Joseph Krist

Publisher

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WESTERN WATER

A wet December raised some hope that the long-standing drought in California might see some relief. Unfortunately, a very dry January quickly diminished that hope. Now, the drought in the West drags on. Water agencies that serve 27 million people and 750,000 acres (303,514 hectares) of farmland, have been informed that will get just 5% of what they’ve requested this year from state supplies beyond what’s needed for critical activities such as drinking and bathing. That’s down from the 15% allocation state officials had announced in January, after a wet December fueled hopes of a lessening drought. The January-March period will be the driest start to a California year at least a century. 

Lake Powell water levels dropped below 3,525 feet this week, or just 35 feet above the lowest level at which the dam can still generate hydropower. That is its lowest level since the lake filled after the federal government dammed the Colorado River at Glen Canyon in 1963. Lake Powell steadily filled with water before reaching full pool in 1980. Some 5 million customers in seven states — Arizona, Colorado, Nebraska, Nevada, New Mexico, Utah and Wyoming — buy power generated at Glen Canyon Dam.

The U.S. Bureau of Reclamation officials last summer took an unprecedented step and diverted water from reservoirs in Wyoming, New Mexico, Utah and Colorado in what they called “emergency releases” to replenish Lake Powell. In January, the agency also held back water scheduled to be released through the dam to prevent it from dipping even lower.

Even if the drought were to end and the lake could be fully refilled, the years of reduced flows have impacted storage capacity. Current storage capacity at full pool (3702.91 feet above NAVD 88) is 25,160,000 acre-feet. Compared to previously published estimates, this volume represents a 6.79 percent or 1,833,000-acre-foot decrease in storage capacity from 1963 to 2018 and a 4.00 percent or 1,049,000-acre-foot decrease from 1986 to 2018.

UBER’S NEW ARRANGEMENT

It was the stated goal of Uber to more than disrupt local transportation systems. We have written often about the issues arising from the “disruptive” playbook flaunting rules and laws followed by the transportation network companies (TNC). Prior to the pandemic, the competition against legacy transit modes (mass transit and taxis) put mass transit under enormous pressure. Once the pandemic hit, the demand for all sorts of public mass transit plummeted.

For a while, Uber was surviving essentially as a food delivery enterprise. Now with the recovery tentatively underway, oil prices have driven the costs for TNC drivers to levels which make the cruising around empty that some of those cars have to do uneconomical. While stepping away from driving might work for some drivers, the TNC business model relies on more not fewer drivers.

Now the disruption has shifted directions negatively impacting the TNC business model which relies on more not fewer fares. In NYC, Uber has announced that it has partnered with two taxi-centric tech companies to provide an app which would allow the city’s medallion taxi drivers provide rides. This marks the uniting of what were two groups with opposite interests.

The new Uber-taxi partnership in New York did not require the approval of the city’s Taxi and Limousine Commission, which oversees the taxi industry. Passengers can still wave down yellow taxis in the street or order them through two taxi apps, Curb and Arro, which offer upfront pricing like with Uber rides.

The benefit for Uber is that it integrates a competitor without directly limiting that competitor. It gives Uber more access to drivers and they do get a fee for every ride ordered through the app.

GAS TAXES

Maryland became the first state to enact an actual gas tax holiday. Maryland’s gas tax of 36 cents per gallon is now suspended for 30 days for both regular and diesel. A driver of a vehicle with a 12-gallon tank could save about $4.32 a fill-up. The legislation does not mandate that retailers reduce their prices by 36 cents. The state estimates it would lose about $94 million in revenue under the 30-day suspension.

Gov. Brian Kemp signed a law suspending Georgia’s motor fuel tax through the end of May. The measure would also abate Georgia’s taxes on aviation gasoline, liquefied petroleum gas and other fuels including compressed natural gas. Suspending collections could cost the state up to $400 million. The Governor expects to use part of the roughly $1.25 billion in leftover surplus from the last budget year.

A 2020 report from the American Road & Transportation Builders Association that analyzed 113 state gas tax changes enacted over several years found that only about one-third of the value of previous gas tax cuts or tax increases were passed on to consumers.

PANDEMIC IMPACT ON NYC SCHOOL FUNDING

The Mayor’s Preliminary 2023 Budget includes $30.7 billion in 2023 for the Department of Education (DOE), $1.3 billion less than the amount budgeted in the current year. The city’s traditional public schools experienced an unusually large decline of almost 38,000 students between the 2019-2020 and 2020-2021 school years, the largest decline in a decade, with an additional decline projected from 2020-2021 to 2021-2022. much of the enrollment loss experienced by traditional public schools last year occurred within the youngest cohort of students.

The DOE’s portion of the city’s Program to Eliminate the Gap (PEG) is $557 million of savings. The largest is a $375 million reduction in spending that stems— according to city budget documents—from a reduction in authorized headcount following enrollment declines at many schools. The savings result from a reduction in the number of city-funded positions allocated within the DOE’s general education instruction budget that are currently vacant. A portion of the headcount reduction resulting from the PEG is offset, however, by the reallocation of federal Covid relief funds from other areas of the DOE budget. Those funds will not be available after fiscal 2024.

CLIMATE, DISCLOSURE, AND THE SEC

The Securities and Exchange Commission proposed rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions.

The proposed rule changes would require a registrant to disclose information about (1) the registrant’s governance of climate-related risks and relevant risk management processes; (2) how any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term; (3) how any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook; and (4) the impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a registrant’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.

MEMPHIS AT THE CENTER OF CLIMATE DEBATE

The Tennessee Valley Authority (TVA) supplies Memphis and Shelby County with all of its electricity. Recently, TVA announced plans to replace coal fired generation with natural gas fueled plants. The decision seemed to fly in the face of the current Administration’s goal of reducing and eliminating fossil fuel fired generation. The decision comes as Memphis Light, Gas, and Water is evaluating whether to remain as customers of TVA of to pursue other options.

MGLW is not without options. MLGW has received 27 bids from the private sector on its electricity supply.  TVA has also appointed an officer to be located in Memphis to try to keep MLGW as a customer. Multiple studies, including a detailed one from an MLGW consultant, have shown the opportunity for substantial annual savings of more than $100 million if the city moves away from TVA.

Is it important to TVA? The Authority is offering funds for weatherization and the offer of purchasing MLGW’s power transmission system for about $400 million. It offers to move more than 100 employees into Memphis as part of a new regional headquarters and spend tens of millions on home weatherization and reducing energy burdens. It is estimated that some $1 billion of TVA revenues could be lost if Memphis leaves.

Memphis has also been at the center of a significant pipeline dispute. The pipeline would have connected the Valero oil refinery in south Memphis to Byhalia, Mississippi. Part of the pipeline would have passed through low-income Black neighborhoods in south Memphis, and there were fears the pipeline would contaminate the Memphis sand aquifer, where the city gets its drinking water if it leaked. Strong local opposition led to the project being abandoned by its sponsor.

Now, the Tennessee legislature is considering preemption legislation which would effectively limit local regulation and permitting of utility infrastructure. This puts Memphis at the center of issue like environmental equity and justice, climate change, and economic justice. No matter how the issues are decided, the results could have ratings impact. In August, 2020 Moody’s maintained its solid Aa2 rating on the electric system debt.

It noted that its long-term power supply contracts were a positive credit factor. “Challenges confronting the utility, however, include the below average socioeconomic profile within its service territory, uncertainty around its relationship with TVA moving forward and system reliability. That was before the issue of the TVA contract had really moved forward and before this winter’s storm which crippled the City’s transmission and distribution system for over a week. Now those concerns are real and the system’s ratings could take a hit.

PREPA RATE INCREASE

The Puerto Rico Electric Power Authority and LUMA Energy, which operates the transmission and distribution of PREPA’s electricity to the island, are currently seeking an increase of 4.265 cents per kilowatt-hour from the Puerto Rico Energy Bureau for the April through June quarter. This would amount to a 16.6% increase in rates. Gov. Pedro Pierluisi withdrew his government from PREPA deal that had been reached in May 2019 earlier this month, arguing it was too generous to bondholders and would increase rates too much.

It is not as if the spike in oil prices will make the already difficult effort to reach a settlement of the restructuring of PREPA’s debt any easier. Any such settlement will result in higher rates. It may be that the deal which the Governor rejected may be the best that could be obtained. Here is where the failure to reimagine Puerto Rico’s electric grid leaves the system vulnerable to fossil fuel price risk. The continued orientation towards a centralized generation and transmission system vs. the development of microgrids and more localized generation (primarily renewable) maintains that vulnerability.

PORTS

This week, Moody’s reaffirmed its positive outlook for the port sector. After a difficult period, attributable largely to pandemic factors, ports have begun to return to more levels of activity. Some have raised concerns about the impact of the war in Ukraine. Moody’s notes that the US and Russia have little direct waterborne trade. Russia accounted for less than 2% of all trade at US ports in 2021 as measured by value, according to the US Census Bureau.

Any impact is more likely to be seen on East Coast ports. Container trade between the US and Europe represents about 15% of total container volume for US ports.  One quarter of this trade is handled at the Port Authority of New York and New Jersey.

The cruise industry, having only recently begun to recover from the coronavirus pandemic, now faces pressure from a combination of higher fuel costs and weakened booking trends during this time of uncertainty. Bookings are strong for the second half of 2022. Cruise accounts for less than 10% of revenue for the US ports sector overall. Florida is an outlier in that regard. It is estimated that cruise ships are an important source of demand (25%-70% of revenue) for a handful ports in Florida and on the Gulf Coast.

POWER AUTHORITY DEBT FOR TRANSMISSION

Moody’s Investors Service has assigned an A2 rating to New York State Power Authority’s $569 million Green SFP Transmission Project Revenue Bonds. This is the initial financing for the two projects secured away from the NY Power Authority’s general credit. the repayment of SFP Transmission’s debt obligations derived solely from and secured by a pledge of revenue earned by the specific transmission projects’ assets.

Proceeds from the bond offering will be used to fund capital expenditures related to two transmission projects currently under construction, the Central East Energy Connect Transmission Project (CEEC) and the Smart Path Reliability Transmission Project (Smart Path).

CEEC is designed to increase electric transmission from Central to Eastern New York. It is approximately 36% complete (anticipated commercial operations in late 2023) and ownership is split between NYPA (37.5%) and an unaffiliated third-party (62.5%). The project will be managed by NYPA’s senior partner. NYPA is the sole owner of Smart Path and will manage that construction.

Smart Path involves rebuilding transmission lines that extend approximately 86 miles from the St. Lawrence Power Project’s Robert Moses Power Dam Switchyard to the Town of Croghan, Lewis County, NY and consists of 6 separate segments, 3 of which have been completed (about 64% complete) with full operation anticipated in mid-2023.

According to NYPA’s General Resolution, separately financed projects such as the ones under SFP Transmission will not receive any support from NYPA’s general credit, must be self-supported by pledged revenues, and pay for its own costs of operations. Moreover, there will be no cross default between the two entities.

MUNIS AND BIOFUEL

Cascade County, Montana is moving forward with the process of approving the issuance of $550 million of tax-exempt municipal bonds which would finance the construction of a renewable fuels refinery capable of processing renewable feedstocks into sustainable alternatives. The project would be adjacent to an existing oil refinery.

The renewable manufacturing refinery will be processing soybean oil feedstock into renewable diesel fuels. The company estimated that construction would begin in the fall of 2021 and the project would be completed by the end of 2022. The proposed project would have a production capacity of about 15,000 barrels of biodiesel daily.

The bonds would provide project finance and would be secured under loan agreements between the issuer and Montana renewables.

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