US electricity 'windfall profit' tax bill introduced

In a move reminiscent of failed US oil policy in the 1970s, Congressman Bob Filner (D-Calif.) has introduced legislation that would imposed a windfall profits tax on wholesale electricity sold in the Western System Coordinating Council. The legislation has been referred to the House Ways and Means Committee. Observers don't give the bill much chance of being voted out of committee.

Feb. 19, 2001

2 min read

By the OGJ Online Staff

HOUSTON, Feb. 19�In a move reminiscent of failed US oil policy in the 1970s, Congressman Bob Filner (D-Calif.) has introduced legislation that would imposed a windfall profits tax on wholesale electricity sold in the Western System Coordinating Council.

The legislation has been referred to the House Ways and Means Committee. Observers don't give the bill much chance of being voted out of committee.

"It would be a surprise if it advances beyond the committee," says Mark Stultz, a spokesman for the Electric Power Supply Association, Washington, DC, given the Republican leadership's advocacy of letting the market respond to supply and demand.

He said it seems clear any type of tax "would discourage investment" in new generation in the West at a time it is most needed. The federal government imposed a similar tax on oil in the 1970s, but it was ultimately abandoned.

Filner's bill would amend the Internal Revenue Service code. Sellers would be responsible for the tax which would be collected on sales made after June 1, 2000. The legislation defines "windfall profit" as the profits from the sale exceeding the rate at which the electric energy is sold over the price of the energy based on the seller's costs, including a return on invested capital.

With wholesale costs skyrocketing, California utilities have already asked the Federal Energy Regulatory Commission (FERC) for a return to cost-based regulation, but the federal agency has resisted. Others, including the governors of several western states, have supported a temporary price cap on wholesale electricity transactions in the West.

With summer approaching and shortages forecast throughout the region, officials are scrambling to insure power will be available at reasonable cost to consumers and businesses. Companies from Canada to California have closed down, some for good, because of high gas and power bills.

Speaking in Houston, Michael G. Stewart, executive vice-president of Canada's Westcoast Energy Inc., noted prices are having a direct impact on Canadian manufacturers. A cement maker has applied to convert cement plants to coal from natural gas, a zinc manufacturer has cut production and released captive hydropower for resale, and a steel manufacturer is reducing production to cut its losses, he said.