(Bloomberg) -- Washington state regulators rejected Canada-based Hydro One Ltd.’s $3.4 billion acquisition of U.S. utility Avista Corp., dealing a potentially fatal blow to the deal.

The agreement doesn’t adequately protect Spokane, Washington-based Avista or its customers from political and financial risks and doesn’t provide a net benefit to customers, according to a statement Wednesday from the Washington Utilities and Transportation Commission.

The sale needs the approval of Washington regulators to be completed.

The decision comes after Ontario Premier Doug Ford ousted Hydro One’s board in July and then-Chief Executive Officer Mayo Schmidt retired. The moves fulfilled Ford’s election promise to shake up the utility’s executive team.

“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,” the commission said Wednesday in its order. “This, in turn, could diminish Avista’s ability to continue providing safe and reliable electrical and natural gas service to its customers in Washington.”

Washington regulators said the promised benefits of the deal including rate credits were inadequate to compensate for the risks that customers would face. Avista and Hydro One, which is 47 percent owned by the Province of Ontario, didn’t immediately return requests for comment.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Joe Ryan at jryan173@bloomberg.net, Will Wade

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