Commissioner Richard Glick Statement
October 18, 2018
Docket No. EL18-140-000
Item No. E-3
“I dissent from today’s order because I do not believe that the ITC Companies are sufficiently independent to justify an ROE adder. As explained below, the ITC Companies’ acquisition by Fortis and GIC eliminated the principal justifications for awarding the ITC Companies an additional return on their investment. I would grant the complaint in its entirety and eliminate the ITC Companies’ independence adder.
I strongly support the development of new transmission infrastructure, which benefits consumers in many ways, including by reducing congestion, increasing reliability, and providing access to remotely located renewable energy resources. The Commission’s transmission incentives policy can play an important role in fostering investment in transmission facilities. But the Commission’s incentives policy must balance the need for new transmission facilities with its 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 than provides consumers with sufficient benefits to justify the extra costs they must pay. Anything short of that is unjust and unreasonable.
In Order No. 679, the Commission established an incentive to encourage the formation of transmission-only companies—Transcos—and facilitate their efforts to attract capital for transmission investment.2
The Commission explained that the “stand-alone nature” of transmission-only companies would facilitate increased investment in transmission, their “singular focus” and only line of business.3
The Commission reasoned that “by 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 phenomenon that the Commission concluded would produce higher levels of transmission investment relative to a more diversified company. In the same vein, the Commission explained that the Transco model eliminates any incentive a company may have to protect its own generation and encourages the development of innovative approaches for meeting transmission needs.5 Accordingly, the Commission concluded that the benefits of independent, transmission-only companies were sufficient to justify additional cost to consumers and thus merited a ROE adder.5
Although the ITC Companies may have once been sufficiently independent to justify an extra return on equity, the record in this proceeding shows that is no longer the case. In 2016, the ITC Companies were acquired by Fortis, Inc. (Fortis) and GIC (Ventures) Pte. Ltd (GIC), both of which have extensive natural gas and electric holdings in the Eastern Interconnection, including natural gas and electric transmission, distribution utilities, and merchant generation.6
In the aftermath of this transaction, the ITC Companies must now compete for capital with Fortis and GIC subsidiaries that own generation and distribution assets and may now face an incentive—even a subtle one—not to undermine the value of its sisters companies’ assets through its transmission investments.
The Commission today concludes that, although the ITC Companies are not as independent as they were before their acquisition by Fortis and GIC, they still retain some level of independence sufficient to justify a reduced ROE adder. I disagree. Regarding competition for capital,7
the record indicates that the ITC Companies are no longer truly independent. Fortis, which owns eighty percent of the ITC Companies, assesses capital expenditures on a consolidated basis, meaning that in evaluating how to allocate capital among its subsidiaries, it is directly comparing investments in transmission with investments in other aspects of its business.8
Even though the ITC Companies are permitted to develop their own capital and business plans, Fortis and GIC retain ultimate authority with respect to those plans Indeed, in order for Fortis to execute its capital expenditure plan, its subsidiaries, including the ITC Companies, must rely on equity infusions from Fortis, since the ITC Holdings can no longer issue its own equity.10 That means the ITC Companies will receive capital to invest in transmission facilities only if Fortis, its majority owner, concludes that investments in transmission through ITC are appealing relative to the other investment options presented by its subsidiaries. Fortis and GIC representatives also hold multiple seats on ITC Holdings’ board of directors,9
giving Fortis an opportunity to shape ITC Holdings’ investment plan even before it is considered as part of Fortis’ consolidated capital expenditure plan. The fact that the majority of ITC Holdings’ board of directors is unknot affiliated with Fortis and GIC does not indicate that the ITC Companies are truly independent, since the minority of board members represent and may express the views of the ITC companies’ corporate parents, and, thus, possess outsized influence on the board’s decisionmaking process.
In addition, Fortis’ and GIC’s extensive holdings in the Eastern Interconnection have the potential to create incentives for the ITC Companies that are inconsistent with those of a truly independent Transco. As Complainants point out, Fortis and GIC have interests in companies, including Central Hudson, FortisOntario, and Duquesne, all of which participate in the wholesale electricity market in or around the Midcontinent Independent System Operator, where the ITC Companies’ assets are located. Although the ITC Companies contend that there little risk that it would operate its assets in a manner that benefited one of its sister companies, the potential for the ITC Companies to use its assets to benefit nearby affiliates only strengthens the case that the ITC Companies no longer possess the type of independence that the Commission sought to incentivize in Order No. 679. Whether or not the ITC Companies are likely to deploy their transmission assets in a manner that benefits their neighboring subsidiaries, the fact that the ITC Companies’ assets could have that effect is powerful evidence that they are not truly independent.
The Commission justifies its decision to award the ITC Companies a reduced, 25-basis-point ROE adder on its assertion that the ITC Companies retain some independence. But aside from the conclusory statement that the ITC Companies’ independence is “reduced, but not eliminated,” today’s order does not explain why a 25-basis-point adder is appropriate or why that adder “strikes the right balance by encouraging independent transmission . . . while acknowledging protestors’ concerns regarding the rate impacts of such adders.”10
Indeed, today’s order provides no discussion of why the ITC Companies’ residuum of independence merits an elevated ROE. A reader of today’s opinion is left with the impression that, had the ITC Companies not previously received an even larger ROE adder, there would be no basis for awarding the 25-basis-point ROE adder that the Commission hands out today. Rewarding a company for its previous independence is not what I believe Congress had in mind when it enacted FPA section 219.
As stated above, I believe the Commission should encourage or incentivize transmission development and the efficient operation of the transmission system. As I’ve stated previously, whether the Commission’s current approach achieves this goal is an open question.11
Accordingly, I want to reiterate that it is time for the Commission to revisit its transmission incentives program and evaluate whether the incentives established in Order No. 679 are meeting this standard and furthering the goals that Congress established in the Energy Policy Act of 2005.12
We must remember that transmission incentives are ultimately paid for by consumers. Therefore, it is especially important that the Commission thoroughly examine its use of ROE incentives, including the Transco adder, to ensure that they are incentivizing actions and investments that will produce meaningful benefits for consumers. I agree with my colleague, Commissioner LaFleur, that an appropriate avenue going forward would be for the Commission to revisit its transmission incentives policies through a generic proceeding.13
For these reasons, I respectfully dissent.
- 11 16 U.S.C. § 824s(d) (2012).
- 22 Promoting Transmission Investment through Pricing Reform, Order No. 679, FERC Stats. & Regs. ¶ 31,222, at PP 206, 221, 226, order on reh’g, Order No. 679-A, FERC Stats. & Regs. ¶ 31,236 (2006), order on reh’g, 119 FERC ¶ 61,062 (2007).
- 33 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at PP 224–225.
- 44 Id. P 224.
- 56 See id. P 226.
- 67 See Fortis, Inc., 156 FERC ¶ 61,219, at PP 3–22 (2016), order on reh’g, 158 FERC ¶ 61,019 (2017). Fortis is a publicly traded holding company that serves more than 3 million customers across Canada, in the United States and the Caribbean. Fortis’ regulated holdings in the United States comprise electric distribution utilities as well as natural gas utilities in New York and Arizona, including Central Hudson Gas & Electric Corporation (Central Hudson), as well as various generation facilities in the New York Independent System Operator and PJM Interconnection, LLC markets. Fortis also wholly owns several Canadian subsidiaries, through which it operates electric generation, transmission and distribution systems and natural gas distribution, pipeline and storage facilities in parts of Canada, including Fortis Ontario Inc. (FortisOntario). GIC is an investment company that manages the Government of Singapore’s foreign reserves. GIC indirectly holds interests in various Commission-regulated entities throughout the United States, including Duquesne Light Company (Duquesne Light), a public utility that purchases, transmits, and distributes electric energy to customers in southwestern Pennsylvania and owns no generation resources, and Duquesne Power, LLC, a power marketer that operates within the PJM market (collectively, Duquesne).
- 78 Both Complainants and the ITC Companies point out that the Commission recently granted a 50 basis-point Transco ROE adder to NextEra New York, an indirect wholly-owned transmission subsidiary of NextEra Energy Capital Holdings, Inc., which is a direct wholly-owned subsidiary of NextEra Energy, Inc. (NextEra). NextEra Energy Transmission New York, Inc., 162 FERC ¶ 61,196 (2018). NextEra is a diversified company with investments in nearly every aspect of the electricity industry. Although I voted in favor of the Commission’s decision to grant NextEra New York a 50 basis-point ROE adder, I now believe that the Commission erred in reaching that decision. By virtue of NextEra’s diversified holdings, NextEra New York must compete for capital with a vast array of non-transmission businesses in a way that is inconsistent with the Commission’s justification of the Transco adder in Order No. 679. Because I believe that the NextEra New York order was wrongly decided, I cannot rely on it to preserve the ITC Companies’ ROE Transco adders.
- 89 Fortis 2017 Annual Report at 11, 21.
- 911 Id. P 71.
- 1012 Id. P 73; see also Order No. 679, FERC Stats. & Regs. ¶ 31,222 at P 21.
- 1113 See GridLiance West Transco LLC, 164 FERC ¶ 61,049, at 3 (2018) (Glick, Comm’r, concurring).
- 1214 Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005); 16 U.S.C. § 824s (2012).
- 1315 See Consumers Energy Co., 165 FERC ¶ 61,021 at P 3 (LaFleur, Comm’r, concurring).