Energy and Technology Committee

JOINT FAVORABLE REPORT

Bill No.:

SB-1176

Title:

AN ACT CONCERNING ELECTRIC RATE RELIEF.

Vote Date:

3/22/2011

Vote Action:

Joint Favorable Substitute

PH Date:

3/15/2011

File No.:

SPONSORS OF BILL:

Energy and Technology Committee

REASONS FOR BILL:

As families and businesses across the state continue to struggle with high monthly electric bills it is important to take steps to reduce costs to consumers and make investments in clean, renewable energy that give consumers a more stable, affordable and efficient energy system over the long-term. This bill establishes a per-kilowatt hour tax on generation produced by oil, coal and nuclear power generators located in the state of Connecticut. The revenue would be used to close the state budget deficit, provide relief to electric ratepayers and to support investments in renewable energy and energy efficiency programs. The bill also takes steps to repeal the CTA tax on electric bills.

Substitute Language: In Section 2(e), natural gas has been added to the list of energy sources not affected by the tax. In Section 2(g), the revenue generated from the tax can only be directed to the General Fund until economic recovery bonds have been repaid and then revenue will be directed to the ratepayer and used to fund renewable energy projects. The words “up to” have been added after the word “of” and before “nine hundred fifty-six million” in Section 2 subdivision 19. In the new Section 4, “Any surplus…may be used to benefit customers” was changed to “shall be used to benefit customers.” Sections 6 through 10 have been removed.

RESPONSE FROM ADMINISTRATION/AGENCY:

Mary J. Healey, Consumer Counsel, Office of Consumer Counsel
Implementing such a tax is a benefit to electric consumers in Connecticut. Concerns have been raised in the past that power plants could potentially shut down and that the added costs will be passed onto the ratepayer. This tax cannot be passed onto the ratepayer. Due to the structure of ISO/New England, the large size of nuclear power plants and how the market works, “the Millstone units bid into the ISO energy markets at zero cost, essentially forcing the ISO to take Millstone energy before any other sources…We do not expect Millstone to operate less often because of the tax.” In addition to the Millstone
's general revenue, the unit receives additional funding from ISO/New England through the Forward Capacity Market (FCM). Due to the “extraordinary cost to ratepayers of the existing FCM, [ISO/New England] is trying strenuously at FERC to double or perhaps triple the clearing prices in the FCM.” There have also been many claims that contract prices will certainly increase as a result of this tax. From OCC's experience and “activity in power purchasing, the costs of power contracts are benchmarked to the expected clearing price in the ISO/New England market.”
OCC also feels that because “the taxes on coal and oil generators are much smaller in terms of the amount per megawatt-hour, and the coal tax has been limited to peak power usage months,” it is unlikely “that it will affect energy market price bids.”
With regard to Section 2: the removal of the competitive transition assessment (CTA) from electric bills is a good effort and OCC would “also support restoration of the Conservation and Load Management Fund.”

NATURE AND SOURCES OF SUPPORT:

Representative Christopher Donovan, Speaker of the House
It is necessary to identify ways to reduce the rising costs of electricity in Connecticut. The proposed generation tax has been “carefully crafted to prevent the passing of costs on to ratepayers. The same market rule that allows oil, coal and nuclear lower-cost generators to get paid the same price as the highest fuel – natural gas – protects the ratepayers. This is because even with the new tax added, the generator
's total cost falls below the market clearing price.”
This bill will also allocate the revenue in a strategic manner by directing funds to increase energy efficiency and renewable energy programs in addition to providing immediate rate relief by removing the CTA tax.

Christopher Phelps, Program Director, Environment Connecticut
This bill will “provide direct relief to consumers and businesses by reducing their electric bills.” Instituting a charge on the State
's “dirtiest and most dangerous power sources” and investing those returns in renewable energy, we are taking the necessary steps towards a more “sustainable energy future for our state.”

Jennifer Hatch, Program Associate, Connecticut Public Interest Research Group (ConnPIRG)
With rising electric costs, it is important to find ways to reduce costs immediately and long-term. The provisions offered in the bill aim to do just that and will help funding of renewable energy. Because these goals are significant and important, ConnPIRG suggests “defining the appropriation process of these funds and clearly stating who is to make allocation decisions, how these decisions are to be made, and what requirements are to be met to be eligible for renewable project funding.”

Shirley Bergert, Director of Public Benefits Task Force, CT Legal Services
Passage of deregulation was supposed to stimulate competition and lower electricity rates. Instead, Connecticut has the highest electricity rates in the US and “lack of competition led to windfall profits, particularly among nuclear baseload generators. This power is relatively inexpensive to produce, but the cost of production no long bears any relationship to the cost of electricity to consumers….Nuclear baseload generators cannot pass this tax onto ratepayers because they do not sell directly to electric utilities serving end use customers.”

NATURE AND SOURCES OF OPPOSITION:

Daniel Weekley, Vice President of Government Affairs, Dominion
Applying a generation tax on nuclear power generation will result in higher electricity costs to ratepayers, will increase the State
's dependence on natural gas, and hinders fuel diversity. Any increase in operations or taxes will be passed onto consumers because “the majority of energy supply in New England is sold via contracts, and all new costs…must and will be included in the contract price.” A significant amount of shareholder money has been invested in the safety and safe operation of Millstone. “However, this type of punitive tax policy will plainly limit any further investment in reliability or expanded operations.” The limited scope of future safety investments will lead to layoffs, whereas the ability to “expand operations would mean more high paying jobs for Connecticut.”
Taxes of this nature have been considered on the state level and federal level in the past, but have never come to fruition because it has been determined that “no matter how well-intentioned, taxes on electricity immediately and directly harm the consumer.”

Kevin Hennessy, Assistant Counsel, Connecticut Business & Industry Association
Implementing a tax like this is bad policy as it will “put upward pressure on electric rates, stunt economic development and job growth and continue to weaken Connecticut
's and the region's fuel source diversity.” All businesses, including energy generators, take all costs into account when establishing prices for their products and services, which means the cost of this tax will be passed onto ratepayers. Another consequence of this bill is the message it is sending to potential businesses who will think twice about investing in our state due to such a tax that could potentially move to other companies that generate large profits.
This works against the goals of SB 1, which directs DEEP to diversify the state
's energy supply by “punishing oil, nuclear and coal generators.”

PSEG Power CT, Bridgeport, CT
This legislation is unfair to the last coal-fire generator in Connecticut, to the employees of the facility and to the cities of Bridgeport and New Haven. The coal plant in Bridgeport was originally “designed as a baseload plant, [but] no longer operates that way. It is an intermediate unit with capacity factors in the 30% range.” PSEG Power CT is concerned that the Legislature is setting a double standard by imposing a tax on this coal plant, but not on the “gas-fired Bridgeport Energy plant right next door, or any other gas fired facility, even though they are competing on the same wholesale market under the same rules.” PSEG is also the largest taxpayer to the City of Bridgeport.

Jonathan Gordon, Manager of External Affairs, NRG Energy, Inc.
While it is claimed that this bill will help reduce the cost of electricity to ratepayers, it will “increase costs to Connecticut ratepayers and places Connecticut-based electric generation at an economic disadvantage when compared to out of state generation.” As a result, the State will see a loss of power production and a loss of jobs. “The imposition of a generation tax is in direct conflict” with the goals of the State to establish new energy technology that will focus on energy efficiency, lower the environmental impact and reduce carbon emissions. “The proposed generation tax runs counter to these critical objectives and puts even greater pressure on in state power generation already facing significant economic challenges.”

Sandi Hennequin, Vice President, New England Power Generators Association, Inc.
The generation tax will have significant, negative consequences on electricity costs, on the business environment, and on job development. NEPGA feels that “this particular generation tax arbitrarily and unfairly targets specific generation technologies and fuel sources.” Any generator will factor in the cost of the tax into its market price making energy costs rise at a time when the State and its residents are making moves to reduce costs.
This will be extremely hard on businesses, especially with the economy recovering as slowly as it is. This will also put Connecticut at a huge disadvantage as it will be the only state in the country instituting such a tax.
Due to the targeted generators, Connecticut is setting a bad precedent using tax policy “to determine winners and losers, particularly in such an arbitrary fashion.”

Reported by: Katie Breslin

Date: 7 April 2011