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Northeast Utilities’ (NU - Analyst Report) subsidiary NSTAR has entered into a 15-year purchase power agreement (“PPA”) with Cape Wind Associates LLC (“Cape Wind”). Both parties have already received approvals from the Massachusetts Department of Public Utilities (“(DPU”).

Per the agreement, NSTAR will buy 129 megawatts or 27.5% of Cape Wind's total energy, capacity and renewable energy credits. In the first year of the contract, NSTAR will pay 18.7 cents per kilowatt-hour (“kWh”) to Cape Wind. Subsequently, the cost can go up to 3.5% annually under the contract.

This agreement may impose extra bill burden to Northeast’s household and business clients. The company expects its electric customer’s average monthly bill to rise by approximately $1.16.

In August 2005, the U.S Environmental Protection Agency (“EPA”) rolled out a regulation that each of the federal agencies will consume renewable energy in amounts of not less than 7.5% in 2013 and afterward. Currently, most of the electricity in Massachusetts are produced by using fossil fuels like natural gas, oil, and coal. To follow these environment-related mandates, the state and local authorities, and utility companies invest substantial amounts for its renewable carbon-free resources to meet the environmental regulations. Particularly, this effort will enable Northeast to supply cleaner utility to its customers at a cheaper price in the present volatile fossil fuel price environment.

We know that Cape Wind is in the middle of its $2.6 billion project and has fund requirements to complete this project. Prior to this PPA, the company signed a similar type of contract in November 2010 with National Grid plc (NGG - Snapshot Report) to buy half of Cape Wind’s power. We believe these two contracts ensured Cape Wind a steady stream to its future project financing.

For the last couple of years, Northeast continues to expand its alternate energy profile, not limiting itself to wind assets. The company also intends to introduce solar and hydro energy for its customers. We appreciate Northeast’s effort toward strengthening its renewable energy portfolio, which subsequently will enable the company to supply emission-free utility to its customers.

Hartford, Connecticut and Boston, Massachusetts-based Northeast Utilities provides energy delivery services to residential, commercial and industrial customers in Connecticut, New Hampshire and Massachusetts. With a market capitalization of $11.96 billion, the company has 6,063 full time employees and currently has short-term Zacks #3 Rank (Hold rating).

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