Subject: California/FERC update 7/6/01
From: [email-masked]
To: [email-masked], [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], don.b
Date: Fri, 6 Jul 2001 15:07:00 -0700 (PDT)

EXECUTIVE SUMMARY
?	Davis Swaps Refunds for Costly Power Contracts 
?	SoCal Bailout --- Bypass
?	Windfall Profits Tax In Debate

Refunds and Long Term Contracts
The FERC settlement talks are scheduled to end on Monday, 9 July.  However, as early as today, Judge Wagner could issue a preliminary finding and if a settlement has not been reached by Monday, Judge Wagner is expected to issue a ruling as soon as possible.  Judge Wagner has made a public statement regarding the level of refund stating that $2B was reasonable to him.  By making this comment Wagner was probably trying to manage expectations on the amount of a refund.  He is viewed as being very savvy and would certainly have had "reasons" to make such a public statement (since he is not supposed to comment on cases under review -- and has since, ironically, issued a gag order).  Additionally, since FERC only has jurisdiction over about 20% of the electricity flowing through California, the $2 - 3 B level could be accurate from FERC's point of view (if you use the Governor's $9 - 15 B estimates as the gross amount). The assumption is that FERC can't order refunds from suppliers over whom they have no jurisdiction (LA Water, munis, Bonneville, etc.), and that any ruling will be limited to that percentage over which they can exert some force.
Governor Davis also wants to renegotiate $43B worth of long-term powers contracts in exchange for reducing his demand that generators refund billions for alleged price gouging.  Speculation on what power generators and marketers would agree to refund vary, with lobbyists for California and other states predicting Wagner would recommend a refund of $3-5B and those representing power companies saying it would fall well under $2B.  Wagner has indicated that a refund around $2 B might be acceptable, however, given Davis's new proposal, Wagner may sweeten the pot by recommending to FERC that  power providers renegotiate long-term contracts and possibly take additional measures to prevent future energy price spikes.  While Wagner lacks the authority to order the renegotiations of long term power contracts, his recommendation to FERC could lead FERC to issues such an order.
SoCal Bailout
At this time it appears that efforts in Sacramento to work on a SoCal bailout have essentially ceased. No one is working on a bailout and as we have been saying,  it appears that a bankruptcy is a question of "when," and not "if."  Legislators are cautious in pursuing meaningful discussions on the MOU until the results of the FERC settlement talks and the amount of the generator give-back's are known.  Even the CPUC has considered the ramifications of current events at FERC and has gone as far as delaying their decision on direct access (until August) at the request of FERC Commissioner Pat Wood. 
Windfall Profits Tax
There are currently two bills that deal with windfall profits on generators. Of the two bills, SB 1XX appears to have more momentum because it is further along in the process and does not make any exemptions for those entities contracting with the state for long-term contracts. 

SB 1XX (Soto) - Windfall Profits 
This bill imposes an Electric Windfall Profits Tax on sellers of energy in California if the sales price exceeds $80 per MWh or another amount determined by the CPUC.  Revenue generated from this tax would be distributed, in equal amounts, to personal income taxpayers in the form of a refundable income tax credit. 
*   This bill was set for hearing on 2 July Assembly Revenue and Taxation, but the hearing was postponed until next week due to budget deliberations. 
*   This bill passed the Senate Floor on May 17, 2001 on a 23-12 vote. The "nay" votes were cast by Republicans. 

*   This bill is supported by consumer groups and opposed by several generators including Duke, Dynegy, Reliant, and Mirant. While this bill does not provide an exemption for long-term contract holders however, many of the long-term contracts have provisions exemption them from any such tax. 

AB 2X (Corbett) - Tax on Excess Gross Receipts 
This bill would create an excess gross receipts received by sellers of electricity and authorizes the CPUC to set the base price above which the gross receipts tax would apply and establishes an initial base price of $60 per MWh. This bill includes provisions that the bill would not apply to any contracts entered into between the state and an energy generator. This bill has opposition from the energy generators and is currently pending on the Assembly Floor.