Dow Jones Newswires

LOS ANGELES (Dow Jones)–A Senate bill that would place a windfall-profits tax on electricity sales in California passed the Assembly Revenue and Taxation Committee late Thursday on a 5-2 vote along party lines.

The bill, by Sen. Nell Soto, D-Ontario, would require state regulators to establish a cost-based price for electricity for each plant in the state. Sellers would be taxed 100% on any sales from a plant that exceeded its cost-based price, and the money would be used for taxpayer rebates. The tax applies to the last sale before the electricity hits the power grid, and so includes marketers as well as generators.

“Democrats see the bill as one of the few ways to protect us in the future, so that the price-gouging that’s gone on this year won’t happen again next year,” said Soto spokesman Paul Van Dyke.

The bill defines a cost-based price as the cost of producing electricity adjusted for a “reasonable allowance for profit margins and maintenance and operating expenses”, as determined by the California Public Utilities Commission. A “reasonable allowance” would equal up to a 20% return on invested capital, the bill says.

The tax would be applied retroactively to Jan. 1, 2001. Co-generation facilities and generators of renewable energy sources are exempt from the tax, as are California-based municipal utilities whose board determines their sale prices to be just and reasonable.

The bill now moves to the Assembly Appropriations Committee, which has 14 Democrats and 7 Republicans. From there it would move to the full Assembly, where it would need a simple majority, and then to the Senate floor for concurrence.

In May, a different version of the bill passed the Senate floor 23-12, with only Democrats voting yes and only Republicans no. A spokesman said last week that Gov. Gray Davis has “left the door open to (signing) a windfall profits tax bill”. Consumer groups praised the measure, but said it will take a strong push to get it passed before the legislature adjourns Sept. 14.

“Californians have won the first round against the power companies, but we will need strong support from legislative leaders to pass this bill and protect the public from the avarice of power companies,” said Doug Heller, spokesman for the Foundation for Taxpayer and Consumer Rights.

Generators said privately that the bill would discourage them from building new generation in the state and from retrofitting their plants to run efficiently.