Senate Banking Reports Export Administration Reauthorization

House Commerce’s Energy Subcommittee Holds FERC Commissioner Hearing

Energy and Air Quality Hears Second Day of Testimony on Electricity Markets in California

EPA Reverses Arsenic Rules

California Space Week

INS Says Requests For H-1B Visas Are Down

Census Corrects Estimates on Undocumented Immigrant Population

Report on CEQA Released

California Counties and Cities Visit Capitol Hill, State Legislators Due Next Week

Institute of Regional and Urban Studies Releases Economy Report

Violent Crime Rises in California’s Large Cities

Senate Banking Reports Export Administration Reauthorization

On Thursday, March 22, the Senate Banking, Housing and Urban Affairs Committee, chaired by Sen. Phil Gramm (TX), reported S. 149, the Export Administration Act of 2001, after unanimously substituting a Manager’s Amendment for the introduced bill. The vote to report was 19-1. The Manager’s Amendment incorporates changes negotiated between the Committee and the Administration. The markup had been postponed from last week while the agreement was worked out.

The bill, as reported, establishes a definite time frame for executive branch consideration of export licenses and sets up an interagency dispute resolution procedure for cases where the relevant agencies can not agree on an export license application. It also allows the Secretary of Commerce to remove controls on an item that has been determined to have foreign availability or mass-market status. The Secretary is required to make foreign availability or mass-market status determinations within six months of receiving a petition for such status. These provisions have been strongly supported by the computer and electronics industry, as necessary to remove hindrances to the export of next generation computers and equipment.

The changes made by the Manager’s Amendment generally reflect an effort to strengthen the President’s ability to impose export controls where national security, anti-terrorism, end-user concerns, and international obligations are involved. Other major changes include the deletion of Title IV of S. 149, which exempted from export controls agricultural commodities, medicine, and medical supplies. The Amendment also reduces the penalties for violations under the bill. Criminal penalties are reduced from a maximum of $10 million to $5 million, and civil penalties from a maximum of $1 million to $500,000.

During the markup two amendments were approved unanimously. The first, offered by Sen. Mike Enzi (WY), would sunset the Act on September 30, 2004, unless the President submits a report to Congress detailing the implementation of the Act and the operation of U.S. export controls in general, and proposes reforms to the Act, or certifies that no reforms are necessary. The second, offered by Sen. Bob Bennett (UT) and supported by the Chair and Sen. Jack Reed (RI), repeals the provisions of the 1998 National Defense Authorization Act which require the President to use MTOPS (millions of theoretical operations per second) to set restrictions on the export of high-performance computers. Instead, the overall capacity of the computer will be weighed in making the decision on whether to allow its export.

Further information on the markup and the bill’s provisions can be obtained through the Committee’s website at: www.senate.gov/~banking.

House Commerce’s Energy Subcommittee Holds FERC Commissioner Hearing

On Tuesday, March 20, the Energy and Air Quality Subcommittee of the House Commerce Committee held a hearing to focus on the California electricity crisis, featuring testimony from the three commissioners of the Federal Energy Regulatory Commission (FERC). Seventeen Committee members made statements, as did each commissioner.

Subcommittee Chair Joe Barton (TX) stressed the importance of California’s working to approve new generating facilities, stating, "If there are things that can be done at the federal level to help California and the West, we will do them, but California needs to do something too." Ranking Democrat Rick Boucher (VA) noted that the FERC is obligated by law to review the wholesale sales framework but has limited authority over how it works, and he noted that there have been questions about FERC’s authority and willingness to intervene in the California situation, as well as about the effects of California’s proposal to take over transmission lines. Full Committee Ranking Democrat John Dingell (MI) noted the spillover of California’s problems to other states as "involuntary participants." He commented that while the problems were caused by Californians and remedies should be undertaken by Californians, there is an appropriate federal role as well. He cited the provisions of Section 206 of the Federal Power Act, which require FERC action upon a finding of unjust and unreasonable wholesale rates and commented "the law is not a matter of opinion for the commissioners." He added, "The role the FERC has played in this fiasco is worth reviewing."

Rep. Christopher Cox (Newport Beach) recounted his experience the day before with a power outage during a facility tour in his district, and he expressed concern about the state’s proposal to acquire the transmission system. Rep. Henry Waxman (Los Angeles) expressed support for temporary price caps to stabilize the wholesale market, and he noted that there are already price caps in place in three ISOs in the Eastern U.S. Rep. Mary Bono (Palm Springs) emphasized the distinction between long- and short-term price actions, and she expressed concern about the lack of reliable and plentiful supplies of natural gas, suggesting that a west-wide regional authority (RTO) for natural gas would be a valuable remedy. Rep. Jane Harman (Rolling Hills), who is a full committee member but not on the subcommittee, commented that the California energy crisis is neither a partisan issue nor a California-exclusive issue, and she urged that FERC act to help solve the problem.

Many other members of the committee commented that this is not just a California problem, though there were a wide range of views regarding whether and how to intervene. Rep John Shimkus (IL) described himself as "avidly opposed" to price caps and "fearful" of the State getting more involved in the market as a transmission grid owner. Several colleagues joined him in that view. On the other hand, in a view shared by a number of his colleagues, Rep. Ed Markey (MA) urged that FERC "act and act quickly" to implement short-term price caps upon a finding of market power and price abuses.

FERC Chairman Curt L. Hebert said that price caps are not a long-term solution and would send the wrong signal to potential future power providers and those who might be motivated to improve the transmission infrastructure. Commissioner Linda Breathitt stated that she fears a desirable move toward greater competition in the electricity marketplace may be jeopardized or perhaps even suspended because of the California situation because states will be fearful of replicating the problems. She noted that FERC has scheduled an April 6 meeting in Boise, Idaho, to further assess the problems and to specifically discuss the transmission grid. She commented that she views the issue not as one of who owns the grid (public or private sector interests), but rather as whether the system is operated in an open and nondiscriminatory fashion. Commissioner William L. Massey likened the current Western power grid status to "standing at the edge of an abyss." He added, "We know there will be a shortage this summer. Markets have told us that withholding power can be a highly profitable strategy. The market is severely dysfunctional. And we know that soaring prices will not bring a single megawatt of new generating capacity online for this summer." He advocated a wholesale price cap, which could be based on the cost of the power plus a reasonable rate of return. Suggesting that FERC has authority to act, Commissioner Massey commented that, "in federal law, there is no exception for bad state law, and there is no exception for poorly functioning markets."

In questioning, Ranking Member Boucher commented that there were more than 7,700 transactions in January which were above the $273 per Mwh threshold set by the FERC as unjust and unreasonable, but which were not subject to refund action because they were not entered during the hours of a near-blackout Stage 3 alert in California. He asked why the majority at FERC (two of the three commissioners) voted to apply the refund order only to this small percentage of cases. Commissioner Massey, the dissenting FERC member, agreed and called this aspect of the order "arbitrary and an abuse of discretion." Massey commented that the order should have applied "even more" to non-Stage 3 situations and he speculated that order seemed geared solely to limiting the amount of refunds which would have to be paid by violating generators. He added that there were only two hours of Stage 3 alerts during the entire year of 2000, yet FERC found unjust and unreasonable rates and a dysfunctional market, and that the threshold price in February was set even higher: $430 per Mwh.

In a subsequent exchange, both Boucher and Massey criticized the methodology for setting those prices — using the cost of operation for the three least efficient power plants sold off by the utility companies — as having nothing do to with abuses of market power. Commissioner Breathitt defended the practice as a good way to define the market-clearing price because those plants would be the last ones called into service.

Chairman Barton expressed concern that setting a cap alters the playing field for participants who made deals prior to imposition of the cap, a position with which Commissioners Hebert and Breathitt concurred. Responding to criticism by Rep. Shimkus that a price cap would dampen interest in development of new generation capacity, Commissioner Massey suggested exempting all new generation from a price cap. He also noted that prices have been in the $50 per Mwh in the PJM (Pennsylvania-New Jersey-Maryland) power market, while they have been ten times that in California, yet there are generators "clamoring to enter the PJM market and build capacity at that price because there is stable and healthy market function."

Rep. Waxman cited a recent MIT study that showed generators selling into California exercised $1 billion of market power, mostly in the form of withholding power in order to drive up prices. Commissioner Massey again criticized as arbitrary FERC’s distinction between ordering refunds based on whether or not a Stage 3 alert was underway, likening it to searching for a wallet under a lamppost because the light is better. Rep. Markey argued that Congress is quick to take care of farmers in the Midwest during a drought, but when the West is facing the worst drought in 100 years, the federal government is refusing to step in. He cited a recent study showing that California’s energy cost was $7 billion in 1999 and may be $70 billion in 2001, and added, "If the price of Wonder bread went from $1.39 per loaf to $13.90, we in Washington would be very concerned." Rep. Albert Wynn (MD) opined that the distinction in this matter should not be between price caps and market signals but rather between caps and gouging.

Rep. John Shadegg (AZ) stated that he leans against price caps and expressed concern that Californians may not understand the gravity of the crisis, citing the recent voter rejection of a new power plant in Southgate. He also advocated the concept of "negawatts," whereby consumers are paid for shedding power, and argued that a higher retail price would encourage the practice. Rep. Steve Largent (OK) criticized a recent FERC action criticizing two companies, Williams and AES, and commented that it is unfair to hold companies responsible with an uncertain view of the definitions of market power and "unjust and unreasonable."

Chairman Barton expressed concern that a number of small alternative energy suppliers — known as qualifying facilities or QFs – have shut down recently because they are unable to operate without payment, cutting potentially 1,500 MW of power. (Governor Gray Davis proposed a plan this week to ensure payments to these QFs for a 5- or 10-year period at a price certain.) Barton also discussed whether FERC should have a hand in the plant-permitting process, while Commissioner Breathitt responded she would support a FERC role in transmission permitting.

Asked by Rep. Markey whether an immediate investigation under Section 206 was in order, Commissioner Hebert replied not yet, Commissioner Massey replied yes, and Commissioner Breathitt replied that she is willing to examine price mitigation but only under certain conditions, urging that public power should play a larger role and backing increased bilateralism. Asked for a date for the "last clear chance" to avoid summer catastrophe, Commissioner Breathitt replied June, Commissioner Hebert replied that there are many issues outside the authority of FERC, and Commissioner Massey replied now (he noted that a 206 action requires a 60-day waiting period, so even an action filed now could not produce results until mid-May).

At the conclusion of the hearing, Chairman Barton said that he, Rep. Boucher, and other interested committee members would meet over the weekend to decide whether and how the panel should act. He said, "If we’re going to do something, we’re going to have to do it within the next month. Copies of the testimony of all the witnesses is available on the Committee’s website at: www.house.gov/commerce.

Energy and Air Quality Hears Second Day of Testimony on Electricity Markets in California

The House Energy and Commerce Subcommittee on Energy and Air Quality held a second hearing on the Electricity Market in California on Thursday March 22. Witnesses providing testimony included: Hon. William Keese, Chairman, California Energy Commission; Dr. Alan Lloyd, Chairman California Air Resources Board; Mr. S. David Freeman, General Manager of Los Angeles Department of Water and Power; Mr. Steve Kline, Vice President Federal, Governmental and Regulatory Relations at Pacific Gas and Electric Company; Mr. Jim Pope, Electric Utility Director at Silicon Valley Power; Mr. Larry Makovich, Senior Director of Cambridge Energy Research Associates; Mr. Mark Cooper, Director of Research Consumer Federation of America; and Mr. William Hall, Vice President Western Region Duke Energy North America.

Mr. Keese indicated in his testimony that, with the leadership of Governor Davis, California has developed an "aggressive plan of attack," working to restore stability to the marketplace, bring down prices and ensure adequate electricity supplies. He outlined a set of initiatives in four fundamental areas which include: increasing energy supplies through expedited power plant construction and other sources of power generation; decreasing energy demand and increasing efficiency; expanding the uses of long-term energy contracts, rather than relying on the volatile and expensive spot market; and maintaining the financial viability of California utilities.

Dr. Lloyd also discussed the strategy developed by the Governor and the State to address the current crisis. He emphasized the major component of the plan, which is to increase energy supplies by expediting the construction of power plants and other sources of generation, and indicated a plan to bring 5,000 megawatts on line by this summer and 20,000 megawatts by 2004. Mr. Lloyd stressed that the State can accomplish this goal within the existing framework of California’s air quality regulations and that environmental laws are not barriers in bringing new generation on line.

Other witnesses provided testimony on the causes of the current energy crisis in California and possible solutions. Mr. Kline suggested solutions for California include: bringing power plants not currently operating back on line; siting and building additional "peaking" power plants; and implementing emergency demand reduction efforts. Mr. Makovich’s suggestions were similar as he indicated the state must reconnect demand to the market, find more conservation and interruptible load on the demand side, add greater flexibility in legal and environmental limits on the power supply side, reactivate generating units, and expedite permitting and construction of power development already underway.

While many of the questions from subcommittee members focused on whether the crisis would worsen in the summer months and on the plan developed by the Governor to address the problem, several members had questions on the impact of the California electricity market on surrounding states. Several members also asked the panel to address an issue covered in a March 22 Los Angeles Times article regarding wholesale electricity suppliers overcharging California by $5.5 billion between May 2000 and February 2001. The article alleges that the California Independent System Operator (ISO) found in a study that generators engaged in market manipulation. The story also states that the companies deny the accusations of Cal-ISO. To obtain copies of the testimony from the hearing please visit the subcommittee’s website at http://www.house.gov/commerce .

EPA Reverses Arsenic Rules

Christine Todd Whitman, Administrator of the Environmental Protection Agency (EPA), announced on Tuesday, March 20, that EPA would revoke the rule reducing the acceptable amount of arsenic allowed in drinking water. The rule had been promulgated in the last months of the Clinton Administration. EPA argues, however, that the evidence on the need to reduce arsenic in drinking water was not conclusive enough to justify the costs that would be borne by state and local municipalities and industries.

Arsenic in drinking water can occur naturally or as the result of pollution and mining. The Safe Drinking Water Act Amendments of 1996 called for revising the arsenic standard, and the rule proposed by the Clinton Administration would have reduced the allowable amount from 50 parts per billion to 10 parts per billion – the first reduction in arsenic standards since the 1940s. Whitman, however, in making the decision to revoke the rule argued that "there is no consensus on a particular safe level" of arsenic in drinking water. Proponents of the rule argue that its revocation will place 34 million Americans at risk from elevated arsenic levels. The National Academy of Sciences has concluded that arsenic in water can cause several types of cancers.

To finalize revocation of the rule, EPA is required to initiate an administrative procedure that will include a public comment period.

California Space Week

California Space and Technology Alliance/The California Space Authority will host the Third Annual California Space Week in Washington, D.C., during the week of March 26. Twenty-one representatives of California’s space community, including industry and academia, will participate in the week’s activities. Groups will meet on Tuesday, March 27, and Wednesday, March 28 with members of the California Congressional Delegation and the state’s two Senators. A Congressional reception on Wednesday evening will conclude the Capitol Hill meetings. On Thursday, March 29, CSTA and its partners will meet with executive branch officials.

Four issues will be focused on during the legislative and executive branch, including: (1) export licensing of satellites, satellite components, launch vehicles and related technical data by the U.S. Department of State; (2) spaceport bonds; (3) DOT matching grant program for space transportation infrastructure; and (4) space-related education initiatives.

INS Says Requests For H-1B Visas Are Down

The Immigration and Naturalization Service announced this week that applications for H-1B visas for skilled foreign workers have dropped significantly over the last year. In February 2001, for example, 16,000 applications were filed, whereas in February 2000 the figure was 32,000.

Overall, from October 2000 through March 2001, INS approved 72,000 applications versus the 100,000 approved over the same period a year ago. The numbers can not be compared exactly, however, because certain categories of visas are exempt from the annual cap. Last year when Congress raised the cap from 115,000 to 195,000, it also exempted from the cap foreign workers hired by universities and other research institutions. Thus, if workers in this group were included in the current application statistic, it might be somewhat higher. Nevertheless, INS agrees that the rate of applications received and processed has slowed compared to last year.

Census Corrects Estimates on Undocumented Immigrant Population

The U.S. Census has revised upward its estimate of the number of undocumented immigrants living in the United States. Initially, Census had estimated that there were approximately six million illegal aliens in the U.S. Now, however, experts analyzing the data feel that number is more likely nine million, and may go as high as 11 million.

Census, based on births, deaths, and other records, had predicted that the U.S. population would be about 275 million. Instead, the population found through the Census was 281.4 million, which was subsequently bumped up to 285 million. The Bureau admits that the most likely explanation for that increase is the undocumented population living in the United States. John Long, Chief of the Census Bureau’s Population division, said: "Immigration – unmeasured immigration – is the thing we are looking at. The biggest candidate is . . . undocumented" immigrants.

Some experts hypothesize that rather than reflecting a new influx of illegal immigration, the increased number may be attributed to the fact that the 2000 Census was able to count more undocumented residents, who have been living here for a number of years. Historically, most undocumented aliens are Latino and 40 percent reside in California. Whether that continues to hold true under the 2000 Census has not yet been determined.

Report on CEQA Released

A report, entitled Fixing CEQA: Options and Opportunities for Reforming the California Environmental Quality Act, was recently released with the assistance of UC Berkeley’s Institute of Urban and Regional Development. John D. Landis, Associate Professor of City and Regional Planning at the University of California at Berkeley, Robert Olshansky, Assistant Professor of City Planning at the University of Illinois, Champaign/Urbana, Rolf Pendall Assistant Professor of Community Planning at the University of Rhode Island, and William Huang, a doctoral candidate in City and Regional Planning at UC Berkeley, authored the report.

The report begins with a summary of the current state of CEQA law, including the provisions of the 1993 CEQA Reform Act, followed by a comparison of CEQA with analogous environmental review laws in 16 other states as well as Puerto Rico and the District of Columbia. Next, using survey data from the University of Illinois, it summarizes the range of local CEQA review activities as of 1990. It then explores in detail the current state of CEQA administration in 12 California cities and two counties. The report concludes with five sets of reform proposals which the authors believe would make CEQA fairer to all parties, more effective at identifying and mitigating environmental impacts, and more successful at improving California’s unique environment.

The full report can be obtained through the University’s website at: http://www.ucop.edu/cprc/ceqa.html.

California Counties and Cities Visit Capitol Hill, State Legislators Due Next Week

In Washington, the month of March is a busy one for intergovernmental relations as representatives of cities, counties and states make their annual visits to Capitol Hill. During the second week of March, the California State Association of Counties was in Washington in conjunction with the National Association of Counties’ legislative conference, and many California county officials attended the event. During the conference, CSAC officials met with members of Congress and their staffs to discuss the association’s federal priorities for 2001. CSAC leaders focused on the State Criminal Alien Assistance Program, the Social Services Block Grant, the Local Law Enforcement Block Grant, Medicaid, and several other county-related issues. The CSAC contingent met with Senators Dianne Feinstein and Barbara Boxer, as well as several members of the California House delegation, the Governor’s Washington staff, and representatives from the executive branch. In addition, the CSAC visit included a briefing featuring Pam Barry, executive director of the California Democratic Congressional Delegation, and Mary Beth Sullivan, legislative counsel for the California Institute, which addressed a wide variety of issues facing California in the 107th Congress.

The following week, California City Councilmembers and Mayors visited Washington as part of an annual National League of Cities event. The California League of Cities hosted a reception featuring remarks by various municipal officials as well as by White House Intergovernmental Affairs Director Ruben Barrales. A Capitol Hill breakfast included comments by Rep. Jerry Lewis (Redlands), Chair of the California Republican Congressional Delegation, and California Democratic Congressional Delegation Chair Sam Farr (Carmel). Reps. Christopher Cox (Newport Beach), Adam Schiff, and Bob Matsui also addressed the group. The California League of Cities representatives also met with Sens. Feinstein and Boxer.

Finally, during the last week of March, California’s bipartisan State Legislative leadership will be in Washington to meet with House leaders, the California Congressional delegation, and Administration officials. Further information about these events will be available in next week’s Bulletin.

Institute of Regional and Urban Studies Releases Economy Report

The Institute of Regional and Urban Studies recently released a report entitled The Future of Work and Health: Five Years of Strong Economic Growth, The Impact on Poverty, Inequality and Work Arrangements in California. Funded by the California Wellness Foundation’s, Future of Work and Health Program,  the Institute completed a five year examination of economic and workplace trends in California.

The report indicates that between 1995 and 2000 jobs in California increased by 17.2% compared to 12.3% in the nation, and with this the unemployment rate in December 2000 was down to 4.6% from 9.7% during the early 1990s. As a result of the state’s strong job growth, the poverty rate has also declined from 18.2% in 1993 to 13.6% in 1999.

Some of the other principal findings in the report are: there have been improvements in wage levels for low skilled workers; workforce programs geared toward helping low skilled workers have become critical elements in helping families move out of poverty; and health insurance and child care remain major problems for many families.

The report also outlines the following four principal strategies for helping low income families: economic growth; income support policies, including minimum wage, earned income tax credits, and subsidies for health care and childcare; revitalizing the states urban area; and workforce investment policies that shift emphasis from helping people get jobs to helping people prepare for better jobs and careers. The report can be viewed in its entirety at the Institute of Regional and Urban Studies website: http://www.irus.org .

Violent Crime Rises in California’s Large Cities

According to a crime report released by State Attorney General Bill Lockyer on Tuesday March 20, serious crime increased by 3.5% in 2000 in cities with populations of more than 100,0000. The preliminary report, entitled Crime 2000 In Selected California Jurisdictions, January through December, compares crime rates for six offenses for 77 jurisdictions with populations over 100,000.

The report includes statistics for the following six major crime categories: homicide, forcible rape, robbery, aggravated assault, burglary and motor vehicle theft. Crime rates in each of these categories increased from 1999 to 2000 with a 3.9% increase in homicide, a 6.6% increase in forcible rape and 8.9% in motor vehicle theft in major cities.

This increase in crime reported by the Attorney General is the first increase in crime in the state in eight years. The cities seeing the highest increase in serious crime are Daly City at 22.9%, Santa Clara at 17.7%, Santa Rosa at 13.6% and Los Angeles at 12.1%. Though overall major cities saw an increase in crime, some cities, including San Francisco, Hayward, and Fremont, had decreases in crime at -1.7%, -5.5% and -4.6% respectively. The city of Oakland also had an overall decrease in crime at -14.2% but had an increase in homicide of 33.3% and in forcible rape of 4.9%.

The report from the Attorney General can be viewed in its entirety at http://www.caag.state.ca.us.

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