The preliminary decision by the Public Utilities Regulatory Authority throws a new barrier in the way of the deal that would create a $17.5 billion utility — just three months before the giant deal expires.
The decision comes amid legal and political pressure on PURA to open a case and hold hearings on the merger, which was announced in October 2010.
PURA issued a decision in June, in which the board asserted that it did not have the legal authority to review the proposed merger. The state Office of Consumer Counsel, Attorney General George Jepsen and NRG Energy, a firm that owns generating plants in Connecticut, all challenged the decision — with NRG linking potential problems with the merger to troubles at NU subsidiary Connecticut Light & Power after the late-2011 storms.
Consumer Counsel Elin Swanson Katz, who heads the OCC, which advocates for state ratepayers, said Wednesday the agency was pleased with PURA's preliminary decision. "This is consistent with the position the OCC has taken for over a year now. We are pleased for customers. Review of the merger to consider the potential impact on Connecticut residents is appropriate," Katz said.
NU was somewhat surprised by the announcement: "We thought at this point that we were just dealing with Massachusetts' approval. However we understand the concerns of Connecticut regulators," Al Lara, NU spokesman said.
As for how NU might proceed with a review, Lara said that "now that the regulatory process has formally begun, it's inappropriate for me to discuss the case."
Criticism of PURA's decision not to review the proposed merger intensified after Tropical Storm Irene and the pre-Halloween Nor'easter knocked out power to more than a million electric customers. CL&P's inadequate response to power outages caused by the Nor'easter was cited by many state officials as reason enough to review the deal — although NU said the larger utility, serving 3.5 million customers in New England, would have better customer service than either company on its own.
Wednesday's decision will be followed by a call for written and oral arguments on Jan. 9. and Jan. 12 respectively. People can attend the Jan. 12 hearing, but it's only open for comment by the parties legally involved, said Dennis Schain, spokesman for PURA.
PURA must decide whether to make its preliminary decision final by Jan. 18.
PURA had earlier concluded that it didn't have purview because no new legal entity was being created in Connecticut. But a closer review of state law found that the agency does have the authority to review the merger, along with the ability to "rescind, reverse or alter any decision," PURA said in its decision Wednesday.
The board cited new information and legal clarification provided by the Office of Consumer Counsel and the Attorney General's office as the basis for its reversal. For example, OCC pointed out that requirements being put in place by Massachusetts regulators, who are conducting a full review of the merger, "could affect Connecticut customers", Schain said.
And the Attorney General's office pointed out that while the merged company would keep the Northeast Utilities name, there would be a significant change in control, corporate governing structure and executive leadership that could effect NU's Connecticut subsidiaries: CL&P and Yankee Gas Services Co., Schain added.
"The proposed merger combines the region's largest utility companies and will have profound impacts on Connecticut and its electric and gas companies, including their rates, reliability, quality of service and storm response," Attorney General George Jepsen said Wednesday in a prepared statement.
In addition, a barrage of new questions popped up after the October storm concerning the merged utility's ability to respond to major storms.
If the preliminary decision becomes final, NU must complete a formal merger application and submit it to Connecticut authorities.
NU said it has been providing Connecticut regulators with the same merger documents that it has given Massachusetts' regulators since they began their review, Lara said.
"We will pull together a formal application," said Lara. "We will work with the commission."
PURA said that it is "mindful of certain milestones related to the completion of the proposed merger" and will provide the necessary staff to complete a "thorough regulatory review consistent with that time schedule."
The merger agreement between the two utilities expires April 16, and it faces an ongoing review in Massachusetts in addition to the possible Connecticut review. The major federal approvals are done.
"We are heartened that they do understand the timeliness of the merger," Lara said.
If the April 16 merger deadline passes without regulators' approval, NU and NSTAR would have to decide whether to renegotiate an entirely new merger agreement, Lara said.
"The way the agreement is written, it provides for one six-month extension, which took place in October 2011 and extended the date to April 16," he said.