HB 1589's ban on natural gas adds "more resources" to solve problems created by the CO2 tax

Mar 29, 2024

Bad policy leads to new bad policy that attempts to fix the problems created by the original bad policy.

That is the story behind HB 1589, signed by Governor Inslee, which transitions Puget Sound Energy’s (PSE) natural gas customers to all-electric over the course of many years.

When the state’s new CO2 tax, known as the Climate Commitment Act (CCA), was adopted in 2021, large sections of the law were dedicated to helping utilities transition their customers off natural gas. Those rules turned out to be inadequate.

The third paragraph of the bill specifically says, “more resources must be directed toward achieving decarbonization,” in the state, above the tax imposed by the CCA. The more than $2 billion in new taxes already generated by the CCA, and the future revenue, isn’t enough.

HB 1589 allows PSE to recover the additional costs of shifting its customers as required by the CCA and other state laws.

There has been some discussion about whether the bill actually bans natural gas for residential customers. A last-minute legislative change removed a section that would have allowed PSE to waive the obligation to serve existing natural gas customers. However, the bill still gives state utilities commissioners the authority to require PSE to move customers from natural gas to electricity, independent of the obligation to serve.

The bill specifically says PSE must create a plan by January 1, 2027, to, “Achieve all cost-effective electrification of end uses currently served by natural gas” (emphasis mine) using a variety of strategies. That will occur over several years, consistent with meeting the state’s CO2-reduction goals.

Unlike the new rules from the State Building Code Council, which prohibit natural gas hookups for new homes and businesses, HB 1589 specifically requires transitioning existing natural gas customers to electricity. One method is through what the bill calls “geographically targeted electrification.” That entails the “transition of a portion of gas customers of the large combination utility [PSE] with an intent to electrify loads of such customers…” PSE must create a plan on how to make that happen which could include rebates and other incentives. But the transition must happen at some point.

There are many other indications that the law requires PSE’s natural gas customers to switch from gas to electric.

For example, the “geographically targeted electrification” plans must assess the potential increase in electricity demand as people shift from natural gas to electric heating.

Additionally, the bill specifically says that “electrification” cannot include heat pumps with gas backup for cold days when heat pumps are inadequate. I have a heat pump with a propane tank and in January, when it was -10 degrees, my propane fireplace was the only thing keeping our house warm. After 2031, the option of moving from gas to electrification with gas backup goes away.

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Despite the rhetoric about decarbonization, the bill also includes several elements that do nothing to achieve decarbonization. For example, when deciding whether to approve PSE’s plan for transitioning customers off natural gas, the law allows utility commissioners to consider several things unrelated to environmental benefit or consumer protection. For example, the law says they “must evaluate,” things like “the equitable distribution and prioritization of energy benefits and reduction of burdens to vulnerable populations, highly impacted communities, and overburdened communities.” They must also consider, “equity,” whether projects “would lead to new construction career opportunities,” “long-term and short-term public health, economic, and environmental benefits and the reduction of costs and risks,” “health and safety concerns,” “economic development,” and other issues.

This long list of subjective and amorphous goals means utilities commissioners can make whatever demands they feel are appropriate, claiming it benefits “equity” or “long-term public health,” in place of their primary role protecting consumers.

Puget Sound Energy argues this legislation is necessary to achieve the requirements that already exist in law, either through the CCA or the state’s CO2 goals. As long as those goals are in place, this bill provides tools to make that happen in a way that – theoretically – meets existing legal requirements, provides assistance to customers who must transition, and offers financial stability for Puget Sound Energy. Some people take umbrage at the last goal, but as long as we have a system of private, regulated utilities, keeping them solvent and financially stable is good policy.

The primary cause of the new restrictions and costs in HB 1589 is the bad policy and poor planning in the CCA. It is not surprising that PSE wants to indemnify itself from the risks of those policies. That doesn’t mean HB 1589 is good legislation – it isn’t – or that the people of Washington have to do everything PSE wants – we don’t. But Washington’s climate policies caused this mess.

Some argue (or hope) that repealing the CCA would also eliminate or moot HB 1589. This is almost certainly not true. The legislation makes reference to the CCA, but only as one consideration when PSE develops its plan. For example, several of the references to RCW 70A.65 – the Climate Commitment Act – simply say that the plan must include the cost of compliance or the income from sales of CO2 allowances under the CCA in their planning. Another reference to the CCA simply incorporates the definition of “Overburdened community.” Removing these sections does virtually nothing to change the law.

The law still requires PSE to create scenarios that meet the CO2 reductions set in state law in RCW 70A.45.020, which is not part of the CCA and not repealed by I-2117. Of the 27 elements the law requires to be included in PSE’s integrated plan, only one references the CCA and that only says the plan must show how PSE allocates the costs of compliance. Even if those costs are zero, it does not eliminate the other 26 required elements.

The only way to get rid of the law is to repeal it separately.

Governor Inslee and others say HB 1589 is necessary to ensure an orderly and planned transition off natural gas. That claim is undermined by the reality that, at its core, this bill is an effort to solve the unanticipated problems created by the CCA. They argue we should trust they know what they are doing even though the reason we need this bill is because they didn’t know what they were doing last time.

How HB 1589 plays out in the real world will only be determined in the upcoming years as PSE develops its plan and utilities commissioners make decisions. But at its core, the law is designed to force utilities customers to electrify, even if the cost of doing so turns out to be very high.