Supplemental Notice to WSR 05-20-094.

     Preproposal statement of inquiry was filed as WSR 03-09-070.

     Title of Rule and Other Identifying Information: Chapter 480-107 WAC, Electric companies -- Purchases of electricity from qualifying facilities and independent power producers and purchases of electrical savings from conservation suppliers. These rules state requirements that electric companies must follow when acquiring new resources. The supplemental notice would revise rules noticed at WSR 05-20-094, relating to purpose and scope of chapter, definitions, the solicitation process, contents of the solicitation, pricing and contracting procedures, avoided cost schedules, obligations of generating facilities to the utility, interconnection costs, and conditions for purchase of electrical power or savings from a utility, a utility's subsidiary or affiliated interest.

     Hearing Location(s): Commission Hearing Room, Second Floor, Chandler Plaza, 1300 South Evergreen Park Drive S.W., Olympia, WA 98504-7250, on February 22, 2006, at 2:30 p.m.

     Date of Intended Adoption: February 22, 2006.

     Submit Written Comments to: Carole Washburn, Washington Utilities and Transportation Commission, P.O. Box 47250, Olympia, WA 98504-7250, e-mail records@wutc.wa.gov, fax (360) 586-1150 by February 8, 2006. Please include "Docket No. UE-030423" in your comments.

     Assistance for Persons with Disabilities: Contact Mary DeYoung by February 17, 2006, TTY (360) 586-8203 or (360) 664-1133.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: This supplemental proposal would revise most sections in chapter 480-107 WAC, see sections below.

     Reasons Supporting Proposal: Language is proposed that would constitute a substantial change from the supplemental CR-102 proposal at WSR 05-20-094. The revisions proposed in this supplemental CR-102 would include correction of the table of contents to make it consistent with the chapter, deletion of the obligation of an electric utility to adjust price by operating performance adjustments if a qualifying or generating facility agrees to operate under economic dispatch, substituting estimated avoided cost schedules for avoided cost schedules, eliminating the requirement that for projects of one megawatt or less the basis for the price offered will be the avoided cost specified in the current utility tariff, and establishing that the obligations of generating facilities to utilities listed in proposed WAC 480-107-085 are minimum obligations.

     Statutory Authority for Adoption: RCW 80.01.040 and 80.04.160.

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: Washington utilities and transportation commission, governmental.

     Name of Agency Personnel Responsible for Drafting: Graciela Etchart, 1300 South Evergreen Park Drive S.W., Olympia, WA 98504, (360) 664-1310; Implementation and Enforcement: Carole Washburn, 1300 South Evergreen Park Drive S.W., Olympia, WA 98504, (360) 664-1174.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposed corrections and changes to rules will not result in or impose an increase in costs. Because there will not be any increase in costs resulting from the proposed rule changes, a small business economic impact statement is not required under RCW 19.85.030(1).

     A cost-benefit analysis is not required under RCW 34.05.328. The proposed rules are not significant legislative rules of the sort referenced in RCW 34.05.328(5).

January 18, 2006

Carole J. Washburn

Executive Secretary

OTS-8402.2

AMENDATORY SECTION(Amending Docket No. A-030832, General Order No. R-509, filed 10/29/03, effective 11/29/03)

WAC 480-107-001   Purpose and scope.   (1) ((The purpose of this chapter is to establish rules for determining rates, terms, and conditions governing the following purchases by electric utilities: Electricity from qualifying facilities; the electrical savings associated with eligible conservation measures pursuant to these rules; electricity from independent power producers; and, at the utility's election, utility subsidiaries, and other electric utilities. These rules are intended to provide an opportunity for conservation and generating resources to compete on a fair and reasonable basis to fulfill a utility's new resource needs. It is the commission's intent that bids under these rules shall include the costs of compliance by the project with environmental laws, rules, and regulations in effect at the time of the bid and those reasonably anticipated to be in effect during the term of the project.

     These)) The rules in this chapter require utilities to solicit bids, rank project proposals, and identify any bidders that meet the minimum selection criteria. The rules in this chapter do not establish the sole procedures utilities must use to acquire new resources. Utilities may construct electric resources, operate conservation programs, purchase power through negotiated contracts, or take other action to satisfy their public service obligations.

     (2) The commission will consider the information obtained through these bidding procedures when it evaluates the performance of the utility in rate and other proceedings.

     (3) The rules in this chapter are consistent with the provisions of the Public Utility Regulatory Policies Act of 1978 (PURPA), Title II, sections 201 and 210, and related regulations promulgated by the Federal Energy Regulatory Commission (FERC) in 18 C.F.R. Part 292. To the extent of any conflict between these rules and PURPA, or the related rules promulgated by FERC in 18 C.F.R. Part 292, PURPA and those related rules control. Purchase of electric power under these rules ((shall satisfy an electric)) satisfies a utility's obligation to purchase power from qualifying facilities under section 210 of PURPA.

     ((These rules do not preclude electric utilities from constructing electric resources, operating conservation programs, purchasing power through negotiated purchase contracts, or otherwise taking action to satisfy their public service obligations. Information about the price and availability of electric power obtained through the bidding procedures described in these rules may be used, in conjunction with other evidence, in general rate cases and other cost recovery proceedings pertaining to resources not acquired through these bidding procedures.

     (2) The provisions of this chapter shall apply to any electric utility which has submitted to the commission a least-cost plan as provided in WAC 480-100-238 (Least cost planning).))

[Statutory Authority: RCW 80.01.040, 80.04.160, 81.04.160, and 34.05.353. 03-22-046 (Docket No. A-030832, General Order No. R-509), § 480-107-001, filed 10/29/03, effective 11/29/03. Statutory Authority: RCW 80.01.040 and 80.04.160. 89-15-043 (Order R-304, Docket No. U-89-2814-R), § 480-107-001, filed 7/18/89.]

     (2) Any affected person may ask the commission to review the interpretation or application of these rules by a utility or customer by making an informal complaint under WAC 480-07-910, Informal complaints, or by filing a formal complaint under WAC 480-07-370, Pleading -- General.

     (3) No exception from the provisions of any rule in this chapter is permitted without prior written authorization by the commission. Such exceptions may be granted only if consistent with the public interest, the purposes underlying regulation, and applicable statutes. Any deviation from the provisions of any rule in this chapter without prior commission authorization will be subject to penalties as provided by law.

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     (2) The commission retains its authority to impose additional or different requirements on any utility in appropriate circumstances, consistent with the requirements of law.

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     "Avoided costs" means the incremental costs to a utility of electric energy, electric capacity, or both, that the utility would generate itself or purchase from another source, but for purchases to be made under these rules. A utility's avoided costs are the prices, terms and conditions, including the period of time and the power supply attributes, of the least cost final contract entered into as a result of the competitive bidding process described in these rules. If no final contract is entered into in response to a request for proposal (RFP) issued by a utility under these rules, the utility's avoided costs are the lesser of:

     (1) The price, terms and conditions set forth in the least cost project proposal that meets the criteria specified in the RFP; or

     (2) Current projected market prices for power with comparable terms and conditions.

     "Back-up power" means electric energy or capacity supplied by a utility to replace energy ordinarily supplied by utility-owned generation or purchased through contracts that is unavailable due to an unscheduled outage.

     "Commission" means the Washington utilities and transportation commission.

     "Conservation" means any reduction in electric power consumption that results from increases in the efficiency of energy use, production or distribution, or from demand response, load management or efficiency measures that reduce peak capacity demand.

     "Conservation supplier" means a third party supplier or utility affiliate that provides equipment or services that save capacity or energy.

     "Economic dispatch" means modifying the scheduling of power purchases from a generating facility within contractually specified limits to minimize the costs of delivering electricity.

     "Generating facilities" means plant and other equipment used to generate electricity purchased through contracts entered into under these rules.

     "Independent power producers" means an entity that owns generating facilities or portions thereof that are not included in a utility's rate base and that are not qualifying facilities as defined in this section.

     "Integrated resource plan" or "IRP" means the filing made every two years by a utility in accordance with WAC 480-100-238 Integrated resource planning.

     "Interruptible power" means electric energy or capacity supplied to a utility by a generating facility, the availability of which may be interrupted under certain conditions.

     "Maintenance power" means electric energy or capacity supplied by a utility during scheduled outages of a generating facility.

     "Project developer" means an individual, association, corporation, or other legal entity that can enter into a power or conservation contract with the utility.

     "Project proposal" means a project developer's document containing a description of a project and other information responsive to the requirements set forth in a request for proposal, also known as a bid.

     "Qualifying facilities" means generating facilities that meet the criteria specified by the FERC in 18 C.F.R. Part 292 Subpart B.

     "Request for proposals" or "RFPs" means the documents describing a utility's solicitation of bids for delivering electric capacity, energy, or capacity and energy, or conservation.

     "Resource block" means the deficit of capacity and associated energy that the IRP shows for the near term.

     "Subsidiary" means any company in which the utility owns directly or indirectly five percent or more of the voting securities, and that may enter a power or conservation contract with that electric utility. A company is not a subsidiary if the utility can demonstrate that it does not control that company.

     "Supplementary power" means electric energy or capacity supplied by a utility that is regularly used by a generating facility in addition to that which the facility generates itself.

     "Utility" means an electrical company as defined by RCW 80.04.010.

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     (2) A utility may participate in the bidding process as a power supplier, or may allow a subsidiary or affiliate to participate in the bidding process as a power supplier, on conditions described in WAC 480-107-135 Conditions for purchase of electrical power or savings from a utility's subsidiary or affiliate. The utility's RFP submittal must declare the utility's or affiliate's participation and must demonstrate how the utility will satisfy the requirements of WAC 480-107-135.

     (3) Timing of the solicitation process.

     (a) The rules in this section do not apply when a utility's integrated resource plan, prepared pursuant to WAC 480-100-238, demonstrates that the utility does not need additional capacity within three years.

     (b) A utility must submit to the commission a proposed request for proposals and accompanying documentation no later than one hundred thirty-five days after the utility's integrated resource plan is due to be filed with the commission. Interested persons will have sixty days from the RFP's filing date with the commission to submit written comments to the commission on the RFP. The commission will approve or suspend the RFP within thirty days after the close of the comment period.

     (c) A utility must solicit bids for electric power and electrical savings within thirty days of a commission order approving the RFP.

     (d) All bids will remain sealed until expiration of the solicitation period specified in the RFP.

     (4) In addition to the solicitation process required by these rules, a utility may, at its own discretion, issue an RFP that limits project proposals to resources with specific characteristics. In addition, a utility, at its own discretion, may issue RFPs more frequently than required by this rule.

     (5) Persons interested in receiving commission notice of a specific utility's RFP filings can request the commission to place their names on a mailing list for notification of future RFP filings by that utility.

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     (2) The RFP must document that the size of the resource block is consistent with the range of estimated new resource needs identified in the utility's integrated resource plan.

     (3) The RFP must explain general evaluation and ranking procedures the utility will use in accordance with WAC 480-107-035 Project ranking procedure. The RFP must also specify any minimum criteria that bidders must satisfy to be eligible for consideration in the ranking procedure.

     (4) The RFP must specify the timing of process including the solicitation period, the ranking period, and the expected selection period.

     (5) The RFP must identify all security requirements and the rationale for them.

     (6) Utilities are encouraged to consult with commission staff during the development of the RFP. Utilities, at their own discretion, may submit draft RFPs for staff review prior to formally submitting an RFP to the commission.

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     (2) At a minimum, the ranking criteria must recognize resource cost, market-volatility risks, demand-side resource uncertainties, resource dispatchability, resource effect on system operation, credit and financial risks to the utility, the risks imposed on ratepayers, public policies regarding resource preference adopted by Washington state or the federal government and environmental effects including those associated with resources that emit carbon dioxide. The ranking criteria must recognize differences in relative amounts of risk inherent among different technologies, fuel sources, financing arrangements, and contract provisions. The ranking process must complement power acquisition goals identified in the utility's integrated resource plan.

     (3) After the project proposals have been opened for ranking, the utility must make available for public inspection at the utility's designated place of business a summary of each project proposal and a final ranking of all proposed projects.

     (4) The utility may reject any project proposal that does not specify, as part of the price bid, the costs of complying with environmental laws, rules, and regulations in effect at the time of the bid.

     (5) The utility may reject all project proposals if it finds that no proposal adequately serves ratepayers' interests. The commission will review, as appropriate, such a finding together with evidence filed in support of any acquisition in the utility's next general rate case or other cost recovery proceeding.

     (6) When the utility, the utility's subsidiary or an affiliate submits a bid in response to an RFP, one or more competing bidders may request the commission to appoint an independent third party to assist commission staff in its review of the bid. Should the commission grant such a request, the fees charged by the independent third party will be paid by the party or parties requesting the independent review.

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     (2) The project proposal's price, pricing structure, and terms are subject to negotiation.

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     (2) Schedules of estimated avoided cost are to be based upon:

     (a) The most recent project proposals received pursuant to an RFP issued under these rules;

     (b) Estimates included in the utility's current integrated resource plan filed pursuant to WAC 480-100-238;

     (c) The results of the utility's most recent bidding process; and

     (d) Current projected market prices for power.

     The utility must file documentation supporting its schedule of estimated avoided cost.

     (3) Utilities may revise a schedule of estimated avoided cost at any time. Such revisions must be filed with the commission along with documentation supporting the revision.

     (4) The schedule of estimated avoided cost provides only general information to potential bidders about the costs of new power supplies; it does not provide a guaranteed contract price for electricity. For discussion of such guarantee, see WAC 480-107-095.

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     (2) All conservation measures included in a project proposal must:

     (a) Produce electrical savings over a time period greater than five years, or a longer period if specified in the utility's RFP. A measure with an expected life that is shorter than the contract term must include replacements through the contract term;

     (b) Be consistent with the utility's integrated resource plan; and

     (c) Produce savings that can be reliably measured or estimated with accepted engineering methods.

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     (2) Any project bidder and utility may negotiate changes to the selected project proposal for the purpose of finalizing a particular contract consistent with the provisions of this chapter.

     (3) The utility may sign contracts for any appropriate time period specified in a selected project proposal for up to a twenty-year term. The utility may sign longer-term contracts if such provisions are specified in the utility's RFP.

     (4) If material changes are made to the project proposal after project ranking, including material price changes, the utility must suspend contract finalization with that party and rerank projects according to the revised project proposal. If the material changes cause the revised project proposal to rank lower than projects not originally selected, the utility must instead pursue contract finalization with the next ranked project.

     (5) A project developer must provide evidence that the developer has obtained or will obtain a generation site (e.g., letter of intent) before signing a contract with the purchasing utility.

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     (a) The owner or operator will construct and operate all interconnected generating facilities and interconnection facilities within its control in accordance with all applicable federal, state, and local laws and regulations to ensure system safety and reliability of interconnected operations;

     (b) The generating facility will furnish, install, operate, and maintain in good order and repair, and without cost to the utility, such relays, locks and seals, breakers, automatic synchronizers, and other control and protective apparatus determined by the utility to be necessary for the safe and reliable operation of the generating facility in parallel with the utility's system; and

     (c) The utility will be able to gain access at all times to all switching equipment capable of isolating the generating facility from the utility's system.

     (2) The utility may choose to operate the switching equipment described in subsection (1)(c) of this section if, in the sole opinion of the utility, continued operation of the customer's generating facility in connection with the utility's system may create or contribute to a system emergency. Such a decision by the utility is subject to commission verification in accordance with WAC 480-107-115 System emergencies. The utility must endeavor to minimize any adverse effects of such operation on the customer.

     (3) Any agreement between a generating facility and a utility must state the extent to which the generating facility will assume responsibility for the safe operation of the interconnection facilities. The generating facility may not be required to assume responsibility for negligent acts of the utility.

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     (2) All utilities must file a standard tariff for purchases from qualifying facilities rated at one megawatt or less. Such standard tariff may be based upon market prices and include incremental costs associated with purchasing small quantities of power. Qualifying facility developers proposing projects with a design capacity of one megawatt or less may choose to receive a purchase price for power that is set forth in such standard tariff.

     (3) A utility must sell to any qualifying facilities, in accordance with WAC 480-107-105 Rates for sales to qualifying facilities, any energy and capacity requested by the qualifying facilities on the same basis as available to other customers of the utility in the same class.

     (4) Any utility must make all the necessary interconnections with any qualifying facilities to accomplish purchases or sales under this section. The obligation to pay for any interconnection costs will be determined in accordance with WAC 480-107-125 Interconnection costs.

     (5) At the request of a qualifying facility, a utility that would otherwise be obligated to purchase energy or capacity from such qualifying facility may transmit energy or capacity to any other utility at the option of the utilities involved. Nothing in this section obligates the utility connected with the qualifying facility to transmit to other utilities. Nothing in this section obligates other utilities to purchase from the qualifying facility.

     (6) Each utility may offer to operate in parallel with a qualifying facility if the qualifying facility complies with all applicable standards established in WAC 480-107-095 Obligations of generating facilities to electric utilities.

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     (a) Rates must be just and reasonable, and in the public interest; and

     (b) Rates must not discriminate between qualifying facilities and other customers served by the utility.

     (2) Rates for sales that are based on accurate data and consistent system-wide costing principles will not be considered to discriminate against any qualifying facilities if those rates apply to the utility's other customers with similar load or other cost-related characteristics.

     (3) Additional services to be provided to qualifying facilities:

     (a) Upon request by a qualifying facility, each utility will provide:

     (i) Supplementary power;

     (ii) Back-up power;

     (iii) Maintenance power; and

     (iv) Interruptible power.

     (b) The commission may waive any requirement of (a) of this subsection if, after notice in the area served by the utility and after opportunity for public comment, the utility demonstrates and the commission finds that compliance with such requirement will:

     (i) Impair the utility's ability to render adequate service to its customers; or

     (ii) Place an undue burden on the utility.

     (4) The rate for sale of back-up power or maintenance power:

     (a) May not be based on an assumption that forced outages or other reductions in electric output by all qualifying facilities on a utility's system will occur simultaneously, or during the system peak, or both unless such an assumption is supported by factual data; and

     (b) Must take into account the extent to which scheduled outages of the qualifying facilities can be coordinated with scheduled outages of the utility's facilities.

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     (a) Provided by agreement between such generating facility and utility; or

     (b) Ordered under section 202(c) of the Federal Power Act.

     (2) During any system emergency, a utility may discontinue or curtail:

     (a) Purchases from a generating facility if such purchases would contribute to such emergency; and

     (b) Sales to a generating facility, if such discontinuance or curtailment:

     (i) Does not discriminate against a generating facility; and      (ii) Takes into account the degree to which purchases from the generating facility would offset the need to discontinue or curtail sales to the generating facility.

     (3) System emergencies resulting in utility action under this chapter are subject to verification by the commission upon request by either party to the power contract.

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     (2) The owner or operator of the generating facility must reimburse the utility for any reasonable interconnection costs the utility may incur. Such reimbursement shall be made, at the utility's election:

     (a) At the time the utility invoices the owner or operator of the generating facility for interconnection costs incurred by the utility; or

     (b) Over an agreed period of time not greater than the length of any contract between the utility and the generating facility.

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     (2) As part of its RFP, a utility must include specific notice if it intends to submit a bid or intends to allow its subsidiaries and affiliates to participate in its bidding process. The utility must indicate in its RFP how it will ensure that its subsidiary or affiliate, through association with the utility, will not gain an unfair advantage over potential nonaffiliated competitors. A utility's disclosure of the contents of an RFP or competing project proposals to its own personnel involved in developing the utility's bid, or to its subsidiary or affiliate prior to such information being made public will be construed to constitute an unfair advantage.

     (3) The commission may not allow a utility to recover in its rates all or part of the costs associated with the utility's project, or a subsidiary's or affiliate's project(s), if any unfair advantage was given to any bidder.

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     (2) The utility must file with the commission and maintain on file for inspection at its place of business, the current rates, prices, and charges established in accordance with this chapter.

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     The following sections of the Washington Administrative Code are repealed:

WAC 480-107-005	Definitions.
WAC 480-107-010	Filing requirements for prototype contracts.
WAC 480-107-020	Eligibility for long-run generating facility purchase rates.
WAC 480-107-030	Eligibility for long-run conservation purchase rates.
WAC 480-107-040	Size of resource block.
WAC 480-107-050	Avoided cost schedules.
WAC 480-107-060	The solicitation process.
WAC 480-107-070	Project ranking procedure.
WAC 480-107-080	Pricing and contracting procedures.
WAC 480-107-090	Security considerations.
WAC 480-107-100	Contract finalization.
WAC 480-107-110	Obligations of generating facilities to electric utility.
WAC 480-107-120	Obligations of electric utility to qualifying facilities.
WAC 480-107-130	Rates for sales to qualifying facilities.
WAC 480-107-140	System emergencies.
WAC 480-107-150	Interconnection costs.
WAC 480-107-160	Special conditions for purchase of electrical power or savings from a utility subsidiary.
WAC 480-107-170	Filings -- Investigations -- Exceptions.