STATE OF CONNECTICUT

Transcription

1 STATE OF CONNECTICUT PUBLIC UTILITIES REGULATORY AUTHORITY TEN FRANKLIN SQUARE NEW BRITAIN, CT DOCKET NO RE01 THE UNITED ILLUMINATING COMPANY'S REQUEST FOR APPROVAL OF ITS RENEWABLE CONNECTIONS PROGRAM--RECONSIDERATION October 23, 2013 By the following Commissioners: John W. Betkoski, III Arthur H. House Michael A. Caron Lead Staff: R. Scuris Legal Advisor: L. Levesque DECISION I. INTRODUCTION A. SUMMARY In this Decision, the Public Utilities Regulatory Authority approves, the Settlement Agreement between The United Illuminating Company s and the Public Utilities Regulatory Authority s Prosecutorial Unit with regards the proposed program to construct, own and operate generation facilities that produce energy from Class I renewable technologies.

2 Docket No RE01 Page 2 B. BACKGROUND Pursuant to v of the General Statutes of Connecticut (Conn. Gen. Stat.) 1 The United Illuminating Company (UI or Company) filed with the Public Utilities Regulatory Authority (PURA or Authority) on January 18, 2012, its proposed program to construct, own and operate generation facilities that produce energy from Class I renewable technologies 2 from July 1, 2011 to July 1, 2013 (Renewable Connections Program or RCP). Specifically, the Company requested that the Authority approve a proposed framework that authorizes guidelines for renewable projects allowing for the efficient development of large scale renewables in Connecticut. By Decision dated July 18, 2012, in Docket No , The United Illuminating Company s Request for Approval of its Renewable Connections Program (2012 RCP Decision), the Authority approved, with modifications, UI s proposed program to construct, own and operate generation facilities that produce Class I renewable energy, pursuant to Conn. Gen. Stat v. Specifically, the Authority approved a 2.86 MWdc solar photovoltaic facility and a 2.8 MW fuel cell facility both at the site of the Bridgeport Landfill, and a 2.8 MW fuel cell facility in New Haven. Additionally, the Authority found that the proposed site locations for the proposed or similar type of generation projects to be adequate for these purposes. The Authority approved the proposed Renewable Connections Program cost of service ratemaking treatment and its recovery through the Nonbypassable Federally Mandated Congestion Charge, but rejected the request for a permanent 75 basis point return on an equity bonus / adder RCP Decision, p. 1. By Decision dated September 5, 2012, the Authority reopened the instant proceeding. The reopened proceeding was hereby designated as Docket No RE01, The United Illuminating Company s Request for Approval of Its Renewable Connections Program Reconsideration. By letters dated September 19, 2012 and October 9, 2012, the Authority issued a series of interrogatories to gauge the status and UI s progress towards its RCP as approved by the parameters authorized in the 2012 RCP Decision. By letter dated March 26, 2013, and pursuant to Section 16-19j(w) of the General Statutes of Connecticut, the Authority designated Miriam L. Theroux and Steven Cadwallader to serve as Prosecutorial staff (PRO) on the subject case for the purpose of reviewing, with the other Parties, UI s RCP proposal. By Motion dated August 30, 2013, UI and PRO submitted an agreement revising the parameters granted by the 1 Established by 127 of Public Act No , An Act Concerning the Establishment of the Department of Energy and Environmental Protection and Planning for Connecticut s Energy Future. 2 Conn. Gen. Stat. 16-1(a)(26) defines Class I renewable energy source as: (A) energy derived from solar power, wind power, a fuel cell, methane gas from landfills, ocean thermal power, wave or tidal power, low emission advanced renewable energy conversion technologies, a run-of-the-river hydropower facility provided such facility has a generating capacity of not more than five megawatts, does not cause an appreciable change in the river flow, and began operation after July 1, 2003, or a sustainable biomass facility with an average emission rate of equal to or less than.075 pounds of nitrogen oxides per million BTU of heat input for the previous calendar quarter, except that energy derived from a sustainable biomass facility with a capacity of less than five hundred kilowatts that began construction before July 1, 2003, may be considered a Class I renewable energy source, or (B) any electrical generation, including distributed generation, generated from a Class I renewable energy source.

3 Docket No RE01 Page 3 Authority in the 2012 RCP Decision that re-aligned the risk and return tradeoff of UI s RCP (Settlement Agreement). The Settlement Agreement set forth the parameters under which UI would construct, own and operate up to 10 MW of Class I renewable generation resources and was presented for approval to the Authority for review and approval without further modifications. The Settlement Agreement is attached hereto as Attachment A. C. CONDUCT OF THE PROCEEDING By Notice of Hearing dated September 18, 2013, pursuant to Conn. Gen. Stat and 16-19e, the Authority held a public hearing on this matter on September 30, 2013, at its offices, Ten Franklin Square, New Britain, Connecticut. The hearing continued without date. By Notice of Close of Hearing dated October 15, 2013, the hearing in this matter was closed. The Authority issued a draft Decision in this matter on October 15, All Parties and Interveners were provided the opportunity to submit Written Exceptions to the draft Decision. D. PARTIES AND INTERVENORS The Authority recognized the following as Parties to this proceeding: The United Illuminating Company, 157 Church Street, New Haven, CT ; the Office of Consumer Counsel (OCC), Ten Franklin Square, New Britain, CT 06051, and Prosecutorial (PRO), Ten Franklin Square, New Britain, CT The Authority granted Intervenor status to the Office of the Attorney General (AG); The Connecticut Light & Power Company (CL&P); the City of Bridgeport; and FuelCell Energy, Inc. (FuelCell Energy). E. PUBLIC COMMENT The Authority considers all public input as it deliberates its final rulings in this and other matters that come before it. The Authority thanks those individuals or companies that provided public and/or written comments in this proceeding. 1. Bridgeport Mayor Bill Finch Bridgeport Mayor Bill Finch strongly supports UI s proposal to build, own and operate up to 10 MW of renewable generation and urges the Authority s favorable and timely consideration of this proposal. Mayor Finch wrote to the Authority in support of reconsidering UI s RCP program after the 2012 RCP Decision was rendered. Mayor Finch also supported the Settlement Agreement and indicated that the project would have a very positive effect on the region and to one of Connecticut s largest cities. Written Comments, September 26, 2012 and September 30, Bridgeport Regional Business Council Paul S. Timpanelli, the President and CEO of Bridgeport Regional Business Council (BRBC) supports UI s request to build, own and operate 10 MW of green power

4 Docket No RE01 Page 4 in its service territory. Mr. Timpanelli calls UI s proposal a landmark project for the region as well as the state. The BRBC suggests that the project will turn a brown field into a 21 st century bright field and transform the image of Bridgeport from a declining industrial city to smart, sustainable community utilizing green energy. The BRBC urges the Authority to approve the Settlement Agreement and hopes construction can being so that the facility begins operation by 2014 year end. Written Comments, September 30, 2013; Tr. 9/30/2016, pp II. SETTLEMENT AGREEMENT UI and PRO (collectively, the Settlement Parties) stated that the proposed Settlement Agreement restructured the RCP so that it would be consistent with state policy, as laid out by Conn. Gen. Stat v, which allows electric distribution companies to build renewable generation and be reimbursed for its costs by ratepayers. The Settlement Agreement is consistent with past Authority Decisions, particularly those that address renewable generation and cost recovery. Finally, the Settlement Parties have offered an agreement that they believe is acceptable to the Authority and to UI. PRO is of the opinion that the Settlement Agreement meets these objectives; relative to the RCP, as detailed by the 2012 RCP Decision. Tr. 9/30/2013, pp. 362 and 363. Section 1 of the Settlement Agreement, Return on Equity focused on establishing a means that permits UI s RCP investment to earn a higher return on equity (ROE) than those ROEs that are granted through the rate case process. Section 1(a) sets up a comparative formula to calculate the Base ROE which is equal to: (A) the greater of the current UI distribution ROE+ 25 basis points adder; and (B) the current authorized distribution ROE for CL&P less a target equivalent market revenues, currently reflected as 25 basis point. The Settlement Parties clarified that the base ROE of either portion of the comparison would be the then current ROE for the respective companies. The Settlement Parties also indicated that the target equivalent market revenues were designed as a portion of the return that UI would receive as part of the market revenues that they would retain. Presently, it is designed to be approximately 25 basis points, but in future years this portion will depend on actual market revenues earned. Settlement Agreement, p. 2; Tr. 9/30/2013, pp ; UI Late Filed Exhibit No. 1. The Settlement Agreement also included Section 1(b). According to the Settlement Parties, this portion was included to ensure a UI RCP project would not earn a lower return than a CL&P project assuming CL&P also had a RCP. This was driven by the fact that at the time of the negotiations, UI s ROE was 8.75% while CL&P was allowed 9.4%. Section 1(b) also required UI s ROE to be tied to market revenues. Thus, in the event of successful marketing of its project, not only would UI benefit, but so would its ratepayers. Initially, UI will retain 25 basis points from market revenues, but once the project goes live, the market revenues may be higher or lower. Therefore, UI may receive more or less than the 25 basis points. Based upon UI s description of the calculation of the target market revenues, this adjustment would proportionally adjust to the initial 25 basis point. The target market revenues would be set up to account for capacity revenues, Renewable Energy Credit Revenues, and potential energy revenues from the projects. Tr. 9/30/13, pp ; UI Late Filed Exhibit No. 1. UI planned to have the computations contemplated in Section 1(b) within the 30 days prior to the go-live date of the project. Therefore, the market revenues as of that date

5 Docket No RE01 Page 5 would be used to compute the ongoing target market revenue equivalent. Tr. 9/30/13, pp. 379 and 380. Overall, PRO stated that the intent of Section 1(b) was to add 25 basis points to the Settlement Agreement s Section 1(a) calculation. The rationale being that the Settlement Agreement s negotiations resulted in a 50 basis point adder to the UI base ROE. Accordingly, the 50 basis points adder consists of 25 basis points from Section 1 (a) and 25 basis points from Section 1(b) s market revenues. Tr. 9/30/13, pp. 187 and 188. The Settlement Parties also indicated that in exchange for the greater return as detailed in Sections 1(a) and 1(b), the Company agreed to assume additional risk as detailed in Sections 2(a), 2(b) and 2(c). According to the Company, its RCP as detailed in the 2012 RCP Decision was purely a cost-of-service investment and it was not proposing to assume construction cost-related risk associated with the RCP building schedule. Additionally, the Company was not assuming capital cost recovery risk. The Settlement Agreement places UI at risk for construction schedule risk, capital cost risk and recovery, and performance risk. As a hypothetical, UI examined the potential risk exposure associated with the Section 2(a)(ii) construction schedule risk. UI estimates it could cost the Company up to $600,000 ($100,000 x 6) over the cited six month period which exceeds the 12 months initially allocated for building. The Company states that by applying the potential $600,000 total loss when exceeding the allowed building time to the 25 basis points adder contemplated in Section 1(b), (which it calculated to be at $40,000 a year), the potential penalty for being late erases the target market revenues for the next 20 years. Tr. 9/30/13, pp In Section 2(b), Capital Cost Risk and Recovery, the Company contemplates that in the three months prior to start of construction, a technical meeting or hearing would be held. At that time, the Company expects to present its findings with regards to construction costs and present a budget for approval. UI also contemplates that at this time, the Authority and Parties would have an opportunity to weigh in on the construction budget. Following this meeting granting budgetary approval, the Authority could not make the Company proceed with a lower construction budget than agreed to. Tr. 9/30/13, pp. 395 and 396. The Company opined that the incorporation of Section 2(b) into the Settlement Agreement, dramatically shifts risk intended in the 2012 RCP Decision, but under this agreement the Company would develop its budget. This budget would be submitted for Authority review and would be the threshold the actual costs are judged against. Tr. 9/30/13, p In Section 2(c), Performance Risk, the Settlement Agreement places the performance risk of the facility on the Company. For instance, if the RCP facilities are providing less capacity than they should be, then UI is potentially liable outside of a 10 percent bandwidth, for the capacity value that is not being provided to ratepayers. This portion of the Settlement Agreement exposes the Company to a potential capacity penalty for the 20-year life of the facility. According to UI, this type of arrangement has substantially more risk than the normal cost of service approach had the facility not met performance standards and absent imprudence, the only other outcome would be less megawatts production and less revenue. Tr. 9/30/13, pp. 402 and 403; UI Late Filed Exhibit No. 2.

6 Docket No RE01 Page 6 III. AUTHORITY ANALYSIS The Settlement Agreement addresses several areas of contention UI had with the 2012 RCP Decision. Primarily, UI s position that the RPC projects had inherent risks that differed from those of its distribution business. UI was of the opinion that it should be granted a 75-basis point adder to its basic generation ROE to compensate for those risks. The 2012 RCP Decision rejected the flat 75 basis point adder. Since that Decision was rendered, the Board of Directors of UIL Holding Corporation, parent of UI, had not approved proceeding with the construction of the RCP facilities based on the parameters set forth in the 2012 RCP Decision. Settlement Agreement, p. 2. The Settlement Agreement is a negotiated agreement which attempts to balance UI s position that it be granted greater a return for voluntarily constructing a renewable energy generation facility (which UI believes bears additional risk) with the PRO s suggestion that the Company assume certain additional project risks which were not initially contemplated in UI s initial application in Docket No in exchange for the opportunity to earn a higher ROE on RPC projects. Settlement Agreement, pp. 1 and 2. The primary focus of the Settlement Agreement was to establish a framework with respect to the RCP s ROE and project risk allocation. The following highlights the areas the Authority finds these differ from the initial proposal in Docket No that now merit reexamination. Instead of merely adding 75 basis points to the then current UI distribution ROE as initially proposed in Docket No , Section 1(a) of the Settlement Agreement now establishes that the base ROE for the RCP be calculated as the greater of: (A) Current UI distribution ROE plus (+) 25 basis point adder; and (B) Current authorized distribution ROE for CL&P less (-) target equivalent market revenues (reflected as 25 basis points). Additionally, Section 1(b) indicates that UI will retain a percentage of the market revenues from the project and that this percentage will be calculated to equate to approximately 25 basis points of the after tax ROE. Settlement Agreement, p. 2. Sample calculations were provided demonstrating how the base ROE would be computed based upon a comparative formula using the UI and CL&P distribution ROEs, as well as calculations establishing how the target market equivalent market revenues would be determined in future filings. UI Late Filed Exhibit No. 1 Revised. In exchange for the opportunity to earn a greater return on the RCP investments, the Company indicated the Settlement Agreement transfers certain risks in connection with the RCP from the regulatory cost of service pass through process to the Company. These risks include construction schedule risk, capital risk and recovery and performance risk and are detailed in the Settlement Agreement. Of the three types of risks UI will assume, the Company opined that the performance risk was the most worrisome. Tr. 9/3013, pp The Authority has examined the Settlement Agreement; and it finds it results in a more balanced approach between the Company s desire for a greater return on its RCP investment and the PRO s proposal to place greater risk on the shoulders of the Company. With the negotiated revisions to the RCP, the Authority finds the program acceptable and approves the program as modified by the Settlement Agreement.

7 Docket No RE01 Page 7 IV. FINDINGS OF FACT 1. In the July 18, 2012 Decision in Docket No , the Authority approved, with modifications, UI s proposed program to construct, own and operate generation facilities that produce Class I renewable energy, pursuant to Conn. Gen. Stat v. 2. By Motion dated August 30, 2013, UI and PRO submitted the Settlement Agreement. 3. The Settlement Agreement established a revised framework with respect to the RCP s ROE and project risk allocation. V. CONCLUSION AND ORDERS A. CONCLUSION In light of the Settlement Agreement, UI is authorized to proceed with the RCP as amended. The revised RCP will apply to future approved Class I generation projects for a total of 10 MW that are submitted pursuant to and comports with Conn. Gen. Stat v. Any projects developed under Conn. Gen. Stat v that were not approved herein must be submitted to the Authority for approval. The Authority concludes that the RCP framework and the solar PV and fuel cell projects approved herein comport with Conn. Gen. Stat v. B. ORDERS 1. UI shall submit its proposed budget for the identified projects for Authority review within three months for the 7.8MW located in Bridgeport and New Haven as contemplated in the Settlement Agreement Section 2(b) (ii) and 2(b) (iii). 2. UI shall submit its proposed budget for the identified projects for Authority review within 12 months for the remaining 2.2MW RCP facilities as contemplated in the Settlement Agreement Section 2(b) (ii) and 2(b) (iii). 3. As part of its request for RCP project recovery, UI shall submit a detailed computation similar to UI Late Filed Exhibit No. 1 Revised, including working spreadsheet models, as to how it arrived at its proposed RCP ROE and its retained market revenue percentage. 4. As part of its request for RCP project recovery, UI shall submit a detailed computation similar to UI Late Filed Exhibit No. 2 indicating its then current exposure to performance risk penalties.

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11 DOCKET NO RE01 THE UNITED ILLUMINATING COMPANY'S REQUEST FOR APPROVAL OF ITS RENEWABLE CONNECTIONS PROGRAM--RECONSIDERATION This Decision is adopted by the following Commissioners: John W. Betkoski, III Arthur H. House Michael A. Caron CERTIFICATE OF SERVICE The foregoing is a true and correct copy of the Decision issued by the Public Utilities Regulatory Authority, State of Connecticut, and was forwarded by Certified Mail to all parties of record in this proceeding on the date indicated. Nicholas E. Neeley Acting Executive Secretary Public Utilities Regulatory Authority October 24, 2013 Date