CMTA Legislative Weekly

CMTA Summer Tax and Energy Conferences
Energy Keynote Speakers
FERC Commissioners Nora Brownell and William Massey
August 1-3, 2001 at South Lake Tahoe
For registration and program information, go to CMTA's website: http://www.cmta.net/archive/2001_tahoe_conference.shtml

Legislative Weekly
July 13, 2001
Issue 28, Volume 3
A weekly publication from the
California Manufacturers & Technology Association
detailing legislative and regulatory developments in Sacramento

FRIDAY THE 13TH SURPRISE FOR CALIFORNIA BUSINESSES
The budget impasse will keep lawmakers working over the weekend. In addition, a deadline looms for a vote on the Governor's Memorandum of Understanding (MOU) to keep Southern California Edison (SCE) out of bankruptcy. The Assembly and Senate Democrats are making a final run at their own versions of the plan. A Senate version is still in the works, while the Assembly Energy Costs and Availability will hold an informational hearing Saturday afternoon on ABX2 82 (Keeley D-Boulder Creek). ABX2 82 currently allocates the SCE undercollection almost entirely to noncore customers (above 20kw), pays SCE two times net book value for transmission, and leaves open the possibility of a contribution from SCE above the $400 million tax refund provided in the Governors MOU. The sketchy outline of a Senate plan would impose all undercollections to noncore customers, impose a $300 million haircut to generators and an additional $800 million from SCE.
Direct access rights would be suspended under ABX2 82 until 2003 and a study would be authorized by March 31, 2002, on how to expeditiously phase in direct access for customers over 20kw (and green direct access under 20kw).
Some of California's largest businesses have already been hit with rate increases over 100%. CMTA supports an equitable sharing of the costs of the SCE undercollection (as well as DWR contract costs) among all customer groups, and will oppose a solution to the SCE problem that unfairly shifts these costs to California businesses.

MORE OR LESS ENERGY
There seems to be no shortage of bad business bills making their way through the Legislature. Issues range from imposing strict liability on generators that reduce or discontinue electricity generation, to subjecting generators to felony criminal penalties for making basic cost/benefit business decisions.
Generator Liability
A measure, ABX2 51 (Reyes D-Fresno), that makes an electricity generator strictly liable for any damages that are proximately caused when the generator reduces or stops generating electricity for economic reasons, passed (7-0) from the Assembly Judiciary Committee on July 3, 2001.
Since negligence and intent need not be proven in order to establish strict liability, under ABX2 51, a generator could be held strictly liable for damages that resulted if electricity supplies were curtailed when the generator was temporarily shut down to perform routine maintenance, unscheduled maintenance or due to other external business factors. ABX2 51 also would make it difficult for a generator to permanently close a facility, even if the facility was not operating profitably.
Despite the fact that electricity shortages are driven by any number of factors within and beyond their control, ABX2 51 would result in generators shouldering all liability and responsibility for electricity shortages.
CMTA will be actively advocating against this measure before it is heard on the Assembly Floor.
Felony Fuel Shortages
ABX2 65 (Cardoza D-Merced) is a vaguely worded measure that does not explicitly identify what types of activities would be considered felonious. The measure allows an individual or entity to be prosecuted for "creating a fuel shortage" defined as: (1) The diminution by contrivance or artificial means of any of the supply of fuel to a point below that needed to meet consumer demand;
(2) Restricting output or withholding capacity from bidding into the market; and,
(3) Economic withholding by submitting bids at prices above the producers' marginal cost.Fluctuations of in-state and out-of-state generation; maintenance of facilities; weather; customer demand; and drought are just a few of the many components that converge to impact day-to-day energy supplies. ABX2 65 does not allow for the natural swings in supply and demand which are common in a market economy, and add one more unpredictable component to the market, thus further complicating price and supply fluctuations.
In addition, the bill provides that producers only should receive marginal costs for their products. This precept flies in the face of a free market economy. Businesses should be able to receive a reasonable return on the products they produce and supply. Limiting a business' profits to marginal costs only further discourages investment in the State's energy infrastructure.
Second, entities already may be prosecuted for illegal business practices, conspiracy, collusion and intentional market manipulation under the State's Cartwright Act and the Federal Sherman Anti-Trust Act, among others. Enforcement of existing state and federal laws is sufficient to address the alleged illegal business practices the bill purports to remedy.
Third, the measure establishes that a person or entity who violates provisions of the bill is "guilty of a felony and may be punished in state prison and a fine not to exceed 10 percent of the corporation's gross corporate assets." These fines and penalties are excessively punitive.
Fourth, the bounty-hunter provisions of the bill provide an incentive for employees and interest groups to investigate businesses for profit. Other bounty-hunter legislation passed by the Legislature has resulted in many frivolous lawsuits. Some of the costs associated with these suits are absorbed by businesses and some of the costs are passed on to consumers in the form of higher prices. In any event, the bounty-hunter provisions have the potential to unnecessarily increase energy costs. The regulatory branch of our government already has the authority to investigate alleged unfair business practices. This authority should not be passed on to employees and interest groups.
ABX2 65 establishes a terrible precedent and has the very real potential to reduce existing energy supplies and to discourage future energy infrastructure investment within the State.
Office of Ratepayer Advocate
Following the charge of Pacific Bell, CMTA and other business lobby groups have successfully slowed the progress of SB 201 (Speier D-Hillsborough) which repeals the sunset of the Office of Ratepayer Advocate (ORA). CMTA does not oppose the continued existence of the ORA, but is advocating against language inserted into the measure that significantly expands the ORA's authority.
The ORA has exercised broad authority to supervise and regulate utilities, arguably beyond the authority it was granted when it became a stand-alone office. While there is ample legislative history in Public Utilities Code Section 309.5 indicating that the ORA should be independent of the Commission, the PUC's full authority was not automatically extended to the ORA.
CMTA joined Pacific Bell in proposing amendments to limit the ORA's authority and to require the PUC to issue written orders when ruling on the ORA's discovery requests. Written rulings by an Administrative Law Judge or Commissioner would provide additional information to the ORA, utilities and the public explaining the basis for decisions.
In addition, CMTA supports requiring the ORA to pursue alternative dispute resolution prior to filing a complaint. Many courts today utilize alternative dispute resolution because it often leads to a more efficient disposition of cases.
CMTA also is supportive of extending, for five more years, the sunset in the bill that the author seeks to repeal. Extending the sunset will allow the Legislature to assess whether or not the original intent of the legislation has achieved its purpose.
SB 201 failed passage in Utilities and Commerce on July 9, 2001 when the author resisted amendments to narrow and clarify provisions in the bill. Reconsideration was granted and the measure received a necessary rule waiver to allow the bill to be heard, again, by the Utilities and Commerce Committee on July 16, 2001.

ASSEMBLY INSURANCE COMMITTEE PASSES UI BENEFITS BILL
SB 40 by Senator Richard Alarcon (D-Sylmar) passed out of the Assembly Insurance Committee on July 11 on a 10-5 partisan vote. The bill would increase the cost of unemployment insurance (UI) to employers by more than $3.2 billion over four years and provides no systemic changes to help offset the cost. CMTA and other employer representatives opposed the bill.
An increase in unemployment benefits is a direct payroll tax that would be funded entirely by employers. According to the Employment Development Department's (EDD) projections, SB 40 as proposed would raise employer contributions over and above the existing rates by $160 million by 2004, given there are no changes in the unemployment rate. Further, it is estimated that by 2005, the total employer UI tax increase would jump to $782 million, a 32 percent tax increase. SB 40 would increase the maximum weekly benefit from the current level of $230 to $325 in 2002, to $373 in 2003, to $384 in 2004 based on state average weekly wage estimates.
The bill contains several other provisions that add costs to employers such as an alternate base period using the most recent 52 weeks of the benefit year that will allow six to eight percent more applicants to qualify for UI benefits. This would be a new system in addition to the current quarterly reporting system and would impose a new burden on employers who would have to manually report alternate base period wage information to EDD within ten days or pay a $250 civil penalty. It would also entitle employees who leave their job during a trade dispute caused by a reduction in wages and employees locked-out of work by the employer during a collective bargaining dispute to receive UI benefits anyway.
The federal Worker Adjustment and Renotification and Training Act (WARN) requires an employer of 100 or more employees to give at least a 60-day notice in plant closings or mass layoffs affecting 50 or more employees. If the employer fails to provide a WARN notice, they are liable for civil damages in the amount of 60 days of back pay and benefits to each affected worker. Some employers elect to not give the advance notice and pay the 60 days and benefits in order to avoid possible problems with product quality, equipment sabotage, poor attendance, injuries and etc. However, the upside to this decision is that employees get 60 days in which to look for work full time with full pay and benefits. SB 40 would allow these employees to collect UI benefits during the same 60 days.
California's UI maximum weekly benefit of $230 is the fifth lowest in the nation and has not been increased since 1992. However, California has the most liberal eligibility requirement of any state by almost any measure and in order to maintain any reasonable control on UI cost, the historical trade-off has been workers receiving lower benefits. The above provisions are good examples of how the system can be abused and must be resisted by employers.
CMTA along with other employer representatives are in serious discussion with the proponents of SB 40 to determine how to increase the benefit level and make some modest systemic changes that will help avoid placing an undue hardship on employers. Further discussions are being scheduled.

STORMWATER BILL PUT OVER
Late last week, Senator Kuehl's office circulated a negotiated compromise on the stormwater monitoring bill, SB 72 (Kuehl D-Santa Monica). Based on that version, the business community and the municipalities were prepared to remove their opposition earlier this week in the Assembly Environmental Safety and Toxic Materials Committee. However, the evening before the hearing, the bill's sponsor, Heal the Bay, circulated a new set of amendments to Committee members. Their version deletes several sections of the bill, including carefully crafted language intended to preserve and strengthen group monitoring programs. It also creates the potential for expanded monitoring requirements for industrial facilities.
Heal the Bay's action created an atmosphere of confusion and frustration that lead Senator Kuehl and Committee Chair Hannah-Beth Jackson to hold the bill in committee. In all probability, a rule waiver will be secured for an August hearing in Assembly Toxics. In the meantime, discussions will resume on Heal the Bay's proposed changes. CMTA remains hopeful that the outstanding issues mentioned above can be resolved without sacrificing the progress achieved over several weeks of negotiation.

CMTA ADVOCATES FOR CAREER AND TECHNICAL EDUCATION FUNDING
CMTA has formally urged that $100 million dollars be allocated in the State Budget for Career and Technical Education (CTE, also known as vocational education). At the outset of this session, legislative leaders stated that CTE was one of the highest education priorities for the year. Unfortunately, the Governor eliminated funding for CTE in the May Revise and the Budget Subcommittees subsequently funded only $10 million for an unallocated fund.
In the past decade, more than half of the career technical education programs faced closure in the Los Angeles Unified School District because of lack of funding and support; statewide, the trend has been the same. Without new funding this year, more programs will close. The acquisition of marketable skills in high school offers students, both those who are college bound and those who will immediately enter the workforce, the opportunity to earn high salaries and engage in meaningful careers. CMTA continues to support legislation designed to rebuild California's CTE/vocational education system.

UPDATE ON THE CALIFORNIA ECONOMY
A recent report from the California Department of Finance confirms that the state's economy does not seem destined to repeat its extraordinary 2000 performance this year. Employment growth slowed significantly during the first five months of 2001. The slowdown is principally centered in the San Francisco Bay Area due to the dramatic contraction in internet-related service industries. Below are data supporting the report's conclusions:
California's employment picture has changed notably since the end of 2000. In May, industry employment grew by 3,200 following gains of 19,400 in April and nearly 58,000 in March. Thus far in 2001, industry employment has expanded by an average of 12,500 jobs each month compared to an average of 49,000 jobs each month in 2000.
Despite decelerating job growth, California is still the nation's growth leader. While the state added over 3,000 jobs in May, nationally nonfarm employment fell by 19,000. Since the beginning of the year, California has accounted for 73 percent of the nation's new nonfarm jobs.
California's unemployment rate was unchanged in May at 4.9 percent. The rate a year ago was 5.0 percent. While still low by state and national standards, the unemployment rate of all San Francisco Bay Area counties rose in May.
Computer services-heavily concentrated in the San Francisco Bay Area-are bearing the brunt of the employment slowdown. Business service employment-which includes computer programming and personnel supply services-grew by nearly 13,000 jobs per month in 2000 but has averaged only 800 a month thus far in 2001. Within business services, the growth rate of computer services employment has been cut in half. Year-over-year industry employment growth in the San Jose Metropolitan Area-the Silicon Valley-has dropped from 5.9 percent in December 2000 to 1.3 percent in May 2001. Growth in the San Francisco Metropolitan Area over the same period dropped from 4.7 percent to 2.6 percent.
California's real estate market is also cooling. Home sales have moderated and prices in the state's costliest region, Santa Clara County, have softened. Statewide sales of single-family homes in May were off nearly 13 percent from one year ago. However, the median price of a single-family home in May was still up 10.7 percent from a year-ago.
Preliminary General Fund agency cash for June was $432 million below the 2001-02 May Revision forecast of $7.926 billion. Year-to-date, revenues are $389 million lower than the $78.781 billion that was expected.
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