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Hydro One, Avista file merger settlement in Washington

Hydro One Ltd. and Avista Corp. on March 27 filed with the Washington Utilities and Transportation Commission a settlement seeking approval of their $5.26 billion proposed merger.

Signatories to the proposed settlement include the Public Counsel Unit of the Washington Office of Attorney General, The Energy Project, NW Energy Coalition, Renewable Northwest, Natural Resources Defense Council, Sierra Club, the Washington and Northern Idaho District Council of Laborers, the Northwest Industrial Gas Users and the Industrial Customers of Northwest Utilities.

The parties, as well as commission staff, agree the deal is in the public interest and recommend approval, according to a news release.

Under the settlement, all parties agreed upon 81 financial and non-financial commitments, including executive management decision making, rate case filing procedures and rate credits.

Total financial commitments in Washington in the settlement amount to $44 million. If approved, the settlement includes a rate credit allocated to Washington of $30.7 million over a period of 5 years. Originally, the companies filed a rate credit request of approximately $32 million over a 10-year period across Washington, Oregon and Idaho that would have amounted to a rate credit of approximately $20 million in Washington.

Avista will track merger costs as a non-utility cost with no charges to be recovered from its customers.

Avista will not advocate for a higher cost of debt or equity capital as compared to what its cost of debt or equity capital would have been, absent Hydro One's ownership. Post-transaction, Avista will maintain a common equity ratio level of no less than 44%.

The settlement also provides for the use of a portion of Avista's deferred federal income taxes to accelerate the depreciation schedule for Colstrip units 3 and 4 to reflect its remaining useful life through Dec. 31, 2027. It, however, does not reflect any agreement over the ultimate closure of the Colstrip units.

Avista's board of directors will consist of nine members, post-transaction. Two directors of the board will be Hydro One executives, three will be independent appointed by Hydro One who are residents of the Pacific Northwest region, and three seats will go to Avista board members, including Avista's board chairman and CEO.

Additionally, Avista and Hydro One assured Washington customers that the merger deal will not result in staff cuts and Avista will keep its headquarters in Spokane, Wash.

Hydro One is acquiring Avista in an all-cash $5.26 billion deal in which Olympus Equity LLC will acquire 100% of Avista's common shares, making Avista Hydro One's indirect subsidiary. Olympus Equity is a subsidiary of Hydro One. The transaction is expected to complete in the second half of 2018.

The merger is still under review in Washington, Oregon, Idaho, Montana and Alaska. The deal also requires clearance by the Committee on Foreign Investment in the U.S.

The deal received the approval of the Federal Energy Regulatory Commission in January and from shareholders in November 2017. In February, the Oregon Public Utility Commission staff recommended against approving the transaction. Alaskan regulators also rejected the application in November over a waiver requested by Hydro One to obtain an Alaskan business license. The application was, however, refiled in the same month.