You asked for a summary of the distributed generation provisions of PA 05-1, June Special Session (JSS), as amended by PA 07-242. These acts provide incentives to electric company customers who install generating capacity at their facilities.

SUMMARY

PA 05-1, JSS establishes capital and operating subsidies for electric company customers who install new generating capacity at their facilities. It also provides for long-term financing of these projects. In its 2006 proceeding implementing the act, the Department of Public Utility Control (DPUC) established a capital subsidy of $ 450 per kilowatt (kw) for base load generation units and $ 200 per kw for emergency generators. Each generating facility could also receive an additional incentive of $ 50 per kw if located in southwest Connecticut and operating before June 1, 2008.

PA 07-242 extends the capital subsidies to certain generation developed before January 1, 2007 whose capacity is increased after this date. It also makes customers of municipal electric utilities eligible for the subsidies. Finally, it establishes a separate grant program for generation projects in business and state buildings that are powered by renewable resources such as solar energy and fuel cells. Implementation of this program will require the issuance of state bonds.

Recently, DPUC has issued a draft decision suspending the capital subsidy program for emergency generators and has announced that it will no longer accept applications for this program. The draft decision does not affect grants for emergency generators that have already been approved and does not affect the program as it applies to baseload generating facilities that are used to meet peak demand in the summer and winter.

As of September 2007, DPUC has received 236 capital grant applications and approved grants for approximately 281 megawatts of generating capacity (a typical power plant has a capacity of 500 megawatts).

PA 05-1, JSS

A major rationale for this act was the prospect of very significant charges being added to electric bills by the Federal Energy Regulatory Commission as result of a congestion of the state's transmission system and a shortage of generating capacity relative to demand. (While the charges turned out to be smaller than anticipated, they account for approximately 15% of an average residential customer's total bill. )

The act establishes several incentives to encourage the creation of new generation, particularly in the southwestern third of the state where the congestion is most severe.

The act requires DPUC to establish a program to provide one-time capital subsidies to customers who install “customer side distributed generation” on or after January 1, 2007. This generation can come from such technologies as fuel cells, photovoltaic systems, or small wind turbines as well as fossil-fuel technologies. In practice, many of the participating customers have installed emergency generators. As described below, DPUC has recently suspended this component of the program. The suspension does not affect customers who install generation that runs routinely.

The subsidy ranges from $ 200 to $ 500 per kw of generating capacity. The maximum facility size is 65 megawatts A customer can only receive the subsidy if the project reduces the congestion charges more than the award, and no customer can receive more than one award. The size of the award depends on the reduction of the charges. DPUC had to conduct a contested case (a quasi-judicial proceeding) to establish additional standards for the amount of the subsidies and criteria and procedures for awarding subsidies and their size.

In addition, the act provides operating subsidies for customers who install generation. The act requires electric companies to institute programs to rebate participating customers who use natural gas to generate power for the customer's gas delivery charges. The act also exempts the generation from electric company backup charges if the generating capacity is less than the customer's peak load and is available to the system during peak periods. The cost of all of these incentives is recovered by the electric companies from the congestion charge on electric bills.

Finally, the act requires DPUC to select one or more entities other than electric companies to provide long-term financing for the capital and other costs of this generation. DPUC must implement a mechanism that reduces the interest rate for people receiving this financing to no more than the prime rate. Each selected entity must give preference to financing projects that maximize reductions in congestion charges.

In implementing the act in 2006, DPUC established a capital subsidy of $ 450/kw for base load generation units and $ 200 for emergency generators. Each generating facility could also receive an additional incentive of $ 50/kw if located in southwest Connecticut and operating before June 1, 2008. Base load units must operate at an 85% capacity factor Monday through Friday from 12 noon until 8 p. m. during the months of January and February and June through September (when demand for power is at its peak). DPUC modified the times when the facility must operate in a subsequent decision. The current times are 1 p. m. to 5 p. m. on non-holiday week days in June, July and August and 5 p. m. to 7 p. m. on non-holiday weekdays in December and January.

PA 07-242

This act extends the capital incentives to generation developed in the state before January 1, 2007 if the generation:

1. underwent upgrades that (a) increased its thermal efficiency operating level by at least 10 percentage points or (b) for resources that have thermal efficiency of at least 70%, increased the heat rate by at least five percentage points;

2. increased its electrical output by at least ten percentage points;

3. operates at a thermal efficiency level of at least 50%; and

4. added electric capacity in the state on or after January 1, 2007.

The act also makes customers of municipal electric utilities eligible for the incentives. It entitles municipal utilities in southwest Connecticut (Norwalk and Wallingford) to awards of at least $ 200 per kilowatt by January 1, 2008.

In addition, PA 07-242 requires DPUC, in consultation with the Office of Policy and Management and the Clean Energy Fund advisory committee, to establish, by October 1, 2007, a grant program for distributed generation projects in business and state buildings that are powered by renewable resources such as solar energy and fuel cells. It requires DPUC to award grants of up to $ 25 million each for fuel cell and other projects. The act apparently authorizes $ 50 million in bonding for this program. Implementation of the program will require the issuance of bonds.

Finally, the act requires DPUC and the Department of Environmental Protection to take steps to allow emergency generators to run more often as a means of reducing congestion charges.

RECENT DPUC DECISION

On March 13, 2007, DPUC reopened the 2006 proceeding which implemented the distributed generation provisions of PA 05-1, JSS (docket no. 05-07-17) to address issues relating to eligibility for grants, among other things. On July 13, 2007, the Office of Consumer Counsel filed an emergency motion to stay approvals for capital subsidies for emergency generators. On July 25, 2007, DPUC ordered a temporary suspension of the emergency generation grant award program to determine whether the projected reduction in congestion charges attributed to projects in this program is greater than the amount of the projected awards.

On September 7, 2007, DPUC issued a draft decision (docket no. 05-07-17RE01) on these matters. In this decision, DPUC reviews and modifies the capital subsidy program and concludes that the capital grants for emergency generation are not cost-effective. DPUC terminates the emergency generation grant program as of July 25, 2007 and will accept no applications for the emergency generation grant award program. But, DPUC will review and process the pending emergency generator grant applications that were filed before July 26, 2007. Moreover, the base load capital grants will continue at the current levels. DPUC states that it will periodically review the cost effectiveness of the capital grant programs.

KM: ts