You asked how the law addresses the allocation of the proceeds from the sale of electric company land. You were interested in learning how the electric restructuring law (CGS § 16-244, et seq. ) interacts with CGS § 16-43, which governs the sale of utility property, specifically with regard to open space owned by an electric company.

SUMMARY

CGS § 16-43 requires Department of Public Utility Control (DPUC) approval for most utility company land sales. Its provisions giving utilities an incentive to preserve land as open space only apply to water companies. The restructuring law requires the proceeds of electric company land sales to be used to reduce the company's stranded costs and thus reduce electric rates. It appears that shareholders are not entitled to any of the proceeds of such sales.

As discussed in OLR memo 99-R-0975, the law imposes various notice requirements with regard to sale of utility company land, and gives various parties a right of first refusal to purchase the land.

SALES OF ELECTRIC COMPANY LAND

CGS Sec. 16-43

CGS § 16-43 requires a utility company to get DPUC approval to sell or otherwise dispose of real property. DPUC approval is not needed for dispositions of property worth $ 50,000 or less by a utility other than a water company. A water company with 500 or more customers can dispose of property worth less than $ 50,000 without DPUC approval, if it is not watershed or water supply land. The section has other provisions regarding the allocation of proceeds of sales of water company lands. The proceeds of sales of land that has been in the water company's rate base (i. e. , land purchased in whole or part with ratepayer funds) must be allocated equitably between the company's ratepayers and shareholders. The provisions also give water companies an incentive to keep such land as open space by requiring that most of the proceeds go to shareholders if at least 25% of the land is retained as open space. The latter provisions apply only to water companies and do not address sales of electric company land.

Electric Restructuring Law

The restructuring law, in effect, requires electric companies to auction off their generation assets. In the case of hydroelectric facilities, these assets include substantial amounts of open space land. The law also allows the companies to recover DPUC-approved stranded costs associated with these assets. Stranded costs are expenditures made by the companies with DPUC approval, whose recovery through rates is jeopardized by the onset of competition in the electric industry. DPUC-approved stranded costs are recovered through the competitive transition assessment, which is imposed on all electric consumers.

The law has separate provisions for the auctions of nuclear and non-nuclear generation assets (the former account for the bulk of standard costs). CGS § 16-245c requires DPUC to subtract from the nuclear stranded costs the net proceeds from any sale of any electric company real property after July 1, 1998. DPUC interprets this provision to apply to all electric company land sold in the wake of restructuring, whether or not it has been in the rate base.

Unlike CGS § 16-43, CGS § 16-245c does not provide an incentive for an electric company to maintain the land it sells as open space. In fact, it requires the companies to take "all reasonable steps to mitigate to the maximum extent possible the total amount of stranded costs it seeks to claim and to minimize the cost to be recovered from customers. " Mitigation includes the divestiture of generating sites at "market prices reflective of best use of the sites. " These provisions appear to preclude companies from selling land with development restrictions such as conservation easements, which would reduce the sales price and thus increase the competitive transition assessment charged to ratepayers.

On the other hand, CGS § 16-245l allows certain conservation-related costs to be recovered through another charge imposed on all electric consumers, the systems benefit charge. The law allows this charge, in DPUC's discretion, to cover costs a municipality incurred on or before January 1, 2000 in purchasing conservation restrictions to ensure the environmental, recreational, and scenic preservation of a pump storage hydroelectric facility. In fact, DPUC allowed the charge to cover costs associated with the preservation of Candlewood Lake, the site of such a facility.

Reading the statutes together, it appears that all of the proceeds of electric company land sales must go to reduce stranded costs and thus rates, and that shareholders are not entitled to any of these sale proceeds. It also appears that there is no legal or economic incentive for the company to retain such land as open space. While CGS § 16-245l facilitated environmental preservation in some of the transactions arising out of the restructuring law, it does not apply to municipal costs incurred after January 1, 2000.

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