[atlas:bill]

AN ACT Relating to the restoration of investments in energy conservation, renewable energy resources, and low-income energy services; adding a new chapter to Title 80 RCW; and prescribing penalties.

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

NEW SECTION. Sec. 1. The legislature finds that:

(1) The state of Washington is affected by national, regional, and statewide changes that are transforming the nature of the electric power industry;

(2) Washington has a long tradition of energy policies that support energy efficiency and renewable energy development. These policies have reduced air and water pollution and protected the environment, stimulated economic development, made homes more comfortable, reduced the energy burden of low-income households, reduced operating costs for businesses, and made industries more competitive;

(3) The Washington state electricity system study, commissioned by the 55th legislature through chapter 300, Laws of 1998, confirmed that changes in the electric industry have had the unintended consequence of shortening utility planning horizons and reducing incentives for electric utilities to invest in energy conservation and renewable energy resources;

(4) The study also found that there are significant energy conservation resources that cost the same or less than the least costly new electric generation options and that while some nonhydroelectric renewable energy resources may not be cost-effective in the short term, they provide significant environmental and energy system benefits to warrant development;

(5) The study also found that investment in low-income energy services is declining and unstable, although the percent of Washington's population below the poverty level has increased and low-income households pay a significantly higher percent of their incomes for energy than nonlow-income households;

(6) The rise in natural gas prices increases the cost-effectiveness of conservation investments in gas heated homes and raises the need for low-income energy services for gas utility customers;

(7) Washington electric ratepayers will benefit from resource planning and acquisition that hedges against future fuel price risk by ensuring that utilities rely on a diverse portfolio of resources to generate electricity;

(8) Fuel diversity benefits, environmental benefits, and economic benefits from renewable energy resources accrue to the public at large, and therefore all consumers and retail suppliers have an equal obligation to support a minimum amount of these resources in the state's electric resource portfolio;

(9) Washington's claim to the benefits of the federal Columbia river power system is being challenged in congress. The state's ability to preserve these benefits for the citizens of Washington depends in part on demonstrating that we are managing the system wisely and using its benefits efficiently;

(10) It is in the interest of Washington's economy and environment to have a competitively neutral and nonbypassable investment standard that will ensure delivery of cost-effective energy conservation and provide low-income households with energy efficiency services; and

(11) It is in the interest of Washington's ratepayers to have a performance standard that will diversify energy resources and secure development of new nonhydroelectric renewable energy resources to:

(a) Provide a stable economic environment for the continued productivity and advancement of renewable energy resources and technologies;

(b) Secure their inherent public benefits while ensuring that electricity from renewable energy resources is provided at a price based on market competition among these resources; and

(c) Create a stable policy that will enable long-term financing and contracts and therefore lower the costs of these renewable energy resources for consumers.

NEW SECTION. Sec. 2. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) "Auditor" means the office of the state auditor.

(2) "Commission" means the Washington state utilities and transportation commission.

(3) "Consumer-owned utility" includes a municipal electric utility formed under Title 35 RCW, a public utility district formed under Title 54 RCW, an irrigation district formed under chapter 87.03 RCW, a cooperative formed under chapter 23.86 RCW, a mutual corporation or association formed under chapter 24.06 RCW, a port district formed under Title 53 RCW, or a water-sewer district formed under Title 57 RCW, that is engaged in the business of distributing electricity to one or more retail electric customers in the state.

(4) "Department" means the Washington state department of community, trade, and economic development.

(5) "Direct service customer" means any end-user of electricity that obtains electricity directly from the transmission grid and not through a distribution utility, including those customers defined in section 3(8) of the Pacific Northwest electric power planning and conservation act, P.L. 96-501.

(6) "Distribution utility" means any investor-owned or consumer-owned utility that owns, operates, or manages any distribution plant for hire within this state.

(7) "Eligible renewable energy resource" means electricity generation facilities or fuel cells fueled by: (a) Wind; (b) solar energy; (c) geothermal energy; (d) methane gas from landfills, sewage treatment plants, or animal wastes; or (e) biomass energy based on solid organic fuels from wood, forest, or field residues or dedicated energy crops that does not include (i) wood pieces that have been treated with chemical preservatives such as creosote, pentachlorophenol, or copper chrome arsenic; (ii) municipal solid waste; (iii) tires; (iv) construction and demolition debris; or (v) waste byproducts of pulp and paper mills.

(8) "Governing body" means the board of directors, city council, or the commissioners of any consumer-owned utility.

(9) "Investment standard" means a nonbypassable competitively neutral charge on all end-use electricity customers and direct service customers to fund investment in energy conservation, renewable energy research and development, and low-income energy services.

(10) "Investor-owned utility" means a corporation owned by investors that meets the definition of RCW 80.04.010 and is engaged in distributing electricity to more than one retail electric customer in the state.

(11) "Low income" means a household meeting the income eligibility guidelines determined by the department.

(12) "Low-income energy assistance" means financial support provided to low-income households for their energy bills in order to make them affordable. Energy assistance may take the form of energy education as well as special rates, cash assistance, percentage of income or bill payment plans, or other similar mechanisms or charges.

(13) "Low-income energy efficiency services" includes energy-related repairs, weatherization, health and safety measures, installation of energy-efficient appliances and fixtures for low-income residences, and investment in new construction of low-income households that exceed the state energy code, as well as energy education, for the purpose of enhancing energy efficiency.

(14) "Low-income energy services" refers to the combination of low-income energy efficiency services and provision of low-income energy assistance.

(15) "Performance standard" means the percentage of electricity generation sold to Washington consumers that must be derived from eligible renewable energy resources under section 10 of this act.

(16) "Renewable energy credit" means a tradable certificate of proof of one kilowatt-hour of electricity generated from an eligible renewable energy resource.

(17) "Retail electricity supplier" means a seller of electricity to Washington retail electric consumers and direct service industries located in Washington for ultimate consumption.

(18) "Total annual revenues from the retail sale of electricity services in the state" means the total amount of revenues spent each year by Washington end-users for electricity services including distribution, transmission, generation, ancillary services, metering and billing, transition charges, and other types of costs included in consumer-owned utility or investor-owned utility electric rates on the effective date of this section.

(19) "Total annual revenues from the retail sale of natural gas services in the state" means the total amount of revenues spent each year by Washington end-users for natural gas services including distribution, ancillary services, metering and billing, transition charges, and other types of costs included in consumer-owned utility or investor-owned utility natural gas rates on the effective date of this section.

NEW SECTION. Sec. 3. (1) Beginning July 1, 2002, and each year from July 1st to June 30th thereafter, a minimum annual statewide energy conservation, renewable energy research and development, and low-income energy services investment standard for investor-owned utilities, consumer-owned utilities, and direct service customers is established equal to at least three percent of the total annual revenues from the retail sale of electricity services in the state.

(2) Each Washington electricity distribution utility shall annually allocate at least three percent of the total annual revenues from the retail sale of electricity to consumers within its distribution service territory toward meeting this standard. Nothing in this chapter limits distribution utilities from exceeding this standard.

(3) Each direct service customer shall annually allocate at least three percent of its total expenditures for electric services toward meeting this standard. Nothing in this chapter limits direct service customers from exceeding this standard.

NEW SECTION. Sec. 4. (1) The appropriate nonbypassable collection mechanism to comply with the electric investment standard and allocation determination outlined in this chapter must be determined by the commission for all distribution utilities under its jurisdiction. The mechanism must be nonbypassable for all customers regardless of energy supplier.

(2) All consumer-owned utilities will determine the appropriate nonbypassable collection mechanism to comply with the electric investment standard and allocation determination outlined in this chapter. The mechanism must be nonbypassable for all customers regardless of energy supplier.

(3) Any distribution utility that qualifies as a low density discount customer with the Bonneville power administration may, at its option, adopt a minimum standard less than the amount it is projected to collect under section 3 of this act, except that in no case may such a distribution utility spend less, on average, than one and one-half percent of revenues during the first five years after the effective date of this section.

(4) Each direct service customer shall annually forward to the distribution utility in the service territory where the company is located an amount equal to the amount specified in section 3(3) of this act, less those funds qualifying under section 5(3) of this act. In determining its total annual expenditures for retail electric services, the direct service customer shall either rely on consumption and total revenue data from the 1994 report "Generation and Sales Statistics from the Bonneville Power Administration" or provide documentation to the department showing expenditure data for the most recent annual period ending June 30th. If a direct service customer chooses to provide expenditure data to the department, from that time forward, the customer may no longer rely on 1994 data. Documentation provided to the department is considered proprietary information and is not subject to chapter 42.17 RCW. The department may report such information only in the aggregate for all direct service customers in the state.

NEW SECTION. Sec. 5. (1) Funds collected for the electric investment standard must be allocated for the following purposes:

(a) Energy conservation measures, including but not limited to local conservation and regional market transformation efforts;

(b) Research, development, and demonstration projects related to energy efficiency and new nonhydroelectric renewable energy resources, including local and regional renewable energy projects; and

(2) The funds collected by investor-owned utilities and consumer-owned utilities under the minimum investment standard shall be expended as follows:

(a) 49.5 percent of the funds must be invested in cost-effective conservation, including local energy efficiency market transformation activities;

(b) 14 percent of the funds must be invested in cost-effective regional energy efficiency market transformation activities. Distribution utilities contributing to the northwest energy efficiency alliance through their Bonneville power administration rates will be credited an equivalent amount;

(c) 14 percent of the funds must be forwarded to the department for administering programs that provide low-income energy efficiency services. These funds may be distributed through the statewide network of weatherization assistance program providers for weatherization of residences occupied by low-income households;

(d) 18 percent of the funds must be forwarded to the department for administering programs that provide low-income energy assistance. These funds may be distributed through the statewide network of low-income assistance program providers or equivalent local government entities for helping qualifying households pay their energy bills;

(e) Up to 4 percent of the funds may be devoted to research, development, and demonstration of eligible renewable energy resources and energy efficiency technologies; otherwise, these funds will be used to capture additional cost-effective conservation; and

(f) .5 percent of the funds shall be forwarded to the department to fund its responsibilities set forth in this section and sections 9 and 16 of this act.

(3)(a) Direct service customers and any end-use customer of a distribution utility that uses large amounts of electricity (defined as > 10 aMW per facility) may receive credit for up to 49.5 percent of the minimum standard for the funds that it contributes to the distribution utility for local installation of energy efficiency measures, if the customer invests these funds in documented cost-effective conservation investments made in the customer's facilities. This credit does not include the customer's contribution to low-income energy efficiency service costs. If an independent audit determines there is no available conservation measure at the site that would have a simple payback of one and one-half to ten years, the customer must receive the full credit of 49.5 percent of the minimum standard.

(i) The department will confirm that energy savings from the package of energy conservation measures implemented by a direct service customer has a cost less than or equal to the customer's avoided costs and each individual measure has simple payback greater than eighteen months. Upon determination, a customer may apply for a credit for those costs from the local distribution utility to which they send their funds.

(ii) The distribution utility will confirm that energy savings from the package of energy conservation measures implemented by an end-use customer under (a) of this subsection has a cost less than or equal to the customer's avoided costs and each individual measure has simple payback greater than eighteen months. Upon determination, a customer may receive a credit for those costs from its distribution utility.

(b) A direct service customer contributing to the northwest energy efficiency alliance through its Bonneville power administration rates is eligible for a credit for up to fourteen percent of the minimum standard.

NEW SECTION. Sec. 6. (1) Beginning July 1, 2002, and each year from July 1st to June 30th thereafter, a minimum annual statewide energy conservation and low-income energy services investment standard for investor-owned utilities and consumer-owned utilities is established equal to at least two percent of the total annual revenues from the retail sale of natural gas services in the state.

(2) Each Washington natural gas distribution utility that provides gas services within two or more counties shall annually allocate at least two percent of the total annual revenues from the retail sale of natural gas to consumers within its distribution service territory toward meeting this standard. Nothing in this chapter limits distribution utilities from exceeding this standard.

NEW SECTION. Sec. 7. (1) The appropriate nonbypassable collection mechanism to comply with the natural gas investment standard and allocation determination outlined in this chapter must be determined by the commission for all distribution utilities under its jurisdiction. The mechanism must be nonbypassable for all customers regardless of energy supplier.

(2) All consumer-owned utilities must determine the appropriate nonbypassable collection mechanism to comply with the natural gas investment standard and allocation determination outlined in this chapter. The mechanism must be nonbypassable for all customers regardless of energy supplier.

NEW SECTION. Sec. 8. (1) Funds collected for the natural gas investment standard shall be allocated for the following purposes:

(a) Energy conservation measures, including but not limited to local conservation and regional market transformation efforts; and

(b) Low-income energy services.

(2) The funds collected by investor-owned utilities and consumer-owned utilities under the minimum natural gas investment standard must be expended as follows:

(a) 48.5 percent of the funds must be invested in cost-effective conservation, including local and regional energy efficiency market transformation activities;

(b) 20 percent of the funds shall be forwarded to the department for administering programs that provide low-income energy efficiency services. These funds may be distributed through the statewide network of weatherization assistance program providers for weatherization of residences occupied by low-income households;

(c) 26 percent of the funds shall be forwarded to the department for administering programs that provide low-income energy assistance. These funds may be distributed through the statewide network of low-income assistance program providers or equivalent local government entity for helping qualifying households pay their energy bills;

(d) Up to 5 percent of the funds may be devoted to research, development, and demonstration of energy efficient gas technologies; otherwise, these funds will be used to capture additional cost-effective conservation; and

(e) .5 percent of the funds shall be forwarded to the department to fund its responsibilities set forth in this section and sections 9 and 16 of this act.

NEW SECTION. Sec. 9. (1) On or before October 1, 2003, and annually thereafter, each investor-owned utility must demonstrate to the commission compliance with the minimum annual electric investment standard created in section 3 of this act and the minimum annual gas investment standard created in section 6 of this act, as applicable, for the annual period ending the previous June 30th.

(2) On or before October 1, 2003, and annually thereafter, each consumer-owned utility must demonstrate to the auditor, or by independent audit, compliance with the minimum annual electric investment standard created in section 3 of this act and the minimum annual gas investment standard created in section 6 of this act, as applicable, for the annual period ending the previous June 30th.

(3) On or before October 1, 2003, and annually thereafter, each direct service customer must demonstrate to the auditor, or by independent audit, compliance with the minimum annual electric investment standard created in section 3 of this act for the annual period ending the previous June 30th.

(4) Consumer-owned distribution utilities may demonstrate their compliance with the minimum electric investment standard "in the aggregate" by participating in collaborative/consortia efforts with other Washington consumer-owned distribution utilities.

(5) If the auditor or commission determines, within sixty days after receipt of utility compliance filing, that a utility has failed to collect funds to meet the applicable minimum investment standards for the previous reporting period, the distribution utility must immediately implement a tariff to collect a uniform nonbypassable charge. The tariff must collect revenue equivalent to achieving the minimum investment standards as if implemented according to section 3 of this act for electric utilities or section 6 of this act for natural gas utilities.

(6) If by July 1, 2004, and annually thereafter, the auditor or commission determines that a utility's compliance filing shows that less than ninety percent of funds collected to meet the minimum electric utility investment standard have been allocated for the purposes described in section 5 of this act, and if the department has allocated more than ninety percent of the total funds forwarded to the department under section 5 of this act for administering programs that provide low-income energy efficiency services, the unallocated utility funds may be forwarded to the department for additional investment in low-income energy efficiency programs. Otherwise, unallocated funds must be carried over for expenditure by the utility in the following year.

(7) If by July 1, 2004, and annually thereafter, the auditor or commission determines that a utility's compliance filing shows that less than ninety percent of funds collected to meet the minimum gas utility investment standard have been allocated for the purposes described in section 8 of this act, and if the department has allocated more than ninety percent of the total funds forwarded to the department under section 8 of this act for administering programs that provide low-income energy efficiency services, the unallocated utility funds may be forwarded to the department for additional investment in low-income energy efficiency programs. Otherwise, unallocated funds must be carried over for expenditure by the utility in the following year.

(8) An investor-owned distribution utility's expenses for the conservation (excluding low-income energy efficiency services) portion of the funds must be for cost-effective conservation (based on avoided generation, transmission and distribution costs, and associated environmental externality costs) and approved and verified by the commission.

(9) A consumer-owned utility's expenses for the conservation portion of the funds (excluding low-income energy efficiency services) must be for cost-effective conservation (based on avoided generation, transmission and distribution costs, and associated environmental externality costs) and approved and verified by the governing body.

(10) The department must convene a group of stakeholders, including the commission, to advise it concerning the development of criteria for energy conservation, market transformation, low-income energy services, program implementation guidelines that qualify toward the minimum annual investment standards, and a dispute resolution process to address distribution utility or direct service customer complaints on findings of failure to comply with program implementation guidelines. The department will consider all existing and appropriate criteria and guidelines where applicable, and may rely on work of regional power planning committees in determining criteria and guidelines. The commission has the final authority to approve criteria and program implementation guidelines for the investor-owned utilities. The department must adopt rules for reporting energy conservation expenditures and energy savings as applicable.

(11) In the event that a consumer-owned utility fails to satisfy the program implementation guidelines developed in subsection (10) of this section, the department must issue a warning to the noncomplying utility and provide technical assistance to the utility to improve program effectiveness. After two consecutive years of unacceptable programs, the department must assume program responsibility and distribute funds for the noncomplying utility in accordance with the allocation formulas set forth in section 5 of this act for electric utilities, or as set forth in section 8 of this act for gas utilities, except that the funds to be used for conservation, excluding low-income energy services, may, at the discretion of the department, be competitively bid to an energy service provider, to an energy conservation nonprofit organization, or to the noncomplying utility to be spent on energy conservation projects in the noncomplying utility's service territory until such time as the noncompliance is remedied. During this period of interim administration, the department may not make any commitments of greater than three years for the conservation funding it is administering.

(12) In the event that an investor-owned utility fails to satisfy the program implementation guidelines developed in subsection (10) of this section, the commission must issue a warning to the noncomplying utility and notify the department, which must provide technical assistance to the utility to improve program effectiveness. After two consecutive years of unacceptable programs, the department must assume program responsibility and distribute funds for the noncomplying utility in accordance with the allocation formulas set forth in section 5 of this act for electric utilities or section 8 of this act for gas utilities, except that the funds to be used for conservation, excluding low-income energy services, may, at the discretion of the department, be competitively bid to an energy service provider, to an energy conservation nonprofit organization, or to the noncomplying utility to be spent on energy conservation projects in the noncomplying utility's service territory until such time as the noncompliance is remedied. During this period of interim administration, the department may not make any commitments of greater than three years for the local conservation funding it is administering.

NEW SECTION. Sec. 10. The renewable energy performance standard consists of the following:

(1) The required annual percentage of each retail electricity supplier's total kilowatt-hours sold to retail customers in Washington from eligible renewable energy resources must equal five percent by calendar year 2003, ten percent by 2005, increase by at least one percent in each succeeding calendar year up to twenty percent by 2015, and remain at twenty percent each year thereafter.

(2) In facilities that use multiple fuels, only the electricity generated by an eligible renewable energy resource is eligible for renewable energy credits unless the use of nonqualifying fuels is below a minimum level established by the department.

(3) Full requirement customers, as defined by the Bonneville power administration, are allowed to meet the standard by paying a higher rate to the Bonneville power administration to purchase eligible renewable energy resources or credits.

(4) Any distribution utility that qualifies as a low density discount customer with the Bonneville power administration may, at its option, meet the minimum standard through a capacity basis, as defined by the department.

NEW SECTION. Sec. 11. The department must convene a group of stakeholders, including the commission, by January 1, 2002, to advise it on the development of criteria for renewable energy credits, program implementation guidelines that qualify purchases toward the minimum performance standard, rules for reporting renewable energy resource purchases under Washington's fuel mix disclosure law, chapter 19.29A RCW, and a dispute resolution process to address distribution utility or direct service customer complaints on findings of failure to comply with program implementation guidelines. The department must consider all existing and appropriate criteria and guidelines where applicable, and may rely on the work of regional power planning committees in determining criteria and guidelines. The commission has the final authority to approve criteria and program implementation guidelines for the investor-owned utilities. The department or its duly authorized agent shall:

(1) Inspect and register renewable energy credits, certify and audit output, and verify transactions;

(2) Impose and collect a fee on renewable energy credit applicants to cover the administrative costs of carrying out its duties and purposes related to the renewable energy performance standard under sections 10 through 16 of this act;

(3) Enforce this chapter, including the imposition of administrative penalties; and

(4) Adopt rules to carry out the purposes of this chapter.

NEW SECTION. Sec. 12. (1) On or before March 30, 2004, and on or before March 30th of each year thereafter, each retail electricity supplier must submit to the department an application that contains evidence of ownership of sufficient renewable energy credits to satisfy the renewable energy performance standard for the previous calendar year.

(2) A renewable energy credit that is not used to satisfy the required annual percentage under section 10 of this act for the year in which it was issued may be carried forward for use in following years.

(3) Each retail electricity supplier must include the required annual percentage of eligible renewable energy resources under the renewable energy performance standard for electricity products sold to end-use Washington customers.

(4) In meeting the performance standard, a retail electricity supplier may include renewable energy credits for which the installation or operation of the renewable energy resource is required under federal law but may not include credits for which the installation or operation of the renewable energy resource is required under the laws of another state even if the installation or operation is also required under federal law.

NEW SECTION. Sec. 13. Renewable energy credits may be sold or exchanged by the person to whom the credits are issued or by any other person who acquires the credits. A sale or exchange of renewable energy credits is not valid unless it is recorded with the department within ninety days after the conclusion of the sale or exchange. The renewable energy and other environmental attributes associated with an eligible renewable energy kilowatt-hour may only be sold or transferred through the renewable energy credit, and that credit is only eligible to satisfy the required annual percentage requirement of section 10 of this act one time.

NEW SECTION. Sec. 14. (1) In the event that a utility fails to satisfy the program implementation guidelines developed in sections 10 through 13 of this act, the department must issue a warning to the noncomplying utility and provide technical assistance to the utility to improve program effectiveness. After two consecutive years of unacceptable programs, the department must assume program responsibility, assess the investment level required to meet the requirement, and distribute funds from the noncomplying utility to a qualified nonprofit organization investing in new eligible renewable energy resources. The department may not find that the organization is a qualifying organization unless the organization is exempt from federal taxation under section 501(c)(3) of the internal revenue code. During this period of interim administration, the department may not make any commitments of greater than three years for the funding it is administering.

(2) The department may impose an administrative penalty against a retail electricity supplier for violating a provision of sections 10 through 13 of this act. The administrative penalty for failure to produce and receive approval of the required number of renewable energy credits is an amount equal to two times the estimated market value of a renewable energy credit for each credit that a retail electricity supplier fails to acquire and retire. A penalty imposed under this section does not diminish the liability of a retail electricity supplier for the same violation under any other applicable provision of the law. The department or its designee must use all proceeds from these payments to purchase the lowest cost renewable energy credits available in the market.

NEW SECTION. Sec. 15. If the federal government enacts a renewable energy requirement that establishes a lower percentage than Washington's renewable energy performance standard for any given calendar year, the incremental amount from Washington's renewable energy performance standard for eligible resources as defined in section 2 of this act must be added to the federal renewable energy requirement. If the federal renewable energy requirement is the same or higher than the Washington renewable energy performance standard in any given calendar year for eligible resources as defined in section 2 of this act, then the department must include in its annual report to the legislature under section 16 of this act a recommendation to modify or phase out the state renewable performance standard when the federal renewable energy requirement takes effect, provided that the department, after a public process, determines that the state's goals will be satisfied by the federal requirement and that investments made to satisfy the state renewable energy performance standard will not be placed in jeopardy.

NEW SECTION. Sec. 16. (1) On or before December 1, 2004, and biennially thereafter, the department shall submit a report to the legislature on the accomplishments of the investment and performance standards created in this chapter, including unachieved cost-effective conservation opportunities, and make recommendations for revisions to the standards. The commission may initiate rule-making proceedings based on the results of these reports to modify requirements imposed on investor-owned utilities.

(2) On or before January 1, 2015, the department shall: (a) Review and recommend continuation or modification of the minimum investment standards based on an assessment of the effectiveness of the standards, market conditions, and unachieved opportunities; and (b) review and recommend modification of the minimum performance standard based on an assessment of its effectiveness and market conditions.

NEW SECTION. Sec. 17. Sections 1 through 16 of this act constitute a new chapter in Title 80 RCW.

NEW SECTION. Sec. 18. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.