Joseph Krist

Publisher

ILLINOIS PUBLIC POWER CHALLENGE

A legislative proposal would require Illinois’ municipal power agencies to regularly conduct transparent energy planning. It specifically requires that municipal utilities file integrated resource plans with the state every three years. The process would involve assessing demand and supply resources to meet electricity needs at the lowest cost, while meeting reliability requirements, evaluating how energy markets and prices are going to evolve and managing that risk moving forward. 

Illinois does not currently require electric cooperatives, municipal power agencies or municipal utilities to have these plans. It is driven primarily by greater Chicagoland local municipal providers. The dependence of these utilities on a predominantly coal based provider (Illinois Municipal Power is the main owner of the Prairie States generation facility) is generating customer challenges to their local asset mix.

CALIFORNIA NET METERING

This week was the one year anniversary of the California Public Utility Commission’s (CPUC) decision to revise the state’s net metering scheme in ways highly unfavorable to rooftop solar. Those rules are seen as the primary culprit contributing to a huge slowdown is sales of rooftop solar. Now, two pieces of legislation are making their way through the California legislature to address the impact of last year’s rulemaking.

AB 2256 would require that the CPUC consider a number of values these groups say were left out of its net-metering analysis, including improved local air and water quality, avoided land use impacts and other ​“non-economic” benefits.  AB 2619 is designed to ​“ensure that incentives are restored for residents who generate clean power for the grid,” according to a statement from Assemblymember Damon Connolly (D), the bill’s author. It would repeal the ​“damaging” decision — commonly known as ​“NEM 3.0” to distinguish it from the state’s two previous net energy metering (NEM) regimes — and force the CPUC to create new rules aimed at keeping rooftop solar growth on the trajectory needed to meet California’s long-range climate goals.

California’s three investor-owned utilities, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, are the primary opponents of these bills.

NEW YORK STATE BUDGET

New York State leaders have agreed on the outline of a $237 billion state budget. If it is approved by the Legislature, the budget represents an $8 billion increase from last year’s spending plan. The plan includes $2.4 billion to help New York City address its migrant crisis.  A token portion of that funding includes $500,000 of which is drawn from state reserves. The plan, however, includes provisions for the state to have increased its reserves by more than 10 percent from when Ms. Hochul took office.

The state’s botched rollout of legal recreational cannabis received some attention. For the first time, localities will have the authority to act against illegal cannabis vendor which have been a source of contention especially in NYC since the state legalized recreational marijuana in 2019. The taxation scheme used in the program will be significantly altered. It relied on taxing based on its potency. Instead, taxes will now shift to a flat percentage tax.

Local smaller and rural school districts had been facing significant state aid reductions to many of those districts. The Governor had proposed to repeal a provision called “hold harmless” that ensures all schools receive as much in funding each year as they did the year before. The governor has argued that the provision leads the state to spend too much in districts with falling enrollment, even as other districts are growing. As we went to press, the issue of the renewal of mayoral control of the NYC school system was still unsettled.

The issue of housing development was at the center of the over two week delay beyond the start of Fiscal year 2025 in the enactment of a budget. The trends in housing across all sectors of the state have all been negative from both supply and affordability points of view. The legislature has agreed to a plan which would make the process of increasing rents more difficult for landlords. Landlords of many market-rate units will be forced to justify rent increases beyond certain thresholds. They would also be required to offer lease renewals in most cases.

WEST COAST PORTS

The Port of Portland says it cannot afford to keep the state’s only shipping container terminal open past September after negotiations with a third-party operator fell through. Despite more favorable utilization metrics, costs have gone up. This has driven operating results of the port’s container facility into negative territory. Portland will be the largest city on the West Coast without close proximity to container service.

Throughout much of the last decade, a labor feud coupled with the logistical challenges of navigating container ships some 100 miles upriver to a relatively small market have made Portland’s Terminal 6 less competitive as a transit point for container goods. Container operations have stopped at Terminal 6 in previous years due to labor issues. Most recently, in 2015 the then two main carriers representing more than 95% of the port’s container services announced they would no longer call on Portland. The carriers complained that labor issues made operations less efficient and mor costly.

In 2019, a jury found the International Longshore and Warehouse Union (ILWU) engaged in unfair labor practices. The private operator at the time was awarded $93 million. The award was reduced on appeal to $19 million. The union subsequently declared bankruptcy. The private operator of the terminal “reached a settlement of all legal claims” with ILWU in February for $20.6 million.

The Port has notified the governor and legislative leaders of the closure, in addition to carriers, dock workers and staff. Earlier this year, Port leaders had asked the Oregon Legislature for $8 million in state support, but the legislature did not make an appropriation. The next closest shipping container terminal is in Tacoma, Washington. The overall Port credit is rated AA-. Marine operations accounted for about 25% of overall revenues which are driven by the City’s airport. The rating should be fine.

The Port of Los Angeles is on an entirely different path. Like Portland but to a lesser degree, labor relations have been problematic. Since a new contract was reached last year, the Port has been able to focus on operations. The Port of Los Angeles handled 743,417 container units in March, a 19% increase over the previous year. It was the eighth consecutive month of year-over-year growth. For the first quarter ending March 31, local dockworkers moved 2,380,503 Twenty-Foot Equivalent Units (TEUs) across Los Angeles marine terminals––nearly 30% more than 2023. It was among the Port’s best first quarter starts, behind only the pandemic import surge in 2021 and 2022. 

CARBON CAPTURE

The Illinois State Legislature is considering several bills designed to strengthen the State’s regulatory abilities over carbon capture, both pipelines and sequestration. The proposals come in the wake of efforts by two pipeline developers to secure local permits to develop projects. Other efforts are expected from sequestration providers. Companion bills are in front of each house. Separate bills (HB 4835, SB 3441) would place a moratorium on carbon dioxide pipelines for four years or until new federal safety regulations are adopted by the Pipeline and Hazardous Materials Safety Administration (PHMSA).

Two other bills would create a regulatory framework for the sequestration industry. Overall, the newly proposed legislation is intended to cover issues including: “pipeline setbacks for safe evacuation, limits on eminent domain, expanded monitoring at carbon sequestration sites, provisions for long-term liability in the event of disaster, a ban on the use of captured carbon dioxide for enhanced oil recovery.”

It would also mandate that when sequestration sites are proposed, regulatory agencies review life-cycle greenhouse gas emissions and consider alternatives to carbon sequestration. The legislation bans injecting carbon dioxide through the Mahomet Aquifer, labeled by the U.S. EPA as the area’s only sole-source aquifer. And it would mandate halts in sequestration if certain magnitudes of seismic activity are detected.

There have been other efforts to deal with these issues. As it becomes clear that proposed federal tax credits are driving project developments, the State finds itself in the position of not having an established regulatory framework for the evaluation of projects in the carbon pipeline and sequestration spaces. One example is that currently there are no requirements that companies create or release models showing how a carbon dioxide plume would likely spread in case of a rupture. The new bill would require such modeling for a necessary Illinois EPA permit. And it would mandate companies put up funds for future cleanup and maintenance of sequestration sites.

Another bill (SB 2860), backed by the Illinois Farm Bureau, would prohibit the use of eminent domain to secure carbon dioxide pipeline rights of way. One bill (HB 0569) in support of the industry would allow sequestration operators to use underground pore space even if landowners are opposed, while setting procedures for land access and compensation for damage to land. Pore space is a concern particular to Illinois and its unique geology.

In Florida, Hillsborough County (Tampa) approved a pilot project at its waste-to-energy facility in Brandon, FL. The facility currently produces some 600 tons of carbon dioxide a day. A South Korean company wants to install equipment which would remove 1 ton per day carbon and convert it to calcium carbonate. That byproduct could be sold to the concrete and construction industries. The company is required to sell the calcium carbonate and give the records (but not the proceeds) to the county so it can assess how valuable the product is.

A permanent facility was proposed by the company, LowCarbon. It was initially rejected by county staff. It would have cost nearly $25 million and captured 40 tons of carbon dioxide. In a revised proposal submitted on March 28, the company offered to build a permanent facility that could capture 100 to 400 tons of carbon. The pilot project would provide 60 days’ worth of data for the county to evaluate.

CALIFORNIA AND UNEMPLOYMENT

The emphasis on issues like homelessness, the environment and natural disasters in California has allowed some significant issues to be overlooked. As is the case in many states, the current budget cycle is the first to force states to fully absorb the cost of programs funded in response to the pandemic. In some cases, it was direct federal funding that covered recurring expenses. In others, it was substantial borrowing undertaken to respond to the economic impact of the pandemic limits on economic activity.

One of those issues is the funding of unemployment payments to individuals. California is now coping with an accumulated debt to the Federal government of $21 billion from borrowing to fund unemployment. Since the end of the pandemic, the tech industry has also undertaken significant layoffs. Payroll taxes paid by employers cover payouts to unemployed workers but also a state surcharge and a gradually increasing federal surtax to help pay off the principal on the debt. 

There are also certain things about the California unemployment situation which are state specific. The state currently accounts for about 20% of the nation’s jobless claims, far in excess of its 11% share of the labor force population. Unemployed workers in California tend to remain on unemployment significantly longer than the national average. California’s employers added 28,300 nonfarm payroll jobs in March 2024 and the unemployment rate held steady at 5.3 percent.

California’s unemployment insurance fund became insolvent during 2020. The federal government via the CARES Act and the American Rescue Plan Act waived interest through September 6, 2021. Therefore, no interest was due on September 30, 2020. However, interest started accruing on September 7, 2021, and the first interest payment of $29.2 million was paid on September 30, 2021. California paid a second interest payment of $333.5 million on September 30, 2022, a third interest payment of $301.6 million on September 30, 2023, and a $550 million payment on September 30, 2024.

The state had hoped to devote $1 billion to loan repayment but the unexpectedly weak fiscal position of the state has taken that option off the table. The state’s unemployment insurance program will instead would rely on increased federal taxes on employers to pay down the debt. Currently California employers pay a federal unemployment insurance tax of 1.2% on the first $7,000 of wages per employee, but that will rise incrementally every year so long as California is in debt, to more than 3.5% after 10 years. 

The state collects an unemployment insurance tax on the first $7,000 of wages per employee per year. Many states have a much higher wage threshold — New York at $12,500; New Mexico at $31,700; and Washington state, at $68,500. Changes in the rate and/or wage threshold are being looked at in the ongoing state budget process in CA.

WHAT WAS THE LESSON?

The South Carolina legislature is considering legislation designed to facilitate the construction of a gas fired generation plant to be owned by Dominion Energy and state-owned utility Santee Cooper. It would allow the utilities to build a natural-gas fired power plant in the Lowcountry. It would provide for faster approval of pipelines needed for the project. The bill also includes items like reducing the Public Service Commission which oversees utilities from seven members. It attempts to influence regulation by requiring regulators to consider the health of utilities as well as the needs for ratepayers as they make decisions and allowing utilities to release less information about some projects from the public before they are approved.

The issue the legislation seeks to address is arguably how the State managed to take a strong asset like South Carolina Public Service Authority (Santee Cooper). Customers who are now shouldering the bills for the failed effort to expand nuclear capacity would likely say that eased oversight and less disclosure are not the answer to their problem.

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