Topic:
CONNECTICUT SITING COUNCIL; ELECTRIC UTILITIES - RESTRUCTURING; ELECTRIC UTILITIES; ENVIRONMENTAL PROTECTION DEPARTMENT; LEGISLATION; POWER PLANTS; PUBLIC UTILITY RATES; WOOD;
Location:
POWER PLANTS; UTILITIES - RATES;

OLR Research Report


October 2, 2008

 

2008-R-0557

NON-UTILITY POWER PLANTS

By: Kevin E. McCarthy, Principal Analyst

You asked for a discussion of federal and state agency jurisdiction over power plants owned by non-utilities. You also wanted to know (1) whether federal or state law require that such plants undergo a cost-benefit or similar analysis before they can be built, (2) whether Connecticut could require such an analysis, and (3) how a proposed wood-fueled plant in Plainville could affect Connecticut electric ratepayers.

SUMMARY

The Federal Energy Regulatory Commission (FERC) has exclusive jurisdiction over the economic regulation of power plants owned by non-utilities. Federal and state environmental agencies share jurisdiction of the environmental regulation of power plants, whether owned by utilities or non-utilities. Similarly, the Siting Council has jurisdiction over the siting of most power plants in Connecticut, whether owned by utilities or non-utilities.

Neither federal nor state law requires that non-utility plants undergo a cost-benefit or similar analysis before they can be built, and it appears that federal law could pre-empt Connecticut from imposing such a requirement.

The development of a new wood-fired power plant in the state could potentially reduce electric rates here.

JURISDICTION OVER NON-UTILITY POWER PLANTS

FERC has exclusive jurisdiction over the interstate wholesale electric market. In New England, the market is administered by a nonprofit organization called the Independent System Operator (ISO)-New England. Federal law requires that wholesale rates be “just and reasonable” and has established rules for regional wholesale markets in New England and other parts of the country to meet this requirement. These rules, which are discussed in OLR report 2008-R-0452, rely on market forces rather than cost-based regulation. The Department of Public Utility Control (DPUC) does not have direct jurisdiction over the non-utility plants that participate in this market. As discussed below, contracts between these plants and Connecticut electric companies could come before DPUC for review and approval.

Federal and state environmental agencies, notably the Environmental Protection Agency and the Department of Environmental Protection, share jurisdiction with regard to the environmental regulation of power plants. These regulations cover air and water emissions from the plants, whether they are owned by utilities or non-utilities.

In Connecticut, most power plants require a certificate from the Siting Council to be built or substantially modified. The requirement does not apply to certain small power plants, including small plants owned by non-utilities that use renewable fuel and have a capacity of one megawatt (MW) or less. One MW is the amount of power needed to serve approximately 1,000 households; conventional power plants typically have a capacity of 500 to 1,000 MW.

In deciding whether to issue a license, the Siting Council must weigh the plant's public benefit against its environmental impacts. For these purposes, a plant provides a public benefit if it is needed for the reliability of electric power in the state or for the development of competitive market for electricity. The analysis is not based on a plant's cost, and the applicant is not required to demonstrate that its proposal is the least-cost alternative for meeting the state's electric demands. OLR report 2006-R-0719 provides additional information about how the Siting Council makes its decisions.

COST BENEFIT ANALYSES

Neither federal or state law require that non-utility plants undergo a cost-benefit or similar analysis before they can be built, although ISO-New England requires all power plant developers to demonstrate that their plants will not impair the system's reliability.

It appears that federal law could pre-empt Connecticut from imposing a requirement that a non-utility plant pass a cost-benefit test. As a matter of policy, FERC has left the decision as to whether a plant should be built to the market. If a non-utility plant cannot produce power at competitive rates, its investors risk losing their investments. A state requirement that such plants pass a cost-benefit test could be seen as an attempt at state economic regulation of a market that falls under federal jurisdiction. Such an effort could be preempted by federal law, since it would be establishing barriers to companies entering the market.

IMPACT OF A NEW WOOD-BURNING PLANT ON RATES

The law partially deregulating the electric industry in Connecticut (PA 98-28) effectively required the electric companies to sell off their power plants. While subsequent legislation allows the electric companies to build a limited amount of generating capacity, all of the plants currently operating in the state are owned by non-utilities.

Prior to the passage of PA 98-28, electric company ratepayers were directly responsible for paying for DPUC-approved power plants owned by the companies. Currently, the companies instead buy all of their power from the regional wholesale market. PA 07-242 modifies the way that electric companies will procure power for their customers in the future. It requires that they meet their customers' demand for power on a least-cost basis, consistent with the state's environmental policies. Thus, the electric companies could only buy power from a new wood-burning plant if this was part of a least-cost package. DPUC would not allow the companies to purchase power from the proposed plant if the effect of this purchase would be to increase rates relative to other viable options.

One of the state's environmental policies, adopted under PA 98-28, is that electric companies obtain part of their power from renewable resources under the renewable portfolio standard (RPS). There are two classes of renewable resources, class I and class II. Wood- and other biomass-fueled plants qualify as class I or class II resources, depending on their air emissions. The electric companies could purchase power from a new wood-fueled plant to meet part of their RPS responsibilities. If they chose to buy this power when there were other, less expensive, ways of meeting the RPS, they would risk having DPUC disallow the recovery of their cost.

Another environmental policy requires the electric companies to enter into long-term contracts to purchase power from class I resources that have received funding from the state's Clean Energy Fund. These

contracts are subject to DPUC review and approval. The prices for the power sold under these contracts is capped by law (CGS 16-244c(j)), regardless of which plant is used to generate the power.

As a general rule, increasing the amount of generating capacity in the state increases the amount of power available in the wholesale market, potentially decreasing electric rates. This is true for the market as a whole, as well as the market for power that meets the RPS and long-term contract requirements of current law.

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