Only two months after a privatization share sale, newly investor-controlled Ontario utility Hydro One Ltd. expanded Wednesday into the northwestern United States with a friendly takeover of Spokane, WA-based natural gas and power distributor Avista Corp.
The Toronto-based, former provincial Crown company agreed to pay C$6.7 billion ($5.3 billion) to acquire Avista service franchise territory in Washington, Oregon, Idaho, Montana and Alaska.
The companies described the deal as a cross-border step to “create a North American leader in regulated electricity and natural gas business with over C$32.2 billion ($25.4 billion) in combined assets.”
The transaction “brings together two industry-leading regulated utilities with over 230 years of collective operational experience.” The combination is forecast to foster cost-saving “efficiencies through enhanced scale, innovation, shared information technology systems and increased purchasing power.”
The pair said the merger would not result in gas or power rate hikes for consumers. Staff cuts were also ruled out, and a regional Avista head office is to be maintained in Spokane. Pending regulatory approvals, the merger is expected to be completed in the second half of 2018.
Ontario government ownership of Hydro One dropped to 49.9% in a mid-May public sale of 120 million shares for $2.8 billion ($2.2 billion). Ontario native communities are being offered a special 2.5% aboriginal interest that would cut the government block to 47.4%.
Hydro One expects to improve its profitability by spreading its wings beyond Ontario, where a Liberal government is seeking reelection on a platform of freezing power rates inflated by mandatory replacement of coal-fired generation with renewable energy.
“Operations in regulatory jurisdictions with constructive regulatory mechanisms and higher allowed returns on equity and more favorable capital structures than provided by Hydro One's current regulatory jurisdiction will complement existing business operations,” according to one of the circulars about the transaction.
“The enhanced scale resulting from the acquisition will enable Hydro One to accelerate transformation of the combined power systems through more efficient investments in grid modernization, distributed generation, electrification of transportation and adoption of emerging technologies,” said Hydro One officials.
"This transaction demonstrates the power and value of the transition into an investor-owned utility, by allowing for healthy expansion into new lines of regulated utility business and new jurisdictions,” said Hydro One President Mayo Schmidt.
Avista president Scott Morris added, “Through this agreement, we have a unique opportunity to secure a partnership that allows us to continue to define and control, to a significant degree, future operations and opportunities in a consolidating industry landscape for the benefit of our customers.”