Legislative Weekly

All press calls on Leg Weekly information should be directed toward Gino DiCaro at 916-498-3347

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February 15, 2001

ENERGY SYNOPSIS

These three bills were heard Tuesday, February 13, in the Senate Energy, Utilities and Communications Committee:

SBX1 5 (Sher D-Palo Alto and Burton D-San Francisco) Appropriation of funds for energy efficiency programs. This is a laundry list of general fund allocations to the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) for energy efficiency, distributed generation, peak demand reduction, expansion of low-income discounts, and more.
Position: CMTA approves of cost-effective investments in these activities. CMTA supports including general fund monies for any expansion of the low-income CARE discounts and to not burden consumers with those costs.
Outcome: Many amendments were taken for consideration before the next hearing. There were changes suggested to the CARE program that CMTA probably will not support. CMTA will follow up on that issue with the author. Passed out of committee on a 7-0 vote.

SBX1 6 (Burton D-San Francisco) California Consumer Power and Conservation Financing Authority. The bill would create a mechanism to finance new plant construction, retrofits, energy efficiency, transmission purchases, etc. The goal is to do resource planning and fill-in where the market is not already going to provide capital.
Position: Neutral, with concerns that the purposes of the authority should be narrowly construed to augment, and not replace, the private capital markets. CMTA is concerned that private investment could perceive a broader authority as creating an unlevel playing field or might make private investment more risky.
Outcome: Amendments to narrow the powers of the authority to limit the use of eminent domain (e.g. can't takeover existing or proposed power plants) may be included before the next hearing to "assuage" concerns of Republican members. Passed out of committee on a 7-0 vote.

SBX1 33 (Burton D-San Francisco) California Transmission Authority. This bill creates the vehicle by which the state would purchase, manage and finance improvements to the transmission systems of PG&E, SCE and SDG&E
Position: CMTA does not support the state takeover of the system. CMTA believes the utilities will demand too high a price and the benefits of state ownership are overstated and speculative. Returning the utilities to credit-worthiness and state control through the new ISO board could achieve the same benefits. The state should not accept the burden of ownership and the $1 billion-plus investments required for upgrades.
Outcome: The bill was significantly amended to simply allow the governor to enter into negotiations with the utilities for a voluntary sale of transmission. CMTA nevertheless voiced its concerns as stated above. Passed out of committee on a 7-3 vote.

USEPA RESPONDS TO GROWING CONCERN ABOUT BACKUP DIESEL GENERATORS

Late last week, in recognition of California's ongoing energy crisis, the U.S. Environmental Protection Agency (USEPA) suspended federal requirements concerning the use of emergency backup generators until March 11. This action is a delayed response to a problem that local air districts have been struggling with since last summer, compounded by a CPUC ruling earlier this year that barred utility customers from opting out of their interruptible service contracts. For some manufacturers, backup generators may be the only hope of avoiding multi-million dollar losses in productivity stemming from increasingly frequent power interruptions.

Most air districts allow 200 hours of backup generator operation during the calendar year. Most of these units are diesel-fired, and are under increasing regulatory pressure from the California Air Resources Board (CARB) and the air districts following CARB’s decision to list diesel exhaust as a Toxic Air Contaminant (and a potent carcinogen) in 1998. Today, despite the fact that the CPUC recently suspended penalties for interruptible customers, the ongoing threat of rolling blackouts leaves many manufacturers vulnerable to district enforcement action if they are compelled to operate backup generators beyond the levels allowed by the air districts. Some districts have been less accommodating than others. Last month, the Bay Area district proposed permits for diesel-fired backup generators. In most cases, permit limits would be driven by diesel exhaust toxicity, yielding a fraction of the operating time currently allowed.

Self-generation, using state of the art technologies such as microturbines, may be a partial solution to the problem, assuming the Legislature is willing to act to remove major regulatory barriers and ensure the economic viability of such projects. Other options, such as clean diesel fuel emulsions, may be useful in the near term to facilitate an increase in annual operating time for backup generators. At a minimum, until the threat of blackouts becomes the exception rather than the rule, state and local air regulators should lift restrictions on the use of backup generators where power curtailments are beyond the reasonable control of the facility operator.

MANUFACTURER INVESTMENT TAX CREDIT (MIC) LEGISLATION UPDATE

Manufacturers' hopes for an increase in the Manufacturers Investment Tax Credit (MIC) will be reflected in at least four pieces of legislation this year, authored by Assemblymembers Cohn, Runner, Zettel and Senator Poochigian.

Assemblywoman Cohn's (D-Saratoga) bill will mirror the Governor's budget proposal which provides for a one percent increase (from 6 to 7 percent). As was the case last year, Assemblyman Runner’s (R-Lancaster) AB 240 includes a provision to extend the credit's application to nonmetallic extraction, and to power generation facility construction and the one percent general increase. CMTA will also include several clarifying provisions in this vehicle pertaining to differences in interpretation of the existing statute between taxpayers and the Franchise Tax Board: 1) inclusion of the MIC in the alternative minimum tax calculation; 2) application of the MIC to R&D activities; and 3) application of the MIC to capitalized labor expenses.

Senator Poochigian's (R-Fresno) bill will include the one percent increase and extend the credit to non-metallic extraction and to certain post agricultural processing activities (while most food processing activity is currently covered the pre-process processing is not). AB 110 (Zettel R-Poway) is confined to increasing the credit by 3 points to 9 percent.

BILL SETS APPOINTMENT CRITERIA TO BOARDS

Senator Martha Escutia (D-Montebello) has introduced SB 123 that would establish selection criteria for appointment to boards. The bill is introduced on the heels of a big fuss by organized labor on the appointment of a perceived management representative to a public member position on the California Occupational Safety and Health Standards Board.

SB 123 would set appointment criteria for the seven-member Standards Board to include two management and two labor members, and one each from occupational health, safety, and the general public. The bill would also set the criteria for appointment to the California Occupational Safety and Health Appeals Board that is made up of three members: management, labor and the general public.

The bill requires that management members "must be either an officer, director or a substantially full-time representative of an employer that is affiliated with a state business organization or business trade association" (such as CMTA). Labor members "must be either an active member or a regular employee of a labor organization that is affiliated with the California Labor Federation." Public members "must satisfy the Governor that he or she has a demonstrable interest in occupational safety or health." In addition, "he or she must not have been, within five years of an appointment to the board, an employer, an officer, a director or a substantially full-time representative of an employer or group of employers, or an officer or employee of a labor organization."

A procedure to challenge an appointment can only be made "pursuant to prescribed law" which includes among other requirements, authorization by the Attorney General.

CMTA's Safety and Health Committee are still reviewing the bill and has not recommended a position. However, if you have comments or wish to know more about the bill, call Willie Washington at (916) 441 5420.

DEPARTMENT OF FINANCE REPORTS ECONOMY STILL POSITIVE

Despite signs of a softening national economy, a dot.com stock slide, and a troubled energy market, the California Department of Finance reported in its February bulletin that the California economic picture ended 2000 on a strong note. Some highlights from the Department of Finance report included:

• Nonfarm employment jumped by 53,100 in December - the largest one-month gain since May of 2000. On average nonfarm employment in California grew by nearly 37,000 jobs each month in 2000. The average monthly increase in 1999 was 30,900. California's industry employment growth greatly eclipsed the nation's job growth in December - revised employment data puts the national industry job growth at only 19,000. In the last quarter of 2000, California accounted for 90 percent of the nation's new jobs.
• On a December-to-December basis, California ended 2000 on a stronger note than it did the year before. Industry employment grew by 3.1 percent, or 443,100 jobs. Moreover, 2000 employment figures will most likely be revised upward later this month when the annual benchmark revisions are released.
• All major industry sectors, except for the small mining sector, expanded over the year. Services added 198,400 jobs with business services accounting for nearly half of this growth. Government added 73,100 jobs, most due to expanding public school employment.
• California's unemployment rate dropped two-tenths of a percent in December to 4.6 percent - tying February's 30-year low. The number of people unemployed in California dropped by nearly 28,000 in December to 799,900 - the lowest number of unemployed since February 2000. The San Francisco Bay area continues to enjoy the lowest unemployment rates in the state - the rate in three Bay Area counties has fallen below 2 percent.
• The state's improving employment situation appears to be continuing into 2001. The filing of initial unemployment claims in California declined throughout January 2001 according to the Wall Street research firm International Strategy and Investment.
• Preliminary General Fund agency cash for January was $854 million above the 2001-02 Governor's Budget forecast of $9.348 billion.
• Bank and corporation tax revenues were $118 million above the $140 million forecast for January. Prepayments exceeded the forecast of $146 million by $69 million and other receipts were $8 million above the estimate of $99 million. Refunds were $41 million less than the month's forecast of $105 million.