You asked how PA 07-242 affects electric companies vis-à-vis merchant (non-utility) generators, particularly with regard to the construction of power plants.

SUMMARY

The act has similar, but not identical, provisions affecting electric companies and merchant generators with regard to power plants. It requires the electric companies to submit proposals in January 2008 to the Department of Public Utility Control (DPUC) to build power plants to meet peak demand. It allows merchant generators to submit such proposals. All proposals are subject to DPUC's review and approval. Any plant approved by DPUC would have to operate on a cost-of-service basis. This means that the rates charged for the power produced by the plants would be based on the costs of owning and operating the plant, rather than the rates set in the wholesale market, as is currently the case.

The act requires the electric companies to develop plans to procure the resources needed to meet projected demand. The plans must emphasize conservation and other demand side resources. If the plan calls for new power plants, an electric company may submit proposals on the same basis as other respondents. If DPUC selects an electric company proposal, the company can recover its costs on a cost of service basis. If DPUC selects a proposal by a merchant generator or other non-utility party, DPUC must determine how its costs will be recovered.

The act requires DPUC, starting January 1, 2008, to order that each power plant with a rating of 65 megawatts or more, other than peaking plants, have the capacity to burn either oil or gas on 48 hours notice if it is (1) currently fueled by one of these fuels and (2) owned by, or under contract to, an electric company. The act allows DPUC to waive this requirement if it determines that it is in consumers' interest.

The act has many other provisions that affect electric companies. These include modifying how electric companies will procure power for their customers, increasing the proportion of this power that must come from renewable resources, and requiring electric companies to offer their customers an electricity conservation incentive program in summer 2007, among other things.

GENERATION

Peaking Plants

The act requires the electric companies to submit a plan to DPUC between January 1 and February 1, 2008, to build peaking generation plants. The companies can submit a joint plan. Other entities can submit such plans during this period. An electric company's plan (but not that of a merchant generator) must (1) include the full projected costs of the plants and (2) demonstrate that the plan will not be subsidized by the companies' affiliates. DPUC must require the companies to submit additional information if it determines that this is in the public interest, and can require the companies to modify their plans to protect customers' interests.

DPUC must review the plans in a contested case and can retain a consultant to help it determine whether the plan's costs are good faith estimates. Within 120 days of receiving the plan, DPUC must approve it unless DPUC determines that it is not in customers' interests. Any approved plan must include a requirement that the applicant be compensated at the plant's cost of service plus a reasonable rate of return. The applicant must also agree to run the plant at such times and at such capacity to reduce overall rates.

If selected, the applicant can only recover the just and reasonable costs of building the plant. The recovery of costs would be set in an annual contested case. The applicants are entitled to recover their prudently incurred costs, including capital and operating expenses, fuel, taxes, and a reasonable return on equity. DPUC must review the cost recovery using existing rate-making principles. The return on equity must be updated at least once every four years. The selected firm must bid the plant into the regional wholesale electric market in accordance with guidelines set by DPUC annually.

Meeting Long-term Power Needs

The act requires the electric companies to annually assess their customers' energy requirements for the next three, five, and 10 years. The companies must then review the assessment and develop a comprehensive plan for procuring energy resources. The plan must include a wide range of resources, including energy efficiency, conventional and renewable generating resources, combined heat and power (cogeneration), and emerging energy technologies. The plan's goal is to minimize the cost of these resources and maximize customer benefit consistent with the state's environmental policies.

Under the act, resource needs must first be met through all available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible. The procurement plan must specify, among other things, to what extent measures such as conservation programs can cost-effectively meet these needs and the remaining need for new power plants and other generating capacity. The plan must consider the types and locations of generation that would optimize the state's generation mix. The first plan must be prepared by January 1, 2008. The plans are subject to DPUC approval.

If the plan specifies that a generating plant should be built, DPUC must issue a request for proposals (RFP). An electric company may submit proposals in response to the RFP on the same basis as other respondents. An electric company proposal must include its full projected costs and demonstrate that it is not being subsidized from the company's affiliates.

If DPUC approves an electric company proposal, the company cannot recover more than the costs the proposed identifies. Its costs and revenues do not count in determining whether the company is exceeding its authorized rate of return or whether its rates are just and reasonable. If DPUC selects a proposal from a non-utility, the affected electric company must negotiate in good faith with the RFP winner and submit a contract to DPUC for its approval within 30 days of DPUC's selection. DPUC must determine how the costs of selected proposals will be recovered.

Under the act, if any existing power plant in the state is offered for sale, DPUC must authorize the electric companies to buy and operate the plant if it determines that this is in the public interest.

OTHER PROVISIONS AFFECTING ELECTRIC COMPANIES

The act has many provisions that affect electric companies. These include:

1. modifying how electric companies procure power for the services they provide to customers who do not choose competitive suppliers;

2. increasing the proportion of this power that must come from renewable resources;

3. increasing the amount of such resources the companies must procure under long-term contracts;

4. requiring the Energy Conservation Management Board to evaluate and approve technologies that can be deployed by “Connecticut electric efficiency partners” (including electric company customers and energy management companies) to reduce electric demand, with the funding coming from electric rates;

5. requiring electric companies to offer an electricity conservation incentive program in summer 2007 to their customers;

6. broadening the law's “net metering” provisions, under which electric companies effectively run the meter backwards when a customer produces power using certain renewable resources;

7. extending, from April 15 to May 1, the end date of the annual winter moratorium, during which electric utilities cannot terminate service to hardship customers who cannot pay their utility bills;

8. requiring each electric company to submit a plan to DPUC by July 1, 2007, to deploy a system to support advanced metering;

9. requiring DPUC, in rate cases that begin after the act's passage, to order electric companies to decouple their distribution revenues from the volume of sales.

The act also has several provisions encouraging retail competition, including requirements that the electric companies (1) provide information to their residential and small commercial customers, upon request, about introductory offers from competitive suppliers; and (2) offer to bill customers on behalf of suppliers. It also allows suppliers to provide information about their introductory offers in electric company bills once per quarter.

In recent years, the legislature has diverted part of the revenue that would have otherwise gone into the electric companies' conservation funds and the state's Clean Energy Fund to the General Fund. PA 07-242 restores this funding ($ 95 million). The governor vetoed this provision of the act, but most of the funding ($ 85 million) was restored in the budget that the governor signed.

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