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Headwinds for a merger  

Credit:  By Steven Syre, Globe Columnist, www.boston.com 22 July 2011 ~~

What would it take for state regulators to bless the proposed merger of regional utility giants NStar and Northeast Utilities?

Most of the conversation and legal paperwork on the deal that would create a $17.5 billion electric company has revolved around rates and consumer protection.

Regulators and utility executives don’t care to talk in public about another key factor: Cape Wind – and one of the private offshore project’s biggest fans, Governor Deval Patrick. But support for the controversial 130-turbine development will almost certainly be an important element of any final agreement to approve the merger between NStar and Northeast.

I’m told private talks between the Patrick administration and utility executives have focused mostly on rate relief, restrictions prohibiting the companies from seeking new rate increases for a period of years, and a commitment to buy a significant percentage of the power Cape Wind expects to generate.

The amount of power the combined utility would buy from Cape Wind has varied in discussions over time, from 20 percent to 35 percent of the wind farm’s output.

The most recent idea discussed – but not adopted by state officials or the utility – would combine $100 million of rate relief over five years, an agreement not to seek new rate increases for at least four years, and a deal to purchase 25 percent of Cape Wind’s power, according to a person briefed on the talks. Don’t be surprised if a final arrangement looks something like that.

Caroline Allen, a spokeswoman for NStar, declined to discuss any private negotiations with the administration.

Earlier in the day, I asked a spokeswoman for Richard Sullivan, Massachusetts Energy and Environmental Affairs secretary, if her boss had talked to NStar about approving the merger and a rate settlement in return for purchasing 25 percent of Cape Wind’s power.

“The scenario you laid out has not happened,’’ Lisa Capone wrote back. She acknowledged that Sullivan did talk with NStar executives about buying Cape Wind power but insisted that those discussions and the merger were separate issues.

Regulators certainly have plenty of leverage in negotiations with NStar. As the Globe’s Erin Ailworth reported this week, they want to delay any merger approval pending a full review of NStar’s rates. That could push the process into 2012 and might be a deal killer. Regardless of the merits of a full rate review – and they may be very valid – the request is a powerful negotiating tool.

Attorney General Martha Coakley, another important player in the merger drama, says she will support the merger if it comes with the kind of rate relief that has been discussed with the administration.

Cape Wind is controversial because it would produce expensive power (and clutter up the view of Nantucket Sound). NStar chief executive Tom May has remained adamant for years in his public opposition to purchasing Cape Wind power because the price was too high. He’s going to have to choke down some of that expense to get his merger through.

But May is hardly the only critic of Cape Wind and its pricey power. Even environmental lawyer Robert Kennedy Jr., writing in The Wall Street Journal this week, called the project a “rip-off’’ and pointed to “ominous signs’’ state officials would strong-arm NStar into buying Cape Wind power during the merger review process.

Plans for the $2.6 billion Cape Wind project have won all the important regulatory approvals. Now it needs financing, and that money would be a lot easier to find (not to mention cheaper) with commitments from big customers to buy future power.

National Grid, the state’s other giant electric utility, has already agreed to buy half of Cape Wind’s power, so a big deal with NStar would surely make financing a slam-dunk. The state could even buy some of the remaining power as public-use energy.

National Grid is relying on Cape Wind to produce nearly all the renewable energy it is required by the state to purchase. If NStar bought 25 percent of Cape Wind’s capacity, that would account for about half of the utility’s renewable energy commitments. Cheaper deals for onshore wind in Massachusetts and two other states, blended with power purchases from Cape Wind, would blunt but not eliminate the higher offshore costs.

Regulators and utility executives aren’t done maneuvering over the merger of NStar and Northeast. These power politics have the wind at their back.

Source:  By Steven Syre, Globe Columnist, www.boston.com 22 July 2011

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this article resides with the author or publisher indicated. As part of its noncommercial effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send requests to excerpt, general inquiries, and comments via e-mail.

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