1. Manufacturers in California The engine of growth is still in the shop Dorothy Rothrock VP Government Relations California Manufacturers & Technology Association

2. The Engine of the Economy Whats so great about manufacturing? Whats happening to manufacturing in California? California energy woes hurt manufacturers more than anyone else. What can be done about it? Can manufacturing be saved?

3. Manufacturing jobs pay especially well. –*Average pay is over $57,000 per year, as compared to Californias 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 Californias growing Latino population. –Loss of these jobs has the greatest impact on Latino families. Whats So Great About Manufacturing? *2000 U.S. Census

4. 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.) Is California Losing Manufacturing Jobs?

5. Jobs Over the Last 20 Years Manufacturing vs. Services vs. Govt.

6. Manufacturing in California Perception Vs. Reality PERCEPTION Global economy is the reason for job losses in California. REALITY California has lost jobs to every state in the union, including states that are equally or more expensive.

7. Manufacturing in California Perception Vs. Reality PERCEPTION California is gaining jobs and businesses. REALITY 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.

8. Manufacturing in California Perception Vs. Reality PERCEPTION The legislation aims to protect workers and create an improved workforce and quality of life. REALITY 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.)

9. Manufacturers and Energy How the energy crisis hit manufacturers hard Utility Rates and Exit Fees for Direct Access Supply Concerns

10. PG&E Average E-19 Rate

11. PG&E Average E-20 Rate CPI E-20 Rate 7.2¢ 9.4¢ 10.5¢

12. PG&E Average Residential Rate

14. 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&Es $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

15. Direct Access Rates Are High, Can Exceed Bundled Rates Energy Cost – Spot/2 yr block3.5-5.5 ISO Costs0.5 Utility T&D (Trans. Customer)1.0 Capped CRS2.7 Total7.7-9.7 –Note that Edisons bundled rate for transmission customers is currently 7.6 cents and PG&Es is 8.8 cents.

16. Estimated Sources of Supply 2005 -- 79,900 GWh Other = DWR dispatchable, other contracts market purchases and sales, etc.

17. PG&E and Edison Propose Just Slight Reductions for Large Industrial Rates PG&Es E-20 rate would fall from 10.6 to 9.7 cents (E-20T from 8.8 to 8.6 cents) Edisons TOU-8 rate would drop from 10.3 to 9.95 cents But, Edisons 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

18. 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 SCEs 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%.

19. 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.

20. California Electricity Outlook: 2004 - 2010 Emergency Response Programs/ Interruptibles Spot Market Imports High Probability Additions- Only counts plants deemed 75% or better chance of being built. Net Firm Imports Existing Generation (reflects adjustments for retiring units and both forced & planned outages) 1-in-10 Summer Temperature Demand (Hot) 1-in-2 Summer Temperature Demand (Normal) 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 2004200520062007200820092010 MegaWatts California Electricity Outlook: 2004 - 2010

21. Californias Electricity Outlook: Projected Operating Reserves

22. Power Plant Status Report Over 20,000 MW approved, but many projects not moving forward… Approved but No Construction Under Review Approved & Operating Approved & Under Construction

23. Californias 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.

24. 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?

25. Thanks to: Tom Bottorff, VP, PG&E Larry Kosmont, Kosmont Group William Booth, Counsel to CLECA

26. System Average Bundled Rate Transmission* Distribution Energy Other 7.7¢ 1.0¢ 3.1¢ 0.9¢ 12.7¢ Average rate under GRC Settlement. *Includes 0.394 cents/kWh charge for reliability services.

28. 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 Edisons system average rate is up 22% and PG&Es is up 36% from pre-crisis levels