5692-S

AN ACT Relating to electrical, gas, and water companies; providing for financing and rate regulation of investment in conservation measures and services; and adding new sections to chapter 80.28 RCW.

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

NEW SECTION. Sec. 1. Unless the context clearly requires otherwise, the definitions in this section apply throughout sections 2 through 5 of this act.

(1) "Approved conservation investment" means all costs incurred by electrical, gas, or water companies with respect to energy or water conservation measures and services intended to improve the efficiency of energy or water end use, if:

(a) The conservation measures and services do not produce assets that would be bondable utility property under the general utility mortgage of the electrical, gas, or water company; and

(b) The commission has determined that the costs were incurred in conformance with the terms and conditions of a conservation service tariff in effect with the commission at the time the costs were incurred, unless at the time of such determination the commission disallows the costs as imprudent.

(2) "Conservation bonds" means bonds, notes, certificates of beneficial interests in trusts, or other evidences of indebtedness or ownership that:

(a) The commission determines at or before the time of issuance are issued to finance or refinance approved conservation investment by an electrical, gas, or water company; and

(b) Rely partly or wholly for repayment on conservation investment assets and revenues arising with respect thereto.

(3) "Conservation investment assets" means the statutory right of an electrical, gas, or water company:

(a) To have included in the rate base all of its approved conservation investment and related carrying costs; and

(b) To receive through rates revenues sufficient to recover the approved conservation investment and the costs of equity and debt capital associated with it, using the capital structure of the electrical, gas, or water company including finance subsidiaries of the company, including, without limitation, the payment of principal, premium, if any, and interest on conservation bonds.

(4) "Finance subsidiary" means a corporation, company, association, joint stock association, or trust that is beneficially owned, directly or indirectly, by an electrical, gas, or water company, or in the case of a trust issuing conservation bonds consisting of beneficial interests for which an electrical, gas, or water company or a subsidiary of the company is the grantor, or an unaffiliated entity formed for the purpose of financing or refinancing approved conservation investment, and that acquires conservation investment assets directly or indirectly from the company in a transaction approved by the commission.

NEW SECTION. Sec. 2. (1) An electrical, gas, or water company may file a conservation service tariff with the commission. The tariff shall provide:

(a) The terms and conditions upon which the company will offer the conservation measures and services specified in the tariff;

(b) The period of time during which the conservation measures and services will be offered; and

(c) The maximum amount of expenditures to be made during a specified time period by the company on conservation measures and services specified in the tariff.

(2) The commission shall have the same authority with respect to a proposed conservation service tariff as it has with regard to any other schedule or classification the effect of which is to change any rate or charge, including, without limitation, the power granted by RCW 80.04.130 to conduct a hearing concerning a proposed conservation service tariff and the reasonableness and justness of the tariff, and pending the hearing and the decision on the hearing the commission may suspend the operation of the tariff for a period not exceeding ten months from the time the same would otherwise go into effect.

(3) An electrical, gas, or water company may from time to time apply to the commission for a determination that specific costs constitute approved conservation investment. A company may request this determination by the commission in separate proceedings for this purpose or in connection with rate proceedings, including both general rate cases and periodic rate adjustment proceedings. The commission shall designate the costs as approved conservation investment if it finds that the costs were incurred in conformance with the terms and conditions of a conservation service tariff, unless at the time of the determination the commission disallows the costs as imprudent.

(4) The commission shall include in the rate base all approved conservation investment and related carrying costs. The commission shall approve rates for service by electrical, gas, and water companies at levels sufficient to recover all of the costs of the approved conservation investment included in the rate base and the costs of equity and debt capital associated therewith, using the capital structure of the electrical, gas, or water company including finance subsidiaries of the company, including, without limitation, the payment of principal, premium, if any, and interest on conservation bonds. The rates so determined may be included in general rate schedules or may be expressed in one or more separate rate schedules. The commission shall not have authority to revalue approved conservation investment for rate-making purposes, to determine that revenues required to recover approved conservation investment and associated equity and debt capital costs are unjust, unreasonable, or in any way in violation of law, or to take any other action that would impair or reduce the value of conservation investment assets or that would impair the timing or the amount of revenues arising with respect to conservation investment assets that have been pledged to secure conservation bonds.

(5) Nothing in sections 2 through 5 of this act shall preclude the commission from adopting or continuing other conservation policies and programs intended to provide incentives for and to encourage utility investment in improving the efficiency of energy or water and use; provided, that the policies or programs shall not impair conservation investment assets. Sections 2 through 5 of this act are not intended to be an exclusive or mandatory approach to conservation programs for electrical, gas, and water companies, and no such company is obligated to file conservation service tariffs under sections 2 through 5 of this act, to apply to the commission for a determination that conservation costs constitute approved conservation investment within the meaning of sections 2 through 5 of this act, or to issue conservation bonds.

NEW SECTION. Sec. 3. (1) Electrical, gas, and water companies, or finance subsidiaries, may issue conservation bonds upon approval by the commission of an application for authorization under RCW 80.08.040.

(2) Electrical, gas, and water companies, or finance subsidiaries, may pledge conservation investment assets as collateral for conservation bonds by obtaining an order of the commission approving an issue of conservation bonds and providing for a security interest in conservation investment assets. A security interest in conservation investment assets is created and perfected only upon entry of an order by the commission approving a contract governing the granting of the security interest and the filing with the department of financial institutions of a UCC-1 financing statement, showing such pledgor as "debtor" and identifying such conservation investment assets and the approved conservation investment associated therewith. The security interest is enforceable against the debtor and all third parties, subject to the rights of any third parties holding security interests in such conservation investment assets perfected in the manner described herein, when value has been given by the purchasers of conservation bonds. An approved security interest in conservation investment assets is a continuously perfected security interest in all revenues and proceeds arising with respect to the associated approved conservation investment, whether or not such revenues have accrued. Upon such approval, the priority of such security interest shall be as set forth in the contract governing the conservation bonds. Conservation investment assets shall constitute property for the purposes of contracts securing conservation bonds whether or not the related revenues have accrued.

(3) The relative priority of a security interest created under this section is not defeated or adversely affected by the commingling of revenues arising with respect to conservation investment assets with other funds of the debtor. The holders of conservation bonds shall have a perfected security interest in all cash and deposit accounts of the debtor in which revenues arising with respect to conservation investment assets pledged to such holders have been commingled with other funds, but such perfected security interest is limited to an amount not greater than the amount of such revenues received by the debtor within twelve months prior to (a) any default under the conservation bonds held by the holders or (b) the institution of insolvency proceedings by or against the debtor, less payments from such revenues to the holders during such twelve-month period. If an event of default occurs under an approved contract governing conservation bonds, the holders of conservation bonds or their authorized representatives, as secured parties, are entitled to foreclose or otherwise enforce the security interest in the conservation investment assets securing the conservation bonds, subject to the rights of any third parties holding prior security interests in such conservation investment assets perfected in the manner provided herein. Upon application by the holders or their representatives, without limiting their other remedies, the commission shall order the sequestration and payment to the holders or their representatives of revenues arising with respect to the conservation investment assets pledged to such holders. Any such order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor. Any surplus in excess of amounts necessary to pay principal, premium, if any, interest, and expenses arising under the contract governing the conservation bonds shall be remitted to the debtor electrical, gas, or water company or the debtor finance subsidiary.

(4) The granting, perfection, and enforcement of security interests in conservation investment assets to secure conservation bonds is governed by this chapter rather than by article 62A.9 RCW.

(5) A transfer of conservation investment assets by an electrical, gas, or water company to a finance subsidiary, which such parties have in the governing documentation expressly stated to be a sale or other absolute transfer, in a transaction approved in an order issued by the commission and in connection with the issuance by such finance subsidiary of conservation bonds, shall, notwithstanding any other provision or principle of Washington law, be treated as a true sale, and not as a pledge or other financing, of such conservation investment assets. According the holders of conservation bonds a preferred right to revenues of the electrical, gas, or water company, or the provision by such company of other credit enhancement with respect to conservation bonds, shall not impair or negate the characterization of any such transfer as a true sale.

(6) Any successor to an electrical, gas, or water company pursuant to any bankruptcy, reorganization, or other insolvency proceeding shall perform and satisfy all obligations of such company under an approved contract governing conservation bonds, in the same manner and to the same extent as such company prior to any such proceeding, including, without limitation, collecting and paying to the bondholders or their representatives revenues arising with respect to the conservation investment assets pledged to secure the conservation bonds.

NEW SECTION. Sec. 4. (1) Costs incurred prior to the effective date of this act by electrical, gas, or water companies with respect to energy or water conservation measures and services intended to improve the efficiency of energy or water end use shall constitute approved conservation investment for purposes of sections 1 through 3 of this act, if:

(a) The commission has previously issued a rate order authorizing the inclusion of such costs in the rate base; and

(b) The commission authorizes the issuance of conservation bonds secured by conservation investment assets associated with such costs.

(2) If costs incurred prior to the effective date of this act by electrical, gas, or water companies with respect to energy or water conservation measures intended to improve the efficiency of energy or water end use have not previously been considered by the commission for inclusion in the rate base, an electrical, gas, or water company may apply to the commission for approval of such costs. If the commission finds that the costs were incurred in conformance with the terms and conditions of a conservation service tariff in effect with the commission at the time, the commission shall by order designate such costs as approved conservation investment that are subject to the provisions of sections 1 through 5 of this act, unless at the time of such determination the commission disallows the costs as imprudent.

NEW SECTION. Sec. 5. In order to assure that rates are not made unjust, unreasonable, unjustly discriminatory, or unduly preferential by reason of unrecovered investment in measures intended to improve the efficiency of energy end use, the commission may adopt rules specifying the kinds of measures that may be offered only under a contract that provides for recovery of unamortized investment if the customer ceases to purchase energy from the company for the use to which the measure relates. The rules may also provide for threshold levels of investment below which a contract is not required. After adoption of the rules, no gas company or electrical company may invest in such measures except in compliance with such regulations.

NEW SECTION. Sec. 6. Sections 1 through 5 of this act are each added to chapter 80.28 RCW.