Joseph Krist

Publisher

INTERMOUNTAIN POWER

Utah lawmakers passed a measure Thursday that allows the state to purchase a coal-fired power plant operating in Delta that now serves California customers and some local cities.  Of particular angst to some lawmakers is the fact that California receives 98% of the power but Intermountain Power Authority (IPA) is using Utah water and stopped using Utah coal to run its 1,900-megawatt plant. When it transitions to natural gas as mandated by California’s clean energy standards, it also plans to purchase that fuel from Wyoming, not Utah.

The situation is driven by two concerns. One is the desire of many Utah legislators to find a way to save a coal plant. The move is being positioned as one of concern over access to water rights. The sponsors claim that the law is not intended to interfere with the Intermountain Power Agency’s transition to natural gas and potentially hydrogen in the next few years. It is being pitched as an issue of state and local control.

The second is that the plant is operated by the agency via the Los Angeles Department of Water and Power. It pays local taxes but it does so after doing what many other entities of its type do – the plant has appealed its county tax assessment 26 of 38 years. The real issue is that the bill’s sponsors feel that the plant operated with little Utah government oversight, despite being set up decades ago as a political subdivision of the state. They believe that a “California controlled” entity should not have control over the IPA budget.

PURPLE LINE BLUES

The Maryland Transit Administration will seek approval next month for as much as $425 million in “relief payments” related to delays in the Purple Line light rail project. The extra payments are the result of a roughly 234-day delay that will push the line’s completion back from spring of 2027 to December of that year. The Maryland Transit Administration took over the utility related work in 2020 as the original contractor began to exit from the project.

The Administration did complete the utility work in October. In December, operations and maintenance facility work was complete. The project is now 65% complete, with 13 of 21 stations in active construction. Additionally, nearly 17,000 linear feet of track has been laid. That gets the Administration out of direct construction activities.

Now construction is in the hands of Purple Line Transit Partners, the private consortium building the line. Partners will receive an initial $60 million from the state. Additional payments will be made as the company hits certain milestones such as the delivery of rail cars. The utility work payment is on top of $449 million in payments spread out over the next several years that is part of an increase already in the proposed Consolidated Transportation Program.

Seven months ago, the Board of Public Works approved an additional $148 million in payments to Purple Line Transit Partners. The money covered cost overruns and delays that pushed the project to spring of 2027. The additional funding being sought pushes the cost of the project to about $4 billion. Including financing over the 36-year life of the project, the cost is $10 billion.

NY HOSPITAL MERGER

Northwell Health (A3 stable) and Nuvance Health (Baa3 negative) signed a definitive agreement to merge later this year. The parties expect to close toward the end of 2024. It is a positive development for the Nuvance credit which is teetering around investment grade at Baa3 with a negative outlook. Northwell is a much larger entity generating some $16 billion in annual revenue compared to Nuvance Health’s $2.6 billion.

Nuvance Health’s weaker financial performance would be modestly dilutive to Northwell Health.  If the affiliation closed today, Northwell Health’s operating cash flow margin would decline by 30 – 60 basis points and days cash position would decline by a modest three days.

SMALL COLLEGE DOWNGRADES

Moody’s downgraded Hartwick College’s (NY) issuer and revenue bond ratings to Caa1 from B2. As of June 30, 2023, the college has approximately $35 million in outstanding debt. The outlook was revised to stable from negative. Ongoing deep operating deficits and a high reliance on large supplemental endowment draws is weakening already thin liquidity through at least fiscal 2024. 

S&P revised its outlook to negative from stable and affirmed its ‘BBB-‘ long-term rating on Champlain College in Vermont. The school has a debt service coverage covenant of 1.10x, which was not met in fiscal 2023 with debt service coverage of negative 0.43x. Based on the legal documents, the remedy for this covenant violation was to hire an independent consultant, which was fulfilled. “The negative outlook reflects our opinion that the college’s enrollment could continue to decline in the near term, leading to ongoing operating pressures. This could further pressure financial resources and weaken them to a level commensurate with a lower rating.” 

S&P lowered its long-term rating to ‘BBB’ from ‘BBB+’ on the Albany College of Pharmacy and Health Sciences (ACPHS).  “The downgrade reflects our view of the effects of ongoing demand challenges on the college’s enrollment and financial operations, as well as its weakened financial resources over the last two years relative to historical performance”. ACPHS’ operations are generally reliant on student-derived revenues that may likewise remain pressured.  

EMINENT DOMAIN

In 2022, NV Energy filed a court complaint to use the power of eminent domain in building a gas pipeline crossing property owned by an entity called Mass Land Acquisition (MLA). MLA’s parent is a company called Blockchains which hopes to develop a “cryptocurrency city”. MLA contested the eminent domain request all the way to the Nevada Supreme Court. The landowners argue that NV Energy’s use of eminent domain violates the state Constitution, which “expressly prohibits a private party from using the power of eminent domain to transfer interests in property from one private party to another.”

NV’s position is that state law and the Nevada Constitution actually clearly allows them to use eminent domain because they provide a “public use,” which specifically includes utilities and pipelines for petroleum or natural gas. The municipal bond angle – the Las Vegas Valley Water District and Southern Nevada Water Authority filed amicus briefs supporting the NV position.

The South Dakota Legislature passed three bills intended to strengthen landowner protections while maintaining a regulatory path forward for the Summit Carbon project. Carbon capture pipeline operators will have to pay $500 for access to survey land. Counties through which the pipelines run could collect a surcharge of up to $1 per linear foot, with at least half of the surcharge allocated for property tax relief for affected landowners. The remaining funds could be used at the county’s discretion.

The bills restrict easement durations, terminating them if a pipeline does not secure a Public Utilities Commission permit within five years or if the easement goes unused for the same period. Additionally, easements cannot extend beyond 99 years and must be documented in writing and recorded in a county register of deeds office. Current law says the Public Utilities Commission may overrule counties’ pipeline setbacks. The legislation establishes that the commission’s permitting process overrules local setbacks and other local rules regarding pipelines, unless the commission requires compliance with any of those local regulations. 

PIPELINE PLANS EXPAND

Summit Carbon Solutions plans to expand its carbon dioxide pipeline footprint in Iowa by about 50% — or about 340 miles according to a new regulatory filing in Iowa. That is in addition to the existing proposal for 690 miles of pipe through Iowa. Summit has more than doubled its number of ethanol plant partners in Iowa to a total of 30 out of 42 in the state. Two large ethanol producers — POET and Valero — that had initially agreed to be part of Navigator CO2’s competing pipeline have since signed with Summit.

The project now includes 57 ethanol producers in five states and is expected to transport more than 16 million metric tons of carbon dioxide each year. The system has a total capacity of about 18 million metric tons. More than half of the corn Iowa farmers produce is used to make ethanol. Summit filed requests with the IUB to schedule public meetings in 22 counties for its expansion plans. The company proposed the first meeting for Adams County on April 22. The rest would be held over the course of about three weeks, ending May 9.

NUCLEAR

The Nuclear Regulatory Commission released a long-awaited proposal – “Part 53” – aimed at speeding up licensing for advanced reactors. Part 53 is meant to offer a “voluntary” alternative to advanced nuclear applicants under a framework that would be applicable to all reactor technologies; use information from risk assessments to focus safety analyses on important issues; and ensure plants are regulated based on how they perform and not just how they are designed.

Advanced nuclear reactors are being developed under the existing Part 50 program which is designed for traditional large scale reactors. The uncertainty associated with this process has likely slowed development. The rulemaking process is likely to make implementation of Part 53 delayed until 2027. Recent setbacks in the industry have likely bought regulators some time to effectively catch up in terms of new regs.

SOLAR

The US solar industry installed 32.4 gigawatts-direct current (GWdc) of capacity in 2023, a 51% increase over 2022. This is the first year where new solar exceed 30 GWdc of capacity for the first time. Residential solar grew 12%, adding 6.8 GWdc of capacity as installations in California were accelerated as customers rushed to take advantage of more favorable net metering rules before the switch to net billing in April. Commercial solar saw a similar increase in California, leading to national growth of 19% over 2022. Community solar grew just 3% compared to 2022. Nationally, utility-scale installations spiked to 22.5 GWdc of capacity, a 77% increase over 2022. 

The result – Overall, photovoltaic (PV) solar accounted for 53% of all new electricity-generating capacity additions in 2023, making up more than half of new generating capacity for the first time.

Nevertheless, the California Public Utilities Commission issued a proposed decision that found that the Net Value Billing Tariff (NVBT) policy supported by solar advocates ​“conflicts with federal law and does not meet the requirements” of AB 2316, the 2022 state law that ordered the CPUC to create an affordable and equitable community-solar program.

The California investor-owned utilities argued that the community-solar and battery projects envisioned for NVBT fall under federal law that governs larger-scale generators operating in wholesale energy markets. What are the points of interpretation driving the arguments? AB 2316’s requirement that any new program must not increase costs for nonparticipating customers? An interpretation of the Public Utility Regulatory Policies Act (PURPA), a 1978 law that requires utilities to purchase power from certain non-utility-owned generators under structures governed by the Federal Energy Regulatory Commission.

BOSTON

The Boston Policy Institute (BPI) is a newly launched non-profit focused on analysis about the Commonwealth of Massachusetts and the City of Boston. Among its first efforts is a recent report on the impact of office building values on city revenues after the pandemic. The Fiscal Fallout of Boston’s Empty Offices raises several issues which put the City of Boston under more fiscal pressure than some other major cities.

The reports premises are based on the role of office buildings in the City’s tax base. More than one-third of Boston tax revenue comes from commercial

property taxes, by far the highest proportion among major U.S. cities.

This leaves Boston especially vulnerable to falling real estate values. The value of office space is projected by the BPI expected to decline 20–30 percent by

2029, and overall commercial real estate prices by 12–18 percent.

A second estimate is that Boston will face a cumulative revenue shortfall of $1.2

billion to $1.5 billion over the next five years. Boston will have few ways to compensate for this lost tax revenue. Massachusetts precludes cities from introducing local sales and income taxes; and fully offsetting the decline in commercial real estate would require a 25 percent to 30 percent increase in residential property taxes.

Whereas property taxes comprised roughly 55 percent of city revenues in 2002, today they account for 75 percent. Current estimates suggest that more than 20 percent of all office space in Boston is vacant. As is the case in other cities like New York and Chicago, remote and/or hybrid work is poised to be a long term drag on valuations for office real estate.

It remains a situation worth watching as the budget season unfolds.

NEW JERSEY GAS TAX

Funding for New Jersey’s Transportation Fund has been a major concern during the FY 2025 budget process. Now a plan has been advanced which would raise the state’s gas tax by some 10 cents per gallon over a period of ten years. It would also impose a fee ranging from $250 to $290 a year on electric vehicles over that period. Electric vehicles would be charged a $250 fee in the first fiscal year. That would increase by $10 a year after that, capped at $290 by the end of the five-year period.

Currently, the state collects 42.3 cents for each gallon of gasoline sold and 49.3 cents on every gallon of diesel — the seventh-highest rate in the nation. The level of the tax is determined annually through a formula established through a deal with the State Legislature in 2016 for the gas tax to be adjusted each October to ensure it generates about $2 billion a year in revenue to support the TTF.

The new tax is proposed to be in addition to rates derived from the formula. The higher gas tax and new electric car fee would take effect in July if approved by the Legislature and signed into law. The Governor has also proposed eliminating a sales tax exemption on electric car sales.

MISSISSIPPI

S&P Global Ratings revised the outlook to negative from stable and affirmed its ‘AA’ long-term rating on Mississippi’s general obligation (GO) debt. Elevated credit risks stemming partly from persistently weak economic and demographic trends, which could result in an increasingly challenging budget environment as the state manages through its phased-in income tax reductions…The risk of future budgetary pressure is further elevated due to pension contributions falling short of their actuarially determined contribution amounts in each of the past three years and a relatively high level of unfunded pension liabilities.”

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