NU, NStar Face Regulatory Hurdles In Merger Plan
The acquisition of Boston-based NStar by Northeast Utilities of Hartford, Conn., is more than just the making of a utility system that dwarfs all others in New England.
Upon completion, the $17.5 billion gas and electric utility system would serve 3.5 million customers in three states and have more than 9,000 employees. And the companies say that when the merger is approved by shareholders and five state and federal regulatory agencies, each will realize advantages that perhaps they would not have separately.
And that makes submitting to so many different regulatory agencies seem worthwhile to each company.
The agencies that will have a say in the merger are: the state Department of Public Utilities, the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC), the Securities and Exchange Commission (SEC) and the Federal Communications Commission (FCC).
Each one will have its own set of demands and will require detailed, specific information different from that required by the others.
“Each agency has its own focus area, so (requirements) are different, sometimes drastically different,” said Tany Meck, a Northeast Utilities spokesperson.
Meck estimated that the regulatory process could take between nine and 12 months.
However, the payoff isn’t immediately obvious. Since the announcement of the merger in mid-October, the stock prices of NU and NStar have remained flat (in the $42 per share range for NStar and $31 per share for NU). Often, merger announcements are accompanied by soaring stock prices for each party.
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But NU’s all-stock offer of about $4.5 billion is a “merger of equals,” and offers no premium to NStar shareholders, and it’s no wonder. With all those regulatory agencies watching, even a whiff of profiteering by utilities — that in the government’s view should be passing those gains onto customers — could set the approval process back considerably or derail it altogether.
So, the payoff will come later, as the two companies become one under the NU umbrella.
The most significant is that a larger company will be more able to comply with New England states’ tough renewable energy requirements, Meck said.
“New England has very strict requirements for the amount of renewable energy we need to make available to our customers,” Meck noted. “It’s not that we wouldn’t be able to meet those standards, but together we can come up with more unique solutions.”
As a larger company, NU is not only better equipped to comply with strict renewable portfolio standards, but also has a larger voice when it comes time to make itself heard on energy policy.
Financially, the benefits are a little more subtle, although “there are opportunities for shareholders,” Meck said.
NStar’s cash flow is attractive to NU, Meck said. NStar reported a third-quarter operating profit of $97 million, more than 12 percent greater than the same period the prior year.
Its cash flow allows NU to boost dividends and carry out spending plans without issuing shares.
Acquiring NStar also instantly gives NU an additional 1.4 million customers while insulating NStar from state DPU rate negotiations scheduled for 2013.
And to really make everyone happy, Thomas J. May, president and CEO of NStar will become president and CEO of NU, as the combined company will be known, while Charles W. Shivery, NU’s current president and CEO, will be the company’s non-executive chairman for 18 months after the deal is closed.
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