FERC Rejects Alliant-Led Coalition’s Bid to Cut ITC Midwest’s Equity Ratio and Lower Transmission Costs

Diving Brief:

  • The Federal Energy Regulatory Commission on Wednesday dismissed a complaint contributed by the Iowa Coalition for Affordable Transmission, which sought a lower equity ratio for ITC Midwest. A lower ratio could have resulted in lower rates for ITC Midwest’s transmission assets in Iowa, Minnesota, Illinois and Missouri.
  • The coalition failed to show that ITC Midwest, part of ITC Holdings, a private company of Fortis and GIC, no longer satisfies the commission’s three-pronged test for determining whether an operating company can use its actual capital structure when setting its rates, FERC said.
  • The decision is a favorable outcome for ITC and the proprietary transmission utilities, according to Glenrock Associates equity analyst Paul Patterson. “All things being equal, this could lead to higher levels of capital deployed in the capital structure of other FERC-regulated entities,” he said in an email Thursday.

Overview of the dive:

The complaint centered on ITC Midwest’s equity ratio, which is used to help set its transmission rates.

When ITC Midwest purchased Interstate Power and Light’s transmission assets in 2007, FERC allowed the company to use its actual capital structure with a target equity-to-debt ratio of 60% to calculate formula rates. for transmitting.

This ratio should be lowered from 60% to 53%, a change that would save taxpayers $114 million over four years, according to the complaint presented by IPL, a utility of Alliant Energy, the Iowa Office of Consumer Advocate, the Resale Power Group of Iowa, the Large Energy Group and the Iowa Business Energy Coalition.

The Iowa Utilities Board and the Minnesota Department of Commerce supported the complaint.

The equity ratio issue has long-term implications for Minnesota ratepayers as transmission owners throughout the Independent System Operator’s Midcontinent region plan to add significant amounts of new high-voltage transmission in their rate base, said the Minnesota DOC, which represents ratepayers. in the comments at FERC.

The coalition failed to convince FERC that ITC Midwest no longer met the commission’s three-pronged test to determine whether an operating company can use its actual capital structure when setting rates.

All three prongs are met if the company: issues its own unsecured debt; has its own bond rating; and has a capital structure within the range of FERC-approved capital structures, according to the commission.

The coalition failed to show that the owners of ITC Midwest, ITC Holdings or Fortis, guaranteed ITC Midwest’s debt and would be required to assume the company’s debts in the event of default, FERC said. .

The coalition has also failed to demonstrate that ITC Midwest’s debt is guaranteed by ITC Holdings or Fortis, according to FERC.

“The commission said it is common for a subsidiary to have financial ties to parent companies, and the mere existence of financial ties between these companies does not preclude the use of the subsidiary’s capital structure” , said FERC.

Sallie R. Loera