Joseph Krist

Publisher

CONGESTION PRICING IN CALIFORNIA

The process of implementing congestion pricing in Manhattan meanders along. The ostensible reason for the fees is to reduce congestion and pollution. In New York, the case is being made that the fees are simply a moneymaker for agencies like the MTA. Now, that debate is spreading across the country. Given how contentious the debate is in a mass transit centric city like New York, there is no reason to expect that imposing congestion fees anywhere else will be less contentious.

Now, the Los Angeles Metropolitan Transportation Authority is undertaking the consideration of congestion fees for the use of portions of the existing freeway system in Los Angeles. Here is where the issue becomes a bit less straightforward. The agency has tried to be coy about where it would like to charge and how much. It has let slip that is projects $2.5 million of daily revenue from its plans.

The agency is said to be looking at several options including charging for use of portions of the freeway system within not just downtown but also leading from the Valley to the City. This is going to force the MTA into more perilous waters as it tries to achieve equity goals through the program. MTA has disclosed the pilot program aims to address equity concerns with subsidies for low-income drivers and carpoolers.

Complicating the issue is the fact that the congestion fee has been tied to the need to fund expansion projects in connection with hosting the 2028 Olympic Games in Los Angeles. That will not help the sales pitch as it will look like a revenue grab rather than a service enhancement.

MORE HOSPITAL CONSOLIDATION

The long-standing trend of consolidation in the healthcare industry continues. The latest example comes from Missouri where providers in St. Louis and Kansas City have announced a proposed merger.   BJC HealthCare and Saint Luke’s Health System announced the signing of a letter of intent to create a statewide integrated system. BJC had $6.3 billion of revenues in 2022 and St. Luke’s had $2.4 billion last year. There are many details to be worked out and there has been no definitive statement as to how the debt of the two systems will be addressed. It was made clear that the structure will call for the institutions to operate primarily within their existing service areas.

The new system would maintain each of the existing brands and operate from dual headquarters: one in St. Louis serving eastern Missouri and southern Illinois, and one in Kansas City serving western Missouri and portions of Kansas. Given the lack of detail as to the new debt structures it is unclear what the ratings impact will be. BJC is an AA rated issuer while St. Luke’s is an A+ issuer.

COLLEGE DOWNGRADE

Moody’s has revised Portland State University’s (OR) outlook to negative from stable and affirmed its A1 issuer rating. The move comes after ongoing FTE enrollment declines, falling more than 20% over the past six years, with expectations of continued declines over the next four years. The declines reflect a mix of the reduction in the pipeline from community colleges in recent years, fierce competition in the Oregon market and limited pricing power. 

The university will need to adjust its budget to reflect lower tuition revenues. Given its target market, the capacity of its students to absorb significant price increases is diminished. This will increase its already strong reliance on the state for support. The state also issues debt for the University as general obligations of the state. The university nonetheless retains the responsibility to generate the revenues necessary to repay it.

NET METERING

North Carolina’s rooftop solar payment rules have been in place since 2000. In line with so many other investor-owned utilities’ actions, those rates have been challenged. In this case, Duke Energy is claiming that the current system is unfair to non-solar customers because those payments are too high and amount to a subsidy for solar owners. This parrots the arguments made by generation for years.

In March, the North Carolina Utilities Commission issued new rules for net metering designed to reduce payments to those customers from Duke. Duke Energy has argued that the current system is unfair to non-solar customers because those payments are too high and amount to a subsidy for solar owners. That has become a go to argument for opponents of residential solar. The new system adopts Duke Energy’s plan to reduce what solar owners get paid and to add a new $10 monthly fee for residential customers who install solar panels. 

Credits for excess electricity would vary according to the time of day. It also adds a “grid access fee” for solar systems larger than 15 kilowatts. The new rules do not apply to rooftop solar owners who install systems before Sept. 30. They will be able to keep the current rates and rules until the end of 2026.

In New Hampshire, Gov. Chris Sununu vetoed Senate Bill 79 which would have allowed industrial-scale businesses to install renewable net metering generators of up to five megawatts annually. He was able to legitimately cite an error in the bill which eliminated the current one-megawatt cap in place for all customer generators, residents included. During his time as governor, Sununu has vetoed bills to increase the cap to five megawatts three times, in 2018, 2019, and 2020.

There is an active adjudicative proceeding in front of the Public Utilities Commission that is considering changes to the current net metering tariff structure. The State Department of Energy commissioned a study estimating that under current projections through 2035, distributed energy – mostly from rooftop solar panels – will raise the average bill of other customers in New Hampshire by about 1 percent, but will bring system-wide financial benefits. 

It is expected that a corrected bill will be offered in the next legislative session.

GAS BAN APPEAL

Berkeley, CA has asked the federal Ninth Circuit Court to grant what is known as an “end banc” hearing on its appeal of a decision which would have prohibited the city from enforcing its 2019 ban on new natural stoves and heating equipment. If a majority of active Ninth Circuit judges vote to review the case, the Chief Judge and 10 other randomly selected judges will take up the case en banc and issue a new opinion. The original opinion was rendered by a three-judge panel.

The litigation was brought by the California Restaurant Association which unsurprisingly takes the view that it cannot cook without natural gas stoves. No existing restaurant would have to stop using gas appliances. They just cannot install them in new buildings. The stakes for the city involve its rights to regulate within its own boundaries. Berkeley takes the position that it would be unable to enforce a variety of regulations the decision stands.

The original decision found that the 1975 Energy Policy and Conservation Act restricts local governments from controlling the energy use of equipment.

PREPA

The latest negative turn in the long running saga otherwise known as post-default Puerto Rico Electric Authority (PREPA) involves the source of over 20% of its power. Twenty two years ago, PREPA was an essentially 100% oil fueled generating base. That is what made the plan to develop non-oil fueled generation make so much sense. So, AES- Puerto Rico was established to develop, construct and operate a large base load generation facility to supply PREPA.

Part of the financing of the plant included an issue of tax-exempt bonds. Last week, AES-PR announced that it was unable to meet a June 1 debt service payment on that bond issue. AES Puerto Rico, L.P. entered into a temporary Standstill & Forbearance Agreement with the trustee of the 2000 Series A Cogeneration Facility Revenue Bonds and certain bondholders to address the event of default arising from non-payment of interest and principal due June 1, 2023. This enables PREPA to continue to receive power from the plant while the default is worked out.

The Project has experienced changes in law and other unexpected conditions that materially increase the Cash Operating Costs and materially decreased the Project Revenues. Specifically, reports indicate that AES points to regulations enacted by the Commonwealth dealing with the disposal of coal ash as a primary source of increasing costs above what the Power Purchase Agreement allows AES to charge for.

WEST COAST PORTS

In spite of declined utilization and more competitive East Coast ports, the negotiations between the port operators and the International Longshore and Warehouse Union drag on. The end of June will mark one year from the expiration date of the existing contracts. From time to time there have been short term interruptions at various ports at various times. That makes the shutdowns in recent days more ominous.

The shipper’s Pacific Maritime Assn. reported labor interruptions all along the coast. Ports impacted by slowdowns included Los Angeles, Long Beach, Oakland, Seattle and Tacoma, Wash. The actions reflected more coordination than has been the case up to now. Oakland said cargo operations had halted because there were not enough dockworkers to handle containers.

It is all about money now as the usually important issue of automation was settled in April. Labor uncertainty has become a drag on the revenues at the impacted ports as the cost of the longer travel times from Asia to the East Coast is offset by the uncertainty of port availability. It is a long-term credit drag on the port credits impacted. The looming back-to-school and Christmas (yes, Christmas) shipping seasons are leading the National Retail Federation and National Association of Manufacturers National Association of Manufacturers to call for the White House to mediate the dispute.

MUNICIPAL POWER AND NUCLEAR

Clark Co. Washington’s Public Utility District has been considering the feasibility of participating in the development of small nuclear generation. After a couple of delays, the County has authorized the District contribute some $200,000 to fund a share of a feasibility study to be under taken by Entergy Northwest. Entergy Northwest already supplies Clark Co. PUD with power from its existing nuclear facility.

Contributing to the study means the utility will not only receive information obtained through the study but will also get priority status for the facility’s future power sales agreements. The decision to participate follows a winter season which saw a new level of peak demand. The long shadow of the region’s experience with nuclear in the 1970’s and 1980’s looms over the nuclear proposal. The study will have to address the financial issues which result from that experience.

In Georgia, Georgia Power announced that the #3 reactor at Plant Vogtle had reached its maximum energy output for the first time. It is a significant if long overdue milestone. If all continues on track, GP predicts that Unit 3 will be fully operational in late this month. The second new reactor #4 is projected to be running within the first several months of next year.

According to GP, the latest estimates of total capital expenses (for which GP might seek rate hikes) is expected to reach $10.2 billion, which is $3 billion more than commissioners in 2017 considered reasonable. If the June date for Unit 3 is achieved, it will mark 14 years and $35 billion from approval to commercial operation.

Georgia Power owns 46% of Vogtle, followed by Oglethorpe Power Corp. with 30% and the Municipal Electric Authority of Georgia (MEAG) with about 20%. Dalton Electric will own less than 2% of the nuclear expansion. MEAG has offloaded a portion of its share through a power purchase agreement with the Jacksonville, FL Electric Authority.

In California, the State Lands Commission approved extending Diablo Canyon’s mean high-tide line lease off San Luis Obispo County through October 2030. It is just one of many steps which needed to be completed as part of the approval process to enable restart of the plant. The current licenses for its two nuclear reactors terminate in 2024 and 2025. Without the completion of a series of approvals, the Nuclear Regulatory Commission would not be able to approve the plan.

AV REALITIES

The move to autonomous vehicles continues its erratic path forward, sort of. Initially, the AV technology spotlight was on Tesla’s technology and some high profile incidents involving it. Those issues remain but it has been some time since a high profile incident. In the meantime, driverless technology companies like Cruise and Waymo have been testing the technology on the streets of San Francisco’s Bay Area and developing data.

So far, the data does not seem favorable. In June 2022, the California Public Utilities Commission authorized Cruise to deploy 30 autonomous vehicles — or AVs — for passenger use throughout designated regions of San Francisco, and said the company could charge for those rides. Five months later, the CPUC authorized Waymo to put its AVs on Bay Area streets as part of the state’s driverless pilot program. The companies are seeking extensions as well as approvals for some 100 more vehicles to operate.

This has opened opportunities for examination of the data and public reaction. It has been strong as the vehicles have a very mixed operating history. It is not that people are being injured. It’s that the technology in the cars has difficulty dealing with what must realistically be considered everyday traffic situations. Construction is a major problem cited along with the cars’ inability to deal with double-parked cars. These situations lead to the cars effectively stalling out in place often in intersections.

These tests continue to show both the promise and the shortcomings of the current state of the art in the AV industry. The vehicles are still tested in primarily favorable climates (no winter weather). Even with that, the San Francisco Metropolitan Transit Authority has indicated to state regulators that “Waymo driverless AVs have committed numerous violations that would preclude any teenager from getting a California Driver’s License”.

The SFMTA wrote a January letter to the CPUC that there were 92 reported incidents involving Cruise vehicles from May 29, 2022, through Dec. 31, 2022. 88% of them took place on corridors where Muni lines, buses and street cars operate each day.  The Authority may have summed the up where the industry is in terms of getting its technology accepted. “If they want us to believe things are getting better, they should give us data to demonstrate that, because that is not what we are seeing from calls to 911 and reports from SF Fire Department and Muni personnel.” 

MEDICAID RIGHT TO SUE

In 2016, when Gorgi Talevski’s dementia progressed to the point that his family members could no longer care for him, they placed him in petitioner Valparaiso Care and Rehabilitation’s (VCR) nursing home. Less than a year later, Mr. Talevski’s daughter suspected, and then confirmed with outside physicians, that VCR was chemically restraining Mr. Talevski with six powerful psychotropic medications. Suffice to say that ending the drugs led to improvement for the patient. That apparently did not make the facility happy.

The case includes forced visits to psychiatric hospitals and eventually a refusal to readmit the patient. The facility wanted the man committed to a psychiatric hospital. An administrative law judge nullified VCR’s attempted transfer of Mr. Talevski. Nonetheless, they did transfer him. Ultimately, he stayed at the new facility but it was located such that visitation was a burden. So, the family sued the county owned nursing home (VCR) and that then included the state through its Medicaid funding.

The family asserted that HHC’s treatment violated rights guaranteed him under the Federal Nursing Home Reform Act (FNHRA). The case was dismissed in federal District Court on the issue of standing. The District Court reasoned that no individual plaintiff can enforce provisions of the FNHRA.

On appeal, the Seventh Circuit reversed, concluding that the rights referred to in two FNHRA provisions specifically invoked in this case—the right to be free from unnecessary chemical restraints, and rights to be discharged or transferred only when certain preconditions are met— “unambiguously confer individually enforceable rights on nursing home residents,” making those rights presumptively enforceable. The Seventh Circuit further found nothing in the FNHRA to indicate congressional intent to foreclose enforcement.

The decision this week by the SCOTUS will not have a broad effect on the senior living space outside of the public sector. The Court made clear “this case is about these particular provisions and whether nursing-home residents can seek to vindicate those FNHRA rights in court “.  It does shine a light on certain practices and highlights just another aspect of the problem of mental health and the provision of services. County facilities will know have an extra level of responsibility/liability.

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