Joseph Krist

Publisher

LAKE MEAD

The Upper Colorado Basin’s snowpack stands at almost 160% above normal. Forecasts say the melting snow flowing into Lake Powell via the Colorado River and its tributaries could hit 177% of average this year. Colorado’s snowpack is well above average, and Utah had its snowiest winter on record. So, we’re all good? Right?

Colorado River flows have declined about 20% compared to historic flows, even with this year’s record-breaking snowfall. Regional water authorities predict that Lake Powell will end 2023 at 3,573 above sea level. That would be a clear improvement over last year when it ended the year at 3,524 feet. Lake Mead ended 2022 at 1,044 feet, and authorities predict it will end this year at some 1,068 feet.

Those levels must be compared with Lake Powell’s official full level of 3,700 feet. It’s peak storage was when it filled to 3,708 feet in 1983. In 1983, Mead reached 100% full at 1,225 feet. At their lowest levels, Lake Powell was at 23% of capacity, while Lake Mead had reached 28% of capacity. Combined, they are today only about 26% full.

MAINE TRANSMISSION TRIAL

The New England Clean Energy Connect, a long-running effort by Massachusetts to import 1,200 megawatts of electricity produced by hydropower from Quebec is facing a crucial legal test. A jury of nine Cumberland County residents in Maine’s Business and Consumer Court will sit at trial to decide if the billion-dollar project can move forward. 

The trial revolves around the question of whether or not a 2021 referendum on the project which resulted in a 60% -40% vote against the project came in time to stop it. The jury’s specific task is to decide whether Central Maine Power had completed enough work by the time the referendum intervened that it can legally finish the project. The referendum came after the project had completed the full approval process before Maine state regulators.

The politics of the issue have, as they say, made for strange bedfellows. The usual profiles of opposing groups on these sorts of issues do not fit this case. On one hand the opposition is over process and how much local participation there was. Those interests have combined with operators of natural gas fueled merchant generation to oppose cheaper hydropower. Some environmentalists find themselves on opposite sides of the issue from entities like the Sierra Club.

What does not help is the role of the energy supplier – Avingrid – in this mess. Avingrid (a foreign owned company) acquired Central Maine Power as part of an effort to develop a retail base in the US for its renewable energy projects. (Full disclosure, I am an Avingrid customer. Thoughts and prayers are accepted.) 

Based on their abysmal customer relations policies and operational shortcomings, those subsidiaries are seen negatively by the public. Comments from CMP’s customers in Maine were among the things which led the New Mexico power regulators to deny Avingrid’s bid to purchase Public Service of New Mexico.

CLIMATE LITIGATION A STATE COURT MATTER

The Supreme Court last week declined to hear five appeals from the fossil fuel industry seeking to move climate change lawsuits it faces to the federal courts. The lawsuits before the high court were filed by Rhode Island, the cities of Baltimore, Honolulu, and Imperial Beach, California, and counties in California and Hawaii. 

To date, at least five federal circuit courts of appeals have considered the jurisdictional issue and concluded that there were insufficient grounds to move the cases from the state courts to federal jurisdiction. A separate appeal filed by the oil companies challenging lower court decisions in cases out of New Jersey and Delaware is still pending before the Supreme Court.

The decision is the first since a 2021 SCOTUS ruling that found that an appeals court relied on too narrow an interpretation of a procedural issue against the fossil fuel companies.

NY BUDGETS

NYS finally has a budget some one month late. Fiscal and non-fiscal issues delayed enactment and revolved around perennial concerns – housing, mass transit, bail reform. The issue of housing was effectively punted until the budget was completed as there is some 60 days more in the legislative session. Bail reform was reduced as an issue which left funding for the MTA as the remaining fiscal issue.

The budget agreement provides new and recurring funding for the MTA through an increase in the payroll tax paid by the city’s big businesses. The increase is expected to generate about $1.1 billion for the agency. In addition, the agreement includes a one-time payment from the state of $300 million. It also includes an additional $65 million payment to reduce a proposed fare hike. New York City will be expected to provide $165 million. The state initially proposed a yearly payment of $500 million from the City.

The State budget includes a $1 increase in the tax on a pack of cigarettes. Tuition for out of state students at SUNY and CUNY will increase. The budget agreement also included a prohibition on the use of gas stoves in new construction. The ban on the stoves is the first statewide ban to be enacted. All of the previous bans were imposed by localities. Note that existing gas furnaces can be replaced. The ban is only on new construction.

Now that a budget has been arrived at, the focus moves to the NYC budget. The state will provide some $1 billion of aid to address the costs of asylum seekers. The aforementioned payment from the City to the MTA and the addition of $300 million in state assistance to the MTA remove significant uncertainties from the City budget.

HOSPITALS – BIG GETS BIGGER

The wave of consolidation in the healthcare industry continues. The latest example comes from the announcement that Kaiser Permanente is acquiring Pennsylvania’s Geisinger Health System. Geisinger is a large regional provider with an extensive provider network. Like Kaiser it combines hospitals and insurance in its basic business model. The transaction expands Kaiser Permanente’s footprint across the country.

Kaiser has formed a subsidiary – Risant Health – which plans to acquire several health systems. Geisinger would operate independently under the new subsidiary of Kaiser’s hospital unit after the deal closes, which is expected early next year. Geisinger, based in Danville, Pa., reported about $6.9 billion in revenue last year. It counts 10 hospitals and about 600,000 health plan enrollees and employs more than 1,700 doctors. 

MAY 11

This week will mark the end of the use of Title 42 as a method to limit crossings primarily from the southern border by immigrants. Rooted in public health control issues, Title 42 was seized upon by the Trump administration to limit crossings from Mexico by basing its use upon pandemic limitations. As the pandemic waned, Title 42 has remained in place as the size of the pool of potential asylum seekers has continued to grow.

Without Title 42, asylum seekers will be able to gain admittance to the US for processing of their claim. This will focus even more attention on the costs of the lack of a realistic immigration system. It will also focus attention on the budgets of two of the nation’s largest cities – New York and Chicago. Government officials in border states, especially in Texas, have already indicated their intention to continue to bus new arrivals to these two cities. New York already counts over 50,000 new asylum seekers. More than 8,000 migrants have come into Chicago since August, according to city officials. Chicago runs eight shelters dedicated to new migrants. 

In Texas, El Paso, Laredo and Brownsville declared states of emergency ahead of the end of pandemic-related asylum restrictions. In Denver this month, officials announced that only immigrants with a formal application to stay in the U.S. will be allowed in emergency shelters. Denver has spent nearly $13 million sheltering and supporting more than 6,000 migrants.

TRANSIT FUNDING

While much of the attention focused on the Tennessee legislature this year has been about social issues, there has been action on transportation. Tennessee Gov. Bill Lee signed a bill that will allow for the creation of “choice lanes” on congested highways in urban areas. The plan would let drivers pay a fee, which rises and falls with traffic demand, to use an express lane. Buses will be able to use the lanes without paying the toll. The legislation authorizes public-private partnerships for the development of the “choice lanes.”

The big effects reflect the decision to at least authorize toll-based funding and the use of P3 structures to finance, fund, and construct transit infrastructure. The increased use of tolling in the Southeast reflects long standing changes in culture and the migration of Northerners who have experienced toll roads as a fact of life.  That historic resistance has slowed the implementation of toll-based funding. The framing of the issue of tolling as one of user-based funding to support the use of tax dollars to fund these expansions has had appeal.

In Colorado, legislation was enacted to expand a free fare program for mass transit to reduce air pollution by offering free public transit rides during peak ozone season. Zero Fare for Better Air was backed by $28 million of funding and provided free bus and train rides for the entire month of August.  A total of 15 transit agencies took part. This year’s bill expands the grant program allows transit agencies to roll over the money and use it for rider outreach. It also gives transit agencies more flexibility on when to use the money, as Colorado regions experience ozone season differently.

It clearly had an impact on ridership. Denver’s RTD reported a 22% increase in ridership during the free-fare month and an increase of 36% from August 2021. Ridership increases in other counties were significant. Pueblo County reported a 59% increase over the year prior, Archuleta County a 56% increase and 48% for Mountain Metro in Colorado Springs. 

VIRGIN ISLANDS WATER AND POWER

When we last commented, the Virgin Islands Water and Power Authority was staring down a deadline to finance a $145 million buyout deal with propane supplier Vitol. The highly politicized board of the Authority was delaying a vote on the plan effectively risking the Authority’s ability to operate its power generation facilities. Finally, a package of funding was approved by the legislature and the buyout can move forward.

The legislature has been debating a proposal to approve a $150 million line of credit to make an initial cash payment of $45 million to Vitol which was due on April 14. It finally approved amended legislation on April 21, granting the government access to a $100 million line of credit. That meant to enable the government to make the initial payment to Vitol by the new deadline, which was May 1. A first payment of $45 million is being advanced by the V.I. government under the line of credit. WAPA will fund the payment to Vitol $100 million by August 14. The generation facility would then be controlled again by WAPA enabling it to procure Propane more freely.

It is a short-term fix as the ultimate source of the $145 million cost of the buyout has yet to be established. WAPA plan was to apply for reimbursement for the $145 million buyout from the U.S. Department of Housing and Urban Development, but the federal agency has yet to agree to provide that funding. That reliance on a federal buyout has been seen as problematic by many and it continues to limit the positive credit impact it will have.

Power remains a highly expensive commodity in the VI. The current retail rate is 41 cents a kilowatt hour, including 22 cents for the Levelized Energy Adjustment Clause or fuel rate, plus 19 cents from the base rate, which pays for day-to-day operating costs. WAPA’s actual operating cost is around 55 cents, depending on fuel prices. The gap has been subsidized by the VI government. The fuel cost declines expected under the new structure are looked at as a chance to reduce the subsidy.

RATINGS

Moody’s announced that it has downgraded the City of Jersey City, NJ’s issuer, general obligation unlimited tax (GOULT), and city-guaranteed ratings to A1 from Aa3. The outlook was revised to negative from stable. The action is a reflection of the fact that bond raters, investors, insurers do not like surprises. Moody’s is pretty clear on this issue in the case of Jersey City.

In 2021, the city’s audit reported a financial result materially worse than indicated by previously published unaudited financials. Moody’s notes that this is an unusual occurrence in New Jersey. The final audit reflected a significant operating deficit and negative adjusted fund balance. Moody’s notes that the city has raised taxes materially and taken other steps to stabilize its finances. Unaudited results for 2022 reflect a considerable recovery.

An outside consultant which works with the City on its finances and suggests specific steps also reports out of date systems and internal controls. Weak internal systems in municipal governments are not a new phenomenon. That is unfortunate. In this case, Moody’s specifically cited the state of the city’s IT infrastructure as something “which must be addressed before the city’s finances can truly be on a healthy footing; as a result, governance is a key driver of this rating action.”  

The Northern California healthcare powerhouse Sutter Health has been dealing with a variety of legal issues relating to its anticompetitive practices. The system had to pay some $575 million to settle state litigation. The cash hit as well as the negative impacts of the pandemic on the hospital sector pressured Sutter’s ratings.

After a sustained period of bad credit news, the trend has been reversed. S&P Global Ratings raised its long-term rating to ‘A+’ from ‘A’ on Sutter Health. The move was based on improved operating results and the lack of extraordinary funding costs of legal settlements lead to an improved balance sheet as well.

Detroit was the beneficiary of a rating upgrade from S&P. S&P Global Ratings raised its long-term rating to ‘BB+’ from ‘BB’ on Detroit’s unlimited-tax general obligation (GO) debt. Another year of positive financial results and improvements to reserves and liquidity supported the upgrade. The outlook is positive based on Detroit’s recent revenue growth and forecasts showing that it can follow through with its financial plan, at least in the near term. The current administration has gained credibility and political support for its efforts to maintain balanced finances. The city benefits from the undeniable improvement in the city (at least its CBD) which reflects the strength of the state’s major industry.

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