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Mass. OK’s merger of NStar and Northeast

$20b deal will create largest utility in New England

David L. Ryan/Globe Staff/File 2011

Once combined, NStar and Northeast Utilities will provide electric and gas service to nearly 3.5 million customers.

After about a year and a half of review, Massachusetts regulators on Wednesday approved a nearly $20 billion merger between Boston’s NStar and Northeast Utilities of Connecticut - a combination that will create New England’s largest utility, and would probably give the new company more influence over regional energy and environmental policies.

Shareholders have already approved the deal, and the state’s regulatory consent was the last hurdle the companies needed to clear before combining. It follows several major concessions the utilities made in February in exchange for support from state energy officials and Attorney General Martha Coakley. The utility will freeze rates for four years, saving consumers nearly $200 million, pay a one-time $21 million rebate, and buy power from the offshore Cape Wind project.

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However, the state Department of Public Utilities requested the companies provide more financial details on the merger by April 15, 2015 and to report on cost savings in five years.

“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 chairwoman Ann Berwick said.

“We believe this agreement, as approved, will ensure that consumers receive needed savings,’’ added Brad Puffer, a spokesman for Coakley.

The merged company will retain the Northeast Utilities name, but be run by NStar’s chief executive, Thomas J. May, from dual headquarters in Boston and Hartford. Charles W. Shivery, Northeast Utilities’ current CEO, will become chairman. Its subsidiaries, including NStar and Western Massachusetts Electric Co., will keep their names.

“Together with NU, we look forward to creating a strong company which builds on our shared history of delivering quality service to New England,’’ May said in a statement.

Connecticut regulators approved the merger earlier this week after Northeast Utilities agreed to freeze rates for customers in that state until Dec. 1, 2014, and spend $300 million on system improvements.

Once combined, NStar and Northeast Utilities will provide electric and gas service to nearly 3.5 million customers, from Westport, Conn., to Provincetown, to Pittsburg, N.H., on the Canadian border. The companies expect to close the merger by next Tuesday.

The merger was first announced in October 2010, the companies arguing that together they could buy electricity and natural gas at lower prices, and invest more in renewable energy. The utilities projected the combined entity would realize an estimated $780 million in operational efficiencies in its first decade, partly by eliminating nearly 350 administrative jobs, mostly through attrition.

Dan Hurley, president of the Utility Workers Union of America Local 369, said his group, with roughly 2,000 NStar employees, is worried about members’ jobs.

“We’re very concerned that they’re going to transfer that work elsewhere,’’ Hurley said. “It’s always a concern when you have a mega-merger like this.’’

Consumer advocates also have expressed concerns about utility mergers, especially those that involve large service territories in multiple states. Such changes can lead to complications with customer service.

“Mergers are often predicated on the assumption that there will be new synergies created by bringing two or more companies together,’’ said John Howat, a senior energy analyst at the National Consumer Law Center, a nonprofit watchdog group in Boston. “And the extent to which those synergies actually occur, and the extent to which consumers actually obtain benefits, we don’t know until after the fact.’’

The deal has been under intense scrutiny for more than a year. Massachusetts regulators said the merger must meet a higher standard - that it create a “net benefit’’ for customers, instead of the prior goal of “no net harm.’’ The change was meant to push the utilities to help Massachusetts meet its goals for renewable energy.

So in February NStar agreed to buy 10 megawatts of solar power, and to purchase 129 megawatts from the controversial offshore Cape Wind project. Regulators are now considering that 15-year contract, with its starting price of 18.7 cents per kilowatt hour, well above what the utility pays for energy from conventional sources. The Cape Wind contract will add about $1 a month to the average bill.

Sue Reid, director of the Conservation Law Foundation in Massachusetts, said NStar’s contract with Cape Wind, combined with the other merger requirements, is a “game-changer.’’

The agreement, Reid said, “puts one of the biggest new utilities in the nation into a position of being a partner in unleashing the potential of offshore wind. That’s huge.’’

Erin Ailworth can be reached at eailworth@globe.com. Follow her on Twitter @ailworth.

A previous version of this story reported that the companies had until the end of the week to provide more financial details on the merger. The information is due by April 15, 2015.

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