UPDATE 2-NY rejects Entergy nuclear reactor spinoff plan

* PSC says deal not in the public interest

* Entergy aiming to transfer six reactors to Enexus

* Entergy has option for re-hearing or file new petition

* Entergy board to review commission decision next week (Updates with company comment, adds background)

NEW YORK, March 25 (Reuters) - The New York Public Service Commission on Thursday rejected Entergy Corp's (ETR.N) proposed plan to spin off three nuclear power plants in New York to Enexus as not in the public interest.

Entergy wanted to spinoff six unregulated reactors capable of generating 5,000 megawatts, including three in New York, to a new company called Enexus Energy Corp.

Entergy said it was disappointed with the vote.

"We believed the petition, as amended, met the legal standard in New York as it applied in this proceeding and that the spin(off) is in the best interests of all stakeholders," said Entergy spokesman Michael Burns.

Burns said the Entergy board of directors will meet next week at an annual strategy session to review the commission action.

The Commission said Entergy has the option to seek a re-hearing or to file a new petition.

In early March, Entergy sweetened its earlier proposal by offering to pay up to $300 million to the state's energy efficiency fund over 15 years if future power prices exceed certain levels, and reduce the amount of debt Enexus would start with to $3 billion from $3.5 billion.

Entergy also said it would restrict Enexus' dividend payments until the company achieves a BB+ credit rating, or a 50 percent or lower net debt-to-capitalization ratio.

But the Commission on March 4 put off a decision on Entergy's offer, which was not well received by the PSC staff, because Entergy filed it a couple days before the meeting.

The PSC staff told the Commission the transaction was not in the public interest due in part to concerns about the long term financial stability of the new company and a lack of ratepayer benefit from the proposed deal.

In New York, Entergy wants to transfer the 852-MW FitzPatrick reactor in Oswego County on Lake Ontario and the 2,045-MW Indian Point reactors in Westchester County about 45 miles (72 km) north of Manhattan.

Outside of New York, Entergy wants to transfer the 685-MW Pilgrim reactor in Massachusetts, 778-MW Palisades in Michigan and 620-MW Vermont Yankee in Vermont.

In return, Entergy shareholders would eventually have received all of Enexus's capital stock and Entergy would have received cash and reductions in debt worth about $3 billion. The shares of the two companies would trade independently.

ENEXUS HISTORY

Entergy announced the proposed spinoff in November 2007. In January 2008, Entergy sought a ruling from the New York PSC that it would not need to review the proposal. But in May 2008 the PSC said it would review the transaction because of its potential to harm ratepayers.

After review by administrative law judges and months of negotiations, Entergy in July 2009 requested that the PSC take action no later than November so the spinoff could be completed by the end of 2009.

In addition to New York, the U.S. Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC) and the Vermont Public Service Board must approve the deal. FERC and the NRC gave their approvals in 2008.

The Vermont PSB completed hearings in 2008 but has not taken final action in part due to a radioactive tritium leak at the Vermont Yankee reactor, which the company said on Thursday it located. [ID:nN25251871] (Reporting by Scott DiSavino in New York and Eileen O'Grady in Houston; Editing by Alden Bentley)