Joseph Krist

Publisher

Happy Thanksgiving to you all. It may be the best holiday in that it is not based on political ideas or dare we say religion. It’s the one day when no matter who you are or what you like to eat, it is a day simply to be grateful for being. That is something that everyone – no matter their identity – can do in their own way. Safe travels to those who must. Enjoy the feast.

Our next issue will be the December 4 issue.

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NYC – IT BEGINS

We have long been of the view that the outlook for New York City’s budget is at best mixed and far from stable. We are aware that many disagree. That debate continues but the November Financial Plan Update released by Mayor Adams will add heat to the debate. The Update reflects operations of the City through its first fiscal 2024 quarter.

The FY24 budget has grown $3.4 billion since budget adoption in June, in recognition of $2.6 billion in grant funds and $776 million of better-than-expected revenue growth, primarily driven by income and sales tax collections. Outyear gaps are $7.1 billion in FY25, $6.5 billion in FY26, and $6.4 billion in FY27.  To meet costs associated with care for asylum seekers, the city added $6.2 billion over FY24 and FY25 in this plan, bringing total funds budgeted for migrant needs over the two fiscal years to $10.8 billion. The administration added the following on top of previously budgeted funding: city funds of $1.4 billion in FY24 and $4.8 billion in FY25, state grants of $447 million in FY24 and $272 million in FY25, and federal aid of $10 million in FY24.

As always it is a political document. The mayor continues to blame the federal government for the problem and insufficient aid. Away from the migrant issue, the Mayor cites sunsetting COVID-19 stimulus funding, slowing FY24 tax revenue growth, expenses from labor contracts this administration inherited after being unresolved for years, and a lack of significant state or federal government action on the asylum seeker crisis. The Mayor’s relation ship with Albany is poor and the notion that contracts his Administration settled were somehow “inherited” lay the politics on a bit thickly.

The Mayor correctly notes that the historically large $7.1 billion FY25 budget gap must by law, be closed in mid-January. The deliberations between the Mayor and the increasingly activist City Council will likely be contentious which will complicate the effort to balance the budget.

CLEAN ENERGY SETBACKS

The clean energy sector is beginning to hit some bumps in the road to development and production. The impact of higher interest rates and inflation has reduced the economic attractiveness of many projects, especially wind. The recent announcement by Ørsted that it is not going to build wind turbines off the New Jersey coast is just one example. Now, Siemens Gamesa confirmed the cancellation of the company’s proposed $200 million factory at the Port of Virginia in Portsmouth. It would have created more than 300 jobs.

In Georgia, SK Battery facilities in Jackson County supply batteries for Ford and Volkswagen EVs. The company announced that it would layoff some workers at the facility. Lower than projected demand for electric vehicles was cited. The news comes in the wake of announcements of reductions or pauses in investment at GM, Ford, and Tesla electric car facilities in the face of slower than hoped demand.

This all comes after a series of setbacks to wind development projects. In addition to the NJ cancellation, developers of wind generation off the New England coast have sought to renegotiate output sales agreements. Inflation has driven up the cost to build wind arrays just as several projects were preparing to execute contracts with suppliers. Manufacturing capacity in the U.S. for offshore wind towers, blades and rotors, or for building and operating the ships needed to install them at sea is inadequate to meet current demand.

Wind is still making progress amidst the upheaval. Vineyard Wind, a joint project of Avangrid and Copenhagen Infrastructure Partners off the coast of Massachusetts is under construction with full operations beginning by next year. South Fork Wind, an Ørsted project off the coast of Rhode Island that will power New York, may go live sooner. Dominion Energy said last week that its 176-turbine Coastal Virginia Offshore Wind project is on schedule.

Residential solar power is under attack again, this time in West Virginia. In a rate case filed with the West Virginia Public Service Commission, Monongahela Power and Potomac Edison are asking the commission to restructure the current net metering policy for future solar customers and change how much users are credited for selling back power generated through solar. Current regulations allow households and businesses to sell back their surplus solar energy to the electric grid at a fair market value — the same price the power companies charge other residential customers for that electricity.

Mon Power and Potomac Edison want to change the policy so that solar customers are credited at a “wholesale rate” of $0.0663 per kilowatt hour — roughly half of the rate charged by the companies — rather than the market rate. Solar customers already pay their utility company a base level fee which is supposed to cover the connection and other related costs. 

NEW MEXICO ENERGY BOOST

The Department of the Interior’s Office of Natural Resources Revenue (ONRR) announced the disbursement of $18.24 billion in revenues generated in fiscal year 2023 from energy production on federal and Tribal lands and federal offshore areas. The funds may be applied to irrigation and hydropower projects, historic preservation initiatives, conservation of public lands and waters, and investments in maintenance for critical facilities and infrastructure on public lands. 

ONRR disbursed $4.72 billion in fiscal year 2023 funds to 33 states. This revenue was collected from oil, gas, renewable energy, and mineral production on federal lands within the states’ borders and offshore oil and gas tracts in federal waters adjacent to four Gulf of Mexico states’ shores. The big winner in this round was New Mexico. It received $2.93 billion. That is about equal to the size of the state’s budget reserves coming into FY 2023. Wyoming was the only other state to receive over $200 million ($832.86 million).

PREEMPTION IN MICHIGAN

The issue of preemption by state governments to overcome local regulation of energy development has usually been used by those opposed to the expansion of wind and solar. Whether it is setback requirements or zoning obstacles, the move toward preemption has generally been to stymie the effort to decarbonize. As with many other things however, the door to preemption swings both ways. In Michigan, it is clean energy proponents who seek to override local control.

The legislature approved bills to shift permitting authority over wind, solar developments to the state. Thetwo-bill package would let state regulators override local decisions about where to allow large-scale wind and solar arrays. The state has cited local regulation as an impediment to adoption and pointed to difficulties the state’s IOUs have had in siting renewable energy. The bills make the Michigan Public Service Commission the ultimate permitting authority. The bills also set criteria governing how much noise and light the projects can emit, how far they must be from neighboring buildings, and other particulars.

The bills provide for local governments to keep permitting authority if they pass their own ordinance complying with the state’s requirements. But developers could bypass the local permitting process if a community lacks an approved ordinance, takes too long to review a proposal, or rejects a proposal that complies with state standards.

LOOKING TO THE STATES TO BE SAVED

PacifiCorp has asked the Oregon Public Utility Commission to limit future lawsuit awards against the company to “actual” damages for property and loss of life. The company also wants to be allowed to establish a condition of accepting electrical service with the utility. The company seeks to require customers to waive their right to other types of damages such as non-economic and punitive awards by juries.

The utility has filed the same request in five of the six states where it provides electricity service, including Washington, California, Idaho and Wyoming. PacifiCorp was successfully sued after a September 2020 fire resulting in $90 million in damages against it. The company cites the fact that all but some $4 million of that mount was for economic damages. That has helped drive up the company’s liability insurance costs.

The company faces another lawsuit from victims of the Archie Creek fire in southern Oregon that is slated to go to trial in 2024 and 2025. There will also be three hearings in 2024 to determine damages for 20 additional plaintiffs and a group of timber companies. PacifiCorp said in its most recent financial filings that “certain government entities” informed the company that they are contemplating legal actions. Total damages sought in lawsuits filed in Oregon related to the 2020 fires is about $8 billion.

Will it work? The Oregon Public Utility Commission said it had never previously addressed a waiver of liability in exchange for service as PacifiCorp has proposed. In addition, state regulators are planning to recommend the commission suspend a current pending rate filing for an investigation. The “remedies clause” of the Oregon Constitution, which guarantees that the remedies that exist in law remain available to every person would seem to stand in the way of PacifiCorp’s goal.

TRANSIT TAX IN KC

Kansas City, MO has levied a separate, half-cent sales tax to fund bus service since 1971 that is not subject to voter approval. An additional 3/8-cent tax was approved in 2004 through a public vote. The tax was supposed to phase out after five years and be replaced by a bi-state transit tax, but that never happened. Instead, Kansas City voters overwhelmingly renewed the tax in the fall of 2008 for 15 years. A vote this month was to extend the term of the tax by ten years.

Some 73% of Kansas City voters approved extending the 3/8-cent sales tax that supports bus service within Kansas City’s boundaries. The sales tax provides about 30% of the Kansas City Area Transportation Authority’s budget. If the voters had rejected the extension, KCATA would have had to cut its budget by 25% by eliminating eight bus routes, reducing service on 19 others and cutting service on Sunday and Saturday night.

The vote came against the backdrop of local transit funding policies. KC is a jurisdiction conducting its own experiment with free fare programs. If the vote had failed, the KCATA board of commissioners had instructed KCATA management to find new funding sources for the zero-fare program and complete a feasibility study by December on “the possible re-institution” of bus fares.

DESERT WATER PROJECT

The agency which manages the aquifer providing water to the City of Ridgecrest, CA has been facing declines in available supplies as the result of California’s long term drought. The city competes for water with area farm and mineral interests as well as the US Navy’s China Lake Weapons base. The pressure on the aquifer has led the Authority to propose new sources of water.

The latest and largest is a $200 million, 50-mile-long pipeline system that would move water from the California Aqueduct in California City—over arid desert mountains—to a storage tank in the urban center of Ridgecrest.

The Authority believes that it can look to the federal government and it would pay $150 million of the cost. The remaining $50 million of cost would be passed on to ratepayers. The plan comes as substantial water users like pistachio growers and mining operations are subject to an effective surcharge with a special “groundwater replenishment fee” of up to $6 million a year.

It’s the latest example of the ongoing water shortages in the West. State law requires that local agencies bring groundwater aquifers into balanced levels of pumping and recharge. The Indian Wells situation can only achieve that through reduced groundwater withdrawals. The amount of water currently flowing into the valley’s underground basin is 7,650 acre-feet a year. Annual usage is about 28,000 acre-feet. 

The Authority and the local water distributor the Indian Wells Valley Water District are caught in the middle of disputes between the Authority and large ag and mining interests. The District is making full payments of all charges and assessments to the Authority but is doing so “under protest”. The large water user and employer – China Lake – is ironically exempt from the groundwater fee as a federal entity.

In reality, the plan faces several significant hurdles. Its route would run from a starting point at the Antelope Valley-East Kern Water Agency feeder pipeline in California City through historical habitat for wildlife including mountain lions, state and federally threatened desert tortoises and state threatened Mojave ground squirrels.

AUSTIN, TECH, AND KEEPING IT WEIRD

At the end of 2022, some 6.6 million square feet of office space was expected to be occupied over the next few years primarily by tech companies. The narrative has been that the more favorable income tax situation in Texas and Austin’s history as a tech center would drive mass migration from California to Texas. The reality is that the plans of the tech companies have significantly changed.

Upon completion, an under construction office tower was poised to become Austin’s tallest building. Its occupancy would be anchored by Meta which had committed to leasing nineteen floors in the building. In another building, Google planned to occupy 35 floors. They are paying for the space but not occupying it. Facebook, Tik Tok, and Indeed are all stepping back from office space commitments.

It does not look like a temporary trend. The airlines have noticed. Virgin Atlantic says it will discontinue flights from Austin to London early next year, and American Airlines is cutting 21 Austin routes, mainly to domestic destinations such as Cincinnati and Nashville. Virgin’s rationale: “demand in the Tech sector is not set to improve in the near term, with corporate demand at 70 percent of 2019 levels.” Austin’s commercial vacancy rate hit 30% in the third quarter, near its peak during the Great Recession.

The most interesting aspect of this is that many in Austin won’t miss those companies. The city’s real estate market has been on hyperdrive and locals hope that it will relieve pressure on home prices. They are already seeing rent declines. The city can take a bit more measured approach to infrastructure if demand in the near term remains constrained. All in all, the effort to “keep Austin weird” would seem under a bit less pressure.

BATTER UP IN VEGAS

Major League Baseball owners approved relocation of the Oakland A’s to Las Vegas in a unanimous vote. Ownership intends to move the team into a new stadium in the city ahead of the 2028 season. The team’s current stadium lease at the Oakland Coliseum expires after next season. Where the A’s will play for the 2025-27 seasons is not yet clear. Nevada’s legislature and governor have approved $380 million in funding, but a political action committee backed by teachers in the state is attempting to get the funding on a public ballot next November. 

In Las Vegas, the team would likely be a perpetual recipient of revenue-sharing dollars from other team owners. It would be MLB’s smallest television market. However, the league projects that local revenues will be higher in Las Vegas than they’ve been in Oakland in recent years. The stadium will be located on the Strip on the site of Caesars Palace.

UTAH UTILITY TAKEOVER

A bill has been submitted to the Utah legislature which would provide for what would effectively be a legislative takeover of the management of the Intermountain Power Project. The bill would give lawmakers four of the seven seats on a new governing board for the Intermountain Power Authority, replacing a current board made up of representatives of the 23 Utah cities that can draw power from the plant. Two other seats would come from the cities, and the last would be appointed by the governor.

The legislature commissioned an audit which found that IPA was managing the plant with too much deference to its largest customer, the Los Angeles Department of Water and Power. The sponsor wants the Authority to employ carbon capture and enhanced pollution control equipment to facilitate the use of coal. IPA is undertaking plans to convert the plant to natural gas and produce hydrogen.

IPA is responding to the fact that the customers for 95% of its power are under mandates to stop supporting coal plants.  Efforts by Utah coal producers to export coal have hit hurdles as West Coast jurisdictions will not approve coal handling equipment at ports. Efforts to export oil by train are running into even more regulatory hurdles. The reality is that California customers have built up more renewable sources and need less from the plant. This means that the project has employed fewer people and paid fewer taxes in the state than was originally anticipated.

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

WE WORK, REMOTE WORK, DOWNTOWN WORK

A combination of events and releases of data this week has shone a brighter spotlight on the current state of office real estate. The glaring symbol of the change in where people work is WeWork. The bankruptcy, unlike many failures, has several fathers. Nevertheless, the decline of office space utilization and the rise of remote work wreaked too much damage on the company’s business plan. It puts the debate over remote work back on the front burner.

The data part comes from a recent release from the University of Toronto. Researchers there have been using data from cell phones to track the changes in foot traffic in North America’s largest cities. The latest data showed the level of traffic in the March to May time period in 2019 versus that in 2023. It covers 66 cities in the U.S. and Canada. It does not paint a particularly favorable picture even if it does support what the eye sees.

Only Las Vegas has returned to the same level of foot traffic. It is currently at 103% of the 2019 level. Given the increasing number of large scale events (to say nothing of an upcoming Super Bowl, this weekend’s inaugural F1 race) both newly occurring and recurring, this is not a surprise. Following Las Vegas was a group of eight Sun Belt cities of which Miami and Phoenix fared the best with recovery rates in the 90%+ range.

It is the lower rated cities that are concerning. The bottom 10 cities in terms of recovery rates include Minneapolis, Portland OR, Chicago and Houston which all had rates of 64% or less. The next 10 with recovery rates between 60 and 70% include NY, D.C., Baltimore, S.F., Denver and Philadelphia.

ELECTION DAY

Cincinnati voters approved a ballot initiative which allows the Cincinnati Southern Railway board to sell the railroad to Norfolk Southern for $1.6 billion. The railroad was the last municipally-owned railway in the U.S. Sale proceeds will be used to create a trust which is designed to generate interest earnings which will be used to improve city infrastructure. The Cincinnati Southern Railway has long been leased to Norfolk Southern, but in April of 2022 during negotiations to renew the lease, Norfolk Southern offered to buy the railroad. The current lease brings in roughly $25 million a year.

In Maine, voters decisively rejected an initiative to create a public power utility to take over the operations of two investor owned utilities. Despite widespread dissatisfaction with the state’s largest electric provider, the Governor and several labor unions opposed the measure. In Ohio, despite being overshadowed by the presence of an abortion initiative, voters approved the legalization of recreational marijuana. The vote marks the first time that a majority of Americans will live in states with legal cannabis.

Coloradans rejected an initiative which would have weakened the impact of the TABOR amendment which requires funds above certain levels to be returned to taxpayers. Texans voted to increase the homestead exemption for local property taxes from $40,000 to $100,000. They also voted to create a fund for the development of broadband in the state. They rejected the concept of a wealth tax. The most impactful may be the approval of the creation of an energy fund designed to provide low interest financing for new generation. The down side of the vote is that the proposition was explicitly designed to support new natural gas generation.

TRANSPORTATION OPINIONS

The Mineta Institute founded by the former US Transportation Secretary has recently announced the results of its 14^th annual survey of attitudes towards transit issues. The findings highlight the disconnect between what people think and what lawmakers seem to believe. Findings related to gas taxes include that only 2% of respondents knew that the federal gas tax rate had not been raised in more than 20 years, and 70% of respondents supported increasing the federal gas tax by 10 cents per gallon if the revenue would be dedicated to maintenance or safety.

With respect to mileage fees, around half of respondents supported some form of mileage fee, whether that was assessed on all travel or just on commercial travel. The majority of respondents supported variable rate structure options that included 62% who supported charging low-income drivers a reduced mileage fee rate and 52% who thought electric vehicles should pay a lower rate than gas and diesel vehicles.

From here, the conclusion to draw is that mileage fees can’t come fast enough. Set them by class of vehicle and set it at an amount that most closely parallels the revenue stream from gas taxes. This way registration fees do not have to be set differently depending on the source of power for the vehicle. Currently, fee differentials provide fuel to complaints from EV owners about the higher fees they pay even though they arguably are a net cost to transportation funding relative to gas powered cars.

NUCLEAR HAS A MIXED WEEK

The hopes of those seeking to develop small scale nuclear generation technology took a big hit this week. NuScale Power announced that it was cancelling its development of a six unit modular generation facility in Idaho. The project was being undertaken with the participation of a public power agency – the Utah Associated Municipal Power Systems, which supplies electricity to public power providers in seven Western states.

UAMPS management was enthusiastic about the project but not all of its member utilities were. That put the project in the position of needing additional capacity purchases in order to justify moving ahead with the project. The cost of building the reactors had increased significantly to $9.3 billion from $5.3 billion because of rising interest rates and inflation. This left the project with insufficient commitments to allow financing to move forward.

In Illinois, Governor Pritzker said he will sign a bill into law to lift a 36-year-old moratorium on nuclear construction. He had vetoed a previous bill enacted earlier in the legislative session. This bill limits the nameplate capacity of such reactors to 300 megawatts. The law requires the state to develop regulatory proposals for regulators at the Illinois Emergency Management Agency to approve by January 2026.  

PARKING REQUIREMENTS

A long standing practice for local planning and zoning boards has been to require off-street parking associated with a new development. As climate change grows as an issue, many have pushed for changes in local development regulations to reduce the need for parking at new developments. There is also the idea that remote work will reduce auto use and the need for parking at current scale.

This week, the Austin TX City Council voted to eliminate minimum parking requirements for virtually every kind of property citywide including single-family homes, apartment buildings, offices and shopping malls. Portland, OR, Minneapolis and San Jose are prior adopters of the policy. Austin now becomes the largest population city to take the step. The city will still require properties to comply with federal law and build accessible parking spaces for people living with disabilities.

Now, does Austin take the next step and address overall zoning regulation reform? Like many other places, housing is an issue in the city and there is a push to use zoning to address the issue. There is a push to allow up to three housing units in most places where single-family homes are allowed and reducing the required amount of land those homes have to sit upon.

OLD SCHOOL AIRPORT FINANCE

Normally it would not be an especially big deal to see voters in a municipality approve debt for revenue based assets. So, it was not a particularly noticeable headline to see that cited the approval of bonds for airport projects by voters in Des Moines, IA. What was noticeable was that the bond authorization will not be backed by a direct pledge of airport revenues to secure the bonds.

The voters approved a $350 million general obligation bond issue for the project. Tax backed full faith and credit bonds. The project will modernize and expand the city’s airport. Here’s where it gets interesting. Construction of the terminal is planned to begin in April 2024. A study is projected to start in January, to assure the airport is prepared to pay back the debt. Estimates are that it will take two to three months to complete.

Ultimately, the city will execute a loan agreement with the Des Moines Airport Authority that expects to capture airport revenues. The rationale for doing such an old school financing is based on cost and ownership. The use of general obligation debt is to secure a lower borrowing cost than would be achieved on a stand alone revenue bond. The city also explored but ruled out a P3 attributing that decision to a desire to maintain ownership of other airport assets.

NYC ECONOMY AND THE PANDEMIC

The NYC Independent Budget Office released some interesting data on incomes for the year 2021. The study used tax return data. About 3.9 million full-year New York City residents filed tax returns in 2021, a return to normal from the unusually high 4.1 million number of filers in 2020. Total AGI in 2021 was $457 billion, up from $391 billion in 2020 (or $410 billion, adjusted for inflation), despite the lower total number of filers in 2021.

One data point leaps out as a source of concern. The top 1 percent of filers represented 44 percent of New York City’s AGI in 2021, up from 39 percent in 2020 and 35 percent in 2019. At the other end of the spectrum, total unemployment compensation diminished to $15.4 billion in 2021, from $22.9 billion in 2020, it remained far above 2018 and 2019 levels of $514 million and $545 million, respectively. The concern is that these changes just further cement the issues of inequality which continue to grow in the city.

NYC WARNING

The NYS Comptroller raised concerns about New York City’s finances as it deals with the recovery from the pandemic at the same time it is overwhelmed by asylum seekers. He warned this week that the fiscal year 2024-2025 budget gap for the city could reach as high as $13.8 billion unless Mayor Eric Adams quickly implements cuts to city programs and curbs new spending. The most alarming number was that some 42% of the estimated gap is attributable to the costs associated with the asylum migrants. The city estimates these costs may grow next year to equal what it spends to run the sanitation and parks departments combined.

He also highlighted an issue we have been worried about for some time. They are not all attributable to the Adams administration. The DeBlasio administration started the city down the road of funding recurring expenses with non-recurring revenues. “City-funded spending has increased more than 50% over the past decade while recurring revenues have not kept pace,” according to the Comptroller.

The other major worry concerns school funding. The Department of Education accounts for 36% of citywide expenditures and faces several issues — including low enrollment and the state-enforced class size mandate. Much state aid is tied to attendance. Public school enrollment fell nearly 9.2% between 2019 and this school year, with some projections expecting it to decline further.

The Mayor will be releasing the November update to the City’s long term fiscal plan.

PUERTO RICO SOLAR

We have long advocated for the development of solar power infrastructure in Puerto Rico in the wake of the 2017 hurricanes. Now, the U.S. Department of Energy (DOE) has announced which solar companies and nonprofits had been selected to install rooftop solar and battery storage systems for vulnerable households in Puerto Rico.  

Eligible beneficiaries of the systems to be installed will include 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 include a resident with an energy-dependent disability, such as an electric wheelchair user or individual who uses at-home dialysis machines.

This marks the first round of selections from the 2023 PR-ERF Funding Opportunity Announcement, which was announced in Puerto Rico in July 2023.  The Fiscal Year 2023 Consolidated Appropriations Act included $1 billion to establish the Fund. Three qualified solar companies with an existing workforce in Puerto Rico as well as five qualified nonprofits and cooperatives across the region were selected to negotiate the implementation of the program.

CARBON CAPTURE

The evidentiary hearing for Summit Carbon Solutions’ pipeline permit in Iowa concluded this week. Now the process will involve development of a transcript, a period of time for written comments about the transcript, and a period of time for rebuttal comments. The company had sought an IUB decision by the end of the year. Summit had initially planned to have its pipeline system in operation sometime in 2024.

While it waits for the Iowa process to unfold, North Dakota is in the process of reconsidering the company’s new modified application, but there is no deadline for that process to complete. Summit has indicated it will reapply for a permit to build its pipeline through South Dakota, but it has declined to say when that will happen. Operation has already been pushed back into 2026.

In the meantime, the first commercial plant in the United States to use direct air capture began operations in Tracy, CA. The process takes the carbon dioxide it pulls from the air and have the gas sealed permanently in concrete, where it can’t heat the planet. To earn revenue, the company is selling carbon removal credits to companies paying a premium to offset their own emissions. The project is much smaller than two other projects planned for Texas and Louisiana. Previous attempts at scale have not been successful.

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

In Europe and Canada, the 11^th of November is Remembrance Day. A poppy is a signal of remembrance and a symbol of the individual sacrifices made by those who fought for their countries. Recently, like so many other things, the poppy has been under attack as a symbol of the causes people fought for rather than that individual sacrifice. By remembering their service and their sacrifice, we recognize the tradition of freedom these men and women fought to preserve. They believed that their actions in the present would make a significant difference for the future, but it is up to us to ensure that their dream of peace is realized. On Remembrance Day, we acknowledge the courage and sacrifice of those who served their country and acknowledge our responsibility to work for the peace they fought hard to achieve.

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CLIMATE CHANGE AND DISPATCHABLE POWER

One of the issues that complicates efforts to plan for and deal with climate change is the status of gas-fired generation. Is it – as advocates might claim – that natural gas cannot be part of a clean energy transition plan – or is it a key component of system reliability and availability while the transition to fully green energy unfolds? Is natural gas a useful less polluting component of a carbon-free future or is both its production and combustion dangerous contributors to climate change?

Those issues have complicated recent decisions by public utilities to incorporate natural gas into their energy generation portfolios. The decision earlier this year by the Tennessee Valley Authority (TVA) to replace coal-fired generation with natural gas-fired turbines generated much disappointment among its customer base.

Now a significant joint action agency utility is embarking on its own energy transition journey. Platte River Power Authority is jointly owned by Fort Collins, Loveland, Longmont and Estes Park. It has been operating under a plan to reach its goal of being carbon-free by 2030. PRPA has claimed that it is 88% of the way there in terms of contracted generation assets. Late last week, PRPA approved its plan to cover the last 12%. It rests on three legs – batteries, virtual grids, and a new, $240 million aeroderivative gas turbine facility. 

PRPA set a no-carbon goal in 2018. Today, carbon-free sources make up 33% of PRPA’s portfolio. In 2024, it’s expected to be 35.8%. Currently, coal supplies about 47% of PRPA’s energy portfolio. It maintains ownership in three coal-fired generation units which are scheduled to close between 2025 and 2029.  

In this case, the plan is to replace some of the coal power with power generated through aeroderivative gas turbines.  In the latest effort to convert aircraft turbine technology to use for electric generation, aeroderivative gas turbines are to be used. The technology has been used on existing aircraft gas turbine engines. They are lighter and smaller than industrial gas turbines. Aeroderivative gas turbines are utilized in electrical power generation due to their ability to be shut down and control load changes faster than industrial machines. The dispatchability of the power is what makes the technology attractive.

One way PRPA is going to achieve cutting carbon emissions is through the closure of its coal-fired Rawhide 1 unit in Larimer County by the end of 2029. It’s also part-owner of two coal units in Craig that will close in 2025 and 2028. PRPA also has five older gas turbines at the Rawhide Energy Station. They were purchased in the early 2000s and have an expected life through 2040.

It receives hydropower through contracts with the Loveland Area Project and Colorado River Storage Project, wind power purchase agreements through the Roundhouse Wind Energy Center and Medicine Bow Wind Project and solar power purchase agreements with Rawhide Flats and Rawhide Power solar projects.

NATIVE AMERICAN SPORTS GAMING

In 2021, the State of Florida entered into a compact with the Seminole Tribe of Florida which provided that anyone physically present in Florida could place mobile bets at its casinos so long as the computer servers handling the transactions were on tribal land. The Seminoles sought the arrangement in the wake of the US Supreme Court’s 2018 decision overturning federal restrictions on sports betting.

That decision led to Florida voters approving a referendum that said expansions of legal gambling would require a further referendum. It did provide an exception for “the conduct of casino gambling on tribal lands” when approved under a federal law. The Seminole Tribe then undertook sports gaming operations via mobile phone. Two private casino operators sued and a federal district court judge found in their favor. That decision was reviewed and overturned in the federal appeals court.

The plaintiffs made an emergency application to review their appeal which said the 2021 compact violated federal laws and the equal protection clause of the Constitution. They cited racial and ethnic issues in that application. The two sides are summed up nicely in two comments released as part of the case. Justice Kavanaugh noted that “To the extent that a separate Florida statute (as distinct from the compact) authorizes the Seminole Tribe — and only the Seminole Tribe — to conduct certain off-reservation gaming operations in Florida, the state law raises serious equal protection issues,” he wrote. “But the state law’s constitutionality is not squarely presented in this application.”

The federal government position was that “the compact in this case is an agreement between two sovereigns — the State of Florida and the Seminole Tribe — concerning the tribe’s own conduct of commercial gaming operations within the state. “That agreement between sovereigns does not implicate race-based equal protection concerns. A sovereign government has no race.” It may not matter in the end as the Florida Supreme Court has yet to rule.

As the federal government notes, “If the Florida Supreme Court concludes that the Florida Legislature’s authorization of the placement of wagers outside Indian lands is not permissible under the Florida Constitution, that would afford applicants the relief they seek. That pending case provides the appropriate forum to resolve applicants’ claims based on the meaning of state law.”

WIND

Orsted is a Danish company that is a leading offshore wind farm developer. This week, it said that it would write off as much as $5.6 billion as it gives up on plans to build two wind farms off the coast of New Jersey. The two projects, known as Ocean Wind 1 and 2, were destined to provide green energy to New Jersey.

In the United States early contracts lacked protection from inflation and developers incurred high costs because of delays in approvals during the Trump administration. This week BP said it would write down $540 million on three planned wind projects off New York, after the state authorities declined to renegotiate their terms. 

New York State declined efforts to renegotiate existing offshore wind power contracts, but a subsequent auction awarded deals to supply power at significantly higher prices and with various provisions to protect the developers from inflation. While it’s clear that offshore wind will have a major part to play in the move to clean energy, it is also clear that wind will not be as cheap as it’s advocates hoped.

NOT WHERE YOU WANT TO BE

Earlier in October, the U.S. EPA released an annual survey which shows the level of green house gases in the atmosphere as well as identifying the largest sources of those emissions. The data represents emissions from 7,586 industrial facilities across nearly all sectors of the economy and represents about half of all U.S. emissions.

The power production sector has been right in the lead in terms of public pressure to turn from coal and oil to other fuel sources. Within the power and oil production sectors, the top ten list of leading emitters includes nine utilities and one refinery. Only one generation plant owned by municipal market issuers made the list.

The Laramie River Station has three coal-based units: Unit 1 began operating in 1980; Unit 2 began operating in 1981; Unit 3 began operating in 1982. Laramie River is unique because it delivers electricity to two separate electrical grids. Unit 1 is connected to the Eastern Interconnection, while Unit 2 and Unit 3 are connected to the Western Interconnection. 

The electricity produced at Laramie River is delivered to Missouri Basin Power Project (MBPP) participants: Basin Electric, Tri-State Generation and Transmission Association, The Lincoln NE Electric System, and the Western Minnesota Municipal Power Agency/Missouri River Energy Services. These are the only municipal utility credits to find themselves in this dubious top ten.

TNC SETTLEMENT IN NEW YORK

Uber and Lyft have agreed to pay their New York drivers $328 million to settle a wage-theft complaint charging that the companies collected certain taxes and fees from drivers rather than passengers. The action was brought by the New York State Attorney General. Uber will pay $290 million and Lyft will provide $38 million into two funds that will pay out claims from roughly 100,000 current and former drivers in New York State who are eligible to file. 

From 2014 to 2017, Uber was accused of deducting sales taxes and fees from drivers’ payments when they should have been paid by passengers. From 2015 to 2017, Lyft similarly deducted an 11.4 percent “administrative charge” from drivers’ payments in New York equal to the amount of sales tax and fees that should have been paid by riders, the attorney general’s office said. Uber and Lyft also failed to provide drivers with paid sick leave.

Drivers in New York State and New York City are classified as independent contractors. This agreement between the state and the ride-share companies did not make any changes in the drivers’ classification as workers under state. The settlement comes as the MTA moves forward in its quest to collect congestion fees. One of the issues under consideration is the level and frequency of charges for TNC vehicles and who actually pays them – driver or passenger.

CONGESTION LITIGATION

The mayor of Fort Lee, N.J., announced the second lawsuit from New Jersey lawsuit challenging congestion pricing as an environmental threat. The lawsuit is a potential class-action proceeding on behalf of residents who have asthma as plaintiffs. It asserts that congestion pricing would increase pollutants like nitrogen oxides and carbon monoxide in Fort Lee.

The lawsuit is a reaction to complaints from the chair of the MTA that the existing lawsuit from the State of New Jersy threatened the ability of the MTA to finance its capital needs. The suit seeks a “full and proper environmental study” and a monitoring program for people with respiratory problems resulting from additional traffic. It references agreed to aid to sections of the Bronx expected to experience extra truck traffic to avoid the fees.

The Mayor is upfront about the ultimate goal of the suit. It is to stop the fees. No surprise there.

TRANSMISSION SPARK

The Transmission Facilitation Program is an initiative at the U.S. Department of Energy.  The program is the administrative framework for a $2.5 billion revolving fund to help overcome the financial hurdles associated with building new, large-scale transmission lines, upgrading existing transmission lines, and connecting microgrids in Hawaii, Alaska, and U.S. territories.

Under the program, DOE is authorized to borrow up to $2.5 billion to purchase a percentage of the total proposed capacity of the eligible transmission line. By offering capacity contracts, DOE aims to increase the confidence of additional investors and encourage additional customers to purchase transmission line capacity. The goal is to reduce the overall risk for project developers. 

DOE announced that it is entering into capacity contract negotiations with three interregional transmission line projects: the Cross-Tie 500kV Transmission Line a proposed 214-mile,1500 MW transmission line connecting existing transmission systems in Utah and Nevada to increase transmission capacity, improve grid reliability and resilience, relieve congestion on other key transmission lines; the Southline Transmission Project (Arizona, New Mexico) a proposed 175-mile, 748 MW transmission line from Hidalgo County, New Mexico to Pima County, Arizona.

The Twin States Clean Energy Link (New Hampshire, Vermont) a proposed 1,200 MW high-voltage direct current (HVDC) bidirectional line that will expand the capacity of the New England electric grid and improve its resiliency, reliability, and efficiency by providing access to clean firm energy supplies in Quebec, Canada. One aspect unique to this project is the bidirectional design of the line. That will also allow the New England grid to export power to Canada when New England is producing more energy than it needs to meet its own demand, which is expected to occur as the offshore wind industry in New England expands.  

NATIVE AMERICAN WATER

Earlier this year we reported on a SCOTUS decision which did not affirm the rights of the Navajo Nation to require federal funding for infrastructure to support withdrawals of water from the Colorado River allocated to the tribe under treaty. While direct access to the Colorado remains out of reach, other programs are developing other sources of water for the Tribe and infrastructure to access it.

The Navajo-Gallup Water Supply Project is designed to provide a long-term sustainable water supply to meet the future (40-year) population needs of approximately 250,000 people in these communities through the annual delivery of 37,764 acre-feet of water from the San Juan Basin. These areas currently rely on a rapidly depleting groundwater supply that is of poor quality and inadequate to meet the current and future demands of more than 43 Navajo chapters, the city of Gallup, and the Teepee Junction area of the Jicarilla Apache Nation.

Ground water levels for the city of Gallup have dropped approximately 200 feet over the past 10 years and over 40 percent of Navajo Nation households rely on hauling water to meet their daily needs. This week an appropriation under last year’s infrastructure legislation was announced to support the project. The project will receive $164 million this year from the Infrastructure Law and the Reclamation Water Settlements Fund. Another $2 million will be directed to Navajo-Gallup Water supply operations, maintenance and replacement efforts.

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