20140305final_order_no_32991.pdf

Office of the Secretary
Service Date
March 5.2014
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA )
CORPORATION’S APPLICATION FOR )CASE NO.AVU-U-13-01
AUTHORITY TO ISSUE UP TO 7,250,000 )
SHARES OF COMMON STOCK )ORDER NO.32991
____________________________________________________________________________________
)
On December 4,2013,Avista Corporation applied to the Idaho Public Utilities
Commission for an Order allowing it to issue up to 7,250,000 authorized but unissued shares of
common stock to be used for the limited purpose described in the Application.Based on our
review of the record,we issue this Order approving the Application as noted below.’
THE APPLICATION
Avista is a Washington corporation that is qualified to do business in the State of Idaho.
It is engaged in the generation,transmission,distribution and sale of electricity in northern Idaho,
eastern Washington,and western Montana.With this Application,Avista asks the Commission to
authorize it to issue up to 7,250,000 shares2 of common stock for use in funding its merger with
Alaska Energy and Resources Company (“AERC”).By way of background,Avista explains that
on November 4,2013,it entered into an Agreement and Plan of Merger (“Merger Agreement”)
with Alaska Merger Sub,Inc.(“Merger Sub”)and AERC.Merger Sub is a wholly owned
corporation of Avista and was created to facilitate Avista’s acquisition of AERC,which includes
the utility operations of Alaska Electric Light and Power (“AEL&P”).Upon receiving all
necessary approvals,Merger Sub will merge with AERC and dissolve as a separate corporate
entity,leaving AERC as Avista’s wholly owned subsidiary.AEL&P is a vertically integrated
electric utility providing electric service to the City and Borough of Juneau,Alaska.It is
regulated by the Regulatory Commission of Alaska.
Idaho Code §6 1-904 requires the Commission to dispose of a securities application within 30 days “unless it is
necessary,for good cause,to continue same for a longer period.”Here,the Company filed the Application on
December 4.2013,but asked the Commission to issue its Order within 60 days.See Application at 5.In addition,
Staff represents the Company agreed to further extend the deadline past the 60-day period to allow Staff more time
to complete its examination of the proposal.See February 28.2014,Decision Memorandum.Based on these facts.
we find that good cause exists to continue this case beyond the 30-day period specified in statute,and until the date
of the issuance of this Order.
2 The requested authority to issue the 7,250,000 shares of common stock is in addition to the authority previously
granted by the Commission through Order Nos.25362,29947,and 32381.
ORDER NO.32991 1
The Merger Agreement provides that when Avista acquires AERC,AERC’s issued
and outstanding common stock will be exchanged for Avista common stock.Avista will buy
AERC for $170 million,less the assumption of then outstanding debt and other closing
adjustments.Avista estimates it will issue $145 million in common stock in exchange for the
AERC stock.But the actual number of shares Avista issues will depend on the closing price of
Avista’s shares.Avista’s estimate of $145 million in net consideration will change at closing
based on the actual amount of AERC debt that Avista assumes and other adjustments.
Avista asks to issue up to 7,250,000 shares of common stock for the limited purpose
acquiring AERC,and Avista will terminate any unused shares related to the AERC acquisition.
After the transaction closes,AEL&P and AERC will issue debt to rebalance the capital structure
to achieve a capital structure for AERC that is similar to Avista’s capital structure.AERC and
AEL&P’s assets will back any debt assumed on AERC and AEL&P’s books,and any new debt.
In the end,Avista’s utility customers will experience the same capital structure after the
transaction closes that they do now.
As part of the rebalancing of AEL&P and AERC’s capital structure,AERC will
transfer funds to Avista that Avista will use to finance its utility capital budget and operating
costs.Thus,besides funding the merger investment,Avista will use part of the proceeds from
the initial common equity issuance to fund its capital budget and operating costs.Avista says
that without its issuance of common stock related to the AERC transaction,it would otherwise
have to issue about $70 million of common equity to fund its utility operations.
AEL&P is AERC’s wholly owned subsidiary and will remain so after Avista acquires
AERC.The employees that operate AEL&P today,including its existing management team of
AEL&P,will continue to operate AEL&P.AEL&P’s customers,service territory,facilities and
generating resources are geographically and electrically isolated,which limits Avista’s
opportunity to integrate AEL&P’s operations with its existing utility operations in Washington,
ldaho and Oregon.Avista intends to hold and manage AEL&P as a stand-alone utility.
If Avista employees dedicate time and incur costs to support AERC’s operation,
Avista will track and assign those costs to AERC and AEL&P.Likewise,if AEL&P employees
support Avista’s utility operations,AEL&P will assign those costs to Avista.Avista expects the
cost assignment to and from AEL&P to be relatively small because AEL&P will continue to
operate as a stand-alone utility.But if opportunities arise to consolidate certain Avista and
ORDER NO.32991 2
AEL&P utility functions,Avista may propose some form of cost allocation between the two
utilities.
Avista will directly assign costs to the proposed AERC and AEL&P subsidiary
operations just as it does with its existing subsidiaries.When Avista’s employees provide
services and support to existing subsidiaries,Avista charges those costs to suspense accounts
(Deferred Debit Account No.186),loads them for benefits,and establishes them as a receivable
(FERC Account No.146)when billed to the subsidiary.And if Avista expends other resources
during this work,like travel or consulting services,Avista also charges those costs to suspense
accounts and bills the subsidiary.Avista directly bills its subsidiaries for all corporate services
provided,and costs incurred,at Avista’s cost.No additional margin or profit is included and no
assets are allocated.This assignment of Avista employee costs is then billed back to the
subsidiary at cost and reduces the utility’s expenses.Where the costs are included in Avista’s
utility rates,Avista’s customers will see a slight cost reduction (benefit)from this cost
assignment.
Documents filed with the Application indicate that no person has received or will be
entitled to receive from Avista any fee (1)for services in connection with the consummation of the
issuance and sale of the above-referenced securities,other than fees for underwriting,private
placement,legal,accounting or similar professional or technical services,or (2)for services in
securing underwriters,sellers or purchasers of the securities.
STAFF REVIEW
Commission Staff reviewed Avista’s Application.Based on that review,Staff
recommended the Commission approve the requested common stock issuance authority.Staff
observes,however,that it is Avista’s ongoing responsibility to demonstrate that its acquisition of
AERC and AEL&P will not harm Avista’s Idaho customers.Staff thus recommended the
Commission require Avista to:
(1)File all merger closing documents with the Commission;
(2)File all final closing journal entries with the Commission;
(3)Maintain its own utility operating books and records,separate from AERC
books and records,and notify Commission Staff before any future
consolidation of the operating books in the future.Further,Avista must
maintain separate Subaccounts;
ORDER NO.32991 3
(4)Provide Staff with access to all books and records including final merger
tax elections,and adequate audit trails for all affiliated operations related
to any affiliated transactions;
(5)Exclude from Avista utility operations for recovery from existing utility
customers,any costs related to Alaska Merger Sub AEL&P,AERC or any
purchase premium or goodwill without express approval from this
Commission;and
(6)File status reports with the Commission reflecting pertinent quarterly
financial information to include the following:(a)Debt to Equity Ratio,
(b)Enterprise Value,(c)Net Income Available to Common Stock,and (d)
Common Shares Outstanding.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Commission finds that Avista Corporation is a Washington corporation that is
qualified to do business in Idaho.The Company is a public utility engaged in the generation,
purchase,transmission,distribution and sale of electric energy and the purchase,distribution,and
sale of natural gas.The Company is a gas corporation within the definition of Idaho Code §61-
117,an electric corporation within the definition of Idaho Code §61-119,and a public utility
within the definition of Idaho Code §61-129.The Commission has jurisdiction over this
Application pursuant to the provisions of Idaho Code §61-901,et seq.
Avista’s Application reasonably conforms to Rules 141 through 150 of the
Commission’s Rules of Procedure (IDAPA 31.01.01.141-150),and Avista has paid all fees
required by Idaho Code §6 1-905.
The proposed issuance is for a lawful purpose,is within Avista’s corporate powers,
and is compatible with the public interest.
The Commission’s approval of the issuance is not a finding of fact or a conclusion of
law that the particular use to which these funds are to be put is approved by this Order.The
issuance of an Order authorizing the proposed issuance does not constitute agency determination
or approval of the type of financing or the related costs for ratemaking purposes.The
Commission does not have before it for determination in this case and therefore does not
determine the effect of issuance on rates to be charged by Avista for gas or electric service to
consumers in the State of Idaho.
ORDER NO.32991 4
ORDER
IT IS 11EREBY ORDERED that Avista’s Application for authority to issue up to
7,250,000 authorized but unissued shares of common stock for the limited purpose of funding
Avista’s acquisition of AERC is granted.
IT IS FURTHER ORDERED that Avista shall file the following as they become
available:
1.The “Report of Securities Issued”required by 18 C.F.R.§34.10;and
2.Verified copies of any agreement entered into in connection with the
Company’s sales and issuances of the Shares.
IT IS FURTHER ORDERED that Avista shall:
1.File all merger closing documents with the Commission;
2.File all final closing journal entries with the Commission;
3.Maintain its own utility operating books and records,separate from AERC
books and records.and notify Commission Staff before any future
consolidation of the operating books in the future.Further,Avista must
maintain separate Subaccounts;
4.Provide Staff with access to all books and records including final merger
tax elections,and adequate audit trails for all affiliated operations related
to any affiliated transactions;
5.Exclude from Avista utility operations for recovery from existing utility
customers,any costs related to Alaska merger sub AEL&P,AERC or any
purchase premium or goodwill without express approval from this
Commission;and
6.File status reports with the Commission reflecting pertinent quarterly
financial information to include the following:(a)Debt to Equity Ratio,
(b)Enterprise Value,(c)Net Income Available to Common Stock,and (d)
Common Shares Outstanding.
IT IS FURTHER ORDERED that the issuance of this Order does not constitute
acceptance of Avista’s exhibits or other material accompanying this Application for any purpose
other than the issuance of this Order.
IT IS FURTHER ORDERED that nothing in this Order or any act or deed performed
in connection with this Order shall be construed to obligate the State of Idaho to pay or guarantee
ORDERNO.32991 5
in any manner whatsoever any security authorized,issued,assumed or guaranteed under the
provisions of this Order.
IT IS FURTHER ORDERED that this authorization is without prejudice to the
Commission’s regulatory authority regarding rates,service,accounts,evaluation estimates or
determination of costs or any other matter which may come before the Commission pursuant to
its jurisdiction and authority as provided by law.
THIS IS A FINAL ORDER.Any person interested in the Order (or in issues decided
by this Order)may petition for reconsideration within twenty-one (21)days of the service date of
this Order with regard to any matter decided in this Order and in this case.Within seven (7)days
after any person has petitioned for reconsideration,any other person may cross-petition for
reconsideration,See Idaho Code §6 1-626 and 62-6 19.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of March 2013.
/‘
PAiI KJEtLANER,PRESIDENT
MACK A.REDFRD.COMMISSIONER
SL2
MARSHA H.SMITH,COMMISSIONER
ATTEST:
Jean D.Jewell
Commission Secretary
O:AVU-U-13-Olkk
ORDERNO.32991 6