OLR Bill Analysis

sHB 6510

AN ACT ESTABLISHING A PUBLIC POWER AUTHORITY.

SUMMARY:

This bill creates the Connecticut Electric Authority as a quasi-public agency and specifies its purposes, which include increasing the state's energy independence by promoting conservation and efficiency and minimizing the costs of electric services to state consumers. The authority is governed by a seven-member board whose members are appointed by the governor and legislative leaders.

The bill allows the authority to contract with electricity generators to buy power for standard service. (Electric companies must provide this service to small and medium customers who do not choose a competitive supplier). The contracts are subject to Department of Public Utility Control (DPUC) approval. It also allows the authority to own and operate power plants and to serve as “builder of last resort” under certain circumstances. It allows the authority to hire staff, participate in federal proceedings, and to retain outside counsel for these proceedings.

The bill has several provisions to avoid conflicts of interest between authority members and employees and the electric industry. These generally mirror conflict of interest provisions that apply to DPUC. The bill subjects the authority's members and employees to the State Ethics Code and applies the code of ethics for lobbyists to the authority.

The bill allows the authority to issue revenue bonds with terms of up to 40 years and use their proceeds for its purposes. The authority can issue bonds that are subject to federal taxes. The bonds are not state or municipal obligations and must state this on their face. The bonds are subject to standard statutory provisions as to how they can be issued and repaid, bondholder protections, and who can invest in them. The bill imposes various duties on the state treasurer as the authority's agent in handling the authority's funds.

The bill allows the authority to establish special capital reserve funds (SCRFs) to back the bonds. Generally these bonds can be used only for electric generation projects. The bill caps the maximum amount of bonds that can be backed by SCRFs at $ 450 million. SCRF-backed bonds are a contingent liability or potential financial responsibility of the state that may become a real financial responsibility if the authority fails to pay the debt service for SCRF-backed bonds it has issued.

The bill exempts the authority and its bonds from state and local taxes, but requires lessees of the authority to make payments in lieu of taxes (PILOTs).

The bill transfers, from DPUC to the authority, the responsibility for overseeing the process by which electric companies procure power for their standard service customers. It makes a number of changes in this process. It also transfers, from DPUC to the authority, the responsibility for overseeing the development and implementation of electric company integrated resources plans, under which they meet their customers' needs through a mix of efficiency programs, power purchases, and other measures. Finally, it transfers several of the Office of Policy and Management's (OPM) energy duties to the authority.

The bill requires the authority to be consulted on a number of energy-related matters.

Under the bill, the authority is funded by the systems benefits charge, a charge on electric company bills that pays for various public policies.

EFFECTIVE DATE: October 1, 2009

PURPOSES OF THE AUTHORITY

Under the bill, the authority must:

1. increase the state's energy independence by promoting conservation and efficiency and the use of diverse indigenous and regional electric resources;

2. encourage the use of new electric technologies, particularly those that support economic development in Connecticut and promote environmental sustainability;

3. minimize costs of electric services to state consumers while maintaining reliable service;

4. discourage undue price volatility of electric service; and

5. encourage competition, when in the interests of state consumers.

The authority must act in accordance with the state's integrated resources plan, which requires electric companies to determine their customer's needs and meet them through a mixture of energy efficiency and power purchases.

BOARD OF DIRECTORS

Under the bill, the board consists of a chairperson the governor appoints and six members legislative leaders appoint, as described in Table 1. The legislature must approve the chairperson in the same way it approves a commissioner or other department head. The chairperson has a four-year term and the other members serve two-year terms coterminous with the appointing authority's term. The bill adds the chairperson to the Connecticut Energy Advisory board, which has a number of energy planning responsibilities.

Table 1: Authority Board of Directors

Appointing Authority

With experience in

Senate President Pro Tempore

Electricity regulation

House Speaker

Electricity generation

Senate majority leader

Electricity consumer issues

House majority leader

Electricity consumer issues

Senate minority leader

Electricity conservation issues

House minority leader

Electricity conservation issues

AUTHORITY POWERS

The bill allows the authority to contract with electricity generators to buy power for standard service. It also allows the authority to own and operate power plants and to serve as “builder of last resort” under certain circumstances.

Contracting with Generators

The bill allows the authority to negotiate contracts with electricity generators for power for standard service. This is the service electric companies must provide to small and medium customers who do not choose a competitive supplier. The negotiation may be tied to financing or providing other assistance to a generator to build or rebuild a generation facility. The contracts must be in ratepayers' best interests and reduce electricity costs for the affected consumers. DPUC must review the contracts and approve a contract if it determines that it meet these conditions. Upon DPUC's approval, an electric company must enter into the contract with the generator.

Builder of Last Resort

Under the bill, on or after July 1, 2010, if the authority does not receive and approve proposals submitted in response to the RFP for power for standard service that meet the “state's goal,” it must conduct a needs assessment as a contested case to identify the total amount and type of resources still needed.  It is not clear what the state's goal is in this context.

Under the bill, if the needs assessment conducted under existing law finds that there are unaddressed needs, the authority must conduct a cost/benefit analysis of it serving as the “builder of last resort” It may also issue a new RFP to electric companies to have them meet this need by building new generation or demand-response measures, subject to the same conditions as the new RFPs.  If approved, the companies would be compensated on a cost-of-service basis, i. e. , they would be allowed to recover their prudently-incurred costs, operation and maintenance expenses, depreciation, fuel costs, taxes and other governmental charges, and a reasonable rate of return on equity. The authority must review the cost recovery consistent with standard ratemaking principles. But, the return on equity associated with the project must be established in the initial proceeding and updated at least once every four years. The authority can ask the electric company submitting a proposal to submit further information that the department determines to be in the public interest, which the department may use in evaluating the proposal (presumably the “department” refers to the authority).

It is unclear how these provisions relate to section 6 of the bill, which gives the authority similar powers if it determines that the proposals submitted in response to the RFP for power for standard service do not meet the state's goal under the integrated resources plan. Section 6 gives the authority this power starting October 1, 2009, while this section applies starting July 1, 2010.

Staffing

The bill allows the authority to:

1. under the direction of its executive director, hire personnel, and adopt any policies for internal organization as necessary;

2. contract with the Connecticut Municipal Electric Energy Cooperative for administrative services.

The bill requires the authority's chairperson, with the consent of two or more of its other six members, to appoint an executive director to be the authority's chief administrative officer. The chairperson supervises the executive director, who serves a four-year term and annually receives a salary equal to the management pay plan salary group 72 the Commissioner of Administrative Services establishes.

Subject to the board's ultimate hiring authority, the executive director must require all staff to have expertise in public utility engineering and accounting, finance, economics, computers, and rate design. Subject to civil service law and within available funds in any fiscal year, the executive director may appoint a secretary and may employ the professional and clerical staff, experts, consultants, and agents as the department (presumably the authority) may require.

The executive director must (1) conduct comprehensive planning with respect to the authority's functions; (2) coordinate the authority's activities; (3) have its administrative organization examined to promote economy and efficiency; and (4) in concurrence with the chairperson, organize the authority into divisions, bureaus, or other units as the director considers necessary to efficiently conduct the authority's business.

The executive director may (1) reorganize or consolidate any division, bureau, or other units so long as the authority includes any unit that is specifically required by law; (2) enter into contracts, in accordance with the authority's procedures, as may be needed to perform his or her duties; and (3) subject to state revenue accounting law and unless otherwise provided by law, receive money, revenue, or services from the federal government, corporations, associations, and individual.

Retention of Outside Counsel

The bill allows the authority to participate in proceedings before various federal agencies or appeal from these proceeding. The agencies are the Federal Energy Regulatory Commission, the U. S. Department of Energy and the U. S. Nuclear Regulatory Commission.

It allows the attorney general, at the authority's request, to retain outside counsel for the department (presumably authority) for these proceedings. The electric companies, electric suppliers, or exempt wholesale generators affected by the decisions of such proceedings must pay all of the outside counsel's reasonable expenses. The expenses must be paid when and how the authority directs. The expenses must be apportioned in proportion to each affected entity's revenues as reported to DPUC for its budget assessment for the most recent period. The expenses may not exceed $ 250,000 per proceeding, including any appeals thereof, in any calendar year unless the department (presumably DPUC) finds good cause for exceeding the limit and the affected entities have an opportunity, after reasonable notice, to comment on the proposed overage. DPUC must recognize all such legal expenses as proper business expenses of the affected entities for rate-making purposes, if applicable. (While electric companies are subject to DPUC rate regulation, other entities in the industry, such as generators, are not. )

CONFLICTS OF INTEREST

The bill prohibits members of the authority, for one year following terminating service, from accepting employment: (1) by a utility or by any lobbyist regarding governmental regulation of utilities; or (2) by an electric supplier or by any lobbyist regarding governmental regulation of electric suppliers. No member who is an attorney may appear or participate in any matter, or accept any compensation regarding a matter, before the authority, for a period of one year after terminating his or her service as a member.

The bill bars officers, employees, attorneys or agents of any utility, certified telecommunications provider, or electric supplier from being a member or employee of the authority.

The bill prohibits the authority's members and employees from:

1. while serving, engaging in or having an interest, financial or otherwise, direct or indirect, in any business, employment, transaction, or professional activity or incur any obligation of any nature, that substantially conflicts with the proper discharge of their duties or employment in the public interest (although no such conflict exists solely because an authority member or employee, or any business in which he or she has an interest, receives service from Connecticut utilities under normal rates and conditions of service);

2. accept other employment that will impair their independence of judgment or require or induce them to disclose confidential information acquired in the course of their official duties;

3. willfully and knowingly disclosing, for financial gain, confidential information acquired due to their official duties or employment or use any such information for financial gain; or

4. accept any employment, fee or other thing of value for appearing, agreeing to appear, or taking any other action on behalf of another person before the authority, the Siting Council, OPM, or the Commissioner of Environmental Protection.

The provisions of the fourth provision do not bar an authority member or employee from being remunerated to appear before the DPUC.

ETHICS

The bill subjects the authority to the state ethics code and the ethics code for lobbyists. This means these people (1) must, among other things, comply with the code and (2) may not take certain actions while employed by these entities and after they leave their employ. The Office of State Ethics has jurisdiction over them for the purpose of enforcing the code. The bill also subjects them to (1) prohibitions against disclosing confidential information to bidders on state contracts, (2) gift, affidavit, and certification requirements under the law covering large state contracts, and (3) the law on pension revocations.

Among other things, this means that authority members and employees may not:

1. have any financial interest in, or engage in, any business, employment, transaction, or professional activity that substantially conflicts with the proper discharge of their duties or employment in the public interest and their responsibilities;

2. accept other employment which will either impair their independent judgment as to their official duties or employment or require or induce them to disclose confidential information acquired in the course of and by reason of their official duties;

3. willfully and knowingly disclose, for financial gain, confidential information acquired in the course of their official duties or employment: and

4. use their public office or position or any confidential information received from the office or position to obtain financial gain for that person, a member of their family, or an associated business.

BONDING

Revenue Bonds

The bill allows the authority, with the state treasurer's or deputy treasurer's approval, to issue revenue bonds with terms of up to 40 years and use their proceeds for its purposes. The bill does not address whether the State Bond Commission also must approve these bonds. The authority can issue bonds that are subject to federal taxes. The bonds are not state or municipal obligations and must state so on their face. The bonds are subject to standard statutory provisions as to how they can be issued and repaid, bondholder protections, and who can invest in them.

Special Capital Reserve Fund

Under the bill the authority can issue bonds that are backed by one or more SCRFs. These bonds are general obligations of the authority payable out of its resources, subject only to agreements with the holders of particular bonds pledging particular resources. The bill caps the maximum amount of bonds that can be backed by SCRFs at $ 450 million.  

The money in the SCRF generally can only be used for paying the principal of bonds it secures as they become due, buying the authority's bonds, and paying interest on the bonds or any redemption premium that must be paid when the bonds are redeemed before maturity. Although bonds secured by SCRFs are not backed by the state's full faith and credit, the state undertakes a contingent liability for the bonds by authorizing the authority to establish the funds.

The authority can specify a “required minimum capital reserve” when issuing these bonds. By December 1st, annually, there is deemed to be appropriated from the General Fund enough money, if needed, as certified by the authority chairperson to the OPM secretary and state treasurer, to restore each SCRF to its minimum capital reserve of such fund. This amount must be allotted and paid to the authority. Subject to any agreements with bondholders, the authority must repay any amount paid to it under this provision from its resources when the money is not required for any other of the authority's corporate purposes. In any event, the amount must be repaid within one year after all of the authority's bonds are discharged.

EXEMPTION OF THE AUTHORITY FROM TAXES

General Provisions

The bill exempts the authority from state and local taxes. It specifically exempts the authority's sale of tangible personal property or services from the sales tax. It also exempts from state and local taxes the bonds and notes issued under the bill, their transfer, and the income from selling them. The bill exempts the authority and its projects, properties, money or bonds and notes from being subject to lien of any kind for the enforcement, collection, or payment of these taxes.

Lease PILOTs

However, any person leasing a project from the authority must pay to the municipality, political subdivision, or special district where the project is located a payment in lieu of taxes (PILOT) equal to the taxes on real and personal property, including water and sewer assessments, that the lessee would have had to pay had it owned the property. Any lessee which has made this PILOT is not required to pay the taxes that were the subject of the PILOT.

The authority may agree to cooperate with the lessee in connection with any administrative or judicial proceedings to determine the validity or amount of such payments. The lessee must pay all of the authority's costs and expenses incurred at the lessee's request.

TRANSFERS OF RESPONSIBILITY

Procuring Power for Standard Service

The bill transfers, from DPUC to the authority, the responsibility for overseeing the process by which electric companies procure power for their standard service customers. Under current law, electric companies must procure power for their standard service under a plan that is subject to DPUC approval. The plan must contain various provisions to reduce price volatility.

The bill also makes several changes in this procurement process. Under current law, each company submitting a bid to provide electricity for standard service must submit it to the electric company and a third-party contractor selected by DPUC. Under the bill, the authority selects the consultant. The company and the consultant must review the bids and submit an overview of them, together with their joint recommendation, to the authority rather than DPUC. The bill additionally requires that they conduct a cost-based analysis of the bids. The bill requires the authority, in analyzing the bids, to determine if they are consistent with the state's integrated resource plan. It requires the authority to provide all of the bids it receives and the analyses of them to the Office of Consumer Counsel and the attorney general. These officials may not make the bids available to the public until the authority does so, three months after bidding is complete, unless the attorney general needs to share the information for law enforcement purposes. The bill allows the authority to reject bids that are not in the best interest of electric company customers. It requires electric companies to enter into contracts with approved bidders in accordance with contract terms established by the authority. It requires the authority, when it releases information about losing bidders, to do so in a way that conceals their identities.

Under the bill, biennially beginning October 1, 2010, the authority must conduct a contested case to review the efficacy of this contract procurement process for this service.

Other Transfers

The bill transfers a wide range of other responsibilities and duties from DPUC and OPM to the authority, as described in Tables 2 and 3.

Table 2: DPUC Responsibilities and Powers Transferred to the Authority

Bill Section)

Responsibility or Power

5

Overseeing electric company integrated resources procurement plans (by which they procure power and savings from conservation measures), developing an RFP if the plan calls for new generation, approving electric company proposals in response to the RFP, among other things.

6

May order electric companies to submit proposals to build power plants if responses to the RFP are insufficient to meet the goals set in the plan. Must conduct a study of the costs and benefits of having the state serve as builder of last resort for any shortfall in generating capacity following issuance of the RFP.

7

Approving disbursements from electric company conservation funds, appointing the Energy Conservation Management Board, approving electric company conservation plans

15

Retaining a consultant to oversee the procurement of contracts for standard service power provided to small and medium size customers who do not choose a competitive supplier.

27

Assessing distributed resources projects financed by ratepayers and reporting on this program to the Energy and Technology Committee

28

Reporting to the Energy and Technology Committee on whether the deadline for electric companies to propose new power plants should be extended.

36

Placing information on its website regarding the Energy Star program

37

Serving as agent for the state, at the direction of the governor, to procure power and related products and resell them to electric utilities in the state

Table 3: OPM Responsibilities and Powers Transferred to the Authority

Bill Section

Responsibility or Power

23

Cooperate with the Department of Administrative Services in its purchase of electric power through competitive bidding or negotiations.

24

Approve the life-cycle cost analysis used to allow exceptions to the ban on using electric resistance space heating in state subsidized housing

25

Allow exceptions to energy efficiency standards for highway lighting

31

Determining whether light bulbs purchased by state agencies meet statutory requirements.

32

Providing lighting efficiency grants to municipalities

CONSULTATIONS

The bill requires DPUC to consult with the authority in setting the systems benefits charge, a charge on electric company bills that pays for various public policies.

The law sets emission limits for certain power plants, but allows the Department of Environmental Protection (DEP) to waive these limits if complying with them would threaten the reliability of the electric system. The bill requires DEP to consult with the authority, rather than with DPUC, in making this decision.

The bill requires the Department of Administrative Services to consult with the authority, rather than with OPM, when buying or contracting for electric power through competitive bidding or competitive negotiations.

By law, DPUC must consult with DEP, OPM, and the Siting Council at least annually to coordinate their actions pertaining to electric and gas companies. The bill requires that DPUC include the authority in these consultations.

By law, DPUC must consult with OPM in approving or modifying electric and gas company plans regarding the amortization of delinquent customer accounts. The bill additionally requires DPUC to consult with the authority.

By law, OPM must consult with DPUC in setting energy efficiency standards for a wide range of appliances and equipment. The bill additionally requires OPM to consult with the authority.

Under current law, the pubic works commissioner must consult with the OPM secretary and any advisory committee the secretary establishes in adopting regulations on lighting standards for public buildings. The bill instead requires the commissioner to consult with the authority and any advisory board it establishes.

The bill requires the OPM secretary to consult with the authority in preparing and amending the residential energy conservation service program plan. The program has not operated in more than a decade.

COMMITTEE ACTION

Energy and Technology Committee

Joint Favorable Substitute

Yea

15

Nay

6

(03/19/2009)