AN ACT CONCERNING CONNECTICUT'S ENERGY FUTURE.

Inflows were less than outflows, because collections are based on actual kilowatt sales, which were less than projected.

Section 9 requires the Connecticut Siting Council (CSC) to initiate a contested case to investigate energy security. It is anticipated that outside consultants could cost CSC $50,000-$100,000 for outside consultants.

Sections 11-12 requires that new state facilities costing $5 million or more must comply with energy efficiency building standards adopted by the Office of Policy and Management (OPM), per PA 06-187. This bill increases the standards and extends them to renovation projects at state facilities and state-funded school and housing projects costing $2. 0 million or more. It also requires the Institute for Sustainable Energy rather than OPM to determine whether the cost of compliance significantly outweighs the benefits. It is anticipated that any additional construction costs associated with the energy efficiency building standards will only be incurred in cases where the operational savings exceed the cost, over the life of the building.

These provisions are expected to have potentially significant impacts on the operating budgets and debt service accounts of both the General Fund and Transportation Fund. Since building construction is financed with bond funds, any increase in construction costs would result in an increase in General Fund or Transportation Fund debt service costs. Under the provisions of PA 06-187, the up-front cost to design and construct a building to a "silver rating" was minimal and was not expected to significantly increase the cost and resulting debt service cost related to capital project bonding. This bill sets the state standard higher by requiring that the building additionally meet energy standards that surpass by 20% the standards set by the American Society of Heating, Ventilation and Air Conditioning Engineers (ASHRAE²), which may increase building costs significantly.

The additional construction costs could be offset by savings in the operations of the new buildings over their lifetime, especially in heating and ventilation costs. These savings are estimated by industry sources to be up to 30% of annual utility costs. Any General Fund operating budget savings would be achieved through the Department of Public Works, the Judicial Department, the University of Connecticut and any agency with care and control if its buildings. Any Transportation Fund operating budget savings would be achieved through the Department of Transportation and the Department of Motor Vehicles.

The bill increases by 2% the grant-in-aid reimbursement rate³ for school construction projects subject to the green buildings requirements, which could significantly increase the state's costs for these projects. Since school construction projects are financed with General Fund bond funds, any increase in construction costs would result in an increase in General Fund debt service costs. It should be noted that the operating cost savings for these buildings would accrue to the municipalities.

Sections 13-18 make OPM, rather than DPUC, responsible for implementing and revising energy efficiency standards for a variety of equipment. It is anticipated that OPM will require two additional staff members with annual salaries totaling $120,000⁴ and associated other expenses of $2,500 annually.

Sections 16 and 18 require the Department of Administrative Services (DAS) and other purchasing agencies to buy appliances and equipment that meet or exceed federal Energy Star standards. Purchasing certain appliances and equipment that meet or exceed federal Energy Star standards will be more costly than appliances and equipment currently purchased by the state. The new requirement will result in increased costs to DAS and various state agencies.

Section 21 of the bill allows municipalities to exempt hybrid motor vehicles and vehicles that with fuel efficiencies of at least 40 miles per gallon from the property tax. Municipalities electing to exempt these vehicles from the property tax will experience a loss to their net grand list (assessed value less exemptions permitted under state law) and will likely necessitate an increase in a municipality's mill rate to offset the loss of taxable property.

Section 22 of this bill establishes a sales tax exemption for vehicles with fuel efficiencies of at least 40 miles per gallon from 1/1/08 to 7/1/10. This is anticipated to result in a General fund revenue loss of up to $1 million in FY 08 and up to $2 million⁵ in FY 09 and FY 10.

Sections 26-32 permit Energy Improvement District Boards to issue bonds. This has no state fiscal impact because the section specifies that these bonds are not obligations of the state.

The bonding provisions create a liability for any town that chooses to guarantee such bonds. If the revenues intended to pay debt service on the bonds are insufficient to cover the liability, the guarantee requires that the town appropriate sufficient funds to cover the shortfall. This would require the town to either reduce funding for its own budget or increase revenue collected from taxes. The language specifies that the guaranteed bonds would not count toward a municipality's debt cap so towns choosing to provide a guarantee for these bonds will not be limited in their ability to issue bonds for other purposes.

The bill increases energy efficiency standards and extends them to renovation projects at school construction and housing projects costing $2. 0 million or more when state funds are used. The Institute for Sustainable Energy would be able to exempt any buildings when the cost of compliance significantly outweighs the benefits. Therefore, the increases in construction costs for towns would be offset by: (1) the 2% increase in the state reimbursement rate for school construction projects, and (2) potentially significant savings in the operating costs of these buildings over their lifetime. It is a state mandate since it would increase capital construction costs.

Section 41 expands the potential use of the Renewable Energy Investment Fund (Fund). The approximate monthly rate payer contributions to the Fund are $1. 9 million and the unrestricted net asset balance as of 2/28/7 is $81. 7 million.

Section 48 results in a potential increase in the administrative workload of the Department of Environmental Protection (DEP) incurred from entering into a lease agreement with a private entity for hydroelectricity. This is anticipated to be minimal and can be handled within existing resources. Any potential revenue gain to the state would depend upon the parameters of the lease agreements and is anticipated to be minimal.

Section 50 of the bill requires, rather than allows, municipalities to exempt class I renewable resources and hydropower facilities from the property tax. It also requires them to exempt solar water or space heating systems and geothermal energy resources from the tax. Municipalities will experience a loss to their net grand list (assessed value less exemptions permitted under state law) as a result of having to exempt this property and will likely necessitate an increase in a municipality's mill rate to offset the loss of taxable property.

Section 55 requires electric companies to develop a triennial comprehensive plan for procurement of energy resources. In order for DPUC to perform energy resource planning required in this section, and review the proposed resource plan submitted by the utility companies, the agency would require additional staff resources totaling approximately $235,000 in FY 08 and $242,000 in FY 09, including fringe benefits. This funding is anticipated for an Engineer and two Energy Planners.

Sections 57-59 require DPUC to issue new RFP's based on results of the integrated resources plan, consider the plan in an uncontested docket, and implement the plan. If suitable proposals are not received by DPUC from utility companies, DPUC must conduct a needs assessment as a contested case and may issue a new RFP to electric companies. In order to accomplish these tasks, DPUC would require an additional Attorney, Utilities Examiner, a Lead Rate Specialist, and an Engineer totaling about $504,000 in FY 08, and $519,442 in FY 09, including fringe benefits. Outside consultants may also be required by DPUC to implement provisions in these sections. These consultants would total approximately $200,000-$300,000 annually, the cost of which would be borne by ratepayers. The extent to which this additional cost may affect the state and municipalities as ratepayers, cannot be determined at this time.

Section 60 funds natural gas conservation programs with up to $10 million in revenue from the public service companies' tax that is in excess of the amount approved by the Finance, Revenue, and Bonding Committee in support of the state budget. This could result in a General Fund revenue loss of up $10 million per year.

Sections 64 and 65 require the Department of Environmental Protection (DEP) to issue a final decision on certain permits no later than 120 days following submission of an application within air program resources and to the extent that a hearing is not requested, and enter into a memorandum of understanding. Both of these duties can be performed within existing agency resources.

Section 66 results in a cost to the Department of Transportation (DOT) and is anticipated to be in excess of $1 million. PA 05-210 eliminated DOT's cost sharing requirements when electric transmission and trunkline facilities had to be relocated in highway rights-of-way. This section of the bill limits these changes to facilities owned by an electric distribution company. Therefore, DOT will incur significant costs, in excess of $1 million, to relocate a transmission line that is not owned by electric distribution companies but rather owned by a power generator, municipality or other entity.

Currently, a portion of a 345-kilovolt transmission line is being constructed within the state right-of-way. Construction costs are in the range of $2 million to $4 million per 1,500 foot section. Any relocation required due to improvement of the transportation system in the future would cost at least the same amount. Relocation of one mile of the transmission line could potentially cost over $10 million.

Section 73 funds fuel oil conservation programs with the increase in revenue from the petroleum products gross receipts tax above 2006 revenue, subject to a $10 million annual cap. This is anticipated to result in a General Fund revenue loss of $10 million per year beginning in FY 08 because current projections for this tax far exceed 2006 collections.

Section 78 requires the Department of Social Services (DSS) to (a) maintain basic and contingency heating assistance program benefits under the Connecticut Energy Assistance Program (CEAP) at 2006/2007 levels during the 2007/2008 heating season; (b) increase the number of households weatherized pursuant to CEAP; and (c) increase the number of households receiving home heating equipment tune-ups and home energy efficiency measures pursuant to the HEARTH program⁶.

The ability of the agency to comply with Section 19's provisions without needing to expend state dollars during 2008 will depend upon (a) the amount of federal dollars received by Connecticut in FFY 08; (b) whether CEAP enrollment is restricted or open, and (c) the number of households weatherized, and receiving heating tune-ups/other home energy efficiency measures.

CEAP is funded with federal Low Income Home Energy Assistance Program (LIHEAP) dollars. To date, a total of approximately $60. 1 million has been made available to support the state's 2006/2007 plan. Additional federal dollars may be received if the President releases previously authorized contingency funding, and/or if supplemental FFY 07 appropriations bills are passed.

Original estimates indicated that the 2006/2007 CEAP plan would result in program costs of approximately $64. 3 million ($4. 2 million more than currently available funding). If no additional federal funding is forthcoming, the DSS may incur unbudgeted state costs in 2007. (While the Commissioner of Social Services has the discretion to limit program enrollment to operate within available funding, he does not intend to close enrollment this year. ) The President's FY 08 proposed LIHEAP budget includes an estimated $30. 8 million for Connecticut. Final federal appropriations will likely not be known until Fall 2007.

The CEAP plan has traditionally included moneys (usually $0. 5 or $1. 0 million annually) for emergency heating system repairs/replacement for heating systems determined to be unsafe or inoperable. It is assumed that comparable funding would be proposed within the 2007/2008 plan, and would meet Section's 19 requirement that the agency increase the number of households receiving home heating equipment tune-ups and home energy efficiency measures. CEAP eligible households have also historically been allowed to use a portion of their basic or crisis benefits to cover the cost of a clean, tune and test of their deliverable fuel heating system.

However, the state has not historically utilized LIHEAP dollars for household weatherization activities. Estimated average costs per household of $3,000 would be incurred. The ability of the agency to support these costs within available LIHEAP funding will depend upon the number of households receiving these weatherization services (not specified in the bill), and overall available program funding, as discussed above.

Section 79 expands the types of fuel that can be purchased under CEAP to any deliverable fuel (currently number two home heating oil), and requires DSS to utilize fixed price, capped price, pre-purchase, summer-fill, or other programs that reduce the cost of fuel purchased. The extent of any resulting savings will depend upon the agency's success in utilizing these cost reduction strategies, which cannot be determined in advance.

Requiring community action agencies to accept CEAP applications no later than September 1^st annually, and report pricing information per Section 79 (c) will potentially result in significant administrative costs. Reimbursing these private agencies for their additional administrative efforts would reduce resources available for benefits and services to participating households.

Sections 81-83 exempt various energy related items from the sales tax, which is anticipated to result in a General Fund revenue loss of $21. 0 million in FY 08 and $8. 0 million in FY 09. The table below presents the loss associated with each item.

Section 85 increases the maximum credit under the Neighborhood Assistance tax credit program from 60% to 100% for a firm's investments in energy conservation projects in low income housing developments or properties occupied by charitable organizations and expands the program to include investments in energy conservation projects for other facilities owned by charitable organizations. These changes are anticipated to result in General Fund revenue loss of up $1 million beginning in FY 09.

About 90 to 100 corporations claim approximately $1. 3 million per year (the program has a cap of $5 million/yr) under the Neighborhood Assistance program.

Section 86 authorizes the issuance of $30 million in General Obligation (GO) bonds for energy conservation projects in state-owned buildings. The General Fund debt service cost to bond this amount over 20 years at a 5. 0% interest rate is $45. 8 million.

Section 87 permits CHEFA to provide financial assistance to certain organizations for: (1) energy efficient construction or renovation projects or (2) renewable energy construction or renovation projects using bonds issued by CHEFA. This has no state fiscal impact because these bonds are not obligations of the state

Section 88 and 94 reinstates the reduction in the potential maximum interest rate for loans under the Energy Conservation Loan Program from provisions in PA 05-2 Special Session, but excludes siding and replacement roofs from these rates. In addition, the bill increases the maximum loan to owners of residential properties with no more than 4 units from $15,000 to $25,000. The change in the maximum loan is anticipated to have a very minimal impact on the number of loans closed in a year and have no impact on costs to the state. The Connecticut Housing Investment Fund Inc. (CHIF) has the contract to administer the Energy Conservation Loan (ECL) program for the Department of Economic and Community Development (DECD). The ECL revolving loan fund has an estimated balance of $4. 9 million and the current unallocated General Obligation (GO) bond balance for the ECLF is $5 million as of 3/23/07. The administrative costs will be handled through program funds.

Sections 89-90 bar certain municipalities from condemning or restricting the operation of any existing energy facility that DPUC has determined to be a critical component of the state's power structure under certain circumstances. The extent to which any particular municipality and state electric rates could be affected by this change is unknown at this time.

Sections 92 and 93 provide $95 million from the General Fund in FY 07 to defease⁸ state rate reduction bonds that mature after 12/30/07. The $95 million will be deposited into an irrevocable trust account where it will be invested and accumulate interest. The funds in this account will be used to pay the debt service due on the bonds at their maturity date (column c in table below).

No fiscal impact to State Treasurer's Office to do bond defeasance.

Section 95 authorizes the issuance of $30 million in General Obligation (GO) bonds for renewable energy projects in state-owned buildings through the Renewable Energy Investment Fund. The General Fund debt service cost to bond this amount over 20 years at a 5. 0% interest rate is $45. 8 million. The Connecticut Innovations Inc. (CII) would need ½ of a full time employee plus fringe benefits and associated other expenses at a cost of approximately $100,000 in FY 2008 to administer the renewable energy projects in state building program. It is anticipated that these costs would come from CII's operating funds.

Sections 96 and 99 direct Operation Fuel to establishes a one-time clean slate program to target low income people with high arrearages of more than 24 months and less than $1,000, and provide grants based on income and arrearage amount. The bill appropriates $2. 5 million in FY 07 to the Office of Policy and Management to implement the Clean Slate Program.

Sections 97 and 99 makes changes to the Operation Fuel program, and appropriates $1. 75 million to the OPM to expand Operation Fuel, Incorporated and appropriates $750,000 to OPM for Operation Fuel, Incorporated's infrastructure, technology support, and case management services.

Section 98 requires that any car or light duty truck purchased by the state after January 1, 2008 have an efficiency rating in the top third of its class, and 50% of such cars and light duty trucks must be alternative fueled, hybrid electric or plug-in electric vehicles. As the state meets the federal requirement that 75% of cars and light duty trucks purchased must be alternative fueled, this provision has no fiscal impact.

Requiring that cars and light duty trucks purchased after January 1, 2008 must have an efficiency rating in the top third of all vehicles in its class could conflict with federal law requiring the purchase of alternative fueled vehicles (which are not always “efficient” as that term is defined in the industry). Non-compliance with federal law could subject the state to the risk of fines and penalties.

The bill also requires that cars and light duty trucks purchased by the state after January 1, 2010 must have an efficiency rating in the top third of its class, and 100% of such cars and light duty trucks must be alternative fueled, hybrid electric or plug-in electric vehicles. There will be increased costs in FY 10 for the state to purchase cars and light duty trucks that are 100% alternative fueled, hybrid electric or plug-in electric.

The Out Years

Except as otherwise described above, the annualized ongoing fiscal impact identified above would continue into the future subject to inflation. In addition, the future effect on the state and municipalities as electric ratepayers is uncertain and cannot be determined at this time.

² The standards are contained in the 2004 edition of the ASHRAE standard 90. 1.

³ The state normally provides between 20% and 80% of the construction cost for school building projects and magnet schools receive 95% reimbursement.

⁴ The fringe benefit costs for state employees are budgeted centrally in the Miscellaneous Accounts administered by the Comptroller. The estimated first year fringe benefit rate for a new employee as a percentage of average salary is 25. 8%, effective July 1, 2006. The first year fringe benefit costs for new positions do not include pension costs. The state's pension contribution is based upon the prior year's certification by the actuary for the State Employees Retirement System (SERS). The SERS 2006-07 fringe benefit rate is 34. 4%, which when combined with the non pension fringe benefit rate totals 60. 2%.

⁵ According to fueleconomy. com there are four 2007 models with fuel efficiencies of at least 40 miles per gallon: (1) the Honda Civic (automatic 5-speed), (2) the Toyota Yaris (manual 5-speed), (3) the Toyota Corolla (manual 5-speed), and (4) the Mini Cooper (manual, 6 speed). Therefore, the estimates assume only a small number of overall new vehicles sales will be affected.

⁶ The Office of Policy and Management was authorized to operate the HEARTH program during FY 06. DSS expended $205,744 for HEARTH benefits for CEAP households in that year. The program was not authorized in FY 07.

⁷ This estimate includes refrigerators, cloths washers, air conditioners, and dishwashers.

Utility Company	Inflows($)	Outflows($)
CT Light & Power, Inc.	55. 5 million	55. 9 million
United Illuminating, Inc	13. 1 million	15. 1 million
Total	68. 6 million	71. 0 million

Item	FY 08	FY 09

Solar energy, geothermal, and ice storage systems	$500,000	$700,000
Weatherization products, including compact fluorescent light bulbs	7,500,000	7,500,000
Household appliances⁷ that meet the federal Energy Star standard	13,000,000	-

Total	$21,000,000	$8,000,000


Special Obligation Rate Reduction Bonds Outstanding after 12/30/07
($ millions)
Maturity Date	Principal	Interest	Total Debt Service
	a	b	a+b
06/30/08	14. 7	2. 7	17. 4
12/30/08	15. 1	2. 4	17. 4
06/30/09	15. 5	2. 0	17. 4
12/30/09	15. 8	1. 6	17. 4
06/30/10	16. 2	1. 2	17. 4
12/30/10	16. 6	0. 8	17. 4
06/30/11	17. 0	0. 4	17. 4
Total	111. 0	11. 1	122. 1