Joseph Krist

Publisher

COLORADO RIVER FALLOUT

The recent agreement to limit lower basin states ability to withdraw water from the Colorado River has been hailed as a positive short-term result. No doubt that it is but now the realities of the ongoing water shortage in the West are being exposed. One of the largest examples of unbridled growth in the southwestern U.S. is Phoenix and its metropolitan area.

Now that growth is facing limits. The State of Arizona has determined that there is not enough groundwater for all the future housing construction that has already been approved in the Phoenix area, and will stop developers from building some new subdivisions. Maricopa County, which includes Phoenix and its suburbs, gets more than half its water supply from groundwater which is being steadily depleted.

The State will not approve new determinations of Assured Water Supply within the Phoenix AMA based on groundwater supplies. Developments within existing Certificates or Designations of Assured Water Supply may continue, but communities or developers seeking new Assured Water Supply determinations will need to do so based on alternative water sources.

The state says it would not revoke permits that have already been issued and is instead counting on water conservation measures and alternative sources to produce the water necessary for approved projects. The impact will be felt more in recently developed suburban parts of the state’s metropolitan areas. The major cities’ internal development has largely been approved.

The Phoenix Active Management Area (AMA) is a region of south-central Arizona encompassing 5,646 square miles and, with 4.6 million residents, the most densely populated area in the state. The State has determined that over a period of 100 years, the Phoenix AMA will experience 4.86 million acre-feet (maf) of unmet demand for groundwater supplies, given current conditions. The term “unmet demand” refers to the amount of groundwater usage that is simulated to remain unfulfilled as a result of wells running dry in the model” used by the State.

If a city does not have a designation from the state, then each proposed development must prove to the state it has a 100-year supply of water. That demand will increase pressure on agricultural land which will be more valuable as a source of water and rights to it than it would be as a producing asset.

TRANSMISSION

One of the reasons we have followed so closely the approval process for carbon capture pipelines is that it parallels in many ways issues with expanding the nation’s electric grid. The greatest holdup to efforts to decarbonize the electric utility industry and move the country to electric cars and appliances is the inability to deliver power from where it is produced to where it is needed.

The issue of transmission impacts the whole country. Maine has just gone through an extensive permitting and referendum process over the development of a transmission line from Quebec to Massachusetts. The Grain Belt Express would connect wind power from states like Kansas and send that power to demand centers farther east. Already, concerns over permitting and land acquisition resulted in changes to power distribution agreements to address local concerns.

In any week, there are new examples of proposed transmission projects seeking approval in order to deliver power from new source to consumers. The Interior Department’s Bureau of Land Management this week said it has advanced two transmission projects proposed by public utility NV Energy that would facilitate more renewable energy development and delivery in Nevada. The agency will start an environmental review for the Greenlink North project, which will span over 450 miles to connect Las Vegas to Reno, and release a draft environmental impact statement for the Greenlink West transmission project, which will cover 232 miles from Ely to Yerington.

The Bureau of Land Management (BLM) issued its record of decision last week for the SunZia Southwest Transmission Project, delivering up to 4,500 megawatts of primarily renewable energy from New Mexico into Arizona and California. The project was first proposed some 15 years ago.  The Idaho Public Utilities Commission is hosting public hearings throughout southern Idaho in mid-June to receive testimony about a proposed 500-kilovolt transmission line which would extend 300 miles across five Oregon counties and connect to Idaho Power’s existing Hemingway substation in Owyhee County. 

The problem is clear in the Northeast. PJM is the nation’s largest regional grid operator, with a territory that spans all or parts of 13 states from the Midwest to the Mid-Atlantic, plus the District of Columbia. Of nearly 2,500 utility-scale projects totaling 250 gigawatts of capacity waiting in interconnection queues nationwide today, 95% of them are in PJM’s queue.

California is considering legislation which would expedite the approval process for transmission line development and expansion in the Golden State. SB 619, a bill that would expand the California Energy Commission’s authority to certify and prioritize transmission projects on the agency’s agenda.  Last year the legislature enacted AB 205, which authorized the commission to certify and prioritize transmission projects that cost more than $250 million and carry electricity from renewable energy facilities to a system interconnection juncture.

SB 619 would broaden the types of transmission lines eligible for certification to include those lines that convey electricity to and from other facilities — regardless of their proximity to an interconnection point. SB 619 would apply to facilities like solar photovoltaic, wind or stationary thermal power plants with a generation capacity of 50 megawatts or more. Estimates for the scope of investment required range from $30 to $50 billion.

MEDICAID

Beginning on April 1, pandemic restrictions kept states from imposing new qualification requirements on Medicaid recipients. It was thought that many people might lose coverage if they were no longer able to qualify for Medicaid. Now after one month, data is emerging about the scope and nature of determinations that individuals were no longer eligible.

The Kaiser Family Foundation (KFF) found that 19 states had begun the process of renewing Medicaid eligibility. Based on records from 14 states that provided data, 36% of people whose eligibility was reviewed have been disenrolled. Four out of every five people dropped so far either never returned the paperwork or omitted required documents.

Some states have been more aggressive than others. In Indiana, recipients are given two weeks to comply with documentation requests. The Hoosier State has 53,000 residents who lost coverage in the first month of the unwinding, 89% for procedural reasons like not returning renewal forms. That is not an uncommon phenomenon as many of those people do not have access to the internet. States know that. So that is why they impose short-term response and qualification periods.

As of April 1, KFF found that more than 1 in 4 Americans — 93 million — were covered by Medicaid or CHIP, the Children’s Health Insurance Program. Some 50% of children in the U.S. get their medical care funded through these programs. KFF estimates that 15 million people will be dropped over the next year as states review participants’ eligibility.

In the end, the states might save money but then it will increase pressure from providers on the states to provide greater levels of aid for uncompensated care. It puts more pressure on hospitals already dealing with utilization and inflationary issues. For safety net hospitals, the pressure on finances will only increase.

EPA WETLANDS DECISION

The Supreme Court decision last week to narrow the scope of the Environmental Protection Agency regulations on wetlands. The decision will be a boon to project developers – especially road developers – wetlands regulation has been effectively used to slow down, alter and even stop highway developments. Projects with significant right of way needs will be able to access certain areas which were effectively off limits for development.

Not only will it aid development but it will also pressure regulatory efforts dealing with waste. You would be surprised by the size and nature of some proposed developments adjacent to bodies of water which may no longer be regulated by the federal government. In many of those situations, activities associated with developments generate indirect threats to local water sites. Even facilities like warehouses have been found to generate pollution at adjacent water sources.

P3 BLUES

Three years ago, the University of Iowa entered into an agreement with a private consortium to operate the University’s campus utility systems. The 50-year agreement with the consortium – “University of Iowa Energy Collaborative” or UIEC – was supposed to provide greater system reliability for a more certain and affordable cost. Now, only three years into the transaction, the parties are suing each other over payments and whether the promised reliability levels had been achieved. The university is obligated to the partnership for $35 million annually.

In January, the private partner sued the University in federal court over reduced payments it received from the University. It has agreed to drop that case but to renew its efforts in state court. The University has now filed a counter claim. The issues are twofold. There have been two significant electric outages since the operator took over. The University is also fighting efforts to get it to fund a $1.5 million annual fee which it believes is the operator’s obligation. Bottom line is that the University feels that it is not getting the benefits expected.

OFFICE OCCUPANCIES AND TRANSIT

The longer it goes on, the continuation of lower occupancy rates in commercial and office buildings makes the status quo look a bit more permanent. It has become clear that in major cities with significant cultural bases, it is those primarily evening/night activities which are driving returns to cities. This started the establishment of different utilization patterns especially on mass transit. Many agencies have been reluctant to alter schedules to reflect changing in demand in fear of being accused of feeding the “doom loop” phenomenon in their city.

Now efforts are taking hold in some of the most affected markets. BART – the Bay Area system designed primarily to facilitate work-based commutation from outside the City of San Francisco to and from the City. This dictated a traditionally based rush hour schedule. The declines in demand for that service have been offset a bit by increased demand for more frequent night and weekend service. This has led BART to announce revised schedules increasing service frequency at night and on weekends.

Connecticut Gov. Ned Lamont proposed reducing service on the MTA New Haven Line to 86 percent of pre-pandemic levels, potentially resulting in dozens fewer daily trains running between Connecticut and New York City. Last summer, the state expanded service for the New Haven Line by introducing new weekday express trains as part of its TIME FOR CT initiative, designed to deliver faster trains and improved travel time.

THE FED AND ITS TAKE ON NYC

The latest Beige Book from the Federal Reserve provides some insight on the New York City economy while it copes with its recovery from the pandemic. Tourism activity in New York City has remained strong and is nearing pre-pandemic peaks. Business travel has continued to pick up, particularly domestic travel, despite competition with destinations in warmer parts of the country. For the first time in three years, graduation season has brought many international visitors to New York City.

European tourists are returning in large numbers but lags in visa processing have continued to constrain visitors from China and parts of South America. Hotel performance has remained on a strong upward trend, and New York City has had the highest hotel occupancy rates of all the major markets in the country in recent weeks.

Residential Rents are at all-time records in Manhattan, Brooklyn, and Queens and vacancy rates remain exceptionally low. Office vacancy rates were steady at elevated levels across the District and rents were mostly flat. New York City’s retail market weakened, with increases in vacancy rates and rents trending down.

INSURANCE IN CALIFORNIA

Natural disasters have always generated issues with insurance whether they be directly weather related like hurricanes and floods, or earthquakes and wildfires in California. In the aftermath of Hurricane Andrew in the early 1990’s, the insurance industry began to pull out of the home insurance market in Florida. The hurricane states in the Southeast have had to create entities to issue insurance to fill in gaps left by private providers.

The most recent example of the phenomenon comes from California where State Farm has announced that it will not write new homeowners or business insurance in California. The insurance company stated that the decision was made because of rising construction costs that are outpacing inflation, a challenging insurance market, and “rapidly growing catastrophe exposure.” State Farm was the largest underwriter of property and casualty insurance policies in California in 2021 with over $7 billion in premiums written, and a market share of 8.3%.

MINNESOTA NICE

Minnesota Gov. Tim Walz signed a bill legalizing recreational marijuana. This makes Minnesota the 23^rd state to legalize it. The legislation allows adults 21 and older to carry up to 2 ounces of marijuana in public and possess up to 2 pounds at home, starting Aug. 1. The legislation had been held up in a split legislature in recent years. The legislature came under full Democratic control in January and the Senate reversed previous actions and approved the legislation.

It will take some time for the law to have real impact. The retailing infrastructure is far behind the legislation and the state regulatory agency has said that it will be some time before sales can start. The criminal record and conviction provisions included in the law merely begin a process that the state says will take several months to execute. The legislation allows adults 21 and older to carry up to 2 ounces of marijuana in public and possess up to 2 pounds at home, starting Aug. 1.

As we go to press, Florida’s Department of State reported that the proposed ballot measure to legalize recreational marijuana gathered enough signatures to put it on the ballot in 2024. Petitions to get the proposed constitutional amendment on the ballot gathered 967,528 valid signatures some 70,000 above the requirement to reach the ballot.

The law would permit adults 21 and over to possess up to three ounces of marijuana for personal use. Medical marijuana treatment centers, which were legalized by a statewide referendum in 2016, would be allowed to sell marijuana for recreational use.

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