WSR 06-08-025

PERMANENT RULES

UTILITIES AND TRANSPORTATION

COMMISSION

[ Docket No. UE-030423, General Order No. R-530 -- Filed March 28, 2006, 9:50 a.m. , effective April 28, 2006 ]

In the matter of repealing, amending, and adopting rules in chapter 480-107 WAC, relating to Electric companies -- Purchases of electricity from qualifying facilities and independent power producers, and purchases of electric savings from conservation suppliers.

1 STATUTORY OR OTHER AUTHORITY: The Washington utilities and transportation commission takes this action under Notice No. WSR 06-03-127, filed with the code reviser on January 18, 2006. The commission brings this proceeding pursuant to RCW 80.01.040 and 80.04.160.

2 STATEMENT OF COMPLIANCE: This proceeding complies with the Administrative Procedure Act (chapter 34.05 RCW), the State Register Act (chapter 34.08 RCW), the State Environmental Policy Act of 1971 (chapter 43.21C RCW), and the Regulatory Fairness Act (chapter 19.85 RCW).

3 DATE OF ADOPTION: The commission adopts this rule on the date that this order is entered.

4 CONCISE STATEMENT OF PURPOSE AND EFFECT OF THE RULE: RCW 34.05.325(6) requires that the commission prepare and provide to commenters a concise explanatory statement about an adopted rule. The statement must include the identification of the commission's reasons for adopting the rule, a description of the difference between the version of the proposed rules published in the register and the rules as adopted (other than editing changes), a summary of the comments received regarding the proposed rule changes, and the commission's responses to the comments, reflecting the commission's consideration of them.

5 The commission often includes a discussion of those matters in its rule adoption order. In addition, most rule-making proceedings involve extensive work by commission staff that includes summaries in memoranda of stakeholder comments, commission decisions, and staff recommendations in each of those areas.

6 In this docket, to avoid unnecessary duplication, the commission designates the discussion in this order as its concise explanatory statement, supplemented where not inconsistent by the staff memoranda presented at the adoption hearing and at the open meetings where the commission considered whether to begin a rule making and whether to propose adoption of specific language. Together, the documents provide a complete but concise explanation of the agency actions and its reasons for taking those actions.

7 REFERENCE TO AFFECTED RULES: This order repeals the following sections of the Washington Administrative Code: WAC 180-107-005 Definitions, 480-107-010 Filing requirements for prototype contracts, 480-107-020 Eligibility for long-run generating facility purchase rates, 480-107-030 Eligibility for long-run conservation purchase rates, 480-107-040 Size of resource block, 480-107-050 Avoided cost schedules, 480-107-060 The solicitation process, 480-107-070 Project ranking procedure, 480-107-080 Pricing and contracting procedures, 480-107-090 Security considerations, 480-107-100 Contract finalization, 480-107-110 Obligations of generating facilities to electric utility, 480-107-120 Obligations of electric utility to qualifying facilities, 480-107-130 Rates for sales to qualifying facilities, 480-107-140 System emergencies, 480-107-150 Interconnection costs, 480-107-160 Special conditions for purchase of electrical power or savings from a utility subsidiary, and 480-107-170 Filings -- Investigations -- Exceptions.

8 This order amends the following section of the Washington Administrative Code: WAC 480-107-001 Purpose and scope.

9 This order adopts the following sections of the Washington Administrative Code: WAC 480-107-002 Application of rules, 480-107-004 Additional requirements, 480-107-006 Severability, 480-107-007 Definitions, 480-107-015 The solicitation process, 480-107-025 Contents of the solicitation, 480-107-035 Project ranking procedure, 480-107-045 Pricing and contracting procedures, 480-107-055 Schedules of estimated avoided cost, 480-107-065 Eligibility for long-run conservation purchase rates, 480-107-075 Contract finalization, 480-107-085 Obligations of generating facilities to the utility, 480-107-095 Obligations of the utility to qualifying facilities, 480-107-105 Rates for sales to qualifying facilities, 480-107-115 System emergencies, 480-107-125 Interconnection costs, 480-107-135 Conditions for purchase of electrical power or savings from a utility, a utility's subsidiary or affiliate, 480-107-145 Filings -- Investigations, and 480-107-999 Adoption by reference.

10 PREPROPOSAL STATEMENT OF INQUIRY AND ACTIONS THEREUNDER: The commission filed a preproposal statement of inquiry (CR-101) on April 15, 2003, at WSR 03-09-070. The statement advised interested persons that the commission was considering entering a rule making to review chapter 480-107 WAC, Electric companies -- Purchases of electricity from qualifying facilities and independent power producers, and purchases of electric savings from conservation suppliers, for content and readability consistent with Executive Order 97-02.

11 ADDITIONAL NOTICE AND ACTIVITY PURSUANT TO PREPROPOSAL STATEMENT: The commission also informed persons of the inquiry into this matter by providing notice of the subject and the CR-101 to all persons on the commission's list of persons requesting such information pursuant to RCW 34.05.320(3) and the commission's lists of all registered electric and gas companies, persons interested in electric and gas issues, as well as to attorneys representing these companies.

12 Pursuant to the notice, the commission received comments from the following companies, organizations, and interested persons: Avista Utilities, Cogeneration Coalition of Washington, department of community, trade and economic development, The Energy Project, Industrial Customers of Northwest Utilities, Natural Resources Defense Council, Northwest CHP Advocates, Northwest Energy Coalition, Northwest Independent Power Producers Coalition, PacifiCorp, Puget Sound Energy, public counsel, and Renewable Northwest Project.

13 The commission engaged in two stakeholder workshops in June 2003 and June 2005 to address stakeholder comments and discuss a variety of changes to the electric resource bidding rules. The following companies and organizations participated in the stakeholder workshops: Avista Utilities, Cogeneration Coalition of Washington, Cascade Natural Gas, department of community, trade and economic development, The Energy Project, Energy Advocates LLP, Industrial Customers of Northwest Utilities, Natural Resources Defense Council, Northwest CHP Advocates, Northwest Energy Coalition, Northwest Independent Power Producers Coalition, Northwest Natural Gas, Northwest Industrial Gas Users, PacifiCorp, Puget Sound Energy, public counsel, Renewable Northwest Project, Citizens Utility Alliance, and UCONS, LLC.

14 NOTICE OF PROPOSED RULE MAKING: The commission filed a notice of proposed rule making (CR-102) on October 5, 2005, at WSR 05-20-094. The commission scheduled this matter for oral comment and adoption under Notice No. WSR 05-20-094 at 9:30 a.m., Wednesday, November 9, 2005, in the Commission's Hearing Room, Second Floor, Chandler Plaza Building, 1300 South Evergreen Park Drive S.W., Olympia, WA. The notice provided interested persons the opportunity to submit written comments to the commission.

15 Pursuant to the notice, the commission received comments from the following companies, organizations, and interested persons: Avista Utilities, Cogeneration Coalition of Washington, Industrial Customers of Northwest Utilities (ICNU), Natural Resources Defense Council, Northwest CHP Advocates, Northwest Energy Coalition, Northwest Independent Power Producers Coalition, PacifiCorp, Puget Sound Energy, public counsel, and the Renewable Northwest Project.

16 The commission engaged in a technical writing workshop on November 30, 2005, to address stakeholder comments and discuss a variety of changes to the rules. The following companies and organizations participated in the technical writing workshop: Avista Utilities; Climate Solutions; Cogeneration Coalition of Washington; EPCOR; Industrial Customers of Northwest Utilities; Northwest CHP Advocates; Northwest Energy Coalition; Northwest Independent Power Producers Coalition; PacifiCorp; Preston, Gates, Ellis, LLP, representing EPCOR and the Northwest Independent Power Producers Coalition; and Puget Sound Energy.

17 The commission filed a notice of supplemental proposed rule making (Supplemental CR-102) on January 18, 2006, at WSR 06-03-127. The commission scheduled this matter for oral comment and adoption under Notice No. WSR 06-03-127 at a public hearing at 2:30 p.m., Wednesday, February 22, 2006, in the Commission's Hearing Room, Second Floor, Chandler Plaza Building, 1300 South Evergreen Park Drive S.W., Olympia, WA. The notice provided interested persons the opportunity to submit written comments to the commission.

18 COMMENTERS (WRITTEN COMMENTS): The commission received written comments from Donald Brookhyser, representing the Cogeneration Coalition of Washington; John Ryan, representing the Northwest CHP Advocates; Jeff Larsen, representing PacifiCorp; and Karl Karzmar, representing Puget Sound Energy. The commission received oral comments from Bruce Folsom, representing Avista Utilities.

19 RULE-MAKING HEARING: The rule proposal was considered for adoption, pursuant to the notice in WSR 06-03-127 at a rule-making hearing scheduled on February 22, 2006, before Chairman Mark H. Sidran, Commissioner Patrick J. Oshie, and Commissioner Philip B. Jones. Bruce Folsom, representing Avista Utilities; John Ryan, representing the Northwest CHP Advocates; and Karl Karzmar, representing Puget Sound Energy made oral comments during the meeting. Mr. Folsom and Mr. Karzmar thanked the commission and commission staff for the rule-making procedure and its completion. Mr. Ryan reiterated the comments he had previously submitted in writing.

20 SUGGESTIONS FOR CHANGE THAT ARE REJECTED: The Northwest CHP Advocates suggested that, by giving the purchaser the option to acquire resources based on the "least cost alternative" criterion, the proposed avoided cost language in fact gives the purchaser an option not to acquire cogeneration. The CHP Advocates believe that without strong language that will raise avoided costs, which recognize the triple benefits of cogeneration (1/3 more energy efficient, 1/2 less emissions, and no transmission costs), the likely impact of these new rules will be minimal. The commission believes that including strong avoided cost language would be less of a bid-based and more of an "administrative" strategy for calculating schedules of avoided costs. The proposed rule retains the provision that schedules of avoided costs are calculated on a "case-by-case" basis.

21 The CHP Advocates suggested that imputed debt should not be included in a utility's cost calculations, and recommends that a rigorous investigation on this credit risk issue be completed before including these costs. They also support commencing an investigation as to why Washington state is 31st among states in cogeneration capacity and why no significant cogeneration has been built here in many years. The commission believes that this level of detail is not necessary in a general rule. Appropriate studies on financial risk and cost will be discoverable in prudence investigations in general rate cases.

22 The Cogeneration Coalition of Washington (CCW) stated that the proposed rules allow the utility to evaluate and rank project proposals based on, among other items, "credit and financial risks to the utility." (WAC 480-107-035). CCW observes that while this is a generic reference to any financial risk, it can easily include imputing additional costs to long-term purchase power agreements on the basis of debt equivalence. According to CCW, it remains uncertain whether the rating agencies' consideration of debt equivalence actually affects a utility's costs. CCW argues that given the guarantee that procurement costs related to qualifying facility (QF) contracts should be fully recoverable, it is not clear that entering into a QF contract should produce any increased credit risk.

23 For the CCW, allowing the consideration of debt equivalence in these regulations allows a utility broad discretion in how the factor is employed, without any effective review by this commission. While draft requests for proposals (RFPs) and their proposed ranking criteria are filed for commission review, commission review may simply determine that some "consideration" of imputed debt is permissible. There may be no direct and final determination of how imputed debt should be applied or quantified, or whether it is justified in any particular circumstance. The utility's evaluation of the RFP responses may never be filed at the commission, and there may be no opportunity for commission review of how the utility applied the criteria of financial risk. If the evaluations are filed with the commission, it would likely be under seal so that none of the suppliers could review and question the treatment of imputed debt.

24 The commission believes that this issue must be considered on a "case-by-case" basis. Financial, industry, and market effects will change so assuring a particular financial effect in rule damages future flexibility of the rule. Furthermore, financial, industry, and market effects may vary among companies.

25 CCW recommends that the commission initiate a rule making into how debt equivalence will be considered in the procurement process. The commission believes that as of this time there has been no evidence that such a rule making is warranted.

26 COMMISSION ACTION: After considering all of the information regarding this proposal, the commission finds and concludes that it should amend the rules in the CR-102 notice at WSR 06-03-127 with the changes described below.

27 CHANGES FROM PROPOSAL: The commission adopts the proposal without any changes from the text noticed at WSR 06-03-127.

28 STATEMENT OF ACTION; STATEMENT OF EFFECTIVE DATE: After reviewing the entire record, the commission determines that WAC 480-107-005, 480-107-010, 480-107-020, 480-107-030, 480-107-040, 480-107-050, 480-107-060, 480-107-070, 480-107-080, 480-107-090, 480-107-100, 480-107-110, 480-107-120, 480-107-130, 480-107-140, 480-107-150, 480-107-160, and 480-107-170 should be repealed, WAC 480-107-001 should be amended, and WAC 480-107-002, 480-107-004, 480-107-006, 480-107-007, 480-107-015, 480-107-025, 480-107-035, 480-107-045, 480-107-055, 480-107-065, 480-107-075, 480-107-085, 480-107-095, 480-107-105, 480-107-115, 480-107-125, 480-107-135, 480-107-145, and 480-107-999 should be adopted to read as set forth in Appendix A, as rules of the Washington utilities and transportation commission, effective on the thirty-first day after the date of filing with the code reviser pursuant to RCW 34.05.380(2).

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 2, Repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.


ORDER

29 THE COMMISSION ORDERS:

30 (1) The commission repeals WAC 480-107-005, 480-107-010, 480-107-020, 480-107-030, 480-107-040, 480-107-050, 480-107-060, 480-107-070, 480-107-080, 480-107-090, 480-107-100, 480-107-110, 480-107-120, 480-107-130, 480-107-140, 480-107-150, 480-107-160, and 480-107-170.

31 (2) The commission amends and adopts WAC 480-107-001, 480-107-002, 480-107-004, 480-107-006, 480-107-007, 480-107-015, 480-107-025, 480-107-035, 480-107-045, 480-107-055, 480-107-065, 480-107-075, 480-107-085, 480-107-095, 480-107-105, 480-107-115, 480-107-125, 480-107-135, 480-107-145, and 480-107-999 to read as set forth in Appendix A, as rules of the Washington utilities and transportation commission, to take effect on the thirty-first day after the date of filing with the code reviser pursuant to RCW 34.05.380(2).

32 (3) This order and the rules set out below, after being recorded in the register of the Washington utilities and transportation commission, shall be forwarded to the code reviser for filing pursuant to chapters 80.01 and 34.05 RCW and chapter 1-21 WAC.

DATED at Olympia, Washington, March 27th, 2006.

Washington utilities and transportation commission

Mark H. Sidran, Chairman

Patrick J. Oshie, Commissioner

Philip B. Jones, Commissioner

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.]


NEW SECTION
WAC 480-107-002   Application of rules.   (1) The rules in this chapter apply to any utility that is subject to the commission's jurisdiction under RCW 80.04.010 and chapter 80.28 RCW.

(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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NEW SECTION
WAC 480-107-004   Additional requirements.   (1) These rules do not relieve any utility from any of its duties and obligations under the laws of the state of Washington.

(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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NEW SECTION
WAC 480-107-006   Severability.   If any provision of this chapter or its application to any person or circumstance is held invalid, the remainder of the chapter or the application of the provision to other persons or circumstances is not affected.

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NEW SECTION
WAC 480-107-007   Definitions.   "Affiliate" means a person or corporation that meets the definition of an "affiliated interest" in RCW 80.16.010.

"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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NEW SECTION
WAC 480-107-015   The solicitation process.   (1) Any owner of a generating facility, developer of a potential generating facility, marketing entity, or provider of energy savings may participate in the RFP process. Bidders may propose a variety of energy resources including: Electrical savings associated with conservation; electricity from qualifying facilities; electricity from independent power producers; and, at the utility's election, electricity from utility subsidiaries, and other electric utilities, whether or not such electricity includes ownership of property. Qualifying facility producers with a generation capacity of one megawatt or less may choose to participate in the utilities' standard tariffs without filing a bid.

(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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NEW SECTION
WAC 480-107-025   Contents of the solicitation.   (1) The RFP must identify the resource block, consisting of the overall amount and duration of power the utility is soliciting, the initial estimate of avoided cost schedule as calculated in WAC 480-107-055 Avoided cost schedule, and any additional information necessary for potential bidders to make a complete bid.

(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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NEW SECTION
WAC 480-107-035   Project ranking procedure.   (1) The procedures and criteria the utility will use in its RFP to evaluate and rank project proposals are subject to commission approval.

(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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NEW SECTION
WAC 480-107-045   Pricing and contracting procedures.   (1) Once project proposals have been ranked in accordance with WAC 480-107-035 Project ranking procedure, the utility must identify the bidders that best meet the selection criteria and that are expected to produce the energy, capacity, and electrical savings as defined by that portion of the resource block to which the project proposal is directed.

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

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NEW SECTION
WAC 480-107-055   Schedules of estimated avoided cost.   (1) A utility must file annually a schedule of estimated avoided cost for the energy and capacity associated with the resource block the utility solicited in its most recent RFP filed pursuant to WAC 480-07-025 Contents of the solicitation.

(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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NEW SECTION
WAC 480-107-065   Eligibility for long-run conservation purchase rates.   (1) Any conservation supplier may participate in the bidding process. A utility may allow a utility subsidiary to participate as a conservation supplier, on conditions described in WAC 480-107-135 Conditions for purchase of electrical power or savings from a utility's subsidiary or affiliate. A decision to allow a utility subsidiary to participate must be explained in the utility's RFP submittal.

(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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NEW SECTION
WAC 480-107-075   Contract finalization.   (1) Unless otherwise prohibited by law, a utility has discretion to decide whether to enter into a final contract with any project bidder that meets the selection criteria of the RFP. Any such bidder may petition the commission to review a utility's decision not to enter into a final contract.

(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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NEW SECTION
WAC 480-107-085   Obligations of generating facilities to the utility.   (1) The owner or operator of a generating facility purchasing or selling electricity under this chapter must execute a written agreement with the utility stating at a minimum that:

(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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NEW SECTION
WAC 480-107-095   Obligations of the utility to qualifying facilities.   (1) A utility must purchase electric energy, electric capacity, or both from a qualifying facility on terms that do not exceed the utility's avoided costs for such electric energy, electric capacity, or both.

(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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NEW SECTION
WAC 480-107-105   Rates for sales to qualifying facilities.   (1) General rules:

(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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NEW SECTION
WAC 480-107-115   System emergencies.   (1) A generating facility entering into a power contract under these rules is required to provide energy or capacity to a utility during a system emergency only to the extent:

(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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NEW SECTION
WAC 480-107-125   Interconnection costs.   (1) Any costs of interconnection are the responsibility of the owner or operator of the generating facility entering into a power contract under this chapter. The utility must assess all reasonable interconnection and necessary system or network upgrade costs the utility incurs against a generating facility on a nondiscriminatory basis.

(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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NEW SECTION
WAC 480-107-135   Conditions for purchase of electrical power or savings from a utility, a utility's subsidiary or affiliate.   (1) The utility, its subsidiary or affiliate may participate in the utility's bidding process. In these circumstances, the solicitation and bidding process will be subject to additional scrutiny by the commission to ensure that no unfair advantage is given to the utility's subsidiary or affiliate. Commission scrutiny will ensure that ratepayer interests are protected.

(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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NEW SECTION
WAC 480-107-145   Filings -- Investigations.   (1) The commission retains the right to examine project proposals as originally submitted by potential developers. The utility must keep all documents supplied by project bidders or on their behalf, and all documents created by the utility relating to each bid, for at least seven years from the close of the bidding process, or the conclusion of the utility's next general rate case, whichever is later.

(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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NEW SECTION
WAC 480-107-999   Adoption by reference.   In WAC 480-107-001, Purpose and scope, the commission refers to the provisions of the Public Utilities 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. The versions referenced are those current on the day the commission adopted the rule that includes the reference, consistent with the requirements of WAC 480-07-180.

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REPEALER

     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.

Washington State Code Reviser's Office