Canada-based Hydro One Limited and Washington-based Avista Corporation said that the Washington Utilities and Transportation Commission erred in denying their proposed merger because the agency’s risk assessment was based on “generalized fears of political interference” and failed to take into account the commitments that protect the U.S. company from any influence by the Province of Ontario. The companies also pointed to the agency’s failure to recognize the merger benefits, noting that the commission’s evaluation of rate credits and monetary benefits to customers made erroneous assumptions about retained earnings and how they would be used for the financial commitments. The duo also argue that the commission lacks jurisdiction or evidence to determine whether the actions of Hydro One Board and executive leadership are in the interest of Hydro One’s stakeholders.

After Ontario’s general election in June, an agreement between the province and Hydro One resulted in the resignation and replacement of the utility’s board of directors and the retirement of the chief executive officer. Ontario also enacted a law restricting compensation of Hydro One’s executives and allowing the involvement of the government in issues typically reserved to the executive management and board. Washington regulators noted that the change “elevated the provincial government’s political interests” above that of stakeholders including investors who own 53 percent of the utility’s common stock. In an order issued on Dec. 5, the agency rejected Hydro One’s proposed acquisition of Avista on grounds of political and financial risk.

In their rehearing petition, the companies asked the commission to accept new evidence including testimony from Hydro One’s new president and CEO once appointed. The duo said that the agency should properly consider the “governance, financial integrity, and ring-fencing commitments” that protect Avista from any provincial influence.

The proposed deal received approval from the federal energy regulator in January and Montana commission in June. Hydro One’s leadership changes have also disrupted regulatory approval process in Idaho and Oregon.

Hydro One is Ontario’s largest transmission and distribution service provider. Avista is an electricity and gas utility serving Washington, Idaho, Oregon and Montana.