Hydro One Avista Merger Doubtful

Today the Washington State regulator in charge of a subsidiary of Avista has rejected the proposed merger between Hydro One and Avista Corp. Shares of Hydro One were up almost 5% this morning on the news, while Avista shares were down over 15%. This is a big setback for Avista shareholders as the deal with Hydro One would have provided a good price for increased diversification. For Hydro One shareholders, I think today’s announcement is positive in the short term (as shareholders sold on the rumour and bought on the news), but in the long term its going to make future acquisitions by Hydro One more difficult to achieve.

If its more difficult for Hydro One to make acquisitions in the future, it will increase the risk of their dependance on a single market/regulator. The result will be Hydro One will probably make fewer acquisitions and the remaining ones will also be more expensive (because Hydro One will need to provide more assurances to sellers, and also higher prices to compensate for the higher deal risk). This also hurts Ontario taxpayers because it strands Hydro One strategically.

Compared to Emera, which has grown and diversified since being privatized by the Province of Nova Scotia,hydro One is still highly dependant on a single owner, market, and regulator.

The root of the problems with Hydro One were caused by the Ford government in Ontario which meddled in the business of a private corporation by replacing its board and CEO in a rushed fashion.