Background: Investor-Owned Utilities (IOUs). Three electric IOUs serve Washington customers: Avista, Puget Sound Energy (PSE), and PacifiCorp. Of the three, only PSE has customers limited to Washington.

Washington Utilities and Transportation Commission (UTC). The UTC is a three-member commission that has broad authority to regulate the rates, services, and practices of a variety of businesses in the state, including electric IOUs. In a typical rate case, the petitioner must prove a requested action is in the public interest by preponderance of the evidence or a reasonable basis test.

As part of the ratemaking process for electric IOUs, the UTC considers whether, and to what extent, an IOU should recover the cost of a resource acquisition or the cost of an investment in a new generating facility. The UTC's decision is made on a case-by-case basis, taking into consideration such factors as the utility's need for the energy, public policies regarding resource preferences, and the cost of risks associated with the environmental effects of carbon dioxide.

Integrated Resource Plan (IRP). All investor-owned and consumer-owned electric utilities in the state with more than 25,000 customers must develop IRPs. All other electric utilities in the state, including those that essentially receive all their power from the Bonneville Power Administration, must file either an IRP or a less-detailed resource plan.

An IRP must describe the mix of generating resources and conservation and efficiency resources that will meet current and projected needs at the lowest reasonable cost to the utility and its ratepayers. An IRP must include a number of components, such as an assessment of commercially available conservation and efficiency resources.

State of Emergency. The Governor may proclaim a state of emergency when a public disorder, disaster, energy emergency, or riot exists within the state that affects life, health, property, or public peace. The state of emergency is proclaimed for, and only effective within, the affected area which may be part or all of the state.

Summary of Bill: Requiring a Carbon Planning Adder. Electrical companies, gas companies, and the UTC must use the carbon planning adder when evaluating and selecting conservation policies, programs, and targets.

Electrical companies must use the carbon planning adder in developing and evaluating IRPs and evaluating and selecting long-term resource options. Long-term resource options mean:

a new ownership interest in an electric plant or an upgrade to an existing electric plant; or
a new or renewed contract for electricity with a term of five or more years for the provision of power to retail end-use customers in Washington.

Carbon planning adder means a calculation of the economic impacts associated with an incremental increase in carbon dioxide (CO2) emissions in a calendar year and must be an amount equal to the greater of:

$40 per metric ton of CO2, for calendar year 2018, which must be increased each January 1 by 1.25 percent, rounded to the nearest dollar for calendar year 2018; or
the applicable carbon tax rate, if any, as expressed in dollars per metric ton of CO2 for the calendar year.

Authorizing an AFOR. The UTC may regulate an electrical or gas company (company) by authorizing an AFOR, and determine whether it is in the public interest to authorize an AFOR or all or individual utility services. The UTC shall consider the extent to which an AFOR is expected to:

align utility regulatory incentives with the public interest;
maintain and enhance the ability of the company to furnish safe, adequate and efficient service to its customers;
allow a company to support and participate in market transformation for enabling technologies without harming competition;
allow a company to be financially indifferent to the ownership of the property necessary to furnish utility service to its customers or the quantity of electricity or gas sold to its customers;
protect customers, especially low-income customers, from undue risk;
ensure an appropriate level of consumer protection; and
support the achievement of state emissions reduction goals.

Either a company may initiate a petition or the UTC may initiate a motion to establish an AFOR. The company must submit a plan with the petition that may include a reasonable range for rate of return on investment. The plan must contain a proposal for transition to the AFOR, the duration of the plan, adequate customer service, and appropriate enforcement or remedial provisions if the company fails to meet service quality standards or performance measures.

After notice and hearing, the UTC must issue an order accepting, modifying, or rejecting the plan within 11 months after the petition or motion is filed, unless extended for good cause. Within 60 days of the order, the company must file with the UTC an election to either proceed or not to proceed with the AFOR authorized by the UTC.

The UTC may waive another regulatory requirement subject to an AFOR as long as it does not waive any previously granted legal rights to any person.

After a petition by a company, notice, and hearing, the UTC may rescind or modify an AFOR. The UTC or any person may file a compliant alleging that a company has not complied with the terms and conditions set forth in the AFOR. The complainant bears the burden of proving the complaint allegations. Additionally, the Governor may waive or suspend an AFOR under a declared state of emergency.

Expressing Legislative Findings and Intent. Various legislative findings are made and the intent of the Legislature is expressed concerning the authorization of the UTC to employ AFORs for electrical and gas companies to further the state's public policy goals.

Staff Summary of Public Testimony: PRO: Customers are asking for cleaner and greener energy. Current standards require utilities to acquire least-cost resources. Factoring carbon into decisions will require the best long-term resources for the needs and provide for more informed decisions when buying resources. Utilities do not want to buy a resource they wish they had not. To assume there is zero cost in carbon planning leads to poor investments and stranded assets. Customers do not want to pay more or assume more risk than they should. Technical changes are needed. Authorizing an AFOR allows a utility the flexibility to look at extenuating circumstances and innovation. Incentive-based regulation allows utilities to adapt to changing current landscapes. Rate making proceedings would not be substantially different. AFOR has been used for telecommunications for several years. The bill could provide a loop-hole for four-year contracts.

OTHER: Merits additional study to protect ratepayers. Forty dollars is high place to start. Industrial customers would like authority to seek intervention in the process. This provides significant new authority to the UTC. AFOR should be done in accordance with the Administrative Procedure Act. Public interest should be defined in statute. The Legislature needs to fully fund public counsel, which stands up for low-income and small business customers. All greenhouse gases should be added instead of just CO2. The carbon planning adder should apply to short-term as well as long-term resources.