20180605Alaska Final Order.pdf

Avista Corp.
1411 East Mission P.O.Box3727
Spokane. Washington 99220-0500
Telephone [phone]
TollFree 800-727-9170
June 5, 2018
Diane Hanian, Secretary
Idaho Public Utilities Commission
Statehouse Mail
W. 472 Washington Street
Boise, Idaho 83720
RE: AVU-E-17-09/AVU-G-17-05 Final Order in the Alaskn Merger Proceedings
Dear Ms. Hanian:
Please find attached an electronic copy of the Final Order in the Hydro One/Avista Merger docket
in Alaska (Docket No. U-17-097).
Sincerely,
/s/ Paul Kimball
Paul Kimball
Regulatory Analyst
Enclosure
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STATE OF ALASKA
THE REGULATORY COMMISSION OF ALASKA
Before Commissioners:Stephen McAlpine, Chairman
Paul F. Lisankie
Robert M. Pickett
Antony Scott
Janis W. Wilson
u-17-097
ORDER NO. 9
ln the Matterof the JointApplication Filed by Hydro
One Limited and Avista Corporation for Authority
for Hydro One Limited to Acquire a Controlling
lnterest in ALASKA ELECTRIC LIGHT & POWER
COMPANY
AP NT
BY THE COMMISSION:
Summarv
We approve the joint application filed by Hydro One Limited (Hydro One)
and Avista Corporation (Avista) for Hydro One to acquire an indirect controlling interest
in Alaska Electric Light & Power Company (AEL&P), subject to condition. We require the
parties to notify us when Hydro One's acquisition of Avista closes or if the acquisition is
terminated. The chairman redesignates the commission panel.
Backqround
AEL&P provides electric utility service within the City and Borough of
Juneau (CBJ) under Certificate of Public Convenience and Necessity No. 1. AEL&P is a
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wholly owned subsidiary of Alaska Energy and Resources Company (AERC), which is a
wholly owned subsidiary of Avista.l
Hydro One and Avista filed a joint application for Hydro One to acquire an
indirect controlling interest in AEL&P through acquisition of Avista.2 We issued public
notice of the Application, with comments due December 21 ,2017. We received over 100
comments in response to the Application. Hydro One and Avista filed replies to these
comments.3 We scheduled a consumer input conference in Juneau on the Application
and addressed the scope of this proceeding.a More than 100 people attended our Juneau
consumer input conference, where we received oral comments from 23 persons and
replies from Hydro One and Avista.s We received an additiona! 30 comments after the
conference.
The CBJ filed a petition to intervene as a party in this proceeding, which we
granted.6 Hydro One, Avista, and the CBJ filed a stipulation resolving all disputed issues
between the parties.T We accepted the Stipulation in part.8
lOrder U-13-197(2), Order Approving Joint Application for Authority to Acquire
Controlling lnterest in Alaska Electric Light and Power Company, dated May 30, 2014
(Order U-13-197(2)).
2Joint Application for Authorization to Acquire a Controlling lnterest in Alaska
Electric Light and Power Company, filed November 21,2017 (Application).
3Applicants' Joint Reply to Commenfs, filed December 11,2017; Applicants' Joint
Reply to Commenfs, filed February 6,2018.
aOrder U-17-097(2), Order Scheduling Public Conference, Addressing Scope of
Proceeding, and Redesignating Commission Panel, dated February 9, 2018.
5Tr.2-93.
oOrder U-17-097(3), Order Denying Motion to Strike, Granting Petition to
lnteruene, Scheduling Prehearing Conference, and Establishing Deadline for Filing
Petitions to lnteruene, dated March 9,2018, at 3-5 (Order U-17-097(3)).
TStipulation Resolving Disputed /ssues, filed April 3,2018 (Stipulation).
sOrder U-17-097(8), Order Accepting Stipulation in Part, dated May 1 ,2018 (Order
u-17-0e7(8)).
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Discussion
Commission Panel
The chairman redesignates the commission panel for this docket. The
chairman designates Commissioners Paul F. Lisankie, Stephen McAlpine, Robert M.
Pickett, Antony Scott, and Janis W. Wilson as the commission panel. Commissioner
McAlpine remains the commission docket manager.
Acquisition of a Controllino lnterest
Standard of Review
We recently reiterated our standard for approving the acquisition of a
controlling interest in a certificated public utility. We stated that in the case of an
acquisition, there is a rebuttable presumption that a public utility successfully providing
service before the acquisition is fit, willing, and able to provide service and the service is
required for the public convenience and necessity.e In light of this rebuttable presumption,
we then explained our regulatory standard:10
ln evaluating an application to acquire a controlling interest, [ ] we must
determine only whether the public utility, after the acquisition, will remain fit,
willing, and able to provide the utility service authorized by the certificate.
When determining whether a public utility remains fit, willing, and able, we
examine managerial, technical, and financial fitness. Finally, in deciding
whether to approve the acquisition of a controlling interest in a public utility
holding a certificate, we consider whether the proposed acquisition is
consistent with the public interest.
eOrder U-17-032(2Y U-17-033(2)l U-17-034(2)t U-17-03s(2)l U-17-036(2)l
U-17-082(21, Order Granting Applications, Granting Motion for Expedited Consideration,
and Closing Dockets, dated November 7,2017, at 8-9.
1o/d. at 9.
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Fit, Willinq. and Able
Manaoerial and Technical Fitness
AEL&P is a vertically integrated electric utility serving portions of the CBJ
since 1946.11 ln 2017, AEL&P served an average of 17,005 customers with a peak load
of 79 megawatts (MW)." AEL&P owns 24.9 MW of hydroelectric generation capacity,
149.49 MW of diesel generation capacity, and 48.04 miles of high-voltage (69 kV and
above) transmission line.13 AEL&P also operates the Snettisham Hydroelectric Project
under a long-term power purchase agreement, which includes 73 MW of hydroelectric
generation capacity and the related 44-mile high voltage transmission line.la
Avista is a regulated public utility providing electric utility service to
approximately 378,000 customers and naturalgas utility service to approximately 342,000
customers in ldaho, Montana, Oregon, and Washington. Avista owns 1,925 MW of
hydroelectric and thermal generation capacity, approximately 2,219 miles of high-voltage
transmission lines, and approximately 18,300 miles of electric distribution lines.15
llOrder U-73-003(1), Order Granting Transfer of Certificafe, dated February 23,
1973, at 4.
12FERC Financial Repoft, FERC Form No. 1 Annual Report of tlajor Electric
Utilities, Licensees and Others and Supplemental Form 3-Q: Quarterly Financial Report,
filed April 26, 2018, by AEL&P (2017 AEL&P Annual Report), at 301, Column (f); 304,
Column (d); and 401b, Column (d). We can take official notice of annual reports filed with
us under 3 AAC 48.154(bX4).
132017 AEL&P Annual Report at402-403, 406, 410,422.
laOrder U-97-245(1), Order Approving Power Sa/es Agreement, Subject to
Conditions; Approving Application and Related Hatchery Electric Seruice Agreement,
Subjectto Conditions; and Requiring Filing, dated June24,1998 (approving powersales
agreement); Letter Order L9800671, dated November 2, 1998 (including a copy of the
executed power sales agreement).
lsApplication at 16-17.
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Hydro One is a regulated public utility founded in 1906. lt is currently
providing distribution and transmission electric services to 1.3 million customers in
Ontario, Canada. Hydro One has approximately 5,400 employees and annual revenue
of more than $6.5 billion (Canadian). Hydro One operates approximately 19,000 miles of
high-voltage transmission lines and 77,000 miles of electric distribution lines.16 Hydro
One's officers and executives have considerable business and utility expertise.lT
We approved the application of Avista to acquire a controlling interest in
AEL&P in 2014.18 We have received no complaints about the electric utility service
provided by AEL&P in the four years that Avista has been AEL&P's ultimate parent.
Hydro One asserts that if its acquisition of Avista is approved, it will retain Avista's
management team and employees, subject to voluntary retirements.le Hydro One further
asserts that its acquisition of Avista will result in no changes to AEL&P's management
team, employees, operations, or facilities.20
Hydro One is a substantially larger transmission and distribution utility than
AEL&P. Hydro One does not have electric generation experience, but will be retaining
the experienced Avista management team, which owns and operates a substantially
greater amount of generation resources than is owned and operated by AEL&P. We find
that with the retention of AEL&P's and Avista's experienced management teams and
employees, and the addition of Hydro One's management team, AEL&P will remain
l6Application at 2, 6-1 4.
lTApplication, Exhibit 3 at 3-5.
l8Order U-13-197(2).
leApplication a|22,23; Exhibit 9 at 1.
2oApplication at 3.
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managerially and technically fit to provide electric utility service in the CBJ if Hydro One's
acquisition of Avista is approved.
Financial Fitness
We reviewfinancial indicators such as the current ratio,2l quick ratio,22 debt-
equity ratio,23 and debt ratio2a to determine if an applicant is financially fit to provide public
utility service. The Application includes financial records for AEL&P for the first two full
years under Avista ownership, 2015 and 2016.25 These records indicate that AEL&P's
current ratio was 2.21 in 2015 and 1.43 in 2016; AEL&P's quick ratio was 1.76 in 2015
and 1 .14 in 2016; AEL&P's debt-to-equity ratio was 1 .52 in 2015 and 1 .46 in 2016; and
AEL&P's debt ratio was .60 in 2015 and .59 in 2016. These ratios indicate that AEL&P
has maintained financial fitness under Avista's ownership. Hydro One states that its
21The current ratio attempts to predict a company's ability to meet its short-term
(i.e., one year or less) debt obligations from presently available or liquid assets, is a
general indicator of financial health. The current ratio measures current assets against
current liabilities. Generally, the higher the ratio, the better, but anything above a ratio of
"1" indicates the ability to pay short-term debt obligations when due.
22The quick ratio is a more conservative measure of liquidity and focuses on the
ability to pay obligations with highly liquid assets (i.e., cash, accounts receivable, and
short-term investments), without relying on the sale of inventory. Quick assets are highly
liquid, meaning those immediately convertible to cash. The quick ratio is calculated by
dividing cash and accounts receivable (plus any other quick assets) by current liabilities.
A favorable quick ratio is greater than 1.0.
23The debt-to-equity ratio indicates what proportion of equity and debt a company
is using to finance its assets. A debt-equity ratio of greater than one indicates that a
company has more debt than equity; meanwhile, a debt ratio of less than one indicates
that a company has more equity than debt. Used in conjunction with other measures of
financial health, the debt-to-equity ratio can help an investor determine a company's Ievel
of risk.
2aThe debt ratio is used to assess the degree to which a company is leveraged by
comparing total liabilities against tota! assets-the higher the ratio, the greater the risk of
bankruptcy.
2sApplication at Exhibit 6.
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acquisition of Avista will not affect any of these ratios or any other aspect of AEL&P's
financial performance or health.26
Hydro One was reorganized from a Crown corporation2T to a private
corporation beginning in 2015 and continuing through 2017 , with the Province of Ontario
retaining a substantial ownership interest.2s This transition results in financial records
that do not necessarily provide an accurate statement of Hydro One's financial health,
particularly with regard to equity measures. Hydro One's consolidated financial statement
indicates net income o'f $721 million (Canadian) in 2016 and $690 million (Canadian) in
2015.2e Hydro One's financial health may be more accurately reflected in its long-term
credit ratings of 'A' (Stable) by Standard and Poor's, 'A3' (Stable) by Moody's, and A
(High) by DBRS (originally known as Dominion Bond Rating).3o These earnings and
strong credit ratings indicate that Hydro One has access to funds for capital expenditures
from internal cash flows and debt on reasonable terms.
Based on our review of the financial documents provided, we find that
AEL&P is financially fit to provide electric utility service in the CBJ and that Hydro One is
financially fit to maintain AEL&P's fitness.
26Application at 40, Exhibit 6.
27ln Canada, a Crown corporation is a business entity that operates as if it were
private, though it is entirely owned by the federal or a provincial government with directors
appointed by the government. See, the Financial Administration Acf, R.S.C., 1985, c. F-
11 at Section 83.
2sApplication at 7-9.
2eApplication, Exhibit 4 at 16.
3oApplication at 14.
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Public lnterest
Hydro One and Avista maintain that the proposed acquisition of Avista by
Hydro One is consistent with the public interest because it will add a second large,
experienced electric utility company into AEL&P's upstream ownership structure without
altering AEL&P's local management and operations.3l Hydro One and Avista state that
Avista and AEL&P will maintain the affiliated interest cost assignment and allocation
methodology we reviewed in Docket U-13-197.32 Hydro One and Avista assert that, over
time, Hydro One's acquisition of Avista will benefit AEL&P customers through increased
opportunities for innovation, research and development, and efficiencies by extending the
use of technology, best practices, and business processes over a broader customer base
and set of infrastructure.33
We received over 150 public comments in response to the Application, most
of which opposed Hydro One's acquisition of an indirect controlling interest in AEL&P.
We granted the CBJ party status in this docket based in part on the CBJ's representation
that it was uniquely qualified to represent community interests in this proceeding.3a Hydro
One, Avista, and the CBJ filed the Stipulation resolving all disputed issues between
them.3s We accepted the Stipulation in part.36 We consider our acceptance of the
Stipulation as resolving the local concerns expressed in the comments received in this
docket.
3lApplication at 3, 40.
32Application at 41.
33Applicati on at 41 -42.
3aOrder U-17-097(3) at 4-5.
3sstipulation.
360rder U-17-097(8).
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We find that Hydro One's proposed acquisition of an indirect controlling
interest in AEL&P is consistent with the public interest, subject to the condition that Hydro
One and Avista fulfill the commitments made in Docket U-13-197 and this proceeding.3T
Specifically, our approval of Hydro One's acquisition of an indirect controlling interest in
AEL&P is subject to the condition that Hydro One and Avista adhere to the following
commitments:
1. AEL&P's capital structure wil! be maintained at approximately the 54o/o
equity and 46% debt levels approved in Order U-10-029(15)..t
2. There will be no recovery through AEL&P's rates of the transaction costs
or premium associated with Avista's acquisition of AERC and AEL&P or
Hydro One's acquisition of Avista.3e
3. Costs related to Avista services to AEL&P and costs related to AEL&P
services to Avista will be directly assigned and subject to review until such
time as a cost allocation between the two utilities has been approved by
us.ao
4. AEL&P will continue to operate relatively independently from Avista, under
the same experienced management team and employees as existed prior
to Hydro One's acquisition of Avista.al
5. Allof the commitments listed in the Hydro One/Avista List of Commitments
attached as Exhibit 1 to the Stipulation.
A failure to fulfill these commitments may result in a show cause proceeding under
AS 42.05.271(5).
37AS 42.05.241.
3sApplication for Approval of Acquisition of Controlling lnterest in Alaska Electric
Light and Power Company, filed December 4, 2013, in Docket U-13-197 (2013 Avista
Application), at7-8.
3e2013 Avista Application at 8; Application at 26.
402013 Avista Application at 8; Applicalion at27.
4lApplication at 26.
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ln contrast to these commitments, we view the commitments made in
Part ll.C and D of the Stipulation to be a part of a private agreement between Hydro One,
Avista, and the CBJ that are not enforceable by us.
Decision
We find that AEL&P is fit, willing, and able to provide public electric utility
service in the CBJ and that such service continues to be required by the public
convenience and necessity. We find that if Hydro One's proposed acquisition of AEL&P's
parent, Avista, is approved, AEL&P will remain fit, willing, and able to provide public
electric utility service in the CBJ. We further find that with the commitments made by
Hydro One and Avista, Hydro One's acquisition of Avista is consistent with the public
interest. Subject to the condition discussed above, we approve the Application.
Requi Filinq
We require Hydro One to file notice that it has acquired Avista within ten
days of the Closing Date defined in Section 1.2 ol the Agreement and Plan of Atlerger
Dated as July 19, 2017, by and Among Hydro One Limited, Olympus Holding Corp.,
Olympus Corp. and Avista Corporation.a2 ln the alternative, we require Avista to file notice
that its acquisition by Hydro One has been terminated under Section 7.1 of the Agreement
and Plan of Merger Dated as July 19, 2017, by and Among Hydro One Limited, Olympus
Holding Corp., Olympus Corp. and Avista Corporation within ten days of the effective date
of such termination.a3
Final Order
This order constitutes the final decision in this proceeding. This decision
may be appealed within thirty days of this order in accordance with AS 22.10.020(d) and
a2Application, Exhibit 2 at6.
a3Application, Exhibit 2 at 4446
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Alaska Rule of Appellate Procedure 602(al(2). ln addition to the appellate rights afforded
by AS 22.10.020(d), a party has the right to file a petition for reconsideration in
accordance with 3 AAC 48.105. lf such a petition is filed, the time period for filing an
appeal is tolled and then recalculated in accordance with Alaska Rule of Appellate
Procedure 602(a)(2).
ORDER
THE COMMISSION FURTHER ORDERS:
1. The Joint Application for Authorization to Acquire a Controlling lnterest
in Alaska Electric Light and Power Company, filed by Hydro One Limited, Olympus Equity
LLC, and Avista Corporation on November 21, 2017, is granted, subject to the condition
that Hydro One Limited and Avista Corporation adhere to the commitments specified in
the body of this order.
2. Hydro One Limited shallfile notice that it has acquired Avista Corporation
within ten days of the closing date of that acquisition, orAvista Corporation shallfile notice
that the proposed acquisition by Hydro One Limited has been terminated within ten days
of the effective date of such termination.
3. Commissioners Paul F. Lisankie, Stephen McAlpine, Robert M. Pickett,
Antony Scott, and Janis W. Wilson are designated as the commission panel.
DATED AND EFFECTIVE at Anchorage, Alaska, this 4th day of June, 2018.
BY DIRECTION OF THE COMMISSION
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STATE OF ALASKA
THE REGULATORY COMMISSION OF ALASKA
Before Commissioners
ln the Matter of the Joint Application Filed by Hydro
One Limited and Avista Corporation for Authorityfor Hydro One Limited to Acquire a Controlling
lnterest in ALASKA ELECTRIC LIGHT & POWER
COMPANY
Stephen McAlpine, Chairman
Paul F. Lisankie
Robert M. Pickett
Antony Scott
Janis W. Wilson
u-17-097
ORDER NO. 9
BY THE COMMISSION:
Summarv
We approve the joint application filed by Hydro One Limited (Hydro One)
and Avista Corporation (Avista) for Hydro One to acquire an indirect controlling interest
in Alaska Electric Light & Power Company (AEL&P), subject to condition. We require the
parties to notify us when Hydro One's acquisition of Avista closes or if the acquisition is
terminated. The chairman redesignates the commission panel.
Backqround
AEL&P provides electric utility service within the City and Borough of
Juneau (CBJ) under Certificate of Public Convenience and Necessity No. 1. AEL&P is a
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wholly owned subsidiary of Alaska Energy and Resources Company (AERC), which is a
wholly owned subsidiary of Avista.l
Hydro One and Avista filed a joint application for Hydro One to acquire an
indirect controlling interest in AEL&P through acquisition of Avista.2 We issued public
notice of the Application, with comments due December 21,2017. We received over 100
comments in response to the Application. Hydro One and Avista filed replies to these
comments.3 We scheduled a consumer input conference in Juneau on the Application
and addressed the scope of this proceeding.a More than 100 people attended our Juneau
consumer input conference, where we received oral comments from 23 persons and
replies from Hydro One and Avista.s We received an additional 30 comments after the
conference.
The CBJ filed a petition to intervene as a party in this proceeding, which we
granted.G Hydro One, Avista, and the CBJ filed a stipulation resolving all disputed issues
between the parties.T We accepted the Stipulation in part.8
lOrder U-13-197(2), Order Approving Joint Application for Authority to Acquire
Controlling lnterest in Alaska Electric Light and Power Company, dated May 30, 2014
(order U-13-197(2)).
2Joint Application for Authorization to Acquire a Controlling lnterest in Alaska
Electric Light and Power Company, filed November 21,2017 (Application).
3Applicants' Joint Reply to Commenfs, filed December 11,2017; Applicants' Joint
Reply to Commenfs, filed February 6, 2018.
aOrder U-17-097(2), Order Scheduling Public Conference, Addressing Scope of
Proceeding, and Redesignating Commission Panel, dated February 9,2018.
5Tr.2-93.
6Order U-17-097(3), Order Denying Motion to Sfrke, Granting Petition to
lnteruene, Scheduling Prehearing Conference, and Establishing Deadline for Filing
Petitions to lnteruene, dated March 9,2018, at 3-5 (Order U-17-097(3)).
7 Stipulation Resolving Disputed /ssues, filed April 3,2018 (Stipulation).
sOrder U-17-097(8), Order Accepting Stipulation in Paft, dated May 1 ,2018 (Order
u-17-0e7(8)).
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Discussion
Commission Panel
The chairman redesignates the commission panel for this docket. The
chairman designates Commissioners Paul F. Lisankie, Stephen McAlpine, Robert M.
Pickett, Antony Scott, and Janis W. Wilson as the commission panel. Commissioner
McAlpine remains the commission docket manager.
Acquisition of a Controllinq lnterest
Standard of Review
We recently reiterated our standard for approving the acquisition of a
controlling interest in a certificated public utility. We stated that in the case of an
acquisition, there is a rebuttable presumption that a public utility successfully providing
service before the acquisition is fit, willing, and able to provide service and the service is
required for the public convenience and necessity.e ln light of this rebuttable presumption,
we then explained our regulatory standard:10
ln evaluating an application to acquire a controlling interest, [ ] we must
determine only whether the public utility, after the acquisition, wil! remain fit,
willing, and able to provide the utility service authorized by the certificate.
When determining whether a public utility remains fit, willing, and able, we
examine managerial, technical, and financial fitness. Finally, in deciding
whether to approve the acquisition of a controlling interest in a public utility
holding a certificate, we consider whether the proposed acquisition is
consistent with the public interest.
eOrder U-17-032(2)l U-17-033(2)t U-17-034(2y U-'t7-03s(2)t U-17-036(2)l
U-17-082(2), Order Granting Applications, Granting Motion for Expedited Consideration,
and Closing Dockets, dated November 7,2017, at 8-9.
1o/d. at 9.
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Fit. Willino. and Able
Manaqerial and Technical Fitness
AEL&P is a vertically integrated electric utility serving portions of the CBJ
since 1946.11 ln 2017, AEL&P served an average of 17,005 customers with a peak load
of 79 megawatts (MW).'2 AEL&P owns 24.9 MW of hydroelectric generation capacity,
149.49 MW of diesel generation capacity, and 48.04 miles of high-voltage (69 kV and
above) transmission line.13 AEL&P also operates the Snettisham Hydroelectric Project
under a long-term power purchase agreement, which includes 73 MW of hydroelectric
generation capacity and the related 44-mile high voltage transmission line.la
Avista is a regulated public utility providing electric utility service to
approximately 378,000 customers and naturalgas utility service to approximately 342,000
customers in ldaho, Montana, Oregon, and Washington. Avista owns 1,925 MW of
hydroelectric and thermal generation capacity, approximately 2,219 miles of high-voltage
transmission lines, and approximately 18,300 miles of electric distribution lines.15
llOrder U-73-003(1), Order Granting Transfer of Certificafe, dated February 23,
1973, at 4.
12FERC Financial Report, FERC Form No. 1 Annual Repoft of Major Electric
Utilities, Licensees and Others and Supplemental Form 3-Q: Quarterly Financial Report,
filed April 26, 2018, by AEL&P (2017 AEL&P Annual Report), at 301, Column (f); 304,
Column (d); and 401b, Column (d). We can take official notice of annual reports filed with
us under 3 AAC 48.154(bX4).
132017 AEL&P Annual Report at 402403. 406, 410, 422.
laOrder U-97-245(1), Order Approving Power Sa/es Agreement, Subject to
Conditions; Approving Application and Related Hatchery Electric Seruice Agreement,
Subjectto Conditions; and Requiring Filing, dated June24,1998 (approving powersales
agreement); Letter Order L9800671, dated November 2, 1998 (including a copy of the
executed power sales agreement).
lsApplication at 16-17.
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Hydro One is a regulated public utility founded in 1906. lt is currently
providing distribution and transmission electric services to 1.3 million customers in
Ontario, Canada. Hydro One has approximately 5,400 employees and annual revenue
of more than $6.5 billion (Canadian). Hydro One operates approximately 19,000 miles of
high-voltage transmission lines and 77,000 miles of electric distribution lines.l6 Hydro
One's officers and executives have considerable business and utility expertise.lT
We approved the application of Avista to acquire a controlling interest in
AEL&P in 2014.18 We have received no complaints about the electric utility service
provided by AEL&P in the four years that Avista has been AEL&P's ultimate parent.
Hydro One asserts that if its acquisition of Avista is approved, it will retain Avista's
management team and employees, subject to voluntary retirements.le Hydro One further
asserts that its acquisition of Avista will result in no changes to AEL&P's management
team, employees, operations, or facilities.20
Hydro One is a substantially larger transmission and distribution utility than
AEL&P. Hydro One does not have electric generation experience, but will be retaining
the experienced Avista management team, which owns and operates a substantially
greater amount of generation resources than is owned and operated by AEL&P. We find
that with the retention of AEL&P's and Avista's experienced management teams and
employees, and the addition of Hydro One's management team, AEL&P will remain
l6Application at 2, 6-1 4.
lTApplication, Exhibit 3 at 3-5.
lsOrder U-13-197(2).
leApplication at22,23; Exhibit 9 at 1
2oApplication at 3.
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managerially and technically fit to provide electric utility service in the CBJ if Hydro One's
acquisition of Avista is approved.
Financial Fitness
We review financial indicators such as the current ratio,21 quick ratio,22 debt-
equity ratio,23 and debt ratio2a to determine if an applicant is financially fit to provide public
utility service. The Application includes financial records for AEL&P for the first two full
years under Avista ownership,2015 and 2016.25 These records indicate that AEL&P's
current ratio was 2.21 tn 2015 and 1 .43 in 2016; AEL&P's quick ratio was 1.76 in 2015
and 1 .14 in 2016: AEL&P's debt-to-equity ratio was 1 .52 in 2015 and 1 .46 in 2016; and
AEL&P's debt ratio was .60 in 2015 and .59 in 2016. These ratios indicate that AEL&P
has maintained financial fitness under Avista's ownership. Hydro One states that its
21The current ratio attempts to predict a company's ability to meet its short-term
(i.e., one year or less) debt obligations from presently available or liquid assets, is a
general indicator of financial health. The current ratio measures current assets against
current liabilities. Generally, the higher the ratio, the better, but anything above a ratio of
"1" indicates the ability to pay short-term debt obligations when due.
22The quick ratio is a more conservative measure of liquidity and focuses on the
ability to pay obligations with highly liquid assets (i.e., cash, accounts receivable, and
short-term investments), without relying on the sale of inventory. Quick assets are highly
liquid, meaning those immediately convertible to cash. The quick ratio is calculated by
dividing cash and accounts receivable (plus any other quick assets) by current liabilities.
A favorable quick ratio is greater than 1.0.
23The debt-to-equity ratio indicates what proportion of equity and debt a company
is using to finance its assets. A debt-equity ratio of greater than one indicates that a
company has more debt than equity; meanwhile, a debt ratio of less than one indicates
that a company has more equity than debt. Used in conjunction with other measures of
financial health, the debt-to-equity ratio can help an investor determine a company's level
of risk.
2aThe debt ratio is used to assess the degree to which a company is leveraged by
comparing total liabilities against total assets-the higher the ratio, the greater the risk of
bankruptcy.
2sApplication at Exhibit 6.
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acquisition of Avista will not affect any of these ratios or any other aspect of AEL&P's
financial performance or health.26
Hydro One was reorganized from a Crown corporation2T to a private
corporation beginning in 2015 and continuing through 2017, with the Province of Ontario
retaining a substantial ownership interest.2s This transition results in financial records
that do not necessarily provide an accurate statement of Hydro One's financial health,
particularly with regard to equity measures. Hydro One's consolidated financial statement
indicates net income of $721 million (Canadian) in 2016 and $690 million (Canadian) in
2015.2s Hydro One's financial health may be more accurately reflected in its long-term
credit ratings of 'A' (Stable) by Standard and Poor's, 'A3' (Stable) by Moody's, and A
(High) by DBRS (originally known as Dominion Bond Rating).3o These earnings and
strong credit ratings indicate that Hydro One has access to funds for capital expenditures
from internal cash flows and debt on reasonable terms.
Based on our review of the financial documents provided, we find that
AEL&P is financially fit to provide electric utility service in the CBJ and that Hydro One is
financially fit to maintain AEL&P's fitness.
26Application at 40, Exhibit 6.
27ln Canada, a Crown corporation is a business entity that operates as if it were
private, though it is entirely owned by the federal or a provincial government with directors
appointed by the government. See, the Financial Administration Act, R.S.C., 1985, c. F-
11 at Section 83.
2sApplication at 7-9.
2eApplication, Exhibit 4 at 16.
3oApplication at 14.
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Public lnterest
Hydro One and Avista maintain that the proposed acquisition of Avista by
Hydro One is consistent with the public interest because it will add a second large,
experienced electric utility company into AEL&P's upstream ownership structure without
altering AEL&P's local management and operations.3l Hydro One and Avista state that
Avista and AEL&P will maintain the affiliated interest cost assignment and allocation
methodology we reviewed in Docket U-13-197.32 Hydro One and Avista assert that, over
time, Hydro One's acquisition of Avista will benefit AEL&P customers through increased
opportunities for innovation, research and development, and efficiencies by extending the
use of technology, best practices, and business processes over a broader customer base
and set of infrastructure.33
We received over 150 public comments in response to the Application, most
of which opposed Hydro One's acquisition of an indirect controlling interest in AEL&P.
We granted the CBJ party status in this docket based in part on the CBJ's representation
that it was uniquely qualified to represent community interests in this proceeding.3a Hydro
One, Avista, and the CBJ filed the Stipulation resolving all disputed issues between
them.3s We accepted the Stipulation in part.36 We consider our acceptance of the
Stipulation as resolving the local concerns expressed in the comments received in this
docket.
3lApplication at 3, 40.
32Application at 41.
33Applicati on at 41-42.
3aOrder U-17-097(3) at 4-5.
35Stipulation.
36Order U-17-097(8).
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We find that Hydro One's proposed acquisition of an indirect controlling
interest in AEL&P is consistent with the public interest, subject to the condition that Hydro
One and Avista fulfill the commitments made in Docket U-13-197 and this proceeding.3T
Specifically, our approval of Hydro One's acquisition of an indirect controlling interest in
AEL&P is subject to the condition that Hydro One and Avista adhere to the following
commitments:
1. AEL&P's capital structure wil! be maintained at approximately the 54o/o
equity and 46% debt levels approved in Order U-10-029(1s).tt
2. There will be no recovery through AEL&P's rates of the transaction costs
or premium associated with AvistA's acquisition of AERC and AEL&P or
Hydro One's acquisition of Avista.3e
3. Costs related to Avista services to AEL&P and costs related to AEL&P
services to Avista will be directly assigned and subject to review until such
time as a cost allocation between the two utilities has been approved by
us.40
4. AEL&P will continue to operate relatively independently from Avista, under
the same experienced management team and employees as existed prior
to Hydro One's acquisition of Avista.al
5. All of the commitments listed in the Hydro One/Avista List of Commitments
attached as Exhibit 1 to the Stipulation.
A failure to fulfill these commitments may result in a show cause proceeding under
AS 42.05.271(5).
37AS 42.05.241.
3sApplication for Approval of Acquisition of Controlling lnterest in Alaska Electric
Light and Power Company, filed December 4, 2013, in Docket U-13-197 (2013 Avista
Application), at 7-8.
3e2013 Avista Application at 8; Application at 26.
402013 Avista Application at 8; Application a|27.
4lApplication at 26.
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ln contrast to these commitments, we view the commitments made in
Part ll.C and D of the Stipulation to be a part of a private agreement between Hydro One,
Avista, and the CBJ that are not enforceable by us.
Decision
We find that AEL&P is fit, willing, and able to provide public electric utility
service in the CBJ and that such service continues to be required by the public
convenience and necessity. We find that if Hydro One's proposed acquisition of AEL&P's
parent, Avista, is approved, AEL&P will remain fit, willing, and able to provide public
electric utility service in the CBJ. We further find that with the commitments made by
Hydro One and Avista, Hydro One's acquisition of Avista is consistent with the public
interest. Subject to the condition discussed above, we approve the Application.
Required Filinq
We require Hydro One to file notice that it has acquired Avista within ten
days of the Closing Date defined in Section 1.2 of the Agreement and Plan of Merger
Dated as July 19, 2017, by and Among Hydro One Limited, Olympus Holding Corp.,
Olympus Corp. and Avista Corporation.a2 lnthe alternative, we require Avista to file notice
that its acquisition by Hydro One has been terminated underSection 7.1 of the Agreement
and Plan of Merger Dated as July 19, 2017, by and Among Hydro One Limited, Olympus
Holding Corp., Olympus Corp. and Avista Corporation within ten days of the effective date
of such termination.a3
Final Order
This order constitutes the final decision in this proceeding. This decision
may be appealed within thirty days of this order in accordance with AS 22.10.020(d) and
a2Application, Exhibit 2 al6.
43Application, Exhibit 2 al44-46
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Alaska Rule of Appellate Procedure 602(a)(2). ln addition to the appellate rights afforded
by AS 22.10.020(d), a party has the right to file a petition for reconsideration in
accordance with 3 AAC 48.105. lf such a petition is filed, the time period for filing an
appeal is tolled and then recalculated in accordance with Alaska Rule of Appellate
Procedure 602(a)(2).
ORDER
THE COMMISSION FURTHER ORDERS:
1. The Joint Application for Authorization to Acquire a Controlling lnterest
in Alaska Electric Light and Power Company, filed by Hydro One Limited, Olympus Equity
LLC, and Avista Corporation on November 21, 2017, is granted, subject to the condition
that Hydro One Limited and Avista Corporation adhere to the commitments specified in
the body of this order.
2. Hydro One Limited shallfile notice that it has acquired Avista Corporation
within ten days of the closing date of that acquisition, or Avista Corporation shall file notice
that the proposed acquisition by Hydro One Limited has been terminated within ten days
of the effective date of such termination.
3. Commissioners Paul F. Lisankie, Stephen McAlpine, Robert M. Pickett,
Antony Scott, and Janis W. Wilson are designated as the commission panel.
DATED AND EFFECTIVE at Anchorage, Alaska, this 4th day of June, 2018.
BY DIRECTION OF THE COMM]SSION
\111..\
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