HB 1589 favors investors over ratepayers---and state climate goals. A section veto would go a long way to fix the bill.

Washington state leaders set out again this legislative session to move the state's utilities forward on a path toward electrification and away from gas. House Bill 1589 - a bill that passed in the 2024 session and is to be delivered to Governor Jay Inslee's desk any day now - is a move in that direction.

This bill, initiated by Puget Sound Energy (PSE), Washington's largest electric and gas utility, requires the utility to proactively plan for the transition from gas to clean energy. The coalition of climate and consumer advocates who helped usher it to passage knew that to get PSE to retire its existing gas infrastructure, the bill would have to include sweeteners for the utility, likely in the form of financial benefits to be paid by ratepayers.

However, the final version of the bill, as amended during this year's legislative session, overplays the PSE incentives piece, upsetting a delicate balance between climate benefits, ratepayer protections, and enticements for the utility. Further, overly generous financial boons to PSE could hamper the state's future negotiating power with the utility on important, additional decarbonization moves.

The two outsized financial benefits to PSE include accelerated depreciation (Section 7) and earnings on large electric projects still in construction (Section 5.2.d). These upsides for PSE are set to become law by the end of March 2024, but Governor Inslee could rebalance this bill in the next few days, using his veto authority to remove specific sections.

Below we outline what's good about the bill and what needs to be cut in order to retain the spirit of the original decarbonization solution - balancing perks for PSE with the provisions that step the utility toward a thoughtful and systematic transition to clean energy - and away from fossil fuels - keeping on track with the state's climate commitments.

A CRITICAL STEP TOWARD DECARBONIZATION: HB 1589 REINFORCES WASHINGTON'S CLIMATE PRIORITIES

This bill goes a long way toward putting PSE on a path toward decarbonization - an essential piece in Washington's carbon emissions puzzle if the state is to meet its 2050 goals. In particular, Section 3 of the bill calls for PSE to undertake comprehensive decarbonization planning.

The policy sets up an entirely new planning framework for the utility, folding together most of its existing planning requirements on both the gas and electric sides of its business into a single integrated system plan and orchestrating a holistic approach that prioritizes substantive decarbonization. Here are the most important planning updates that the bill puts in motion:

Sets up expansive new electrification programs to help transition PSE customers off gas

Prioritizes money and expertise to help electrify the homes of lower-income ratepayers

Drives PSE to assess potential to electrify entire neighborhoods as an alternative to aging pipeline replacement and as an opportunity to decommission sections of the gas system

Requires PSE to evaluate a suite of alternatives to additional investment in the gas pipeline system

Increases the annual commitments for electricity conservation and demand response to offset some of the expected new electric loads

How would these policies help PSE's lower-income consumers? Well, the utility receives cash from auctioning off its carbon allowances in the state's carbon market. House Bill 1589 would prioritize those funds for bill assistance and electrification incentives for low-income households. In addition to replacing gas appliances with electric ones, these incentives would also help pay for electric panel upgrades, new circuits, and even weatherization.

VETO THE ACCELERATED DEPRECIATION PROVISION TO REBALANCE THE CLIMATE UPSIDES WITH THE FINANCIAL PERKS FOR PSE

Buried deep in a section in HB 1589 is a provision called "accelerated depreciation." Accelerated depr...