Texas Commission Concerned with Loss of Control to Feds in Entergy-ITC Transaction (Risk Remains Under MISO Membership)

Entergy Texas and an ITC Holdings subsidiary withdrew, without prejudice to re-filing, their request for approval from the Public Utility Commission of Texas for a sale of Entergy Texas' transmission assets to ITC, after it became clear that the Commission was prepared to reject the transaction absent the companies' acceptance of conditions to which the companies were not willing to agree.

Much of the Commission's concerns relate to federal policy, particularly policy within RTOs, which could harm Texas ratepayers. However, most (though not all) of those concerns are not driven by ITC's ownership of the transmission assets, but rather membership in a federal RTO (the Midcontinent ISO), to which the Commission has already, conditionally, agreed.

Notably, Chairman Donna Nelson expressed concern with Entergy Texas ratepayers being subject to federal cost socialization of transmission projects, which is driven more by MISO membership and not ITC ownership.

One of Nelson's overriding concerns with the transaction is, "the lack of control this Commission will have."

Nelson cited, in particular, FERC Order 1000, suggesting that under this paradigm, transmission owners appear to have the "close-to-unfettered" right to build whatever projects they want, with cost socialization, so long as they label the asset as needed to support renewable development or "public policy."

That could expose Texas customers to paying for renewables everywhere else, Nelson noted.

However, while under vertical integration Texas retains control over the transmission assets' ROE (which would be lost under ITC ownership), the issue of transmission cost socialization is driven mostly by membership in a FERC-jurisdictional RTO, not ITC ownership.

Commissioner Kenneth Anderson expressed a host of concerns with the transaction, noting overall that, "This deal is a great deal for the shareholders. It may or may not have benefits to the ratepayers, [but] there's certainly known and quantifiable costs."

Anderson noted that Entergy's assets were paid for by the ratepayers, and that typically when assets are sold, the Commission, under the PURA public interest standard, requires ratepayers to receive a large "piece of the action."

Entergy and ITC will re-file their application including updated commitments and rate mitigation measures which were not considered by the Commission because they were made after the close of the record.

However, the express concerns of the Commissioners -- namely the ceding of control to FERC and risks of transmission cost socialization -- raise larger questions regarding whether MISO, regardless of ITC ownership of the transmission assets, is the best fit for Entergy Texas customers, especially under a structure where the companies receive the benefits of unbundling, but the customers do not.