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(NECN: Peter Howe, Boston) - It’s a deal that gives a huge boost to the floundering, controversial Cape Wind project and could freeze energy distribution rates for 1.6 million NStar and Western Massachusetts Electric customers through 2016.
More than 16 months after NStar announced a $4.7 billion merger with Northeast Utilities, Massachusetts Governor Deval L. Patrick on Wednesday unveiled a deal that moves the combination several giant steps closer to a likely pro-forma approval by the Massachusetts Department of Public Utilities.
NStar, which had resisted for years pressure from Patrick’s administration to buy power from the 130-turbine Cape Wind project in Nantucket Sound, has now agreed to negotiate a 15-year deal to buy 27.5 percent of Cape Wind’s output. National Grid, the state’s biggest utility, had already agreed to buy 50 percent.
In turn, Patrick signed on to back the merger and a four-year distribution rate freeze for NStar gas and electric and WMECO customers. Customers will also get a $12 to $15 one-time bill credit as NStar, according to Patrick, returns to customers half its expected operating cost savings over the first four years of the merger. The merger will create a mega-utility with nearly four million electric and gas customers in Massachusetts, Connecticut and New Hampshire.
“It’s good for ratepayers, for the environment, and for our economy,’’ Patrick said in a State House appearance outside his office where he was joined by Energy and Environmental Affairs Secretary Richard K. Sullivan, but no representatives from NStar or NU. “It will protect ratepayers from rate increases now and into the future, and it passes on the savings from the merger directly back to the customer. it also makes NStar a bigger participant in the commonwealth's green energy generation revolution.’’
Patrick has been widely accused of holding the utility merger hostage to its buying Cape Wind power. Late Wednesday, state House Republican Leader Brad Jones said in a statement blasted the way-above-market-price cost of power NStar is agreeing to buy from Cape Wind, calling the deal “a turn down the road of legalized extortion … Strong-arming NSTAR to purchase Cape Wind as a condition of the company’s merger with Northeast Utilities will ultimately increase electricity costs and hurt Massachusetts’ ratepayers, businesses, and municipalities. We must put an end to closed door negotiations and sweetheart deals that have a significant impact on the wallets of the residents of the Bay State.’’
Rep. David T. Vieira, a Falmouth Republican, said, “This seems like extortion to me. I don’t appreciate the Governor playing Chicago-style politics with the future of Cape Cod and the Islands. If NStar wanted to purchase Cape Wind power, NStar has always been free to make such a purchase. The fact the Governor held the NStar merger hostage to the Cape Wind power purchase just doesn’t pass the smell test. These types of backroom deals are exactly what enrage taxpayers and should no longer be accepted.”
But Sullivan disputed those allegations, saying, “While Cape Wind certainly has been a priority, it's not been Cape Wind at any cost.’’
Patrick said, “Cape Wind was not the sticking point. The sticking point are the rates. It's very concerning to me that NStar's rates are by some measure 40 percent higher than other utilities, and there hasn't been a’’ fully litigated and audited “rate case for 25 years.’’
(Over the course of repeated mergers, NStar and predecessor companies have routinely agreed to “rate freezes” like the newest one in the NU merger, but many critics say rates shouldn’t just be frozen but should be decreasing significantly as the companies shrink staff and reduce overhead costs.)
Cape Wind president Jim Gordon called the Patrick-NStar pact “a major step forward in making Massachusetts a leader in offshore wind power and attaining the jobs, clean air and energy independence benefits that Cape Wind will provide … The Massachusetts Department of Public Utilities has determined that Cape Wind provides a unique set of benefits for Massachusetts and is cost-effective and will place downward pressure on wholesale energy prices while avoiding the external costs of burning fossil fuels. We are excited to move forward."
Gordon did not, however, state when construction will begin. Under the Patrick-NStar pact, the utility would be released from its obligation to buy Cape Wind power only if Cape Wind has failed to start any physical construction before Dec. 31, 2015 – suggesting state officials suspect it may be years yet until Cape Wind gets underway. The project faces several lawsuits, Federal Aviation Adminstration concerns over interference with airline radar, and the need to raise well over $2 billion in financing, even with 22 percent of its output still unsold.
Audra Parker of anti-Cape Wind Alliance to Protect Nantucket Sound said, “Ratepayers, municipalities and businesses will be saddled with increased electric bills because of the state’s arm-twisting to force NStar to purchase power from this wildly overpriced project. Gov. Patrick has forced NStar to agree to this purchase as a condition of approving a merger between NStar and Northeast Utilities over the repeated objections of NStar CEO Tom May. It is obvious, it is anti-consumer, and it ought to be illegal. Ratepayers should be comforted by the fact that after 10 years of fighting, it is clear that Cape Wind will never be built. The US District Court of Appeals has revoked a key permit from the Federal Aviation Administration, Cape Wind has been denied a $2 billion loan guarantee, and faces numerous lawsuits and financial hurdles. Ratepayers are not going to stand still for the kind of bills that the Governor, NStar, National Grid and Cape Wind want to impose on them when other green energy is available at a fraction of the price.”
Sue Reid of the Conservation Law Foundation, which ardently backs Cape Wind, said, “The settlement announced today in the NU NStar merger proceeding ensures that this powerful new utility will be in lockstep with Massachusetts’ nation-leading clean energy policies and propel the state forward instead of backwards in implementing them. The terms of the deal will allow the state to finally unleash the potential of Cape Wind, moving the United States ahead in its quest to prioritize clean energy alternatives. The terms also help ensure that imported hydropower won’t diminish other renewable energy deployment in New England. We applaud the Administration for recognizing that a lot of ground needed to be made up in order for this merger to benefit the public and for covering that ground with thoughtful terms that benefit ratepayers and the environment both in the short and the long-term.”
While with Patrick’s backing it appears the Massachusetts DPU is lined up to rubber-stamp the deal, the NU-NStar merger still needs approval from Connecticut regulators, who moved late last year to intensify their scrutiny after thousands of residents lost power for more than a week after Tropical Storm Irene.
Connecticut Attorney General George Jepsen said: “We will carefully review the Massachusetts agreement, but that agreement has little bearing on whether the proposed merger is in the public interest in Connecticut. NU and NStar still must prove that Connecticut customers will be better off as a result of the merger. Connecticut ratepayers must receive tangible benefits, including up-front rate credits and a reasonable sharing of merger savings achieved over time, as well as commitments concerning service reliability, storm response, jobs and energy efficiency.’’ Jepsen said the Connecticut Public Utilities Regulatory Authority is scheduled to make a final decision in the case by April 2.
With videographer Daniel J. Ferrigan and video editor John J. Hammann. NECN Political Reporter Alison King contributed to this report.