ITC Holdings (NYSE:ITC) Chairman, President and CEO Joseph Welch said during the company’s 1Q12 earnings call April 25 that while the company’s business continues to perform well and ITC remains on track with its goals, it also remains focused on successfully implementing its transaction with Entergy (NYSE:ETR).
As reported, Entergy will spin off its transmission business into Mid South TransCo, which will subsequently merge into ITC.
“Since our [December 2011] announcement, we have been largely focused on our initial outreach plan, which have involved significant interactions and meetings with key constituents in Entergy’s operating region,” Welch said. “This effort, which we view as critical to the overall success of the transaction, has provided us an opportunity to explain the proposed transaction; effectively introduce ITC and our independent transmission model to the region, as well as its inherent benefits; and better understand the perspectives and concerns of the parties who will be actively involved in the regulatory approval process.”
Overall, he added, the effort has been productive and informative, and will ultimately help facilitate a more constructive regulatory approval process.
“[W]e also have begun the process of preparing and refining the applications and testimony that will be made with the various retail jurisdictions,” he said, noting that these applications are required at the retail level for a change in control of the Entergy transmission business, along with certain financing that will be executed in conjunction with the initial spin of the transmission business under Entergy.
“We expect to finalize these applications and initiate a sequenced filing schedule beginning” in mid-summer, Welch said.
“Further, we are also in a similar position with respect to our FERC applications, which are required to consummate the transaction,” he said. “These applications include approval for the change in control of the Entergy transmission operating companies that will be created as well as establishing new rate tariffs for these operating companies. Similar to the retail level applications, we expect to have these applications completed and filed mid-summer.”
Welch said that based on the current filing schedule, the timelines anticipated for each of the activities should allow the transaction to close in 2013, as initially contemplated.
One of the conditions to closing on the transaction is that Entergy receives approval to join an acceptable RTO, “which we expect to be satisfied through a successful conclusion of Entergy’s efforts to join [the Midwest ISO (MISO)],” he said.
An important milestone in the process was recently reached when FERC conditionally approved MISO and its transmission owners’ proposal to establish a transition period for Entergy’s integration, he noted.
“Entergy is currently in the process of seeking approvals from its retail regulators to join MISO and such approvals are expected in a timeframe that will support the anticipated closing of our transaction in 2013,” he said.
Cameron Bready, ITC’s executive vice president and CFO, agreed that the transaction process remains “pretty much on schedule with what we had originally expected.”
The discussions involving various state jurisdictions and the city of New Orleans have been broad based and focus on several matters, including explaining what is a relatively complex transaction to many constituents and why it was structured the way it was, he said.
“[T]he second area of focus has been on introducing ITC,” he said. “This is an area of the country that’s probably not entirely educated at this point on the independent transmission model and a lot of our focus has been to introduce ITC, its operating record, how we run our business, how we plan our business, what we bring to the region in terms of an operator and how the independent model, we believe, adds value to the overall enterprise.”
Also discussed have been key issues that retail regulators, in particular, are going to have, which are how the transaction impacts their jurisdictions over regulating the assets and what are the anticipated implications from a rate perspective of executing the transaction, Bready said.
Furthermore, there is a large group of users and customers who ITC has been trying to interact with, he said, noting that their concerns are focused on reliability.
“We’re using a lot of those conversations [and] feedback we’ve received to ensure that as we’re preparing our applications and testimony, we’re trying to be as thoughtful…as we can be to address issues and concerns that we know the constituent groups are going to have,” Bready said.
ITC said April 24 that its reported net income for the quarter ended March 31 was $46.1m, compared to $42m for the first quarter of 2011.
Operating earnings for the quarter were $48.6m, compared to operating earnings of $42m for the first quarter of 2011. Operating earnings are non-GAAP measures that exclude the impact of after-tax expenses of about $2.5m, associated with the Entergy transaction.
ITC also said that for the three months ended March 31, it invested $203m in capital projects at its operating companies, including $41.1m, $39.8m, $92.4m and $29.7m at ITC Transmission, METC, ITC Midwest and ITC Great Plains, respectively.