OLR Bill Analysis

HB 6304 (as amended by House "A")*

AN ACT REQUIRING A STUDY OF THE VIABILITY OF NEW DISTRICT HEATING NETWORKS IN THE STATE.

SUMMARY

This bill creates a process through which the electric distribution company that serves Bridgeport (i.e., United Illuminating (UI)) can own and operate a combined heat and power (CHP) system that supplies thermal heat to Bridgeport's district heating company (a district heating system operated by the thermal energy transportation company authorized to provide thermal energy in Bridgeport). Under the bill, a CHP system is a system that produces electric power and thermal energy from a single source that is used in processes that result in an aggregate reduction in electricity use. In general, a district heating system is a network of pipes that carries thermal energy from a central facility (e.g., waste heat from an electric generation facility) to other client buildings.

If UI decides to proceed with such a project, it must follow certain procedures, such as conducting a competitive bidding process to procure a CHP system and submitting a proposal to build the system to the Public Utilities Regulatory Authority (PURA) for review and approval.

Once it is built, the bill requires UI to deliver the following benefits generated by the system to the district heating company at no cost: (1) the total thermal energy generated by the unit, (2) all capacity payments received for the unit, and (3) any other attributes, including the environmental attributes (i.e., renewable energy credits (RECs)), associated with the electricity generated by the unit.

Under the bill, UI may recover up to the full costs of the system and sell the electricity generated by it, as long as the costs are netted against the net proceeds and credited or charged to UI's ratepayers through the non-bypassable federally mandated congestion charge on their electric bills.

The bill also (1) allows a municipality, by vote of its legislative body, to abate all or a portion of the property tax for a property on which the CHP unit is constructed and (2) requires a study on the viability of new district heating networks in the state.

Lastly, the bill requires future Comprehensive Energy Strategies (CES) to include a study on the viability of new district heating networks in the state, including recommendations for financing them. The law requires the commissioner to prepare a CES every three years, with the most recent one due by October 1, 2016. (The 2016 CES has not yet been completed). The bill's requirement applies beginning with the CES due by October 1, 2019.

*House Amendment “A” adds the provision creating a process through which UI can build, own, and operate a CHP system that supplies thermal heat to Bridgeport's district heating system and changes the effective date of most provisions.

EFFECTIVE DATE: Upon passage, except the requirement regarding the CES is effective October 1, 2017.

PROPOSAL AND APPROVAL

The bill allows UI to build, own, operate, and maintain a CHP system in Bridgeport that has a nameplate (generating) capacity rating up to 10 megawatts and may include fuel cells. If UI decides to proceed, it must conduct a competitive bidding process to procure a system from a manufacturer. The system must be configured for use with a district heating system and installed at a location that will maximize the efficient use of the system's thermal energy by Bridgeport's district heating company.

In addition, UI must:

1. submit a proposal to build the system to PURA by September 1, 2017;

2. before starting construction, enter into a thermal energy supply agreement with the district heating company, either directly or through the company's parent company, subsidiary, or affiliate;

3. install and operate a metering system for the system; and

4. ensure that the system achieves commercial operation within 16 months after it enters into the agreement with the district heating company.

PURA must evaluate any proposal it receives and approve it if it finds that the generating unit complies with the above requirements and serves the “long-term interests of ratepayers.” Under the bill, this means that the unit's capital cost to ratepayers, as determined by the competitive bidding process' results, do not exceed the capital cost to ratepayers of the PURA-approved UI fuel cell project in Bridgeport. The bill prohibits PURA from approving any unit that is cross subsidized in any form by UI–affiliated entities. Under the bill, if UI and the district heating company do not come to an agreement within two years after PURA's approval, the approval is deemed rescinded.

COST RECOVERY

The bill prohibits UI from recovering more than the full costs of the CHP system, as approved by PURA. UI may sell or dispose of the electricity generated from the CHP system as long as it nets the costs of payments against the proceeds from the sale and credits or charges the difference to its electric ratepayers. The cost calculation must take into account the investment, depreciable life, property taxes, including any abatements or exemptions, operation and maintenance costs, and debt and equity return on investment as determined by PURA. The net cost or revenue must be credited or charged to UI's ratepayers through the non-bypassable federally mandated congestion charge on ratepayer bills.

OTHER REQUIREMENTS

The bill requires the district heating company, with UI's assistance, to (1) register the CHP system as a renewable energy source with PURA, (2) register any RECs in the New England Power Pool Generation Information System, and (3) certify how many RECs are generated by the CHP system based on the metering system installed and operated by UI.

It also requires any thermal service supply agreement between a customer and the district heating company or its parent, subsidiary, or affiliate to contain commercial and economic provisions sufficient to meet the customer's thermal energy needs, as mutually agreed to by the parties.

One year after any generating unit becomes operational, and every two years after that, the commissioner (presumably of the Department of Energy and Environmental Protection) must ask the district heating company to provide any data or information he needs to write a report on the viability of new district heating networks in the state. The company must provide all requested information within 30 days of the request. Within 60 days of receiving the information, the commissioner must provide the report to the Energy and Technology Committee.

BACKGROUND

Related Bills

HB 7012 (File 352), reported favorably by the Energy and Technology Committee, requires the CES to assess the state's progress in reducing energy costs relative to the other New England states, New York, and New Jersey.

SB 106, (File 468) reported favorably by the Energy and Technology Committee, allows the electric distribution companies, under certain conditions, to (1) enter into power purchase agreements (PPAs) negotiated with others to build, own, and operate new fuel cell generation and (2) provide financial incentives to install fuel cell-powered combined heat and power systems.

HB 7036, (File 454) reported favorably by the Energy and Technology Committee and as amended by House Amendment “A,” allows electric distribution companies (EDCs, i.e., Eversource and United Illuminating), under certain conditions, to (1) build, own, and operate new fuel cell generation; (2) enter into PPAs to build, own, and operate new fuel cell generation; and (3) provide financial incentives to install fuel cell-powered combined heat and power systems.

COMMITTEE ACTION

Energy and Technology Committee

Joint Favorable

Yea

24

Nay

0

(03/21/2017)