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Utilities agree to buy Cape Wind power in merger

By Bob Salsberg and Jay Lindsay
Associated Press / February 15, 2012
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BOSTON—Energy companies Northeast Utilities and NStar have agreed to buy more than a quarter of the power produced by the long-planned Cape Wind offshore wind farm as a condition of a proposed deal that unites the companies, state officials announced Wednesday.

The announcement is a huge boost for the 130-turbine Cape Wind project, which would be located about 5 miles off Cape Cod in Nantucket Sound and aims to be the nation's first offshore wind farm.

The Cape Wind project has sold half its power to the Massachusetts utility National Grid but has struggled to find buyers for the rest of the power, posing a major obstacle to its efforts to secure financing. As part of the deal announced Wednesday, the combined Northeast Utilities-NStar company would buy 27.5 percent of the electricity Cape Wind produces under a 15-year contract.

"I do think this agreement clearly shows the commitment this administration has for Cape Wind project specifically and the clean energy agenda in Massachusetts in general," said Richard Sullivan, state Secretary of Energy and Environmental Affairs.

State officials stressed that the Cape Wind provision represents only one portion of a broader agreement that Attorney General Martha Coakley said would save an estimated $217 million over four years for customers of NStar and Western Massachusetts Electric Co., which is currently owned by Northeast Utilities.

The agreement calls for a four-year freeze on base energy distribution rates, a one-time $21 million credit for ratepayers and a requirement the combined company be subject to an independent audit before its next rate request. The combined utility must also promise to project jobs for Massachusetts workers.

The agreement is a major step forward for Hartford, Conn.-based Northeast Utilities' $4.7 billion purchase of Boston-based NStar, but the proposed merger must still win final approval from regulators in Massachusetts and Connecticut.

Connecticut's attorney general, George Jepsen, said the Massachusetts agreement would be carefully reviewed but would have little bearing on whether the proposed merger is deemed in the best interest of his state.

Cape Wind spokesman Mark Rodgers said the company was waiting to land another customer before pursuing project financing, and now it can, once the deal is final with NStar.

"The more power that is secured in a long-term power purchase agreement, the better," he said. "It helps attract the private capital that's needed, both in the form of debt and equity to build the project.

The price NStar and Northeast Utilities will pay for Cape Wind's power is still subject to negotiation, NStar spokeswoman Caroline Allen said.

Cape Wind was proposed in 2001 but has met tough resistance. Opponents say the power is overpriced: For instance, the starting price in the National Grid deal is 18.7 cents per kilowatts hour and increases annually, while land wind can be had for about 10 cents an hour. They also complain the project will mar a pristine area. Various lawsuits are pending against the project.

Sullivan said if Cape Wind did not get built for some reason, the combined NStar-Northeast Utilities company would have to buy a corresponding load from other renewable sources, such as wind or solar.

NStar initially seemed cool to Cape Wind, with chief executive Tom May saying he was "agnostic" about the project. The utility also passed on buying from Cape Wind when it first had the chance, choosing cheaper land wind instead.

But after the merger was proposed, state regulators added a requirement that such deals must advance the state's clean energy goals, which include developing offshore wind. It also moved to stay merger proceedings, pending a lengthy review of the merger's effect on rates, though it later dropped that request.

The moves led Cape Wind opponents to charge the state with using the merger approval to force NStar to buy power from a favored project.

NStar's Allen said the deal with Cape Wind wasn't a result of pressure from the state. She said the utility had never opposed the project or ruled out buying power from it.

Democratic Gov. Deval Patrick, during a Statehouse news conference, downplayed the relative importance of the Cape Wind portion of the agreement and said it was not a "sticking point" in negotiations with the companies.

"The value of the rate freeze and the potential to have rates go down is considerably more important and larger in scale than the Cape Wind component of this," he said.

Sullivan added: "While Cape Wind was important, it was not Cape Wind at any cost."

Cape Wind opponent Audra Parker, of the Alliance to Protect Nantucket Sound, didn't believe it, saying state energy customers will pay more because of the state's "arm twisting" of NStar. But she said that after a decade of trying, and despite the deal with NStar, she's convinced Cape Wind won't be built and the NStar deal won't matter.

"Twenty seven percent of nothing is still nothing," she said.

State Rep. Bradley Jones, the Republican leader of the Massachusetts House, accused the Patrick administration of "legalized extortion."

"Strong-arming NStar to purchase Cape Wind as a condition of the company's merger with Northeast Utilities will ultimately increase electricity costs and hurt Massachusetts' ratepayers, businesses and municipalities," Jones said.

But environmentalists praised the agreement.

"The terms of the deal will allow the state to finally unleash the potential of Cape Wind, moving the United States ahead in its quest to prioritize clean energy alternatives," said Sue Reid, director of the Conservation Law Foundation.

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Associated Press writer Stephen Singer in Hartford, Conn., contributed to this report.

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