Who will benefit from Hydro One merger with Avista Corp.?
There is no indication customers on either end of the $5.3-billion deal will be better off
A helpful précis of developing events for Premier Doug Ford. I am nothing if not helpful.
That hearing scheduled for Monday in Boise? You know, the technical hearing scheduled to further examine the proposed $5.3-billion (U.S.) merger between Avista Corp. and Hydro One Ltd.? Cancelled. The Idaho Public Utilities Commission (PUC) is as confused as we are about the future path for Hydro One.
The PUC, in a brief release, says it awaits clear signals subsequent to “the unexpected and simultaneous July 11 retirement of Hydro One’s chief executive officer and the resignation of the board of directors of the Toronto-based company.” Join the club. The hearing, “intended as a forum for the parties to the case to address con- cerns and issues raised in public comments and testimony provided to Commission,” has not been rescheduled.
Will a new board be in place by the time of the proposed closing of the merger Aug. 15? Who knows? I wonder if potential Hydro One board appointees have any idea what they would be getting into.
Last Thursday, the same day the commission cancelled the hearing, it granted intervener status to the Avista Customer Group, an association of ratepayers, taxpayers and concerned citizens. The group argues that the proposed takeover, as submitted, fails to meet the required standard of serving the public interest and is deficient in itemizing how Avista’s customers will not be impacted as a result of cost or rate increases.
“We see the costs of the actual merger itself, attorney’s fees, what I would call the closing costs,” says Norman Semanko, the Boise-based lawyer who filed the petition on the group’s behalf.
We can see, by example, that Bank of America Merrill Lynch, financial adviser to Avista, is in line for $28 million for its work on the transaction. Close to $10 million of that, it would appear, has already been paid out.
Where are Avista customers in the transaction? “This is critical,” Semanko points out in an interview. “The burden is on the applicant to show there won’t be an increase in costs or rates to Avista and its customers. And we’re not just talking immediate costs. We’re talking costs over time.”
What are the promised benefits of scale? Avista customers can draw little comfort from the testimony of CEO Scott Morris before the commission.
“These benefits of scale will not occur in the near-term following the closing of the transaction,” Morris testified. “But some are expected over the long-term. After all approvals are received and the companies merge, both companies will work together to identify, evaluate and execute on opportunities to reduce costs for both companies through, among other things, the sharing of technology, best practices and business processes.”
This vague seeking-efficiencies exercise, to be commenced only after the completion of the merger, will bring un- known cost savings, Morris promised. Those savings “will be flowed through to customers in future general rate cases.”
Now that doesn’t sound like a $5.3-billion deal, does it?
And as Semanko says, it doesn’t answer the central question: “Will Avista customers be better off or worse off after the merger?”
Scott Morris will be better off: he gets to cash out $5.8 million in performance awards upon the completion of the merger. He will remain CEO of Avista as it assumes its new status as an indirect, wholly-owned Hydro One subsidiary.
There are governance provisions in the deal that dictate board composition, “safeguards” to protect Avista employees and guarantees that compensation will be deter- mined by the Avista board.
Here’s another number: should the merger fail, Hydro One will be on the hook for a $103-million termination fee.
Let’s say the takeover proceeds. Can the premier specifically quantify the advantage for Hydro One customers?
Another tidbit for the premier and surely confused potential board members: On Thursday, the PUC granted intervener status to the Idaho Department of Water Resources. The IDWR sought to intervene, it stated in its petition, “to make the Commission aware of IDWR’s concerns with the proposed merger and its potential impact on Avista’s historic hydropower operations.”
That reads like standard procedure. And yet, two weeks ago, Hydro One and Avista filed a motion in opposition to the IDWR’s intervention, arguing that the issue of water and water rights had already been addressed.
This is hardly appropriate comportment for a company 47 per cent owned by the province of Ontario.
All of this is perhaps headache inducing for the premier. Sympathies. Perhaps he now realizes that a redo of the Hydro One board — the government acts with alacrity! — is only the beginning.
What happens next? As Norman Semanko notes, “At this point there’s no hearing, no hearing scheduled, there’s no definite plan about when and how this process is going to move forward.”
The PUC offers that once new leadership is in place it expects the parties “to propose a new procedural timeline for the case.” Aug. 15 is little more than three weeks away. The premier better get cracking.