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California Capitol Hill Bulletin

Volume 8, Bulletin 4 — February 1, 2001    [or see pdf version]

Californians To Chair Subcommittees; House Democrats Continue To Allocate Committees to New Members; Senators Receive Subcommittees

Senate Committee Hearing Addresses California Power Crisis

California Passes Electricity Plan

Paul Cunningham to Direct Governor’s Washington Office

California Leads Nation In Manufacturing Jobs

U.S. Commerce Department Issues Report on Runaway Film Production

To expand communications between Washington and California, the California Institute provides periodic faxed bulletins regarding current activity on Capitol Hill which directly impacts our state. Bulletins are published weekly during sessions of Congress, and occasionally during other periods. The e-mail edition is made possible in part by in kind donations from Sun Microsystems and IBM Corp.

Californians To Chair Subcommittees; House Democrats Continue To Allocate Committees to New Members; Senators Receive Subcommittees

As Committee organization continues in the House, several Californians have been selected to chair subcommittees in the 107th Congress, and the House Democrats are continuing to name their incoming newly elected members to various committees.

Rep. Ken Calvert (Corona) has been chosen to chair the Water and Power Subcommittee on the Resources Committee. Rep. Duncan Hunter (Alpine), term-limited out of his chairmanship of the Procurement Subcommitee, will move to chair the Military Research and Development Subcommittee on the Armed Services panel. On the International Relations Committee, Rep. Elton Gallegly (Simi Valley) will chair the newly formed Europe Subcommittee. Rep. Doug Ose (Sacramento) has been selected to head the Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs of the House Government Reform Committee. Also on Government Reform, Rep. Steve Horn will become Chair of the newly created Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations. On the Education and Workforce committee, Rep. Howard P. "Buck" McKeon (Santa Clarita) will chair the newly created 21st Century Competitiveness subcommittee, which will now have authority on higher education, including teacher training portions of the Elementary and Secondary Education Act, which is scheduled to be reauthorized this year.

As for California’s newest House members, Rep. Hilda Solis (El Monte) has been named to the Education and the Workforce Committee, and Rep. Adam Schiff (Burbank) has been assigned a seat on the International Relations Committee. Rep. Mike Honda (San Jose) will take a seat on the Transportation and Infrastructure Committee. Rep. Susan A. Davis (San Diego) was selected to serve on the Armed Services Committee.

On the Senate side, Sen. Barbara Boxer has been assigned to the following Subcommittees of the Commerce Committee: Communications, Ocean and Fisheries, Consumer Affairs, Foreign Commerce and Tourism, and Surface Transportation and Merchant Marine.

On the Senate Appropriations, Sen. Dianne Feinstein will be on Military Construction (where she will be the Ranking Democrat), Agriculture, Interior, Energy & Water, and Defense.

A complete breakdown of Committee assignments will be compiled when the Democrats finish organizing. For full committees for California Republicans see, Bulletin, Vol. 8, No. 2 (1/11/01).


Senate Committee Hearing Addresses California Power Crisis

On Wednesday, January 31, the Senate Energy and Natural Resources Committee held a hearing to examine the impacts of the California power crisis. The committee heard testimony from California Senators Dianne Feinstein and Barbara Boxer as well as an array of witnesses, including : Larry Makovich, Senior Director of Research with Cambridge Energy Research Associates; Peter Fox-Penner, Principal with the Brattle Group; Kit Konolige, Managing Director, Morgan Stanley Dean Witter; Steve Frank, President & CEO of Southern California Edison; Steven Kline, Vice President for Federal Governmental & Regulatory Relations at PG&E Corporation; Fred John, Senior Vice President for External Affairs at Sempra Energy; Keith Bailey, President & CEO of The Williams Companies in Oklahoma; Steve Kean, Executive Vice President at Houston-based Enron; Joe Bob Perkins, President & Chief Operations Officer at Reliant Energy in Houston; Curt Hildebrand, Vice President for Business Development at San Jose-based Calpine Corp; Richard Ferreira, Executive Advisor for the Sacramento Municipal Utility District; Tom Karier, Member of the Northwest Power Planning Council; John Gale of Idaho Power Company; Brett Wilcox, CEO of Golden Northwest Aluminum of Oregon; Mark Crisson with Tacoma Public Utilities; and Judi Johansen, Executive Vice President for Regulation & External Affairs at PacifiCorp in Portland.

Committee Chairman Sen. Frank Murkowski (AK) noted at the outset that the focus of the hearing was the extent to which the California crisis would impact the Western region and the nation. He noted that power prices are increasing or will increase for Idaho Power, Tacoma Power, Arizona and New Mexico 30% raise. Sen. Murkowski quoted Gov. Levitt of Utah stating that what is at stake is the economic competitiveness of the west. Sen. Murkowski commented that it is unfair to criticize the concept of deregulation by looking at the California model, describing the California approach not as deregulation but as a structural shift in the nature of the overall electricity market. He noted that there are perils associated with the fact that 25% of California’s energy comes from outside of the state, and he attempted to draw a parallel with the fact that the nation imports 56% of its oil from other countries. Noting that neither FERC nor the Secretary of Energy was represented at the hearing, Chairman Murkowski opined that some think that this is California’s problem and that the state should work to resolve it before the federal government is brought in.

The committee’s Ranking Minority Member Sen. Jeff Bingaman (NM) noted that the fortunes and failures of all of the western U.S. are related, and he criticized arguments to open the Alaska National Wildlife Refuge (ANWR) to oil drilling as a proposed answer to California’s energy crisis, saying that only 1% of California’s power comes from oil fired generation. He also rejected arguments by the new Bush Administration that this is a California problem and should be handled by California.

Senator Dianne Feinstein thanked Energy Secretary Spencer Abraham for extending the emergency orders on electricity. She read from a letter from Governor Gray Davis to Sens. Murkowski and Bingaman, noting that the state has been working in four areas to solve this crisis: 1.) Increasing the energy supply through expedited plant construction and other sources of power generation. 2.) Decreasing energy demand and increasing energy efficiency. Expanding the use of long-term bilateral energy contracts rather than relying on the spot market. 3.) Maintaining the viability of California’s public utilities. 4.) Reversing until at least 2004 the "divestment" provision of the 1996 deregulation bill, which required the utilities to sell off all non-nuclear and non-hydroelectric generation plants.

At the hearing, Feinstein asked the Committee to consider legislation that she sponsored to permit the Secretary of Energy to set Western regional cost-of-service and reasonable profit based rates on wholesale power or a temporary wholesale rate cap. Under the bill, the establishment of such measures would be contingent upon the Federal Energy Regulatory Commission finding that "unjust" and "unreasonable" wholesale energy rates were being charged and the Commission failing to take action itself. The governor of any state within the Western regional could opt-out of the program. She also urged that State PUC "respond and allow the utilities to charge a reasonable rate of recovery, perhaps one that is now being considered by the Legislature that would target consumers who exceed their `baseline’ power allowance by more than 30 percent." She stated that this would exempt the basic level of usage from price hikes and encourage conservation. Sen. Feinstein noted a recent study by the Los Angeles County Economic Development Corporation which concluded that California’s rolling blackouts and interrupted service have taken an estimated $ 1.7 billion toll in direct and indirect costs on the economy. "When the lights go out, we suffer from lost wages, lost sales, and lost productivity," she commented. Sen. Feinstein also expressed support for legislation to promote energy efficiency.

Senator Barbara Boxer testified that strict federal environmental laws were not the cause of the shortage of power supplies in the state. She noted that FERC is charged with regulating transmission and wholesale sales of electricity, so their claims that they have no authority over the process is simply wrong. FERC, she noted, expressly found that the wholesale rates charged to California utilities were unjust and unreasonable. Sen. Boxer also noted that she supports the Feinstein bill and that she and Rep. Bob Filner (San Diego) have a bill dealing with wholesale prices in California. She commented as well that California’s deregulation did not constitute complete deregulation of the market.

Southern California Edison CEO Stephen Frank stated that SCE has incurred $4.5 billion in undercollections as of the end of 2000, and he noted that California paid nearly $21 billion more for wholesale electricity in 2000 than id had paid the year before, a nearly fourfold increase. Mr. Frank said that, "While there is much that California can and should do, there is also a clear need for immediate federal action. Under the Federal Power Act, only the federal government has authority over wholesale rates. … The law unequivocally requires that FERC set just and reasonable rates; the courts have made clear that FERC may depart from cost-based pricing and permit market-based pricing only where it finds that the markets will restrain prices to just and reasonable levels. The FERC cannot continue to rely on an overly doctrinaire approach to competitive markets when the markets are not sufficiently competitive to control prices and ensure fair rates." He urged the imposition of temporary cost-based price caps or load-differentiated price caps, stating that "[t]hose sellers who truly have high costs will be allowed to recover those costs, including a reasonable return on their investment, but only when their high priced power is needed to keep the lights on."

Steve Kline of PG&E emphasized that the current situation is California’s problem is fundamentally one of supply and demand, stating that "statewide, between 1996 and 1999 electricity demand grew by 5,500 MW, while supply grew by only 672 MW. The effects of this extreme imbalance between supply and demand have been exacerbated by reduced hydropower supplies and rapid economic and population growth across the West." As a prescription for the state’s woes, Kline suggested that "new clean and efficient power plants must be sited and built, together with natural gas transmission and distribution pipelines and high voltage power transmission lines. In order to reduce demand, energy efficiency investments need to be made and customers need to see accurate price signals. In the short-term, efforts to squeeze additional power from existing power plants and greatly expanded demand-side management need to be encouraged." He also urged the federal government to encourage Regional Transmission Organizations and truly open access transmission systems.

Fred John of Sempra Energy stated that a solution to the state’s energy problems involves four areas: 1.) Long-term contracts for wholesale electricity at reasonable prices; 2.) State approval of appropriate retail rate relief to help the state’s investor-owned utilities manage their growing account undercollections; 3.) An expedited siting process for new generation, transmission and gas transmission facilities; and 4.) An aggressive energy efficiency program that provides real incentives for customers who conserve energy and penalties for those who do not. Specifically, Mr. John stated that "We need a sanctioned ‘time out’ so that market participants can work together to reach agreement on a reasonable price for the electric commodity. The solution is to provide an incentive structure for the supply side of the market to negotiate in good faith with the demand side to get the state through the current crisis. For that we need federal action. The suppliers must be required to enter into long term contracts for a reasonably priced electric commodity, or face federal sanctions: either a federally-imposed fixed hard cap on the wholesale price of electricity or cost based rates." He added, "If the FERC continues its unwillingness to impose hard caps on the wholesale price, we believe Congress must intervene and direct FERC or the Secretary of Energy to take such action immediately."

Curt Hildebrand of Calpine, a California-based independent power producer, recommended that the federal government review process – which includes multi-agency action – should be coordinated and streamlined to allow all permits to be issued, after appropriate notice and comment, on a timely basis, adding "Federal and state agencies should adhere strictly to established deadlines in order to allow for the orderly construction of new power plants in a timely manner." He urged modernization of plants, noting that "the nation’s current electricity-producing infrastructure is aging: 45 percent of the nation’s power plants are over 25 years old." Three of the first four new power plant projects under construction in California are Calpine projects. Hildebrand recounted the difficult siting and approval processes the company’s proposed plants faced, especially with regard to EPA approval, and he also described difficulties, including a ballot loss, in siting a plant in San Jose. He recommended that the PSD program under Title I of the Clean Air Act be revised to eliminate delays – sometimes in the form of an "automatic stay" – triggered by permit challenges where key issues already have been through extensive governmental review. He also urged clearly defined, standardized, and set deadlines for federal and state agencies to complete their review of permit applications. And finally, he asked that EPA not automatically stay construction of new power plants merely because an appeal of a permit has been filed, suggesting rather that EPA should consider issuing a stay only when a challenge presents clear and substantiated evidence that EPA may wrongly have approved a permit.

Richard Ferreira of the Sacramento Municipal Utility District testified that the state’s situation is bleak. He expressed support for President Bush’s decision to create a task force on the problem, headed by Vice President Dick Cheney. He said that, "California will take certain steps to ameliorate the current crisis, but many of the problems must be addressed on a regional basis. Only the federal government can accomplish regional solutions."

Sen Larry Craig (IL) lamented the lessening of the price breaks that the Pacific Northwest has enjoyed for many years on the price of electricity. He said that when his constituents receive power bills reflecting a 90% increase in the cost of electricity over the next couple of years, "I am suggesting to consumers in Idaho that they send the bills to California."

On Thursday, a press report quoted a House counterpart as opposing federal intervention. When asked whether the federal government might provide resources to repair the California energy problem, Rep. Joe Barton (TX), Chair of the House Energy and Power Subcommittee, responded "That will not happen. There is no way on God’s green earth that is going to happen, for U.S. taxpayers to pay."

Testimony by many of the hearing’s witnesses are online at the committee’s website, at .


California Passes Electricity Plan

In a related matter, the California State Assembly passed and Governor Gray Davis signed Thursday evening a bill which will attempt to remedy the power situation in California. The Assembly found three additional votes for the plan, which passed by the minimum 54-vote two-thirds majority in the 80-member Assembly. The bill, AB 1X authored by Assemblyman Fred Keeley (Boulder Creek), Assemblywoman Carole Migden (San Francisco), and Assembly Speaker Robert Hertzberg (Sherman Oaks), permits the state to spend up to $500 million (in addition to the $400 million already spent) to purchase electricity on the spot market while reaching more affordable long-term contracts with power wholesalers.. For details on the California plan, see the State Assembly’s website at . For a summary, see Governor Davis’ website at .


Paul Cunningham to Direct Governor’s Washington Office

On Thursday, February 1, Governor Gray Davis announced the appointment of Paul G. Cunningham as Director of the California Governor’s office in Washington D.C. Mr. Cunningham has been the legislative director for late Congressman Julian C. Dixon since 1995. For that office, his legislative responsibilities included defense, transportation and commerce department appropriations, with emphasis on securing funding for specific state and local interests. From 1993 to 1995, Mr. Cunningham was an appropriations associate for Congressman Dixon with primary responsibilities for transportation, the Federal Emergency Management Agency and earthquake relief. He earned a bachelor of arts degree from Dartmouth College.


California Leads Nation In Manufacturing Jobs

According to Commerce Department’s Census Bureau Data, almost 2 million people were employed in manufacturing jobs in California in 1998. This is higher than any other state and almost 1 million more than in the two next highest states, Ohio and Texas with 1 million people respectively.

The Census Bureau report, 1998 Annual Survey of Manufacturers, Geographic Area Statistics, M98 (AS)-3 provides data on the number of employees, production workers, value added by manufacture, and new capital expenditures for manufacturing establishments in the U.S. and the individual states in 1997 and 1998. The report examines data from such manufacturing industry groups as food, apparel, lumber, chemicals, computers and transportation equipment.

Nationally according to the report there were approximately 17.1 million workers employed by manufacturing companies in 1998. In California, of the 2 million people employed in manufacturing jobs, 393,000 were in computer and electronic and 181,000 were in transportation equipment manufacturing which includes aerospace products. The report can be viewed at the Census Bureau website: .

U.S. Commerce Department Issues Report on Runaway Film Production

The U.S. Department of Commerce recently released a report entitled The Migration of U.S. Film and Television Production, which provides data on the practice of film production outside the U.S. The report examines causes of production migration, particularly with respect to key states such as California, New York, Illinois, Texas, Florida and North Carolina. The report also gauges the effect of this loss of film and televison production on the economies and communities of these key states and on the U.S. in general.

In examining the effects of film migration on the State of California, the report points out that while the entire U.S. generated 226,000 jobs in entertainment in 1996 and dispensed $27.5 billion in total expenditures, including payroll and vendor expenditures, Los Angeles County alone accounted for $25.6 billion of this total economic activity. California accounted for 81% of all motion picture starts in the U.S. and 80% of television programming. However according to the report, California has been significantly negatively impacted by "runaway film production."

The report presents data demonstrating that as production of films and television programs have decreased in the U.S., and particularly in California, they have increased in other countries, particularly Canada. It is estimated that televison production flight increased 230% from 1990 to 1998. More specifically with regards to Movie of the Week (MOW) productions, California’s Movie of the Week production, which accounts for about half of the U.S. MOW production, is steadily declining. Canada’s MOW production, on the other hand, grew from 122 productions in 1998 to 154 in 1999. In terms of weeks of production, California had a total of 152 weeks of MOW production in 1999 compared to Canada’s 696 weeks of MOW production.

Runaway film production according to the report is caused by a number of factors, including rising production costs in the U.S., new technologies impacting the location of film production, as well as practices by foreign governments to attract film production such as wage and tax credits and training programs. The report also examines ideas developed within the industry to alleviate some of the problems associated with runaway film production.

The report can be viewed in its entirety at the Department of Commerce website: under the International Trade Administration or directly at http://www.ita.doc/media/migration11901.pdf .


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