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Hydro One 'fully committed' to Avista deal despite board shakeup, CEO says

Hydro One Ltd. management said Aug. 14 that the company is still "fully committed" to closing its $5.3 billion acquisition of Avista Corp., even after Hydro One's CEO and entire board stepped down a month earlier under pressure from the company's largest shareholder.

The Ontario-headquartered transmission and distribution utility in July 2017 announced an all-cash $5.3 billion transaction to purchase Avista, an electric and natural gas business with operations in the Pacific Northwest. The transaction has received approval from federal, Alaska and Montana regulators, with consent still needed from Idaho, Oregon and Washington authorities.

Hydro One previously planned to close the deal during the third quarter of 2018, but that timing hit a snag when the company's CEO and board of directors resigned in July — spurred by the new Ontario government's call for improved transparency at the company. Hydro One was previously owned by the Canadian province before being spun off into a publicly-traded company in November 2015. Ontario now owns 49.9% of Hydro One shares.

Regulatory staffers in Idaho, Oregon and Washington have been in "informative and educational" talks with Hydro One officials about the leadership shakeup, Executive Vice President and Chief Legal Officer Jamie Scarlett said on an Aug. 14 earnings call to discuss second-quarter results. The company earlier that day announced a new 10-member board, with six nominated by Hydro One's ad hoc committee, and four chosen by the Ontario government.

Utility commissions in Oregon and Washington extended their deadlines to decide on the deal, with both bodies scheduled to vote Dec. 14 on approval. Idaho regulators canceled a key July hearing but have not released a revised procedural schedule. Hydro One now expects the transaction to close by the end of 2018.

"Our operating premise is that all of the extensions are really around helping the regulators get their minds around the change of governance, both at the board and the CEO level," Acting President, CEO and CFO Paul Dobson said. "There's been no suggestion that the settlements themselves would change in any respect, that there will be new items added to them."

Scarlett said he does not expect Alaska and Montana to reverse or revisit approvals of the Avista acquisition, with Dobson saying it would be "highly unusual" for those possibilities to occur. Any needed updates at the federal level will be pursued "without incident," Scarlett said.

"Hydro One remains fully committed to the merger with Avista," Dobson said. "And from our standpoint, material terms of the deal have not changed. We do recognize that the regulators have extended the process and have some questions for the new board."

He disclosed, however, that Hydro One executives have not yet met with the new board regarding the Avista transaction, so he could not definitively say whether the group supports proceeding with the purchase. Management "will certainly, as we go through it again, be very supportive and committed to the merger," Dobson said. "It's going to be the management standpoint with regard to that."

The CEO said the new board will likely commence its search for a permanent CEO "in the very near future. I imagine that is a very high priority for them. And as I said earlier, we look forward to working with them to help them in that regard."