Faced with likely rejection because of procedural reasons, Entergy Corp. and ITC Holdings Corp. have withdrawn their Texas application to merge transmission systems.
The move came at the end of an hours-long hearing Friday in Austin, Texas, before the state's Public Utility Commission.
New Orleans-based Entergy and Michigan-based ITC are trying to merge by late December. They asked Texas commissioners to reconsider a new application even faster than the 180-day schedule required there.
Administrative law judges had recommended Texas reject the application, saying higher rates would outweigh hard-to-quantify benefits. The two companies offered to waive rate increases for at least five years, a benefit the companies say is worth $90 million to Entergy Texas customers. But that plan came after a procedural deadline, and commissioners said Friday they couldn't consider it, in part because other parties in the case hadn't had a chance to respond, and because the current 180-day deadline arrives next week.
"I just feel like there are too many unanswered questions," said Commission Chairman Donna Nelson.
Commissioner Kenneth Anderson criticized the companies for filing before the details of the deal became clear, leaving the decision-makers too little time. He and Nelson agreed that they would personally hear a new filing to try to speed things up.
"We appreciate the commission's decision to allow us to withdraw our application, with an opportunity to re-file so that all of the commitments that we have already indicated we are prepared to make can be included in the record for the commission to consider," said ITC spokeswoman Louise Beller.
Entergy spokesman Checky Herrington said the companies aren't sure yet how Friday's action will affect the merger's potential completion date.
Announced 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 approval for the plan from the Federal Energy Regulatory Commission in June.
Even if the companies get approval in Texas, they have to also get approval from Arkansas, Louisiana, Mississippi and the city of New Orleans. All those entities had received recommendations for rejection from their staffs before Entergy and ITC began offering incentives. The companies have offered to roll back more than $425 million of rate increases over five years, including $134.4 million in Arkansas, $129 million in Louisiana and $77.5 million in Mississippi. They've also pledged that they won't raise rates to collect the higher profits allowed by FERC until they can prove the benefits of the deal to customers.
Anderson set out a list of 25 conditions to approve the deal Friday, and while Entergy and ITC agreed to most of them, they were unable to agree to all of them Friday. But he indicated even current concessions may not be enough, saying ratepayers should benefit from the transfer in addition to Entergy stockholders.
"In the typical case where assets are sold, we require a large piece of the action to go back to ratepayers," he said.
ITC officials argued that because the transaction is a tax-free spin-off, the companies shouldn't be required to make further payments to ratepayers, but Anderson said he disagreed.
The merger proposal followed Entergy winning approval last year to join the Midcontinent Independent System Operator, a regional 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 say they think MISO membership will bring most of the same benefits ITC has promised, and fear losing control over transmission to FERC
Entergy, though, is being pushed by the U.S. Justice Department to sell its transmission system. After a long investigation into whether Entergy used its wires to block power sales by competing generators, federal prosecutors announced last November that they wouldn't sue if Entergy completed the MISO and ITC deals.