Update On The Four Corners Coal Plant In Arizona -- One Step Closer To Closing; 2Q16 GDP Estimate On Track To Be Revised Lower -- August 1, 2016

El Paso Electric first Texas/New Mexico utility to go coal-free but the big story here is the update on the Four Corners coal plant in Arizona, located near the Grand Canyon. El Paso Electric had a 7% interest in the Four Corners coal plant.

El Paso Electric invested more than $100 million in the Four Corners plant during its 50-year ownership, Hirschi said. But depreciation reduced the book value of its ownership to $32 million on July 6.

El Paso Electric didn't get most of that money because it had to pay Arizona Public Service $27.8 million in future costs tied to closing the plant -- now predicted for 2031. That includes $20 million to help clean up the nearby coal mine supplying the plant after the plant closes, he said.

More:

The company sold its 7 percent ownership stake, which it held for 50 years, for $32 million to Arizona Public Service Co., or APS, a Phoenix-based electric utility, which operates the plant. Three other electric utilities in New Mexico and Arizona still have ownership interests in the plant and get power from it.

El Paso Electric won't get most of the money for the sale because it had to pay almost $28 million in future costs for when the plant closes in possibly 15 years - making the deal a virtual wash for the company.

The company received 6 percent of its power from the Four Corners plant last year, and that dropped to 5 percent this year,. That's been replaced with cleaner-burning natural gas power generators and solar power.

The real question is whether the plant will actually stay open until 2031, but even more importantly, the glide slope to closure.

********************

GDP -- 2Q16 -- Second Estimate -- On Track To Be Revised Downward 

Less than a week after the first estimate for 2Q16 US GDP was released, new data suggests that it is on track to be revised lower.

The Commerce Department said construction spending declined 0.6 percent to its lowest level since June 2015 after dipping 0.1 percent May. June marked the third straight month of declines in outlays.

Economists polled by Reuters had forecast construction spending rising 0.5 percent in June after a previously reported0.8 percent drop in May. Their June estimates were largely based on the government's assumptions for private residential and nonresidential construction spending in the advance GDP report.

****************************

Esoteric Or Too Important To Fail?

I'm not sure what to make of this story. I know very little about "government securities" but on the surface this story seems ... should we say, concerning? My hunch is that after the November election, Congress will look into this.

Over at Bloomberg:

JPMorgan Chase & Co. plans to exit the business of settling government securities for most dealers by the end of 2017, including some transactions in a key corner of the $1.6 trillion repurchase-agreement market.

The departure from the business of facilitating settlement of such trades with 30 dealers and broker-dealers, a fraction of the bank’s hundreds of clients, comes as the company focuses on more profitable areas like prime brokerage and custody services.

JPMorgan’s shift means that Bank of New York Mellon Corp. will be the only remaining institution handling these back-office type activities in a niche of the repo market known as general-collateral finance, where dealers turn for financing.

The middlemen.

The GCF repo market, where dealers finance more than $200 billion in securities daily, is the only slice of the tri-party repo market that’s centrally cleared. The Depository Trust & Clearing Corp.’s Fixed Income Clearing Corp. serves as the clearing agent for the agreements.

In a tri-party arrangement, a third entity, either JPMorgan or BNY, serves as the middleman to settle the deals and safeguard the collateral that’s behind them.

Perhaps it is no big deal: Mellon already handles 85% of these transactions; the rest were handled by JPMorgan.

But it seems with only one bank handling this slice of government securities moving $200 billion/day, it makes this bank almost too important to fail. But again, I'm way beyond my comfort zone here.

****************************

Pretty Scary, Huh?

Hours after MuskMelon announces the all-share merger between Tesla and SolarCity, the latter announces 3Q16 guidance: not good.

For folks who are paying attention, this is what just happened this morning: investors in a futuristic, sport EV company, are now invested in the equivalent of an aluminum siding company. The widgets are different, but the business plan is the same. From Fortune:

As it goes through the process of being acquired by electric car maker Tesla Motors, solar installer SolarCity has lowered its forecast for how many solar panels it would install this year, blaming weaker than expected bookings in the first half of the year.

The news on Monday sent SolarCity’s shares down 8% in morning trading to $24.56.
The solar company doesn’t plan to announce its full second quarter earnings until Aug. 9, but it likely had to release some financial metrics early because of updated deal terms for its acquisition that were also disclosed on Monday.

Tesla announced that it planned to acquire SolarCity in late June, but the deal announced on Monday was slightly less lucrative for SolarCity. SolarCity shareholders will now receive fewer shares of Tesla—0.110—than the 0.122 to 0.131 shares that were originally proposed.

This is not going to end well. 

Note: this is not an investment site. Nor is it a financial site. Not a travel site. I guess one might call it a social media site but that would be using the phrase liberally. Do not make financial, investment, travel, relationship, or job decisions based on what you read here. If this important to you, go to the source.