WSR 22-14-055

PERMANENT RULES

UTILITIES AND TRANSPORTATION

COMMISSION

[Docket UE-210183, General Order R-604—Filed June 29, 2022, 9:10 a.m.]

In the matter of amending rules in chapter 480-100 WAC relating to markets purchases and double counting issues addressed under the Clean Energy Transformation Act (CETA).

1STATUTORY OR OTHER AUTHORITY:The commission takes this action under Notice No. WSR 22-07-100, filed with the code reviser on March 22, 2022. The commission has authority to take this action pursuant to RCW 80.01.040, 80.04.160, 19.285.080, and 19.405.100.

2STATEMENT 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).

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

4CONCISE STATEMENT OF PURPOSE AND EFFECT OF THE RULE:RCW 34.05.325(6) requires the commission to prepare and publish a concise explanatory statement about adopted rules. The statement must identify the commission's reasons for adopting the rules, describe the differences between the version of the proposed rules published in the register and the rules adopted (other than editing changes), summarize the comments received regarding the proposed rule changes, and state the commission's responses to the comments reflecting the commission's consideration of them.

5 To avoid unnecessary duplication in the record of this docket, the commission designates the discussion in this order, including appendices, as its concise explanatory statement. Given most comments in response to the CR-102 are related to the proposed rules related to "use," we are not attaching commission staff's (staff) comment matrix. Instead, we note and address the comments related to the rules that are being adopted below. This order provides a complete but concise explanation of the agency's actions and its reasons for taking those actions.

6REFERENCE TO AFFECTED RULES:This order amends WAC 480-100-605 Definitions, 480-100-610 Clean energy transformation standards, 480-100-625 Integrated resource plan development and timing, 480-100-630 Integrated resource planning advisory groups, 480-100-640 Content of a clean energy implementation plan, 480-100-650 Reporting and compliance, 480-100-655 Public participation in a clean energy implementation plan (CEIP), 480-100-660 Incremental cost of compliance, and 480-100-665 Enforcement.

7 PREPROPOSAL STATEMENT OF INQUIRY AND ACTIONS THEREUNDER:The commission filed with the code reviser a Preproposal statement of inquiry (CR-101) on May 3, 2021, at WSR 21-10-088, and filed the CR-101 in Docket UE-210183. The statement advised interested persons that the commission was initiating a rule making to address changes to chapter 480-100 WAC to implement chapter 19.405 RCW with a focus on RCW 19.405.050, [19.405.]040, [19.405.]050, [19.405.]130, and other portions of chapter 19.405 RCW that may affect or be affected by these subsections as enacted in the chapter 288, Laws of 2019, passed as E2SSB 5116, portions of which are now codified in CETA chapter 19.405 RCW. The rule making is intended to define the requirements for meeting the obligations under RCW 19.405.030 through [19.405.]050 with markets purchases from the bilateral markets, the Energy Imbalance Market (EIM), and other centralized markets, and to address the prohibition on double counting of nonpower attributes under RCW 19.405.040 that could occur under other programs. Specifically, the rule making interprets and implements the treatment of energy storage for compliance with RCW 19.405.030 through 19.405.050, and other portions of chapter 19.405 RCW that may affect or be affected by these portions of CETA.

8 On May 3, 2021, the commission issued a notice of opportunity to file written comments, informing persons of this inquiry by providing notice of the subject and the CR-101 to everyone on the commission's list of persons requesting such information pursuant to RCW 34.05.320(3), and by sending notice to all registered electric companies. The commission received no comments in response to this notice.

9 On May 17, 2021, the commission issued a notice of opportunity to file written comments on issues related to double counting, market purchases of electricity, and the interpretation of compliance with RCW 19.405.040 (1)(a). Pursuant to this notice, the commission received comments from June 2 through June 15, 2021. The commission issued a notice of opportunity to file written comments on draft rules on October 12 and November 10, 2021, a notice of revised draft rules on November 16, 2021, and a final notice of opportunity to file written comments on draft rules on January 19, 2022.

10WORKSHOPS:The commission, jointly with commerce, held workshops on June 22, August 21, September 27, and December 6 and 14, 2021. Pursuant to RCW 19.405.130(3), the commission and commerce's December 14, 2021, workshop included market operator and market participants to consider options that support the objectives of chapter 19.405 RCW regarding purchases from the western EIM or other centralized markets.

11 SMALL BUSINESS ECONOMIC IMPACT ANALYSIS [STATEMENT] (SBEIS): On February 23, 2022, the commission issued an SBEIS questionnaire to all interested persons. The commission received no responses to this questionnaire. Thus, the commission received no evidence in this proceeding that any small business will incur more-than-minor costs to comply with the proposed rules.

12 The commission nevertheless conducted an SBEIS. The commission evaluated the effect of the proposed rules on small businesses and filed an SBEIS in this docket on March 21, 2022. The proposed rules add provisions on double counting, and storage to meet the regulatory requirements for utilities providing retail electric service in the state of Washington that are subject to CETA. The rules also add provisions to require investor-owned utilities to include contract or other transaction terms in the sale of electricity to prevent double counting.

13 All of these rules codify reporting and other requirements in CETA. Investor-owned utilities will incur costs to comply with these requirements, but the commission does not propose any rules that would cause affected industries or small businesses to incur more-than-minor costs resulting from the statutory requirements codified in the proposed rules.

14 The commission, after full review and analysis, finds that the proposed rules will only impose minor costs on electric utility companies and concludes that the proposed rules will not have a disproportionate impact on small businesses. A copy of the commission's statement is attached to this order as Appendix B.

15NOTICE OF PROPOSED RULE MAKING:The commission filed a notice of proposed rule making (CR-102) on March 22, 2022, at WSR 22-07-100. On March 23, 2022, the commission issued a notice of opportunity to file written comments on proposed rules and notice of proposed rule virtual adoption hearing, finding good cause to conduct the rule-making hearing virtually due to social distancing requirements related to the COVID-19 pandemic. The commission scheduled this matter for oral comment and adoption at 9:30 a.m. on May 6, 2022,1 and provided interested persons the opportunity to submit written comments to the commission by April 22, 2022. The CR-102 proposed amendments to chapter 480-100 WAC to define the requirements for meeting the obligations of market purchases from the western EIM and other centralized markets, address the prohibition on double counting of nonpower attributes (NPAs) under RCW 19.405.040 that could occur under other programs, and interpret and implement the treatment of energy storage for compliance with RCW 19.405.030 through 19.405.050, and other portions of chapter 19.405 RCW that may affect or be affected by these portions of CETA.

16WRITTEN COMMENTS:On April 22, 2022, the commission received written comments on the CR-102 from several interested companies and private parties. Staff summarized, prepared, and filed responses to these written comments on May 2, 2022.2

17RULE-MAKING HEARING:The commission considered the proposed rules for adoption at a rule-making hearing on Friday, May 6, 2022, before Chair David W. Danner and Commissioner Ann E. Rendahl. The commission heard oral comments from staff representative Steven Johnson. Representatives from Puget Sound Energy (PSE), Avista Corporation d/b/a Avista Utilities (Avista), PacifiCorp d/b/a Pacific Power & Light Co. (PacifiCorp), public counsel unit of the Washington state attorney general's office (public counsel), Alliance of Western Energy Consumers (AWEC), Northwest & Intermountain Power Producers (NIPPC), Renewable Northwest, NW Energy Coalition (NWEC), Climate Solutions, and James Adcock also provided comments. These oral comments reiterated or emphasized portions of the comments these interested persons previously provided in writing.

18SUGGESTIONS FOR CHANGES:Comments from interested persons suggested changes to the proposed rules. Most comments the commission received focused on the proposed rules governing "use." Given the concerns raised in the comments, the commission is not prepared to proceed with adopting the proposed "use" rules at this time. The commission adopts in this order only proposed rules relating to double counting and treatment of storage resources.

19 The following is a summary of proposed changes to the rules adopted by this order and the reasons for rejecting or accepting suggested changes. The commission adopts as its own the reasons staff proposed in its May 2, 2022, summary for rejecting or accepting interested persons' suggested changes to the rules as proposed in the CR-102 at WSR 22-07-100, subject to any modifications we make to the proposed rules and the rationale for those modifications explained in this order. Several of the interested persons' comments with suggested changes warrant further discussion. The following responds to these comments.

20 On April 22, 2022, public counsel filed comments in response to the CR-102, and made several observations regarding the proposed rules governing the disposition of energy "associated with" unbundled renewable energy credits (RECs).

21 Public Counsel argues that the proposed rules on the disposition of electricity associated with unbundled RECs in WAC 480-100-650 (6)(c) - now WAC 480-100-650 (4)(c), and specifically subsections (i)(A) and (i)(B) - are flawed because, by definition, there is no electricity "associated with" an unbundled REC. Public counsel asserts that the electricity from which an unbundled REC comes cannot be identified because RECs in the western renewable energy generation information system (WREGIS) are only identified by the month and year in which they are produced.

22 The proposed rules at WAC 480-100-650 (4)(c)(i)(A) require the purchaser of electricity stripped of its RECs to agree via terms in the sales contract not to represent the attributes of the electricity in any future sale and to require the same in any contract reselling the electricity. Public counsel asserts that this provision in the proposed rules will unnecessarily and unproductively drive up the cost of using unbundled RECs for utilities.

23 Additionally, public counsel states that the proposed rules when applied to sales of renewable energy without RECs into an out-of-state GHG program, "would force market participants to invent an attribute that does not exist, specifically carbon emissions, and ascribe it to certain generation sources so that these 'emissions' can be falsely 'counted' under a cap-and-trade program - even though the production of the REC does not in any way contribute to carbon emissions."

24 By statute, RECs are created with the generation of renewable electricity. If the unbundled REC is counted for compliance by a utility and the electricity that produced that REC is also claimed as renewable electricity, the NPAs of the electricity are being counted twice. Public counsel's statements regarding the limitations in WREGIS's current tracking system do not alter the requirements of utilities to comply with CETA. State representatives and the utilities and entities generating renewable energy should work with WREGIS to ensure the system can address the requirements of CETA prior to 2030.

25 Public counsel is incorrect to assert that the proposed rules require ascribing emissions to the renewable energy from which unbundled RECs have been sold. If an out-of-state GHG emission program relies on the renewable designation of electricity in determining whether to assess an emission fee or allowance charge, it is relying on the NPAs of the electricity. Public counsel is incorrect that the NPAs do not include the zero-emission nature of renewable energy.3 Nonpower attributes in a REC include all NPAs associated with the MWh or electricity, whether the energy is sold in or out of state.4

26 On April 22, 2022, the joint investor-owned utilities (IOUs) additionally filed comments. Among other comments, the joint IOUs stated that contracting requirements could interfere with the utilities' ability to interact in regional markets and result in significantly reduced market participation and/or drive higher prices for premium products to serve Washington customers. Specifically, contracting constraints related to coal power are too proscriptive, go beyond the statutory language of CETA, and are not needed. Accordingly, they suggest eliminating WAC 480-100-650 (4)(b)(v).

27 The joint IOUs additionally claim that extensive reporting requirements could burden utilities and the commission with the creation of data systems, compilation, and, for the commission, receipt and review of voluminous data. Hourly data for some of the elements in the proposed rules simply cannot be provided at this time (e.g., none of the joint IOUs have advanced metering infrastructure (AMI) installed for 100 percent of their retail customer load).

28 We disagree that, because unspecified power is often "system power," an IOU selling the power will not know to whom they are selling the unspecified power. Where the utility has a contract for the sale of system power, it must know the entity to whom it sells power in order to collect payments for the power sold. Therefore, it should not be overly burdensome to provide the reporting requirements proposed in WAC 480-100-650 (4)(b)(v).

29 As for the IOU claim that buyers in the market of unspecified power would not accept a term requiring them to agree that the power was unspecified, the only buyer with a need or motivation not to agree to such a term would be the buyer who intended to resell the power with the false statement that such power was something other than unspecified power. That is exactly the result the proposed rules are intended to address.

30 Additionally, with the advent of allowance costs under the Climate Commitment Act (CCA) for unspecified power and emitting power, we are skeptical that unspecified power will transact in 2030 at the same levels as it does today. Certainly, if it does, and the problems the joint IOUs predict either occur or are not remedied, the commission can revisit the proposed rules.

31 Furthermore, we disagree with the joint IOUs that CETA limits the requirement to eliminate coal power in the manner described in their comments. First, the commission has already considered and rejected similar arguments related to the elimination of coal-fired resources in the previous rule making concerning integrated resource plans and clean energy implementation plans.5 Second, the joint IOUs' conclusion that not buying coal power will result in paying a price premium for spot market power is speculative, and not supported by evidence or analysis. By the end of 2025, the only coal-fired generation in the Northwest will be in Montana and, at most, will be generated at Colstrip Units 3 and 4. To reach the 2030 CETA requirements, Washington utilities will likely commit most of the transmission they own from Montana to Washington to wind resources. This is likely to also be true for Oregon load-serving IOUs that own Colstrip transmission.

32 On April 22, 2022, Renewable Northwest filed comments in this docket, noting that the reporting of total renewable generation and bundled sales will allow interested persons to determine how much utilities are relying on retained RECs for compliance. We agree. Such reported data will allow the commission and interested persons to make just such a calculation.

33 On April 22, 2022, the Western Power Trading Forum (WPTF) submitted comments addressing double counting and coal exclusion. WPTF believes the proposed rules are susceptible to the following three interpretations and asks for confirmation of these interpretations:

1. Allow electricity sourced from a renewable resource located in California to be used for compliance with both CETA's 2030 GHG-neutral standard and the 2045 100 percent clean standard as long as the electricity and the associated RECs have been sold to a Washington utility.

2. California cap and trade program accounts for the direct emissions of that resource, which, under that program, does not render the associated RECs ineligible for CETA compliance, provided the RECs and energy have been contracted to a Washington utility.

3. If the resource is dispatched via EIM or future organized market, the dispatch of that resource based on its energy bids by the market operator would NOT be considered a transfer of ownership nor a transaction that would render the associated RECs ineligible for CETA compliance.

34 WPTF requests the commission address how a Washington utility purchasing system sales from a utility that operates coal-fired generating plants can demonstrate its purchase is coal free.

35 The commission appreciates WPTF sharing its interpretations. Under the rules adopted in this order, our response is as follows: (1) Yes, renewable resources sourced from California may be used for compliance provided that the sale to Washington is designated as an export from California so that the renewable energy sale is not considered under California's GHG cap and trade program. (2) Yes, as long as the RECs and energy are exported as a bundled product. (3) Because we are not adopting rules related to primary compliance at this time, we defer discussion of this question to a later time.

36 Investor-owned utilities can use many different means and constructs in private contracts to meet the demonstration requirement specified in the proposed rule. We do not agree that the proposed rules should prescribe methods or terms that limit flexibility in complying with CETA.

37DISCUSSION:The commission provides the following guidance in addition to the responses to the comments on the proposed rules above.

38 CETA mandates, among other things, that the electricity supplied to retail customers in Washington comes from 100 percent renewable and R&N resources by 2045,6 and that "all retail sales of electricity to Washington retail electric customers be GHG neutral by January 1, 2030".7 CETA provides that:

(a) For the four-year compliance period beginning January 1, 2030, and for each multiyear compliance period thereafter through December 31, 2044, an electric utility must demonstrate its compliance with this standard using a combination of nonemitting electric generation and electricity from renewable resources, or alternative compliance options, as provided in this section. To achieve compliance with this standard, an electric utility must: (i) Pursue all cost-effective, reliable, and feasible conservation and efficiency resources to reduce or manage retail electric load, using the methodology established in RCW 19.285.040, if applicable; and (ii) use electricity from renewable resources and nonemitting electric generation in an amount equal to 100 percent of the utility's retail electric loads over each multiyear compliance period. An electric utility must achieve compliance with this standard for the following compliance periods: January 1, 2030, through December 31, 2033; January 1, 2034, through December 31, 2037; January 1, 2038, through December 31, 2041; and January 1, 2042, through December 31, 2044.8

The 2030 GHG neutrality standard is an important milestone in the transition to clean energy, and the commission has devoted a great deal of time and effort to considering the different interpretations of the term "use electricity" put forward by interested persons, both in this docket and in our previous rule making.9 Due to the uncertainty arising from these competing interpretations, as well as the passage of CCA, we will defer our interpretation of the ambiguous aspect of GHG neutrality standard in RCW 19.405.040(1) to the next iteration of the rule making in this docket. However, we still expect that the electric utilities we regulate are engaged in planning and acquiring resources to achieve CETA's final goal: Supplying 100 percent R&N electricity in providing electric service for retail customers equitably, cost effectively, and reliably.

39 Prohibition on double counting. CETA requires the commission to define the "requirements, including appropriate specification, verification, and reporting requirements, for the following: (a) Retail electric load met with market purchases and the western energy imbalance market or other centralized market administered by a market operator for the purposes of RCW 19.405.030 through 19.405.050; and (b) to address the prohibition on double counting of nonpower attributes under RCW 19.405.040(1) that could occur under other programs."10 RCW 19.405 does not define double counting, but the statutory requirement in RCW 19.405.040 (1)(b)(ii) allows use of unbundled RECs for alternative compliance only, provided that there is no double counting of any NPAs associated with renewable energy credits within Washington or programs in other jurisdictions, as follows:

(A) Unbundled renewable energy credits produced from eligible renewable resources, as defined under RCW 19.285.030, which may be used by the electric utility for compliance with RCW 19.285.040 and this section as provided under RCW 19.285.040 (2)(e); and

(B) Unbundled renewable energy credits, other than those included in subsection (b)(ii)(A) of this subsection, that represent electricity generated within the compliance period.11

40 The statute also prohibits double counting for any NPAs submitted for compliance under RCW 19.405.040 (1)(c) and (f). Although the term "double counting" is not explicitly used in these subsections, the prohibition becomes apparent when subsections (1)(c) and (f) are read together with the statutory definitions of "renewable energy credit" and "nonpower attribute" in RCW 19.405.020. Because RECs are defined as including all nonpower attributes associated with renewable electricity, any REC that is double counted would no longer meet the statutory definition. The requirement in RCW 19.405.040 (1)(c) that all renewable electricity used for compliance with subsection (a) "must be verified by the retirement of renewable energy credits" means that no double counting can occur for that REC to be counted toward primary compliance. The same holds true for nonpower attributes from nonemitting resources under RCW 19.405.040 (1)(f). The statutory definition of a NPA includes "all environmentally related characteristics" of the electricity, therefore, any double counted NPA would not meet the statutory definition, rendering it ineligible for primary compliance under RCW 19.405.040 (1)(f). In summary, the prohibition on double counting under RCW 19.405.040 includes all nonpower attributes, not just unbundled RECs submitted for alternative compliance as some interested persons have suggested.12

41 Double counting can occur in a variety of ways. The first and most obvious is that an NPA is used for two different compliance requirements, or the same NPA is reported by two different entities. Another way double counting can occur is if the NPA is separated from the R&N electricity but that electricity, although not sold with the REC, is still described as having renewable nonpower attributes. As mentioned above, because of the statute's definition of RECs and NPAs, assigning any environmental attribute to electricity unbundled from its REC (or NPA) is double counting of that electricity's NPA.

42 Through this rule making, the commission ultimately addresses double counting by incorporating it into WAC 480-100-650(4), entitled "data and contract reporting." This subsection further specifies certain reporting requirements for annual clean energy progress reports under WAC 480-100-650(3), which are ultimately incorporated into the four-year clean energy compliance report required by WAC 480-100-650(1).

43 One of the criticisms interested persons have raised about proposed WAC 480-100-650(4) is that the contracting requirements are either overly burdensome or will have a chilling effect on bilateral transactions.13 In light of the commission's duty to prevent double counting, we do not find these contracting requirements to be unduly burdensome or believe they will have a chilling effect. A purchaser of unspecified electricity, for example, would only object to the contract term described in WAC 480-100-650 (4)(c)(i)(A) if they intended to ascribe environmental attributes to the electricity, resulting in double counting. While we acknowledge that this rule will require utilities to make changes to their standard contract language, the requirement should not dissuade market participants that are not seeking to engage in double counting from continuing to make transactions. The commission acknowledges, however, that preventing double counting that occurs due to the actions of market participants located in other states would be difficult, if not impossible, given the limits of our jurisdiction and authority. These rules are intended to prevent as much double counting as possible within the scope of the commission's authority, but we acknowledge that preventing certain types of double counting will require interstate cooperation and coordination, market reforms, or both.

44 Finally, WAC 480-100-650 (4)(d) addresses storage14 and its impact on reporting and compliance under these rules. In short, the rules state that storage does not affect the ability to report R&N electricity for compliance. However, consistent with the statutory definition of retail electric load15 and language in RCW 19.405.040 (1)(a)(ii), the subsection specifies that, "any electrical consumption or loss resulting … is not considered retail electric load as defined in RCW 19.405.020(36)."16 Our rules related to storage have not garnered much attention or controversy in the last few drafts, although we did solicit comments on the subject early in this rule making.17 The U.S. Energy Storage Association submitted comments during the CR-101 phase of this Docket recommending that these rules encourage acquisition of storage resources.18 We take no further position on this issue, but note that determining how to properly value potential storage resources in a utility's portfolio should be left to other proceedings, such as each utility's integrated resource plans, clean energy implementation plans, and general rate case filings.

45 Application of the rules to electricity from BPA. Consistent with RCW 19.405.040 (1)(g) and RCW 19.405.050(6), the proposed rules were intended to enforce CETA's requirements without preventing IOUs from purchasing or exchanging power with the Bonneville Power Administration (BPA). The commission received generally favorable comments from BPA during the CR-101 phase of this docket. The commission has incorporated BPA's suggested language edits into WAC 480-100-650 (4)(c)(iii). The commission did not receive further written comments from BPA on the CR-102 draft rules, and believes these rules adequately meet the BPA-related objectives of the statute. The commission also notes that the rules set a January 1, 2029, end date for the BPA exemption under WAC 480-100-650 (3)(f), indicating that these rules will likely need to be revisited before that time.

46 Finalization of "Use" rules. In addition to the reasons discussed above, a changing market environment, new laws,19 and new technology adopted by the IOUs making information more readily available and easier to collect support our determination that "use" rules require further consideration. We also share the concerns of several commenters that the differences between the proposed rules related to "use" and the rules commerce has adopted on the same subject could create confusion, creating unwarranted expense for utilities and ultimately ratepayers. Therefore, we decline to adopt the proposed rules related to "use" and will conduct further proceedings in this docket to consider those rules.

47 COMMISSION ACTION:After considering all the information regarding this proposal, the commission finds and concludes that it should amend the rules as proposed in the CR-102 at WSR 22-07-100 excluding the revisions related to "use." The following proposed rules will not be adopted:

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 10, Repealed 0.

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

Number of Sections Adopted on the Agency's own Initiative: New 0, Amended 0, 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 10, Repealed 0.

90 (1) The commission amends WAC 480-100-605, 480-100-610, 480-100-625, 480-100-630, 480-100-640, 480-100-650, 480-100-655, 480-100-660, and 480-100-665 to read as set forth in Appendix B, as rules of the commission, to take effect on July 1, 2022, as required by RCW 19.405.130 and pursuant to RCW 34.05.380(2).

91 (2) This order and the rules set forth in Appendix A, after being recorded in the register of the 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 Lacey, Washington, and effective June 29, 2022.

Washington Utilities and Transportation Commission

I. Introduction: On May 3, 2021, the commission filed with the code reviser a Preproposal statement of inquiry (CR-101) to promulgate new rules to further implement certain sections of CETA, E2SSB 5116, codified in chapter 19.405 RCW. The commission filed the CR-101 in Docket UE-210183.

CETA requires investor-owned electric utilities (1) to eliminate coal-fired generation from their portfolios by the end of 2025; (2) to ensure that all retail sales of electricity to their retail customers will be GHG-neutral by the end of 2030; and (3) to source all of their power from renewable and nonemitting resources by the end of 2045. Furthermore, CETA requires that the utilities ensure that all customers are benefiting from the transition to clean energy through the equitable distribution of energy and nonenergy benefits and reductions of burdens to vulnerable and highly impacted communities. The commission previously adopted rules implementing most of these requirements.1

RCW 19.405.130(3) requires that commerce and the commission adopt rules by June 30, 2022, defining the requirements for complying with RCW 19.405.030 through 19.405.050 with electric market purchases from carbon and electricity markets outside of the state, and to address the prohibition of double counting of nonpower attributes under RCW 19.405.040. This rule making also addresses two related issues that arose during the development the CETA implementation rules in Docket UE-191023 – the interpretation of the requirement to "use" electricity for compliance with RCW 19.405.040 (1)(a), and the treatment of energy storage for compliance with RCW 19.405.030 through 19.405.050.

The commission is ready to publish proposed rules. When issuing a notice of proposed rules, agencies must provide a copy of the SBEIS prepared in accordance with the Regulatory Fairness Act, codified in chapter 19.85 RCW, or explain why an SBEIS was not prepared. The commission has evaluated the effect of the rules on small businesses and determined that the rule will only implement state law without imposing additional requirements to the affected industries and that small businesses will not incur more-than-minor costs resulting from the statutory requirements codified in the proposed rules.

II. SBEIS Requirements: The Regulatory Fairness Act provides that an agency must conduct an SBEIS "if the proposed rule will impose more than minor costs on businesses in an industry."2 An SBEIS is intended to assist agencies in evaluating any disproportionate impacts of the rule making on small businesses. A business is categorized as "small" under the Regulatory Fairness Act if the business employs 50 or fewer employees. Under RCW 19.85.040(1), agencies must determine whether there is a disproportionate impact on small businesses in the industry, and under RCW 19.85.030(2), consider means to minimize the costs imposed on small businesses.

III. SBEIS Evaluation Procedure: On February 23, 2022, the commission mailed a notice to all stakeholders interested in the commission's rule making, providing a copy of the draft proposed rules and an opportunity to respond to an SBEIS questionnaire. The notice requested that companies that would be affected by the draft rules provide information about the rules' possible cost impacts, with specific information for each rule that the companies identified as causing an impact. The commission received no responses to the SBEIS questionnaire.

Pursuant to the Regulatory Fairness Act, the commission is required to conduct an SBEIS before adopting a rule that will impose more-than-minor costs on small businesses. In analyzing the draft proposed rule, the enacting statute, and the current rule, the commission has determined that the draft proposed rules merely implement state law and adopt reporting requirements that apply only to investor-owned utilities. The commission finds, based on the information available to it, that the proposed rules will not impose more-than-minor costs on small businesses.

IV. Results of the Analysis: In evaluating the proposed rules and the costs of complying with them, the commission conducted an analysis of the statute and the rules proposed to implement it.

The proposed rules interpret and implement the term "use" in RCW 19.405.040 (1)(a) and 19.405.050(1). The proposed rules also address the legislature's prohibition of double counting of nonpower attributes under RCW 19.405.040, as well as the treatment of energy storage for compliance with RCW 19.405.030 through RCW 19.405.050.

RCW 19.405.040 (1)(a) provides, in part, that an electric utility must "demonstrate its compliance with this standard using a combination of nonemitting electric generation and electricity from renewable resources, or alternative compliance options" and "use electricity from renewable resources and nonemitting electric generation in an amount equal to one hundred percent of the utility's retail electric loads over each multiyear compliance period."

The proposed rules interpreting the meaning of "use" are integrated into existing language in WAC 480-100-600 through 480-100-665. Broadly, the proposed rules include the following changes:

The proposed rules add rules on double counting, and the second draft rules shifted the focus of the regulatory requirements to utilities providing retail electric service in the state of Washington that are subject to CETA. The rules add provisions to require investor-owned utilities to include contract or other transaction terms in the sale of electricity to prevent double counting.

All of these rules codify reporting and other requirements in CETA. Investor-owned utilities will incur costs to comply with these requirements, but the commission does not propose any rules that would cause companies to incur any costs that are more than minor that the legislature has not required in the statute.

Even if the proposed rules could be construed to impose more-than-minor compliance costs, small businesses will not incur any of those costs. The proposed rules establish requirements for investor-owned utilities, none of which are small businesses as defined in the statute. The Regulatory Fairness Act does not apply to the costs these large businesses incur to comply with those requirements.

V. Proposed Rule that May Create Costs: The commission's analysis shows that the proposed rules have the effect of merely implementing CETA. The statute requires investor-owned utilities to undertake certain activities and functions, and requires the commission to determine the utilities' compliance with the statutory requirements. The proposed rules implement those requirements. No interested persons have identified any costs to small businesses that will result from complying with the statutory requirements codified in the proposed rules. Any compliance costs are the result of implementing legislative direction, and would not be born by small businesses as defined in the Regulatory Fairness Act.

VI. Summary of Findings: The commission finds that the proposed rules implement CETA as enacted by the legislature, and any costs that result from complying with the statutory requirements codified in the proposed rules would be the result of legislative, not commission, direction. The commission further finds that small businesses will not incur any more-than-minor costs to comply with the proposed rules.

VII. Summary of Mitigation: No mitigiation is necessary. The legislature, not the commission, has adopted requirements that may require large businesses to incur more-than-minor compliance costs, none of which must be addressed through the Regulatory Fairness Act.

VIII. Conclusion: Chapter 19.85 RCW requires that an agency prepare an SBEIS to assess whether proposed rules would impose more-than-minor costs on small businesses.

The commission has analyzed all information collected throughout the rule-making process and concludes the proposed rules do no more than implement CETA and do not impose more-than-minor costs on small businesses that the legislature did not require.

David W. Danner, Chairman

Ann E. Rendahl, Commissioner

OTS-3653.6