NStar and Northeast Utilities agree to merger
Boston utility NStar has agreed be acquired by Connecticut-based Northeast Utilities, creating a $17.5 billion energy behemoth that executives said will be better positioned to bargain for cheaper sources of electricity and natural gas and invest in renewable sources such as wind power.
Under the all-stock transaction, NStar will be subsumed within Northeast Utilities, but NStar's current chief executive, Thomas May, would become the head of the larger, combined company. Together the companies would serve 3.5 million customers, from Westport, Conn., on the New York border, to the northern New Hampshire hamlet of Pittsburg, on the Canadian border.
NStar consumers should not see higher bills as a result of the merger, as Massachusetts regulations prohibits utility combinations from increasing costs to ratepayers. The deal needs approval from Massachusetts regulators, and yesterday Attorney General Martha Coakley's office, which represents utility ratepayers, said it will press the companies to prove the merger will benefit consumers.
"Our role is to ensure that ratepayers are protected in this merger," she said.
Massachusetts and Connecticut, the home state to Northeast Utilities, have among the highest electricity costs in the nation. The utilities suggest the merger could result in savings for customers through the economies of scale of operating one larger company, as well as additional bargaining power the larger entity would wield in buying natural gas and electricity.
"When we talk, for example, about bringing gas up from the Gulf in pipelines, we'll have more buying power," May said. "I do believe this will have definite long term benefits for consumers in New England."
One major potential benefit from the merger is that the combined company should be financially stronger than the two individual ones, making it easier to invest in upgrades to its local delivery network, improve the region's power grid and pursue ambitious transmission projects that could bring in cheaper sources of energy from distant sources.
"The merger should provide greater resources for storm response and investment in our electric distribution and transmission systems, but it also needs to provide material savings for Massachusetts ratepayers from administrative efficiencies," said Ian Bowles, the Massachusetts Secretary for Energy and Environmental Affairs.
For example, Northeast Utilities and NStar were already collaborating on a $1.1 billion transmission line in New Hampshire that will bring lower-cost hydro-power from Canada, a venture that laid the groundwork for the current merger. The two utilities recently signed a 40-year deal with Hydro-Quebec to import power over the 1,200 megawatt power line.
"The more and more we worked together, and the more we talked about the energy issues in the region, the more we convinced ourselves that we were on the precipice of some major energy issues" best handled together, May said. "We're creating something with size and scale and we won't have to look over our shoulders."
May said the larger company could also pursue building transmission lines to bring new electricity from new wind farms proposed for Maine and New Hampshire. Such land-based wind farms are expected to produced electricity at lower prices than offshore projects such as the Cape Wind project off Cape Cod. Cape Wind's contract to sell power to Massachusetts' other major utility, National Grid, has come under sharp criticism for its high price.
Still executives at the two companies did not detail precisely how ratepayers would benefit, nor did they explicitly promise the merger would result in lower bills.
Nonetheless, some longtime energy market specialists were already optimistic about what the merger would bring to Massachusetts. Robert Rio is senior vice president for the business trade group, Associated Industries of Massachusetts and an often critical watchdog of utility companies.
"We think it's going to strengthen the grid, strengthen our position. It should be cost-effective and result in some efficient deployment of resources," Rio said. "Obviously, we've got to keep watching it, but at this point we see that this could be good for Massachusetts and possibly all of New England."
And environmental advocate Seth Kaplan, with the nonprofit Conservation Law Foundation, said he thinks the merger is an opportunity for Northeast Utilities to make major inroads in bringing renewable resources to the region.
"It gives them more ability to build a long term portfolio that must and should include significant long term renewable projects." Kaplan said. "They need to see this as an opportunity to get their business plan pointed in the right direction."