The Federal Energy Regulatory Commission (FERC) on Thursday approved Entergy Corp's (ETR.N) $1.78 billion plan to spin off and then merge its electric transmission business with ITC Holdings Corp ITC.N.
FERC said in a statement that the transfer of assets is consistent with the public interest and meets the commission's merger policy.
New Orleans-based Entergy and Michigan-based ITC are working to gain approval in several states to divest Entergy's high-voltage power delivery assets into an ITC subsidiary called ITC Midsouth LLC.
On completion of the deal, Entergy shareholders would own 50.1 percent of the newly enlarged ITC and existing ITC shareholders would own the remaining 49.9 percent. Entergy would receive gross cash proceeds of $1.78 billion from indebtedness incurred in connection with the transaction, while the new ITC would assume responsibility for the debt.
Entergy operates a 15,400-mile transmission network serving parts of Arkansas, Louisiana, Mississippi and Texas.
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," Entergy has said.
Entergy has said its four-state network might require up to $2 billion in upgrades over the next few years.
As a prerequisite to the ITC deal, Entergy has joined the Midcontinent Independent System Operator (MISO), an independent regional transmission organization where ITC already operates.
Membership in an RTO and divestiture of its grid network come 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.
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 the transaction this year.
(Reporting by Eileen O'Grady in Houston)