H-0596.1
HOUSE BILL 1498
State of Washington 67th Legislature 2021 Regular Session
By Representatives Dye, Fitzgibbon, Shewmake, and Pollet
Read first time 02/05/21. Referred to Committee on Environment &
Energy.
1 AN ACT Relating to transforming the regulation of gas and
2 electrical companies toward multiyear rate plans and performance-
3 based rate making; amending RCW 80.28.005 and 80.28.068; adding new
4 sections to chapter 80.28 RCW; and creating a new section.
5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
6 NEW SECTION. Sec. 1. (1) The legislature finds that gas and
7 electrical companies face transformational change brought on by new
8 technology, rapidly changing costs, emerging opportunities for
9 customers, and public policy mandates. Policy mandates, such as
10 chapter 19.405 RCW, the clean energy transformation act, mean these
11 companies must find innovative and creative solutions to equitably
12 serve their customers.
13 (2) The legislature finds that the traditional regulatory
14 construct is neither adaptable, nor well suited to adjusting to
15 rapidly changing societal expectations and public policy objectives,
16 and therefore hinders the ability of gas and electrical companies to
17 effectively evolve to meet new challenges and opportunities.
18 (3) In particular, the legislature finds that traditional cost of
19 service regulation may lead to a significant delay in recovery of
20 costs for gas and electrical companies. This regulatory lag creates
21 barriers to companies making the investments necessary to meet public
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 1 policy objectives and expectations. The traditional regulatory
2 process results in a backward-looking annual cycle of rate cases that
3 may limit the ability of gas and electrical companies and customers
4 in achieving the state's energy policy goals.
5 (4) It is the intent of the legislature that the regulatory
6 construct should require a forward-looking orientation for regulation
7 consistent with state policy objectives that focus on planning,
8 flexibility, and fair allocation of risks, while fostering and
9 supporting a culture that delivers performance and cost control in
10 this new industry environment.
11 (5) It is the intent of the legislature that the regulation of
12 gas and electrical companies transform toward multiyear rate plans
13 and performance-based rate making to provide certainty and stability
14 to customers and gas and electrical companies, with those plans
15 focused on ensuring alignment of public policy objectives,
16 investment, safety, and reliability.
17 Sec. 2. RCW 80.28.005 and 1994 c 268 s 1 are each amended to
18 read as follows:
19 ((Unless the context clearly requires otherwise, the)) The
20 definitions in this section apply throughout this chapter unless the
21 context clearly requires otherwise.
22 (1) "Bondable conservation investment" means all expenditures
23 made by electrical, gas, or water companies with respect to energy or
24 water conservation measures and services intended to improve the
25 efficiency of electricity, gas, or water end use, including related
26 carrying costs if:
27 (a) The conservation measures and services do not produce assets
28 that would be bondable utility property under the general utility
29 mortgage of the electrical, gas, or water company;
30 (b) The commission has determined that the expenditures were
31 incurred in conformance with the terms and conditions of a
32 conservation service tariff in effect with the commission at the time
33 the costs were incurred, and at the time of such determination the
34 commission finds that the company has proven that the costs were
35 prudent, that the terms and conditions of the financing are
36 reasonable, and that financing under this chapter is more favorable
37 to the customer than other reasonably available alternatives;
38 (c) The commission has approved inclusion of the expenditures in
39 rate base and has not ordered that they be currently expensed; and
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 1 (d) The commission has not required that the measures demonstrate
2 that energy savings have persisted at a certain level for a certain
3 period before approving the cost of these investments as bondable
4 conservation investment.
5 (2) "Clean alternative fuel" has the same meaning as defined in
6 RCW 82.08.809.
7 (3) "Conservation bonds" means bonds, notes, certificates of
8 beneficial interests in trusts, or other evidences of indebtedness or
9 ownership that:
10 (a) The commission determines at or before the time of issuance
11 are issued to finance or refinance bondable conservation investment
12 by an electrical, gas or water company; and
13 (b) Rely partly or wholly for repayment on conservation
14 investment assets and revenues arising with respect thereto.
15 (((3))) (4) "Conservation investment assets" means the statutory
16 right of an electrical, gas, or water company:
17 (a) To have included in rate base all of its bondable
18 conservation investment and related carrying costs; and
19 (b) To receive through rates revenues sufficient to recover the
20 bondable conservation investment and the costs of equity and debt
21 capital associated with it, including, without limitation, the
22 payment of principal, premium, if any, and interest on conservation
23 bonds.
24 (((4))) (5) "Finance subsidiary" means any corporation, company,
25 association, joint stock association, or trust that is beneficially
26 owned, directly or indirectly, by an electrical, gas, or water
27 company, or in the case of a trust issuing conservation bonds
28 consisting of beneficial interests, for which an electrical, gas, or
29 water company or a subsidiary thereof is the grantor, or an
30 unaffiliated entity formed for the purpose of financing or
31 refinancing approved conservation investment, and that acquires
32 conservation investment assets directly or indirectly from such
33 company in a transaction approved by the commission.
34 (6) "Fourth rate year" means the consecutive 12-month period, if
35 any, that commences on the third anniversary of the rate effective
36 date.
37 (7) "Future rate year" means any of an initial rate year, a
38 second rate year, a third rate year, or a fourth rate year.
39 (8) "Highly impacted community" has the same meaning as defined
40 in RCW 19.405.020.
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 1 (9) "Historic test year" means the 12-month period that reflects
2 the actual results of operations consistent with commission
3 precedent.
4 (10) "Initial rate year" means the consecutive 12-month period
5 that commences on the rate effective date.
6 (11) "Major projects list" means a list of capital expenditures
7 on programs or projects where the Washington-allocated share of the
8 total program is greater than .005 percent of the gas or electrical
9 company's latest year end Washington-allocated net plant in service.
10 The major projects list does not limit the forecasts to be used by a
11 gas or electrical company in developing rates for future rate years.
12 (12) "Multiyear rate plan" means a period of no more than 48
13 months for which a gas or electrical company proposes to develop and
14 apply rates and consists of the initial rate year, the second rate
15 year and, if applicable, a third rate year, and a fourth rate year.
16 (13) "Rate effective date" means the date on which rates approved
17 by the commission pursuant to this chapter first become effective.
18 (14) "Regulatory lag" means the period of time between when a gas
19 or electrical company incurs the costs that form the basis for its
20 commission-approved revenue requirement and when they are
21 subsequently recovered in rates.
22 (15) "Second rate year" means the consecutive 12-month period
23 that commences on the first anniversary of the rate effective date.
24 (16) "Third rate year" means the consecutive 12-month period, if
25 any, that commences on the second anniversary of the rate effective
26 date.
27 NEW SECTION. Sec. 3. A new section is added to chapter 80.28
28 RCW to read as follows:
29 (1) A gas or electrical company shall file a multiyear rate plan
30 as provided in this chapter and the commission shall approve the
31 proposal, with or without conditions, or reject it. The commission
32 shall approve a proposal for a multiyear rate plan if the commission
33 finds that the plan establishes just and reasonable rates for the gas
34 or electrical company, is lawful, is supported by an appropriate
35 record, and is consistent with the public interest in light of all
36 the information available to the commission at the time of the
37 commission's decision.
38 (2) A gas or electric company may propose and the commission may
39 approve any proposal to recover from ratepayers up to five percent of
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 1 the total approved revenue requirement approved by the commission for
2 the initial rate year for tariffs that expand the affordability of
3 services available to customers including, but not limited to: (a)
4 Bill assistance programs for low-income residential customers; or (b)
5 one or more special rates for low-income residential customers to
6 reduce the energy burden of those customers.
7 (3) Subject to RCW 80.04.130, the commission has the authority,
8 upon its own motion, upon complaint, or upon notice, to enter upon a
9 hearing concerning such a proposal and the reasonableness and
10 justness of the proposal.
11 (4) Unless the commission finds that the multiyear rate plan is
12 not just and reasonable or not in the public interest, the commission
13 shall accept a proposal filed by a gas or electrical company in
14 support of, or an alternative proposal presented by parties in
15 response to, a multiyear rate plan filing that seeks to recover the
16 company's annual revenue requirement in each future rate year on the
17 basis of a budget approved by the company, a forecast, a clean energy
18 implementation plan approved under RCW 19.405.060, a price index, a
19 fixed escalation rate, or another formula, individually or in
20 combination.
21 (5) In considering a multiyear rate plan proposal, the commission
22 shall minimize regulatory lag in each future rate year to the fullest
23 extent possible while maintaining rates that are fair, just,
24 reasonable, and sufficient.
25 (6) The commission shall separately approve rates for each of the
26 initial rate year, the second rate year and, if applicable, the third
27 rate year, and the fourth rate year. Consistent with RCW 80.04.250,
28 the commission shall ascertain and determine the fair value for rate-
29 making purposes of the property of any gas or electrical company that
30 has filed a multiyear rate plan pursuant to this section that is or
31 will be used and useful for service in this state by or during each
32 rate year of the multiyear rate plan. For the initial rate year, the
33 commission shall, at a minimum, ascertain and determine the fair
34 value for rate-making purposes of the property of any gas or
35 electrical company that has filed a multiyear rate plan pursuant to
36 this section that is used and useful for service in this state as of
37 the rate effective date.
38 (7) The commission may, by order, establish terms, conditions,
39 and procedures for a multiyear rate plan and ensure that rates remain
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 1 just and reasonable during the course of the plan, including terms
2 and procedures for rate adjustment during the term of the plan.
3 (8)(a) The gas or electrical company is bound by the terms of the
4 multiyear rate plan approved by the commission for as long as the
5 actual rate of return of the gas or electrical company remains
6 within .5 percent of the rate of return authorized by the commission
7 in the multiyear rate plan for such a company.
8 (b) If adjusted quarterly financial reports demonstrate that the
9 actual rate of return of a gas or electrical company operating under
10 a multiyear rate plan approved by the commission pursuant to this
11 section remains within .5 percent of the rate of return authorized by
12 the commission in the multiyear rate plan for such a company, the
13 company may not file revised tariffs in the subsequent calendar
14 quarter of the multiyear rate plan, the effect of which is to change
15 rates affected by the multiyear rate plan.
16 (c) If adjusted quarterly financial reports demonstrate that the
17 actual rate of return of a gas or electrical company operating under
18 a multiyear rate plan approved by the commission pursuant to this
19 section is more than .5 percent less than the rate of return
20 authorized by the commission in the multiyear rate plan for such a
21 company, the company may file any of the following in the subsequent
22 calendar quarter of the multiyear rate plan, the effect of which
23 could be to change rates affected by the multiyear rate plan:
24 (i) Proposed modifications to the existing multiyear rate plan
25 for approval or rejection by the commission within four months of the
26 date of filing of such a modification;
27 (ii) A request for deferral of costs of the utility for later
28 determination by the commission;
29 (iii) A general rate case; or
30 (iv) A new multiyear rate plan in accordance with this section.
31 (d) For the purposes of this subsection, a quarterly financial
32 report must depict gas or electric operations of a gas or electrical
33 company, respectively, under normal temperature and power supply
34 conditions during the reporting period. Such a quarterly financial
35 report must follow the methods approved by the commission for
36 reporting financial results of operations.
37 (9) The commission may, in approving a multiyear rate plan,
38 determine a set of reasonable and applicable performance measures
39 that can be used to assess a gas or electrical company operating
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 1 under a multiyear rate plan. These performance measures may be
2 proposed by the gas or electrical company in its initial application.
3 (10) Nothing in this section precludes any gas or electrical
4 company from making filings required or permitted by the commission.
5 (11) A gas or electrical company may defer, without interest, any
6 new costs, unknown at the time of the approval of any multiyear rate
7 plan then in effect, that are associated with compliance of any
8 governmental policy or plan not in existence as of the rate effective
9 date and implemented during a multiyear rate plan. Recovery of these
10 deferred costs must be addressed in the next applicable rate case or
11 multiyear rate plan of the applicable gas or electrical company.
12 (12) The commission shall align, to the extent practical, the
13 timing of approval of a multiyear rate plan of an electrical company
14 submitted pursuant to this section with the clean energy
15 implementation plan of the electrical company filed pursuant to
16 RCW 19.405.060.
17 NEW SECTION. Sec. 4. A new section is added to chapter 80.28
18 RCW to read as follows:
19 The provisions of RCW 80.28.005 and section 3 of this act,
20 inclusive, may not be construed to limit the existing rate-making
21 authority of the commission.
22 Sec. 5. RCW 80.28.068 and 2009 c 32 s 1 are each amended to read
23 as follows:
24 (1) Upon request by an electrical or gas company, or other party
25 to a general rate case hearing, the commission may approve rates,
26 charges, services, and/or physical facilities at a discount for low-
27 income senior customers and low-income customers. Expenses and lost
28 revenues as a result of these discounts shall be included in the
29 company's cost of service and recovered in rates to other customers.
30 (2) An electrical company may provide discounts under this
31 section to reduce the energy burden of low-income or vulnerable
32 populations and to ensure that the benefits of the transition to
33 clean energy are equitably distributed, as required under chapter
34 19.405 RCW.
35 (3) Eligibility for the discount rates established in this
36 section must be established upon verification of a low-income
37 customer's receipt of any means tested public benefit, or
38 verification of eligibility for the low-income home energy assistance
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 1 program, or its successor program, for which eligibility does not
2 exceed 200 percent of the federal poverty level based on a
3 household's gross income. The public benefits may include, but are
4 not limited to, assistance that provides cash, housing, food, or
5 medical care including, but not limited to, temporary assistance for
6 needy families, supplemental security income, emergency assistance to
7 elders, disabled, and children, supplemental nutrition assistance
8 program benefits, public housing, federally subsidized or state-
9 subsidized housing, the low-income home energy assistance program,
10 veterans' benefits, and similar benefits. Each gas or electrical
11 company shall conduct su