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HomeMy WebLinkAbout20181207Post Hearing Brief.pdfD oatGINAt Norman M. Semanko, ISB #4761 PARSONS BEHLE & LATIMER 800 West Main Street, Suite 1300 Boise, Idaho 83702 Telephone: 208.562.4900 Facsimile: 208.562.4901 N S emanko @parsonsbehle. com ecf@parsonsbehle.com IN THE MATTER OF THE JOINT APPLICATION OF HYDRO ONE LIMITED AND AVISTA CORPORATION FOR APPROVAL OF MERGER AGREEMENT Attorneys for Intervenor Avista Customer Group BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION CASE NOS. AVU-E-I7-09 AVU-G-17-05 1, 2 3 4 5 6 7 9 AVISTA CUSTOMER GROUP'S POST. HEARING BRIEF REGARDING IDAHO coDE 5 6r-327 COMES NOW, Intervenor Avista Customer Group, through counsel, pursuant to the Commission's bench request for legal briefing by the parties regarding Idaho Code $ 6l-327 and the Commission's Rules of Procedure, and hereby files Avista Customer Group's Post-Hearing Brief (I.C. S 6t-327). I. INTRODUCTION At the conclusion of the two-day technical hearing in this matter, which ended on November 27, 2018, the Commission requested that the parties provide legal briefing regarding Idaho Code $ 6l-327 . The Commission asked that the briefing include a discussion of Hydro One, Avista, and Olympus Equity LLC (as newly formed in Idaho). Briefs were to be filed within l0 days and were not to exceed 10 pages. AVISTA CUSTOMER GROUP'S POST-HEARING BRIEF REGARDING IDAHO CODE $ 61-327 - Page 1 4852-9824-37 l3v1 10 jj.;;ililq0 u 1 II. ARGUMENT 2 ldaho Code 5 6l-327 applies to, and bars, the proposed acquisition of Avista by Hydro One. 3 This result is unchanged by the recent formation of Olympus Equity in Idaho. 4 A. The Statute Applies to Out-of-State Entities. 5 The Applicants argue that the statute is limited to entities in the sister states of the United 6 States. This ignores the Idaho Supreme Court's finding that the statute applies to "out-of-state 7 organizations, governmental entities, or any entity not subject to regulation by the PUC." Idaho 8 Power Co. v. State,l04 Idaho 575,589,661P.2d741,755 (1983). The Commission is boundto 9 followthe legal findings of the Idaho Supreme Court. In addition, the Commission's authority is 10 limited to what is provided for in statute. McGuire Estates Water Co. v. Idaho PUC,I I I Idaho 341, 11 723 P.2d 885 (1986). 72 This "foreign entities" understanding of the statute is corroborated by the legislative history, 13 as set forth and discussed in Avista Customer Group's Response in Opposition to Motion to Admit L4 and Approve First Amendment to Stipulation and Settlement and the Affidavit of Norman M. 15 Semanko in Support, both filed in this matter on November2l,20l8 and incorporated by reference 16 herein, as though set forth in full here. t7 B. The Statute Cannot Be Avoided by the Formation of Olympus Equity in Idaho. 18 The analysis under I.C. $ 61-327 is unchanged by Hydro One's recent formation of Olympus 19 Equity LLC as an Idaho entity. 20 In enacting the operative legislation, the Idaho Legislature made clear that it did not want 27 to allow form to be put over substance on this critical public policy matter, so much so that the act 22 included a section of code entitled: "Evasion of act," codified as I.C. $ 61-330. AVISTA CUSTOMER GROUP'S POST.HEARING BRIEF REGARDING IDAHO CODE $ 61-327 -Page2 4852-9824-37 13v1 L 2 This section specifically provides that any conveyance or transfer "made with the intent or purpose to evade or avoid the provisions of this act, shall be void." I.C. $ 6l-330 (The 'oact" included I.C. $$ 61-327 to 61-331.). It is clear that the sole purpose of creating Olympus Equity in Idaho was to "evade or avoid" the prohibitions set forth in I.C. $ 61-327. The Applicants admitted as much at the technical hearing. As a result, any transaction involving that entity is void and certainly cannot be allowed to avoid the result that is otherwise dictated by I.C. 5 6l-327, which is to bar the proposed acquisition of Avista by Hydro One. The statute applies. The remaining question is whether it prohibits this particular transaction. C. The Proposed Transaction Is Barred Under Multiple Prongs of the Statute. The statute sets forth four separate prohibitions, each of which is discussed below. The proposed transaction is baned by at least three of them. Government Ownership and Control blr the Province of Ontario Bars the Acquisition. Under the first prohibition: No title or interest in any public utility . . . 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. 3 4 5 6 7 8 9 10 1.1. 12 13 T4 15 16 17 I 18 19 20 21. 22 23 24 25 I.C. $ 6l-327 (emphasis added). The question under this prohibition is whether Avista will be 26 owned or controlled, directly or indirectly, by the Province of Ontario. The Applicants contend that AVISTA CUSTOMER GROUP'S POST-HEARING BRIEF REGARDING IDAHO CODE $ 61-327 - Page 3 4852-9824-37 l3vl 1 this is not the case because the Province owns less than a majority of the stock in Hydro One and 2 has agreed not to manage the company as a shareholder. This is not the end of the inquiry. 3 The Province of Ontario previously owned the entirety of Hydro One and its predecessor 4 entities. This was the case for over 100 years. Only recently, within the past three years, has a 5 portion of Hydro One been offered for purchase by others. This was done to generate revenue for 6 the Province. However, the Province has maintained a high level of ownership and control and 7 guaranteed themselves that this will remain the case. 8 Crucially, the Governance Agreement (2015) between Hydro One and the Province 9 provides that a two-thirds majority must be attained for certain critical governance matters. This L0 includes annual retention votes for both the CEO and the Chairman of the Board. With 40% of the 11 vote - more than enough to prevent a two-thirds vote from being achieved - Ontario has the 72 controlling interest. Ontario also has the right under the Governance Agreement to remove the 13 entire Board of Directors. 1.4 Beyond its guaranteed role as the major shareholder in Hydro One, the Province has also 15 retained its legislative authority over Hydro One and its wholly-owned subsidiaries, as specifically 16 noted in Section 2.2.1(d) of the Governance Agreement. This legislative authority has recently been t7 utilized with regard to executive compensation in the Hydro One Accountability Act (2018), with 18 only a self-imposed legislative carve-out for non-Canadian subsidiaries preventing the Act from 19 purporting to reach Avista in the future. 20 When it comes to Hydro One, there is seemingly no limitation on the legislation that can be 2t approved by the Province. More importantly, there is no way to predict what such legislation may 22 include in the future. Such political and financial uncertainty and the associated risks could extend AVISTA CUSTOMER GROUP'S POST-HEARING BRIEF REGARDING IDAHO CODE $ 61-327 - Page 4 4852-9824-37 l3vl 5 6 7 8 9 10 11. 72 13 1,4 L5 1,6 17 18 19 20 27 22 23 L to Avista and its customers, directly or indirectly, if the merger occurs.l This is precisely the type 2 of govemmental ownership and control that Idaho Code $ 6l-327 was calculated to preclude. 3 2. Formal Arrangements Between Hydro One and the Province of Ontario Further 4 Bar the Transaction. Under the second prohibition: No title or interest in any public utility. . .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 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. I.C. $ 6l-327 (emphasis added). Under this prohibition, the question is whether Hydro One is acting "in concert or arrangement with" the government of Ontario. Clearly, it is. An "arrangement" means an agreement. Black's Low Dictionary, 2d Ed. Both the Governance Agreement (2015) and the Letter Agreement (2018) between Hydro One and the Province of Ontario spell out how the corporation is to be governed, including control over its wholly-owned subsidiaries. Future operations will be governed by these agreements between the corporation and the government. A clearer example of this prohibition is hard to imagine. I Subjecting Avista customers to this demonstrated political and financial uncertainty is not in the public interest and further precludes the proposed transaction under LC. $ 61-328(3Xa), even if it is not barred under I.C. $ 6l-327, or as an alternative ground for denial (see also Washington Utilities and Transportation Commission (Docket U-170970) Final Order Denying Joint Application for Transfer of Property (Order 07) (December 5, 2018), denying the proposed transaction as not being consistent with the public interest). AVISTA CUSTOMER GROUP'S POST-HEARING BRIEF REGARDING IDAHO CODE $ 6l-327 - Page 5 4852-9824-37 l3v I 1 2 3. Provincial Ownership and Control of Hvdro One Prohibits the Transaction. Under the third prohibition: No title or interest in any public utility . . . 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, . . . rtry company, association, organization or corporation, organized or existing under the laws of 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. No title or interest in any public utility. . .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,. . .rtry company, association, organization or corporationo organized under the laws of any other state, not coming within the definition of an electric public utility or electrical corporatiotr. . .r and subject to the jurisdiction, regulation and control of the public utilities commission of the state of Idaho under the public utilities law of this state." AVISTA CUSTOMER GROUP'S POST.HEARING BRIEF REGARDING IDAHO CODE $ 61-327 - Page 6 4852-9824-37 l3vl 3 4 5 6 7 8 9 10 11 72 13 t4 1s I.C. $ 6l-327 (emphasis added). The question under this prohibition is whether Hydro One (which 16 would own Avista) is owned or controlled, directly or indirectly, by the Province of Ontario. The L7 question applies equally to Olympus Holding (Delaware) and Olympus Equity (ldaho) As discussed above and plainly demonstrated at the technical hearing in this matter, the Province of Ontario holds and has exercised sufficient major stockholder and govemmental control of Hydro One to demonstrate that the corporation "is owned or controlled" by the Province. D N A A And, finally, under the fourth prohibition: 18 19 20 2L 22 23 ln4 24 25 26 27 28 29 30 31 32 1 I.C. 5 6l-327 (emphasis added). This prohibition does not appear to apply to the current 2 application. 3 D. The Limited Exception in the Statute Does Not Apply. 4 The statute provides an exception, added inl982,and not applicable here, for "a cooperative 5 electrical corporation organized under the laws of another state, which has among its members 5 mutual nonprofit or cooperative electrical corporations organized under the laws of the state of 7 Idaho and doing business in this state." I.C. $ 61-327. 8 Hydro One is not a "cooperative" and does not otherwise qualiff under the statutory 9 language. The exception therefore does not apply. 10 III. CONCLUSION l.L For the reasons set forth above, the Commission should conclude that I.C. 5 6l-327 bars the 72 proposed acquisition of Avista by Hydro One and deny the application. DATED this 7th day of December, 2018. P S BEHLE & LATIMER By: orman M. S AVISTA CUSTOMER GROUP'S POST.HEARING BRIEF REGARDING IDAHO CODE $ 61-327 -Page 7 4852-9824-3713v1 I hereby certify that a true and correct copy of the foregoing document was served on the following on this 7th day of December, 2018 by the following method: Larry A. Crowley, Director The Energy Strategies, Inc. P.O. Box 5146 Boise, ID 83705 crowleyla@aol.com xtr U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery f, Electronic Mail or CM/ECF Peter J. Richardson Richardson, Adams, PLLC 515 N 27th Street Boise, ID 83702 peter@richardsonadams. com Benjamin J. Otto Idaho Conservation League 710 N. 6th Street Boise, ID 83702 botto@ idahoconservation.org Elizabeth Thomas, Partner Kari Vander Stoep, Partner K&L Gates, LLP 925 4th Ave., Ste. 2900 Seattle, WA 98104-1158 liz.thomas@kl gates.com kari.vanderstoep@kl gate s. com dirk.middents@kl gates. com Ronald Williams Williams Bradbury, PC P.O. Box 388 Boise, ID 83701 ron@wi lliamsbradbury.com U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery Electronic Mail or CM/ECF U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery f Electronic Mail or CM/ECF Xtr U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery Electronic Mail or CM/ECF trX X U.S.First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery ffi Electronic Mail or CM/ECF AVISTA CUSTOMER GROUP'S POST-HEARING BRIEF REGARDING IDAHO CODE $ 61-327 - Page 8 4852-9824-37 l3v1 CERTIFICATE OF SERVICE David J. Meyer, Esq. Vice President and Chief Counsel of Regulatory and Government Affairs Avista Corporation 14l I East Mission Ave. Spokane, WA99220 david. meyer@avistacorp. com avi stadockets@avistacorp. com Linda M. Gervais Senior Manager, Regulatory Policy Regulatory Affairs P.O. Box 3727 MSC-27 Spokane, WA99220 Linda. gervais@avi stacorp. com Brandon Karpen Deputy Attorney General Idaho Public Utilities Commission 472W Washington Boise, lD 83702 Brandon. karpen@puc. idaho. gov Washington and Idaho Northem District Counsel ofLabors Danielle Franco-Malone Schwerin Campbell Barnard Iglitzin Lavitt LLP 18 W Mercer Street, Ste. 400 Seattle, wA 98119-3971 kerlaw.com Dr. Don Reading 6070 Hill Road Boise, ID 83703 dreadin g@mindsprine.com Brady M. Purdy Attorney at Law 2019 N. 17th Street Boise, ID 83702 bmpurdy@hotmail.com U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery Electronic Mail or CM/ECF U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery f, Electronic Mail or CM/ECF U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery f Electronic Mail or CM/ECF U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery Electronic Mail or CM/ECF U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery Electronic Mail or CM/ECF U.S. First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery Electronic Mail or CM/ECF XtrtrtrX XrtrT XtrtrtrX XtrTtrx XtrtrtrX AVISTA CUSTOMER GROUP'S POST.HEARING BRIEF REGARDING IDAHO CODE $ 6l-327 - Page 9 4852-9824-3713v1 Ganick L Baxter Idaho Department of Water Resources 322E,. Front Street P.O. Box 83720 Boise, ID 83720-0098 Garrick.baxter@idwr. idaho. gov deanj mi I ler@ cableone. net carol.hauen@clearwaterpaper. com marv@malewallen.com j ohn j acob s @ cl earwaterpaper. com david. wren@ clearwaterpaper. com nathan. smith@clearwaterpaper. com Patrick. ehrbar@avi stacorp. com i scarlett@hydroone. com X U.S.First Class Mail, Postage Prepaid U.S. Certified Mail, Postage Prepaid Federal Express Hand Delivery f, Electronic Mail or CM/ECF f Electronic Mail or CM/ECF Electronic Mail or CM/ECF Electronic Mail or CM/ECF Electronic Mail or CM/ECF Electronic Mail or CM/ECF Electronic Mail or CM/ECF Electronic Mail or CM/ECF Electronic Mail or CM/ECF xxxXXxx '-- N,M. Semanko AVISTA CUSTOMER GROUP'S POST.HEARING BRIEF REGARDING IDAHO CODE $ 61-327 - Page l0 4852-9824-37 13vl