A new group of executives is taking over Entergy Corp. in the coming weeks, just as the privately owned utility faces increased federal scrutiny and embarks on a historic project that will change how electricity is delivered to 2 million Louisiana customers.
By the end of 2013, Entergy hopes to divest itself of its transmission system — the 15,400 miles of high-voltage lines and 1,400 substations that move electricity from generating plants to customers in four states. It’s a move backed by the U.S. Justice Department, which is investigating allegations that the largest corporation based in Louisiana used its transmission system to violate the Sherman Anti-Trust Act.
“We disagree with the concerns expressed by the DOJ,” said Phillip R. May, a Baton Rouge native, who takes over Feb. 1 as chairman of the board and chief executive officer of Entergy Gulf States Louisiana LLC and Entergy Louisiana LLC.
The New Orleans-based corporation owns most of the transmission lines in Louisiana. Companies that rely on Entergy’s system have long complained that the transmission system is too small and too old to handle the amounts of electricity Louisiana now needs.
Federal authorities are looking into claims that Entergy made decisions about its transmission system in order to eliminate competition brought by merchants who hoped to sell their electricity to all comers.
May countered that Entergy’s actions were aimed at keeping prices low for its customers.
He said merchant power operators constructed their plants in areas away from the transmission lines Entergy built to move electricity for the use of its customers. Additionally, financial conditions lowered the prices in the Midwest, where the merchants had hoped to ship much of their power, he said.
“We’re going to build what our customers require,” May said. “Why should we spend hundreds of millions of dollars to facilitate a business model that allows them to export power from our region to the Midwest for them to make a profit?”
Independent studies, commissioned by state regulators and made available for customers to review, identified no major additional transmission projects that would offer compelling benefits to Entergy customers, May said. The allegation that Entergy did not invest, and that it purposely did not update its transmission system, “is just factually incorrect,” he said.
May also rejects the notion raised by some customers, regulators and critics that Entergy is moving to divest its transmission system in order to escape the federal probe.
Entergy has been working on separating its operations for more than a decade, May said, in part because the two separate companies can more easily raise the money necessary to improve the facilities; also, because two focused operations can provide services more efficiently, at a lower cost for customers.
May said he also recognizes that divesting Entergy’s transmission business likely will prove controversial. Local regulators will turn over most of their oversight authority to federal regulators. Entergy’s customers, who helped pay for the system, will see no refunds, May said.
“The customers don’t own the transmission system. The shareholders own the transmission system,” May said, adding that the “spin and merge” transaction is not really a cash sale.
Entergy this year will officially join the 13-state Midwest Independent Transmission System Operator Inc., based in Carmel, Ind. Entergy will give MISO management authority over Entergy’s transmission lines, and is projected to save the utility’s electricity customers more than $1.4 billion over the next decade. The stance was made in filings with the Louisiana Public Service Commission.
Entergy also plans to spin off companies and merge their electric transmission businesses into a subsidiary of ITC Holdings Corp., of Novi, Mich. The $1.8 billion transaction, if approved by the PSC and other regulators, could take place by June, according to PSC filings.
The PSC as well as other state and local regulators have been dealing with complex transmissions issues for a long time, May said.
“That all goes away with MISO and with ITC,” May said, because transmission decisions will be made independently and on a regional basis.
Entergy’s largest customers are supportive of the MISO move, but withholding judgment on the spin and merge with ITC.
“On ITC, it is really too early to tell. There are many questions to be answered about it,” Jennifer Vosburg, president of Louisiana Generating LLC, said in an emailed statement.
Louisiana Generating, a wholly owned subsidiary of NRG Energy Inc., runs the Big Cajun II Electrical Generating Station near New Roads, and uses Entergy’s transmission lines to move electricity to 10 Louisiana cooperatives.
“NRG has supported the move to join MISO and the avenue it will provide to needed improvements and expansion of the Louisiana transmission system,” Vosberg said.
“This is definitely a step in the right direction,” said Brenda Harris, director of power at Occidental Energy Ventures Corp. in Houston, which has several plants in the New Orleans area. She also is the head of the Louisiana Energy Users Group, an association of 17 large manufacturers operating plants, mostly along the Mississippi River between New Orleans and Baton Rouge.
Harris said the large industrial electricity customers have long been a proponent of a stronger transmission system, because they believe that a robust grid is an effective hedge against the rising cost of building new power plants, uncertain environmental regulations and volatile fuel prices. But it’s too early in the process for LEUG to take a stance on the ICT deal, Harris said.
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