ENGROSSED SUBSTITUTE HOUSE BILL 1589

ByHouse Environment & Energy (originally sponsored by Representatives Doglio, Fitzgibbon, Berry, Alvarado, Bateman, Ramel, Peterson, Lekanoff, Hackney, Macri, and Kloba)

AN ACT Relating to supporting Washington's clean energy economy and transitioning to a clean, affordable, and reliable energy future; amending RCW 80.28.010 and 80.28.110; adding a new chapter to Title 80 RCW; creating a new section; prescribing penalties; and declaring an emergency.

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

(2) Gas companies with over 500,000 customers that are also electrical companies, or combination utilities, play an important role in providing affordable and reliable heating and other energy services, and in leading the implementation of state climate policies. As the state transitions to cleaner sources of energy, combination utilities are an important partner in helping their customers make smart energy choices, and actively supporting the replacement of fossil fuel-based space and water heating equipment and other fossil fuel-based equipment with high-efficiency nonemitting equipment. Programs to accelerate the adoption of efficient, nonemitting appliances have the potential to allow combination utilities to optimize the use of energy infrastructure, improve the management of energy loads, better manage the integration of variable renewable energy resources, reduce greenhouse gas emissions from the buildings sector, mitigate the environmental impacts of utility operations and power purchases, and improve health outcomes for occupants. Legislative clarity is important for utilities to offer programs and services, including incentives, in the decarbonization of homes and buildings for their customers.

(3) In order to meet the statewide greenhouse gas limits in the energy sectors of the economy, more resources must be directed toward achieving decarbonization of residential and commercial heating loads and other loads that are served with fossil fuels, while continuing to protect customers, especially low-income customers and vulnerable communities. The legislature finds that regulatory innovation may be needed to remove barriers that combination utilities may face to meet the state's public policy objectives and expectations. The enactment of chapter 188, Laws of 2021 (Engrossed Substitute Senate Bill No. 5295) began that regulatory transition from traditional cost-of-service regulation, with investor-owned gas and electrical companies using forward-looking multiyear rate plans and taking steps toward performance-based regulation. These steps are intended to provide certainty and stability to both customers and to investor-owned gas and electrical companies, aligning public policy objectives with investments, safety, and reliability.

(4) The legislature finds that as Washington transitions to 100 percent clean electricity and as the state implements the Washington climate commitment act, switching from fossil fuel-based heating equipment and other fossil fuel-based appliances to high-efficiency nonemitting equipment will reduce climate impacts and fuel price risks for customers in the long term. This new paradigm requires a thoughtful transition to decarbonize the energy system to ensure that customers are protected, are not subject to sudden price shocks, and continue to receive needed energy services. This transition will require careful and integrated planning across utilities and with customers as well as new regulatory tools.

(5) It is the intent of the legislature to require combination utilities to decarbonize their systems by: (a) Prioritizing efficient and cost-effective measures to transition customers off of the direct use of fossil fuels at the lowest reasonable cost to customers; (b) investing in the energy supply, storage, delivery, and demand-side resources that will be needed to serve any increase in electrical demand affordably and reliably; (c) maintaining safety and reliability as the gas system undergoes transformational changes; (d) integrating zero-carbon and carbon-neutral fuels to serve high heat and industrial loads where electrification may not be technically feasible; (e) managing peak demand of the electric system; and (f) ensuring an equitable distribution of benefits to, and reduction of burdens for, overburdened communities that have historically been underserved by utility energy efficiency programs, and may be disproportionately impacted by rising fuel and equipment costs or experience high energy burden.

(6) It is the intent of the legislature to support this transition by adopting requirements for combination utilities to conduct integrated system planning to develop specific actions supporting gas system decarbonization and electrification.

Sec. 2. RCW 80.28.010 and 2011 c 214 s 11 are each amended to read as follows:

(1) All charges made, demanded, or received by any gas company, electrical company, wastewater company, or water company for gas, electricity or water, or for any service rendered or to be rendered in connection therewith, shall be just, fair, reasonable and sufficient. Reasonable charges necessary to cover the cost of administering the collection of voluntary donations for the purposes of supporting the development and implementation of evergreen community management plans and ordinances under RCW 80.28.300 must be deemed as prudent and necessary for the operation of a utility.

(2)(a) Every gas company, electrical company, wastewater company, and water company shall furnish and supply such service, instrumentalities and facilities as shall be safe, adequate and efficient, and in all respects just and reasonable.

(3) All rules and regulations issued by any gas company, electrical company, wastewater company, or water company, affecting or pertaining to the sale or distribution of its product or service, must be just and reasonable.

(4) Utility service for residential space heating shall not be terminated between November 15th through March 15th if the customer:

(a) Notifies the utility of the inability to pay the bill, including a security deposit. This notice should be provided within five business days of receiving a payment overdue notice unless there are extenuating circumstances. If the customer fails to notify the utility within five business days and service is terminated, the customer can, by paying reconnection charges, if any, and fulfilling the requirements of this section, receive the protections of this chapter;

(b) Provides self-certification of household income for the prior twelve months to a grantee of the department of commerce, which administers federally funded energy assistance programs. The grantee shall determine that the household income does not exceed the maximum allowed for eligibility under the state's plan for low-income energy assistance under 42 U.S.C. 8624 and shall provide a dollar figure that is seven percent of household income. The grantee may verify information provided in the self-certification;

(c) Has applied for home heating assistance from applicable government and private sector organizations and certifies that any assistance received will be applied to the current bill and future utility bills;

(d) Has applied for low-income weatherization assistance to the utility or other appropriate agency if such assistance is available for the dwelling;

(e) Agrees to a payment plan and agrees to maintain the payment plan. The plan will be designed both to pay the past due bill by the following October 15th and to pay for continued utility service. If the past due bill is not paid by the following October 15th, the customer is not eligible for protections under this chapter until the past due bill is paid. The plan may not require monthly payments in excess of seven percent of the customer's monthly income plus one-twelfth of any arrearage accrued from the date application is made and thereafter during November 15th through March 15th. A customer may agree to pay a higher percentage during this period, but shall not be in default unless payment during this period is less than seven percent of monthly income plus one-twelfth of any arrearage accrued from the date application is made and thereafter. If assistance payments are received by the customer subsequent to implementation of the plan, the customer shall contact the utility to reformulate the plan; and

(f) Agrees to pay the moneys owed even if he or she moves.

(5) The utility shall:

(a) Include in any notice that an account is delinquent and that service may be subject to termination, a description of the customer's duties in this section;

(b) Assist the customer in fulfilling the requirements under this section;

(c) Be authorized to transfer an account to a new residence when a customer who has established a plan under this section moves from one residence to another within the same utility service area;

(d) Be permitted to disconnect service if the customer fails to honor the payment program. Utilities may continue to disconnect service for those practices authorized by law other than for nonpayment as provided for in this subsection. Customers who qualify for payment plans under this section who default on their payment plans and are disconnected can be reconnected and maintain the protections afforded under this chapter by paying reconnection charges, if any, and by paying all amounts that would have been due and owing under the terms of the applicable payment plan, absent default, on the date on which service is reconnected; and

(e) Advise the customer in writing at the time it disconnects service that it will restore service if the customer contacts the utility and fulfills the other requirements of this section.

(6) A payment plan implemented under this section is consistent with RCW 80.28.080.

(7) Every gas company and electrical company shall offer residential customers the option of a budget billing or equal payment plan. The budget billing or equal payment plan shall be offered low-income customers eligible under the state's plan for low-income energy assistance prepared in accordance with 42 U.S.C. 8624(C)(1) without limiting availability to certain months of the year, without regard to the length of time the customer has occupied the premises, and without regard to whether the customer is the tenant or owner of the premises occupied.

(8) Every gas company, electrical company, wastewater company, and water company shall construct and maintain such facilities in connection with the manufacture and distribution of its product, or provision of its services, as will be efficient and safe to its employees and the public.

(9) An agreement between the customer and the utility, whether oral or written, does not waive the protections afforded under this chapter.

(10) In establishing rates or charges for water service, water companies as defined in RCW 80.04.010 may consider the achievement of water conservation goals and the discouragement of wasteful water use practices.

Sec. 3. RCW 80.28.110 and 2021 c 65 s 97 are each amended to read as follows:

((Every))Except for a large gas company pursuant to RCW 80.28.010(2)(b), every gas company, electrical company, wastewater company, or water company, engaged in the sale and distribution of gas, electricity or water or the provision of wastewater company services, shall, upon reasonable notice, furnish to all persons and corporations who may apply therefor and be reasonably entitled thereto, suitable facilities for furnishing and furnish all available gas, electricity, wastewater company services, and water as demanded, except that a water company may not furnish water contrary to the provisions of water system plans approved under chapter 43.20 or 70A.100 RCW and wastewater companies may not provide services contrary to the approved general sewer plan.

(1) "Alternative energy resource" means biogas, renewable natural gas, renewable syngas, renewable hydrogen, carbon dioxide removal, carbon-free district energy, any electrification programs approved as part of an electrification plan pursuant to section 5 of this act, and any carbon-neutral fuel as defined in statute.

(2) "Carbon dioxide equivalent" has the same meaning as defined in RCW 70A.65.010.

(3) "Carbon-free district energy" means a network of hot water pipes and cold water pipes used to provide thermal energy to multiple buildings that does not result in the emissions of greenhouse gases.

(4) "Combination utility" means a public service company that is both an electrical company and a large gas company that serves more than 800,000 retail electric customers and 500,000 retail natural gas customers in the state of Washington as of June 30, 2023.

(5) "Commission" means the utilities and transportation commission.

(6) "Cost-effective" means that a project or resource is forecast:

(a) To be reliable and available within the time it is needed; and

(b) To reduce greenhouse gas emissions and meet or reduce the energy demand or supply an equivalent level of energy service to the intended customers at an estimated incremental system cost no greater than that of the least-cost similarly reliable and available alternative project or resource, or any combination thereof, including the cost of compliance with chapter 70A.65 RCW, based on the forward allowance ceiling price of allowances approved by the department of ecology under RCW 70A.65.160.

(7) "Costs of greenhouse gas emissions" means the costs of greenhouse gas emissions established in RCW 80.28.395.

(8) "Electrical company" has the same meaning as provided in RCW 80.04.010.

(9)(a) "Electrification" means the installation of electric end-use equipment.

(b) Electrification programs may include, but are not limited to, programs that facilitate the installation of electric air-source heat pumps with gas backups in existing buildings. However, electric air-source heat pumps with gas backups may not be part of any plan filed after 2030.

(10) "Emissions baseline" means the actual cumulative greenhouse gas emissions of a combination utility, calculated pursuant to chapter 70A.65 RCW, for the five-year period beginning January 1, 2015, and ending December 31, 2019.

(11) "Emissions reduction period" means one of five periods of five calendar years each, with the five periods beginning on January 1st of calendar years 2030, 2035, 2040, 2045, and 2050, respectively.

(12) "Emissions reduction target" means a targeted reduction of projected cumulative greenhouse gas emissions of a combination utility approved by the commission for an emissions reduction period that is at least as stringent as the limits established in RCW 70A.45.020.

(13) "Gas company" has the same meaning as provided in RCW 80.04.010.

(14) "Greenhouse gas" has the same meaning as provided in RCW 70A.45.010.

(15) "Low-income" has the same meaning as provided in RCW 19.405.020.

(16) "Multiyear rate plan" means a multiyear rate plan of a gas company filed with the commission pursuant to RCW 80.28.425.

(17) "Natural gas" has the same meaning as provided in RCW 19.405.020.

(18) "Overburdened community" has the same meaning as provided in RCW 70A.65.010.

(19) "Renewable hydrogen" has the same meaning as provided in RCW 19.405.020.

(20) "Renewable natural gas" has the same meaning as provided in RCW 19.405.020.

(21) "Renewable resource" has the same meaning as provided in RCW 19.405.020.

(22) "System cost" means an estimate of all direct costs of a project or resource over its effective life including, if applicable: The costs of transmission and distribution to the customers; waste disposal costs; permitting, siting, mitigation, and end-of-cycle decommissioning and remediation costs; fuel costs, including projected increases; resource integration and balancing costs; and such quantifiable environmental costs and benefits and other energy and nonenergy benefits as are directly attributable to the project or resource, including flexibility, resilience, reliability, greenhouse gas emissions reductions, and air quality.

(a) By September 1, 2023, the commission shall initiate a process to consolidate planning requirements and to waive any commission rules necessary to facilitate an integrated system plan.

(b) The commission shall issue a notice and request for comment and shall hold a public comment hearing.

(c) In its order approving the consolidation of planning requirements, the commission shall include a compliance checklist and shall provide any additional guidance that is necessary to ensure that the integrated system plan meets the minimum requirements of all relevant statutes and rules.

(2) Subject to approval by the commission pursuant to subsection (1) of this section, by January 1, 2026, and every four years thereafter, a combination utility shall file an integrated system plan demonstrating how the combination utility plans to:

(a) Achieve its obligations under chapters 19.280, 19.405, 19.285, and 70A.65 RCW, RCW 80.28.380, and existing pipeline safety and replacement plans;

(b) Achieve gas utility and electric utility emissions reductions equal to their proportional share of emissions reductions required under RCW 70A.45.020;

(c) Maximize investments of revenues generated from consigning allowances pursuant to chapter 70A.65 RCW in programs that incentivize a transition to electric heat pumps and other electric appliances, conservation and efficiency services, and other programs that aid in the transition from the direct use of fossil fuels; and

(d) Comply with any other obligations under applicable rules, regulations, or laws.

(3) In addition, an integrated system plan filed pursuant to this section must:

(a) Include an emissions reduction target;

(b) Present and evaluate a range of resource portfolios and proposed programs to advance clean energy and gas decarbonization measures for customers that align with achieving the gas utility's proportional share of emissions reductions required under RCW 70A.45.020. At a minimum, the range of resource portfolios presented and evaluated by a combination utility must include:

(i) A portfolio of resources that uses cost-effective alternative energy resources to the maximum practicable extent, which may include leak reductions approved by the commission, and that meets the identified emissions reduction targets;

(ii) Other portfolios requested by stakeholders;

(iii) Other portfolios at the combination utility's discretion; and

(iv) Other portfolios as directed by the commission;

(c) Include programs targeted to low-income customers, vulnerable populations, and overburdened communities;

(d) Include outreach plans for engagement with all customers, but prioritizing low-income customers, vulnerable populations, and overburdened communities to develop programs to support those customers in every phase of the programs in the combination utility's integrated system plan, including through incentives offered to multifamily buildings occupied in full or in part by low-income households;

(e) Prioritize investments that benefit, and reduce burdens to, low-income customers, vulnerable populations, and overburdened communities;

(f) Prioritize investments in energy efficiency, demand response, and energy conservation measures, which must achieve at least:

(i) Two percent of electric load annually with conservation and energy efficiency resources, unless the commission finds that a higher target is cost-effective; and

(ii) Annual demand response equal to or greater than 10 percent of winter and summer peak electric demand, unless the commission finds that a higher target is cost-effective;

(g) Set forth specific actions that the combination utility will take to reduce greenhouse gas emissions to meet the emissions reduction target;

(h) Quantify projected cumulative greenhouse gas emissions reductions for each emissions reduction period resulting from each portfolio presented in the integrated system plan;

(i) Propose program budgets resulting from each portfolio presented in the integrated system plan;

(j) Quantify the cost of implementing each portfolio presented in the integrated system plan;

(k) Project annual greenhouse gas emissions reductions that would result if each portfolio presented in the integrated system plan were extended through 2050;

(l) Describe the effects of the specific actions and investments of each portfolio presented in the integrated system plan on the safety, reliability, and resilience of the combination utility's energy service;

(m) Identify potential changes to depreciation schedules or other actions to align the combination utility's cost recovery with state laws, including reducing greenhouse gas emissions, minimizing costs, and minimizing risks to the combination utility and its customers;

(n) Explain the combination utility's analysis of the costs and benefits of an array of alternatives, including the costs of greenhouse gas emissions in the cost-benefit calculations;

(o) Describe the monitoring and verification methodology to be used in reporting; and

(p) Include any other information required by the commission.

(4) The commission must approve, reject, or approve with conditions the integrated system plan within 12 months of receiving the final plan. Once approved, a combination utility may include an integrated system plan in a proposal for a multiyear rate plan.

(a) In determining whether to approve the plan, the commission must evaluate whether the plan is in the public interest. This evaluation includes, but is not limited to, a consideration of:

(i) The equitable distribution of energy benefits and reduction of burdens to vulnerable populations and highly impacted communities;

(ii) Long-term and short-term public health, economic, and environmental benefits and the reduction of costs and risks; and

(iii) Energy security and resiliency.

(b) In evaluating whether a proposed integrated system plan is in the public interest, the commission shall take into account the following factors:

(i) Whether the specific actions in the integrated system plan achieve reductions in greenhouse gas emissions for each emissions reduction period;

(ii) Whether the integrated system plan demonstrates progress toward meeting the emissions reduction targets;

(iii) Whether investments in the integrated system plan prioritize serving low-income customers, vulnerable populations, and overburdened communities;

(iv) Whether the integrated system plan and the proposed actions in the plan are cost-effective and how the integrated system plan is likely to result in a reasonable cost to customers, where cost-effectiveness is defined in subsection (5) of this section;

(v) Whether the integrated system plan maintains system reliability and reduces long-term costs and risks to customers; and

(vi) Whether the integrated system plan will lead to new construction career opportunities and prioritizes a transition of natural gas and electricity utility workers to perform work on construction and maintenance of new and existing renewable energy infrastructure.

(5) The commission shall establish by rule a cost-effectiveness test for emissions reduction measures taken by combination utilities to comply with state clean energy and climate policies.

(a) The cost-effectiveness test must be used for the purpose of determining cost-effectiveness of decarbonization measures taken, at the portfolio level, by a combination utility under this chapter, and for any other purpose determined by the commission by rule.

(b) In evaluating the cost-effectiveness of gas decarbonization measures within the integrated system plan, a combination utility shall apply a risk reduction premium that shall account for: (i) The most recent allowance ceiling price approved by the department of ecology pursuant to the climate commitment act, chapter 70A.65 RCW; or (ii) a forward price index for allowance prices approved by the department of ecology. For the purpose of this chapter, the risk reduction premium is necessary to ensure that a combination utility is making appropriate long-term investments to mitigate against the allowance and fuel price risks to customers of the combination utility.

(c) The commission may approve, or amend and approve, an integrated system plan that exceeds the cost-effectiveness test and risk reduction premium requirements identified in this subsection only if it finds that the plan is in the public interest, costs to customers are reasonable, the plan includes mitigation of rate increases for low-income customers, and the benefits of the plan, including the costs of greenhouse gas emissions, exceed the costs.

(6) The commission shall determine the appropriate, cost-effective cost recovery mechanisms for a combination utility to meet its integrated system plan including, but not limited to:

(a) The majority of total capacity and energy necessary to meet the requirements of chapter 19.405 RCW to be supplied from resources owned and operated by the combination utility or an affiliate of the combination utility;

(b) A performance incentive mechanism;

(c) A return on generation assets and generation under contract based on the combination utility's authorized return on equity;

(d) A higher rate of return on certain electric assets including, but not limited to, microgrids, electric vehicle charging infrastructure, advanced metering infrastructure, new substations or distribution lines, and transmission upgrades; and

(e) A return on power purchase agreements that is no less than the authorized cost of debt and no greater than the authorized rate of return of the combination company, multiplied by the operating expense incurred by the combination utility under the power purchase agreement.

(a) Methane leaked from the transportation and delivery of gas from the gas distribution and service pipelines from the city gate to customer end use;

(b) Greenhouse gas emissions resulting from the combustion of gas by customers not otherwise subject to federal greenhouse gas emissions reporting and excluding all transport customers; and

(c) Emissions of methane resulting from leakage from delivery of gas to other gas companies.

(2) In calculating an emissions reduction target, a combination utility must show its emissions baseline and projected cumulative greenhouse gas emissions for the applicable emissions reduction period separately and must show that the total emissions reductions are projected to make progress toward the achievement of the emissions reduction targets identified in the applicable integrated system plan. The final calculation must be presented on a carbon dioxide equivalent basis.

(3) All emissions are metric tons of carbon dioxide equivalent as reported to the federal environmental protection agency pursuant to 40 C.F.R. 98, either subpart W (methane) or subpart NN (carbon dioxide), or successor reporting requirements.

(2) After the approval of an integrated system plan, the combination utility may propose a merger of the rate bases supporting gas and electric operations of the combination utility into a single energy rate base and the adoption of rates for electric and gas service that support the recovery of such a merged energy rate base. The commission may approve the merger of electric and gas rate bases if the commission finds that the proposal will result in a net benefit to customers of the combination utility.

(3) For a combination utility that has merged gas and electricity rate bases, the combination utility must monetize benefits from any applicable federal and state tax incentives for the benefit of customers. These benefits must be separately accounted for and amortized on a schedule designed to mitigate the rate impacts to customers after the rate bases are combined. These credits may not be used for any other purpose.

(a) The combination utility and the prime contractor and all of its subcontractors, regardless of tier, have the absolute right to select any qualified and responsible bidder for the award of contracts on a specified project without reference to the existence or nonexistence of any agreements between such a bidder and any party to such a project labor agreement, and only when such a bidder is willing, ready, and able to become a party to, signs a letter of assent, and complies with such an agreement or agreements, should it be designated the successful bidder; and

(b) It is understood that this is a self-contained, stand-alone agreement, and that by virtue of having become bound to such an agreement or agreements, neither the prime contractor nor the subcontractors are obligated to sign any other local, area, or national agreement.

(2) Nothing in this section supersedes RCW 19.28.091 or 19.28.261 or chapter 49.17 RCW, without regard to project cost.

(1) Work with large gas companies providing gas service within their service areas to identify opportunities for electrification and the provision of energy peaking service by the large gas company;

(2) Account for the costs of greenhouse gas emissions, set total energy savings and greenhouse gas emissions reduction goals, and develop and implement electrification programs in collaboration with large gas companies providing gas service in service areas; and

(3) Include an electrification plan or transportation electrification program as part of collaboration with large gas companies.

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