Boston utility NStar yesterday agreed to combine with Connecticut-based Northeast Utilities, creating a $17.5 billion energy behemoth that executives say will be better positioned to bargain for cheaper sources of electricity and natural gas and invest in renewable sources such as wind power.
The companies termed the all-stock transaction a “merger of equals,’’ although the smaller NStar will be subsumed within Northeast Utilities.
Presuming Massachusetts regulators approve the deal, NStar’s chief executive, Thomas J. May, would become head of the new company, while Northeast Utilities boss Charles W. Shivery would serve as chairman.
The new company would provide electric and gas service to nearly 3.5 million customers, from Westport, Conn., on the New York border, to Provincetown, to the northern New Hampshire town of Pittsburg, on the Canadian border. It will have dual headquarters in Boston and Hartford.
NStar consumers should not see higher bills as a result of the merger; Massachusetts regulations prohibit utility combinations from increasing costs to ratepayers. Attorney General Martha Coakley’s office, which represents utility ratepayers, said yesterday it will press the companies to prove the merger will benefit consumers.
Ian Bowles, the Massachusetts secretary of Energy and Environmental Affairs, which oversees the regulatory board that will review the merger, said he expects the deal to produce specific benefits.
“The merger should provide greater resources for storm response and investment in our electric distribution and transmission systems, but also needs to provide material savings for Massachusetts ratepayers from administrative efficiencies,’’ Bowles said.
Massachusetts and Connecticut have among the highest electricity costs in the nation. The utilities suggest the merger could result in savings for customers through the economies of scale of operating one larger company, as well as additional bargaining power the larger entity would wield in buying natural gas and electricity.
“When we talk, for example, about bringing gas up from the gulf in pipelines, we’ll have more buying power,’’ May said. “I do believe this will have definite long-term benefits for consumers in New England.’’
Executives said the new company would be financially stronger, allowing it to invest more in its local delivery system and the regional power grid, as well as take on larger transmission projects that could bring in cheaper power or renewable energy from distant sources.
“I think we’re at an inflection point around a lot of the sustainability or renewable projects, and having the size and scale that we do, I think we can play a larger role in energy policy in New England and quite frankly energy policy on a national scale than either one of us could have before,’’ said Shivery, who will serve as chairman of the combined entity for 18 months and then be succeeded in that position by May.
For example, Northeast Utilities and NStar were already collaborating on a $1.1 billion transmission line in New Hampshire to bring lower-cost hydropower from Canada, a venture that laid the groundwork for the current merger.
The two utilities recently signed a 40-year deal with Hydro-Quebec to import power over the 1,200-megawatt power line. Hydropower is typically much cheaper than electricity generated by gas- and oil-powered plants, and less susceptible to wild swings in price.
Executives said Northeast Utilities-NStar may also build transmission lines to bring electricity from wind farms proposed for northern Maine and New Hampshire. Land-based wind farms are expected to produced electricity at lower prices than offshore projects such as the Cape Wind project off Cape Cod.
Cape Wind’s contract to sell power to Massachusetts’ other major utility, National Grid, has come under sharp criticism for its price, around 20 cents a kilowatt-hour over the life of the contract.
“When you go offshore, it’s very, very expensive to build,’’ said May. “So when you stick stuff where land is cheap and the wind is blowing more frequently, you have lower-cost sources of power. It’s balancing that environmental desire with that economic desire to keep prices reasonable.’’
Tapping into wind farms isn’t just a business opportunity for NStar and Northeast Utilities; it’s a necessity, too. The companies face state requirements to generate more of their electricity from renewable energy sources. In Massachusetts, for example, NStar must have 15 percent of its electricity provided by renewable sources by 2020.
While they outlined potential benefits in broad terms yesterday, the utility executives did not detail precisely how ratepayers would benefit, nor did they explicitly promise the merger would result in lower bills.
Nonetheless, some longtime energy activists were already optimistic about what the merger would bring to Massachusetts.
“We think it’s going to strengthen the grid, strengthen our position. It should be cost effective and result in some efficient deployment of resources,’’ said Robert Rio, senior vice president for the business trade group Associated Industries of Massachusetts and an often critical watchdog of utilities. “Obviously, we’ve got to keep watching it, but at this point we see that this could be good for Massachusetts and possibly all of New England.’’
Environmental advocate Seth Kaplan, with the nonprofit Conservation Law Foundation, said he thinks the merger is an opportunity for Northeast Utilities to make major inroads in bringing more renewable energy to New England consumers.
“It gives them more ability to build a long-term portfolio that must and should include significant long-term renewable projects,’’ Kaplan said. “They need to see this as an opportunity to get their business plan pointed in the right direction.’’
NStar stockholders would receive 1.312 shares of Northeast Utilities stock for each share of the Boston company they own. At Friday’s closing stock price, NStar’s value in the deal was about $4 billion. The merger must be approved by shareholders and federal regulators.
NStar operates in greater Boston, southeast Massachusetts, and Cape Cod. Northeast Utilities owns the major utilities in Connecticut and New Hampshire. It also owns Western Massachusetts Electric Co., which last year was sharply criticized for proposing a pilot program that would charge low-income customers higher prices for any electricity they used above a certain monthly amount. The proposal was ultimately dismissed by regulators.
The companies said they do not expect the merger to result in layoffs. Combined, the utility would have more than 9,000 employees.
David Leonardi, president of the Utility Workers Union of America Local 369, which represents NStar employees, said a company representative told him yesterday that eliminating jobs “is not their plan.’’
“It’s too new to make a good judgment on it,’’ Leonardi said, adding that union employees were a “little surprised by the news’’ and “there’s a reasonable amount of concern.’’
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