Entergy Texas and ITC Midsouth on Feb. 19 filed for approval with the Public Utilities Commission of Texas (PUCT) of Entergy‘s (NYSE:ETR) spinoff of its transmission business to ITC Holdings (NYSE:ITC) (PUCT Docket No. 41223).
“Entergy Texas is focused on meeting the energy needs of our customers now and in the future,” Sallie Rainer, Entergy Texas president and CEO, said in a statement. “This transaction paves the way for greater service reliability and lower delivered energy costs as we seek to meet the challenges associated with transforming the U.S. electric grid for the 21st century and beyond.”
“While our operations span many states, our commitment to the communities we serve is the cornerstone of our business and our mission to be a best-in-class transmission service provider,” ITC Chairman, President and CEO Joseph Welch said. “We look forward to bringing our expertise and partnering spirit to and the entire region to meet current and future energy demands.”
Under the proposed transaction with ITC, Entergy would transfer its transmission assets to four separate, new subsidiaries of ITC. Specifically, Entergy Texas’ transmission assets and liabilities will be transferred to a subsidiary, Transmission Company Texas (TCT), that, together with similar subsidiaries formed by the other Entergy Operating Companies will be placed under an Entergy holding company, Mid South TransCo. Mid South Transco will be spun off to Entergy’s shareholders and then merged with a subsidiary of ITC, ITC Midsouth. TCT will be renamed ITC Texas and will be ITC’s transmission utility in Texas.
In the application, the companies asked the PUCT to approve the transfer of ownership and control of Entergy Texas’ transmission facilities to ITC; approve the transfer of certificates of convenience and necessity rights associated with the transaction so that Entergy Texas and ITC Texas might operate as utilities in Texas; find that the reorganization of Entergy Texas is in the public interest; and approve a rider with a true-up mechanism.
In the application, the companies said the transaction results in a smaller balance sheet for Entergy Texas, better positioning the Entergy subsidiary to manage the “significant capital spending of the generation and distribution functions,” and relieving pressure that would increase Entergy Texas’ debts.
The transaction should also reduce costs to customers, the companies said. “The benefits of the ITC transaction, such as improved wholesale power markets, lower cost of debt and reduced congestion should reduce the overall cost of electricity for ETI’s customers over the longer term.”
The transaction is also tax-free, and the transmission rate base will not change, to the benefit of customers, they said.
Entergy Texas and ITC Midsouth also said the transaction would build on benefits of the RTO Day 2 wholesale market in the Midwest ISO (MISO).
The companies also asked that the PUCT approve a rider with a true-up mechanism to fully recover Entergy Texas’ transmission costs under the MISO tariff. After the transaction closes, Entergy Texas will obtain transmission service from ITC under the MISO tariff, and, rather than recover transmission investment and expense through rate base, will become a billing agent that passes third-party transmission charges through to its retail customers.
“The benefits of the transaction to ETI’s customers are significant, and ETI’s transmission costs resulting from implementation of the transaction should be fully and accurately recovered from retail customers,” the companies said.
To do so, they proposed two proceedings. In the first, they asked the PUCT to approve in principle Entergy Texas’ use of a rider to pass through to retail customers the actual costs the company pays for transmission service under MISO’s tariff. Entergy Texas will file the specific rider in a separate proceeding.
In the second, they asked that the PUCT authorize Entergy Texas to defer any cost differential that occurs if the transaction closes prior to the date that the rider is implemented to address the impact of the transaction on Entergy Texas’ transmission costs.
The PUCT said it anticipates rendering a decision in no more than 180 days of the application date. If the commission adopts the 45-day intervention deadline proposed in the application, the deadline to intervene will be April 5.
The companies proposed a hearing date of May 20.