You asked for a discussion of legislative options to promote energy efficiency in condominium developments. You were specifically interested in options for developments that contain all-electric units that are not served by natural gas pipelines.

SUMMARY

There are a variety of ways the legislature could promote energy efficiency in condominium developments, particularly those with all-electric units. It could expand the replacement furnace rebate program to include electric heating equipment, authorize or require conservation programs that promote fuel switching when this reduces energy consumption and expenditures, modify current policy on gas pipeline extensions, broaden the powers of energy improvement districts, and authorize special districts or municipalities to finance pipeline extensions using property tax revenues. The legislature could also revise the condominium laws to encourage energy efficiency.

INTRODUCTION

As discussed in OLR report 2009-R-0364, a wide range of energy efficiency programs are available to condominium owners. But, condominium owners can face barriers to improving their units' energy efficiency and lowering their energy costs that homeowners do not. For example, replacing windows with more energy efficient ones often requires the approval of the condominium association. In addition, in some areas condominium owners do not have the option of switching fuels, e. g. , developments may not have room for oil tanks or installing tanks may raise liability issues that the association is unwilling to take on.

Conventional electric heating systems generally have a lower initial cost than comparable oil or gas units, but their operating costs are often much higher. While electric heating systems themselves are quite energy-efficient, approximately two-thirds of the energy contained in fuels such as natural gas that are used to generate electricity is wasted in the process of generating electricity and distributing it to final consumers. As a result, the cost of using electricity to heat a condominium can be more than twice as expensive as using gas, oil, or other fuels.

OPTIONS

Furnace Rebate Program

Pursuant to CGS Sec. 16a-46a, the Office of Policy and Management administers a program that provides a rebate of up to $ 500 for residential customers who replace their heating equipment with an energy efficient furnace or boiler. Under current law, the program does not pay for electric equipment, even if it is more efficient than the customer's current equipment. The legislature could expand the program to cover energy efficient electric heating equipment, although it should be noted that funding for this program is quite limited. Further information about the current program is available at www. ct. gov/opm/cwp/view. asp?a=2994&q=420476&opmNav_GID=1808.

Conservation Programs and Fuel Switching

Historically, the legislature and the Department of Public Utility Control (DPUC) have not sought to promote energy efficiency by encouraging customers to switch the fuels they use. However, as noted above, electric heating is generally less energy efficient than using other fuels for heating. Conversely, there are situations where using electricity is more energy efficient than using other fuels.

The legislature could direct electric and gas companies to propose conservation plans that minimize energy use and total consumer costs, even if this involves fuel switching. By law, the conservation plans are subject to DPUC approval.

Under CGS § 16-19e, utilities are allowed to charge rates that allow them to recover their prudently incurred costs. If conservation programs decrease an electric or gas company's revenues through fuel switching to a point that threatens recovery of these costs, the legislature or DPUC would need to address this issue through a rate mechanism that decouples rates and company revenues or by other means.

Gas Line Extension Policy

Under current DPUC policy, gas companies can only extend pipelines if this can be done without a subsidy from existing gas company ratepayers. If the projected sales from the area to be served would not cover the cost of the extension, the customers who would benefit from the extension must make a Contribution in Aid of Construction (CIAC) to make up the difference. Under current practice the CIAC, which can be $ 1 million or more for even short extensions, must be paid in a lump sum.

The legislature could direct DPUC to develop alternative methods to finance such extensions while maintaining the ban on subsidies. For example, it could require DPUC to permit gas companies to finance the shortfall in the construction costs over the economic life of the extension. The company would be allowed to earn a rate of return on its investment in the extension (as is the case for utility investments generally) but these costs would only be recovered from the customers who are served by the extension, rather than by all of the company's ratepayers. A similar approach is widely used under current law to finance sewer line extensions, where the benefitted customers pay a special assessment.

Under current practice, DPUC's analysis of the economics of a proposed extension only considers gas company ratepayers. The legislature could direct DPUC to consider the benefits that an extension may provide to other residents of the state. For example, shifting electric heating demand to other fuels can reduce peak electric demand in the winter thereby lowering costs. Approximately 40% of the electricity used in New England is generated by natural gas, and reducing winter electric demand can improve natural gas supply. Finally, reducing peak electric demand in the winter can have air quality and greenhouse gas benefits.

Energy Improvement Districts

CGS § 32-80a et seq. allows a municipality, by a vote of its legislative body, to establish energy improvement districts and prescribes how they can be formed. It specifies the powers of such districts, which include developing and operating distributed resources (small power plants and electric conservation programs). It requires the district to develop a plan for financing and developing these resources.

The law gives the districts a variety of powers, including operating distributed resources and charging fees for its projects. The district boards can issue revenue bonds, which are subject to standard provisions regarding bond issuance, revenue guarantees to back the bonds, trust indentures, and other bondholder rights. Districts are tax-exempt but can make payments in lieu of property taxes.

The law gives municipalities a wide range of powers to aid districts, including guaranteeing a district's bonds, issuing general obligation bonds to support the district, and appropriating funds for the district's use. Several municipalities have investigated establishing such districts, although none are currently operating.

The legislature could expand the options open to these districts by allowing them to implement conservation programs for gas and oil customers. It could also allow the district to fund the CIAC for a gas pipeline extension if this will reduce energy consumption.

Using Property Taxes for Fund Pipeline Expansions

As noted above, extending gas pipelines to enable customers to switch fuels can increase energy efficiency and reduce energy costs in certain circumstances. The legislature could amend CGS § 7-326 to authorize special districts to fund pipeline extensions and take other steps to improve energy efficiency. The district could be coterminus with a condominium development. Among other things, the district could issue bonds backed by the district property tax that could fund the CIAC.

Alternatively, the legislature could authorize a municipality to fund such initiatives on its own. This might make sense when a pipeline extension would benefit a large part of the municipality or would promote economic development.

Amending the Condominium Law

As noted above, condominium bylaws may discourage energy efficiency. The legislature could bar condominium associations from unreasonably refusing to allow unit owners from making efficiency improvements to their units when they pay the full cost of the improvement. Alternatively, the legislature could authorize condominium associations to undertake energy efficiency improvements, notwithstanding their existing bylaw. However, both approaches may raise Contracts Clause issues with regard to existing condominium developments.

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