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Substitute House Bill No. 5416

Public Act No. 04-180

AN ACT CONCERNING USE OF ELECTRIC RATE REDUCTION BONDS FOR GENERAL FUND PURPOSES AND THE GROSS EARNINGS TAX ON THE SALE OF NATURAL GAS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 16-245f of the general statutes, as amended by section 46 of public act 03-6 of the June 30 special session and section 3 of public act 03-1 of the September 8 special session, is repealed and the following is substituted in lieu thereof (Effective from passage):

An electric company or electric distribution company shall submit to the department an application for a financing order with respect to any proposal to sustain funding of conservation and load management and renewable energy investment programs by substituting disbursements to the General Fund from proceeds of rate reduction bonds for such disbursements from the Energy Conservation and Load Management Fund established by section 16-245m, as amended, and from the Renewable Energy Investment Fund established by section 16-245n, as amended, and may submit to the department an application for a financing order [and] with respect to the following stranded costs: (1) The cost of mitigation efforts, as calculated pursuant to subsection (c) of section 16-245e, as amended; (2) generation-related regulatory assets, as calculated pursuant to subsection (e) of section 16-245e, as amended; and (3) those long-term contract costs that have been reduced to a fixed present value through the buyout, buydown, or renegotiation of such contracts, as calculated pursuant to subsection (f) of section 16-245e, as amended. No stranded costs shall be funded with the proceeds of rate reduction bonds unless (A) the electric company or electric distribution company proves to the satisfaction of the department that the savings attributable to such funding will be directly passed on to customers through lower rates, and (B) the department determines such funding will not result in giving the electric distribution company or any generation entities or affiliates an unfair competitive advantage. The department shall hold a hearing for each such electric distribution company to determine the amount of disbursements to the General Fund from proceeds of rate reduction bonds that may be substituted for such disbursements from the Energy Conservation and Load Management Fund established by section 16-245m, as amended, and from the Renewable Energy Investment Fund established by section 16-245n, as amended, and thereby constitute transition property and the portion of stranded costs that may be included in such funding and thereby constitute transition property. Any hearing shall be conducted as a contested case in accordance with chapter 54, except that any hearing with respect to a financing order or other order to sustain funding for conservation and load management and renewable energy investment programs by substituting the disbursement to the General Fund from the Energy Conservation and Load Management Fund established by section 16-245m, as amended, and from the Renewable Energy Investment Fund established by section 16-245n, as amended, shall not be a contested case, as defined in section 4-166. The department shall not include any rate reduction bonds as debt of an electric distribution company in determining the capital structure of the company in a rate-making proceeding, for calculating the company's return on equity or in any manner that would impact the electric distribution company for rate-making purposes, and shall not approve such rate reduction bonds that include covenants that have provisions prohibiting any change to their appointment of an administrator of the Energy Conservation and Load Management Fund. [or the authorization of continuation of disbursements pursuant to section 20 of public act 03-2*. ] Nothing in this subsection shall be deemed to affect the terms of subsection (b) of section 16-245m, as amended.

Sec. 2. Subsection (a) of section 16-245h of the general statutes, as amended by section 5 of public act 03-1 of the September 8 special session, is repealed and the following is substituted in lieu thereof (Effective from passage):

(a) The competitive transition assessment described in subparagraph (A) of subdivision (2) of subsection (a) of section 16-245e, as amended, shall constitute transition property when, and to the extent that, a financing order authorizing such portion of the competitive transition assessment has become effective in accordance with sections 16-245e to 16-245k, inclusive, as amended, and the transition property shall thereafter continuously exist as property for all purposes with all of the rights and privileges of sections 16-245e to 16-245k, inclusive, as amended, for the period and to the extent provided in the financing order, but in any event until the rate reduction bonds are paid in full, including all principal, interest, premium, costs, and arrearages on such bonds. Prior to its sale or other transfer by the electric company or electric distribution company pursuant to sections 16-245e to 16-245k, inclusive, as amended, transition property, other than transition property [described in this subsection] in respect of disbursements to the General Fund to sustain funding of conservation and load management and renewable energy investment programs, shall be a vested contract right of the electric company or electric distribution company, notwithstanding any contrary treatment thereof for accounting, tax, or other purpose. Transition property in respect of disbursements to the General Fund to sustain funding of conservation and load management and renewable energy investment programs shall immediately upon its creation vest solely in the financing entity. The electric company or electric distribution company shall have no right, title or interest in transition property in respect of disbursements to the General Fund to sustain funding of conservation and load management and renewable energy investment programs, and in respect of such transition property shall be only a collection [action] agent on behalf of the financing entity.

Sec. 3. Subsection (e) of section 16-245j of the general statutes, as amended by section 6 of public act 03-1 of the September 8 special session, is repealed and the following is substituted in lieu thereof (Effective from passage):

(e) When the state is the authorized financing entity: [, the Treasurer: ] (1) [May] The Treasurer may enter into a trust indenture for the benefit of holders of the rate reduction bonds with a corporate trustee, which may be any trust company or commercial bank qualified to do business within or without the state; such trust indenture shall be consistent with the financing order and may contain such other provisions as may be appropriate including those regulating the investment of funds and the remedies of bondholders; (2) the Treasurer may make representations and agreements for the benefit of the holders of rate reduction bonds to make secondary market disclosures; (3) the Treasurer may enter into interest rate swap agreements and other agreements for the purpose of moderating interest rate risk on rate reduction bonds as permitted elsewhere within sections 16-245e to 16-245k, inclusive, as amended, provided the obligations under such agreements are payable from the transition property; (4) the Treasurer may enter into such other agreements and instruments to secure the rate reduction bonds as provided in sections 16-245f to 16-245k, inclusive, as amended; and (5) the Treasurer may take such other actions as necessary or appropriate for the issuance and distribution of the rate reduction bonds pursuant to the financing order and the Treasurer and the Secretary of the Office of Policy and Management may make representations and agreements for the benefit of the holders of the rate reduction bonds which are necessary or appropriate to ensure exclusion of the interest payable on the rate reduction bonds from gross income under the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended.

Sec. 4. Subsection (b) of section 16-245k of the general statutes, as amended by section 19 of public act 03-62 and section 7 of public act 03-1 of the September 8 special session, is repealed and the following is substituted in lieu thereof (Effective from passage):

(b) A valid and enforceable security interest in transition property is perfected when it has attached and when a financing statement has been filed in accordance with part 5 of article 9 of title 42a naming the pledgor of the transition property as "debtor" and identifying the transition property. In such case, the financing statement shall be filed as if the debtor were located in this state. Any description of the transition property shall be sufficient if it refers to the financing order creating the transition property. A copy of the financing statement shall be filed with the department by the electric company or electric distribution company or the financing entity that is the pledgor or transferor of the transition property, and the department may require the electric company or electric distribution company or the financing entity to make other filings with respect to the security interest in accordance with procedures it may establish, provided that the filings shall not affect the perfection of the security interest.

Sec. 5. Subdivision (2) of subsection (c) of section 12-264 of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(2) For purposes of this subsection, gross earnings from providing electric transmission services or electric distribution services shall include (A) all income classified as income from providing electric transmission services or electric distribution services by the Department of Public Utility Control in the uniform system of accounts prescribed by said department and (B) the competitive transition assessment collected pursuant to section 16-245g, as amended, other than any component of such assessment that constitutes transition property as to which an electric distribution company has no right, title or interest pursuant to subsection (a) of section 16-245h, as amended by this act, the systems benefits charge collected pursuant to section 16-245l, as amended, and the assessments charged under sections 16-245m, as amended, and 16-245n, as amended. Such gross earnings shall not include income from providing electric transmission services or electric distribution services to a company described in subsection (c) of section 12-265, as amended by this act.

Sec. 6. Subsection (a) of section 12-264 of the general statutes is repealed and the following is substituted in lieu thereof (Effective May 1, 2003):

(a) Each (1) Connecticut municipality or department or agency thereof, or Connecticut district, manufacturing, selling or distributing gas or electricity to be used for light, heat or power, in this chapter and in chapter 212a called a "municipal utility", (2) company the principal business of which is manufacturing, selling or distributing gas or steam to be used for light, heat or power, including each foreign municipal electric utility, as defined in section 12-59, and given authority to engage in business in this state pursuant to the provisions of section 16-246c, and (3) company required to register pursuant to section 16-258a, as amended, shall pay a quarterly tax upon gross earnings from such operations in this state. Gross earnings from such operations under subdivisions (1) and (2) of this subsection shall include (A) all income classified as operating revenues by the Department of Public Utility Control in the uniform systems of accounts prescribed by said department for operations within the taxable quarter and, with respect to each such company, (B) all income classified in said uniform systems of accounts as income from merchandising, jobbing and contract work, (C) income from nonutility operations, (D) revenues from lease of physical property not devoted to utility operation, and (E) receipts from the sale of residuals and other by-products obtained in connection with the production of gas, electricity or steam. Gross earnings from such operations under subdivision (3) of this subsection shall be gross income from the sales of natural gas, provided gross income shall not include income from the sale of natural gas to an existing combined cycle facility comprised of three gas turbines providing electric generation services, as defined in section 16-1, with a total capacity of 775 megawatts, for use in the production of electricity. Gross earnings of a gas company, as defined in section 16-1, as amended, shall not include income earned in a taxable quarter commencing prior to June 30, 2004, from the sale of natural gas or propane as a fuel for a motor vehicle. No deductions shall be allowed from such gross earnings for any commission, rebate or other payment, except a refund resulting from an error or overcharge and those specifically mentioned in section 12-265, as amended by this act. Gross earnings of a company as described in subdivision (2) of this subsection shall not include income earned in any taxable quarter commencing on or after July 1, 2000, from the sale of steam.

Sec. 7. Subsection (c) of section 12-265 of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(c) (1) The rate of tax on the sale, furnishing or distribution of electricity or natural gas for use directly by a company engaged in a manufacturing production process, in accordance with the Standard Industrial Classification Manual, United States Office of Management and Budget, 1987 edition, classifications 2000 to 3999, inclusive, or Sector 31, 32 or 33 in the North American Industrial Classification System United States Manual, United States Office of Management and Budget, 1997 edition, shall be four per cent with respect to calendar quarters commencing on or after January 1, 1994, and prior to January 1, 1995, three per cent with respect to calendar quarters commencing on or after January 1, 1995, and prior to January 1, 1996, and two per cent with respect to calendar quarters commencing on or after January 1, 1996, and prior to January 1, 1997. The sale, furnishing or distribution of electricity or natural gas for use by a company as provided in this subsection shall not be subject to the provisions of this chapter with respect to calendar quarters commencing on or after January 1, 1997. Not later than thirty days after May 19, 1993, and thirty days after the effective date of each rate decrease provided for in this section, each electric and gas public service company, as defined in section 16-1, as amended, which does not have a proposed rate amendment under section 16-19 pending before the Department of Public Utility Control at such time, shall request the department to reopen the proceeding under section 16-19 on the company's most recent rate amendment, solely for the purpose of decreasing the company's rates to reflect the decreases required under this section. The department shall immediately reopen such proceedings, solely for such purpose.

(2) For purposes of this subsection, the sale, furnishing or distribution of natural gas for use as fuel in the operation of a cogeneration facility providing electricity or steam to a company engaged in a manufacturing production process described in subdivision (1) of this subsection shall be deemed to be a sale, furnishing or distribution of natural gas for use directly by such company in such process where such cogeneration facility is located entirely on the premises owned or controlled by such company, whether or not the cogeneration facility is owned or operated by such company.

Approved June 1, 2004