Proposed tax on nuclear plants would end electric bill surcharge

The General Assembly’s committee on energy unveiled a bill Tuesday that would replace a controversial surcharge on electric customers and a raid on energy conservation funds with a huge new tax on Connecticut’s two active nuclear power plants.

The bill, raised by the Energy and Technology Committee, is patterned partly after the controversial windfall profits levy that died before the legislature’s tax-writing panel last year.

Governor Dannel P. Malloy’s administration took a cautious position on the proposal Tuesday. While the governor’s choice to lead Connecticut’s energy and environmental policy, Daniel Esty, praised lawmakers for efforts to protect consmers from any new taxes on electricuty generators, the administration’s budget director warned that several aspects of this “significant” tax hike need further review.

The new tax, which quickly drew fire from the owner of the three Millstone nuclear power plants, one of which is inactive and being decomissioned, was presented simultaneously at Tuesday’s public hearing with an omnibus conservation measure which drew mixed reactions.

“Governor Malloy has recently been proclaiming that ‘Connecticut is open for business,'” said Daniel A. Weekley, vice president for government affairs for Dominion Resources Inc., which owns the Millstone plants. “Without question, this legislation affronts this effort on several levels.”

In the $19.74 billion budget he proposed last month for the fiscal year that begins July 1, Malloy proposed boosting the tax on electricity generation by 2/10ths of 1 cent per kilowatt hour. The projected revenue gain, about $58.4 million, would be a relatively small component within an overall package of tax increases worth $1.5 billion.

But the committee’s proposal would replace that with tax increases of

  • 2 cents per kilowatt hour on nuclear-powered generation.
  • 5/100ths of 1 cent per kilowatt hour on oil-powered generation.
  • And one-half of 1 cent on coal-fueled generation, but only during five peak-usage months: January, February, June, July and August.

The Connecticut Business and Industry Association, the state’s chief business lobby, also criticized the proposed tax as “bad public policy.

“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,” said Kevin R. Hennessy, CBIA’s assistant counsel on energy issues. “Like all businesses, electric generators incorporate all costs – including taxes – into the price for their product.”

Hennessy predicted these levies would discourage business investments in new electricity generation.

But Rep. Vickie Nardello, D-Prospect, co-chairwoman of the Energy committee, has long challenged this assertion, and insists that the power procurement rules that have controlled the New England market since deregulation begin a decade ago have allowed certain major generators like Dominion to amass huge profits.

Independent System Operator-New England, a regional nonprofit organization that oversees the region’s bulk electric power system, sets the price for electricity sales through a complex spot market system for power generated by all methods.

But because electricity generated by natural gas, a common source in the region, remains the most expensive, it determines the ISO-New England price most of the time. That means, according to Nardello, that Dominion often is paid natural gas prices for less expensive, nuclear-generated power.

Dominion officials have argued that their company sells nearly all of its power through long-term contracts with major distributors, not on the spot market. But Nardello counters that these contract prices nonetheless reflect the spot market pricing trends.

The Prospect lawmaker tried to prove her point last year through legislation that employed a complex formula to calculate excessive, windfall profits, and tax those. She estimated the windfall profits tax would raises $300 million a year.

The bill narrowly cleared her own panel, then died before the Finance, Revenue and Bonding Committee after nonpartisan legislative analysts reported they lacked the data to project any potential revenue gain.

But this time the legislation levies a tax specifically on electricity production, and not on profits. “This is a very clear output tax,” said Nardello. And though a fiscal note hasn’t been issued yet on the new bill, Nardello said she believes this bill would raise about $340 million per year.

The bill clearly counts on that type of revenue gain, because other sections would reverse two costly and controversial fiscal moves ordered last year by then-Gov. M. Jodi Rell and the legislature to avoid imposing tax hikes or deep spending cuts on the current state budget.

Rell and lawmakers specifically approved up to $956 million in borrowing, and covered the $141 million annual debt service on an eight-year financing plan with two controversial moves:

  • A surcharge of 0.47 cents per per kilowatt hour, or $2.65 per month for the typical residential customer, which raises $112.9 million per year.
  • And $28.7 million drawn from the $82 million reserved annually for the Energy Conservation and Load Management Fund, which helps households cut their heating bills while creating hundreds of energy efficiency jobs.

Both charges would go away under new bill raised by the Energy committee.

“This is ratepayer relief,” Nardello said. “It is budget relief and it protects clean energy.”

The plan won a quick endorsement from Environment Connecticut, a nonprofit conservation advocacy group.

The group’s program director, Christopher Phelps, argued it would provide “direct relief” to consumers and protect a fund that supports hundreds of jobs in the energy efficiency field while taxing “Connecticut’s dirtiest and most dangerous power sources.”

“I like the results of the proposal,” Office of Policy and Management Secretary Benjamin Barnes, Malloy’s budget chief, said Tuesday. “Lowering electricity rates is something we are always interested in discussing. But whether the size of the tax increase is appropriate, whether that proposal is going to work, is going to require some study.

Esty said a key test of the legislation would be whether lawmakers could draft language to ensure any new taxes aren’t passed onto ratepayers.

Esty also praised the committee for raising a measure that largely mirrors a bill vetoed by Rell last spring.

The bill would:

  • Include all hydro-powered generation facilities among the clean-energy sources from which all electricity suppliers must purchase at least a portion of their power.
  • Offer financial incentives through the state’s Clean Energy Fund to developers to buy or lease photovoltaic solar generation systems for one- to four-unit residential buildings.
  • Order a study of ISO-New England market pricing system.
  • Create innovation hubs for energy research at state universities.
  • Create a new state procurement manager to work with electricity distributors to develop a “portfolio of contracts” for power supply to reduce reliance on the emergency sot market and thereby lower standard service costs.
  • Mandate discounted rates for residential electric customers with incomes below 60 percent of the state median.
  • And establish a program to fund energy conservation projects in poor communities.

This measure also would implement Malloy’s proposal to merge the Departments of Environmental Protection and Public Utility Control with energy planning policy units within the administration.

Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, said that the bill “will help ensure that cohesive and compatible environmental and energy policies are created and executed.”

Phelps said the bill would “jump start Connecticut’s commitment to moving towards renewable energy sources. … This important step cannot wait another year.”

The Connecticut Business and Industry Association urged the committee to reconsider its residential solar voltaic installation program, arguing it would commit one-third of the Clean Energy Fund to a service businesses could not access, even though nearly 60 percent of the fund’s resources come from businesses’ electricity bills.

The CBIA also cautioned against “saddling” the proposed new Department of Energy and Environmental Protection with too much work, noting that the bill includes 27 new programs or studies to be implemented.