Dive Brief:
- Regulators in Washington state denied Canada-based Hydro One's bid to acquire Avista Corp. on Wednesday, concluding the merger was not in the best interest of customers, in part due to political and financial risk.
- Hydro One, which is 47% owned by the province of Ontario, had proposed the $6.7 billion acquisition of Avista in 2017. But since then, political wrangling led newly-elected Premier Doug Ford to force the retirement of Hydro One's CEO and board of directors, in turn drawing heightened scrutiny to the deal.
- The Washington Utilities and Transportation Commission (UTC) said it determined the deal would not adequately protect Avista or its customers from political and financial risk, marking a rare merger denial in the Pacific Northwest.
Dive Insight:
Hydro One told Washington regulators that Ontario was a "passive investor," but the UTC wasn't buying that line after the summer's management upheaval.
The commission issued an order concluding the deal "cannot be said to be consistent with the public interest."
The problem, say regulators, is that Ontario Premier Doug Ford's decision to force out utility management has made it clear the political maneuvering can overshadow business and customer concerns.
"It is evident that decisions affecting Hydro One's and Avista's business operations and financial integrity are subject to political considerations," the UTC wrote in its order. And regulators added that it is possible a provincial leader would "make decisions and take actions in the future that may cause harm instead of promoting the best interests" of the companies, shareholders and the customers they serve.
"There is nothing to prevent the province from passing legislation that will prevent Hydro One from living up to one or more of the protective commitments" for Avista ratepayers, UTC said.
Hydro One and Avista issued a joint statement saying the companies are "extremely disappointed" in the UTC's decision and are "reviewing the order in detail and will determine the appropriate next steps."
Under terms of the proposed merger, Avista was to become a wholly owned subsidiary of Hydro One, though it would have maintained its corporate headquarters in Spokane, and continued to operate in Washington under the same name and management.
Observers saw the deal as Hydro One's strategy for gaining access to the U.S. market, but the merger was controversial from its initial announcement. The leader of the Progressive Conservative party, a right-of-center opposition party in Ontario's provincial parliament, criticized Hydro One for using ratepayer money to buy a foreign company.
Avista is one of the smaller investor-owned utilities, with about 240,000 electric and 150,000 gas customers in eastern Washington. Hydro One has 1.3 million electric customers and is Ontario's largest transmission and distribution provider.
The deal was apparently unpopular before the political issues: the UTC says it held four public comment hearings on the merger and ultimately received 471 comments: 385 opposed, 15 in favor and 71 undecided.
The decision is a rare denial for utility mergers in the region. The rejection was the first in the Pacific Northwest since the Montana state commission denied Babcock and Brown's 2007 proposed buyout of NorthWestern Energy, according to Travis Kavulla, vice chairman of the Montana Public Service Commission.
