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Still no new filings in Entergy-ITC merger

EntergyJACKSON — Almost a month after Entergy Corp. and ITC Holdings Corp. withdrew their merger application in Texas, they haven’t refiled. Since then, Louisiana, Arkansas and Mississippi have delayed consideration of the merger.

“We’re wanting to see where Texas goes on this,” said Eric Skrmetta, chairman of the Louisiana Public Service Commission.

Observers say the delays almost certainly mean the companies won’t complete the merger by year’s end, as originally scheduled, and call into question whether it will be completed at all.

“We perceive management’s growing silence as indicative of deal risk,” wrote Dumoulin-Smith of Swiss investment bank UBS AG in an Aug. 19 note to clients. “Even if the deal goes forward, the economics will likely be substantially eroded for Entergy.”

Dumoulin-Smith recommends investors sell Entergy stock. Shares closed at $62.92 Friday, having fallen by 13 percent since late July, steeper than a broader drop in utility stocks.

In December 2011, New Orleans-based Entergy said it would transfer its high-voltage lines to ITC of Novi, Mich. That company would issue Entergy shareholders enough stock to give them a majority of ITC shares worth more than $2 billion, and ITC would also assume $1.78 billion in debt. Entergy and ITC won Federal Energy Regulatory Commission approval in June.

The companies say only that they’re assessing options following the Aug. 9 application withdrawal, when Entergy and ITC said they couldn’t agree to all conditions demanded by the Texas Public Utility Commission.

“We have not yet re-filed and have not made a final decision as to our path forward in Texas,” Entergy spokesman Mike Burns said. “We have a merger agreement in place with ITC and are evaluating our next steps under that agreement.”

“We remain of the view that this transaction would deliver the near-term and longer-term economic benefits to customers and the region that result from a high-performing, reliable transmission system and a regional planning perspective that facilitates the benefits of the competitive electricity market,” ITC’s Louise Beller wrote in a statement.

Charles Fishman, an analyst for Chicago-based Morningstar Inc., says he thinks ITC, in particular, still wants the deal to happen. But he said the year-end schedule is almost certainly dead. As for the overall merger, he said, “It certainly is less certain today that it was a month ago.”

Already, the two companies have offered more than $350 million in rate concessions over the next five years, including $134.4 million in Arkansas, $129 million in Louisiana, $90 million in Texas, $77.5 million in Mississippi and $40 million in New Orleans. The companies say this protects customers from paying more until the benefits of the deal are established, although some regulators question if the money is really enough.

The companies offered the savings in Texas after a procedural deadline, leading commissioners to bar consideration. Presumably, that obstacle would evaporate in a new filing, but as part of the Texas effort, Entergy and ITC agreed to other concessions that could cost money.

“We continue to expect either the deal will be abandoned, or look for a renegotiated agreement between (Entergy and ITC) over the prospective sharing in any potential deal economics, particularly given the significant potential reductions to authorized rates should the transaction be approved,” Dumoulin-Smith wrote.

Even if the deal is cost-neutral to customers, regulators still fret about the Federal Energy Regulatory Commission taking control of what transmission projects get built. Entergy and ITC said states will still have approval over sites for new power lines.

“This has to be a case that meets the interests of Mississippi consumers,” said Brandon Presley, Mississippi’s northern district public service commissioner. “There have been lots of issues raised regarding the commission’s loss of jurisdiction and other things.”

Entergy already won approval to join the Midcontinent Independent System Operator, a group that directs electricity movement. MISO is supposed to save Entergy customers $1.4 billion over 10 years, ensuring they get the cheapest possible electricity. Regulatory staffs have said MISO membership will bring many of the benefits ITC has promised.

Entergy has another reason to push the ITC transaction. The Justice Department, after investigating whether Entergy used its transmission system to strangle competing power generators, announced last November that it wouldn’t take action as long as Entergy joined MISO and spun off its wires to ITC.


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