Idaho regulators are raising tough questions about Avista Corp.’s sale to a Canadian utility, and their concerns have the potential to unravel the $5.3 billion deal.
In some of the most pointed remarks to date, staff members from the Idaho Public Utilities Commission said the Ontario government’s influence on Hydro One Ltd. made them uneasy.
“I am concerned that there does not appear to be a limit on the Province of Ontario’s authority over Hydro One,” Terri Carlock, utilities division administrator for the PUC, wrote in a 17-page document evaluating the proposed sale. “…Recent activities in the Province of Ontario demonstrates this influence is a real risk for Hydro One.”
In July, Hydro One’s entire board of directors resigned and its chief executive officer retired under pressure from the newly elected Premiere Doug Ford, who had made discontent with the utility a centerpiece of his campaign. Since the election, Ford has proposed a 12 percent rate decrease for Hydro One customers and the government has passed a law changing how the utility’s executive compensation is set.
The province is Hydro One’s largest shareholder, with a 47 percent stake in the company. However, “this level of interference goes well beyond the normal role of any shareholder,” Carlock wrote. “Nothing prevents the Province of Ontario from passing additional laws directing operations of Hydro One.”
She also encouraged the three-member Public Utilities Commission to get a legal opinion on whether Idaho law would allow the sale of an electric utility and its assets to a company with ownership by a foreign government.
Idaho is among five states that must approve the sale for it to go through. The three public utility commissioners must determine whether the sale is in the best interest of Avista’s Idaho customers.
Based on the staff testimony, the commissioners will be asking hard questions of Avista and Hydro One officials Monday during a technical hearing in Boise.
Carlock said the two companies failed to disclose that Hydro One’s management was a major campaign issue in Ontario this year. Mayo Schmidt, the former CEO, had testified that “Hydro One is now governed by an independent board … with the Province of Ontario as an investor and not a manager.”
Most of the staff and customer concerns over the sale can be mitigated, Carlock wrote. The PUC, for instance, must approve rate increases for Avista’ electric and natural gas customers. The commission will continue to audit expenditures to ensure that rates don’t go up as a result of the sale, she said. Other provisions prevent Hydro One from stripping assets from Avista or pledging the utility’s assets as collateral for loans.
However, “there are ongoing risks with the proposed merger where the commitments may not provide adequate protection,” Carlock said. “Political actions by the Province of Ontario have been unsettling and heightened the concerns around undue interference or influence.”
Both companies filed rebuttals to Carlock’s testimony.
Hydro One’s new board of directors wants the sale to go forward, said Paul Dobson, the company’s acting CEO. The province has some ability to influence Hydro One, but apart from executive compensation, it doesn’t have the authority to manage the utility’s business affairs, he said.
After the sale, Avista would be run by a separate board of directors, protecting its operations from political interference by the Ontario government, said Scott Morris, Avista’s chairman and CEO.
Morris said Avista conducted its own legal research on whether Idaho law would block utility’s sale to Hydro One and concluded it wouldn’t. The law was passed in 1951 to prevent public utility districts in Washington from acquiring Avista’s Idaho properties, he said.
Avista and Hydro One want to finalize the sale before the end of the year, though they’ve extended the deadline for the transaction to March 29.
Public utility commissions in Montana and Alaska have approved the sale, with decisions pending in Washington, Idaho and Oregon.
Washington regulators plan to make a decision by Dec. 14, but Idaho hasn’t set a deadline for a decision.