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HOUSTON, Aug 9 (Reuters) - Texas utility regulators approved a motion on Friday to allow Entergy Corp and ITC Holdings to withdraw a plan to transfer Entergy's electric transmission assets in Texas to ITC.
Facing likely rejection by the Texas Public Utility Commission, or PUC, the companies asked that the $1.78 billion proposal be withdrawn so they can resubmit the plan with additional information on how they will offset higher costs for rate-payers.
The transaction, a spin-off and merger of Entergy's 15,400-mile transmission network serving parts of Arkansas, Louisiana, Mississippi and Texas, requires action by a number of other state and local regulators.
The Texas commission was the first state regulator to vote on the proposal and faced a deadline later this month to act.
The deal, which has been approved by federal regulators and ITC shareholders, faces opposition in other states.
Last month, a panel of administrative judges urged the Texas PUC to reject the plan, saying that it would raise transmission costs for Entergy customers without providing sufficient benefits.
With similar criticism raised in other states, Entergy and ITC have offered a total of $453 million in rate mitigation over five years to Entergy customers to offset ITC's request for a higher rate of return.
Under the plan, Entergy Texas customers would receive $90.1 million in rate reduction over the five-year period.
That plan was disclosed after regulatory hearings in Texas were closed and could not be considered by the two-member commission on Friday.
"This process doesn't allow last-minute evidence," said Commissioner Ken Anderson, who also criticized the companies for seeking approval in Texas before action had been taken in other states.
Anderson then outlined 26 "make or break" conditions he said might allow the deal to advance, but Entergy and ITC would not agree to the conditions.
As a result, PUC Chairman Donna Nelson said that unless the companies withdrew their plan, she would have no choice but to reject the proposal due to the many unanswered questions.
"We appreciate the commission's decision to allow us to withdraw our application, with an opportunity to refile so that all of the commitments that we have already indicated we are prepared to make can be included in the record for the commission to consider," said ITC spokeswoman Louise Beller in a statement.
"We continue to believe that this transaction would deliver the near-term and longer-term benefits to customers that result from a high-performing, reliable transmission system," she said.
Entergy and ITC are under pressure to obtain regulatory approval of the deal before the end of the year.
As a prerequisite to the ITC deal, Entergy has joined the Midcontinent Independent System Operator, or MISO, an independent regional transmission organization, or RTO, where ITC operates.
RTO membership and divestiture of Entergy's grid network are necessary to resolve a civil investigation opened by the Department of Justice in 2010, scrutinizing its competitive practices, according to the agency.