Washington Utilities and Transportation Commission Issues Puget Sound Energy Risk-Sharing Order for Natural Gas Climate Commitment Act: Impact and Implications
By Will Gehrke, Senior Technical Analyst, NW Energy Coalition
NWEC, Climate Solutions, and Washington Conservation Action, represented by Earthjustice, intervened in a UTC proceeding to propose a risk-sharing mechanism for Puget Sound Energy’s costs of complying with the Climate Commitment Act (CCA). The UTC issued a Final Order on Friday, February 21, 2025.
Background: The Climate Commitment Act is a program designed to lower greenhouse gas emissions in Washington State. It sets a limit on emissions that will decrease over time according to state goals.
To follow this law, Puget Sound Energy natural gas utility, must either cut its emissions or buy allowances. In its latest plan, PSE decided not to plan to reduce natural gas emissions. Instead, it intends to purchase allowances to meet the requirements of the Climate Commitment Act. By 2050, if PSE sticks to this plan, its natural gas emissions (no electric) could account for 82% of the state’s total emissions allowed under the cap.
What is this proceeding, and why does it matter?
Recently, the Washington Utilities and Transportation Commission permitted PSE to pass through 100% of all costs associated with the CCA to its natural gas customers through customer rates. As a result, PSE is indifferent to the cost of CCA allowances, and will not experience any incentive to decarbonize its system.
NWEC, along with the Energy Project and the Public Counsel Unit of the Attorney General’s Office, called for the UTC to impose a risk-sharing mechanism to properly share the allowance price risk and the risk of non-compliance between customers and the utility. This advocacy resulted in a contested case in docket U-230968, where NWEC, Climate Solutions and Washington Conservation Action intervened jointly (Joint Environmental Advocates) to advocate for a risk-sharing mechanism.
What are the long-term implications for Washington State’s greenhouse gas emissions if PSE continues to rely on buying allowances rather than reducing emissions?
PSE’s natural gas operations would continue to operate unabated if PSE continued to rely on solely acquiring allowances into the future. PSE’s natural gas customers will also bear the financial burden of Climate Commitment Act allowances, which are expected to rise in cost over time as the cap declines. If PSE’s natural gas operations account for 82% of statewide emissions by 2050, this could be highly costly to its customers.
What arguments did PSE make?
PSE disagreed with any risk-sharing plan being placed on the Company. PSE said that the CCA does not require a risk-sharing plan. They argued that customers are responsible for natural gas emissions, not the Company. PSE stated that their only duty under the CCA is to buy allowances to meet CCA requirements and inform customers about reducing emissions. PSE also claimed that a risk-sharing plan is unsuitable because CCA costs are beyond the Company’s control.
What arguments did Joint Environmental Advocates make?
Joint Environmental Advocates argued that PSE’s decisions influence the decarbonization of its energy system. PSE has the financial and planning ability to decarbonize its energy system in alignment with state policy. JEA also disagreed with many of the positions made by PSE. JEA proposed a risk-sharing mechanism that would place financial penalties on PSE when purchasing allowance while above the statewide emission cap.
How did the WUTC respond?
The Commission dismissed PSE’s arguments, concluding that the Climate Commitment Act pertains to the regulation of utilities rather than PSE’s customers. The WUTC also found that it has the authority to impose a risk sharing mechanism on PSE. Several parties, including the Commission Staff, Public Counsel, PSE, and Joint Environmental Advocates, proposed various risk-sharing mechanisms. However, the Commission chose not to adopt any specific mechanism from this discussion and instead decided that these matters would be addressed in future rulemaking related to the CCA and would apply to all regulated utilities.
What did NWEC think about the Commission order?
NWEC appreciates that the Commission agreed with Joint Environmental Advocates that PSE is the entity subject to regulation under the CCA (not PSE customers), and that PSE must take a leadership role in decarbonizing its natural gas system. With PSE’s extensive energy expertise and strong financial position, there is a significant opportunity for the Company to take proactive steps in transforming its natural gas system.
NWEC also appreciates that the Commission affirmed its authority to impose a risk-sharing mechanism for CCA costs to advance the public interest, including equity and energy justice. NWEC looks forward to continuing to advance this issue in the UTC’s Climate Commitment Act rulemaking docket.
In the meantime, NWEC continues to encourage PSE to not only focus on purchasing allowances but also to engage more directly with customers about innovative strategies and solutions for natural gas decarbonization through its targeted electrification pilot program and other programs.
For more information, contact Will Gehrke at the NW Energy Coalition at will@nwenergy.org.