A proposed bill that would make it a felony for natural gas or electric power producers to curtail production or to sell energy “at prices above marginal cost” is now before California legislators.
On Wednesday, that legislation, authored by Assemblyman Dennis Cardoza (D-Merced) was sent to the California Assembly on a primarily Democratic Party line vote of 11-5 by the Assembly Appropriations Committee, with only two Democrats voting against it.
The proposed legislation calls for a prison term of 16 months to 3 years and a fine of up to 10% of gross corporate assets for “any act that creates a shortage of fuel with the intent to raise fuel prices or materially adversely affect competition” in California’s energy market.
Cardoza’s original proposal also included producers of oil and coal, but those two energy categories were dropped from the amended version. As it now stands, the proposed legislation is intended to punish natural gas producers, cogeneration operators, pipeline companies, and electricity generators for California’s energy shortage, said John Martini, director of public affairs for the California Independent Petroleum Association (CIPA).
It marks the first attempt within the US to impose criminal penalties on “individual business practices” such as deciding when to sell production or when to shut in wells or facilities for routine maintenance and repair, said Martini.
The “logical conclusion” of a specific provision banning “economic withholding by submitting bids at prices above the producer’s marginal cost” would seem to make it a felony to sell natural gas or electric power for a profit, he said.
But even worse, Martini said, is the so-called “bounty hunter” provision 10% of any resulting criminal fine to anyone providing information resulting in a conviction.
The possibility of such a windfall “encourages individuals and groups to keep lobbing accusations in hopes that something will stick to the wall,” he said.
The result would keep producers busy in costly court battles instead of producing the energy that California needs so badly, said Martini.
Proponents claim the proposed legislation is similar to a Connecticut statute against the illegal creation of a fuel shortage. “But our research indicates that the Connecticut law is very different in many aspects,” Martini said.
“The odd thing is that there is no organized (lobbyist) group in support of this bill. All of the support is from state legislators who feel they need to punish someone for California’s energy problems,” he said. “Their time would be better spent in developing a positive energy program for a more competitive market.”
Neither Cordoza nor his media relations representative could be reached Thursday for comment.
However, the Assembly’s own analysis of the bill quoted Cordoza as saying, “Our state is being gouged by out-of-state energy companies. Prices have soared by 700% over the last 2 years. Several reports have documented this allegation, including the Public Utilities Commission (PUC), Independent System Operator (ISO), and the Federal Energy Regulatory Commission (FERC). Our state treasury also is at risk. This bill would put into place criminal penalties to halt energy price gouging in California.”
The analysis also states, “According to information provided by the author, the PUC chairperson has alleged that patterns of power plant closures have created artificial shortages and that PUC-employed investigators have uncovered individual acts of wrongdoing. Specific findings of the investigation have not been disclosed to the public.”
CIPA joined with the Western States Petroleum Association (WSPA), the California Manufacturers and Technology Association, the California Chamber of Commerce, and the Independent Energy Producers in opposing the legislation.
In an earlier public hearing, WSPA officials claimed, “This proposed criminal statute is so vague that it does not define adequately the prohibited conduct. For example, ‘creating a fuel shortage’ includes simply ‘restricting output.’ There is no guidance on ‘output’ of what.”
They asked, “Would refineries be required to run full out all the time without regard to health and safety consequences? Would cogenerators be required to deliver maximum power even if it violated operating permit requirements? Would a planned shutdown ‘create a fuel shortage?’ How much of a shortfall in supply in an otherwise balanced market will lead to increased prices?”
The Assembly’s analysis of the bill notes that the fiscal effects of the proposed legislation are “unknown.”
However, WSPA officials said, “The threat of such sanctions provides a significant incentive for suppliers to avoid the California market completely.”