Commissioner Richard Glick
July 16, 2020
Docket No. EL19-80-000
Order: E-25
I dissent in part from today’s order because I do not believe that ITC Great Plains LLC (ITC Great Plains) is sufficiently independent to justify an ROE adder. Since ITC Great Plains first received the “Transco” ROE adder available to transmission-only companies, its corporate parent—ITC Holdings Corporation (ITC Holdings)—was acquired by Fortis, Inc. (Fortis) and GIC (Ventures) Partners Ltd (GIC), two entities with diverse investments, including significant non-transmission assets in the energy sector. That acquisition eliminated the justification for awarding ITC Great Plains an additional return on its transmission investment. Accordingly, I would grant the complaint and eliminate ITC Great Plains’ ROE adder in its entirety.
I strongly support the development of new transmission infrastructure, which benefits consumers in many ways, including by reducing congestion, increasing reliability, and integrating remotely located renewable energy resources. The Commission’s transmission incentives policy can play an important role in fostering the type of transmission investments that best reap those benefits. But, in awarding incentives, we must balance the need for new transmission facilities with our obligation to ensure rates that are just and reasonable and not unduly discriminatory or preferential.[1] That is particularly important for ROE-based incentives. Those incentives—which come directly out of consumers’ pockets—must incentivize transmission owners to develop and operate their facilities in a manner that provides consumers with benefits sufficient to justify the higher rates they produce. Anything short of that is unjust and unreasonable.
In Order No. 679, the Commission established an ROE incentive to encourage the formation of Transcos and facilitate their efforts to attract capital.[2] The Commission explained its belief that the “stand-alone nature” of transmission-only companies would facilitate increased investment in transmission.[3] The Commission reasoned that “[b]y eliminating competition for capital between generation and transmission functions . . . the Transco model responds more rapidly and precisely to market signals indicating when and where transmission investment is needed”[4]—a dynamic it believed would produce higher levels of transmission investment relative to a more diversified company. In the same vein, the Commission explained its belief that the Transco model eliminates the incentive a company may have to forgo transmission investments in order protect its generation assets, which would also increase total transmission investment.[5] Whether the purported benefits of the Transco model ever materialized and, if they did, whether they remain sufficient to justify a bonus ROE are open questions in my view.[6]
But even if the Transco Adder were warranted in some instances, ITC Great Plains is not one of them. The 2016 purchase of its parent company, ITC Holdings, by Fortis and GIC eliminated any rationale for awarding ITC Great Plains a Transco Adder. As a result of that acquisition, ITC Holdings’ subsidiaries, including ITC Great Plains, must now compete for capital with Fortis and GIC subsidiaries, thereby undermining the theoretical case for the Transco Adder.
Both Fortis and GIC have extensive holdings, including natural gas and electric transmission, distribution utilities, and merchant generation.[7] Fortis, which owns eighty percent of ITC Holdings,[8] assesses capital expenditures on a consolidated basis, meaning that in evaluating how to allocate capital among its subsidiaries, it directly compares investments in electric transmission with investments in other aspects of its business, including other energy-sector investments.[9] Although ITC Holdings and its subsidiaries are permitted to develop their own capital and business plans, Fortis and GIC retain ultimate control over those plans. Indeed, in order for ITC Holdings to execute its capital expenditure plan, it—and its subsidiaries, including ITC Great Plains—must rely on equity infusions from Fortis, since ITC Holdings can no longer issue its own equity.[10] That means ITC Great Plains will receive capital to invest in transmission facilities only if Fortis, its ultimate majority owner, concludes that investments in transmission through ITC Great Plains are appealing relative to the investment options presented by its other subsidiaries. That fact alone ought to be fatal to ITC Great Plains efforts to retain any Transco Adder.
In addition, Fortis and GIC representatives also hold multiple seats on ITC Holdings’ board of directors,[11] giving those companies an opportunity to shape ITC Holdings’ investment plan, including its investments through ITC Great Plains, even before that plan is considered as part of Fortis’ consolidated capital expenditure plan. The fact that the majority of ITC Holdings’ board of directors is not affiliated with Fortis and GIC does not indicate that its subsidiaries are truly independent. After all, the minority of board members represents and may express the views of Fortis and GIC, potentially giving them outsized influence on ITC Holdings’ decisionmaking process.
ITC Great Plains responds by arguing that the Commission can carry its burden under section 206 of the Federal Power Act[12] (FPA) to show that its existing rate is unjust and unreasonable only if it points to specific transactions or decisions in which ITC Great Plains did not exhibit independence.[13] Although I can understand ITC Great Plains’ desire for such an unrealistically high standard, it is not required by section 206 or principles of reasoned decisionmaking. After all, although Order No. 679 pointed to evidence showing high levels of investment by Transcos, the Commission’s justification for the creation of the Transco Adder was primarily based on the theoretical benefits independence could provide, which, it argued, accounted for any elevated levels of investment.[14] As a result, it is perfectly permissible for the Commission to rely on the elimination of those theoretical underpinnings and act accordingly, especially where the theoretical case is as straightforward as it is here.[15]
Although today’s order recognizes that ITC Holdings is no longer independent in the sense contemplated by Order No. 679, the Commission nevertheless permits ITC Great Plains to retain a 25 basis-point ROE adder.[16] I would eliminate its Transco incentive entirely. Aside from the conclusory statement that ITC Great Plains’ independence is “reduced, but not eliminated,”[17] nothing in today’s order explains why ITC Great Plains’ residuum of independence merits an elevated ROE or why, even if so, 25 basis points is an appropriate figure.[18] A reader of today’s opinion is left with the distinct impression that, had ITC Great Plains not previously received an even larger ROE adder, it would not get even the 25 basis points awarded by today’s order. Rewarding a company for its previous independence is not what I believe Congress had in mind when it enacted FPA section 219.
For these reasons, I respectfully dissent in part.
[1] 16 U.S.C. § 824s(d) (2018).
[2] Promoting Transmission Investment through Pricing Reform, Order No. 679, 116 FERC ¶ 61,057, at PP 206, 221, 226 (2006), order on reh’g, Order No. 679-A, 117 FERC ¶ 61,345, order on reh’g, 119 FERC ¶ 61,062 (2007).
[3] Order No. 679, 116 FERC ¶ 61,057 at PP 224-225.
[4] Id. P 224.
[5] Id.
[6] See Electric Transmission Incentives Policy Under Section 219 of the Federal Power Act, 170 FERC ¶ 61,204 (2020) (Glick, Comm’r, dissenting in part at P 2) (“[I]t is ‘not clear that Transcos are superior to other public utilities that can and do invest in transmission facilities— including competitively developed transmission facilities—or that awarding Transcos a higher ROE actually leads to greater transmission investment.’” (quoting GridLiance West Transco LLC, 164 FERC ¶ 61,049 (2018) (Glick, Comm’r, concurring at 2))).
[7] See Consumers Energy Co., 165 FERC ¶ 61,021, at P 71 (2018) (Glick, Comm’r, dissenting at n.7) (summarizing Fortis’s and GIC’s relevant holdings).
[8] Kansas Commission Complaint, Exhibit KCC-004 at 21 (Fortis 2018 Annual Report).
[9] Id. at 45-46.
[10] Id. at 33 (“Cash required of Fortis to support subsidiary capital expenditures is expected to be derived from borrowings under the Corporation’s committed credit facility, proceeds from the issuances of common shares, preference shares and long-term debt.”); see also Kansas Commission Complaint, Exhibit KCC-001 at 17 (explaining why the Commission’s findings regarding ITC Holdings’ reliance on Fortis apply equally to ITC Great Plains).
[11] See Kansas Commission Complaint, Exhibit KCC-001 at 94-97 (ITC Holdings Corp. 2018 Form 10-K Report).
[12] 16 U.S.C. § 824e.
[13] ITC Great Plains Answer at 10-12.
[14] See Order No. 679, 116 FERC ¶ 61,057 at PP 224-226.
[15] Cf. Assoc. Gas Distributors v. FERC, 824 F.2d 981, 1008 (D.C. Cir. 1987) (“Agencies do not need to conduct experiments in order to rely on the prediction that an unsupported stone will fall.”).
[16] Kansas Corp. Comm’n v. ITC Great Plains, LLC, 172 FERC ¶ 61,037, at P 35 (2020).
[17] Id. (quoting ITC Great Plains, LLC, 126 FERC ¶ 61,223, at P 93 (2009), order on reh’g, 150 FERC ¶ 61,225 (2015)).
[18] Emera Maine v. FERC, 854 F.3d 9, 27-28 (D.C. Cir. 2017) (explaining that the Commission had not met its burden to show that a rate was just and reasonable where it failed to point to any evidence indicating that the particular number set was, in fact, just and reasonable).