State Pledge Not to Impair. 

It is the policy of the state to encourage the financing of certain costs and expenses by electrical, gas, and water companies at the lowest, most reasonable, and most prudent cost to utility customers.  The state pledges and agrees not to impair the provisions that authorize the UTC to:

• issue financing orders that create rate recovery assets;
• establish rate recovery charges that customers cannot avoid; and
• provide rights and remedies to utilities, bondholders, and financing parties until all payments on the bonds and financing costs are fully paid. 

Bondable Rate Recovery Expenditures and Rate Recovery Assets.

A utility may finance or refinance bondable rate recovery expenditures (bondable expenditures) with the approval of the UTC.  Bondable expenditures are all of a utility's costs and expenditures that have been incurred, or will be incurred by a certain date, associated with an event that is the subject of a federal or state declaration of disaster or emergency such as:

• severe weather;
• catastrophic wildfire;
• earthquake;
• pandemic; or
• other event that causes or threatens to cause widespread loss of life, injury to person or property, human suffering, or financial loss—including the costs and expenses owed by a utility to its customers or others as a result of the event.

Bondable expenditures do not include civil or criminal fines, penalties, or lost revenue of a company that resulted from a disaster or emergency.

The utility may grant a security interest in rate recovery assets as collateral for rate recovery bonds.  A rate recovery asset is the utility's right to recover from customers the bondable expenditures, related costs, and expenses approved in a financing order including the right to:

• impose charges authorized under a financing order or obtain periodic adjustments of charges; and
• all claims, payments, moneys specified in a financing order, regardless of whether these amounts are comingled. 

Procedures are established for perfecting a security interest, transferring assets, and enforcing security interests.  Security interests are subject to the Uniform Commercial Code, except when there is a conflict with these provisions.  Any successor utility must satisfy all obligations of the utility under an approved contract governing the bonds.

Financing Order.

A utility may petition the UTC for a financing order designating all or part of rate recovery expenditures as bondable expenditures to finance or refinance bonds.  The petition may be part of a separate proceeding or included in any general rate case hearing.  The petition for a financing order must explain the event that is the subject of a federal or state declaration of disaster or emergency, including the costs and expenses owed by the company to the company's customers or others as a result of the event.  For costs and expenses that are accrued to the company through a legal settlement, the description must provide:

• the total legal fees and costs paid by the company;
• an estimate of the total legal fees and costs the company would have incurred had it not settled the matter;
• the total amount of initial claims that had been sought against the company; and
• the total amount of the settlement. 

After notice and an opportunity for a hearing, the UTC may approve an application if the UTC finds that:

• the bondable expenditures are reasonable and prudent; 
• financing or refinancing the bondable rate recovery expenditures through the issuance of rate recovery bonds is likely to be more favorable to customers for the recovery of the bondable rate recovery expenditures than other methods of rate recovery; and 
• bonds, or other types of indebtedness approved by the UTC, are reasonably likely to receive at a minimum a determination of investment grade by credit rating agencies. 

In issuing a financing order, the UTC may authorize the: 

• recovery of bondable expenditures and financing costs;
• creation of assets;
• issuance of bonds;
• imposition or adjustment of charges; or
• sale or transfer of assets. 

Timeline for Approval and Requirements.

The UTC must issue an order approving or denying the application within 180 days.  If the UTC approves the petition, it must issue a financing order.  A financing order must specify the highest amount that qualifies as bondable expenditures.  For bondable expenditures associated with a disaster or emergency, the UTC may include capital and operating costs, lost revenue, costs and expenses to be recovered later from third parties or insurers and returned to customers in a rate proceeding, and carrying costs or charges.

Specific provisions must be included in a financing order including:

• confirmation of the existence of recoverable bondable expenditures and authorization to recover them and associated financing costs;
• authorization to create the assets and impose charges;
• a requirement that the charges be ongoing and not avoided until all principal is paid;
• a methodology for allocating charges between different classes of customers and adjusting charges as necessary;
• authorization for issuing a series of bonds, assigning assets to a financing subsidiary and granting security interests in the assets, and bond documentation;
• authorization to earn a return on moneys advanced by the utility to fund advances, reserves, or capital accounts established under the terms of the agreement;
• a finding that the bonds and charges are expected to provide the lowest possible, reasonable, and prudent cost on a net present value basis to customers as compared to other methods of financing and recovery;
• an expiration date for the financing order;
• a requirement to notify the UTC if the utility recovers costs and expenses from a third party or insurer; and 
• any other conditions the UTC finds appropriate. 

Restrictions.

Charges may not be avoided by utility customers located within a utility's service territory as it existed on the date of the financing order, even if:

• a customer receives services from a successor company;
• the customer elects to receive electricity, natural gas, or water from another company in the service territory; or
• the customer changes customer class. 

Any surplus amounts generated by the bonds that are beyond what are necessary to pay any amounts due for the rate recovery bonds and associated financing costs must be returned to the company for customer refunds. 

Until all bond and financing costs are paid in full, the UTC may not: 

• revalue the bondable expenditures or financing costs for rate-making purposes; 
• determine that rates or revenues in the financing order are unjust or unreasonable;
• impair assets, charges, or bonds; or
• rescind the financing order or consider the bonds as utility debt, assets as utility revenue, or bondable expenditures as utility costs. 

The UTC is prohibited from requiring a utility to petition for a financing order to designate expenditures as bondable expenditures. 

Miscellaneous Provisions.

Costs and Bonds Prior to the Effective Date. 

For costs incurred by utilities before the effective date of the bill for disasters; emergency; or conservation measures and services, specific criteria determine whether they constitute bondable expenditures.  The provisions in the bill apply prospectively and not retroactively.  Nothing impairs or affects the validity of any conservation bonds issued under current law.  Conservation bonds issued prior to the effective date of the bill are governed by the provisions as they existed at the time such conservation bonds were issued. 

State Not Obligated.

The state, or any agency or instrumentality, is not obligated to pay or guarantee any bond issued. 

Definitions.

Conservation bonds become a subset of the rate recovery bonds, and conservation investments are redefined as either recovery assets or bondable rate recovery expenditures. 

(In support—from testimony on HB 1656, which is identical to HB 1990 except for the title, on February 10, 2025) There have been lots of news article about the catastrophic wildfires and flooding in many areas.  This bill allows electric, water, and gas utilities to securitize the rebuilding of infrastructure that has been damaged or destroyed by a disaster.  This bill is a pretty complex concept, but it is a tool that is used by utilities and in other states to help lower customer bills in the long-run by spreading out the cost of large and oftentimes unexpected events over time.  Securitization is used around the country by utilities for major storm damage, environmental remediation, and, more recently, in the case of wildfire damages to help mitigate the impact of costs on its customers.  The bill is about ensuring reliability of utility services while also allowing the utilities to bond out these costs over time so the impact on ratepayers is less severe.  There are lots of requirements and it must be approved by the UTC.  This bill does not let utilities recover for negligence.  It can only be used with the approval of the UTC and only after the utility proves that the costs are prudent, that the financing conditions are reasonable, and that financing through securitization is more favorable to customers.  The use of securitization is kind of a last resort that means if it is being utilized it is because a community is recovering from a catastrophic event.

(Opposed) None.

John Rothlin, Avista Corporation; Jay Balasbas, PacifiCorp; Matt Miller, Puget Sound Energy; Brandon Housekeeper, Alliance of Western Energy Consumers; and Peter Godlewski, Association of Washington Business.