Power Move: Entergy To Spin Off Transmission Assets

Entergy Corp., parent company of Entergy Arkansas, today announced a divestiture and merger transaction that will spin off its electricity transmission business to ITC Holdings Corp. in a $1.775 billion deal.

The move is not expected to impact Entergy Arkansas’ efforts to align its transmission coordination with Midwest Independent Operator System (MISO), which has been the subject of several years worth of regulatory action.

Under the deal announced today, New Orleans-based Entergy Corp. will divest  its transmission assets, which include more than 30,000 miles of transmission lines, to Novi, Michigan-based ITC Holdings.  A newly-formed entity, Mid South TransCo LLC, will be formed, and Entergy shareholders will own 50.1% of the stock in the new company.

Mid South TransCo will be headquartered in Michigan, but will maintain a regional office in Jackson, Mississippi, where Entergy has a significant presence. Approximately, 750 Entergy employees will transfer to ITC.

Entergy said it expects the transaction to “enhance the overall credit quality” of the electric utility giant. It will use proceeds from the deal to retire debt associated with the transmission business at its utility operating companies and parent company debt.

The merger is expected to qualify for tax-free treatment for U.S. federal income tax purposes for both companies and Entergy’s shareholders.

Completion of the transaction is expected in 2013 subject to state and federal regulatory approval as well as acceptance from shareholders of Entergy Corp. and ITC.

Entergy and ITC officials laid out arguments for the transaction in a lengthy press release on Monday (Dec. 5). Company leaders planned a conference call at 10 a.m. to field analysts’ questions.

In announcing the deal, the companies noted that electric utility capital investments are forecasted to be in the $2 trillion range in the U.S. during the next 20 years.

“By divesting its transmission business, Entergy is increasing its flexibility of investment alternatives and protecting the credit quality of Entergy and its operating subsidiaries. In turn, as a transmission-only utility, ITC will address the transmission system needs of the region to support efficient infrastructure investment by improving access to capital for the transmission business,” the companies’ release stated.

Entergy said the transaction “will be seamless” for its retail customers. Entergy Arkansas is the state’s largest electric utility serving 967,000 Arkansas customers in 63 counties.

The ITC deal will not change ownership or operations of Entergy’s local distribution and generation assets, it said.

They also suggested that the prospect for investments “should enhance the local and regional economies and stimulate job creation.” Total annual investments for the Entergy transmission business are expected to range from approximately $400 million to $525 million through 2014.