Massachusetts Department of Public Utilities Announces Approval of NSTAR-NU Merger
Approval requires additional financial transparency from the companies, finds substantial ratepayer benefits from $21M rate credit, rate freeze, clean energy investments
BOSTON – Wednesday, April 4, 2012 – Based on its analysis of long-term savings for customers and environmental benefits, the Department of Public Utilities (DPU) issued an order today approving the merger between NSTAR and Northeast Utilities (NU).
The DPU approved two sets of merger settlement agreements based on benefits including a base distribution rate freeze and a one-time rate credit of $21 million, for an overall savings of approximately $206 million over the next 10 years. Estimates beyond 2022 indicate even larger savings. Under the merger agreement, the credit and freeze takes effect immediately and residential, commercial and industrial customers of NSTAR Electric, NSTAR Gas and Western Massachusetts Electric Company (WMECo, an NU subsidiary) will receive a one-time credit available beginning on their May bills.
As part of its approval, the DPU strengthened the transparency requirements imposed on the companies in the settlement agreements by setting a deadline of April 15, 2015 by which the companies must provide the additional financial information outlined in the order. This approval requires the companies to provide to the DPU, the Department of Energy Resources (DOER), and the Attorney General a listing of assets, additional information on operating expenses, plant investment, rate of return and operating revenues for the four-year period from 2012 to 2015. The order notes that the DPU could conduct an investigation into the utilities’ rates in 2016 based on the results of that report.
To further ensure the merger benefits are realized by ratepayers, the DPU is also requiring NSTAR Electric, NSTAR Gas and WMECo to provide an updated accounting five years after the merger on merger-related savings. This accounting would track actual savings per year for the period 2012 to 2017, the distribution of savings between ratepayers and shareholders for the period 2012 to 2017, and projected savings for the remainder of the first 10 years following the merger.
“The agreements unquestionably create benefits both in terms of the financial implications for ratepayers and job creation in the state’s growing clean energy sector,” said DPU Chair Ann Berwick. “This merger features significant clean energy and transparency commitments, requiring that NSTAR Electric begin a new era of opening its books to public review and making renewable energy and energy efficiency investments.”
This approval does not affect the ongoing investigations into storm response as a result of Tropical Storm Irene and the October 2011 winter storm.
The DPU found that the first of the two agreements, between DOER, the Attorney General, and the companies, provides a variety of benefits including the one-time rate credit and a disallowance of recovery from ratepayers of any merger-related compensation packages awarded to senior executives.
The second agreement, between DOER and the companies, would require NSTAR Electric to purchase 129 megawatts of the capacity of the Cape Wind project, and an equivalent amount of power from other renewable resources if the Cape Wind project does not go forward, if the DPU rejects the contract, or if the project is reduced in size.
In addition to savings and transparency benefits, the DPU determined that the merger will deliver significant clean energy benefits that reduce greenhouse gas emissions and dampen electric price volatility. As part of the merger agreement, the merged companies have pledged enhanced energy efficiency programs, solar energy deployment, an electric vehicle pilot program in Massachusetts building on NU’s existing Connecticut pilot, and a review of standby rates designed to reduce barriers to producing small-scale distributed generation.
DPU’s decision follows a 17-month investigation, including an evidentiary record consisting of 1,031 exhibits, 10 days of evidentiary hearings, and two rounds of oral arguments.