The Arkansas Public Service Commission does not have the authority to force Entergy Arkansas to separate from the Entergy Corp. system agreement, and the company is willing to go to court to settle that matter, Entergy Arkansas said Monday.

The electricity utility, the largest in Arkansas, with 687,000 customers, filed several responses Monday to the commission’s order of Feb. 11 disclosing that the commission would begin an investigation to determine whether Entergy Arkansas should become a “standalone” utility. By standalone, the commission meant Entergy Arkansas would operate its electricity generation and transmission separate from Entergy Corp.’s other subsidiaries but would remain an Entergy operating company.

The challenge and threat didn’t surprise John Bethel, executive director of ...