AN ACT CONCERNING ENERGY INDEPENDENCE.

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

Section 1. Subdivision (26) of subsection (a) of section 16-1 of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(26) "Class I renewable energy source" means (A) energy derived from solar power, wind power, a fuel cell, methane gas from landfills, ocean thermal power, wave or tidal power, low emission advanced renewable energy conversion technologies, a run-of-the-river hydropower facility provided such facility has a generating capacity of not more than five megawatts, does not cause an appreciable change in the river flow, and began operation after July 1, 2003, or a biomass facility, including, but not limited to, a biomass gasification plant that utilizes land clearing debris, tree stumps or other biomass that regenerates or the use of which will not result in a depletion of resources, provided such biomass is cultivated and harvested in a sustainable manner and the average emission rate for such facility is equal to or less than .075 pounds of nitrogen oxides per million BTU of heat input for the previous calendar quarter, except that energy derived from a biomass facility with a capacity of less than five hundred kilowatts that began construction before July 1, 2003, may be considered a Class I renewable energy source, provided such biomass is cultivated and harvested in a sustainable manner, [or] (B) any electrical generation, including distributed generation, generated from a Class I renewable energy source, (C) the energy savings from waste heat utilization of combined heat and power or waste heat recovery systems as metered and converted to kilowatt hours when operated in conjunction with customer-side distributed generation, or (D) the electricity savings from conservation and load management programs.

Sec. 2. Subdivision (40) of subsection (a) of section 16-1 of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(40) ["Distributed] "Customer-side distributed generation" means the generation of electricity from a unit on the premises of [an] a retail end user within the [transmission and] distribution system including, but not limited to, fuel cells, photovoltaic systems or small wind turbines or peak shaving systems.

Sec. 3. Subsection (a) of section 16-1 of the general statutes is amended by adding subdivisions (42) to (44), inclusive, as follows (Effective from passage):

(NEW) (42) "Combined heat and power system" means a system that sequentially produces both electric power and thermal energy from a single source.

(NEW) (43) "Grid-side distributed generation" means the generation of electricity from a unit with a name plate capacity of not more than twenty-five megawatts that is not located on the premises of a retail end user and is connected to the transmission or distribution system.

NEW (44) "Waste heat recovery system" means a system that produces electric power or thermal energy by capturing existing waste heat streams from certain industrial or commercial processes.

Sec. 4. Subsection (d) of section 16-19ss of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(d) Nothing in this section shall be construed to allow an electric distribution company to own, operate, lease or control any facility or asset that generates electricity, or retain any interest in such facility or asset as part of any transaction concluded pursuant to this section, except as provided in subsection (e) of section 16-244e, as amended by this act.

Sec. 5. Subdivision (6) of subsection (e) of section 16-244e of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(6) Once unbundling is completed to the satisfaction of the department and consistent with the provisions of section 16-244, (A) any corporate affiliate or separate division that provides electric generation services as a result of unbundling pursuant to this subsection shall be considered a generation entity or affiliate of the electric company, and the division or corporate affiliate of the electric company that provides transmission and distribution services shall be considered an electric distribution company, and (B) an electric distribution company shall not own or operate generation assets, except that an electric distribution company may own or operate distributed generation pursuant to section 14 of this act.

Sec. 6. Subsection (a) of section 16-245l of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(a) The Department of Public Utility Control shall establish and each electric distribution company shall collect a systems benefits charge to be imposed against all end use customers of each electric distribution company beginning January 1, 2000. The department shall hold a hearing that shall be conducted as a contested case in accordance with chapter 54 to establish the amount of the systems benefits charge. The department may revise the systems benefits charge or any element of said charge as the need arises. The systems benefits charge shall be used to fund (1) the expenses of the public education outreach program developed under subsections (a), (f) and (g) of section 16-244d other than expenses for department staff, (2) the reasonable and proper expenses of the education outreach consultant pursuant to subsection (d) of section 16-244d, (3) the cost of hardship protection measures under sections 16-262c and 16-262d and other hardship protections, including but not limited to, electric service bill payment programs, funding and technical support for energy assistance, fuel bank and weatherization programs and weatherization services, (4) the payment program to offset tax losses described in section 12-94d, (5) any sums paid to a resource recovery authority pursuant to subsection (b) of section 16-243e, (6) low income conservation programs approved by the Department of Public Utility Control, (7) displaced worker protection costs, (8) unfunded storage and disposal costs for spent nuclear fuel generated before January 1, 2000, approved by the appropriate regulatory agencies, (9) postretirement safe shutdown and site protection costs that are incurred in preparation for decommissioning, (10) decommissioning fund contributions, (11) the costs of temporary electric generation facilities incurred pursuant to section 16-19ss, (12) operating expenses for the Connecticut Energy Advisory Board, [and] (13) legal, appraisal and purchase costs of a conservation or land use restriction and other related costs as the department in its discretion deems appropriate, incurred by a municipality on or before January 1, 2000, to ensure the environmental, recreational and scenic preservation of any reservoir located within this state created by a pump storage hydroelectric generating facility, and (14) the cost of retaining a consultant pursuant to section 11 of this act. As used in this subsection, "displaced worker protection costs" means the reasonable costs incurred, prior to January 1, 2008, (A) by an electric supplier, exempt wholesale generator, electric company, an operator of a nuclear power generating facility in this state or a generation entity or affiliate arising from the dislocation of any employee other than an officer, provided such dislocation is a result of (i) restructuring of the electric generation market and such dislocation occurs on or after July 1, 1998, or (ii) the closing of a Title IV source or an exempt wholesale generator, as defined in 15 USC 79z-5a, on or after January 1, 2004, as a result of such source's failure to meet requirements imposed as a result of sections 22a-197 and 22a-198 and this section or those Regulations of Connecticut State Agencies adopted by the Department of Environmental Protection, as amended from time to time, in accordance with Executive Order Number 19, issued on May 17, 2000, and provided further such costs result from either the execution of agreements reached through collective bargaining for union employees or from the company's or entity's or affiliate's programs and policies for nonunion employees, and (B) by an electric distribution company or an exempt wholesale generator arising from the retraining of a former employee of an unaffiliated exempt wholesale generator, which employee was involuntary dislocated on or after January 1, 2004, from such wholesale generator, except for cause. "Displaced worker protection costs" includes costs incurred or projected for severance, retraining, early retirement, outplacement, coverage for surviving spouse insurance benefits and related expenses. "Displaced worker protection costs" does not include those costs included in determining a tax credit pursuant to section 12-217bb.

Sec. 7. Section 16-245m of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(a) On and after January 1, 2000, the Department of Public Utility Control and each municipal electric company shall assess or cause to be assessed a charge of three mills per kilowatt hour of electricity sold to each end use customer of an electric distribution company or municipal electric company to be used to implement the program as provided in this section for conservation and load management programs but not for the amortization of costs incurred prior to July 1, 1997, for such conservation and load management programs. On and after the effective date of this section, any legislation that directs or expends the moneys in the fund established in subsection (b) of this section for purposes other than those specified in this section shall be void. Notwithstanding the provisions of this section, receipts from such charge shall be disbursed to the resources of the General Fund during the period from July 1, 2003, to June 30, 2005, unless the department shall, on or before October 30, 2003, issue a financing order for each affected distribution company in accordance with sections 16-245e to 16-245k, inclusive, to sustain funding of conservation and load management programs by substituting an equivalent amount, as determined by the department in such financing order, of proceeds of rate reduction bonds for disbursement to the resources of the General Fund during the period from July 1, 2003, to June 30, 2005. The department may authorize in such financing order the issuance of rate reduction bonds that substitute for disbursement to the General Fund for receipts of both the charge under this subsection and under subsection (b) of section 16-245n and also may, in its discretion, authorize the issuance of rate reduction bonds under this subsection and subsection (b) of section 16-245n that relate to more than one electric distribution company. The department shall, in such financing order or other appropriate order, offset any increase in the competitive transition assessment necessary to pay principal, premium, if any, interest and expenses of the issuance of such rate reduction bonds by making an equivalent reduction to the charge imposed under this subsection, provided any failure to offset all or any portion of such increase in the competitive transition assessment shall not affect the need to implement the full amount of such increase as required by this subsection and by sections 16-245e to 16-245k, inclusive. Such financing order shall also provide if the rate reduction bonds are not issued, any unrecovered funds expended and committed by the electric distribution companies for conservation and load management programs, provided such expenditures were approved by the department after August 20, 2003, and prior to the date of determination that the rate reduction bonds cannot be issued, shall be recovered by the companies from their respective competitive transition assessment or systems benefits charge but such expenditures shall not exceed four million dollars per month. All receipts from the remaining charge imposed under this subsection, after reduction of such charge to offset the increase in the competitive transition assessment as provided in this subsection, shall be disbursed to the Energy Conservation and Load Management Fund commencing as of July 1, 2003. Any increase in the competitive transition assessment or decrease in the conservation and load management component of an electric distribution company's rates resulting from the issuance of or obligations under rate reduction bonds shall be included as rate adjustments on customer bills.

(b) The electric distribution company and municipal electric utility shall establish an Energy Conservation and Load Management Fund which shall be held separate and apart from all other funds or accounts. Receipts from the charge imposed under subsection (a) of this section shall be deposited into the fund. Any balance remaining in the fund at the end of any fiscal year shall be carried forward in the fiscal year next succeeding. Disbursements from the fund by electric distribution companies and municipal electric utilities to carry out the plan developed under subsection (d) of this section shall be authorized by the Department of Public Utility Control upon its approval of such plan.

(c) The Department of Public Utility Control shall appoint and convene an Energy Conservation Management Board which shall include representatives of: (1) An environmental group knowledgeable in energy conservation program collaboratives; (2) the Office of Consumer Counsel; (3) the Attorney General; (4) the Department of Environmental Protection; (5) the electric distribution companies and municipal electric companies in whose territories the activities take place for such programs; (6) a state-wide manufacturing association; (7) a chamber of commerce; (8) a state-wide business association; (9) a state-wide retail organization; and (10) residential customers. Such members shall serve for a period of five years and may be reappointed.

(d) (1) The Energy Conservation Management Board shall advise and assist the electric distribution companies and municipal electric utilities in the development and implementation of a comprehensive plan, which plan shall be approved by the Department of Public Utility Control, to implement cost-effective energy conservation programs and market transformation initiatives. Each program contained in the plan shall be reviewed by the electric distribution company or municipal electric utility and either accepted or rejected by the Energy Conservation Management Board prior to submission to the department for approval. The Energy Conservation Management Board shall give preference to projects that maximize the reduction of federally mandated congestion charges.

(2) Programs included in the plan shall be screened through cost-effectiveness testing which compares the value and payback period of program benefits to program costs to ensure that programs are designed to obtain energy savings and system benefits, including federally mandated congestion costs, whose value is greater than the costs of the programs. Cost-effectiveness testing shall utilize available information obtained from real-time monitoring systems to ensure accurate validation and verification of energy use. Program cost-effectiveness shall be reviewed annually, or otherwise as is practicable. If a program is determined to fail the cost-effectiveness test as part of the review process, it shall either be modified to meet the test or shall be terminated. On or before March 1, 2005, and March 1, 2006, the board shall provide a report to the joint standing committees of the General Assembly having cognizance of matters relating to energy and the environment which documents expenditures and fund balances and evaluates the cost-effectiveness of such programs conducted in the preceding year. Programs in the plan shall not require parity between the amount of contributions to the Energy Conservation and Load Management Funds by a certain rate class and the programs that benefit the subject rate class.

(3) Programs included in the plan may include, but not be limited to: (A) Conservation and load management programs; (B) research, development and commercialization of products or processes which are more energy-efficient than those generally available; (C) development of markets for such products and processes; (D) support for energy use assessment, real-time monitoring systems, engineering studies and services related to new construction or major building renovation; (E) the design, manufacture, commercialization and purchase of energy-efficient appliances and heating, air conditioning and lighting devices; (F) program planning and evaluation; (G) indoor air quality programs relating to energy conservation; and (H) public education regarding conservation. Such support may be by direct funding, manufacturers' rebates, sale price and loan subsidies, leases and promotional and educational activities. Any other expenditure by the collaborative shall be limited to retention of expert consultants and reasonable administrative costs provided such consultants shall not be employed by, or have any contractual relationship with, an electric distribution company. Such costs shall not exceed five per cent of the total revenue collected from the assessment.

(e) Notwithstanding the provisions of subsections (a) to (d), inclusive, of this section, the Department of Public Utility Control shall authorize the disbursement of a total of one million dollars in each month, commencing with July, 2003, and ending with July, 2005, from the Energy Conservation and Load Management Funds established pursuant to said subsections. The amount disbursed from each Energy Conservation and Load Management Fund shall be proportionately based on the receipts received by each fund. Such disbursements shall be deposited in the General Fund.

Sec. 8. Section 16-245n of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(a) For purposes of this section, "renewable energy" means solar energy, wind, ocean thermal energy, wave or tidal energy, fuel cells, landfill gas, hydrogen production and hydrogen conversion technologies, [and] low emission advanced biomass conversion technologies, usable energy from combined heat and power systems or waste heat recovery systems and other energy resources and emerging technologies which have significant potential for commercialization and which do not involve the combustion of coal, petroleum or petroleum products, municipal solid waste or nuclear fission.

(b) On and after January 1, [2000] 2004, the Department of Public Utility Control shall assess or cause to be assessed a charge of not less than [one-half of] one mill per kilowatt hour charged to each end use customer of electric services in this state, including end users of a municipal electric utility, which shall be deposited into the Renewable Energy Investment Fund established under subsection (c) of this section. [On and after July 1, 2002, such charge shall be three-quarters of one mill and on and after July 1, 2004, such charge shall be one mill.] On and after the effective date of this section, any legislation that directs or expends the moneys in the fund established in subsection (b) of this section other than for purposes specified in this section shall be void. Notwithstanding the provisions of this section, receipts from such charges shall be disbursed to the resources of the General Fund during the period from July 1, 2003, to June 30, 2005, unless the department shall, on or before October 30, 2003, issue a financing order for each affected distribution company in accordance with sections 16-245e to 16-245k, inclusive, to sustain funding of renewable energy investment programs by substituting an equivalent amount, as determined by the department in such financing order, of proceeds of rate reduction bonds for disbursement to the resources of the General Fund during the period from July 1, 2003, to June 30, 2005. The department may authorize in such financing order the issuance of rate reduction bonds that substitute for disbursement to the General Fund for receipts of both charges under this subsection and subsection (a) of section 16-245m, as amended by this act, and also may in its discretion authorize the issuance of rate reduction bonds under this subsection and subsection (a) of section 16-245m, as amended by this act, that relate to more than one electric distribution company. The department shall, in such financing order or other appropriate order, offset any increase in the competitive transition assessment necessary to pay principal, premium, if any, interest and expenses of the issuance of such rate reduction bonds by making an equivalent reduction to the charges imposed under this subsection, provided any failure to offset all or any portion of such increase in the competitive transition assessment shall not affect the need to implement the full amount of such increase as required by this subsection and sections 16-245e to 16-245k, inclusive. Such financing order shall also provide if the rate reduction bonds are not issued, any unrecovered funds expended and committed by the electric distribution companies for renewable resource investment through deposits into the Renewable Energy Investment Fund, provided such expenditures were approved by the department following August 20, 2003, and prior to the date of determination that the rate reduction bonds cannot be issued, shall be recovered by the companies from their respective competitive transition assessment or systems benefits charge except that such expenditures shall not exceed one million dollars per month. All receipts from the remaining charges imposed under this subsection, after reduction of such charges to offset the increase in the competitive transition assessment as provided in this subsection, shall be disbursed to the Renewable Energy Investment Fund commencing as of July 1, 2003. Any increase in the competitive transition assessment or decrease in the renewable energy investment component of an electric distribution company's rates resulting from the issuance of or obligations under rate reduction bonds shall be included as rate adjustments on customer bills.

(c) There is hereby created a Renewable Energy Investment Fund which shall be administered by Connecticut Innovations, Incorporated. The fund may receive any amount required by law to be deposited into the fund and may receive any federal funds as may become available to the state for renewable energy investments. Connecticut Innovations, Incorporated, may use any amount in said fund for expenditures which promote investment in renewable energy sources in accordance with a comprehensive plan developed by it to foster the growth, development and commercialization of renewable energy sources, related enterprises and stimulate demand for renewable energy and deployment of renewable energy sources which serve end use customers in this state. Such expenditures may include, but not be limited to, grants, direct or equity investments, contracts or other actions which support research, development, manufacture, commercialization, deployment and installation of renewable energy technologies, and actions which expand the expertise of individuals, businesses and lending institutions with regard to renewable energy technologies.

(d) The chairperson of the board of directors of Connecticut Innovations, Incorporated, shall convene a Renewable Energy Investments Advisory Committee to assist Connecticut Innovations, Incorporated, in matters related to the Renewable Energy Investment Fund, including, but not limited to, development of a comprehensive plan and expenditure of funds. The advisory committee shall, in such plan, give preference to projects that maximize the reduction of federally mandated congestion charges. The advisory committee shall include not more than twelve individuals with knowledge and experience in matters related to the purpose and activities of said fund. The advisory committee shall consist of the following members: [(1)] (A) One person with expertise regarding renewable energy resources appointed by the speaker of the House of Representatives; [(2)] (B) one person representing a state or regional organization primarily concerned with environmental protection appointed by the president pro tempore of the Senate; [(3)] (C) one person with experience in business or commercial investments appointed by the majority leader of the House of Representatives; [(4)] (D) one person representing a state or regional organization primarily concerned with environmental protection appointed by the majority leader of the Senate; [(5)] (E) one person with experience in business or commercial investments appointed by the minority leader of the House of Representatives; [(6)] (F) one person with experience in business or commercial investments appointed by the minority leader of the Senate; [(7)] (G) two state officials with experience in matters relating to energy policy and one person with expertise regarding renewable energy resources appointed by the Governor; and [(8)] (H) three persons with experience in business or commercial investments appointed by the board of directors of Connecticut Innovations, Incorporated. The advisory committee shall issue annually a report to such chairperson reviewing the activities of the fund in detail and shall provide a copy of such report to the joint standing committee of the General Assembly having cognizance of matters relating to energy, the Department of Public Utility Control and the Office of Consumer Counsel.

Sec. 9. Section 16-245a of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(a) (1) On and after January 1, [2004] 2005, an electric supplier and an electric distribution company providing transitional standard offer pursuant to section 16-244c shall demonstrate to the satisfaction of the Department of Public Utility Control that not less than one and one-half per cent of the total output or services of such supplier or distribution company shall be generated from Class I renewable energy sources and an additional three per cent of the total output or services shall be from Class I or Class II renewable energy sources. [On and after January 1, 2005, not less than one and one-half per cent of the total output or services of any such supplier or distribution company shall be generated from Class I renewable energy sources and an additional three per cent of the total output or services shall be from Class I or Class II renewable energy sources.] On and after January 1, 2006, an electric supplier and an electric distribution company providing standard service or supplier of last resort service, pursuant to section 16-244c, shall demonstrate that not less than [two] three per cent of the total output or services of any such supplier or distribution company shall be generated from Class I renewable energy sources and an additional three per cent of the total output or services shall be from Class I or Class II renewable energy sources. On and after January 1, 2007, not less than [three and one-half] four per cent of the total output or services of any such supplier or distribution company shall be generated from Class I renewable energy sources and an additional three per cent of the total output or services shall be from Class I or Class II renewable energy sources. On and after January 1 2008, not less than five per cent of the total output or services of any such supplier or distribution company shall be generated from Class I renewable energy sources and an additional three per cent of the total output or services shall be from Class I or Class II renewable energy sources. On and after January 1, 2009, not less than six per cent of the total output or services of any such supplier or distribution company shall be generated from Class I renewable energy sources and an additional three per cent of the total output or services shall be from Class I or Class II renewable energy sources. On and after January 1, 2010, not less than seven per cent of the total output or services of any such supplier or distribution company shall be generated from Class I renewable energy sources and an additional three per cent of the total output or services shall be from Class I or Class II renewable energy sources.

(2) An electric supplier or electric distribution company may satisfy the requirements of this subsection by (A) purchasing Class I or Class II renewable energy sources within the jurisdiction of the regional independent system operator, or within the jurisdiction of New York, Pennsylvania, New Jersey, Maryland, and Delaware, provided the department determines such states have a renewable portfolio standard that is comparable to this section; or (B) by participating in a renewable energy trading program within [said] the jurisdictions [as] approved by the Department of Public Utility Control.

(3) Any supplier who provides electric generation services solely from a Class II renewable energy source shall not be required to comply with the provisions of this section.

(4) In satisfying the Class I renewable energy source requirements of this subsection, not more than sixteen per cent may be generated from the conservation and load management programs, and not more than sixteen per cent may be attributed to combined heat and power systems or waste heat recovery systems.

(b) An electric supplier or an electric distribution company shall base its demonstration of generation sources, as required under subsection (a) of this section on historical data, which may consist of data filed with the regional independent system operator.

(c) (1) A supplier or an electric distribution company may make up any deficiency within its renewable energy portfolio within the first three months of the succeeding calendar year or as otherwise provided by generation information system operating rules approved by New England Power Pool or its successor to meet the generation source requirements of subsection (a) of this section for the previous year.

(2) No such supplier or electric distribution company shall receive credit for the current calendar year for generation from Class I or Class II renewable energy sources pursuant to this section where such supplier or distribution company receives credit for the preceding calendar year pursuant to subdivision (1) of this subsection.

(d) The department shall adopt regulations, in accordance with the provisions of chapter 54, to implement the provisions of this section.

Sec. 10. (NEW) (Effective from passage) Notwithstanding the provisions of sections 16-245m and 16-245n of the general statutes, as amended by this act, the Department of Public Utility Control shall award not less than three hundred dollars and not more than five hundred dollars per kilowatt of capacity of customer-side distributed generation, as defined in section 16-1 of the general statutes, as amended by this act, depending on the impact such generation has on reducing the federally mandated congestion costs, as defined in section 16-1 of the general statutes, as amended by this act, from the Conservation and Load Management Fund and the Renewable Energy Investment Fund on a pro rata basis. Not later than September 30, 2005, the department shall conduct a contested case proceeding, in accordance with chapter 54 of the general statutes, to establish the range of awards pursuant to this section.

Sec. 11. (NEW) (Effective from passage) (a) The Department of Public Utility Control shall select, pursuant to a competitive bid process, one or more persons to provide long term financing for customer-side distributed generation, as defined in section 16-1 of the general statutes, as amended by this act, and associated advanced power monitoring and metering equipment. Such person may not be an electric distribution company, as defined in said section 16-1, but may be a generation affiliate of such company. The department may retain a consultant to assist it in selecting such person or persons.

(b) On providing financing, the department shall give preference to distributed generation projects that maximize the reduction of the federally mandated congestion costs, as defined in section 16-1 of the general statutes, as amended by this act. Costs eligible for such financing shall include, but not be limited to, the capital and ongoing operations and maintenance costs of distributed generation and associated advanced power monitoring and metering equipment.

(c) Persons receiving financing from a successful bidder pursuant to this section shall enter into an agreement with an electric distribution company, as defined in section 16-1 of the general statutes, as amended by this act, to provide billing and collection services for the payment of the principal and interest on such financing. Any costs prudently incurred by the electric distribution company, as defined in said section 16-1, in providing billing and collection services, including costs associated with nonpayment by the customer, shall be recoverable in the electric distribution company's rates as an operating expense.

Sec. 12. (NEW) (Effective from passage) Not later than January 1, 2007, and annually thereafter, the department shall assess the number and types of customer-side and grid-side distributed generation, as defined in section 16-1 of the general statutes, as amended by this act, projects financed pursuant to this section and such projects' contributions to achieving fuel diversity, transmission support, and energy independence in the state. Not later than January 1, 2007, and biennially thereafter, the department shall collect the information in such annual reports and report to the joint standing committee of the General Assembly having cognizance of matters relating to energy on its findings.

Sec. 13. (NEW) (Effective from passage) The retail delivery charge for transporting natural gas from a local distribution company to a customer-side distributed generation unit, as defined in section 16-1 of the general statutes, as amended by this act, shall be waived by a gas company, as defined in section 16-1 of the general statutes, as amended by this act, and shall be assessed upon all other natural gas customers.

Sec. 14. (NEW) (Effective from passage) (a) The Department of Public Utility Control may consult with the Connecticut Energy Advisory Board, the electric distribution companies, as defined in section 16-1 of the general statutes, as amended by this act, and other parties, as the department deems appropriate, to identify (1) the most advantageous geographic area in which to install grid-side distributed generation, as defined by section 16-1 of the general statutes, as amended by this act, and the appropriate size, fuel source and operating features of such generation, and (2) any grid-side distributed generation projects that are needed primarily for grid stability, voltage support, or to otherwise improve the operation and reliability of the distribution or transmission system.

(b) For projects identified pursuant to subdivision (1) of subsection (a) of this section, the department may direct an electric distribution company to develop and issue a request for proposal to solicit the construction of grid-side distributed generation projects of not more than twenty-five megawatts within the area in which a company is authorized to provide service. The electric distribution company may not submit proposals pursuant to this subsection. Affiliates of the electric distribution company may submit proposals, consistent with section 16-244h of the general statutes, regulations adopted under said section 16-244h, and other requirements the department may impose. The department may retain the services of a third-party entity with expertise in the area of energy procurement or energy project development to oversee the initial development of the request for proposals and the procurement of distributed generation power purchase contracts by an electric distribution company pursuant to this section.

(c) For purposes of designing any request for proposal, the electric distribution company shall identify, within the geographic area selected pursuant to subsection (a) of this section, any of its real property with characteristics suitable or beneficial for use as grid-side distributed generation, and which could be made available through sale or lease to the winning bidder. The department may order the electric distribution company to sell, lease or otherwise assign such property to an electric generator, provided that the electric distribution company shall receive fair market value for the conveyance of the property. Any such property conveyance shall be reviewed pursuant to section 16-43 of the general statutes, except that sales to nonaffiliated entities shall not be subject to any requirement of public auction or public sale.

(d) No contract for grid-side distributed generation power entered into by an electric distribution company may become effective without prior approval of the department. The department shall hold a hearing that shall be conducted as a contested case, in accordance with the provisions of chapter 54 of the general statutes, to approve, reject or modify an application for approval of a grid-side distributed generation power purchase contract. No contract for grid-side distributed generation power shall be approved unless the department finds that approval of such contract would (1) result in the lowest reasonable cost of such products and services, (2) increase reliability, and (3) minimize federally mandated congestion charges to the state over time. No contract approved by the department shall have a term exceeding ten years.

(e) Upon approval of a contract for grid-side distributed power pursuant to subsection (d) of this section, an electric distribution company may, after providing notification to the department and the Office of Consumer Counsel, develop, own and operate grid-side distributed generation facilities of not more than twenty-five megawatts or less identified as needed primarily for grid stability, voltage support, or to otherwise improve the operation and reliability of the distribution or transmission system pursuant to subdivision (2) of subsection (a) of this section. Each electric distribution company may own no more than two hundred megawatts of grid-side distributed generation. An electric distribution company shall be entitled to recover in rates all reasonable costs incurred developing, owning and operating grid-side distributed generation installed pursuant to this section, as well as a reasonable rate of return, in accordance with the principles in subsection (a) of section 16-19e of the general statutes.

(f) All generation purchased or generated by an electric distribution company pursuant to this section shall be sold on a nondiscriminatory basis into the day-ahead markets of the regional independent system operator, as defined in section 16-1 of the general statutes, as amended by this act.

Sec. 15. (NEW) (Effective from passage) (a) Not later than September 1, 2005, each electric distribution company, as defined in section 16-1 of the general statutes, as amended by this act, shall submit an application to the Department of Public Utility Control to (1) on or after June 1, 2006, implement mandatory seasonal and daily time of use rates, and optional hourly time of use rates and interruptible or load response rates for customers that have a maximum demand of not less than three hundred fifty kilowatts, and (2) on or after June 1, 2006, offer optional time of use rates for all customers with a maximum demand of less than three hundred fifty kilowatts. The application shall propose to establish time of use rates through a procurement plan, revenue neutral adjustments to delivery rates, or both.

(b) From March 1, 2006, until May 31, 2006, each electric distribution company shall issue comparative bills to customers that have a maximum demand of not less than three hundred fifty kilowatts that would demonstrate at current levels of consumption the effects of the mandatory time of use rates to be effective beginning June 1, 2006.

(c) Not later than September 1, 2006, each electric distribution company shall submit an application to the Department of Public Utility Control to implement mandatory seasonal and daily time of use rates, and optional hourly time of use rates and interruptible or load response rates for customers that have a maximum demand of not less than one hundred fifty kilowatts beginning June 1, 2007.

(d) The department shall hold a hearing that shall be conducted as a contested case, in accordance with the provisions of chapter 54 of the general statutes, to approve, reject or modify the application submitted pursuant to subsection (a) or (b) of this section. No application for time of use rates shall be approved unless (1) such rates reasonably reflect the cost of service during on and off-peak periods, and (2) the costs associated with implementation, the impact on customers and benefits to the utility system justify implementation of such rates.

(e) Notwithstanding the provisions of this section, from June 1, 2006, until May 31, 2007, only customers with a maximum demand of not less than three hundred fifty kilowatts that purchase mandatory hourly time of use rates or optional interruptible or load response rates pursuant to subsection (a) of this section shall be eligible for the incentives contained in sections 11 and 13 of this act . Notwithstanding the provisions of this section, on and after June 1, 2007, only customers with a maximum demand of not less than one hundred fifty kilowatts that purchase optional hourly time of use rates or optional interruptible/load response rates pursuant to subsection (a) of this section shall be eligible for all the incentives contained in sections 10, 11 and 13 of this act, and subdivision (4) of subsection (a) of section 16-245a of the general statutes, as amended by this act.

(f) Each electric distribution company shall make available through conservation and load management programs assistance to customers to help manage loads and reduce peak consumption.

Sec. 16. (NEW) (Effective from passage) (a) To minimize electric capacity costs, including federally mandated congestion costs, as defined in section 16-1 of the general statutes, as amended by this act, to the state's electric customers over time, the Department of Public Utility Control may consult with the Connecticut Energy Advisory Board to recommend the size, location, fuel source and operating features of new electric generation. The department may, based on the joint recommendation, direct an electric distribution company to develop and issue a request for proposal to solicit long-term contracts for electric capacity rights within the area in which the company is authorized to provide service. The department may retain the services of a third-party entity with expertise in the area of energy procurement to oversee the initial development of the request for proposals and the procurement of long-term electric capacity contracts by an electric distribution company pursuant to this section.

(b) No long-term contract for electric capacity rights entered into by an electric distribution company may become effective without prior approval of the department. The department shall hold a hearing that shall be conducted as a contested case, in accordance with the provisions of chapter 54 of the general statutes, to approve, reject or modify an application for approval of a long-term electric capacity contract. No contract for long-term electric capacity shall be approved unless the department finds that approval of such contract would (1) increase reliability, and (2) minimize electric capacity costs to the state over time. No contract approved by department shall have a term exceeding ten years.

(c) Any request for a proposal issued pursuant to this section or a contract entered into pursuant to this section shall include provisions for the transfer of exclusive rights to electric generation capacity to the electric distribution company. The electric distribution company shall either sell into the capacity markets all electric capacity rights transferred pursuant to this section and use all proceeds from such sales to offset federally mandated congestion charges incurred by all customers, or shall retain such electric capacity rights to offset electric capacity costs associated with transitional standard offer or standard service.

(d) The costs associated with the long-term electric capacity contracts, including costs associated with the retention of the third-party entity pursuant to subsection (a) of this section, shall be recovered through federally mandated congestion charges.

(e) In designing any request for proposal, the electric distribution company shall identify any of its real property within the selected geographic area with characteristics suitable or beneficial for use as generation, and for the purpose of making such real property and which could be made available through sale or lease to the winning bidder. The department may order the electric distribution company to sell, lease or otherwise assign such property to an electric generator, provided that the electric distribution company shall receive fair market value for the conveyance of the property. Any such property conveyance shall be reviewed pursuant to section 16-43 of the general statutes, except that the sales to nonaffiliated entities shall not be subject to any requirement of public auction or public sale.

Sec. 17. (NEW) (Effective from passage) (a) To minimize supplemental power requirement costs, where customer's distributed generation capacity is less than the customer's maximum load requirements, participating customer's distributed generation systems implemented after July 1, 2006, shall not be required to pay back-up power demand costs if customer's distributed generation resources are reasonably available to support system-wide capacity requirements.

(b) The costs associated with recovering supplemental power requirements pursuant to subsection (a) of this section shall be recoverable by the electrical distribution companies.

Statement of Purpose:

To promote the use of distributed generation in the state.

[Proposed deletions are enclosed in brackets. Proposed additions are indicated by underline, except that when the entire text of a bill or resolution or a section of a bill or resolution is new, it is not underlined.]