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State seeks delay in utility merger

Months-long review could stall NStar deal

By Erin Ailworth
Globe Staff / July 18, 2011

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The Patrick administration is seeking to delay approval of the merger between Boston’s NStar and Connecticut-based Northeast Utilities until at least next year - a move that, if successful, could unravel the deal to create one of the nation’s largest utility companies.

The administration, through the Massachusetts Department of Energy Resources, last week filed a request with state utility regulators to put off action on the merger until NStar completes a formal review of its rates, which could begin as early as May but could take several months. That means regulators may not be able to take up the case again until late next year, well beyond the April 2012 date the utilities originally set to reassess the deal if regulatory approvals were not in place by then.

Caroline Allen, an NStar spokeswoman, said yesterday that such a “substantial delay’’ could ultimately jeopardize the deal.

“It’s unfortunate because this seems inconsistent with the Patrick adminis tration’s desire to improve the business climate in the Commonwealth,’’ Allen said in a statement. “Here are two Massachusetts companies, coming together to form a Fortune 250 company, keep jobs local, and result in $784 million in customer savings over 10 years.’’

Mark Sylvia, commissioner of the state Department of Energy Resources, said, “We’re not attempting to kill any deal. What we’re trying to do is our job and our due diligence.’’

The state, he said, simply needs more information about NStar’s rate structure so it can best protect consumers as the merger goes forward.

This is not the first time state energy officials, who have been at odds with NStar over how the merger would affect the environment and customers, have intervened in the merger proceedings. Earlier this year, the Department of Energy Resources asked regulators to adopt a new, higher standard of review for the merger that would consider whether the combined company would help meet state goals of developing nonpolluting energy sources, such as wind and solar power.

As regulators considered that request, which they ultimately adopted, hearings on the merger were put off until this month. NStar and Northeast Utilities had hoped for a decision by mid-May 2011.

This latest move was prompted, in part, by concerns over the impact of the merger on NStar’s business and residential customers, Sylvia said. NStar’s electricity rates are among the highest in the state. and its residential customers pay on average of $7 to $19 a month more than customers of National Grid, according to data from the Department of Public Utilities.

Sylvia asked if there are going to be additional costs to ratepayers if the merger goes through.

That’s difficult to assess, he said, because it has been 25 years since NStar last went through a full-blown rate case, in which utilities open their books to a full financial review by regulators, and then offer testimony and other evidence to justify rate requests and address concerns of customers and other interested parties.

Instead, NStar has hashed out rate settlements with the attorney general’s office, which represents customers, and presented them to regulators for approval.

“NStar’s actual cost of doing business has not been exposed to public review or Department examination for over 20 years,’’ the energy resources department said in its recent filing. “Only after such an evaluation can the Department determine whether the merger provides net benefits, both environmental and financial - to ratepayers.’’

The company’s last settlement was approved in 2005. Utility rates routinely get set through settlements, in part because it simplifies the process, said John Howat, a senior policy analyst with the National Consumer Law Center.

The merger, first proposed in October, is receiving heavy scrutiny because, if it is approved by all necessary authorities, it will create a $17.5 billion energy company that would provide electric and gas services to nearly 3.5 million customers from Westport, Conn., to Pittsburg, N.H., near the Canadian border.

The partnership received approval from the Federal Energy Regulatory Commission this month but is still being reviewed by Massachusetts regulators and the federal Nuclear Regulatory Commission.

Attorney General Martha Coakley supports the merger, said her spokesman, Brad Puffer. “This merger could lead to substantial savings,’’ Puffer said, “and we continue to advocate that these savings need to be passed on to consumers.’’

Utility workers, worried that those savings would come from eliminating their jobs, support delaying proceedings to hold a rate case, said David Leonardi, president of the Utility Workers Union of America, Local 369, which represents 1,850 NStar employees.

“Considering the close proximity to the rate case,’’ he said, “the delay and the opportunity to do a true and complete review would be in the best interest of the consumers.’’

Environmentalists, worried that merging NStar and Northeast Utilities would give the combined company the political clout to influence energy and environmental policies, said a rate case would provide an extensive, open review of the utilities’ plans for reducing pollution through solar, wind, and other renewable energy sources.

“They’re not putting their cards on the table,’’ said Sue Reid, director of the Conservation Law Foundation in Massachusetts, which is participating in the merger proceedings.

“How can the DPU make a reasonable determination that this merger is consistent with the public interest . . . without knowing what the company has planned?’’

Erin Ailworth can be reached at eailworth@globe.com.