Cape Wind part of merger deal

Cape Wind part of merger deal

NStar, Northeast Utilities also agree to freeze rates and issue $21m in rebates

NStar and Northeast Utilities have agreed to freeze their rates, rebate $21 million to Massachusetts customers, and buy more than a quarter of Cape Wind’s electricity output to secure the backing of the Patrick administration and Attorney General Martha Coakley for their proposed $17.5 billion merger.

The deal, negotiated secretly for more than a year, should pave the way for regulatory approvals of the blockbuster utility merger in April. The agreement represents an enormous victory for Gov. Deval Patrick, who used the leverage created by the merger approval process to pressure NStar into buying a big chunk of Cape Wind, the long-delayed Nantucket Sound wind energy project that the governor has championed.

The Cape Wind provision is the most controversial aspect of the deal, since it requires NStar to buy expensive – but clean – power from the Cape Wind project while limiting the utility’s ability to negotiate a good price.  NStar is required to sign a 15-year, no-bid contract to purchase 129 megawatts of power from Cape Wind. The only way NStar can back out of the deal is if Cape Wind hasn’t begun construction by 2016; the utility would then be required to purchase an equal amount of clean energy from other sources.

Rick Sullivan, the governor’s secretary of Energy and Environmental Affairs, said Cape Wind was a priority for the administration “but it hasn’t been Cape Wind at any cost.” When Sullivan was asked about NStar’s opposition to purchasing Cape Wind power, Patrick interjected: “Not any more.”

Coakley, the advocate for ratepayers in utility proceedings, did not attend the press conference and did not sign on to the administration’s deal with Cape Wind. Coakley signed a separate agreement with the utilities spelling out the four-year freeze in basic distribution rates and the one-time $21 million ratepayer rebate.

In testimony at a State House hearing in November, Coakley said long-term renewable energy contracts should be subject to competitive procurement to increase transparency and hold down costs. She appeared to be referring to National Grid’s decision to sign a long-term contract with Cape Wind to purchase 50 percent of the project’s power output.

Brad Puffer, Coakley’s spokesman, issued a statement today saying, “It is our understanding that the agreement between the administration and NStar is consistent with the previous one involving National Grid and Cape Wind approved by the Supreme Judicial Court. As a result, we don’t anticipate opposing it.”

NStar and Northeast Utilities issued a statement saying they welcomed the agreements with the Patrick administration and Coakley and looked forward to winning final approval from the state Department of Public Utilities. “We recognize that the climate change goals set forth by Gov. Patrick’s Green Communities Act will require aggressive action and we think the best way to meet those requirements is through a diversified portfolio of renewable resources,” said NStar CEO Tom May, who has previously characterized his company as agnostic on Cape Wind.

The dance between the Patrick administration and NStar on Cape Wind began in December 2010, when Ian Bowles, the governor’s former secretary of energy and environmental affairs, suggested in a speech that the proposed merger of NStar and Northeast Utilities should be about more than corporate synergies. He said utilities need to be held accountable in rate cases, mergers, and other state proceedings for their performance in relation to all public purposes, including the state’s clean energy goals. He said regulators should ask whether a merger will help advance the state’s development of solar and offshore wind resources.

Several news outlets took Bowles’s comments to mean NStar should buy Cape Wind power if it wanted the merger approved. But a Bowles spokeswoman said at the time that the secretary was not pressuring NStar to buy Cape Wind power. Yet shortly after that speech administration officials began negotiating with NStar to do just that.

It took more than a year of negotiations, but ultimately NStar and Northeast Utilities (through its Western Massachusetts Electric subsidiary) agreed to freeze their base distribution rates for four years. They also agreed to offer a one-time customer rate credit of $21 million, with $15 million going to NStar electric customers, $3 million to NStar gas customers, and $3 million to customers of Western Massachusetts Electric.

The Cape Wind deal requires the merged utility to negotiate a 15-year power purchase contract with Cape Wind for 129 megawatts of power, or 27.5 percent of the project’s current projected output. The negotiated price would be subject to review by the state Department of Public Utilities.

In approving Cape Wind’s earlier deal with National Grid, the Department of Public Utilities acknowledged the high price of the power but said that cost was an acceptable tradeoff for the environmental gains. “The power from this contract is expensive in light of today’s energy prices,” the DPU said in its decision. “It may also be expensive in light of forecasted energy prices – although less than its critics suggest. There are opportunities to purchase renewable energy less expensively. However, it is absolutely clear that the Cape Wind facility offers significant benefits that are not currently available from any other renewable source.”

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Jim Gordon, president of Cape Wind, issued a statement calling the NStar deal “a major step forward in making Massachusetts a leader in offshore wind power.” He didn’t say whether the NStar purchase will be enough to kickstart the project’s launch.

Homepage photo by environick and published under a Creative Commons license.