Connecticut allows utilities to build peaker plants

LOS ANGELES, June 7 (Reuters) - Connecticut Gov. Jodi Rell on Thursday singed into law a bill to allow regulated utilities to build power plants for use only during times of peak demand, according to a press release from Northeast Utilities.

Connecticut Light & Power, a subsidiary of Northeast Utilities (NU.N) and United Illuminating Co., a subsidiary of UIL Holdings Corp. (UIL.N) have since 1998 been prevented from building generation plants, limiting their business to electricity distribution. The new law allows them to get back in the power plant building business in a relatively minor way -- by building peaker power plants. Those are plants used only during high demand hours such as during summer afternoons.

CL&P is the biggest and United Illuminating the second-largest power utilities in the state.

There was concern in the state legislature that independent power producers were not building enough peak-hour power plants to meet summer demand, according to two of the state's newspapers, the Hartford Courant and the New Haven Register.

Connecticut's customers pay among the highest power prices in the United States. There was a sense in the legislature that the 1998 deregulation of the power industry in Connecticut needs to be reworked, the newspapers reported.

Since 1998, Connecticut's utilities were required to sell off their generation to encourage competition in the wholesale electricity market.

It will allow the state's utilities, including Connecticut Light and Power Company, to recover the costs of plant construction on a cost-of-service basis, which means recovering the costs from ratepayers as as done before the state deregulated power generation.

The law "requires that Connecticut electric distribution companies to file plans in January 2008 to build cost of service peaking generation facilities and also requires the Connecticut Department of Public Utility Control to allow Connecticut electric distribution companies to buy generation assets that are for sale, if it is in the public interest," according to Northeast Utilities.