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Entergy Files for Texas Unit Spinoff

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Entergy Corporation’s (ETR - Free Report) business arm Entergy Texas Inc., together with ITC Holdings Corporation and its subsidiary ITC Midsouth LLC, filed an application to the Public Service Commission of Texas for the spinoff of its Texas electric transmission unit.

Entergy is pursuing regulatory approval to merge its electric midstream business and the related substations which will eventually become a business wing of ITC Holdings. The unit comprises of roughly 15,400 circuit miles of connecting transmission lines with 69 Kilovolt (kV) and above voltages.

This was the final leg of the series of local and federal fillings that were made by Entergy and ITC for the deal announced in Dec 2011. Entergy in order to keep up with the growing challenges of the electric industry decided to shed off the non-core midstream asset. The proceeds of the transaction will enable the company to meet its modernization and pro-environment goals.

Previously, Entergy received approval from the Mississippi Public Service Commission (“MPSC”) for hiking the monthly electric rates of residential customers which came into effect from Feb 2013. This was intended for recovering investments made by the company to purchase the Jackson power plant from KGen Hinds LLC. The Jackson power plant will enable Entergy Corporation to generate power using lesser amount of natural gas than its older plants.

We believe the combination of positive rate changes and asset divestiture will bode well for the company’s growth objectives as well as allow the company to seek high-return investment options in the future. In addition, the divesture will allow Entergy to focus more on its generation and distribution businesses.

However, the soft performance of Entergy’s competitive business in the Northeast, the fate of its Indian Point plant and volatile commodity prices are negatives that could thwart development opportunities. Currently, Entergy Corp. carries a Zacks Rank #3 (Hold).

Other utility stocks we presently prefer are Zacks Ranked #1 (Strong Buy) Otter Tail Corporation (OTTR - Free Report) and Zacks Ranked #2 CMS Energy Inc. (CMS - Free Report) .

Based in New Orleans, Louisiana, Entergy Corporation, together with its subsidiaries, engages in the electric power production and retail electric distribution operations in the United States. The company operates in two segments, Utility and Entergy Wholesale Commodities.

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