Entergy seeks Texas approval of grid transfer to ITC Holdings

HOUSTON Tue Feb 19, 2013 7:49pm EST

HOUSTON Feb 19 (Reuters) - Entergy Corp and ITC Holdings Corp have asked Texas regulators to approve Entergy's $1.78 billion plan to spin off its electric transmission business, the companies said on Tuesday.

New Orleans-based Entergy and Michigan-based ITC filed a request with the Texas Public Utility Commission (PUC) to allow Entergy Texas to spin off and merge its high-voltage power delivery assets into a subsidiary of ITC called ITC Midsouth LLC.

The Texas filing is the last of the local, state and federal applications needed to advance the deal to transfer Entergy's 15,400-miles transmission network to ITC. Applications are pending in Arkansas, Louisiana, Mississippi, Missouri and at the Federal Energy Regulatory Commission.

If approved, Entergy said the ITC deal will address "challenges facing the entire electric industry - challenges driven by the need to upgrade infrastructure, modernize equipment and meet growing environmental and compliance requirements," according to a release.

Entergy has said its four-state network in Louisiana, Mississippi, Arkansas and Texas might require up to $2 billion in upgrades over the next few years.

As a prerequisite to the ITC deal, Entergy plans to complete by year-end its integration into the Midwest Independent System Operator (MISO), an independent regional transmission organization where ITC already operates.

Membership in an RTO and divestiture of its grid network comes at the insistence of Entergy's regulators following a decade of complaints from independent power producers and others. The action also is necessary to resolve an ongoing civil investigation by the U.S. Department of Justice of Entergy's competitive practices, the agency said.

However, Entergy has run into a snag in Texas over its MISO transition.

An Entergy Texas filing raised PUC concern over what information Entergy may have had, but not disclosed, when it negotiated a settlement approved by the PUC last October.

The PUC wants an independent evaluation of how Entergy's plan to cancel some purchased power contracts will impact $133 million in savings expected to flow from MISO membership.

Entergy Chief Executive Leo Denault told investors earlier this month that the PUC issue was a "misunderstanding that we wish had not happened."

"But we are working to resolve the issue and move forward so that all of our customers can realize the benefits of joining MISO," Denault said.

Denault said the contracts Entergy wants to cancel relate to natural gas and oil-fired power plants in Texas and Louisiana dating back five years when Entergy Gulf States was split into two companies, one operating in Louisiana and one operating in Texas.

Denault said Entergy's analysis shows that "Entergy Texas will be in essentially the same position with or without" (the contracts).

For ITC, the Entergy transaction would double the high-voltage lines it controls to more than 30,000 miles across 11 states from the Great Lakes to the Gulf Coast.

Entergy and ITC announced the deal in December 2011 and want to complete it this year.