Joseph Krist

Publisher

Happy Thanksgiving to you all. It may be the best holiday in that it is not based on political ideas or dare we say religion. It’s the one day when no matter who you are or what you like to eat, it is a day simply to be grateful for being. That is something that everyone – no matter their identity – can do in their own way. Safe travels to those who must. Enjoy the feast.

Our next issue will be the December 4 issue.

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NYC – IT BEGINS

We have long been of the view that the outlook for New York City’s budget is at best mixed and far from stable. We are aware that many disagree. That debate continues but the November Financial Plan Update released by Mayor Adams will add heat to the debate. The Update reflects operations of the City through its first fiscal 2024 quarter.

The FY24 budget has grown $3.4 billion since budget adoption in June, in recognition of $2.6 billion in grant funds and $776 million of better-than-expected revenue growth, primarily driven by income and sales tax collections. Outyear gaps are $7.1 billion in FY25, $6.5 billion in FY26, and $6.4 billion in FY27.  To meet costs associated with care for asylum seekers, the city added $6.2 billion over FY24 and FY25 in this plan, bringing total funds budgeted for migrant needs over the two fiscal years to $10.8 billion. The administration added the following on top of previously budgeted funding: city funds of $1.4 billion in FY24 and $4.8 billion in FY25, state grants of $447 million in FY24 and $272 million in FY25, and federal aid of $10 million in FY24.

As always it is a political document. The mayor continues to blame the federal government for the problem and insufficient aid. Away from the migrant issue, the Mayor cites sunsetting COVID-19 stimulus funding, slowing FY24 tax revenue growth, expenses from labor contracts this administration inherited after being unresolved for years, and a lack of significant state or federal government action on the asylum seeker crisis. The Mayor’s relation ship with Albany is poor and the notion that contracts his Administration settled were somehow “inherited” lay the politics on a bit thickly.

The Mayor correctly notes that the historically large $7.1 billion FY25 budget gap must by law, be closed in mid-January. The deliberations between the Mayor and the increasingly activist City Council will likely be contentious which will complicate the effort to balance the budget.

CLEAN ENERGY SETBACKS

The clean energy sector is beginning to hit some bumps in the road to development and production. The impact of higher interest rates and inflation has reduced the economic attractiveness of many projects, especially wind. The recent announcement by Ørsted that it is not going to build wind turbines off the New Jersey coast is just one example. Now, Siemens Gamesa confirmed the cancellation of the company’s proposed $200 million factory at the Port of Virginia in Portsmouth. It would have created more than 300 jobs.

In Georgia, SK Battery facilities in Jackson County supply batteries for Ford and Volkswagen EVs. The company announced that it would layoff some workers at the facility. Lower than projected demand for electric vehicles was cited. The news comes in the wake of announcements of reductions or pauses in investment at GM, Ford, and Tesla electric car facilities in the face of slower than hoped demand.

This all comes after a series of setbacks to wind development projects. In addition to the NJ cancellation, developers of wind generation off the New England coast have sought to renegotiate output sales agreements. Inflation has driven up the cost to build wind arrays just as several projects were preparing to execute contracts with suppliers. Manufacturing capacity in the U.S. for offshore wind towers, blades and rotors, or for building and operating the ships needed to install them at sea is inadequate to meet current demand.

Wind is still making progress amidst the upheaval. Vineyard Wind, a joint project of Avangrid and Copenhagen Infrastructure Partners off the coast of Massachusetts is under construction with full operations beginning by next year. South Fork Wind, an Ørsted project off the coast of Rhode Island that will power New York, may go live sooner. Dominion Energy said last week that its 176-turbine Coastal Virginia Offshore Wind project is on schedule.

Residential solar power is under attack again, this time in West Virginia. In a rate case filed with the West Virginia Public Service Commission, Monongahela Power and Potomac Edison are asking the commission to restructure the current net metering policy for future solar customers and change how much users are credited for selling back power generated through solar. Current regulations allow households and businesses to sell back their surplus solar energy to the electric grid at a fair market value — the same price the power companies charge other residential customers for that electricity.

Mon Power and Potomac Edison want to change the policy so that solar customers are credited at a “wholesale rate” of $0.0663 per kilowatt hour — roughly half of the rate charged by the companies — rather than the market rate. Solar customers already pay their utility company a base level fee which is supposed to cover the connection and other related costs. 

NEW MEXICO ENERGY BOOST

The Department of the Interior’s Office of Natural Resources Revenue (ONRR) announced the disbursement of $18.24 billion in revenues generated in fiscal year 2023 from energy production on federal and Tribal lands and federal offshore areas. The funds may be applied to irrigation and hydropower projects, historic preservation initiatives, conservation of public lands and waters, and investments in maintenance for critical facilities and infrastructure on public lands. 

ONRR disbursed $4.72 billion in fiscal year 2023 funds to 33 states. This revenue was collected from oil, gas, renewable energy, and mineral production on federal lands within the states’ borders and offshore oil and gas tracts in federal waters adjacent to four Gulf of Mexico states’ shores. The big winner in this round was New Mexico. It received $2.93 billion. That is about equal to the size of the state’s budget reserves coming into FY 2023. Wyoming was the only other state to receive over $200 million ($832.86 million).

PREEMPTION IN MICHIGAN

The issue of preemption by state governments to overcome local regulation of energy development has usually been used by those opposed to the expansion of wind and solar. Whether it is setback requirements or zoning obstacles, the move toward preemption has generally been to stymie the effort to decarbonize. As with many other things however, the door to preemption swings both ways. In Michigan, it is clean energy proponents who seek to override local control.

The legislature approved bills to shift permitting authority over wind, solar developments to the state. Thetwo-bill package would let state regulators override local decisions about where to allow large-scale wind and solar arrays. The state has cited local regulation as an impediment to adoption and pointed to difficulties the state’s IOUs have had in siting renewable energy. The bills make the Michigan Public Service Commission the ultimate permitting authority. The bills also set criteria governing how much noise and light the projects can emit, how far they must be from neighboring buildings, and other particulars.

The bills provide for local governments to keep permitting authority if they pass their own ordinance complying with the state’s requirements. But developers could bypass the local permitting process if a community lacks an approved ordinance, takes too long to review a proposal, or rejects a proposal that complies with state standards.

LOOKING TO THE STATES TO BE SAVED

PacifiCorp has asked the Oregon Public Utility Commission to limit future lawsuit awards against the company to “actual” damages for property and loss of life. The company also wants to be allowed to establish a condition of accepting electrical service with the utility. The company seeks to require customers to waive their right to other types of damages such as non-economic and punitive awards by juries.

The utility has filed the same request in five of the six states where it provides electricity service, including Washington, California, Idaho and Wyoming. PacifiCorp was successfully sued after a September 2020 fire resulting in $90 million in damages against it. The company cites the fact that all but some $4 million of that mount was for economic damages. That has helped drive up the company’s liability insurance costs.

The company faces another lawsuit from victims of the Archie Creek fire in southern Oregon that is slated to go to trial in 2024 and 2025. There will also be three hearings in 2024 to determine damages for 20 additional plaintiffs and a group of timber companies. PacifiCorp said in its most recent financial filings that “certain government entities” informed the company that they are contemplating legal actions. Total damages sought in lawsuits filed in Oregon related to the 2020 fires is about $8 billion.

Will it work? The Oregon Public Utility Commission said it had never previously addressed a waiver of liability in exchange for service as PacifiCorp has proposed. In addition, state regulators are planning to recommend the commission suspend a current pending rate filing for an investigation. The “remedies clause” of the Oregon Constitution, which guarantees that the remedies that exist in law remain available to every person would seem to stand in the way of PacifiCorp’s goal.

TRANSIT TAX IN KC

Kansas City, MO has levied a separate, half-cent sales tax to fund bus service since 1971 that is not subject to voter approval. An additional 3/8-cent tax was approved in 2004 through a public vote. The tax was supposed to phase out after five years and be replaced by a bi-state transit tax, but that never happened. Instead, Kansas City voters overwhelmingly renewed the tax in the fall of 2008 for 15 years. A vote this month was to extend the term of the tax by ten years.

Some 73% of Kansas City voters approved extending the 3/8-cent sales tax that supports bus service within Kansas City’s boundaries. The sales tax provides about 30% of the Kansas City Area Transportation Authority’s budget. If the voters had rejected the extension, KCATA would have had to cut its budget by 25% by eliminating eight bus routes, reducing service on 19 others and cutting service on Sunday and Saturday night.

The vote came against the backdrop of local transit funding policies. KC is a jurisdiction conducting its own experiment with free fare programs. If the vote had failed, the KCATA board of commissioners had instructed KCATA management to find new funding sources for the zero-fare program and complete a feasibility study by December on “the possible re-institution” of bus fares.

DESERT WATER PROJECT

The agency which manages the aquifer providing water to the City of Ridgecrest, CA has been facing declines in available supplies as the result of California’s long term drought. The city competes for water with area farm and mineral interests as well as the US Navy’s China Lake Weapons base. The pressure on the aquifer has led the Authority to propose new sources of water.

The latest and largest is a $200 million, 50-mile-long pipeline system that would move water from the California Aqueduct in California City—over arid desert mountains—to a storage tank in the urban center of Ridgecrest.

The Authority believes that it can look to the federal government and it would pay $150 million of the cost. The remaining $50 million of cost would be passed on to ratepayers. The plan comes as substantial water users like pistachio growers and mining operations are subject to an effective surcharge with a special “groundwater replenishment fee” of up to $6 million a year.

It’s the latest example of the ongoing water shortages in the West. State law requires that local agencies bring groundwater aquifers into balanced levels of pumping and recharge. The Indian Wells situation can only achieve that through reduced groundwater withdrawals. The amount of water currently flowing into the valley’s underground basin is 7,650 acre-feet a year. Annual usage is about 28,000 acre-feet. 

The Authority and the local water distributor the Indian Wells Valley Water District are caught in the middle of disputes between the Authority and large ag and mining interests. The District is making full payments of all charges and assessments to the Authority but is doing so “under protest”. The large water user and employer – China Lake – is ironically exempt from the groundwater fee as a federal entity.

In reality, the plan faces several significant hurdles. Its route would run from a starting point at the Antelope Valley-East Kern Water Agency feeder pipeline in California City through historical habitat for wildlife including mountain lions, state and federally threatened desert tortoises and state threatened Mojave ground squirrels.

AUSTIN, TECH, AND KEEPING IT WEIRD

At the end of 2022, some 6.6 million square feet of office space was expected to be occupied over the next few years primarily by tech companies. The narrative has been that the more favorable income tax situation in Texas and Austin’s history as a tech center would drive mass migration from California to Texas. The reality is that the plans of the tech companies have significantly changed.

Upon completion, an under construction office tower was poised to become Austin’s tallest building. Its occupancy would be anchored by Meta which had committed to leasing nineteen floors in the building. In another building, Google planned to occupy 35 floors. They are paying for the space but not occupying it. Facebook, Tik Tok, and Indeed are all stepping back from office space commitments.

It does not look like a temporary trend. The airlines have noticed. Virgin Atlantic says it will discontinue flights from Austin to London early next year, and American Airlines is cutting 21 Austin routes, mainly to domestic destinations such as Cincinnati and Nashville. Virgin’s rationale: “demand in the Tech sector is not set to improve in the near term, with corporate demand at 70 percent of 2019 levels.” Austin’s commercial vacancy rate hit 30% in the third quarter, near its peak during the Great Recession.

The most interesting aspect of this is that many in Austin won’t miss those companies. The city’s real estate market has been on hyperdrive and locals hope that it will relieve pressure on home prices. They are already seeing rent declines. The city can take a bit more measured approach to infrastructure if demand in the near term remains constrained. All in all, the effort to “keep Austin weird” would seem under a bit less pressure.

BATTER UP IN VEGAS

Major League Baseball owners approved relocation of the Oakland A’s to Las Vegas in a unanimous vote. Ownership intends to move the team into a new stadium in the city ahead of the 2028 season. The team’s current stadium lease at the Oakland Coliseum expires after next season. Where the A’s will play for the 2025-27 seasons is not yet clear. Nevada’s legislature and governor have approved $380 million in funding, but a political action committee backed by teachers in the state is attempting to get the funding on a public ballot next November. 

In Las Vegas, the team would likely be a perpetual recipient of revenue-sharing dollars from other team owners. It would be MLB’s smallest television market. However, the league projects that local revenues will be higher in Las Vegas than they’ve been in Oakland in recent years. The stadium will be located on the Strip on the site of Caesars Palace.

UTAH UTILITY TAKEOVER

A bill has been submitted to the Utah legislature which would provide for what would effectively be a legislative takeover of the management of the Intermountain Power Project. The bill would give lawmakers four of the seven seats on a new governing board for the Intermountain Power Authority, replacing a current board made up of representatives of the 23 Utah cities that can draw power from the plant. Two other seats would come from the cities, and the last would be appointed by the governor.

The legislature commissioned an audit which found that IPA was managing the plant with too much deference to its largest customer, the Los Angeles Department of Water and Power. The sponsor wants the Authority to employ carbon capture and enhanced pollution control equipment to facilitate the use of coal. IPA is undertaking plans to convert the plant to natural gas and produce hydrogen.

IPA is responding to the fact that the customers for 95% of its power are under mandates to stop supporting coal plants.  Efforts by Utah coal producers to export coal have hit hurdles as West Coast jurisdictions will not approve coal handling equipment at ports. Efforts to export oil by train are running into even more regulatory hurdles. The reality is that California customers have built up more renewable sources and need less from the plant. This means that the project has employed fewer people and paid fewer taxes in the state than was originally anticipated.

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