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IN THIS ISSUE – “They’re Really Walking a Tightrope”
- Governor to Propose Catastrophe Fund & Strategy TODAY
- California Taxes: Justified, Unwarranted, Eye-Rollers
- Shale Oil & America’s Energy Boom
- Fresno Changes: “Putting Red & Blue Together”
- Your Complete Survival Guide to #Chella
Capital News & Notes (CN&N) harvests California legislative and regulatory insights from dozens of media and official sources for the past week, tailored to your business and advocacy interests. Please feel free to forward.
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FOR THE WEEK ENDING APRIL 12, 2019
Gov. Gavin Newsom, who entered office in January amid a mounting wildfire crisis, today is scheduled to outline a series of possible ways forward for California including a proposal to create a re-insurance fund run by the state, according to people familiar with the discussions.
The insurance fund is aimed at making future fire victims financially whole, while also protecting publicly traded utilities from insolvency. The concept has been percolating around the Capitol for weeks.
The proposal will be one of several included in a report, set to be issued Friday, outlining what Newsom’s administration believes are the key areas that need to be tackled to protect California from the devastating wildfires it has witnessed in recent years — and make sure that PG&E is the only major California utility that ends up in bankruptcy proceedings this year.
PG&E filed for Chapter 11 bankruptcy protections in January, citing $30 billion in potential liabilities from two years of devastating wildfires.
Newsom’s report will also at least broach two other controversial topics: Reforming the California Public Utilities Commission, and revisiting state liability laws that can leave utilities on the hook for damages even when they are not negligent.
The governor is not expected to make a definitive legislative proposal, however, on any of the ideas included in the report.
“I think all those things will be on the table,” said Napa state Sen. Bill Dodd, whose district was devastated by the 2017 North Bay fires and who has been intimately involved in wildfire discussions in the state Capitol over the past year.
But Dodd said there are many details still to be worked out — including who would pay into an insurance fund, and how to make sure PG&E shareholders don’t walk away unscathed.
Dodd’s position underscores the tough position Newsom finds himself in as he tries to weigh the political reality in the state Capitol with demands from Wall Street.
Dodd said any proposals viewed as offering help or financial protection for the utilities, like an insurance fund, should be tied to concrete concessions from PG&E to ensure that the company improves its safety practices, and include requirements that shareholders — not just ratepayers — have skin in the game.
“Why should they be afforded any more protections when they already took the path of least resistance by filing for bankruptcy?” Dodd said. “If ratepayers have any role in the company’s financial future, in terms of financial backstops, we need to see they are serious about safety and following the rules and the law.”
The governor’s office, according to those familiar with the discussions, knows that its key audience for any proposal is the state Legislature, not Wall Street.
But Newsom’s office is crafting its ideas with an eye toward protecting ratepayers from bearing the brunt of multibillion-dollar wildfires while also trying to calm investors’ nerves. The two major bond rating agencies recently warned that the state’s two other investor-owned utilities — San Diego Gas & Electric and Southern California Edison — could be just one large fire away from bankruptcy, and last month downgraded both companies’ bond ratings, making it more expensive for them to borrow money.
As those warnings rattled Wall Street in recent months, investors and their lobbyists have poured into Sacramento to argue for legislative action. The conversations seem to have calmed some nerves: PG&E’s stock has soared from less than $7 a share since just before the company filed for Chapter 11 bankruptcy protection to about $19 a share today.
Former state Assemblyman Mike Gatto, who has been following the debate closely, said that stock price indicates investors are feeling confident that whatever comes out of Sacramento won’t be too punitive to PG&E.
“The stated goals of many lawmakers and the governor is stabilizing the utility markets,” he said. “So I think Wall Street is assuming that it is impossible to stabilize the utility markets and make sure that no other utility enters bankruptcy … and at the same time punish PG&E.”
But it’s also not politically feasible to stick taxpayers or ratepayers with the entire bill, he said, noting that all those competing priorities will make it difficult for the governor to find consensus among lawmakers.
“I think they’re really walking a tightrope,” Gatto said. “I think they clearly need to take steps to make the power markets more stable and make sure that we don’t have a whole bunch of bankrupt cities at the same time.”
The report will additionally raise the issue of streamlining the California Public Utilities Commission, according to those involved in discussions, so that the regulatory agency can deal more quickly with issues of safety and liability — perhaps by taking away some of the CPUC’s sprawling workload. The CPUC currently oversees a broad portfolio of industries — electric, natural gas, telecommunications, water, railroad, rail transit and passenger transportation — and has been criticized as slow to respond.
Gatto proposed legislation three years ago to eliminate the CPUC and redistribute its broad portfolio to other agencies, and said he has heard that the governor is looking at that proposal as a possible roadmap for changes at the CPUC.
And, perhaps most controversially, the report is not expected to foreclose on the concept of changing a much debated state liability law, known as inverse condemnation. A change to that law would be aimed at inuring utilities from paying for fires if they did not act negligently, but there are no indications that the governor’s office plans to immediately pursue any change, which would set up a divisive and bitter fight in the state Capitol.
LA Times Commentary
In California under Democrats, it’s tax, tax, tax — a drip and a drop, nickel and a dime — all the time. That’s not a political statement. It’s a fact.
Not all taxes are evil. Some are justified. But many are unwarranted. And others are eye-rollers.
One of the more controversial and annoying taxes currently being proposed is a state levy on sugary soft drinks. More on that later.
Here’s an eye-roller: A bill that would authorize San Francisco to turn its crooked Lombard Street — a tourist attraction after so many movie appearances — into a toll road, maybe even requiring reservations. Think they have a traffic jam now on weekends? Wait until cars are lined up behind a tollgate.
There are a whole bunch of taxing ideas in the Capitol: on new tires, firearms, water, prescription painkillers, lawyers, car batteries, corporations based on their CEO pay, estates worth more than $3.5 million, oil and gas extraction. The list goes on.
The oil and gas extraction tax is long overdue. We’re the only major oil-producing state without one. It would raise an estimated $1.5 billion a year.
The California Tax Foundation has counted more than $6.2 billion worth of tax increase proposals pending in the Legislature. It expects the figure to grow substantially as bills are amended with details.
Polls show that California voters already think they’re overtaxed. No surprise there.
When voters were asked recently by the Public Policy Institute of California whether they paid more or less state and local taxes than they should, the answers were: more 63%, the right amount 32%, less 4%.
Asked whether the federal tax changes had a positive or negative effect on their families, voters replied: positive 18%, negative 35%, no effect 42%.
“As the April 15 deadline looms, many Californians are complaining about the state and local tax systems and the impacts of recent changes in federal law,” PPIC President Mark Baldassare says.
“What part of ‘tax fatigue’ don’t these lawmakers understand? It’s political malpractice,” asserts Democratic consultant Steve Maviglio, referring to the proposed soda tax that he’s fighting against on behalf of the beverage industry.
The bill, AB 138, is being carried by Assemblyman Richard Bloom (D-Santa Monica) with backing from the California medical and dental associations. It would hike the tax on sugary soda by 2 cents an ounce, or 24 cents for a 12-ounce can.
That would raise around $3 to $4 billion a year to spend on health programs.
But the tax’s main purpose, backers say, is to discourage unhealthy soda drinking by raising the price — just as California has done by jacking up tobacco taxes.
“Children are consuming over 30 gallons of sugary drinks every year,” the sponsors’ pitch reads. “About half of adults and two-thirds of youth consume a sugary drink every day.”
“Sugary drinks are the single largest source of added sugars in the American diet,” the pitch continues, leading “to increased risk of diabetes, heart and liver disease, obesity, tooth decay and some cancers.”
There also are other anti-soda bills pending. One is an anti-“Big Gulp” measure that would ban soda containers larger than 16 ounces. Another is a prohibition against grocery stores stocking sugary drinks near the checkout counter.
“Soda consumption is going down on the natural while obesity is increasing,” counters Dana Williamson, who was a political advisor for former Gov. Jerry Brown and now is a strategist for the beverage industry. “There doesn’t seem to be a connection between the two…
“We’re singling out one product without looking at others. There’s far more sugar in some other products, like candy.”
Right. How about chocolate shakes, cotton candy and other yummy stuff sold at the ballpark?
At least they have some nutritional value, the anti-soda lobby answers.
Both sides in the fight — beverage and medical interests — are major political donors in the Capitol.
Meanwhile, there’s a legislative proposal to lower the marijuana tax. We want more potheads but fewer soft drink sippers. Crazy.
It smacks of too much nanny state for me.
The state should just leave us alone sometimes. Back off on tax, tax, tax. April hits hard enough.
Shale Oil & America’s Energy Boom
Wall Street Journal Excerpt, April 8
Shale companies from Texas to North Dakota have been managing their wells to maximize short-term oil production. That has long-term consequences for the future of the American energy boom.
By front-loading the wells to boost early oil output, many companies have been able to accelerate growth. But these newer wells peter out more quickly, so companies have to drill new ones sooner to sustain their production.
In effect, frackers have jumped on a treadmill and ratcheted up the speed, becoming ever more dependent on new capital to keep oil production humming, even as Wall Street is becoming more skeptical of funding the industry.
The emphasis on maximizing early oil output, largely by small and midsize shale drillers, contrasts sharply with how big oil companies such as Chevron Corp. and Exxon Mobil Corp. are seeking to develop some of the same areas.
“You don’t try to grow production fast,” Chevron Chief Executive Mike Wirth said in a recent interview. “You really look at the entire life cycle of the asset.”
Though most shale companies have yet to consistently generate more cash than they spend, their rapid expansion has turned the U.S. into the world’s largest oil producer. That growth has begun to slow, however. U.S. production fell slightly to 11.87 million barrels a day in January, from 11.96 million barrels a day in December, after rising steadily for much of last year, according to the Energy Information Administration.
Chevron announced plans last month to more than double its production to 900,000 barrels of oil and gas a day in the Permian Basin of West Texas and New Mexico over the next five years. Exxon said it expects its output in the oil field to reach one million barrels of oil and gas daily as soon as 2024. But the companies say they are doing so patiently, with an eye toward extracting more oil over the life of the wells.
Neil Chapman, who oversees Exxon’s exploration and production business, told investors last month that Exxon is trying to be systematic about extracting the most it can from its acreage.
“There is a certain amount of energy in this reservoir, and when you drill them up, that energy starts to dissipate,” Mr. Chapman said.
Another side effect of front-loaded wells: They are unleashing enormous amounts of natural gas. That’s because gas escapes more easily than oil from underground reservoirs as pressure falls.
Gas production in the two largest U.S. oil fields, in Texas and North Dakota, grew 43% from January 2018 to the same period this year as oil output grew 35%, according to EIA data. There isn’t enough pipeline capacity to bring all of that fuel to market, so companies in West Texas effectively have had to pay people to take it away. Prices at the Waha trading hub fell to a record average low of negative $5.25 per million British thermal units for gas that flowed on Thursday, with some gas sold for as little as negative $9, according to S&P Global Platts.
Many wells are producing more oil overall than those of a few years ago, thanks to improved techniques and technology. But in some cases, newer wells are producing more gas and less oil than wells drilled just a few years earlier, or than companies anticipated.
Because oil is more valuable than gas, the shift in the gas-oil ratio means that these wells are less profitable. Higher gas production paired with lower oil output also can be a sign of fatigue, symptomatic of lowered pressure in an overall subsurface pool or reservoir.
In the Williston Basin, which extends into North Dakota and Montana, newer wells drilled by EOG Resources Inc. are producing less oil and more gas than their predecessors, according to data from ShaleProfile, an industry analytics platform. The company’s wells there that began producing in 2013 generated an average of about 227,000 barrels of oil in their first year. At that point, they were producing on average 1,122 cubic feet of gas for every barrel of oil.
Wells in the same area that began producing four years later generated an average of roughly 134,000 barrels of oil in their first year, a 41% decline, data show. Meanwhile, the ratio of gas to oil produced climbed to an average of 2,027 cubic feet of gas for every barrel of oil.
EOG said it wasn’t unexpected for well results in an area to vary year-to-year. “These performance factors are predictable,” a spokeswoman said.
In the Permian Basin, Laredo Petroleum Inc. expects to wring an average of 15% less oil and 13% more gas than previously forecast from its wells over five years, the company told investors in February.
Laredo is adjusting by increasing the space between its future wells, though doing so means it will have fewer overall locations to drill. The company didn’t respond to requests for comment. While exploration and production companies are modifying their approach, Julie Francis, an analyst at energy consultancy Wood Mackenzie, said they face an uphill climb because of the increasingly rapid decline of their shale wells, likening the situation to trying to refill a leaky cup.
“They will have to invest more in order to grow,” she said.
Last week, Garry Bredefeld tried to sound the alarm about a social justice fight in Fresno. He was about a decade too late.
“Unfortunately, class warfare was started yesterday,” the northeast Fresno councilmember said Tuesday at a news conference on how state money should be allocated to fix Fresno’s roads. “I don’t think it’s the end of it. I think it’s, frankly, the beginning.”
He’s off by about 10 years.
In that time span, south Fresno neighborhoods have fought to repair what even northwest Councilmember Steve Brandau described as the “sins of the past.”
And more often than not, they’ve won.
From policy battles and political campaigns, to disputes over discrimination and local parks, a handful of social justice groups are challenging and reshaping the city’s power structure.
Since 2010, nearly a dozen social justice organizations have sprouted in Fresno, harnessing community power to spark change. These groups, many of which are led by educated women of color with deep Valley ties, have mobilized coalitions that stood up to local politicians, combated vicious attacks and emerged with political victories.
The challenges triggered sharp tongue lashings from some elected leaders, who publicly rebuked advocates from the dais. But other local politicians now are rethinking their relationships with advocates and the residents with whom they work.
The victories, coupled with new community leaders and changing voter registration, signal a power shift in Fresno.
“It’s about building the power of the disenfranchised and changing policy and systems,” said former Assemblymember Sarah Reyes, who grew up in southeast Fresno. “City Hall is telling people on the south side of Fresno that you don’t matter. All my life, people have been saying I don’t matter. Well, guess what? I do matter.”
Mary Curry and Concerned Citizens of West Fresno worked for years to stop Darling International from expanding its operations in Fresno.
In 2012, with the help of Leadership Counsel, Concerned Citizens sued the city of Fresno and Darling. They not only won their legal fight, they also won over then-Councilmember Oliver Baines and his colleagues on the City Council, which tried to join the lawsuit and unanimously voted to relocate the meat rendering plant.
A similar scenario played out in 2017 during a dispute over a large industrial park.
Caglia Environmental sought to develop a massive industrial park adjacent to two new warehouse projects, across the street from homes and within eyesight of Orange Center Elementary School. Even though residents and advocates vocally opposed the project from the beginning, the City Council unanimously approved the Caglia Industrial Park.
The City Council eventually stopped the project and required a full environmental review, but only after South Central Neighbors United filed a lawsuit and the state Attorney General’s Office intervened.
At the same time, Fresno City Hall faced another issue plaguing its poorest neighborhoods – slumlords and substandard housing.
Faith in the Valley-Fresno for years called attention to slumlords operating in Fresno, seeking action from city officials.
In 2017, the City Council on a split vote along party lines (four Democrats in favor, three Republicans opposed) approved the mayor’s inspection plan for rental properties, called the Rental Housing Improvement Act. At the time, Mayor Lee Brand called the program “the most daunting challenge the city has ever done.”
And just last month, dozens of residents and advocates showed up at City Hall and voiced outrage and disappointment in a proposal to cite drivers in intersections who donate money or other goods to panhandlers.
Many of the comments directly targeted Brandau, who authored the ordinance. Others called on Bredefeld — who spearheaded raising the words “In God We Trust” in the council chambers — to prove his faith through his vote.
In the end, the ordinance failed after two co-sponsors pulled their support and a council majority voted against it.
For some of Fresno’s elected leaders, weathering criticism and demands from the advocacy groups triggered angry tongue lashings from the dais and public rebukes.
Many who lashed out are part of Fresno’s longtime conservative establishment.
And while some officials acknowledged regret over their specific tone or choice of words, they say they have legitimate concerns about many social justice groups.
During the tense debate over the Caglia project last year, Brandau called Ashley Werner and Leadership Counsel “poverty pimps.”Brandau declined to comment for this story, but recently told The Bee his opinion of Leadership Counsel has not changed.
“I am not alone in that opinion,” he said. “I just gave expression to it. In that context, many of us felt that a wonderful project that would bring millions of dollars and hundreds of jobs to Fresno was being disparaged unnecessarily by a small group of people that have their own organization’s agenda. I could not think of a better way, at the time, than poverty pimps.
“Would I use it again? Nah.”
In 2016, Fresno County Supervisor Buddy Mendes shouted down environmental advocate Janaki Jagannath, accusing her of lying while referring to her “leftist buddies.”
Mendes later said he probably shouldn’t have raised his voice, but also said he wouldn’t back down from his stance. He said he believes the advocacy groups mislead residents about problems in their communities and the potential solutions.
“Don’t advocate for your dog and pony show” in public meetings, Mendes said. He also accused advocates of using residents as props.
Backlash from elected leaders has become common enough that many groups prepare residents so they’ll be more poised in front of angry public officials.
Werner, the attorney with Leadership Counsel, said inflammatory remarks from the dais perpetuate inequities.
“What they’re (residents) doing is an act of bravery, not only for themselves but for their whole community and future generations,” Werner said.
Kathryn Forbes, the Women’s Program coordinator at Fresno State, said the way some elected officials treat advocates and residents is misogynistic and racist.
“And even if you disagree with them (residents and advocates), it’s your job to respect them, right?” she said about the elected officials. “You work for us, right?”
Social advocacy momentum in Fresno has been rooted in building coalitions around specific issues, as opposed to political candidates. Organizers rely on residents to identify key issues to pursue.
“We don’t pick an issue and then figure out how to talk to the communities,” said Ariana Martinez-Lott, an organizer with Faith in the Valley-Fresno. “It’s the other way around.”
Staffers with California Rural Legal Assistance invest a lot of time in resident education, outreach and leadership development. They train residents about government services, how to connect with officials and protocol for speaking during public meetings.
“People don’t know this stuff, because why would people know this stuff, right?” said Mariah Thompson, a CRLA attorney.
“It’s critical that people have the opportunity to engage in these processes because the built environment around us – none of it is an accident,” she said. “And the processes are designed, in many ways, to keep people out.”
Even though many of the groups are nonprofits and nonpartisan, they still work around elections.
During the 2018 primaries, Fresno Building Healthy Communities collected more than 10,000 signatures to qualify the parks sales tax for the November ballot.
A number of groups such as Fresno BHC, Faith in the Valley, Leadership Counsel, Communities for a New California and Hmong Innovating Politics partnered to host candidate forums for City Council races.
Faith in the Valley-Fresno contacted over 7,000 voters in the city, encouraging them to vote and providing information on things such as what would appear on ballots and polling locations. Of the voters Faith in the Valley volunteers contacted, about 10 percent more showed up to the polls, according to research done by the advocacy group.
Kevin Hall, a longtime air quality advocate, called the leaders of Fresno’s social justice charge “sheroes” who have been better than their male counterparts at building coalitions and working collaboratively.
“They could go off somewhere else and make a lot of money, but they choose to do this work from the heart,” Hall said.
Sukaina Hussain previously worked as an organizer with Faith in the Valley and now works as the outreach director for Central California Council on Islamic-American Relations. She’s working to engage Muslim residents in community issues, one of the newest efforts of Fresno’s community organizing.
As a Muslim woman who wears a hijab, she said, she knows how it feels to be stigmatized.
“I think that that has really helped me identify with other people. A lot of times, when we talk about certain communities, we make stereotypes about them, or we make false assumptions. And so having been in that boat, I think I’m able to connect with other people.”
Hussain recently married and wants to raise her family in Fresno.
“I really want to help create the kind of world that I want my kids to grow up in and that I want to call home.”
The women leading local social justice organizations are direct about their intentions to build power in Fresno.
“We say it’s important to have people up there who look like us, but it’s more important to have people up there looking out for us,” said Sandra Celedon, president and CEO of Fresno BHC.
“We have to create this new definition of power. It’s no longer looking just to City Hall for power. “Some local politicians are starting to partner and collaborate with the advocacy groups.
After confronting Thompson, the CRLA attorney, during a public meeting, Fresno County Supervisor Brian Pacheco later apologized. Now, Thompson and Pacheco are working together to improve water quality and bring sidewalk projects to low-income unincorporated communities.
“I have a healthy respect for what they do because they have a hard job,” Pacheco said about groups such as CRLA and Leadership Counsel. “If I could help them fix all the problems, I’d do it in a heartbeat. There’s a process, and I’m helping them work through the process.”
Mayor Lee Brand said his relationship with some of the groups is best described as “evolving.”
“Maybe at first there’s a tendency to kind of not take them as seriously as I should have taken them,” he said.
Brand said he learned a lot during the negotiations to resolve the Caglia lawsuit.
“We’re going to have to work with these groups that do represent a constituency that doesn’t have a voice,” he said.
Councilmember Esmeralda Soria said social justice groups should have the same chance for input at City Hall as developers and the Chamber of Commerce.
Fresno’s 2018 election demonstrated the city’s political growing pains.
Arias and Nelson Esparza beat candidates backed by the political establishment in the November election, marking a dramatic shift on the City Council to a majority Democrat and Latino. Their chiefs of staff are Latinas with social justice backgrounds.
“It’s much more diverse now,” Brand said. “There’s a lot of different factors and people who shape public policy and influence elected officials. And that’s our city. This is a very diverse city. It’s kind of half red and half blue.
“You’ve got to find a way to put the red and blue together sometimes.”
The 2019 Coachella Valley Music and Arts Festival, kicks off today: