Joseph Krist

Publisher

KENTUCKY

Daddy, won’t you take me back to Muhlenberg County

Down by the Green River where paradise lay?

Well, I’m sorry my son but you’re too late in asking,

Mr. Peabody’s coal train done hauled it away.

And much of what was left was washed away in this week’s flooding in eastern Kentucky. Much of the focus on environmental justice and social equity, especially in terms of the electric utility industry, centers around the location of generating facilities.  The lack of infrastructure before as well as after is staggering. If you have been in those hollows in KY, W VA, VA, OH, the difficulties with providing and maintaining basic infrastructure are apparent. So too, is the poverty that is the largest growing crop in these places. The barriers to overcoming these issues grow every day.

Recovery will be highly difficult at best. The lack of a real economy, limited physical access (true before the flooding), and a lack of insurance will all be difficult to overcome. It is estimated that only 5% of the homes flooded and/or destroyed had flood insurance coverage. At some point, what sounds like a lot of money (nearly all federal) will be pointed to as a marker of a recovery effort. The reality is that those federal programs don’t often provide the one commodity that disaster professionals all point to as a primary mover of short-term recovery and that is cash.

THE INFLATION REDUCTION ACT

An agreement was announced which should pave the way for a climate bill. The agreement includes 10-year extensions of existing credits for wind and solar, as well as provisions for heat pumps, rooftop solar and standalone energy storage, like batteries. the extension and expansion of a host of renewable energy tax incentives and for next-generation technologies, including clean hydrogen and advanced nuclear. EV incentives a $7,500 rebate for new vehicles and a $4,500 tax credit for used ones. Only people who make $150,000 a year or less (or $300,000 for joint filers) are eligible for the new car credit and those who earn a maximum of $75,000 (or $150,000 for joint filers) for used cars. 

The bill extends credits to hydrogen-fueled cars. It also expands a tax credit for companies that capture and bury carbon dioxide from natural gas power plants or other industrial facilities. It would also provide tax breaks to keep existing nuclear plants running and make permanent a federal trust fund to support coal miners with black lung disease. While much of that benefit will indeed go to West Virginia, health providers and governments in states like PA, VA, OH, and IL would all benefit from that funding. America’s Power, an industry trade group, said “Our preliminary estimates indicate that West Virginia would be one of the states with the largest number of coal retirements due to the wind and solar tax credits,”.

We view this legislation as establishing a political blueprint for what a legislatively realistic approach to climate change might look like. Support for carbon capture is clear. The continuing support for electric transportation on a bipartisan basis will drive demand for electricity. We see signs that nuclear is gaining support. The continuing inability (unwillingness) of managers at nuclear construction projects to meet budgets and schedules while ensuring quality work is the real impediment.

The hope is that some of those issues would be addressed through the development of small scale or modular reactors. The Nuclear Regulatory Commission (NRC) has indicated it will certify a small modular reactor (SMR) design planned to be developed in Idaho. The NRC on July 29 directed staff to issue a final rule that certifies the standard SMR design, for which NuScale submitted an application in December 2016. 

Only one NuScale project is under active development in the U.S. That has a municipal utility – Utah Associated Municipal Power Systems (UAMPS) – leading the effort to develop the 462-MWe Carbon-Free Power Project at an Idaho National Laboratory (INL) site in Idaho Falls, Idaho. While also a NuScale project it has a different design. UAMPS has so far signed up 27 of its 50-member pool—mainly in Utah, Idaho, Nevada, and New Mexico—as participants in CFPP.

CALIFORNIA ELECTRIC VEHICLE WEALTH TAX

Prop 30 would raise income taxes on people earning more than $2 million a year to fund zero-emission vehicle purchases and infrastructure. Half the money for incentives would go to people in lower-income communities and a share of the money for infrastructure would be used to install charging stations at apartment buildings. A portion would also be used to fund wildfire prevention efforts.

A 2020 order from Gov. Newsome requires all new vehicles sold in the state to be zero-emission by 2035. A related law compels ride-hailing companies like Lyft and Uber to mostly abolish internal combustion engines from their fleets by 2030.  So, now they are looking for additional subsidies for their businesses in the form of assistance for buying EVs. It’s important enough to Lyft to have spent $15 million to support the plan.

CARBON CAPTURE ECONOMICS

Last week we highlighted efforts by the municipal utility serving Farmington, NM to limit residential solar generation development. This week, the same utility was the subject of another analysis regarding renewable vs. fossil fuel-based energy. Farmington is the location of the huge coal-fired San Juan Generating Station. The plant has been slated for closure. Farmington has been seeking ways to keep the plant operating and maintain the jobs and tax base it offers. It has partnered with a private entity as it seeks to use carbon capture to keep the plant operating.

The plan is based on estimates by the sponsors that some 95% of the plants carbon footprint could be captured at the plant making it a viable generating option. Those estimates find them selves being questioned by the Institute for Energy Economics and Financial Analysis (IEEFA). The Institute is known for its lack of support for capture on economic viability grounds. In the case of the Farmington plant, specific issues have been raised in the study.

IEEFA’s analysis produced data which led them to conclude that even if the proposed project captures 90% of the CO2 produced by San Juan, the combined CO2-equivalent (CO2e) capture rate for both the mine and the plant would be only 68%. In this scenario, the project would continue to emit almost 3 million tons of CO2 annually. If only 75% of the CO2 produced by San Juan was captured, the effective capture rate for both the mine and the plant would be 57%. If only 65% of the CO2 produced by San Juan, the effective capture rate for both the mine and the plant would be 49%. 

The study comes as the U.S. Department of Energy (DOE) has issued a notice of intent to fund six carbon capture demonstration projects. Two are to be located at new or existing coal-fired generators, two at new or existing gas-fired facilities, and two at new or existing industrial facilities not proposed for electric generation. Funding is included in the pending climate legislation. It had better be, as even the entity vying to keep San Juan generating admits that there is little investor interest in its carbon capture project.

The study also highlights the issue of methane. While so much effort is applied to the development of carbon capture to deal with that problem, methane has taken its place as an issue with many believing that methane reduction could produce more significant climate benefits in a shorter time period than is the case with carbon capture. A recent study by the International Energy Agency (IEA) concluded that actual methane emissions from oil, gas and coal are 70% higher than reported in official data.

The major difficulty facing potential investors in carbon capture is one that the municipal high-yield market has seen many emerging technology projects which have never been operated at scale. Medium density fiberboard, rice stalk recycling, paper de-inking are just a few the sectors involved. The hope is that will change in the energy sector. We think that carbon capture could be a good test.

PUERTO RICO ANSWERS ITS OWN QUESTION

There are many responses one could have when Puerto Rico complains about oversight and its finances. When it wonders why investors and outside observers seek to obtain as much information as they can, when they ask for extended oversight, and tighter covenants. When it wonders why so many are suspicious of who and who isn’t appointed to run important functions. This week presented another answer to that question, courtesy of the Commonwealth itself.

The former governor of Puerto Rico, Wanda Vázquez, was arrested by the F.B.I. on charges of accepting bribes while in office from a campaign donor, and naming a regulatory official of his choosing in exchange for donations. The donor offered Ms. Vázquez a $300,000 campaign donation in return for replacing the island’s then top banking regulator.  It is charged that she took it but it was a bad investment as she lost in a primary.

The irony is that this failed investment was attempted to be reprised with the winning candidate. The same donor tried offering a bribe to the winner — the current governor, Pedro R. Pierluisi — but the person representing Mr. Pierluisi was actually working undercover for the F.B.I.  That comes after it came to light that he president and treasurer of a political action committee that raised money for Mr. Pierluisi’s campaign pleaded guilty in May in a scheme to hide the origins of “dark money,”.

This is why an oversight board is a necessity. 

PORTS AND CONTAINERS

The continuing backlogs at ports around the country are well known. With a peak shipping season underway, the clogged supply chain at all levels is refocusing attention on an issue that faced ports last year. Imbalances between exports and imports as well as shortages of truckers have created large numbers of empty containers which take up significant space at ports without generating revenue. It is in the ports’ interests to clear out the backlog.

The primary approach is to levy storage fees to motivate shippers to move the containers. In Los Angeles, such fees were proposed last year for the Ports of Los Angeles and Long Beach and the threat of them was sufficient to address the issue. Since the program was announced on Oct. 25, the two ports have seen a combined decline of 26% in aging cargo on the docks. As backlogs increased this year, the Ports of Los Angeles and Long Beach announced that they were considering actually collecting the fess beginning this month. The ports plan to charge ocean carriers $100 per container, increasing in $100 increments per container per day until the container leaves the terminal. The plan to impose the fees this month has been delayed to see if shippers can improve the backlog situation.

The Port of New York and New Jersey has announced that it intends to implement a new quarterly “container imbalance fee” for ocean carriers. Under this new container management fee, which will be assessed on a quarterly basis, ocean carriers’ total outgoing container volume must equal or exceed 110 percent of their incoming container volume during the same period, or they will be assessed a fee of $100 per container for failing to hit this benchmark. Incoming and outgoing containers include both loaded and empty containers, excluding rail volume.

WAS NYC WRONG ABOUT AMAZON?

When Amazon was looking for a tax incentive deal to support the development of a 25,000-employee campus, the deal had many critics. After Amazon decided ultimately locate in Arlington, VA. Supporters of the massive tax abatements and other incentives pointed to that move supported by tax concessions to call the failure to lure Amazon a mistake. It was part of a whole move by cities to put so much development hope in the location of tech company office facilities.

Now there is evidence that it might not have been the worst thing for the City given recent employment trends in the tech space. Twitter recently told employees that one office in San Francisco would close; plans for a new office in Oakland, California, would be abandoned; and the future of seven locations was being carefully considered as part of a cost-cutting measure. Five other offices globally would definitely be downsized. 

Other companies are following suit. Yelp announced it was moving to being fully remote, and closing 450,000 square feet of office space across the United States. Netflix said it plans to sublease around 180,000 square feet of property in California. Salesforce put up half of its San Francisco trophy tower block for sublease in mid-July. US Bureau of Labor Statistics data tells some of the story. Those numbers show that 27% of American workers in “computer and mathematical occupations” worked remotely at some point in the last four weeks. 

San Francisco estimates one in three workers who used to be in the city have now gone remote. The office vacancy rate in San Francisco stood at 22% at the end of the first quarter of 2022. In Dallas, where other tech companies have created outposts, more than one in four office spaces are vacant.

UPDATES

San Diego has become the latest jurisdiction to ban natural gas in new construction. The City Council approved the City’s Climate Action Plan.

Georgia Power has received approval to begin fuel loading at Unit 3 at Plant Votgle. The pending climate bill also provides a 10-year production tax credit for nuclear energy producers. The goal is to allow some existing nuclear generation to remain economical for operators. Existing facilities could receive a $15 per megawatt-hour credit. The credit gradually declines as power prices rise above $25 per megawatt-hour.

Carbon capture plans are continuing to generate opposition. Landowners in eight counties in South Dakota have now filed lawsuits against Summit Carbon Solutions and its well documented efforts to build a pipeline to ship carbon to North Dakota. The suits seek to challenge laws which provide that companies have a right to access land for survey work without consent, so long as there is a permit open with the South Dakota Public Utilities Commission, they give 30 days’ written notice to the landowner and they make a payment to the landowner in the event of any damages. 

The landowners cite an article in the state constitution which provides that private land cannot be taken or damaged without just compensation and another which provides that corporations that take private property must pay compensation before any damage to the property is done. The filings also cite an article in the state constitution that says landowners have a constitutional right to have just compensation determined by a jury and paid prior to entry on the land.

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