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On February 5th, 1998, proposed legislation to restructure the electric utility industry was introduced in the Connecticut General Assembly. The proposal provides that, on July 1, 1999, thirty-five percent (35%) of Connecticut ratepayers will have the option to select their electricity provider and that on January 1, 2000, all Connecticut ratepayers will be eligible to participate in retail electric competition. The bill does not require public utilities to divest their non-nuclear generating assets, but does state that a utility cannot recover its stranded costs unless it sells its non-nuclear generating assets in a commercially reasonable auction process. The proposal provides that by October 1, 1998, each utility must submit a restructuring plan to the Connecticut Department of Public Utilities Control (DPUC) indicating whether the utility’s non-nuclear generating assets will be divested, or functionally separated and transferred to a corporate affiliate. If the utility chooses to divest itself of its non-nuclear generating assets, then the divestiture plan must include a detailed description of the sales process and the book value of each asset. Under the divestiture option, utility affiliates are allowed to purchase the generating assets. The bill provides, however, that the DPUC cannot approve any sale unless the sale price equals or exceeds the book value of the assets. Regarding a utility’s nuclear assets, the proposed law provides a similar process and requires that these assets must be either sold or functionally separated by July 1, 2003. In addition to the public auction requirement, utilities are required to mitigate their stranded costs to the fullest extent possible. The proposal states that mitigation includes: obtaining commitments from purchasers of the generating assets that the purchasers will hire the non-managerial employees working at the generation facilities at the employee’s existing wage level, and efforts to negotiate buyouts or buydowns of independent power producer contracts. The bill further provides that if a utility can achieve a ten percent (10%) rate reduction, then certain of its stranded costs can be recovered through a securitization process. The proposed law authorizes the DPUC to appoint an advisory council charged with the task of analyzing environmental costs and benefits of various categories of energy sources. The council will establish disclosure requirements for competitive energy suppliers thereby allowing customers to compare the air pollutant emissions and the resource mix of competitive energy suppliers. In addition, the proposal requires that the Connecticut Commissioner of Environmental Protection establish performance standards for generating facilities located in North America. The Commissioner may also create a process for the trading of emissions credits. The proposed law requires licensing of competitive suppliers and states that to obtain such a license, the potential competitive supplier must demonstrate that no less than three percent (3%) of its total energy output will be provided from "Class 1 Renewable Energy Sources". These sources are defined as renewable energy from facilities that were in operation as of July 1, 1998. An additional three percent (3%) of the energy mix must be generated from either Class 1 or Class 2 "Renewable Energy Sources," provided that such energy from Class 1 sources cannot include energy from hydro-electric facilities. Class 2 sources are defined as renewable energy from facilities that will commence operation on or after July 1, 1998. Under the proposed legislation, the two-tiered renewable energy requirement increases over time such that by July 1, 2009 not less than eight and one-half percent (8 1/2%) of the energy mix must be generated by Class 1 sources and an additional four and one-half (4 1/2%) must be generated from either Class 1 or Class 2 sources provided that the additional Class 1 energy cannot be generated from hydro-electric facilities. The proposed legislation provides that, from January 1, 1999 to January 1, 2003, the distribution company will provide standard offer service to customers that do not affirmatively select a competitive energy supplier. The standard offer must provide customers with at least a ten percent (10%) decrease in base rates. In providing this service, the distribution companies are not required to select the energy suppliers through a competitive process, but may obtain the energy through one of their affiliated companies. The restructuring legislation has been assigned to the Finance Committee for consideration.
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