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NStar agrees to buy Cape Wind power to win state okay on merger

Massachusetts officials have reached a breakthrough deal with NStar and Northeast Utilities that would allow the two electric companies to merge in exchange for buying a significant amount of power from the offshore Cape Wind project.

The agreement would also result in the new utility freezing its electric distribution rates through 2015, and providing customers with a one-time rebate of $21 million, about $12 to $15 for the average ratepayer.

The terms are a huge concession by the utilities to Governor Deval Patrick and Attorney General Martha Coakley, who had insisted the merger should result in cost savings and efficiencies that would benefit ratepayers while also promoting cleaner sources of energy.

The parties have been at a stalemate since the Oct. 2010 announcement of a $17.5 billion merger that would create the largest utility in the region, serving nearly 3.5 million electric and gas customers from Westport, Conn., to Pittsburg, N.H., near the Canadian border.

In particular the electric companies had resisted buying power from Cape Wind because of its high cost compared to more conventional energy sources. Although Cape Wind struck a deal with the state’s other major utility, National Grid, for half its output, the wind farm proposed for Nantucket Sound still needs another major customer to obtain financing for construction.

The deal with Massachusetts commits the new utility to buying 27.5 percent of Cape Wind’s electricity, which should be enough to allow the project to get underway, state officials said. The wind farm would provide about 2 percent of the new utility’s total power needs.

“The merged company will be a leader in the Commonwealth’s clean energy plans,” Richard K. Sullivan, Jr., Massachusetts Secretary of Energy and Environmental Affairs said in announcing the deal.

However, its unclear how the deal with Massachusetts will play to officials in Northeast Utilities’ home state of Connecticut. Regulators there initiated their own review of the merger out of concern that any conditions imposed by Massachusetts would adversely affect their ratepayers.

Connecticut officials have said they will try to reach a decision on the merger by April. Meanwhile, Massachusetts officials said they would hold off giving final blessing at their end until after Connecticut regulators issuing their ruling.