23
...23
,.,......23
)1. Improve Penetration of Low-Income Programs:
. Tribal Communities: ..............
Miscellaneous Commitments
66. Sources of Funds for Hydro One Commitments:
67. Service Rules for Gas Utilities
68. Meters:
69. Colstrip Planning:
70. Montana Community Transition Fund: .
71. Colstrip Transmission Planning:
72. Contract Labor:
73. Most Favored Nations:
Revised 111612018
501915474 v'|9
63
64
65 )1
.24
.24
.24
.24
.25
.25
.25
.25
74. Notice and Petition to Alter or Amend:
75. North American Free Trade Agreement (NAFTA):
76. Venue for and Resolution of Disputes:.................)R
7 7 . Environmental Liabilities of Parent: ................)R
Water Rights and Facilities
Idaho Settlement Proposal - Master List of Commitments Page 3 of 3o E^r,iuitNo. lol
...27
)R
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
11106118 Page 3 of 41
Revised Exhibit A
79. Subordination of Water Rights:)9,
MODIFICATION TO DELEGATION OF AUTHORITY, CLAUSE 3................................28
Idaho Settlement Proposal - Master List of Commitments
Revised 1 1/6/201 8
501915474 v19
Page 4 of 30 BxtriuitNo. lol
Case Nos. AVU-E-17-09/
AVtJ-G-t7-05
T. Carlock, Staff
l1106l18 Page 4 of 4l
Revised Exhibit 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
not to Hydro One. Any change to the policies stated in commitments 2-15, plus 30
(Commission Enforcement of Commitments), 37 (Credit Ratings Notification), 38
(Restrictions on Upward Dividends and Distributions), 43 (Independent Directors),
49 (No Amendment), 74 (Notice and Petition to Amend or Alter), 75 (North
American Free Trade Agreement), and 76 (Venue for and Resolution of Disputes),
requires a two-thirds (213) vote of the Avista Board, provided that 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 Case No. AVU-E-17-09/AVU-G-17-05 of such request for approval:
Governance
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 Limited ("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.
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.
3.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 citizens of the United States and are and have
been residents of the Pacific Northwest region for at least two years, 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
I
2
Revised 111612O18
5019'15474 v'19
Idaho Settlement Proposal - Master List of Commitments Page 5 of 30 ,*n,nitNo. tol
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
ll/06118 Page 5 of 4l
Revised Exhibit A
Merger Agreement; (iii) three (3) directors who as of immediately prior to the closing
of the Proposed Transaction' ar. ,re*bers 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 seryes retail electric or natural gas customers, cuffently Alaska, Idaho,
Montana, Oregon and Washington.
The Independent Directors will have no material relationship with Hydro One and its
subsidiaries and affiliated entities, the Province of Ontario, or Avista and its
subsidiaries and affiliated entities currently or within the previous 3 years. Former
directors of Avista who otherwise meet these qualifications qualify as Independent
Directors.
Business Operations
4. Avista's Brand and Plan for 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;
6.Continued Innovation: Avista will continue development and funding of its and its
subsidiaries' innovation activities;
1 "Proposed Transaction" means the transaction proposed in the Joint Application of Avista and Hydro One filed on
September 14,2017.
Idaho Settlement Proposal - Master List of Commitments Page 6 of 3o u*toit No. lol
5
Revised 1 1/6/201 8
501915474 v19
Case Nos. AVU-E-17-09/
AVU-c-17-05
T. Carlock, Staff
ll/06118 Page 6 of 41
Revised Exhibit A
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
or garizations, union empl oye es or their repre s entatives ;
Compensation and Benefits: Avista will maintain compensation and benefits
related practices consistent with the requirements of the Merger Agreement;
Local Presence/Community Involvement
Avista's Headquarters: Avista will, and Hydro One agrees 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 Staffing: 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;
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 (2/3) vote of
the Avista Board. Avista agrees it will endeavor, over time, to distribute this annual
budget across the service territory in proportion to each state's portion of the system;2
12. Communi8 luvolvenqene Avista will maintain at least Avista's existing levels of
community involvement and support initiatives in its service territories; including
involvement with 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
2 Note that Commitment 61 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.
Idaho Settlement Proposal - Master List of Commitments PageT of 30 u*,oitNo. tol
8.
9
Revised 1 1/6/2018
5019'15474 v19
Case Nos. AVU-E-17-09/
AVU-G-r7-05
T. Carlock, Staff
11/06118 Page 7 of 4l
14.
Revised Exhibit A
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 organizations; and
Safe8 and Reliabilitv Standards and Service Quality Measures: Avista has
established Service Quality Performance Standards, Customer Guarantees and a
Service Quality Measure Report Card for its customers in Washington. Avista is
currently working with the Idaho Commission Staff to develop similar performance
standards, customer guarantees and a reporting mechanism for its customers in Idaho.
Following Idaho Commission approval of such standards, customer guarantees and a
reporting mechanism, Avista will not seek, and Hydro One agrees Avista will not
seek, to remove or reduce any associated penalty provisions for ten (10) years after
the date of the merger.
Rate Commitments
16. Treatment of Net Cost Savings: Hydro One commits that Avista customer rates
will not increase as a result of the Proposed Transaction. Hydro One will hold Avista
customers harmless from any such rate increase. Further, 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.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 contemplated, as well as the accounts charged, within 120
days of a Commission order in this docket.
3 Operations and maintenance funds dedicated to economic development and non-utility strategic opportunities will
be recorded below-the-line to a nonoperating account.
Idaho Settlement Proposal - Master List of Commitments Page 8 of 30 pxh;6it No. l0l
15.
Revised 1 1/6/201 8
50191M74 v19
Case Nos. AVU-E-17-09/
AVU-G_17_05
T. Carlock, Staff
11/06118 Page 8 of 4l
Revised Exhibit A
b. Avista will exclude, and Hydro One agrees 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; and (vii) any other
costs directly related to the Proposed Transaction.
c. Technology expenditures and investments related to software and hardware
compatibility issues between Avista and Hydro One and its affiliates shall not be
recovered from Idaho ratepayers except to the extent such costs are offset by
savings over time.
Travel Expenses: Avista's corporate travel expenses recovered in rates, including
variable costs of flying the Avista corporate jet and commercial travel for all directors
and executives, shall not exceed 105% of 2017 expenses, adjusted annually for
inflation.
19. Rate Credits:
18.
Avista and Hydro One will flow through to Avista's retail customers in Idaho a Rate
Credit of appioximately $15.8 millionf over a 5-year period, beginning at the time the
merger closes.
Rate Credit Proposal
Idaho Annual
Credit Years 1-5 Idaho Total Credit
Total Credit $3.2 Million $15.8 Million
Offsetable Credit $527,510 $2.6 Million
The Total Rate Credit to customers for the five years following the closing will be
approximately $3.2 millions per year. A portion of the annual total Rate Credit will
aTheexactagreed-uponfigureis$15,81l,050,whichisequalto 5o/oofthe Idahobaserevenueasof02/01/18.
Idaho electric base revenue is $259,473,000, and Idaho natural gas base revenue (including natural gas costs -
Schedules 150/155) is $56,748,000. Five percent of those revenues are $12,973,650 (electric) and $2,837,400
(natural gas).
5 The exact amount agreed upon is $3,1 62,210 per year. The annual Idaho electric Rate Credit for each of the five
years is $2,594,730. The annual Idaho natural gas Rate Credit for each of the five years is $567,480.
Idaho Settlement Proposal - Master List of Commitments
Revised 1'l16/2018
50191il74 v19
Page9 of 30 B*6i6itNo. 101
Case Nos' AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
I 1/06/18 Page 9 of4l
Revised Exhibit A
be offsetable, in the amount of $527,5106. 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 $3.2 million benefit will be provided to customers through a separate
Rate Credit, as long as the reduction in costs (of up to $527,510 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 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 $15.8 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.
Regulatory Commitments
20. State Resulatorv Authority and Jurisdiction: Hydro One and its subsidiaries,
including Avista, as applicable and as appropriate, will comply with all applicable
laws, including those pertaining to transfers of property, affiliated interests, and
securities and the assumption of obligations and liabilities. As required by and
consistent with applicable laws, venue for resolution of proceedings related to these
matters will be at the appropriate state utility commission(s). Hydro One and its
subsidiaries, including Avista, will make their employees and officers available to
6 The offsetable portion of the Rate Credit is calculated using a pro rata share of the jurisdictional total of the rate
credit (i.e. Idaho's share of the total system offsetable Rate Credit is 31.03%, therefore Idaho's share of the $1.7
million offsetable portion is $527,510).
Idaho Settlement Proposal - Master List of Commitments
Revised 1 1/6/201 8
501915474 v19
Exhibit No. l0l
Case Nos. AVU-E- l7-09l
AVU-G-I7-05
T. Carlock, Staff
1l/06118 Page l0 of 4l
Page l0 of30
Revised Exhibit A
testify before the Commission at the Commission's request to provide information
relevant to the matters within its jurisdiction.
Compliance with Existine Commission Orders: Hydro One 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.
Hydro One and its subsidiaries, including Avista, as applicable and as appropriate,
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.
Audit. Access to and Maintenance of Books and Records:
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 Idaho laws and administrative rules.
Hydro One, 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.
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 the Commission, its agents, Commission
Staff and other parties to regulatory proceedings reasonable access to books and
records (including those of Hydro One, Ol5.nnpus 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 Hydro One and
Olympus Holding Corp.'s accounts, books, papers and documents pursuant to all
applicable laws; provided, that such right to inspection shall be limited to Hydro One
Idaho Settlement Proposal - Master List of Commitments
21.
Revised 1'l16/2018
501915474 v19
))
23.
Exhibit No. I0l
Case Nos. AVU-E-17_09/
AVU_G_t 7_05
T. Carlock, Staffll/06/18 page I I of 4l
Page I I of30
24.
Revised Exhibit A
and 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 af'filiates, 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. Furthermore) any party may
recommend that the Commission deny recovery of any costs assigned or charged to
Avista by Hydro One or its affiliates if that party believes that Hydro One or its
affiliates have failed to provide sufficient access to records relating to the costs at
issue.
Cost Allocations Related to Corporate Structure and Affiliate Interests: Avista
agrees to provide, and Hydro One agrees Avista will provide, cost allocation
methodologies used to allocate to Avista any costs related to Hydro One or its other
affiliates and subsidiaries, and commits that there will be no cross-subsidization by
Avista customers of unregulated activities.
Avista will not charge to customers expenses allocated or directly assigned by Hydro
One except as specifically authorized for recovery in rates by the Commission. 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. The
cost-allocation methodology provided pursuant to this commitment also will establish
a procedure for ensuring that additional costs or revenues resulting from changing
curency exchange rates will not be reflected in rates charged to Idaho customers.
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 Hydro One or its affiliates and 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 Hydro One or its other
affi liates and 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
Idaho Settlement Proposal - Master List of Commitments
Revised 1116/2018
501915474 v19
Page 12 of 30 E*5;6itNo. 101
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
I I /06i I 8 Page 12 of 4l
Revised Exhibit A
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.
Avista will notify the Commission prior to the implementation of plans by Avista or
Hydro One or any of Hydro One's affiliates:
a. To form an affiliate for the purposes of transacting business with Avista's
regulated operations;
b. To commence new business transactions between an existing affiliate and Avista;
or
c. To dissolve an affiliate that has transacted substantial business with Avista.
25. Ratemaking Cost of Debt aud Equity: Avista will not advocate for, and Hydro One
agrees 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 had not been affected by the Proposed
Transaction, and applying those credit ratings to then-current debt;
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.
d. 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. Avista bears the burden of proving that increases in
Avista's Cost of Capital, including Avista's ROR, common equity, and Long-
Idaho Settlement Proposal - Master List of Commitments
Revised 1 'l16/20'18
501915474 v19
Page 13 of 30 6r6;6itNo. lol
Case Nos. AVU-E-I7-09/
AVU-G-17-05
T. Carlock, Staff
11/06118 Page t3 of 4l
28.
Revised Exhibit A
Term Debt, is caused by circurnstances or developments that are unrelated to the
financial risks or other characteristics of the Proposed Transaction.
26.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 less
than 44 percent. This commitment does not restrict the Commission from ordering a
hypothetical capital structure.
27.FERC Reporting 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 Regional 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.
29.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 infbrmation that is the subject of any of these commitments.
30. 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 and
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.
31.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 jointly file with the Commission prior to closing the Proposed
Transaction an affidavit aftirming that they will submit to the jurisdiction of Idaho
courts for enforcement of the Commission's orders adopting the commitments made
by and binding upon them and their affiliates where noted, and subsequent orders,
and will agree to the application of Idaho law with respect to such matters.
32.Annual Report on Commitments: By May l, 2019 and each May I thereafter
through May 1, 2029, Avista will file, and Hydro One agrees Avista will file, a report
with the Commission regarding the status of compliance with each of the
commitments as of December 31 of the preceding year. The report will, at a
ldaho Settlement Proposal - Master List of Commitments
Revised 1 1/6/2018
501915474 v19
Page 14 of 30 6*6;5ir No. l o l
Case Nos. AVU_E-17_09/
AVU-G-17-05
T. Carlock, Staff
11/06fi8 page 14 of 4l
Revised Exhibit A
minimum, provide a description of the performance of each of the commitments, will
be filed in Case No. AVU-E-I7-09/AVU-G-17-05 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 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 Binding: 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 upon their affiliates where specifically noted and their
successors in interest. 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 Commitrnent, the
entity making such determinations shall take all appropriate actions to achieve
compliance with the Commitment.
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 Ratings Notification: Hydro One and Avista agree to notify the Commission
within two business days of any proposed or actual downgrade of Avista's
credit rating by S&P, Moody's, or any other such ratings agency that issues
such ratings with respect to Avista.
Idaho Settlement Proposal - Master List of Commitments
33.
Revised 1116/2018
501915474 v19
34.
35.
36.
Page l5 of 30 ExhibirNo. l0l
Case Nos' AVU-E-17-09/
AVU-G-17-05
T. Carlock' Staff
11106118 Page l5 of 4l
Revised Exhibit A
If Avista or Hydro One anticipates or is notified of a proposed or actual
downgrade of Avista's credit rating to a non-investment grade status, then
Avista and Hydro One will:
a. 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 investment grade status or restoring Avista's investment
grade status.
b. Subsequent to the filing of the Compliance Plan, Avista shall file progress
reports every 90 calendar days detailing its efforts for maintaining Avista's
investment grade status or restoring Avista's investment grade status, in addition
to detailing how Avista has met each requirement in the Compliance Plan.
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 (the "Minimum Equity
Ratio") on the date of such Avista distribution after giving effect to such Avista
distribution. Under any other circumstances, distributions from Avista are
allowed only with prior Commission approval. The Minimum Equity Ratio is
subject to change as set forth in subparagraph b. below. 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. If a proposal is made, or if the Commission determines, in an Avista rate case
that Avista's rates should be based on a common equity ratio of less than 44
percent, the Parties agree that the Commission should consider and determine,
either in the rate case or in a separate proceeding, whether the Minimum Equity
Ratio for purposes of subparagraph a. above should be adjusted in light of any
adjustment to the common equity ratio for ratemaking purposes. In addition,
Avista may at any time upon a showing of good cause petition the Commission
for a change to the Minimum Equity Ratio, and no party to the Settlement
Stipulation will oppose the initiation of such a proceeding.
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.
d. Avista commits, and Hydro One agrees, that prior to upward dividends from
Avista, Avista cash flows will not be comingled in common accounts with cash
Idaho Settlement Proposal - Master List of Commitments
Revised 'l 1/6/2018
501915474 v19
Page l6 of 30 Bxhigit No. l0l
Case Nos. AVU-E-17-09/
AViJ-G-t7-05
T. Carlock, Staff
11106118 Page l6 of 4l
Revised Exhibit A
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.
Pension Funding: 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.
SECRepMF ollowing the closing of the Proposed Transaction,
Avista will file required reports with the SEC.
Compliance with the Sarbanes-Oxlev Act: Following the closing of the Proposed
Transaction, Avista will comply with applicable requirements of the Sarbanes-Oxley
Act.
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 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. In matters of voluntary bankruptcy, this
Golden Share will override all other outstanding shares of all types or classes of
stock.
43, Independeut Dteetqtsi 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 directors of Olympus Equity
LLC 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.
The same individual may serve as an Independent Director of both Avista and
Olympus Equity LLC. The organizatronal 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-Consolidation Opinion:
Idaho Settlement Proposal - Master List of Commitments Page 17 of 30 Bxh;6it No. t0l
39.
40.
41.
Revised 1116/2018
501915474 v19
Case Nos. AVU-E- 17-09/
AVU_c_17_05
T. Carlock, Staff
11/06118 Page 17 of 4t
Revised Exhibit A
a. Within ninety (90) days of the Proposed Transaction closing, Avista and Olympus
Holding Corp. will file, and Hydro One agrees they 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 one of Avista's independent director, and the Avista Golden Shareholder.
c. If the ring-fencing provisions in these commitments are not sufficient to obtain a
non-consolidation opinion, Olympus Holding Corp. and Avista agree to promptly
undertake, and Hydro One agrees to cause them to 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.
Olvmpus Equitv LLC: Olympus Holding Corp.'s indirect subsidiaries will include
Olympus Equity LLC and Avista. See the post-acquisition organizational chart in
Attachment C to the Master List of Commitments in Idaho. 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.
45.
46.
Revised 111612018
501 91 5474 v1 9
Restriction on Pledee of Utility Assets: Avista agrees to, and Hydro One will cause
Avista to agree to, prohibitions against loans or pledges of utility assets to Hydro
One, Olympus Holding Corp., 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:
Idaho Settlement Proposal - Master List of Commitments Page l8 of 30 ExhibitNo. tOt
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
l1106l18 Page l8 of4l
Revised Exhibit A
a. Hydro One, its affiliates, and subsidiaries including 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 will file, and Hydro One agrees Avista 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:
l.Hydro One, its affiliates, and subsidiaries including Avista commit 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.
Hydro One, its affiliates, and subsidiaries including Avista will notify the
Commission promptly after Hydro One's, its affiliates', or subsidiaries'
including Avista's board approval but contemporaneously with any public
announcement of: (1) 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 (2)
any change in control or ownership of Avista. Should there be a change only
to the upstream ownership of Avista or Olympus Holding Corp. among
wholly owned subsidiaries of Hydro One, notice of such a change will be
provided in either an updated organizational chart, or in a separate notice
filing prior to the change taking place. 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), and prior to completion of any transfer, 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.
Idaho Settlement Proposal - Master List of Commitments
Revised 111612018
50191M74 v19
Page l9 of 30 sx6igitNo. 101
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
ll106/18 Page l9of4l
Revised Exhibit A
lll Hydro One, Olympus Holding Corp. and Avista will provide notification of
and obtain Commission approval of the divestiture, spin-off, or sale of any
integral Avista asset, including power plants, as required by Idaho law. This
notification and approval requirement does not limit any jurisdiction that the
Commission may have.
iv. Neither Avista nor Hydro One will assert in any future proceedings that, by
virlue 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 non-regulated subsidiary of Avista becomes a subsidiary of
Hydro One or one of its subsidiaries other than Avista, Avista and Hydro One 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.
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: Hydro One, Olympus Holding Corp. and Avista commit that no
amendments, revisions or modifications will be made to these regulatory
commitments without prior Commission approval.
No Inter Companv Debt: Avista will notify the Commission before entering into
any inter-company debt transactions with Olympus Holding Corp., Hydro One, or any
of their subsidiaries or affiliates. Avista shall comply with Idaho law for any debt
transactions over a one year term.
No Inter Companv Lendinq: Without prior Commission approval, Avista will not
lend money to Olympus Holding Co.p., Hydro One, or any of their subsidiaries or
affiliates.
Resource Planning Commitments
52. Renewable Energv Resources: Avista will continue to offer renewable power
programs in consultation with stakeholders.
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.
48
51.
Idaho Settlement Proposal - Master List of Commitments
Revised 11/6/2018
50191974 v19
Page20 of 30 rxrriuitNo. lol
Case Nos' AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
1 1/06/18 Page 20 of4l
49.
50.
53.
54.
Revised 111612018
501915474 v19
Revised Exhibit A
Nothing in this Commitment prohibits Avista from selling renewable energy credits
that arise from resources included in base rates applicable in Idaho.
Hydro One acknowledges Avista's obligations under applicable renewable portfolio
standards, and Avista will continue to comply with such obligations.
Resulatory Integrated Resource Plannins (IRP) Sideboards: Avista and its
affiliates agree to consider in all resource planning and acquisition efforts both
demand-side and renewable energy resources that are consistent with the Idaho
Commission's resource evaluation and acquisition rules and policies.
Avista and its affiliates agree that "Resources" to be considered in all IRPs include
Power Purchase Agreements ("PPAs").
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.
Avista will 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, for use in the
2019 IRP process.
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.
Energy 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.
The goal is to convene the workshop within 30 days of the release of the EIM
analysis.
Transnort Electrification: Avista commits, and Hydro One agrees that Avista
commits, to initiate a stakeholder process within 60 days of the close of the Proposed
Transaction to explore opportunities for transport electrification that benefits all Idaho
customers.
55.
Idaho Settlement Proposal - Master List of Commitments Page 27 of 30 B*516it No. 101
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
lll}6llS Page 2l of 41
Revised Exhibit A
Environmental Commitments
56. Greenhouse Gas and Carbon Initiatives: Hydro One acknowledges Avista's
Greenhouse Gas and Carbon Initiatives contained in its current Integrated Resource
Plan, and Avista will continue to work with interested parties on such initiatives.
57. Greenhouse Gas Inventoltr Report: Avista will report greenhouse gas emissions as
required.
Energy Efficiency, Weatherization, Community and Low-Income Assistance Commitments
58.Funding for Energv Efficiency. Weatherization. Conservation. and Low-Income
Assistance Proqrams: Hydro One will arrange funding of $5,308,847 over a lO-year
period to fund energy efficiency, weatherization, conservation, and low-income
assistance programs. The funding will be disbursed as directed by the Energy
Efficiency, Weatherization, Conservation, and Low-Income Assistance Committee
("EWCL"), a new committee of stakeholders tasked with determining which existing
or new programs should receive this funding to address energy efficiency,
weatherization, conservation, and low-income needs in Avista's Idaho service
territory. The committee will initially consist of representatives from the following
stakeholders: Avista, Commission staff, the Lewiston CAP, Idaho Conservation
League, the Idaho Forest Group, and Clearwater Paper. The Committee may add
members at its discretion. The EWCL will consider the needs of all parties and
remain flexible on the timing of any disbursements.
The EWCL will convene within 90 days after the close of the Proposed Transaction,
will present a l0-year funding plan to Avista by June 1,2019 and will revise this plan
periodically as needed.
59 Clearwater Paper DSM Assistance: Avista agrees to work with Clearwater Paper to
attempt to qualify the following projects for DSM funding under Tariff Schedule 90,
upon closing of the Proposed Transaction:
. Variable speed drives on the No. I paper machine hydropulper. Variable speed drives on the No. 4 power boiler demineralized water pumps. Energy efficient chillers and compressors for the Lurgi system. A variable speed drive on the No.l paper machine white water system. Variable speed drives on the two waste water outfall pumps
The total estimated cost of the projects is $750,000. Tariff Schedule 90 allows for
possible DSM funding of up to 70Yo of the cost of the project, subject to rneeting
certain specified cost-effectiveness criteria. The portion of the estimated cost of these
identified projects that is not reimbursed under Schedule 90 will be considered for
funding through Commitment 58. The EWCL will consider the needs of all parties
and remain flexible on the timing of any disbursements.
Idaho Settlement Proposal - Master List of Commitments Page 22 of 3o p*t,iuit No. r o r
Revised 111612018
50'1915474 v19
Case Nos. AYU-E-17-091
AVU-G-17-05
T. Carlock, Staff
I 1/06/18 Page22of4l
60.
Revised Exhibit A
Idaho Forest Group (IFG) DSM Assistance: Avista agrees to work with Idaho
Forest Group (IFG) to attempt to qualify the following projects for DSM funding
under Tariff Schedule 90, upon closing of the Proposed Transaction:
Installation of information technology to gather plant information data (PI
Data) on energy usage at IFG's Lewiston plant, and through an installed
interface, transmit real time energy load information data for each operating
station to IFG and Avista. This may serve as a useful demonstration project
for data interfaces with other customers on Avista's system. The total
estimated cost is $300,000.
Replacement of aging compressors, saws and other equipment with state of
the art machinery at IFG's Lewiston and Grangeville plants, in order to
increase productivity and energy efficiency.
a
Tariff Schedule 90 allows for possible DSM funding of up to 70o/o of the cost of the
project, subject to meeting certain specified cost-effectiveness criteria. The portion
of the estimated cost of these identified projects that is not reimbursed under
Schedule 90 will be considered for funding through Commitment 58. The EWCL
will consider the needs of all parties and remain flexible on the timing of any
disbursements.
61.Communitv Contributions: Hydro One will arrange funding for a one-time
$7,000,000 contribution to Avista's charitable foundation at or promptly following
closing.T
62. Addressing 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 paSrment assistance.
63 Fee Free Pavment Program: Avista will continue to offer the Fee Free Payment
Program to its residential customers.
Improve Penetration of Low-Income Programs: Hydro One and Avista will work
with the Lewiston CAP to 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 may include expanding
marketing, outreach, and data analysis as appropriate.
65.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.
i Note that Commitment I I contains additional provisions relating to Avista's charitable contributions.
64.
Idaho Settlement Proposal - Master List of Commitments
Revised 111612018
501 91 5474 v1 9
Page 23 of 30 6x6;6it No. l0l
Case Nos. AVU-E-17_09/
AVU-G-17_05
T. Carlock, Staff
1t/06fi8 page 23 of 4t
Revised Exhibit A
Miscellaneous Commitments
Sources of Funds for Hydro One Commitments: Throughout this list of merger
commitments, any commitment that states Hydro One will arrange 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 earnings 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 Canada or
the United States.
Service Rules for Gas Utilities: Avista will meet with Commission Staff to review
the Commission's Service Rules for Gas Utilities (IDAPA 31.31.01) to determine
which provisions should be retained and/or modified, and, if the participants agree,
incorporate those changes into Avista's tariff.
Meters: Avista will meet with Commission Staff to review its meter placement and
protection policies and practices and determine, if the participants agree, what
additional steps should be taken to revise Avista's current policies and practices.
Colstrip Plannins: Hydro One and Avista agree to support a December 31,2027 ,
end of life for depreciation purposes in the processes described below. Hydro One
and Avista also agree that issues relating to the potential accelerated depreciation of
Avista's interest in Colstrip Units 3 and 4 and related matters should be addressed in
three existing, interrelated Commission proceedings as follows:
GNR-U-18-01 -- Investigation Into the Impact of Federal Tax Code Revisions
on Utility Costs and Ratemaking.' As part of this docket, not less than $12.0
Million regulatory liability should be created using the unprotected Excess
DFIT/Defenal of January - May 2018 tax credit. This $12.0 Million
regulatory liability would then be available to offset costs associated with
accelerated depreciation of Colstrip Units 3 and 4 or other use as determined
appropriate in AVU-E-l 8-03/AVU-G-1 8-02.
66
67
68.
69.
a
a
AVU-E-18-03 / AVU-G-18-02 - Avista Corporation's Application to Change
Its Electric and Natural Gas Depreciation Rates: As part of this docket, the
Commission will determine whether, as proposed by Hydro One and Avista,
December 31, 2027 , should be set as the "useful life" for Colstrip Units 3 and
4 for depreciation purposes. The Parties will work towards resolution of this
proceeding by April 1,2019.
Avista's Application 2019 Electric Integrated Resource Plan (IRP): Avista's
2019 IRP will analyze multiple retirement dates for Colstrip Units 3 and 4,
Idaho Settlement Proposal - Master List of Commitments
Revised 111612018
501915474 v19
Page24 of 30 6*6;6itNo. t0l
Case Nos. AVU-E_17_091
AVU-G-17-05
T. Carlock, Staff
1t/06fi8 page 24 of 4t
Revised Exhibit A
including but not limited to, the "end of useful life" date determined in AVU-
E-18-03/AVU-G-18-02. The other retirement dates analyzed, as well as the
method, inputs, and assumptions for those scenarios planning analyses, will be
determined with input from the IRP stakeholder advisory goup. Avista
anticipates that the first draft of its 2019 IRP will be released in May 2019 and
its second draft will be released in August 2019.
Montana Communitv Transition Fund: Hydro One will amange funding of $3.0
Million (on a system basis) towards a Colstrip community transition fund.
Colstrip 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 1 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 Idaho 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/Governor 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.
72. Contract Labor: The parties agree that employees, contractors, and subcontractors
of Avista shall be paid a fair and competitive wage, and that Avista shall utilize
principles of fairness in bidding and contracting work in the state of Idaho. Avista
agrees to employ highly skilled and trained workers. Such training and education can
be obtained through college programs, technical schools, apprenticeships, or union
hall programs, including those of the Washington and Northern Idaho District
Council of Laborers. The parties recognize that no employee, contractor, or
subcontractor of the Company is required or prohibited from participation in any
labor organization. The Parties agree that Commitment 72 is severable, and if this
provision is declared void, invalid, or unenforceable in whole or in part, such
declaration shall not affect the remaining provisions of this Commitment List.
73.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 Idaho any commitments to which the Applicants
agree in other jurisdictions, even if such commitments are agreed to after the
Idaho Settlement Proposal - Master List of Commitments
70.
71.
Revised 1116/2018
50'1915474 v19
Page 25 of 30 Extriuit No. lo l
Case Nos. AVU_E_|7_091
AVU-G-17-05
T. Carlock, Staff
I I /06fi 8 page 25 of 41
Revised Exhibit A
Commission enters its order in this docket. To facilitate the Commission's
consideration and possible 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 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 fourteen (14) 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 of the language thereof except such non-substantive changes as are
necessary to make the commitment or condition applicable to Idaho) should be
adopted in Idaho.
a
a
a
a
a
a
Within five calendar days after any such response filing, the Applicants may file a
reply with the Commission.
If any of the 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.
Idaho Settlement Proposal - Master List of Commitments
Revised 1'l16/2018
501915474 v19
Page26 of30 g*5;6itNo. lol
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
ll/06118 Page 26 of 41
Revised Exhibit A
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.
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
Idaho 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 "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 to Alter or Amend: If any event occurs that would have an
effect on Avista's operations and./or customer rates because of Avista's corporate
relationship with Hydro One, or affects Hydro One's compliance with arry
commitment in this stipulation (an "Event"), any of the parties to this proceeding may
petition the Commission at any time to alter or amend the final order in Case Nos.
AVU-E-17-09 and AVU-G-17-05, and neither Hydro One nor any of its subsidiaries,
including Avista, will oppose initiation of such a proceeding. Hydro One or Avista
will report to the Commission any material Event as soon as practicable. For
purposes of the CommitmentT4, a material event means (i) an event that a properly
informed person would reasonably conclude would have a significant effect on
Avista's operations or customers' rates; or (ii) making it more probable than not that
Hydro One would be out of compliance with any Commitment herein. Nothing in
this Commitment 74 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 74, 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 conceming its order(s) in this docket, or to limit
the authority of the Commission.
Idaho Settlement Proposal - Master List of Commitments Page27 of 3o u*tiuitNo. lor
o
74.
Revised 1 1/6/201 8
501915474 v19
a
a
a
a
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
I I t06ll8 Page 27 ol 4l
/5.
76.
Revised Exhibit A
North American Free Trade Asreement (NAFTA): Hydro One and Avista
commit to forego their rights to bring any claim under NAFTA, or similar provision
of the United States Mexico Canada Agreement (USMCA) challenging, or seeking
monetary damages related to, any regulations, laws, orders or actions passed or taken
by the State of Idaho or any instrumentality thereof or the government of the United
States in relation to the production, transmission or distribution of electric power,
natural gas or other energy sources by Avista. In the event that such a claim is
brought under NAFTA (or the USMCA) that involves or impacts Avista, Hydro One
commits that it will not voluntarily participate in, support or otherwise encourage
such action. Hydro One will indemnifu Avista from any damages payable by Avista
in respect of any such claim as determined by a final non-appealable judicial order.
Venue for and Resolution of Disputes: Avista and Parent agree that the venue for
disputes regarding the operation and/or customer rates of Avista will be in state and
U.S. federal regulatory bodies or courts of competent jurisdiction, as applicable, in
Oregon, Washington, Idaho, Montana or Alaska.
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.
Foreign Exchange and Hedging: 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 Idaho utility operations and/or
customer rates and not usual and customary prior to close of the Proposed
Transaction.
77
78.
Water Rights and Facilities
79. Subordination of Water Riehts:
Hydro One and Avista shall abide by the terms of the July 25,2018 Agreement with the
Idaho Department of Water Resources regarding Avista's Hydroelectric Facility Water
Rights. The July 25, 2018 Agreement is Attachment I to this Master List of
Commitments.
MODIFICATION TO DELEGATION OF AUTHORITY, CLAUSE 3 (see below for
defined terms)
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 requirement that: (i) two (2) of such directors
are executives ofParent or any ofits Subsidiaries and (ii) three (3) of such directors are
Independent Directors who are citizens of the United States and are and have been
residents of the Pacific Northwest Region for at least two years, while such requirement
Idaho Settlement Proposal - Master List of Commitments
Revised 1 1/6/201 8
501915474 v19
Page28 of30 gxniUitNo. l0l
Case Nos. AVU_E_ l7_09/
AVU-G- I7-05
T. Carlock, Staff
tt/06118 page 28 of 4t
Revised Exhibit A
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 Independent Director who is a citizen of the United
States, and resident of the Pacific Northwest Region in a timely manner, in which case
Shareholder may replace any such director with any person who is a citizen of the United
States, excluding any employee or executive of Parent or any of its Subsidiaries other
than Avista, on an interim basis, not exceeding six months, after which time Shareholder
shall replace any such interim director with an Independent Director who is a citizen of
the United States and is and has been a resident of the Pacific Northwest Region for at
least two years). If, at any time 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 rnajority of the directors of
such board, then Hydro One's authority to replace an Independent Director on an interim
basis is suspended for the pendency of such circumstance.
For purposes of this modification to the Delegation of Authority, the following
definitions, which are set forth in the Delegation of Authority and Merger
Agreement, will apply: "lndependent Directors" 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
contrary in this definition of "Independent 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 "lndependent
Director," may still be considered independent within the meaning hereof, and (b) former
officers of the Company or the Surviving Corporation, who otherwise satisfy the criteria
set forth above for an "Independent Director," may still be considered independent within
the meaning hereof.
"Pacific Northwest 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.
('Parent" shall mean Hydro One Limited, a corporation organized under the laws of the
Province of Ontario.
"shareholder" shall mean Olympus Equity LLC, a Delaware limited liability company.
"shareholder Designees" shall mean (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 Independent Directors"). [Note: for purposes of this modification to the
Idaho Settlement Proposal - Master List of Commitments
Revised 111612018
501 91 5474 v1 9
Page29 of 30 B*511,1tNo. 101
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock. Staff
11106118 Page 29 of 4l
Revised Exhibit A
DoA, "Shareholder Designees" has the same meaning as "Hydro One Designees" in
Commitment No. 3.1
"Subsidiaries" when used with respect to any party hereto, shall mean any corporation,
limited liability company, partnership, association, trust or other entity of which
securities or other ownership interests representing more than 50o/o of the equity and
more than 50% of the ordinary voting power (or, in the case of a limited partnership,
more than 50% of the general partnership interests) are, as of such date, owned by such
party or one or more Subsidiaries of such party or by such party and one or more
Subsidiaries of such party.
"Surviving Corporation" shall mean Avista Corporation, a Washington corporation.
Idaho Settlement Proposal - Master List of Commitments
Revised 1116/2018
50'1915474 v19
Page 30 of 30 gxSi6itNo. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
ll106118 Page 30 of 4l
State of ldaho Attachment 1 to Revised Master List of Commitments in ldaho
I} EPARTMI,Ii{T OT WATB,R RES OURCES
322 East Front Street . P.0. Box 83720 . Bois*, Itl*ho 83720-0{r9S
Fhone: (2,08) 281-4800 . Fnx: (208i 28?-6700 . Websltc: wwrv.ldwr.ldaho gov
C.L-.'BUTCH" OTTER
Govunor
G,ARV SPACKMAN
Dlrcetor
August 10, 2018
Tronsmitted Via Hand Delivery and by E-mail
Paul Kjellander, President
Kristine Raper, Commissioner
Eric Anderson, Commissioner
CIO Diane Hanian, Commission Secretary
Idaho Public Utilities Commission
472W. Washington St.
Boise,Idaho 83702
Re: CaseNos. AVU-E-17-09 and AVU-G-17-05
Dear Commissioners,
I am writing to update you regarding discussions between the Idaho Department of Water
Resources ("IDWR") and Avista Corporation ("Avista"). Since early 2018, IDWR and Avista have been
discussing Avista's water right claims in the Coeur d'Alene-Spokane River Basin Adjudication
("CSRBA"). The main focus of our discussions has been Avista's hydropower water rights at the three
dams and power plant at Post Falls ("Post Falls dam"). The State of Idaho has a history of disputes over
hydropower water rights. The Swan Falls controversy of the early 1980s involving ldaho Power's
hydropower water rights at Swan Falls dam led to the commencement of the Snake River Basin
Adjudication ("SRBA") in 1987. Litigation in the SRBA rElated to Idaho Power's Swan Falls water
rights did not sonclude until 2012. A main reason for engaging with Avista early in the CSRBA was to
avoid extended litigation over Avista's hydropower water rights, especially over the issue of
subordination to existing and future water rights.
In July of 20 I 8, IDWR was notified of lhe Joint Application far an Order Autharizing Proposed
Transaction ("Joint Application") filed with the Idaho Public Utilities Commission (*PUC') by Avista
and Hydro One Limited ("Hydro One"). The Joint Application sought the PUC's approval of a planned
morger between Avista and Hydro One pursuant to ldaho Code $ 6l-328. lmmediately, IDWR was
concerned the merger would disrupt the adjudication claim discussions and might impede or prevent
resolution of the issues, Furthermore, IDWR was concemed the merger could result in a change in the
use of water authorized by Avista's hydropower water rights. To ensure that the public interest, as it
pertains to Avista's use of water under its hydropower water rigbts, would not be adversely affected,
IDWR moved to intervene in the PUC proceeding. The PUC subsequently granted IDWR's petition to
intervene.
While IDWR's petition to intervene was pending before the PUC, IDWR and Avista continued
discussing Avista's hydropower water rights at Post Falls dam. We are pleased to infiorm you that IDWR
and Avista reached an agreement that addresses IDWR's concerns. Specifically, IDWR and Avista have
Exhibit No. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
11/06/18 Page 3l of 4l
August 10, 2018
Letter to Commissioners
Page2
reached an agreement regarding subordination of Avista's water rights consistent with the historical
operations at Post Falls dam. IDWR and Avista have agreed t}at Avista's water right claim nos. 95-4518,
95-9115, and 95-91l9 shall be recommended in the CSRBA with the following subordination language:
The use of water confirmed in this right shall be junior and subordinate to permits, licenses, or
decrees for all uses within the State of Idaho wi& a priority date ol or earlier than, July 25,2018,
diverted upstream fi'om all three points of diversion fbr this right.
The use of water confirmed in this right shall be junior and subordinate to permits, Iicenses, or
decrees for all uses, except fbr permits, Iicenses, or decrees for inigation storage or power
purposes, within the State of Idaho with a priority date later than July 25, 201 8, diverted upstream
from all three points of diversion for this right.
The use of water confirmed in this right shall not be subordinate to permits, license, or decrees
within the State of Idaho diverted downstream fiom all three points of diversion fbr this right.
The agreement ensures that the public interest, as it relates to Avista's water use pursuant
to its water rightr, will not be adversely affccted by the proposed transaction between Avista and
Hydro One. The agreement safeguards existing and future water users from changes in historical
operations, helps protect the summer lake level of Coeur d'Alene Lake, and supports the ongoing
operations of Post Falls dam in a manner consistent with prior agreements and the ldaho Department of
Environmental Quality 40 I Certification.
A copy of the agreement between IDWR and Avista is attached to this letter. To ensure
documentation of the agreement before the PUC, IDWR requests that if the PUC approves the pending
transaction between Avista and Hydro One, the PUC include the agreement as an attachment or exhibit to
any such order so that the resolution of this issue is documented in the order.
Sincerely,
Director
Attachment: Agreement Regarding Subordination of Avista's Post Falls Hydroelectric Facility Water
Rights
Cc: All parties
Exhibit No. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
11106118 Page 32 of 41
Cf,RTIFICATE OT SERVTCE
I HEREBY CERTIFY that on this 1Oth day of August 2018, I served a true and eorrect
copy of the foregoing document on the following by the method(s) indieated.
Idaho Public Utilities Commissioners
C/O Diane Hanian
Commission Secretary
Idaho Public Utilities Commission
472W. Washington St.
Boise, Idaho 83702
diane. holt@.puc. idaho. gov
Patrick Ehrbar
Director of Rates
State & Federal Regulation
Avista Corporation
patrick. eh.qbar@,4vi stacqfn,$qlm
Elisabeth Thomas
Kari Vander Stoep
Dirk Middents
K&L Gates LLP
925 Fourth Avenue, Suite 2900
Seattle, WA 98i04-1158
I iz.!ronras&kl gates.com
kari. vanderstoep@kl sales.conl
di rk. mi dden-ts@kl gates.com
James Scarlett
Executive Vice President & Chief
Legal Officer
Hydro One Limited
i scarlett'Dhvdroonc.com
IDAHO PUC
f] u.s. Mail, postage prepaid
X Hand DeliverynIx
Ovemight Mail
Facsirnile
Email
AVISTA CORPORATION
Tnx
I u.s. Mail, postage prepaid
n gand Delivery
Overnight Mail
Facsimile
Email
D u.s.Mail, postage prepaid
fl Hand Delivery
fl overnight Mail
fJ Facsimite
X Pmait
HYDRO ONE LIMITED
DnnDa
U.S. Mail, postage prepaid
Hand Delivery
Overnight Mail
Facsimile
Email
I U.S. Mail, postage prepaid
n Hand Delivery
fl Ovemight Mail
f] Facsimile
ffi Email
Exhibit No. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
11106118 Page 33 of 4l
David Meyer
Vice President and Chief Counsel of
Regulatory & Governmental Affairs
Avista Corporation
P.O.Bax3727
Spokane, WA99220-3727
Dav i d . rneyqliQa v i stacorp. com
COMMISSIONSTAFF
Brandon Karpen
Deputy Atlomey General
Idaho Public Utilities Commission
472W. Washington
P.O. Box 83720
Boise, lD 83720-AA74
branda$.karpen @,Auc. ida!:p. gov
Ronald Williams
Williams Bradbury, PC
P.O. Box 388
Boise,ID 83701
ron&hvi I I i ar:Uibrad bury. c*rn
Larry A. Crowley, Director
The Energy Strategies Institute, Inc.
5549 S. Cliffsedge Ave.
Boise,ID 83716
crowleyla@gq!*gqm
Dean J. Miller
d-eartj rp i I ler&cableone.net
Peter J. Richardson
Richardson Adams, PLLC
515 N. 27th St.
Boise, ID 83702
oeter/CIri c hard sonaclaln s. co nl
Dr. Don Reading
6070 Hill Road
Boise,ID 83703
dread in g@{rr i ndsprin g.com
caro [. [e-mail]
ruarvOnra lewal len.corn
i ohn j acobs(r,)c I ea rwaterpaper. co m
dev i d. wren@c I earwaterpaper. conr
nathan.sm ith@clearwate$]aper..qgUi
IDAHO TORTST GROUP, LLCxnnn
U.S. Mail, postage prepaid
Hand Delivery
Overnight Mail
Facsimile
Email
U.S. Mail, postage prepaid
Hand Delivery
Ovemight Mail
Facsimile
Emaitr
U.S. Mail, postage prepaid
Hand Delivery
Overnight Mail
Facsimile
Email
ffi Email
X Email
XI Email
X Email
U.S. Mail, postage prepaid
Hand Delivery
Ovemight Maitr
Facsimile
Email
n u.s. Mail, postage prepaid
I Hand Delivery
I ovemight Mailn Facsimile
X Email
CLEARWATf, R PAPtrR CORPORATION
[l U.S. Mail, postage prepaid
Hand Delivery
Overnight Mail
Facsimile
Email
KnnDx
etrnu
m
Exhibit No. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
I l/06/18 Page 34 of4l
X Email
xnTtrx
xnf,a
COMMUNITY ACTION PARTNf,RSHIP ASSOCTATION OF IDAHO
Brady M. Purdy I u.s. Mail, postage prepaid
Attorney at Law I ganc Delivery
2019 N. 17ft St. f] ovemight Mail
Boise, rD 83702 H Iil:i'''[e-mail] l.cqnr
Benjamin J, Otto
Idaho Conservation League
710 N. 6e St.
Boise, lD 83702
[e-mail]
Norman M. Semanko
Parsons Behle & Latimer
800 West Main Street, Ste. 1300
Boise,Idaho $7A2
nsern a l: k o (dpa6611 5[reh I c. conr
IDAHO CONSERVATION LEAGUf,
U.S. MaiI, postage prepaid
Hand Delivery
Overnight Mail
Facsimile
Email
AVISTA CUSTOMERGROUP
X u.s. Mail, postage prepaid
fl Hand Dclivcry
I Ovemight Mail
WASHINGTON AND NORTHERN IDAHO DISTRICT COUNCIL OF LABORERS
Danielle Franco-Malone E u.s. Mail, postage prepaid
Schwerin Carnpbell Barnard f] aand Delivery
Iglitzin g Lavitt Lff fl overnisht ualt
18 West Mercer Street, Suite 400 H iil::i'"'Seattle, WA 98119-3971
h'alrco,Ou,orkerIaw,cout
Da Facsimile
Email
L. Baxter
Exhibit No. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
I l106l18 Page 35 of 4l
aItrtra
Agreement Regarding Subordination of Avista's Post Falls Hydroelectric Facility Water Rights
Purpose
This Agreement, reached between Avista Corporation, a Washington corporation ("Avista") and the
ldaho Department of Water Resources ("lDWR") (collectively the "Parties), is intended to capture the
mutual understanding of the Parties regarding subordination of Avista's Post Falls water rights, of record
with IDWR as Avista's claim nos. 95-4518, 95-9115, and 95-91L9 (hereafter "Avista's water rights"). This
Agreement guides the Parties' actions in settings including, but not limited to, the Coeur d'Alene-
Spokane River Basin Adjudication ("CSRBA") and the currently pending proceeding before the ldaho
Public Utilities Commission ("PUC') related to the proposed merger of Avista and Hydro One Limited
(acting through its indirect subsidiary Olympus Equity LLC)("Hydro One").
This Agreement is built upon several interests of the Parties:
r To protect the summer lake level of Coeur d'Alene Lake;r To ensure the public interest, as it relates to the use of water by Avista, will not be adversely
affected by the proposed transaction between Avista and Hydro One; and
r To support the ongoing operations of the three dams and power plant at Post Falls ("Post Falls
dam") in a manner consistent with prior agreements and as referenced by the ldaho
Department of Environmental Quality 401" Certification ("401 Certification") for Post Falls dam
and the Federal Energy Regulatory Commission's License for the Spokane River Project $2545
{"FERC license").
Subordination of Avista's water rights
The Parties agree that Avista's water rights are subordinated consistent with the following language, and
the following language will be included in the CSRBA claims for Avista's water rights and will be
incorporated in IDWR's recommendations of Avista's water rights in the CSRBA Director's Report for
Basin 95 ("Director's Report"):
The use of water confirmed in this right shall be junior and subordinate to permits,
licenses, or decrees for all uses within the State of ldaho with a priority date of, or
earlier than, July 25,2018, diverted upstream from all three points of diversion for this
right.
The use of water confirmed in this right shall be junior and subordinate to permits,
licenses, or decrees for all uses, except for permits, licenses, or decrees for irrigation
storage or power purposes, within the State of ldaho with a priority date later than July
25,20L8, diverted upstream from all three points of diversion for this right.
The use of water confirmed in this right shall not be subordinate to permits, license, or
decrees within the State of ldaho diverted downstream from all three points of
diversion for this right.
Agreed Actions by the Parties
1. Upon both Parties' signature to this Agreement, IDWR will convey to the PUC a copy of this
Agreement along with a letter stating that lf the PUC approves the pending transaction between
Avista and Hydro One, the PUC shall reference this Agreement in any such order. The letter will
1 Exhibit No' l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
1 1/06/18 Page 36 of4l
also explain that with this Agreement, IDWR is satisfied that the proposed merger, with respect
to Avista's water rights, will not be adverse to the public interesq
2. Avista will not object to the terms of subordination described above which will be included in
the Director's Report for Avista's water rights, and will support those terms in the CSRBA;3. The Parties agree on dismissal or withdrawal, as appropriate, of Avista's federal water right
clairns in the CSRBA, numbered 95-L6663 and 95-16664; and
4. Avista also owns certain water rights for power purposes at Cabinet Gorge dam, of record with
IDWR as water right nos. 96-4555,96-2179,96-2180, and 96-2259. IDWR and Avista agree to
work, in good faith, toward reaching an agreement regarding subordination of Avista's water
rights at Cabinet Gorge dam.
General Terms'L. Considerati0n. The Parties acknowledge receiving sufficient consideration forthe commitments
contained in this Agreement and waive any argument that they might have in any judicial
proceeding that no consideration exists to support this Agreement or that the consideration
received is not sufficient.
2. Bindine Effect of Asreement. This Agreement is intended to be a final and binding agreement
between IDWR and Avista, jointly and severally, and inures to the benefit of, and is binding
upon, the successors in interest and assigns of each entity. The Parties further agree that this
Agreement is not contingent upon approval of the pending PUC merger case between Avista
and Hydro One.
3. Capacitvto Execute Aereement. The Parties warrant and represent that the person executing
this Agreement on its behalf is empowered to do so and thereby binds it by signing this
Agreement.
4. Waivers. The failure to object to any breach of any term or condition in this Agreement shall
not constitute a waiver, and no failure to object shall be deemed a waiver of any prior or
subsequent breach.
5. Entiretv of Agreement. This Agreement represents the entire and integrated agreement
between the Parties with respect to the subject matter hereof. No promise or inducement has
been offered or made except as herein set forth, and this Agreement is executed by each party
without reliance upon any statement or representation by any other party or its agent,
5. Modification. To the extent this Agreement may be amended or modified, it shall be only by a
written agreement signed by each of the parties to this Agreement.
7. Disoute Resolution. The Parties agree to meet and discuss informally, in good faith, before filing
an action arising from the Agreement.
8. Execution of Agreement in Parts. Due to time constraints, the parties acknowledge that it is not
possible to have all Parties sign the same copy of this Agreement. Therefore, the parties agree
that this Agreement may be executed in any number of counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument.
2 Exhibit No. 101
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
I 1/06/18 Page37 of 4l
9. Sienatures. ln witness whereof, the parties to this Agreement through their duly authorized
representatives have executed this Agreement and certify that they have read, understood, and
agreed to the terms and conditions of this Agreement as set forth herein.
Agreed to, the 25th ofJuly,2018.
Avista Corp
Bruce Howard, Sr. Director
Real Estate and Environmental Affairs
For IDWR
Gary Spackman, Director
ldaho Department of Water Resources
3
Exhibit No. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
't1106118 Page 38 of 4l
ACKNOWLEDGEMENTS
srArE oFt O"*hirui{o,
couNrY or}o(a*s-*ss.
A nota
be the person who executed the foregoing instrument on behalf of Avista Corporation, and he/she
acknowledged to me that he/she executed the same.
NOTARY PU
Residing at:
BLICAtokah{- r u-lA
My commission expires: e (n btozi
STATE OF
couNTY oF _
On this
-
day of July, 2018, before ffie,
A notary public of the State of ldaho, personally appeared GARY SPACKMAN, the Director of the ldaho
Department of Water Resources, known or identified to me to be the person who executed the
foregoing instrument on behalf of the ldaho Department of Water Resources, and he acknowledged to
me that he executed the same.
NOTARY PUBLIC
Residing at:
My commission expires:
ss.
4 Exhibit No. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
I 1/06/18 Page 39 of4l
On thisJ5 day of July,2018, before
known or identified to me to
9. Sisnatures. ln witness whereof, the parties to this Agreement through their duly authorized
representatives have executed this Agreement and certlfo that they have read, understood, and
agreed to the terms and conditions of thls Agreement as set forth herein.
Agreed to. the 25th of July, 2018
For Avlsta Corp
Eruce Howard, Sr. Director
Rea! Estate and Invironmental Affairi
For I
6ary Director
ldaho Department of Water Resources
3 Exhibit No. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05'l'. Carlock, Staff
1l106118 Page 40 of 4l
ACKNOWTEDGEMENTS
STATE OF
couNwoF_
On this _ day of July, 2018, before ffrc,
A notary public of the State of , personally appeared
,i-ofAvistacorporation,knownoridentifiedtometo
be the person who executed the foregoing instrument on behalf of Avista Corporation, and he/she
acknowledged to me that he/she executed the same.
NOTARY PUBLIC
Residing at:
My commission explres:
ss.
STATE oFHdn r^o
COUNTY OF N-I^
On thisf$iay of July, 2o18, before me,{i. , A. t^)h;ld-
A notary publlc of the State of ldaho, personally appeared GARY SPACKMAN, the Director of the ldaho
Department of Water Resource!, known or identified to me to be the person who executed the
foregoing instrument on behalf of the ldaho Department of Water Resources, and he acknowledged to
me that he executed the same.
Qd-,"* a!),r-o
ss.
AI
(d NOTARY PUBLIC
Residing at: ];1s.1,,. tsl<"..x.,
My commission ol\c, Po..tr-
+
+a
Op IDA
4 Exhibit No. l0l
Case Nos. AVU-E-17-09/
AVU-G-17-05
T. Carlock, Staff
1l/06/18 Page4l of4l
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 6TH DAY OF NOVEMBER 2018,
SERVED THE FOREGOING DIRECT TESTIMONY OF TERRI CARLOCK, N
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 BOX3727
SPOKANE W A 99220-3727
E-MAIL: [e-mail]
avistadockets@avistacorp. com
ELIZABETH THOMAS
KARI VANDER STOEP
DIRK MIDDENTS
K&L GATES LLP
925 FOURTH AVE STE 29OO
SEATTLE WA 98104-1158
E-MAIL: liz.thomas@kl gates.com
kari. vanderstoep@kleates. com
dirk.middents@kl gates. com
RONALD L WILLIAMS
WILLIAMS BRADBURY
PO BOX 388
BOISE ID 8370I
E-MAIL: [e-mail]
ELECTRONIC ONLY
DEAN J MILLER
E-MAIL : deanj [e-mail]
PETER J RICHARDSON
RICHARDSON ADAMS PLLC
5I5 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 : [e-mail]
LARRY A CROWLEY
THE ENERGY STRATEGIES INSTITUTE
5549 S CLIFFSEDGE AVENUE
BOISE ID 837I6
E-MAIL: [e-mail]
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE
ELECTRONIC ONLY
CLEARWATER PAPER CORP.
carol.hauqen@clearwaterpaper. com
[e-mail]
i ohn j acobs@clearwaterpaper. com
david. [e-mail]
nathan. smith@clearwaterpaper. com
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
7IO N 6TH STREET
BOISE ID 83702
E-MAIL: [e-mail]
NORMAN M SEMANKO
PARSON BEHLE & LATIMER
8OO W MAIN ST STE 13OO
BOISE ID 83702
E-MAIL: [e-mail]
ec f@.o arsonsbeh I e. c om
BRAD M PURDY
ATTORNEY AT LAW
2019 N ITTH 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 98119-3971
E-MAIL: [e-mail]
GARRICK L BAXTER, DEPUTY
ID ATTORNEY GENERAL
ID DEPT OF WATER RESOURCES
PO BOX 83720
BOrSE rD 83720-0098
E-MAIL: [e-mail]
,b //,a,,*
SECRETARY
CERTIFICATE OF SERVICE