BILL NUMBER: SJRX2 2	AMENDED
	BILL TEXT

	AMENDED IN SENATE  MAY 30, 2001

INTRODUCED BY   Senator Morrow

                        MAY 17, 2001

   Senate Joint Resolution No. 2--Relative to electricity pricing.


	LEGISLATIVE COUNSEL'S DIGEST


   SJR 2, as amended, Morrow.  Electricity pricing.
   This measure would memorialize the members of the Federal Energy
Regulatory Commission to, using confidential information,  work
with the United States Department of Justice and the Federal Trade
Commission to  provide refined benchmark cost estimates to
obtain more precise measures of the appropriate competitive price
level of electricity, obtain better measures of potential capacity
withholding behavior of generators, determine the role of marketers
in the production and bidding behavior of the California generators,
 and  examine the behavior of generators located
outside the California Independent System Operator, as specified 
, and impose, until March 1, 2003, wholesale energy rates that are
just and reasonable load-differentiated demand rates or
cost-of-service based rates for electricity generated by an electric
facility that was in service prior to June 1, 2001, on sales of
electric energy at wholesale prices in the western energy market
 .  The measure would further memorialize the Congress  of
the United States  to hold committee hearings and engage in all
other necessary oversight activities to ensure that the Federal
Energy Regulatory Commission completes these determinations  ,
activities,  and estimates in as timely a manner as possible
 and   ,  to review the confidential
industry data,  as specified   and to require
the Federal Energy Regulatory Commission to comply with a specified
provision of the Federal Power Act  .
   Fiscal committee:  no.




   WHEREAS, It is clear that the electrical power crisis in
California and the Western Regional Coordinating Council area (WRCC)
is primarily a supply-side deficiency, created in large part by
California's failure to expand and upgrade its electricity generation
and transmission infrastructure during the past decade; and
   WHEREAS, While it is logical that the inadequate supply of
electricity, especially during peak periods, would drive wholesale
market prices higher,  many observers allege  
regulatory authorities have found  that the extraordinarily high
actual prices of the past year are too high to be explained by
standard market fundamentals in a workably competitive market; and
   WHEREAS, Analytical studies of wholesale electricity market
performance during the past year in California  , 
reviewed both the competitive benchmark prices, including all major
market fundamentals, and potential capacity withholding; and several
of these studies, including one conducted by the California
Independent System Operator (ISO), conclude all of the following:
   (a) The markets were not workably competitive.
   (b) The high wholesale electricity prices cannot be explained as
the natural outcome of "market  fundamentals",  
fundamentals,"  such as rising natural gas prices, increased
loads in California, reduction of supplies available for import into
California due to higher loads elsewhere in the Western States
Coordinating Council (WSCC)  , the cost of environmental
compliance  , or poor hydroelectric conditions in the Northwest,
in competitive markets since there is a very significant gap between
actual market prices and competitive benchmark prices that take
account of these market fundamentals.
   (c) There is empirical evidence, not yet adequately explained
 away  , to support a presumption that the high
prices experienced were the product of deliberate actions on the part
of generators or marketers controlling the dispatch of generating
capacity to withhold supply and increase market prices; and
   WHEREAS, While analyses of possible capacity withholding behavior
have been constrained by the limited availability of data, there is
sufficient empirical evidence to warrant further investigation of
supply and bidding behavior by generators and marketers operating in
the California market; and
   WHEREAS, Inasmuch as the Federal Energy Regulatory Commission
(FERC) has determined that wholesales prices have  been
unfair, but refused to take corrective regulatory action, 
 not been just and reasonable, but has not taken meaningful
corrective regulatory action to address high wholesale electric
prices,  leading to numerous allegations that the FERC has
failed to discharge its responsibilities mandated by the Federal
Power Act (16 U.S.C.  Sec. 791a et seq.) to ensure a competitive
wholesale electricity market, and these allegations have tainted the
FERC's reputation; and now, therefore, be it
   Resolved, by the Senate and Assembly of the State of California,
jointly, That further study is required to support the efforts of
state, regional, and federal policy makers to design appropriate
remedies to the market failures identified in the studies; and be it
further
   Resolved, That further study is required to help determine whether
the FERC properly discharged its duties; and be it further
   Resolved,  Full   That full  study
requires access to confidential data held only by FERC; and be it
further
   Resolved, That the Legislature respectfully memorializes that FERC
to do all of the following:
   (a) With the use of confidential data,  work with the United
States Department of Justice and the Federal Trade Commission to
 provide refined benchmark cost estimates to obtain more precise
measures of the appropriate competitive price level.
   (b) With the use of confidential data, obtain better measures of
potential capacity withholding behavior of generators, and determine
the role of marketers in the production and bidding behavior of the
California generators.
   (c) Examine the behavior of generators located outside the
California ISO to determine exactly why importers declined as much as
they did.
   (d) Conduct formal hearings on the issue of illegal pricing and
capacity withholding.
   (e) Extend the 60-day refund deadlines pending the findings of
these examinations and hearings  .
   (f) (1) Commencing 60 days from the date of enactment of this
measure, and until March 1, 2003, impose wholesale energy rates that
are just and reasonable load-differentiated demand rates or
cost-of-service based rates for electricity generated by an electric
facility that was in service prior to June 1, 2001, on sales of
electric energy at wholesale prices in the western energy market.
   (2) "Load-differentiated demand rates" or "cost-of-service based
rates" means a rate charge or classification for the sale of electric
energy that is equal to all of the following:
   (A) All the variable costs of producing the electric energy.
   (B) All the fixed costs of producing the electric energy.
   (C) A reasonable risk premium or return on invested capital.
   (D) All other reasonable costs associated with the production,
acquisition, conservation, and transmission of electric power  ;
and be it further
   Resolved, That the Legislature respectfully memorializes the
Congress of the United States to do all of the following:
   (a) Hold committee hearings and engage in all other necessary
oversight activities to ensure that the FERC completes the above
described determinations  , activities,  and estimates in as
timely a manner as possible.
   (b) Hold committee hearings and engage in all other necessary
oversight activities, including reviewing the above described
confidential industry data to determine whether the FERC has met its
mandate  , under   under Section 206 of 
the Federal Power Act, to ensure  the  existence of a
competitive wholesale electric market.
   (c) Ensure that the FERC has both the necessary accountability to
the Congress and resources  to accomplish all the above; and
be it further   , including those of the United States
Department of Justice and the Federal Trade Commission, to accomplish
all of the above.
   (d) Require the FERC to enforce the fair pricing laws under
Section 206 of the Federal Power Act to ensure that rates are just
and reasonable; and be it further 
   Resolved, That the Secretary of the Senate transmit copies of this
resolution to the President and Vice President of the United States,
The Speaker of the House of Representatives, to each Senator and
Representative from California in the Congress of the United States,
and to each member of the Federal Energy Regulatory Commission.