Joseph Krist
Publisher
CHESTER PA BANRUPTCY
The City of Chester, PA has been in Chapter 9 bankruptcy proceedings for some two years. It has been operating under a state-appointed receiver since before the bankruptcy. Now that receiver is facing opposition over a plan to put the City’s water authority up for sale to generate funds for pension funding. The City’s pensioners comprise the largest group of creditors in the bankruptcy so their needs do matter. Pensions have also been developing a more favored creditor status in recent municipal bankruptcies.
Some three years ago, a sale of the system was contemplated and an agreement was reached in which a private entity – Aqua Pennsylvania – was the purchaser. The agreement would have generated $410 million over a period of years. That agreement was not approved by the state receiver because it would have privatized the water system. Significant rate increases were likely. Subsequently, the City filed under Chapter 9.
Now as part of the plan of adjustment proposed in bankruptcy court, the same receiver is proposing the creation of a mechanism to allow a regional water authority to purchase the assets of the Chester Water Authority. A sale would be designed to fund the purchase over a period of years under a schedule which could provide a steady stream of reliable revenue to the City.
One goal would be to bring the three water infrastructure pieces – water, sewage, stormwater under one roof. Currently, three distinct entities bill for and collect revenues for each service. Chester Water Authority supplies water to 34 municipalities in Delaware and Chester Counties. Wastewater treatment is provided throughout Delaware County. The City operates a Stormwater Management Authority. Lots of overlap and bureaucracy.
A new wrinkle is a motion by the pensioner group to drive the sale of the water assets to a private concern like Aqua Pennsylvania. The unfunded benefits for the city’s retired workers amount to about $300 million, the majority of that to police alumni. The goal would be to get a buyer to put up a significant up-front payment and agree to pay substantial annual fees. The pensioners believe that the greatest amount of money would be generated through a privatization. The receiver believes that the resulting revenue requirements from the private operator would lead to substantially higher water rates. Given the poor economics and demographics of the service area, there is limited ability to support significantly higher rates.
TRI-STATE GENERATION
Tri-State Generation and Transmission Association delivers power to 41 member cooperatives across four states, 16 of them in Colorado. It has long been a fossil fuel dependent generator with a particular reliance on coal. Over the last several years, Tri-State has been engaged in disputes with some of its member utilities over that reliance. The results have enabled some members to diversify their power sources and reduce demand for Tri-State’s coal-based power threatening the association’s finances.
Those finances look to be in line for a boost in the form of federal money designated to support the clean energy transition in rural areas. The money comes from a program called New ERA (Empowering Rural America), which was funded through the Inflation Reduction Act (IRA) passed by Congress in 2022. Tri-State and one of its large former members United Power are expected to receive $671 million and $261 million respectively. United used to get 95% of its power from Tri-State but that changed in May of this year.
The federal money will be used by Tri-State to support the retirement of 1,100 megawatts of coal-fired generation. It shut down one coal plant in New Mexico in 2019 and has plans to close the three coal-burning units it operates at the Craig Generating Station from 2025 to 2027. It had originally planned to close Springerville 3, a coal plant in Arizona, in 2040, but the promise of the federal funding has given Tri-State the comfort to pay off undepreciated debt in the plant and move up its retirement to 2031.
United Power just became its own generator and supplier this past May after it withdrew from Tri-State. The federal money will support the development and/or acquisition of nearly 500 MW of renewable power. Like Tri-State, Western was held back by its non-profit status. Tax credits available to IOUs were not for the cooperatives. The IRA provided for this program to offset the inability of cooperatives to benefit from tax credits.
A total of 16 cooperatives have applied for funding for the program. They are located throughout the country. Projects in the application process would shut down coal generation and replace it with renewables, acquire new renewable generation and support the restart of the Palisades Nuclear plant in Michigan. There is tremendous pressure to finalize all of these applications given the uncertainty of the upcoming elections.
SUMMIT CARBON
The ongoing effort by Summit Carbon Systems to get approvals for its planned carbon pipeline hit another hurdle in the South Dakota courts. The South Dakota Supreme Court ruled that Summit has not yet proven it should be allowed to take private land for public use through eminent domain. Summit needs to show that it is acting as a common carrier under South Dakota law.
The Court ruled Summit had not yet proven to lower courts that it’s “holding itself out to the general public as transporting a commodity for hire. It is thus premature to conclude that SCS is a common carrier, especially where the record before us suggests that CO2 is being shipped and sequestered underground with no apparent productive use.
The issue of common carrier status is at the heart of dispute between the company and landowners. The South Dakota legislature passed laws in 2023 that provide additional financial and legal protections for affected local governments and landowners while retaining the ability of pipeline companies to seek a state permit. The case is now returned to the lower state courts where Summit’s arguments in favor of eminent domain will be made.
The South Dakota court activities are being accompanied by growing legislative pressure in Iowa to provide protection from eminent domain. The issue of eminent domain for the Summit pipeline was a real issue in Iowa politics. The Iowa House has twice approved limits on eminent domain but they have been stymied in the Iowa Senate.
Now, a group of nearly 40 Iowa lawmakers comprising the Republican Legislative Intervenors for Justice announced their plan to sue in federal and state courts requesting them to rule that the Iowa Utilities Commission acted illegally and unconstitutionally in its approval of the Iowa portion of Summit’s proposed pipeline.
BUSY TIMES FOR JUDGE SWAIN
Presiding over the bankruptcy of a major governmental entity while overseeing litigation seeking the appointment of a federal receiver for the NYC jail system would be a daunting task for any jurist. Both of these cases have been going on for months with multiple efforts to settle them having been unsuccessful. As it works out, both of these cases may have reached tipping points. They have significance for not just the two issuers – NYC and PR – but for the municipal market as a whole.
Decisions on these two cases will be made by the same judge, Laura Taylor Swain. She has encouraged efforts at settlement throughout and it has been frustrating to see both of them drag on for as long as they have. The decisions she makes will have significant financial impacts as well. In New York, a hearing is scheduled for Sept. 25 in which the Legal Aid Society attorneys – who represent people incarcerated at Rikers Island – will have an opportunity to argue the New York City Department of Correction should be held in contempt for failing to follow court orders to bring down jail violence.
All of this has occurred in spite of oversight from a federal monitor.
Swain lifted a contempt order against the city and the Department of Correction on Feb. 27, saying the department has followed her directive to bolster cooperation and communication with the federal monitor. This month’s hearing will allow evidence of the judge’s prior rulings and will seek the appointment of a receiver to actually operate the facilities.
At essentially the same time, Swain extended for an additional 30 days the litigation stay through Oct. 8 which has been in effect as PREPA and its bond creditors continue to try to work out their issues. The mediation team appointed by Judge Swain to oversee the debt-restructuring negotiations requested the additional time.
A NEW RISK TO ASSESS
Over the years, various natural disaster types take their turns on center stage. When they do, they create new risks to assess which do not always have great sources of data to rely upon for their analysis. This year, landslides have been occurring frequently. In the face of warming temperatures, certain areas have become less anchored and as storms occur the resulting impacts create greater landslide frequency.
In March, a landslide closed a 40 mile stretch of Highway 1 near Big Sur. In June, a landslide wiped out part of one of the main routes into Grand Teton National Park. More local events are threatening communities along coastal California with collapse into the sea. The combination of visible locations and their impact on a more well heeled demographic have elevated attention. Until now, there has not been a lot of data for analysis of the risk of these events.
The US Geological Survey (USGS) has just released a new interactive map of potential risk from landslides. According to its data, 44% of the country is at risk from landslides. Some of the data will not be shocking. Mountainous areas are at more risk. Given the geological recency of the western ranges, those mountainous areas seem to be at the most risk. Conversely, there aren’t many landslides where the land is flat. And yes, Puerto Rico seems to be at the most risk in terms of the percentage of its land which is vulnerable.
TRAFFIC REALITIES
A combination of the congestion pricing argument in New York, a return to more normal travel post-pandemic, and the consumer preference for larger vehicles have brought debates over road use to a new level. The basic premise is that Americans are barreling around the highways and byways and being involved in lethal crashes at unprecedented levels. It makes the whole debate around transportation that much harder as the arguments don’t seem to reflect what is happening.
The National Highway Safety Board (NTSB) said an estimated 18,720 people died in motor vehicle traffic crashes over the first half of 2024, a decrease of about 3.2 percent as compared to 19,330 fatalities in the first half of 2023. NHTSA also estimated fatalities decreased in 31 states and Puerto Rico, remained unchanged in one state, and increased in 18 states and the District of Columbia.
Preliminary data reported by the Federal Highway Administration indicates vehicle miles traveled or VMT in the first half of 2024 increased by about 13.1 billion miles, or roughly 0.8 percent more compared to the same time period in 2023. More miles driven combined with fewer traffic deaths resulted in a fatality rate of 1.17 fatalities per 100 million VMT, down from the rate of 1.21 fatalities per 100 million VMT in the first half of 2023.
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