JACKSON, Miss. (WWJ/AP) -- The Mississippi Public Service Commission has rejected a proposed transaction to spin off Entergy's power lines in the state to Novi-based ITC Holdings Corp.
Regulators said the deal could have meant a $300 million rate increase for Mississippi customers over 30 years because federally regulated power lines are allowed to earn a higher rate of return than those under state regulation.
"We respect Entergy's desire to improve its organizational effectiveness, but the commission was not persuaded the transfer of ownership would be in the best interest of Entergy Mississippi's customers," said Lynn Posey, chairman of the three-member commission.
Another commissioner, Brandon Presley, said: "The evidence in the case did not show any identifiable savings to customers."
In December 2011, New Orleans-based Entergy said it would transfer its high-voltage lines to ITC.
The plan was for ITC to issue Entergy shareholders enough stock to give them a majority of ITC shares worth more than $2 billion. ITC would've assumed $1.78 billion in debt. Entergy and ITC won Federal Energy Regulatory Commission approval in June.
Reuters reported that Entergy and ITC sought to address state concerns by offering a total of $453 million in rate mitigation over five years to Entergy customers to offset ITC's higher rate of return.
Requests to approve the deal have also been filed with regulators in the other areas that Entergy serves -- the states of Arkansas, Louisiana and Texas and the city of New Orleans. Regulators in those areas have not acted yet, but rejection in Mississippi makes the deal's success unlikely, analysts said.
David Cruthirds, a Houston lawyer who publishes an energy newsletter, said the deal requires the approval of all five regulatory bodies, and all six Entergy operating companies must be part of the merger.
"I just don't see the other jurisdictions going forward, given this," Cruthirds said in a phone interview after the Mississippi vote.
Entergy has the option to request a rehearing in Mississippi, Cruthirds said.
In a statement, ITC said it "strongly disagree(s)" with the decision, saying it had showed the energy transmission system in the southern states "is clearly in need of investment to improve reliability and facilitate the competitive electricity market. While we recognize the commission's perspectives on jurisdiction and rate issues, ITC and Entergy made commitments to hold customers harmless from possible negative impacts and we do not believe that jurisdictional concerns should stand in the way of customers realizing the benefits of this transaction. The commission's action today would deny Mississippi customers the near-term and longer-term economic and reliability benefits resulting from ITC's independent ownership with a singular focus on transmission."
ITC said it would "review the commission's full order and determine next steps."
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