Jun. 29--A bill designed to blunt the impact of hundreds of millions in new electricity fees passed the state Senate by a 27-7 margin Tuesday after passing in the House last week.

Gov. M. Jodi Rell has publicly opposed the new federally mandated fee system that is expected to start in 2006, and power industry observers and legislative leaders expect that she will sign the bill. A spokesman for Rell said the governor wanted to review the legislation before indicating whether she will sign or veto it.

If the bill becomes law, it would provide conservation and power plant construction opportunities that legislators hope would bolster the state's inadequate power reserves. This, in turn, is expected to offset the expected double-digit rate increase that an estimated $300 million to $600 million in new electricity fees in 2006 would impose on ratepayers.

Legislators and industry observers said they did not know how much of the new fees, called locational installed capacity, would be offset by the bill or how long it would take to see the bill's programs take effect.

But they said that doing nothing would be worse for the state and would subject ratepayers to large electricity increases.

"We are facing a known ratepayer consequence with the new federal [fees ]. Without the tools in place to attack them, the ratepayers will be in a terrible position," said Robert Earley, who follows energy issues for the Connecticut Business and Industry Association.

State Sen. John Fonfara, D-Hartford, co-chairman of the energy and technology committee, said the bill offers opportunities for utility companies and others in the energy industry to bring down the capacity payments.

Among other things, the bill would let utility companies once again own limited amounts of power generation. They sold their power plants in the late 1990s when the state restructured its electricity markets.

It also encourages state utility regulators to use long-term contracts with the developers of new generators to promote the construction of new plants. The hope is to blunt the expected increases for every ratepayer and to create a more reliable electric system.

"There's a lot in [the bill]," Fonfara said. "You don't know which ones will take off, but it sets the stage for a smart energy policy."

The capacity fees would begin in 2006 under a plan approved by the Federal Energy Regulatory Commission. The new system would split the state into two pricing zones and give financial incentives to power plant owners to provide additional power reserves in areas that need them most, such as southwestern Connecticut.

Raymond Necci, president of Connecticut Light & Power, said his company would like to build some "peaking units," small power plants that are used only in times of highest power demand.

"It's the biggest bang for the buck to reduce [the fees]," he said.

Anthony Vallillo, president and chief operating officer of United Illuminating, said it would not take a tremendous amount of new generation to drive down costs significantly. And paying for new power generation would be preferable to paying more just to keep aging power plants operating.

"If no new generation is added, the costs are going to continue to go up and up and up," he said.

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