You asked for (1) a discussion of the law's requirement for energy efficiency as it applies to municipal electric utilities relative to investor owned electric companies, (2) a description of the current efficiency programs of municipal electric utilities, and (3) a discussion of legislative option to further encourage municipal utility efficiency programs.

SUMMARY

Both municipal electric utilities and investor owned electric companies are required to impose a charge for conservation and renewable energy. Electric companies (Connecticut Light & Power and United Illuminating) must impose a three mill (i. e. , 0. 3 cent) charge per kilowatt-hour (kwh) they sell to fund energy conservation programs. The money goes into a fund administered by each company. The companies must develop plans for spending the money. The plans, which include a wide range of conservation programs, are subject to review by the Energy Conservation Management Board and approval by the Department of Public Utility Control (DPUC). The programs must meet a cost effectiveness test.

In addition to the conservation funding, electric company customers are also charged one mill per kwh charge to support renewable energy programs. This money goes into the state's Clean Energy Fund, which is administered by Connecticut Innovations, Inc.

Legislation passed in 2005 requires municipal electric utilities to impose a one mill per kwh charge to fund conservation or renewable energy programs. The charge will increase in five steps, rising to two and one half mills per kwh starting in 2011. The money raised by this charge goes into a fund administered by the Connecticut Municipal Electric Energy Cooperative (CMEEC), which uses it to pay for conservation programs operated by the individual utilities. CMEEC also purchases power and provides other services for these utilities, which are located in Groton, Jewett City, Norwalk, Norwich, and Wallingford.

A major focus of municipal utility conservation programs has been the distribution of compact fluorescent lights, which are substantially more efficient than incandescent lights. Other initiatives include rebates for energy efficient appliances and energy audits and other analyses of energy use in public sector buildings.

The legislature has a variety of options to further encourage energy efficiency in municipal utilities. It could require municipal utilities to meet the same requirements as electric companies, e. g. , by increasing the conservation charge or by requiring that municipal utility programs meet a cost effectiveness test. Or it could could require municipal utilities (and potentially electric companies as well) to invest in all conservation measures that are cost effective, i. e, all measures where the cost of saving energy is less than the cost of generating or buying energy.

REQUIREMENTS FOR ENERGY EFFICIENCY PROGRAMS

Under the law opening the electric industry to competition (PA 98-28), DPUC must assess a charge of three mills per kwh on electric company customers to fund energy conservation programs. The revenue from the charge goes into conservation funds administered by the companies.

The law required DPUC to establish the Energy Conservation Management Board, which includes state agency representatives, business groups, electric companies and other utilities, and other interested parties, to must advise and assist the companies in developing and implementing a comprehensive plan to promote cost-effective conservation programs and programs to develop more energy-efficient products. The board reports to the Energy and Technology and Environment committees annually on the programs. The board's most recent report is available on DPUC's Website http: //www. state. ct. us/dpuc. For the most part, the two electric companies offer similar programs that target specific types of customers.

In addition to these conservation mandates, electric companies must impose a one mill per kwh charge to fund renewable energy programs. This money goes into a fund administered by Connecticut Innovations, Inc. The utilities must also offer a number of rates that are designed to change when power is used, in order to reduce demands on the power system. These include time of use, seasonal, and interruptible rates.

In contrast, PA 98-28 did not impose any obligations on municipal electric utilities, unless they chose to participate in the competitive market (which none have to date). However, PA 05-1, June 2005 Special Session, imposes several obligations on municipal utilities with regard to energy efficiency. Specifically, the 2005 act requires each municipal utility to impose a charge for investments in renewable energy sources and for conservation and load management programs. The charge has been 1. 0 mill per kwh since January 1, 2006. It will be 1. 3 mills per kwh starting January 1, 2007; 1. 6 mills per kwh starting January 1, 2008; 1. 9 mills per kwh starting January 1, 2009; 2. 2 mills per kwh starting January 1, 2010; and 2. 5 mills per kwh on and after January 1, 2011. Sales to U. S. naval facilities are not subject to the charge. The revenue goes into the Municipal Energy Conservation and Load Management Fund, which is administered by CMEEC.

The act requires CMEEC to adopt an annual comprehensive plan for spending this money. The plan may direct the expenditure of funds on facilities or measures located in the service areas of the municipal utilities who are members or participants in the cooperative. The plan may also provide for the establishment of goals and standards for measuring the cost effectiveness of expenditures made from the fund, for minimizing federally mandated transmission congestion charges, and for achieving appropriate geographic coverage and scope in each service area. CMEEC's plan must be consistent with the comprehensive plan adopted by the Energy Conservation Management Board and CMEEC must submit its plan to the board for review. The act also added a CMEEC representative to the board.

CURRENT MUNICIPAL UTILITY PROGRAMS

Under the CMEEC plan, municipal utilities are promoting efficiency through the distribution of energy efficient compact fluorescent lights and other measures. In the residential sector, the municipal utilities have distributed over 21,000 compact fluorescent lights since the beginning of 2005, over 3,000 of which were installed in low income housing units. In several CMMEC municipalities, all new customers receive a “welcome bag” which includes a compact fluorescent light, conservation tips, an energy calculator, lighting catalogs, and other information to help them understand the importance of conservation. The utilities have also mailed over 60,000 Energy Star^® Lighting catalogues to their customers. Three of the utilities have residential programs that target low income customers, primarily through such low cost measures as water heater blankets and low flow shower heads.

The utilities have begun a program that provides rebates to their customers who buy Energy Star^® qualified clothes washers, dishwashers, refrigerators, and room air conditioners. The Norwich municipal utility, which also provides gas service, has completed an “all fuels” residential low income efficiency and weatherization pilot program, which identifies possible conservation measures, regardless of whether the measures saves electricity, natural gas, or heating oil.

In the commercial/industrial sector, the utilities are targeting their energy efficiency efforts at the top 15 municipal utility customers to substantially reduce peak demand requirements and federally mandated transmission congestion charges that are paid by all CMEEC members. Individual projects range from lighting to space conditioning to process equipment replacement and have included retail, office, and industrial customers. The utilities are developing incentives for smaller businesses to improve energy efficiency in lighting; heating, ventilation, and air conditioning; refrigeration; and water hearing.

The utilities have also “benchmarked” municipal buildings including schools, fire and police stations, town halls senior centers, libraries and water and waste water treatment plants. Benchmarking compares the energy use in such facilities to comparable buildings as a way of determining the potential for energy conservation investments. As part of this initiative, 18 school buildings have received Energy Star^® energy audits.

LEGISLATIVE OPTIONS

The legislature could subject the municipal utilities to the same energy efficiency requirements that apply to electric companies. It could do this by:

1. accelerating the rate of increase of the conservation charge;

2. adding an additional step in this charge to 0. 3 cent per kilowatt-hour, so that municipal utility customers pay the same amount to fund efficiency programs as do electric company customers;

3. requiring that the revenue from the charge be spent solely on energy efficiency, perhaps with an additional charge to pay for renewable energy programs; or

4. requiring municipal utilities to provide the same types of rates designed to reduce peak demand that electric companies are required to provide.

Alternatively, the legislature could require municipal utilities (and potentially electric companies) to invest in all cost-effective efficiency measures. Currently, the utilities and companies are targeting conservation opportunities with very high benefit cost ratios. For example, the electric company programs for residential customers have a two-to-one benefit/cost ratio according to the Energy Conservation Management Board; the ratio for commercial/industrial customer programs is nearly four-to-one. Although we are not aware of comparable data for the municipal utility programs, these programs are broadly similar to the electric company programs and would presumably have similar benefit/cost ratios.

The legislature could require municipal utilities to invest in all conservation measures whose lifetime cost was below the cost of buying or generating power. The California Public Utilities Commission has adopted this approach with regard to the electric companies under its jurisdiction. Under the commission's “loading order,” the companies must first meet their customers' demand by promoting energy efficiency, then renewable energy, and only then by purchasing power from conventional sources. Since the order was adopted in 2003, the state's per capita electricity consumption has been flat, while consumption in other states including Connecticut has increased. The commission estimates that the electric companies have been able to save power for approximately half the cost of generating power. Further information about the loading order is available at http: //www. cpuc. ca. gov/PUBLISHED/REPORT/28715. htm.

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