(NECN: Peter Howe, Boston) The $4 billion merger of New England utility companies NStar and Northeast Utilities should ultimately lead to downward pressure on electric and gas rates in Massachusetts, Connecticut, and New Hampshire -- but probably not before 2013.
The deal was announced Monday morning, combining NStar -- which has 1.1 million gas and electric customers in Greater Boston, Worcester County, the South Shore, South Coast, Cape Cod, and Martha's Vineyard -- with NU, the parent company of Connecticut Light and Power, Connecticut's Yankee Gas, Public Service of New Hampshire, and Western Massachusetts Electric.
Meeting with reporters in Boston late Monday afternoon, NStar chief executive Thomas J. May, who will become CEO of the expanded NU, said, "Over time, we think that the combination of the companies will make us more efficient. There'll be economies of scale. We'll use our buying power to get better prices.'' But pressed on whether that could mean an actual rate drop after a current freeze on Massachusetts rates expires in January 2013, May said, "It's a long time between now and 2013, but that's a possibility.'
NU CEO Charles "Chuck" Shivery, who will become nonexecutive chairman of the firm for 18 months after the deal closes, then turn that office over to May, said, "Ultimately, we see a lot of benefits from this merger, and as those benefits take place, the customer will ultimately see that.''
The new company will have 3.5 million customers, 9,000 employees, and an overall value of $17.5 billion.
The merger faces the need for numerous approvals, including from the Federal Energy Regulatory Commission, Securities and Exchange Commission, Nuclear Regulatory Commission, Federal Communications Commission, and the Massachusetts Department of Public Utilities (but not utility regulators in New Hampshire or Connecticut).
Massachustts Attorney General Martha Coakley, whose office represents ratepayers in DPU proceedings, said she'll oppose any rate hike from the merger, and continue to fight a rate increase Western Mass. Electric is already seeking.
What's unclear, though, is how much Massachusetts regulators might be able to force the new NU to cut Bay State rates in anticipation of the promised synergies and savings. Around New England, utility companies have frequently been able to juice up profits and shareholder dividends by promising a long rate freeze as a supposed benefit of a merger, then using aggressive cost-cutting efforts under that rate cap to fatten their net income until the rate freeze expires and new rates have to be litigated.
A spokesman for Utility Workers Union of America Local 369, which represents NStar workers, said Monday the union was studying details and had no immediate comment on the merger plan. NStar spokeswoman Caroline Allen said as of now, the company is only looking to possible reductions in payroll through attrition, not layoffs.
May said: "What we essentially have to do is explain why this is good for the consumer, and Chuck (Shivery) and I think that's an easy job to do.'' The companies said they plan to invest $9 billion in power-grid updates around New England over the next five years, "and that translates to jobs," May said.
The companies say they will maintain joint headquarters in Boston and Hartford. The new company will be owned 56 percent by current NU shareholders, 44 percent by current NStar shareholders, through a formula based on the companies' average share price for the 20 days before the deal was struck. While NU is technically the acquiring company, functionally, the deal is more like a straight-ahead merger where no takeover premium got paid out to shareholders of either utility holding company.
Notably, the deal came as apparently a complete surprise to New England energy sector investors and participants. NStar has long been seen as a likely takeover candidate, but there had not even been a whiff of speculation it was actually in talks with anyone, much less NU specifically.
May and Shivery said the did a lot of their negotiations at the Publick House in Sturbridge, Mass., well out of the public eye. The two companies have been working jointly on a 1,200-megawatt transmission line to bring more Hydro Quebec hydroelectric power into New England -- a line big enough to meet about 900,000 average homes' demand -- and so it wouldn't have necessarily attracted much attention that company executives were having a lot of meetings.
But what almost no one outside the companies knew until early Monday morning was that those meetings also wound up including discussions that led to a blockbuster merger that will reshape the New England energy landscape.
With videographer Bob Ricci