Joseph Krist

Publisher

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EPA, THE SUPREME COURT, AND THE POWER FUTURE

Given the week of decisions from the U.S. Supreme Court, many wonder where the Court’s course leads to in terms of the ability to manage certain issues on a national aggregate basis or if it is the role of the State’s to regulate and oversee energy developers and providers. If one can get beyond the emotion and rhetoric, the issue over power plant regulation is not a surprise.

The Court’s decision in this case, as well as in other cases, is based on a view that even some of the thorniest issues facing our body politic are better addressed legislatively. It is true that there have been significant strides made in society as the result of Supreme Court decisions. Those same decisions remain argued and, in some cases contested to this day. Many of the challenges to some of these cases would likely not arise if legislatures (especially at the federal level) enacted sufficiently clear laws.

It’s obvious that this legislative inaction creates lots of opportunities for mischief on all sides of issues. At the same time, attempts at legislative actions in some states have created more than mischief with House Speakers in two legislatures having been brought down as the result of corruption linked to energy related issues. The issue of how much homeowners should be able to save if they install solar generation has been a significant issue in Florida and California.

All the attention on the EPA decision diverts attention away from the precarious state of the transmission grid. In areas with very high temperatures, the utilities are concerned about their ability to meet demand. This is driving discussions like those in CA which we documented last week. It is behind the drive to build new high voltage transmission across Missouri. And obviously, carbon capture is designed to avoid more stringent generation rules.

Utilities, especially those associated with the production and generation of electric power, have a long history of dealing with the regulatory structures of each of the states which they serve. On the downside, the resulting fragmentation of regulatory practices from state to state raises the issue of inconsistent regulation. A West Virginia coal plant serving customers in Virginia or Kentucky could see three different regulatory determinations regarding the same asset. In the end, the environmental impact isn’t directly mitigated. The revenue club is only so effective in changing behavior.

It should serve as a reminder of how much power resides in the regulatory infrastructure of stage and local government. The power is being exercised as you read this: zoning laws for and against solar and wind installations; the development and management of net-metering schemes for solar, state and local air and water quality regulations, state and local franchise oversight and, public service commissions and their equivalents None of these types of oversight are stopped.

SEC, SUPREME COURT, CLIMATE DISCLOSURE

We have documented the nature of the opposition to proposed disclosure standards put forth by the Securities and Exchange Commission (SEC) regarding climate change (MCN 6.27.22). Now, some of those opponents are asking if the ruling against the EPA and its efforts to regulate power plant emissions provides a basis for stopping the SEC from promulgating and enforcing disclosure standards.

Opponents of disclosure seek to use the same theory, the “major questions” doctrine, to say that the SEC cannot mandate disclosure rules not specifically included in authorizing legislation for the Commission. Disclosure supporters point to the fact that the West Virginia case involved EPA using a somewhat specific statutory authority to engage in an emerging type of regulatory effort, while the SEC has based its proposal in its basic mission from Congress: providing investors with the information they need to make smart financial decisions.

Over the last decade, it has become clear that the growing investor base motivated by ESG concerns still needs some objective standards to measure the compliance of individual investments with investment mandates related to climate change. The market has already established that climate related disclosure is necessary. The debate is over how to quantify data and how to use that data in the investment process.

In the municipal space, the information may not be as granular as some might think will be required by the SEC but issuers have been increasing their disclosure. The issue now is one of standardization. What sort of information is needed and how can that information be applied? The SEC is not trying to make environmental policy with these rules. They are taking a traditional role of financial market regulation – making sure that information provided to investors is not fraudulent. It is a response to market input not an agenda driven move.

CALIFORNIA INITIATIVE

Another front in California’s climate war was established this week when the  “Clean Cars and Clean Air Act”  ballot initiative was approved for the November ballot. The initiative seeks to increase funding available from the state to help mitigate the impact of transportation on the State’s environment.  The measure would raise the corporation tax for those earning more than $20 million in profits in California. These taxpayers would pay an additional tax of 2.45 percent on their California profits above $20 million. This tax increase would end the earliest of: (1) January 1, 2043 or (2) beginning January 1, 2030, the January 1 following three consecutive calendar years in which statewide greenhouse gas emissions have been reduced by 80 percent below 1990 levels.

The additional revenue generated from the increased corporation taxes would be deposited in a new fund called the Clean Cars and Clean Air Trust Fund (CCCATF). Forty-five percent of revenue would be allocated to the CA Air Resources Board (CARB) for programs to promote the purchase and use of zero emission vehicles (ZEV), as well as other mobility options intended to reduce GHG emissions and air pollution. For at least the initial five years of the programs, at least two-thirds of the overall funding must be targeted to programs that support the deployment of passenger ZEVs. half of the overall funding for ZEV incentives and mobility go to programs that primarily benefit residents who live in   near low-income and disadvantaged communities. 

Thirty-five percent would be allocated to the CA Energy Commission (CEC) for programs to increase the availability of ZEV infrastructure. During the first five years of the program, the measure requires that at least half of the ZEV infrastructure funding be targeted specifically to multifamily dwelling charging stations (20 percent), single-family charging stations (10 percent), fast fueling infrastructure for passenger vehicles (10 percent), and medium- and heavy-duty fueling infrastructure (10 percent). at least half of the total ZEV infrastructure funding be dedicated to projects that benefit residents in or near low-income and disadvantaged communities.

MICHIGAN AND MILEAGE TAXES

Transportation issues were always cited in discussions of Gov. Gretchen Whitmer’s election. “Fix the Damn Roads” became a well-known motto. Nevertheless, Michigan has gone through four years of trying different ways to tax fuel and to avoid a rate increase. The formula that dictates how Michigan fuel tax and vehicle registration fee revenue is divided between state trunkline roads, county roads, and city and village roads was established more than 70 years ago. With the state economy riding in part on substantial investment and employment in the development and manufacture of electric cars, this makes the formula out of date.

The state gasoline tax was increased from $0.15 per gallon to $0.19 per gallon in 1997. The gas tax remained unchanged until it was increased to $0.26 per gallon in 2017. The tax was also not subject indexation to reflect inflation, which steadily grew. To address that issue, legislation provided for indexation of gasoline as well as diesel fuel taxes beginning this year.

So, it seems that everyone agrees that whatever powers the vehicles that ride on them, roads will continue to be a significant expense in need of modern funding support. It is no surprise that the latest entity to share that view – Mackinac Center for Public Policy in Michigan – calls for a mileage-based fee. The reasons are not new and there is wide agreement on them.  Technology in cars is accepted and people are realizing that privacy is a scare commodity in today’s surveillance/smart phone world thereby weaking that hurdle towards deployment.

GATEWAY TUNNEL

The governors of New York and New Jersey agreed to split evenly their share of the $14 billion first phase of the Gateway Tunnel project. Before the federal government could agree to pay half or more of the cost, the two states had to come to an understanding about splitting the local share. The agreement is not the first for a split of the local share of the project. A 2015 agreement allowed federal consideration of a funding request to move forward. President Trump refused to give Gateway the approvals and funding it needed during his four years in office.

Away from President Trump, Governor Chris Christie was one of the primary obstacles to funding for the project. The 2015 agreement was the second that then Governor Christie walked away from after his decision not to fund under a 2010 agreement. This new formal agreement, covers “Phase 1” of Gateway, which includes the over century old Portal North Bridge and the Hudson tunnels. They agreed that the states would evenly split the local share of the costs of those parts of the project.

COURT HITS BRAKES ON P3

Proposals to implement tolling on a variety of bridges and highways in the Commonwealth of Pennsylvania have been floated over the years only to go down in flames in the face of significant opposition. This despite the fact that transportation funding has been a political football in the legislature on a nearly annual basis. The debate has continued even in the face of declining revenue sources and an increasing need to rehabilitate the state’s road infrastructure.

One plan was for the Commonwealth through its transportation agency (PennDOT) to undertake a public-private partnership to repair a number of bridges throughout the Commonwealth. The plan would have been funded through the collection of tolls on the bridge facilities to be rehabilitated. This would be a significant change from the current lack of charges for users of the bridges.

It was no surprise when opponents of the tolling plan sued to have it halted. Several local jurisdictions claimed that PennDOT failed to follow steps required by law to approve a P3 on transportation infrastructure, including providing local residents insufficient opportunity to weigh in on the tolling plan itself before it was approved by Pennsylvania Public-Private Transportation Partnership Board. The plaintiffs also claimed that the 2012 law establishing the board was itself a violation of the state’s constitution, because it represented an unlawful delegation of taxation authority that was reserved to the state legislature.

A preliminary injunction against the plan was issued in May and a permanent injunction was issued last week. The injunction applies to all projects under the Major Bridge P3 Initiative and PennDOT is prohibited from carrying out any activities related to the projects.  The plaintiffs also claimed that the 2012 law establishing the board was itself a violation of the state’s constitution, because it represented an unlawful delegation of taxation authority that was reserved to the state legislature. That question was not resolved as the injunction was based primarily on the procedural issues raised.

DE BLASIO FERRIES LEAVE A REVENUE WAKE

From the very beginning in 2016, the DeBlasio Administration’s plan to run ferry service from the Bronx and Queens to midtown Manhattan was viewed skeptically. Over time, the ferries came to be viewed as an unnecessarily subsidized service which only served to provide higher income passengers an alternative to traditional public transit. That alternative came at a price to users which only reflected about 20% of the cost. The rest was subsidized by the City.

The New York City Economic Development Corporation (EDC or the Corporation) entered into an Operating Agreement with a private entity to operate the NYC Ferry system beginning in 2016. EDC’s audited financial statements show that the net losses of the ferry operations for Fiscal Years 2017, 2018, 2019, 2020, and 2021 were $30 million, $44 million, $53 million, $53 million, and $33 million, respectively.

Now, the City Controller has released the results of an audit which cast the ferry operation in an even more negative light. This audit found that EDC did not disclose over $224 million in expenditures as ferry-related in its audited financial statements and that EDC understated the City’s subsidy (per ride) for the ferry operations by $2.08, $2.10, $3.98 and $4.29 for Fiscal Years 2018, 2019, 2020, and 2021, respectively. You see, the Mayor wanted ferry riders to pay no more than they would on the subway.

The ferry system has become a poster child for bad management as well as unacceptable financial disclosure practices. The audit highlighted several disclosure problems. Primary among them was some $224 million of expenses related to the ferries which were not reported. Most disturbing was the EDC response to the audit that refuses to use the recommended reporting procedures in future financial statements. Unaudited data along the lines requested will instead be put on a general website.

It tends to support the argument that the ferry service is a failure and that funds applied to subsidies could probably used to benefit a much larger transit user base.

STADIUM FUNDING

We came across a report from the Sycamore Institute, a public policy organization in Tennessee. It has generated some research about stadium financings in the wake of some $2 billion of spending approved by the Tennessee legislature to support the development of several new stadium facilities to benefit private sports franchises, especially NFL franchise. Our focus is not so much on the total dollars as it is on the percentage of these projects financed by the team owners.

The graph helps to highlight what drives opposition to and disappointment in the deal which NY State came up with for a new stadium for the Buffalo Bills. Out of eight stadiums opened since 2008, two of them were financed entirely with private funding. Out of the remaining six, only the stadium in Indianapolis was financed with a larger percentage of public money than will be the case in Buffalo or Nashville.

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