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FERC on Thursday affirmed ITC Midwest’s 16-year-old capital structure over protests that it results in unaffordable customer rates.
The commission said ITC Midwest’s (NYSE:ITC) 60% equity/40% debt capital structure passes its three-prong test; some of the language mirrored the commission’s November ruling (EL22-56-001). (See FERC Rejects Iowa Coalition’s Complaint over ITC Structure.)
The Iowa Coalition for Affordable Transmission, a group of Iowa utilities, industrial customers and consumer advocates led by Alliant Energy, challenged the transmission developer’s capital structure twice in 2022 as being excessive and too skewed toward equity. The group asked FERC to reduce ITC’s equity component to 53% and initiate a refund process.
FERC said that ITC Midwest’s equity component is not unusually high and falls within the range of other approved capital structures. It said ITC Midwest has a bond rating independent of parent companies ITC Holdings and Fortis and said there remains no proof that either parent guarantees Midwest’s debt or would take on obligations in the event of a default.
Canada-based Fortis purchased ITC Holdings for $11.3 billion in 2016.
On rehearing, the Iowa organizations argued that FERC hasn’t meaningfully analyzed the capital structure’s appropriateness since 2007. They said that a 2021 Moody’s report contained the line, “We expect that Fortis would provide ‘extraordinary support’ if required, provided that the parent had the economic incentive to do so.” Moody’s use of “extraordinary support” “constitutes evidence of an effective guarantee of ITC Midwest’s debt by its parent companies,” they said.
The commission said Fortis and ITC Holdings have made no formal pledges that they would extend credit support. It also said Moody’s statement doesn’t amount to a guarantee.
FERC said the Iowa group’s fixation on Moody’s statement “merely speculates upon which circumstances would prompt Fortis or ITC Holdings to assist its subsidiary” and is not enough grounds to order a hearing.
“A finding of less than total separateness between ITC Midwest and its corporate parent with respect to corporate governance does not demonstrate that ITC Midwest fails prong two” of the three-part capital structure test, FERC said.
The commission said it would be unusual for it to order a new capital structure.
“The commission does not dictate the level of common equity in a utility’s capital structure used for ratemaking, except in very limited and specific circumstances, which … are not present here,” it said.
