January 5, 2011
NEW CHARGE ON ELECTRIC BILLS
By: Kevin E. McCarthy, Principal Analyst
You asked for a description of the new charges on electric company bills arising from PA 10-179.
Starting in January 2011, Connecticut Light & Power (CL&P) customers will begin paying an “economic transition charge” on their bills pursuant to the act. The act requires the Department of Public Utility Control (DPUC) to assess the charge from January 1, 2011 through June 30, 2011 to generate approximately $40 million for the General Fund, in order to help balance the state budget in FY 11. The charge applies to all CL&P customers, whether they buy power from CL&P or from a competitive supplier. CL&P estimates that the charge will be 0.379 cents per kilowatt hour for all customers. For a typical residential customer who uses 700 kilowatt hours of power per month, the charge will be $2.65 per month. The charge will not apply to United Illuminating (UI) or municipal electric utility customers.
The “economic transition charge” will be succeeded by an “economic recovery revenue bond” (ERRB) charge, which will apply to CL&P customers starting July 1, 2011 and to UI customers starting in late 2013. PA 10-179 requires each electric company to apply to DPUC for an order to fund these bonds, which they have done. The bonds will also be backed by approximately 35% of the revenue generated from the conservation charge on electric bills, which will not affect electric rates, but will reduce the amount of funding available for conservation programs.
The act authorizes the issuance of the bonds to fund a transfer to the General Fund equal to $956 million as reduced by the amount of the state's unappropriated surplus for FY 10, as determined by the state comptroller on September 1, 2010. Based on the comptroller's September 1, 2010 report, the transfer to the General Fund will be $646.6 million. Under the act, the maturity date for the bonds can be no more than eight years after they are authorized, unless a longer term is needed for economic reasons on the advice of the treasurer or other entity she authorizes to issue the bonds. The treasurer's office anticipates that it will issue the bonds in the first quarter of 2011. However, Senator Elect Joe Markley has challenged this provision of the law, claiming that the provision of the law authorizing the sale of the bonds backed by utility revenue was an unconstitutional taking. In December 2010, the Superior Court dismissed Markley's suit, but he has appealed the decision.
DPUC estimates that the EERB charge used to fund the bonds will be 0.347 cents per kilowatt hour for CL&P customers during the term of the bonds or about $2.42 per month for a typical residential customer who buys power from the company. Under the act, the EERB charge will begin to apply to UI customers once its stranded costs are paid off, which will occur on or about October 1, 2013 (CL&P's stranded costs were largely paid off as of January 1, 2011). Stranded costs are costs that the companies incurred with DPUC's approval, whose continued recovery was jeopardized by PA 02-28, which opened the electric market to competition. PA 10-179 requires DPUC to allocate the responsibility for funding the $646.6 million transfer to the General Fund and the expenses of the bonds equitably between the electric companies. It allows the charges payable by the customers of each company to begin on different dates and be at different rates. However, the rates charged UI customers must reflect the fact that they will start later than the charge imposed on CL&P customers and that UI customers will not be charged the economic transition charge. As a result, the charge for UI customers will be higher than the charge imposed on CL&P customers. The EERB charges do not apply to municipal electric utility customers.
Notwithstanding the new charges, CL&P customers will see a decline in overall rates in 2011, according to DPUC. Due primarily to a decline in the cost of wholesale power purchased by the company, the average monthly bill for a typical residential CL&P customer who buys power from the company will fall from $134.27 in 2010 to $123. 85 in 2011. A UI residential customer who buys power from the company and uses 700 kilowatt hours per month will see a smaller decline, from $167.42 to $164.94.