Connecticut regulators on April 2 approved a settlement agreement relating to the proposed merger between Northeast Utilities (NYSE:NU) and NSTAR (NYSE:NST).
The state Public Utilities Regulatory Authority (PURA) said in its decision that it “finds that the merged Northeast Utilities has the financial, technological and managerial suitability and responsibility to operate a public service company.”
The settlement agreement provides for a one-time rate credit of $25m for Northeast Utilities wholly owned subsidiary Connecticut Light and Power customers and an electric base rate freeze period to Dec. 1, 2014, among other benefits.
Furthermore, the settlement provides for $15m to fund an energy efficiency program; development of a micro grid infrastructure; improved storm response; and $300m spending to increase system resiliency, PURA added.
“We’re currently awaiting what represents the final approval from the Massachusetts Department of Public Utilities,” a Northeast Utilities spokesperson told TransmissionHub April 3. “We have asked for a decision by tomorrow, April 4, which would keep the merger on track for a mid-April closing. The merger has met all other state and federal requirements and has been approved by the shareholders of both companies.”
NSTAR and Northeast Utilities said in February that they have reached separate merger-related agreements with the Massachusetts Department of Energy Resources and state Attorney General that involve a rate credit for customers as well as buying power from Cape Wind Associates‘ planned Cape Wind offshore wind farm. Energy Management owns Cape Wind.
According to Northeast Utilities and NSTAR, as a result of the transaction, Northeast Utilities will have an expanded service territory that will bring geographic diversity and complementary distribution and transmission assets. “This will enhance support among NU operating companies during storms or other service disruptions that are localized in nature,” PURA added.
The companies also said the financial strength of the post-merger Northeast Utilities will facilitate investment in capital intensive distribution and transmission projects that will provide benefits to customers and the local economy.
PURA also said that over the next few years, Northeast Utilities has significant cash flow needs as it is investing in distribution and transmission infrastructure including transmission lines, such as the Northern Pass transmission project and others that will benefit customers by increasing reliability over the long term.
Northern Pass Transmission is a limited liability company organized as a joint venture between Northeast Utilities (NYSE:NU) and NSTAR (NYSE:NST) to develop, construct, own and maintain the $1.1bn DC line in New Hampshire. The line between the U.S. and Canada would import 1,200 MW of Canadian hydropower, specifically from Hydro-Québec.
NSTAR is in the opposite cash position of Northeast Utilities, PURA said, noting that due to the merger agreement, NSTAR’s stock repurchase program was stopped so that the remaining $75m could be used to offset a portion of the $300m equity financing that Northeast Utilities had been planning related to certain distribution projects.
“The authority finds this merger produces a good fit for [the companies] given the respective cash position of both companies,” PURA said.
Indeed, a benefit of the transaction is that the combined Northeast Utilities will have an improved capability to internally fund the planned capital investments in electric transmission projects. Without the merger, PURA added, Northeast Utilities would have to raise equity capital to maintain its current capital ratios during the planned transmission build up.
Among other things, PURA said that post-merger NSTAR’s strong positive cash flow will allow Northeast Utilities to fund those investments without an equity issuance.
PURA’s action “means Connecticut’s rate payers and our state are now well positioned to share in the benefits of this merger. It allows Connecticut to continue building a more secure energy future,” Daniel Esty, commissioner of the state Department of Energy and Environmental Protection, said in an April 2 statement.