OLR Bill Analysis
AN ACT CONCERNING THE DIVERSITY OF BASELOAD ENERGY SUPPLIES IN THE STATE AND ACHIEVING CONNECTICUT'S GREENHOUSE GAS EMISSIONS MANDATED LEVELS.
This bill (1) requires the state to solicit proposals for certain types of energy, (2) extends certain programs related to renewable energy credits (RECs), and (3) allows the electric distribution companies (EDCs, i.e., Eversource and United Illuminating) to purchase power from and provide incentives for certain fuel cell systems.
Starting October 1, 2017, the bill requires the commissioner of the Department of Energy and Environmental Protection (DEEP), in consultation with certain other state officials, to solicit proposals from certain types of power generating facilities to sell power, capacity, or environmental attributes (i.e., RECs). The commissioner must conduct two separate solicitations: one for proposals from certain renewable energy facilities to be built after the solicitation and one for proposals from existing nuclear power plants, trash-to-energy facilities, and Class I biomass 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. If the commissioner finds that a proposal meets certain criteria, he may direct the EDCs to enter into an agreement under the proposal to purchase energy, capacity, RECs, or any associated transmission. Under certain conditions, the commissioner may also delegate his authority to review and select proposals to the EDCs.
Under the bill, the agreements are subject to review and approval by the Public Utilities Regulatory Authority (PURA). Agreements with nuclear facilities cannot exceed five years and the agreements with other types of energy facilities cannot exceed 20 years. The total annual energy output under them cannot exceed 11.1 million megawatt hours (MWh) with additional caps for each particular energy source (e.g., an agreement with a nuclear facility is capped at 8.3 million 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.
Starting in 2021, the bill annually increases the state's Renewable Portfolio Standard (RPS) requirement for Class I renewable energy sources (e.g., solar and wind) by one percent, until it reaches 40% in 2040. In general, the RPS requires a portion of the power provided by EDCs and retail electric suppliers to come from certain renewable and other clean energy resources.
The bill also extends, by one year, a program that requires the EDCs to annually purchase $8 million in RECs under 15-year contracts with certain clean energy generation projects.
Lastly, the bill allows the EDCs, 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. The bill establishes an approval process for the projects and limits their total generating capacity to 10 megawatts in the aggregate. The net costs EDCs incur for the projects must be recovered from their ratepayers.
EFFECTIVE DATE: October 1, 2017, except the provision (1) requiring the DEEP commissioner to solicit proposals from nuclear and other types of power generating facilities is effective upon passage and (2) extending the program that requires the EDCs to annually contract for $8 million in RECs is effective July 1, 2017.
DEEP SOLICITATIONS OF PROPOSALS
Solicitation of Proposals
Beginning October 1, 2017, the bill requires the DEEP commissioner to issue two separate solicitations to secure a long-term supply of diverse cost effective resources to provide more reliable electric service for the benefit of the state's electric ratepayers and to meet the state's energy and environmental goals and polices established in its Integrated Resources Plan, Comprehensive Energy Strategy, greenhouse gas emission reduction law, and state-wide solid waste management plan. He must issue the solicitations on behalf of the state in consultation with the state's electric procurement manager, the Office of Consumer Counsel, and attorney general. All resources must be delivered into the regional independent system operator's (ISO-NE's) control area (i.e., New England's electric grid).
Proposals from New Facilities. The bill requires the commissioner to issue at least one solicitation for proposals from providers of the following resources to be built after the solicitation is issued:
1. Class I renewable energy sources that emit no pollutants (e.g., wind or solar power), and can generate at least 20 megawatts (MW);
2. verifiable large-scale hydropower and any associated transmission that (a) is located within the New England electric grid or an area abutting its northern boundary, (b) delivers power to the New England grid, and (c) can generate at least 30 MW;
3. Class I renewable energy sources that emit no more than 0.07 pounds per MWh of nitrogen oxides, 0.10 pounds per MWh of carbon monoxide, 0.02 pounds per MWh of volatile organic compounds, and one grain (presumably of particulate matter) per 100 standard cubic feet; and
4. Class I anaerobic digestion facilities that are part of a response under the solicitation for proposals from existing facilities.
Proposals from Existing Facilities. The bill also requires the commissioner to issue at least one solicitation for proposals from providers of the following resources built before the solicitation is issued:
1. nuclear power generating facilities that are fully relicensed to operate by the federal Nuclear Regulatory Commission when the bill becomes effective through at least 2029;
2. trash-to-energy facilities that are registered Class II renewable energy sources that (a) advance the state's recycling and waste diversion goals by acquiring and installing new or upgraded material recovery technology and (b) develop new Class I anaerobic digestion facilities, or partner with existing Class I anaerobic digestion facilities, to divert material recovered from the waste stream; and
3. Class I biomass facilities that (a) went into service on or after December 1, 2013 and (b) provide a waste stream management benefit to the state under the state-wide solid waste management plan.
The bill requires the commissioner, in consultation with the same officials, to evaluate a proposal received in response to the solicitations based on whether it is in the ratepayers' best interest and its benefits outweigh it costs to ratepayers, based on the following factors:
1. the energy source's delivered price compared to the forecasted price of energy, as determined by the commissioner or his designee;
2. the proposal's impact on electric system operations and reliability;
3. 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; and
4. fuel diversity.
The commissioner and officials may also evaluate the proposals based on the forecasted price of capacity or RECs, as determined by the commissioner or his designee.
Consultants and 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 $2 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.
Proposal Selection and Caps
The bill allows the commissioner to select one or more proposals if he finds that a proposal's benefits exceed its costs and that it 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 11.1 million MWh of electricity. The total annual energy output for each type of energy source is further capped as shown in Table 1.
Table 1: Annual Energy Output Caps
New Class I renewable energy sources that emit no pollutants and have a nameplate capacity of at least 20 MW and new low emission Class I renewable energy sources
262, 950 MWh
New verifiable large-scale hydropower and associated transmission
New Class I anaerobic digestion facilities that are part of proposals from existing trash-to-energy facilities
Existing nuclear power facilities licensed to operate through at least 2029
Existing Class II trash-to-energy facilities that (a) acquire and install new or upgraded material recovery technology and (b) develop or partner with new Class I anaerobic digestion facilities
Existing Class I biomass facilities that went into service on or after December 1, 2013 and provide a waste stream management benefit to the state
EDC Agreements & PURA Approval
The bill allows the commissioner, on behalf of EDC customers, to direct the EDCs to enter into agreements to purchase energy, capacity, RECs, and any associated transmission, or any combination of them, under an approved proposal. Agreements with nuclear facilities cannot have a term of more than five years. Agreements with the other facility types cannot have a term of more than 20 years.
Under the bill, the agreements must be subject to PURA's review and approval. The review must start when a signed PPA 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
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.
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 (e.g., 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 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 customers. 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, at his discretion, to delegate his various authorities under the bill to the EDCs, except for his authority to issue solicitations. 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. The commissioner may revoke any authority he delegates at any time.
Conflict of Interest Procedures. If the commissioner delegates authority to the EDCs, 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.
If the commissioner delegates authority to the EDCs, each EDC that intends to respond to a solicitation must:
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. 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, ensuring that no substantive or material internal or external communications, in any form, occur between any members 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 has passed.
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.
RENEWABLE PORTFOLIO STANDARD INCREASE
The RPS law requires the EDCs and retail electric suppliers to procure an increasing portion of their power from certain renewable and other clean energy resources (they can also meet the requirement by buying RECs). For 2017, at least 15.5% of their power must come from Class I renewable energy sources and in 2020, the last year of annual increases required under current law, at least 20% of their power must come from these sources. Starting on January 1, 2021, the bill increases the Class I RPS requirement by one percent at the start of each year until it reaches 40% in 2040. The bill does not change the law's requirement for an additional 3% of power to be from Class I or Class II sources.
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. 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% (to $126). 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.
EDC FUEL CELL PROJECTS
EDC Fuel Cell Plans
The bill allows the EDCs to submit to PURA one or more plans to acquire new fuel cell electricity generation that begins operating on or after October 1, 2017. The plans must use a competitive process to provide distribution system benefits, including avoiding or deferring distribution capacity upgrades, and enhancing distribution system reliability, including voltage or frequency improvements. They 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 (1) proposed PPAs negotiated with others to build, own, and operate new fuel cell generation or (2) proposals to provide financial incentives to install fuel cell-powered combined heat and power systems consistent with the state's Comprehensive Energy Strategy. The projects' total generating capacity cannot exceed 10 megawatts in the aggregate.
PURA must evaluate the proposals in a way consistent with its statutory principles for regulating utilities and setting rates. It may approve one or more proposals if it finds that they (1) were developed in a way that was consistent with the PURA-approved acquisition plan, (2) serve ratepayers' long-term interests, and (3) cost effectively avoid or defer distribution system costs.
The bill requires the costs an EDC incurs under the approved plan and proposals to be recovered through a fully reconciling rate component for all EDC customers, until the EDC's next rate case, when the costs and investments must be recovered through the company's base distribution rates.
The bill allows an EDC to resell or dispose of any energy products, capacity, and RECs it purchases (presumably under an approved proposal). However, if it does so, it must net the proceeds from the sale or disposal against the costs of payments made to projects under any long-term contracts entered into under the bill's PPA provision. (It is unclear whether the requirement to net proceeds against costs would also apply to financial incentives.) The difference must be credited or charged to the EDC's customers through a reconciling rate component, as determined by PURA, which cannot be bypassed when switching electric suppliers.
The bill also allows an EDC to use any energy products, capacity, and RECs produced by a facility (presumably under an approved proposal) to meet the needs of its standard service customers. An EDC may also keep any RECs 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.
HB 7036, reported favorably by the Energy and Technology Committee, allows EDCs to (1) build, own, and operate new fuel cell generation; (2) enter into PPAs negotiated with people to build, own, and operate new fuel cell generation; and (3) provide financial incentives for installing fuel cell-powered combined heat and power systems.
HB 7104, reported favorably by the Energy and Technology Committee, eliminates EDCs' and electric suppliers' ability to make up a deficiency in meeting the RPS in one year in the first three months of the next year.
Energy and Technology Committee
Joint Favorable Substitute