Joseph Krist

Publisher

PUERTO RICO

Puerto Rico Governor González, a Trump supporter, recently filed a bill to scrap a law calling for renewable energy to meet 40% of the U.S. territory’s needs by 2025 and 60% by 2040. Puerto Rico’s newly appointed “energy czar,” recently said that burning coal for energy should continue through 2035 even though public policy dictates that the island stop burning coal in 2028. The project submitted by the governor upholds a 2050 goal that renewable energy meet 100% of Puerto Rico power needs, but eliminates other goals intended to keep progressing in the effort to reduce reliance on fossil fuels.

The new administration has been sending a variety of mixed signals about the preferred future course for the Puerto Rico Electric Authority (PREPA). There is this legislation and the recent comments from the director of PREPA in support of fossil fueled generation. She recently told El Nuevo Día newspaper that she believes a new fossil fuel-based plant in the island’s southern region is needed in addition to a natural gas plant being built in Puerto Rico’s capital that is expected to start operating in 2028.

At the same time, the governor announced a $767 million contract with Tesla funded by the U.S. government to buy 430 megawatts in energy storage systems.  These could potentially help stabilize Puerto Rico’s power grid. The project was initiated under previous administrations in the U.S. and Puerto Rico.

TRUMP REALITY – TRANSPORTATION

It does not take long for rhetoric to become policy (of a sort) in the world of Trump. We are already seeing specific examples of the small but pervasive ways executive orders suspending funds are impacting state and local government.

Louisiana transportation officials shared a public notice announcing the suspension of a program that would have built and maintained charging facilities for electronic vehicles at locations around the state. The Louisiana Department of Transportation and Development last fall announced it would take applications for its $73.4 million share of the National Electric Vehicle Infrastructure Program. It had planned to build 10 publicly accessible charging facilities.

The North Carolina Department of Transportation expected to receive up to $109 million to build electric vehicle infrastructure along its corridors. The federal government will reimburse states with projects already underway. That means the North Carolina DOT can still move forward with $5.9 million worth of construction of nine stations. From fiscal years 2022-26, Virginia was projected to receive $106,376,132 in EV charging station funding Trump has temporarily suspended. 

TRUMP REALITY – UNIVERSITIES AND RESEARCH

The truly unexpected move was the Trump administration’s plan to cap agreed-upon payments that universities and health systems receive to support research. The plan applied to $9 billion of the $35 billion in grants issued to research institutions. The 10 institutions that receive the most money from N.I.H. stand to lose more than $100 million per year on average. The Trump administration said it wanted to cut such funds roughly in half, by about $4 billion.

A federal judge issued a temporary restraining order against the cuts but that does not mean that the cash will be flowing. In a legal memo related to the lawsuit, universities argued that the funds were indispensable in research, including at facilities where lab animals undergo clinical testing, for the computer systems that analyze large amounts of data, for blood banks and other expenses that cannot be directly tied to a single project.

Many of the institutions which would be impacted have some outstanding municipal bond debt. The reduction in funding should it survive would represent a real reversal of historical experience.  An attempt to do this in the first Trump administration led to legislation intended to prevent it. The money which would be cut is out of a mutually agreed to amount under legislation enacted by Congress. In the lawsuit, the association of universities argued that the current proposal violated the will of Congress and also defied standard administrative procedures.

The hospitals likely to feel the most impact include 5 of the top 10 hospital recipients in Boston alone. The proposed cuts would total $285 million of grants which would come right out of the economy. University based health research entities would face the same treatment. In New York City alone, some $500 million of funding is at risk among those entities.

TRUMP REALITIES – BONNEVILLE POWER ADMINISTRATION

The federal agency which runs the northwestern hydroelectric grid and backstops debt issued in the municipal market on its behalf is another casualty of the meat-ax approach to efficiency. About 200 of the agency’s more than 3,000 employees have accepted the Trump administration’s offer to resign and receive eight months of severance pay. An additional 90 job offers at BPA were rescinded as a result of the administration’s freeze on federal hiring. Chief financial officer is among the open positions held up by the hiring freeze. Current and former BPA staff anticipate another 350 to 400 probationary employees could be cut.

The employees taking the buyout include linemen, engineers, substation operators and power dispatchers. That’s the problem with plans like this. You can’t be sure of exactly who and what skills and experience are walking out the door. BPA won’t confirm how many transmission-related employees were leaving the agency, or whether ongoing transmission upgrades would be slowed because of the loss of staff. 

The real irony? BPA is essentially self-funding so any ‘savings” would not accrue to federal taxpayers as revenues from electricity sales fund the agency.

CALIFORNIA INSURANCE

California’s FAIR Plan, the home insurance plan of last resort, does not have enough money to pay claims from the Los Angeles wildfires and is getting an infusion of cash from regular insurers. State regulators said that they will allow the program to collect $1 billion from private insurance companies doing business in California to pay its claims. Those assessments can then be added to the private insurer’s rate bases. State regulations allow insurers to pass along as much as half the cost of the assessment to customers, in the former of higher charges. Insurers must absorb the other half.

The fee will be divided among insurers based on their market share, as required by state law. The $1 billion assessment is the largest since the FAIR Plan was created in 1968, and the first time since the 1994 Northridge earthquake near Los Angeles that the FAIR Plan has faced claims in excess of its resources to pay them. Leaving California would not relieve insurers of their share of the assessment for the FAIR Plan. 

As of Feb. 4, the plan had received more than 3,400 claims from the Palisades fire, and more than 1,300 claims from the Eaton fire. About 45 percent of those claims were for “total losses”. That is because between 2020 and 2024, the number of homes with policies under the FAIR Plan more than doubled to almost half a million properties with a value of about half a trillion dollars. 

Some of the reliance on this assessment scheme reflects the fact that unlike Florida, the FAIR Plan does not have the ability to borrow money through bonds or a line of credit. That would relieve the immediate pressure on assessment collections. The real risk in the current situation is that assessments might drive insurers away from issuing new policies.

VOUCHERS AND SCHOOLS

Voucher systems have long been touted by advocates as a way for lower income families to have the same choices as other families have when deciding where their kids will go to school. These systems often included income limitations so that the program better meets its target population. In recent years, parents have clamored for making vouchers available to all families regardless of income. In those instances where programs do not have income restrictions, the benefits of those programs may not be reaching the intended audience.

Florida’s education voucher system is the nation’s largest. Voucher use has risen by 67% since lawmakers eliminated income eligibility requirements in 2023. The percentage of private school students using vouchers has increased to about 70%, up from about a third a decade ago. One-quarter of state scholarships or vouchers are now going to families in the top income tier. Many are applying the funds to private (including religious) schools. The program is shifting public money, estimated at $3.4 billion this year, into private, mostly religious schools.

More than 122,000 new students started using vouchers for the first time in the 2023-24 school year, and nearly 70 percent were already in private school. Schools that families were already paying for. Campuses that advertise annual tuition of $15,000 or more added more than 30,000 voucher students last year. More Florida students use vouchers — a total of 352,860 — to attend private campuses than are enrolled in public schools in Osceola, Orange and Seminole counties combined.

When the program started, only families whose children were enrolled in public schools could apply for the scholarships. A decade ago, the state deleted that requirement, allowing parents whose children had never been in public school to seek a voucher.

EMINENT DOMAIN

The Maryland Piedmont Reliability Project (MPRP) is a proposal from Public Service Enterprise Group (PSEG) to construct a 500,000-volt transmission line across roughly 70 miles in Frederick, Carroll and Baltimore counties. On Dec. 31, 2024, PSEG applied to the state’s Public Service Commission for a Certificate of Public Convenience and Necessity to construct the MPRP. Only after obtaining the certificate would PSEG be considered a public utility that can acquire rights of way through eminent domain.

State lawmakers from impacted districts are pursuing bills to change eminent domain proceedings, transmission planning processes and state approval criteria for utility projects in the event the MPRP proceeds. SB657 would require defendants in eminent domain proceedings to be reimbursed for legal fees and other costs associated with defending against the taking of their land, regardless of if they prevail. SB661 would establish that the “fair market value” of agricultural land for eminent domain proceedings is 350% of the property’s highest appraised value.

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

TIN CUP DAY

It is an annual ritual in New York where each winter the State proposes its budget and the Mayor of New York asks for more money. It always leads to an interesting back and forth between the Mayor and the Legislature. This year is no exception and the topic at the center of the debate is funding for migrants. It comes after a year in which the migrant problem was foisted upon jurisdictions around but not adjacent to New York City. That effort generated a lot of hostility towards the City which has long had a frought relationship with the rest of the State.

Now those differences are manifesting themselves in the budget process. The Governor’s proposed budget includes no increase in state support for the City’s efforts to manage its massive population of recent migrants. Last year, Gov Hochul and the legislature agreed to bring the state’s share of funding toward the migrant crisis to $4.3 billion. The State has been covering one-third third of the costs to house migrants, as well as working to help ensure they receive vaccines and health services.

Now, the Mayor is seeking an additional $1 billion from the state. And he wants it by May of this year. The Adams Administration released the City’s January 2025 Financial Plan on January 16, 2025. Here is where the Mayor runs into a problem. Outside analyses have shown that the Mayor historically over budgets for many costs. One of those areas is spending on the migrant problem. After the Mayor released the January plan, the NYC Independent Budget Office (IBO) released its analysis which highlights the problem.

The City regularly budgets funding to cover the cost of staffing at full capacity. In reality, the City recorded a low of 280,000 employees in April 2023. Since then, citywide headcount has increased to around 286,000 staff as of the November 2024 Financial Plan. Budgeted headcount, however, remains set at around 301,000 for the current year. Here, IBO highlights one of the Mayor’s go to solutions for managing the budget – funding that is budgeted but ultimately unspent. The City recorded a low of 280,000 employees in April 2023. Since then, citywide headcount has rebounded to around 286,000 staff as of the November 2024 Financial Plan. Budgeted headcount, however, remains set at around 301,000 for the current year.

Why does it matter? When you go to the Legislature with your tin cup it shouldn’t have money in it when you make the request. IBO notes that estimated that the net savings on employee salaries and related healthcare costs stemming from such over-budgeted headcounts total at least $600 million for 2025. That is half of what the Mayor says he has to have by May of this year.

INSURANCE AFTER THE FIRE

State Farm General, which had about a 20% share of the homeowners insurance market in 2023, insures about 1 million homeowners in the state and has 1.8 million other policies in force. The company, California’s largest home insurer, asked state officials for an emergency rate hike averaging 22% in the aftermath of the Los Angeles fires. The company has already received at least 8,700 claims and paid more than $1 billion to customers. 

The company is also asking for rate hikes of 38% for rental dwellings and 15% for tenants, with the rates taking effect May 1. The California insurer said it has lost $2.8 billion over the nine-year period ending last year, including gains from investment income. In June, the company filed for a 30% rate increase for its homeowners polices, a 36% increase for condo owners and a 52% increase for renters. That rate hike request is still pending. 

The company previously received a 6.9% increase of its homeowner rates in January 2023 and a 20% hike that went into effect in March of last year. The Department of Insurance said that any rate hike would be approved only if it is justified under Proposition 103, the 1988 ballot measure that gave the commissioner the authority to review, adjust and reject proposed rate hikes.

In March 2024, State Farm General announced it would not be renewing some 72,000 home, apartment and other property policies in California, citing soaring reconstruction costs, increasing wildfire risks and outdated state regulations.

That followed its May 20023 decision to stop writing new business, homeowners, and other personal property and casualty insurance in the state, with the exception of personal auto insurance.

State Farm modified its decision and said it would offer renewals to any policyholder affected by the Palisades, Eaton and other county fires whose policies had not lapsed before the fires’ start on Jan. 7. The insurer estimated that it would apply to roughly 70%, or 1,100, of the 1,626 residential policies it had in Pacific Palisades’ primary ZIP Code when it announced the nonrenewals last year.

It later expanded the renewal offer to any Los Angeles County policyholder on those same terms. The company said it had about 250,000 residential policyholders in the county.

WE AREN’T GONNA DO THE WIND THING

Maybe they’ll carve that under the face of Trump on Mount Rushmore but the President has done nearly all he can to stop the wind generation industry. The President signed an executive order which paused the approval of leases, permits, and loans for both offshore and onshore wind energy pending a federal review. It also temporarily withdrew new offshore wind lease sales and called for a review of the ​“ecological, economic, and environmental necessity of terminating or amending existing wind energy leases.”

Wind Energy was the source of about 10% of total U.S. utility-scale electricity generation and accounted for 48% of the electricity generation from renewable sources in 2023. There are seven offshore wind projects whose permitting was underway and several more in earlier stages that will now be temporarily halted by the order. nine commercial-scale offshore wind projects that already have federal permits in hand. Five are actively under construction from Maryland to Massachusetts. In total, the capacity of the fully permitted offshore wind plans left untouched by Trump’s order is 13,973 megawatts.

The order certainly disrupted the outlook for wind projects in the Atlantic. There is growing doubt about the continued expansion of wind capacity in New York which had made a big commitment to wind. New Jersey was more explicit about its disjointed market and the impact of the order. Already plagued by the departure of the Danish company – Orsted – scheduled to develop significant capacity off the Jersey shore, now at least two other projects are in permit limbo. Ørsted is the named lessee or parent company for eight commercial-scale wind projects in various stages of development along the East Coast. 

In Virginia on the other hand, Dominion Energy reiterated its support for its wind turbine project off the Atlantic Coast. Dominion said the total cost estimate of its 2.6-gigawatt Virginia Beach wind farm had increased from $9.8 billion to $10.7 billion. Dominion said the project is still on time to be completed at the end of 2026, with about 50% of construction finished.

CHICAGO PUBLIC SCHOOLS

The Chicago Teachers Union rejected a neutral fact-finder’s recommendations for a new, four-year contract. The recommendations only addressed two of the 15 issues the union submitted last month to the fact-finder. The union comes away from this step in the process with a win. According to the CTU, the fact-finder found that in his view the district has the revenue to boost salaries and staffing as the union proposed.

The engagement of a “fact-finder” is a required step before the union can declare a strike. The union’s demands include raising salaries by 5% during the first two years of the contract and hire hundreds of new teaching assistants and librarians. CTU has suggested using CPS’ general fund balance or reserve funds. In its fiscal year (FY) 2024 financial audit, the District listed a fund balance of approximately $1.3 billion on June 30, 2024. 

FUNDING ROADS

Nine states are considering legislation which would address the issue of declining gasoline sales and related tax receipts. An Illinois House bill would freeze the state’s fuel tax rates. Currently, a cost-of-living adjustment is made to fuel each July under the terms of a 2019 state law that established annual increases in fuel taxes. That legislation plan raised the then-19-cent gas tax and 21.5-cent diesel tax to 38 cents and 45.4 cents respectively. Starting Jan. 1, the gas rate is up to 47 cents, and the diesel rate is up to 54.5 cents.

One Indiana Senate bill calls for ending regular changes in the state’s fuel tax rate tied to a state law that requires annual rate adjustments through 2027. Adjustments made each July 1 are capped at one penny. In Minnesota, a 2023 state law indexed to inflation the gas and diesel excise tax rates. The rule allows for annual rate changes. A House bill would halt indexing fuel taxes. In Mississippi, a bill would add a 5% sales tax to gas and diesel purchases. The fuel sales tax would add $400 million to the state budget.

Missouri is considering multiple bills on the subject of road funding. A 2021 state law authorized an increase to the then-17-cent fuel tax over multiple years. Since then, the excise tax on gas and diesel purchases has been raised four times in 2.5-cent increments to 27 cents. The final 2.5-cent increase is scheduled to take effect July 1, raising the fuel tax rate to 29.5 cents. One Senate bill would repeal the fuel tax increases and return the rate for gas and diesel to 17 cents. SB494 also would eliminate the upcoming 2.5-cent rate increase.

New York is considering S2093 which would suspend collection of the excise tax and state sales tax when fuel prices reach $2.25 per gallon. The petroleum business tax would also be eliminated once prices reach $3 per gallon. Additionally, the bill would authorize New York City and counties throughout the state to adopt local laws limiting tax on gas and diesel.

In Oregon, since 2009, state law has required cities to get voter approval to raise local fuel taxes. SB687 would allow cities and counties to raise local fuel taxes without asking voters. Another bill provision would permit every Oregon county to implement or increase vehicle registration fees without a vote.

Currently, Rhode Island makes an adjustment to the fuel tax every two years on July 1. The adjustment is based only on the inflation that occurred in the previous year. S47 would change the rule to make the adjustment every two years based on the inflation that occurred in the previous two years. In Texas, One House bill calls for indexing the excise tax to the highway cost index. HB326 would authorize the rate to increase or decrease each Jan. 1 based on the cost of certain highway projects.

CARBON CAPTURE

Six bills to regulate the Iowa Utilities Commission and place new limits on carbon capture pipelines and eminent domain are under consideration in the Iowa House. Previous efforts to restrict eminent domain have passed the House, but failed to advance in the Iowa Senate. The six bills would allow landowners subject to eminent domain for a project being considered by the IUC to seek declaratory review from the Polk County District Court and require hazardous liquid pipeline applicants to submit to IUC proof that the pipeline company has an insurance policy that would cover all damages that may result from the construction or operation of the pipeline, and require a pipeline company to cover a landowner’s insurance premium increases due to the construction or presence of a pipeline.

The bills would also prohibit the IUC from renewing permits for carbon dioxide pipelines and prohibit such pipelines from operating for more than 25 years; prohibit the IUC from sanctioning a party to a lawsuit; require all IUC members to be present for hearings related to pipelines, transmission lines, or public utility regulation and remove the state consumer advocate’s office from underneath the Iowa Attorney General and makes it an independent office with a leader appointed by the governor.

NUCLEAR

Arizona’s three major utility companies—Arizona Public Service (APS), Salt River Project (SRP), and Tucson Electric Power (TEP)—have announced plans to explore the possibility of incorporating nuclear energy into the state’s power grid. The utilities are considering two types of nuclear technologies: Small Modular Reactors (SMRs) and potential larger reactor projects. 

The utilities have applied for a grant from the U.S. Department of Energy (DOE) to fund a preliminary exploration of potential nuclear sites. The fate of such a request is unclear. The hope is that it would support a three year study. The three utilities already have nuclear in their generation fleet, Palo Verde Generating Station, located west of Phoenix, generates 1,400 MW per unit.

The Texas A&M University System announced it had offered land near the campus to four nuclear companies for the development of small modular reactors. Santee Cooper in South Carolina is trying to sell its interest in the Sumner nuclear plant which was cancelled. The hope is that facilities like data centers would be interested in developing nuclear for their own needs.

PULLING THE PLUG

Freyr Battery officials informed the Coweta County Development Authority late last month that the company will not move forward with its planned $2.6 billion factory in Newnan, roughly 40 miles southwest of downtown Atlanta. The battery manufacturing plant was first announced in Nov. 2022 and was slated to bring approximately 723 jobs into the area. The company cited rising interest rates, higher costs due to inflation and new management at the company.

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.