AN ACT Relating to energy conservation; amending RCW 80.28.025, 82.16.055, 43.21F.045, and 80.50.060; adding new sections to chapter 43.21F RCW; adding a new section to chapter 82.16 RCW; and creating new sections.

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

NEW SECTION. Sec. 1. The legislature finds and declares that:

(1) Investments in energy conservation can have positive implications for economic development in this state;

(2) Investments in conservation can assist in meeting future energy needs in this state; and

(3) The potential for meeting future energy needs through conservation measures may not be realized without incentives to public and private energy utilities.

The legislature therefore finds and declares that actions and incentives by state government to promote conservation would be of great benefit to the citizens of this state by encouraging efficient energy use as one method to meet future energy demands and to stimulate economic development in this state.

Sec. 2. Section 2, chapter 149, Laws of 1980 and RCW 80.28.025 are each amended to read as follows:

(1) In establishing rates for each gas and electric company regulated by this chapter, the commission shall adopt policies to encourage meeting or reducing energy demand through cogeneration as defined in RCW 82.35.020, measures which improve the efficiency of energy end use, and new projects which produce or generate energy from renewable resources, such as solar energy, wind energy, hydroelectric energy, geothermal energy, wood, wood waste, municipal wastes, agricultural products and wastes, and end-use waste heat. These policies shall include but are not limited to allowing a return on investment in ((~~measures to improve the efficiency of energy end use,~~)) cogeneration, or projects which produce or generate energy from renewable resources which return is established by adding an increment of two percent to the rate of return on common equity permitted on the company's other investment. For investments in measures to improve the efficiency of energy end use these policies shall include allowing a return on investment which return is established by adding an increment to the rate of return on common equity permitted on the company's other investment in an amount equal to that allowed as a tax credit under the provisions of RCW 82.16.055. Measures or projects encouraged under this section are those for which construction or installation is begun after June 12, 1980, and before January 1, ((~~1990~~)) 1992, and which, at the time they are placed in the rate base, are reasonably expected to save, produce, or generate energy at a total incremental system cost per unit of energy delivered to end use which is less than or equal to the incremental system cost per unit of energy delivered to end use from similarly available conventional energy resources which utilize nuclear energy or fossil fuels and which the gas or electric company could acquire to meet energy demand in the same time period.

The rate of return increment shall be allowed for a period not to exceed thirty years after the measure or project is first placed in the rate base.

(2) Each gas and electric company regulated by this chapter shall file with the commission on an annual basis, on a date set by the commission, an energy conservation plan which sets forth an estimate of the energy available through conservation in the service territory of the company and a description of the conservation programs the company is involved in which specifies the amount of energy each program is expected to produce over the next two-year and twenty-year periods. The plan shall utilize the best information available to the company and may estimate potential conservation available based on data obtained from model conservation programs.

The plan shall also describe what factors inhibit the production of energy through conservation for that particular utility company and how those inhibitory factors might be reduced. This element of the plan is required only if the programs described in the plan would fail to achieve the estimated cost-effective energy conservation potential in that particular utility company's jurisdiction.

The state energy office may adopt rules to further clarify what information shall be provided in the conservation plan required by this section.

No tax credit authorized by section 3(6) of this 1986 act shall be allowed unless an energy conservation plan is filed with the state energy office which provides the information required by this section.

Sec. 3. Section 3, chapter 149, Laws of 1980 and RCW 82.16.055 are each amended to read as follows:

(1) In computing tax under this chapter there ((~~shall~~)) may be deducted from the gross income:

(a) An amount equal to the cost of production at the plant for consumption within the state of Washington of:

(i) Electrical energy produced or generated from cogeneration as defined in RCW 82.35.020; and

(ii) Electrical energy or gas produced or generated from renewable energy resources such as solar energy, wind energy, hydroelectric energy, geothermal energy, wood, wood wastes, municipal wastes, agricultural products and wastes, and end-use waste heat; and

(b) Those amounts expended to improve consumers' efficiency of energy end use or to otherwise reduce the use of electrical energy or gas by the consumer: PROVIDED, That this deduction shall not be allowed for expenditures on or after January 1, 1987.

(2) This section applies only to new facilities for the production or generation of energy from cogeneration or renewable energy resources or measures to improve the efficiency of energy end use on which construction or installation is begun after June 12, 1980, and before January 1, 1990.

(3) Deductions under subsection (1)(a) of this section shall be allowed for a period not to exceed thirty years after the project is placed in operation.

(4) Measures or projects encouraged under this section shall at the time they are placed in service be reasonably expected to save, produce, or generate energy at a total incremental system cost per unit of energy delivered to end use which is less than or equal to the incremental system cost per unit of energy delivered to end use from similarly available conventional energy resources which utilize nuclear energy or fossil fuels and which the gas or electric utility could acquire to meet energy demand in the same time period.

(5) The department of revenue, after consultation with the utilities and transportation commission in the case of investor-owned utilities and the governing bodies of locally regulated utilities, shall determine the eligibility of individual projects and measures for deductions under this section.

(6) After January 1, 1987, forty percent of the amounts expended to improve consumer's efficiency of energy end use or to otherwise reduce the use of electrical energy or gas by the consumer that exceed the amount expended for that purpose during the previous calendar year, or average of the previous three years, whichever is greater, shall be allowed as a credit against the tax otherwise owed under this chapter. Any tax credit authorized shall be passed on by the utility for the benefit of its ratepayers.

(7) Any electrical or gas company which seeks the credit authorized under subsection (6) of this section shall file with the state energy office, on an annual basis on a date set by the state energy office, an energy conservation plan which sets forth an estimate of the energy available through conservation in the service territory of the company and a description of the conservation programs the company is involved in which specifies the amount of energy each program is expected to produce over the next two-year and twenty-year periods. The plan shall utilize the best information available to the company and may estimate potential conservation available based on data obtained from model conservation programs.

The state energy office may adopt rules to further clarify what information shall be provided in the conservation plan required by this section.

No tax credit authorized by subsection (6) of this section shall be allowed unless an energy conservation plan is filed with the state energy office which provides the information required by this section. The department of revenue may also require verified annual returns from any taxpayer setting forth such additional information as it may deem necessary to correctly determine tax liability.

Sec. 4. Section 4, chapter 295, Laws of 1981 and RCW 43.21F.045 are each amended to read as follows:

The energy office shall have the following duties:

(1) The office shall prepare and update contingency plans for implementation in the event of energy shortages or emergencies. The plans shall conform to chapter 43.21G RCW and shall include procedures for determining when these shortages or emergencies exist, the state officers and agencies to participate in the determination, and actions to be taken by various agencies and officers of state government in order to reduce hardship and maintain the general welfare during these emergencies. The office shall coordinate the activities undertaken pursuant to the subsection with other persons. The components of plans that require legislation for their implementation shall be presented to the legislature in the form of proposed legislation at the earliest practicable date. The office shall report to the governor and the legislature on probable, imminent, and existing energy shortages, and shall administer energy allocation and curtailment programs in accordance with chapter 43.21G RCW.

(2) The office shall establish and maintain a central repository in state government for collection of existing data on energy resources, including:

(a) Supply, demand, costs, utilization technology, projections, and forecasts;

(b) Comparative costs of alternative energy sources, uses, and applications; and

(c) Inventory data on energy research projects in the state conducted under public and/or private auspices, and the results thereof.

(3) The office shall coordinate federal energy programs appropriate for state-level implementation, carry out such energy programs as are assigned to it by the governor or the legislature, and monitor federally funded local energy programs as required by federal or state regulations.

(4) The office shall develop energy policy recommendations for consideration by the governor and the legislature.

(5) The office shall provide assistance, space, and other support as may be necessary for the activities of the state's two representatives to the Pacific northwest electric power and conservation planning council. To the extent consistent with federal law, the office shall request that Washington's council members request the administrator of the Bonneville power administration to reimburse the state for the expenses associated with the support as provided in the Pacific northwest electric power planning and conservation act (P.L. 96-501).

(6) The office shall cooperate with state agencies, other governmental units, and private interests on energy matters.

(7) The office shall represent the interests of the state in the siting, construction, and operation of nuclear waste storage and disposal facilities.

(8) The office shall serve as the official state agency responsible for coordination of energy-related activities.

(9) No later than December 1, 1982, and by December 1st of each even-numbered year thereafter, the office shall prepare and transmit to the governor and the legislature a report on energy supply and demand, conservation, and other factors including but not limited to:

(a) An overview of the anticipated energy situation in the state and region.

(b) An assessment of the energy resources available to the state.

(d) Identification of barriers and constraints to the rapid achievement of conservation and energy resource development, together with proposals for eliminating or reducing the barriers and constraints. The identification shall include but is not limited to statutes and federal, state, or local governmental regulations applicable to the state of Washington.

(e) A summary of the major energy conservation and resource development programs underway in the state. Beginning with the 1986 report, the level of state-wide and service area conservation reasonably expected to occur in the next two-year and twenty-year periods and the potential for additional cost-effective energy conservation for the same periods. The report shall identify improvements or alternatives to existing governmental and private programs and policies which would permit further realization of the potential for energy conservation. The report shall recommend legislative and administrative actions, programs, and policies designed to attain potential cost-effective energy conservation in this state.

In particular, the report shall identify those energy service areas where conservation potential exists and is under-utilized and those energy service areas where there may be a need for new resources and make efforts to facilitate transfers of conservation between these areas.

(f) An analysis of the means by which the projected annual rate of energy demand growth may be reduced together with an estimate of the amount of reduction to be obtained by each of the means analyzed, and the cost of each option.

(10) The office shall provide support for increasing cost-effective energy conservation, including assisting in the removal of impediments to timely implementation.

(11) The office shall provide support for the development of cost-effective energy resources including assisting in the removal of impediments to timely construction.

(12) The office shall adopt rules, under chapter 34.04 RCW, necessary to carry out the powers and duties enumerated in this chapter.

Sec. 5. Section 6, chapter 45, Laws of 1970 ex. sess. as last amended by section 5, chapter 371, Laws of 1977 ex. sess. and RCW 80.50.060 are each amended to read as follows:

(1) The provisions of this chapter shall apply to the construction of energy facilities which includes the new construction of energy facilities and the reconstruction or enlargement of existing energy facilities where the net increase in physical capacity or dimensions resulting from such reconstruction or enlargement meets or exceeds those capacities or dimensions set forth in RCW 80.50.020(7) and ((~~(17)~~)) (14), as now or hereafter amended. No construction of such energy facilities may be undertaken, except as otherwise provided in this chapter, after July 15, 1977, without first obtaining certification in the manner provided in this chapter. No recommendation for certification may be issued by the council for a thermal power plant unless the council finds that the applicant has developed a conservation plan acceptable to the council which sets forth an estimate of the energy available through conservation in the service territory of the business and a description of the conservation programs the business is involved in which specifies the amount of energy each program is expected to produce over the next two-year and twenty-year periods.

The plan shall also describe what factors inhibit the production of energy through conservation for the particular business and how those inhibiting factors might be reduced or eliminated if the programs described in the plan would fail to achieve the estimated cost-effective energy conservation potential in the service territory.

The state energy office may adopt rules to further specify the elements of the conservation plan required by this section.

No recommendation for certification may be issued by the council unless the council finds that the applicant intends to develop all cost-effective energy conservation identified in the plan and is capable of doing so. The conservation plan, with specific goals set forth, shall be made part of any certification issued.

(2) The provisions of this chapter shall not apply to normal maintenance and repairs which do not increase the capacity or dimensions beyond those set forth in RCW 80.50.020 (7) and ((~~(17)~~)) (14), as now or hereafter amended.

(3) Applications for certification of energy facilities made prior to July 15, 1977 shall continue to be governed by the applicable provisions of law in effect on the day immediately preceding July 15, 1977 with the exceptions of RCW 80.50.190 and 80.50.071 which shall apply to such prior applications and to site certifications prospectively from July 15, 1977.

(4) Applications for certification shall be upon forms prescribed by the council and shall be supported by such information and technical studies as the council may require.

NEW SECTION. Sec. 6. The legislature recognizes that investment in conservation products and services have a positive impact on the economy of this state particularly if those investments are directed toward companies located in this state. The legislature thus encourages each supplier of energy and each investor in conservation measures located in this state to make all reasonable efforts to obtain conservation products and services from businesses located in this state.

NEW SECTION. Sec. 7. A new section is added to chapter 43.21F RCW to read as follows:

The state energy office is directed to work with the department of trade and economic development and the department of community development to promote the development of the Washington conservation industry. This shall include efforts to promote the purchase of Washington-produced conservation goods and services that are cost-effective for use in state and local government facilities, efforts to facilitate the export of Washington goods and services, and efforts to provide assistance to Washington businesses in their efforts to expand the conservation goods and services industry.

NEW SECTION. Sec. 8. A new section is added to chapter 43.21F RCW to read as follows:

The state energy office is directed to work with the department of trade and economic development, private and public utilities, and the Bonneville Power Administration to promote the use of surplus energy created by conservation efforts in Washington. The state energy office shall explore methods to facilitate the transfer of conservation energy between utility service areas.

NEW SECTION. Sec. 9. A new section is added to chapter 82.16 RCW to read as follows:

The department of revenue shall report to the ways and means committee of each house on March 1, 1988, as to the estimated revenue impact of the tax credit. The department shall also calculate the estimated revenue input that would have been incurred under the previous deductions based on its history. The department shall then estimate the rate of the credit that would make it revenue neutral with respect to the previous deduction.