Joseph Krist

Publisher

AUTONOMOUS VEHICLE HICCUP

Just a week after the California Public Utilities Commission voted to allow the expansion of driverless taxi services from Cruise on the streets of San Francisco, that process has stumbled. The California Department of Motor Vehicles, the agency charged with overseeing the safety of the driverless cars, asked Cruise to halve the number of vehicles it was operating in San Francisco. 

In the first days of service, a group of some 10 Cruise vehicles wound up in a group and malfunctioning and blocking a street. Cruise blamed that problem on excessive cellular traffic generated at a concert four miles away. This week, a Cruise vehicle with a passenger, crashed into a San Francisco fire truck. The passenger was injured.

The DMV said that “it is “investigating recent concerning incidents involving Cruise vehicles in San Francisco.” The agency asked Cruise to cut the number of vehicles operating in San Francisco “until the investigation is complete and Cruise takes appropriate corrective actions to improve road safety. The DMV reserves the right, following investigation of the facts, to suspend or revoke testing and/or deployment permits if there is determined to be an unreasonable risk to public safety.” 

Cruise had 400 vehicles operating in San Francisco prior to the DMV action. It will have no more than 50 driverless cars running during the day and 150 at night while the review is underway. City officials filed an injunction asking the C.P.U.C. to temporarily halt the driverless taxi expansion. Prior to the expansion, officials documented 55 incidents where a driverless car abruptly stopped or interfered with emergency vehicles. In one case a vehicle interfered with firefighters who were battling a house fire.

This led the San Francisco City Attorney to file an administrative motion with the commission to temporarily halt the expansion. The city also plans to file a re-hearing application with the PUC.

ZONING, HOUSING AND NYC

Much of the discussion around the lack of affordable housing has focused on the role of single-family residential zoning. Those rules were often implemented for a variety of negative reasons even if they were largely supported by people happier with the status quo. It is politically fraught issue acting as a third rail in local politics.

It is becoming more apparent that New York City, especially in Manhattan, will have a mismatch between the available building stock in commercial areas and the demand for housing. Even if there are developers ready, willing and able to convert both manufacturing and office space are stymied by limits on the development of residential units in areas zoned commercial/manufacturing. If the Adams administration has its way, that will change.

The effort to convert needs approval by the City Council of legislation changing the zoning and authorizing residential space. The area proposed in midtown Manhattan – between 23rd Street and 40th Street from Fifth Avenue to Eighth Avenue – is essentially what was considered for years to be the Garment District. Much of that is former manufacturing space. A second bill would authorize conversions of office buildings into residential. The city estimates that it could result in 20,000 new units.

As is the case in so many instances, City rules and regulations are significant hurdles to redeveloping these spaces. One example – a change in rules is needed to allow buildings that were built as recently as 1990 to convert to housing; currently, only buildings built before 1977 or 1961 are eligible, depending on where they are in the city. 

This follows the failure of the State Legislature to adopt proposals put for by Gov. Hochul. Two bills which would have offered tax incentives for office conversions in exchange for the inclusion of affordable housing and would have lifted restrictions on how much floor space can go toward residential were not passed.

COLORADO RIVER

The federal government announced Lake Mead, located in the Colorado River Basin, will operate at a Tier 1 shortage next year, an improvement over the current Tier 2 shortage. Lake Powell is currently at a Tier 2 but will operate at a Tier 1 shortage in 2024. The water levels for Lake Mead are projected to reach slightly over 1,065 feet by January 2024, according to the Bureau of Reclamation. That would be an improvement of some 19 feet since October of 2022.

The increase in water has allowed the lower basin states to plan for smaller reductions in their 2024 allocations. Arizona will have to cut 512,000 acre-feet of its Colorado River water supply, equaling about 18% of the state’s yearly allotment. The Tier 2 shortage currently calls for Arizona to slash approximately 592,000 acre-feet, or 21% of its annual allotment. Nevada will have to slash 21,000 acre-feet of its Colorado River water supply in 2024, or 7% of the state’s yearly apportionment. This down from a reduction of 25,000 acre-feet required under Tier 2 conditions. The combined storage of the two reservoirs is at 36% of capacity up from 28% last year.

PRIVATE WATER

The chairman of Phillips 66 applied in 2018 to dam the South Llano River in Texas to create a private lake. The proposal calls for the construction of a seven foot high concrete dam to create a nearly five-acre lake. The plan has put the Lower Colorado River Authority in the spotlight as it is one of the agencies with regulatory authority over the river. The owner obtained a right to impound water from the Lower Colorado River Authority and a draft permit from the TCEQ. 

Opposition has come from downstream communities. They fear damage to state parks from reduced flows and note that the permit would allow the proposed dam to impound water under certain circumstances even if the South Llano River wasn’t flowing. Last year the commissioners’ court in Llano County passed a resolution opposing private dams for recreational purposes. Opposition is growing. The Texas Parks and Wildlife came out against the dam, arguing it would impact downstream flow, which could affect fish, such as the Guadalupe bass; freshwater mussels; and the public. 

OMAHA PUBLIC POWER DISTRICT

Some seven years after it shut down its 1,570 MW Fort Calhoun nuclear generating station, the Omaha Public Power District board voted 8-0 to move forward a $2 billion expansion of its generation capacity. Energy consumption by all customers — residential, commercial and industrial — is expected to increase by 70% by 2032.

Nearly 90% of the projected new demand OPPD is striving to meet is coming from industrial customers. Two-thirds of that new demand, OPPD says, is from data centers. The plan will roughly require a 10% increase in rates, which will be phased in over four years beginning in 2027. The new generation will come from a mix of solar, wind and natural gas-powered facilities.

CARBON CREDIT MARKETS

Washington State enacted the Climate Commitment Act in 2021, requiring the state’s biggest polluting businesses to reduce their emissions or purchase allowances to cover their emissions. Carbon pricing has long had champions in the movement against climate change but there have been few US examples to evaluate and compare. The Washington program recently reported results reflecting its first auction of carbon credits.

The state Department of Ecology announced the results of its special auction held last week because the previous quarterly auction in May exceeded a “trigger” price of $51.90 per allowance. Each allowance represents one metric ton of emissions from the state’s biggest greenhouse-gas polluters. In 2023, about 18.4 million carbon allowances have been sold this year, generating more than $900 million. 

Allowances were sold at two preset prices: $51.90 and $66.68. The allowances were divided equally into each price tier. Going forward, the number of allowances will annually decrease which will raise the price. Allowances sold for $56.01 per ton in the most recent quarterly auction. When the Legislature enacted the carbon cap program in 2021, the state estimated it would bring in around $220 million in 2023 and close to $500 million every year after that through 2040.

Nearly 90% of those who participated in the second quarterly auction in May were businesses required to pay for their emissions. Washington state’s greenhouse-gas emissions in 2019 reached their highest level since 2007: 102 million metric tons. It was a 7% increase from 2018, and 9% higher than 1990 levels. The Climate Commitment Act aims to reduce the state’s production of carbon dioxide, methane and related gases to 45% below 1990 levels in the next seven years, 70% below 1990 levels by 2040 and decarbonize by 2050.

ESG FIGHTS BACK

The Securities Industry and Financial Markets Association (SIFMA) filed a federal court challenge to new Missouri documentation rules for the securities industry. The new rules, effective July 30, 2023, require financial firms and professionals that incorporate any “social objective or other nonfinancial objective” into their analysis to obtain their customers’ written consent on a state-written prescribed script. 

The state-mandated scripts require financial firms and clients to acknowledge that incorporating these objectives “will result” in investments and advice “that are not solely focused on maximizing a financial return” for the client. “Social” or “nonfinancial” objectives may include multifaceted client objectives, such as tax considerations, diversification, risk tolerance, time horizon, liquidity needs, faith or values-based objectives, and local community investment objectives.

In its federal lawsuit, SIFMA asks the court to declare that Missouri, in promulgating its new rules, overstepped its boundaries in violation of both federal preemption statutes and federal constitutional requirements. SIFMA points out that the State’s plans fail to acknowledge that federal law, regulations, and applicable rules already require financial advisors to act in the best interest of their clients when providing personalized investment advice.

Missouri is the only state with such rules. One has to ask when did things like taxes, diversification and risk become non-financial considerations? If a State can dictate what may be a part of an overall financial analysis, does this interfere with a broker’s fiduciary responsibilities?

CONGESTION PRICING IN THE REAL WORLD

While there have been many hurdles on the road to congestion pricing in New York City, the biggest one was always going to be the process of establishing the level of the fee. As that process unfolds, the realities of the fee and its unpopularity among many come into sharper focus.

In a working MTA proposal, the base rate for motorists would be in effect from 6 a.m. to 8 p.m. on weekdays and 10 a.m. to 10 p.m. on weekends. Off-peak charges would be lower. Automobiles, motorcycles and commercial vans would be tolled once per day, and would be able to move in and out of the zone for the rest of the day.

The MTA also estimates that of the 1.5 million people who work in the congestion zone, about 143,000 drive. (Versus some 100,000 TNC vehicles.) Some 1,560 are low-income commuters who do not have access to public transportation. The MTA estimates a $4 congestion pricing credit for drivers who use the four tunnels into lower and Midtown Manhattan would lift the base toll from $2 to $2.50. A $14 credit for tunnel users would lift the base toll by $8 to $9.

FRACKING, JOBS AND HEALTH

Some 22 counties in Ohio, Pennsylvania, and West Virginia produce over 90% of Appalachian natural gas. The economic impact especially that of the impact on unemployment has been the subject of ongoing study by the Ohio River Valley Institute. Their work over the years has documented the underwhelming impact on jobs in Appalaichia from the natural gas industry. The latest review to come from ORVI reinforces the trend. It looks at jobs and income data from those counties across the three states as “Frackalaichia”.

In 2019, ORVI reviewed data for the period 2008-2019. The latest report examines the impact of the next two years on the trends observed. The region’s shares of the nation’s jobs, income, and population all declined, the latter by more than 10%, even as Frackalachia’s contribution to output grew by more than a third. Frackalachia’s share of jobs declined by 8%, which is worse than 2019 when the decline was only 7.6%. Its share of income declined by 10%, which is worse than 2019’s decline of 6.3%. Its share of population declined by 12.8%, which is worse than the 10.9% decline in 2019.

Since 2014 jobs have been in decline and are bouncing back more slowly than in the nation as a whole in the aftermath of the Covid epidemic. In all, a net 10,339 jobs have been lost since the start of the shale boom. The net population loss in Frackalachia since the start of the shale boom is 47,652, nearly 5% of all residents.

The US Energy Information Administration says that in 2022 will turn out to be the year in which Appalachia’s Marcellus and Utica natural gas fields reach peak production, a peak that EIA researchers believe will not be equaled again until 2045. By 2050, Appalachia’s share of US natural gas production is expected to decline from 41.9% in 2022 to 37.2%.

The three studies co-published by the Pennsylvania state government and the University of Pittsburgh found serious health effects resulting from shale gas production in the southwestern part of the commonwealth. A study on the incidence of childhood cancer found five to seven times the rates of lymphoma among children who live within one mile of a natural gas well compared to those who live no closer than five miles from such a well.

A study on birth outcomes found a correlation between low birth weight and a mother’s proximity to active wells during their production phase — when oil or gas is collected from a well, after drilling fluid has been shot deep vertically, then horizontally, underground. The data will bolster those who oppose the practice or at least would seek to more effectively tax producers.  

OPIOID SETTLEMENT

Many municipal bond market participants have wondered if the settlements of litigation brought against opioid manufacturers and distributors would result in financings similar to those backed by tobacco industry payments. Our view has been that there would not be given the smaller size of the opioid settlements. As was the case with tobacco, the biggest risk seemed to be the ability of tobacco companies to stay in business and generate revenues to make their settlement payments.

That risk was highlighted this week. Mallinckrodt Pharmaceuticals had originally agreed to pay the $1.7 billion over eight years to state and local governments, individuals and others that had sued the company for helping fuel the opioid crisis. Mallinckrodt disclosed this week that it had reached a plan to file for bankruptcy for the second time in three years. The plan would cancel a majority of the $1.25 billion that the company still owes under the original settlement agreement, in exchange for a final payment of $250 million that would be made before the company enters its second bankruptcy.

The original settlement plan, finalized last year as Mallinckrodt exited its first bankruptcy, protected the company and its former executives from future liability related to its opioid sales. Mallinckrodt last year made its only payment, of $450 million, under the original settlement agreement. The company is late on a second payment, which was due in June.

TRANSMISSION

In Illinois, the Grain Belt Express Transmission Line, cannot move forward under an order issued Aug. 18 by the 5th District Appellate Court. The  order stays “any implementation” of a March 8 order from the Illinois Commerce Commission granting the project a Certificate of Public Convenience and Necessity until the court rules on the project’s constitutionality. The Illinois Farm Bureau and landowner groups and other plaintiffs argued the 2021 state law allowing GBE to apply for and obtain ICC approval for the project violates the special legislation, equal protection and separation of powers clauses of the Illinois Constitution. 

Under the stay, GBE does not have the right to survey land that may be included in the project and landowners impacted by the project can decline to negotiate easements. The project was originally approved in 2015. The IFB has been a long-time opponent and has previously succeeded in challenges to the approval. In 2018 a state appellate court ruled the ICC lacked authority to grant a nonpublic utility company a certificate of public convenience and necessity under the expedited review process of the Illinois Public Utilities Act.

In response, in 2021 the Illinois General Assembly passed legislation allowing GBE to apply for and obtain approval of its project from the ICC. The ICC approved noting that special provisions under the law required it to find that the project is for the public use and promotes public convenience and necessity. This puts the ultimate outcome in the hands of the courts.  

HOSPITAL BILLING

Allina Health owns and operates nine hospitals and jointly owns and operates one other hospital, offering a full array of tertiary and quaternary services in Minnesota and western Wisconsin. Its flagship tertiary and quaternary facility is Abbott Northwestern Hospital. Like many systems it saw diminished financial results in the 2020-2022 time period.

In an effort to strengthen its revenues, Alliana enacted strict policies which limited care to patients with medical debt. Allina’s hospitals treated anyone in emergency rooms. For care outside of the ER setting (including follow ups) Allina began to deny care for indebted patients, including children with $4,500 or more in outstanding bills. In today’s healthcare environment, that is not a huge figure for an individual to be carrying as they work out disputes with insurers and others.

Given the economic impact of the pandemic, the likelihood of individuals facing excessive debt and limited work opportunities made it likely that many would be burdened with medical debt. Some health systems took aggressive legal stands against patients and some took the denial of care approach. Both of these tactics created significant negative publicity for these systems.

Now Allina has rescinded its policy. One might hope that the public hue and cry might have been a motivator. The reality is likely tied to a recent announcement by the State Attorney General that an investigation of Allina’s practice of withholding care from patients with debt was about to commence. According to a Johns Hopkins survey, In 2020, Allina spent less than half of 1 percent of its expenses on charity care, well below the nationwide average of about 2 percent for nonprofit hospitals.

After the Attorney General’s announcement, Allina decided that there were “opportunities to engage our clinical teams and technology differently to provide financial assistance resources for patients who need this support.” Allina had its A1 bond rating reaffirmed by Moody’s in April of this year.

HOSPITAL DOWNGRADE

Catholic Medical Center is a 330-bed acute care hospital in Manchester, NH offering tertiary services and specializing in cardiac care. As a stand alone facility, it was likely to be under financial pressure. Operating losses are largely driven by the heavy reliance of contract labor, elevated wages and inflationary cost pressures. These have negatively impacted cash flow at the hospital, a key ratings factor.

Persistent operating cash flow losses have resulted in a reduction of liquidity and narrowed headroom to the cash to debt covenant on its bank debt. The questionable outlook for covenant compliance is not consistent with an investment grade rating. That was reflected by Moody’s Investors Service announcement that it has downgraded Catholic Medical Center’s (CMC) (NH) revenue bond rating to Ba1 from Baa3. The outlook is negative. 

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

CARBON CAPTURE

The North Dakota Public Service Commission denied a siting permit for the Midwest Carbon Express CO2 Pipeline Project. Summit Carbon Solutions filed an application in Oct. 2022 to construct approximately 320 miles of carbon dioxide pipeline in North Dakota. The proposed route of the pipeline would cross through parts of Burleigh, Cass, Dickey, Emmons, Logan, McIntosh, Morton, Oliver, Richland and Sargent Counties. The CO2 would then be injected into pore space for permanent sequestration.

The Commission felt that Summit has not taken steps to address outstanding legitimate impacts and concerns expressed by landowners or demonstrated why a reroute is not feasible. The Commission also requested additional information on a number of issues that came up during the hearings. Summit either did not adequately address these requests or did not tender a witness to answer the questions.

One important caveat pertains to one of the key issues driving efforts against the pipeline – the use of eminent domain. “The issues of eminent domain, safety compliance with the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) construction and operation, and permanent sequestration and storage of CO2 were outside the jurisdiction and consideration of the Commission.”

It looks more and more likely that the ultimate decision on eminent domain will be made outside of the regulatory or legislative process. It is part of the trend of difficult issues effectively being passed off to courts by legislatures unable to legislate on the topic.

AUTONOMOUS VEHICLES

The California Public Utilities Commission recently showed that preemption is not just the province of one political party or philosophy. The PUC has approved the use of autonomous vehicles on the streets of San Francisco to carry paying passengers. The proposal generated strong responses. As the debate unfolded, there were numerous examples of these vehicles having difficulties navigating a variety of obstacles and situations. There have been numerous incidents of delayed response by police and fire due to roads blocked by AVs in downtown SF.

It certainly appears that if left up to the City, that permission would not have been granted. The tech industry has focused its lobbying efforts on state level players after less than favorable experiences under local control. The state was seen as being more amenable to supporting the tech companies. In the meantime, on the first day of expanded operations, a group of the cars malfunctioned together blocking other traffic. Exactly what the City was concerned about.

It may be another step forward on the path to widespread adoption but these vehicles still face significant challenges. Neither the desert southwest or the City of San Francisco provide comprehensive testing grounds. There are still obstacles to be overcome especially outside of the urban environment or in winter weather. Snow has been a notorious troublemaker for the technology these vehicles rely upon.

MANAGED RETREAT

Manville, NJ is a working-class community which has suffered from three major flooding events in a little over two decades, dating back to Hurricane Floyd in 1999. The most recent was from Hurricane Ida some two years ago. Unlike more visible locations along the Jersey shore, Manville is inland along the Raritan River. Many impacted homeowners decided to rebuild but in many cases the cost of rebuilding exceeded their available insurance. In those cases, the residents hoped that there might be federal funds from one of three sources which would have allowed those homeowners to complete repairs.

Now, some 79 homeowners are facing the new realities of climate change and increased flooding. In New Jersey, flooding has created pressure on limited federal resources and several state agencies agreed not to spend it on for repairs or elevations in areas where homes are very likely to flood again. Instead, the state is dedicating some $49 million on a buyout program.

The state offers homeowners market-rate prices for their properties to relocate while the structures are demolished so the area can better absorb future flood waters. For those who do not wish to relocate, they are effectively on their own.  The areas of Manville that were designated at high risk of future flooding and are now ineligible for federal aid for home repairs encompass about 500 residential structures, or 17% of the residential building stock. 

More than 174 homeowners have requested buyouts in Manville, with 58 of those applications made after Ida. Some $10 million from the Federal Emergency Management Agency will be used to buy 31 other properties throughout the borough. The state is also waiting on approval for another federal grant to buy 20 additional Manville homes.

NYC BACK TO THE FUTURE

The congestion pricing debate in NY continues on as the state conducts its process of establishing the price and how many exemptions would be granted. In the interim, additional proposals to address the issue of congestion continue to surface. We are intrigued by the news this week that the NYC Department of Transportation wants to test out the use of “cargo boxes” – pedal and electrical assisted small vehicles to try to address the issue of trucks and deliveries of online purchases.

We are amused in a way because – I’m showing my age here- this brilliant new idea is not new at all. For years, pedal driven vehicles were used to ferry goods between businesses and facilities. They were a mainstay of the grocery industry in Manhattan. Why they went out of style isn’t clear but they never went away. One has to wonder if all of the solutions proposed for transportation are just too complicated to make them practically and financially viable.

The plan would use vehicles with “freight” areas four feet wide. The size is cited as a safety factor by making it easier to use in traffic. That raises a question of whether the total number of vehicles will actually decline and reduce congestion. If the human powered rickshaws around Central Park are any indicator, the will just slow things down. The boxes would seem to be too large to use bike lanes. The older pedal driven versions could be accommodated within a typical bike lane.

CLEAN ENERGY AND JOBS – BEYOND THE HYPE

A recent working paper from the National Bureau of Economic Research reviewed the impact of the clean energy industry on jobs and workers. Clean energy advocates have painted a picture of seamless transitions from carbon-based to non-carbon-based industries and processes. There has not been enough solid information to provide a basis for assessing those claims. The paper does shed some light on the subject.

The researchers found that “the vast majority of workers in carbon-intensive jobs have not historically found work in green jobs. In 2021, 0.7 percent of workers who transitioned out of a dirty job transitioned into a green job. Conversely, the vast majority of workers obtaining green jobs do not come from carbon-intensive industries, but from a wide range of other industries and occupations. Approximately a quarter (26.7 percent) of green jobs appear to be taken by first-time job-holders, and over 20,000 workers are observed entering green jobs from overseas.

On average, approximately 20 percent of transitions out of dirty jobs are into other dirty jobs, including transitions within and out of local labor markets. The sector to which dirty workers are most likely to transition is manufacturing, which accounts for over 25 percent of all transitions out of dirty jobs.

So, it looks like the transition to the green economy will be a lot more twisted and a slower trip than advocates would lead one to believe. It is not surprising that efforts are being made to find ways to adapt the carbon economy to the realities of moving large numbers of people to work in new industries. The disruption in the local workforce can be offset by repurposing legacy electric infrastructure. It is part of the attraction of carbon sequestration and removal.

It is also part of why the Energy Department announced it is awarding up to $1.2 billion to two projects to directly remove carbon dioxide from the air.  One will be built in Calcasieu Parish, Louisiana. The second is planned for Kleberg County, Texas. Each claim it will capture up to one million metric tons of carbon dioxide per year initially. The Texas project said it will scale up to remove 30 million metric tons per year once fully operational. 

Louisiana and Texas are two of the states cited in the NBER paper which have the highest number of dirty-to-dirty moves. It is no surprise to see these two states welcome the projects.

ESG AND REALITY

When the NHL awarded a franchise to Seattle, Amazon was an early supporter and executed a naming rights agreement for the refurbished Key Arena. That deal named the facility the Climate Pledge Arena, designed to signify Amazon’s commitment to carbon free operations. The goal was to produce zero waste, source food locally and eliminate all single-use plastics by 2024.

It had all of the gimmicks – using reclaimed rainwater in its ice system, powered entirely with renewable electricity, some of which to be produced by on-site solar panels. All operations and events at the arena will also use compostable containers, with a minimum of 95 per cent of all waste diverted from landfills.

So far, the facility has been a hit with fans. As far as imaging and optics for Amazon are concerned, the name game has not necessarily panned out in terms of Amazon’s virtue signaling. The Science Based Targets initiative, a United Nations-backed entity that validates net-zero plans, has removed Amazon from its list of companies taking action on climate goals after the company failed to implement its commitment to set a credible target for reducing carbon emissions.

The week also saw S&P take a big step back from its effort to incorporate ESG factors into its ratings. They have been under enormous pressure from coordinated efforts by conservative politicians to stop providing ESG scores. From their perspective, ESG factors are political not financial. We disagree. Nonetheless, The situation highlights the difficulty there has been in the effort to come up with quantitative ESG metrics.

In reality, ESG has yet to be universally defined. Like efforts in previous sectors, the focus on development of a score has been a slow process. The “black box” nature of the analytics has made it hard to explain. The lack of agreed upon metrics does not support the process.

MOUNT SINAI DOWNGRADE

When the pandemic emerged and continued with its high concentration of cases in New York, there were real concerns about the potential impact on hospital financial results. The initial concerns were immediate in nature, driven by overwhelming COVID-based demand. While those factors were overcome without ratings impact, the trailing factors which have emerged from the pandemic are what is driving credit now.

Moody’s Investors Service has downgraded Mount Sinai Hospital’s (NY) rating to Baa1 from A3. The downgrade to Baa1 from A3 reflects Moody’s expectations that Mount Sinai Hospital’s (MSH) and Mount Sinai Hospitals Group’s (“the system”) operating performance and liquidity will be below historical averages for several years. The flagship institution of the Mount Sinai system is expected to be able to generate revenue to support some of the weaker facilities in the system.

Diminished results reflect rising labor and supply costs. On the positive side, the health system’s high acuity services continue to generate demand, which will support volume growth. Mount Sinai is considered a leading research institution and its medical school generates significant commercialization opportunities as well as substantial fundraising at the closely affiliated Icahn School of Medicine at Mount Sinai (ISMMS). It is anticipated that these funds will benefit the entire enterprise.   

In the end, the impact on liquidity drove the move. Even with federal assistance, the balance sheet shows about 4 months of cash on hand. Until the hospital can improve its liquidity there will be no driver of ratings improvement. That will require some moderation in costs as well as improvement in utilization levels. That is another left over from the pandemic.

NATIVE AMERICAN INFRASTRUCTURE

The U.S. Interior Department announced a program which will be funded through the Inflation Reduction Act to connect Native American homes to the electric grid. The program will be funded by an initial $72.5 million allocation. In all, $150 million is being invested to support the plan.

In 2022, the U.S. Energy Department’s Office of Indian Energy issued a report citing that nearly 17,000 tribal homes were without electricity, with most being in southwestern states and in Alaska. According to the Bureau of Indian Affairs, 1 in 5 homes on the Navajo Nation and more than one-third of homes on the neighboring Hopi reservation are without electricity.

It exacerbates the impact of this year’s SCOTUS ruling which said that the federal government was not required to provide water infrastructure to deliver Colorado River water entitlements to the Navajo reservation. The Navajo reservation’s northern border is the Colorado River. The means to install pipelines from the river to the reservation have been hard to come by. The same applies to electricity, especially in the Southwest.

ELECTRIC VEHICLE FEES

Beginning September 1, owners of electric vehicles in Texas will face increased registration fees. EV owners will now have to pay $200 to register their vehicles. Unsurprisingly, EV owners are howling about how they are being punished by such a fee. Opponents of the fees cite studies which purport to show that a $100 fee more closely approximates the amount of lost taxes.

How did we get here? Legislation enacted in 2019 required the Texas Department of Motor Vehicles, in coordination with other specified state agencies, to organize a study on imposing fees on alternatively fueled vehicles (AFVs). The Public Utility Commission of Texas, the Texas Department of Transportation, the Texas Department of Public Safety, and the Texas Commission on Environmental Quality participated in the study.

The analysis estimates that for every conventional vehicle a consumer replaces with a hybrid approximately $80 per year less in state gasoline taxes will be collected. This is about an 80% decline per year per vehicle. That number increases to a 100% decline if the consumer replaces the conventional vehicle with a fully electric one which would represent approximately a $100 reduction in state gasoline tax collections per year per vehicle, and similarly a $95 reduction in federal gasoline tax collections per year per vehicle.

That’s how the $200 number was generated. Texas now joins 29 other states which levy a registration fee specific to AFVs. Almost all levy a flat fee due at the time of vehicle registration. The average amount levied was approximately $120 a year. The arguments against these fees ignore the tax benefits associated with buying an EV. So, you get a subsidized purchase price and you don’t pay gas taxes to operate on roads you don’t pay for. Whether they like it or not, EV buyers tend to be a much higher income cohort given the relatively high price tag on electric vehicles. The resistance to fees just enhances the view that EV ownership is the province of elitists who don’t want to pay for the decisions they make.

Tennessee undertook a study through the University of Tennessee as well. That study showed that the average combustion engine vehicle pays $274 per year in gas tax. The Tennessee Transportation Modernization Act is the basis for charging fees. The law authorizes increase with the first round of increases seen when electric vehicle drivers go to renew their tags in 2024. The legislation raises the cost to register and renew tags for electric vehicles from $100 to $200 from 2024 to 2025. Then, it increases them to $274 by 2026. 

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

GAS BANS

The California Supreme Court ruled that Monterey County cannot enforce a voter-approved ban on new oil and gas wells. The state Supreme Court said the state, not the county, has the authority to regulate certain methods of oil production that would have been banned by the measure. The initiative, known as Measure Z, set out to ban fracking, as well as new oil and gas wells; and another practice known as wastewater injection.

In 2022, Central Coast’s Monterey County was the third largest oil producer in the state, producing 5.1 million barrels annually. The Los Angeles City Council voted last year to ban new oil and gas drilling. In San Benito County, which is south of the San Francisco Bay Area, residents voted to ban fracking in 2014. The Supreme Court did not issue a decision on the measure’s ban on fracking.

California enacted a law last year to ban new wells within 3,200 feet (975 meters) of homes, schools, parks and other community sites. the oil industry qualified a referendum to ask voters to overturn it in November 2024.  The California Independent Petroleum Association is behind the referendum to ask voters to overturn the law. Environmental advocates launched a campaign in the past week to put a separate measure on the ballot to try to keep the law.

In Washington State, Gas and building industry groups on Thursday asked to dismiss a lawsuit they had filed to block new Washington state building codes, which require heat pumps in new residential and commercial construction to reduce greenhouse gas emissions. The lawsuit argued the codes harm the industry groups’ business, interfere with consumer energy choice and don’t comply with federal law. The lawsuit came shortly after a federal appeals court overturned Berkeley, California’s first-in-the-nation ban on gas in new buildings for bypassing the same federal law.

In this case, the industry groups’ dismissal of the lawsuit follows a federal judge’s July denial of their request to vacate the codes. The issue could easily end up back in court as the dismissal request was since the Washington State Building Code Council’s pushback of the codes’ effective date from July to late October provided an opportunity for revisions. The Council is considering modifications of the code in light of the Berkeley decision. One important distinction has been emerging through the process of court review of the bans.

Washington used building codes to try to effect the changes it sought. Berkeley’s ban was based on the city’s use of its police powers. It is an important distinction in that opponents of these bans like to cite the existence of federal regulations which would prevent enforcement based on police powers versus codes. The law supporting federal regulation, the Energy Policy and Conservation Act, contains a statutory exemption preventing it from preempting state and local building codes.

CLIMATE COSTS AND WATER

A report by the National Centers for Environmental Information, a division of the National Oceanic and Atmospheric Administration (NOAA) finds that a total of 15 billion-dollar weather and climate disasters have been confirmed this year. This is the largest number of such events since 1980 for the January-July period. These consisted of 13 severe storm events, one winter storm and one flooding event.

This year the reporting of events has been geared towards worst ever, largest ever types of commenting. The average temperature of the contiguous U.S. in July was 75.7°F, 2.1°F above average, ranking 11th warmest in the 129-year record. July precipitation for the contiguous U.S. was 2.70 inches, 0.08 inch below average, ranking in the middle third of the historical record. None of this year’s data reflects historical peaks. For this year-to-date period, the first seven months of 2023 rank highest for disaster count, ahead of 2017 with 14 disasters. The total cost of these events exceeds $39.7 billion, and they have resulted in 113 direct and indirect fatalities.

According to the August 1 U.S. Drought Monitor report, about 28.1% of the contiguous U.S. was in drought, up about 1.2% from the beginning of July. Moderate to exceptional drought was widespread across much of the Great Plains, with moderate to extreme drought in much of the Midwest and Florida Peninsula. Moderate to severe drought was present in parts of the Northwest, Southwest, southern Mississippi Valley, Mid-Atlantic, Michigan and Puerto Rico as well as moderate drought in parts of the Northeast and Alaska.

NYC STABLE?

The reaffirmation of NYC’s general obligation rating with a stable outlook seems to fly in the face of current realities. We understand that the City benefits from the use of rolling five-year averages to determine property tax rates so that declines in valuation and property tax revenues are effectively phased in. We understand that the segregation of property tax revenues to be applied to debt service provides a level of certainty of repayment.

What we also understand is that the idea that the commercial real estate sector is healthy is not realistic. The realities of the mass transit situation in the City generate huge uncertainty. There seems to be no end to the stream of immigrants to the City or to the growth in cost estimates associated with their absorption. That was confirmed by Mayor Adams this week when he released a revised estimate of those costs – $12 billion. The city is currently housing 107,900 people in shelters, including 56,600 migrants.

The City does not know the magnitude of its problem. An influx of children into the school system likely needing extra support in language if nothing less demand resources. The system is already facing a teacher shortage. Those students will also create strains on the healthcare system likely funded through the municipal hospital system. The one known factor in solving any or all of these is increased expense requirements.

Those are uncertainties. We consider something which is uncertain to be destabilizing. We are not advocating a downgrade or getting rid of your City GO bonds. We just do not see a stable situation in the City.

CARBON CAPTURE

The North Dakota Public Service Commission denied the permit for Summit’s Midwest Carbon Express pipeline, which planned a 320-mile (515-kilometer) route through North Dakota. Summit proposed the $5.5 billion, 2,000-mile (3,219 kilometer) pipeline network to capture carbon dioxide from more than 30 ethanol plants in Iowa, Minnesota, Nebraska, North Dakota and South Dakota.

“The Commission felt that Summit has not taken steps to address outstanding legitimate impacts and concerns expressed by landowners or demonstrated why a reroute is not feasible,” the regulators said in a statement. “The Commission also requested additional information on a number of issues that came up during the hearings. Summit either did not adequately address these requests or did not tender a witness to answer the questions.”

Sangamon County, IL is the proposed home of a carbon capture storage site to be operated by Navigator CO2. The County has filed a Motion to Intervene with the Illinois Commerce Commission (ICC) in order to have a voice in the approval process. The ICC is expected to rule on the project in early 2024. 

CYBER ATTACK AND SECURITY

The White House held a “summit” to highlight the growing targeting of public schools in ransomware attacks. According to private researchers, 48 districts have been hit by ransomware attacks this year — already three more than in all of 2022. The Government Accountability Office found that more than 1.2 million students were affected in 2020 alone. Nearly one in three U.S. districts had been breached by the end of 2021.

It is a thorny issue because it deals with the issue of information related to minor children being held hostage. Medical issues, psychological information and the like make it especially hard for victims to take a firm stand. For many districts, cybersecurity is just one of many competing demands on resources. The Consortium for School Networking conducted a survey which found that 16% of districts have full-time network security staff, down from 21% last year. Half of the districts devoted 2% or less of their budget on protection.

A cyberattack has disrupted hospital computer systems across the United States, forcing emergency rooms in several states to close on August 3. The issues resulted from a hack on the systems of the management company which operates 16 hospitals across the country. In Connecticut, two facilities closed their emergency departments for hours and outpatient care was not available into the weekend. In Pennsylvania, Crozier-Chester, Moses Taylor and Delaware County Memorial hospitals saw disruptions in service. The holding company was still restoring full capability at the beginning of the week.

Just this week, the New Haven, CT school district reported that it been the victim of hackers who stole some $6 million. The hackers appear to have gained access in late May to the email account of the school system’s chief operating officer and began to monitor conversations among the school official, vendors and the city’s finance office. The F.B.I. has since recovered $3.6 million and has been able to freeze some of the remaining funds. 

Unintentionally, the mayor of New Haven may have revealed more about the mindset of public officials than he meant. “It is shocking to me that someone is so greedy that they would steal money from public school children.”  It shouldn’t be shocking that people who would hack the operations of chemotherapy units would hack a school district account.

PUERTO RICO

Puerto Rico Industrial Development Company (PRIDCO) has reached a tentative restructuring agreement with its bondholders and the Oversight Board. PRIDCO’s bonds have not paid since the passage of the Puerto Rico Oversight, Economic Stability, and Management Act in 2016. According to the terms of the deal, the current taxable bond claim of $186.3 million plus $22,411 a day of interest, minus a $30 million cash payment, is to be made the principal of new bond paid at 100%.

The new bond’s coupon would be 7% for three years and 8.75% thereafter. The weighted average interest rate of PRIDCO bonds on July 2, 2016, was 5.4%. The restructured bonds would not mature until 2053. The five CUSIPs affected by the restructuring had originally been scheduled to mature 2018 to 2028. The restructured bonds would be callable at par for the first three years, 104% for the following three years, and then for 0.5% less per year thereafter. 

The Puerto Rico Oversight Board sought and received another deadline extension for filing its debt adjustment plans. The attorneys asked Judge Swain to extend the deadline for its filing a proposed plan of adjustment to Aug. 11 from Friday and to extend the deadline for filing a joint status report with a proposed litigation schedule to Aug. 16. PREPA debt remains the last to be restructured under bankruptcy. The settlement of the PRIDCO debt is seen as creating a more favorable potential settlement of PREPA’s debt.

P3 NEWS

LAX Integrated Express Solutions, LLC (“LINXS”) finds itself in a dispute with the Los Angeles airport over purported changes in the people mover project at LAX. LINXS has stopped work on portions of the project and is contending that it can due to an inability to obtain government permits. The argument is rooted in changes adopted by the airport which the developer contends are outside the scope of the project.

LAX has declared the developer to be in default under its project agreements. Under those agreements, no LAWA Change shall constitute a breach of the Contract Documents, invalidate the Contract Documents, or release any Surety from any liability arising out of the Contract Documents or the Payment Bond or Performance Bond. Developer agrees to perform the Work, as altered or changed by any LAWA Change, as if it had been a part of the original Agreement.

It’s all about money. The developer is obviously not getting the return on its investment that it hoped for and is looking to generate additional revenue from the airport. Concession termination is one of the remedies available to LAWA if the developer default is not cured within 30 days. The date that the people mover would be placed into service which has now moved further by 109 days to Oct. 17, 2024, from June 30, 2024. The arguments are over the meaning of clauses in the project agreement and whether they put the airport in the position of having to pay more due to a change order.

Louisiana has announced a P3 for the replacement of the Calcasieu River bridge on Interstate 10. The selected consortium includes Plenary Americas US Holdings, Inc., which holds a 40% equity stake, and Sacyr Infrastructure USA LLC, and Acciona Concesiones S.L., each with a 30% stake. The project had two bidders. It will replace the nearly 70-year-old existing bridge, which has been deemed structurally deficient, and widen the interstate along a 5.5-mile corridor. The Calcasieu River project includes design and construction of a new eight-lane bridge, reconstruction and relocation of existing roads and interchanges, demolition of the existing span, implementing a tolling system and building several adjacent ramps and structures.

The concession will be backed by tolls which will range from $0.25 for local cars to $2.50 for an auto and $12.50 for a large truck for those with toll collection tags. Without tags, the rates will range from $3.75 for a car to $18.73 for a large truck. It is a $2.1 billion project. Governmental funding would include $240 million from motor vehicle sales tax fund transfers; $150 million in federal discretionary grants; $150 million in American Rescue Plan Act funds; $100 million from the state general fund, $85 million in state general obligation bonds, and $75 million from highway priority program federal funds.

HIGH SPEED RAIL

It is fashionable to believe that the private sector would be the key to the development of high-speed rail. For many, that translates to private financing for these projects. Private financing has been a selling point in the effort to generate support for the projects. In reality, the projects to date show that they may not work without government support.

The latest example of a private project transitioning to one supported by governmental financing is the Texas Central project which seeks to link Dallas and Houston. Texas Central announced this week that they are working with Amtrak to apply for federal grants to conduct “advance planning and analysis work” associated with the proposed rail line, “to further determine its viability.”

Amtrak and Texas Central have submitted applications to several federal grant programs to further the study and design work for the Dallas to Houston line including the Consolidated Rail Infrastructure Safety and Improvements (CRISI) grant program, the Corridor Identification and Development program, and the Federal-State Partnership for Intercity Passenger Rail (FSP-National) grant program.

The change in financing strategy comes after the management of Texas Central was replaced. A new CEO and a new board of directors has been put in place. The move to look for public funding is the first major strategy change to come from the new board. There remain significant issues over right of way acquisition and funding. Texas Central has given no timeline for when construction or operation will begin. 

STATE BUDGETS

Pennsylvania, Wisconsin, and North Carolina make for an interesting triumvirate of late state budget adopters. In Pennsylvania, the fight is over school funding. In North Carolina, votes to override line-item vetoes has delayed enactment of a two-year budget for the biennium which began on July 1. Several issues are seen as stumbling blocks and the delay is also seen as beneficial by opponents of Medicaid expansion. Massachusetts passed its budget a full month after the end of the fiscal year and it was signed into law this week, some 6 weeks after the start of the fiscal year.

MEDICAID CONTRACTION

As a part of the initial response to the pandemic, Congress ordered states to halt requirements that Medicaid enrollees renew their coverage each year, ensuring poor Americans would remain continuously insured throughout the Covid crisis. The Medicaid population swelled to a record 93 million as a result — with 1 in 4 Americans insured by the program. In anticipation of the end of the declared public health emergency this past Spring, Congress ended that protection in April.

Now the same sort of difficulties which drove opposition to work rules for Medicaid recipients – primarily rooted in paperwork and documentation issues – have arisen again. The “great Medicaid unwinding” has seen Florida remove more than 400,000 people out of Medicaid in its first three months. Texas dropped over half-a-million people in a single month. In Arkansas, more than 300,000 have lost coverage. Georgia and Nevada have among the top 10 highest disenrollment rates.

This even though the Centers for Medicare and Medicaid Services has worked with 14 states to pause terminations for some or all Medicaid recipients over compliance issues.

DREAM ON

The difficulties at New Jersey’s American Dream mall continue to impact debt service coverage. The Reserve Account was previously drawn to make debt service payments on the Wisconsin PFA Bonds on August 1, 2021 and February 1, 2022. Draws on the Reserve Account are not required to be replenished. As a result, the balance of the Reserve Account is $900.93. The semi-annual interest payment of $8,762,500, which was due to be paid on the PFA Bonds on August 1, 2023 was not paid due to insufficient funds. As of July 1st, 2023, the American Dream Project is 85% leased, which includes the self-operated space, and together with leases under negotiation, is approximately 90% leased.

HOSPITALS

On May 23, 2023, the San Benito Health Care District dba Hazel Hawkins Memorial Hospital filed a voluntary petition for relief under chapter 9 of title 11 of the United States Code. The San Benito Health Care District (District) and Hazel Hawkins Memorial Hospital (HHMH) announced that they received a Letter of Intent (LOI) from American Advanced Management (AAM) which is intended to lead to a strategic partnership. AAM currently operates 6 hospitals and numerous other medical facilities across the state.

The plan proposes AAM to “lease to own” assets of the District for several years prior to purchasing them outright. The hospitals finances have been poor as is the case with so many facilities of this size and service array and rural service area.  Located in the county seat, the 25-bed facility is the only one in town and San Benito County. That role generates support for it. The bulk of the District’s debt is tax backed but an operating facility is the county’s primary concern.

In Iowa, On August 7, 2023 (the “Petition Date”) filed voluntary petitions for relief under chapter 11 the Bankruptcy Code” in the United States Bankruptcy Court for the Northern District of Iowa (the “Bankruptcy Court”). Holders (primarily one) of the debt have accelerated the repayment of bonds issued five years ago for the hospital. The hospital said the voluntary bankruptcy will allow it to implement a plan for the University of Iowa to acquire substantially all its operating facilities and key assets. Outstanding principal totals $62.145 million as of July 31

The Iowa Board of Regents Tuesday unanimously agreed to pay $20 million for real estate and business assets in a deal under which it would not assume Mercy’s debt obligations. The bondholders had sought to put the hospital into receivership. That request was denied. It’s quite a fall for a credit which was originally rated A2 in 2011. and most recently downgraded the debt to Caa3, withdrew the rating due to the bankruptcy filing. The hospital cited local concerns over ownership by a private equity entity.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

PUBLIC POWER AND SAN DIEGO

The Public Power Feasibility Study was commissioned by the City of San Diego. the preliminary and high-level results indicate that the City may have an opportunity to generate financial benefit, depending on the purchase price and the timeframe to realize such a result. If the City were to acquire the SDG&E electric delivery assets for approximately $2 billion, the cumulative benefit of the MEU to ratepayers might be as much as approximately $3 billion within a 10-year time frame.

This represents potential annual savings to ratepayers of approximately 13% to 14% in comparison to continued operations under SDG&E. However, if the City were to acquire the SDG&E assets for approximately $6 billion, the cumulative benefit over the 10-year period might result in a cost (or dissaving) of approximately $60 million. 

There are currently two large municipalization efforts underway in California. These are the City and County of San Francisco (CCSF), and the South San Joaquin Irrigation District (SSJID or District). The state of these efforts highlights the difficulty of the process of municipalization. In 2019, the CCSF made an offer to purchase Pacific Gas & Electric (PG&E) assets for a price of $2.5 billion, which was rejected by PG&E.

In 2021, CCSF continued its attempts to municipalize by petitioning for an independent state valuation of PG&E’s local electric assets which is currently under consideration by the California Public Utilities Commission. CCSF filed its Opening Testimony on April 10, 2023. PG&E’s Opening Testimony is due October 13, 2023, with CCSF Rebuttal due on January 8, 2024. Discovery continues in the case.

The second example is the more contentious of the two. After continued litigation and favorable court decisions for SSJID, the District made an offer to purchase local PG&E assets in 2016. After PG&E indicated that their assets were not for sale, the District filed in the San Joaquin Superior Court to begin eminent domain proceedings to acquire the assets. In 2018, the San Joaquin Superior Court dismissed SSJID’s eminent domain claim, which was then appealed by SSJID to the State of California Appellate Court and conjoined with the continuing litigation regarding the San Joaquin Local Agency Formation Commission (SJLAFCo) approval. In 2021, the Appellate Court ruled in favor of SSJID which PG&E appealed to the California Supreme Court. The Supreme Court denied PG&E’s petition for review in 2022 and the Appellate Court has subsequently returned the case to the Superior Court to begin the condemnation process.

NUCLEAR

Fourteen years and $35 billion later, Unit 3 at Plant Votgle in Georgia has finally gone into commercial service. Unit 3 enters service seven years behind schedule and Unit 4 is more than six years late. The new Vogtle units both use a large, advanced reactor design developed by Westinghouse called the AP1000. The Vogtle reactors are the first built on the platform in the U.S. The question is whether any more such reactors will be built given the difficulties with construction at Votgle.

For proponents of large scale nuclear generators, the operation is seen as confirming the decision to go big. Many of the comments made by supporters ignore the reality of the costs associated with traditional nuclear. Those costs and the incredible number of delays and cost increases have instead driven the industry to look to small scale modular reactors as the future of the industry. The efforts by the federal government to support nuclear have been focused on modular plants.

The most disappointing aspect of the project has been the inability of the industry to learn from its mistakes. Many of the delays at nuclear construction projects have to do with documentation and with sloppy work practices. Those issues plague nearly every nuclear construction project. In this case, the delays produce a cost per customer that is twice what was promised. We fail to see how the experience at Plant Votgle is supportive of a view that traditional nuclear generation is the way forward.

CFPP LLC, a wholly-owned subsidiary of Utah Associated Municipal Power Systems (UAMPS) submitted an application to the U.S. Nuclear Regulatory Commission (NRC) for a Limited Work Authorization (LWA), seeking approval to commence early construction activities for the CFPP (Carbon Free Power Project). The CFPP is proposed to be sited within the southwest region of the Idaho National Laboratory (INL) in southeast Idaho. The INL site, a U.S. Department of Energy (DOE) facility, covers an expansive area of approximately 890 square miles and is situated near Idaho Falls, Idaho.

The project is scheduled for an end-of-year 2029 commercial operation date. The license application will seek a license to construct and operate a nuclear power plant comprising six small modular reactors (SMRs) and associated common facilities.

The environment for nuclear has changed significantly since the project was undertaken. There is some serious money behind modular nuclear (public and private). The use of modular nuclear could be an answer to several problems especially those related to siting. Generation facilities at existing sites could be replaced by modular nuclear. Those sites already have access to transmission which is increasingly a hurdle to clean energy project development. Small nuclear could preserve some of the jobs associated with legacy generation and mitigate the impact on local tax bases.

BOSTON FOSSIL FUEL BAN

Boston Mayor Michelle Wu signed an executive order that prohibits city-owned buildings from being constructed or renovated in a way that allows for the use of fossil fuels. The order allows the City to move forward on fossil fuel bans while avoiding the bigger issue of opposition from the real estate development sector. municipal buildings will be constructed or renovated in a way that doesn’t allow for the use of fossil fuels like coal, oil or natural gas in heating and cooling, hot water and cooking operations. The order impacts the City’s real estate portfolio of 380 buildings with 16 and half million square feet.

The order exempts new projects that are currently in the procurement, design or construction phase. It will apply, however, to future capital projects such as the renovation of schools and construction of new police, fire and EMS stations and libraries. The private sector will be more difficult to address. The City Council approved ordinance changes proposed by Wu in April that requires new residential buildings to add wiring for future conversions to electrification and to add solar.

Under state law, Massachusetts cities and towns are not currently allowed to ban gas and oil hookups in new buildings or mandate all-electric construction. The Wu administration also plans to submit an application by the fall deadline, for acceptance into a state pilot project that will allow 10 Massachusetts cities and towns to ban gas hookups in new buildings. Boston won’t find out if it makes the cut until next March at the earliest. 

PUERTO RICO

The U.S. Department of Energy (DOE) announced up to $453.5 million from the Puerto Rico Energy Resilience Fund (PR-ERF) aimed at increasing residential rooftop solar PV and battery storage installations. Potential applicants may include private industry, non-profit organizations, energy cooperatives, educational institutions, and State and local governmental entities. 

The proposed funding is the first available through PR-ERF and totals $450 million is designed to incentivize the installation of up to 30,000–40,000 solar PV and battery storage systems for very low-income single-family households that are either:  Located in areas that have a high percentage of very low-income households and experience frequent and prolonged power outages; or With a family member with an energy-dependent disability, such as electric wheelchair users or individuals who use at-home dialysis machines.  

MARICOPA COUNTY TRANSIT TAX

The Arizona Legislature authorized Maricopa County to call a transportation tax election next year. The bill allows the county to ask its voters if they want to extend a half-cent sales tax to pay for a mix of transportation projects over the next 20 years. Of the estimated $14.9 billion projected to be raised by the tax, 40.5% would go to freeway projects, 37% to transit and 22.5% to arterial streets and intersection improvements.

Opponents have long sought to limit funding for mass transit in Phoenix especially expansion of the City’s light rail system. The power of that opposition is reflected in the agreed upon division of proceeds. The plan bars any spending on light-rail expansion, although it does allot 3.5% of transit dollars to maintain existing rail infrastructure. (The Valley’s light rail system currently runs from Mesa, through Tempe and north to Dunlap Avenue in Phoenix. An extension to south Phoenix is under construction.)

The transportation tax question is now projected to appear on the November 2024 ballot in Maricopa County. The plan will help pay for two new Valley freeways. A number of provisions aimed at reducing emissions from vehicles and other measures intended to reduce reliance on fossil fuels were deleted from the final bill.

It is worth noting that these results were reached in the midst of a record-breaking streak of days over 100 degrees in Phoenix. Remember the expansion of the highway system to the suburbs when you hear complaints about the heat in Phoenix. Maricopa County is the only one of the 15 counties that requires legislative approval to call a transportation election, as the result of 1999 legislation to address concerns raised by mass transit opponents.

CONGESTION PRICING AND ELECTRIC VEHICLES

The concept is after all called congestion pricing. It’s not called anti-pollution pricing or mass transit promoting pricing. It’s congestion pricing. Nevertheless, a group of Manhattan politicians is trying to convince the powers that be that electric cars should not be subject to congestion pricing. They make the case that “there are many goals of congestion pricing. One is congestion. One is the environment. There are other ones as well.”  

Congestion pricing advocates like to point to the experience of cities overseas to justify the fees. Well, cities that offered EV discounts on congestion tolls are moving away from them. In Singapore and Gothenburg, the charges never discounted or exempted electric cars, while in Stockholm the exemption for EVs first did not apply to any electric vehicle built after 2012, and then was eliminated entirely. Transport for London announced that it would begin phasing out its 100 percent congestion charge discount for low-emission and electric vehicles, and completely do away with the discount on December 25, 2025. 

CARBON CAPTURE

Navigator CO2 Ventures and a group of affiliates are developing the $3 billion Heartland Greenway Pipeline System that calls for 900 miles of steel pipe to be laid in 33 of Iowa’s 99 counties, from northwest Iowa to the southeast corner of the state. In mid-May, the Story IA County Board of Supervisors passed an ordinance establishing setback requirements that directly conflict with the proposed route of the pipeline and would limit the route the Iowa Utilities Board could ultimately approve.

Navigator is now suing the county in U.S. District Court, claiming the ordinance not only usurps federal and state regulatory powers over carbon dioxide pipeline construction but also superimposes Story County’s preferences for the project over other Iowa counties, the utilities board and Iowa citizens. Navigator argues that in Iowa, interstate and intercounty hazardous liquid pipelines are regulated by state regulations and by federal laws, such as the Pipeline Safety Act. In addition, the company says the federal Pipeline and Hazardous Materials Safety Administration prohibits state or local authorities from adopting safety standards applicable to such pipelines

These actions come as South Dakota opens its regulatory review of carbon pipeline applications. Navigator has offered landowners an average of $24,000 per acre in negotiations for easements to cross private land. It has also pledged the company will pay landowners “250% of crop damages” for as long as damages occur. 

Opponents claim that the 250% figure is a cap on future compensation for losses which could mean that the protection would only be for two or three years. Navigator has easements with about 30% of affected landowners. The company has not yet used eminent domain. A pipeline proposed by Summit Carbon Solutions is scheduled for a permit hearing in September.

FLOODING

One of the issues which emerged from Houston’s flood experience several years ago was the development of land for housing in what turned out to be identifiable flood plains. The maps which were used were either improperly done originally or just ignored in a city with a history of minimal zoning restrictions.

The Texas Water Code (TWC), the Texas Water Development Board (TWDB) must develop and adopt a comprehensive state flood plan every five years that incorporates the 15 regional flood plans developed and approved by each regional flood planning group (RFPG). Those plans were submitted in January of this year. The data collected by the state produced these conclusions:

More than 2.4 million Texans live in areas that have a 1% chance of flooding each year, known as the 100-year floodplain. Another 3.5 million people live in areas with a 0.2% chance of flooding each year, known as the 500-year floodplain. One-fifth of the state’s land — roughly 56,000 square miles — now fall within the 100-year floodplain.

So, move to the coast? Between 2000 and 2019, rising sea levels caused the Texas coastline to retreat about 4 feet per year on average, according to a 2021 University of Texas Bureau of Economic Geology report for the Texas General Land Office. The San Jacinto region, which includes Harris County and Galveston, has the most people living in a floodplain: almost 2.5 million people are in a 100- or 500-year floodplain. The Lower Rio Grande region, which spans much of Texas’ southern border and includes the Rio Grande Valley, is next with about 1 million people at risk.

CHICAGO COMMUTER RAIL

A U.S. appeals court has ruled Union Pacific does not have a common-carrier obligation to continue operating commuter trains for Metra, the agency which provides commuter rail service in the greater Chicagoland area.  According to May 2023 figures, the UP Northwest, North, and West lines are the second, third, and fifth most-used lines in the Metra system, accounting for just over 1 million riders that month.

The transfer will see train crews, mechanical, cleaning, ticket sales, rolling stock maintenance, and some engineering services move to Metra, while UP will continue to maintain and dispatch the three routes. Litigation commencing in 2019 made it obvious that UP wanted out of the passenger rail business. All three are former Chicago & North Western routes inherited by UP in its 1995 acquisition of the C&NW.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.