New England’s Merger Muddle
Renewables thrust into the middle
A utility merger in New England hangs in the balance. The future of renewable energy in the region is in flux. And recent action by Massachusetts has made a difficult transaction even more complicated.
The most recent headline is that Massachusetts has delayed the proposed merger of Boston-based NStar and Hartford’s Northeast Utilities, with operations in three states. The union would create the largest utility in New England, with a combined value of $17.5 billion with 3.5 million customers.
The Massachusetts Department of Energy Resources recently asked utility regulators not to make a decision until NStar completes a formal review of its rates. NStar has a rate case expected in 2012. The delay could kill the deal, the utilities said.
But there are more moving parts in the clean energy landscape in New England than there are holes in the current Red Sox starting rotation.
There’s a very simple question with an extremely complicated answer at the most basic level of the merger discussion: What’s the future of renewable energy in the region?
Consider all the following disparate pieces, each with its own impact on the merger.
The Massachusetts Global Warming Solutions Act. This 2008 law commits the state to greenhouse gas reductions 20 percent below 1990 levels by 2020.
Cape Wind. The 130-turbine offshore wind project is the most direct route to Massachusetts’ clean energy mandate. Cape Wind has received all of its approvals for the $2.6 billion project but only 50 percent of its output has contracted, to National Grid, at above-market rates of 20.7 cents per kilowatt-hour in 2013.
NStar has other ideas. Negotiations between the utility and Cape Wind went nowhere fast last year. It has contracts with three wind projects totaling 109 megawatts. Those power prices have not been disclosed.
A different standard for merger review. Until this year, the Massachusetts Department of Public Utilities applied a standard of “no net harm” in its review of utility mergers. Starting with the NStar-Northeast combination, a new standard of “net benefit” is being applied that state officials say better reflects current energy challenges, including climate change.
Canadian hydropower. Hydro Quebec is aggressively marketing hydropower in the region and finalized long-term contracts with Vermont utilities last year. Some in Vermont see the resource as a way to lock up emissions-free energy as they seek to retire the Vermont Yankee nuclear plant, which is up for relicensing next year. The environmental attributes of large hydropower energy do not count for renewable portfolio standard compliance, but state legislatures have the ability to revise that.
Cross-border transmission. NStar and Northeast Utilities are partners in the proposed 1,200-megawatt Northern Pass Transmission line from Quebec into New Hampshire, with connections into Massachusetts. The companies have cited that project to boost its green cred with regulators. Other proposed transmission projects in Maine and Vermont would bring clean power to southern New England.
Biomass. That renewable energy source is practically off the table in Massachusetts with the state’s decision to adopt stricter standards that essentially strip away its environmental attributes, disqualifying it from clean energy incentives.
And to add another dimension, Cape Wind foe Robert F. Kennedy Jr. just wrote an opinion piece in the Wall Street Journal accusing Massachusetts of holding the NStar merger “hostage” to force its agreement to sign a contract with Cape Wind for the remaining half of its output. Cape Wind accuses Kennedy of hypocrisy, especially in light of his promotion of Canadian hydropower, a resource he previously opposed.
At any rate, the futures of renewable energy and this particular merger are inextricably linked.
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