OLR Bill Analysis

HB 6636

AN ACT CONCERNING THE CONNECTICUT CLEAN ENERGY FUND.

SUMMARY:

By law, electric companies must file with the Department of Public Utility Control (DPUC), for its approval, long-term power purchase contracts with certain renewable energy producers. The bill delays when an additional 25 megawatts (MW) of capacity must be contracted for under these provisions from October 1, 2008 to July 1, 2011. A megawatt is the amount of power used by 750 to 1,000 homes. The bill modifies how new contracts will be priced and allows existing contracts to be repriced under certain circumstances. The bill also modifies how the costs of the contracts are recovered in electric rates.

Under current law, the consumer counsel is a member of the Renewable Energy Investment Board, which develops the plan for spending money in the Clean Energy Fund. The bill allows the consumer counsel's designee in lieu of the counsel, to serve on the board.

EFFECTIVE DATE: Upon passage

LONG-TERM POWER PURCHASE CONTRACTS

Under current law, the electric companies were required to file with DPUC one or more long-term power purchase contracts from Class I renewable energy source (e. g. , wind power or fuel cell) projects that (1) receive funding from the Clean Energy Fund, (2) are located in Connecticut, and (3) are at least one MW in size. They were required to enter into contracts for 125 MW of generating capacity prior to October 1, 2008, when the requirement went up to 150 MW although the additional contracts have not been entered into to date. The bill delays this step until July 1, 2011. It allows DPUC to approve or disapprove any proposed contract as public interest requires.

Pricing

Under current law, the generation project owner has two pricing options under the contracts (1) the wholesale electricity price plus 5. 5 cents per kilowatt-hour or (2) the sum of the following (a) half of the wholesale electricity price; (b) the projected cost of natural gas used to fuel the project, based on the futures price of contracts measured at the Henry Hub, Louisiana; (c) the charge for delivering the fuel to the project; and (d) 5. 5 cents per kilowatt-hour.

The bill instead requires that contracts entered into on or after August 1, 2009 include a requirement that the project owner be compensated at a cost-based rate, in cents per kilowatt-hour, that gives the project an opportunity to earn a reasonable rate of return if it operates at a sufficient capacity factor. DPUC must determine the rates, the capacity factor, and other factors before any contract starts and may adjust them not more than once every five years. DPUC may establish a five-year review proceeding at its discretion or it the project owner asks.

The bill allows a project owner who has signed a contract on or before April 1, 2009, and whose compensation is not indexed to the cost of natural gas, to make a single request to DPUC to adjust its contract due to financial issues, if the request is made before September 1, 2009. The request may ask that the existing contract be extended to cover the project's full output. DPUC, upon receiving the request, may open a proceeding to consider whether to adjust a contract, including, converting it to a cost-based contract that may include a fuel cost adjustment clause, as it determines is in the public interest. If there is a case, it must be conducted as an uncontested proceeding. But the project developer must present evidence and testimony of a financial expert to DPUC, at the developer's expense, as to the need to adjust the contract.

The bill repeals a provision that generally counts the power purchased under these contracts towards meeting the electric company's obligation under the renewable portfolio standard, which requires it to get part of its power from renewable resources. It also eliminates the right of an owner of a fuel cell project principally manufactured in Connecticut to all available air emissions credits and tax credits attributable to the project and at least 50% of the class I renewable energy credits (RECs) attributable to the project. (RECs are bought and sold on the wholesale electric market to meet renewable portfolio standards in Connecticut and other states. ) The bill is silent on whether these provisions apply to existing contracts that are not renegotiated.

Cost Recovery

Under current law, the electric company can recover the cost of the contracts and the direct administrative costs for procuring them in its rates for standard service (the service it provides to small and medium-size customers who have not chosen a competitive supplier). The bill alternatively allows DPUC to include these costs in nonbypassable federally mandated congestion charges (FMCC). These charges apply to all customers, including those served by competitive suppliers. The bill allows DPUC to recover the costs of the contracts in the nonbypassable FMCCs charged to large customers.

Under current law, in order for the contract costs to be recovered in rates, the contracts must run long enough to provide financing for the selected projects, but at least 10 years, and the projects must have began operation on or after July 1, 2003. The bill requires that these two conditions be met in all cases.

COMMITTEE ACTION

Energy and Technology Committee

Joint Favorable Substitute

Yea

21

Nay

0

(03/19/2009)