BILL REQ. #:  H-3702.1 

Read first time 01/17/12.   Referred to Committee on Environment.

     AN ACT Relating to creating an additional compliance mechanism for the energy independence act by allowing the use of alternative compliance credits; amending RCW 19.285.040, 19.285.060, 43.180.260, and 19.285.030; and adding a new section to chapter 43.180 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 19.285.040 and 2007 c 1 s 4 are each amended to read as follows:
     (1) Each qualifying utility shall pursue all available conservation that is cost-effective, reliable, and feasible.
     (a) By January 1, 2010, using methodologies consistent with those used by the Pacific Northwest electric power and conservation planning council in its most recently published regional power plan, each qualifying utility shall identify its achievable cost-effective conservation potential through 2019. At least every two years thereafter, the qualifying utility shall review and update this assessment for the subsequent ten-year period.
     (b) Beginning January 2010, each qualifying utility shall establish and make publicly available a biennial acquisition target for cost-effective conservation consistent with its identification of achievable opportunities in (a) of this subsection, and meet that target during the subsequent two-year period. At a minimum, each biennial target must be no lower than the qualifying utility's pro rata share for that two-year period of its cost-effective conservation potential for the subsequent ten-year period.
     (c) In meeting its conservation targets, a qualifying utility may count high-efficiency cogeneration owned and used by a retail electric customer to meet its own needs. High-efficiency cogeneration is the sequential production of electricity and useful thermal energy from a common fuel source, where, under normal operating conditions, the facility has a useful thermal energy output of no less than thirty-three percent of the total energy output. The reduction in load due to high-efficiency cogeneration shall be: (i) Calculated as the ratio of the fuel chargeable to power heat rate of the cogeneration facility compared to the heat rate on a new and clean basis of a best-commercially available technology combined-cycle natural gas-fired combustion turbine; and (ii) counted towards meeting the biennial conservation target in the same manner as other conservation savings.
     (d) The commission may determine if a conservation program implemented by an investor-owned utility is cost-effective based on the commission's policies and practice.
     (e) The commission may rely on its standard practice for review and approval of investor-owned utility conservation targets.
     (2)(a) Each qualifying utility shall use eligible renewable resources ((or)), acquire equivalent renewable energy credits, advanced renewable resource compliance credits, or a combination ((of both)) thereof, to meet the following annual targets:
     (i) At least three percent of its load by January 1, 2012, and each year thereafter through December 31, 2015;
     (ii) At least nine percent of its load by January 1, 2016, and each year thereafter through December 31, 2019; and
     (iii) At least fifteen percent of its load by January 1, 2020, and each year thereafter.
     (b) A qualifying utility may count distributed generation at double the facility's electrical output if the utility: (i) Owns or has contracted for the distributed generation and the associated renewable energy credits; or (ii) has contracted to purchase the associated renewable energy credits.
     (c) In meeting the annual targets in (a) of this subsection, a qualifying utility shall calculate its annual load based on the average of the utility's load for the previous two years.
     (d) A qualifying utility shall be considered in compliance with an annual target in (a) of this subsection if: (i) The utility's weather-adjusted load for the previous three years on average did not increase over that time period; (ii) after December 7, 2006, the utility did not commence or renew ownership or incremental purchases of electricity from resources other than renewable resources other than on a daily spot price basis and the electricity is not offset by equivalent renewable energy credits; and (iii) the utility invested at least one percent of its total annual retail revenue requirement that year on eligible renewable resources, renewable energy credits, or a combination of both.
     (e) The requirements of this section may be met for any given year with renewable energy credits produced during that year, the preceding year, or the subsequent year. Each renewable energy credit may be used only once to meet the requirements of this section.
     (f) In complying with the targets established in (a) of this subsection, a qualifying utility may not count:
     (i) Eligible renewable resources or distributed generation where the associated renewable energy credits are owned by a separate entity; or
     (ii) Eligible renewable resources or renewable energy credits obtained for and used in an optional pricing program such as the program established in RCW 19.29A.090.
     (g) Where fossil and combustible renewable resources are cofired in one generating unit located in the Pacific Northwest where the cofiring commenced after March 31, 1999, the unit shall be considered to produce eligible renewable resources in direct proportion to the percentage of the total heat value represented by the heat value of the renewable resources.
     (h)(i) A qualifying utility that acquires an eligible renewable resource or renewable energy credit may count that acquisition at one and two-tenths times its base value:
     (A) Where the eligible renewable resource comes from a facility that commenced operation after December 31, 2005; and
     (B) Where the developer of the facility used apprenticeship programs approved by the council during facility construction.
     (ii) The council shall establish minimum levels of labor hours to be met through apprenticeship programs to qualify for this extra credit.
     (i) A qualifying utility shall be considered in compliance with an annual target in (a) of this subsection if events beyond the reasonable control of the utility that could not have been reasonably anticipated or ameliorated prevented it from meeting the renewable energy target. Such events include weather-related damage, mechanical failure, strikes, lockouts, and actions of a governmental authority that adversely affect the generation, transmission, or distribution of an eligible renewable resource under contract to a qualifying utility.
     (3) Utilities that become qualifying utilities after December 31, 2006, shall meet the requirements in this section on a time frame comparable in length to that provided for qualifying utilities as of December 7, 2006.

Sec. 2   RCW 19.285.060 and 2007 c 1 s 6 are each amended to read as follows:
     (1) Except as provided in subsection (2) of this section, a qualifying utility that fails to comply with the energy conservation or renewable energy targets established in RCW 19.285.040 shall pay an administrative penalty to the state of Washington in the amount of fifty dollars for each megawatt-hour of shortfall. Beginning in 2007, this penalty shall be adjusted annually according to the rate of change of the inflation indicator, gross domestic product-implicit price deflator, as published by the bureau of economic analysis of the United States department of commerce or its successor.
     (2) A qualifying utility that does not meet an annual renewable energy target established in RCW 19.285.040(2) is exempt from the administrative penalty in subsection (1) of this section for that year if the commission for investor-owned utilities or the auditor for all other qualifying utilities determines that the utility complied with RCW 19.285.040(2) (d) or (i) or 19.285.050(1).
     (3) A qualifying utility must notify its retail electric customers in published form within three months of incurring a penalty regarding the size of the penalty and the reason it was incurred.
     (4) The commission shall determine if an investor-owned utility may recover the cost of this administrative penalty in electric rates, and may consider providing positive incentives for an investor-owned utility to exceed the targets established in RCW 19.285.040.
     (5) A qualifying utility may acquire advanced renewable resource compliance credits from the sustainable energy trust program under RCW 43.180.260 in the amount of twenty-five dollars for each megawatt hour of projected eligible renewable resource need. A qualifying utility may acquire advanced renewable resource compliance credits up to five years in advance of an eligible renewable resource target. A qualifying utility may not acquire more than twenty percent of its projected eligible renewable resource target requirements for any given target year.
     (6) Administrative penalties and advanced renewable resource compliance credit proceeds collected under this chapter shall be deposited into the energy independence act special account ((which is hereby)) created in RCW 43.180.260(2)(b). ((All receipts from administrative penalties collected under this chapter must be deposited into the account. Expenditures from the account may be used only for the purchase of renewable energy credits or for energy conservation projects at public facilities, local government facilities, community colleges, or state universities. The state shall own and retire any renewable energy credits purchased using moneys from the account. Only the director of general administration or the director's designee may authorize expenditures from the account. The account is subject to allotment procedures under chapter 43.88 RCW, but an appropriation is not required for expenditures.))
     (6) For a qualifying utility that is an investor-owned utility, the commission shall determine compliance with the provisions of this chapter and assess penalties for noncompliance as provided in subsection (1) of this section.
     (7) For qualifying utilities that are not investor-owned utilities, the auditor is responsible for auditing compliance with this chapter and rules adopted under this chapter that apply to those utilities and the attorney general is responsible for enforcing that compliance.

Sec. 3   RCW 43.180.260 and 2009 c 65 s 3 are each amended to read as follows:
     (1)(a) If economically feasible, the commission shall develop and implement a sustainable energy trust program to provide financing for qualified improvement projects. In developing the sustainable energy trust program, the commission shall establish eligibility criteria for financing that will enable it to choose eligible applicants who are likely to repay loans made or acquired by the commission and funded from the proceeds of commission bonds.
     (((2))) (b) The commission shall, if economically feasible:
     (((a))) (i) Issue bonds, as defined in RCW 43.180.020, for the purpose of financing loans for qualified energy efficiency and renewable energy improvement projects in accordance with RCW 43.180.150;
     (((b))) (ii) Participate fully in federal and other governmental programs and take actions that are necessary and consistent with this chapter to secure to itself and the people of the state the benefits of programs to promote energy efficiency and renewable energy technologies;
     (((c))) (iii) Contract with a certifying authority to accept applications for energy efficiency and renewable energy improvement projects, to review applications, including binding fixed price bids for the improvements, and to approve qualified improvements for financing by the commission. For solar electric systems, the certifying authority must use an application certification process similar to the investment cost recovery incentive application process provided under RCW 82.16.120. No work by a certifying authority may commence under this section until a request has been made by the commission; and
     (((d))) (iv) Before entering into a contract with a certifying authority as defined in RCW 43.180.020(2)(b), consult with the Washington State University ((energy)) extension (([extension energy])) energy program to determine which potential improvement technologies are appropriate.
     (((3))) (2)(a) The commission shall develop a program to offer advanced renewable resource compliance credits to qualifying utilities as provided under RCW 19.285.060.
     (b) The energy independence act special account is created in the custody of the state treasurer. All receipts from administrative penalties and advanced renewable resource compliance credit proceeds under chapter 19.285 RCW and interest payments on loans authorized under this chapter must be deposited into the account. Expenditures from the account may be used only to provide grants and loans to support the development of distributed generation and energy conservation projects. Only the commission may authorize expenditures from the account. The account is subject to allotment procedures under chapter 43.88 RCW, but an appropriation is not required for expenditures.
     (3) For the purposes of this section:
     (a) "Advanced renewable resource compliance credit" means a credit sold by the commission to a qualifying utility that is used to satisfy a portion of the qualifying utility's annual renewable energy target under RCW 19.285.040(2);
     (b) "Energy conservation" has the same meaning as "conservation" defined in RCW 19.285.030; and
     (c) "Qualifying utility" has the same meaning as defined in RCW 19.285.030.
     (4) No general fund resources may be expended to implement this section.

NEW SECTION.  Sec. 4   A new section is added to chapter 43.180 RCW to read as follows:
     (1) The commission shall convene a work group to investigate and make recommendations on the use of energy efficiency credits for energy conservation compliance purposes under RCW 19.285.040 and the creation of a program at the commission to sell energy efficiency credits to qualifying utilities.
     (2) The work group must consider and make recommendations on the following:
     (a) The design of a program that authorizes the commission to sell energy efficiency credits to qualifying utilities for energy conservation compliance purposes under RCW 19.285.040;
     (b) Whether energy efficiency credits purchased by a qualifying utility should be allowed to count at two times the amount of energy conservation acquired;
     (c) Whether energy efficiency credits purchased by a qualifying utility may represent conservation that might not be built at the time of purchase but could be verified up to three years after the calendar year in which the credits are sold;
     (d) The price at which the commission may sell energy efficiency credits to qualifying utilities;
     (e) The design of a program for the acquisition of conservation through making financial assistance, in the form of loans, grants, or similar products, available to residential, nonprofit, governmental, commercial, and industrial energy users for the purpose of accomplishing energy conservation measures;
     (f) A system for the verification of the amount of conservation acquired by such energy conservation measures through an energy audit certifying the amount of conservation obtained;
     (g) A system to track the verified conservation, the related energy efficiency credits, and the bundling of multiple verified conservation sources into any single energy efficiency credit; and
     (h) A reasonable fee that the commission may charge for operating an energy efficiency credit program.
     (3) No general fund resources may be expended to implement this section.
     (4) For purposes of this section, the definitions in RCW 43.19.670 apply, except as follows:
     (a) "Conservation" has the meaning given in RCW 19.285.030.
     (b) "Energy audit" means a determination of the energy consumption characteristics of a building or facility that consists of the following elements:
     (i) An energy consumption survey that identifies the type, amount, and rate of energy consumption of the building or facility and its major energy systems.
     (ii) A walk-through survey that determines appropriate energy conservation maintenance and operating procedures and indicates the need, if any, for the acquisition and installation of energy conservation measures and energy management systems.
     (iii) An investment grade audit, which is an intensive engineering analysis of energy conservation and management measures for the facility, net energy savings, and a cost-effectiveness determination.
     (c) "Energy efficiency credit" means a tradable certificate of proof of at least one megawatt-hour of conservation where the conservation is verified by an energy audit. The certificate includes all of the nonpower attributes associated with that amount of conservation, and the certificate must be verified by a tracking system selected by the commission.

Sec. 5   RCW 19.285.030 and 2009 c 565 s 20 are each amended to read as follows:
     The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Attorney general" means the Washington state office of the attorney general.
     (2) "Auditor" means: (a) The Washington state auditor's office or its designee for qualifying utilities under its jurisdiction that are not investor-owned utilities; or (b) an independent auditor selected by a qualifying utility that is not under the jurisdiction of the state auditor and is not an investor-owned utility.
     (3) "Commission" means the Washington state utilities and transportation commission.
     (4) "Conservation" means any reduction in electric power consumption resulting from increases in the efficiency of energy use, production, or distribution.
     (5) "Cost-effective" has the same meaning as defined in RCW 80.52.030.
     (6) "Council" means the Washington state apprenticeship and training council within the department of labor and industries.
     (7) "Customer" means a person or entity that purchases electricity for ultimate consumption and not for resale.     
     (8) "Department" means the department of commerce or its successor.
     (9) "Distributed generation" means an eligible renewable resource where the generation facility or any integrated cluster of such facilities has a generating capacity of not more than five megawatts.
     (10) "Eligible renewable resource" means:
     (a) Electricity from a generation facility powered by a renewable resource other than freshwater that commences operation after March 31, 1999, where: (i) The facility is located in the Pacific Northwest; or (ii) the electricity from the facility is delivered into Washington state on a real-time basis without shaping, storage, or integration services; or
     (b) Incremental electricity produced as a result of efficiency improvements completed after March 31, 1999, to hydroelectric generation projects owned by a qualifying utility and located in the Pacific Northwest or to hydroelectric generation in irrigation pipes and canals located in the Pacific Northwest, where the additional generation in either case does not result in new water diversions or impoundments.
     (11) "Investor-owned utility" has the same meaning as defined in RCW 19.29A.010.
     (12) "Load" means the amount of kilowatt-hours of electricity delivered in the most recently completed year by a qualifying utility to its Washington retail customers.
     (13) "Nonpower attributes" means all environmentally related characteristics, exclusive of energy, capacity reliability, and other electrical power service attributes, that are associated with the generation of electricity from a renewable resource, including but not limited to the facility's fuel type, geographic location, vintage, qualification as an eligible renewable resource, and avoided emissions of pollutants to the air, soil, or water, and avoided emissions of carbon dioxide and other greenhouse gases.
     (14) "Pacific Northwest" has the same meaning as defined for the Bonneville power administration in section 3 of the Pacific Northwest electric power planning and conservation act (94 Stat. 2698; 16 U.S.C. Sec. 839a).
     (15) "Public facility" has the same meaning as defined in RCW 39.35C.010.
     (16) "Qualifying utility" means an electric utility, as the term "electric utility" is defined in RCW 19.29A.010, that serves more than twenty-five thousand customers in the state of Washington. The number of customers served may be based on data reported by a utility in form 861, "annual electric utility report," filed with the energy information administration, United States department of energy.
     (17) "Renewable energy credit" means a tradable certificate of proof of at least one megawatt-hour of an eligible renewable resource where the generation facility is not powered by freshwater, the certificate includes all of the nonpower attributes associated with that one megawatt-hour of electricity, and the certificate is verified by a renewable energy credit tracking system selected by the department.
     (18) "Renewable resource" means: (a) Water; (b) wind; (c) solar energy; (d) geothermal energy; (e) landfill gas; (f) wave, ocean, or tidal power; (g) gas from sewage treatment facilities; (h) biodiesel fuel as defined in RCW 82.29A.135 that is not derived from crops raised on land cleared from old growth or first-growth forests where the clearing occurred after December 7, 2006; and (i) biomass energy based on animal waste or solid organic fuels from wood, forest, or field residues, or dedicated energy crops that do not include (i) wood pieces that have been treated with chemical preservatives such as creosote, pentachlorophenol, or copper-chrome-arsenic; (ii) black liquor by-product from paper production; (iii) wood from old growth forests; or (iv) municipal solid waste.
     (19) "Rule" means rules adopted by an agency or other entity of Washington state government to carry out the intent and purposes of this chapter.
     (20) "Year" means the twelve-month period commencing January 1st and ending December 31st.
     (21) "Advanced renewable resource compliance credit" means a credit sold by the housing finance commission to a qualifying utility as provided in RCW 19.285.060 that is used to satisfy a portion of the qualifying utility's annual renewable energy target under RCW 19.285.040(2).