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Hydro One, Avista file merger settlement in Washington, but more hurdles remain

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Hydro One, Avista file merger settlement in Washington, but more hurdles remain

Hydro One Ltd. and Avista Corp. filed an all-party merger settlement with Washington state regulators who still must decide whether to approve the transaction, which is also still pending approvals in Idaho, Oregon, Montana and Alaska.

This settlement, which was filed March 27, includes the utilities' commitment that no costs associated with the transaction will be recovered from Avista or Hydro One customers. The agreement also provides that Avista will remain headquartered in Spokane, Wash., and local decision-making will be maintained. The partnership with Hydro One will not result in the elimination of jobs or other cost-cutting that may affect customer service, Avista Chairman and CEO Scott Morris said.

Negotiations with parties in the other states are still underway and are expected to be resolved state by state, the companies said. Negotiated settlements are frequently used as an alternative to litigated proceedings before state commissions. They are accepted as less costly and time-consuming because parties can advance their interests and settle differences outside the commission chambers.

The settlement, if approved, would result in the allocation to Washington of a rate credit of about $31 million over five years. In addition, funding for low-income participation in new renewable energy efforts and other benefits will increase the total financial commitments in Washington to about $44 million, the companies said. A settlement in principle had been previously announced.

Also parties have agreed for the use of a portion of Avista's excess deferred federal income taxes to accelerate depreciation of Colstrip units 3 and 4 in order to cover the remaining useful life of those units through Dec. 31, 2027. A provision for accelerating the period for recovering the undepreciated balance in those units was also part of a rate settlement with Puget Sound Energy Inc. in late 2017 as part owner of Colstrip. The plants previously had a cost recovery schedule through 2045. A shut-down date for the plant has not been set.

However, the Sierra Club, which joined the Hydro One-Avista merger settlement, said the agreement to pay down eight years of outstanding debt on the plant units signals an early exit for Avista as part owner of the plant. The settlement also includes $3 million from Hydro One shareholders to help the Colstrip, Mont., community after the plant is closed, the Sierra Club said.

Avista additionally promised in the settlement to obtain at least 90 average MW of expected energy from new eligible renewable resources to become operational within a year of when Colstrip 3 and 4 are closed.

Things have not been going as smoothly elsewhere. The Oregon Public Utility Commission staff in February recommended against approving the merger, saying the deal offers no net benefits for Oregon ratepayers. Avista serves natural gas customers in Oregon but has no electric customers in the state. A settlement conference was set for April 12, and the PUC set a final order target date of Sept. 14.

In Alaska, numerous parties objected that Canadian-owned Hydro One's acquisition of Avista could result in the state-owned Snettisham Hydroelectric Project being handed over to the foreign company. However, the Regulatory Commission of Alaska subsequently determined the ownership of the Snettisham project was outside the scope of the merger case. The commission set a public hearing for April 30 through May 3. The statutory timeline for issuance of a final order was extended to June 4 with the consent of all parties.

In Montana a hearing on the merger is set to start on May 17 before the Public Service Commission. Avista serves just 32 customers in Montana and most of those are Avista-owned structures and company employees of Avista's Noxon Rapids facility. Yet the City of Colstrip on March 19 petitioned to intervene, saying it is concerned the closure of the coal plant would devastate the community. PSC spokesman Chris Puyear said the commission identified the merger's potential impact on the generating assets as an issue.

The Idaho Public Utilities Commission has set a settlement conference for April 4. Public comments have been filed against the merger with expressions of concern the Canadian company will raise rates for Idaho customers.