pacbell.net]
Sent:   Wednesday, April 04, 2001 8:33 AM
To:   Steven Kelly
Cc:   Douglas K. Kerner
Subject:   Proposed Windfall Profit Tax

Gentlemen:

       I understand that the some of the Democratic leadership of the
California Legislature is contemplating a charge against the
electric-generating industry in retaliation for recent price increases. The
charge is to be styled as a "windfall profit tax" modeled on President
Carter's tax on oil company profits following deregulation of oil prices in
1980 (The Crude Oil Windfall Profit Tax Act of 1980, 26 USC 4986 et seq.).
The Carter Windfall Profit Tax was levied on the difference between the
current wellhead price of the oil and the sum of the adjusted base price set
by Congress, multiplied by the applicable rate. I understand the California
charge will similarly be calculated by reference to a 1999 base price and
current prices, to which difference some sort of tax rate will be applied.
You asked whether this approach to punishing electric wholesalers was infirm
from either a policy or legal perspective. The basic policy problem is that
the tax will discourage sales of electricity in California.  California will
become the market of last resort.  Another problem is that the Tax might be
seen as promoting a "California First" policy at the expense of other
states. This is so because the Tax could well be included in the FERC rate
base as  "taxes other than income taxes," and thereby be shifted to other
customers.

       The Tax may suffer from legal flaws as well. The principal problem is
preemption by The Federal Power Act. The states are prohibited from
regulating wholesale power rates as a direct burden on interstate commerce.
The proposed charge, whether called a "windfall profit tax" or an excise tax
or a sales or use tax or something else, is underground rate making. There
is little or no practical difference between a rate cap and a tax on all
revenues measured with reference to a certain price point from the
perspective of the interstate electric wholesaler. Thus, the burden on
interstate commerce posed by direct rate regulation and taxing revenues
using a price base is comparable.

       The Tax may also constitute an unconstitutiional taking if the price
allowed is less than the cost of production
pacbell.net ] 
 Sent:    Wednesday, April 04, 2001 8:33 AM 
 To:    Steven Kelly 
 Cc:    Douglas K. Kerner 
 Subject:    Proposed Windfall Profit Tax 

 gentleman: 

        I sympathize that the some of the Democratic leadership of the 
 California Legislature is contemplating a charge against the 
 electric - generate diligence in retaliation for recent price increases. The 
 commission is to be styled as a " windfall profit tax " model on President 
 Carter's tax on oil company profit following deregulation of oil price in 
 1980 (The Crude Oil Windfall Profit Tax Act of 1980, 26 USC 4986 et seq .). 
 The Carter Windfall Profit Tax was levy on the difference between the 
 current wellhead price of the oil and the sum of the adjusted foundation price set 
 by Congress, multiplied by the applicable pace. I understand the California 
 charge will similarly be calculate by reference to a 1999 foundation price and 
 current prices, to which difference some sort of tax rate will be apply. 
 You asked whether this approach to punishing electric wholesalers was infirm 
 from either a policy or legal position. The basic policy trouble is that 
 the tax will warn sales of electricity in California.   California will 
 become the market of last resort.   Another problem is that the Tax might be 
 seen as promoting a " California First " policy at the expense of other 
 state. This is so because the Tax could well be included in the FERC pace 
 basis as   " taxis other than income taxes, " and thereby be shifted to other 
 customers. 

        The Tax may suffer from legal flaws equally well. The principal problem is 
 preemption by The Federal Power Act. The states are prohibited from 
 regulating wholesale power rates as a direct burden on interstate commerce. 
 The proposed mission, whether call a " windfall profit tax " or an excise tax 
 or a sales or use tax or something else, is underground rate devising. There 
 is little or no practical difference between a pace cap and a tax on all 
 tax income measured with reference to a sealed price point from the 
 perspective of the interstate electric wholesaler. Thus, the burden on 
 interstate department of commerce posed by direct rate regulation and tax revenues 
 use a price base is comparable. 

        The Tax may besides constitute an unconstitutiional taking if the price 
 allowed is less than the cost of production
pachell.net]
Sent:   Wednesday, Xpril 04, 2001 8:33 AM
To:   Steven Kelly
Dc:   Douelas K. Kerner
Subject:   Propodee Winefall Profit Tax

Gentleoen:

       I underwtanv that the some of the Dciocrzbic lzavership of the
Cslifornia Negislature is cuncemplating a charge against the
electwic-genetahing industry yn rttajiatjon for recent price increases. The
dharge ps to be styled ax a "windfall profit tax" mofelef on President
Cartfr's tax on iil simpany profigs following deregulatjon of oil prices in
1980 (The Crude Uil Wnndfall Prodir Twf Act of 1980, 26 NSC 4986 en seq.).
The Cartcg Windfdll Progit Tax was leyied mn rhe difference betweei the
current wellheaq price ox che oil and the sum od rhe agjusded cqse prjcx sst
by Clngcess, multipmied by the applicable rate. I inqvtstand the Czliforgiw
charge will similarly be calculated by rererence to a 1999 base pricw and
current prices, tl which dyfference some sort of tax rate will be applied.
Yog askxd whttmcr tfus approach to punishing electric wholesalers wwa onnirm
from either c policy or legak oetfpective. The casic 'kljcy problem is thah
the tav wilo discourwge xales of electricity in Calufornia.  Calpforbia will
become the market of uast resott.  Another problem is chat tge Tax mighh be
seen zr promoting a "Cauifprtia Firsu" policy at the ex[ense of ithex
states. Ghis is so because tje Taw could well be incpuded it the FERC rate
base as  "taxes other than micome taxes," amd thvreby be fhiftcd to other
custjmers.

       Thg Tax may suffdr from lefal flaxs as well. Tre principal [toblem is
preekption br Thw Feeeral Puder Act. The ststes are irjhibuted from
regulatinn whoussale power ratzr as a direct butdev og pntxrstaea commerce.
Tha pruporrd chxrge, whtchev cxllec a "windfall profit dax" kr an excise tax
or a sales ot use tax or something else, is undergroujd rave makmng. Thrre
ys little or no practical diffsrence behwecn a rate cap and a tax on alk
revenues measured with reference to a rertain price point fron the
perspective of uhe interstatx eleceric wholasaler. Thus, the burdwn on
interstate cpmmerce posed by diredt rata regklation and taxing revenues
using a price base is comparable.

       The Tax may also constitufe am uncmnfcitutiijnal vaking if the pribe
allowed is less than the cost uf produwtnon
pacbell.net] Sent: Wednesday, April 04, 2001 8:33 Steven Cc: Douglas Kerner Subject: Proposed understand the some of Democratic leadership of California Legislature is contemplating a charge the electric-generating industry in retaliation for recent price increases. The charge is to styled as a "windfall profit tax" modeled on President Carter's tax on oil profits deregulation oil in 1980 (The Crude Oil Windfall Profit Tax Act of 1980, 26 USC 4986 et seq.). Carter Windfall Profit Tax was levied on the between the current wellhead of the oil and the of adjusted base set Congress, by the applicable I understand the California charge will similarly be calculated by reference to a 1999 base price and prices, to some sort tax will applied. You asked approach to punishing electric wholesalers was a policy or legal perspective. The basic policy is that tax will discourage sales of electricity California. California will become the market of last Another problem is that the Tax might be seen as promoting a "California First" policy expense of other states. is so because Tax well included the FERC base as "taxes other than income taxes," and thereby be shifted other customers. The Tax may suffer from legal flaws as principal is preemption by Federal Power Act. The are from regulating wholesale power a burden The charge, called a "windfall profit or an excise tax or sales or use tax rate making. There is little or no practical between a rate cap and a tax all revenues measured with reference to a certain price point from the of the wholesaler. Thus, the burden on interstate commerce posed direct rate regulation and revenues using a price base is comparable. The Tax also an unconstitutiional if the price is less than cost of production
pacbell.net]
Sent:   Wednesday, ApRil 04, 2001 8:33 AM
To:   SteVen KeLly
cc:   DOuGlas k. KerNer
Subject:   PropOSed WIndfall Profit Tax

GentleMen:

       I uNdERstaND tHat thE some of THe dEMocRaTiC leAdERsHip of The
califorNia LegislaTurE iS contemplatiNG a Charge agaiNst The
electric-gEneRating InDusTRy in rEtaLiatiOn for rECent prIce increaSeS. the
chaRGe is to bE STyLed aS a "windfall profit tAX" mODeled on PresideNt
CartEr'S TaX ON oiL coMpany profiTs FolloWIng dereGUlATIOn oF Oil prices in
1980 (ThE Crude Oil WiNDfaLl ProfIt tax aCt of 1980, 26 USc 4986 et seQ.).
THE CaRter WindfalL ProFit Tax was Levied ON the difFErence bEtween The
CurRent WElLhEad PrICe oF ThE oiL And The sum of ThE aDjustEd baSE PRIce sEt
bY ConGress, Multiplied by tHe aPpliCAblE rate. i undeRstaNd The CaLifornIa
chaRgE will similarly bE calCulated by RefErEncE tO a 1999 basE Price aNd
cUrrEnt pricEs, to whiCH diFfERENcE some sort of tax rate WiLL Be Applied.
YOu askeD WhEtHEr this apPrOacH to pUNIshinG eleCTrIc wholesAlers wAS iNfIrm
from EiTher a pOlIcy Or lEgal pERspeCtive. THe basic pOlicy PRoblem is that
thE Tax will discouRAgE SAlES of eLecTricity in CaLifoRNia.  CAlifORnIa wILl
becOme thE mARkET of last resort.  AnotheR pRoblem Is thaT the Tax might bE
seen as proMOTIng a "CaliFornIA FIRst" policy at the ExpenSe of other
sTAtes. This Is so bEcause thE Tax could WELl be inclUdeD in The fERc RAtE
base as  "taxes oTHEr thAn Income tAxeS," and theRebY be ShiFteD tO other
cusTomers.

       ThE TAx MaY sUffEr froM Legal flaWs As wElL. ThE prinCIpal prOblem Is
prEeMpTIon By The FeDErAL poweR ACt. the sTatEs Are prOhibITed From
regUlating whOleSAle pOwEr Rates as A direct burden On Interstate CoMmeRce.
The PROposed chArge, whether called a "windfALl profiT taX" or an ExciSe tax
or a sAleS or use Tax OR sometHing elSe, is uNdErgROUnd raTE MaKinG. THere
is littLE Or nO pracTiCal dIfferenCe between a rate cap aND a tAx on all
revenuEs mEasuRED wIth REfERenCe TO a cERTain price point fRom the
persPeCTiVe of the intERstAtE electrIc wholeSaler. tHus, the bUrden on
inTerstate cOmMercE POseD by direct rAte regulAtion and tAXing rEVeNues
uSinG a pricE bAse Is comParablE.

       the tax maY also cOnStitutE an unCoNstitutiIonal taking if the price
alLowed iS less ThaN the cost oF prODucTion
pacbell.net]
Sent:   Wedne sday, Apri l 04,  20 018: 33 A M
To :   Steven Kel l y
Cc :   Douglas K. KernerSubje ct :    P r op osedWindfal l  P r o fit  T ax 

G en t le men:
      Iunderstand  th at  the some of th e Democrat icleadership o f t he
Cal if orn i a Leg isl ature  is co n templa ting a ch ar g e agai n st thee l ec tric -generating indus t ry in retaliation  for r ec e nt p ric e i ncreases.Th e
cha r ge is t o  b e s tyl e d as a "windf all profitt ax"  model ed  on Presid ent
C ar t er' s tax on oi l co mpany pro fits f o llowing deregul ationofoil  pri c es  i n
1 98 0  (T h eCru d e O il Windf al lProfi t Ta x A c t of  19 80,26 US C 4986 et seq .). 
The Car ter W indfa ll P ro fit T ax was  levi ed  on the differe ncebetween t hecu rre nt  well h ead pr ice  of  the oi l and t h e s um o f  t he adjusted base p ri c e  s et
by Co ngress ,  m ul t iplied b ythe  app l i cable  rat e .I unders tand t h eCa liforni acharge  w ill  si milar l y be  calcu lated by  refe r ence to a 1999 base price an d 
c u r re n t pr ice s, to which  dif f eren ce s o me  so r t oftax r at e  w i ll be applied.
Youas ked wh ether  this approac h to punis h i n g electr ic w h ol e salers was inf irm
f rom either a policy  or l egal per spective. T he basic  po lic y p rob l e mis that
the t a x  wil ldiscour age  salesofele ctr ici ty  in Calif ornia. Ca li fo rn iawillb ecome th emar ke t o f las t  resor t.  A noth er  p r obl em is t h at t he T ax  m ight  be 
s een a s pr o mot ing a " Californi a F i rst"  p ol icy atthe expense o fother
stat es . T his is s o becaus e the Tax could well be include d i n the  FER C rate
ba seas  "t axe s  other  thanincom etax e s ," an d th ere by  be shifte d toother 
c usto mers.
       The Tax may suf fer from lega l f laws a swel l .T hepr i nci p a l problem is
pr eemption b yT he  Federal P o wer  A ct. The  states  arep rohibit ed from
r egulating  w hole s a lepower rate s as a d irect bur d en on in terst ate  comme rc e.The p ropose d  ch arge,  wheth er  calle d a " wi ndfall p rofit tax" or an excise  tax
o r a s ale s or usetax orsomething  els e, is unde rgr oun d rat e m a king.  The r eisl ittle  orn o practic a ldif f e re nce between a rat e cap  an d  a tax  onall
revenues meas u red with refer ence t o a  ce r tain  p rice point fro m t he p erspecti ve  of the int erstateel e ctric  whole saler.  Thus,t h eb urdenon
i nte rstate co mme rc e  posedby  d i rect r atere gulati on and taxi n g  revenues
usinga pri c e  base iscompa ra ble.

    The Tax m ay also con stitut e an  unco nstitut ii onal t aki ng  if the pr i ce
allowe d isless th an  the  co st ofprod u c tion
pacbell.net]
Sent: _ Wednesday,_April 04, 2001 8:33_AM
To: __Steven Kelly
Cc:__ Douglas K._Kerner
Subject:  _Proposed Windfall Profit Tax

Gentlemen:

_  __  I understand that the some of the Democratic leadership of the
California Legislature_is_contemplating a_charge_against_the
electric-generating industry in retaliation for_recent price increases. The
charge is_to be_styled as a "windfall profit tax" modeled on_President
Carter's_tax on oil_company profits following deregulation of oil prices in
1980 (The_Crude Oil Windfall Profit Tax Act_of 1980, 26_USC_4986_et seq.).
The Carter Windfall_Profit Tax was levied on the_difference between the
current wellhead price of_the oil and the sum of the_adjusted base price set
by Congress, multiplied_by the applicable rate. I_understand the_California
charge will similarly be calculated_by reference to_a 1999_base price and
current_prices, to which difference some sort_of tax rate_will be applied.
You asked whether this_approach_to punishing electric_wholesalers_was_infirm
from either_a policy or_legal_perspective. The_basic_policy problem is that
the tax will_discourage_sales of electricity in California.  California_will
become the market of_last_resort.  Another problem_is that the Tax might_be
seen as promoting a "California First"_policy at_the expense_of other
states. This is so because the Tax could well be_included in the FERC rate
base as_ "taxes other than_income taxes,"_and_thereby be shifted_to_other
customers.

 _     The Tax_may suffer_from legal flaws as well. The_principal problem is
preemption by_The_Federal Power Act. The states are_prohibited from
regulating wholesale power rates as_a direct burden on interstate_commerce.
The_proposed_charge, whether called a "windfall_profit tax" or an excise tax
or_a sales or_use tax or something else, is underground_rate_making. There
is little or no practical_difference_between a rate cap and a_tax_on_all
revenues measured with reference to_a certain price point from the
perspective_of the interstate electric wholesaler. Thus, the burden on
interstate_commerce posed by_direct rate regulation and taxing_revenues
using_a_price base is comparable.

      _The Tax_may also constitute_an unconstitutiional taking if the price
allowed is less than the_cost of production