CMTA Legislative Weekly

Legislative Weekly
November 15, 2001
Issue 45, Volume 3

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

PLENTY OF ENERGY, BUT LITTLE TRUST

As state and federal officials try to rebuild the defunct California
energy market, the lack of supply has been replaced by a lack of trust
as an ingredient in the ongoing crisis. For example:

In-state generators don't trust the ISO. They've alleged that the ISO
(whose board is now all Governor Davis appointees) is buying power from
DWR or the Pacific Northwest rather than the cheapest bid from
generators in violation of federal law. Cal-ISO noted that DWR?s
so-called "out of market" purchases were more expensive than the bids to
the ISO January through August. Now the price is roughly the same.

Consumer groups don't trust the DWR. They suggest that the DWR is
manipulating the Cal-ISO market for last-minute electricity to help hide
surplus electricity that DWR agreed to buy under $43 billion worth of
long-term power contracts signed last spring. DWR denies this.

Western states don't trust California. As FERC attempts to drum up
support for a west-wide regional transmission system (RTO), they heard
from other states loud and clear ? ?Please don't screw it up ? We're all
saying we don't want to be with California ? Don't lump us all
together.? This has led FERC Commissioners to conclude that three
sub-regional organizations (one being Cal-ISO) could form under an
umbrella organization, rather than a single entity.

Consumer groups don't trust the CPUC. The stealth deal struck by the
CPUC to bail-out Southern California Edison caused The Utility Reform
Network to ask the federal court to undo the deal. (CMTA was denied
intervention.)

Legislators don't trust FERC. The bankruptcy reorganization plan for
PG&E sends generation assets to the holding company, and FERC has
jurisdiction over the power sale contract back to the regulated utility.
Many legislators blame FERC for the market melt-down last year and
object to any more FERC control over California markets.

Consumers don't trust the California Power Authority and DWR. The
California Power Authority was created to ensure a 15% reserve margin in
electricity supplies as insurance against blackouts and price spikes.
DWR entered into $43 billion in long term contracts, and is one of the
largest single buyers of electricity in the entire West. The
combination of current long-term DWR contracts and the possibility of
more investment in supply by the CPA has consumer groups worrying that
lower prices are only a distant and faint hope.

CPUC'S ENERGY EFFICIENCY FUNDING

The California Public Utilities Commission (CPUC) issued a draft
decision this week on future energy efficiency policies in an effort to
open energy efficiency funding to non-utility entities and to create
competition with investor-owned utility programs.

Specifically, the decision opens public goods charge energy efficiency
funding to non-utility entities such as local governments, chambers of
commerce and others interested in participating in the program. The
CPUC believes that this competition will spur overall program delivery
improvement and encourage program continuity by creating multi-year
funding opportunities.

The policy manual to be adopted defines CPUC policy rules in great
detail and is intended to assist interested parties in preparing
proposals in a standard format, to minimize ?apples and oranges?
comparisons.

$160 million will be provided to fund statewide programs; $70 million in
grants will be made available to fund innovative local and regional
programs; and, $6 million will be allocated to the CPUC to assess the
State's energy efficiency needs.

Following, in order of importance, are the goals and objectives of the
CPUC?s energy efficiency programs. The point value under each objective
represents their maximum possible score for each objective. A perfect
score would be 100 points.

1). Long-Term Annual Gas and Electric Savings
25 Points
The purpose of this category is to create permanent and
verifiable energy savings over the life-cycle of energy
efficiency measures affected by the program. In this area,
the CPUC is striving for sustainability in the consumption
behaviors and investment choices its programs are designed to
stimulate.

2). Addressing Market Failures or Barriers
20 Points
The proposal must include a description of the type of barrier
it is designed to overcome. (For example, lack of consumer
information about energy efficiency benefits; higher start-up
expense for high-efficiency measures relative to
standard-efficiency measures; lack of availability of
high-efficiency products.)

3). Equity Considerations
17 Points
The CPUC will generally prioritize programs that provide
access to energy efficiency alternatives for under-served or
hard-to-reach markets.

4). Cost Effectiveness
15 Points
All proposals will be required to provide an estimate of the
life-cycle benefits and costs.

5). Electric Peak Demand Savings
10 Points
Programs paid for by electric public goods charge funds should
emphasize long-term and permanent peak demand savings.

6). Innovation
8 Points
The CPUC will prioritize programs that present new ideas, new
delivery mechanisms, new providers of energy efficiency
services, or new and emerging technologies.

7). Synergies and Coordination with Programs Run by Other
Entities
5 Points
To minimize confusion and overlap for consumers, the CPUC
desires program proposals that take advantage of synergies or
coordination with other existing programs, including those run
by other state agencies, private entities, municipal
utilities, or the federal government.

The program allows non-utility parties to submit proposals directly to
the Commission for consideration, rather than to the utilities, as has
been required in the past. Existing 2001 programs will be continued in
the First Quarter of 2002, for a smooth transition, and most new
programs will run through 2003.

For more information see the CPUC?s website, http://www.cpuc.ca.gov/,
email them at ee@cpuc.ca.gov or call the energy efficiency hotline at
(415) 703-2776. The CPUC plans to hold a public workshop to assist
parties in preparing proposals, once the decision is finalized.

EMPLOYERS MAY FACE RETROACTIVE UNEMPLOYMENT INSURANCE PAYMENTS

Following newspaper articles criticizing Governor Davis and the
Employment Development Department (EDD) for making misleading remarks
regarding SB 40's (Alarcon D-Sylmar) increase in unemployment benefits
payments for laid off workers, one legislator has already initiated the
process to remedy the situation at employers' expense. Assemblyman Lou
Papan, (D-Millbrae) introduced a preprint of AB 1 that would
retroactively increase UI benefits payments from $230 to $330 for
workers laid off on or after July 1, 2001.

This year, the Governor signed SB 40, a bill that raises the maximum
weekly payment from $230 to $300 for claims filed on and after January
1, 2002. The squabble is about remarks made by the Governor during the
bill's signing in Los Angeles where many airline workers had been laid
off. The Governor said "I want to make sure we have unemployment
benefits that allow these workers to survive until the economy
recovers," and "this will significantly strengthen the safety net not
only for airline employees, but high-tech workers and all those who have
been temporarily laid off as a result of a softening economy."
Apparently, many workers believed that they would be receiving the
increase benefit payment now and were surprised when EDD later informed
them that the benefit increase would only apply to claims filed after
December 31, 2001.

CMTA has already expressed serious concern about the high cost of SB 40
to employers ($4.5 billion) and it's potential to bankrupt the UI fund.
However, if the Legislature passes a bill making benefits retroactive to
July 1, 2001 and the unemployment rate continues to grow at the current
pace, the fund will become insolvent even sooner than our earlier
prediction. While no one knows what the cost of six months of
retroactive UI benefits payment would be to employers at this time, we
know that it would be rather substantial.

The state jobless rates rose from 5.4 percent in September to 5.7
percent in October and there are no signs indicating that the downturn
in the economy is slowing. As many businesses struggle to survive in
these economically hard times, it seems inappropriate for government to
be contemplating adding more cost on businesses.

CARB RELEASES DRAFT ENVIRONMENTAL JUSTICE GUIDELINES

Earlier this week, the California Air Resources Board (ARB) issued for
public review the latest iteration of its environmental justice guidance
document, entitled ?Proposed Policies and Actions for Environmental
Justice?. This effort has been a source of concern for CMTA and others
in the business community given CARB's decision to depart from the
statutory framework established by SB 115 (Solis, 1999) and SB 89
(Escutia, 2000). In addition, while the current version is much
improved over earlier versions, there are two remaining significant
issues.

First, California's air quality programs are based on attaining criteria
pollutant standards (e.g., ozone, particulate matter, nitrogen oxides)
and reducing risks posed by toxic air contaminants. ARB?s proposed
policy would change that fundamental framework by focusing on
?cumulative emissions.? This shift in focus disregards the relevance of
exposure and risk in determining the existence and extent of a problem
and could lead to random, rather than science-based, regulatory actions.

Second, consistent with State environmental justice statutes, California
should address environmental justice on a programmatic basis as opposed
to a permit-by-permit basis. However, references in the document to
?permitting? and ?mitigation? appear to be at odds with that approach.

These concerns have been brought to ARB?s attention by several business
organizations, along with specific suggestions for alternative language
to make the document consistent with California's existing air quality
framework. The Board will consider adoption of the document during its
December 13 hearing.

WASTE BOARD ADOPTS STRATEGIC PLAN

On Tuesday, November 13th, the California Integrated Waste Management
Board (CIWMB) adopted its 2001 Strategic Plan on a 6-0 vote,
incorporating changes drafted by staff that address some of the concerns
raised by manufacturers and other business representatives. Among the
noteworthy changes, new language was added to define the concept of
?zero waste? as ?striving towards maximum waste reduction through the
most efficient use of natural resources ? and maximizing recycling?.
Other language changes addressing the concepts of ?product stewardship?,
?sustainability? and ?manufacturer responsibility? help to address CMTA
concerns about the potential use of this document as a rationale for new
government mandates, such as minimum content, recycling rates and taxes
on specific products.

The full text of the adopted Plan is available at
http://www.ciwmb.ca.gov/agendas/mtgdocs/2001/11/00006552.doc

HEARING ON POST ATTACK STATE OF THE ECONOMY

The Assembly Revenue and Taxation Committee's November 14 informational
hearing on ?The Response to Recent Terrorist Attacks? elicited testimony
from the Legislative Analyst, the California Budget Project and various
travel related industries regarding the post attack state of the economy
and appropriate legislative responses. Testimony was also requested as
to what tax relief might be appropriate for victims? families.

According to the Legislative Analyst's Office (LAO), California is in a
mild recession which will give way to moderate recovery in the Spring.
On the other hand, LAO conceded ?huge? uncertainty as to when consumer
confidence would return or the stock market decline would ?play out.?
Witnesses from the California Budget Project stated that tax relief was
not the best way to boost the state's economy; the basis for their
opinion was that taxes account for a small percentage of the cost of
doing business and that the state budget accounts for a small share of
the state's economy. They also claimed that California is not at a
competitive disadvantage. Testimony was given by business interests
regarding the types of relief that would be appropriate now and marginal
cost reduction for a business can make the difference between bankruptcy
and survival.

CMTA presented testimony during the public comment period about the
virtue of a sales tax exemption upon manufacturing equipment: how
California disadvantages itself by imposing such a tax and how capital
investments by manufacturers are essential to their continued role as
job providers in California.

GOVERNOR CALLS SPECIAL SESSION IN JANUARY ON BUDGET CUTS

Following meetings with Legislative leadership this week, Governor Davis
ordered state government to cut more than $2 billion in spending
contained in the current 2001-02 state budget. The Governor plans to
call a Special Session to run concurrently with the Legislature's
regular session in January to act on the proposed reductions.

With California reeling from its worst economic slump in a decade,
scores of programs will be slashed, diverted and delayed. Education is
set to take the biggest hit with more than $800 million in programs that
have been the centerpiece of the Davis administration. The expansion of
the Healthy Families program will be delayed until July 2003. Other
cuts include $60 million for grants to encourage housing close to the
workplace, $45 million for affordable multifamily housing, $42 million
for local parks projects, $84 million in utility bill subsidies for
low-income consumers, and $120 million for energy bill assistance for
needy households. A state government hiring freeze was already ordered
by Davis last week.

For more details, see the Press Release in the Press Room of the
Governor's Home Page:
http://www.governor.ca.gov/state/govsite/gov_homepage.jsp

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