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The Arkansas Times and KUARFM 89.

Hello again everyone and thanks very much for being with us.

Our first report on the state of school security in Arkansas and how to toughen it and how to pay for at least some of it.

And on the eve of special legislative session calls to lower taxes than near term outlook for a state economy that, at least on the surface.

Inflation notwithstanding, seems pretty robust, but first the price of power involved is a nuclear generating station built almost a half century ago in Mississippi, a station that supplied electricity to subsidiaries of what is now Energy Corporation.

Those subsidiaries included what was then Arkansas Power and Light, since renamed Entergy Arkansas.

The plant was supposed to cost about a billion to the final tab was.

Almost five times that.

The Arkansas Public Service Commission has been negotiating and litigating with Entergy to recover what it and other states contend are overcharges due to poor performance and expenses that were more properly the responsibility of shareholders, not the ratepayers.

The parent company's latest offer of $142 million was rejected by the Arkansas Commission, the PSC.

The chairman of which joins us now Ted Thomas.

Thank you very much for coming in.

Good to be here.

Thank you for having me our negotiations at an absolute standstill.

Negotiations are continuing.

We're going to.

We're working through issues.

It's very complex, but we're continuing to negotiate now.

I'm sorry with with any litigation.

There's a risk of going to court.

You seek to mitigate that risk through litigation.

There's also a time element that if you go to court and win and get appeal and get reversed, then five years down the road there's always an unknown with any litigation.

So we're working through issues and and still talking in a sense, you're negotiating that before a court is federal Energy Regulatory Commission.

Fork, yes, it's known yes FERC, nor in a normal world.

FERC does wholesale, which is sale for resale, and we do retail which is sale to the to the end user customer.

But Grand Gulf is a unique situation because of the litigation that you referenced earlier.

In essence, FERC is the retail regulator and the PSC stands in the in the shoes of the customer.

So we have retail rate issues related to Grand Gulf that we have to litigate at the FERC well in in terms of what the.

Say what is an equitable number?

What is the state's number?

But to me, an equitable number the the most difficult thing about that is we have to look forward if we settle and there's poor performance units that continue in Grand Gulf.

We don't want to be told.

Well, you've already got your remedy for that.

A nuclear unit has high fixed cost.

And you pay those costs, whether it's running or not.

So your cost of electricity depends on largely the percentage of hours of the year that the unit is running, and that's the key issue for us.

With Grand Gulf, it's had a when we call that a capacity factor.

A capacity factor is what percentage of hours each year the unit is running.

The average for that.

Even older nuclear units, is often above 90%.

In recent years, Grand Gulf has been fifty 6070%, and so when you're paying 100% of the fixed cost, regardless of the output.

The price per unit of the output depends in large measure on how many units you get, so we want it running all the time.

Missus, Louisiana, no Mississippi recently accepted an offer or reached an agreement anyway with energy.

What separates are what's the difference between Arkansas and Mississippi's acceptance.

They thought it was enough.

We didn't.

There's local political pressure as well.

That's probably has something to do with it.

The jobs for Grand Gulf are located in in Mississippi.

The the other Entergy companies that are involved with this are are new.

The City of New Orleans which has a separate affiliate in Louisiana.

So there were three of us that that turned down the offer and one accepted.

These are almost names from the pet.

I mean for 1/2 century now or in terms of litigation.

We've talked about Grand Gulf, we thought we'd heard the last of it frankly.

So many ratepayers had anyway and I have to confess more than one journalist and FERC FERC as well.

It's still with us.

We've actually.

It's been continuous litigation, even ever since you last heard it.

It's the most remarkable thing.

Sometimes the regulators fighting each other in this instance in the current iteration, it's.

It's all of the regulators that against the company when nuclear, particularly with high natural gas prices, the the plant went running is a good deal.

It actually crossed system average.

You think of the all the power that Entergy Arkansas has?

Is it above the average or below the average?

It's actually been below the average since like 2005, so when it's running it's a good deal.

It's it's saving us natural gas cost.

The problem is is the performance of the unit, how often it runs.

Well, another aspect of it as well is that the the the PSR saw PSC considers some of the expenses that were in in essence passed along to ratepayers.

Were more properly the domain of the of the shareholders, yes, and we fought through that.

We didn't want any of it.

For gave us some of it what.

FERC gave us.

Some of that was disallowed.

We still have a substantial percentage of it and and one way the utility world works that when you, when you finance a house or a car, you have a flat payment.

Although part of the principal declines over time are increases over time and interest rate declines, oh, we do it in utility is your principal is paid flat and your finance there goes down.

So when you pay into it for 30 or 40 years, the cost of what's produced goes down.

So actually now it's a good deal when it's running.

This involves a lot of administrative law, a lot, it it exceptionally arcane in this application, very confusing, can we?

What can we tell the Arkansas ratepayer about the status of this situation of this litigation?

There are two main issues.

One that we already talked about is the performance.

There are also some accounting issues which are the arcane of the arcane related to a sale leaseback.

There are 13 separate FERC dockets and this is an attempt to settle all of them.

The consolidation if you yes, but in this instance we're playing offense.

It's a question of how much will return to ratepayers.

We didn't think the offer it was enough but, but that's a balance for us both.

Sides typically have litigation risk in these matters, and there's the time value of money.

But we're going to do our dead level best to continue negotiating and to come up with a fair resolution if we can.

And if we can't, then we'll litigate before FERC, with the price of energy being as ****.

As fluid as it as it is.

Is there any way to project what Arkansas ratepayers would pay under under an optimum?

Resolution.

From the, from the PSC standpoint.

I'm trying to think of typical bill impact, and I'm probably going to make a guess that is erroneous.

A Grand Gulf settlement I'm I guessing would be maybe 5 bucks per customer per year.

Well, I probably shouldn't guess I'm probably way off it.

It's it's not a game changer in your bill.

It's a whole big pile of money.

If it were sitting here on this table but spreads a little bit from a lot of people for a lot of months, that's the way this stuff always works.

Not a car payment every month.

Yes, from the perspective of an energy regulator looking across the energy field electrician where energy or other generating units or or providers in the state and natural gas as well.

What are you saying in the near term, say the next five?

What I really worry about right now is the high price of natural gas that it doesn't only touch your natural gas bill, it also touches your electric bill because we have electric fire generation.

And for we've had a relative period over the last five years of low stable prices that has changed in the last year, and they're up by a factor of four over this.

And and we see some of that in the electric bills.

But when the nuclear units are running, the ones in Russellville and the ones.

In Grand Gulf, our exposure to the gas is less on on the electric side, but on the natural gas side, the consumption.

Is mostly winter for home heat I'm.

I'm very worried next November, December when the heating bills come in that folks are really it.

It's going to be bad if natural gas prices stay where they're at right now.

This is August.

Yes, we're coming up on it, and some folks who they can't pay.

You know you don't need gas service over the summer and they let it slide.

Then when they want to get rehooked they have a back charge.

I'm I'm we need a mild winter, I'm worried.

If we have a cold winter, there's going to be a lot of folks hurting because of the natural gas bills, of course, already hurting with the gasoline prices and in general inflation.

But the natural gas thing is the thing that keeps me up at night.

Alternative energy sources.

One of the huge issues of our time and you and I both have seen in other parts of the country the enormous fields of yes, of of wind generation.

Solar research continues.

Yes, do you see it paying significant dividends in the next segment we're building?

We're building solar as fast as we can.

The Arkansas Delta is a great place for solar higher radiance, which is the energy from the sun as it hits the ground.

Flat land, relatively inexpensive land.

Because solar takes a lot of space, they're building it.

Fast, we've pushed them on solar.

The utilities on solar.

We've pushed them on on.

We have a third party program that I think has made them move faster and over in the western part of our state.

SWEPCO the hills and the high property values of Northwest Arkansas are less ideal for solar, but they're in a different regional market where they have access to the wind.

So there there's a lot of wind generation and SWEPCO portfolio, and that actually works really well with natural gas because the wind's blowing you don't have to pay for the gas.

And gases is very responsive to changes and loads.

So when the wind isn't blowing you run your gas and then you ramp it up and down with the wind.

And actually those two work pretty well together, so we're seeing significant fuel savings, natural gas savings on the SWEPCO side from from investment in wind on the High Plains.

But then local resource solar in the delta has a great future in my opinion.

Got into there because we're out of time.

Chairman Ted Thomas of the Arkansas.

Obviously, thanks for coming in.

Yeah, thanks for having me come back soon.

OK, we'll be right back.

Back now reactivated after the slaughter at Uvalde, TX, the Arkansas School Safety Commission's preliminary report was released on Tuesday by Governor Hutchinson.

He will ask the special session of the legislature that begins next week to appropriate $50 million to tighten security.

But there's been a recent national event, of course, that required us to look at this issue again, and that was the Rob Elementary shooting in Uvalde, TX.

It served as a reminder that the threat of violence in our schools has not abated.

It continues to be real and that we have to act with a renewed sense of urgency to protect our children.

For that reason, I reconvened the school Safety Commission Doctor May has led that, as I've mentioned.

I asked for a second review and updated recommendations.

These recommendations require an investment of real dollars by local school districts.

Today, the report makes the need clear for a $50 million school safety grant program that I will be putting on the agenda of the special session that is set for next week.

The chair of the School Safety Commission, as mentioned by Mr Hutchinson, doctor Cheryl May, who's also director of the Arkansas Criminal Justice Institute.

She joins us now.

Doctor May thanks very much for being with us.

Let me begin by saying that they're reading the report.

It's their preliminary report.

It seems to suggest.

The Commission seems to acknowledge that schools can be made safer but not safe, at least not with a capital S. Am I correct?

Well, I I kind of disagree with that a little bit.

You know, one of the things that we tried to emphasize on the Commission is the fact that there are several things number one schools need to take.

A very, very comprehensive approach to school safety.

There's not one individual thing that any school can do that's going to make that school safe.

But if we do it in the way that you're basically covering, what in essence are elements?

And all the subcommittees that we have, and you do it in a layered approach, we think we can make schools safe.

Well, the operative word there would seem to be if we do this or if if we can do all of these things.

Mr. Hutchinson says this is this will require real dollars by real dollars by local school districts.

Some local school districts are already saying where is that money coming from?

Yeah, and I think this this grant program is going to be a step in the right direction.

You know there are priorities that schools can focus on, that'll that'll help them meet these goals.

But you're right, you know we are asking superintendents, and particularly the staff to do a lot, but when you look at the the value of it in the big picture, you know it's to save the lives of our kids.

So to me, you know.

We have got to elevate school safety to A to a much higher priority on the matter of firearms director may would it not have been within the agency's purview within its agency to at least advocate for some measure for restricting firearms?

Certainly in terms of a perimeter around schools or to advocate for some sort of control?

Securing the schools.

You know, we advocate for very well trained school resource officers, whether they be through arrangements with local and county police departments or sheriff's offices or.

Through what we call institutional police departments.

And then there are also what are known as commissions, school security officers or CSO's, and those can be private security that are certified to be able to carry firearms.

Or they could be school staff, a janitor, a coach, someone along those lines, and the the training restrictions that are mandated by them.

You know we very, very strongly advocate that those training requirements be enhanced so that their psychological exams that there's random drug testing that there is extensive firearms training and and last and definitely not least, is that interaction with local and county law enforcement.

Did the Commission at any point feel compelled or consider advocating regarding the accessibility of.

Our arms, particularly it was the so-called assault weapons.

No, that's not something we've addressed.

What's the next step?

Well, our next step is to be able to develop some new recommendations in the preliminary report, we identify some recommendations that we're considering.

So in our next.

Meeting, which is going to be held on on Tuesday, August 9th.

We're going to start officially reviewing those.

The subcommittees develop recommendations to be considered, and then they are to be discussed at the Commission level and then eventually they will be voted on and we're actually going to start this process for each Subcommittee on Tuesday, doctor Cheryl may thank you very much for being with us.

Come back soon.

Thank you Steve.

Alright, we'll be back in a moment.

Back now to talk about money.

The Arkansas State Treasury is, in a word, bulging, awash in cash, ending the fiscal year in June with more than a billion 5 on deposit and the July numbers suggested nothing resembling a recession, sales taxes substantially over projection.

Starting a new fiscal year $27 million to the good Now General Assembly will meet in Arkansas Capital City next week to not only spend $50 million on school safety, but to cut income taxes while in the nation's capital.

The Federal Reserve is contemplating another increase in interest rates and the experts as they are sometimes called, can't agree on whether we are in a recession at the edge of a recession or simply approaching one.

So at mid year.

The Arkansas Economic Outlook, tethered as it is to no small extent to the national dynamic.

We're joined now by Doctor Jeremy Orbital Economics department at UCLA.

Thanks as always Jeremy for coming in are we, are we not well thanks for having me back Steve.

Yeah that is the question right?

Are we in recession?

We'll start there anyway.

I think right now the data is not clear enough to say that we are.

I think the biggest reason economists are hesitant to say we're in a recession is because of the strong job growth.

We said another huge jobs.

This week, over half a million jobs added in one month we've had over about 3,000,000 added in the year nationally, about 530 last month.

That's right, yeah, so with that strong job growth, even with the negative GDP we've seen in the last two quarters, economists are still, I think most are hesitant to call it a recession.

Given that things like spending and employment are still going up while production may be going down, yeah, well, two consecutive quarters has all has been the the yardstick.

I mean, there's no law that says you have to declare 1.

Are we rewriting the rules now of of national economics?

I think we're going through a economic situation.

In the past two years that are unlike anything we've seen before, so to some extent, we do have to be figuring out how to define things as we go.

I mean, a lot of the jobs recovery we're seeing.

Those are jobs coming back from the pandemic.

So do you call that real job growth?

Again?

It's a it's kind of a unique situation, so I don't think we're rewriting the rules, but we're we're trying to use old terms to talk about unique situation.

Well, I went to the gas.

As did every Arkansas, the gas pump the other day, and lo and behold, it was under 4 bucks a gallon.

Then I went to the grocery store.

Yes, so inflation is still with everyone, right?

So inflation is high across the board, even as gas prices are have been falling for the past two months.

But you know, we'll get another inflation report coming out next week.

That'll tell us where we're at, but last month, like you mentioned groceries, those are up.

I believe about 12% in the past year, so that's something.

Which is, you know, hurting people's pocketbooks.

And when you talk about the state revenue numbers with sales tax revenue being up, well, that's partially because prices are higher as prices go higher, the amount of of tax revenue that the government collects is gonna go up to.

So we have to always consider that when we look at the revenue picture looking at the state revenue picture.

Well, look at the Arkansas economy, the national economy, and, of course, they're inextricably linked.

What would you urge the General Assembly to do and the administration?

Now you want to play policymaker here?

We're looking at we're looking at like significant income tax reduction and the promises.

In the political sphere to reduce them even further right?

So the big things they're talking about are moving more quickly on some tax cuts they've already passed, accelerating that celebrating that some that were already passed because they have the revenue to do it now.

And and in that bill, there were provisions that said you have to wait for the revenue to be available.

Well, now it's available, so I think that's that's something which I think is a good move for them to at least consider that.

I think there's lots of other things to think about with a recession on the horizon.

You always want to think about having some money saved for purposes.

If if tax revenue starts going down but we already have a pretty significant reserve fund already built up, about 1.6 billion, roughly the same size of the surplus.

So now you got the the reserve fund of about 1.6 billion, and the surplus of about the same amount, so they do have a lot of money to play with, and I think having 20% of the fund the general Fund already saved up is a pretty pretty good reserve fund already built up.

There would seem to be some appreciable there is some apprehension across the the corporate community anyway, and in the labor markets as as well.

And when Walmart starts realigning, it's it's executives well.

The word is layoffs up there that gets the markets attention.

Absolutely it does.

I mean, of course in Arkansas.

Walmart is important, but Walmart is important nationally as well.

So what's happening there could be signs of of things that might be happening across the board and and Walmart is is the type of business that actually usually does pretty well in recession.

They're pretty recession proof, so if if they're having challenges that could be an indication.

Again, indication maybe of recession.

But that's something we want to wait for fewer months of data to be sure, or cause no doubt people are still hurting whether we called a recession or not, right?

Yeah, yeah.

Sure, Arkansas businesses, Arkansas entrepreneurs.

They're all looking at the Federal Reserve and we, which has vowed we're going to.

We're going to play Paul Walker here.

We're going to crush this thing if we have to, with with higher interest rates, and they've all been essentially promised at least one more.

That's right, I think at least one more.

I mean, if you look back to the last time we had inflation this high in the late 70s.

They were raising interest rates even faster that produced 2 brief recessions in the early 80s.

You know they talked about a soft landing.

the Fed does here.

That's very hard to execute.

I mean, of course they're gonna try to do that, but bringing down inflation is, I think their primary concern now, and even though they probably won't say this publicly, if it generates a small recession, no, that's the price to pay for for getting inflation under control, you don't want to have that high inflation continue for years and years.

That's just a real drag on the economy.

Well, that that pressure, though on the credit market anyway.

In in the short term, this has got to have pretty significant in the near term anyway.

Significant impact on on business borrowing, corporate borrowing absolutely has significant effect on business borrowing, but also borrowing for purchasing a home mortgage.

Mortgage rates are really high.

I mean, if you look at the last GDP reports, the main areas in the private sector that we're falling were were construction of residential and non residential buildings.

So we were already starting to see a little bit of that pullback in the second quarter data.

What we'll see in the third quarter might be even worse.

In terms of, you know things that you would borrow money to to spend on, which would be mostly construction of buildings for homes and businesses.

Yeah, and you and other economists and business types are are are looking at wage growth too, and it's in recent weeks it hasn't kept months.

It hasn't kept pace, that's right.

So I mean in the jobs report that just came out wage growth in nominal terms looks pretty good over 5%, but when you place that against inflation of 9%, that's a that's paychecks.

Actually shrinking in terms of what they can buy, so you know.

Wage growth has been robust under under a normal situation, but of course with high inflation we have to absolutely figure that into number.

One thing that you and your Arkansas colleagues are looking at in the near term.

The number one thing I think is if the labor market starts slowing down.

Now if we look at the Arkansas economy, actually jobs have been pretty flat the first six months of this year.

They're not falling, but we're at about the same level we were in January.

So you know, in some states we're already seeing that maybe slowdown in job growth if we start to see that in a lot more states, which would then start to bring the national numbers slowing down.

That's one thing I would look to say hey, now we have a lot of indicators saying this is a real recession, and even the labor market, which has been really growing since, you know, the bottom of the pandemic, it's been growing.

We've been bringing those jobs back.

If that slows down too, that's the main thing I would look at watch consumer spending.

That's your advice.

Watch Mr spending.

Yeah, absolutely watch consumer spending.

That's one of the you know, main areas of GDP.

But also we do get monthly reports on that as well.

So watch what's happening with consumer spending.

If consumers stop spending money.

If people start losing jobs that that, that is a real recession.

And that's it for us for this week.

Thanks as always for joining us.

See you next week.

Will it wizzes?

Support for Arkansas Week provided by the Arkansas Democrat Gazette.

The Arkansas Times and K UAR FM 89.