Topic:
ELECTRIC UTILITIES; ENERGY CONSERVATION; LEGISLATION; PUBLIC UTILITY RATES;
Location:
UTILITIES - RATES;

OLR Research Report


July 8, 2008

 

2008-R-0398

PROVISIONS OF RECENT ENERGY LEGISLATION POTENTIALLY AFFECTING RATEPAYERS

By: Kevin E. McCarthy, Principal Analyst

You asked us to identify the provisions of PA 05-1, June Special Session (An Act Concerning Energy Independence) and PA 07-242 (An Act Concerning Electricity and Energy Efficiency) whose costs will be recovered from electric ratepayers or could otherwise increase electric rates.

SUMMARY

PA 05-1, June Special Session, creates incentives for customers for installing “distributed resources” on their premises. These resources include small- and medium-size generating facilities and conservation and load management measures. The incentives include capital- and operating-cost subsidies and the provision of long-term financing. The act also provides awards to electric companies for their efforts in connection with the installation of these resources. The act entitles electric companies to recover the costs they prudently incur under the act. It specifies that most of the act's costs must be recovered through the federally-mandated congestion charge (FMCC) on electric bills.

PA 07-242 includes various measures to encourage the development of new power plants and other forms of power generation by electric companies and others. Among its ratepayer-funded provisions, the act requires the establishment of the Electric Efficiency Partnership Program to encourage the use of energy conservation and new generation technologies. It also establishes a program to reduce summer electricity consumption. The act has a number of other provisions that are funded by appropriations or bonding rather than electric rates. The act also increases the proportion of the power sold in the state that must come from renewable resources, which could increase rates, at least in the short run.

PA 05-1, JUNE SPECIAL SESSION

Table 1 lists the provisions of the act that could potentially increase rates, at least in the short term. Presumably, many of these provisions would decrease consumer spending on electricity in the longer term.

Table 1: Provisions of PA 05-1, JSS, Potentially Increasing

Electric Rates

Provision

Funding Source

(when identified)

Requires the Department of Public Utility Control (DPUC) to provide one-time capital subsidies to customers who install customer side distributed generation. The subsidy ranges from $200 to $500 per kilowatt (kw) of generating capacity and can be granted only if the project reduces FMCCs more than the award,

FMCC

Requires DPUC to provide one-time awards to the electric companies to educate, assist, and promote investments in these resources. The award is $200 per kilowatt for resources developed by January 1, 2008, $150 per kw for resources developed by January 1, 2009, $100 per kw for resources developed by January 1, 2010, and $50 per kw for resources developed thereafter

FMCC

Requires electric companies to provide rebates to their customers with natural gas customer-side distributed-resources projects for the customer's gas delivery charges from their local gas company

FMCC

Exempts new customer-side distributed resources from electric backup charges if the resource's capacity is less than peak load and the resources are available to the system during peak periods.

FMCC

Requires DPUC to select entities to provide long-term financing for the capital and other costs of customer-side distributed resources and advanced power monitoring and metering equipment. DPUC must implement a mechanism that reduces the interest rate for people receiving this financing to no more than the prime rate.

After receiving DPUC approval, the entity must enter into an agreement with an electric company to provide billing services on the entity's behalf.

FMCC

Table 1: -Continued-

Provision

Funding Source

(when identified)

Requires DPUC to conduct a request for proposals (RFP) for measures to reduce FMCCs for the period May 1, 2006 through December 31, 2010. The proposals can be for customer-side or grid-connected distributed resources; other new generation resources, including expanded and repowered generation; or contracts between a company and another party for up to 15 years to buy generation capacity rights in the area where the company is authorized to operate.

Approved customer-side distributed-resources projects are eligible for long-term financing and the natural gas and backup power subsidies described above, but not the capital subsidy.

If DPUC selects a bid from an entity other than an electric company for grid-side distributed resource or new generation facilities, the local electric company receives an award for investments needed to improve its transmission and distribution system to accommodate the facilities. For facilities that become operational by January 1, 2010, the award is $25 per kilowatt. For those that become operational by January 1, 2011, the award is $15 per kw, and for those that become operational by January 1, 2012, the award is $5 per kw. No award can be granted unless the projected reductions in FMCCs from the project are greater than the amount of the award.

FMCC

Requires DPUC to establish a program to grant awards equal to $25 per kilowatt-year to the companies for specified new conservation programs approved by DPUC that reduce FMCCs from January 1, 2006 to December 31, 2010. No award can be made unless the projected reduction in FMCC costs exceeds the award amount.

FMCC

Requires electric companies and competitive suppliers to obtain part of their requirements from savings from new conservation programs for commercial and industrial customers and specified cogeneration facilities. If a company does not meet the standard, it must pay up to 5. 5 cents for each kilowatt-hour of its shortfall.

 

Requires electric companies to implement mandatory daily time-of-use rates for large commercial and industrial customers and mandatory seasonal rates for all customers.

 

PA 07-242

This act makes many substantive changes to the state's energy laws. In addition to the provisions described below, it includes measures to encourage the development of new power plants and other forms of power generation by electric companies and others. It expands the types

of distributed resources that are eligible for the capital grants established by PA 05-1, June Special Session. The act also increases the proportion of the power sold in the state that must come from renewable resources.

Electric Efficiency Partnership Program

The act requires the Energy Conservation Management Board to establish this program. It must evaluate and approve technologies that can be deployed by electric company customers, energy management companies, and others to reduce electric demand. These technologies can include demand-side measures such as conservation and supply- side measures such as renewable generation and emergency generators that can be centrally dispatched, as well as high efficiency natural gas and oil furnaces.

Starting April 1, 2008, anyone can seek DPUC approval and funding as a partner by showing adequate financial resources, managerial ability, and technical competence. The application must describe the services and technologies that the partner will buy or provide and the amount of funding it is seeking. In evaluating the application, DPUC must consider the applicant's potential to reduce overall and peak demand. DPUC must determine how much of the cost of an approved application the customer will bear and how much will be funded by ratepayers. DPUC must ensure that approved applications achieve a two-to-one payback ratio. Starting February 1, 2010, partners can receive funding only if chosen in a request for proposals conducted by DPUC, subject to the same cost-benefit test.

DPUC can retain a consultant to help it develop the program. The costs of the program, including the consultant's costs, are recovered through the systems benefit charges on electric bills. No more than $60 million in ratepayer funds can go to this program each year.

Summer Saver Program

The act required electric companies, in calendar year 2007, to offer an electricity conservation incentive program to their customers. The program had to compare electricity use during the period from June 1, 2007 to August 31, 2007 to use in the same period in 2006 and give customers an incentive to conserve electricity in 2007. Electric companies had to issue credits to customers who successfully participate in the program, which are funded by the systems benefits charge on electric bills.

Renewable Energy

Prior law required electric companies and competitive suppliers to obtain at least 3.5% of their power from class I renewable resources such as solar and wind power in 2007, 5% in 2008, 6% in 2009, and 7% in 2010 and subsequent years under the state's renewable portfolio standard (RPS). The act increases the RPS for class I resources to 8% starting in 2011. It increases the class I RPS to 9% in 2012, 10% in 2013, 11% in 2014, 12.5% in 2015, 14% in 2016, 15.5% in 2017, 17% in 2018, 19.5% in 2019, and 20% in 2020 and thereafter.

The law requires the electric companies to enter into long-term contracts with generators of class I renewable resources. Prior law required the companies to contract for 100 megawatts. The act requires them to contract for 125 megawatts for the period October 1, 2007 to October 1, 2008 and increases this amount to 150 megawatts starting October 1, 2008.

Since renewable resources are currently more expensive than power from conventional sources, these provisions will probably increase rates in the near term.

Other Provisions

The act requires each electric company to submit a plan to DPUC to deploy a system to support advanced metering. The system must be capable of tracking hourly changes in a customer's power use to support innovative rates such as real-time pricing. Starting January 1, 2009, the act allows any customer to obtain such meters on demand. The companies must pay for the cost of the system, including the meters and supporting network, and recover the costs through their rates. They can continue to recover the costs of the existing meters through rates.

The act requires an electric company or competitive supplier to waive its demand charge for a fuel cell operator during (1) a loss of power caused by problems with the company's distribution infrastructure or (2) a scheduled or unscheduled shutdown of the fuel cell that occurs during off-peak hours. The amount waived is limited to the charge incurred during the shutdown or as a result of the problem. Presumably the foregone revenue will be recovered from other ratepayers.

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