SENATE BILL REPORT

SB 5948

BYSenators Benitz, Williams, Stratton, Sutherland, Owen, Nelson, Bluechel and Pullen

Extending the period for conservation investments.

Senate Committee on Energy & Utilities

Senate Hearing Date(s):February 23, 1989; February 24, 1989

Majority Report:  That Substitute Senate Bill No. 5948 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Benitz, Chairman; Bluechel, Vice Chairman; Metcalf, Owen, Stratton, Sutherland, Williams.

Senate Staff:Paul Ahern (786-7449)

                  March 13, 1989

AS REPORTED BY COMMITTEE ON ENERGY & UTILITIES, FEBRUARY 24, 1989

BACKGROUND:

Washington State law currently allows regulated electric and gas utilities to earn a higher profit (an extra 2 percent) on their investments in conservation, renewable energy sources, and cogeneration.  Utilities can also deduct the cost of these investments in calculating their state public utilities tax.  This legislation is set to expire December 31, 1989.

There is reason to believe that conservation investments inversely impact a utility's short term earnings.  Retail rates are set to cover both fixed and variable costs to a utility.  Conservation reduces a utility's variable costs, but fixed costs are no longer covered to the same extent due to the reduced demand.  Stockholders bear these costs until the next rate case when fixed costs are spread over the new level of sales.  Additionally, the carrying costs associated with this type of investment are currently not capitalized so a utility does not earn a return on this money.

SUMMARY:

RCW 80.28.025 is amended to allow capitalization of carrying costs associated with the investment in conservation, cogeneration and renewable resources.  The commission shall consider and may adopt policies to protect a company from reduction of short term earnings as a result of these programs.  The expiration date on the act is removed.  RCW 82.16.055 is amended to allow the tax deduction on conservation and renewable resources to be taken indefinitely.

EFFECT OF PROPOSED SUBSTITUTE:

Language allowing utilities to accrue an allowance for funds used to acquire end use efficiency is deleted.

The expiration date is changed to January 1, 2000.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested February 15, 1989

Senate Committee - Testified: Mike Tracy, Puget Power (pro); Steve McLellan, UTC; Jake Fey, Tacoma City Light (pro); Ron Newbry, Pacific Power (pro)