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----- Original Message -----  
From: Lisa Martin 
To: lisa@caltax.org 
Sent: Tuesday, May 08, 2001 11:48 AM
Subject: Cal-Tax e-Alert: Windfall Profits Tax 

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May 8,  2001?

To:????????????Cal-Tax?Board  of Directors and?Interested?Parties???
From:????????Ron  Roach, Communications Director??
Subject:????Update  of Windfall Profits Tax  Legislation?

The following is advance  Caltaxletter coverage of  the May 7 California 
Legislature's actions on two bills that would impose  "windfall profits" 
taxes on producers of electricity:??
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SENATE APPROVES &WINDFALL PROFITS8 TAX AS ROLLING BLACKOUTS  HIT??????

Nearly coinciding with rolling blackouts plaguing  California for the first 
time since mid-March, the Senate on Monday approved a  &windfall profits8 tax 
on energy producers (SB 1X, Soto). Critics said  the measure establishes a 
perverse tax incentive not to sell power in California  and will reduce 
electricity supply even further, increasing prospects of future  blackouts.??

Twenty-five  Democrats voted &aye8 on SB 1X, while 12 Republicans voted 
against it.  Because the bill did not pass with 27 votes, or two-thirds of 
the Senate as  required by Proposition 13, there will likely be a court 
challenge on this  point.

Meanwhile,  just hours earlier, the Assembly Revenue and Taxation Committee 
approved a  slightly different version of a &windfall profits8 tax (AB 128X,  
Corbett), despite the fact that the bill was substantially amended at the  
hearing.

SB  1X imposes a 100 percent excise tax on sales of electricity at a price 
above  $80 per megawatt-hour. It also establishes a refundable tax credit 
equal to the  amount of revenue generated by the tax.

AB 128X establishes a retroactive (to January 1,  2001) sliding-scale tax of 
50 percent of gross receipts on electricity sales  over $60 per 
megawatt-hour; 70 percent of the gross receipts of sales over $90  per 
megawatt-hour, and 90 percent of gross receipts of sales over $120 per  
megawatt-hour. The rate of tax can be changed &from time to time8 by the  
California Public Utilities Commission. ?The bill will likely tax sales not  
made in California, because it defines &sales of electricity to a retailer8 
in  California to be the higher of the ratio of sales in California to the 
total  sales or percentage of total electricity sales everywhere, using a 
ratio  of total sales everywhere in the year 2000 to sales in California in 
the year  2000.?

Debate in the Senate was hotter than the 95-degree  temperature outside. 
Democrat Senator Steve Peace, who is generally given credit  for pushing the 
electricity deregulation bill through the Legislature in 1996,  became highly 
emotional in denouncing energy producers.?

Continuing to blame the California crisis on the  Federal Energy Regulation 
Commission (FERC), as well as Harvey Rosenfield,s  Proposition 9, which 
sought to unravel deregulation in 1998 and caused a  two-year delay in 
construction of additional power plants, Senator Peace called  SB 1X the 
&only reasonable alternative.8? He said it will bring competition to the  
market with rules and &a referee who will blow the whistle.8 He described 
FERC  as &the proverbial cop in the donut shop who refuses to enforce the 
law8 and  limit what wholesalers can charge.?

Republican Senator Ray Haynes said the tax would not  bring additional 
electricity to Californians. &We are going to make sure by  passing this bill 
that the lights will go out,8 he said.??

Democrat Senator Debra Bowen said the prospect of  taxing excess profits 
&will grab (energy producers) by the horns and their  hearts and minds will 
follow.8?

Republican Senator Tom McClintock said the tax would  cut supplies of 
electricity, noting that other states, such as Texas and Nevada,  are 
building, or will build, power plants to serve California with investments  
that benefit those states, economies, not California,s. &To make electricity  
cheap, we have to make it plentiful. This is a very wrong step in a very 
wrong  direction,8 he said.?

At the Assembly committee hearing, numerous speakers  sought to testify for 
and against the bill. However, Democrat Assembly Member  Helen Thomson 
(chosen by Committee Chair Ellen Corbett to preside instead of the  
Republican vice-chair, which in itself was unusual) limited testimony to two  
witnesses on each side.?

Speaking for the tax were Jean Ross, executive  director of the California 
Budget Project, and Lenny Goldberg, of the California  Tax Reform 
Association, organizations funded largely by public employee unions  or 
liberal-leaning foundations that generally oppose tax relief and support  
increased government spending. Ms. Ross urged immediate action, saying 
consumers  will be paying 1.5 percent of their income on power purchases in 
the next year.  Mr. Goldberg called the proposal a viable and realistic 
solution, which he said  he hopes is constitutional.??

Providing opposition testimony were Carrie-Lee Coke,  representing the 
California Manufacturers and Technology Association, and Steven  Kelly of the 
Independent Energy Producers.?  Ms. Coke said the bill is a disincentive to 
more supply and will make the  current crisis worse. She said it also applies 
to the cogeneration operations of  California manufacturers. Mr. Kelly told 
the committee that the bill jeopardizes  plans for as much as $10 billion in 
private capital investment in new California  power plants.??

A number of others were allowed to state their  affiliations and their 
positions on the bill. Among supporters were the  California Labor Federation 
and the California Public Interest Research Group.  Opposition included the 
California Chamber of Commerce, InterGen, and BP?Amoco.?

Committee Member Elaine Alquist asked to be a co-author  of the bill, saying 
it is about time &we did something.8??AB 128X was  approved by a 5-0 vote, 
with Republicans abstaining. Assembly Member Mark Wyland  said he abstained 
because he believes that while California is being gouged by  high energy 
prices, the bill is anti-free market and incentives are needed to  develop 
more power to avoid blackouts.?

Meanwhile, Governor Gray Davis &is open to the idea8 of  such a tax, but has 
not endorsed either bill, said his press secretary, Steve  Maviglio. &It just 
depends on the bill.8??????


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