Joseph Krist

Publisher

PUERTO RICO POWER PLAY

The U.S. government is spending over a billion dollars to accelerate renewable-energy adoption in Puerto Rico, including a $156.1 million grant through the Solar for All initiative that focuses on small-scale solar. Since the disastrous storms of the last decade exposed all of the weaknesses in Puerto Rico’s electric infrastructure. One of the easiest fixes available to address issues of both resilience and sustainability, has been rooftop and small scale solar (microgrids). As we have pointed out before, the island has both wind and solar resources in abundance.

In January, Governor Pedro Pierluisi signed a bill extending the island’s existing net-metering policy through 2031. Those rates have supported significant development of solar across the island especially in more isolated and usually poorer communities. As those resources come on line, it doesn’t help Puerto Rico Electric Power Authority (PREPA) to generate enough revenue to meet the demands of its creditors. Especially, creditors in the PREPA bankruptcy.

It is not any different from the situation many mainland utilities face as customers facing increasing rate demands gravitate to solar as a more reliable and often more economical choice. LUMA, the private entity which manages PREPA, estimates that some 117,000 homes and businesses in Puerto Rico were enrolled in net metering as of March 31, 2024, with systems totaling over 810 megawatts in capacity. 15,000 net-metered systems totaling over 150 MW in capacity were installed as of 2019 — the year Puerto Rico adopted its 100 percent renewables goal under Act 17.

Net metering was going to be evaluated under the terms of the January legislation but not until 2030. In April, the Financial Oversight and Management Board urged the governor and legislature to undo Act 10 to allow regulators to study net metering sooner. When that didn’t happen, the board made another appeal in a letter dated May 2, threatening litigation to have the law nullified. They want repeal to occur in the current legislative session ending June 30.

A two-year study overseen by the U.S. Department of Energy, known as PR100, which analyzed how the island could meet its clean energy targets. The study suggests that net metering isn’t likely to start driving up electricity rates for utility customers until after 2030, the year the Energy Bureau is slated to revisit the current rules. 

CARBON CAPTURE

The Department of Energy (DOE) obligated almost $1.4 billion across 654 research and development projects to support carbon capture, utilization, and storage (CCUS) and direct air capture (DAC) technologies from fiscal years 2018 through 2023. Nevertheless, according to the Congressional Budget Office, as of September 2023, only 15 facilities were capturing and transporting CO2 for permanent storage as part of an ongoing commercial operation.

The significant majority of DOE’s carbon capture funding. Specifically, FECM obligated almost $950 million, or 69 percent of DOE funding, to support 410 projects from fiscal years 2018 through 2023. 392 projects (about 96 percent) focused on technologies related to reducing emissions from coal and 18 (about 4 percent) from oil and gas.

Now the federal government is increasing its support for carbon capture. The Infrastructure Investment and Jobs Act provides approximately $12 billion for CCUS and DAC projects. This week, the third-largest “direct air capture” plant operating in the United States came on line. This one adjacent to a Google facility in Oregon is smaller than the other two projects – Global Thermostat’s plant in Commerce City, Colorado, and Heirloom’s plant in Tracy, California.

PORTLAND

I-5 Bridge – When construction starts on a new Interstate 5 bridge across the Columbia River in early 2026, drivers will begin paying tolls on the existing span between Washington and Oregon. Funding for the replacement has been a very contentious issue. Tolls are counted on to raise $1.2 billion for construction plus provide an ongoing stream of revenue for bridge maintenance and operations. Several possible rate scenarios are under review. These have one-way rates ranging from $1.50 to $3.55 with higher prices during peak travel times.

The Oregon Legislature will consider a possible appropriation of some $40 million to help the Port of Portland keep its container loading components open. (See 4.22.24 MCN) The Governor has included $35 million in her budget and proposes to request the remaining $5 million from the legislative Emergency Board at a meeting in September. Each would require approval from lawmakers. Earlier this year, Port leaders asked the Oregon Legislature for $8 million to support operations and were turned down.

Portland voters approved the extension of a local gas tax. The 10-cent-per-gallon tax funds street and sidewalk maintenance and safety projects across Portland. The city estimated the tax will cost the average Portland driver who uses gas-powered vehicles about $2.50 per month. The city’s gas tax was introduced in 2016, and renewed by voters in 2020. It has generated nearly $150 million for the transportation bureau over eight years.

MILEAGE FEES

The Mineta Transportation Institute (MTI) has released the results from its 15th annual survey in a series that explores public support for raising transportation revenue through higher federal gas taxes or a new mileage fee. The headline may be that for the first time a majority of respondents supported some form of mileage fee. In reality, the poll results indicated that support was soft in many ways.

A majority of respondents (51%) supported replacing the federal gas tax with a mileage fee where the rate would vary according to the vehicle’s pollution emissions.  “More than half of respondents supported not only the pollution-rate mileage fee but also a new ‘Business Road-Use Fee’ that would be charged to delivery and freight trucks (58%) or to taxis and ride-hailing vehicles (53%).

The problem comes from the fact that the least popular mileage fee option was a flat-rate fee on all travel. Support for this option was only 39%.” The trend line is positive. “Support for the flat-rate mileage fee grew from just 22% in 2010 to 39% in 2024. Similarly, support for the pollution-rate version grew from 33% in 2010 to 51% in 2024.” 

Other data indicated how uninformed people are about the realities of taxes and road funding. The survey also assessed public knowledge about federal gas taxes and support for the idea of raising the federal gas tax rate by 10 cents per gallon. Only 2% of respondents knew that the federal gas tax rate has not been raised in more than 20 years. Support for raising the federal gas tax has risen since 2010. 

Almost three-quarters of respondents supported raising the gas tax rate if the revenue would be dedicated to maintaining streets and highways (74% support). In contrast, far fewer respondents supported the same gas tax increase if the revenue were spent for undefined “transportation” purposes. 70% supported raising the rate if the revenue were dedicated for safety improvements. In contrast, only 35% supported the rate increase if the money were spent more generically “for transportation.” The majority also supported the concept of using some gas tax revenue to support public transit (71%).

NEW YORK ECONOMY AND BUDGET

Earlier this year City employment reached 100% of its pre-pandemic level. Following a gain of more than 77,000 jobs last year from the final quarter of 2022 to the final quarter of 2023 (Q4 to Q4), the Independent Budget Office (IBO) projects that the City will gain over 91,000 jobs in 2024. The mix of new jobs however, is not following trends seen pre-pandemic. This has implications for the lower end of the City’s economy. Certain lower-wage industries that provide key entry level positions, such as leisure and hospitality and retail trade, remain well below their pre-pandemic employment totals.

IBO does not expect the retail sector to reach its pre-pandemic employment in the foreseeable future, in part resulting from shifts in consumer spending away from brick-and-mortar retail to greater proportions of online purchases. At the same time, The stability of high-wage jobs during the pandemic, in conjunction with a stable outlook for Wall Street, indicates stability for the City’s tax collections and finances in the short run. The largest shares of IBO’s total tax forecast estimate are Real Property (44%), Personal Income (21%), General Sales (14%), and Corporate Taxes (9%), while the remaining taxes and audit revenue together reflect the remaining 12%.

So how does all of this impact the outlook for the pending FY 2025 budget? IBO anticipates budget surpluses exceeding the Administration’s Projections in 2024 and 2025 The higher 2024 surplus results from IBO’s forecast of approximately $129 million more in anticipated tax revenues and about $1.0 billion less in City spending than presented in the Executive Budget financial plan. With similar net tax and spending estimates as the Administration for 2025, using the 2024 surplus to pre-pay 2025 expenditures, IBO anticipates 2025 to also end with a surplus of around $1.1 billion.

IBO estimates larger gaps than the Administration. Starting in 2026 IBO’s projected gaps for 2026 ($6.2 billion) and 2028 ($6.0 billion) are well within the range that the City has closed in the past. IBO estimates a slightly larger gap of $7.9 billion in 2027 in part due to the Administration’s budgeted $1.0 billion in State funding for asylum seekers that the State has yet to commit to, which IBO estimates will be covered by City funds.

IBO anticipates substantially more funding will be needed, more than $605 million (all City funds) in 2025 for personnel costs across the uniformed agencies of Police, Sanitation, and Correction, largely to cover overtime costs. IBO estimates an additional $651 million will be needed from 2025 through 2027 to fully fund the current spending levels for the City Fighting Homeless and Eviction Prevention Supplement (City FHEPS) housing rental voucher program. To fund DOE programs previously funded by Federal Covid-19 aid, IBO estimates an additional $187 million will be needed in 2025 and $505 million in each of the following years.

NATURAL GAS AND CLIMATE

The Government Accounting Office (GAO) was asked to examine pollution from peakers across the nation. Those are plants designed to supply power during spikes in demand. There were 999 peakers in the U.S. in 2021, according to GAO’s analysis of the most recent Environmental Protection Agency (EPA) data. In 2021, peakers accounted for 3.1 percent of annual net electricity generation and 19 percent of total designed full-load sustained output for all power plants. The expansion of this generating source is being challenged across the country.

One reason is that GAO found that when operating, peakers emit pollutants like those from other power plants that use fossil fuels, such as nitrogen oxides and sulfur dioxide. According to EPA data, peakers operate less frequently overall than non-peakers, but when they do operate, they emit more pollution. A second reason is that GAO found that historically disadvantaged communities (i.e., census tracts with higher percentages of historically disadvantaged racial or ethnic populations) are associated with being closer to peakers. 

TRANSIT’S DILEMMA

A new report from a conservative research organization highlights a phenomenon plaguing many transit systems serving multiple jurisdictions. Coming out of the pandemic, these systems were confronted with a landscape that they did not design. The declines in ridership due to limits on economic activity were one thing. The move to remote work and the impact on ridership is making it’s true impact harder to emerge. There are signs.

There is a disconnect between ridership and funding sources in many metropolitan area transit grids. The ratio of operating fares to operating expenses has always varied and New York (at some 50%) was always an outlier in terms of how much of its revenue was supported by fares. The more typical setup was a funding source – often a sales tax – collected across multi-jurisdiction service areas. It worked well until the pandemic.

Now that sort of funding structure is being questioned in many areas in terms of both maintenance of existing systems as well as expansion of new systems. Suburban residents who have become less reliant on mass transit for basic commuting seem to be taking a different view. It is seen as harder to justify support for a system which holds down fares through other revenues.

Colorado just enacted a new tax on the fossil fuel industry that is projected to produce $285 million to fund mass transit expansion. That led to the release of the report. The report stated ridership decreased 46% and the operating budget increased 3% between 2019 and 2022. The system’s operating budget increased from $477 million in 2014 to $856 million in 2023 and its proposed budget for 2024 is $1 billion. Only 4.4% of the district’s operating costs were covered by fares as of Jan. 31, 2024.

From 2020 through 2022, 66% of the system’s revenue came from sales and use taxes in participating counties. Federal grants provide approximately 25% of its operating costs.

ASCENSION HEALTH

The issue of cybersecurity is back in the spotlight as the result of ransomware attacks on healthcare facilities, providers and insurers. The biggest current situation involves Ascension Health and its 140 national hospital system. An ongoing ransomware attack against Ascension has moved basic patient care to pre-computer conditions. The attack has slowed It’s an ongoing debate operations, limited utilization and revenues.

This is the second major ransomware attack against a healthcare entity. Earlier this year there was a successful attack on United Health Care’s Change Healthcare. Change handles one-third of the nation’s patient records. The threat of the release and/or misuse of that data has been an often effective cudgel to be wielded by attackers.

One has to ask if United Health Care’s decision to pay a $22 million ransom encouraged future efforts. It is an ongoing debate with arguments on both sides. Ascension was hit as it was in the midst of an improving financial trend. Ascension reported income from recurring operations of $15 million for the nine months ended March 31, 2024 as compared to a $1.1 billion loss from recurring operations for the comparable prior year period.

Additionally, Ascension’s recurring operating performance for the three months ended March 31, 2024 improved $622 million over the comparable quarter in the prior year. For Q3 FY24 YTD, Ascension experienced an increase in overall same facility volume over the comparable period in the prior year, most notably driven by total inpatient admissions, emergency visits and total surgery visits.

Ascension’s net income for the three months ended March 31, 2024, including both operating and nonoperating items, was $581 million which represents a $1.3 billion turnaround from the same period in the prior year. For the nine months ended March 31, 2024, Ascension’s net income improved $2.2 billion over the prior year. It remains to be seen when systems will be restored and how much of an ultimate cost the system winds up bearing.

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