June 7, 2019

CT Legislature Charges Energy Storage Market with Unlimited Electric Utility Investments

Holland & Knight Energy & Natural Resources Blog
Saqib Z. Hossain

The Connecticut General Assembly energized the rapidly-growing energy storage market this week by enacting legislation that authorizes the electric distribution utilities to own and rate-base wholesale storage generation assets for the first time since electric restructuring was authorized in 1998.

The legislation, which passed easily in the House and Senate this week and Connecticut Gov. Ned Lamont is expected to sign, represents the culmination of Connecticut's aspirations to pass a Green New Deal bill. Once signed, the new law will immediately allow the electric distribution companies to build, own and operate unlimited quantities of energy storage systems, and recover the prudently-incurred costs from ratepayers automatically.

The new energy storage initiative stands as a stark contrast to Connecticut's electric restructuring law of 1998, Public Act 98-28, which essentially required the electric distribution companies to exit the wholesale power generation business. Initiatives since 1998 have involved the electric distribution utilities acquiring wholesale generation output, such as renewable energy certificates or zero emission credits, from clean energy assets, but not owning and rate-basing generation assets outright. So the new legislation, which House leadership unveiled only hours before the bill was enacted by the lower chamber, took the wholesale generation industry by surprise. Notably, the new legislation revises the statute which prohibits utility ownership of generation assets by carving out an exception for energy storage systems:

(a) An electric distribution company shall not own or operate 784 generation assets, except as provided in this section and sections 16-43d, 16-243m, 16-243u, 16a-3b and 16a-3c, provided that nothing in this section or in section 16-244w shall be interpreted to prohibit or limit the ability of an electric distribution company from building, owning or operating an energy storage system. See CT Gen Stat § 16-244e (emphasis added).

Some electric utility officials this week acknowledged uncertainty as to how they will implement their expanded authorization to invest in energy storage, recognizing that the electric distribution companies no longer operate wholesale generation assets in the wholesale marketplace and, therefore, lack the operational infrastructure to implement large-scale commercial generation operations.

At the time of electric restructuring in the late 1990s, stakeholders expected that deregulation of the electric industry would, among other things, benefit ratepayers by providing both choice and opportunity for savings, and harness the benefits of competition among electric generation companies. Allowing utility ownership of energy storage systems—which are generation assets—changes the market dynamics, in part because utility owned and operated energy storage systems can be deployed for generation, distribution system infrastructure, load and demand response. Furthermore, electric distribution companies have the ability to earn a return on invested capital from all customers, subject to prudency review, but without commercial sales considerations. How these factors impact utility resource planning, competitive investment decisions, technological innovation, and incentives are all issues that Connecticut regulators, ratepayers, and market participants will certainly be keeping a close eye on for the foreseeable future.

Meanwhile, another important provision of the energy legislation enacted this week reverses a provision of 2018's energy legislation by lifting a cloud of uncertainty over net energy metering, an important part of distributed solar photovoltaic investments in Connecticut. Under the new legislation, the state's net metering program was extended through Dec. 31, 2021, and the net metering cap was raised from 10 MW to 20 MW.

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