NSTAR (NYSE:NST) and Northeast Utilities (NYSE:NU) have reached separate merger-related agreements with the Massachusetts Department of Energy Resources (DOER) and state Attorney General that involve a rate credit for customers as well as buying power from the planned Cape Wind offshore wind farm.
The agreements call for a one-time $21m rate credit for customers of NSTAR Electric, NSTAR Gas and NU’s Western Massachusetts Electric Company (WMECO), the companies said Feb. 15, adding that base distribution rates for the utilities would then be frozen until 2016.
According to the state Executive Office of Energy and Environmental Affairs, the $21m rate credit is divided as $15m for NSTAR Electric customers, $3m for NSTAR Gas customers and $3m for WMECO customers.
Under the DOER agreement, the utilities pledge further environmental commitments to solar, wind, hydro, energy efficiency and electric vehicle development, including a memorandum of understanding to buy power from Cape Wind Associates’ planned offshore wind energy farm, according to NSTAR and Northeast Utilities.
Cape Wind, which also has a 15-year power purchase agreement (PPA) with National Grid plc subsidiary National Grid USA for 50% of the facility’s output, is owned by Energy Management.
Highlights of both the DOER and attorney general agreements include that the proposed merger would be approved by the state Department of Public Utilities (DPU), NSTAR and Northeast Utilities said, noting that the merger would create a Fortune 300 company headquartered in New England, with close ties to local communities. In addition, all existing labor agreements will be honored, with no broad-based employee layoffs.
The settlement agreement between the DOER and the utilities includes a provision that NSTAR will enter into a 15-year contract to buy 129 MW of offshore wind power from Cape Wind, complementing NSTAR’s existing contracts for 109 MW of onshore wind and helping the state meet its clean energy goals.
NSTAR will also issue a request for proposals to enter into long-term contracts for 10 MW of solar power.
Furthermore, NSTAR and WMECO will commit to reducing electric use 2.5% annually starting in 2013 through the remaining term of the agreement by increasing energy efficiency measures.
The companies also said that NSTAR will put in place an electric vehicle pilot program in Massachusetts, building on work already done by Northeast Utilities. The pilot will aim to help NSTAR understand the infrastructure requirements needed for a substantial increase in the use of electric vehicles.
The DPU must approve the agreements and the parties have requested an approval by April 4.
NSTAR Chairman, President and CEO Tom May said in the statement that the announcement is the result of a year-long effort by the state agencies and the companies to reach agreements that balance all interests affected by the merger.
Northeast Utilities Chairman, President and CEO Charles Shivery said in the statement that the merger “continues to be the right decision for customers, employees and shareholders now and into the future.”
In a separate Feb. 15 statement, Cape Wind President Jim Gordon said, “By including Cape Wind in this utility merger settlement agreement, NSTAR and the [Gov. Deval] Patrick Administration are helping ensure that Cape Wind will supply up to 500,000 homes with locally harvested renewable energy and create hundreds of new jobs.”
As reported in December 2011, Cape Wind will build its own transmission line for the project, which is fully permitted. Construction is expected to begin in 2013 and end in 2014-2015, with the project expected to be partially operational in 2014 and fully operational in 2015.
Upon approval of a Cape Wind/NSTAR PPA by the DPU, Cape Wind will enter the financing stage of the project, assisted by its advisors at Barclay’s Capital, a Cape Wind spokesperson told TransmissionHub Feb. 15.
According to the state’s Executive Office of Energy and Environmental Affairs’ Feb. 15 statement, if Cape Wind has not broken ground by 2016, NSTAR has committed to buying an equal amount of clean energy from another source.
Furthermore, if Cape Wind does not begin “physical construction” before Dec. 31, 2015, NSTAR can opt to terminate its power purchase contract with the wind farm, and if that occurs, NSTAR agrees to solicit contracts no later than June 30, 2016, to buy an equal amount of power from qualified, new renewable energy resources.
Patrick said in the statement that the “DPU is now set to consider a plan that delivers benefits to customers in the form of lower costs and better service, upholds the utilities’ commitment to Massachusetts’ communities and devotes unprecedented resources to our clean energy future.”
During a news conference Feb. 15, Patrick said that while all the provisions are important in the agreement, “Cape Wind was not the sticking point.”
The sticking point are the rates, he said, adding: “[I]t’s very concerning to me that NSTAR’s rates are by some measures, 40% higher than other utilities and there hasn’t been a rate case in 25 years. This agreement gives us a way to peel back some of their justifications, understand those justifications and at a minimum to freeze the base distribution rate, as I say the combined prices go down, the homeowners bills go down, but if the base rate is not justified then the agreement comes right back for further negotiation.”
To ensure accurate and transparent reporting by the utility, NSTAR Electric is required to fund and provide to the DPU, the DOER and the attorney general a study by an independent accounting firm that includes an audit of the company’s annual returns for the four-year period 2012-2015, in addition to a comprehensive listing of assets, according to the statement from the state Executive Office of Energy and Environmental Affairs. This assessment must start no later than 240 days before NSTAR files its next rate case with the DPU.
Among other things, DOER said it has requested the DPU hold hearings on the proposal and that if the DPU is inclined to move favorably on the merger, that it do so two business days after a final merger determination by Connecticut regulators, who are scheduled to rule on the merger on April 2.