No Net Benefit — Utility and Transportation Commission Hearing in Olympia May 22 and UTC Meeting April 23 – Spokane Valley

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Hydro One CEO Mayo Schmidt has been in the Utility industry only since 2015.  Previously he was an executive in various agribusinesses.  He was brought on to straighten out Hydro One as it transitioned from wholly owned by the Province of Ontario to a partially privatized corporation.  He is a turn around artist.  He knows little about the utility industry.

At the UTC hearing in Olympia May 22, Hydro One CEO Mayo Schmidt and Avista CEO Scott Morris treated the UTC commissioners like they were rubes, with no knowledge of the utility industry.  No mention of the $50 Million Severance package shared by 13 Avista executives.

  • They cited as a benefit of the sale “economies of scale” for purchasing equipment. Mayo Schmidt specifically mentioned “we have 1.6 million power poles” as an example.  In real life, these two systems are built out.  The utility industry in North America is fully developed with standard parts used by many large customers.  For any purchase of high volume components, such as meters, Avista’s purchase would be sufficient to get any high volume discounts.  Nobody is going to buy enough power poles to get a significant discount by pooling Avista and Hydro One purchases, considering that they are separated by over a thousand miles.
  • They also cited as a benefit “sharing best practices”. Utility companies share best practices across the industry.  On the operations side, people in the utility industry see one another as colleagues, not competitors, since they work for monopolies and don’t compete.  Evidence of this sharing best practices is visible every time there is a hurricane that tears up electric utilities.  Utility company crews from all over the country respond and have power back up in a week or two.  This is due to standardization across the industry and the sharing of best practices.
  • The rest of the benefits claimed, covered on this page, are ludicrous when put in the context of Avista’s net income and the $50.5 severance benefit for 13 Avista executives. Avista could bestow these “benefits” on us at any time without Hydro One.

 

Televised & recorded Washington Utilities and Transportation Commission settlement hearing, held in Olympia May 22, 2018.  https://www.tvw.org/watch/?eventID=2018051081

Meeting with the Washington Utility and Transportation Commission, UTC, April 23  — Rebuttal of Net benefits claimed

On April 23 the Washington UTC held a meeting at the Spokane Valley City Council Chambers regarding the sale of AVISTA to HYDRO ONE, a Canadian company owned 49.9% by the Province of Ontario.  The meeting was put on by the Washington Utilities and Transportation Commission, (UTC).

The UTC is holding hearings on whether to approve this sale.  The UTC is expected to issue decision by August 14, 2018.  The public comment period closes at some point.  As of 5/16/18 the UTC could not tell me when the public comment period ends.

The Public Counsel Division of the Washington State Attorney General’s Office “advocates on behalf of customers before the UTC and courts regarding utility rates, mergers, business practices, service quality, energy efficiency and policy matters”

Below are quotes and rebuttals from the information sheet prepared by the Public Counsel Division that was handed out by the UTC commissioners at the April 23 meeting. ( I can’t find a link to this document )

Excerpts from the “2017 AVISTA / HYDRO ONE MERGER INFORMATION SHEET with Rebuttal comments.

Question on the Info sheet: “What criteria will the Commission use to evaluate whether to approve, reject, or modify the Settlement?”

Answer from the Info sheet:  The Commission will evaluate whether the proposed settlement is in the public interest and whether the merger between Avista and Hydro One will product tangible net benefits for Avista’s customers.

 

Question on the info sheet:  “Why does the Public Counsel believe the settlement is in the public interest and meets the “net benefit” standard?”

Answer from the Info sheet:  Public Counsel believes the settlement is in the public interest and meets the “net benefit” standard because the Joint Applicants make several commitments that mitigate the transaction risks and produce tangible benefits for Washington customers.  Among the commitments, Public Counsel believes the following provide benefit to Avista’s Washington customers and satisfies the “net benefits” standard:

 

  1. Customer Rate Credit: $30.7 million in rate credits will flow to customers over five The credits will be applied to customers’ monthly bills. ….

REBUTTAL:  Keep in mind that AVISTA’s annual net income is around $137,000,000.  It is not quite clear how many customers AVISTA has.  They talk of 600,00 in some places and they list 379,000 electric and 342,000 gas customers in other places, which in many cases are the same customers.  Taking the 600,000 number as correct, do the math.  That works out to $51 per customer over 5 years, or just over $10 per year, less than $1 per month per customer.   AVISTA could reduce our bills by $1 per month for 5 years without partnering with HYDRO ONE.  This is virtually no benefit at all.  It is laughable to include this.

 

Please elaborate on why the Public Counsel believes that this $1 per month for 5 years is a significant benefit to customers. 

 

  1. Low income benefits: The settlement includes significant low income benefits including about $11 Million in commitments for manufactured home replacements, additional low-income weatherization, commitments to build or purchase renewable energy resources to benefit low-income customers, and a goal to produce significant resources to low-income transportation electrification projects.  Avista will eliminate security deposits and will refund security deposits to customers who have had deposits held for longer than 6 months.  Avista will not disconnect service for nonpayment when the National Weather Service predicts regional temperatures below 38 degrees or above 100 degrees, providing stronger customer than currently exist.

REBUTTAL:  Keep in mind that AVISTA’s annual net income is around $137,000,000.  The $11 Million covers all the “benefits” listed.  This amounts to $18 per customer, total, over what period?  Again, this is chicken feed.  AVISTA could institute these policies tomorrow, without HYDRO ONE.  “low-income transportation electrification projects”?  Low income people are unlikely to be buying electric cars any time soon.  What is this about?  This again is a laughable amount of money for AVISTA alone.  It is not a significant benefit.  As for treatment of customers visa vis security deposits, AVISTA could do this tomorrow without HYDRO ONE.

 

Please elaborate on why the Public Counsel believes that this $18 per customer in support for low income people, spread over ? years is a significant benefit to customers.

 

  1. Colstrip: Summarizing – Colstrip units 3 and 4 will continue to operate for an undefined period but will eventually close.  They will utilize provisions of the new tax laws to recover the costs for these plants two years earlier than planned.  The “Joint Applicants”, Avista and Hydro One, commit to providing at least $3 Million to the Colstrip Community Transition fund to help Colstrip Montana absorb the economic impact of the plant’s eventual closure.  The Joint Applicants and not customers, will provide the transition funds.

REBUTTAL: 

  1. First, how is using the new tax law to write off the plant cost anything but a normal act of a business? This is claimed as a benefit?
  2. Over what time period will the “Joint Applicants” provide the $3 Million?
  3. “The Joint Applicants and not customers, will provide the transition funds”. This flies in the face of reality.  All “funds” come from the customers.  They may not be used to justify a rate increase, but all income comes from customers. 

 

  1. Environmental Benefits: “To the extent Avista needs new electric generation to meet customer demand, Avista will seek to acquire 50 average megawatts (aMW) of cost-effective renewable energy and an additional 90 aMW of renewable energy within a year of when Colstrip eventually goes offline.  The settlement also includes funding for free home energy audits for 2,000 customers. “

REBUTTAL:  (some stray order numbers on the left crept in here trying to match the RCW number.  Will correct)

Colstrip 3 and 4 provide 222 aMW available 24/7/365 that is going to be replaced with 140 aMW of “renewable” energy.

  1. RCW 19.285.030 precludes new dams counting as renewable energy. Efficiency improvements at existing dams would count, along with wind, solar and biomass. What mix of renewables are contemplated?  How much of this “renewable” will be available for base load as was Colstrip?    How much of this “renewable” energy will be wind and solar, available only when the sun is out and the wind is blowing?  Generating capacity will be decreased by 82 aMW. How does this decrease in 24/7/265 generating capacity provide a benefit to the customer?
  2. “Free home energy audits for 2,000 customers”. Over what time period?  Over the years AVISTA has had these programs without HYDRO ONE.  They can do it again without HYDRO One.
  3. Point of background information: In the grand scheme of things, if the environmental benefits of closing 222 aMW of Coal Strip coal fired plants are considered a benefit, these facts make that “benefit” ludicrous:  The scale of the increasing energy use of the 1.3 Billion people in China who have just enough freedom to expect to live better is amazing.  Here are facts that make all our CO2 reduction plans a waste of time:
    1. China added 39 gigawatts of coal-fired capacity in 2014 — 3 gigawatts more than it added in 2013. That is equivalent to three 1,000 megawatt (1.3 Million HP) units every four weeks.[v]
    2. At the peak, from 2005 through 2011, China added about two 600-megawatt (800,000 HP) coal plants a week, for 7 straight years.
    3. China is expected to add the equivalent of a new 600-megawatt (800,000 HP) plant every 10 days for the next 10 years. These new coal plants that China is constructing are more efficient and cleaner than their old coal-fired plants.[vi]
    4. China consumes more than 4 billion tons of coal each year, compared to less than 1 billion tons in the United States and 600 million tons in the European Union.
    5. The above figures on China Coal are from: http://instituteforenergyresearch.org/analysis/as-u-s-shutters-coal-plants-china-and-japan-are-building-them/

 

 

 

  1. Service Quality: AVISTA will maintain it’s Service Quality Metrics for 10 years.

REBUTTAL:  AVISTA is a vital utility.  I have been a customer for 41 years.  Maintaining its Service Quality Metrics for 10 years is not a benefit to the customer, it is fulfilling the accustomed normal level of service.

 

  1. Bankruptcy Protection: There are several robust provisions that shield AVISTA and its customers from financial issues or bankruptcy at the parent-company level.

REBUTTAL:  This is an unsupported, unconvincing assertion.  Please explain how AVISTA will be protected in the event HYDRO ONE goes bankrupt.  Who will take over the AVISTA asset in the event HYDRO ONE goes bankrupt?  How will AVISTA’s independent character be maintained under the new post-bankruptcy owners?  Who is it that will hold the “Golden Share” spoken of in Attachment 3, Appendix A, page 14.  The whole “Ring-Fencing Commitments” section of Appendix A is a jargon filled word salad to anyone but a mergers and acquisitions lawyer, and maybe to them as well.  I have spoken about this provision to an old stock broker and an old senior Bechtel account and they concur.

 

Without entering into this merger there would be no worry about the bankruptcy of Hydro One.  A nebulous claim of protection from this worry is not a benefit.

 

HYDRO ONE is a company in flux.  They are just finding their feet after transitioning from being wholly owned by the Province of Ontario until starting to become a privately held company with their first IPO only in 2015.  Ontario politics is intimately involved in the management of HYDRO ONE since the Province of Ontario still owns 49.9% of Hydro One and has plainly stated, quoted above, that following Ontario’s green agenda would be part of their management decisions regarding AVISTA.  

 

ONTARIO is a Province in flux.  The government is about to change, with the June 7 election, due in large part to their poor handling of energy policy.   The Progressive Conservatives under Doug Ford continue to hold a commanding lead in the polls and are well-positioned to secure a majority government. The New Democrats have surged ahead of the Liberals in the popular vote, but have been in a better position to win more seats — and thus form the official opposition — for some time. Kathleen Wynne’s Liberals have dropped to new lows in both popular support and potential seat wins, and could be decimated.”  https://newsinteractives.cbc.ca/onvotes/poll-tracker/

 

Doug Ford, the leader of he party that will probably take power has vowed to fire the CEO of HYDRO ONE.  This problem may be about to solve itself.

 

Having AVISTA tied to a company that will be whip sawed by Ontario politics is clearly detrimental to AVISTA customers.

 

  1. Most Favored Nations Provision: Under the settlement, the Commission may consider agreements made by the Joint Applicants in other jurisdictions evaluating the proposed merger.  If additional commitments are agreed to or ordered in another jurisdiction, customers in Washington may receive similar benefits.

REBUTTAL :  This is not a benefit, just a feature of the deal.

My conclusion from looking at the “2017 AVISTA / HYDRO ONE MERGER INFORMATION SHEET” is that the 7 benefits claimed are not significant.  “Benefits” 1 through 5 are well within AVISTA’s capability to do without HYDRO ONE and are not significant in any case.  “Benefits” 6 and 7 are not benefits but features of the agreement.