Joseph Krist
Publisher
ESG
Utah’s State Treasurer is now invoking God in his argument against ESG investing. He recently gave a speech in which he opined that
environmental social governance, or ESG is an “outcomes-based” plan, like the biblical “war in Heaven.” “Outcomes-based governance like the UN’s [Sustainable Development Goals] and ESG opens the door to authoritarianism.” ESG ignores “the very real human cost of boycotting fossil fuels” and that its “coercive tactics” mean that “capital is not going to where it would normally go—to profitable projects in the oil and gas industry.”
So far, the Treasurer has moved about $100 million in state money previously managed by the investment firm BlackRock to different asset managers. (Out of $30 billion under his management.) The Public Treasurers Investment Fund is where the state, cities, counties and other public entities deposit money to earn investment income until it’s needed. There is still $6.8 billion with BlackRock.
It is clearly not a state policy. The Utah Retirement Systems manage some $45 billion of pension funds. URS has the $6.8 billion under BlackRock management, and it has made no changes in its portfolio or asset managers related to ESG. The decision as to where and how to invest is made by the pension fund’s managers who report to a board.
We see that as a good thing in that the Treasurer clearly is not using logic or reason in his approach. It is hard to take someone seriously who opines as a government official that the UN’s Sustainable Development Goals “have widely been touted by UN leaders as the master plan for humanity” and were partially created by the Chinese Communist Party.
MODULAR NUCLEAR
NuScale Power says it will need to reach an 80% subscription level by February 2024, up from the current 25%, for its plans for a small modular reactor, or SMR, plant in Idaho. Failure to reach that level would require NuScale to reimburse Utah Associated Municipal Power Systems, or UAMPS, for costs incurred. NuScale will seek to increase subscriptions from members, power producers yet to join the consortium or others.
GOVERNANCE – VIRGIN ISLANDS POWER
The US Virgin Islands is now moving forward to comply with a ruling on legislation that compels the reorganization of the Virgin Islands Water & Power Authority’s Board of Directors. The law provides an opportunity for a changing of the guard at VIWAPA and is a positive turn for the embattled credit.
Act 8472 was passed into law unanimously by members of the 34th Legislature on August 3, 2021 after previously being vetoed by Governor Bryan. The legislation restructures the WAPA board to afford greater independence and establishes professional criteria for those who serve. Following the unanimous override of the veto, the Administration took steps to prevent the implementation of the new law by filing for both a temporary restraining order and a permanent injunction with the Virgin Islands Superior Court.
The VI Supreme Court has now ruled in favor of the law. The ruling on legislation that compels the reorganization of the Virgin Islands Water & Power Authority’s Board of Directors. It is some 16 months after the release of a scathing report on the failures of the existing Board. They include findings that WAPA’s Board and management did not fully exercise due diligence in undertaking the LPG Conversion Project, did not ensure that it mitigated WAPA’s financial risk when they approved the Project without detailed engineering plans.
WAPA’s management did not follow WAPA’s established procedures for contracts and change orders. In addition, WAPA’s contract negotiations lacked transparency. Furthermore, WAPA officials created an apparent conflict of interest when they engaged the professional services of a firm that also worked for Vitol during a similar time period. Finally, WAPA did not achieve its goal to convert the number of power-generating units it needed to burn LPG and did not ensure that its rented units could burn LPG as stipulated in rental agreements.
CLIMATE LITIGATION
Colorado municipalities, like many others across the country, have been litigating against fossil fuel companies over their lack of disclosure of the risks of climate change related to fossil fuel production and use. As has been the case in all of the other litigation, the plaintiffs sue in state courts. In response, the fossil fuel defendants try to have the cases moved to federal court. This is seen as more favorable for the defendants. The process has been for a federal court to deny the transfer to federal court. The federal appeals process plays out and this case now goes to the US Supreme Court.
In this case, the federal government was asked to weigh in on its view of the case as to the appropriate jurisdiction. Now, a brief is submitted in response to the Court’s order inviting the Solicitor General to express the views of the United States. In the view of the United States, the petition for a writ of certiorari should be denied. The brief notes that in similar litigation brought by the City of Baltimore, the court of appeals rejected petitioners’ contention that “there is federal-question jurisdiction over [respondents’] state-law claims because they are governed by federal common law.”
SOLAR AND PROPERTY VALUES
Researchers at the federally sponsored Lawrence Berkeley National Lab have released their findings from a survey in six states which looked at the impact of large-scale solar projects on local property values.
The study used data from CoreLogic on over 1.8 million residential property transactions that occurred within six years before and after a LSPVP was constructed in the five U.S. states with the highest concentration of LSPVPs as measured by number of installations: California (CA), Massachusetts (MA), Minnesota (MN), North Carolina (NC), and New Jersey (NJ), as well as in Connecticut (CT), chosen for its relatively high population density (i.e., urbanicity) near LSPVPs.
In our six-state study area (CA, CT, MA, MN, NC, NJ), we find that homes within 0.5 mi of LSPVP experience an average home price reduction of 1.5% compared to homes 2–4 mi away; statistically significant effects are not measurable over 1 mi from a LSPVP. These effects are only measurable in certain states (MN, NC, and NJ), for LSPVPs constructed on agricultural land, for larger LSPVPs, and for rural homes.
Changes in sales price are not statistically significant for CA, CT, and MA. However, MN, NC, and NJ, show a statistically significant negative effect of 4%–5.6%, more than double that of the average across all states in the base model. statistically significant home value reductions are only observed for homes nearest to LSPVPs that are sited on previously agricultural land.
LSPVPs accounted for over 60% of all new solar capacity in the United States in 2021, and, as the largest resource by capacity in interconnection queues.
MORE POLITICS IN FLORIDA
A group of suburban legislators is pushing legislation which would effectively take control of the Gainesville Regional Utilities out of the hands of local elected officials and place it in the hands of political appointees of the Governor. The proposed legislation comes after proponents of the change were defeated at the ballot box. The legislator behind the current bill also sponsored a 2018 referendum Gainesville for a bill that would put an independent GRU board in place appointed by the City Commission, rather than the governor. The vote failed, with 40% of voters in favor.
The bill targets GRU specifically, one out of 33 regional electric utilities in the state. GRU is the fifth largest in Florida, serving 93,000 customers. Some 37,000 people served by the city-owned utility can’t vote for Gainesvillecommissioners. GRU rates were the second highest in the state in 2022. It’s not clear exactly how the proposed bill would change things as non-resident customers still won’t be able to vote on city positions.
CARBON PIPELINE TEST
The issue of land acquisition and the potential use of eminent domain to accomplish this for a carbon capture pipeline has emerged as one of the debates in the Iowa legislature. This week the Iowa House passed House File 565. The bill would require CO2 pipelines to obtain 90 percent of the miles of the route through voluntary easements and provide some compensation protections and require CO2 pipelines to obtain 90 percent of the miles of the route through voluntary easements and provide some compensation protections.
The bill also contains a requirement that pipeline projects be paused until the new federal regulations are announced, as well as requirements that pipelines be in line with all local zoning rules and obtain permits in other states before being granted a permit in Iowa. A proposed amendment to remove those provisions failed. The bill has bipartisan support. Conservatives are coalescing around the idea of opposition to eminent domain being used to build for-profit projects for private companies.
The debate included testimony from a federal regulator about carbon pipeline safety. There was something for both sides of the debate. The fact that the history to date provides a favorable statistical view of pipeline safety is evaluated in light of a 2020 CO2 pipeline break in Mississippi which forced evacuations and some hospitalizations. The fact is that federal regulations are still not fully developed. The goal is to produce regulations reflective of the 2020 experience to the rules in two years.
As it stands, support for the bill in the Iowa Senate is unclear and the Governor says she supports the current permitting process.
P3 FOR SCHOOLS AND ENERGY
The Washington State legislature unanimously passed a bill which would authorize the use of public private partnerships to finance and develop projects at schools in the state to increase energy efficiency. Municipalities, including cities, counties, and port districts, may negotiate performance-based contracts with companies that offer water conservation, solid waste reduction, or energy equipment and services under the terms of the bill. Conservation projects may be funded through utility savings, capital funding, grants, or loans.
The state would be authorized to issue COPs backed by pools of school district projects under the bill. This would also create a roll for the state in terms of project scope and compliance requirements. The underlying project contracts will call for a district to contract with a private provider who will develop, own, operate and maintain financed equipment. A traditional sale/leaseback arrangement between the district and the private provider provides for the equipment to return to district ownership at the end of the lease.
PRAIRIE STATES THREAT
It is hard to believe that a project which has been at the center of much of the energy debate in Illinois could escape full scrutiny from the many interest groups involved. That appears to be the case with the Prairie States Generating Station in southern Illinois. In a lawsuit filed this week the Sierra Club alleges that the coal-fired base load plant does not have a permit to operate. The suit follows a financial release from the operating entity from the plant owned by Prairie State Generating Company which operates the plant for its owners – the Illinois Municipal Electric Agency (IMEA) and the Northern Illinois Municipal Power Agency (NIMPA).
Prairie State reported to state regulators that it had during April 2021 exceeded the mercury emissions limits in its construction permit, which reflected federal mercury standards. Prairie State applied for the permit from the Illinois Environmental Protection Agency in 2010, but the state agency never granted nor denied the permit. The plant began operating in June 2012.
A construction permit under the Clean Air Act to begin operations, but that permit is supposed to be replaced by an operating permit. The construction permit explicitly stated it was only valid for one year after operations began. The lawsuit demands that Prairie State cease operations until an operating permit is in place. The suit unintentionally shines a truly unfavorable light on the obvious weaknesses in the Illinois system of permitting and supervision. It also reflects badly on advocacy groups who “assumed” that there was an operating permit in place.
Illinois’ 2021 energy law allows the plant to keep operating with a mandate to close or capture all carbon emissions by 2045. Almost all other coal plants in Illinois will need to close by 2030.
SALT RIVER RENEWABLES
The Salt River Project in Arizona has announced that it has acquired 100% of the capacity of a 161 MW wind project in northern Arizona. Construction begins this week and the facility is scheduled to begin delivering energy to SRP customers by early 2024. The project is being developed by a private developer who will finance construction and operation of the assets. It will include some 50 windmills and as a privately owned facility is projected to generate nearly $10 million in direct tax revenue to the host county over its life.
SRP already obtains power from the 127-MW Dry Lake Wind Power Project, which was the first large-scale wind power facility built in the state. SRP’s renewables push includes wind and solar. SRP will install 2,025 MW of solar by 2025, which is enough to power more than 450,000 average-size homes.
PREPA RULING
The judge presiding over Puerto Rico’s Title III proceedings has found that bondholders had a “unsecured net revenue claim” against PREPA. The holders had hoped that they would receive a claim on net revenues. Now, the ruling facilitates efforts the get the PR Oversight Board’s plan for those bondholders moving forward. It is a huge disappointment to them as they could receive as little as 0.2% of their principal under current proposals.
It is a carefully crafted and worded statement. In our view, the judge has made a real effort to make a ruling that is specific to this credit. There are references to individual words in the bond resolution that indicate that the ruling is narrow as it relates to revenue bonds in general. Judge Swain found that “the word “pledge” is an “unsecured” promise and did not create a lien, which would require use of the words “lien or charge.”. The Oversight Board takes the position that the PREPA trust agreement only granted a lien on cash in accounts held directly by the trustee.
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