Leading a company through something as transitionally massive as a new ownership structure is never a cakewalk. But leading one of your hometown’s most iconic companies – which also happens to be one of the only places you’ve ever worked – through something like that makes everything incrementally more difficult.
Unless you’re Avista Corp. CEO Scott Morris.
That doesn’t mean Avista’s pending sale to Toronto-based Hydro One Ltd. is exactly easy for Morris, either. It just means his perspectives on the company’s inner workings, its relationship with the community and its employees, as well as his grasp of its predecessor Washington Water Power’s intricate history put him in a unique position to help Avista pull off the rarest of mergers – one that’s a possible win-win for all involved.
If Washington regulators approve the sale, when it’s all said and done, Hydro One gets much-needed growth in the United States, while Avista gets corporate safeguards that should keep the utility’s headquarters and large workforce in Spokane for generations.
Spokesman-Review Editor Rob Curley recently spoke with Morris for a podcast that touched on several aspects of the sale, including what it means to the community where Morris was raised and went to school. Below is a partial transcript of that discussion, edited for length and clarity.
RC: How long have you lived in Spokane?
SM: I’m a born and raised Spokane kid. I was raised in a small house in the northwest part of Spokane. I went to Westview Elementary School, Salk Junior High School. I’m a proud Shadle Park Highlander. Most kids want to leave town, and I decided to stay and attend Gonzaga University. Graduated from Gonzaga. Met my beautiful wife, Liz – we’ve been married over 38 years – at Gonzaga. And we raised our family here. The company moved me around a little bit. Both to Lewiston and Medford (Oregon) as part of my ability to grow my in my craft, if you will, with the utility, but have always been a Spokane person.
RC: When did you join the company?
SM: I graduated from Gonzaga and pretty much right out of college got a job being a person that did home energy audits. Back in the early 1980s, if you’ll recall, there was really the first energy crisis and energy efficiency really came on the map for people back then. So I got hired out of college to do energy audits. I didn’t know a lot about it, but they trained me and … Avista/Washington Water Power is the kind of company where you still today can start kind of like I did at the bottom and work your way up. I never dreamed I’d be in this position, but I’m blessed to be there.
RC: What were the different roles that you held at Avista before you got the good office?
SM: I’ve done a lot of things, everything from early on … they put me in charge of coordinating a water heater wrapper program. We wrapped all the water heaters in our service territory. Imagine being 23 years old, being able to go out and hire 200 college students to figure out how to wrap those water heaters. By the way, one of the people we hired was (NBA Hall of Famer) John Stockton. He had just finished his sophomore year at Gonzaga. … All John did was apply. I mean, there was nothing special, he just wanted to work. … John was a hard worker in the (NBA), and John was our hardest worker wrapping water heaters.
RC: So then what did you do at Avista?
SM: I then had a chance to supervise in our Spokane call center. I worked in operations for a while over a number of different operating areas. I moved to Lewiston to do some customer service work, and then our company bought a natural gas utility in Oregon in 1991. The company sent me to Medford in 1991 to be the person from Washington Water Power to oversee that. I always kind of joke … where the company sent me was always the farthest place away from our home headquarters. Whether it was Lewiston or Medford, I think they were trying to send me a message that maybe I needed to leave. But somehow I came back.
RC: When did you start to move into more management roles?
SM: Interestingly for me, if you can believe it, my first management role was really overseeing the water heater wrap program at 23 years old, And I’ve been in management ever since and just doing a whole variety of jobs. .
RC: Historically, Avista has done lots with philanthropic work in this region. Give us a few of the things you’re proud of … and then explain to us what it might look like after the sale.
SM: So people know that Washington Water Power/Avista has been a stalwart with corporate giving and donations. Our company gave the initial property to have Manito Park be part of our community. That was a Washington Water Power gift. Of course we donated lots of property for Riverfront Park. Just recently we’ve done some things I am so proud of. Creating Huntington Park. Generations of people not being able to go down and see the Falls and creating that beautiful park and a beautiful gathering place plaza that we donated to the city. Taking our Post Street annex and turning that into Mobius, a science museum for the community, and we rent that to Mobius for a dollar a year. From a donations perspective over $2.6 million annually we donate to the communities that we serve. So we recognize we have a special, unique responsibility to this community, not just with philanthropy but also with economic development. That’s why we’re so active in developing the Catalyst building, why we’re so active in building out the University District helping to bring medical schools to Spokane. All things that we know we need to do is what we like to do. You know, going forward Rob, I can tell you a big piece of our thought process around this was to not just do what we currently do, but to talk to Hydro One that we needed to do more.
So that $2.6 dollars … is not in customers rates. That is all shareholder money. People always think that we raise your rates to do donations. Absolutely not. That $2.6 million will rise to $4 million annually. We’re really proud of that. We also have a foundation that we began in the early 2000s, and that foundation has about 10 million dollars in it. Hydro One is going to put $7 million of their money to help build our foundation and will add $2 million annually to build the corpus in that foundation, long term, so we will always have the ability to bring our philanthropy to the community. So a big piece of this deal was Hydro One recognizing how important it was, both from a giving perspective and economic developed perspective, and they absolutely want to make sure it continues and grows.
RC: So what are the assurances that it will continue?
SM: One of the interesting things about this is that when we sat down and thought if we should even do a deal, we came up with what we would call non-negotiables about things around corporate headquarters, corporate giving and other things. Often in these kinds of mergers you get a period of time where things get to stay the same traditionally about three years. Then after three years, often the acquiring company gets to call the shots, if you will. Being somebody from Spokane and being on the Greater Spokane Incorporated and Chamber boards for a long as I have, I’ve seen a lot of our corporate headquarters go away. I was very sensitive to that fact, so part of this deal – the real magic to it – is after three years, this stuff doesn’t go away because Hydro One agreed, and they thought it was important as well that all of our commitments that we’ve made – over 100 commitments that we could talk about – are under the purview of the public utility commissions that regulate us in five states. We can’t change that unless we go to the Washington, Idaho, Oregon, Montana and Alaska commissions and ask them to make those kinds of changes. Again, I want to emphasize we looked at utility mergers over the last decade, and I don’t think there is a utility that’s done a deal that has the kind of safeguards built into it that we have.
RC: There’s a famous line in cinema that there’s always a bigger fish. If, for some reason in five years Hydro One was going to get bought, would those same safeguards be enforceable to the new owner?
SM: Yes, because they are in as part of this deal, they’re embedded. People always say, well, what happens if Hydro One wants to sell you? They have to get approval from the public utility commissions in order to do that, first of all. So that’s the first kind of safety net, or safeguard, for our community.
RC: You brought up the Catalyst Project. Explain the scope and the focus of that project.
SM: So one of the beauties of being involved in economic development, helping to build out the University District, being one of many partners, we knew that at some point that the north side of the University District would become landlocked. It was always our vision to say “How do we get to the south side?” So even back in 2004 … (we and other community members) were back in Washington, D.C., talking to (U.S. Sen.) Patty Murray about how we want to build a bridge across the railroad tracks and can you help us do that with some preliminary money in order to get that scoped. Senator Murray willingly did that for us, and that really became the beginning of the vision of what that bridge might be.
We also knew that the south side of the University District could become our version of South Lake Union Seattle. If you look at Seattle and South Lake Union, that was not what I would call prime real estate before it really blossomed with all the things going on with research happening in that area. So we thought our south land could be South Lake Union, with the bridge coming over. It’s better to be lucky than good, because Avista owned the property where the bridge was landing. It was originally supposed to be a substation. … So we thought about what could we do with that property, and what was really imagined was something that truly was a catalyst for development on that south side. … We’re building out the five smartest blocks in the world around how we do energy and sensor technology. We’re building an eco-district that will be unlike any in the United States around how energy, renewable storage, building controls and an electric grid can talk and communicate with one another. Eastern Washington University is bringing all of their electrical engineering, visual sciences and computer sciences from Cheney to Spokane, so we’ll have an influx of well over 1,000 students in that building. … We’re putting together a research lab where we’re going to collaborate with education and our top scientists so that we can really get a true public-private partnership. What we’re hoping for is that this really becomes the game changer for how things get developed on that south landing area. When we did the groundbreaking, I had everybody look north and see how beautiful the north bank had developed. I challenged everybody to say 15 years from now we’re coming back to the Catalyst site, and we’re going to look south and it’s going to look exactly the same.
RC: I’ve always wanted to know this, because I’m just a simple sportswriter from Kansas. From my perspective, it was a head-scratcher, as to why to sell Avista now. Will you talk a little bit about why you would sell now?
SM: I can tell you this, we have never wanted to be for sale, and we really were not for sale.
There’s been a significant amount of consolidation in the utility industry really over the last 20 or 25 years. When I started at Washington Water Power in 1980, there were over 100 investor-owned utilities in the United States. In 2000, there were probably 75. Today, if you count North America – Canada, U.S., not counting Mexico – there’s only 50 investor-owned utilities left. Out of that 50, Avista, in size, is number 46 out of 50. We were never one of the largest, but everybody that was smaller than us has been consolidated. Much of consolidation has happened east of the Mississippi River, but we’ve seen it start to come primarily to the western part of the United States. A lot of it was led by (Berkshire Hathaway CEO) Warren Buffett buying utilities in the West, but other people were interested as well. Primarily some Canadian utilities were interested.
So we started to get some interest in our company, and I kept saying … we really aren’t interested. I finally said, “Why are we getting these calls?” Is it because our company starts with an A and you’re kind of going down the list of the Yellow Pages, if you will? What I found is what our investment bankers and other utility said … Avista/Washington Water Power was the gem in the Northwest. If somebody was going to continue to try to expand and grow, the first place they wanted to come was our company. Our history of innovation … we’re a great operating company; we’re one of the greenest utilities in North America; and we have one of the lowest carbon footprints of many utilities. We just have a great reputation, and people thought if we could have Avista be our partner then that’s who we want.
RC: Was there any push from shareholders to sell?
SM: Interestingly enough, no. Our fiduciary responsibility is that if somebody gives us an incredible offer, we have to listen and we have to do the right thing for our shareholders. I never got a call from a shareholder and never was asked to sell the company. We knew that in the marketplace, we were highly regarded, and we knew we would get a tremendous premium if we did decide to move forward.
So … the focus shifted from not just a win for shareholders but a win for Spokane and the Inland Northwest, our customers, communities and employees as well as shareholders. So that was the magic, I guess, of how we started to talk to Hydro One. When I talked to Mayo Schmidt, the (former Hydro One) CEO, he absolutely agreed with that and said, you know what, we agree with that philosophy.
RC: Another thing from someone who doesn’t really understand the economics of utilities: It felt weird that it was a Canadian company. Is that weird?
SM: Because of what’s happened in the utility industry, … 30 states right now have a Canadian or European owner of either their electric or natural gas utility. Thirty states. So we’re late to the party in this. This is something that has been going on for quite a while, and let’s give you a few examples. People know our sister utility in the Seattle area, Puget Sound Energy, was purchased over 10 years ago by an Australian bank and Canadian pension funds. The Australian bank recently wanted to sell. They did. Who did they sell to? More Canadian pension funds. So Puget Sound Energy, here in the state of Washington, is owned by over 80 percent Canadian pension funds, and 20 percent European pension funds. The natural gas utility that serves our nation’s capital, Washington, D.C., is owned by a Canadian utility company. Utility companies own natural gas and electric utilities in the West in Arizona, and in the Midwest. Anchorage, Alaska’s natural gas utility is owned by a Canadian utility, so it is not unique by any stretch of the imagination. What’s important to recognize and realize is being an investor-owned utility, in every case, the public utility commissions regulate us. So, even though there is a Canadian ownership or European ownership, …they can’t exert their will on being arbitrary, they have to work within the established rules of the utility industry.
RC: The CEO you negotiated that deal with is now gone. The board has been completely replaced. Does this stop the deal? Because it seems like that was part of the reason why they were all ousted.
SM: I (can) tell you that it doesn’t stop the deal. What I’ve mentioned in the community is first and foremost, I really like Mayo Schmidt. He’s a man of integrity and when you do deals, often you visit with people and you keep wondering, is the true person going to continue to show up? And Mayo did every single time and what I’m sad about is, I don’t have a chance to work with him. He’s an incredible person.
But when Mayo and I did this deal, we both realized we’re both 60 years old. This wasn’t about Mayo and Scott. We knew that our shelf life as CEOs, you know, gosh, who knows how long that we’re going to be here? We knew that if we were going to do this deal, it wasn’t about the two of us, it was about a durable, lasting partnership that was a win for Hydro One, but also recognizing it absolutely had to be a win for Avista. So the safeguards in place are durable and we put them in place on purpose (so they) last well beyond Scott and Mayo, well beyond a board of directors in Ontario at Hydro One, and quite frankly a board of directors here at Avista. It was never about that, so the safeguards put in, the reasons to do the deal, didn’t change.
Avista is 129 years old. My hope is that we’re here in another 129 years, so I better darn well negotiate things that last that long. That was my vision, not five years, but it was really was 100 years.
RC: You’ve mentioned the safeguard several times. Are the things in this deal unique?
SM: I think many of the things that we put in were unique, and we actually had a third party look at those and compare them to what other utilities have gotten through mergers and acquisitions. When I say unique, things like the corporate headquarters have to stay in Spokane; all the jobs have to stay in Spokane.
The corporate philanthropy doesn’t just stay the same but it increases. The leadership team here, the management team stays intact in Spokane. The creation of a separate independent board from Hydro One, made up of independent directors as well as a few management of each of Avista and Hydro One overseeing the company as it is today, and the Hydro One board and CEO delegating the responsibility to run Avista to that new independent board; the ability to “ring fence” Avista so that if Hydro One were to go bankrupt they couldn’t come in and take our assets. They’re protected for our customers; the idea that our assets could never be sold for the benefit of the Canadian government or Hydro One; that our assets are Avista assets for our customers, they’re safeguarded, they can’t be collateralized or sold; the fact that they have to continue to fund our company at the proper levels; provide the same service. The list goes on and on, over 100 of those.
Again, what’s unique is that often when you do mergers and acquisitions after three years, many of those conditions go away. In our case, every single condition stays forever. And the only way they can go away is if the public utility commissions in the states that we serve agree to the change.
RC: We are in the middle of political season, and there has been, in the county commission race, a candidate who’s running and part of his platform is to stop the sale. Is this possible?
SM: In (candidate Rob Chase’s) case, I know he thought there was a process where, under some federal lands, the federal government would have purview over the deal, and that isn’t the case. That provision he brought up has no jurisdiction in a utility acquisition.
RC: So, there isn’t a chance a local entity could stop it then?
SM: No, it’s under the purview of the public utility commissions.
RC: Sticking with politics. The Spokane City Council just passed a renewable energy resolution. Would it affect the average person’s energy bill if all the energy we purchase needs to come from a renewable energy source?
SM: It’s complicated. One of the things about 100 percent clean renewable bill that the City Council passed is it was aspirational. As I told the City Council, in our company, it’s aspirational for us, too. We would love to be all green and if you look at our long-term generation plans … we planned to see how could we do that. … If you look at our next plan, we actually even reduce our carbon footprint even more than it is today. That being said, I feel strongly that I have a responsibility to all of our customers around how much their energy spending is and what their energy burden is. …
The other part is a lot of times there’s confusion on what it means to be clean and, if you take it from a purist perspective, never, ever will a carbon molecule of electricity ever touch our grid. That’s a pretty high standard and that’s a pretty expensive solution …
So really I guess the long answer to that is as long as it doesn’t become a purist-type of grid where 100 percent of the time forever … it’s on green molecules, over time we can try to get there. But what I guess the answer, too, is there’s not technology for storage. The big piece that we try to explain to everybody is today there’s no battery storage. When the wind doesn’t blow, the sun doesn’t shine, I have to get energy from somewhere. … So it would be very expensive for our customers to have that purist point of view. It’s aspirational. … But to just say, if we were going to go there today, it would be a very expensive proposition.
RC: To hit it, in its purest sense, there would have to be some sort of significant rate increase?
SM: If it wasn’t aspirational and if it was a mandate, and given today’s battery storage technology, yes, it would be a large increase. We have all of our stakeholders about this at the table, making sure that it’s a conversation about green but also it’s a conversation about affordability. … So I am absolutely confident that as we get to the table and we talk about this stuff, that the right solutions will be made for our community.
RC: Let’s turn back to the Hydro One deal. What are the timelines going forward now?
SM: … We’ll have more hearings, more public process and, assuming everything goes OK – and I have every reason to believe it will – we expect the deal to close some time by the end of this year.
RC: So at the end of this year, it’s done. Do you go fishing? Do you hang it up, or are you going to stick around?
SM: They can’t get rid of me that easily. I am committed to stay either in the role as the CEO or as … chairman of the board. That’s part of the deal again in this new independent board.
Hydro One asked me to stay as the chair of the board, and I want to stay because I’m absolutely committed to this deal. I don’t know how much longer I’ll stay as the CEO, but I will stay as the chairman of the board and be active in this company in the long term. …
I’m still going to work. I’m not, like, cashing it in, but hey, at 61 I have grandkids. But I still want to stay committed … that’s why the board thing is so exciting for me, and I’ll stay CEO for some period of time after the deal.
RC: After that’s over are you planning on continuing living in Spokane?
SM: Oh, we’ll never leave. This is my home. We love it here. You know, this is just who we are. This is home.