November 15, 1999
DPUC'S INTERIM DECISION REGARDING STANDARD OFFER POWER AND RENEWABLE POWER
By: Matthew Ranelli, Associate Attorney
You asked for an explanation of the reasoning of the Department of Public Utility Control's (DPUC's) recent determination that the renewable energy portfolio standards (RPS) do not apply to standard offer power purchased from generation affiliates.
Under PA 98-28, An Act Concerning Electric Restructuring, electric distribution companies must be ready to provide “standard offer” power to all customers in their service area beginning January 1, 2000. The standard offer will provide electric service to customers who either (1) affirmatively choose it, or (2) cannot or have not chosen another supplier.
Connecticut Light and Power (CL&P) applied to DPUC for approval of its standard offer plan on April 30, 1999. The plan, among other things, proposed that CL&P would procure half of its standard offer power from a generation affiliate (i.e., Select Energy) and the other half from a competitive bidding process and the power purchased is not subject to the RPS. On July 7, 1999, DPUC issued an Interim Decision approving the relevant parts of CL&P's proposal (DPUC Docket 99-03-36, See Attachment 1). The portion of the decision related to the RPS concludes that “…there is no statutory requirement for the standard offer to adhere to the RPS.”
RPS FOR GENERATION AFFILIATES AND DPUC'S DECISION
DPUC's interim decision dedicates only one paragraph to explain the reasons behind its determination that the RPS does not apply to standard offer power. The relevant portion of the decision is as follows:
The Department agrees that the standard offer is not subject to RPS. First, as the Company states, the transaction between the Company and its source of standard offer generation is a wholesale transaction, and the RPS contained in the Act applies to retail transactions. Second, Section 25 of the Act conditions the granting of a license to supply electric generation services on the applicant's demonstration of its ability to meet the RPS. Electric Distribution Companies, however, are specifically exempted from licensing requirements for purposes of providing standard offer and prior to January 1, 2004, backup electric generation services. Section 20(d). Consequently, there is no statutory requirement for the standard offer to adhere to the RPS.
(DPUC Docket 99-03-36, p. 7)
The decision appears to pursue two related lines of reasoning to excuse CL&P from the RPS. First, it accepts CL&P's position that the transaction to purchase standard offer power is a wholesale transaction and the RPS applies only to retail transactions. Second, the decision reasons that the standard offer does not have to meet the RPS because the RPS are a condition of licensure and distribution companies (e.g. CL&P) are explicitly exempt from licensing.
The first line of reasoning suggests that the Act does not apply to the “wholesale” transaction between CL&P and Select because it only applies to “retail" transactions. While the distinction between wholesale and retail transactions does not appear in the act, it is clear that the act contemplates the specific type of transaction between CL&P and Select for the purchase of standard offer power. It provides: “While providing electric generation services under the standard offer, an electric distribution company may provide electric generation services through any of its generation entities or affiliates, provided such entities or affiliates are licensed…” under the act (PA 98-28 ∋ 20, codified at CGS ∋ 16-244c(a) and also ∋ 16-244c(b) and (c) regarding default and back-up power).
Similarly the second line of reasoning appears to ignore the same plain language of the Act for the portion of the decision regarding standard offer power purchased from CL&P's affiliate Select Energy. The Act explicitly states that distribution companies may purchase power from their generation affiliates for the standard offer only if the affiliate is licensed. The RPS are a condition of such licensure. Thus, under the Act, the RPS requirements apply to standard offer supply procured from a distribution company's affiliate. The DPUC's decision does not mention or provide any rationale for ignoring this provision.
The plain language is further supported by the debate from the House floor. Representative Stratton, for the purpose of understanding the bill's legislative intent, asked for clarification that as distribution companies provide “power through their generation entities or affiliates, that those would be subject to the licensing provisions and of particular concern, the portfolio standard.” The bill's introducer, Representative Eberle, agreed and noted that the licensing “exemption is only for the distribution company…provided that, they must buy it from a licensed entity...” (41 H.R. Proc., Pt. 4, 1998 Sess. p. 218-219; See Attachment 2).
Although the decision accepts CL&P's characterization that the purchase of standard offer power by the distribution company is a “wholesale” transaction, it does not raise or address the issue of whether the purchase of power from Select by CL&P is governed by FERC and thereby pre-empting state requirements. The determination that the transaction is a wholesale transaction is not mentioned or discussed in the decisions finding of fact.
OCC HAS APPEALED DPUC'S DECISION
On August 20, the OCC filed a Petition for Administrative Appeal of DPUC's decision (See Attachment 3). The petition complains of several errors. Generally they fall into three categories as follows: (1) the relationship between CL&P and Select may create an anti-competitive environment contrary to the act's main purpose, (2) the decision may allow Select to avoid the licensing requirements entirely, including the demonstrations of technical and financial capability, regulatory compliance, adequate supply resources, environmental compliance, and code of conduct compliance; (3) excusing Select from the RPS requirements violates the act and may inhibit the transition to a competitive system by disadvantaging other suppliers that must comply with the RPS; and (4) the decision limits the code of conduct as it applies to generation affiliates.
The issues raised by the petition have not been briefed by the OCC at this time.