20181207Post Hearing Brief.pdf

BRANDON KARPEN, ISB No. 7956
Deputy Attorney General
State of Idaho
Public Utilities Commission
472W Washington
P.O. Box 83720
Boise, Idaho 83720-007 4
Telephone: [phone]
brandon. karpen@puc. idaho. gov
;:]HCEIVED
Xfit$ S[t -7 pH E: 0I
CASE NOS. AVU-E.17.09
AVU-G-I7-05
I
Attorneyfor the Staff of the Public Utilities Commission
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT
APPLICATION OF HYDRO ONE LIMITED
AND AVISTA CORPORATION FOR
APPROVAL OF MERGER AGREEMENT COMMISSION STAF'F'S POST.
HEARING BRIEF REGARDING
rDAHO CODE S 6t-327
The Commission has requested legal briefing on the applicability of Idaho Code $ 6l-327
in relation to the above-captioned matter. As discussed below, Staff does not believe Section 6l-
327 bars the merger because: (1) the statute only applies to transfers of a utility's interest in Idaho-
based generation, transmission, and distribution property, and Avista does not propose to transfer
such an interest; and (2) Avista does not propose to transfer such an interest to any of the four
types of statutorily impermi ssible transferees.
Idaho Code $ 6l-327 states:
No title to or interest in any public utility (as such term is defined in chapter 1, title
61, Idaho Code) property located in this state which is used in the generation,
transmission, distribution or supply of electric power and energy to the public or
any portion thereof, shall be transferred or transferable to, or acquired by, directly
or indirectly, by any means or device whatsoever, any government or municipal
corporation, quasi-municipal corporation, or governmental or political unit,
subdivision or corporation, organized or existing under the laws of any other state;
or any person, firm, association, corporation or organization acting as trustee,
nominee, agent or representative for, or in concert or arrangement with, any such
government or municipal corporation, quasi-municipal corporation, or
governmental or political unit, subdivision or corporation; or any company,
association, organization or corporation, organized or existing under the laws of
)
)
)
)
)
)
)
COMMISSION STAFF'S POST-HEARING BRIEF REGARDING IDAHO CODE 5 6l-327 - Page I
this state or any other state, whose issued capital stock, or other evidence of
ownership, membership or other interest therein, or in the property thereof, is
owned or controlled, directly or indirectly, by any such government or municipal
corporation, quasi-municipal corporation, or governmental or political unit,
subdivision or corporation; or any company, association, organization or
corporation, organized under the laws of any other state, not coming under or
within the definition of an electric public utility or electrical corporation as
contained in chapter l, title 61, Idaho Code, and subject to the jurisdiction,
regulation and control of the public utilities commission of the state of ldaho under
the public utilities law of this state; provided, nothing herein shall prohibit the
transfer of any such property by a public utility to a cooperative electrical
corporation organized under the laws of another state, which has among its
members mutual nonprofit or cooperative electrical corporations organized under
the laws of the state of Idaho and doing business in this state, if such public utility
has obtained authorization from the public utilities commission of the state of
Idaho pursuant to section 61-328. Idaho Code. [Emphasis supplied].
/c/. 'l'hus, Idaho Code $ 6l-327 defines four types of transf-erees to whom a utility is not permitted
to transfer an interest in ldaho-based generation, transmission, or distribution property: (1) a
govemment from another state; (2) anorganization acting as a representative of a government from
another state; (3) an organization from Idaho or another state in which a government from another
state has an ownership or controlling interest; and (4) any organization "organized under the laws
of any other state" that is not an electrical corporation as defined in the Public Utility Law or
regulated by the Commission.l
L ln ldaho Power Co. v. State, 104 Idaho 57 5, 661 P.2d 7 41 ( 1983), the Commission claimed Idaho
Power would violate Section 6l-327's property transfer prohibitions if Idaho Power agreed with the Federal
Power Commission (FPC) to subordinate ldaho Power's hydropower water rights as a condition of being
issued a federal license to build dams. The Court ultimately ruled that Section 6l-327 did not apply because
Idaho Power's rights were already subordinated and, therefore, Idaho Power was not transferring an interest
in them by agreeing to subordinate them to get the federal license. While the Court ruled Section 6l-327
didn't apply because there wasn't a property transfer, the Court also summarized Section 61-327 as
providing "generally that property in this state used in the generation or transmission of electricity shall not
be transferred in any manner to out-of-state organizations, governmental entities, or ony entity not subject
to regulation by the PUC." 104 Idaho at 589, 661 P.2d at 7 55 (emphasis supplied). The Court's summary
is non-controlling dicta and overstates the statutory bar. Idaho Code $ 61-327 only precludes a utility from
transferring properly to certain organizations and entities associated with another state, and not, more
broadly and as stated by the Court, to "any entity [not] subject to regulation by" the Commission. Notably,
the Commission never argued, and the Court never ruled, that Section 6l-327 should be broadly read to bar
the transfer because the FPC was a governmental entity from another "state."
COMMISSION STAFF'S POST-HEARING BRIEF REGARDING IDAHO CODE S 6l-327 -Page2
Analysis
Idaho Code $ 6l-327 does not bar the merger for at least two reasons. First, Avista is not
transferring an interest in Idaho-based generation, transmission, or distribution property. Second,
even if Avista were transferring such an interest, it would not be not transferring the interest to one
of the four types of statutorily impermissible transferees. These points are discussed below.
l. Avista is not transferring an interest in Idaho-based generation, transmission,
and distribution property.
As noted in footnote l,in Idaho Power Co. v. State,104 Idaho 515,661P.2dl4l (1983),
the Commission claimed Idaho Power would violate the property transfer prohibitions of Idaho
Code $ 6l-327 if Idaho Power agreed with the FPC to subordinate Idaho Power's hydropower
water rights as a condition of being issued a federal license to construct certain dams. The
Commission conceded, however, that the statute would not apply if the water rights were already
subordinated when Idaho Power acquired them; i.e., if Idaho Power did not yet own
unsubordinated rights when it agreed to subordinate them as a condition of obtaining a federal
license, then Idaho Power's subordination agreement would not have transferred an interest in
existing property in violation of Idaho Code $ 6l-327. Faced with these observations, the Court
held that the statutes did not apply because Idaho Power had not transferred an interest in property;
when Idaho Power ultimately acquired the water rights, they were already been subordinated. 104
Idaho at 589, 661P.2dat755.
Like the proposal rn ldaho Power, the Avista/Hydro One proposal here does not involve
the transfer of an interest in generation, transmission, or distribution property. Under the
Avista/Hydro One proposal, Avista would continue to own its assets and Hydro One would be
Avista's single shareholder through the Olympus Equity holding company. Accordingly, Idaho
Code $ 6l-327 does not apply. Avista does not propose to transfer its utility property to Hydro
One, Olympus Equity, the government of Ontario, the nation of Canada, or anyone else.
2. Avista is not transferring an interest to an impermissible transferee.
In this docket, Hydro One, a Canadian company whose largest shareholder is the Province
of Ontario, proposes to have its Idaho subsidiary, Olympus Equity LLC, become Avista's sole
shareholder. Even if Avista were proposing to transfer an interest in its utility property-which it
is not-Section 6-327 would still not bar the transfer. Olympus Equity LLC and Hydro One are
not statutorily impermissible transferees.
COMMISSION STAFF'S POST-HEARING BRIEF REGARDING IDAHO CODE S 6l-327 - Page 3
a. Hydro One is not an impermissible transferee.
Hydro One is a Canadian investor-owned, publicly traded company. The Province of
Ontario, Canada is Hydro One's single largest minority shareholder, and owns about4Tyo of Hydro
One's outstanding stock. While a governance agreement uniquely positions Ontario as a
shareholder, Ontario's minority ownership of Hydro One does not cause Hydro One to be a
statutorily impermissible transferee because neither Ontario, nor Canada is another "state" under
Section 6l-327.
As noted, Idaho Code $ 6l-327 precludes a utility from transferring an interest in its Idaho-
based utility property to (l) a government from another state; (2) an organization acting as a
representative of a government from another state; (3) an organization from Idaho or another state
in which a government from another state has an ownership or controlling interest; or (4) any
organization"organized under the laws of any other state" that is not an electrical corporation as
defined in the Public Utility Law or regulated by the Commission. None of these bars applies to
Hydro One because:
o Hydro One is a publicly traded company, not "a government;"
o There is no evidence that Hydro One is "acting as a representative" of another state;
o A goverrment of another "state" does not have interest in Hydro One, and certainly not a
"controlling" one; and
. Hydro One is not "organized under the laws of any other state."
Notably, Section 6-327 only bars transfers of property "located in this state," i.e. in the State
of Idaho, to entities and governments associated with "any other state." The legislature's
juxtaposition of the phrase "located in this state" with the phrase "any other state" highlights that
the legislature intended "any other state" to mean "any of the other states in the United States of
America." Certain opponents ofthe merger argue that, although "any other state" is used in contrast
to "this state," i.e., to Idaho, the phrase "any other state" is really ambiguous and should be broadly
construed to include foreign nations and provinces. However, as noted above, the phrase plainly
refers only to states other than the State of Idaho. If the legislature had intended Idaho Code $ 6l-
327 to apply to both U.S. states and foreign nations, then the legislature would have included the
phrase "foreign nations" in the statute. See, e.g. Idaho Code $ 6l-714 (entitled "Foreign and
interstate commerce" and discussing both "foreign nations" and the "several states of the union" to
show the text applies to both). Instead, the legislature contrasted "this state"-ldaho-with "any
COMMISSION STAFF'S POST-HEARING BRIEF REGARDING IDAHO CODE $ 61-327 -Page 4
other state." And by doing so, the legislature precluded the phrase "another state" from being read
to include "foreign nations." There is, therefore, no need for the Commission to speculate that the
phrase means something else. The statute is to be read literally. See Idaho Code $ 73-l l3(1) ("The
language of a statute should be given its plain, usual and ordinary meaning. Where a statute is clear
and unambiguous, the expressed intent of the legislature shall be given effect without engaging in
statutory construction. The literal words of a statute are the best guide to determining
legislative intent"). (Emphasis added) (Emphasis added). Furthermore, as a minority shareholder,
the Province of Ontario does not have a controlling interest in Hydro One. A dictionary definition
of control is instructive:
The direct or indirect power to govern the management and policies of a person or
entity, whether through ownership of'voting securities, by contract, or otherwise;
the power or authority to manage, direct, or oversee <the principal exercised control
over the agent>.
Control, Black's Law Dictionary (lOth ed. 2014). And,
Ownership of more than 50% of the shares in a corporation. Also
termed e//bctive control; working control. 2. The power to vote enough of the
shares in a corporation to determine the outcome of matters that the shareholders
vote on.
()orporate (lontrol, Black's Law Dictionary (1Oth ed.20l4).
In its most plain meaning, "control," or "corporate control" means ownership of more than
50o/o of shares. This is a plain reading of control, and moreover makes the most sense when
considering that many publicly traded utilities have institutional and government ownership
through trust and retirement accounts.
Accordingly, for these reasons, Hydro One is not a statutorily impermissible transferee.
b. Olympus Equity is not an impermissible transferee.
Hydro One's wholly owned subsidiary, Olympus Equity LLC, is also not an impermissible
transferee for many of the reasons discussed abovb. In addition, the fourth bar-to transfers to an
organization"organized under the laws of any other state" that is not an electrical corporation as
defined in the Public Utility Law or regulated by the Commission--does not apply to Olympus
Equity because Olympus Equity is now an Idaho limited liability company. As originally
proposed, the Applicants were going to make Avista a wholly owned entity of the Olympus Equity
holding company. Olympus Equity was to be incorporated in Delaware, and have no purpose but
COMMISSION STAFF'S POST-HEARING BRIEF REGARDING IDAHO CODE 5 61-327 - Page 5
to hold Avista ownership. Thus, as originally proposed, Olympus Equity would have been
organized under another state (Delaware) and not an electrical corporation as defined under Idaho
law, and it would have been an impermissible transferee under Section 6l-327.
During the proceedings, however, Olympus Equity was reorganized as an Idaho limited
liability colnpany, as was thus no longer an irnpermissible transferee under Section 6l-327's fourlh
prong. This change fully resolved Staff s concem that the fburth prong might bar the merger.
Conclusion
As discussed above, Avista is not proposing to transfer an interest in its Idaho-based
generation, transmission, or distribution property. Further, even if such a property interest were
being transferred, the Hydro One and Olympus Equity are not impermissible transferees. Staff thus
submits that Idaho Code $ 6l-327 does not bar the proposed merger.
DATED this 7th day of December, 2018
o OF ATTORNEY GENERAL
(-
Attorney for Commission Staff
COMMISSION STAFF'S POST-HEARING BRIEF REGARDING IDAHO CODE 5 61-327 - Page 6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 7TH DAY OF DECEMBER 2018,
SERVED THE FOREGOING COMMISSION STAFF'S POST.HEARING BRIEF
REGARDING IDAHO CODE $ 61-327, IN CASE NOS. AVU-E-17-09/AVU-G-17-05,
BY E-MAILING AND MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWNG:
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX 3727
SPOKANE W A 99220-3727
E-MAIL: [e-mail]
avi stadockets@avi stacorp. com
ELIZABETH THOMAS
KARI VANDER STOEP
DIRK MIDDENTS
K&L GATES LLP
925 FOURTH AVE STE 29OO
SEATTLE WA 98I04-I158
E-MAIL: [e-mail]
kari. vanderstoep@,kl eates. com
dirk. rniddents@kl eates. com
RONALD L WILLIAMS
WILLIAMS BRADBURY
PO BOX 388
BOISE ID 83701
E-MAIL : [e-mail]
ELECTRONIC ONLY
DEAN J MILLER
E-MAIL: deanjmiller@.cableone.net
PETER J RICHARDSON
RICHARDSON ADAMS PLLC
515 N 27TH STREET
BOISE TD 83702
E-MAIL: [e-mail]
ELECTRONIC ONLY
PATRICK EHRBAR DIR
AVISTA CORPORATION
E-MAIL: [e-mail]
ELECTRONIC ONLY
JAMES SCARLETT
HYDRO ONE
E-MAIL : j [e-mail]
DEBORAH A FERGUSON
FERGUSON DURHAM PLLC
E-MAIL : daf(@fergusondurl-ram.com
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]
COMMISSION STAFF'S POST-HEARING BRIEF REGARDING IDAHO CODE 5 61-327 -Page7
ELECTRONIC ONLY
CLEARWATER PAPER CORP.
carol.hau [e-mail]
[e-mail]
j ohn j acobs@clearwaterpaper. com
[e-mail]
nathan. smith@ clearwaterpaper. com
BRAD M PURDY
ATTORNEY AT LAW
2OI9 N 17TH STREET
BOISE TD 83702
E-MAIL: bmpurdy@,hotmail.com
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
710 N 6TH STREET
BOISE TD 83702
E-MAIL: [e-mail]
DANIELLE FRANCO-MALONE
SCHWERTN CAMPBELL BARNARD
IGLITZIN & LAVITT LLP
I8 W MERCER ST STE 4OO
SEATTLE WA 98119-3971
E-MAIL: [e-mail]
NORMAN M SEMANKO
PARSON BEHLE & LATIMER
8OO W MAIN ST STE 13OO
BOISE TD 83702
E-MAIL: [e-mail]
ect@parsoqsbehle. celq
GARRICK L BAXTER, DEPUTY
ID ATTORNEY GENERAL
ID DEPT OF WATER RESOURCES
PO BOX 83720
BOISE ID 83720-0098
E-MAIL: [e-mail]
lfuo *+n\^/l<L^/
Keri J. Hawt€r '
Legal Assistant to Brandon Karpen
COMMISSION STAFF'S POST-HEARING BRIEF REGARDING IDAHO CODE $ 61-327 - Page 8