By Eileen O'Grady
HOUSTON, July 9 A panel of administrative judges
on Tuesday urged Texas utility regulators to reject Entergy
Corp.'s plan to divest its electric transmission assets
to ITC Holdings Corp..
The recommendation, which is subject to review by the Texas
Public Utility Commission, could damage Entergy's effort to
complete the transfer of grid operations in four states in a
deal valued at $1.78 billion.
The transaction, a spin-off and merger, has received
approval from federal regulators. But critics in four states
have questioned whether the plan would increase transmission
rates for Entergy customers without providing sufficient
"The transaction would enrich (Entergy Texas) shareholders
and ITC executives, remove transmission rates from commission
jurisdiction, and increase the transmission rates for customers
- all while providing only potential benefits that largely have
not been, or cannot be, quantified," the judges said in their
proposal for decision.
Entergy operates a 15,400-mile transmission network serving
parts of Arkansas, Louisiana, Mississippi and Texas that is the
subject of an ongoing civil investigation by the U.S. Department
of Justice into Entergy's competitive practices.
Entergy and ITC officials said they were disappointed with
the decision and hope the Texas commission will consider recent
commitments made by the companies to offset higher rates until
customer benefits can be clearly demonstrated.
"The ITC-Entergy transaction delivers near-term and
longer-term benefits that result from a high-performing
transmission system, including improved reliability and
efficiency and lower overall costs of delivered energy to the
region," said ITC spokeswoman Louise Beller.
"While we're disappointed in this recommendation, we are
encouraged that many of the issues raised by the (judges) have
been addressed already in follow-up filings," said Entergy Texas
spokesman David Caplan.
If the deal is approved in Texas, Entergy and ITC have
proposed to spend $90 million to offset higher customer bills
over the first few years.
In testimony filed after the May hearing and not considered
in Tuesday's decision, ITC Chief Financial Officer Cameron
Bready said efforts to mitigate higher rates will be implemented
in each Entergy state. The mitigation will continue until
benefits of ITC's ownership can be shown to offset increased
costs related to its higher allowed return on invested capital.
The Texas PUC is expected to take action on the application
by mid-August. Other states have yet to take action on the
divestiture plan but have expressed similar concern about
benefits of the deal.
"Interveners and commission staffs have consistently
questioned the lack of specific commitments and tangible
benefits" of the deal, said David Cruthirds, a Houston-based
attorney who tracks utility regulation.
In Arkansas, Entergy and ITC have proposed spending $117
million on rate mitigation.
Cruthirds called that offer "a meaningful proposal," in a
newsletter to clients. "It may not be enough, but Entergy and
ITC have shown they are willing to pay a fairly handsome ransom
to salvage the transaction."
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. Membership in an RTO and divestiture of its grid
network are necessary to resolve a civil investigation opened by
the Department of Justice in 2010 scrutinizing Entergy's
competitive practices, according to the agency.