You asked for a history of the electric utility conservation and load management (C&LM) funds.

SUMMARY

PA 98-28 (the electric restructuring law) required the state’s two electric companies to establish C&LM funds using a charge that the act imposed on electric bills. The charge went into effect in 2000, providing funds for the companies’ C&LM programs. In 2003, the legislature transferred a substantial part of the funds to the state’s General Fund to implement the budget. The amount transferred equaled two year’s worth of revenue to the fund, plus an additional $ 24 million. The impact of the transfer has been partially mitigated through the issuance of securitization bonds in connection with the transfer.

CREATION OF THE FUNDS

PA 98-28 required the Department of Public Utility Control (DPUC) to charge electric company customers 0. 3 cents per kilowatt-hour for C&LM programs. It required each company to (1) establish a separate C&LM fund using this revenue and (2) develop a comprehensive plan to implement cost-effective conservation programs. The act established the Energy Conservation Management Board to help develop and implement the plans, which are subject to DPUC approval.

The conservation charge went into effect in 2000, and in the early years the charge produced $ 87 million or more per year in revenue. The board estimates that the conservation measures implemented between 2000 and 2003 will, over their lifespan, save ratepayers over $ 200 million. The board estimates that each dollar invested in energy efficiency in state produces four dollars in benefits. In addition, the board believes that the C&LM programs provide environmental and economic development benefits, as described in the its most recent report to the legislature. The report is available on-line here.

SUBSEQUENT ACTIONS

In 2003, the funds were identified as a potential source of revenue to help balance the state’s budget. Public Act 03-02 transferred $ 1 million

per month from the funds to the General Fund in FYs 2003-04 and 2004-05 to pay for state agency electricity costs and agency conservation programs. (Subsequent 2003 legislation first repealed, then reinstated this transfer. ) The DPUC ordered both companies to only expend C&LM funds collected through June 30, 2003 due to budget uncertainty. By July 1, 2003, most C&LM programs were suspended.

During the 2003 budget negotiations, the Office of Policy and Management originally proposed that all of the revenue raised from the CL&M charge and a separate renewable energy charge in FYs 2003-04 and 2004-05 be transferred to the General Fund. (Normally, the renewable energy charge revenue goes to the Clean Energy Fund, which is administered by Connecticut Innovations, Inc. ) DPUC raised a concern that, in addition to its immediate effects on the conservation and renewable energy programs funded by the charges, this option would disrupt conservation programs in the long-term. This is because the companies and Connecticut Innovations, Inc. would have to lay off the staff who implement the programs.

Ultimately, PA 03-06, June 30 Special Session, required that all of the revenue be transferred unless DPUC authorized the issuance of securitization bonds that provided an equivalent amount of revenue for the General Fund. Securitization is a financial mechanism that converts a future revenue stream into capital. In this case, the future revenue comes from a third charge on electric bills called the competitive transition assessment. To the extent that this assessment must be increased to cover the costs of the bonds, funding for C&LM and renewable energy programs must be reduced. The public act summary of PA 03-06 (attached) describes securitization in greater detail.

DPUC subsequently authorized the issuance of the bonds, and the programs resumed operations. The use of securitization mitigated the effect of the transfers on the C&LM and renewable energy programs. However, the combined effect of the transfers reduced C&LM funding by approximately 25% in 2003. It will reduce funding by approximately 44% in 2004, with somewhat smaller reductions in each of the next six years.

Historically, the money going into the C&LM and Clean Energy funds was considered utility revenue subject to the utility gross earnings tax. PA 04-180 exempts company revenue subject to the transfer to the General Fund from this tax.

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