AN ACT Relating to gas, electric, and water companies; and amending RCW 80.28.025 and 82.16.055.

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

Sec. 1. Section 2, chapter 149, Laws of 1980 and RCW 80.28.025 are each amended to read as follows:

(1) In establishing rates for each gas and electric company regulated by this chapter, the commission shall adopt policies to encourage meeting or reducing energy demand through cogeneration as defined in RCW 82.35.020, measures which improve the efficiency of energy end use, and new projects which produce or generate energy from renewable resources, such as solar energy, wind energy, hydroelectric energy, geothermal energy, wood, wood waste, municipal wastes, agricultural products and wastes, and end-use waste heat. ((~~These policies shall include but are not limited to~~))

(2) The commission shall adopt a policy allowing a return on investment in measures to improve the efficiency of energy end use, cogeneration, or projects which produce or generate energy from renewable resources ((~~which~~)). The return on investment is established by adding an increment of two percent to the rate of return on common equity permitted on the company's other investment and allowing the capitalization of carrying costs associated with the investment in such measures until they are included in the rate base for ratemaking purposes. The rate of return increment shall be allowed for a period not to exceed thirty years after the measure or project is first placed in the rate base.

(3) The commission shall consider and may adopt other policies to protect a company from a reduction of short-term earnings that may be a direct result of utility programs to increase the efficiency of energy use. The policies may include, allowing a periodic rate adjustment for investments in end-use efficiency, allowing a utility to accrue an allowance for funds used to acquire end-use efficiency, and allowing changes in price structure designed to produce additional net revenue.

(4) Measures or projects encouraged under this section are those for which construction or installation is begun after June 12, 1980((~~, and before January 1, 1990, and which,~~)). At the time they are placed in the rate base, ((~~are~~)) the measures or projects must be reasonably expected to save, produce, or generate energy at a total incremental system cost per unit of energy delivered to end use which is less than or equal to the incremental system cost per unit of energy delivered to end use from similarly available conventional energy resources ((~~which utilize nuclear energy or fossil fuels and~~)) which the gas or electric company could acquire to meet energy demand in the same time period. ((~~The rate of return increment shall be allowed for a period not to exceed thirty years after the measure or project is first placed in the rate base.~~))

Sec. 2. Section 3, chapter 149, Laws of 1980 and RCW 82.16.055 are each amended to read as follows:

(1) In computing tax under this chapter there shall be deducted from the gross income:

(a) An amount equal to the cost of production at the plant for consumption within the state of Washington of:

(i) Electrical energy produced or generated from cogeneration as defined in RCW 82.35.020; and

(ii) Electrical energy or gas produced or generated from renewable energy resources such as solar energy, wind energy, hydroelectric energy, geothermal energy, wood, wood wastes, municipal wastes, agricultural products and wastes, and end-use waste heat; and

(b) Those amounts expended to improve consumers' efficiency of energy end use or to otherwise reduce the use of electrical energy or gas by the consumer.

(2) This section applies only to new facilities for the production or generation of energy from cogeneration or renewable energy resources or measures to improve the efficiency of energy end use on which construction or installation is begun after June 12, 1980((~~, and before January 1, 1990~~)).

(3) Deductions under subsection (1)(a) of this section shall be allowed for a period not to exceed thirty years after the project is placed in operation.

(4) Measures or projects encouraged under this section shall at the time they are placed in service be reasonably expected to save, produce, or generate energy at a total incremental system cost per unit of energy delivered to end use which is less than or equal to the incremental system cost per unit of energy delivered to end use from similarly available conventional energy resources ((~~which utilize nuclear energy or fossil fuels and~~)) which the gas or electric utility could acquire to meet energy demand in the same time period.

(5) The department of revenue, after consultation with the utilities and transportation commission in the case of investor-owned utilities and the governing bodies of locally regulated utilities, shall determine the eligibility of individual projects and measures for deductions under this section.