Utilities and Transportation Commission.  The Utilities and Transportation Commission (UTC) is a three-member commission with broad authority to regulate the rates, services, and practices of a variety of businesses in the state, including four natural gas companies.  The UTC must ensure rates charged by these companies are fair, just, reasonable, and sufficient. In 2021, the Legislature directed every gas or electric utility filing a general rate case to include a proposal for a multiyear rate plan (MYRP) beginning January 1, 2022.

The UTC is funded almost entirely through fees assessed to regulated companies each May based on their annual intrastate gross revenues.  Under current law, every electric, natural gas, telecommunications, wastewater, and water company regulated by the UTC must pay a fee equal to 0.4 percent of its intrastate gross operating revenues in excess of $50,000.  The UTC may, by rule, set minimum fees that do not exceed the cost of collecting the fees.  The UTC may also waive any or all of the minimum fees.   

Greenhouse Gas Emission Reduction Limits. In 2020, the Legislature updated statewide greenhouse gas (GHG) emissions reduction limits to 45 percent below 1990 levels by 2030, 70 percent below 1990 levels by 2040, and 95 percent below 1990 levels, as well as net zero emissions, by 2050.
 
Clean Energy Transformation Act.  In 2019, the Legislature passed the Clean Energy Transformation Act (CETA), which requires Washington's electric utilities to meet 100 percent of their retail electric load using non-emitting and renewable resources by January 1, 2045.  Additionally, CETA requires electric utilities to eliminate coal-fired resources from their allocation of electricity by December 31, 2025, and make all retail sales of electricity GHG neutral by January 1, 2030.

Climate Commitment Act.  In 2021, the Legislature passed the Climate Commitment Act (CCA) and directed the Department of Ecology (Ecology) to implement a cap and invest program (Program) to reduce GHG emissions consistent with the statewide statutory emissions limits.
 
Starting January 1, 2023, covered entities must either reduce their emissions or obtain allowances to cover any remaining emissions. The total number of allowances will decrease over time to meet statutory limits. Allowances can be obtained through quarterly auctions, or bought and sold on a secondary market. Some utilities and industries will be issued no-cost allowances. The Program must track, verify, and enforce compliance through the use of compliance instruments. A compliance instrument is an allowance or offset credit issued by Ecology or a trading program that has linked with Washington's Program. One compliance instrument is equal to one metric ton of carbon dioxide equivalent. 

The bill as referred to committee not considered.

Prohibition on Gas Service Expansion. A gas company that serves more than 500,000 retail gas customers in Washington on June 30, 2023, is prohibited from furnishing or supplying gas service, instrumentalities, and facilities to any commercial or residential location that did not receive gas service or file an application for gas service as of June 30, 2023. 

The prohibition does not apply to facilities engaged in specified manufacturing processes, described by the North American Industry Classification System (NAICS) codes beginning with 31, 32, or 33. 

Until January 1, 2040, the prohibition does not apply to: 

• medical care facilities or correctional facilities required by federal or state law to have redundant emergency backup power generation systems; and 
• facilities owned or operated by the U.S. Department of Defense that use reciprocating internal combustion engine generators that support energy resilience, energy security, and energy efficiency initiatives. 

Until January 1, 2035, the prohibition to extend gas service does not apply to residential facilities that use natural gas solely to supply generators for the purpose of providing emergency power during an energy supply emergency declared by the Governor or during a loss of electrical service. The the natural gas company must include this limitation on use in its tariff.

A gas company serving more than 500,000 retail gas customers in Washington on June 30, 2023:

• must file a tariff, before November 1, 2023, to offer rebates, incentives, or other inducements to purchase energy-efficient electric appliances and equipment to customers who are using a non-electric fuel source; and
• may not offer, beginning January 1, 2024, any form of rebate, incentive, or other inducement to purchase any natural gas appliance or equipment; however, this requirement does not include electric heat pumps with natural gas backups until January 1, 2031. 

After June 30, 2023, a gas company is exempt from the statutory obligation to furnish gas to any person or corporation who applies for gas service.  

Utilities and Transportation Commission Review of Planning Processes and Requirements for Combination Utilities. To reduce regulatory barriers, achieve equitable and transparent outcomes, and integrate planning requirements, the UTC may consolidate a combination utility's planning requirements for both gas and electric operations into a single integrated system plan (ISP) that is approved by the UTC.
 

To achieve the goals of consolidating planning requirements, the UTC may extend or modify the deadlines for combination utilities for the following plans: integrated resource plans, clean energy action plans, Energy Independence Act (EIA) plans, clean energy implementation plans under CETA, and gas company conservation target plans. The UTC may waive the requirements for renewable portfolio standards under the EIA.  

By January 1, 2024, the UTC must initiate a rule-making proceeding to implement consolidated planning requirements for gas and electric services for combination utilities, including but not limited to, plans required under the IRP process, EIA, CETA, CCA, gas conservation targets, existing pipeline safety and replacement, and planning requirements ordered by the UTC, such as electrification and decarbonization plans. The UTC may consider exemptions from any rules necessary to facilitate the ISP for combination utilities. The UTC must complete the rulemaking within 12 months, but may extend the proceeding for 90 days for good cause shown.  

In the order adopting rules or issuing a policy statement approving the consolidation of planning requirements, the UTC must include a compliance checklist and any additional guidance to ensure the ISP meets the minimum requirements of all relevant statutes and rules. For all combination utility plans filed before the ISP, the UTC must consider whether the plan proposes a cost-effective strategy for decarbonization, considering costs, reasonable alternatives, and long-term risks to customers.

 
Once a combination utility's ISP is approved by the UTC, the utility is subject to the emission reduction targets of the approved ISP.
 
A combination utility must consider the social cost of GHG emissions, determined by the UTC, when developing IRPs and clean energy action plans. ISPs submitted to the UTC by a combination utility may be a basis to bring legal action against electric utilities.

Integrated System Plans. Subject to approval by the UTC, by June1, 2026, and every four years thereafter, combination utilities must file ISPs for both gas and electric operations, or a single ISP upon the direction of the UTC considering the merger of a combination utility's gas and electric rate base, which:

• achieve its obligations under current law for IRPs, CETA, EIA, CCA, gas conservation, and plans for pipeline safety;
• achieve gas utility and electric utility emissions reductions equal to their proportional share of emissions reductions under the statewide GHG emissions reduction limits;
• include emissions reduction targets for both gas and electric operations for each emission reduction period that account for interactions between gas and electric systems;
• achieve 2 percent of electric load annually with conservation and energy efficiency resources, unless the UTC finds a higher target is cost effective, however the UTC may accept a lower level of achievement if it determines that the requirement is neither technically nor commercially feasible;
• achieve annual demand response and demand flexibility equal to or greater than 10 percent of winter and summer peak electric demand; unless the UTC finds a higher target is cost effective, however the UTC may accept a lower level of achievement if it determines that the requirement is neither technically nor commercially feasible;
• achieve all cost-effective electrification of end uses currently served by natural gas;
• include electrification programs that:
  1. include rebates and incentives to low-income customers and customers experiencing high energy burden for the deployment of high-efficiency electric-only heat pumps in homes and buildings currently heating with wood, oil, propane, electric resistance, and gas heating;
  2. provide demonstrated material benefits to low-income participants;
  3. enroll eligible participants in bill assistance programs;
  4. include appropriate low-income customer protections; and
  5. coordinate with community-based organizations in the gas or electrical company's service territory to review barriers and effectively serve low-income customers;
• assess the potential for geographically targeted electrification;
• establish that, consistent with the CCA, a combination utility has consigned to auction for the benefit of ratepayers the maximum permissible number of allowances and prioritize, first, revenues derived from the auction of allowances to programs that eliminate the cost burden for low-income ratepayers and, second, electrification programs benefitting other ratepayers ; and
• comply with any other obligations under law.

 
The UTC must approve, reject, or approve with conditions an ISP, including the required elements of an IRP, within 12 months of its filing. The UTC may extend the time by 90 days for a decision on an ISP for good cause shown. Once an ISP is approved, the combination utility must include the approved ISP, including the targets developed and approved in the plan, in a proposal for a MYRP.
 
When determining whether to approve, reject, or approve a plan with conditions, the UTC must evaluate whether the plan is in the public interest. In doing so, the UTC must take into account the following :

• the equitable distribution of energy benefits and reduction of burdens to vulnerable populations and overburdened communities;
• long-term and short-term public health, economic, and environmental benefits and the reduciton of costs and risks;
• health and safety concerns;
• economic development;
• equity;
• energy security and resiliency;
• whether specific actions in the ISP achieve a proportional share of reductions in GHG emissions for each emissions reduction period on the gas and electric systems, the required energy efficiency and demand response targets, and the emissions reductions are due to required electrification;
• whether the ISP demonstrates progress toward meeting the emissions reduction targets;
• investments in the ISP prioritize serving low-income customers, vulnerable populations, and overburdened communities;
• whether the ISP and specific actions in the plan are cost-effective, result in a reasonable cost to customers, and project the rate impacts of actions or investments on customers;
• whether the ISP maintains system reliability and reduces long-terms costs and risks to customers; and
• whether the ISP will lead to new construction career opportunities and prioritizes a transition of natural gas and electricity workers to perform work on construction and maintenance of new and existing renewable energy infrastructure.

Cost Test. The UTC must establish by rule a cost test for emissions reduction measures achieved by combination utilities to comply with state clean energy and climate policies. The cost test must be used for determining the lowest reasonable cost of decarbonization and electrification measures in ISPs, at the portfolio level, by combination utilities and for any other purpose determined by UTC rules. 

Recovery of Costs for an Integrated System Plan. The UTC may approve, reject, or approve with conditions, an ISP that exceeds the cost test and risk reduction premium requirements only if it finds that the plan is in the public interest.
 
When evaluating the lowest reasonable cost of decarbonization measures in an ISP, combination utilities must apply a risk reduction premium that accounts for the applicable allowance ceiling price pursuant to the CCA. 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 its customers.
 
The portfolio of electric energy or capacity necessary to meet the requirements of CETA over a term of three years or longer acquired by a combination utility is subject to the following requirements:

• 50 percent of the total capacity and energy necessary to meet the requirements of CETA must be supplied through the execution of power purchase agreements (PPAs) for a term longer than three years with third parties, which allows the combination utility rights to dispatch, operate, and control the solicited resource in the same manner as its own generating resources;  and
• 50 percent of the total capacity and energy necessary to meet the requirements of CETA must be supplied from resources owned and operated by the combination utility or an affiliate, provided nothing alters the UTC's authority to set rates that are fair, just, reasonable, and sufficient, and require the utility to provide safe, adequate, and efficient services.  

Combination utilities must work in good faith with other specified stakeholders to develop market structures and mechanisms that account for the greenhouse gas attributes of wholesale electricity generation when it is sold into organized markets.

 
Upon UTC approval and prudence determination of a combination utility's PPA for a term longer than three years, the UTC must allow the combination utility to:

• recover the cost of purchases of energy, capacity, and environmental attributes from renewable resources under the PPA; and
• earn a return on such purchases in an amount determined by a specific equation.

Depreciation Schedules and Single Energy Rate Base. In any MYRP filed by a combination utility, the combination utility must include an updated depreciation study that reduces the gas rate base consistent with an approved ISP, and the UTC may adopt, depreciation schedules that accelerate cost recovery and reduce rate base for any gas plant. The UTC may for cause extend the the deadline for the first MYRP proposed by a combination utility following UTC approval or approval with conditions of the initial ISP. 

In any MYRP proposed by a combination utility, the utility may propose a merger of the regulated gas and electric operation into a single rate base. The UTC may approve the merger of electric and gas rate bases, if it finds the proposal will result in a net benefit to customers of the combination utility. In approving a merger of a gas and electric rate base, the UTC must avoid commercial and residential rate classes subsidizing industrial rate classes.

For a combination utility that has merged gas and electricity rate bases, the utility must monetize benefits received from any applicable federal and state tax and other incentives for the benefit of customers. These benefits must be separately accounted for and amortized on a schedule designed only to mitigate the rate impacts to customers after the rate bases are combined. 

Project Labor Agreements. For any project in an ISP that is part of a competitive solicitation and costs more than $10 million, the combination utility must certify to the UTC that any work on the project will be constructed by contractors with community workforce agreements or project labor agreements, the payment of area standard prevailing wages, and apprenticeship utilization requirements, provided the following apply:

• the combination utility and contractors have the absolute right to select any qualified and responsible bidder for the award of contracts on a specified project without referring to existing agreements, and a successful bidder is designated only when a bidder is willing, ready, and able to become a party to an agreement, signs a letter of assent, and complies with such an agreement; and
• it is a self-contained, stand-alone agreement, and the contractors are not obligated to sign any other local, area, or national agreement.

The project labor agreement provisions do not supersede current electrician licensing laws or the Washington Industrial Safety and Health Act. 

Electric Utilities. Investor-owned and consumer-owned utilities are encouraged to:

• work with combination utilities providing gas service within their service areas to identify opportunities for electrification;
• account for the costs of GHG emissions, set total energy savings and GHG emissions reduction goals, and develop and implement electrification programs in collaboration with combination utilities providing service; and
• include an electrification plan or transportation electrification program as part of collaboration with combination utilities.

Calculating the Emissions Baseline. When calculating an emissions baseline and projected cumulative emissions of an emissions reduction period, a combination utility must include emissions from methane leaked from the transportation and delivery of gas from the distribution and service pipelines to the customer and from the delivery of gas to other gas companies, and GHG emissions from combustion of gas by natural gas customers not subject to federal GHG emissions reporting and excluding transport customers.
 
When calculating an emissions reduction target, a combination utility must show its emissions baseline and projected cumulative GHG emissions for each emissions reduction period and that the total emissions reduction are projected to make progress toward the identified emissions reduction targets identified in the applicable ISP.

Fees. A combination utility must pay a fee equal to 0.1 percent of the first $50,000 of gross operating revenue, plus 0.5 percent of any gross operating revenue in excess of $50,000.

 
Definitions. Several terms are defined including a combination utility, which is a public service company that is both an electrical company and a gas company that serves more than 800,000 retail electric customers and 500,000 retail gas customers in Washington as of June 30, 2023.

• Directs that a gas company serving more than 500,000  retail gas customers in Washington:
  1. must file a tariff, before November 1, 2023, to offer rebates, incentives, or other inducements to purchase energy-efficient electric appliances and equipment to customers who are using a non-electric fuel source; and
  2. may not offer, beginning January 1, 2024, any form of rebate, incentive, or other inducement to purchase any natural gas appliance or equipment; however, this requirement does not include electric heat pumps with natural gas backups until January 1, 2031. 
• Directs that until January 1, 2035, the prohibition to extend gas service in section 2 does not apply to residential facilities that use natural gas solely to supply generators for the purpose of providing emergency power during an energy supply emergency declared by the governor or during a loss of electrical service, and requires the natural gas company to include this limitation on use in its tariff.
• Directs the UTC to initiate a rule-making proceeding to implement consolidated planning requirements for gas and electric services for combination utilities, by January 1, 2024, rather than initiate a process to consolidate planning requirements by September 1, 2023
• Provides that the UTC must complete its rulemaking to implement consolidating planning requirements within 12 months, but it may extend the proceeding for 90 days for good cause shown.
• Changes the deadline for combination utilities to file an ISP from January to June 1, 2026.
• Removes the requirement to present and evaluate a range of resource portfolios and proposed programs to advance clean energy and gas decarbonization measures under the ISP.
• Authorizes the UTC to accept a lower level of conservation and energy efficiency resources and demand response if it determines that the requirements are neither technically nor commercially feasible during the applicable emissions reduction period.
• Adds that an ISP must include electrification programs with specified criteria and clarifies that through December 31, 2030, electrification programs may include programs that facilitate the installation of electric air-source heat pumps with gas backups in existing buildings.
• Directs that, consistent with the CCA, an ISP must establish that a combination utility has consigned to auction for the benefit of ratepayers the maximum permissible number of allowances and prioritize, first, revenues derived from the auction of allowances to programs that eliminate the cost burden for low-income ratepayers and, second, electrification programs benefitting other ratepayers.
• Adds additional factors for the UTC to consider when determining whether an ISP is in the public interest, including the equitable distribution of energy benefits and reduction of burdens to vulnerable populations and overburdened communities; long-term and short-term public health, economic, and environmental benefits, and the reduction of costs and risks; and energy security and resiliency.
• Replaces the cost-effectiveness test with a cost test for the purpose of determining the lowest reasonable cost of decarbonization and electrification measures in ISPs.
• Requires 50 percent of the total capacity and energy necessary to meet CETA over three years to be supplied through the execution of power purchase agreements.
• Requires 50 percent, rather than a majority, of the total capacity and energy necessary to meet CETA over three years to be supplied from resources owned and operated by the combination utility, provided nothing alters the UTC's authority to set rates that are fair, just, reasonable, and sufficient, and require the utility to provide safe, adequate, and efficient services.
• Removes the requirements for the UTC to allow a combination utility to use certain cost recovery mechanisms to meet an ISP, including a higher rate of return on certain electric assets and a return on power purchase agreements.
• Directs combination utilities to work in good faith with other specified stakeholders to develop market structures and mechanisms that account for the greenhouse gas attributes of wholesale electricity generation when it is sold into organized markets. 
• Directs a combination utility to include a depreciation study that reduces the gas rate base consistent with an approved ISP in each multiyear rate plan, and removes the provision requiring incremental depreciation for each year of a MYRP equal to 1 percent of the gas revenue requirement for the preceding year.
• Provides that the UTC must avoid commercial and residential rate classes subsidizing industrial rate classes when approving a merger of a gas and electric rate base.
• Amends the integrated resource plan statute to require a combination utility to consider the social cost of greenhouse gas emissions and authorize submitted ISPs to be a basis to bring legal action against electric utilities.
• Authorizes the UTC to assess a fee on combination utilities of 0.5 percent of any gross operating revenue in excess of $50,000.
• Authorizes the UTC for cause to extend the deadline by an additional two months for a decision in the first multiyear rate plan proposed by a combination utility, following approval or approval with conditions from the UTC of an initial integrated system plan.
• Amends the intent and definition sections.
• Makes technical edits.

The committee recommended a different version of the bill than what was heard.  PRO: The bill is only intended for Puget Sound Energy customers. We must ensure rate payers are put first and that the UTC will continue to have oversight. The striker framework balances decarbonization efforts and  meaningful reductions. We are confident the UTC can ensure there will be an effective process for a combination utility to meet state requirements for carbon reductions and that we ensure fair, just, reasonable, and equitable means of recovery. Under the bill, the UTC has the tools and  to manage cost recovery, set the company's rate of equity, and ensure the company does not exceed an authorized rate of return. Bill corresponds well with the federal government's infrastructure investment act. The utility can manage the costs associated with this bill. We appreciate the bill commits labor provisions to law. The utility's electrification plan includes heating systems that can be installed by our members. This is an integrated approach for CETA and the CCA. Incentives are critical to manage a transition. We are supportive of a consolidation of planning processes and are just as concerned about cost as everyone.
  
CON:  This ban would happen in 105 days. We have concerns with costs and the rest of the bill. We need a gas flame for cooking otherwise we cannot provide our product for customers. Our menu depends on gas. We use natural gas in stores as a backup and would like an exception for this. The bill has an unintended consequence that would prevent alternative fuel providers from utilizing the gas pipeline. We are asking for an exemption for any project that can decarbonize the pipeline. This is a continuation of voters rejecting the carbon tax in 2019. Section 2(b) has a significant impact. Warehouses are difficult to move from natural gas to electric heat and the costs are passed back to tenants. There are supply chain realities, for example transformers appear to be unavailable. In Section 5(4) there is ambiguity about who the bill applies to. Take a more cost-sensitive approach and convert to a peak heating resource. We oppose any attempt to limit natural gas. There is uncertainty regarding cost shifts and the bill does not go far enough to protect ratepayers from costs. The bill goes beyond the state energy code. Gas backup is often necessary when the power goes out. Competition leads to lower costs for customers. We are baffled that the Legislature is giving the company a monopoly over 50 percent of the market. Independent power producers compete against each other to get lowest cost to consumers. Get housing infrastructure in place before moving to carbon neutral. There are a lack of meaningful cost protections for customers. Pre-approval is to the detriment of customers. It costs more to electrify a new home. The project labor agreements are burdensome for minority and women-owned construction companies.
 
OTHER: We are concerned this bill increases shareholder profits. We have equity concerns and want to remove the 50 percent utility ownership mandate and put ownership in hands of the UTC. There is a cost to electrification. Add language to balance the interest of company with customers. Remove the rate of return language and prioritize  auction revenues. Most new homes and buildings are being built all electric and looking for heat pumps. As customers leave gas, give the utility tools and plans for managing the transition. We are working on additional amendments. We support this bill with customer protections. The bill has a strong focus on building electrification. We are concerned about the intent language, it has become anti-natural gas, and is more about fuel switching than decarbonization. The use of RNG is an effective way to decarbonize.