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

Orleans-based Entergy and ITC, based in Novi, Michigan,filed a joint application with the Arkansas Public ServiceCommission on Friday to allow Entergy's utilities to spin offand merge

their transmission units into a subsidiary of ITC. The companies have made similar filings in Louisiana and atthe Federal Energy Regulatory Commission. Other state regulatoryapprovals 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 "challengesfacing the entire electric

industry - challenges driven by theneed to upgrade infrastructure, modernize equipment and meetgrowing environmental and compliance requirements," according toa release. Entergy has

said its 15,800-mile network in Louisiana,Mississippi, Arkansas and Texas might require up to $2 billionin upgrades over the next few years. For ITC, the transaction would double the

high-voltage linesit controls to more than 30,000 miles across 11 states from theGreat Lakes to the Gulf Coast. Entergy announced the ITC deal last December, but first itmust join an

independent regional transmission organization(RTO). Entergy is working to gain state and federal approval tojoin the Midwest Independent System Operator (MISO), a regionaltransmission

network that ITC operates in. This comes at the insistence of Entergy's regulatorsfollowing a decade of complaints from independent powerproducers and others in its four-state region.

Entergy alsodisclosed in 2010 that the U.S. Department of Justice hadlaunched an investigation of its competitive practices,including its transmission operations. Cameron Bready, ITC's

chief financial officer, said thecompanies are moving ahead to seek regulatory approval of thespin-off to meet a 2013 deadline, even though Entergy's move toMISO is still in progress.

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

join anacceptable RTO." So far, the Louisiana Public Service Commission has given agreen light to Entergy's plan to migrate to MISO. Other statesare still weighing Entergy's

request. Those regulators are waiting for final action by theArkansas Public Service Commission because use of EntergyArkansas' grid is critical to obtaining the $1.4 billion insavings

Entergy has identified over the first 10 years of MISOmembership. 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 improvingthe transmission business, the benefits of RTO participationwill be optimized under our ownership," Bready

said. "Customerswill have the ability to more fully realize the benefits of thecompetitive wholesale marketplace." (Reporting by Eileen O'Grady. Editing by Andre Grenon)

(([email protected])(+1 713 210 8522)(ReutersMessaging: [email protected])) Keywords: UTILITIES ENTERGY/ITC