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Final Connecticut Determination To Require Procurement Of Zero-Carbon Resources

Determination Addresses Whether To Use Long-Term Contract Supplies For Default Service

February 2, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A final Resource Assessment of the Millstone nuclear plant and Appraisal Report and Determination Pursuant to Executive Order 59 and Public Act 17-3 from the Connecticut Department of Energy and Environmental Protection (DEEP) and the Public Utilities Regulatory Authority finds that DEEP should conduct a procurement or procurements for new and existing zero carbon generation facilities

Under the final determination, DEEP will utilize PPAs, under which products are sold into the market and not dedicated to default service, for any procurements

"The competitive solicitation process under June Special Session Public Act 17-3 is a reasonable mechanism through which to determine if it is in the interest of ratepayers to secure the value offered by new and existing zero emission resources. The competitive solicitation process for power purchase agreement(s) (PPA) is already authorized by the General Assembly. PPAs are flexible tools and can be crafted for any particular term, pricing structure, facility and/or attribute or product. PPAs can be designed to promote efficiency and economic effectiveness. Furthermore, a competitive solicitation process does not mandate DEEP to select any particular resource or bid, if the results of the process do not demonstrate benefits to ratepayers," the determination states

The determination notes that certain lawmakers had stated that the June Special Session Public Act 17-3 allows the state to seek bids from nuclear power generating facilities to, "supply power to Connecticut electric consumers directly."

However, the final determination concludes that such is not the case

"In fact, the Act did not confer on DEEP or PURA the authority to directly supply Connecticut retail customers with electricity from Millstone or any other resource eligible to bid under the Act, for that matter. The Act contemplates the utilities entering into medium- to long-term fixed-price contracts to purchase electricity and other resources from eligible generators. The utilities would take ownership of the electricity and re-sell it into the wholesale market. If the purchase price is below the market price, all Connecticut ratepayers receive a credit on the distribution portion of their electric bill. If the purchase price is above the market price, all Connecticut ratepayers pay the difference through a charge on the distribution rates. Given the large potential quantity of electricity that can be purchased under the Act—up to twelve million megawatt hours, equivalent to approximately 75 percent of Millstone’s output and approximately 44 percent of Connecticut’s total electric consumption of 27.5 million MWh—even a $0.01/kWh average annual difference between the market and contract price for the full twelve million megawatt hours would result in roughly a $120 million net annual charge or credit to ratepayers," the determination states

"As noted in the Resource Assessment, Connecticut’s electricity deregulation statute gave all Connecticut customers the freedom to choose their electric supplier. Today, 49 percent of CL&P residential customers and 36 percent of UI residential customers as well as roughly 92 percent of commercial and industrial load for both utilities purchase their electricity from third-party suppliers in a competitive market. The remainder purchase from the utilities through the Standard Offer rate (for residential customers) or Last Resort Service (for commercial and industrial customers). In the mid-2000s, these utility offerings were procured through portfolios of three-year fixed price contracts: at any given time, the utility rate comprised a blend of costs for power purchased over the previous three years. As prices rose, this proved a viable strategy. When prices fell after 2007, however, Connecticut was burdened with long-term, and now very high-priced contracts. For this reason, in 2011 the General Assembly mandated a new utility procurement process, which ensures that the utilities purchase power for Standard Service and Last Resort Service on shorter terms that more closely follow market dynamics (e.g., no power is purchased more than one year in advance)," the determination states

"The Act did not alter or amend retail choice. There is no requirement for retail customers to buy electricity obtained by the utilities from a generator under the Act. If the utilities were to enter into a contract with Millstone under the Act, and the contract price turned out to be lower than market prices, the utilities could, in theory, use some of the purchased electricity for Standard Service (SS) or Last Resort Service (LRS). However, customers on SS and LRS cannot be compelled to stay on those rates. If the Millstone price ended up being above market, SS and LRS customers would flee to competitive supply offers, such that the utilities would have to resort to the distribution charge to recover the costs of the Millstone contract from all ratepayers. If the Millstone price ended up being below market, only SS and LRS customers would reap those benefits of a lower retail rate. This creates an inequity where all ratepayers— including those on competitive supply contracts—would bear the risk of an above-market contract, and only some would benefit from a contract that turns out to beat the market price. If the legislature wanted a different arrangement, to avoid the retail 'markup,' they would have had to enact restrictions on customer retail choice," the determination states

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