Exhibit 10.1

COMMONWEALTH OF MASSACHUSETTS

DEPARTMENT OF PUBLIC UTILITIES

 

     )    Joint Petition for Approval of a Merger between    )     
D.P.U. 10-170    NSTAR and Northeast Utilities    )         )   

SETTLEMENT AGREEMENT

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     )    Joint Petition for Approval of a Merger between    )     
D.P.U. 10-170    NSTAR and Northeast Utilities    )         )   

SETTLEMENT AGREEMENT

WHEREAS, this Settlement Agreement (“Settlement” or “Settlement Agreement”) is
entered into by and among NSTAR Electric Company (“NSTAR Electric”) and NSTAR
Gas Company (“NSTAR Gas”), along with their holding company parent, NSTAR, and
Western Massachusetts Electric Company (“WMECO”), along with its holding company
parent Northeast Utilities (“NU”) (the corporate entities together, and their
successors, the “Joint Petitioners”), the Department of Energy Resources
(“DOER”), and the Attorney General of the Commonwealth (“Attorney General”) with
regard to the proposed merger transactions as set forth in the Merger Agreement
between the holding companies NU and NSTAR (“Proposed Merger”).

WHEREAS, NU and NSTAR filed the Proposed Merger before the Department of Public
Utilities (“Department”) for approval pursuant to G.L. c. 164, § 96, and the
Settling Parties have engaged in discovery, hearings, briefing and negotiations
concerning the Proposed Merger.

WHEREAS, the Settling Parties have raised competing and disputed claims with
regard to the various issues contained in the Proposed Merger but wish to
resolve those matters on mutually agreeable terms, and without establishing any
new precedent or principle applicable to any other proceedings.

WHEREAS, the Settling Parties intend that both customers and shareholders
receive the full value of the settled issues, and not some substitute regulatory
treatment of lesser value either now or in the future, and agree that no terms
of this Settlement Agreement or supporting

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workpapers, calculations, or proposed tariffs will be used or interpreted to
diminish, in any way, the intended customer or shareholder benefit related to
this Settlement Agreement.

WHEREAS, it is the objective of the Settling Parties to ensure that the impacts
of the Proposed Merger to Massachusetts customers of the merged entity will
operate in a way that achieves comparability with other states with respect to
merger savings, service improvements and employment impacts, and the Settling
Parties have structured this Settlement Agreement to achieve such comparability.

NOW THEREFORE, in consideration of the exchange of promises and covenants herein
contained, the legal sufficiency of which is hereby acknowledged, the Settling
Parties agree, subject to approval by the Department as follows:

ARTICLE I: INTRODUCTION

 

(1) On November 24, 2010, the Joint Petitioners filed with the Department a
petition for approval of the Proposed Merger as set forth in their Merger
Agreement dated October 16, 2010, as amended on November 1, 2010 and
December 16, 2010.

 

(2) A copy of the supporting testimony, discovery responses and exhibits for the
Proposed Merger is filed with the Department as the evidentiary record in this
proceeding.

 

(3) This Settlement Agreement is intended to resolve only those issues as
specified in Article II and Article III.

ARTICLE II

 

(1)

APPROVAL OF THE PROPOSED MERGER: The Settling Parties agree that the Proposed
Merger between NSTAR and NU set forth in the Merger Agreement and proposed to be
approved by the Department in this proceeding is consistent with the public
interest as

 

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  required by G.L. c. 164, § 96; that approval of the Proposed Merger does not
constitute approval of the merger or consolidation of the separate Operating
Companies, NSTAR Electric, NSTAR Gas or WMECO, each of which will remain legally
and functionally separate companies and independently subject to the
Department’s jurisdiction under G.L. c. 164, § 1 et seq. on and after the
closing of the Proposed Merger, until such time that a proposal may be made to
the Department under G.L. c. 164, § 96 for consolidation of one or more of the
Operating Companies and the proposal is subsequently approved by the Department;
that following the Proposed Merger, the Operating Companies will continue to be
subject to the same obligations that were respectively held by each of those
companies prior to the Proposed Merger; and that further action, pursuant to
G.L. c. 164, § 21, is not required to consummate the Proposed Merger.

 

(2)

MERGER RATE CREDIT: The Operating Companies shall provide a one-time,
non-recoverable $21 million rate credit to customers to be applied on the first
billing cycle in the next billing month following the closing of the Proposed
Merger. The Operating Companies shall allocate the credit as follows: $15
million for NSTAR Electric customers, $3 million for NSTAR Gas customers, and $3
million for WMECO customers. The credit at the Operating Company level will be
allocated to retail customer classes (i.e., residential, small commercial &
industrial and large commercial and industrial) based upon their proportional
share of the monthly customer charges and will appear on the bill as a uniform
dollar amount credit for each separate customer class as a separate line item,
along with an explanatory bill message. For each individual Operating Company,
all customers within a retail customer class shall receive the same

 

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  rate credit dollar amount. The application of this credit shall not prevent
customers from enjoying any other rate reductions or benefits related to the
Proposed Merger.

 

(3) BASE DISTRIBUTION RATE FREEZE: The base distribution rates of the Operating
Companies in effect on January 1, 2012, shall be frozen for forty-four
(44) months, but in no event shall new rates go into effect earlier than
January 1, 2016 (the “Base Rate Freeze Period”). Rate reconciling mechanisms and
other formula rates now pending or approved by the Department as of January 1,
2012, will not be affected by this Settlement Agreement. The Operating Companies
shall not file for approval of or propose new formula rates, tariffs, or other
charges, including but not limited to: earning sharing mechanisms, capital
trackers, or revenue decoupling mechanisms during the Base Rate Freeze Period
under G.L. c. 164, § 94, or pursuant to the Settlement Agreement approved in
D.T.E. 05-85, as applicable (“Prohibited Filings”), unless specifically mandated
by statutes enacted after the date of this Settlement Agreement; provided that
if a new formula rate, tariff, or other charge is implemented pursuant to a
statutory mandate enacted after the date of this Settlement Agreement, no costs
recoverable under the new formula rate, tariff, or other charge may be also
recoverable as exogenous costs. The Operating Companies also hereby relinquish
and waive any right to file for approval of Prohibited Filings from January 1,
2012, to the commencement of the Base Rate Freeze Period. Prohibited Filings by
the Operating Companies exclude the filings made pursuant to Article II, §§ (4)
through (9), below.

 

(4)

RATE CASE MANAGEMENT. No more than two of the Operating Companies may have base
distribution rate proceedings for changes to distribution rates effective after
December 31, 2015 filed pursuant to G.L. c. 164, § 94 pending before the
Department. If

 

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  two of the Operating Companies have filings for a change in base distribution
rates effective after December 31, 2015 pending before the Department, then the
Operating Companies agree that a petition for a base-rate change for the third
company shall be lagged for a period of at least six months from the later date
of the initial filings for either of the first two Operating Companies,
exclusive of the initial fourteen-day period after filing during which G.L. c.
164, § 94 prohibits schedules of rates, prices and charges from becoming
effective. This provision on rate-case management shall apply only to the first
base-rate cases filed for effect after the expiration of the Base Rate Freeze
Period.

 

(5) EXOGENOUS ADJUSTMENTS: During the Base Rate Freeze Period, distribution
rates shall be subject to adjustment up or down for exogenous factors.
Eligibility for exogenous cost recovery or rate credit shall be allowed in
accordance with the exogenous factors established by the Department in Boston
Gas Company, D.P.U. 96-50 (Phase I) (1996) and shall be applicable only for
factors that occur after the approval of this Settlement Agreement. The dollar
threshold for qualification as an exogenous factor in any calendar year covered
by this Settlement Agreement shall be determined by multiplying the total
distribution revenues of that year by a factor of 0.003212. Regarding property
tax cost changes associated solely with the change in valuation methodology
affirmed by the Massachusetts Supreme Judicial Court in Boston Gas Company v.
Board of Assessors of Boston, 458 Mass. 715 (2011), and established by the
Appellate Tax Board by ruling issued on April 21, 2011 in Docket F275055,
F275056, the Companies are not precluded, despite the date of the Supreme
Judicial Court ruling, from filing for exogenous cost recovery for these costs.
The Attorney General and DOER reserve all rights regarding disputing the
substance of any such exogenous cost filings made by the Companies.

 

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(6)

CAPITAL PROJECTS SCHEDULING LIST: On the first of the month following the date
of the Department’s approval of the Proposed Merger, the Capital Projects
Scheduling List (“CPSL”) rate put into effect on January 1, 2012 in D.P.U. 11-90
shall be reduced to a rate of $0.00069 per kWh, which is designed to recover $15
million in annual CPSL costs. The CPSL program approved in the D.T.E. 05-85 Rate
Settlement Agreement will be extended through the end of the Base Rate Freeze
Period and will be limited to the recovery of no more than $15 million in annual
costs. To demonstrate its CPSL activities, NSTAR Electric shall file a written
report to the Department and submit copies to DOER and the Attorney General,
annually, demonstrating that the annual cost of the CPSL program activities
(including operating and maintenance expense and the revenue requirement for
CPSL capital projects completed since January 1, 2006) is $15 million or
greater; and (2) that over the four-year period 2012-2015, the aggregate number
of inspections completed through CPSL for stray voltage, overhead utility poles
and underground manholes shall equal the aggregate number of inspections
completed over the four-year period 2007-2010, or 396,753 total inspections. If
the aggregate number of inspections over the period 2012-2015 is less than
396,753 inspections, then NSTAR Electric shall credit customers with an amount
equal to the percentage shortfall times $60 million. The CPSL rate shall be
deemed to fully recover NSTAR Electric’s CPSL program costs and shall not be
increased to collect any more than $15 million annually; provided that the CPSL
rate may be reduced to recognize any disallowances of CPSL expenditures
resulting from a finding that those expenditures were not reasonably or
prudently incurred. The CPSL charge shall terminate with the implementation of
new base rates for NSTAR Electric, and recovery of CPSL-type costs shall occur
through base

 

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  rates thereafter; except that NSTAR Electric shall be entitled to recover its
full $15 million allowance for CPSL-related activities performed in 2015 in
2016, and provided that, during the Base Rate Freeze Period, adjustments to the
fixed CPSL rate shall be allowed to accommodate applicable Department decisions
on currently outstanding annual CPSL program filings for the years 2006-2011.

 

(7)

LOST BASE REVENUES: During the Base Rate Freeze Period, NSTAR Electric shall
recover lost base revenues (“LBR”) associated with energy efficiency savings
through the Energy Efficiency Recovery Factor (“EERF”). LBR recoveries shall be
based on energy efficiency savings verified through annual reports to the
Department for installations made during the Base Rate Freeze Period. In order
to comply substantially with the Department’s directives in D.P.U. 07-50-A to
decouple base revenues from the effects of energy efficiency programs, LBR shall
be calculated, beginning January 1, 2012 and for the duration of the Base Rate
Freeze Period, as the product of: (1) the cumulative amount of the annual energy
efficiency program kilowatt-hour savings beginning January 1, 2012, as
determined, verified, and adopted by the Department in NSTAR Electric’s 2012
Energy Efficiency Annual Report (to be filed August 2013) and each Energy
Efficiency Annual Report filed thereafter, multiplied by (2) the average
respective rate by residential, low income and C&I segments, as approved by the
Department. There shall be no offset to such savings made by subtracting savings
achieved in a year prior to 2012 as is currently done in the recovery of LBRs
sought by NSTAR Electric in D.P.U. 10-06 and D.P.U. 11-40. NSTAR Electric shall
compute LBR based on monthly installations and shall exclude LBR associated with
energy efficiency spending by Cape Light Compact. Nothing in this Settlement
Agreement is intended to affect the Department’s

 

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  determination of LBR recovery by NSTAR Electric during the D.P.U. 05-85 Rate
Settlement at issue in D.P.U. 10-06, D.P.U. 11-40 and D.P.U. 12-xx (to be filed
on May 1, 2012 regarding LBR in 2011). Aside from the Department’s final
determinations in D.P.U. 10-06, D.P.U. 11-40 and D.P.U. 12-xx, NSTAR Electric
shall not recover LBRs associated with pre-2012 energy efficiency installations
for any period after December 31, 2011, other than to recovery the normal
recovery lag and true-up associated with these filings. For NSTAR Gas, LBR shall
be calculated using the methodology currently in place for Massachusetts local
natural gas distribution companies.

 

(8) STORM COST RECOVERY: Storm costs incurred by NSTAR Electric in 2011 for
Tropical Storm Irene and the snowstorm in October 2011 will be excluded from the
storm fund calculation and will be deferred at Prime Rate, in recognition of the
two year delay in recovery, to be recoverable in rates over a five-year period
beginning January 1, 2014. Before those storm costs may be recovered in rates,
such costs shall be subject to a Department adjudicatory hearing and reviewed
for prudence and reasonableness. Storm Cost Recovery amounts shall only include
incremental costs. For Storm Cost Recovery ratemaking purposes, an incremental
cost is defined as those actual and required costs directly attributable to the
emergency response and not otherwise represented or recoverable by the Operating
Companies in any other rate, charge or tariff. Storm cost recovery for WMECO
shall occur in conformance with the Department’s directives in D.P.U. 10-70;
provided that WMECO shall not seek recovery for storm costs incurred in relation
to the October 2011 snow storm until after the Department has issued a final
order in D.P.U. 11-119-C.

 

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(9) RATE DESIGN: No later than November 1, 2012, WMECO shall file a
revenue-neutral rate design plan with the Department to realign customer rates
in a manner that coincides with the decline in the transition charge resulting
from the termination of the pay-down of the securitized bonds, which is expected
to occur during May of 2013, and in a manner that is consistent with the
Department’s rate design principle of rate continuity and gradualism to address
open rate design issues cited in the Department’s order in D.P.U. 10-70. Prior
to filing with the Department, WMECO will consult with the Attorney General to
develop a proposal so that the combination of this distribution rate realignment
and the reduction in the transition charge preclude a cumulative increase in
rates to any rate class. Furthermore, any distribution rate increase to a class
shall be set on a uniform cents per kilowatt-hour basis, unless WMECO and the
Attorney General agree prior to filing that customers would be more reasonably
and equitably served by a different approach. WMECO shall consult with the
Attorney General’s office at least 30 days prior to the filing to review and
discuss the proposals that will be made in the rate design filing.

 

(10)

ACCOUNTING FOR GOODWILL: The transaction value recorded on the books of
NSTAR LLC (the post-closing holding company that will be the sole shareholder of
NSTAR Electric and NSTAR Gas) upon the close of the Proposed Merger will include
goodwill as defined under generally accepted accounting principles. The Settling
Parties agree that the goodwill resulting from the Proposed Merger will not be
recorded on the books of Operating Companies unless required by rule or
directive of the Securities Exchange Commission or generally accepted accounting
principles. If so required, the Operating Companies shall quantify the goodwill
and its effects recorded on the financial

 

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  books of account and shall exclude that amount from any ratemaking calculation
used to set customer rates, tariffs or charges.

 

(11) NET BOOK VALUE OF UTILITY ASSETS: In completing the Proposed Merger
transaction, the Operating Companies shall not make any accounting adjustment
that has the result of increasing the net book value of utility assets for
ratemaking purposes.

 

(12) ACCOUNTING TREATMENT OF MERGER-RELATED COSTS: No transaction costs incurred
to negotiate, draft, or execute the merger agreement, or to obtain the
regulatory and shareholder approvals required to consummate the Proposed Merger,
shall be recorded on the books of the Operating Companies. Such transaction
costs will be recorded at the parent company level and not allocated or assigned
to the Operating Companies. Integration costs, such as costs incurred to
identify cost-reduction opportunities, to reorganize operations, or to
consolidate information systems, or that are otherwise incurred for the purpose
of reducing operating costs of the Operating Companies, may be recorded on the
books of the Operating Companies or charged to the Operating Companies by a
service company, in an appropriate proportion.

 

(13) AMORTIZATION OF COSTS FOR RATEMAKING PURPOSES: For ratemaking purposes, the
Operating Companies shall amortize merger-related transaction and integration
costs over a 10-year period following the approval of this Settlement Agreement.

 

(14)

FUTURE RATEMAKING FOR MERGER COSTS: Subject to Department review and approval,
transaction and reasonable integration costs from the Proposed Merger shall be
eligible for recovery in a future distribution rate proceeding through the
retention of merger-related synergies to the extent that merger-related savings
are demonstrated to equal or exceed those costs. The compensation for departing
employees subsequently rehired or

 

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  retained as outside consultants shall be excluded from the merger-related
savings calculations. Merger-related payments made to officers leaving the
employ of NSTAR, NU, any of the temporary or surviving entities engaged in the
proposed merger transactions, the Operating Companies, or their successors
(together, the “post-merger organization”) in the category of “change of
control” payments, or to executives remaining with the post-merger organization
in the category of “retention payments,” shall be recorded at the parent company
level upon the merger close and shall not be eligible for recovery as a
merger-related cost or otherwise from customers.

 

(15) MERGER-RELATED INTEGRATION REPORTING: Actual transaction costs by account
shall be reported to the Department in a compliance filing made within ninety
(90) days of the close of the Proposed Merger. In addition, the Operating
Companies shall each provide to the Attorney General and to DOER, as of
January 1, 2014 and 2015 (and each January 1 thereafter until each respective
Operating Company files a base-rate proceeding), interim reports on the previous
calendar year’s merger integration efforts organized by functional area,
including but not limited to merger-related costs incurred, supporting
documentation, any savings achieved attributable to the merger integration
efforts and the effects the merger integration efforts had on the Operating
Companies (“Annual Interim Reports”). At least 60 days prior to the filing of
the first base-rate proceeding following the Base Rate Freeze Period for NSTAR
Electric, NSTAR Gas or WMECo, the respective Operating Company shall submit a
final merger integration report to the Attorney General and to DOER developed
utilizing the same manner of information used to compile the Annual Interim
Reports.

 

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(16) NOTICE OF FACILITY CLOSINGS OR LAYOFFS: In the event of a facility closing
or layoff of employees by Operating Companies or the post-merger organization
during the term of this agreement, such utility will provide 30 days’ advance
notice of such action to the Attorney General and to DOER. Nothing in this
Settlement Agreement shall be interpreted to abridge any collective bargaining
rights regarding reductions to work force.

ARTICLE III: ADDITIONAL CONDITIONS

 

(1) The making of this Settlement Agreement establishes no principles and shall
not be deemed to foreclose any party from making any contention in any future
proceeding or investigation, except as to those issues and proceedings that are
stated in this Settlement Agreement as being specifically resolved and
terminated by approval of this Settlement Agreement.

 

(2) This Settlement Agreement shall not be deemed in any respect to constitute
an admission by any party that any allegation or contention in this proceeding,
or any facts relating to any other pending proceeding cited in this document, is
true or false. Except as specified in this Settlement Agreement to accomplish
the customer and shareholder benefits intended by this Settlement Agreement, the
entry of an order by the Department approving the Settlement Agreement shall not
in any respect constitute a determination by the Department as to the merits of
any other issue raised in this proceeding or any proceeding cited in this
document.

 

(3)

This Settlement Agreement is the product of settlement negotiations. The
Settling Parties agree that the content of those negotiations (including any
workpapers or documents produced in connection with the negotiations) are
confidential to the extent permissible under the Massachusetts Public Records
Law, G.L. c. 66, § 10 and G.L. c. 4, § 7,

 

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  cl. twenty-sixth, that all offers of settlement are without prejudice to the
position of any party or participant presenting such offer or participating in
such discussion, and, except to enforce rights related to this Settlement
Agreement or defend against claims made under this Settlement Agreement, that
they will not use the content of those negotiations in any manner in these or
other proceedings involving one or more of the parties to this Settlement
Agreement, or otherwise.

 

(4) The provisions of this Settlement Agreement are not severable. This
Settlement Agreement is conditioned on its approval in full by the Department
on, but not prior to, April 4, 2012 (“Requested Approval Date”), and any
supporting information or evidence provided to the Department during any
proceeding to investigate this settlement shall not interpreted to vary the
express terms of this Settlement Agreement. Notwithstanding any of the foregoing
provisions, the Attorney General may, in her sole discretion, or DOER may, in
its sole discretion, rescind the Settlement Agreement in its entirety prior to
the Department’s issuance of an order approving the Settlement Agreement;
provided that notice of such rescission must be filed, or submitted
electronically, in writing with the Department. The Settling Parties agree that
the Requested Approval Date of this Settlement Agreement may be extended upon
the mutual consent of the Settling Parties and notification of such extension to
the Department.

 

(5)

If the Department does not approve this Settlement Agreement in its entirety by
the Requested Approval Date, or if, for any reason, the Proposed Merger is not
consummated, this Settlement Agreement shall be null and void, even if already
approved by the Department, and this Settlement Agreement and filed supporting
documents shall

 

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  be deemed to be withdrawn and shall not constitute a part of the record in any
proceeding or used for any other purpose.

 

(6) To the extent permitted by law, the Department shall have its usual
jurisdiction to implement the terms of this Settlement Agreement. Nothing in
this Settlement Agreement, however, shall be construed to prevent or delay the
Attorney General from pursuing any cause of action related to this Settlement
Agreement in court under G.L. c. 93A or otherwise.

 

(7) Under no circumstances shall: (1) any charge under this Settlement Agreement
or tariffs promulgated hereunder recover costs that are collected by the
Operating Companies more than once, or through some other rate, charge or
tariff; or (2) any charge recover costs more than once in any other rate, charge
or tariff collected by the Operating Companies, it being acknowledged by the
Settling Parties that such collection(s), unless fully refunded with interest,
as soon as reasonably possible, shall constitute a breach of this Settlement
Agreement when discovered and generally known and be deemed to violate the
involved tariffs.

 

(8) Notwithstanding any provision in this Settlement Agreement to the contrary,
no part of this Settlement Agreement shall be interpreted to interfere with the
Attorney General’s rights to petition the Department under G.L. c. 164, § 93, or
otherwise under law or regulation, for a review of the Operating Companies, the
post-merger organization, or their successors for any reason.

 

(9) Any number of counterparts of this agreement may be executed, and each shall
have the same force and effect as an original instrument, and as if all the
parties to all the counterparts had signed the same instrument.

 

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The signatories listed below represent that they are authorized on behalf of
their principals to enter into this Settlement Agreement.

 

MARTHA COAKLEY,

COMMONWEALTH OF MASSACHUSETTS

ATTORNEY GENERAL

   

COMMONWEALTH OF MASSACHUSETTS

DEPARTMENT OF ENERGY RESOURCES

/s/ Jesse S. Reyes     /s/ Anna Blumkin

By: Jesse S. Reyes

Chief, Office of Ratepayer Advocacy

Office of the Attorney General

One Ashburton Place

Boston, MA 02108-1598

   

By: Anna Blumkin

Acting General Counsel

Department of Energy Resources

100 Cambridge Street, Suite 900

Boston, MA 02114

 

NSTAR

NSTAR ELECTRIC COMPANY

NSTAR GAS COMPANY

   

NORTHEAST UTILITIES

WESTERN MASSACHUSETTS ELECTRIC COMPANY

/s/ James J. Judge     /s/ David R. McHale

By: James J. Judge

Senior Vice President and

Chief Financial Officer

NSTAR

800 Boylston Street

Boston, MA 02199

   

By: David R. McHale

Executive Vice President and

Chief Financial Officer

Northeast Utilities

56 Prospect Street

Hartford, CT 06103

Dated: February 15, 2012

 

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