California Senate Passes 100 Percent Electric Profits Tax (AP) -- California would impose a 100 percent "windfall profits tax" on high-priced electricity if a bill approved by the Senate Monday becomes law. In essence, that would impose a state cap on soaring power prices in the absence of the hard federal cap state officials have been seeking for months from the Federal Energy Regulatory Commission.

"Obviously the best way to enact a rate cap is for FERC to do its job. They have refused to listen to our pleas," said Sen. Jack Scott, D-Altadena. "We're faced, as the state of California, faced with solving the problem ourselves."

The bill, which now goes to the Assembly, would impose the 100 percent tax on any power priced over a baseline price of $80 a megawatt hour -- a fraction of what electricity has sometimes sold for in recent months.

The measure gives the California Public Utilities Commission 60 days to revise the $80 price threshold. Companies could exceed the baseline price if they can prove the must to recoup their costs and a "reasonable" profit. It does not affect existing power contracts.

"We ought to be laying out a welcome mat for these power generators. What we're laying down is a spike pad," objected Sen. Ray Haynes, R-Riverside.

"It sends a message that California is not a good place to do business," said Brian O'Neel, a spokesman for generator Mirant.

However, legislative supporters and consumer groups said generators who want to offer electricity at a fair price and profit would still sell into the state.

"This is absolutely imperative for the survival -- short-term -- of California's economy," said Sen. Joseph Dunn, D-Garden Grove. Without some emergency action to rein in skyrocketing prices, he said, "we will be economically dead."

However, Dunn agreed with opponents who said the measure should be amended to change the way the windfall tax would be distributed.

As adopted by the Senate on a 25-12 vote, the measure would return it to taxpayers, which opponents said would give the money even to residents of municipal utility districts who have not suffered the same high prices as have those in investor-owned utilities.

Gov. Gray Davis has said he is amenable to signing a windfall profits law.

The Senate action came the same day an Assembly committee advanced a bill that would cap the price of electricity at $60 per megawatt hour, subject to review by the PUC. Anything up to $90 per megawatt hour would be taxed 50 percent; up to $120 per megawatt hour would be taxed 70 percent; and anything over $120 per megawatt hour would be taxed 90 percent.

"We have been bleeding the budget dry because of outrageous prices that are being charged on the open market for electricity," said Assemblywoman Ellen Corbett, D-San Leandro, shortly before the Revenue and Tax Committee advanced her bill to the Appropriations Committee.

The windfall profits tax was the second effort Monday to rein in high energy prices.

Assembly Speaker Robert Hertzberg and Senate President Pro Tem John Burton said they plan to sue in federal court early next week, alleging the FERC is violating federal law by not imposing a hard cap on prices.

Current prices are "unconscionable," said Hertzberg, D-Van Nuys. "It's just absolutely destabilizing California."

The suit will ask that prices be capped and overcharges be reimbursed, said Burton, D-San Francisco. FERC officials could not be reached to comment Saturday or Monday. However, legal experts said the legislative leaders will have a tough time winning their lawsuit.

Their attorney, Joseph Cotchett, acknowledged it "is a very difficult case," and said he plans to include other electricity consumers and possibly California cities to overcome objections that the Legislature doesn't have grounds to sue.

Cotchett said a recent federal appellate ruling that the city of San Diego can join in a lawsuit against FERC means that "any consumer that purchases power in California" can sue.

FERC has said it is already acting to rein in high power prices, but California can't afford to wait, Cotchett said. "This state can't put up with the carnage."

That's a tough argument to win, said Stephen Angle, a FERC attorney for 14 years who now represents power generators on non-California issues.

Procedures to appeal FERC rulings in the courts exist, but asking a federal judge to overrule an independent regulatory body in a pending case isn't one of them, Angle said.

Despite the challenges, Cotchett said, other Western states are watching the suit and may join in.

5.07.01, 6:59p

http://www.kfwb.com/news/local/l050713.html

-- Martin Thompson (mthom1927@aol.com), May 08, 2001

Answers

Wait a minute here.... California's problem is not enough supply. Now they want to punish the suppliers??? After they piss them off, do they really expect those same supplier to then *give* them the power they need?? The morons in the state senate need a lesson real bad in simple economics!!

-- Rob McCarthy (celtic64@mindspring.com), May 08, 2001.

Generators Warn Of Blackouts If Calif OKs Windfall Tax

Updated: Tuesday, May 8, 2001 07:19 PM ET By Jason Leopold

Of DOW JONES NEWSWIRES

LOS ANGELES (Dow Jones)--Legislation to place a windfall profits tax on sales of electricity into California will deter investments in new generation and drive power out of the state, raising the risk of blackouts, wholesale-market power suppliers said Tuesday.

"It would be totally counterproductive and prolong California's misery for years to come," said Gary Ackerman, executive director of the Western Power Trading Forum, an industry group. "New plants in California wouldn't get built, and existing plants would cease operating. There would be blackouts all day long"

On Monday, the Senate passed, by a vote of 25-12, a bill to tax at 100% sales of electricity into California above $80 a megawatt-hour. A separate windfall profits tax bill with a three-tiered rate system is moving through the Assembly's committees and could come up for a vote in the full house later this week. Electricity priced at $60/MWh would be taxed at 50%, sales of power over $90/MWh would be taxed at 70% and electricity sales over $120/MWh would be taxed at 90%.

Gov. Gray Davis has said he is "open" to the concept of windfall profits tax on electricity sold into California, but hasn't said whether he supports the bills moving through the Legislature.

Generators said they would seriously consider scrapping plans to build much-needed new generation in California if the measure is signed into law.

"We do have some concerns on how (the bill) would affect new generation," said Mirant Corp. (MIR, news, msgs) spokesman Chuck Griffin, whose company is investing about $500 million in new power plants in Northern California. "We have said all along that before we are able to build this generation we need to make a good assessment of the business environment in the state, and the (windfall profits tax) is certainly a factor."

Tim Thuston, managing director of government relations for Williams Cos. (WMB, news, msgs), said a windfall profits tax is "confiscatory" and the state is trying to circumvent the Federal Energy Regulatory Commission.

"I can tell you we think its a very poor idea," Thuston said. "I'm speculating, but I think any time a state starts seizing profits it would deter investment in that state."

Duke Energy (DUK, news, msgs), a power supplier investing more than $600 million in new power plants in California, wouldn't comment on how the tax would affect its plans.

Mirant - following Williams' lead - supports short-term regional price controls if they would bring stability to the state's wholesale power market, Griffin said.

"We have expressed that we may be comfortable with some form of temporary price mitigation in order to get through this crisis," Griffin said.

But the base prices for electricity written into the windfall-tax bills are much lower than generators' actual costs, Ackerman said.

"Today's gas prices are much higher than that," he said. "Everybody would automatically sell out of state."

Lawmakers Unmoved

Lawmakers aren't overly concerned with negative implications if the measure becomes law.

"If the price for rolling out the welcome for generators is 10 to 30 times more than Californians paid for power last year, then we ought to build our own plants," said state Sen. Debra Bowen, D-Redondo Beach, and chairwoman of the Senate energy committee. "The state's motto is 'Eureka,' not 'Welcome to California, please come gouge us.'"

Paul Van Dyke, press secretary to state Sen. Nell Soto, D-Ontario, who is sponsoring the windfall profits tax bill in the Senate, said "there's no evidence that leaving things the way they are now will be better."

"California has a limited policy chest, and federal energy regulators are not moving fast enough to solve the problems," Van Dyke said. "California needs to build up its tool chest. So at the end of the day, whether we solve this problem through windfall profits or a negotiated agreement with the generators, the bottom line is consumers cannot be gouged."

Davis - who told reporters Monday that the state "is at war" with Houston-based generators - is expected to meet with representatives from a dozen energy companies Wednesday to discuss "unpaid debts, credit issues and the supply of power." Those generators include Mirant, Williams and Duke Energy.

At the meeting Wednesday, Davis will attempt to get the generators to take a haircut on hundreds of millions of dollars of power bills owed by PG&E Corp. (PCG, news, msgs) unit Pacific Gas & Electric and Edison International (EIX, news, msgs) unit Southern California Edison. In exchange, a person close to Davis said, the governor may promise to veto the windfall profits tax bill if it reaches his desk.

The governor's office wouldn't comment on the substance of the meeting Wednesday.

Wall Street analysts said the measure could have severe effects on California's economy if it passes and will pressure generators' shares as the bills move through the Legislature.

"We expect weakness in (generators) shares with California exposure," Dan Ford, an analyst with Lehman Brothers, said in a research note Tuesday. "A windfall profits tax bill will motivate generation developers to remove existing and new capital to other states and potentially destroy California's already softening economy."

Ultimately, however, Ford expects the bill to be used as a bargaining chip rather than passed.

The tax also raises regulatory questions, several lawmakers said. In essence, California is attempting to set wholesale power rates, which are governed by the Federal Energy Regulatory Commission.

A FERC commissioner wouldn't comment directly on the issue, but told Dow Jones Newswires that the state has "no jurisdiction on wholesale power rates and does not have the legal authority to adjust rates set by FERC."

-By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com

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-- Martin Thompson (mthom1927@aol.com), May 09, 2001.