BILL REQ. #:  H-5011.4 

Read first time 03/06/08.   Referred to Committee on Technology, Energy & Communications.

     AN ACT Relating to the energy independence act; amending RCW 19.285.030, 19.285.040, and 19.285.050; adding new sections to chapter 80.28 RCW; and creating a new section.

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

NEW SECTION.  Sec. 1   (1) The legislature finds that:
     (a) A majority of the retail electric load in the western United States is presently served by electric utilities that are subject to renewable portfolio standards, mandating that they acquire renewable energy resources in prescribed amounts by specific timelines under penalty of law;
     (b) Washington utilities must compete with other electric utilities, some much larger and better capitalized, to acquire cost-effective renewable energy resources, and this competition, along with other factors, has been shown to drive up the cost of renewable energy resources;
     (c) Future legislation requiring the electricity sector to reduce greenhouse gas emissions will further heighten competition among electric utilities in the western United States for renewable energy resources; and
     (d) The renewable portfolio standard laws of other states, particularly California and Oregon, give electric utilities subject to those laws a competitive advantage over Washington's utilities through their ability to: (i) Acquire renewable energy resources from a broader geographic region; (ii) count existing hydropower generation and other low-emitting or zero-emitting generation resources against a renewable portfolio standard; (iii) bank renewable energy credits to comply with future renewable energy standards; (iv) account for and recover the full costs of financing, developing, integrating, and delivering renewable energy in a timely manner that respects procedural rights; and (v) invest in distributed generation that has above-market costs.
     (2) The legislature declares that the requirements of the energy independence act should be reconciled with conceptually similar laws in neighboring states to facilitate the achievement of the act's objectives in a manner that promotes the development of eligible renewable resources and the reduction of greenhouse gas emissions at the lowest reasonable cost.

Sec. 2   RCW 19.285.030 and 2007 c 1 s 3 (Initiative Measure No. 937) are each amended to read as follows:
     The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Attorney general" means the Washington state office of the attorney general.
     (2) "Auditor" means: (a) The Washington state auditor's office or its designee for qualifying utilities under its jurisdiction that are not investor-owned utilities; or (b) an independent auditor selected by a qualifying utility that is not under the jurisdiction of the state auditor and is not an investor-owned utility.
     (3) "Commission" means the Washington state utilities and transportation commission.
     (4) "Conservation" means any reduction in electric power consumption resulting from increases in the efficiency of energy use, production, or distribution.
     (5) "Cost-effective" has the same meaning as defined in RCW 80.52.030.
     (6) "Council" means the Washington state apprenticeship and training council within the department of labor and industries.
     (7) "Customer" means a person or entity that purchases electricity for ultimate consumption and not for resale.     
     (8) "Department" means the department of community, trade, and economic development or its successor.
     (9) "Distributed generation" means an eligible renewable resource where the generation facility or any integrated cluster of such facilities has a generating capacity of not more than five megawatts.
     (10) "Eligible renewable resource" means:
     (a) Electricity from a generation facility powered by a renewable resource other than fresh water that commences operation after March 31, ((1999, where: (i))) 1995, when the facility is located ((in the Pacific Northwest; or (ii) the electricity from the facility is delivered into Washington state on a real-time basis without shaping, storage, or integration services)) within the geographic boundary of the western electricity coordinating council or its successor; ((or))
     (b) Incremental electricity produced as a result of efficiency improvements completed after March 31, ((1999)) 1995, to hydroelectric generation projects owned by a qualifying utility or nonqualifying utility and located ((in the Pacific Northwest)) within the geographic area of the western electricity coordinating council or its successor or to hydroelectric generation in irrigation pipes and canals located ((in the Pacific Northwest, where)) within the geographic area of the western electricity coordinating council or its successor when the additional generation in either case does not result in new water diversions or impoundments; or
     (c) Electricity from a generation facility powered by qualified hydropower, biomass, landfill gas, municipal solid waste, or solar energy that commenced operation before March 31, 1995, and the facility is located in the state.
     (11) "Investor-owned utility" has the same meaning as defined in RCW 19.29A.010.
     (12) "Joint operating agency" has the same meaning as defined in RCW 43.52.250.
     (13) "Load" means the amount of kilowatt-hours of electricity delivered in the most recently completed year by a qualifying utility to its Washington retail customers.
     (((13))) (14) "Nonpower attributes" means all environmentally related characteristics, exclusive of energy, capacity reliability, and other electrical power service attributes, that are associated with the generation of electricity from a renewable resource, including but not limited to the facility's fuel type, geographic location, vintage, qualification as an eligible renewable resource, and avoided emissions of pollutants to the air, soil, or water, and avoided emissions of carbon dioxide and other greenhouse gases.
     (((14))) (15) "Nonqualifying utility" means an electric utility as defined in RCW 19.29A.010 that serves less than twenty-five thousand customers in the state of Washington, a joint operating agency as defined under RCW 43.52.250, and the Bonneville power administration. The number of customers served may be based on data reported by a utility in form 861, "annual electric utility report," filed with the energy information administration, United States department of energy.
     (16) "Pacific Northwest" has the same meaning as defined for the Bonneville power administration in section 3 of the Pacific Northwest electric power planning and conservation act (94 Stat. 2698; 16 U.S.C. Sec. 839a).
     (((15))) (17) "Public facility" has the same meaning as defined in RCW 39.35C.010.
     (((16))) (18) "Qualified hydropower" means electricity from: (i) A generating facility powered by water with generation capacity of thirty megawatts or less and the facility commenced operation before March 31, 1995; (ii) efficiency improvements made after March 31, 1995, to a generating facility powered by water that is owned or marketed by a nonqualifying electric utility; and (iii) an impoundment that is modified after March 31, 1995, to produce electricity.
     (19) "Qualifying utility" means an electric utility, as the term "electric utility" is defined in RCW 19.29A.010, that serves more than twenty-five thousand customers in the state of Washington. The number of customers served may be based on data reported by a utility in form 861, "annual electric utility report," filed with the energy information administration, United States department of energy.
     (((17))) (20) "Renewable energy credit" means a tradable certificate of proof of at least one megawatt-hour of an eligible renewable resource where the generation facility is ((not powered by fresh water)) an eligible renewable resource, the certificate includes all of the nonpower attributes associated with that one megawatt-hour of electricity, and the certificate is verified by a renewable energy credit tracking system selected by the department.
     (((18))) (21) "Renewable resource" means: (a) Water; (b) wind; (c) solar energy; (d) geothermal energy; (e) landfill gas; (f) wave, ocean, or tidal power; (g) gas from sewage treatment facilities; (h) biodiesel fuel as defined in RCW 82.29A.135 that is not derived from crops raised on land cleared from old growth or first-growth forests where the clearing occurred after December 7, 2006; ((and)) (i) biomass energy based on animal waste or solid organic fuels from wood, forest, or field residues, or dedicated energy crops that do not include (i) wood pieces that have been treated with chemical preservatives such as creosote, pentachlorophenol, or copper-chrome-arsenic; (ii) ((black liquor byproduct from paper production; (iii))) wood from old growth forests; or (((iv))) (iii) municipal solid waste; and (j) spent pulping liquor.
     (((19))) (22) "Rule" means rules adopted by an agency or other entity of Washington state government to carry out the intent and purposes of this chapter.
     (((20))) (23) "Year" means the twelve-month period commencing January 1st and ending December 31st.

Sec. 3   RCW 19.285.040 and 2007 c 1 s 4 (Initiative Measure No. 937) are each amended to read as follows:
     (1) Each qualifying utility shall pursue all available conservation that is cost-effective, reliable, and feasible.
     (a) By January 1, 2010, using methodologies consistent with those used by the Pacific Northwest electric power and conservation planning council in its most recently published regional power plan, each qualifying utility shall identify its achievable cost-effective conservation potential through 2019. At least every two years thereafter, the qualifying utility shall review and update this assessment for the subsequent ten-year period.
     (b) Beginning January 2010, each qualifying utility shall establish and make publicly available a biennial acquisition target for cost-effective conservation consistent with its identification of achievable opportunities in (a) of this subsection, and meet that target during the subsequent two-year period. At a minimum, each biennial target must be no lower than the qualifying utility's pro rata share for that two-year period of its cost-effective conservation potential for the subsequent ten-year period.
     (c) In meeting its conservation targets, a qualifying utility may count high-efficiency cogeneration owned and used by a retail electric customer to meet its own needs. High-efficiency cogeneration is the sequential production of electricity and useful thermal energy from a common fuel source, where, under normal operating conditions, the facility has a useful thermal energy output of no less than thirty-three percent of the total energy output. The reduction in load due to high-efficiency cogeneration shall be: (i) Calculated as the ratio of the fuel chargeable to power heat rate of the cogeneration facility compared to the heat rate on a new and clean basis of a best-commercially available technology combined-cycle natural gas-fired combustion turbine; and (ii) counted towards meeting the biennial conservation target in the same manner as other conservation savings.
     (d) The commission may determine if a conservation program implemented by an investor-owned utility is cost-effective based on the commission's policies and practice.
     (e) The commission may rely on its standard practice for review and approval of investor-owned utility conservation targets.
     (2)(a) Each qualifying utility shall use eligible renewable resources or acquire equivalent renewable energy credits or make alternative compliance payments pursuant to section 6 of this act, or ((a)) any combination of ((both)) these options, to meet the following annual targets:
     (i) At least three percent of its load by January 1, 2012, and each year thereafter through December 31, 2015;
     (ii) At least nine percent of its load by January 1, 2016, and each year thereafter through December 31, 2019; and
     (iii) At least fifteen percent of its load by January 1, 2020, and each year thereafter.
     (b) A qualifying utility may count distributed generation at double the facility's electrical output if the utility: (i) Owns or has contracted for the distributed generation and the associated renewable energy credits; or (ii) has contracted to purchase the associated renewable energy credits.
     (c) In meeting the annual targets in (a) of this subsection, a qualifying utility shall calculate its annual load based on the average of the utility's load for the previous two years.
     (d) A qualifying utility shall be considered in compliance with an annual target in (a) of this subsection if: (i) The utility's weather-adjusted load for the previous three years on average did not increase over that time period; (ii) after December 7, 2006, the utility did not commence or renew ownership or incremental purchases of electricity from resources other than renewable resources other than on a daily spot price basis and the electricity is not offset by equivalent renewable energy credits; and (iii) the utility invested at least one percent of its total annual retail revenue requirement that year on eligible renewable resources, renewable energy credits, or a combination of both.
     (e) The requirements of this section may be met for any given year with renewable energy credits produced during that year, the preceding year, or the subsequent year. Each renewable energy credit may be used only once to meet the requirements of this section. Renewable energy credits may be traded, sold, or otherwise transferred. Renewable energy credits that are not used by a qualifying utility to comply with the requirements of this subsection (2) in any given year may be banked and carried forward indefinitely. Banked renewable energy credits with the oldest issuance date must be used to comply with the annual target before banked renewable energy credits with more recent issuance dates are used. A qualifying utility must demonstrate that a renewable energy credit used to comply with the requirements of this subsection (2) is derived from an eligible renewable resource and that the qualifying utility has not used, traded, sold, or otherwise transferred the credit. A qualifying utility that uses a renewable energy credit to comply with a renewable energy standard imposed by any other state may not use the same credit to comply with the requirements of this section.
     (f) In complying with the targets established in (a) of this subsection, a qualifying utility may not count((:
     (i))) eligible renewable resources or distributed generation where the associated renewable energy credits are owned by a separate entity((; or
     (ii) Eligible renewable resources or renewable energy credits obtained for and used in an optional pricing program such as the program established in RCW 19.29A.090)).
     (g) Where fossil and combustible renewable resources are cofired in one generating unit located in the Pacific Northwest where the cofiring commenced after March 31, ((1999)) 1995, the unit shall be considered to produce eligible renewable resources in direct proportion to the percentage of the total heat value represented by the heat value of the renewable resources.
     (h)(i) A qualifying utility that acquires an eligible renewable resource or renewable energy credit may count that acquisition at one and two-tenths times its base value:
     (A) Where the eligible renewable resource comes from a facility that commenced operation after December 31, 2005; and
     (B) Where the developer of the facility used apprenticeship programs approved by the council during facility construction.
     (ii) The council shall establish minimum levels of labor hours to be met through apprenticeship programs to qualify for this extra credit.
     (i) A qualifying utility shall be considered in compliance with an annual target in (a) of this subsection if events beyond the reasonable control of the utility that could not have been reasonably anticipated or ameliorated prevented it from meeting the renewable energy target. Such events include weather-related damage, mechanical failure, strikes, lockouts, and actions of a governmental authority that adversely affect the generation, transmission, or distribution of an eligible renewable resource under contract to a qualifying utility.
     (3) Utilities that become qualifying utilities after December 31, 2006, shall meet the requirements in this section on a time frame comparable in length to that provided for qualifying utilities as of December 7, 2006.

Sec. 4   RCW 19.285.050 and 2007 c 1 s 5 (Initiative Measure No. 937) are each amended to read as follows:
     (1)(((a))) A qualifying utility shall be considered in compliance with an annual target created in RCW 19.285.040(2) for a given year if the utility invested four percent of its total annual retail revenue requirement on the incremental costs of eligible renewable resources, the cost of renewable energy credits, or a combination of both, but a utility may elect to invest more than this amount. Qualifying electric utilities are encouraged to acquire eligible renewable resources and associated transmission, including components necessary for the development of eligible renewable resources and associated transmission, in advance of the annual targets under RCW 19.285.040(2)(a) if such an acquisition can be reasonably expected to reduce the cost of complying with an annual target.
     (((b))) (2) The incremental cost of an eligible renewable resource is calculated as the difference between the levelized delivered cost of the eligible renewable resource, regardless of ownership, compared to the levelized delivered cost of an equivalent amount of reasonably available substitute resources that do not qualify as eligible renewable resources, where the resources being compared have the same contract length or facility life. In determining the levelized delivered cost of an eligible renewable resource, the commission shall use the net present value of delivered cost, including: (a) Capital, operating, and maintenance costs of generating facilities; (b) financing costs attributable to capital, operating, and maintenance expenditures for generating facilities; (c) transmission and substation costs; (d) load following and ancillary services costs; and (e) costs associated with using other assets, physical or financial, to integrate, firm, or shape renewable energy sources on a firm annual basis to meet retail electricity needs.
     (((2) An investor-owned utility is entitled to recover all prudently incurred costs associated with compliance with this chapter. The commission shall address cost recovery issues of qualifying utilities that are investor-owned utilities that serve both in Washington and in other states in complying with this chapter.))

NEW SECTION.  Sec. 5   A new section is added to chapter 80.28 RCW to read as follows:
     (1) The commission shall by rule: (a) Address cost recovery issues of electrical companies that serve both in Washington and in other states in complying with chapter 19.285 RCW; and (b) establish a process for allocating the use of renewable energy credits by an electrical company that makes sales of electricity to retail customers in more than one state.
     (2)(a) All prudently incurred costs by an electrical company to comply with the requirements of RCW 19.285.040(2) are recoverable in the rates of an electric company, including interconnection costs, costs associated with using physical or financial assets to integrate, firm, or shape renewable energy sources on a firm annual basis to meet retail electricity needs, and other costs associated with transmission and delivery of qualifying electricity to retail electricity consumers.
     (b) The commission shall allow an electrical company to recover the reasonable costs of procuring renewable energy credits in rates. All revenues received by an electrical company from the sale of renewable energy credits, the cost of which had been recovered in rates, shall accrue to the benefit of ratepayers.
     (3) The commission shall establish an automatic adjustment clause or another method that allows timely recovery of costs prudently incurred by an electrical company to construct or otherwise acquire facilities that generate electricity from eligible renewable resources and for associated electricity transmission. Upon the request of any interested person the commission shall conduct a proceeding to establish the terms of the automatic adjustment clause or other method for timely recovery of costs. The commission shall provide parties to the proceeding with the procedural rights described under chapter 34.05 RCW, including but not limited to the opportunity to develop an evidentiary record, conduct discovery, introduce evidence, conduct cross-examination, and submit written briefs and oral argument. The commission shall issue a written order with findings on the evidentiary record developed in the proceeding.
     (4) An electric company must file with the commission for approval of a proposed rate change to recover costs under the terms of an automatic adjustment clause or other method for timely recovery of costs established under subsection (3) of this section. Upon the request of any interested person the commission shall conduct a proceeding to determine whether to approve a proposed change in rates under the automatic adjustment clause or other method for timely recovery of costs. The commission shall provide parties to the proceeding with the procedural rights described under chapter 34.05 RCW, including but not limited to the opportunity to develop an evidentiary record, conduct discovery, introduce evidence, conduct cross-examination, and submit written briefs and oral argument. The commission shall issue a written order with findings on the evidentiary record developed in the proceeding. A filing made under this subsection is subject to the commission's authority to suspend a rate, or schedule of rates, for investigation.
     (5) The commission shall establish the automatic adjustment clause or another method for timely recovery of costs as required by this section no later than January 1, 2010. The clause or method applies to all prudently incurred costs described in this section incurred by an electric company since the date of the company's last general rate case that was decided by the commission before the effective date of this section.
     (6) For the purposes of this section, "automatic adjustment clause" means a provision of a rate schedule that provides for rate increases, decreases, or both, without prior hearing, reflecting increases, decreases, or both in costs incurred or revenues earned by a utility and that is subject to review by the commission at least once every two years.

NEW SECTION.  Sec. 6   A new section is added to chapter 80.28 RCW to read as follows:
     (1) The commission shall establish an alternative compliance rate for each compliance year for each electrical company subject to the requirements of RCW 19.285.040(2). The rate shall be expressed in dollars per megawatt-hour.
     (2) The commission shall establish an alternative compliance rate based on the cost of qualifying electricity, contracts that the electrical company has acquired for future delivery of qualifying electricity, and the number of renewable energy credits that the company anticipates using in the compliance year to meet the annual target under RCW 19.285.040(2)(a). The commission shall also consider any determinations made under RCW 19.285.070 in reviewing the reports made by the electrical company for the previous compliance year. In establishing an alternative compliance rate, the commission shall set the rate to provide adequate incentive for the electrical company to purchase or generate qualifying electricity in lieu of using alternative compliance payments to meet the requirements of RCW 19.285.040(2).
     (3) An electrical company may elect to use, or may be required by the commission to use, alternative compliance payments to comply with the requirements of RCW 19.285.040. Any election by an electrical company to use alternative compliance payments is subject to review by the commission. An electrical company may not be required to make alternative compliance payments that would result in the company exceeding the cost cap established under RCW 19.285.050.
     (4) The commission shall determine for each electrical company the extent to which alternative compliance payments may be recovered in the rates of the company. Each electrical company shall deposit any amounts recovered in the rates of the company for alternative compliance payments in a holding account established by the company. Amounts in the holding account shall accrue interest at the rate of return authorized by the commission for the electrical company.
     (5) Amounts in holding accounts established under subsection (4) of this section may be expended by an electrical company only for costs of acquiring new generating capacity from eligible renewable resources, investments in efficiency upgrades to electricity generating facilities owned by the company, and energy conservation programs within the company's service area. The commission must approve expenditures by an electrical company from a holding account established under subsection (4) of this section. Amounts that are collected from customers and spent by an electrical company under this subsection may not be included in the company's rate base.
     (6) The commission shall establish initial alternative compliance rates as required under this section no later than July 1, 2010.
     (7) For the purposes of this section, (a) "eligible renewable resource" has the same meaning as defined under RCW 19.285.030; and (b) "qualifying electricity" means electricity produced from an eligible renewable resource.