State Tax Update Archive
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California Power Crisis Update

PG&E's Pacific Gas and Electric unit and the Southern California Edison subsidiary of Edison International have lost over $11 billion within the last six months selling power to retail customers below the wholesale supply price.  The companies face bankruptcy proceedings, while Gov. Gray Davis (D) last week authorized a $400 million temporary consumer bailout via the Dept. of Water Resources.  Two thirds of Californians rely on Pacific Gas & Electric and Southern California Edison for power; California is also the world's sixth-largest economy.  These facts have forced upon the California Legislature a most difficult set of circumstances, as legislators struggle to resolve a situation steadily worsening to include the possibility of rolling blackouts of longer duration and fuel shortages extending to gas stations.

Assembly Speaker Robert Hertzberg (D-Van Nuys) recruited a number of other legislators, bankruptcy attorneys, investment bankers, and energy consultants to help craft a proposal to cede state ownership of $5 billion worth of hydroelectric generating systems.  In addition, California's Legislature would resolve the $11 billion retail price/wholesale price discrepancy by authorizing the issuance of bonds to be repaid by ratepayers over a 10-year period.  Under Mr. Hertzberg's plan, estimated rates for Pacific Gas and Electric Co. could rise 10% to 20% by 2003 or early 2004, incurring the opposition of Gov. Davis, who has voiced strong opposition to rate increases.

If the average price of a megawatt hour is established at $75, a rate increase of 10% to 20% could be delayed for two to three years, according to Mr. Hertzberg's analysis.

Although Gov. Davis opposes megawatt sale in excess of $55, the Hertzberg plan has the political advantage of delaying rate increases until after the next round of state elections, at which time the Governor's seat, 80 Assembly seats, and 20 state senate seats are open to contest.

It is worth noting that the Hertzberg plan is the only comprehensive plan to emerge so far.

Washington State Leaders React to Power Crisis

Washington State did not enact deregulation of their electricity wholesale/supplier system, but the state must still resolve an impending power shortage and address the reality of sharing the Western power grid with troubled California.  As in California, Washingtonians have neglected to build more power plants even as demand for power has skyrocketed.  The Washington State 2001 legislative session convened with liberals, conservatives, and moderates in agreement at least on one point: something must be done, and soon.

Larry Crouse (R-Spokane), co-chairman of the House energy committee, supports tax breaks for utilities and private developers, action that will encourage increased supply by means of the construction of more plants.  Both Crouse and Senate energy committee chairwoman Karen Fraser (D-Lacey) have voiced their intention to streamline the permit process for building more plants.  Leading Democrats are opposed to tax breaks that will allow developers to sell energy to higher bidders in California, while many Republicans counter that Washington consumers will benefit so long as the power is sold to suppliers within the Western power grid.

States such as Oregon and Idaho are already more attractive to power-plant developers because of lower taxes and simpler permit processes.

Other ideas currently debated among members of the Washington legislature include dramatic efforts to force consumers to conserve, such as regulations favoring wind and solar energy sources.  Gov. Gary Locke's (D) policy advisor on energy, David Danner, has said that the governor is drafting bills that offer tax credits to home owners and businesses that convert to solar or wind power, build their own generators, and industries that enhance pollution controls. 

On a final note, Puget Sound Energy may ask permission to charge higher rates during peak hours, much as telephone companies do.