BILL NUMBER: SJRX2 2	AMENDED
	BILL TEXT

	AMENDED IN SENATE  JULY 3, 2001
	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, 
cooperate with the California Public Utilities Commission, the
California Attorney General, and other state investigators, 
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, to review the confidential industry data, 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   Systems Coordinating Council
(WSCC) region was precipitated by  a supply-side deficiency,
created in large part by  California's   the
 failure to expand and upgrade its electricity generation and
transmission infrastructure  in California  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, 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," 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) 
 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, 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  
wholesale electric  prices have not been just and reasonable,
but has not taken  meaningful   sufficient 
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   that rates subject to its
jurisdiction shall be just and reasonable  , 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 policymakers 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, 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)  Cooperate with the California Public Utilities
Commission, the California Attorney General, and other state
investigators, including providing appropriate access to confidential
data.
   (d)   Examine the behavior of generators located outside the
California ISO to determine exactly why  importers 
 imports  declined as much as they did.  
   (d)  
   (e)  Conduct formal hearings on the issue of illegal pricing
and capacity withholding.  
   (e)  
   (f)  Extend the 60-day refund deadlines pending the findings
of these examinations and hearings.  
   (f)  
   (g)  (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 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, 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.