BILL ANALYSIS
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THIRD READING
Bill No: SJR 2XX
Author: Morrow (R)
Amended: 7/3/01
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 10-0, 6/26/01
AYES: Bowen, Morrow, Alarcon, Battin, Dunn, Murray, Sher,
Speier, Vasconcellos, Vincent
SUBJECT : Electricity pricing
SOURCE : Author
DIGEST : This resolution memorializes Congress and the
Federal Energy Regulatory Commission to take various
actions to work toward alleviating the high cost of
wholesale electric power.
ANALYSIS : This resolution notes that several studies of
California's electric markets have concluded those markets
aren't workably competitive, that high wholesale prices
cannot be attributed to underlying cost increases or
changes in the balance between supply and demand, that
there is evidence to support a presumption that high
wholesale prices were the product of deliberate actions by
generators and marketers to withhold supply and increase
market prices, and that analysis of capacity withholding
has been constrained by a limited availability of data.
This resolution further notes that the Federal Energy
Regulatory Commission (FERC) has determined that wholesale
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electric prices have not been just and reasonable, but has
not taken sufficient corrective regulatory action.
This resolution finds that further study is needed to
support the efforts of policymakers to design appropriate
remedies and to determine whether FERC properly discharged
its duties, and that full study requires access to
confidential data held only by FERC.
This resolution memorializes FERC to do all of the
following:
1.Using confidential data and working with the U.S.
Department of Justice (DOJ) and the Federal Trade
Commission (FTC), provide cost estimates to obtain more
precise measures of appropriate competitive price levels.
2.Using confidential data, obtain better measures of
potential capacity withholding by generators, and
determine the role of marketers in the production and
bidding behavior of generators.
3.Cooperate with the California Public Utilities
Commission, the California Attorney General, and other
state investigators, including providing appropriate
access to confidential data.
4.Examine the behavior of generators outside of California
to determine why electric imports declined.
5.Conduct formal hearings on illegal pricing and capacity
withholding.
6.Extend the 60-day refund deadline pending the findings of
these hearings.
7.Impose temporary (until March 1, 2003), just and
reasonable load-differentiated demand rates or
cost-of-service based rates applicable to electricity
from generators in service prior to June 1, 2001.
This resolution memorializes Congress to do all of the
following:
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1.Hold oversight hearings to ensure FERC completes the work
described above.
2.Determine whether FERC has met its mandate under the
Federal Power Act (FPA) to ensure a competitive wholesale
electric market.
3.Ensure that FERC has the necessary accountability and
resources, including those of the DOJ and FTC, to
accomplish all of the above.
4.Require FERC to enforce the FPA to ensure rates are just
and reasonable.
Background
Under the FPA, FERC has an obligation to ensure that
wholesale electric rates are "just and reasonable." As
wholesale markets have been deregulated, FERC has decided
that market mechanisms, rather than traditional
cost-of-service regulation, can produce just and reasonable
rates that satisfy FPA requirements. Since the summer of
2000, California representatives have consistently argued
that wholesale electric rates far exceed just and
reasonable levels. The following is a chronology of FERC
actions to address wholesale electricity prices in
California:
July 26, 2000: FERC issues an order directing a staff
fact-finding investigation into wholesale electric markets.
August 23, 2000: FERC institutes proceedings to
investigate reasonableness of wholesale rates in
California.
November 1, 2000: FERC issues a proposed order finding
that sellers had the potential to exercise market power,
and that rates sometimes exceeded just and reasonable
levels.
December 15, 2000: FERC issues an order implementing a
$150 break point. Sales above the break point require
reporting of costs to FERC and are subject to refund.
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March 9, 2001: FERC orders specified sellers to provide
refunds for sales during January 2001 over $273/MWh during
a Stage 3 emergency, or to alternately provide further
justification for such charges. Total refund liability is
$69 million.
March 14, 2001: FERC orders Williams Energy Market &
Trading Company and AES Southland to show cause why they
should not be found to have engaged in violation and
directed to make refunds of approximately $11 million.
FERC later enters a confidential settlement with Williams
and AES in exchange for $8 million.
March 16, 2001: FERC orders specified sellers to provide
refunds for sales during February 2001 over $430/MWh during
a Stage 3 emergency, or to alternately provide further
justification for such charges. Total refund liability is
$55 million.
April 16, 2001: FERC orders specified sellers to provide
refunds for sales during March 2001 over $300/MWh during a
Stage 3 emergency, or to alternately provide further
justification for such charges. Total refund liability is
$587,000.
April 26, 2001: FERC issues an order replacing the price
mitigation plan adopted in its December 15, 2000 order,
effective May 29, 2001. The order sets a market clearing
price for sales to the ISO during Stage 1, 2 and 3
emergencies. Price is set according to the theoretical
cost of running a "marginal unit" (i.e., an inefficient
peaking unit that buys spot gas and NOx credits).
Generators with lower costs get the market clearing price.
Generators with higher costs may bid higher.
May 14, 2001: FERC publishes a proxy price for April 2001
of $318/MWh, applicable to sales during a Stage 3
emergency. Because no Stage 3 was called in April, no
refunds are ordered.
June 15, 2001: FERC orders specified sellers to provide
refunds for sales during May 2001 over $267/MWh during a
Stage 3 emergency, or to alternately provide further
justification for such charges. Total refund liability is
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$414,183.
June 19, 2001: FERC issues an order replacing the price
mitigation plan adopted in its April 26 order, essentially
expanding the scope of the plan to apply to spot market
sales throughout the West in all hours. Price for all
sellers is still set according to the theoretical cost of a
marginal unit, rather than according to each unit's actual
operating cost (which is the pricing methodology that this
resolution seeks). The order entitles sellers to an
additional 10 percent credit risk premium. The price
mitigation plan adopted remains in effect through September
2002.
Related Legislation
In addition to this resolution, there are at least five
other resolutions pending which seek FERC action with
respect to setting cost-based rates and/or ordering
refunds:
SJR 7 (Alpert) supports federal legislation to require FERC
to order refunds for charges in excess of just and
reasonable rates and to temporarily impose cost-based rates
throughout the West. SJR 7 is awaiting concurrence in
Assembly amendments on the Senate Floor.
AJR 1XX (Vargas) demands FERC set cost-based rates for the
West and order refunds of charges in excess of just and
reasonable rates. AJR 1XX is pending in the Senate Rules
Committee.
AJR 10 (Cohn) urges FERC to set temporary cost-based rates
throughout the West for 18 months. AJR 10 is pending in
the Assembly.
AJR 11 (Cohn) calls on FERC to impose cost-of-service
regulation on companies found to have manipulated the
market and to impose interim price caps until the market
has stabilized. AJR 11 is pending in the Senate Energy,
Utilities and Communications Committee.
ACR 72 (Frommer) urges FERC to enact price caps and urges
Congress to require FERC to investigate market manipulation
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and price gouging and to impose refunds. ACR 72 further
requests that the Federal Emergency Management Agency
declare a state of emergency and provide no interest loans
to pay off the debt of California utilities. ACR 72 is
pending in the Assembly Utilities and Commerce Committee.
FISCAL EFFECT : Fiscal Com.: No
SUPPORT : (Verified 7/3/01)
Sempra Energy
Orange County Taxpayers Association
NC:cm 7/3/01 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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