Utility deal edges closer 

“The merger will benefit all of our customers by creating a stronger company that is expected to provide higher service levels and lower costs of the long term,” NStar President and Chief Executive Officer Thomas May said.

Although Northeast Utilities is actually buying NStar for $4.7 billion, May will be the head of the newly formed company.

The Connecticut pact announced Tuesday includes a $25 million rate credit and a distribution rate freeze until December 2014 for customers of Northeast Utilities subsidiary Connecticut Light and Power Co.

The deal includes an investment by the company of $15 million in energy efficiency programs for low-income customers and other initiatives.

Under the agreement, Northeast Utilities will give up on recovering the first $40 million of an estimated $260 million in costs incurred when two major storms struck New England last year.

Both NStar and Northeast Utilities have faced harsh criticism for their handling of the power outages during Tropical Storm Irene and a storm in October. On Cape Cod, some customers were without power for up to a week in the wake of Irene.

Massachusetts Gov. Deval Patrick last month put his stamp of approval on the merger after extracting a variety of promises from the utilities, including an agreement with NStar for the utility to buy more than a quarter of the power from a proposed Nantucket Sound turbine project, Cape Wind. Northeast Utilities customers are not responsible for the cost of power from Cape Wind, according to the agreement.

The Bay State agreement includes a cap on electric and gas distribution rates at their current levels over the next four years, as well as a $21 million credit for NStar customers. The credit results in a one-time savings between $12 and $15 for the average NStar customer, according to company officials.

The merger still requires approval from public utilities regulators in both states, but the green light from the administrations of Patrick and Malloy was considered the tallest hurdle facing the companies.

With National Grid already having agreed to purchase half of the juice from the 130-turbine wind farm, Cape Wind Associates officials have said they can now move forward with securing financial backers for the project. Construction is expected to begin by 2013, according to Cape Wind officials.

While the exact details of the deal between Cape Wind and NStar have not been announced, it is expected to be similar to the pact with National Grid, which agreed to buy power from the wind farm for 18.7 cents per kilowatt-hour.

National Grid’s contract price will increase 3.5 percent annually. In addition, National Grid can recover 4 percent of the contract’s value as an incentive under the state’s Green Communities Act.

For an average residential electric customer in the utility’s territory, Cape Wind’s power will cost an additional $1.50 on a monthly bill for 618 kilowatt-hours in the first year of operation, according to National Grid’s calculations. The average NStar customer is expected to pay less for Cape Wind power based on the percentage of power in its portfolio that will come from the offshore wind farm.

If Cape Wind is not in operation by 2016, NStar will buy an equal amount of energy from another new renewable energy source, under the Massachusetts agreement.

Cape Wind’s critics contend that Patrick’s administration strong-armed NStar into agreeing to buy power from the controversial project, which they say is too expensive. NStar, Cape Wind and state officials filed a memorandum of understanding Feb. 24 that laid out the timeline for negotiations over a potential power purchase agreement.

A final agreement will be filed with the Massachusetts Department of Public Utilities by March 30, according to the memorandum. The power purchase agreement will not go into effect until five business days after the merger between NStar and Northeast Utilities is final.