By Amanda Durish Cook

FERC last week affirmed a previous ruling that a 2016 merger left three ITC Holdings subsidiaries no longer fully independent, disqualifying them from a full return on equity incentive intended for standalone transmission providers (EL18-140).

The commission last year halved the ROE adders previously granted to ITC subsidiaries for being independent providers, saying a merger with Canada-based Fortis and Singapore government-owned investment company GIC Private Limited compromised the parent company’s autonomy. (See FERC Reduces ITC Adders over Independence Issues.)

Under FERC rules, a fully independent transmission company is eligible to receive a 50-basis-point transco adder. The commission last October determined that a reduced incentive of 25 basis points was appropriate for International Transmission Co., ITC Midwest and Michigan Electric Transmission Co.

“We continue to find that to be the appropriate incentive in this case,” the commission said in its order Thursday, noting again that the merger reduced, but did not eliminate, the companies’ independence.

In seeking rehearing on the issue, the ITC companies argued that their relatively new upstream owners have no impact on their investment planning or capital formation. They also repeated a contention that their affiliates aren’t MISO market participants and said the commission failed to justify its decision to reduce the adder.

“ITC Holdings’ governance is fully independent from market participant influence, as ITC Holdings is governed, managed, operated and financed on a standalone basis,” the companies argued.

But FERC said the company misunderstood the yardstick the commission uses to gauge independence.

The commission said that while it considered ITC’s structure and arrangement with subsidiaries, it also found that both Fortis and GIC own other market participants that exercise control over the companies. Fortis, the commission pointed out, evaluates capital expenses for its “entire corporate family.”

“On capital formation, the ITC companies necessarily rely on Fortis for financing, as they cannot issue their own common stock, and Fortis indicated that cash for subsidiary capital expenditure programs will also come from debt issuances from Fortis,” FERC explained.

The commission also noted that both Fortis and GIC representatives sit on ITC’s board of directors and that “all executives of Fortis’ regulated utility subsidies meet regularly to discuss business operations.”

ITC had argued that a “majority” of its board members are independent.

In a separate, partial dissent, Commissioner Richard Glick repeated his previous assertion that the companies are not independent enough to justify any ROE adder.

“I do not believe that a 25-basis-point adder is just and reasonable here, and [I] would instead eliminate the ITC companies’ ROE adder altogether,” Glick said.

ITC said it was “disappointed” in the ruling.

“ITC’s operating companies remain fully independent of affiliate market participants in all RTO/ISOs in which they operate, and therefore continue to fully meet the conditions under which FERC originally granted independence adders,” Nina Plaushin, vice president of regulatory and federal affairs, said in a statement. “To the extent the commission chooses to make changes to this specific incentive adder, any change should be consistently applied across the industry and warrants full discussion in the general proceeding currently before FERC.”

In March, FERC issued a Notice of Inquiry seeking feedback on whether it should change the “scope and implementation” of its incentives policy (PL19-3). Dozens of entities submitted comments last month. (See Tx Incentives NOI Brings Calls for Broader Reforms.)