20180720Avista Standard and Poors Update.pdf

I
Avista Corp.
1411 East Mission P.A.Box3727
Spokane, Washington 99220-0500
Telephone [phone]
TollFree 800-727-9174
RECEIVED
?0lB JU!- 20 Alt 9: 116
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.. ., il'Ii,il'i!SSl0ND
T
July 19,2018
Diane Hanian, Secretary
Idaho Public Utilities Commission
Statehouse Mail
W. 472 Washington Street
Boise, Idaho 83720
RE: Joint Application of Hydro One Limited and Avista Corporation for Order Authorizing
Proposed Transaction Docket Nos. AVU-E-17-09 and AVU-G-17-05 / Standard and
Poors Update Released on July I 8, 201 8
Dear Ms. Hanian:
As promised in our July 18, 2018 letter regarding the recent developments involving Hydro
One's CEO and board of directors, this letter provides a further update on events related to the
changes to Hydro One's management.
Attachment A is an update from Standard and Poors, which (a) maintains the credit watch
negative reflecting the potential for a one notch downgrade to Hydro One Limited's (HOL)
current credit rating because of the Avista transaction, and (b) notes the possibility that HOL's
governance structure could result in an additional one-notch downgrade, if it concludes that
recent developments adversely affect management decision-making and fail to promote the
interests of all stakeholders.
Sincerely
Kevin J. Christie
Vice President, External Affairs and Chief Customer Officer
Avista Corporation
a
& Chief Legal Officer
One Limited
Attachments:
Attachment A: S&P Update of July 18, 2018
Cc: all parties
2lP age
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have this 19th day of July, 2018, served the foregoing letter
regarding an Update on Recent Events in the Merger Case Nos. AVU-E-17-09/AVU-G-
17-05, upon the following parties, by sending a copy via electronic mail.
Diane Hanian, Secretary
ldaho Public Utilities Commission
47 2 W . Washington Street
Boise, lD 83720-5983
diane. hanian@ouc. idaho.oov
Brandon Karpen
Deputy Attorneys General
ldaho Public Utilities Commission
472W. Washington
Boise, lD 83720-0074
brandon. karpen@puc. idaho.qov
Danielle Franco-Malone
Schwerin Campbell Barnard
lglitzin & Lavitt LLP
18 W. Mercer St., Suite 400
Seattle, WA 98119
[e-mail]
Larry Crowley
The Energy Strategies lnstitute, lnc.
5549 S. Cliffsedge Ave
Boise, lD 83716
[e-mail]
Dr. Don Reading
6070 Hill Road
Boise, lD 83703
[e-mail]
Norman M. Semanko
Parsons Behle & Latimer
800 West Main Street, Suite 1300
Boise, ID 83702
[e-mail]
[e-mail]
Brad M. Purdy
Attorney at Law
2019 N 17th Street
Boise, lD 83702
[e-mail]
Peter J. Richardson
Richardson Adams PLLC
515 N.27th Street
Boise, lD 83702
peter@ richardsonadam s. co m
Ronald L. Williams
Williams Bradbury, P.C.
P. O. Box 388
802 W. Bannock St., Suite 900
Boise, lD 83702
ron@will bury.com
Ben Otto
ldaho Conservation League
710 N. 6th St.
Boise, lD 83702
botto@ idahoconservati on. orq
Dean Miller
3620 E Warm Springs Ave
Boise, lD 837'16
Dea n i m i I Ier@ca blesne. neJ
Paul Kimball
Sr. Regulatory Analysist
4
S&P Globat
Ratings
Research
Hydro One Ltd., Hydro One Inc. Ratings Remain
On CreditWatch Negative Following CEO Exit And
Board Resignation
Prirnsry Crcdit Anslyst:
Andrew Ng, Toronto + I [phone]; [e-mail]
Sacondery Contacts:
Vinod Maklar, CFA, Toronto + 1 [phone]: vinod,[e-mail]
Obioma Ugbo{a, New York + I [phone]; [e-mail]
. Toronto-baeed xydro One Ltd. (HOL) recently announced Lhe retirement of
its chief execuEive officer (CEO). effective immediately, and the
resigaaLion of its encire board of direcE,ors on or prior to Aug, 15, 2019.t Our baae case conEinueE to reflect t.he likeLihood that HOL's pending
transacEion vith Avista Corp. wil-J- close.. Ilorrevet, Ehe CEO'g departure and pendiog resignation of Ehe enErre board
create uncertainEy regarding the effectiveneEs of HOL,E governance
Btructure, parEicularly tiEh reEpect to Ehe influence on managemeAE
decision-making and promoting Ehe interesLs of alL stakeholdere.. As a reeult, ye are updating our Creditlilateh negative placement. on lIOt
and Hydro One Inc., Eo reflect the governance developmentE and the
potenEial for up to a bwo-notch downgrade of both entities and cheir
rated debt.r The Creditwatch placement now lncorporaEes Che risk of a one-notch
dotrrrgrade relaEed to the Avista transaction closing, and the poeeibility
thaE Ehe company' 9 governance EE,ructure could resulE in an additional
downgrade. Overa11, Ehese dj-sElncE developments could collectively result.
in a two-notch downgrade from our currenb ratings on boch entllies and
the raued debt.
TORONTO (SeP Global Ratings) ,Ju1y 18, 2018--S&P Global RaEings today stated
Ehat its tAt ratings on ToronEo-based Hydro One Ltd, (HOL) 6p6 Hydro One Inc
uur.SflIDrrDArmools.coll
O S&P olobal R!hBB Atl nthlr,eFycd No n{r*r or dilcemimtbn vi$od S&P Olobal Ratm8 ' pemisim. Se Tm d Urc/Disc{airo m rlp
tal pagE
JULY 18, rolE I
207X78F
Attachment A Page 1 of4
-
Hydro One Ltd-, Hydro One Inc. Ratings Remain On Cred.itVatch Negatiue Pollouing CEO Exit And Board
Resigtati<m
(HOI) remain on Creditwatch wi-th negative implicaEions, where rhey were placed
June 15, 2018.
The Creditllatch placemenL on HOL and HOI continues to reflect the likelrhood
of a one-notch downgrade to both companies because of Ehe Avista tranBaction,
This reflects the extent. of the regulatory settlements and approvals thus far,
supporLing our expecLation Lhat the pending transactj.on with Avieta wiLl
c1ose, In addition, E.he Credibwatch now incorporates Ehe possibility that
HOL's governance sLructure coul"d resulc. in an addiEional one-notch dovrngrade.
if we conclude thaI recenE. developments adveree]y affecE managemenE
decision-making and fail Lo proaote the interests of all stakeholders.
Overall, Lhese distincc developmencs could collecEively reeulL in a two-notch
downgrade from our currer'rt credit ratings on boEh enEiEies.
we wiII resolve the CrediLwaLch lrhen Ehe Eransaction wi[.h Avlsta c]oses, and
after our review of che companyrs governance sE.rucE.ure. including our
evaluab.ion of iEs effectiveness in prorroting the interests of all
stakeholders,
RELATED CRIIER]A. Criteria - Corporates - General r Reflecting Subordination Risk In
CorporaE.e fssue RaLings, March 2A, 2ol.8r General Criteria: Methodology For Linking Long-Term And Short-Term Ratings
. April 1, 2017
. General Criteria: Guarantee Criteria, Occ. 21, 2016
. General Criteriar Rating GovernmenL-RelaLed Entities: MethodoloEy And
Assumptions, March 25, 20].5
r Criteria - Corpolates - General: MeEhodology Ard AseumpEions: LiquidiLy
DescripEors For Global Corporate Iasuers. Dec. 16, 2014
. ceneral CriE.eria: l'lethodology: Industry Risk, Nov. 19, 2013
r General Criteria: Country Risk AseessmenE l\reEhoalology And Assumptions,
Nov. 19 , 201"3r Criteria - Corporates - Utilitiee: Key CrediE Eact,orE For The Regul-aEed
UtiliEies fndustry, Nov. 19, 2013
o Criteria - Corporates - General: Corporate MeE.hodology: Ratios And
Ad3usL.ments, Nov. L9, 2OL3
r Criteria - Corporateg - General: Corporate MeEhodology. Nov, 19, 2013. General CriLeria: Group RaLing MeEhodology, Nov. L9, 2Ol3
. General CriEeria: t4echodology: Hanagement And Governance Credic Factors
For CorporaLe EntiL.ies And rnsurers, Nov. 13, 2Oa2
. General CriLeria: Use Of ereditHaE.ch And Outlooks, SepE. 14, 2009
CerEain Eerms used in Lhj.s report, parLj.cularJy certain adjectives used Eo
express our view on rating relevant. facEors, have speeific meanings ascribed
Eo Ehem in our criteria, and should Lherefore be read in conjunction wiEh such
criteria. Please see Ratings Criteria at wuld.standardandpoors.com for furE.her
w'W.W, ETAI{DARDATDP OONS.CO }'JULY 18, t0l0 3
@ S&P Global Reljngs All rishrs resprued No repanl or d6,leminalion withrut S&P Clohal Ratin8s'pemi$ion. Sre 'l emB of U,re/ljisclElmer on $e
]81pagc
2[73789
Attachment A Page 2 ol 4
Hydro One Ltd., Hydrct One Inc.. Ratings Remain On CreditVatch Negatfue Folbating CEO Exit And Boad
Resigtution
informat,ion. CompleEe ratings information is availa-b1e to eubscribers of
RatingsDirect aE www,capitaliq.com, A11 ratings referenced herein can be found
on S&.P Global RaLings' public website at wErr.Etandardandpoors.com. Use t,he
Ratings search box LocaEed in the left column-
W*.w. 8?Af, DARDAI{DSOORE.CO U
@ S&P Glohl fuaings. All riShts rcreryed No reprjnt o dj6reDjnation without S&P Globel Ratings' permision. see Tm of UE/Di8clai]H on rhe
lffit page,
,uLI 18, 'Ol8 X
2073789
Attachment A Page 3 of 4
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Standard Ec Poor's | f,,crcarch I July 18,2018 {
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