Transcript Manufacturers in California The engine of growth is still

Manufacturers in California
The engine of growth is still in the shop
Dorothy Rothrock
VP Government Relations
California Manufacturers & Technology Association
The Engine of the Economy
• What’s so great about manufacturing?
• What’s happening to manufacturing in California?
• California energy woes hurt manufacturers more than
anyone else.
• What can be done about it?
• Can manufacturing be saved?
What’s So Great About Manufacturing?
• Manufacturing jobs pay especially well.
– *Average pay is over $57,000 per year, as compared to California’s
median income of $37,298.
– *Only Californians with an advanced degree had higher median
annual earnings – $65,101.
• Manufacturing jobs have an economic multiplier effect two
to three times greater than that of other jobs.
• Manufacturing jobs are the ticket to the middle class,
especially for California’s growing Latino population.
– Loss of these jobs has the greatest impact on Latino families.
*2000 U.S. Census
Is California Losing Manufacturing Jobs?
Yes, at a rapidly accelerating rate.
 Nearly 400,000 jobs lost between 1990-2003 (13 yrs.)
 288,000 jobs lost between 1998 – 2003 (5 yrs.)
 348,000 jobs lost between Dec 2000 – Aug 2004 (less
than 4 yrs.)
Jobs Over the Last 20 Years
Manufacturing vs. Services vs. Govt.
Manufacturing in California
Perception Vs. Reality
PERCEPTION
REALITY
Global economy is the
reason for job losses in
California.
California has lost jobs to
every state in the union,
including states that are
equally or more expensive.
Manufacturing in California
Perception Vs. Reality
REALITY
PERCEPTION
California is gaining
jobs and businesses.
The jobs we are losing pay
more than the ones we are
creating.
The companies
leaving are more mature and
generate greater economic
output than the companies that
are staying or starting
operations in California.
Manufacturing in California
Perception Vs. Reality
REALITY
PERCEPTION
The legislation aims to
protect workers and
create
an
improved
workforce and quality of
life.
Job losses have accelerated in
the last four years. Latinos are
disproportionately
impacted.
Accelerated job loss is largely
due
to
business-unfriendly
legislation and resulting costs
(workers comp, healthcare, paid
time off, employer liability, etc.)
Manufacturers and Energy
• How the energy crisis hit manufacturers
hard
• Utility Rates and Exit Fees for Direct
Access
• Supply Concerns
PG&E Average E-19 Rate
16
Cents/kWh
14
12.6¢
12
12.5¢
CPI
10
8
E-19 Rate
9.6¢
6
4
93
94
95
96
97
98
99
00
01
02
03
04
PG&E Average E-20 Rate
12
10.5¢
Cents/kWh
10
CPI
9.4¢
8
E-20 Rate
6
7.2¢
4
93
94
95
96
97
98
99
00
01
02
03
04
PG&E Average
Residential Rate
18
CPI
16
Cents/kWh
16.0¢
14
12
12.5¢
12.3¢
Residential Rate
10
8
6
4
93
94
95
96
97
98
99
00
01
02
03
04
Compare PG&E Class Average Rates to the System
Average Rate: June 1996 vs. July 2004
Cents/kWh
Jun-96 % of SAR Jul-04 % of SAR Dollar Shift
Millions*
Residential
11.87
126%
12.55
98%
9.9
105%
14.14
110%
E-19
8.72
93%
12.77
100%
E-20
6.48
69%
10.62
83%
E-20-T
4.7
50%
8.83
69%
System
9.4
100%
12.8
100%
Comm (A-10)
$
(1,040)
*The reduction of the current Residential class average rate from 126% to just 98% of
the current system average rate, saves residential customers $1.040 billion/year.
Much of the Higher Revenue
Requirement is Locked in, at Least
Through 2012
• DWR undercollection is bonded through 2022
at 5 mills/kWh
• DWR contract portfolio runs through 2012 at
a current average cost of 9 cents/kWh
• PG&E’s $2 billion regulatory asset is set for 9
years at roughly 6 mills/kWh
• Edison QF contract portfolio has an average
cost of 7.9 cents
Direct Access Rates Are High, Can
Exceed Bundled Rates
•
•
•
•
•
Energy Cost – Spot/2 yr block
3.5-5.5
ISO Costs
0.5
Utility T&D (Trans. Customer)
1.0
Capped CRS
2.7
Total
7.7-9.7
– Note that Edison’s bundled rate for
transmission customers is currently
7.6 cents and PG&E’s is 8.8 cents.
Estimated Sources of Supply
2005 -- 79,900 GWh
Other
6.4%
QFs
25.2%
DWR
Must-Take
27.2%
Other = DWR dispatchable, other contracts
market purchases and sales, etc.
Diablo
Canyon
21.1%
Fossil
1.2%
Hydro
18.9%
PG&E and Edison Propose Just Slight
Reductions for Large Industrial Rates
• PG&E’s E-20 rate would fall from 10.6
to 9.7 cents (E-20T from 8.8 to 8.6
cents)
• Edison’s TOU-8 rate would drop from
10.3 to 9.95 cents
• But, Edison’s TOU-8-Sub rate would
actually increase from 7.6 to 8.0 cents
– A return to the 1996 relationship would
drop this rate from 7.6 to 5.5 cents
Will the CPUC Permit Even These
Modest Residential Increases?
• AB 1X exempted all residential usage below 130% of
baseline from any rate increase for duration of DWR
contracts.
– 65% of resid. load and 25% of utility bundled load.
– Exemption worth roughly $600 million for each of
the SCE and PG&E resid. groups in June 2001
increase.
– Approval of SCE’s proposed 15% resid. increase
requires a 45% increase for the top 35% of resid.
usage.
• Residential and Agricultural customers will demand
caps on class increases, say 5%.
Nat Gas and Electric Supply
• Some Manufacturers on interruptible schedules
• Others have 24/7 processes, are highly risk
averse
• Competition for dollars to move from
interruptible or install protection is fierce
• Hard for DA customers to find long term deals,
uncertainty is high.
California Electricity Outlook:
2004 - 2010
70,000
Emergency Response Programs/
Interruptibles
65,000
Spot Market Imports
MegaWatts
60,000
High Probability Additions- Only
counts plants deemed 75% or
better chance of being built.
55,000
Net Firm Imports
50,000
45,000
Existing Generation (reflects
adjustments for retiring units and
both forced & planned outages)
40,000
1-in-10 Summer Temperature
Demand (Hot)
35,000
1-in-2 Summer Temperature
Demand (Normal)
30,000
2004
2005
2006
2007
2008
2009
2010
California’s Electricity Outlook:
Projected Operating Reserves
16%
Operating Reserve
14%
12%
Projected Operating Reserve (1-in-2)
10%
Projected Operating Reserve (1-in-10)
7 % Target Operating Reserve
8%
6%
Stage 2 Emergency - When Reserves drop
below 5.0%
4%
Stage 3 Emergency - When Reserves drop
below 1.5%
2%
0%
2004
2005
2006
2007
Year
2008
2009
2010
Power Plant Status Report
Over 20,000 MW approved, but many projects not moving forward…
7,000
6,158
6,000
Approved &
Operating
Megawatts
5,000
Approved & Under
Construction
Approved but
No Construction
4,000
3,199
2,891
3,000
2,518
2,172
2,386
2,000
Under
Review
1,415
1,000
730
185
0
0
2001
2002
2003
2004
2005
2006
2007
2008
California’s Natural Gas Outlook
General Observations
• Current supply/infrastructure is
adequate…FOR NOW.
• Prices are higher than desired,
but we are positioned to do
better than the rest of the
nation.
• Demand for natural gas is
growing in California despite
aggressive energy efficiency
programs.
• Additional import capacity is
needed to meet future
demand.
The Political Questions
• Are Policymakers more concerned about electric
reliability than about cost of service?
• Is this goal best served by:
– Competitive wholesale markets?
– Utility built cost of service generation?
– Adding energy efficiency, renewables and demand side
management?
• Is electricity unique, such that market solutions do
not apply?
• Does California care about its business climate?
• Should California favor residential (voters) over
business electric customers?
Thanks to:
• Tom Bottorff, VP, PG&E
• Larry Kosmont, Kosmont Group
• William Booth, Counsel to CLECA
System Average Bundled
Rate
7.7¢
Energy
1.0¢
Transmission*
3.1¢
Distribution
0.9¢
Other
12.7¢
Average rate under GRC Settlement.
*Includes 0.394 cents/kWh charge for reliability services.
Compare Edison Class Average Rates to the System
Average Rate: June 1996 vs. July 2004
Cents/kWh
Jun-96 % of SAR Jul-04 % of SAR Dollar Shift
Millions*
Residential
12.7
126%
12.6
102%
Comm
10.6
105%
13.8
112%
TOU-8
7
69%
10.2
83%
TOU-8-Sub
4.5
45%
7.6
61%
System
10.1
100%
12.3
100%
$
(725)
*The reduction of the current Residential class average rate from 126% to 102% of
the current system average rate, saves residential customers $725 billion/year.
Industrial Rates Are Clearly Too High,
But What Can Be Done About It?
• As a result of the energy crisis, CA has added
billions to utility revenue requirement
– DWR undercollections of $8 billion in 2001
– DWR contract portfolio is at least $15 billion over
market levels through 2011
– Utilities granted recovery of billions of procurement
undercollections and “get well “ costs
• Edison’s system average rate is up 22% and
PG&E’s is up 36% from pre-crisis levels