Entergy move to MISO advances; DOJ keeps grid investigation open

Thu Nov 15, 2012 7:43pm EST

* Entergy gains final state approval to join MISO

* DOJ civil investigation remains open, pending sale of assets

* Purchase of KGen power plants to close by year end

By Eileen O'Grady

HOUSTON, Nov 15 (Reuters) - Entergy Corp obtained the final state and local approval to join the Midwest Independent Transmission System Operator (MISO) on Thursday, action needed to advance its plan to spin off its transmission business to ITC Holdings Corp in a $1.78 billion transaction in 2013.

Utility regulators in Mississippi and the New Orleans City Council gave separate Entergy units the go-ahead to transfer control of the utilities' high-voltage transmission system to MISO, an 11-state power region.

ITC Holdings has been watching Entergy's effort to join MISO or another regional independent system operator as a requirement to go forward with its deal to acquire Entergy's 15,000-mile transmission network.

Also watching is the U.S. Department of Justice which Entergy disclosed in October 2010 had launched a broad civil investigation of the utility's competitive practices.

In a press release issued late Wednesday marking the DOJ's first comment on its investigation, the DOJ said its antitrust division has explored "whether Entergy has harmed consumers by exercising its control over its transmission system and dominant fleet of gas-fired power plants to exclude rival operators of low-cost combined-cycle gas turbine power plants from competing to sell long-term power."

The DOJ allegations echo complaints voiced over the past decade by independent power producers that build natural-gas fired power plants in Entergy's four-state territory of Louisiana, Arkansas, Mississippi and Texas.

The agency focused on whether Entergy "effectively foreclosed these more efficient rivals from obtaining long-term firm transmission service" necessary for selling long-term power products to wholesale customers.

The release "shows the DOJ has the same concerns I have had - and others have shared over the years - that Entergy has operated its system to the best benefit of Entergy and not to help the customers," said Mississippi Public Service Commissioner Brandon Presley.

Mississippi's approval of the transition to MISO "is a move to finally take away any chance for Entergy to do self-dealing and to put these assets where they can be independently operated," Presley said.

Entergy said its membership in MISO will lead to savings of up to $1.4 billion over 10 years for its 2.8 million customers.

Entergy Chief Executive Wayne Leonard has said he wants to divest the transmission operation because the significant investment needed in coming years will be a drain on Entergy's finances as it bolsters its generation business.

The company continues to disagree with the DOJ allegations, noting that its practices are subject to thorough review of state and federal regulators and have satisfied applicable laws.

The DOJ said if Entergy successfully joins an RTO and divests its grid, it will resolve the antitrust division's concerns "by eliminating Entergy's ability to maintain barriers to wholesale power markets, ensuring that all Entergy service area generation is dispatched independently and at lowest cost, increasing market transparency and oversight, and properly aligning incentives for the construction of transmission," the DOJ said.

Although state regulators have approved Entergy's move to MISO, the ITC transaction is another matter that will require much more scrutiny, two state regulators said. The DOJ investigation only increases the pressure on Entergy and ITC to work for that approval.

The agency said its probe into alleged anticompetitive conduct remains open. Should Entergy not move forward with a divestiture, the antitrust division "can and will take appropriate enforcement action, if warranted."

One issue for state regulators evaluating the ITC deal will be the 12.38 percent return ITC seeks from FERC for the Entergy transmission assets, a higher return than Entergy currently earns under state regulatory schemes.

"It's too soon to judge the merits of the Entergy-ITC request to transfer assets," said Ken Anderson, a member of the Texas Public Utility Commission. "There will be a lot of issues."

Entergy said short- and long-term benefits of ITC ownership of its grid will offset the "modest retail bill effects resulting from changes in the transmission revenue requirement."

The DOJ said it closed its investigation into Entergy's purchase of natural gas-fired power plants in Arkansas and Mississippi from KGen Power Corp, saying the acquisition was unlikely to lessen competition.

The sales, announced in 2011, had been delayed for months by the ongoing DOJ investigation, according to the companies.

Entergy said the deals will close by year-end. Entergy Arkansas will buy KGen's 620-megawatt Hot Spring plant for $277 million. Entergy Mississippi will buy the 450-MW Hinds plant for $246 million.

The KGen plants will bring to seven the number of generating plants Entergy has purchased for bargain prices from struggling independent generators.

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