The legislation provides that, by October 1, 1998, all electric utilities must submit plans to unbundle and separate their generating assets from their transmission and distribution assets. While utilities are not required to sell their generating assets, no utility will be able to recover stranded costs unless its generating assets are sold through an auction process. Affiliates of the utility can participate in the auction. In addition, the legislation provides that a utility may not recover stranded costs unless it has mitigated these costs to the greatest extent possible. The legislature identified the following as examples of mitigation: obtaining written commitments from purchasers of generating assets that wages and overall compensation to non-managerial employees working at the generating facilities will not be reduced, and making good faith efforts to negotiate the buyout or buydown of independent power producer contracts.
The legislation authorizes the issuance of "rate reduction bonds" as a means of financing stranded cost recovery obligations and reducing retail rates. The bonds may be issued only if the utility can prove that the savings attributable from the bond financing will be directly passed on to ratepayers through lower rates and that the bond financing will not give any affiliate of the utility an unfair competitive advantage. Under the legislation, the Connecticut Department of Public Utility Control ("DPUC") must establish a code of conduct applicable to each distribution company by January 1, 1999. The code of conduct must include restrictions on the distribution companys use of its information or revenues to subsidize any affiliated generation entity and must generally ensure that all competitive suppliers have non-discriminatory access to transmission and distribution facilities.
A consumer education advisory council will be established to, among other things, promulgate uniform standards for the disclosure of certain environmental information so that retail customers may easily compare air emissions and the energy resource mix of competitive suppliers. In addition, all energy obtained by competitive suppliers must comply with Connecticut environmental regulations. This requirement applies to energy obtained from generating facilities located anywhere in North America. Beginning on July 1, 2000, one-half of one percent (0.5%) of a suppliers total energy output must be generated from facilities defined as "class 1 renewable energy sources", which include solar power, wind, fuel cells, landfill gas or biomass facilities that began operation on or after July 1, 1998. An additional five and one-half percent (5.5%) of the total energy output of each supplier must be from either class 1 renewables or from "class 2 renewable energy sources", which include waste-to-energy facilities, biomass facilities that begin operation prior to July 1, 1998 or hydroelectric facilities. This renewable energy requirement increases yearly so that, by July 1, 2009, six percent (6%) of each suppliers total energy output must be generated from class 1 renewable sources and an additional seven percent (7%) of its total output must be from class 1 or class 2 renewable sources. From January 1, 2000 to January 1, 2004, each distribution company must provide standard offer service to all customers in its service area which have not elected to purchase energy services from a competitive supplier. The distribution company may obtain the energy for this service from its affiliated generation company without having to utilize a competitive bidding process. Beginning on January 1, 2004, each distribution company will also be responsible for providing default service to any customer who does not, or is unable to, obtain energy services from a competitive supplier. In providing this default service, the distribution company must purchase generation services through a competitive bidding process, but a generating affiliate of the distribution company may participate in the bidding process.
Each competitive power supplier must file an application for a license with the DPUC. Among the information that must be submitted is a scope of service plan which provides a description of the geographical area that the applicant plans to serve. The supplier must update the plan on an annual basis. The DPUC is also authorized to monitor competitive generation markets and to take action to prevent unfair competitive practices and the unlawful exercise of market power. In addition to the investigation of possible anti-competitive conduct, the DPUC may also investigate the effects of mergers, asset acquisitions and asset dispositions involving competitive suppliers.