Entergy cleared to buy plants, but antitrust investigation continues
Published: November 15,2012
JACKSON — Federal officials say Entergy Corp. can buy two power plants from KGen Power Corp. for $523 million, but say the antitrust investigation of Entergy is not over.
In making the announcement yesterday, the Department of Justice’s antitrust division indicated that it believes Entergy abused its control of its transmission lines to harm independent power generators like KGen. Those statements lend credence to claims that Entergy illegally manipulated the power market in its four-state territory of Arkansas, Louisiana, Mississippi and Texas, preventing upstart competitors from signing profitable long-term contracts to ship electricity over Entergy wires.
The company said the deal would close by year’s end. It again denied wrongdoing.
“Entergy believes that its practices and policies, which have been subject to thorough review and regulation by the Federal Energy Regulatory Commission, state electric utility regulatory commissions and local regulators, have satisfied all applicable laws and regulations,” spokesman Mike Burns said in a statement. “The Entergy utility companies are cooperating with the Department of Justice.”
The Justice Department said in its statement that Entergy’s explanations of its behavior were not “persuasive.”
The New Orleans-based utility has a deal to buy generating stations in Jackson and Malvern, Ark., from Houston-based KGen. Purchases of the natural gas-fired plants were delayed by the federal investigation that has been conducted in near-silence since 2010.
The Justice Department, in green-lighting the KGen purchases, said they were “unlikely to substantially lessen competition.”
Officials say Entergy’s plans to join a regional transmission organization called MISO and spin off long-distance power lines to ITC Holdings Corp. will “restore competition” and resolve its concerns. However, Justice officials say if Entergy doesn’t take those steps, it may still take action against the utility. The Justice Department could sue to force compliance.
“The division will closely monitor developments, and in the event that Entergy does not make meaningful and timely progress, the division can and will take appropriate enforcement action, if warranted,” antitrust prosecutors said in a statement.
KGen is eager to sell the money-losing plants. It plans to dissolve once the sale is complete.
The statements also raise questions about whether Entergy decided to join MISO and divest its power lines to ITC out of its own free will or under threat of federal prosecution.
MISO, or the Midwest Independent Transmission System Operator, is a Carmel, Ind.-based group that’s a traffic cop for electricity movement in parts of 11 Midwestern states and Canada’s Manitoba province.
Joining MISO is supposed to save Entergy customers $1.4 billion over 10 years. MISO says it will ensure Entergy customers get the cheapest possible electricity, even if it comes from a faraway plant instead of one owned by Entergy. Regulators in Arkansas, Louisiana and Texas have approved the MISO move, and Mississippi regulators are likely to approve Thursday. That would leave pending only approval by the New Orleans City Council.
Michigan-based ITC Holdings Corp. would assume ownership of Entergy’s long distance high voltage lines, but that transaction must be approved separately by regulators.
“They’re finding that they’ve got to restore competition. They’ve impeded it. They choked down the transmission grid,” said Mississippi Attorney General Jim Hood. The Democrat is suing Entergy saying it misused its control over the grid to force Mississippi ratepayers to buy expensive power from outmoded Entergy plants.
Entergy also faces a class-action lawsuit in Texas. Both suits follow two legal actions in Louisiana.
Independent generators swarmed into the South in the late 1990s at the prospect of power deregulation, but owners lost large sums. Some power plants in Entergy territory were dismantled and others struggled to make debt payments. Entergy took advantage of the distress, buying five plants built by independents.
The company plans to use KGen’s Jackson plant to replace an older gas-fired plant three miles away that burns gas only half as efficiently, saving at least $3 million a year in fuel costs.
“I think, all in all, the KGen plant provides Mississippi ratepayers with a great benefit,” said Brandon Presley, Democratic public service commissioner for Mississippi’s northern district.
A Mississippi residence using 1,000 kilowatt hours per month would pay an additional $1.65 a month to finance the Mississippi plant. In Arkansas, a 1,000 kilowatt-hours-per-month residence would pay $1.86 a month for that KGen plant. Most residents in those states use more than 1,000 kilowatt hours per month, according to federal data.
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