On July 19, 2017, Avista Corp. entered into a Merger Agreement, by and among Hydro One, Olympus Holding Corp., a wholly owned subsidiary of Hydro One (US parent), and Olympus Corp., a wholly owned subsidiary of US parent (Merger Sub). Subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into Avista Corp., with Avista Corp. surviving as an indirect, wholly-owned subsidiary of Hydro One. Hydro One, based in Toronto, is Ontario’s largest electricity transmission and distribution provider.

At the effective time of the acquisition, each share of Avista Corp. common stock issued and outstanding, other than shares of Avista Corp. common stock that are owned by Hydro One, US Parent (as defined in the Merger Agreement) or Merger Sub or any of their respective subsidiaries, will be converted automatically into the right to receive an amount in cash equal to $53, without interest.

Hydro One Leadership Changes

The following disclosure is based upon information provided by Hydro One. On July 11, 2018, Hydro One announced that it had entered into an agreement with the Province of Ontario (“Province”), which is Hydro One's largest shareholder (owning approximately 47 percent of the outstanding shares of common stock) for the purpose of the orderly replacement of the board of directors of Hydro One and Hydro One Inc. and the retirement of the chief executive officer effective July 11, 2018.

Other key highlights of the agreement with the Province included:


•	Each of the directors of Hydro One in place at the time of the agreement resigned and were replaced by nominees identified as set out below.

•

The new board of directors initially consists of 10 members. The Province nominated four directors and the remaining six nominees were identified through an ad hoc nominating committee comprised of representatives from four of the five largest Hydro One shareholders other than the Province. The new board of directors was announced on August 14, 2018, and is expected to serve until Hydro One's next annual meeting or until they otherwise cease to hold office.


•	The new board of directors is responsible for appointing a new chief executive officer who will also be appointed as the eleventh member of the board of directors.


•	Hydro One has agreed to consult with the Province in respect of future matters of executive compensation.


•	Hydro One's chief financial officer was appointed as acting chief executive officer until such time as the board of directors can appoint a new chief executive officer.

The leadership changes described above, in and of themselves, do not directly relate to or affect the obligations of any party under the Merger Agreement. Upon entering their board of director positions, the new board adopted a resolution reaffirming Hydro One's commitment to the merger and the related regulatory commitments described below. See further discussion below regarding developments with respect to the regulatory proceedings to approve the transaction.

Closing Conditions, Required Approvals

Consummation of the acquisition is subject to the satisfaction or waiver, if permissible under applicable law, of specified closing conditions, including, but not limited to, (i) the approval of the acquisition by the holders of a majority of the outstanding shares of Avista Corp. Common Stock, (ii) the receipt of regulatory approvals required to consummate the acquisition, including approval from the FERC, the Committee on Foreign Investment in the United States (CFIUS), the Federal Communications Commission (FCC), the WUTC, IPUC, MPSC, OPUC, and the RCA, and (iii) meeting the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), as amended. Under the HSR Act and the rules and regulations promulgated thereunder, the acquisition may not be completed until notification and report forms have been filed with the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) and the applicable waiting period has expired or been terminated.

The transaction is expected to close in the fourth quarter of 2018 subject to remaining referenced approvals and the satisfaction or waiver of other specified conditions.

The Merger Agreement may be terminated by each of the Company and US Parent under certain circumstances, including if the acquisition is not consummated by September 30, 2018, (subject to an extension of up to six months by either party, if all of the conditions to closing, other than the conditions related to obtaining required regulatory approvals, the absence of a law or injunction preventing the consummation of the acquisition and the absence of a Burdensome Condition, as defined in the Merger Agreement, in any required regulatory approval, have been satisfied). On September 19, 2018, Avista Corp. provided notice to Hydro One of its election to extend the Merger Agreement end date to March 29, 2019, and Hydro One acknowledged receipt of such notice.

The table below presents the approvals required for the consummation of the acquisition by Hydro One, as well as the date the Company filed an approval request and the current status of each required approval.



Required Approval	Approval Request Filing Date	Status
Avista Corp. shareholder approval	October 2, 2017	Approved November 21, 2017, no further action
FERC	September 14, 2017	Approved January 16, 2018, no further action
HSR Act	March 6, 2018	Approved April 6, 2018, no further action
CFIUS	February 9, 2018	Approved May 18, 2018, no further action
FCC	April 13, 2018	Approved May 4, 2018; approval extended through April 13, 2019	(a)
WUTC	September 14, 2017	Settlement agreement filed with WUTC	(b)
IPUC	September 14, 2017	Settlement agreement filed with IPUC	(c)
OPUC	September 14, 2017	Settlement agreement filed with OPUC	(d)
RCA	November 21, 2017	Approved June 4, 2018	(e)
MPSC	September 14, 2017	Approved July 10, 2018	(f)


(a)	FCC - The transaction was approved by the FCC on May 4, 2018; however, this approval expired on November 5, 2018. Since the acquisition was not completed by the expiration date, the Company filed an extension request with the FCC. On October 3, 2018, the FCC granted the Company's extension request through April 13, 2019.

(b)

Washington - On March 27, 2018, Avista Corp. and Hydro One filed an all-parties, all-issues settlement agreement with the WUTC recommending approval of the acquisition of the Company by Hydro One. This represents a full settlement that all parties, including the WUTC Staff, have agreed results in a net benefit to the Company's Washington customers. The settlement agreement is subject to WUTC approval.

The settlement includes financial and non-financial commitments by the Company. The settlement, if approved, would result in a rate credit of approximately $31 million over a 5-year period. In the settlement, Hydro One and Avista Corp. also agreed to a number of other financial commitments, including providing funding for low income participation in new renewable energy and replacing certain manufactured homes. If the settlement is approved, the Company's financial commitments in Washington would total approximately $42 million, including the rate credits. As a result of settlement agreements in Washington, Oregon and Idaho and final approvals in Alaska and Montana, the total financial commitment across all states, if approved, would be approximately $78.6 million. No costs associated with the transaction will be recovered from Avista Corp. or Hydro One customers.

The settlement agreement also provides for the use of a portion of Avista Corp.’s excess deferred federal income taxes for the purpose of accelerating the depreciation schedule for Colstrip Units 3 & 4 to reflect a remaining useful life of those units through December 31, 2027. In addition, included in the financial commitments described above is funding toward a Colstrip community transition fund which is intended to help the Colstrip community transition from coal-fired generation in the event of a future closure. The settlement does not reflect any agreement with respect to the ultimate closure of Colstrip Units 3 & 4 as that decision would be made in conjunction with the other owners of Colstrip.

In response to the developments regarding the change in the leadership and board of Hydro One, on July 20, 2018, the WUTC issued a Notice of Extension of Time for Process and Deliberation. Under state law, the WUTC extended the time allowed for it to enter an order in the proceeding by up to four months, until December 14, 2018.

(c)

Idaho - On April 13, 2018, Avista Corp. and Hydro One filed an all-issues settlement agreement with the IPUC recommending approval of the acquisition of the Company by Hydro One. The settlement agreement is subject to IPUC approval. Subsequent to the filing of the settlement agreement with the IPUC, a new intervenor, the Avista Customer Group, was allowed into the case and it is not part of the original settlement agreement.

The settlement agreement reflects similar financial and non-financial commitments that align in value with those agreed to in Washington. The Idaho portion of the shareholder-funded rate credits is approximately $16 million over a 5-year period. The total amount of financial commitments for Idaho, including the rate credit, is approximately $21 million.

The settlement agreement in Idaho does not address Colstrip in the same manner as Washington; rather the parties to the settlement agreement have recommended that Colstrip be addressed in a separate filing requesting revised depreciation rates. The Company will be proposing that a portion of the benefits from the TCJA be set aside for the purpose of accelerating the depreciation schedule for Colstrip Units 3 & 4 to reflect a remaining useful life of those units through December 31, 2027.

In response to the developments regarding the change in the leadership and board of Hydro One, the IPUC adopted a new procedural schedule, which calls for a technical hearing on November 26, 2018. The parties, including Hydro One and Avista Corp., requested a December 14, 2018 target date for the final order; however, there is no statutory deadline in Idaho and an order may not be received by the requested date.

(d)

Oregon - On May 25, 2018, Avista Corp. and Hydro One filed an all-parties, all-issues settlement agreement with the OPUC related to the Oregon merger proceeding. The settlement agreement is subject to review and approval by the OPUC. Subsequent to the filing of the settlement agreement with the OPUC, the Citizens' Utility Board requested to be removed from the settlement agreement due to the Hydro One leadership changes described above.

The settlement agreement in Oregon includes financial and non-financial commitments. Under the settlement agreement, customers in Oregon would receive benefits in the form of a rate credit of approximately $8 million over a 5-year period, along with additional safeguards to assure the continued financial well-being of Avista Corp. The total amount of financial commitments for Oregon, including the rate credit, is approximately $10 million.

Also, as part of the commitments included in the Oregon settlement agreement, Avista Corp. has agreed that the base rates established on November 1, 2017 as part of its latest Oregon natural gas general rate case will remain in effect until at least January 1, 2020.

In response to the developments regarding the change in the leadership and board of Hydro One, on July 25, 2018, the OPUC held a Prehearing Conference and adopted a new Procedural Schedule which calls for additional pre-filed testimony, with a placeholder for a potential hearing, should the OPUC request it. The parties, including Hydro One and Avista Corp., requested a December 14, 2018 target date for the final order and the OPUC adopted this target date.

(e)

Alaska - On June 4, 2018, Avista Corp. and Hydro One received approval from the RCA on the proposed merger with financial and non-financial commitments. The commitments included among other items, that AEL&P's capital structure is maintained at its previously ordered 46 percent debt and 54 percent equity levels and that the parties adhere to all commitments filed with the RCA on April 3, 2018, which included enhanced community giving and provides a $1 million rate credit over five years for AEL&P’s customers. This rate credit period would begin at the close of the transaction.

(f)

Montana - On July 10, 2018, Avista Corp. and Hydro One received approval from the MPSC on the proposed merger, with conditions. The MPSC did not accept, for ratemaking purposes in Montana, an accelerated 2027 depreciation schedule for Colstrip, as otherwise agreed to by the parties in Washington. On May 10, 2018, Avista and Hydro One signed a Memorandum of Agreement with the City of Colstrip, whereby Avista and Hydro One agreed that upon the completion of the transaction, $4.5 million of funding would be made available to assist the community of Colstrip in meeting its immediate and future needs.

Avista Corp. and Hydro One intend to continue to work with the various commissions, their staff and other parties to try and satisfy any concerns associated with the proposed transaction.

Other Information Related to the Acquisition

The Merger Agreement also contains customary representations, warranties and covenants of Avista Corp., Hydro One, US Parent and Merger Sub. These covenants include, among others, an obligation on behalf of Avista Corp. to operate its business in the ordinary course until the acquisition is consummated, subject to certain exceptions. In addition, the parties are required to use reasonable best efforts to obtain any required regulatory approvals.

Avista Corp. has made certain additional customary covenants, including, among others, and subject to certain exceptions, a customary non-solicitation covenant prohibiting Avista Corp. from soliciting, providing non-public information or entering into discussions or negotiations concerning proposals relating to alternative business combination transactions, except as and to the extent permitted under the Merger Agreement with respect to an unsolicited written Takeover Proposal (as defined in the Merger Agreement) made prior to the approval of the acquisition by Avista Corp.'s shareholders if, among other things, Avista Corp.'s board of directors determines in good faith that such Takeover Proposal is or could be reasonably expected to lead to a Superior Proposal (as defined in the Merger Agreement) and that failure to take such actions would reasonably be expected to be inconsistent with its fiduciary duties under applicable law. No such Takeover Proposals have been received.

The Merger Agreement may be terminated by Avista Corp. and Hydro One by mutual consent and by either Avista Corp. or Hydro One under certain circumstances, including if the acquisition is not consummated by September 30, 2018, which has been extended to March 29, 2019. The Merger Agreement also provides for certain additional termination rights for each of Avista Corp. and Hydro One. Upon termination of the Merger Agreement under certain specified circumstances, including (i) termination by Avista Corp. in order to enter into a definitive agreement with respect to a Superior Proposal, or (ii) termination by Hydro One following a withdrawal by Avista Corp.'s board or directors of its recommendation of the Merger Agreement, Avista Corp. will be required to pay Hydro One the Company Termination Fee of $103.0 million. Avista Corp. will also be required to pay Hydro One the Company Termination Fee in the event Avista Corp. signs or consummates any specified alternative transaction within twelve months following the termination of the Merger Agreement under certain circumstances. In addition, if the Merger Agreement is terminated under certain circumstances due to the failure to obtain required regulatory approvals, the imposition of a Burdensome Condition with respect to a required regulatory approval, or the breach by Hydro One, US Parent or Merger Sub of their obligations in respect to obtaining regulatory approvals, Hydro One will be required to pay Avista Corp. a termination fee of $103.0 million.

The Company is incurring significant acquisition costs associated with the pending Hydro One acquisition consisting primarily of consulting, banking fees, legal fees and employee time, and are not being passed through to customers. In addition, a significant portion of these costs are not deductible for income tax purposes.

See Note 15 for discussion of shareholder lawsuits filed against the Company, the Company’s directors, Hydro One, Olympus Holding Corp., and Olympus Corp. in relation to the Merger Agreement and the proposed acquisition.