Entergy seeks Arkansas approval of grid transfer to ITC Holdings

HOUSTON, Oct 1 (Reuters) - Entergy Corp and ITC Holdings Corp took another step to advance Entergy's $1.78 billion plan to spin off its electric transmission business, late last week.

New Orleans-based Entergy and ITC, based in Novi, Michigan, filed a joint application with the Arkansas Public Service Commission on Friday to allow Entergy's utilities to spin off and merge their transmission units into a subsidiary of ITC.

The companies have made similar filings in Louisiana and at the Federal Energy Regulatory Commission. Other state regulatory approvals needed to advance the deal will be made in Texas, Mississippi and Missouri before year end, ITC said.

If approved, Entergy said the deal will address "challenges facing the entire electric industry - challenges driven by the need to upgrade infrastructure, modernize equipment and meet growing environmental and compliance requirements," according to a release.

Entergy has said its 15,800-mile network in Louisiana, Mississippi, Arkansas and Texas might require up to $2 billion in upgrades over the next few years.

For ITC, the transaction would double the high-voltage lines it controls to more than 30,000 miles across 11 states from the Great Lakes to the Gulf Coast.

Entergy announced the ITC deal last December, but first it must join an independent regional transmission organization (RTO).

Entergy is working to gain state and federal approval to join the Midwest Independent System Operator (MISO), a regional transmission network that ITC operates in.

This comes at the insistence of Entergy's regulators following a decade of complaints from independent power producers and others in its four-state region. Entergy also disclosed in 2010 that the U.S. Department of Justice had launched an investigation of its competitive practices, including its transmission operations.

Cameron Bready, ITC's chief financial officer, said the companies are moving ahead to seek regulatory approval of the spin-off to meet a 2013 deadline, even though Entergy's move to MISO is still in progress.

"Entergy's effort to join an RTO is critically important," said Bready. "Our transaction is conditioned upon Entergy receiving all the regulatory approvals they need to join an acceptable RTO."

So far, the Louisiana Public Service Commission has given a green light to Entergy's plan to migrate to MISO. Other states are still weighing Entergy's request.

Those regulators are waiting for final action by the Arkansas Public Service Commission because use of Entergy Arkansas' grid is critical to obtaining the $1.4 billion in savings Entergy has identified over the first 10 years of MISO membership.

Bready said ITC ownership of Entergy's grid will bring "significant value that is incremental to joining the RTO."

"Because we take a regional view to planning and improving the transmission business, the benefits of RTO participation will be optimized under our ownership," Bready said. "Customers will have the ability to more fully realize the benefits of the competitive wholesale marketplace."

(Reporting by Eileen O'Grady. Editing by Andre Grenon)

((eileen.ogrady@thomsonreuters.com)(+1 713 210 8522)(Reuters Messaging: eileen.ogrady.reuters.come@reuters.net))