Tuesday, April 10, 2012 5:00 pm
Northeast Utilities, NStar close $5B deal
By STEPHEN SINGERAP Business Writer
The newly combined company operates six electric and natural gas utilities serving 3.5 million customers in Connecticut, Massachusetts and New Hampshire. It is the largest utility in New England.
It will continue to be called Northeast Utilities while Boston-based NStar will be a Northeast Utilities subsidiary. Dual headquarters of the company, which employs 9,000 workers, will operate in Hartford and Boston, though about 350 jobs will be eliminated through attrition and elimination of redundant duties.
"Today marks the start of a stronger organization," Tom May, the new president and chief executive of Northeast Utilities, said in a conference call. "We'll have more resources and capabilities to serve our customers."
May, who previously headed NStar, replaces Charles Shivery at Northeast Utilities. Shivery has become non-executive chairman of Northeast Utilities' board of trustees.
Connecticut and Massachusetts negotiated agreements with the two companies that set the stage for regulatory approval. In Massachusetts, Northeast Utilities and NStar agreed to buy more than a quarter of the power that would be produced by the proposed Cape Wind offshore wind farm as a condition of the deal.
May would not address details of the negotiations over the Cape Wind agreement.
"There's give and take in the process," he said. "We usually don't relive those. How you made the sausages is not what we talk about. It's the final product."
He said NStar did not oppose purchasing Cape Wind power, but he was concerned that if Northeast Utilities and NStar ended negotiations with Massachusetts, state regulators might have imposed onerous conditions to its approval of the deal.
"What the conditions would have been would have been the issue," May said. "It's the fear of the unknown that we avoided."
In Connecticut, Northeast Utilities agreed to a rate credit for customers, a rate freeze for distribution costs, $300 million for system improvements and other demands by the state.
Massachusetts regulators say they will strengthen transparency requirements by setting an April 15, 2015, deadline for additional financial data such as assets and operating expenses. The regulators said they could investigate the utilities' rates in 2016 based on the results of that report.
Paul Franzen, a utility analyst at Edward Jones, said combining the two companies' operations will take some time, which he said is "part of a standard corporate merger."
The main point of the deal is to cut costs for customers as utilities face mounting pressure to upgrade or replace power plants that in some cases are 40 years old, he said.
In previous decades, the cost of electricity declined, but that's history, Franzen said.
"The bill will be rising in the future," he said.
Northeast Utilities says customers will share savings of about $780 million in the next 10 years.
If the savings materialize, Connecticut customers will benefit for the first time in years. Deregulation of electricity in the late 1990s is seen as falling short in promised rate cuts.
The legislature and Gov. Dannel P. Malloy enacted legislation last year that centralized state energy policy, focused on energy efficiency, established a state procurement office to participate with utilities in purchasing power and required the state, not electric companies, to assess future electric demand and how best to meet it.
Franzen said merging Northeast Utilities and NStar will help reduce costs.
"If we put together two companies, pretty close together, operating similar lines of business, if you can put them together and run them well, you can strip out costs and create savings," he said.
Whether shareholders will benefit from the new company is the "golden question," Franzen said.
The share price of Northeast Utilities has climbed 25 percent since the deal was announced in October 2010 and NStar increased 22 percent, but questions were raised because approvals were slowed as the utilities faced numerous hurdles, he said.
"The market is saying this deal is reasonable and beneficial for shareholders," Franzen said. "At the end of the day, time will tell."
Northeast Utilities said Tuesday the deal provides more resources for storm restoration and improvements in equipment. The promise is a response to customers and public officials in Connecticut who will not soon forget Connecticut Light & Power's handling of the freak snowstorm in October. Hundreds of thousands of customers were without electricity for up to 11 days as the utility struggled to restore downed power lines.
The utility came under heavy criticism, forcing its president to resign. Malloy cited that storm and the remnants of Hurricane Irene, which hit the state in late August, as opportunities to negotiate an agreement for approval of the Northeast Utilities-NStar deal that stipulated better terms for customers.
Shares of Northeast Utilities closed at $35.90, down 89 cents, or about 2.5 percent.