MA utility merger may help Cape Wind

Thursday, February 16, 2012

A $17.5 billion merger proposal by two Massachusetts utilities seems more likely to win regulatory approval after yesterday's announcement of a settlement that would provide offshore wind developer Cape Wind a buyer for more of its electricity.

The two utilities, NSTAR and Northeast Utilities, had asked the Department of Public Utilities to approve their merger, but the case dragged on and faced challenges from ratepayer advocates.  Yesterday, Governor Deval Patrick announced that his administration had negotiated an agreement to settle the case.  In exchange for allowing the merger, the proposed settlement contains a number of provisions that are said to create enhanced ratepayer benefit.  For example, the utilities must provide customers a one-time credit totalling $21 milllion, and NSTAR must fund an independent audit of its returns and assets.

The proposed settlement would also require the merged utility to enter into a contract to buy part of the electricity to be produced by the Cape Wind offshore wind project.  NSTAR would enter into a 15-year contract to purchase 129 MW, or about 27.5% of Cape Wind's projected electricity output.  This would be on top of the agreement to sell National Grid buy half of Cape Wind's power for a price starting at 18.7 cents per kilowatt-hour.  The terms of this agreement have yet to be approved by the DPU, but the settlement contemplates that NSTAR could look elsewhere for its renewable electricity if Cape Wind has not started physical construction by 2016.  Buying power from an offshore wind project is seen as important in helping the utilities comply with the Green Communities Act and the Massachusetts renewable portfolio standard or RPS.

If the merger settlement is approved, the utility would then negotiate the terms of a power purchase agreement with Cape Wind and submit them to the DPU for approval.  Would having signed PPAs for 77.5% of the project's output be enough for Cape Wind's project to be financed and built?

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