• Andrus and Carlson

"I've long thought that Governor Andrus has never been given the full credit he deserved for the critical role he played in leading the way to passage of the greatest single piece of conservation legislation in American history. So I set out to make sure the history books properly reflect this excellent piece of his legacy." - Chris Carlson

10 questions

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Last week Avista Utility, headquarted in Spokane, surprised many observers by announcing they were being acquired by a Canadian utility, Hydro One of Toronto, for $5.3 billion dollars. After operating independently for 128 years, they were giving up that independence.

There are two questions that immediately cry out for answers. Why now? Secondly, what’s in it for Idaho and the current customer base of 129,000 northern Idaho customers supplied with juice from Avista? The sale has to be reviewed and approved by the public utility commissions of several states and federal entities, but both parties hope the deal closes by next fall.

Here are ten key questions one hopes will be asked and explored by regulators:

1) $5.3 billion in U.S. dollars presumably?

Answer: At closing Hydro One will pay $3.4 billion in US dollars and will assume Avista debt of $1.9 billion. Currency fluctuation risk is taken by Hydro One but it is thought they are trying to fix the rate of .53 cents Canadian to every $1 US. Currently the Canadian dollar is .64 cents to the U.S.dollar.

2) What is the debt to equity ratio for financing the purchase and has Hyrdo One undertaken a subscription sale and if so did it fill rapidly or is it still being offered?

Answer: The ratio is going to be 83% debt and 17% equity. Yes, there was a subscription offering and it filled in one hour. Avista’s stock rose 24 % once the market learned of the intended purchase and is now trading at $53 a share.

3) Are there any tax advantages or write-offs for either company from the purchase or the sale?

Answer: It does not appear so, but that question may require additioanl research.
4) Does Avista chairman and ceo Scott Morris receive any additional compensation or bonus for engineering this sale?

Answer: Yes. A required filing showed that he would receive three times his average compensation in previous years which translates to approximately a $15 million dollar bonus. An additional $15 million is being set aside as a pool of money to keep key employees.

5) Avista claims communities will benefit from Avista’s commitment to philanthropy and economic development, but it offers no specifics on just what economic development it would support and as to philanthropy it claims Hydro One will double the current Avista commitment of $1 million annually to $2 million. Records indicate though that last year Avista donated $600,000. Other acquisitions of northwest utilities recently have seen philanthropy zeroed out.

Answer: The $600,000 is what the Foundation donated. Corporate giving was approximately $2 million and Hydro One has pledged to double that. In addition, Hydro One is making a one-time donation of $7 million to the Avista Foundation and has pledged to donate annually another $2 million to the Foundation.

6) Hydro One is heavily unionized. Surely both entities recognize historic differences towards unions. Is there a strategy to address this?

Answer: Both are aware and it is a work in progress.

7) Hydro One buys some electricity from government owned and operated nuclear plants. Do they have any exposure regarding disposal of wastes and storage of spent fuel rods? Do they carry any special liability coverage if something goes wrong with a nuke plant even though they are just a customer?

Answer: That is a question best directed at Hydro One. Suffice it to say Avista fully anticipates that as part of any mandated settlement a PUC will require “ring fencing” to prevent such transfers of risk or cost.

8) Hydro One will have to enter negotiations with Washington and Idaho’s public utility commissions. Given universal concern regarding global warming being exacerbated by coal burning power plants is Hydro One prepared to negotiate a phase out of the 10% of Avista’s load that comes from Colstrp? Two of the four units at Colstrip were just modernized at a cost of hundred’s of millions.

Answer: The question is not unexpected and the answer is to be determined by the negotiations. We don’t engage in speculation.

9) Does Hydro One/Avista really believe the Idaho PUC will consider its latest request for a 7.2% rate increase separate and apart from its review of this sale? Wouldn’t it be smarter to acknowledge the obvious and withdraw the request? Isn’t it a bit disingenuous in your ads to claim there will be no rate increases “as a result of this transaction?”

Answer: We believe they are totally separate items but recognize that the Idaho PUC could combine the dockets if it want to do so.

10) Does Avista still participate in the exchange of power with BPA allowed by the Northwest Power Planning Act? And will this sale have any impact on the current renegotiations with Canada on the Columbia River Coordination agreement?

Answer: Yes, and as long as the exchange is available Avista will participate.and no.

In all candor there is little specificity that answers convincingly the why now question. However, ¸there has been much activity in the market regarding utilities.The bottom line is probably a simple one in which Scott Morris and the board decided it was better to pick a partner rather than be picked off.. It is easy to predict rough sailing and tough selling ahead.but I wouldn’t bet against Scott Morris.

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