Joseph Krist

Publisher

DIABLO CANYON

Diablo Canyon provides nearly a tenth of California’s electrical power. It was scheduled to close by 2025. In a significant development, California Governor and re-election candidate Newsome proposed legislation which would direct the California Public Utilities Commission to set a new closure date of Oct. 31, 2029 for one unit, and Oct. 31, 2030, for the second on the coastal site along the Pacific. By 2026, regulators would be allowed to grant an extension, but not beyond Oct. 31, 2035.

The state would provide a $1.4 billion forgivable loan to cover the costs of relicensing by PG&E. Pacific Gas & Electric applied to the U.S. Department of Energy’s $6 billion program to preserve the operations of nuclear power plants. No visibility has been provided regarding the issues of how much will be granted, or when. The process includes significant approval requirements from federal, state and local regulatory entities. One significant “exemption” is the provision of an exemption from state regulations to allow operators to maintain operations at the plant without conducting extensive technical analysis of the environmental effects.

California was always likely to face this sort of dilemma ahead of some others. Its hydro resources are depleted by drought both in state and from the Colorado River. It has eliminated coal in state. These were all sources of consistent base load power. The last five years have shown the variability of hydro (think Oroville Dam). There is an increasing fear that the anomaly along the Colorado was the wet period and that the near quarter century drought is the base line.

The closure of significant nuclear assets has generated initial negative results in New York State in terms of the environment and the use of fossil fuel for replacement energy. The same issues have driven the debates in OH and IL (once you took the cash out of them) over whether to subsidize existing nuclear plants. Germany had been on the path to closure of its three remaining operating nukes by the end of this year. Natural gas would have been a likely replacement.

Now with the war in Ukraine limiting gas supplies, the nuclear capacity needs to be replaced. So, does it come as a shock that Germany has proposed that shuttered coal plants be reopened? the Omaha Public Power District (OPPD) in Nebraska has now moved to slow its plans to close one of the nation’s dirtier coal-fired plants from 2023 to 2026. They are best positioned at present to meet the need. Once again, the environmental movement confronts the need to compromise. Perhaps one of the outcomes of the successful compromise in the Inflation Reduction Act can cause state legislatures to try it?

COLORADO RIVER

Federal officials had previously given the seven states which “share” the waters of the Colorado River until Aug. 16 to come up with a plan to reduce demand on the river to conserve as much as a third of the river’s flows. The amount reflects the Bureau of Reclamation they believe is necessary to keep Lake Powell above the levels sufficient to generate needed power and provide water.

The Interior Department holds ultimate authority over Colorado River deliveries in the Lower Basin and, through its Bureau of Reclamation, controls key infrastructure up and down the river. This gives the federal government enormous leverage. The deadline date is not arbitrary. It roughly coincides with the review and release of data in support of allocations of water for 2023.

Whatever is decided it will have to occur within the framework of existing legal agreements. Under Western water law, users with the oldest water rights are entitled to their full allotment of water before newer, junior users get a drop. Since farmers led the settlement of the West, a significant volume of senior water rights are held by agriculture, which uses roughly three-quarters of the Colorado River’ water. Cities typically hold junior, lower-priority rights.

Technically, water deliveries for cities and tribes in Arizona are first on the list to be cut back. Here is where geography becomes a real factor. Arizona, California, and Nevada are downstream from Lake Powell. If less water gets through than those states are at risk. The other Upper Basin states of Wyoming, Colorado, Utah and New Mexico sit upstream of Lake Powell. That gives those states direct control over these water resources.

At the same time, under the terms of a 1963Supreme Court decision, the Interior Department has the right to define what is — and isn’t — a “beneficial use” of water.  Western Democrats secured inclusion of $4 billion for the Colorado River in the Inflation Reduction Act. It would allow the Bureau of Reclamation to pay users to voluntarily forgo water use or to restore ecosystems affected by drought.

The deadline did not result in a new plan from the states, so now the lower basin states and Mexico are going to be cut back. Arizona will have to reduce its Colorado consumption by nearly 600,000 acre feet, or 21 percent of its annual allocation. Nevada’s total reductions are now 25,000 acre feet, or about 8 percent of its allocation. Mexico’s cuts total 104,000 acre feet, 7 percent of its allotted supply.

The cuts come with the release of the Bureau of Reclamation’s August 2022 24 Month Study. The 24-Month Study projects Lake Powell’s Jan. 1, 2023, water surface elevation to be 3,521.84 feet – 178 feet below full pool (3,700 feet) and 32 feet above minimum power pool (3,490 feet). The three states and Mexico will be impacted by actions at Lake Mead which will operate in its first-ever Level 2a Shortage Condition in calendar year 2023.

Depending on future snowpack and runoff, a range of actions will be needed to stabilize elevations at Lake Powell and Lake Mead over the next four years (2023-2026). The analysis shows, depending on Lake Powell’s inflow, that the additional water or conservation needed ranges from 600,000 acre-feet to 4.2 maf annually.

TRANSIT ON THE BALLOT

Voters in four counties in Georgia will be asked to approve new taxes to be dedicated to transportation. The state created the tax option (Transportation Local Option Sales Tax) six years ago for purposes that include roads, bridges, public transit, and seaports. It adds 1% to existing sales tax rates, excludes gas and motor fuels, and must be renewed every five years. According to the Georgia Department of Revenue, 102 of the state’s 159 counties have enacted the transportation sales tax.

Chatham County consists of eight municipalities including the city of Savannah. The tax is estimated to raise $143 million for the city of Savannah. Countywide, the 1% tax is estimated to raise $420 million over five years. The metro Atlanta Forsyth County would see the money be distributed among the county and the city of Cumming under a predetermined formula to address approved project lists. Most of the new tax revenue – 69% – would stay with the county which now collects a 7% sales tax.

Habersham County now collects a 7% sales tax. A prior effort to secure voter approval for this same tax in 2018 was defeated by a 54-46% margin.  The tax is estimated to generate $44 million over five years. The bulk of the revenue – $33.4 million – would go to the northeast Georgia county. The remainder would go to the county’s five cities. Oconee County voters failed to approve a ballot item to increase its existing 7% sales tax for transit. Nevertheless, proponents in the county that borders the city of Athens are trying again this year.

IDEOLOGY IN PENNSYLVANIA

Republican lawmakers in Pennsylvania are attempting to block the passage of proposed emissions regulations, which must be written into state law by Dec. 16 to meet a federal deadline that, if not met, threatens $500 million in highway funding. This amidst a continuing debate over how to generate and apply state revenues to Pennsylvania’s road system. The Legislature has 30 calendar days or 10 session days — whichever is longer — to vote on the regulations.

The regulation would require unconventional oil and gas sites, like fracking wells and natural gas processing plants, to adopt technologies that would limit emissions of volatile organic compounds (VOCs). This because when combined with nitrous oxides (also emitted by oil and gas sites) in the presence of sunlight, form ground-level ozone, a respiratory irritant is increased.

Sources affected by this final-form rulemaking include natural gas-driven continuous bleed pneumatic controllers, natural gas-driven diaphragm pumps, reciprocating compressors, centrifugal compressors, fugitive emissions components and storage vessels installed at unconventional well sites, gathering and boosting stations and natural gas processing plants, as well as storage vessels in the natural gas transmission and storage segment.

Pennsylvania currently has no state regulations on VOC and methane emissions from oil and gas sources. The PA Department of Environmental Protection (DEP) estimates that the unconventional oil and gas industry is currently responsible for some 5,648 tons of VOC emissions and more than 100,000 tons of methane emissions per year. The effort to delay or prevent legislation against the fracking industry has been an ongoing theme in the Legislature.

NORTH DAKOTA CANNABIS

For years, hemp was a viable cash crop. In World War II, hemp growers were encouraged to produce more to support the naval war effort. North Dakota was a major producer. That did not do anything to drive support for cannabis production or possession. Now, with the tide finally flowing in favor of cannabis decriminalization, the state’s voters will be asked to consider its legalization.

The Secretary of State of North Dakota has certified a ballot measure to legalize recreational marijuana. If enacted, the measure will permit adults 21 and older to possess up to one ounce of cannabis. It will also establish a regulatory system for registered cannabis businesses, run by the Department of Health and Human Services or another agency designated by the Legislature.

Regulators would have until October 1, 2023 to develop rules related to security, advertising, labeling, packaging and testing standards. The industry would be limited to 18 state-approved dispensaries and seven manufacturing facilities. 

BRIGHTLINE

It has not been a credit issue to date but the Brightline, a privately owned high-speed passenger line, has the worst fatality rate among the nation’s more than 800 railroads. Federal Railroad Administration data is reported to show 68 people und something that is the product of past practices along the right of way which includes significant stretches with unimpeded access, long established walking shortcuts, and hundreds of unsignalled grade crossings.

Who has the responsibility for addressing the capital need for fencing and signals? Are they the railroad’s job?  The state or local road agency’s job? That has delayed efforts to attempt to lessen the risks. A $25-million dollar grant from the U.S. Department of Transportation will allow the Florida Department of Transportation to fund 33 miles of pedestrian protection features. They will be constructed at 328 roadway-railroad grade crossings along the Florida East Coast Corridor from Miami-Dade, through Broward, Palm Beach, Martin, St. Lucie, and Brevard Counties.

AUTONOMOUS VEHICLES

The climate bill enacted this week puts much emphasis on electrification of both individual and mass transit vehicles. This has reduced the focus on autonomous vehicles which were seen as a driver of capital investment in anticipation of their full adoption. Tesla’s “autonomous” vehicle software has come under criticism. The most useful testing of AV technology has been on smaller scale Mass transit uses. That is what makes the findings of an analysis by an AV proponent – US Ignite – so interesting.

US Ignite is a nonprofit whose mission is advancing the use and development of urban technology. The U.S. Army Engineer Research and Development Center (ERDC) provided funding for a two-year pilot of an AV shuttle at Fort Carson in Colorado. The Fort Carson project operated from September 2020 until March 2021. The service operated on a 3.1-mile fixed route. Clearly it was a small scale effort. A total of 204 people rode the autonomous shuttle.

The findings indicate some problems in the short-term. “For safety reasons, the current generation of automated passenger shuttles operate at average speeds of 12-15mph, with some vehicles reaching a maximum of 25 mph. These slow speeds make driving on standard roadways challenging for AVs and other road users as it can create road congestion and cause frustration among other drivers on the road.

Speed limitations make it clear that AV shuttle offerings should be a “last-mile” solution – where the destination is beyond a comfortable walk but too close to justify taking a personal car. Speed limitations make it clear that AV shuttle comfortable walk but too close to justify taking a personal car.”

It is a sign to advocates that adoption will be a much longer term process. We are already seeing issues of reliability and availability in terms of electric vehicle charging infrastructure. That well before full rollout of charging infrastructure.

CONGESTION PRICING MOMENTUM SLOWS IN SF

The San Francisco County Transportation Authority has been researching potential congestion pricing plans for downtown SF. That continued even after the city was at the center of the pandemic. SF along with NY have been the two cities which have had the slowest return of workers to offices in the aftermath. Many commentators have paired the cities in terms of the return to office. Now, with New York trying to move ahead with its congestion pricing plan we see a divergence between planners in the two cities.

Downtown SF remains less crowded as the tech industries have been slower to return to office settings. Before the pandemic, San Francisco was studying a plan to charge drivers entering a downtown zone $6.50 — with discounts based on income. Those plans all assumed a return to pre-pandemic levels of traffic but they have not materialized. Now, The Authority has announced a “pause” in its efforts to establish these charges.

The latest plan called for implementing congestion pricing in two downtown zones — one including the Financial District, Chinatown, the Tenderloin and South of Market. The other zone would be larger, including North Beach, Russian Hill, Fisherman’s Wharf and Marina Bay.

The plan proposed electronically charging drivers entering the zone   between 6 a.m. and 9 a.m. and 3:30 p.m. and 6:30 p.m. a toll of $6.50 with a discounted cost of $4.33 for moderate-income people, $2.17 for low-income people and no charge for those with very low incomes. Drivers with disabilities would pay $3.25. Drivers for ride-hailing service like Uber and Lyft would pay the full charge for each ride. Residents of the zones would not be exempt.

The reality is that it would take five years before the plan would be implemented as it would require extensive planning, state legislation, installation of electronic toll collection equipment and alterations to some city streets. As for now, the companies are still in the process of establishing new hybrid work attendance requirements. Congestion remains a memory.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.