Two dominant utilities in New England completed their merger on Tuesday, creating one of the nation’s largest and promising savings of at least $780m over a decade.
Northeast Utilities (NYSE: NU) and NSTAR (NYSE: NST) created a company with six regulated electric and natural gas utilities serving 3.5 million customers in three states. The newly merged company will continue to be called Northeast Utilities and NSTAR will become an NU subsidiary in Massachusetts.
Upon the closing of the merger, the new NU will have dual headquarters in Boston, Mass., and Hartford, Conn. “This merger puts us in a unique position to provide better service levels, support our communities and employees, and take the lead on green programs and smart technologies that protect the environment,” said Thomas J. May, who became president and CEO of Northeast Utilities.
NU’s CEO Charles W. Shivery became non-executive chairman of NU’s board of trustees.
In a conference call, May said the new company would also enjoy operational benefits that would put it in a better position to deal with events like the October 2011 snowstorm that created havoc throughout the region. “We will also be able to deploy our own crews during storms and emergencies, when and where they are needed most,” he said.
Jeffrey Butler, president of NU unit Connecticut Light & Power Co., resigned last fall after service restoration in Connecticut took longer than promised.
The merged company will also be better positioned to meet clean energy goals through state renewable portfolio standards.
“The states we serve have set aggressive clean energy policies that focus on an increasing environmental commitment and reducing greenhouse gases,” May said.
May led NSTAR through its difficult negotiations with Massachusetts officials who reviewed the merger as the company entered into a supply contract with the offshore Cape Wind project.
In Massachusetts, a merger must not only create consumer benefits, as in costs savings, but also provide environmental benefits, in compliance with the state’s Green Communities Act.
NSTAR ultimately agreed to take 27.5% of Cape Wind’s generation during negotiations with state officials after initially saying it could meet its environmental obligations with land-based wind generation. May declined to discuss the “give-and-take” that went into the final agreement.
May said the clean power emphasis also can be satisfied by expanding its use of Canadian hydropower supplied by Hydro Quebec. The northern Pass project in New Hampshire is one such project that was a joint venture of Northeast and NSTAR. NU is acquiring properties along the route and undergoing licensing reviews at the state and federal levels. May could not give a time frame for the project’s completion, noting that the project is in its early stages.
The company also remains committed to its scrubber investment in the 440-MW Merrimack Station in New Hampshire, which by law must be completed by July 2013.
As a result of merger-related settlements in Massachusetts and Connecticut, NU has guaranteed benefits for customers that include rate credits, rate freezes and continued civic engagement. Connecticut’s rates are frozen through 2014 and in Massachusetts through 2015. In accordance with the merger agreement, NSTAR shareholders will receive 1.312 Common Shares of NU for each Common Share of NSTAR previously held. Northeast Utilities, with a post-close market capitalization of about $12 billion, will operate four electric distribution and transmission companies, as well as two gas distribution companies in Massachusetts, Connecticut and New Hampshire.