The Washington Utilities and Transportation Commission has denied Canada-based Hydro One Limited’s proposed acquisition of Spokane-based Avista Corporation, finding that the proposed merger does not serve the public interest.

The Washington Utilities and Transportation Commission determined the proposed merger agreement does not adequately protect Avista or its customers from political and financial risk, nor does it provide a net benefit to customers as required by state law.

In its order, the commission states:

“The proposed transaction cannot be said to be consistent with the public interest when it is evident that decisions affecting Hydro One’s and Avista’s business operations and financial integrity are subject to political considerations that may motivate one provincial leader or another to make decisions and take actions in the future that may cause harm instead of promoting the best interests of Avista, its customers, and Hydro One’s non-government shareholders.”

In September 2017, Avista and Hydro One filed a joint application with the commission to approve the companies’ proposed merger agreement.

Under the companies’ original proposal, Avista would have become a wholly owned subsidiary of Hydro One, an electric transmission and distribution utility headquartered in Toronto, Canada. Avista would have maintained its existing corporate headquarters in Spokane, Washington, and continued to operate in Washington under the same name, management team, and employee structure.

In March, the companies, UTC staff, and nine other parties reached a settlement on the proposed merger that would have provided more than $30 million in rate credits to Washington ratepayers over a 5-year period, provided more than $11 million toward low-income programs, provided for accelerated depreciation of Colstrip power plants in Montana, and set aside funds for economic transition efforts in Colstrip, Montana.

The parties also asserted their agreement offered financial protections for Avista customers and insulated Avista from Hydro One’s largest shareholder, the Province of Ontario.

The proposed merger required approval from the UTC as well as federal authorities and other state public service commissions in Avista’s service territory.

In testimony before the commission last May, the Candian utility described the Province of Ontario, which owns 47 percent of the company, as a passive investor that would not exert political pressure on the company. However, after the June 2018 general election in the Province of Ontario, in which there was a change of majority control, the province and Hydro One announced an agreement that resulted in the resignation and full replacement of Hydro One’s board of directors and the retirement of the utility’s CEO.

In response, the commission extended its decision timeline to further investigate the effects of the changes on the proposed acquisition of Avista by Hydro One. The ongoing regulatory approval processes in Idaho and Oregon also were disrupted by the events in Ontario.

In its order, the commission noted that the agreement resulting in the resignation of the Hydro One board and CEO elevated the provincial government’s political interests above the interests of other stakeholders, including investors that own 53 percent of Hydro One’s common stock. The action resulted in credit downgrades and decreased the value of Hydro One and Avista stock. The province subsequently passed a law limiting the compensation of the company’s executives and providing for ongoing involvement by the province in matters typically reserved to executive management and the board of a private company.

The commission determined the financial offerings and other benefits for Avista customers promised by the transaction, including rate credits, are inadequate to compensate for the risks Avista’s customers would face if the transaction was approved. The commission determined the proposed acquisition does not meet the net-benefit standard required by state law.

“Provincial government interference in Hydro One’s affairs, the risk of which has been shown by events to be significant, could result in direct or indirect harm to Avista if it were acquired by Hydro One, as proposed. This, in turn, could diminish Avista’s ability to continue providing safe and reliable electrical and natural gas service to its customers in Washington,” the commission stated in today’s order. “Avista’s customers would be no better off with this transaction than they would be without it.”

The commission further directed Avista to work with commission staff to return to customers $10.4 million in tax benefits left outstanding from Avista’s last general rate case.

Spokane-based Avista serves more than 240,000 electric and nearly 153,000 natural gas customers in eastern Washington.

Hydro One is Ontario’s largest electricity transmission and distribution provider with more than 1.3 million customers.

Tags:
M&A   Washington   Avista   Hydro One  

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