Legislative Weekly 
July 5, 2001 
Issue 27, Volume 3 

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




A DEDICATED REVENUE STREAM 
Department of Water Resources Wants Money to Flow Their Way 

Six months ago Department of Water Resources took over power purchasing 
responsibility from the nearly insolvent investor-owned utilities. The 
general fund was first tapped, then a short-term loan allowed the purchasing 
to continue.? Now the state needs to issue $13.4 billion in bonds authorized 
in SBX1 31 (Burton D-San Francisco), to be paid back by utility ratepayers 
for more than a decade. 

On July 12 the CPUC must decide how much of utility rates should be siphoned 
off to pay off the bonds and the ongoing costs of power being purchased on 
the spot market and under short and long term power contracts signed by DWR. 
This &dedicated revenue stream8 (DRS) will be based on the latest analysis by 
utility and administration financial experts. The big question is whether 
current rates are high enough to cover all utility generation costs (nuclear, 
qualifying facilities, hydro, etc.), DWR power costs, and all the other 
elements of rates (public purpose charges, transmission and distribution, 
etc.).? Many assumptions about the spot market, the effects of the FERC price 
mitigation order and the level of customer demand enter into the calculation 
of the DRS.? Wholesale spot prices have recently dropped, but there still 
could be a shortfall that would need to be made up in higher rates or with 
more borrowing to push off repayment to the future. 

In related news, last week the CPUC nearly ordered the suspension of direct 
access in order to ensure that customers would not be able to leave utility 
service and thus escape the payment of bond and DWR power costs.? Customer 
groups were able to persuade regulators to put off the decision pending 
legislation that could clarify a direct access customer's obligation to pay a 
fair share of these costs.? To that end, ABX2 10 (Hertzberg D-Van Nuys) is 
being amended to make the bonds secured by the DRS rather than DWR contracts, 
thus creating more regulatory flexibility regarding the terms of direct 
access, and SBX2 27 (Bowen D-Marina del Rey) and ABX2 42 (Kelley R-Idyllwild) 
are the competing vehicles for how exit fees should be calculated. 
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LOCKYER CONVENES NEW GRAND JURY ON ALLEGED PRICE GOUGING 

California Attorney General Bill Lockyer appointed 19 new members to a 
Sacramento County Grand Jury this week to consider the growing volume of 
evidence from both sides on the continuing investigations of alleged price 
gouging by power generators. The Grand Jury to be convened later this week 
will be issuing subpoenas for testimony and documents and is expected to be 
impaneled for several months. 

In a related development, Lt. Governor Cruz Bustamante and Assemblywoman 
Barbara Matthews reportedly will introduce two new &whistleblowers8 at the 
state capitol on Thursday from a San Diego power plant. Recent testimony from 
three employees before a legislative committee investigating charges of 
wrongdoing on the part of a San Diego power plant claimed their employer, 
Duke Energy, manipulated the supply of electricity from the plant to increase 
the company's profits. In response, generators have produced documents 
showing they were simply following the direction from the State Independent 
System Operator to modify their electricity output. 
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WINDFALL PROFITS TAX LEGISLATION TO BE CONSIDERED 

SBX2 1 (Soto D-Pomona) would impose a &windfall profits8 tax on electrical 
power generators and is scheduled for hearing on Monday, July 9th in the 
Assembly Revenue and Taxation Committee. CMTA opposes the bill. 

SBX2 1 pertains to all types of electricity generation including 
co-generation produced and sold by manufacturers and generation by other 
qualified facilities such as bio-mass and solar plants.? It causes the 
&excess profit8 to be confiscated by the state from a middleman in the supply 
chain: a 100% tax.? This revenue is then distributed to individual taxpayers 
but not to business taxpayers (who paid the middleman the excess in the first 
place). 

The bill is a state-imposed price cap.? Excess profit is defined as anything 
exceeding a cost-based rate established by the PUC on a plant-by-plant 
basis.?? If enacted, SBX2 1 would have almost no effect on merchant 
generators, as most of them have entered into contracts with the state that 
pass on the cost of any increased taxes to the state.? Furthermore, this 
legislation would violate federal law which preempts state law in this area.? 
In accordance with the 1979 federal law, the PUC has set the price at which 
co-generators and other QFs can sell their energy.? It is the cost that the 
utility would have charged had it performed the sale. This formula was 
devised to encourage manufacturers to build on-site generation and sell 
excess power for public use.? This formula did not guarantee a profit for 
such generators but gave them an incentive to build generation facilities and 
operate efficiently.? Changing the formula would result in manufacturers 
refusing to build more generation facilities and increased litigation costs 
until the courts wipe away SBX2 1 (Soto). 
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LIABILITY FOR ELECTRICAL NON-GENERATION 

CMTA strongly opposed ABX2 51 (Reyes D-Fresno) which would make any retail or 
wholesale operator of an electric generation facility strictly liable for any 
damages proximately caused by that generator's reduction or discontinuance of 
service for economic reasons.

Neither negligence nor intent must be proven in order to establish strict 
liability.? Under this legislation, a generator could be held strictly liable 
for damages that resulted if electricity supplies were curtailed when the 
generator was temporarily shut down to perform routine maintenance, 
unscheduled maintenance or due to other external business factors (i.e. the 
high cost of fuel).? ABX2 51 also would make it difficult for a generator to 
permanently close a facility, even if the facility was not operating 
profitably. 

Generators are only one component of many that work together to provide 
reliable electricity supplies throughout the State.? However, ABX2 51 would 
result in generators shouldering the responsibility for all damages, 
liability and responsibility for electricity shortages. 

Amendments were taken to remove co-generation from the bill.? However, CMTA 
will continue to oppose the measure on the principal that imposing strict 
liability on generators will only discourage generators from siting new 
facilities and selling their electricity within the State. 

The measure passed from the Assembly Judiciary Committee on July 2 and next 
will be heard in the Assembly Energy Costs and Availability Committee.
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STREAMLINING THE PIPELINE PERMITTING PROCESS 

The CMTA is supporting ABX2 47 (Diaz D-San Jose) which would increase the 
financial threshold necessary to obtain a Public Utilities Commission (PUC) 
Certificate of Public Convenience and Necessity (CPCN) from $50 million to 
$100 million.? Increasing this threshold will allow for expedited 
construction of new natural gas pipelines and will help to shore up the 
infrastructure needed to increase the State's natural gas capacity.

The measure also streamlines the permitting process for new pipeline 
construction, requiring the PUC to act on a permit request within 12 months 
of receiving a completed application.? Failure to act on the permit would 
result in the automatic issuance of a CPCN. 

Natural gas is a necessary component of many CMTA members, industrial and 
manufacturing operations.? Given the State's heavy reliance on imported 
natural gas, CMTA supports expediting the construction of new pipelines to 
ensure that a sufficient supply of this critical fuel is available for use.
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REPORTING TO THE EOB MAY OPEN RECORDS FOR PUBLIC REVIEW 

A measure that allows the Energy Oversight Board (EOB) to inspect and make 
public all of a facility's records, data, accounts, books or documents 
related to reliability, availability, and the cost of electric service was 
heard in the Senate Energy, Utilities and Communications Committee on June 
27. 

CMTA testified in opposition to ABX2 28 (Migden D-San Francisco) which 
substantially expands the authority of the Independent System Operator (ISO) 
to adopt operating and availability standards for electricity generation and 
transmission. 

ABX2 28 also would allow the ISO to regulate a facility's co-generation 
scheduling and maintenance practices, which would have the practical effect 
of giving the ISO regulatory authority over a business, primary industrial 
operations. 

Since many of the co-generation facilities do not keep separate records for 
the electricity component of their facilities, this requirement could open up 
much of the facility's private operational records for their competitors, and 
public review. 

Committee members expressed concern regarding the effect of expanding the 
authority of the Energy Oversight Board, how the measure affects the handling 
of documents subject to the Public Records Act, and clarification regarding 
the purpose for which documents would be used. 

The measure was subject to testimony and discussion, however a vote was not 
taken. The measure will again be heard on July 10. 
? 

NEW FISHING LIMITS FOR REGIONAL WATER BOARDS 

In late May, Assemblymember Fran Pavley,s (D-Agoura Hills) AB 1664, which 
makes various changes to state and regional water board penalty authority, 
was amended on the Assembly Floor to remove language that would have created 
major new penalty exposures for manufacturers.? Shortly thereafter, questions 
surfaced concerning a subtle change to a section of the water code that 
grants authority to the regional boards to issue orders for investigation of 
waste discharges.? The concern pertains to the ability of the regional boards 
to issue investigation orders to parties &suspected of having discharged8 
waste at some point in the past.? Orders issued under these circumstances 
typically involve contentious property access issues and costly monitoring 
requirements.? This section of the code is already used liberally by the 
regional boards and the change in AB 1664 arguably invites more orders that 
lack a clear nexus between the discharger,s past activities and the suspected 
discharge. 

AB 1664 was amended earlier this week in Senate Environmental Quality 
Committee to address this issue.? The bill's sponsor, the State Water 
Resources Control Board, and Assemblymember Pavley agreed to take language 
requiring that any new investigation order be accompanied by a written 
statement identifying the evidence upon which the order is based.? This 
clarification applies to all circumstances under which investigation orders 
are issued and should help to ensure that regional boards do not abuse this 
authority. 
? 

CAL-OSH STANDARDS BOARD TO CONSIDER ERGONOMIC RULE 

On the agenda for the July 19, 2001 meeting in San Diego, the California 
Occupational Safety and Health Standards Board (Standards Board) will 
consider a petition from organized labor to adopt the recently overturned 
federal Occupational Safety and Health Act (OSHA) ergonomic rule as a state 
rule for California.? If adopted, it would replace California's repetitive 
motion standard (Title 8, CCR 5110). 

Employers opposed the federal rule because most employers believed it was 
based on dubious science that could not accurately identify the cause of 
repetitive motion injuries attributable to work.? The federal rule contained 
restrictions that would prohibit doctors from providing information on 
non-occupational causation of injury that would interfere with an employer's 
ability to determine the compensability of a claim under California workers, 
compensation law &arising out of and in the course of employment8.? Other 
onerous provisions include:? Requiring employers to pay work restrictions 
benefits that require a 90% or 100% replacement rate of an injured worker's 
gross pay; and the continuation of employer provided fringe benefits for up 
to 3 months in the case of a musculoskeletal disorder related to work.? The 
federal rule would have carved out a completely different standard for 
musculoskeletal disorders (injuries due to repetitive motion) with remedies 
substantially more costly than other injuries under the workers, compensation 
system. 

CMTA is requesting that members send letters to the Standards Board or attend 
the meeting to urge board members to reject the petition.? Write to:? John 
MacLeod, Executive Officer, Cal-OSH Standards Board, 2520 Venture Oaks Way, 
Suite 350, Sacramento, CA 95833.? If you plan to attend the meeting, the 
address is 1350 Front Street, State Building Auditorium, San Diego, 
California.? Please call Willie Washington at (916) 441 5420 if you have 
questions. 
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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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