December 10, 2013 / 6:56 PM / 4 years ago

UPDATE 1-Mississippi rejects Entergy grid transfer to ITC

HOUSTON, Dec 10 (Reuters) - The Mississippi Public Service Commission on Tuesday rejected Entergy Corp’s deal to divest its transmission operation to ITC Holdings in a transaction valued at $1.78 billion.

In a 3-0 vote, the Mississippi commission said the transaction was not in the public interest and would raise transmission rates for Entergy Mississippi customers

The transaction is a spin-off and merger of Entergy’s 15,400-mile transmission network serving parts of Arkansas, Louisiana, Mississippi and Texas.

The deal, which would double the size of ITC’s operation, has been approved by federal regulators and ITC shareholders, but faced growing opposition from state regulators in several states.

The Mississippi commission is the first state to deny the transaction.

The commission’s order said testimony indicated customers would pay $348 million more over 30 years under ITC ownership because ITC can earn a higher rate of return allowed under federal regulation compared to state regulation.

The transaction “offers with certainty only significant cost to rate payers and complete loss of this commission’s rate jurisdiction over the transmission assets at issue,” the commission said.

“We are disappointed that the Mississippi commission took action today and found that the transaction is not in the public interest,” said Entergy spokesman Michael Burns. “We will evaluate the Mississippi commission’s 99-page order and work with ITC to determine next steps.”

“It is not a surprise given the opposition we have seen,” said Paul Patterson, an analyst at Glenrock Associates in New York.

Entergy and ITC sought to address state concerns by offering a total of $453 million in rate mitigation over five years to Entergy customers to offset ITC’s higher rate of return.

In Mississippi, Entergy and ITC offered $77.5 million in rate mitigation.

The Texas Public Utility Commission was preparing to reject the deal in August, but allowed Entergy and ITC to withdraw and resubmit the proposal to include details of the mitigation plan for Texas.

A second hearing on the deal was held in Texas in late November, but the commission has not ruled.

Other utility regulators in Louisiana, Arkansas and the City of New Orleans are still considering the deal.

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