The bill adds a new section to chapter 70A.65 RCW and amends existing provisions (including RCW 70A.65.080 and 70A.65.130) to allow certain municipal gas utilities (those subject to chapter 35.92 RCW with historical greenhouse gas emissions not exceeding 27,000 metric tons CO2e in years prior to 2022) to elect an alternative emission reduction pathway instead of remaining covered entities under the chapter. A municipal utility that elects this pathway must submit a plan and written notice by September 1, 2025; if the department approves the plan the utility is relieved of its compliance obligation effective December 31, 2025. The plan must commit to reducing the utility’s covered emissions below 22,500 metric tons CO2e by 2030 and each year thereafter, spend at least as much annually on emission reduction activities as it would have spent to meet its compliance obligation through 2030, and demonstrate with detailed assumptions how reductions will be achieved. The bill directs the department to adopt an emergency rule adjusting the program allowance budget for 2026 and beyond and to adopt, by October 1, 2026, a rule methodology for addressing imported electricity associated with a centralized electricity market. If a utility fails to meet the 2030 emissions target or later exceeds 22,500 tons in any year after 2030 it reverts to covered-entity status effective that year and must submit penalty compliance instruments equal to one compliance instrument per ton of emissions not covered by the program for the relevant years; a utility returning to coverage for the third compliance period may submit compliance instruments for that period in its final year. The bill also clarifies timing for initial allowance transfers, lists several categorical emissions exemptions, and provides that the department shall not double-count compliance obligations for the same emissions. The bill further amends rules for allocation and use of allowances for natural gas utilities: allowances are allocated at no cost for the benefit of ratepayers, the department must adopt allocation and procedural rules (in consultation with the Utilities and Transportation Commission) by specified dates, and beginning in 2023 a percent of no-cost allowances must be consigned to auction for customer benefit (starting at 65% and increasing by 5% annually to 100%), with auction revenues directed to customer bill credits or programs prioritizing low-income, residential, and small business customers. It requires natural gas utilities to submit EPA subpart NN emissions reports (2015–2021 by March 31, 2022 to qualify and ongoing reporting thereafter) to receive and retain no-cost allowances. The bill also directs lead permitting agencies to include covered emissions in life-cycle analyses and allows covered or opt-in facilities to satisfy permit mitigation requirements by submitting compliance instruments. The text provided omits several details needed to fully understand implementation: the specific agency name referenced as “the department” is not identified here, the exact amendments to RCW 70A.65.130 are not included, key program definitions and mechanics (for example the definitions and operational rules for “compliance instruments,” “penalty compliance instruments,” “third compliance period,” “opt-in entities,” and the emissions threshold that triggers coverage) are not provided, and the chunked text cuts off mid-subsection leaving additional provisions unclear.

If enacted, certain small municipal gas utilities (those subject to chapter 35.92 RCW with historical emissions at or below 27,000 metric tons CO2e) can opt out of being a covered entity under the state greenhouse gas program by filing a plan by September 1, 2025 and, if approved, would be relieved of compliance obligations after December 31, 2025. Those utilities must demonstrate and fund emission reductions that bring covered emissions below 22,500 tons CO2e by 2030 and each year after, and they must spend at least the amount they otherwise would have spent to meet the program’s compliance obligations through 2030; missing the 2030 target or later exceeding 22,500 tons triggers re-entry into the covered program and requires buying compliance and penalty instruments equal to the shortfall (covering 2026 through the year they resume compliance), so the choice trades near-term relief for continued reduction obligations and a risk of potentially larger future costs. More broadly, natural gas utilities are slated to receive no-cost allowances for the benefit of ratepayers, with rules (to be set with the Utilities and Transportation Commission) for allocation and progressive auctioning of those allowances beginning at 65% consigned to auction in 2023 and increasing to 100%; auction revenues must be returned to customers or used for bill and efficiency programs with priority for low-income customers, and utilities must have provided EPA subpart NN emissions reports (2015–2021) by March 31, 2022 and continue annual reporting to keep receiving allowances. The bill increases reporting and planning duties for utilities and the unnamed department, shifts funds toward local emissions reduction activities for opting utilities, and creates clear financial penalties if reduction targets are missed; however, the text leaves unclear which specific state department implements these rules and how key terms like “compliance instruments,” the exact emissions threshold that triggers coverage, and some procedural rule details will be defined.