Joseph Krist

Publisher

AUSTIN’S COAL DILEMMA

On March 26, 2020, the Austin City Council approved an emissions-reduction plan that called for its city-owned utility to shut down its portion of the Fayette Power Project, a coal-fired power plant by the end of 2022. Since that decision, the Texas power market has endured a variety of stresses. The winter storm debacle was followed by a couple of summers of life on the edge as the state grid operator struggled to maintain adequate supplies in the face of record heat. The pressure on suppliers to maintain lower costs while supporting adequate supply was significant.

Those factors combine to support the current realities facing the City of Austin as it considers its energy plans. After the 2021 winter storm, the grid manager moved to encourage more “dispatchable” power – the kind most easily produced at natural gas and coal plants. The operator wanted more flexibility in its load management efforts. This year, ERCOT created financial incentives to encourage power generators to expand their ancillary services, a system in which power generators hold a portion of their total power generating capacity in reserve, ready to provide more to the grid when demand threatens to outpace supply.  The change also made the economics of a natural gas plant much more favorable. This was in line with the state’s politics which support natural gas.

Austin still has not closed the Fayette plant. Through the reserve system, coal plants can also get paid simply for keeping some of their capacity available if called upon. All generators have profited from higher overall prices, but because coal operators can choose when to ramp up production, they can catch the highest price peaks to maximize profits. On the summer’s warmest day, the generation from that plant generated some $11 million of operating profit. Those unanticipated “profits” are ostensibly used to reduce revenue requirements to be generated from retail ratepayers.

Austin Energy is now in the process of updating its resource, generation and climate plan for approval by the City Council in 2024. It will not be easy to stop using Fayette plant power given the fact that the facility is co-owned with another agency, The Lower Colorado River Authority. LCRA was created by the Legislature, and its board of directors are appointed by the governor. It recently reiterated its plans “to operate FPP as long as it continues to be a reliable, cost-effective source of power.” So, a move to divest itself of its share of the plant by Austin won’t shut the plant down and it may be more expensive to replace.

MICHIGAN HOSPITAL MERGER

Henry Ford Health announced Wednesday that it has signed an agreement to join with Ascension Michigan and Genesys to create a $10.5 billion health system based in Detroit with 13 acute-care hospitals, roughly 50,000 employees and more than 550 sites for regional health care. Henry Ford Health says it is a joint venture that includes no exchange of cash.  Henry Ford went out of its way to emphasize that the arrangement is “not a merger”.

The organization would remain headquartered in Detroit and carry Henry Ford Health’s name and branding. It would be governed by a board of directors with representatives from both Henry Ford Health and Ascension Michigan. At least for now, the Catholic identity of the Ascension Michigan facilities would continue. If the combination receives regulatory approval, there would still be five large-scale competitors in southeastern Michigan: Corewell Health, The Detroit Medical Center, Trinity Health, McLaren Health Care and the University of Michigan Health.

Ascension, which is based in St. Louis, reported an operating loss of $3 billion in fiscal year 2023, and is selling many of its holdings. The combination will be reviewed under new guidelines issued in July by the Justice Department and FTC which would prohibit mergers that increase concentration in highly concentrated markets or eliminate substantial competition between firms. Nine Ascension hospitals will be part of the transaction. Six Henry Ford facilities will participate.

NUCLEAR

The federal Inflation Reduction Act provides funding for the New ERA program. That program sets aside money specifically for U.S. generation and transmission cooperatives to help them decarbonize their electricity portfolios. The IRA provides some $9.7 billion to fund these efforts.

In Michigan, an electric cooperative is seeking to use the program to support investment in nuclear generation. Wolverine Power Supply Cooperative, based near Cadillac, has submitted an application to the USDA for the 9.7 billion grant and loan program. The coop hopes to obtain power from a reopened Palisades Nuclear plant. Wolverine announced a power purchase agreement with the Palisades owner, Holtec International, to buy electricity from the plant, if and when it reopens following a regulatory review. The program would provide funding for up to 25% of the coop’s costs to purchase the nuclear power.  

The Palisades plant stopped operating in May 2022. Holtec has recently submitted requests to the U.S. Nuclear Regulatory Commission to effectively halt the decommissioning process and resume operations under an operating license that expires in March 2031. According to the National Rural Electric Cooperative Association (NRECA), U.S. electric co-ops submitted requests for more than twice the amount of program funding available, representing $93 billion in new investments. Awards are expected to be announced in early 2024.

CONGESTION PRICING

One of the major objections to the imposition of congestion fees is the favorable treatment being given to vehicles operating through transportation network companies (TNC) like Uber and Lyft. It is clear that one of the major contributors to increased congestion in Manhattan is the presence of these vehicles. This has led to calls to restrict or lower the number of TNC vehicles in operation.

Given the opposition to the new fees, it would not seem to be the best time to throw some oil onto that fire. Nonetheless, that’s what Mayor Adams seems to be doing. It was announced this week that New York City’s Taxi and Limousine Commission will lift its cap on new licenses for for-hire vehicles starting this week, so long as they’re issued to fully electric cars. The change could allow companies including Uber, Lyft and the recent start-up Revel to deploy thousands more vehicles on city streets.

The excuse is that the policy will promote non-polluting vehicles. At the same time, the move will increase the number of vehicles which will cause more congestion. The policy allows drivers to rightfully note that the fee is a congestion fee not a pollution mitigation fee. It further buttressed arguments that the fee really is just a money grab rather than a well thought out transportation policy.

One leading transit analyst (a former NYC transportation commissioner) has found that people who drive personal cars into Manhattan’s central business district travel just one or two miles, while for-hire vehicles drive 20 to 40 miles every time they enter the MTA’s planned congestion zone. That makes a TNC vehicle ten times more of a congestion contributor than an individual’s vehicle.

City data shows the number of cars operated by e-hail companies grew from roughly 13,000 at the start of 2015 to more than 70,000 in 2018. Meanwhile, the number of yellow taxi medallions — which give cabbies the exclusive right to street hails in much of the city — remained capped at 13,500. The City imposed a cap on new for-hire vehicle licenses in 2018 but allowed new ones to be issued to wheelchair-accessible and electric vehicles. The TLC revoked the electric vehicle exemption in 2021. As of July, there were more than 77,000 for-hire vehicles working for e-hail companies operating in the city.

The new policy is a part of Mayor Adams’ hope to convert all taxis and for-hire vehicles in the city to electric or wheelchair-accessible vehicles by 2030. He’s hoping that by the end of 2024, 5% of the city’s for-hire vehicle trips will be in an electric or wheelchair-accessible vehicle.

AUTONOMOUS VEHICLES

The National Highway Traffic Safety Administration (NHTSA) is opening an investigation into whether General Motors’ self-driving unit Cruise is taking sufficient precautions with its autonomous robotaxis to safeguard pedestrians. It is looking into reports of incidents including Cruise autonomous vehicles “encroaching on pedestrians present in or entering roadways, including pedestrian crosswalks, in the proximity of the intended path of the vehicles.” In December, NHTSA opened a separate safety probe into the autonomous driving system in Cruise vehicles after reports of two injuries in rear-end crashes.

The announcement follows an incident in San Francisco two weeks ago in which a pedestrian was struck by a hit-and-run driver, thrown into an adjacent lane and hit a second time by a Cruise robotaxi, which was not able to stop in time. The self-driving vehicle came to a stop on top of the pedestrian, It comes as NHTSA continues an investigation in association with a February 2022 Cruise petition seeking permission to deploy up to 2,500 self-driving vehicles annually without human controls like steering wheels. 

HYDROGEN HUBS

Hydrogen hubs are a collection of linked assets designed to work together to develop the domestic production of hydrogen. Hydrogen is currently used to make fertilizer and in various industrial processes in the petrochemical industry. The hope is that hydrogen can be produced for use as a carbon-free fuel in industries like long-haul trucking, maritime cargo shipping, and airplane travel. It is at the center of Biden Administration efforts to achieve emissions goals which could offset the negative impacts of energy transformation.

To help achieve these goals, the Inflation Reduction Act provided funding for the support of start-up facilities across the country. Using different sources of fuel to produce hydrogen, plants will provide an opportunity to evaluate the different sources of energy used to produce hydrogen and determine the actual “greenness” each technology and/or fuel results in. This week, the Administration announced the funding for seven hydrogen “hubs” across the country. Their power sources will reflect their locations.

The Appalachian Hydrogen Hub encompasses parts of West Virginia, Southeast Ohio, and southwest Pennsylvania and will use the large quantities of natural gas in the region. The Gulf State Hydrogen Hub will be centered in Houston, Texas, and will cover most of the Gulf Coast and southeast Texas. Texas has large quantities of energy to use in producing hydrogen. The hydrogen hubs that use natural gas to produce hydrogen will use carbon capture technology.

The Mid-Atlantic Hydrogen Hub spans parts of Pennsylvania, Delaware and New Jersey. The Midwest Hydrogen Hub is in Illinois, northwestern Indiana and southwestern Michigan and will produce hydrogen from, among other sources, nuclear power. The California Hydrogen Hub spans from Southern California to Northern California and encompasses three ports: Los Angeles, Long Beach and Oakland. 

The Pacific Northwest Hydrogen Hub encompasses eastern Washington, northeastern Oregon and some parts of Montana and will produce hydrogen for making fertilizer. It will likely connect with the California Hydrogen Hub. The Heartland Hydrogen Hub is hosted in Minnesota and includes a significant presence in North Dakota and South Dakota, and takes advantage of the uses the very inexpensive and abundant wind resources to make clean hydrogen. 

SPRINGFIELD, ILLINOIS MUNICIPAL UTILITY

City, Water, Light, and Power (CWLP) is owned and operated by the city of Springfield, Illinois and provides drinking water and electricity to Springfield residents. In 2021, an incident occurred at one of the City’s generation plants releasing more than 700 tons of fly ash into the environment. Subsequent investigations were impacted by CWLP’s inability to provide adequate documentation to investigators.

This led the state attorney general to file a lawsuit alleging CWLP violated the Illinois Environmental Protection Act, Illinois Pollution Control Board regulations and its Clean Air Act Permit Program permit. The lawsuit sought to prohibit CWLP from future violations of state environmental laws and regulations, as well as civil penalties. The litigation has resulted in an interim order while the lawsuit is pending which requires CWLP to conduct a thorough analysis and report to the IEPA within 30 days of the order being entered by the court. Failure to comply could lead to criminal and/or civil penalties against CWLP.

WANNA BUY A RAILROAD?

The City of Charlotte, NC has been approached by the Norfolk and Southern Railroad to consider the purchase of a stretch of railroad track owned by the company. That section of track lies in a path for a proposed rail connection (the Red Line) through Mecklenburg County to the Charlotte city center. Initial plans called for a 25-mile commuter rail line with 10 stops between Gateway Station in Uptown Charlotte to Iredell County. The idea is to provide an alternative to driving on I-77.

The track, known as the O line, is used for freight operations currently. Norfolk and Southern would be expected to continue using the tracks. It is not clear whether the ultimate transaction would involve a change of ownership or a lease arrangement. The plan will get serious consideration as it would go a long way towards enabling the Red Line.

In Cincinnati, the Norfolk and Southern is a potential buyer of rail tracks from the City. The Cincinnati and Southern Railway is the only municipally-owned railway in the U.S. It has been leased by Norfolk Southern since 1881. In 2021, that lease was extended through 2051. The city wants to sell the railway to Norfolk Southern for around $1.6 billion. It would take the proceeds of a sale and place them in a trust fund. The interest generated from the corpus of the trust is estimated to generate some $50 million annually for infrastructure investment in the City.

The City earns approximately $25 million per annum under the current arrangement. The Trust is projected to generate twice that much. The level of annual payments from the Trust to the City are not guaranteed. The plan contemplates a required minimum payment of $25.6 million per year, regardless of the investment returns. This ensures that the city won’t receive any less than it generated from the railroad prior to the sale. 

The planned ballot proposal requires that “in the unlikely case that the trust balance dips below 75% of the balance from the previous year, then a moratorium on payments to the city is required until the balance of the trust recovers to the level of the previous year before that loss.” The city is estimating a 5.5% return on its investments.

TEXAS BROADBAND

The U.S. Census Bureau reports 93.9 percent of Texas households had a computer, but only 86.9 percent had a broadband internet subscription in 2017-2021. The rate is substantially lower in the more rural areas of the state. To address the shortfall in broadband access, Texas voters will have a chance on November 7 to approve a constitutional amendment, Proposition 8.

The amendment creates a broadband infrastructure fund of $1.5 billion to expand high-speed internet availability. The fund is designed to take advantage of federal funding available through the Broadband Equity, Access, and Deployment Program to stimulate internet expansion. Texas was promised $3.3 billion, the most of any state, and Texas’ Broadband Development Office predicted it would begin accepting grant applications in 2024.

Eligible applicants would include internet service providers, political subdivisions and public-private partnerships interested in developing broadband infrastructure. Supporters have cited the benefits of the Rural Electrification Administration in the 1930’s which benefitted many rural residents. It is a comparison we have made for years. Broadband is the electrification project of the 21^st century.

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