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.

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CMTA Legislative Weekly - 11/07/01