Burden of decision: A native son climbs to Avista’s top job, then arranges the sale of the company
Scott Morris’ climb to the top of Avista Corp. began with a chance conversation.
The recent Gonzaga University graduate and newlywed was coaching ninth-grade football at East Valley High School. His wife was starting graduate school.
“I need a full-time job,” Morris told another coach.
“Water Power is hiring,” the coach replied.
Morris got a job wrapping insulation around customers’ water heaters as part of an energy efficiency push in 1981. The temporary gig morphed into a 36-year career with Spokane’s homegrown utility, which Morris would eventually lead as chairman, president and CEO.
Washington Water Power, later renamed Avista, was founded when Washington was still a territory. The company’s history tracks Spokane’s development from a frontier town that looked to its waterfalls for cheap electricity to a 500,000-plus metro area.
If all goes as planned, Morris will go down in the books as the executive who signed off on the utility’s $5.3 billion sale to a Canadian company, Hydro One of Toronto. The deal is expected to close next year.
Avista’s sale is a weighty decision, Morris said in a recent interview, but one he thinks history will look favorably on.
“When I started here, obviously I never thought I would be the CEO of the company,” said Morris, 59, a Spokane native.
Morris said the corner office he occupies in Avista’s corporate headquarters on Mission Avenue still seems like “Wendell Satre’s office,” or “Paul Redmond’s office” or “Gary Ely’s office,” after longtime executives who ran the company before him and left their mark on Spokane as civic leaders.
“We’ve had such great leadership,” Morris said. “The weight of making sure I kept that tradition, respected those values, and that I’ll leave the company in a better place, is a burden that I’ve carried.
“I have a deep responsibility to this 128-year-old company,” he said. “I want to make sure that when I do retire, its legacy is still here in a way we all recognize.”
Is it time to sell?
Morris has declined to reveal which company initiated talks. Details of how the proposed sale came about will emerge next month, when Avista sends out a proxy statement to shareholders in advance of a vote on the sale.
But with the utility industry consolidating, Morris said, there was value in being proactive. The number of investor-owned utilities has shrunk from 109 to 60 since 1995, according to the Edison Electric Institute. As one of the smaller investor-owned utilities, Avista fielded an increasing number of inquiries about mergers or acquisitions.
Morris said he was open to talks if prospective buyers were willing to meet Avista’s conditions: Keeping the corporate office in Spokane and retaining local decision-making; continued employment for Avista’s 1,800 workers; and an ongoing role for Avista in local economic development initiatives and charitable giving.
“It’s a pretty daunting list,” Morris said.
Some of those issues will be scrutinized by regulators in the five states where Avista operates. In Washington, for instance, state approval for utility mergers or sales requires the demonstration of a “net benefit” to customers from the transaction.
Avista’s stock price was also a consideration in the sale. The price passed $40 per share in 2016 and has continued to climb.
“Utility stocks are at higher values than where they should be,” Morris said. With interest rates at all-time lows, “people can’t get decent returns on bonds or Treasury bills. We’re a safe investment, so they’re investing in utilities.”
Hydro One’s offer of $53 per share represented a premium over the already high trading price.
“You need to at least be open to whether it’s the right opportunity,” Morris said.
He said selling the company is the most difficult decision he’s had to make at Avista. It made restoring power to 180,000 Avista customers after the November 2015 windstorm seem easy, and it was more challenging than Avista’s recovery from the 2000-2001 West Coast energy crisis, which brought the company to the brink of bankruptcy, he said.
Morris assembled Avista’s top executives to hash through provisions of the Hydro One deal. He told them it had to work for everyone affected – the utility’s customers, employees, shareholders and the communities where Avista operates.
“The hardest leadership challenge is when you’re forced to look over the horizon and there’s not a clear answer,” Morris said. “You see trends. … You understand this gem of a company has been here 128 years. If you want the corporate headquarters to stay here, the jobs to stay here, the community benefits to stay the same, should you find a partner that will allow that to happen? Or do you wait?”
Learning the business
Morris is a well-liked leader at Avista, known for promoting a culture that employees describe as transparent and cooperative.
Other Avista executives say Morris walks the talk of building trust with employees and outside groups.
“Scott says people want to know two things about their leader: Do I trust you and do you care about me?” said Kelly Norwood, vice president of state and federal regulations. “He practices that. He works to build trust with people. … He calls it the ‘secret sauce.’ ”
“It’s infectious,” said Dennis Vermillion, president of Avista Utilities, the regulated side of the company. “It creates the culture that we treasure.”
Morris is one of the few utility chief executives in the U.S. who didn’t rise through the ranks as an engineer or chief financial officer.
He refers to himself as the product of a “normal, middle-class upbringing on Spokane’s North Side.” His dad worked at Kaiser Aluminum’s Mead smelter. His mom was a secretary.
Morris graduated from Shadle Park High School and earned degrees in political science and education from Gonzaga. He wanted to be an attorney. But opportunities to advance at Avista changed his mind.
In his first job there, Morris was the coordinator for a program that hired 200 college students to wrap insulation around water heaters for utility customers during the 1981 energy crisis. He did the work, too, so he could check for quality control.
When that job ended, Morris became a call center manager at age 24. He also worked on the operations side of the business, overseeing the linemen, construction and gas crews.
“Our culture is to give people opportunities to rotate around and learn,” Morris said. “I’m indebted to the time I spent in operations – they literally taught me the business.”
In 1991, Avista bought a natural gas utility in southern Oregon. Morris moved with his family to Medford to become the general manager.
Jody Morehouse, Avista’s director of gas supply, first worked with Morris in Medford. He helped rebuild morale and instill a sense of purpose in the Oregon employees, who had been through multiple owners and were feeling “beaten up” when Morris arrived, Morehouse said.
Early in her career, Morris also gave her an ambitious task. Avista had struggled to deliver enough natural gas to rural Oregon customers during a brutally cold winter. Morris told Morehouse to develop a plan to expand capacity and pitch it to state regulators in Salem, who would have to approve utility rate increases to pay for the work.
Morehouse devised a plan to extend natural gas lines and improve pressure that “didn’t bankrupt everyone,” she said. “Scott said, ‘I love your idea. I’ll back you 100 percent. Now go do it.’ He trusted me. It was a powerful lesson.”
An energy crisis
Morris returned to Spokane to lead Avista Utilities in 2000, arriving just ahead of a turbulent time in the company’s history.
The West Coast energy crisis put Avista and other utilities into a financial tailspin.
A drought year in 2000 resulted in the second-worst hydropower production on record in the Columbia Basin. Avista and other utilities were buying a significant amount of electricity on the wholesale market to serve customers.
Prices shot up to $1,000 per megawatt in the volatile energy market. Avista also was exposed to the market through an energy trading subsidiary, which lost tens of millions of dollars.
Avista’s board of directors accepted the resignation of Chairman and CEO Tom Matthews in the fall of 2000. Board members talked Gary Ely, another top Avista executive, into delaying his retirement to rebuild the company, which lost its investment-grade credit rating and dropped to junk bond status.
“What a challenge,” Morris said. “The company was hemorrhaging pretty significantly at that time. We almost went bankrupt. It was the ultimate leadership challenge to figure out how to stabilize the company financially and keep your values.”
As a leader, Ely was candid with bankers, state regulators and customers about Avista’s financial situation and the plans for recovery. Morris said he’s worked to continue that transparency.
Avista’s public face
Morris took over as Avista’s chairman, CEO and president in January 2008.
To many Spokane-area residents, Morris is the public face of the utility that bills them each month for electricity and natural gas. “We’re the gorilla in everyone’s wallet,” one Avista employee said.
Monthly bills have ratcheted up over the past decade, as Avista tackled a backlog of expensive maintenance projects. While the company was recovering from the energy crisis, budgets for capital projects nearly disappeared, Morris said. Now, Avista spends about $400 million annually to upgrade its dams and other aging infrastructure to meet federal reliability standards.
Morris said Avista has worked to keep utility rate increases near inflation, or at about 2 percent each year. But the rate hikes have rankled many Spokane residents. The onset of annual Avista rate increases for electricity and natural gas coincided with the tough years of the recession. Many families struggled with rising costs and stagnant wages.
As the chief executive of Spokane’s largest publicly traded company, Morris earns top dollar. Last year, he received a $4.5 million package that includes his salary, performance bonuses, pension benefits and the ability to earn future stock awards.
Morris’ compensation is often a target of utility customers’ frustration. But there’s more to the story, said Norwood, the vice president of state and federal regulations.
“One thing that people don’t see is Scott’s commitment and care for customers,” Norwood said. “He’s paid careful attention to operating costs to make sure we’re managing those on behalf of customers.”
Avista looked into building a wind farm in Reardan, Washington, after voters passed a 2006 initiative requiring utilities to increase the percentage of renewable energy in their portfolios. Wind generation from the farm would have cost 11 cents per kilowatt hour, which was a red flag for Morris. Avista ended up buying energy from a Palouse wind project at a lower cost, Norwood said.
Avista also lobbied the Washington Legislature to get its biomass plant in Kettle Falls counted as a renewable energy source.
Avista’s shareholders paid for the two years of lobbying efforts, but the utility customers reaped the benefits, Norwood said.
His roots show in the deal
Morris’ commitment to Spokane is reflected in his work on behalf of local economic development initiatives, other leaders say. He’s part of a group of business executives who created the vision for the city’s University District and the growth of health care education in Spokane.
“He’s a phenomenal big picture thinker,” said Todd Mielke, CEO of Greater Spokane Incorporated. “He’s been quick to recognize you can go wherever the river takes you, or you can be more intentional about charting your course.”
Avista paid for early studies about health care’s role in the local economy. The company also lent staff members to GSI and Washington State University to work on other strategic initiatives.
When efforts to expand the training of family doctors in Spokane evolved into rival medical school proposals by WSU and the University of Washington, “Scott was the calming, intelligent presence at the table who kept everybody focused on the big picture,” Mielke said.
Business leaders ultimately backed both universities’ efforts.
Morris is part of a long tradition of Avista leaders who’ve dedicated themselves to improving the region’s economy, said Tom Quigley, chairman of Kiemle & Hagood Co., a local commercial real estate and property management firm.
“They’ve been selfless in their drive for community betterment, with the basis of that being better economic opportunity for everybody,” Quigley said.
Morris’ interest in seeing Spokane prosper is spelled out in the agreement with Hydro One, Norwood said. It dictates Hydro One’s future levels of philanthropy in the region and guarantees that Northwest residents will continue to sit on Avista’s board.
“They aren’t just words said by people; it was written into the agreement,” Norwood said. “Scott’s history is here, his roots are here, and that showed up in spades as we worked through the details.”