Entergy Texas, Inc., in conjunction with ITC Holdings Corp. and ITC Midsouth LLC, filed a request at the Public Utility Commission of Texas to spin off Entergy Texas' electric transmission business and merge it into a subsidiary of ITC. The Texas filing is the final in a series of local and federal regulatory applications seeking approval for the transaction announced in December 2011 by Entergy Corp. and ITC.
The transaction is a significant step toward meeting the challenges facing the electric industry in Texas and across the country – challenges driven by the need to upgrade infrastructure, modernize equipment and meet growing environmental and compliance requirements.
"Entergy Texas is focused on meeting the energy needs of our customers now and in the future," said Sallie Rainer, Entergy Texas president and chief executive officer. "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."
Entergy is seeking approval to transfer its transmission business, including approximately 15,400 circuit miles of interconnected transmission lines at voltages of 69 kV and above and the associated substations, to ITC. ITC will then be one of the largest electric transmission companies in the United States, with more than 30,000 miles of transmission lines spanning from the Great Lakes to the Gulf Coast. 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 a best-in-class transmission service provider," he said. "We look forward to bringing our expertise and partnering spirit to Texas and the entire region to meet current and 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 Texas, 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.
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, Entergy Texas and the other operating companies will increase their focus on their respective generation 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 distribution 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. Entergy Texas maintains financial flexibility – reducing debt and focusing 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 transmission lines and substations included in the transaction, approximately 750 Entergy employees will become employees of ITC. ITC will establish a regional headquarters in Jackson, Miss., where the headquarters of Entergy's transmission business currently is located. The company will have offices and warehouses throughout the Entergy service territory to ensure a local presence and timely response to stakeholder and system needs.
Integration efforts to ensure storm readiness and response are among the key operational matters being addressed by the two companies. Key ITC personnel were onsite at Entergy's system command center in Jackson during Hurricane Isaac to observe storm response operations, and a jointly planned and executed storm drill will be held over the summer.
Entergy operating companies and ITC initiated the regulatory process on Sept. 5, 2012 with a joint application filing with the Louisiana Public Service Commission. Joint applications were subsequently filed in 2012 with the New Orleans City Council on Sept. 12, the Federal Energy Regulatory Commission on Sept. 24, and the Arkansas Public Service Commission on Sept. 28. 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 companies filed with the Mississippi Public Service Commission on Oct. 5, 2012 and with the Missouri Public Service Commission on Feb. 14. The companies target a transaction close this year pending receipt of all required regulatory approvals and satisfaction of other closing conditions.