The Organization of the Cotton Industry in California

At the hearing, the parties devoted much of their attention to the question of whether the physical processes involved in cotton ginning result in a "change of form" of the seed cotton (i.e., cotton as it is harvested from the field, with seeds and debris embedded in the fiber). A related question was whether seed cotton should be considered a separate market (as PG&E contends), or whether the only real agricultural market for cotton in California is for ginned cotton (as complainants contend). Because the parties devoted so much time to these issues, it seems advisable to begin our discussion with a brief description of the cotton industry in California, along with a description of the physical steps involved in cotton ginning.

The following descriptions of the California cotton industry and of cotton ginning are based on testimony presented by both sides. The facts below are uncontested, although their significance is hotly debated.

Cotton is a significant crop in California, although less plentiful than it used to be. According to the National Cotton Council of America, the value of the cotton grown on California farms in 1997 was nearly $808 million, or about 13% of the total grown in the United States for that year. If the value of cotton ginning is included along with the farming (as complainants assert it should be), then California production in 1997 was still about 13.2% of the U.S. total. Based on the total revenue of cotton production businesses (including farming, ginning, cotton merchants, warehouses, and cottonseed oil and textile mills), California is the fifth largest producing state in the United States, accounting for slightly more than 8.5% of total U.S. revenue. (Exhibit 13, Attachment F).

Despite these impressive statistics, cotton production in California is declining. According to the testimony of Earl Williams, president of both the California Cotton Growers Association and the California Cotton Ginners Association (and a witness on behalf of complainants), cotton production in California declined 22.9% between 1979 and 1997, even though yields per acre increased. (Ex. 1, p. 2.) California today produces 2.1 million bales of cotton; at its peak in the late 1970s, the state produced about 3.5 million bales. (Tr. 33-34.)³ Williams acknowledged that a number of factors besides power costs are responsible for this decline, including California's higher labor costs, relatively lower federal cotton subsidies, and the relative ease with which California farmers can switch to higher value crops such as fruits, vegetables and nuts. (Id. at 25-26.)

California farmers tend to grow more commercially attractive varieties of cotton. For example, 85% of all the pima cotton grown in the United States is raised in California, even though it has lower yields, a longer growing season, and requires special "roller" gins. Pima cotton is exported mainly to Pacific Rim countries, where it is woven into higher-value textiles. (Id. at 27-28.)

Whatever variety it is, the cotton grown in the field is harvested using either "spindle" pickers or "stripper" pickers. Spindle pickers pick the cotton in rows and are able to take the cotton from open bolls. They are used to harvest between 95% and 98% of the cotton grown in California, even though they cost about twice as much as stripper pickers. The latter take all of the plant mass, resulting in more trash (especially leaves and twigs) and making it harder to separate the seed from the lint. Stripper pickers are used to harvest only about two percent of California cotton. (Id. at 20-21.)

Once the seed cotton has been harvested, it is placed in a "module builder" or cotton trailer for transport to the ginning site. According to complainants' witness John Toscano, when the seed cotton arrives at the site, it is stored in a block measuring eight by eight by thirty feet until it is ready for ginning. (Ex. 4, p. 1.)

Although seed cotton can be stored for a few weeks or months (depending on moisture content and weather conditions), the increase in moisture brought about by decomposition of the leaves, twigs, cottonseed and bolls in the cotton mass requires that ginning be done promptly. Without prompt ginning, the increase in moisture brought about by this decomposition can cause the cotton fiber to discolor and decompose, and the cottonseed to rot and (in some cases) germinate. (Id. at 3-4.)

Seed cotton enters the gin either through suction tubes or a conveyor belt. The first step is to blow warm air through the seed cotton, which reduces its moisture content and enables some of the dirt, leaves and other debris to fall out, since debris tends to stick to overly moist cotton fibers. The second step is to remove more debris through two methods: (1) conveying the cotton mass rapidly through a series of bars, a process that essentially bangs the seed cotton around, and then (2) using centrifugal force to sling off twigs and other heavy debris. In both of these procedures, more warm air is blown through the cotton mass to remove dirt and fine debris. (Id. at 2.)

The partially cleaned cotton mass then goes to the "gin stand," where the cotton fiber is separated from the cottonseed. This is accomplished through the use of either "saw" gins or "roller" gins. The former use rotating saws to grasp and pull the cotton fiber through narrowly-spaced ribs. Since the cottonseed is too large to pass through the ribs, it drops out the bottom and is conveyed to a seed pile or truck. With roller gins, on the other hand, the seed cotton adheres to a roller and as it passes over the roller, is met by a stationary bar and a rotary blade that gently "pinches" the cottonseed out of the cotton mass. (Id.)⁴

After the ginning is completed, the cotton fiber goes through a set of combs that clean it further, and then it is deposited in a press. The press compresses the fiber into standard bales of 500 pounds each that are graded according to standards promulgated by the U.S. Department of Agriculture (USDA).⁵ The graded bales are then sold to a cotton merchant. Cottonseed, on the other hand, is sold either to feed mills for use as livestock feed, or to oil mills that produce cottonseed oil. (Id. at 3-4.)

Toscano testified that in California, the grower retains title to the cotton until after it is ginned. (Id. at 4; Tr. 81-82.) A corollary of this, which PG&E's witness conceded, is that unlike gins in some other areas of the United States, most of the cotton gins in California are grower-owned cooperatives. (Ex. 14, p. 4.) Williams testified that he could think of only two California gins (out of 90) that are not cooperatives, and that only about 300 of the 2600 cotton growers in California use these independently-owned gins. (Tr. 15.)⁶