OLR Bill Analysis

HB 7036 (as amended by House "A")*

AN ACT PROMOTING THE USE OF FUEL CELLS FOR ELECTRIC DISTRIBUTION SYSTEM BENEFITS AND RELIABILITY.

SUMMARY

This bill makes several changes to various clean and renewable energy initiatives. The bill 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 power purchase agreements (PPAs) negotiated with people to build, own, and operate new fuel cell generation; and

3. provide financial incentives to install fuel cell-powered combined heat and power systems. (The total generating capacity of all of these fuel cell projects cannot exceed 30 megawatts in the aggregate.)

The bill authorizes the Department of Energy and Environmental Protection (DEEP) commissioner to solicit proposals from fuel cell, offshore wind, or anaerobic digestion facilities and, if the proposals meet certain conditions, order the EDCs to enter into contracts with them to procure energy, capacity, and environmental attributes, or any combination of them for up to 20 years.

It changes the Class II Renewable Portfolio Standard (RPS) to:

1. limit the types of facilities considered as Class II renewable energy sources to only trash-to-energy facilities,

2. increase the RPS requirement so that EDCs and retail electric suppliers must purchase 4%, rather than 3%, of their power from either Class I or Class II sources, and

3. lower the alternative compliance payment for EDCs and suppliers that fail to do so.

The bill extends, by one year, a program that requires the EDCs to annually purchase $8 million in Renewable Energy Credits (RECs) under 15-year contracts with certain clean energy generation projects.

The bill also requires the Office of Fiscal Analysis to prepare a ratepayer impact statement for any bill before the General Assembly that would have a financial impact on electric ratepayers if passed.

*House Amendment “A” adds the provisions on DEEP solicitations of proposals, Class II renewable sources, the REC program extension, and ratepayer impact statements.

EFFECTIVE DATE: July 1, 2017, except the provisions on Class II sources and DEEP's solicitations are effective upon passage and a conforming provision on ratepayer impact statements is effective July 1, 2019.

1 — EDC FUEL CELL FACILITIES

Fuel Cell Plans

The bill allows EDCs to submit to PURA one or more plans to acquire new fuel cell electricity generation that begins operating on or after July 1, 2017. The plans must use a competitive process to provide distribution system benefits, including (1) avoiding or deferring distribution capacity upgrades and (2) enhancing distribution system reliability, including voltage or frequency improvements. Plans must also give preference to proposals that efficiently use existing sites and supply infrastructure. (The bill does not specify a timeline or procedure for PURA to review and approve the plans.)

Fuel Cell Proposals

Once PURA approves a plan, the bill allows an EDC to submit the following to PURA:

1. one or more proposals to build, own, and operate new fuel cell generation;

2. proposed PPAs negotiated with people to build, own, and operate new fuel cell generation; or

3. proposals to provide financial incentives to install fuel cell-powered combined heat and power systems consistent with the state's Comprehensive Energy Strategy.

The total nameplate (generating) capacity rating of these fuel cell projects cannot exceed 30 megawatts in the aggregate. An EDC proposal to build, own, and operate a fuel cell must include the EDC's full projected costs and demonstrate that the facility is not supported in any form of cross subsidization by affiliated entities.

PURA must evaluate the proposals in a way that is consistent with its statutory principles for regulating utilities and setting rates. It may approve a proposal if it finds that it (1) was developed in a way that was consistent with the PURA-approved acquisition plan, (2) serves ratepayers' long-term interests, and (3) cost-effectively avoids or defers distribution system costs.

Cost Recovery

The bill requires an EDC to recover the costs it incurs under the approved plan and proposals from all of its customers through a fully reconciling rate component, until its next rate case, after which time any costs and investments for new fuel cell generation owned by the EDC must be recovered through the EDC's base distribution rates.

The bill allows an EDC to resell or dispose of any energy products, capacity, and associated environmental attributes (i.e., RECs) it purchases (presumably under an approved proposal). But if it does so, it must net the proceeds from the sale against the cost of payments made to projects under any long-term contracts entered into under the bill's PPA provision. The difference plus any net costs incurred from providing financial incentives under the bill must be credited or charged to the EDC's customers through a reconciling rate component PURA determines. This rate component must be non-bypassable when switching electric suppliers.

The bill allows an EDC to use any energy products, capacity, and environmental attributes produced by a facility (presumably under an approved proposal) to meet the needs of its standard service customers. An EDC may also keep any renewable energy certificates issued by the New England Power Pool Generation Information System for any Class I renewable energy source acquired under the bill to meet its RPS requirements. (The RPS requires EDCs and electric suppliers to obtain a portion of their power from certain renewable energy sources.)

10 — DEEP SOLICITATION OF PROPOSALS

Current law allows the DEEP commissioner to solicit proposals from providers of Class I run-of-the-river hydropower, landfill methane gas, or biomass resources. If the commissioner finds the proposals meet certain conditions, he may direct the EDCs to enter into up to 10-year agreements to purchase energy, capacity, and environmental attributes, or any combination of them, to meet up to 4% of the EDCs' load (i.e. demand). (In practice, DEEP has already solicited and selected proposals for parts of this procurement.)

The bill expands this procurement authority to allow the commissioner to also solicit proposals from Class I fuel cells, offshore wind, or anaerobic digestion facilities; energy storage systems; or any combination of them and the energy sources originally authorized in the procurement. It prohibits the commissioner from selecting proposals for more than 3% of the EDCs' load from offshore wind resources and increases the maximum agreement duration from 10 to 20 years. It also requires DEEP's reasonable costs for the solicitation and proposal review to be recovered through the non-bypassable federally mandated congestion charge on ratepayers' bills.

Current law requires the commissioner to consider various factors when selecting a proposal, such as whether the proposal is consistent with the state's goals to reduce greenhouse gas emissions. The bill specifies that these emissions reduction goals include development of combined heat and power systems. (It is unclear whether this addition has any legal effect.) The bill also expands the factors the commissioner must consider to include:

1. whether the proposal promotes electric distribution system reliability and other distribution system benefits, including microgrids;

2. whether the proposal promotes policy goals outlined in the statewide solid waste management plan; and

3. the positive reuse of sites with limited development opportunities, including brownfields or landfills, as identified by the commissioner in the solicitation.

Current law requires the EDCs to sell any RECs they buy under an agreement in the regional market to be used by suppliers and electric companies to meet their Connecticut RPS requirements. The bill instead allows the EDCs to either sell the RECs or keep them to meet its RPS requirements. In considering whether to sell or keep the RECs, an EDC must select the option that is in its ratepayers' best interests. If an EDC sells the RECS, the bill requires the revenue from the sale to be credited to the EDC's customers.

2-5 — CLASS II RPS

Class II Definition

The law designates certain types of renewable energy facilities as Class I, II, or III sources and, through the RPS, requires EDCs and electric suppliers to use specified amounts of energy from each class. The bill limits Class II sources to trash-to-energy facilities by removing from the class (1) biomass facilities that began operating before July 1, 1998 and meet certain emissions requirements and (2) run-of-the-river hydropower facilities with a 5 MW or less capacity that began operating before July 1, 2003 and do not appreciably change river flow. It also specifies that the trash-to-energy facilities considered Class II sources must have the solid waste permit and Title V emissions permit required by law.

Class II RPS Requirement

The current RPS law requires the EDCs and retail electric suppliers to procure a portion of their power from Class I sources that increases through 2020 and an additional 3% of their power from either Class I or Class II sources. (They can also meet the requirements by buying RECs.) Beginning in 2018, the bill increases the amount of additional Class I or II power required from 3% to 4%.

Alternative Compliance Payment

Under current law, EDCs or suppliers that do not meet the RPS requirement must pay an alternative compliance payment (ACP) of 5.5 cents per kilowatt hour (kWh) for any shortfall. The bill maintains the 5.5 cent per kWh ACP for failures to meet the Class I requirement, but starting on January 1, 2018, creates a reduced 2.5 cent per kWh ACP for failures to meet the Class II requirement. (Presumably, the requirement to procure additional power from Class I or Class II resources.)

9 — REC PROGRAM EXTENSION

Beginning in January 2012, the law required each EDC to annually enter into 15-year contracts to procure $8 million in RECs from certain clean energy generation projects. Under current law, this annual contracting requirement lasts for six years (through 2017). The bill extends the requirement for an additional seventh year. As required during each of the program's previous six years, in year seven the EDCs will have to enter into a 15-year contract to procure $8 million of RECs.

As under the law's requirement for year six, in year seven the EDCs may procure (1) up to $4 million in RECs from Class I generation projects that are less than 1 MW in size and emit no pollutants and (2) up to $4 million in RECs from Class I technologies that are less than 2 MW in size and have emissions of no more than 0.07 pounds per megawatt-hour of nitrogen oxides, 0.10 pounds per megawatt-hour of carbon monoxide, 0.02 pounds per megawatt-hour of volatile organic compounds, and one grain (presumably of particulate matter) per one hundred standard cubic feet (i.e. low emissions projects). All projects must also (1) be on the customer's side of the meter and (2) serve the EDC's distribution system.

When the program began in 2012, the law established a $350 price cap per REC and allowed PURA to lower the cap by 3% to 7% annually in subsequent years. For year seven, the bill allows PURA to lower the price cap by 64% at least 90 days before the EDC solicitation. As under current law, PURA must (1) provide notice and an opportunity for public comment and (2) consider such factors as the actual bid results from the most recent solicitation and reasonably foreseeable reductions in the cost of eligible technologies.

6-8 — RATEPAYER IMPACT STATEMENTS

The bill requires the Office of Fiscal Analysis to prepare a ratepayer impact statement for any bill before the General Assembly that would, if passed, have a financial impact on electric ratepayers. Beginning with the 2019 legislative session, the bill prohibits either chamber of the General Assembly from acting on a bill without a ratepayer impact statement, unless two-thirds of the chamber votes to dispense with the requirement for a statement. The statement must assess whether the bill will have a significant direct financial impact on the cost of electricity for the majority of Connecticut ratepayers.

The bill also makes a conforming change.

BACKGROUND

Related Bills

SB 106, (File 468) reported favorably by the Energy and Technology Committee, allows EDCs to (1) enter into PPAs negotiated with people to build, own, and operate new fuel cell generation and (2) provide financial incentives for installing fuel cell-powered combined heat and power systems. It also extends the program that requires EDCs to annually purchase $8 million in RECs.

SB 861, (File 341) reported favorably by the Energy and Technology Committee, requires the Office of Fiscal Analysis to prepare a ratepayer impact statement for any bill before the General Assembly.

COMMITTEE ACTION

Energy and Technology Committee

Joint Favorable

Yea

24

Nay

0

(03/21/2017)