Massachusetts officials yesterday announced a breakthrough in a nearly yearlong negotiation with NStar and Northeast Utilities, agreeing to let the two utilities merge in exchange for cutting more than $200 million from consumers’ bills and providing critical backing for the offshore Cape Wind project.
Under terms of the deal, the newly combined company agreed to freeze electric and gas delivery charges for its Massachusetts customers for four years, saving those ratepayers an estimated $196 million, state officials said, and providing customers with a one-time rebate of $21 million - about $12 to $15 for the average ratepayer.
The deal still needs formal approval from Massachusetts regulators. Connecticut regulators’ approval is also needed.
NStar agreed to purchase 27.5 percent of the output of the Cape Wind project, which would give the offshore wind farm the assured sales needed to obtain financing for construction.
The deal is a major coup for Governor Deval Patrick, who had insisted the merger should promote cleaner sources of energy, and for Attorney General Martha Coakley, who said it should result in cost savings and efficiencies that would benefit ratepayers.
“What we have here today is a landmark agreement for customers. It will protect ratepayers from rate increases now and into the future, and it passes the savings from the merger directly back to the customer,’’ Patrick said at a news conference yesterday. “It also makes NStar a bigger participant in the Commonwealth’s green energy generation revolution underway right now.’’
NStar, based in Boston, and Northeast, in Hartford, disclosed their merger proposal in October 2010, a $17.5 billion combination that would serve nearly 3.5 million electric and gas customers from Westport, Conn., to Pittsburg, N.H., near the Canadian border. The parent of the new company would be Northeast Utilities, but its individual utilities, including NStar and Western Massachusetts Electric Co., would retain their identities.
Because those local utilities would be acquired by a new company, the proposed merger requires approval by Massachusetts regulators, giving Patrick tremendous leverage. And from the start the administration used that leverage to pressure the companies to negotiate on their rates, and buy power from Cape Wind, providing a major boost to one of the governor’s top priorities: clean energy.
NStar had balked at the high price of Cape Wind’s power, which at 18.7 cents per kilowatt hour in its first year is more than double the price of conventional energy sources. The two sides negotiated for months until the electric companies conceded.
“As we’ve said all along, we want to be sure to do everything we can to keep prices down for our customers while also promoting renewable energy,’’ said NStar spokeswoman Caroline Allen. “The merger discussion offered the opportunity to achieve a number of goals to improve the Massachusetts environment and the economy, and the Cape Wind contract was a factor in meeting those goals.’’
Cape Wind had previously struck a separate deal with the state’s other major utility, National Grid, to buy half its output. NStar’s promise to sign a 15-year contract for much of the remaining power is a “major milestone’’ for Cape Wind, said spokesman Mark Rodgers.
“Our hope is to begin construction by sometime next year,’’ Rodgers said. “Obviously that will depend on how quickly we can achieve project financing.’’
Cape Wind supporters hailed the deal yesterday.
“It’s a giant leap for Massachusetts, in terms of securing renewable energy, and it’s also a very important step for the United States, as it would be the construction, beginning within a year, of the first offshore wind farm in America,’’ said Jack Clarke, director of public policy and government relations at the Massachusetts Audubon Society.
Meanwhile Cape Wind opponents were upset that the utilities gave in to “arm-twisting’’ by the Patrick administration, said Audra Parker, president of the Alliance to Protect Nantucket Sound. However, she expressed confidence that Cape Wind would not clear other hurdles, including multiple court challenges and a pending determination from the Federal Aviation Administration whether the proposed 132 turbines, at 440 feet tall, are a hazard to planes.
“It’s outrageous that the state has forced NStar to purchase overpriced power from Cape Wind when there is readily available green energy at a fraction of the price,’’ Parker said.
The deal would provide other environmental benefits. NStar will also purchase 10 megawatts of solar power, develop an electric vehicle pilot program, and implement efficiency programs to reduce electricity consumption by 2.5 percent annually.
And the utilities also promised to ensure that their merger would not affect the quality of service they now provide to customers, and that any cuts to the combined utility’s workforce would not disproportionately affect Massachusetts. Electric workers unions hailed that pledge, but questioned how well the state will be able to enforce it.
The one major sticking point left is the state of Connecticut, which has been conducting its own review of the merger out of concern that any conditions imposed by Massachusetts would adversely affect its consumers.
Dennis Schain, a spokesman for the Public Utilities Regulatory Authority in Connecticut, said the merger review is ongoing and the agency hopes to meet an April deadline set by the utilities. Meanwhile, Massachusetts officials said they would hold off giving the deal their final blessing until after Connecticut regulators issue their ruling.