State regulators denied the sale of Avista Corporation to a Canada-based company.

On Wednesday in a press release, Washington Utilities and Transportation Commission officials said the merger between Avista, the predominant energy and natural gas utility company in the Inland Northwest, and Hydro One Limited does not serve the public interest.

State regulators said the merger does not adequately protect Avista or its customers from political and financial risks.

“The proposed transaction cannot be said to be consistent with the public interest when it is evident that decisions affecting Hydro One’s and Avista’s business operations and financial integrity are subject to political considerations that may motivate one provincial leader or another to make decisions and take actions in the future that may cause harm instead of promoting the best interests of Avista, its customers, and Hydro One’s non-government shareholders,” the commission said.

Avista and Hydro One issued a joint statement on Wednesday afternoon.

"The companies are extremely disappointed in the UTC's decision, are reviewing the order in detail and will determine the appropriate next steps," Avista and Hydro One said in a press release.

Commission leaders said the two companies filed a joint application with the commission to approve the merger agreement in September 2017.

The original plans said Avista would have been an owned subsidiary of Hydro One. Avista would have maintained its headquarters in Spokane, Washington, and continued to operate in Washington under the same name, management team and employee structure.

In March, the companies, UTC staff, and nine other parties reached a settlement on the proposed merger that would have provided $30 million in rate credits and $11 million toward low income programs. It also set aside money for economic transition efforts in Colstrip, Montana.

Commission officials said the parties also said their agreement offered financial protections for Avista customers and insulated Avista from Hydro One’s largest shareholder, the Province of Ontario.

In testimony before the commission in May 2018, Hydro One leaders described the Province of Ontario, which owns 47 percent of the company, as a passive investor that would not exert political pressure on the company. But commission officials said after the June 2018 general election in the Province of Ontario, where there was a change of majority control, the province and Hydro One announced an agreement that resulted in the resignation and full replacement of Hydro One’s board of directors and the retirement of the utility’s CEO.

Commission leaders then decided to extended its decision timeline to further investigate the effects of the changes on the proposed acquisition of Avista by Hydro One. The ongoing regulatory approval processes in Idaho and Oregon also were disrupted because of what happened in Ontario.

“In its order today, the commission noted that the agreement resulting in the resignation of the Hydro One board and CEO elevated the provincial government’s political interests above the interests of other stakeholders, including investors that own 53 percent of Hydro One’s common stock. The action resulted in credit downgrades and decreased the value of Hydro One and Avista stock. The province subsequently passed a law limiting the compensation of the company’s executives and providing for ongoing involvement by the province in matters typically reserved to executive management and the board of a private company,” commission leaders said in a statement.

Commission officials determined the financial offerings and other benefits for Avista customers promised by the transaction, including rate credits, are not enough to compensate for the risks Avista’s customers would face if the transaction was approved. The commission said they determined the proposed merger does not meet the net-benefit standard required by state law.

“Provincial government interference in Hydro One’s affairs, the risk of which has been shown by events to be significant, could result in direct or indirect harm to Avista if it were acquired by Hydro One, as proposed. This, in turn, could diminish Avista’s ability to continue providing safe and reliable electrical and natural gas service to its customers in Washington,” the commission stated in today’s order.

"Avista’s customers would be no better off with this transaction than they would be without it,” commission leaders said in a statement.

The commission also ordered Avista to work with commission staff to return to customers $10.4 million in tax benefits left outstanding from Avista’s last general rate case.