Malloy ready to cancel utility surcharge and energy fund raid

A plan to borrow $956 million to help balance the current state budget–to be paid off largely through a controversial surcharge on electricity bills–no longer is necessary thanks to another surge in forecasted state revenues, Gov. Dannel P. Malloy’s administration reported.

But it remained unclear Monday afternoon what that would mean for the $1.2 million customers of the state’s largest utility, Connecticut Light & Power Co., who already have been paying an extra fee to support the state budget since January.

In its monthly budget report to Comptroller Kevin Lembo, Malloy’s Office of Policy and Management said the projected General Fund surplus would jump another $451.7 million before the fiscal year ends on June 30, buoyed in particular by a $286.5 million increase in projected income tax revenues.

That increase lifts the projected surplus for the $19.01 billion budget adopted for 2010-11 to $679.8 million–nearly $34 million more than the level needed to make the controversial borrowing unnecessary.

The 2010 legislature and then-Gov. M. Jodi Rell approved a two-pronged plan last May to place nearly $1 billion in costs from the upcoming state budget on the shoulders of utility customers.

About $40 million for the 2010-11 budget would be raised with a surcharge of 0.379 cents per kilowatt hour–or $2.65 per month for the typical residential customer using 700 kilowatt hours per month. It was imposed solely on CL&P customers starting in January and is set to run through June 30.

Another $956 million would be borrowed and financed over eight years, also to support the 2010-11 budget, with the annual debt service of $141.6 million to be paid off in two ways starting in 2011-12:

• A second surcharge, this time equal to 0.47 cents per kilowatt hour – or $3.29 per month for the typical residential customer–is scheduled to replace the current surcharge when it expires in July. It would be levied initially only on CL&P customers and was expected to raise $112.9 million per year. After October 2013, though, the rate on CL&P customers would be reduced and the 324,000 customers of United Illuminating, the state’s other major electric utility also would begin contributing.
• And $28.7 million to cover the rest of the debt service would be drawn annually from the $82 million reserved for the Energy Conservation and Load Management Fund, which helps households cut their heating bills while creating hundreds of energy efficiency jobs.

Shortly after last May’s budget vote, a last-minute increase in the projected 2009-10 surplus reduced the borrowing target needed to balance 2011 finances from $956 million to $646 million.

And with the 2010-11 surplus now standing just below $680 million, the borrowing is unnecessary, according to the Malloy administration.

Treasurer Denise L. Nappier hasn’t issued any bonds in connection with the current budget year. The treasurer said in December that her office likely wouldn’t issue any bonds until just before the fiscal year’s end in the event that the borrowing target might be further reduced.

“Accordingly, I will be working with the treasurer and the General Assembly to repeal the legislation authorizing such deficit financing,” OPM Secretary Benjamin Barnes wrote in a letter sent late Friday to Lembo.

Barnes notified Lembo that overall revenue projections have jumped $250 million since the administration’s April 20 forecast. That’s driven largely by a $286.5 million increase in expectations for the income tax and offset partially higher than anticipated refunds.

The comptroller’s office certifies the official monthly state budget forecast. The next report is due to the governor’s office on June 1.

Avoiding a nearly $29 million annual hit “would be huge for energy efficiency programs, both for jobs they support and for the consumers who benefit directly from them in the form of reduced energy bills,” Christopher Phelps, director of Environment Connecticut, said Monday.

“Governor Malloy has consistently said this borrowing scheme was not a good idea,” CL&P President Jeff Butler said Monday. “We are very pleased that, when presented with an opportunity to make things right, the governor is taking action to relieve CL&P customers of this additional and unfair burden on their energy bills.”

Sen. Paul Doyle, D-Wethersfield, who argued the debt financing scheme unfairly targeted CL&P customers, repeated his pledge Monday to push for some form of refund or credit for residences and businesses served by that utility.

“This news is a good development, but this situation still, to me, is unfair,” Doyle said. “I will still do my best to push for equity for all of the ratepayers.”

The utility surcharge sparked considerably acrimony during last fall’s state campaign season and afterward.

Southington Republican Joseph Markley, who was elected to the Senate, sued to block the Department of Public Utility Control from implementing the fee. Markley lost in Superior Court and his appeal was dismissed earlier this month by the Connecticut Supreme Court, which cited the state’s sovereign immunity in its decision.

Sen. Eileen Daily, D-Westbrook, co-chairwoman of the Finance, Revenue and Bonding Committee, has said she is willing to review any proposals balance the scales, but added that it would have to be weighed against the other fiscal challenges still facing the governor and legislature.

And one big one remains to be settled before the June 8 adjournment of the regular legislative session in the form of a $400 million gap in the $40.1 billion biennial budget adopted earlier this month for the 2011-12 and 2012-13 fiscal years.

That gap exists because the tentative worker concession deal announced in early May by the Malloy administration and the State Employees Bargaining Agent Coalition– though unprecedented in the projected level of savings–still fell $400 million below the $2 billion savings target the governor set for the biennium.