You asked for a section by section analysis of LCO 6927, which would amend HB 6906, An Act Concerning Energy Independence.

SECTION 1: DEFINITIONS

The bill defines

1. “combined heat and power” as systems that produce power and thermal energy from a single source that reduces aggregate electricity use;

2. ‘“grid side distributed resources” as generating units, including those primarily used to meet peak demand, of up to 65 megawatts capacity that are connected to the transmission or distribution grid; and

3. “class III” resources as (1) electricity savings from commercial and industrial facilities in the state under programs established on or after January 1, 2006 and (2) electricity produced by generating electricity from the waste heat produced by combined heat and power units that (a) are part of customer side distributed resources located in the state, (b) have an efficiency of at least 50%, and (c) go into operation on or after January 1, 2006.

SECTION 2: DEFINITIONS

The bill renames “distributed generation” as “customer side distributed resources” and expands the definition to include conservation and load management, including peaking reducing and demand response systems. It specifies that generation covered by this definition must have a capacity of no more than 65 megawatts.

The bill expands the definition of “federally-mandated congestion costs” (FMCC) to include Locational Installed Capacity payments made by utilities to electric generators and the costs of measures approved by the Department of Public Utility Control (DPUC) that reduce FMCCs.

SECTIONS 3 AND 4: UTILITY OWNERSHIP OF GENERATION

The bill allows electric utilities to own power plants and other generation resources as described below.

SECTION 5: ELECTRIC CONSERVATION FUNDS

By law, the two electric utilities must develop plans for implementing conservation programs. The plans are reviewed by the Energy Conservation Management Board, which completes a cost effectiveness analysis, and are subject to DPUC approval. A charge on electric bills funds the programs in approved plans.

The bill requires that the plans be consistent with the statewide Connecticut Energy Advisory Board plan and cover the board’s expenses for consultants and administrative costs. It specifically allows the utility plans to target low-income consumers and establish joint fuel (electricity/natural gas) initiatives.

The bill requires the management board to (1) give preference to programs that reduce FMCCs, (2) to examine opportunities for joint fuel conservation programs, (3) consult with the Clean Energy Fund advisory committee before conducting its review, and (4) counts system benefits, including FMCC reductions, in its cost effectiveness analysis. In order to reduce FMCCs, the bill allows for disparities between the amounts customer classes pay into the funds and the extent to which the programs will benefit each class.

The bill adds a representative of the Connecticut Municipal Electric Energy Cooperative (CMEEC) and two representatives selected by gas companies to the board. The gas company representatives cannot vote on matters unrelated to gas conservation, and the electric utility members cannot vote on matters unrelated to electric conservation. It establishes a committee consisting of members of the board and the Clean Energy Fund advisory committee to coordinate programs to reduce long-term costs, environmental risk, and security risks.

The bill eliminates the board’s 2006 sunset on the date the board reports to the legislature. It expands the report to cover the board’s collaboration with the Clean Energy Fund. It requires the board, in consultation with Clean Energy Fund advisory committee, to evaluate the conservation funds’ performance by December 31, 2006, and every five years thereafter. The board must submit a copy of this evaluation to the Energy and Technology Committee to the Energy and Technology Committee.

SECTION 6: CLEAN ENERGY FUND

Connecticut Innovations, Inc. administers this fund, which invests in various energy technologies. An advisory committee helps develop a plan to spend money in the fund, which comes from a charge on electric bills.

The bill expands the types of technologies that the fund can invest in to include electricity production from combined heat and power systems with waste heat recovery and thermal storage. It requires the plan to (1) give preference to projects that maximize the reduction of FMCCs and (2) be consistent with the Connecticut Energy Advisory Board plan.

The bill requires that the annual legislative report prepared by the advisory committee cover collaboration between the Clean Energy Fund and the utility conservation funds. It also requires the committee to evaluate the effectiveness of Clean Energy Fund programs and activities by December 31, 2006 and every five years thereafter and report its findings to the Energy and Technology Committee.

SECTION 7: DIRECT BILLING BY ELECTRIC SUPPLIERS

The bill allows competitive electric suppliers to directly bill customers with a peak demand of 100 to 500 kilowatts. It eliminates a provision that allows direct billing of customers whose demand does not reach the threshold but who use a demand meter.

SECTION 8: CAPITAL SUBSIDY FOR CUSTOMER-SIDE DISTRIBUTED GENERATION

The bill requires DPUC to establish, by January 1, 2006 a program to provide one-time capital subsidies to customers who install customer side distributed generation. The subsidy ranges from $ 100 to $ 500 per kilowatt of generating capacity. A subsidy can be granted only if the project reduces FMCCs more than the award, and no person can receive more than one award. The size of the award depends on the reduction of FMCCs. By October 1, 2005, DPUC must conduct a contested case to establish additional standards for the amount of the subsidies and criteria and procedures for awarding subsidies and their size. The subsidies are funded from the FMCC charge on electric bills.

SECTION 9: LONG-TERM FINANCING FOR CUSTOMER-SIDE DISTRIBUTED RESOURCES

The bill requires DPUC to select, by competitive bid, one or more entities other than electric utilities to provide long term financing for the capital costs of customer side distributed generation and advanced power monitoring and metering equipment. DPUC must implement a mechanism that reduces the interest rate for people receiving this financing to no more than the prime rate. DPUC can retain a consultant to help it select these entities.

Each selected entity must give preference to financing projects that maximize reductions in FMCCs. After receiving DPUC approval, the entity must enter into an agreement with a utility to provide billing services on the entity’s behalf. The utility can recover its costs, including the cost of the interest rate reduction, from the FMCC charge.

SEC. 10: DPUC ASSESSMENT OF DISTRIBUTED RESOURCES

The bill requires DPUC, by January 1 annually starting in 2007, to assess the number and types of distributed resources (customer and grid-side); the projects financed under the bill; and projects’ contribution to fuel diversity, transmission support, and energy independence. By January in odd-numbered years, DPUC must collect the information in the annual assessments and report to the Energy and Technology Committee.

SECTION 11: NATURAL GAS DELIVERY CHARGE REBATE

The bill requires electric utilities, by January 1, 2006 to institute programs to rebate their customers with customer side distributed resources projects for the customer’s gas delivery charges from their local distribution company. The costs are recoverable by the electric utility through the FMCC charge. DPUC can adopt implementing regulations.

SEC. 12 OTHER FMCC REDUCTION MEASURES

Near Term Measures

The bill requires DPUC to identify measures that could reduce FMCCs and that could be implemented, at least partially, by January 1, 2006. These measures can include (1) demand response programs designed to change when electricity is consumed in order to reduce demands on the electric system; (2) other distributed resources such as conservation programs and small power plants; and (3) contracts between an electric utility and power plant owners for rights to the capacity of the plant.

DPUC must consult with the Connecticut Energy Advisory Board, the utilities, and the organization that operates the New England power grid in making this identification. It must complete the identification by November 1, 2005 and order the utilities to begin implementing the measures that it considers appropriate. The utility’s cost in implementing these measures is recovered through the FMCC charge.

Utility-owned Peaking Plants

Under the bill, each utility can submit proposals to DPUC to build up to 250 megawatts of power plants used to meet peak demand. No individual plant can have a capacity of more than 65 megawatts. The company must submit the proposal by November 1, 2005 and the proposal must describe how the utility would use or sell the power produced by the plant and its generating capacity. DPUC can order a company to submit a proposal.

By April 1, 2006, DPUC must approve the proposals that would maximize the reduction of FMCCs from that date through December 31, 2010 (DPUC can specify a later end date under this and similar provisions in the bill). The statewide total of approved projects cannot exceed 250 megawatts of peaking capacity. In making its decision DPUC must be guided by each utility’s share of the statewide electric load. The utilities must file an application with the Siting Council by September 1, 2006 for a certificate for those facilities under the council’s jurisdiction. Approved projects are eligible for rate base recovery, i. e. , the company can earn a return on its investment as well as recovering its costs.

The utilities can own and operate these projects. However, after seven and one half years of operation, the utility must either sell the plant or auction off the power and capacity associated with it. The auction must be conducted under a plan approved by DPUC; by law sales of utility assets are subject to DPUC approval. DPUC must waive these requirements, after notice and hearing, if it determines that compliance with them would harm the utility’s customers.

First Request for Proposals

The bill requires electric utilities to identify, by August 1, 2005, real property owned by the utility, its parent company, or affiliate that it could lease to a successful bidder in the first RFP described below for use in grid-side distributed resources projects.

DPUC must identify, by October 1, 2005, (1) the locations of new generating facilities with a capacity of up to 65 megawatts that would create the greatest reduction in FMCCs in the period 2006 through 2010, (2) the appropriate size, fuel source, and operating features of these resources, and (3) other distributed resources.

DPUC must develop, through a contested case completed by January 1, 2006, principles and standards for the two RFPs described below. DPUC must conduct the first RFP by May 1, 2006. DPUC can retain a consultant to help develop the RFP and help it to pick the winning bidders. The cost of the consultant is recoverable through the FMCC charge.

The first RFP must seek proposals to reduce FMCCs over the period 2006 through 2010. The proposals can be for customer-side or grid-connected distributed resources with a capacity of up to 65 megawatts or contracts between a utility and another party for up to 15 years to buy generation capacity rights in the area where the utility is authorized to operate. Proposals for grid-connected resources and long-term contracts must include a draft contract for transferring the capacity rights associated with the proposal. Utilities cannot submit proposals, but their affiliates can, subject to the laws that govern interactions between utilities and their affiliates. All proposals must agree to forgo or credit locational installed capacity payments and similar payments. DPUC must publicize the RFP in several ways.

By August 1, 2006, DPUC must evaluate all of the proposals and approve those that result in the greatest reduction of FMCCs during the designated period. Approved projects are eligible to enter into long-term contracts with the utilities, with DPUC approval and are eligible for approval from the Siting Council by declaratory ruling under certain circumstances. Approved customer-side distributed resources projects are eligible for long-term financing and the natural gas, and backup power subsidies described above, but not the capital subsidy.

DPUC must approve a long-term contract for it to become effective. For DPUC to approve a contract, it must (1) result in the lowest reasonable costs, (2) increase reliability, and (3) minimize FMCCS over time. Utilities that enter into such contracts must either sell capacity rights into market or retain them for services they provide to customers who do not choose competitive suppliers. Contracts costs are recovered through the FMCC charge.

Second Request for Proposals

The bill allows DPUC to conduct a second RFP to develop new power plants with a capacity above 65 megawatts designed to reduce FMCCs from 2006 through 2010. DPUC must develop the RFP by September 1, 2006. Utilities cannot submit proposals but their affiliates can.

DPUC must evaluate proposals by December 1, 2006 and approve those that maximize the reduction in FMCCs. The developer of an approved project can enter, with DPUC approval, into a long term capacity contract with a utility as described above. It is also eligible for approval by the Siting Council by declaratory ruling, as described below.

Miscellaneous Provisions

By law, a Siting Council certificate is needed to build most types of power plants, and one of the factors the council must consider is whether the plant produces a public benefit. The bill establishes a rebuttable presumption that there is public benefit in building the projects approved by DPUC in the RFPs and projects that DPUC has ordered a utility to build.

The bill exempts all of the DPUC-approved or –ordered projects from a provision of existing law that requires applications for power plants to go through an RFP process administered by the Connecticut Energy Advisory Board.

Within six months after issuing each RFP, DPUC must conduct an investigation of the impacts that entering into long-term contracts may have on the utility’s financial condition and how to compensate the utilities for such impacts. If DPUC determines that there are impacts, it must allow the utilities to recover their costs through their rates or by assessing the costs against the entities receiving the long-term contract.

Notwithstanding other provisions of law, DPUC may conduct additional RFPs to reduce FMCCs and approve proposals in order to meet its statutory obligations.

SECTION 13: TIME OF USE RATES

Under the bill, the utilities submit time of use rate plans to DPUC by October 1, 2005. The plans must provide for (1) optional interruptible/load response for commercial and industrial customers with at least 350 kilowatts of demand and (2) optional time of use and seasonal plans for other customers, both to go into effect June 1, 2006. By October 1, 2005, utilities must also submit plans to implement mandatory peak, shoulder, and off-peak time of use rates for customers with 350 kilowatts of demand to go into effect by January 1, 2007, which can be provided through a procurement plan and/or revenue neutral rate adjustments. Finally, the utilities must submit plans by November 1, 2005 to implement mandatory seasonal rates going into effect on April 1, 2007.

Utilities must provide customers with comparative billing information regarding mandatory time of use and seasonal rates. Utilities must help customers manage loads/reduce peak consumption through their conservation plans.

DPUC must hold a contested case on whether to approve the rates. To be approved, (1) rates must reflect costs, (2) the benefits must justify the costs of implementation and the impact on customers, and (3) the rates must alter consumption patterns with undue adverse effects on customers.

DPUC must hold a contested case to determine standards and process by which commercial and industrial customers can opt out of mandatory time of use rates until July 1, 2010. It must issue its decision by January 1, 2006.

SECTION 14: BACK-UP POWER CHARGE

The bill exempts new customer side distributed resources from backup charges if capacity is less than peak load and the resources are available to the system during peak periods. The costs of this measure are recoverable through the FMCC charge. The customer has to pay other applicable charges.

SECTION 15: UTILITY COST RECOVERY

The bill specifies ways that a utility can recover the costs prudently incurred under the bill. These include, in addition to the FMCC charge, rate basing, the energy adjustment clause, and system benefits charge. If the utility’s rate of return is below its authorized rate of return for six consecutive months, it is also eligible to offset lost earnings. In any case, it is eligible to earn an incentive on its costs in implementing the bill pursuant to Section 16-19kk. DPUC must hold a contested case to determine the appropriate recovery mechanisms.

SECTION 16: CONSERVATION/DISTRIBUTED RESOURCES PORTFOLIO STANDARD

Under the bill, utilities and retail suppliers must get part of their requirements from new Class III resources, i. e. various types of distributed resources from commercial and industrial customers. Starting January 1, 2007, utilities and suppliers must get 1% of their total output from these resources. This proportion increases by 1% in each of the following three years. The resources must meet Department of Environmental Protection air standards to be eligible. A utility can contract with its wholesaler for the wholesaler to meet the standard. If a utility, supplier, or wholesaler does not meet the standard, it must pay up to 5. 5 cents for each kilowatt-hour of its shortfall. Three quarters of the penalty payment goes to the utility’s conservation fund and one quarter to the Clean Energy Fund.

Utilities and suppliers can meet the standard by participating in a DPUC-approved trading program. DPUC must complete a contested case by February 1, 2006 to specify the program’s administrative process and specifications. DPUC can retain a consultant to help it develop and operate the program.

At least 25% of the credit must go to the person who conserved or generated the electricity. DPUC must establish a schedule by January 1, 2007 for splitting the credit between such persons and the conservation funds, but can give the person a larger share. DPUC must consider the incentives received by such person and the impact of the measure on FMCCs in splitting the credit. The part of the credit going to the funds must be used for demand response/peak reduction programs.

SECTION 17: MUNICIPAL ELECTRIC UTILITIES AND CONSERVATION

The bill requires municipal electric utilities to charge at least 1. 0 mill per kilowatt-hour sold for conservation and load management programs in 2006, with the charge increasing in four steps to 3 mills by January 1, 2011. The charge does not apply to interruptible service or to sales to the Groton submarine base.

The money goes into a special fund held by CMEEC, which must develop an annual conservation plan for member utilities. The plan may direct the expenditures of the fund to any of the areas served by the municipal utilities. It may provide for (1) the establishment of goals and standards for measuring the cost effectiveness of the fund’s expenditures, (2) maximizing the reduction in FMCCs, and (3) achieving appropriate geographic scope and balance. The plan must be consistent with the comprehensive plan developed by the Energy Conservation Management Board, and CMEEC must submit its plan to the board for review.

SECTION 18: EXPEDITED SITING FOR CERTAIN DISTRIBUTED GENERATION

The bill allows the Siting Council to approve by declaratory ruling distributed resources projects with a capacity of up to 25 megawatts that meets DEP air quality standards.

SECTION 19: APPLICABILITY OF THE BILL

The bill specifies that its provisions apply to distributed resources developed in Connecticut that add capacity on or after January 1, 2006 and in accordance with its provisions.

SECTION 20: CONSUMER EDUCATION

The bill requires DPUC, the Energy Conservation Management Board, and the utilities to establish links on their websites to the federal Energy Star energy efficiency program.

SECTION 21: DPUC UNCOUPLING INVESTIGATION

The bill requires DPUC to investigate how best to decouple earnings of gas companies and other utilities from their sales in order to promote the state’s energy policy. DPUC must report findings and recommendations to the Energy and Technology Committee by January 1, 2006.

SECTION 22 GAS CONSERVATION PROGRAMS

Under current law, gas companies must submit conservation plans to DPUC by October 1 in even-numbered years. The plan must establish quantitative targets, describe conservation options, and estimate the costs and benefits of these options. DPUC must hold a hearing on the plan and can require a company to update its plan in odd-numbered years.

The bill instead requires gas companies to follow the same procedures as electric utilities in developing and evaluating their conservation plans. The bill specifies the types of programs that can be included in the plan, which parallel existing provisions regarding electric conservation plans. The programs in the gas company plan must be screened on the basis of cost effectiveness. The company must submit the plan to the Energy Conservation Management Board for its review. The board must accept, reject, or modify the plan before passing on it to DPUC for final approval. By January 1 annually, starting in 2007, the board must report to the Energy and Technology Committee on gas company funding of conservation programs, how they spent the money, and the cost effectiveness of the programs. However, the bill specifies that it cannot be construed to require DPUC to establish a conservation charge to support these programs.

SECTION 23: SITING COUNCIL DECLARATORY RULINGS

The bill requires the Siting Council to consider other state and municipal laws when issuing declaratory rulings, as well as certificates.

SECTION 24: SITING COUNCIL JURISDICTION OVER GAS PIPELINES

Under current law, a Siting Council certificate is needed to build a gas pipeline, other than one that has a design capability of less than 200 pounds per square inch. The bill additionally exempts pipelines that have a design capacity of less than 20% of its specified minimum yield strength.

SECTIONS 25 AND 26 UTILITY LONG-TERM CONTRACTS WITH RENEWABLE GENERATORS

By law, the electric utilities must collectively enter into long-term contracts for 100 megawatts of capacity from renewable generating projects that meet specified characteristics. The bill additionally requires that the projects be located in Connecticut. The bill delays, from July 1, 2007 to July 1, 2008, the deadline for the utilities to submit their procurement plans to DPUC for its approval.

The bill gives project developers an additional option on how the electricity from the selected project will be priced. Under current law, the developer is entitled to the wholesale electricity price plus 5. 5 cents per kilowatt-hour. The bill allows the developer to opt to receive the sum of the following: (1) half of the wholesale electricity price, (2) half of projected cost of natural gas used to fuel the project, based on the futures price of contracts measured at the Henry Hub, Louisiana, (3) the charge for delivering the fuel to the project, and (4) 5. 5 cents per kilowatt-hour.

Under current law, the utilities entering into these contracts receive the renewable energy credits associated with the project. The bill, provides, that in the case of fuel cell projects that are principally manufactured in the state, the project developer keeps half of these credits, plus all of the air emission reduction and tax credits associated with the project.

Under current law, the utilities’ costs of entering into these contracts counts towards the cap on the rates they charge for the service they provide to customers who do not choose a competitive supplier. The bill instead creates a separate rate adjustment, not subject to the cap, to recover the direct costs of the contracts and the utilities costs in procuring the contracts. Under the bill, this adjustment will continue under the standard service the utilities are required to provide starting in 2007. By law, utilities must provide this service to any customer with a demand of less than 500 kilowatts who has not chosen a competitive supplier.

SECTION 27: UTILITY PROCUREMENT FEE

The bill entitles utilities to 0. 2 cent per kilowatt-hour fee for procuring power for standard service, which is recoverable through rates. It also allows them to receive an incentive of half of the difference between the price they paid for such power and average regional price if the former is less, up to . 55 cent per kilowatt-hour. DPUC must hold a contested case proceeding to develop this incentive. DPUC can retain a consultant to help it develop an incentive plan. The cost of the incentive is recoverable through the FMCC charge.

These provisions of this section terminate on December 31, 2009. By January 1, 2009, DPUC must report to the Energy and Technology Committee as to whether these provisions should be extended.

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