Legislative Weekly

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

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June 21, 2001

ANOTHER NAIL IN THE COFFIN OF ELECTRIC RESTRUCTURING

We supported electrical restructuring in 1996 in order to gain access to electricity from independent energy suppliers. This right to “direct access” was allowed beginning in 1998, and many small and large customers took advantage of supply options that promised

Keeley

discounts off tariff rates, or long term prices and other services that met the needs of customers in a different way than under traditional utility tariffs. In January when ABX1 1 (Keeley D-Boulder Creek) gave DWR authority to begin power purchasing and issue bonds secured by revenues from customer utility bills, lawmakers also gave the CPUC the authority to suspend direct access. This was considered necessary to prevent customers from escaping their share of the bond debt through contracting with other suppliers. The CPUC may take action on June 28.

On June 12 State Treasurer Phil Angelides, Timothy Gage of the Department of Finance and Thomas Hannigan of DWR sent a memo describing the conditions that must apply to direct access contracting in the future in order to satisfy bond requirements. They state that “exit fees” must be paid to recover the true costs of power already delivered to the customer and to prevent “stranded costs” created by a customer avoiding high price DWR power in favor of lower market priced power. Without such fees, the CPUC must suspend direct access.

Kelley

The proposed CPUC order would “suspend direct access until DWR no longer procures power for the retail end-users, and we find it should be stopped effective July 1, 2001.” (This applies only to SCE and PG&E, and contracts signed before July 1 would be exempt from suspension.) An alternate order (Bilas) requests interested parties to submit comments by Monday, June 25, to the CPUC on how the conditions of the memo impact the viability of direct access and market dysfunction, and whether there are less onerous conditions that would satisfy the concerns of the financial community. CMTA will be making a filing in support of the Bilas alternative.

CMTA supports ABX2 42 (Kelley R-Idyllwild) which would maintain the right to direct access without unfairly burdening utilities, the state or other customers.

PREDICTABILITY VS. EQUITY IN BLACKOUTS

Briggs

Assemblymember Mike Briggs (R-Clovis) once again pulled his ABX2 34 from hearing, this week, in an attempt to rewrite amendments. The measure, which requires the Independent System Operator (ISO) and the California Public Utilities Commission (PUC) to review each public utility’s geographic schedule for potential Stage III blackouts, was heard but not voted upon in the Assembly Energy Costs and Availability Committee on June 11. The measure will be amended in Committee on June 25. CMTA indicated, in a meeting with Assemblymember Briggs and other interested parties, that the relative predictability the measure provides must be balanced against customers’ need for equity in outages.

The measure will likely be heard in the Assembly Energy Costs and Availability Committee on June 25.

Eminent Domain

Vargas

CMTA strongly opposes ABX2 35 (Vargas D-San Diego) which establishes the California Consumer Power and Conservation Authority to exercise the State’s power of eminent domain in order to temporarily acquire generating facilities. The measure also condemns any existing power contracts negotiated in association with that property, as well as any labor contracts necessary to provide services the state cannot adequately and competently perform for the duration of the acquisition.

CMTA is gravely concerned that this measure will establish an unworkable state precedent that discourages businesses from siting new generation facilities in California, and will provide the impetus for companies operating existing facilities to leave the State.

The author believes that by seizing power plants, the State could obtain electricity for less than it currently is paying in the existing market. The author also has acknowledged that the Governor currently has the authority to exercise eminent domain over any plant, through executive order, and he believes this measure will give the Governor the support he needs to do so.

ABX2 35 passed (6-3) from the Assembly Judiciary Committee on June 12, and has not yet been scheduled for hearing in the Assembly Energy Costs and Availability Committee.

FELONY FUEL SHORTAGES

Cardoza

CMTA President Jack Stewart joined a large coalition of industry groups testifying in opposition to ABX2 65 (Cardoza D-Merced) which would make it a felony for any person or entity to perform any act that creates a fuel shortage, with the intent to raise prices, adversely affect competition or violate state anti-trust laws. The measure also imposes severe criminal fines and penalties and includes bounty-hunter and whistle blower provisions that are extremely punitive toward employers.

CMTA opposes the measure for the following reasons:

First, ABX2 65 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” which is 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.

Second, the bill provides that producers only should receive marginal costs for their products, a precept that flies in the face of a free market economy. Businesses should be able to receive a reasonable return on their products. Limiting a business’ profits to marginal costs only further discourages investment in the State’s energy infrastructure.

Third, entities may already 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.

Fourth, 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.

Fifth, 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 is bad state policy that has the very real potential to reduce existing energy supplies and to discourage future energy infrastructure investment within the State.

Despite heated industry opposition, ABX2 65 passed out of the Assembly Public Safety Committee on Tuesday, June 19 on a 5-2 vote. The Assembly Appropriations Committee expects to hear the measure within the next two weeks.

MANUFACTURERS INVESTMENT TAX INCREASE NOT REMOVED FROM GOVERNOR'S BUDGET

The Governor’s office has stated to us that reports were incorrect last week that the Governor removed the MIC increase from his budget proposal. CMTA continues to lobby all members of leadership that it be kept in the final budget. Budget negotiations are going on now and are expected to continue at least until the end of this week. Republican leadership continues to support the increase as a top priority. Business interests are being assailed by hostile policy agendas on every conceivable subject here in Sacramento. Businesses are suffering from the energy crisis and the economic downturn. The one pro-business measure on the table in the budget negotiations is the MIC increase.

DISMISSAL OF MERITLESS LAWSUITS WINS VICTORY

In a unanimous decision, the California Supreme Court has agreed with the position submitted to the Court by CMTA acting as amicus. This case was a huge class action in which the plaintiffs alleged that major oil companies engaged in an anticompetitive conspiracy concerning the marketing of CARB gasoline. The California Supreme Court affirmed a lower court decision granting the defendants summary judgment. In plain terms, the court decided that the defendants were entitled to have the case dismissed before going to trial. This victory is particularly important to the business community because it provides an important remedy against litigation abuse. Historically, California business defendants were forced to settle large and complex lawsuits not because the suits had merit but because of judicial reluctance to grant summary judgment. Disproportionately large settlements were required as the business defendants' alternative was the enormous expense, disruption and uncertainty inevitable in litigating a case through trial. The Aguilar decision clarifies, in defendants' favor, the standard that courts must apply when considering summary judgment. This will greatly assist in weeding out meritless lawsuits before trial.

LEGISLATION UP-GRADES THE WEAPONS OF THE SIERRA CLUB/TRIAL LAWYERS AND NIMBY GROUPS

CMTA is lobbying against SB 238 (Kuehl D-Santa Monica) and hopes to stop it on the Assembly Floor where it is now pending.

Existing law requires a party seeking a preliminary injunction to post a bond to secure against unfair financial loss to the enjoined defendant should ultimate resolution of their dispute favor the defendant. This bill would make the bond optional in cases "involving the public interest" where the party (but not his or her lawyer) seeking the injunction has no financial interest. This would leave innocent, non-liable defendants open to serious financial losses in class action and environmental suits.

Preliminary injunctions are sought to shut down a business’s activity typically at the outset of a lawsuit. Courts grant them upon a “preliminary” showing of good cause. If granted, at a minimum, the injunction puts strong pressure on the business to settle the underlying suit. The existing bond requirement provides recourse to the defendant if the injunction is repealed or not converted into a permanent injunction for lack of merit when the court later considers all of the parties’ arguments. Absent the bond, a preliminary injunction could put a business out of business or give it no enforceable means to be made whole.

Preliminary injunctions are often employed by “Not In My Back Yard” groups to halt housing and power plant construction. Such delays often have the practical effect of choking off funding for the construction, thereby defeating it.

Passage of this bill is not necessary but would save the plaintiffs the costs paid to surety companies for posting the bonds. It is important to keep in mind that under existing law, if the plaintiff wins after a full hearing, it can recover such costs from the defendant. Thus, this bill would make a difference only for the plaintiffs that lose. On the other hand, it would convert defendants’ victories into defeats.

ENVIRONMENTAL JUSTICE AND LAND USE PLANNING
A Familiar Concept Resurfaces

Assemblymember Fred Keeley (D-Boulder Creek) is proposing to replace the language in the current version of AB 1553 with a proposal that died in the waning days of the SB 115 (Solis, 1999) debate. The language would encourage local governments, in updating their General Plans, to avoid co-locating commercial and industrial uses with residential projects, schools and other “sensitive uses,” such as day care facilities. CMTA supports this concept because it addresses environmental justice issues at their source. In other words, by ensuring adequate buffer zones between potentially incompatible land uses, local governments can avoid creating new environmental justice problems.

Our primary concern is that such legislative direction be balanced in terms of applying the same standard to both commercial/industrial and “sensitive use” projects. Looking ahead, as the state struggles to accommodate its burgeoning population, the more likely scenario is that “sensitive use” projects will encroach on existing commercial and industrial facilities, potentially leaving facility operators exposed to litigation under federal civil rights law.

CMTA applauds Assemblymember Keeley’s initiative in resurrecting this debate. California already faces daunting environmental justice challenges because historically, little regard was paid to such concerns in the land use planning process. We should take steps now to avoid making a bad situation worse.

LABOR COMMISSION COUNSEL LETTER DRAWS FIRE FROM EMPLOYERS

At the June 15 Industrial Welfare Commission (IWC) meeting in San Francisco, CMTA and other employer representatives testified against the Division of Labor Standards Enforcement (DLSE) Opinion Letter of May 30, 2001, Re: “Deductions From Exempt Employees Salary.” This very controversial letter written by Mr. Miles Locker, Chief Counsel, DLSE, generated numerous irate telephone calls from CMTA members wanting to know more details about the letter and CMTA’s action plan to get this adverse opinion reversed.

The opinion letter prohibits any deductions from exempt employee’s salary in increments of less than one month based on the quantity of work, quality of work and/or business operating requirements. CMTA members were particularly frustrated and outraged by the section that reads in part “ …in order to be eligible for the overtime exemption the [exempt] employee must receive his or her full salary for any month in which he or she performs any work without regard to the number of days or hours worked”. This is a particularly onerous provision for manufacturers who have a long history of temporarily shutting plants down for a week over such holidays as Thanksgiving, Christmas, New Years, etc., and in some instances during slow production periods to reduce overhead costs in order to avoid layoffs. During temporary plant shut downs, employees are permitted to use accrued vacation or other paid time off to meet the salary requirement for days missed. The opinion letter would prohibit this. This letter would discourage employers to conserve energy by working during off peak hours and voluntarily going off line for designated periods to free up energy during peak demands because of the pay inequity between employees that might result.

The letter creates new questions. For example, if a plant closes at the beginning of the month, must exempt employees be paid for the full month? What about an employee hired on the 15th of the month or an employee who works one day in the month and goes on active military duty for 30 for which he is paid by the military? What about jury duty when the employee is paid both travel pay and a daily rate – is the employer still required to pay full salary for the month? Must an exempt employee who has been suspended due to a safety violation (federal law permits a reduction) be paid for a full month?

Under the federal Fair Labor Standards Act (FLSA) the salary deduction for exempt employees is measured by weeks and not months as opined by Mr. Locker under California law. CMTA's understanding is that Mr. Locker bases his decision on the much maligned interpretation on AB 60 (Chapter 134, Statutes of 1999) that made sweeping changes to California wage and hour laws. However, CMTA believes that AB 60 contains no language that specifically prohibits wage deductions from exempt employees in increments of less that one month. On the contrary, Section 515 (c) of the Labor Code specifically provides that, “For purposes of this section 'full-time employment' means employment in which an employee is employed for 40 hours per week.” In CMTA's opinion, this language clearly provides that salaries may be paid weekly and it comports with the federal law that permits weekly deduction.

CMTA believes Mr. Locker's interpretation is seriously flawed, negatively affecting exempt employees and their employers. CMTA's request for the Commission to override this opinion was not acted upon pending the appearance of the Labor Commissioner and the author of the opinion letter to explain to the commission the purpose of the letter. Future meetings will be announced.

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