Joseph Krist

Publisher

________________________________________________________________

TRANSPORT AT THE BALLOT BOX

The American Road & Transportation Builders Association reported on the results of elections and transit funding issues. voters in 17 states approved 89 percent or 244 of 275 the state and local transportation investment initiatives during the November 2 elections. The Association estimates those measures should generate $6.9 billion in one-time and recurring revenue. In Ohio, voters approved 89 percent of 140 county, city, and town-focused transportation infrastructure measures on November 2; the most of any state. Voters in 34 Texas localities approved 44 measures— primarily local sales taxes and bonds— to generate $1.6 billion for city, town, and county transportation improvements.

Texas voters also approved a statewide proposal that will permit counties to use bonds to fund transportation infrastructure projects in underdeveloped areas. Counties would repay those bonds via increased property tax revenues – authority that is currently only granted to incorporated cities, towns, and other taxing units. in Georgia, nine out of 11 counties approved a one percent Transportation Special Purpose Local Option Sales Tax, which will collectively generate $870 million in new or renewed revenue for the next five years.

TRANSIT’S SLOW RECOVERY

The Los Angeles County Metropolitan Transportation Authority announced it will resume charging bus fares starting Jan. 10, 2022. The price of a daily, weekly, or monthly ticket will be reinstated at a 50% discount to the pre-pandemic cost. The discounts will also benefit riders enrolled in the existing low-income assistance program. The new fare plan will provide an ultimate 2/3 discount to the pre-pandemic fare.

The LAMTA suspended front door boarding on its buses in March 2020 at the outset of the COVID-19 pandemic. It also relaxed rules requiring riders to use the farebox and electronic payment. The idea was to speed the entry/exit process to reduce contact. Vaccination rates and a masking requirement are cited as a basis for the changes. That takes care of the ridership angle.

The other problem hindering full recoveries for public transit providers continues to be that of staffing. Earlier this fall we noted ferry service cutbacks in Washington State due to staff shortages. Now, the metro system in St. Louis, MO is reducing service for the same reason. That bus system is short some 150 workers or 7% of their normal workforce. While the shortage is primarily for operators, the reminder are skilled trade positions which are all competitive employment markets right now.

Transit agencies across the country are having to offer signing bonuses and/or higher wage rates to attract workers. NJ Transit is offering $6,000 to bus drivers; Houston has offered bus drivers and light rail operators incentives up to $4,000 while mechanics have been offered up to $8,000. The New York MTA still has vacancies for more than 600 train operators, train conductors and bus drivers. 

WATER RIGHTS AND THE SUPREME COURT

In 2014, Mississippi sued Tennessee for allegedly “stealing” its groundwater by allowing a Memphis water utility company to pump from the Middle Claiborne Aquifer, which sits below the Mississippi-Tennessee border. Mississippi argued that it had owned that water since it entered the United States in 1817, and sought $615 million in damages from Tennessee. After losing appeals, Mississippi had its case argued before the U.S. Supreme Court.

The Court unanimously ruled against Mississippi when it determined that the legal doctrine of “equitable apportionment”—which has long been used to determine what states get control of interstate surface water—also applies to groundwater. Mississippi contended that it has sovereign ownership of all groundwater beneath its surface, so equitable apportionment ought not apply. We see things differently.” 

Now, Mississippi and Tennessee can use the Middle Claiborne Aquifer. If the states wish for a formal agreement on the size of each state’s share of the water, then they must turn to the courts to go through an “equitable apportionment” process.

OPIOID LITIGATION TAKES A DIFFERENT TURN

When a jury hears a product liability case, the likelihood of a finding against a defendant for a larger than expected amount of money is often a result. The latest example of this phenomenon is the most recent piece of opioid litigation to reach a verdict. The case was brought by two Ohio counties against pharmacies – CVS, Walgreen, and Walmart. It claimed that the pharmacies had no done enough to question prescriptions written for opioid medications. That failure is alleged to have created a public nuisance which the defendants were required to mitigate.

It follows two recent decisions in Oklahoma and California that specifically addressed this issue. Those cases were heard by judges who then rendered their verdicts. In those cases, the courts found that the pharmacies were only filling legally issued prescriptions for FDA approved drugs. Consequently, the California judge and the Oklahoma Supreme Court found that the pharmacies were not responsible for creating a public nuisance.

Now, in one of the first such trials to be heard by a jury, a verdict against the pharmacies has been handed down. The jury had to find that the oversupply of prescription pills and subsequent illegal diversion had created a public nuisance in each county. It also had to find that the problem continued even though the plaintiffs acknowledged that the number of opioids being distributed had declined. The public nuisance law in Ohio requires that the nuisance remain ongoing. The argument to the jury was that the decline in opioid sales had directly led to the abuse of heroin and fentanyl.

It is not surprising that a jury would be swayed by these arguments. It also means that it becomes more likely that with different outcomes being achieved in these cases that a long string of appeals will follow. There to be several aspects of the case which would support an appeal and once the case moves to a higher court where juror misconduct and dramatic displays (both occurred in this case) are not center stage that the verdict will be overturned if not substantially reduced.

MEET ME IN ST. LOUIS

The litigation which resulted from the move of the NFL’s St. Louis Rams to Los Angeles has been settled. That is not a surprising outcome given the potential for a trial to force the league and its owners to effectively “open the books”. What is surprising is the amount – $790 million. That is the size of the award which will be divided between and among the City of St. Louis, the County of St. Louis, and the Regional Convention Center Authority.

The gross amount of the award will be reduced by the lawyer’s share – a minimum of $276 million before expenses. It still, in combination with pandemic funding from the federal government, is an additional shot in the arm to the region’s governments.

SOUTH DAKOTA CANNABIS

The South Dakota Supreme Court ruled that Amendment A, a proposal to legalize recreational marijuana was not valid. The Court was responding to a lawsuit filed in the name of state law enforcement employees so that the state’s Governor could press her opposition to legalized marijuana. The Court found that the proposal did not hew to requirements that a ballot initiative cover only one topic.

The court concluded in the declaratory judgment action that Amendment A was submitted to the voters in violation of the single subject requirement in the South Dakota Constitution Article XXIII, § 1 and that it separately violated Article XXIII, § 2 because it was a constitutional revision that should have been submitted to the voters through a constitutional convention.

The Court seized on the idea that medical marijuana, recreational marijuana, and hemp were three separate issues. The idea is to eliminate confusion. Whether there was confusion isn’t clear but the results were. Amendment A was approved by a majority vote, with 225,260 “Yes” votes (54.2%) and 190,477 “No” votes (45.8%).

IT’S THE WATER

With all of the focus on fossil fuels especially coal for power generation, it is easy to lose sight of the fact that water plays such a significant role in the process. The location of so many plants adjacent to bodies of water reflects that. Now the part water plays in that process may be leading to the end of coal. Recently, we have seen regulators in two states deny rate increase requirements tied to the costs of compliance with federal regulation covering discharges of water from generation plants.

The rules reverse efforts in the Trump Administration to revive the coal industry through regulatory reductions. The new wastewater rule requires power plants to clean coal ash and toxic heavy metals such as mercury, arsenic and selenium from plant wastewater before it is dumped into streams and rivers. According to the Environmental Protection Agency, the rule is expected to affect 75 coal-fired power plants nationwide.

The owners of those plants were required to meet an October deadline to tell their state regulators how they planned to comply, with options that included upgrading their pollution-control equipment or retiring their coal-fired generating units by 2028. That is what is driving the recent spate of announcements from regulated IOU producers. EPA estimates that the rule will reduce the discharge of pollutants into the nation’s waterways by about 386 million pounds annually. It has been estimated that the cost to plant operators, collectively, will be nearly $200 million per year to implement.

SMALL NUCLEAR MOVES FORWARD

One of the issues we believe will move more and more to the forefront of the energy and climate debate is that of small scale modular nuclear reactors. There are three efforts underway with one seeming to be ahead of the others. The U.S. Department of Energy (DOE) announced a Finding of No Significant Impact (FONSI) following the Final Environmental Assessment for a proposal to construct the Microreactor Applications Research Validation & Evaluation (MARVEL) project microreactor.

The proposed thermal microreactor will have a power level of less than 100 kilowatts of electricity using High-Assay, Low-Enriched Uranium (HALEU). The initial goal is to establish a facility which will be capable of testing power applications such as load-following electricity demand to complement intermittent renewable energy sources such as wind and solar. It will also test the use of nuclear energy for water purification, hydrogen production, and heat for chemical processing.

This development comes as other micro and modular reactor efforts are moving through the regulatory process. The hope is that the smaller size will mitigate many construction risks which historically have wrecked the finances of many plants. Another hope is that small nuclear can be seen as an environmentally friendly choice as a source of intermittent peaking power.

MANAGING THE UTILITY TRANSITION

Pueblo County, CO has given its approval to an agreement with Public Service Company of Colorado, an operating subsidiary of Xcel Energy, which calls for the early closure of the Comanche 3 coal-fired power plant by Dec. 31, 2034, six years earlier than anticipated. The company will keep the workforce employed through that date. It will have reduced operations to reduce emissions. Public Service believes it will reach emission reductions of 87%. That is in excess of state requirements calling for a 75% reduction.

Xcel also agreed to pay Pueblo County a “community assistance payment” equal to current property taxes. It is estimated that the payments will amount to approximately $25 million annually from 2035 to 2040. Comanche 1 closes in 2023 and Comanche 2 closes in 2025. The workforce will be just less than 90 workers until Comanche 3 closes in 2034, she said. 

Now, the county has a decade to shift its tax base to reflect the closures and to develop its economy and job base independent of the power generation facilities.

AIRPORTS AND THE PANDEMIC

The Thanksgiving weekend saw the air travel industry receive two pieces of news which could not have more opposite implications. The first is the highest level of travel through the nation’s airports experienced this year. It reflected what was perceived as an improving health environment for travel. Although not at levels seen pre-pandemic, it was clear that American’s were steadily embracing the idea of a “return to normal”.

On the other hand, the omicron virus emergence raises the spectre of a negative impact on economic activity. It seems pretty clear that another widespread economic shutdown in not politically viable, we are already seeing signs of travel limitations. The confirmation of the first case in the U.S. (in California) this week will raise pressure to impose restrictions. This will potentially put pressure to put some travel limits in place even as the Christmas travel season looms.

This puts the spotlight back on airport facilities which rely on people using them and not freight. On example is a central car rental facility. The State of Hawaii opened a 4500-car central facility at the Honolulu Airport this week on December 1. As a stand alone facility, it relies on facility lease payments from rental car companies but also on a Customer Facility Fee which is based on how many car rentals occur.

In the Hawaii case, the ultimate obligation to fund debt service rests with the rental companies. Nevertheless, those companies cannot be expected to maintain the same pre-pandemic presence at the airport if travel is permanently limited.

WHAT IS NOT IN THE BILL

It is not surprising that much of the attention being paid to the infrastructure legislation has to do with its climate related provisions or the lack thereof. The bill is clearly being subjected to analysis which reflects the interests of those parties. Hence, we have heard much about what is in the bill to deal with climate issues as well as what is not. If one listens to the rhetoric, all the coal plants should be shut down today, internal combustion engines should be eliminated, and a variety of other sources of carbon emissions limited or eliminated.

So, climate advocates got some really useful stuff in the bill, right? Well, that is a matter for debate. One example has to do with power for electric cars. One would think that with range anxiety being one of the most if not the most important factor (along with the cost of the vehicles) slowing the adoption of electric cars, that addressing the issue would be an important concern. Alas, that is not the case.

The $1.2 trillion infrastructure bill signed this month by President Biden earmarks $7.5 billion for public EV charging stations. This obviously a key component of any plan to support EVs. At the same time, residential charging will be as important if not more so to drive adoption of EVs. So, there’s funding for that in the bill, right? Unfortunately, there is no funding for residential charging infrastructure.

The International Council on Clean Transportation estimates that in order to increase EV usage from 1.8 million in 2020 to 25.8 million in 2030, the United States will need 2.4 million non-home chargers — about 11 times the current number. Residential chargers, single- and multi-family, would have to climb at an even faster rate, from 1.5 million today to nearly 17 million by the decade’s end, to support the larger EV sales goal. The same study showed that 81 percent of current U.S. EV owners charge their vehicles at their homes, and 73 percent of owners use the cars to commute to work. Yet, the bill contains no public funding incentives for individuals.

The result is that financial support for EV charging at the residential level is expected to come from the distribution utilities. They will be happy to do that as long as they get regulatory support from their state regulators. That means that one way or another, the electric customer will have to pay for that infrastructure if the “subsidy” from the utility is simply recovered in rates. That puts municipal utilities in the center of this issue.

A TALE OF TWO PORTS

The focus on supply change issues especially at the major ports in California could easily lead investors to assume that all ports are moving in lock step as the economy recovers and utilization of ports increases. The huge backlog of containers at the Ports of Long Beach and Los Angeles as well as delays for truckers are well documented. While the threat of fees for delayed movement of containers did some good to address the problem at Long Beach/Los Angeles, those delays are impacting other ports as well.

The Port of Oakland said containerized import volume last month was down 14% from October 2020 levels, while exports were down 27%. The number of ships was down 43% from the previous year. Oakland attributes the decline to “crippling delays” at Southern California ports, forcing companies to divert ships to bypass Oakland and travel directly to Asia. The largest impact has been on U.S. exporters. “Producers who ship goods out of Oakland have been stymied by scarce vessel space,” according to Port of Oakland officials.

IS THIS THE FUTURE OF DEVELOPMENT?

An agreement has been reached which may finally allow the development of a nearly 20,000 residential development in north Los Angeles County. the Tejon Ranch Co. and an environmental group announced that litigation against the proposed 6,700 acre project will be withdrawn. In exchange for the end to the litigation, Tejon Ranch agreed to the installation of nearly 30,000 electric vehicle chargers at residences and commercial businesses in the development. Natural gas connections will not be allowed.

It follows a path established by another L.A. County development – the Newhall Ranch – which reached agreements with environmental interests to facilitate its 21,000 unit development. That agreement included 10,000 solar installations and electric vehicle recharging stations in every home, plus more in the surrounding community.

It would be surprising if this sort of arrangement does not become fairly standard. Preemption legislation may prevent blanket bans on natural gas hookups by localities but the localities can still use the zoning and permitting processes to achieve climate goals. There is no reason why natural gas hookups cannot be addressed through mutual agreements like the ones in L.A. County.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.