I am attempting to add INITIATIVES as an option for our projects, I see that currently EPIC is set as top-level. I am not able to change that or modify it in a way to reflect INITIATIVE as the highest level.
What you see is correct, the way you have it set up in the picture means that Initiative is above Epic. Ignore the number, that is a bit misleading. You should read the list top to bottom, meaning that the level that is at the top is the top or the hierarchy.