CONTENTS OF THIS ISSUE:

California Loses Rep. Julian Dixon

Congress Nears Budget Deal; But Some Provisions Still in Play

Energy Secretary Invokes Emergency Powers to Assist State’s Electricity Market; Imposes One-Week Emergency Order

Governor Davis, Senator Feinstein Call For Hard, Region-Wide Caps on Wholesale Electricity Prices; California Utilities Threatened; FERC To Meet on Friday, December 15

East Bay MUD and Sacramento Agree on Water Project

State Designates Three New Institutes for Science and Innovation

Voting Technology Project

California Cities Top List of “Cybercities”

Copyright-Based Industries are Significant Economic Assets, Per Study

California Loses Rep. Julian Dixon

On December, 8, the California Congressional delegation lost Rep. Julian Dixon, who died at age 66 in Los Angeles of an apparent heart attack. Dixon, a former chairman of the Ethics Committee, was ranking Democrat on the Select Committee on Intelligence and a senior member of the Appropriations Committee. He distinguished himself as an able steward of complex and thorny tasks, serving for six years as chairman of the Ethics Committee during which time he handled the investigation into former House Speaker Jim Wright. Dixon was well liked and widely respected by Congressional members on both sides of the aisle.

It appeared late Thursday that White House and congressional negotiators were finalizing an agreement on the remaining 2001 spending bills. However, a deal had yet to be cleared on some of the non-funding provisions to be included in the bill.

Among the issues under consideration were several immigration issues Congress has been grappling with this year. However, press reports late Thursday night indicated that relatively few of the provisions had survived final negotiations. One that reportedly did not remain in the final package is known as NACARA parity (the Nicaraguan and Cuban Adjustment and Relief Act), which would have ease some restrictions and allow permanent residency for certain Central American, Haitian, and Liberian immigrants. Another would have granted amnesty to some illegal immigrants who were previously denied amnesty under the 1986 immigration reform act.

Also reportedly stripped from the bill are provisions to streamline and expand the H-2A agriculture workers program. Senate Majority Leader Trent Lott indicated that the latest proposal between the White House and Congress does not include these provisions. Growers argue that there is a shortage of farm workers in the United States; opponents question that assertion and are concerned that easing the requirements will increase illegal immigration and harm U.S. farm workers.

A provision which reportedly did survive negotiations is one to allow immigrants whose visas have expired, or are otherwise in the country illegally, to pay a fine but stay here while their residency applications are pending. Apparently the deal will reopen for four months the program to allow immigrants to remain in the country while they are seeking residency status adjustment, but they would have to pay a $1,000 fine. Otherwise, they would have to go back to their home country, and under the 1996 immigration reform law, wait three to ten years before returning to the United States.

The package would also allow those immigrants denied amnesty under the 1986 act to plead their case before an immigration appeals panel, but would not grant outright amnesty. Provisions would also be included to help the spouses and minor children of these immigrants stay in the U.S.

As California is home to many more immigrants than any other state, whether legal, illegal, or agriculture workers, whatever immigration package finally gets approval will probably have a substantial impact on the state.

Budget negotiators agreed to set discretionary spending in the Labor-HHS-Education appropriations bill (HR 4577) at $108.9 billion, and to provide about $30 billion in additional Medicare payments to Medicare providers. They also agreed to $1 billion in across-the-board reductions by trimming 0.2 percent from discretionary spending in the other 12 appropriations bills. Congress expects to pass the bills on Friday, December 15, and adjournment will follow shortly thereafter.

Energy Secretary Invokes Emergency Powers to Assist State’s Electricity Market; Imposes one-week Emergency Order

On Wednesday, December 13, U.S. Secretary of Energy Bill Richardson threatened to use emergency powers granted by the Federal Power Act to require generators to sell electricity into the California market. On Thursday, he officially imposed an emergency order, to remain in effect until December 21. He also directed the Bonneville Power Administration to increase water releases along the Columbia River in Washington and Oregon to boost hydroelectric power generation by 1700 megawatts. Some expressed concern, however, that these hydropower resources were meant to remain in reservoirs until late winter, and that future electricity generation may be threatened unless wet weather restocks that water supply.

In invoking emergency powers, Secretary Richardson said, "Under this authority, the Department of Energy can and will set the rates for the power sold into the Independent System Operator by the generators that are currently unwilling to sell into California. While I will ensure that the generators receive a fair return, I will not allow them to unjustly profit due to the current market condition. I will demand a fair price."

In a Wednesday letter to Governor Davis, the California ISO identified 12 market participants which had refused to provide power to the state’s electricity grid unless they received cash up front. These power providers, targeted by the Richardson action, apparently are unwilling to front credit for fear that California utility companies may become insolvent and unable to repay the credits. The entities were Trans Alta, Eugene Water & Electric, Southern Energy Trading, Power Ex (British Columbia Hydro), Public Service Colorado, Enron Power Marketing, Portland General, Avista (Washington Water Power), Idaho Power Company, PPL Montana, Seattle City Light, and Puget Sound Energy.

For the 10th day in a row on Wednesday, the California ISO declared a power emergency, called when electricity supplies are nearly inadequate to meet demand. The electricity shortfall led wholesale power prices to leap past the spot market rate of $1,400 per megawatt hour, more than twenty times what is paid by consumers. Prices for natural gas, which is used to fire many of the electric generating plants for the California market, have also spiked to unusually high levels. Gas moving into the Southern California market leapt from roughly$6 per million Btu to as much as $60 per million Btu in the past few weeks.

According to the order, if the California ISO certifies that there is an inadequate supply of electricity, "certain electricity suppliers would be required to make power available to the ISO if they have power available in excess of the amount needed to satisfy service to firm customers." The impacted suppliers would be those which have provided power to the Power Exchange and the ISO over the last 30 days that have firm capacity available. The price would be set by an agreement between the ISO and the supplier, or by FERC if no such agreement is reached.

For details of Secretary Richardson’s emergency order, see the Department of Energy’s press release at http://www.energy.gov/HQPress/releases00/decpr/pr00309.html or a copy of the actual order at http://www.energy.gov/HQPress/releases00/decpr/order202.html .

Governor Davis, Senator Feinstein Call For Hard, Region-Wide Caps on Wholesale Electricity Prices; California Utilities Threatened; FERC To Meet on Friday, December 15

The disparity between the costs paid by California utilities and the amounts they may charge for the power is causing crippling economic difficulties for key in-state companies. At a Washington news conference on Wednesday, December 13, Senator Dianne Feinstein and Governor Gray Davis issued a joint statement noting that "the price of power has risen astronomically on the spot market and may very well bankrupt two of California’s major utilities: Pacific Gas & Electric and Southern California Edison."

Davis and Feinstein stated, "We are united in asking that the Federal Energy Regulatory Commission (FERC) establish an immediate region-wide wholesale price cap to stop the bleeding of electricity from California until stability can be returned to the market. We are also calling on FERC to step in and mandate reasonable long-term contracts between privately owned electricity generators and utilities." Various members of the California Congressional delegation have sought strict regional caps on the price of wholesale electricity, rather than imposing a "soft" cap (one which can be readily circumvented) on California alone. The Feinstein-Davis statement asks FERC to implement bilateral contracting requirements for private generators, and stated, "We have implored FERC to respond to this crisis so that California’s terrible dependence on spot prices can end. Had these contracts been in place," the Wednesday statement said, "today’s problem may have been averted."

FERC is scheduled to meet on Friday afternoon, December 15, at 3:00 p.m. to issue a final order on the California electricity market crisis. FERC Chairman William Hoecker attended the Wednesday event and stated that FERC "will take strong action soon" and will be "part of the solution, not a part of the problem," raising hope that the Commission may take stronger action than was outlined in the preliminary order on November 1.

On Thursday evening, December 14, a statement by Governor Davis regarding the upcoming FERC meeting said, "It is my hope that the Federal Energy Regulatory Commission will act responsibly tomorrow by reinstating reasonable price caps. Their unwarranted actions last Friday by removing price caps entirely precipitated skyrocketing prices and near blackout conditions yesterday. They have a chance to make amends tomorrow by reinstating reasonable price caps. I strongly urge them to do so."

For more information on past FERC actions, see Bulletin, Vol. 7, Nos. 34 (11/2/00), 35 (11/8/00), 36 (11/16/00) and 37 (12/7/00). Once approved by the Commission, the FERC order will be available at http://www.ferc.fed.us .

East Bay MUD and Sacramento Agree on Water Project

The East Bay Municipal Utility District (EBMUD) and the City and County of Sacramento have agreed to jointly develop a water supply project on the Sacramento River near Freeport. The project is aimed at providing a reliable supply of water to 1.2 million Bay Area residents and businesses when there is a drought.

A revised environmental impact statement, reflecting the project, is expected to be filed with the Department of the Interior, and printed in the Federal Register, on December 15. Interior will then file a Record of Decision, showing compliance with the Endangered Species Act, by January 19, 2001.

State Designates Three New Institutes for Science and Innovation

Governor Davis recently announced the location of three new California Institutes for Science and Innovation at UCLA, UC San Diego and UC San Francisco. The Institutes will be designed as research centers with state of the art equipment and facilities to focus on scientific challenges.

At UCLA in collaboration with UC Santa Barbara, the California NanoSystems Institute will focus on design and construction of devices and materials with components that measure no more than a billionth of a meter. The UC San Diego site, a collaboration with UC Irvine, will be named the California Institute for Telecommunications and Information Technology and will develop new materials and devices, expanding the capacities of communications and information infrastructures. The UC San Francisco site, the California Institute for Bioengineering, Biotechnology and Quantitative Biomedicine, is a collaboration with UC Berkeley and UC Santa Cruz. This site will attempt to find breakthroughs in diagnosis, treatment and prevention of disease by bringing together scientists in biomedical research, engineering and the physical sciences.

The State has committed $75 million annually for four years to establish the three sites. The Institutes are to leverage this money by obtaining a two to one match of non-state funds to state funds, and the three new Institutes are to be launched immediately.

Voting Technology Project

On December 14, the presidents of the California Institute of Technology (Caltech) and the Massachusetts Institute of Technology (MIT) announced the universities are joining together to develop a national voting system which will be "easy to use, reliable, secure and moderately priced." The Voting Technology Project was developed under the assumption that "America needs a uniform balloting procedure" and that new technology would minimize possible confusion on how to vote, prevent miscounts and be tamper resistant.

The current technology, according to the project leaders, is "unacceptably unreliable." The problems with current technology are manifested in three forms: undercounts, over counts and missed ballots. Project leaders also point out the most commonly used types of machinery are dated and have become obsolete.

Such problems in the current voting system will be examined and defined in the first step of the Voting Technology Project which will involve a team of professors from each university. The researchers will also survey experiences with existing voting devices and make a preliminary analysis of a variety of technological approaches for a new system. The project team will then develop goals and a plan for full scale research and development of the new system.

In announcing the project, the schools indicated that the recent balloting problems experienced in Florida were part of impetus for undertaking the project.

California Cities Top List of "Cybercities"

A recent report released by AeA (formerly the American Electronics Association) and The Nasdaq Stock Market shows several California’s cities leading the list of the country’s cybercities. The report, Cybercities: A City By City Overview of the High-Technology Industry, examines the high-tech industry in 60 metropolitan areas nationwide. In addition to assessing employment and wages in the industry, the report also identifies characteristics critical to high-tech growth and development, such as R&D intensive universities, median housing costs, and average commute times.

Cybercities found that San Francisco’s 65 percent high-tech employment growth rate over the last five years was second only to Colorado Springs’ 77 percent rate. Sacramento, with a growth rate of 57 percent, ranked number five. In terms of employment, San Jose’s 252,900 high-tech jobs ranked number one over Boston, Chicago, Washington, DC, and Dallas. About 40 percent of all private sector job growth in San Jose is attributable to high-tech, according to the report. Oakland also experienced substantial technology growth over the last five years, adding 23,600 tech jobs since 1993, for a total of 66,900 jobs in 1998.

California’s cities also landed substantial venture capital investments in high-tech. San Francisco benefitted from $9.3 billion in investments in 1999, with San Jose coming in second with $7.2 billion in venture capital. Oakland landed $2.9 billion in investment in 1999.

The high-tech boom is not limited to northern California either. Los Angeles ranked number six among the 60 cybercities, with 160,544 high-tech workers, 5,712 high-tech establishments, and a high-tech payroll of $9.1 billion annually. Orange County, with its 93,585 high-tech workers, ranked number ten nationwide, and San Diego ranked 21st with 60,017 high-tech workers.

Additional data from the report can be obtained on AeA’s website at: http://www.aeanet.org . The full report can be purchased from the AeA by calling 800-284-4232 or 408-987-4200.

Copyright-Based Industries are Significant Economic Assets, Per Study

According to Copyright Industries in the U.S. Economy: The 1999 Report, as reported by the Motion Picture Association of America, core copyright-based industries are America’s largest and fastest growing economic assets, employing more workers than any single manufacturing sector. The creative industries, including movies, TV programs, home video, business and entertainment software, books, music and sound recording, reportedly achieved $79.65 billion in foreign sales and exports.

MPAA President and CEO Jack Valenti emphasized the need to protect the industry, stating, "Protection of our intellectual property from all forms of theft, in particularly online thievery, must be a priority if the United States is to maintain its position as the leader in today’s ever-evolving world market." The report was prepared by Stephen E. Siwek of Economists Incorporated.

The report showed that the core copyright industries in 1999 accounted for 4.94% or $457.2 billion of the U.S. Gross Domestic Product (GDP). The total represented a significant increase of 11% from 1989 when the industries accounted for $412.3 billion. Between 1977 and 1999, according to the report, the value added to the GDP by the core copyright industries increased by 360%.

The study also indicated that the real annual growth of the core copyright industries (adjusted for inflation) reportedly has been more than double the growth of the economy as a whole. Over the last 22 years (1977-1999), the core copyright industries grew at an estimated compound annual growth rate of 7.2% while the rest of the economy grew at an annual rate of 3.1%. Employment in the core copyright industries grew from 1.6% (1.5 million workers) of the U.S. workforce in 1977 to 3.24% (4.3 million workers) in 1999. Since 1977, the industries’ rate of employment grew more than three times as fast as the remainder of the economy, 5% versus 1.6%.

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