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Wash. Clean Air Rule leaves gas utilities wondering how to comply

A soon-to-be-enacted Washington law that places the onus onnatural gas distributors to cut the greenhouse gas output of their customers —or find alternatives to offset those emissions — is driving a by four utilities in thestate that claim the rule is at odds with their mandate to deliver gas to userson demand.

Washington's Clean Air Rule, or CAR, which goes into effectOct. 17, requires companies with more than 100,000 metric tons of greenhousegas output per year to pare emissions by 1.7% annually starting next year orinstitute mitigation measures equal to that amount. In the case of theutilities, the state Department of Ecology will use a formula that assigns anemissions value to the unburned gas that flows through the utilities' pipes andmakes the LDCs responsible for reducing that number.

Because distributors do not produce the fuel, and theiroperations account for only a small amount of emissions, the utilities contendthat they are being forced to either sell less natural gas or finddifficult-to-obtain, expensive pollution offsets even though they are not atthe root of the problem.

"We're not actually a source [of emissions], we have anobligation to serve our customers natural gas and they're trying to regulate itthrough us," said Bruce Howard, director of environmental affairs atAvista Corp., aSpokane, Wash.-based utility that is part of the lawsuit filed Sept. 27."We have a real question as to if there's a compliance pathwayavailable."

The CAR was created under a directive from Gov. Jay Insleeto cap and reduce emissions. The action came after state legislators failed topass other pollution-reduction measures that would have included a cap-and-tradescheme similar to one that exists between California and a number of Canadianprovinces. Because the CAR is an administrative rule imposed by a state agency,the utilities, which include Cascade Natural Gas Corp., unitNW Natural EnergyLLC, and Puget SoundEnergy Inc. along with Avista, had no option but to go to court,Howard said in a Sept. 28 interview.

"We can't ask the agency for reconsideration, we can'tgo to our state Pollution Control Hearings Board," Howard said."Sometimes those are options for other types of actions, but for rulemakingsour only option is to go to court and ask the court to review the newregulation. So that's what we're doing."

The CAR will apply to emitters such as oil refineries, fuelimporters, power plants and heavy industries as well as the utilities. TheDepartment of Ecology estimates that the combined cost to companies ofcomplying with the rule will range from $410 million to $6.9 billion over 20years. In a fact sheet accompanying the rule's announcement, the state saidcompanies can reduce emissions at their facilities, develop a project thatreduces carbon pollution, or purchase credits from a participant inWashington's emissions-reduction program or another approved carbon market.

"They don't say in the rule 'supply less gas,'"Avista's Howard said. "They set a cap based on our current gas delivery,and then that cap reduces 5% every three years. Allowances are an option, buteven if a market becomes open, those allowances after the first two complianceperiods can only be used for 50% of our obligation and then it goes down to 5%,so it's not a long-term compliance option."

The state estimates that in a worst-case scenario, by 2020consumers would face an added cost of $2.55 a year on natural gas bills, higherpower bills of $16.15 annually and increased gasoline costs of 1 cent pergallon by 2020. The costs could also be much lower, said Department of Ecologyspokeswoman Camille St. Onge.

The CAR was adopted "to do our part to reducegreenhouse gas emissions," St. Onge said. "We are currentlyevaluating the legal suits brought against us. Many folks have been curious ifwe'll continue to work on the rule and yes, we'll continue to work onimplementing the Clean Air Rule."

The rule could have the unintended effect of increasingemissions by discouraging consumers from moving to gas from more pollutingsources for home heating, Howard said.

"In our region in eastern Washington we have colderwinters than most of the state. For the last 20 years we have partnered in away with our local air authority and even [the Department of] Ecology inencouraging people to fuel-switch from wood stoves to natural gas to heat theirhomes," Howard said. "This rule discourages that kind of effort whichhas helped clean up the air."

The state has suggested projects the utilities couldundertake to earn credit toward the reductions. Those projects range frombuilding methane digesters at dairy farms to building wind farms, or partneringwith entities whose emissions fall below the regulatory threshold and helpingthem reduce their output.

"Those kinds of opportunities are not that clear, norare they abounding, and the cost is totally uncertain," Howard said."One of our biggest concerns of course is this will just add cost to ourcustomers. We don't believe it will really achieve significant reductions."

The utilities' suit, filed in the U.S. District Court,Eastern District of Washington on Sept. 27, is case 2:16-cv-00335-TOR.