OLR Bill Analysis

sSB 1078 (File 616, as amended by Senate "A")*

AN ACT CONCERNING AFFORDABLE AND RELIABLE ENERGY.

SUMMARY:

This bill allows the Department of Energy and Environmental Protection (DEEP) commissioner, in consultation with others, to issue multiple solicitations for long-term contracts for various energy resources. Such solicitations must be for:

1. passive demand response measures and smaller capacity Class I and Class III renewable energy sources (see BACKGROUND);

2. larger capacity Class I renewable energy sources and verifiable large-scale hydropower and any associated transmission; and

3. natural gas resources, including (a) interstate natural gas transportation capacity, (b) liquefied natural gas, (c) liquefied natural gas storage, (d) natural gas storage, or (e) any combination of these.

It also allows the DEEP commissioner to seek proposals for energy storage, Class II resources (see BACKGROUND), and existing hydropower in certain circumstances.

The bill also allows the DEEP commissioner to hire consultants to assist with evaluating proposals. If he finds proposals in the ratepayers' best interests, he may select one or more such proposals and direct the electric companies to enter into long-term contracts. Agreements entered into as a result of solicitations authorized by the bill are subject to the Public Utilities Regulatory Authority's (PURA) approval.

The bill limits (1) all contract terms to 20 years; (2) selected proposals for demand response, renewable resources, and hydropower, in the aggregate, to 10% of the total load served by the state's electric companies; and (3) the total aggregate capacity of selected contracts.

*Senate Amendment “A” replaces the underlying bill (File 616), which (1) transferred, from PURA to DEEP, the ability and requirement to issue a request for proposals related to the Integrated Resource Plan (IRP); (2) allowed DEEP to solicit proposals from fewer categories of resources; and (3) did not limit the capacity or duration of contracts.

EFFECTIVE DATE: Upon passage

RESOURCE TYPES

The bill allows the DEEP commissioner to solicit multiple long-term contracts to (1) secure cost effective resources to provide more reliable electric service for the state's electric ratepayers and (2) meet goals and policies established in the state's (a) IRP and (b) comprehensive energy strategy (CES).

Demand Response and Small Renewable Sources

For solicitations for resources to reduce electric demand and improve resiliency and grid reliability, the bill allows the DEEP commissioner to seek proposals for (1) Class I and Class III renewable energy source projects with a capacity between two and 20 megawatts and (2) passive demand response measures capable of reducing electric demand by at least one megawatt, including energy efficiency, load management, and the state's conservation and load management programs (see BACKGROUND). Electric companies must consult with the Energy Conservation Management Board (i.e., the Energy Efficiency Board) to assess the feasibility of submitting a proposal for passive demand response measures that are in addition to existing and projected demand reductions obtained through the conservation and load management programs.

The bill allows the DEEP commissioner to also seek proposals for energy storage systems capable of storing up to 20 megawatts. Under the bill, an energy storage system is any commercially available technology capable of absorbing energy and storing it for a period of time before dispatching it. It must be capable of:

1. using mechanical, chemical, or thermal processes to store electricity generated at one time for use at a later time;

2. storing thermal energy for direct use for heating or cooling at a later time, avoiding the need to use electricity;

3. using mechanical, chemical, or thermal processes to store electricity generated from renewable energy sources for use at a later time; or

4. using mechanical, chemical, or thermal processes to capture or harness waste electricity generated from mechanical processes and storing it for delivery at a later time.

Large Renewable Sources and Hydropower

The bill allows the DEEP commissioner to seek proposals for (1) Class I renewable energy sources with capacity of at least 20 megawatts and any associated transmission and (2) verifiable large-scale hydropower and any associated transmission.

The bill also allows him to seek proposals for energy storage systems of at least 20 megawatts. He may also seek proposals for Class II renewable energy sources and existing hydropower resources to balance the delivery of Class I resources (which may be intermittent) and improve the economic viability of such proposals if such resources are (1) interconnected to associated transmission and (2) either located in the control area of the regional independent system operator (i.e., generally, New England) or imported from an adjacent regional independent system operator's control area. Existing hydropower resources used for this purpose must not be considered large-scale or Class I or II.

Natural Gas Resources

For natural gas resources, the bill allows the DEEP commissioner to solicit proposals for any combination of:

1. interstate natural gas transportation capacity,

2. liquefied natural gas,

3. liquefied natural gas storage, and

4. natural gas storage.

Such proposals must provide incremental capacity, gas, or storage with a firm delivery capability to transport natural gas to natural gas-fired generating facilities located in the control area of the regional independent system operator. The bill allows the electric companies to contract with a gas supply manager to sell any products procured as a result of these contracts into the wholesale energy markets at the best available rates in compliance with Federal Energy Regulatory Commission (FERC) regulations.

SOLICITATION PROCESS

Issuance

When issuing solicitations, DEEP must consult with (1) PURA's procurement manager, (2) the Office of Consumer Council (OCC), and (3) the attorney general. DEEP may issue solicitations on behalf of Connecticut alone or in coordination with other states in the control area of the regional independent system operator.

Evaluation

The bill requires the DEEP commissioner, in consultation with PURA's procurement manager, OCC, and the attorney general, to evaluate any project proposals received through solicitations. He must base the evaluation on factors including:

1. reliability improvements to the electric system, including during peak demand;

2. whether the proposal's benefits outweigh its costs to ratepayers;

3. fuel diversity;

4. the extent to which the proposal meets requirements to reduce greenhouse gas emissions and improve air quality, including the state's renewable portfolio standard;

5. the ratepayers' best interests; and

6. alignment with IRP and CES policy goals, including environmental impacts.

DEEP must compare proposals' costs and benefits relative to expected or actual costs and benefits of other resources eligible to respond to DEEP's solicitations authorized under the bill. The DEEP commissioner may also consider economic benefits to the state.

The bill allows the DEEP commissioner to hire consultants with expertise in (1) quantitative modeling of electric and gas markets and (2) physical gas and electric system modeling, as applicable. Such consultants may be hired to assist with solicitations, including proposal evaluation. Under the bill, reasonable costs of up to $1.5 million associated with DEEP's solicitation and evaluation of proposals are recoverable through the nonbypassable federally mandated congestion charge, even if DEEP selects no proposals. Federally mandated congestion charges are generally collected on electricity bills to cover certain costs approved by FERC and various costs approved by PURA. Customers must pay nonbypassable charges regardless of whether they choose a retail energy supplier, as these charges are considered reliability related.

Selection and Approval

If the DEEP commissioner finds proposals authorized by the bill to be in ratepayers' best interests, he may select one or more proposals and direct the electric companies to enter into long-term contracts for any combination of:

1. passive demand response measures,

2. electricity,

3. electric capacity,

4. environmental attributes,

5. interstate natural gas transportation capacity,

6. liquefied natural gas,

7. liquefied natural gas storage,

8. natural gas storage, or

9. energy storage.

The bill limits the total aggregate capacity of selected contracts to 375 million cubic feet per day of natural gas capacity or the equivalent megawatts of any combination of electricity and electric demand reduction. (Due to uncertainty in conversion, the limit on resources other than natural gas capacity is unclear.) The bill also limits selected proposals for demand response, renewable resources, and hydropower, in the aggregate, to 10% of the total load served by the state's electric companies.

Under the bill, PURA must approve any agreement entered into as a result of a proposal. Electric companies must file an application with PURA for approval of any agreement, which PURA must approve if it is cost effective and in electric ratepayers' best interests. PURA must issue a decision within 90 days or the agreement is deemed approved. The bill requires the electric companies to recover net costs of any such agreement, including costs incurred under the agreement and reasonable costs incurred in connection with the agreement. Under the bill, electric companies must, through a fully reconciling component of electric rates for all the electric company's customers, (1) recover net costs on a timely basis and (2) credit customers for any net revenues from the sale of products purchased in accordance with long term contracts authorized by the bill.

RENEWABLE ENERGY CERTIFICATES

The bill allows electric companies to sell any renewable energy certificates (REC) for any Class I or Class III renewable energy sources procured through solicitations authorized by the bill to suppliers or other electric companies in the New England Power Pool Generation Information System renewable energy credit market so that these supplies or companies may meet the state's renewable portfolio requirement. The electric company must credit the revenues of any REC sales to its customers. The bill also allows the electric companies to retain such RECs to meet renewable portfolio requirements. The bill requires the electric companies to choose whether to sell or retain RECs based on the option that is in the best interests of the company's ratepayers.

BACKGROUND

Class I Renewable Resources

By law, Class I renewable energy sources include electricity from:

1. solar power,

2. wind power,

3. fuel cells,

4. geothermal sources,

5. biogas,

6. thermal electric direct energy conversion from a Class I source,

7. ocean thermal power,

8. wave or tidal power,

9. low emission advanced renewable energy conversion technologies,

10. certain run-of-the-river hydropower facilities with a capacity of less than 30 megawatts, and

11. certain biomass facilities.

It also includes any electrical generation, including distributed generation, derived from these sources (CGS 16-1(a)(20)).

Class II Renewable Resources

By law, Class II renewable energy sources include energy derived from (1) trash-to-energy facilities, (2) certain biomass facilities, and (3) certain hydropower facilities not included as Class I resources and with a capacity of up to five megawatts (CGS 16-1(a)(21)).

Class III Renewable Resources

By law, Class III sources include electricity output from certain combined heat and power systems, certain waste heat recovery systems, and conservation and load management programs, generally excluding those supported by ratepayers (CGS 16-1(a)(38)).

Conservation and Load Management Programs

The Energy Conservation Management Board (i.e., the Energy Efficiency Board) advises the utilities in formulating conservation and load management plans, which are subject to DEEP's approval. Programs in the plan are generally funded through a charge on ratepayer bills.

Large-scale Hydropower

By law, large-scale hydropower is any hydropower facility that (1) began operating on or after January 1, 2003, (2) meets certain geographic eligibility criteria, (3) delivers power to its geographic eligibility area, and (4) has a generating capacity of over 30 megawatts (CGS 16-1(a)(47)).

COMMITTEE ACTION

Energy and Technology Committee

Joint Favorable Substitute

Yea

20

Nay

3

(03/24/2015)