Massachusetts regulators on April 4 approved the proposed merger between Northeast Utilities and (NYSE:NU) and NSTAR (NYSE:NST), facilitating investment in capital intensive distribution and transmission projects.
The decision came days after Connecticut regulators approved a settlement agreement relating to the transaction.
In that proceeding, the companies said that 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.
One transmission project the companies have in the works is the Northern Pass project. 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 United States and Canada would import 1,200 MW of Canadian hydropower, specifically from Hydro-Québec.
In an April 4 joint statement, the companies said the merger agreement has met all the necessary regulatory requirements and received all the necessary approvals, including those of FERC, the U.S. Nuclear Regulatory Commission, the Securities and Exchange Commission and the Federal Communications Commission.
The companies have set a closing date of April 10. The combined company will maintain dual headquarters in Hartford, Conn., and Boston, Mass., with the board of trustees and senior leadership team made up of a blend of the two current organizations, the companies added.
In February, Northeast Utilities and NSTAR said they had 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 Cape Wind Associates’ planned Cape Wind offshore wind farm. Energy Management owns Cape Wind.
The Massachusetts Department of Public Utilities (DPU) said it approved two sets of merger settlement agreements based on benefits including a base distribution rate freeze and a one-time rate credit of $21m, for an overall savings of about $206m over the next 10 years, adding that estimates beyond 2022 show even larger savings.
The credit and freeze takes effect immediately and residential, commercial and industrial customers of NSTAR’s NSTAR Electric and NSTAR Gas and Northeast Utilities subsidiary Western Massachusetts Electric Company (WMECO) will receive a one-time credit available starting on their May bills.
The DPU also said it found that the agreement between DOER, the state Attorney General and the companies provides various benefits including a disallowance of recovery from ratepayers of any merger-related compensation packages awarded to senior executives.
The other agreement between DOER and the companies would require NSTAR Electric to buy 129 MW of the capacity of the Cape Wind project, and an equivalent amount of power from other renewable resources if that offshore wind energy project does not go forward, if the DPU rejects the contract or if the project is reduced in size, the DPU said.
Mark Rodgers, Cape Wind communications director, told TransmissionHub April 5, “This merger will provide significant economic, energy and environmental benefits to Massachusetts and New England.”
According to the order, by approving the proposed merger, the DPU is not preapproving a contract between NSTAR Electric and Cape Wind, and the DPU will review the Cape Wind contract filed on March 30 in a separate docket. The DPU will consider whether the contract is consistent with the public interest.
“[W]e view the benefit of this provision of the DOER settlement as requiring an absolute commitment on the part of NSTAR Electric to execute long-term contract(s) for new Massachusetts RPS Class I qualified resources for at least 0.5% more than the [3%] currently required,” the DPU added.
In the companies’ joint statement, NSTAR Chairman, President and CEO Thomas May said the companies “look forward to creating a stronger company which builds on our shared history of delivering quality service to New England.” Similarly, Northeast Utilities’ Chairman, President and CEO Charles Shivery noted in the statement that a year and a half ago, the companies set out to “create a great New England-based company, knowing that together we would be even stronger advocates for our customers and the region as a whole.”
The combination of the companies creates one of the country’s largest utilities, with six regulated electric and gas utilities in three New England states and about 3.5 million customers. The companies also said that Northeast Utilities’ numerous transmission investment opportunities, coupled with NSTAR’s strong balance sheet means a growth opportunity for the combined company. The merger is anticipated to save customers $780m in the next 10 years, according to the companies.
The DPU said it strengthened the transparency requirements imposed on the companies in the settlement agreements by setting a deadline of April 15, 2015, by which they must provide certain financial information. The approval requires the companies to provide to the DPU, the DOER and the state Attorney General a listing of assets, additional information on operating expenses, plant investment, rate of return and operating revenues from 2012 to 2015. Furthermore, the DPU is to conduct an investigation into the utilities’ rates in 2016 based on the results of that report.
The DPU also said it is requiring NSTAR Electric, NSTAR Gas and WMECO to provide an updated accounting five years after the merger on merger-related savings. This accounting, the DPU said, would track actual savings per year from 2012 to 2017, the distribution of savings between ratepayers and shareholders for that time period and projected savings for the remainder of the first 10 years following the merger.
“This merger features significant clean energy and transparency commitments, requiring that NSTAR Electric begin a new era of opening its books to public review and making renewable energy and energy efficiency investments,” DPU Chair Ann Berwick said in the statement.
The DPU said the merged companies have pledged enhanced energy efficiency programs, solar energy deployment, an electric vehicle pilot program in Massachusetts building on Northeast Utilities’ existing Connecticut pilot and a review of standby rates designed to reduce barriers to producing small-scale distributed generation.