By Eileen O'Grady
HOUSTON (Reuters) - Entergy Corp
Last month, the $1.78 billion proposal faced certain rejection by the Texas Public Utility Commission and was withdrawn by Entergy Texas and ITC officials.
Since then, other state regulators that also must approve the plan moved to delay consideration, fueling speculation that the deal might not be completed.
"We will soon re-file our application in Texas for the ITC transaction, and we'll request expedited treatment," Entergy spokesman Mike Burns said in a statement.
The transaction is a spin-off and merger of Entergy's 15,400-mile transmission network serving parts of Arkansas, Louisiana, Mississippi and Texas. It has been approved by federal regulators and ITC shareholders.
But state regulators, who would give up authority to set ITC transmission rates after the transfer, questioned whether ITC ownership would provide sufficient benefits to consumers to outweigh the cost.
Entergy and ITC have responded by offering a total of $453 million to lower consumer rates over five years to Entergy customers to offset ITC's higher rate of return.
"After re-filing in Texas, we'll get procedures restarted in Arkansas, Louisiana and New Orleans. In Mississippi, we'll respond to proposed conditions later this month," Burns said.
In a note to clients on Thursday, Morgan Stanley analysts cited "mounting regulatory headwinds" and said several conditions set out by Ken Anderson, one of three commissioners of Texas Public Utility Commission (PUC), made the completion of the deal "unlikely."
"We believe the transaction will not close due to several key conditions of Commissioner Anderson's that are in our view likely to be non-starters for (Entergy) and ITC," the note said.
Those conditions included a requirement that ITC seek PUC approval before upgrading or replacing Entergy Texas facilities for which it wanted to recover its costs. Other conditions were that ITC not seek higher rates for existing Texas transmission assets for five years and not seek higher "incentive" rates for new facilities in Texas without PUC approval for 10 years.
David Cruthirds, a Houston-based attorney who tracks utility regulation, said Anderson's conditions may require Entergy and ITC to rethink the transaction.
"My guess has been that they are working to address those issues, but to do that I think they (Entergy and ITC) are going to have to redo the whole transaction and the timing," said Cruthirds. "That's a significant amount of work. And there's no guarantee they will be successful."
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.
"We remain convinced that independent transmission—and ITC ownership—produces the greatest benefit for our customers, our employees and our communities," Entergy's Burns said.
The Department of Justice which launched a broad civil investigation of Entergy's competitive practices in 2010 is also watching the Entergy-ITC transaction.
RTO membership and divestiture of Entergy's grid network are necessary to resolve the investigation, according to the agency.
(Editing by Leslie Adler and Diane Craft)