This bill adds a new section to chapter 70A.65 RCW and amends RCW 70A.65.080 (and references an amendment to RCW 70A.65.130) to create a statutory alternative emissions-reduction pathway for certain municipal gas utilities and to change allowance allocation and procedural rules under the state greenhouse gas program. It therefore creates a new option in statute, modifies existing covered-entity criteria and allocation procedures, and establishes new compliance and penalty rules tied to that option. Under the new pathway, municipal gas utilities subject to chapter 35.92 RCW whose greenhouse gas emissions did not exceed 27,000 metric tons CO2e in any year before 2022 may elect the alternative path by submitting written notice and a plan to the department by September 1, 2025. If the department approves a plan, the utility is relieved of its compliance obligation as of December 31, 2025 and the department must adopt an emergency rule to adjust the program allowance budget for 2026 and later years. Approved plans must show how the utility will reduce covered emissions below 22,500 metric tons CO2e by 2030 and each year thereafter, spend at least as much on emission reductions as would have been required by compliance through 2030, and include detailed activities and assumptions. Failure to meet the 2030 target causes reversion to covered-entity status for the third compliance period and requires submission of penalty compliance instruments equal to one instrument per ton of emissions not covered during 2026–2030; if any year after 2030 exceeds 22,500 tons the utility becomes a covered entity effective that year and must submit penalty compliance instruments equal to one per ton for 2026 through the year compliance resumed. The act also changes allowance allocation and related procedures. Natural gas utilities receive allowances at no cost for the benefit of ratepayers, with the department required to adopt allocation and methodology rules (in consultation with the Utilities and Transportation Commission) and allocation schedules by specified dates. Beginning in 2023, 65% of no-cost allowances must be consigned to auction for customers’ benefit, increasing by 5% each year until 100% consignation. Auction revenues must be returned as nonvolumetric bill credits (prioritizing low-income customers) or used for specified customer benefit programs; most credits are reserved for customers connected to a utility’s system on July 25, 2021. To qualify for no-cost allowances, natural gas utilities must provide EPA subpart NN emissions reports for 2015–2021 by March 31, 2022 and must continue providing required annual reports. Other procedural changes include rulemaking on imported electricity methodology by October 1, 2026 (with consultation), authority for the department to allow parties to allocate a single compliance obligation for supplied fuel or gas with 12 months’ notice, life-cycle analysis requirements for lead agencies that must include covered emissions (and prohibit denying permits solely on covered emissions), a rule preventing multiple covered entities from being required to cover the same emissions, and specified exemptions for certain emissions categories. The extracted text does not identify which state agency is referred to as “the department,” omits complete language from parts of RCW 70A.65.080 (subsection text cuts off), and does not include the full amended text of RCW 70A.65.130 or formal definitions for several terms referenced.

Enacting these changes would let small municipal gas utilities (those under chapter 35.92 RCW with any pre-2022 year below 27,000 metric tons CO2e) choose an alternative compliance path by submitting a plan and notice by September 1, 2025; if the plan is approved they would stop being covered entities after December 31, 2025 but must cut covered emissions below 22,500 metric tons CO2e by 2030 and each year after, and spend at least as much on reduction activities as they would have spent under the normal compliance rules. If they fail to meet the 2030 target or later exceed 22,500 tons in any year, they would revert to covered-entity status and owe penalty compliance instruments equal to one per ton for the applicable years; the department must also adopt an emergency rule to adjust the allowance budget for 2026 onward. Natural gas utilities more broadly are affirmed to receive allowances at no cost for the benefit of ratepayers, with rules (developed with the Utilities and Transportation Commission) requiring that 65% of those no-cost allowances be consigned to auction beginning in 2023 and the auctioned share increase 5% annually to 100%, and auction revenues returned as bill credits or customer programs prioritizing low-income customers (but only for customers connected to a utility as of July 25, 2021). Utilities must provide EPA Subpart NN emissions reports (initially by March 31, 2022 and ongoing per reporting deadlines) to qualify and continue receiving no‑cost allowances. The department gains added rulemaking, plan-review, and notice duties, permitting agencies must include covered emissions in life-cycle analyses without using those covered emissions to deny permits, and parties can notify the department to shift compliance obligations among fuel suppliers or users at least 12 months before a compliance period. Some implementation details remain unclear in the available text, including the identity of "the department," exact compliance-period dates and first transfer deadlines, and definitions for several technical terms.