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
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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.
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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.
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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.
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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
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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
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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).
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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."
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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:
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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
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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
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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
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AVISTA CUSTOMER GROUP'S POST-HEARING BRIEF REGARDING IDAHO CODE
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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
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XtrtrtrX
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XtrTtrx
XtrtrtrX
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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
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xxxXXxx
'--
N,M. Semanko
AVISTA CUSTOMER GROUP'S POST.HEARING BRIEF REGARDING IDAHO CODE
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