Minnesota, Iowa companies assist Alliant Vitality-led grievance in search of decrease ITC Midwest fairness ratio

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Dive Temporary:

• The Minnesota Division of Commerce and the Iowa Utilities Board are supporting a grievance from a coalition led by Alliant Vitality in search of to decrease the fairness ratio ITC Midwest makes use of to assist set its transmission charges, in accordance with feedback filed on the Federal Vitality Regulatory Fee.
• FERC ought to cut back ITC Midwest’s fairness ratio to 53% from 60%, a change that might save ratepayers an estimated $114 million over 4 years, the IUB stated in feedback filed Might 26. The company requested FERC to order ITC Midwest to subject refunds from the date of the Might 10 grievance.
• “The fairness ratio subject raised [in the complaint] has vital long-term implications for Minnesota ratepayers as transmission homeowners in Minnesota and all through the Midcontinent Unbiased System Operator area contemplate including important quantities of latest high-voltage transmission into their price base,” the Minnesota DOC, which represents ratepayers, stated Tuesday.

Dive Perception:

Interstate Energy and Mild, an Alliant subsidiary that serves most of Iowa, bought its transmission belongings to ITC Midwest in 2007 for $783 million. Since ITC Midwest purchased IPL’s transmission belongings, the corporate’s price base has grown by 550% and its community and agency point-to-point transmission charges are 275% increased than the common charges of different MISO transmission homeowners, in accordance with the coalition’s grievance.

When ITC Midwest purchased IPL’s transmission belongings, FERC permitted the corporate to make use of its precise capital construction with a goal 60% fairness ratio to calculate system charges for transmission, in accordance with the grievance introduced by IPL; the Iowa Workplace of Shopper Advocate; the Resale Energy Group of Iowa; the Giant Vitality Group; and, the Iowa Enterprise Vitality Coalition.

Typically, a better equity-to-debt ratio results in an elevated income requirement, driving up charges, in accordance with Paul Patterson, a Glenrock Associates fairness analyst.

ITC Midwest’s circumstances have modified for the reason that fairness ratio was set, in accordance with the grievance. Its father or mother firm, ITC Holdings, is now majority-owned by Fortis, with GIC, Singapore’s sovereign wealth fund, having a 20% stake within the transmission firm.

ITC Midwest, which operates about 6,600 circuit miles of transmission strains in Iowa, Minnesota, Illinois and Missouri, fails to satisfy any of FERC’s three standards for being allowed to have an fairness ratio primarily based on its precise capability construction, in accordance with the grievance. The corporate should subject its personal debt with out ensures; have its personal bond ranking separate from its company father or mother; and, have a capital construction inside the vary of capital buildings beforehand authorised by FERC and in keeping with the fairness ratios of comparable proxy corporations, the coalition stated.

ITC Midwest’s transmission charges damage Iowa’s financial system, in accordance with the IUB.

“The upper transmission charges for IPL’s ratepayers places quite a lot of industrial prospects of IPL at a aggressive drawback within the market when in comparison with their friends in different states,” the board stated.

ITC Midwest’s “important” enhance in its price base signifies the corporate has been capable of entice capital funding and is ready to stand by itself, separate from its father or mother firm, the IUB stated.

The grievance, which is inaccurate and unlikely to succeed, may have sweeping penalties, Lindsay Clark, an ITC Holdings spokesperson, stated in an electronic mail Wednesday, noting FERC has by no means dictated the extent of frequent fairness in capital buildings.

“Any potential motion on this grievance may have cascading results throughout different FERC-regulated industries, as any departure from precedent would influence electrical corporations, pure fuel pipelines and different vitality corporations,” Clark stated. “Forcing ITC Midwest to restructure debt throughout this time of volatility and rising rates of interest would deliver important value threat to Alliant and all of ITC’s prospects.”

IPL has efficiently challenged a number of features of ITC Midwest’s transmission charges, together with the transmission firm’s election to decide out of utilizing bonus depreciation. which resulted in about $65 million in financial savings from 2015 to 2018, in accordance with Morgan Hawk, an Alliant spokesperson.

ITC Midwest’s transmission prices are handed by way of to prospects and make up about 20% to 25% of a typical IPL buyer’s invoice, Hawk stated in an electronic mail Wednesday.

In a 2014 return on fairness determination, FERC rejected a request that it set limits on the fairness ratio for MISO transmission homeowners, together with Alliant, saying the enterprise organizations behind the grievance failed to point out it’s unjust and unreasonable to have an fairness ratio above 50%.

“Previous actions is probably not indicative of what occurs going ahead, although, due to the modifications which have occurred at FERC … with the affordability method that they appear to be taking in comparison with prior commissions,” Patterson stated Tuesday.

Capital construction points “don’t get as a lot play” as ROE disputes, however they’re associated, in accordance with Patterson.

The grievance comes as MISO is getting ready a roughly $10.4 billion enlargement of its transmission system, presaging what might be a nation-wide, multi-billion greenback effort to enhance grid reliability and convey renewable vitality services on-line.

FERC can be contemplating methods to spur transmission improvement whereas ensuring the price of the buildout is as cheap as doable. The federal company is ready to carry a convention on transmission value administration this fall, which is slated to incorporate a dialogue of getting an unbiased monitor oversee transmission improvement.

FERC Chairman Richard Glick helps transmission improvement however has stated the company should scrutinize the way it impacts prospects’ electrical payments.

“We have now to acknowledge loads of transmission capability goes to be constructed,” Glick stated Might 19 throughout a press briefing. “It is as much as us to make sure that the prices which might be incurred are incurred prudently and are cheap.”