Joseph Krist

Publisher

GEORGIA AND CLIMATE CHANGE

Southern Co. announced in its quarterly earnings statement that Georgia Power’s share of the third and fourth nuclear reactors at Plant Vogtle has risen to a total of $12.7 billion, an increase of $264 million. The original projection of the total project cost for all participants was$14 billion. Along with what cooperatives and municipal utilities project, the total cost of Vogtle has now reached $28.5 billion, more than double the original projection.

Southern Co. also disclosed that the other owners of Vogtle – Oglethorpe Power Corp. owns 30%; The Municipal Electric Authority of Georgia (MEAG) owns 22.7% and the city of Dalton’s municipal utility owns 1.6%. Florida’s Jacksonville Electric Authority is obligated to purchase a portion of MEAG’s capacity They contend that Georgia Power has tripped an agreement to pay a larger share of the ongoing overruns, a cost the company estimates at up to $350 million.

Another issue which involves municipal owners is Southern’s plan to reduce its coal generation by 55%.  At its peak, it operated 66 generating units of coal, producing 20,450 megawatts. It now operates 18 units producing 9,799 MW. Georgia Power plans to remove roughly 3,000 MW of coal in the state, including two of the four units at Plant Bowen and one at Plant Scherer, which is the largest coal plant in the country.

Georgia Power plans to remove roughly 3,000 MW of coal generation in the state, including two of the four units at Plant Bowen and one at Plant Scherer, which is the largest coal plant in the country. The main owners of Scherer 1 and 2 are Oglethorpe Power Corp.; the Municipal Electric Authority of Georgia; and the city of Dalton, Ga. Florida Power & Light Co. and Jacksonville, Fla.’s electric company, JEA, agreed earlier this year to shutter the unit that they jointly own at Scherer by 2022.

This makes timely operation of the expanded Votgle plant even more important.

The decision will also have an impact some 2000 miles away. Three Wyoming mines supply most of the coal burned annually by the Robert W. Scherer Power Plant. Last year, roughly 10% of the mines’ combined coal production went to Scherer. It’s just another nail in the Powder River Basin economy. The share of State severance tax revenue that comes from coal is down almost 15% from 2011.

FEDERAL ROLE IN ELECTRICITY INCREASED

The infrastructure bill includes significant changes in the role of the Federal Energy Regulatory Commission (FERC) in regulating the development of electric transmission projects. The recent election in Maine highlighted some of the issues. The long term need for long distance transmission to facilitate the delivery of power from a variety of sources has highlighted the role of the states in regulating transmission infrastructure development.

The role of states in this regulatory process is seen as a major hurdle to development of a reliable electric grid. To address this, the infrastructure legislation enhances the ability of federal regulators to permit new transmission projects, by giving authority to the Energy Department to designate national transmission corridors for clean electricity projects. This has been a problem since a 2009 federal appeals court ruling, which found that FERC lacked the authority to overturn state regulators’ rejection of power lines planned in DOE sanctioned corridors.

Under the Energy Policy Act of 2005, DOE was required to conduct a study of transmission congestion every three years and identify transmission corridors needed to address it. The new legislation provides for FERC to conduct studies more frequently and expands the criteria for projects that can qualify as “national interest electric transmission corridors.” Where projects previously needed to address transmission congestion, power lines that enhance the ability to deliver “firm or intermittent energy” will also qualify for the designation.

The National Academies of Science estimates American transmission capacity needs to grow by 60% by 2030 to put the country on track for net-zero emissions by midcentury. Researchers at Princeton University reckon that the build-out could cost some $360 billion by 2030. Here is one data point which will temper the impact of the legislation. In 2019, U.S. utilities spent $40 billion on transmission, with about half of that dedicated to new transmission investment, according to the U.S. Energy Information Administration. The infrastructure package and accompanying $1.7 trillion reconciliation bill contain about $20 billion in incentives for transmission development.

NUCLEAR IN THE INFRASTRUCTURE BILL

The infrastructure legislation includes federal funding for part of the costs of a proposed modular nuclear generating facility proposed for the State of Washington. The proposal is one of three currently being considered to support the technology with the others located in Idaho and Wyoming. The legislation provides enough funding to the Washington facility to cover half of its estimated construction expense.

The project in southern Idaho involving small reactors cooled by water is furthest along in development, and has struggled with delays, design changes and escalating cost projections. The developer has hoped to sell power to participants in the Utah Associated Municipal Power Systems. Originally planned for 12 individual small reactors, the project has already been scaled down to six reactors, now forecast to cost $5.1 billion. The plant is projected to begin coming online in 2029.

The reduction in scale reflects a less than enthusiastic response from potential participants. Currently, the project has secured contracts to take 22% of the its proposed 462 megawatts of power.  The plant proposed for Washington state would be at the existing Hanford reservation where there is a long history of nuclear power development.

Here’s where the municipal utilities come in. Energy Northwest, would manage the proposed reactors under an agreement announced last year. A third partner is Eastern Washington’s Grant County Public Utility District, which would own the reactors and be responsible in raising about $1 billion in financing. The plan is far from a done deal. The memory of the ill-fated Washington Power Supply System still leaves a bad taste in the mouths of many in the region.

MUNICIPAL GAS UTILITY PRESSURES

The impact of sustained increases in natural gas prices on coverages for municipal utility credits is becoming clearer. The winter billing periods are beginning and utilities across the country announcing significant increases in the cost of natural gas service to their consumers. These are showing up in bills for direct uses of residential gas (cooking, heating) as well as indirect uses as in general electric and/or combined utility rates.

The details of a gas utility’s gas procurement process are a key element of short-term risk to credit. Those who have procured gas under long-term contracts at favorable terms will be better off. Those who purchase on a shorter term or spot basis are quite vulnerable.

On the municipal front, we are beginning to rate actions. Colorado Springs Utilities has announced that it is increasing residential rates for electricity by 13.5% and natural gas by 26.8%. Combined customers who receive electric, gas, water, and sewer from CSU will see a 10.9% increase in their monthly bill. Commercial customers will see a 22.2% increase in total bills. The rate hikes are on top of those enacted after the late winter cold snap.

INTERMOUNTAIN POWER

The Intermountain Power Project (IPP) was effectively the beneficiary of increasingly restrictive siting policies in the State of California. No one has ever disputed the basis for locating the plant in Utah closer to local coal supplies. Utah didn’t need the power as evidenced by the fact that 98% of plant output is sold to California municipal utilities. The benefit to Utah was the use of Utah coal and the jobs that the plant provided.

Now that coal power is losing favor and under regulatory pressure, the rationale for the IPP is no longer valid. So, the project has undertaken an effort to convert the plant from coal generation to natural gas fueled generation. IPP plans to soon issue some $2 billion of bonds to finance the conversion. Now, with the project moving to a critical phase the Utah legislature has enacted legislation to make it harder for IPP to enter into contracts for the project.

The agency is exempt from public meeting and procurement laws and benefits from some 72 amendments to state law since 2002 to facilitate IPP operations. Now that IPA will convert the plant to natural gas by 2025 and will increasingly burn emission-free hydrogen, produced with energy from solar farms under development nearby, the agency suddenly needs to brought to heel. It is clear that the law was driven by efforts to derail the conversion from coal.

IPP is already facing continuous litigation from its host location, Millard County. Property tax issues have generally been the central point of dispute. The county spends $500,000 a year litigating against IPA and there are two lawsuits pending in Utah’s 3rd District Court. Those cases deal with IPP’s contention the plant’s value is far lower than what the Utah State Tax Commission has assessed, while the county claims it should be much higher. 

In the end, the whole situation could just be a case of the County spitting into the wind. Coal is increasingly dead unless it can be bailed out by carbon capture. At this stage of the technology, carbon capture will not be reliably on line in time to save some generation.  This legislation will not, in the end, stave off the inevitable. It does reflect the desperation of some host communities facing loss of major fixed assets and jobs.

LIPA AND SOLAR

The Long Island Power Authority is in the middle of the environmental debate as the result of plans to levy monthly fixed charges to residential customers who install solar. The proposed LIPA solar charge would amount to between $5 and $10 a month for systems installed after Jan. 1.  LIPA, which is under no state mandate to institute the so-called customer benefit charge, plans to do so Jan. 1, following a public hearing later this month and a board vote in December.

It comes in the wake of recent legislation offering tax rebates to homeowners who install rooftop solar but those rebates are only being offered to upstate residents. LIPA customers are not eligible. The issue arises with LIPA already under pressure to revise its management contracts with PSE&G for running LIPA’s electric system. The quality of LIPA responses to several weather events has led to increased complaints about service. Now, LIPA wishes to tax an alternative.

FLINT WATER SETTLEMENT

Since 2014, the City of Flint has been best known for its horrendous drinking water situation. Ever since the contamination in the water was attributed directly to the switch in water sources undertaken by emergency management, an effort to get compensation has been in process. Now, a major piece of the outstanding litigation stemming from the contamination has been settled.

The $626 million deal makes money available to Flint children who were exposed to the water, adults who can show an injury, certain business owners and anyone who paid water bills. $600 million is coming from the state of Michigan. Flint itself is paying $20 million toward the settlement. The State’s failure to properly manage the water system creates the obligation. The former Governor and a water regulator face criminal charges.

The net amount of the settlement after legal fees is yet to be determined. The initial ask is for $200 million. That is to be decided at a later hearing before everything is finalized and money can begin to flow.

PRISON CLOSURES IN NEW YORK

New York officials announced plans to close six state prisons early next year. It continues a process initiated under the Cuomo administration which closed 18 prisons during his nearly 11 years in office. The closings come as the state’s prison population has dropped to 31,469, a 56 percent decline from a peak of 72,773 in 1999. The six prisons that will close are well under capacity: Taken together, they can fit up to 3,253 people, but now house just 1,420, all of whom will be transferred to other facilities before closing in March 2022.

The largest of the six prisons being closed is Downstate Correctional Facility, a maximum-security prison in Dutchess County in the Hudson Valley, which can fit up to 1,221 people, but is operating at 56 percent capacity. The smallest is the Rochester Correctional Facility, which holds up to 70 individuals. The usual criticisms of the plan come from the usual sources; corrections officer unions and local politicians. They point to the economic impact on employment on local communities. 

The plan reflects the realities of the current political climate in the state where there has been great emphasis on criminal justice reform. The budget saving is not huge for the State. Out of a $180 billion budget, the move is expected to save taxpayers $142 million. The opposition to the plan is expected and mirrors opposition to previous closings in New York and a series of prison closings in California.

IS FREE TRANSIT STUCK IN THE STATION?

Last week we referenced a proposal by the Boston Mayor-elect to eliminate fares on the MBTA’s Boston-area transit system. A one-way subway ride costs $2.40. In fiscal 2020, fares accounted for about one-third — or $694 million — of the transportation authority’s $2.08 billion in revenues. We expressed concern about the realism of the plan given the fact that it rests on assumed outside funding.

That assumption is already being put to the test. The Governor made two telling comments. “Why they should pay to give everybody in Boston a free ride does not make any sense to me.” “Somebody’s going to have to come up with a lot of money from somebody, and I do think if the city of Boston is willing to pay to give free T to the residents of the city of Boston, that’s certainly worth the conversation, I suppose.” It is one thing to offer something for free when you can provide the funding. It is another to expect others to pay for it.  

OPIOID LITIGATION

Hard on the heels of a California state judge’s decision that said that opioid manufacturers and distributors had not created a “public nuisance” for which they had a liability for damages, a second decision has been handed down reinforcing that view. The Oklahoma Supreme Court, by a 5-1 vote, rejected the state’s argument to that effect. “Oklahoma public nuisance law does not extend to the manufacturing, marketing and selling of prescription opioids.”

The Oklahoma decision echoed the California decision. Oklahoma’s 1910 public nuisance law typically referred to an abrogation of a public right like access to roads or clean water or air. The judges found fault with the state’s case, saying it failed to identify a public right under the nuisance law and had instead attempted to apply a “novel theory” to what was more likely a products liability case.

The company, the Oklahoma judges said, had no control over the distribution and use of its product once the drug left its control. Just as was the case in California noted that “Regulation of prescription opioids belongs to federal and state legislatures and their agencies.” It looks more and more like the opioid crisis will not the be the large or perpetual source of funding to state and local government which the tobacco settlement is viewed as. There is a $5 billion settlement offer on the table for the hundreds of state and local governments to settle their remaining claims.

PUERTO RICO AND SOCIAL SECURITY

Supplemental Security Income (SSI) is a long-standing program which is available to U.S. citizens in the 50 states, the District of Columbia and the Northern Mariana Islands, but not in Puerto Rico, the U.S. Virgin Islands and Guam. The program provides monthly cash payments to older, blind and disabled people who cannot support themselves. Throughout the run-up to the Title III filing by the Commonwealth of Puerto Rico, this disparity was frequently cited as an imposed disadvantage in the funding of Puerto Rico’s budget.

This week, the issue has found its way to the U.S. Supreme Court. Oral arguments were heard in a case filed on behalf of an individual. The plaintiff is a disabled man who received the benefits when he lived in New York. He continued to receive payments even after he moved to Puerto Rico in 2013. When the Social Security Administration became aware of the move, it sought repayment of the benefits paid until the “error” was discovered, eventually suing him for about $28,000.

The plaintiff is asking the Court to review decisions made in light of the acquisition of certain territories from Spain under the treaty which ended the Spanish-American War. Within that Treaty of Paris was a statement noting that Congress would determine the political status and civil rights of the natives of the island territories. In the early 1900’s, the Supreme Court was asked to review nine cases in total, eight of which related to tariff laws and seven of which involved Puerto Rico. 

At the time, Puerto Rico was a primarily agricultural economy exporting rice, sugar, coffee, and rum. To reach its conclusions that for purposes of tariffs it created “the doctrine of ‘territorial incorporation,’ according to which two types of territories exist: incorporated territory, in which the Constitution fully applies and which is destined for statehood, and unincorporated territory, in which only ‘fundamental’ constitutional guarantees apply and which is not bound for statehood.” 

Territorial incorporation has been criticized over the years but it has withstood efforts to reverse it. This case would appear to be the best hope of overturning a view based in the same time and culture that produced Supreme Court approval of separate but equal schools and public accommodations. The era which produced the Plessey v. Ferguson separate but equal doctrine produced the Insular Cases decisions. One injustice has been overturned. Could this be a vehicle to overturn another?

TRI-STATE TRANSIT DISPUTE RESOLVED

When the pandemic effectively closed down the economy, transportation took a steep hit to revenues. So, $14 billion for the region was approved by Congress in the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 and the American Rescue Plan Act. The plan to share the funding was to be the product of negotiation between NY, NJ, and CT. Those talks took a significant stumble over the issue of how much would go to the MTA and how much to New Jersey.

The MTA’s average weekday subway and bus ridership remains down between 30% and 50%. New Jersey Transit’s ridership on rail, buses and light rail was is down between 30% and 40%. Now, the three states have agreed on how to divide the federal pandemic aid to mass transit. New York will receive about $10.8 billion, New Jersey will get about $2.6 billion and Connecticut will receive about $474 million, under the agreement.

The additional cash is credit positive for the MTA and New Jersey Transit credits.

ST. LOUIS FOOTBALL CASE MOVING FORWARD

There have been a number of developments in the litigation filed by the City of St. Louis against the NFL and the owner of the now Los Angeles Rams. The litigation stems from the move of the St. Louis Rams to Los Angeles after the 2016 season. As the case has plodded through the pre-trial process, the NFL had resisted most offers of a settlement. Once it was clear that the case could go to trial and that the pre-trial process including depositions would get underway, the motivation for a settlement grew.

The potential for depositions is something the NFL would like to avoid at all costs. Questioning under oath about the processes and actions undertaken to facilitate the franchise move are not in the best interests of the league to have analyzed. So, it is not a surprise that there are reports of a $100 million offer from the Rams’ owner to settle and that the City declined. It is not clear as to what stage of the negotiations are at so it is difficult to assess how much is at stake for the parties. Clearly, the City could use the budget windfall which would result from a better offer.

All 32 teams — and their owners at the time the lawsuit was filed — are defendants in the case.  The machinations have been intense leading to additional settlement pressure. Five owners (including the Rams) have been deposed and four of the non-Ram owners have been fined by the court for failing to turn over financial documents in a timely manner.  

The trial is scheduled to start on January 10.  The league needs to avoid a trial to prevent former owners from testifying. One has already stated in the press that St. Louis’ stadium proposal to replace the Edward Jones Dome, where the Rams had played from 1995 to 2015, met league guidelines to keep the franchise in St. Louis. 

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