UPDATE 1-Texas may seek to revoke Entergy move to Midwest grid

Thu Jan 10, 2013 5:31pm EST

* MISO membership needed for ITC Holdings transaction

* Texas regulators want time to analyze contract changes

* Entergy seeks alternate resolution

By Eileen O'Grady

HOUSTON, Jan 10 (Reuters) - Texas regulators said Thursday that a plan by Entergy Corp to end certain power contracts may undermine economic benefits for Texas customers that regulators relied on to approve the firm's move to the Midwest Independent Transmission System Operator (MISO).

Depending on Entergy's action later this month, the Texas Public Utility Commission may seek to revoke its October vote to approve Entergy's integration into MISO set to be completed by the end of this year, said Texas Commissioner Ken Anderson.

A lot is riding on Entergy's effort to transfer control of its 15,000-mile, high-voltage grid network to MISO.

MISO membership is a key requirement in Entergy's plan to spin off its transmission business to ITC Holdings Corp in a $1.78 billion transaction.

Entergy's divestiture of its transmission business is also a requirement to resolve an ongoing civil investigation by the U.S. Department of Justice of Entergy's competitive practices.

The controversy over Entergy's transition to MISO was sparked by a Texas filing which raised commission concern over what information Entergy may have had, but did not disclose, when it negotiated the settlement with other companies that the PUC eventually approved.

Anderson said a new economic analysis by Entergy indicates that $133 million in savings to Texas customers could be wiped out if Entergy moves forward with a filing at the Federal Energy Regulatory Commission (FERC) seeking to end certain purchased power agreements.

Anderson chastised Entergy's behavior in the case, saying it was "unacceptable conduct for a regulated utility" and describing it as part of Entergy's "long history of hiding the ball."

"It will not be tolerated any further," Anderson said. "Phrasing their words in such a way to give them loopholes and exceptions just won't work."

Commission Chairman Donna Nelson said if Entergy seeks to change the power contracts at FERC, "it will be contrary to the facts we relied on" to approve the MISO transition.

"If you reform these contracts, the contracts upon which this commission relied when we approved the transition to MISO, we lose the benefits that were shown to us for the transition," Nelson said.

Commissioners advised Entergy to delay a FERC filing until an independent analysis can determine how ending the purchased power contracts will impact MISO's allocation of transmission revenue rights to Entergy Texas, which is important to creating customer savings.

John F. Williams, an attorney representing Entergy, told the commission that the FERC filing needs to be made by the end of January, but that the company is working to find another resolution.

"We're going to live up to our obligations to our customers and our regulators," Entergy spokesman David Caplan said in a statement.

"We are already working with PUC staff to come up with a solution that satisfies everyone, so that our Entergy Texas customers get the benefits of joining MISO," Caplan said. "We intend to continue to work through this with the staff, clear up any misunderstandings and make sure we are on the same page going forward."

Entergy cites several reports that show that MISO membership will lead to savings of up to $1.4 billion over a decade for Entergy's 2.8 million customers in Louisiana, Arkansas, Mississippi and Texas.

Meanwhile, ITC and Entergy continue to work on regulatory approval of the spin off and merger which will double ITC's size. Filings have been made in Louisiana, Arkansas, Mississippi, the New Orleans City Council and with FERC, according to the company's website.

"We continue to remain focused on obtaining the necessary approvals in our transaction, and we are hopeful this recent issue can be resolved quickly among the parties," said Bob Doetsch, an ITC spokesman.

MISO officials declined to comment.

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