OLR Bill Analysis

SB 344 (File 475, as amended by Senate "A")*

AN ACT REQUIRING A STUDY OF THE ADEQUACY OF ENERGY SUPPLIES IN THE STATE.

SUMMARY:

Starting October 1, 2016, this bill allows the Department of Energy and Environmental Protection (DEEP) commissioner, in consultation with certain other state officials, to issue one or more solicitations for certain types of power generating facilities to sell power, capacity, or environmental attributes (renewable energy certificates (RECs)). The facilities include certain Class I renewable facilities, large-scale hydropower, nuclear power plants, or trash-to-energy facilities.

The bill specifies the factors the commissioner and officials must use to evaluate the proposals, including whether they are in the ratepayers' best interests, how they will impact electric system operations and reliability, and whether their benefits outweigh their costs. It allows him to hire consultants to help evaluate the proposals and allows up to $1.5 million of the solicitation and evaluation costs to be recovered through the non-bypassable federally mandated congestion charge on electric bills.

If the commissioner finds that a proposal's benefits exceed the costs and is (1) in the ratepayers' best interest, (2) consistent with the state's requirements to reduce greenhouse gas emissions, and (3) in accordance with the Comprehensive Energy Strategy's policy goals, he can direct the electric distribution companies (EDCs, i.e., Eversource and United Illuminating) to enter into an agreement under the proposal to purchase energy, capacity, RECs, and any associated transmission, or any combination of them. The agreements are subject to the Public Utilities Regulatory Authority's (PURA) review and approval and the total annual energy output under them cannot exceed 8.4 million megawatt hours (MWh).

The bill allows the EDCs to sell or keep the power or RECs they purchase under the agreements and requires them to recover their net costs from entering into the agreements through a fully reconciling component of electric rates. It also allows them to be compensated up to $5 million annually for accepting an agreement's financial obligations, as approved by PURA.

Lastly, the bill allows the commissioner to delegate most of his authority under the bill to the EDCs and imposes various conflict of interest protection procedures on the EDCs when this authority is delegated to them.

*Senate Amendment “A” replaces the original bill (File 475), which required PURA to study the adequacy of the state's energy supplies.

EFFECTIVE DATE: Upon Passage

SOLICITATION OF PROPOSALS

Beginning October 1, 2016, the bill authorizes the DEEP commissioner to issue a solicitation to secure cost effective resources to provide more reliable electric service for the state's electric ratepayers' benefit and meet the state's energy and environmental goals and polices established in its Integrated Resources Plan, Comprehensive Energy Strategy, and greenhouse gas emission reduction law. In consultation with the state's electric procurement manager, the Office of Consumer Counsel (OCC), and attorney general, he may issue solicitations for the following types of power generating resources:

1. Class I renewable energy sources (e.g., wind or solar power), and their associated transmission that (a) will be built on or after the commissioner issues the solicitation, (b) emit no pollutants, and (c) have a nameplate (generating) capacity of at least 20 megawatts (MW);

2. verifiable large-scale hydropower and their associated transmission that (a) began operating on or after January 1, 2003, (b) is located within the New England electric grid or an area abutting its northern boundary, (c) delivers power to the New England grid, and (d) can generate at least 30 MW;

3. nuclear power facilities that (a) were built before the commissioner issues the solicitation and (b) are fully re-licensed to operate by the federal Nuclear Regulatory Commission when the bill becomes law and through at least 2029; or

4. trash-to-energy facilities that were built before the commissioner issues the solicitation and are registered Class II renewable energy sources.

The commissioner may issue a solicitation in coordination with the other states in the regional independent system operator's (ISO-NE's) control area or on behalf of Connecticut alone. All resources must be delivered into ISO-NE's control area (i.e., New England's electric grid).

PROPOSAL EVALUATION

The bill requires the commissioner, in consultation with the same officials, to evaluate the project proposals received in response to a solicitation based on the following factors:

1. whether the proposal is in the ratepayers' best interest;

2. the sources' delivered prices compared to the forecasted price of energy, as determined by the commissioner of his designee;

3. impact on electric system operations and reliability;

4. the extent to which the proposal will contribute to (a) ISO-NE's local sourcing requirement and (b) the goals established in the state-wide solid waste management plan;

5. whether the proposal's benefits outweigh the costs to ratepayers, and

6. fuel diversity.

The commissioner and officials may evaluate the proposals based on the forecasted price of capacity or RECs, as determined by the commissioner or his designee.

Consultants & DEEP Cost Recovery

The bill allows the commissioner to hire consultants with expertise in quantitative modeling of electric markets and physical electric system modeling, as applicable, to assist in implementing the bill, including evaluating the proposals. The reasonable costs, up to $1.5 million, associated with the commissioner's solicitation and review of proposals must be recoverable through the non-bypassable federally mandated congestion charge on electric bills (the bill does not specify who must determine what costs are reasonable or whether the subsequent charges must be approved by PURA). The costs must be recoverable regardless of whether the commissioner selects any proposals. To reduce any recoverable consultant costs, the commissioner may also charge a reasonable fee to those submitting the proposals.

PROPOSAL SELECTION

The bill allows the commissioner to select one or more proposals if he finds that a proposal's benefits exceed the costs and is (1) in the ratepayers' best interest, (2) consistent with the state's requirements to reduce greenhouse gas emissions, and (3) in accordance with the Comprehensive Energy Strategy's policy goals.

Under the bill, the total annual energy output of all selected proposals cannot exceed 8.4 million megawatt hours (MWh) of electricity. And the total annual energy output of any trash-to-energy proposals selected cannot exceed the lesser of either (1) 1,260 MWh or (2) the trash-to-energy requirements established in the state-wide solid waste management plan, as measured in MWh of electricity.

EDC Agreements

The bill allows the commissioner, on behalf of the EDCs, to direct the EDCs to enter into agreements to purchase energy, capacity, RECs, and any associated transmission, or any combination of them, from the submitted proposals. Agreements with resources built before the commissioner issues the solicitation can have a term of up to 10 years. Agreements with resources to be built after the solicitation can have a term of up to 20 years.

Under the bill, the agreements must be subject to PURA's review and approval. The review must start when a signed power purchase agreement is filed with PURA and PURA must issue a decision on it within 90 days (presumably, these deadlines also apply to agreements to purchase capacity or RECs). However, if the commissioner delegates any authority to an EDC (see below), PURA has 120 days to issue a decision. If it does not issue a timely decision, the agreement is deemed approved.

EDC Cost Recovery and Payments

The bill requires an EDC agreement's net costs, including the costs an EDC incurs under the agreement and its reasonable costs incurred in connection with the agreement, to be recovered on a timely basis through a fully reconciling component of electric rates for all EDC customers. Any net revenue from the sale of products purchased under an agreement must be credited to customers on a timely basis through the same fully reconciling rate component.

To compensate them for accepting an agreement's financial obligations, the bill allows the EDCs to receive an annual payment equal to 1% of the annual payment under an agreement, as long as the EDCs' annual payments do not exceed $5 million in the aggregate. The payments must be approved by PURA when it issues a decision on an agreement and apportioned to the EDCs based on their respective distribution system's load, as determined by PURA. (The bill does not specify, but presumably, the payments will be funded through the EDCS' PURA-approved electric rates.)

EDC Use of Power or RECs

If an EDC procures energy under an agreement, the bill allows it to sell the energy in the relevant market or use it as the power it provides when a customer chooses not to buy power from a retail electric supplier (i.e., standard service.) In determining whether to sell or use the power, the EDC must choose the option that is in its ratepayers' best interest.

If an EDC procures RECs under an agreement, the bill allows it to (1) sell them into the New England Power Pool Generation Information System REC market to be used by any electric supplier or EDC to meet its renewable portfolio standard (RPS) requirements or (2) keep them to meet its own RPS requirement. If an EDC sells its RECs, any revenues from the sale must be credited to its customer. In deciding whether to sell or keep the RECs, the EDC must choose the option that is in its ratepayers' best interest.

DEEP DELEGATION TO EDCS

The bill allows the commissioner to delegate his various authorities under the bill to the EDCs, except for his authority to issue a solicitation. To do so, the commissioner must provide notice of the delegation when he issues the solicitation and put certain procedures in place to avoid any potential conflicts of interest.

Conflict of Interest Procedures

If the commissioner delegates his authority to an EDC, the bill requires each EDC to notify the commissioner and provide public notice before the end of the solicitation period if it, its parent company or subsidiaries, or any entity in which it has a financial interest intends to respond to the solicitation. The commissioner cannot delegate his authority to an EDC that (1) responds to the solicitation but did not notify the commissioner as required or (2) cannot show that it has complied with the bill's conflict of interest provisions, if the commissioner requests it.

The bill requires each EDC that intends to respond to a solicitation to:

1. establish (a) a “bid team” responsible for developing a proposal and (b) an “evaluation team” responsible for evaluating and selecting proposals under the bill (no one can be a member of both teams);

2. (a) establish and maintain a screen or firewall between its bid team and evaluation team with respect to information or communications related to the solicitation and potential responses and (b) ensure that no substantive or material internal or external communications, in any form, occur between any member of its bid team and evaluation team about the solicitation, the solicitation process, or any potential responses;

3. ensure that (a) all activity conducted to respond to a solicitation is conducted solely by bid team members and (b) no bid team member consults, advises, or communicates directly or indirectly with an evaluation team member about the solicitation or any response to it during the preparation or submission of the response or the evaluation process;

4. ensure that (a) the evaluation team's responsibilities do not involve any communication, advice, or consultation with the bid team about the solicitation or any response to it and (b) no evaluation team member consults, advises, or communicates directly or indirectly with a bid team member about the solicitation or any response to it during the preparation or submission of the response or the evaluation process; and

5. ensure that the evaluation team does not open or review any submitted responses until after the deadline for submitting them.

Each EDC to whom the commissioner delegates authority must direct all questions about submitted responses to the commissioner and must not contact any person or entity that responded to the solicitation. Only the commissioner may contact a person or entity that responds to a solicitation.

COMMITTEE ACTION

Energy and Technology Committee

Joint Favorable

Yea

24

Nay

0

(03/17/2016)