CMTA Legislative Weekly

Legislative Weekly
November 7, 2001
Issue 44, Volume 3

A weekly publication from the
California Manufacturers & Technology Association
detailing legislative and regulatory developments in Sacramento

CMTA ADVOCATES FOR EQUIPMENT SALES TAX EXEMPTION

CMTA President Jack Stewart and member company Baxter Healthcare
Corporation will testify on November 8 before the Assembly Committee on
Jobs, Economic Development and the Economy and explain why an equipment
sales tax exemption is needed by manufacturers and how its enactment
would stimulate job growth in California. Chairwoman Sarah Reyes
(D-Fresno) conducted a similar hearing last month in Silicon Valley at
which this proposal was offered by high tech representatives. As a
result, she invited CMTA to speak on this proposal further and to more
fully describe how the sales tax exemption would help get California's
economy back to health.

CMTA believes that manufacturing and technology strength is essential to
a strong California economy. Historically, our state has been a world
leader in these industries which include electronics, biotechnology,
aerospace, and the production of goods of every description. A strong
manufacturing base brings high paying jobs and produces an enormous
positive ripple effect in the state's economy. In order to stay in
business, manufacturing companies must make enormous investments in
capital equipment on a continuing basis. California taxes the purchases
of manufacturing equipment while 46 states do not. Many of the 46 also
provide tax credits to entice manufacturing expansion to their states.
While existing MIC (California's Manufacturers Investment Tax Credit)
law provides some companies a partial offset against sales tax
liability, California's tax burden in this regard is one of the worst
four in the country and much heavier than that of any other industrial
state. Such an exemption would greatly enhance California's
attractiveness as a choice for building a new facility or expanding an
existing site. It would bring a direct and immediate incentive for
expansion to all companies in all parts of the state in the
manufacturing sector.

CMTA will also give testimony on its proposed moratorium on regulatory
fees and its measure to reduce electricity rates and provide customer
choice in energy.

ENERGY POLICIES REVISITED

As the energy crisis wanes, many of the actions taken in the last year
are being revisited. Here's a sampling of what was done, why
policy-makers are taking a second-look, and what may result:

* In January ABX1 1 (Keeley D-Boulder Creek) directed DWR to purchase
electricity, and DWR signed long term contracts at the height of
the crisis. High fixed prices and reliance on natural gas-fired
generation have caused consumers, environmentalists and the CPUC to
demand renegotiation. Contract modification could lower prices and
make more room for direct access contracts between customers and
suppliers.
* ABX1 1 also prescribed a financing mechanism that upon second-look
the legislature wants modified by SBX2 18 (Burton D-San Francisco),
which uncouples payment for DWR contracts from payment of bonds.
Citing a preference for SBX2 18 and renegotiation of DWR contracts,
the CPUC refused to approve a rate agreement so that bonds can be
issued. The Governor promises to veto SBX2 18, but has started
reviewing DWR contracts.
* The Power Authority was created to ensure a 15% reserve margin in
electricity supplies. This spring it issued an RFP for supply, but
was informed recently by DWR that no additional long term supply is
required. Assemblyman Keeley will hold a hearing this month to
review the mission and activities of the Power Authority.
* Last year the legislature passed a bill requiring all generators
sited under expedited 4 month licensing to switch from simple cycle
to cleaner combined-cycle within 3 years. On November 5th, under
the Governor's emergency powers, the CEC removed this requirement,
allowing the Power Authority to fulfill it's 15% margin with
dirtier plants for an indefinite term. Environmentalists claim that
this means dirtier plants for 30 years.
* As the energy crisis became headline news, the ISO 27 member
stakeholder board came under attack as an ineffective,
generator-driven body. Replaced this year with a 5 member board
appointed by the Governor, the new ISO and DWR are now under attack
for sharing information and manipulating the wholesale market in
violation of federal law.
* In June the CPUC ordered the largest rate increase in history.
Since wholesale prices declined this summer, PG&E and SCE are
collecting more revenues than needed to cover current utility and
DWR costs. If this trend continues, rates may be adjusted
downward, or revenues may be allocated to historical costs, such as
utility and DWR back debt.
* In September both PG&E and SCE submitted plans for payment of back
debt. PG&E is waiting for bankruptcy court approval of the asset
transfer to its holding company, and SCE is fighting for it's rate
freeze deal on appeal from federal district court. Legislators may
review the plans upon their return in January.

A LOOK BACK AT THE INTERRUPTIBLE PROGRAM

It was almost a year ago that blackouts plagued California, and
businesses that operated under interruptible contracts felt the squeeze
of repeated curtailments. Dire predictions that the Summer of 2001
would be fraught with blackouts never came to pass, and a year later,
the State continues to evaluate its energy infrastructure, supply and
demand.

Still at issue is whether or not those businesses that did not opt-out
of interruptible programs will be required to repay the fines and
penalties that accrued between October 2000 and January 25, 2001.

Numerous requests to curtail, the threat of hundreds of thousands of
dollars in fines and penalties, and suspension of the opt-out window in
November 2000, led to demands by the business community for the
California Public Utilities Commission (CPUC) to act to remedy the
situation. As a result, in January the CPUC suspended fines and
penalties for failure to curtail under interruptible contracts and the
programs temporarily were placed on hold.

In April, the CPUC issued Rulemaking 00-10-002 which, among other
things, allowed businesses to opt-out or readjust their firm service
level effective November 1, 2000 if they repaid the discounts received
from November 1, 2000 through April 25, 2001. These customers were not
required to pay fines or penalties that accrued between those dates,
however, they were prohibited from participating in any load reduction
program that pays per kW for the remainder of 2001.

Customers also were allowed to opt-out or to adjust their firm service
level effective the beginning of the first billing period after approval
of this rulemaking and upon notification by the utility. These
customers were allowed to retain the rate discount for interruptible
service through the date of any change in schedule or firm service
level, but were required to pay any fines or penalties assessed for
failure to interrupt during the period that fines and penalties were not
suspended.

The CPUC has wrestled with how to address the substantial fines and
penalties assessed on businesses, and yet still preserve the program
such that businesses would comply when called upon in the future.

No CPUC solution would have made whole all businesses that participated
in the program, and as expected, the CPUC decision affected each
business differently. It is rumored that the CPUC will revisit the
fines and penalties provisions to see how businesses that substantially
curtailed, but were required to repay the full discount were impacted,
however, a specific hearing date has not yet been set. Stay tuned for
further developments.

SLOWING ECONOMY HAMMERS BAY AREA WORKERS
Technology Sector Drives Job Losses

According to a just released report by the Federal Reserve Bank of San
Francisco, the economic downturn has resulted in 30,000 lost Bay Area
jobs in just the last five months. The breadth of the slowdown in the
information technology (IT) sector has seriously begun to drag down
employment in other sectors. The Bay Area relies on high-tech for 32
percent of its wages and 11 percent of its jobs.

Business investment in IT products and software has slowed substantially
this year, dampened by uncertainty in the national economy, dot-com and
telecommunications crash, and over investment by business in IT
products. The abrupt slowdown in business investment in IT has had a
noticeable impact on orders, shipments, and production among technology
firms, resulting in declines in output and employment in these sectors,
according to the report.

Softening markets for new office and industrial space have also dampened
growth in construction employment this year. Employment among providers
of shipping, trucking, and warehousing services also fell in recent
months, as firms scaled back in response to slowing demand.

BILL PROHIBITING "ENGLISH-ONLY" RULE MAY HINDER WORKPLACE SAFETY

The California Manufacturers & Technology Association (CMTA) opposed AB
800, a bill authored by Assemblyman Herb Wesson (D-Culver City) and
signed by Governor Davis. The bill makes it an unlawful employment
practice for an employer to limit or prohibit the use of non-English
language in the workplace unless justified by an overriding business
necessity.

The Fair Employment and Housing Act already prohibits an "English-only"
rule with one exception. An employer can require that employees speak
only in English at certain times if the employer can show that the rule
is justified by business necessity, and has effectively notified its
employees of the circumstances and the time when speaking only in
English is required, and the employees have been made aware of the
consequences of violating the rule.

AB 800 not only provides the same protections; it goes into greater
detail that is difficult for an employer to follow and it creates a trap
for the unwary employer. An employer may be sued if any step outlined
in the bill is not followed exactly and could face both compensatory and
punitive damages, plus a $5000 per worker statutory damage award. No
empirical evidence was presented indicating that current law was
ineffective or that multiple monetary penalties were needed to deter
employers from violating this provision of the law.

The bill may prove harmful to employees if it turns out that injuries or
fatalities in the workplace begin occurring because safety and health
rules are not being clearly communicated and understood by all employees
and reinforced in a common language. CMTA is also concerned that the
bill may encourage more discrimination and harassment complaints by
employees who believe they are the subjects of non-English conversations
that could severely undermine employee moral.

AB 800 becomes law on January 1, 2002. Employers who have
"English-only" rules should review their rules to make sure that they
are not in conflict with the bill.

www.cmta.net
California Manufacturers & Technology Association
980 9th Street, Suite 2200
Sacramento, CA 95814
(916) 441-5420 phone
(916) 447-9401 fax

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