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Avista targeting $85M equity raise to offset tax reform impacts

Avista Corp. is planning to issue $85 million in new equity to partially offset the impact of tax reform, while focusing on efforts to address state regulatory concerns over its takeover by Hydro One Ltd.

After posting lower full-year earnings for 2017, Avista management on Feb. 21 detailed its initial capital plan for 2018, suggesting the utility would look to raise up to $460 million in combined debt and equity to manage the impacts of tax reform, refinance long-term debt and fund its capital expenditure outlay.

Specifically, the company plans to issue $85 million in new equity, either through a direct issuance or from Hydro One upon completion of its pending merger, which would be used to partially offset the impact of tax reform, the company said. The remaining will come from $375 million in new long-term debt, used primarily to refinance existing corporate debt and fund CapEx spending.

The equity issuance, to some degree, will be made in response to credit risks flagged by ratings agencies' with respect to weaker operational cash flows and the impact on debt service.

"We were one of 25 utilities that were included in an outlook change from stable to negative," Avista Senior Vice President, Treasurer and CFO Mark Thies said, pointing to pressure from regulators to pass benefits on to customers. "Assuming we get a fair order with the treatment out of our commissions for how we handle the impacts of tax reform, we believe it shouldn't have a significant impact on our ratings."

Separately, achieving regulatory approval for its acquisition by Hydro One is a "top priority," Avista Chairman and CEO Scott Morris said.

"We believe we will be able to work with the commissions, their staff and other parties to try and receive the required approvals," Morris add. "We continue to anticipate the transaction closing during the second half of 2018."

In Oregon, where utility regulators recommended against the Hydro One acquisition, Avista is confident it can work to implement the guidance provided by staff, specifically related to board composition and ratepayer benefits.

Avista says it plans to meet with the Oregon Public Utility Commission next week to identify ways to respond to staff concerns.

"They're looking for strengthening on the ring-fencing-type impacts as well as making sure there's a demonstrable net benefit to Oregon customers," Thies said. "We believe that we will be able to work with the parties and come up with reasonable solutions to that."