The proposed $4.3 billion merger between Hartford’s Northeast Utilities and Boston’s NStar is all but certain to be approved by the end of this year, but the companies must agree to some creative deals to get the key approval in Massachusetts.
What might appear to be paying off stakeholders for their consent is really standard operating procedure in the Massachusetts Department of Public Utilities approval process where organizations that file objections to proposed business deals are offered settlements to gain their approval.
“They are all looking for something from NStar,” said Maurice May, a utility stock analyst who attended the initial Jan. 4 Massachusetts DPU procedural hearing on the merger. “What interveners want tends to lead to a settlement.”
In all, 16 different organizations have filed as interveners in the Massachusetts NU-NStar merger review, including environmental groups, low-income advocates, unions and industry groups such as the New England Power Generators Associations Inc., representing 85 percent of the region’s power plant owners.
The groups are seeking concessions from NStar and NU. The environmentalists will want more commitment to renewable energy, maybe even forcing the newly formed company to buy out the remaining power not purchased by National Grid from the Cape Wind farm, May said. The low-income groups will want a commitment to help needy people tap into weatherization funds. The unions will want protection for their workforce.
“We are concerned about the loss of Massachusetts jobs. No company merges to keep all their workers,” said David Leonardi, president of the Greater Boston-based Local 369 of the Utility Workers Union of America. “We are concerned it is going to have a negative impact.”
The union — among other things — wants to get a promise that the NStar call center won’t be merged into NU’s center to eliminate positions, Leonardi said. Such a promise would be binding under Massachusetts law. The union is also concerned about Northeast Utilities’ safety record and how its corporate philosophy will impact NStar operations.
Officials at Northeast Utilities declined to comment for this story, as the merger is pending.
The merger would join six electric and natural gas utilities under one company with more than $17 billion in assets. Northeast Utilities operates Yankee Gas in Connecticut, Connecticut Light & Power, Western Massachusetts Electric Co. and the Public Service of New Hampshire. NStar operates an electric and a gas utility under the NStar name in Greater Boston.
When the merger was proposed in October, company officials said the deal would enable the new entity to use NStar’s healthy balance sheet to move forward on NU’s proposed transmission projects. That would better route power from generators — particularly renewable energy generators — to load centers in Boston, Hartford and Southwest Connecticut. The companies also said they could join forces to build renewable power plants, such as wind farms in Maine and New Hampshire.
The New England Power Generators Association — representing companies such as Dominion and NRG Energy that create nearly all of Connecticut’s electricity — filed as an intervener in the Massachusetts case because it is concerned this new utility giant will take the competition out of rate-based energy generation by constructing its own power plants.
While Connecticut’s form of deregulation doesn’t allow electric utilities to own power plants, other New England states such as Massachusetts and New Hampshire would allow the new Northeast Utilities to build and operate power plants under certain conditions.
The association is seeking full disclosure from the company on how the merger will effect utility bills and the competitive energy market, said Angela O’Connor, NEPGA president.
“The filings that we’ve seen to date don’t have a whole lot of information,” O’Connor said. “We’ve got some significant concerns.”
Although the NU-NStar merger requires approval from several agencies including the Federal Energy Regulation Commission, the Securities & Exchange Commission and the Nuclear Regulatory Commission, the companies expect to have them all in hand by May 1 — except for the Massachusetts DPU approval.
Massachusetts is the only state that needs to give its consent to the merger, and it will be the hardest one to get. Connecticut’s Department of Public Utility Control is monitoring the process, but DPUC doesn’t have to approve it because the merger is between two holding companies and not the individual utilities.
“The biggie is going to be Massachusetts,” May said. “The Massachusetts approval is the critical one.”
When the merger was announced in October, the two companies said they hoped to have the deal complete in nine to 12 months, with July being the earliest it could be finalized.
In Massachusetts, the interveners have until March 7 to get all their filings in, and hearings will be held starting April 6. The final reply briefs are due May 27, with a final decision from the state coming possibly in July.
Although 16 different organizations filed objections to the merger in this key approval state, the task isn’t daunting for Northeast Utilities and NStar. It’s just a matter of finding out what the interveners want and giving it to them.
“Nothing I heard at the procedural hearing last week makes me believe that this thing isn’t going through,” May said.
