Officials at Hartford’s Northeast Utilities see nothing but good things for Connecticut coming from its merger with Boston utility NStar.
State officials aren’t so sure.
From the company’s perspective, the $4.3 billion merger creating the largest utility in New England with 3.5 million customers will give Connecticut a greater voice in the regional and national energy debate. The new Northeast Utilities will produce efficiency to eventually lower costs to customers and provide better financial stability and investment opportunity.
While not exactly voicing opposition to the merger, Connecticut officials at least want the state Department of Public Utility Control to take a look at this new behemoth of a company before the merger is approved by other states and agencies.
State Attorney General George Jepsen and the co-chairs of the General Assembly’s Energy and Technology Committee are among those who worry that a new Northeast Utilities made up of mostly Boston-based executives won’t have the best interests of Connecticut ratepayers at heart. Even though the new company will have a dual headquarters in Hartford, the concern is the decisions will be made in eastern Massachusetts.
Adding fuel to the fire are the two company’s annual reports, released in February. Among other items, the reports detailed how NStar and Northeast Utilities set up $22.5 million in merger bonus pools to help retain the top executives for three years after the merger is complete.
“These enormous bonus pools show quite clearly that the combination of NU and NSTAR will result in an entirely new and different company that will call itself NU,” Jepsen said. “These bonuses, along with a new and different board of trustees, executive management team, corporate headquarters and shareholder interests, show quite clearly that this merger will result in a change of control that requires DPUC review and approval.”
When the merger was announced in October, the DPUC initially said it didn’t have jurisdiction over the merger as NU’s two Connecticut subsidiaries — Yankee Gas and Connecticut Light & Power — weren’t going to materially change in the transaction.
After Jepsen balked at that ruling and received support from the co-chairs of the Energy Committee — State Sen. John Fonfara, D-Hartford, and State Rep. Vickie Nardello, D-Prospect — the DPUC decided to review its role in the merger. The DPUC’s hearing on its jurisdiction is scheduled for March 25.
At the same time, the legislature is considering a bill giving the DPUC explicit jurisdiction over the merger.
In its various Securities and Exchange Commission filings on the merger, NU is unsure how to take all this maneuvering by Connecticut, especially since state officials are simply calling for a review and not outright opposing the merger.
In its latest merger update to shareholders on March 4, NU still predicts the merger will be complete within 9-12 months, which was the original completion target.
On March 4, shareholders at NU and NStar overwhelmingly voted their approval of the merger.
The vote came after the release of the companies’ 2010 annual reports, which had various revelations about operations before and after the merger.
If the merger doesn’t go through, NU may owe NStar a $135 million termination fees plus another $35 million in expenses. Or depending, on the circumstances of a failed merger, NStar may owe NU that amount.
In November, NU and NStar separately set up $10 million retention pools aimed at keeping top officers at each company around for at least three years after the merger is complete, according to the annual reports.
“It is standard during mergers to retain the top executives of the company,” NU spokesman Al Lara said.
In addition, Charles Shivery, NU’s chairman, president and CEO, stands to collect a $2.5 million bonus for staying on to finish a previously arranged 18-month term as nonexecutive chairman of the new company, Lara said. He is scheduled to retire at the end of that contract.
Shivery’s bonus would be on top of regular pay package. His 2010 base salary was $1 million as part of his total compensation of $8.3 million, filings show. When he retires, Shivery will collect $31.5 million in post-employment compensation, amassed during his tenure at NU, according to a filing with the Securities and Exchange Commission.
The NU $10 million award fund established on Nov. 16 covers NU Chief Financial Officer David McHale, Chief Operating Officer Leon Olivier, General Counsel Gregory Butler and Senior Vice President James Robb, according to NU’s annual report. Olivier also is CL&P CEO.
Each would collect the bonus in varying amounts in the form of restricted stock that vests three years after the merger. NU’s bonus pool is paid for strictly by shareholders, Lara said.
The NStar $10 million bonus fund established on Nov. 18 covers Christine Carmody, senior vice president of human resources; James Judge, chief financial officer; Joseph Nolan, senior vice president customer and corporate relations; and Werner Schweiger, senior vice president operations, according to NStar’s annual report. The bonus commitment to those four NStar officers represents 30 percent of the $10 million, said NStar spokeswoman Caroline Allen. The balance of the bonus pool may be committed to more employees later on.
NStar’s filing did not spell out whether Chairman Thomas May is eligible for a retention bonus. In 2009, May’s base salary was just over $1 million and his total compensation was $7.4 million, according to Forbes.com.
May is due to become CEO of NU after the merger. He also will assume the chairman role once Shivery retires.
Shivery’s retirement and May’s planned dual roles of CEO and chairman have alarmed Connecticut state officials, who note May will be based in Boston.
In addressing the Northeast Utilities employees in October, May talked about how becoming head of the company is a homecoming for him. He was born at Hartford Hospital and grew up in the city, making money digging graves at a cemetery on the north end. He worked for Travelers Insurance and at G. Fox and Co. “So, this is an interesting home coming for me and it’s, as I say, an additional thrill to be, to be part of the NU family,” May said in October.
When originally announced, the merger was analyzed as a healthy marriage between NStar’s strong cash flow and NU’s $3 billion in proposed transmission projects.
NU said the day-to-day workings of all its subsidiaries including CL&P and Yankee Gas wouldn’t be impacted, and the long-term could yield only positive results.
“The proposed merger not only strengthens our voice nationally, it means that the jobs, the millions of dollars in investments and the support of communities throughout the state that we have long provided — and will continue to provide — will remain in Connecticut,” CL&P President Jeffrey Butler and Yankee Gas President Rodney Powell jointly wrote in a filing to the SEC.
