PA 17-144—HB 7036

Energy and Technology Committee

AN ACT PROMOTING THE USE OF FUEL CELLS FOR ELECTRIC DISTRIBUTION SYSTEM BENEFITS AND RELIABILITY AND AMENDING VARIOUS ENERGY-RELATED PROGRAMS AND REQUIREMENTS

SUMMARY: This act makes several changes to various clean and renewable energy initiatives. It allows electric distribution companies (EDCs; i.e., Eversource and United Illuminating), under certain conditions, to:

1. build, own, and operate new fuel cell generation facilities;

2. enter into power purchase agreements (PPAs) negotiated with people to build, own, and operate new fuel cell generation facilities; 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 (MW) in the aggregate.)

The act 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, direct 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.

The act changes the Class II Renewable Portfolio Standard (RPS) by:

1. limiting the types of facilities considered Class II renewable energy sources to trash-to-energy facilities;

2. requiring EDCs and retail electric suppliers to purchase 4%, rather than 3%, of their power from either Class I or Class II sources; and

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

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

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

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 OFA's ratepayer impact statements is effective July 1, 2019.

1 — EDC FUEL CELL FACILITIES

Fuel Cell Plans

The act allows EDCs to submit to the Public Utilities Regulatory Authority (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, such as voltage or frequency improvements. Plans must also give preference to proposals that efficiently use existing sites and supply infrastructure.

Fuel Cell Proposals

The act does not specify a timeline or procedure for PURA to review and approve the plans. But once PURA approves a plan, the EDC may 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 act 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 act allows an EDC to resell or dispose of any energy products, capacity, and associated environmental attributes (i.e., RECs) it purchases. 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 act's PPA provision. The difference plus any net costs incurred from providing financial incentives under the act must be credited or charged to the EDC's customers through a reconciling rate component that PURA determines. This rate component must be non-bypassable when switching electric suppliers.

The act allows an EDC to use any energy products, capacity, or environmental attributes produced by a facility 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 act 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

Procurement Authority

The 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). (DEEP has already solicited and selected proposals for parts of this procurement.)

The act 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. The act 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.

Factors for Consideration

The 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 act specifies that these emission-reduction goals include the development of combined heat and power systems. (It is unclear whether this addition has any legal effect.) The act 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.

EDC Use of RECs

Prior law required 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 act 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, it must credit its customers with the revenue from the sale.

2-5 — CLASS II RPS

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.

Class II Definition

The act 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 and Title V emissions permits required by law.

Class II RPS Requirement

The RPS law requires the EDCs and retail electric suppliers to procure (1) an increasing portion of their power from Class I sources through 2020 and (2) an additional portion of their power from either Class I or Class II sources. (EDCs can also meet these requirements by buying RECs.) Beginning in 2018, the act increases, from 3% to 4%, the amount of additional Class I or II power required.

Alternative Compliance Payment

By law, EDCs or suppliers that do not meet the RPS requirement must pay an alternative compliance payment (ACP). Under prior law, the ACP was 5.5 cents per kilowatt hour (kWh) for any shortfall. The act maintains the 5.5 cent per kWh ACP for failure to meet the Class I requirement, but starting on January 1, 2018, it creates a 2.5 cent per kWh ACP for failure 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 for six years (through 2017). The act extends the requirement for an additional seventh year. As was required during each of the program's previous six years, in year seven the EDCs must 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 act allows EDCs to 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 100 standard cubic feet (i.e., low emissions projects). All projects must also (1) be on the customerʼs side of the meter and (2) serve the EDCʼs distribution system.

When this 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 act allows PURA to lower the price cap by 64% at least 90 days before the EDC solicitation. As under the law that applied to the first six years, 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 act requires OFA 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 act 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 act also makes a conforming change.