LITTLE ROCK, Ark. and NOVI, Mich., Sept. 28, 2012 /PRNewswire via COMTEX/ — Entergy Arkansas, Inc., in conjunction with ITC Holdings Corp. (ITC) and ITC Midsouth LLC, filed a request today at the Arkansas Public Service Commission to spin off the Arkansas electric transmission business and merge it into a subsidiary of ITC.
The Arkansas filing continues the multi-state and federal regulatory process seeking approval for the transaction announced last year by Entergy Corporation ETR +0.65% and ITC.
The transaction is a significant step toward meeting the challenges facing the entire electric industry -challenges driven by the need to upgrade infrastructure, modernize equipment and meet growing environmental and compliance requirements. The Arkansas filing aligns with the companies’ regulatory schedule and is responsive to the timetable set forth by the Arkansas Public Service Commission (APSC).
“This initiative lays the groundwork for the 21st century electric grid serving Arkansas and the region,” said Hugh McDonald, president and chief executive officer of Entergy Arkansas, Inc. “It results in two companies that are stronger in many ways – operationally, financially, and strategically – and that are best positioned to meet the growing demands placed on the electric industry.”
Entergy is seeking approval to transfer more than 15,800 miles of interconnected transmission lines at voltages of 69kV and above and the associated substations to ITC. ITC will then be one of the largest electric transmission companies in the U.S., with more than 30,000 miles of transmission lines spanning from the Great Lakes to the Gulf Coast. In Arkansas, ITC would serve wholesale customers including Entergy Arkansas and other entities using Entergy’s transmission lines such as the Arkansas Electric Cooperative Corporation and the municipal electric authorities of the cities of Jonesboro, Conway, West Memphis, and Osceola, as well as independent power producers. Meanwhile, Entergy’s operating companies will continue to own and operate their respective distribution and generation businesses and will provide customer service, billing, outage reporting and restoration services to homes and businesses in the region.
ITC Chairman, President and Chief Executive Officer Joseph L. Welch noted that ITC is looking forward to being a strong corporate citizen in the state. “While our operations span many states, our commitment to the communities we serve is the cornerstone of our business and our mission to be best-in-class transmission service providers,” he said. “We look forward to bringing our expertise and partnering spirit to Arkansas and the entire region to meet future energy demands.”
Rationale and Results
The need for more infrastructure investment is among the many challenges confronting the U.S. electric industry. The electric industry, including Entergy’s operating companies, faces growing capital investment requirements to maintain and upgrade infrastructure, meet environmental regulations and serve an energy-intensive economy. The transaction addresses these challenges head-on and produces numerous benefits, including:
Independent model: Customers and other stakeholders will benefit from ITC’s proven independent business model for owning and operating transmission systems. ITC’s independence from all buyers and sellers of electric energy provides the highest level of confidence that improvements to the electric transmission grid are planned for the broadest public benefit.
In Arkansas, the proposal is consistent with the APSC’s clearly stated desire and objective for Entergy Arkansas to operate as independently as possible from the other Entergy operating companies by virtue of ITC’s independence from Entergy Arkansas.
Singular focus: The transaction results in two companies that are more specialized and focused – ITC on transmission and Entergy on generation and distribution. ITC has a demonstrated capability to operate transmission systems at industry-leading levels of safety and reliability. At the same time, the Entergy operating companies will increase their focus on their respective generation fleets and distribution systems.
Wholesale markets and a regional planning view: The transaction enables infrastructure investment and builds upon the benefits of the wholesale market. By structurally separating the transmission business from generation and transmission businesses, the transaction encourages greater participation in the transmission planning process and disclosure of information by third parties – leading to an improved process. Further, the independent model aligns with national policy objectives to facilitate investment in local, regional and inter-regional transmission, and advances open access initiatives.
Financial strength and flexibility: Once completed, the transaction will yield separate companies with strong balance sheets and greater capability to finance the infrastructure investment requirements of today and in the future. The Entergy operating companies reduce debt, improve cash flow, and focus their capital expenditures on generation and distribution. ITC improves access to capital for the transmission business and focuses its financial resources solely on the performance of the transmission system.
Additional Transaction Facts and Next Steps
In addition to the miles of transmission lines and acres of substations involved in the transaction, approximately 750 Entergy employees, including key leadership personnel from Entergy’s transmission business, will become employees of ITC. ITC will have offices and warehouses throughout Arkansas and the rest of the Entergy service territory to ensure a local presence and timely response to stakeholder and system needs.
Entergy and ITC initiated the regulatory process on Sept. 5 with a joint application filing with the Louisiana Public Service Commission. The two companies subsequently filed joint applications with the New Orleans City Council on Sept. 12 and the Federal Energy Regulatory Commission on Sept. 24. ITC filed a combined registration statement, proxy statement and prospectus on Form S-4 with the Securities and Exchange Commission on Sept. 25, 2012. The remaining regulatory filings for the transaction will be completed this year in Mississippi, Missouri and Texas. The companies target a transaction close in 2013 pending receipt of all required regulatory approvals and satisfaction of other closing conditions.