AN ACT CONCERNING DISTRICT HEATING SYSTEM INCENTIVES.

House of Representatives
HB5337 / File No. 383 1

General Assembly File No. 383
February Session, 2026 House Bill No. 5337

House of Representatives, April 2, 2026

The Committee on Energy and Technology reported through
REP. STEINBERG of the 136th Dist., Chairperson of the
Committee on the part of the House, that the bill ought to pass.

AN ACT CONCERNING DISTRICT HEATING SYSTEM INCENTIVES.
Be it enacted by the Senate and House of Representatives in General
Assembly convened:

Section 1. Section 16-258d of the general statutes is repealed and the 1
following is substituted in lieu thereof (Effective October 1, 2026): 2
(a) As used in this section: 3
(1) "District heating system" means a thermal loop natural gas 4
demand reduction system that is located in a designated area and is 5
designed to capture an annual minimum of thirty million British 6
thermal units of waste heat and transmits and distributes at least 7
seventy-five per cent of such waste heat directly to the premises of end 8
use customers that are located in such system's service area. 9
(2) "Gas company" has the same meaning as provided in section 16-10
1. 11
(b) After July 1, 2015, each gas company shall develop an incentive 12
program for district heating systems for the purpose of reducing natural 13
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gas demand in the state. As part of the conservation and load 14
management plan, pursuant to section 16-245m, each gas company shall 15
submit such program plan for approval to the Energy Conservation 16
Management Board and the Department of Energy and Environmental 17
Protection. Said board and department have discretion to jointly 18
approve or disapprove such plan. Such program shall, on or after March 19
1, 2016, but not after June 30, 2027, or after the implementation of the 20
incentive program established pursuant to subsection (c) of this section, 21
whichever is sooner, provide an incentive payment to end use 22
customers who connect on or after March 1, 2016, to a district heating 23
system for heating purposes. Such incentive payment shall be based on 24
such customer's projected natural gas demand reduction for the period 25
of time that such customer commits to utilize the services of such 26
heating system. The projected natural gas demand reduction shall be 27
based on such customer's weather -adjusted historical usage data from 28
the previous three years. The amount of the incentive payment made to 29
such end use customer shall not exceed the incentive payment made for 30
equivalent natural gas demand reductions through the state's 31
conservation and load management plan. 32
(c) Not later than July 1, 2027, the Commissioner of Energy and 33
Environmental Protection shall, in consultation with the Energy 34
Conservation Management Board, develop and implement an incentive 35
program for end use customers who connect to a district heating system. 36
Any incentive made available through the program shall be calculated 37
based on the projected lifetime reduction in natural gas consumption 38
attributable to the district heating system using cost -effectiveness 39
methodologies that are consistent with the provisions of sections 16 -40
245m to 16 -245o, inclusive, and any regulations adopted pursuant to 41
said sections. 42
[(c)] (d) An owner or operator of a district heating system may charge 43
each end use customer a connection charge up to an amount equal to 44
the incentive payment received by such end use customer. 45
[(d)] (e) The Public Utilities Regulatory Authority shall ensure that 46
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the revenues required to fund such incentive payments made pursuant 47
to this section are provided through a fully reconciling conservation 48
adjustment mechanism, which shall not exceed more than nine million 49
dollars in total for the program established under this section, provided 50
(1) such revenues shall be in addition to the revenues authorized to fund 51
the Conservation and Load Management Plan pursuant to section 16 -52
245m, and (2) such revenues exceeding two million dollars required to 53
fund such incentive payments shall be paid over a period of not less 54
than two years. Such revenues shall only be collected from the gas 55
customers of the company in whose service area such district heating 56
system is located. 57
This act shall take effect as follows and shall amend the following
sections:

Section 1 October 1, 2026 16-258d

ET Joint Favorable

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The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of
the General Assembly, solely for purposes of information, summarization and explanation and do not
represent the intent of the General Assembly or either chamber thereof for any purpose. In general,
fiscal impacts are based upon a variety of informational sources, including the analyst’s professional
knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final
products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note

State Impact:
Agency Affected Fund-Effect FY 27 $ FY 28 $
Department of Energy and
Environmental Protection
CC&PUCF - Cost 177,290 127,290
Note: CC&PUCF=Consumer Counsel and Public Utility Control Fund

Municipal Impact: None
Explanation
The bill results in a cost to the Consumer Counsel and Public Utility
Control Fund of $177,290 in FY 27 and $127,290 in FY 28, by requiring
the Department of Energy and Environmental Protection (DEEP), to
develop and implement an incentive program by July 1, 2027, for end
use gas customers connected to a district heating system. The new
incentive program would replace the existing program and update the
methodology for calculating incentive payments.
The bill will result in a cost to DEEP associated with one additional
Research Analyst position, with an annual salary of $89,755 and
associated fringe benefit costs of $37,535. The new position will be
responsible for cost -effectiveness testing and variou s approvals
associated with the new program. Additionally, DEEP will require
$50,000 in FY 27, in consulting costs associated with the rollout of the
new program.
The Out Years
The annualized ongoing fiscal impact identified above would
continue into the future subject to inflation.
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OLR Bill Analysis
HB 5337

AN ACT CONCERNING DISTRICT HEATING SYSTEM INCENTIVES.

SUMMARY
This bill changes the way incentive payments are calculated for
certain district heating systems. It does so by ending an existing
program and replacing it with a similar program implemented by the
Department of Energy and Environmental Protection (DEEP).
Current law requires gas companies to give an incentive payment to
district heating system end users who connect to the system for heating
on March 1, 2016, or later. The gas companies must do this as part of the
Conservation and Load Management (C&LM) plan, as approved by the
Energy Efficiency Board and DEEP. Current law requires incentives
under this program to be calculated based on a customer’s projected
natural gas demand reduction for the period they commit to using
heating system services. This projected reduction must be based on the
customer’s weather -adjusted historical usage data from the previous
three years. Current law prohibits incentive payments made to any end
use customer under this program from exceeding incentive payments
made for other, equivalent natural gas demand reductions through the
C&LM plan.
The bill requires DEEP, in consultation with the Energy Efficiency
Board, to develop and implement an incentive program by July 1, 2027,
for end use customers connected to a district heating system. The bill
ends incentives under the current program, descr ibed above, when
DEEP implements its program or June 30, 2027, whichever is sooner.
Under the bill, incentives under DEEP’s program must be calculated
based on the projected lifetime reduction in natural gas consumption
that is due to the district heat system. To make this calculation, DEEP
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must use cost-effectiveness methodologies that are consistent with laws
on the C&LM plan, the Connecticut Green Bank, and electric supplier
consumer protections, as well as related regulations. Of these laws, only
the C&LM statutes directly address cost be nefit screening (see
BACKGROUND).
The bill retains certain provisions that apply to the incentive under
current law and applies them to DEEP’s incentive under the bill. For
both incentives, a district heating system owner or operator may charge
end use customers a connection charge in an amount up to the incentive
amount received by the customer. Funding for both incentives is
provided through a fully reconciling conservation adjustment
mechanism on gas customer bills for the gas company where the district
heating system is located. For both incentives, this funding is capped at
$9 million in total for the programs and is in addition to revenues
authorized to fund the C&LM plan generally (see BACKGROUND).
Any revenue over $2 million needed to fund the programs must be paid
over a period of at least two years.
Under current law and the bill, a district heating system is a thermal
loop natural gas demand reduction system designed to (1) capture at
least 30 million British thermal units (BTUs) of waste heat and (2)
distribute at least 75% of the waste heat to end users located in the
system’s service area.
EFFECTIVE DATE: October 1, 2026
BACKGROUND
C&LM Plan Requirements and Funding
By law, electric distribution companies, in coordination with gas
companies, must submit a combined electric and gas C&LM plan to the
Energy Efficiency Board and the DEEP commissioner for approval. The
plan’s purpose is to implement cost -effective energy c onservation
programs, demand management, and market transformation initiatives.
The law requires programs included in the plan to be screened through
cost-effectiveness testing that compares the value and payback period
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of program benefits for all energy savings to program costs to ensure
programs are designed to obtain energy savings and system benefits
that exceed project costs. If a program fails the cost -benefit test, it
generally must be changed or terminated.
By law, the C&LM plan is funded, in part, through a fully reconciling
conservation adjustment mechanism for each gas company of up to 4.6
cents per hundred cubic feet (CGS § 16-245m).
COMMITTEE ACTION
Energy and Technology Committee
Joint Favorable
Yea 18 Nay 8 (03/17/2026)