Those of us who pay Avista to heat our homes owe a big thanks to Washington state regulators today.
Because, in the face of all the vague assurances and happy never-minds issued by Avista in its attempt to sell itself to a Canadian company, the Washington Utilities and Transportation Commission did its due diligence, checked facts against assertions and concluded that the deal’s critics were right: The Hydro One merger was a bad deal for Avista customers.
It would have been good for Avista shareholders, who stood to be paid a 24 percent premium for their shares as part of a “full transfer of ownership” to Canadian shareholders. And it would have been very good for Avista executives, who stood to earn millions in the sale of stock options.
But it was bad for the rest of us. And the UTC had our backs.
The Washington commission had two considerations: Would the deal protect customers adequately from potential harm? Would it provide a net benefit to Avista customers – not just avoid harm, but leave ratepayers better off?
“We find that it does neither,” the UTC wrote in its 44-page rejection of the merger.
The main reason was the very one that critics seized on from the start. The province of Ontario could meddle with Hydro One rates and operations in a way that Spokane-based Avista could not influence, and there was “no meaningful remedy” built into the deal to prevent it.
One of the most interesting points regulators made was that the Canadian utility was an unsuitable partner from the start – an assertion that puts into question the judgment by Avista executives to throw in their lot with Hydro One, even before serious problems between the utility and the Ontario government arose this summer.
Indeed, in the face of all the “take-our-word-for-it” assurances about Avista’s continuing independence and the attempts to protect Avista customers from political interference from the province of Ontario, the Washington commission concluded that there was no way to effectively safeguard American ratepayers.
“This would be a continuing risk that no provision in a settlement agreement between Hydro One and Avista can adequately protect against,” the order concluded.
Luckily, we got an object lesson in the truth of that statement before regulators made their final ruling. The $5.3 billion sale – which would have made Avista a subsidiary of the Canadian utility – was making its way through the guts of the regulatory process when political upheaval in the province of Ontario this past summer turned everything upside down.
A key concern of critics has always been the fact that the merger would put Avista – and our bills – at the mercy of Canadian politics. Avista CEO Scott Morris and his then-counterpart, Hydro One CEO Mayo Schmidt, assured regulators that there were ample protections for Avista ratepayers.
“At the very outset of negotiations with Hydro One,” Morris testified early in the process, “I vividly recall a private conversation with Mayo Schmidt, the CEO of Hydro One, in which I made very clear to him that Avista needed these types of assurances on autonomy for us to run our business as we see fit. Without a moment of hesitation, Mr. Schmidt slid a pen across the table and said, words to the effect, ‘Scott, you have the drafting pen. Write it up the way you want.’ ”
Trouble was, Mr. Schmidt’s days were numbered. And whatever faith there was in that meeting of the minds was shown to have been unfounded, because Ontario started meddling like crazy with Hydro One in just the ways that we were told it wouldn’t.
In July, a new political party took over the majority of Ontario’s legislative assembly after running on a campaign to fire Schmidt and replace Hydro One’s board.
Meddling commenced. Lots of it. The upshot was that Schmidt is gone, and the idea that Ontario, a near majority shareholder in Hydro One, would not meddle in ways that would affect Avista was exposed as a chimera.
All that meddling made it harder to believe there wouldn’t be any meddling.
Morris and Hydro One board chairman Tom Woods acknowledged that when regulators asked them, in October, if the events in Ontario were good for either Hydro One or Avista.
“Mr. Woods … responded with a straightforward ‘No.’ ” according to one footnote in the Washington commission report. “Mr. Morris, asked the same question relative to Avista’s best interest, also answered: ‘No.’ ”
On that point, at least, it’s good the UTC took them at their word.
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