Ditto Calls For House To Keep Direct Pay Energy Tax Credits In Build Back Better Act

November 16, 2021

by Paul Ciampoli
APPA News Director
November 16, 2021

The House of Representatives should keep the provisions of the Growing Renewable Energy and Efficiency Now Act in H.R. 5376, the Build Back Better Act, Joy Ditto, President and CEO of the American Public Power Association (APPA), said in a Nov. 15 letter to Rep. Michael Thompson, D-Calif., Chairman of the House Subcommittee on Select Revenue Measures.

“The act as drafted will ensure that all utilities and their customers benefit from incentives encouraging investments to transition to cleaner energy technologies: investments needed to reduce greenhouse gas emissions,” wrote Ditto. “Enactment would mean that all utilities, not just for-profit utilities, can directly benefit from energy tax incentives. This will make these incentives fairer and more effective,” she said.

In the letter, Ditto also notes that federal tax expenditures are the primary tool Congress uses to incentivize energy-related investments. However, tax-exempt entities — including public power utilities, rural electric cooperatives, and other not-for-profit entities — cannot directly claim such incentives.

“In effect, utilities serving nearly 30 percent of utility customers in the U.S. are effectively locked out of owning such facilities. This explains why 80 percent of the nation’s (non-hydropower) renewable energy generating capacity is owned by merchant generators,” wrote Ditto.

The Build Back Better Act “addresses this inequity by allowing the direct payment of energy tax credits — including production, investment, and carbon capture tax credits — to any entity that owns the project. This would remove the financial disincentive for public power utilities to own such facilities, which are needed to transition to cleaner energy technologies needed to address climate change.”

It would also allow the full value of these credits to pay for additional clean energy investments that will benefit the more than 90 million Americans nationwide served by tax-exempt, not-for-profit electric utilities, she said in the letter.

“We strongly encourage Congress to take the steps needed to make these tax credits both more effective and more equitable for public power utilities and the communities they serve,” Ditto said.

The House could vote as early as Saturday, Nov. 20, on the Build Back Better Act. The vote hinges on formal estimates of the legislation’s costs by the Congressional Budget Office and Joint Committee on Taxation, which could be available as early as Nov. 19.

If approved by the House, the Build Back Better Act would next head to the Senate for consideration, possibly during the second or third week of December.

Fayetteville PWC Completes $94 Million Bond Issuance, Secures Historic Low Interest Rate

November 9, 2021

by Paul Ciampoli
APPA News Director
November 9, 2021

The Fayetteville Public Works Commission (PWC) in North Carolina has issued $94.79 million of revenue bonds at an interest rate of 2.278%, the lowest rate ever achieved by PWC outside of state lending. 

Citigroup Global Markets Inc. was the successful purchaser of the bond series and the PWC funding closed on November 4, 2021, PWC reported on Nov. 5. 

PWC issued its Series 2021 Bonds to fund improvements to its electric, water and wastewater utilities, including $22 million to fund continued work to retrofit utilities in the City of Fayetteville’s Phase V annexation area.

“The low cost of borrowing helps PWC maintain highly-reliable utility services and demonstrates the strength of Fayetteville’s utility system and its management,” said PWC CEO and General Manager Elaina Ball in a statement. “When we can fund continued system improvements through low-cost borrowing, it ensures we can continue to provide reliable utility services while also managing our customers’ costs.“

The bonds represent PWC’s continued investment in its electric, water and wastewater systems to support growth, reliability, water quality and compliance, Ball noted. “The investment continues to address PWC’s multi-year plan of rehabilitation and replacement of aging infrastructure to ensure safe and reliable services for our 118,000 customers,” she said.

Overall, $90 million of the bond funding is dedicated to PWC’s water and wastewater system. 

PWC will use $48 million to replace, upgrade and rehabilitate system mains, manholes and lift stations throughout its more than 2,500 miles of water and sanitary sewer system.  

Over $10 million will fund back up generation at PWC’s water and wastewater treatment facilities for storm readiness. Backup generators have been critical when hurricanes caused extended power outages and flooding. PWC’s Rockfish Water Reclamation facility will receive $8.2 million to fund plant improvements and expansion plans in support of community growth, it noted.

The PWC Electric system will use over $7 million of the bond funds to replace one of PWC’s 30 electric substations and fund the expansion of PWC’s battery storage system at its community solar farm by 1.5 megawatts. 

“PWC received favorable bond ratings by all three rating agencies which underpins our credit-worthiness and keeps our cost of capital low,” said Ball.   

“Utilities required a substantial amount of capital to keep up with growth, replace aging infrastructure and maintain the reliability of their systems. Having such a low cost of borrowing is a key benefit of being a publicly owned utility and helps manage bill affordability for our community,” she noted.

Moody’s, Standard & Poor’s (S&P) and Fitch Rating agencies all affirmed PWC’s AA stable financial ratings during the bond issuance process. 

Moody’s assigned PWC an Aa2 rating in a statement that noted PWC’s financial position will remain sound given its long-standing history of conservative budgetary practices and asset management.

Fitch Ratings assigned and affirmed PWC’s “AA” rating based on PWC’s very strong financial performance characterized by very low leverage, strong operating cash flow and healthy liquidity.

S&P assigned PWC its “AA” long-term rating stating key factors supporting the ratings include PWC’s deep and diverse service area, credit supportive policies and robust financial metrics. 

S&P said PWC has “a very strong operational and management assessment, highlighted by an experienced a sophisticated management team engaged in credit-supportive planning and in adopting a robust set of financial policies and reserves. “

PWC noted that the bond issuance process required significant resources working collaboratively over a well-designed and managed schedule spanning four months.

APPA Joins State And Local Stakeholders To Oppose “Minimum” Tax On Bond Interest

November 3, 2021

by APPA News
November 3, 2021

The American Public Power Association (APPA) has joined with other state and local stakeholders in opposition to the inclusion of municipal bond interest in a new Corporate Alternative Minimum Tax (AMT) included in the latest draft of the Build Back Better Act.

In their Nov. 1 letter to congressional leaders, APPA and the other groups note that tax-exempt bonds are the primary mechanism through which state and local governments raise capital to finance a wide range of essential public projects.

“This includes not only local roads, highways, and bridges, but also — among other things — airports, public transportation, affordable housing, water and wastewater, schools, libraries, town halls, nonprofit hospitals and universities, police and fire stations, and electric power and gas facilities. These are the investments that make our communities livable and commerce possible,” the letter said.

“Above all else, our groups are committed to minimizing the cost of financing these projects — costs that must be paid by our communities -– by preserving the tax exemption on municipal bonds,” the groups said in the letter.

The groups voiced alarm that section 138101, Corporate Alternative AMT, of the Rules Committee Print of the Build Back Better Act would impose a 15 percent minimum tax on tax-exempt bond interest for purchasers that currently hold about one quarter (or just under $1 trillion) of outstanding tax-exempt municipal bonds.

“Ultimately, this tax will not be borne by corporations, but by our communities, in the form of higher interest demanded by bondholders,” the letter went on to say.

“Our organizations are currently analyzing the effect of this provision, but we know that the Congressional Research Service estimates that subjecting private activity bonds to the individual AMT has raised the interest cost of those bonds by 50 basis points. Again, we do not know whether the effect would be identical, but can safely conclude that subjecting an even broader array of state and local government and non-profit bonds to this new tax will raise community borrowing costs.”

APPA and the other groups said that considering the size of the municipal bond market, with over $4 trillion in debt outstanding, “the costs will be significant and, again, will be borne by our communities, not by the holders of the bonds.”  

At the same time, provisions that would improve municipal finance by increasing flexibility and decreasing costs were excluded from the Rules Committee Print despite being approved by the House Committee on Ways and Means earlier this year. These include provisions to reinstate the ability to issue tax-exempt advance refunding bonds, to increase the small issuer exception from $10 million to $30 million, and to restore and expand the use of direct-pay bonds. “It is inconceivable that neither of the two infrastructure bills currently being considered by Congress include provisions to improve infrastructure financing,” the groups said.

Cities, counties and states will need to partner with the federal government in carrying out the policies proposed in Build Back Better, “but these added costs will severely impact our ability to do so,”: the letter states.

As a result, the groups urged the House and Senate to amend section 138101 of the Rules Committee print to exclude tax-exempt bond interest from the proposed Corporate AMT.

Specifically, for purposes of calculating the AMT, adjusted financial statement income should be decreased by interest that is excluded from gross income under Internal Revenue Code Section 103.

“We would also strongly urge the House and Senate to include the elements of our bond modernization agenda, including reinstating the ability to issue tax-exempt advance refunding bonds, increasing the small issuer exception from $10 million to $30 million, and restoring and expanding the use of direct-pay bonds.”

Fitch Upgrades Illinois Municipal Electric Agency’s Credit Rating

October 26, 2021

by Paul Ciampoli
APPA News Director
October 26, 2021

Fitch Ratings recently announced that it has upgraded its assessment of the credit worthiness of the joint action agency that provides wholesale power to 32 municipal electric systems throughout Illinois.

On Oct. 22, 2021, the ratings service upgraded its evaluation of the Illinois Municipal Electric Agency (IMEA) from A+ with a positive outlook to AA- with a stable outlook.

The upgrade reflects the strong long-term financial performance of IMEA and the municipal members that it serves, and places IMEA among the top-rated electric joint-action agencies in the nation. 

In granting the upgrade to AA-, Fitch noted IMEA’s “strong operating risk profile is driven by a low cost burden and diversifying resource base.”

Fitch also noted that IMEA’s wholesale rates have been steady over the past several years and retail rates for the largest members are near the state average and considered very affordable.

IMEA President and CEO Kevin Gaden said the new rating “demonstrates a positive, independent appraisal of our agency’s fiscal policies. IMEA provides our members with an affordable and reliable power supply, while we continue to diversify our resources and manage all the changes in the electric utility industry.”

IMEA is a not-for-profit wholesale power provider comprised of 32 municipal electric systems. Municipal members include Altamont, Bethany, Breese, Bushnell, Cairo, Carlyle, Carmi, Casey, Chatham, Fairfield, Farmer City, Flora, Freeburg, Greenup, Highland, Ladd, Marshall, Mascoutah, Metropolis, Naperville, Oglesby, Peru, Princeton, Rantoul, Red Bud, Riverton, Rock Falls, Roodhouse, St. Charles, Sullivan, Waterloo and Winnetka.

Fitch Highlights Fayetteville Public Works Commission’s Strong Financial Performance

October 24, 2021

by Paul Ciampoli
APPA News Director
October 24, 2021

Fitch Ratings has assigned and affirmed an “AA” rating to bonds issued by North Carolina’s Fayetteville Public Works Commission (PWC). The rating reflects PWC’s very strong financial performance characterized by very low leverage, strong operating cash flow and healthy liquidity, Fitch said.

The rating outlook is stable for the public power utility, Fitch said.

Additional planned debt issuances to fund capital expenditures over the next five years will increase leverage for PWC, but Fitch believes revenue contributions from the utility’s multiple business lines, which includes electric, water and wastewater systems, will continue to support ratios consistent with the current rating.

“PWC maintains strong revenue defensibility assessment, which is buoyed by each utility system’s monopolistic revenue source characteristics and autonomous rate setting ability,” Fitch said.

The rating also considers an expectation for lower electric operating costs following the execution of PWC’s renegotiated Power Supply and Coordination Agreement with Duke Energy Progress, LLC in November 2019.

The power supply agreement is expected to save PWC approximately $300 million through the remaining life of the contract which extends to 2042, although PWC has the option to terminate the contract in 2032, and in each year thereafter, if it provides a three-year written notice.

Fitch assigned the “AA” rating to approximately $98.3 million revenue bonds, series 2021, issued by PWC.

In addition, Fitch affirmed the “AA” rating to approximately $266.6 million outstanding series 2014, series 2016 and series 2018 parity revenue bonds issued by PWC.

In addition, Fitch has assessed PWC’s Standalone Credit Profile (SCP) at “aa.” The SCP represents the credit profile of the utility on a stand-alone basis irrespective of its relationship with and the credit quality of the city of Fayetteville, N.C.

Fitch Affirms Grand River Dam Authority’s A+ Rating, Stable Outlook

October 19, 2021

by Paul Ciampoli
APPA News Director
October 19, 2021

Oklahoma-based Grand River Dam Authority’s (GRDA) continued strong financial performance and very low operating costs were among the key reasons that led Fitch Ratings to affirm GRDA’s A+ stable rating on Oct. 6.

Fitch noted that GRDA’s “very low rate anchors its competitive position and provides customers with an economic incentive to continue purchasing from the authority.”

Fitch also said that GRDA’s operating flexibility has benefited from a well-diversified resource mix. That mix includes GRDA’s gas, coal, water, and wind generation assets that combine to help keep operating costs low and reliability high.

Fitch assessed GRDA’s operating costs burden as “very low based on an operating cost that has remained consistently below 5 cents [per kilowatt-hour] during the past five years.”

GRDA noted that it currently maintains the highest credit ratings in its history from the three major credit rating agencies: Fitch, Moody’s Investor Service and Standard & Poor’s.

GRDA is a joint action agency that generates, transmits and sells electricity to Oklahoma municipalities, electric cooperatives and industrial customers, as well as off-system customers across a four-state region. At the same time, GRDA manages over 70,000 surface acres of lake waters in Oklahoma, as well as the waters of the scenic Illinois River.

TVA Launches Inaugural Green Bond Offering, Sets Interest Rate Record

September 21, 2021

by Paul Ciampoli
APPA News Director
September 21, 2021

The Tennessee Valley Authority (TVA) announced and priced a $500 million offering of 10-year maturity green bonds on Sept. 13, its first offering of a sustainability-focused financial instrument.

Based on TVA’s recently released Sustainable Financing Framework, the bonds will fund ongoing capital investments that build on TVA’s environment, social and governance successes and support meeting the goals of TVA’s Strategic Intent and Guiding Principles endorsed by the TVA Board of Directors in May 2021, TVA said.

A key intent of that document is to aggressively move TVA toward a sustainable, net-zero carbon energy future by 2050 while maintaining low costs and reliability, TVA noted.

“TVA’s financial position has strengthened over the past decade, and we are continuing our disciplined financial approach as we invest in the energy system of the future,” said John Thomas, TVA Chief Financial & Strategy Officer, in a statement.  “Low cost financing for our strategic capital investments will contribute to keeping energy rates as low as feasible even as we make progress toward our net-zero carbon aspirational goal.”

The bonds carry a coupon interest rate of 1.500%, which sets a record for the lowest rate ever achieved by TVA on a 10-year financing.  TVA’s previous record on a 10-year maturity was set in 2012, with a rate of 1.875%.  The record low rate on the bonds will save TVA over $15 million in annual interest expense compared to bonds that matured earlier in 2021.

Proceeds from the sale will be used to fund TVA’s upcoming significant capital investments for increased renewable energy generation, energy storage, transmission system upgrades and development of advanced clean energy technologies.

A potential TVA solar project in northern Alabama and a potential TVA energy storage project in eastern Tennessee — both still undergoing detailed environmental reviews — are two possible uses of the funding.

As part of the green bond format, TVA expects to report on the allocations of net proceeds of the bonds annually until proceeds are fully allocated. 

“TVA’s first green bond is a milestone for our financing program,” said Tammy Wilson, TVA Treasurer and Chief Risk Officer. The record-setting transaction “demonstrates that the financial community is focused on investments in cleaner energy, and supportive of TVA’s sustainability goals.”

TVA’s green bond offering drew over $2 billion in initial orders from a variety of investors, including money managers, state governments, insurance companies, and others. 

Bank of America Securities served as Green Structuring Agent for the transaction, and joint book-running manager. 

Barclays, Morgan Stanley, RBC Capital Markets, and TD Securities also served as joint book-running managers for the transaction.

The new bonds will mature on Sept. 15, 2031 and are not subject to redemption prior to maturity. Interest will be paid semi-annually each March 15 and Sept. 15.

Application has been made to list the bonds on the New York Stock Exchange. The bonds will be issued, maintained and transferred through the book-entry system of the Federal Reserve Banks.

TVA said that the terms of the bonds are consistent with TVA’s Sustainable Financing Framework. The framework outlines the categories of strategic capital projects where the proceeds may be allocated, including renewables, energy storage, energy efficiency, transmission investments that support TVA’s clean energy goals, and research and development expenditures related to other categories identified in the framework.

TVA obtained a second-party opinion on its framework from global analytical firm Sustainalytics, which concluded that TVA’s Sustainable Financing Framework is credible, impactful and aligned with relevant sustainability and green bond standards and principles.

The Sustainalytics opinion and other details can be accessed from the ESG Information for Investors section of TVA’s Investor Relations website at www.tva.com/investors or directly by clicking here.

Ditto Writes In Support Of Bond And Tax Credit Provisions In Legislation

September 15, 2021

by Paul Ciampoli
APPA News Director
September 15, 2021

In a Sept. 14 letter to House Ways and Means Committee Chairman Richard Neal, D-Mass., Joy Ditto, President and CEO of the American Public Power Association (APPA), applauds the infrastructure financing and energy-related provisions of the tax titles of the Build Back Better Act that are being considered for adoption this week by the committee.

“These provisions will reduce the cost of financing infrastructure investments overall and ensure that all electric utilities, including APPA’s not-for-profit members, can benefit from incentives intended to encourage critical energy investments needed to transition to cleaner generating technologies. This will make these incentives fairer and more effective,” wrote Ditto.

She noted that state and local governments and the enterprises they govern use municipal bonds to finance public infrastructure investments that enable their communities to function and thrive. Tax-exempt municipal bonds have financed $2.3 trillion in new investments in infrastructure over the last decade, including $68 billion in new investments in electric power generation, transmission, and distribution.

In Subtitle F (Infrastructure Financing and Community Development), the Build Back Better Act “includes hugely important provisions to improve tax-exempt financing, including reinstating the ability to issue tax-exempt advance refunding bonds and increasing the small-issuer exception threshold from $10 million to $30 million,” Ditto wrote.

Increasing the small issuer exception to $30 million will make it more attractive for banks to invest in rural and other smaller communities. And in the five years prior to their repeal in 2017, public power utilities refinanced $20 billion in existing debt with tax-exempt advance refunding bonds — generating interest savings of more than $600 million for the communities they serve, Ditto said.

Likewise, Subtitle G (Green Energy) “takes transformational steps to making energy-related tax provisions more efficient and fairer,” the APPA President and CEO said.

Federal tax expenditures are the primary tool Congress uses to incentivize energy-related investments. “However, such incentives do not work for tax-exempt entities (including public power utilities). That means public power utilities are effectively locked out of owning such facilities – and explains why 80 percent of the nation’s (non-hydropower) renewable energy generating capacity is owned by for-profit, merchant generators,” wrote Ditto.

Subtitle G addresses this inequity by allowing for the direct payment of energy production and investment tax credits and carbon capture tax credits to any entity that owns the project. “This would remove the financial disincentive for public power utilities to own such facilities, which are needed to transition to cleaner generating technologies and to address climate change. That means local projects, under local control creating local jobs. It also would allow the full value of these credits to pay for additional investment or be passed on to our 49 million customers,” Ditto said. 

She thanked Neal for his “continued commitment to helping local communities find and finance local solutions” and said that the changes in bond financing and energy-related tax credits that the Ways and Means Committee is considering this week “will give our communities the best, most flexible tools to address the substantial challenges that lie ahead.”

The committee was expected to complete work on the tax titles of the Build Back Better Act, also known as the budget reconciliation bill, on Wednesday, Sept. 15.

House Committee Will Markup Legislation That Includes Several Key Provisions For Public Power

September 13, 2021

by Paul Ciampoli
APPA News Director
September 13, 2021

The House Ways and Means Committee on Tuesday, Sept. 14, will markup legislation that would extend and expand energy tax credits and includes several key bond provisions.

The legislation includes a number of key top priorities for the American Public Power Association (APPA), including a reinstatement of the ability to issue tax-exempt advance refunding bonds and an increase in the small-issuer exemption from $10 million to $30 million.

The bill would also allow for the issuance of taxable direct payment bonds, with a credit payment to bond issuers of 35 percent for bonds issued in 2022 through 2024, of 32 percent for bonds issued in 2025, of 30 percent for bonds issued in 2026, and 28 percent for bonds issued in 2027 and thereafter. However, credit payments to issuers would not be protected from potential budget sequestration.

Also, the bill would allow states, counties, and cities to issue tax-exempt private activity bonds to finance private construction and development of zero-emission vehicle infrastructure.

The bill would also extend expiring energy-related production tax credits (PTC) and investment tax credits (ITC), as well as the carbon capture tax credit and electric vehicle tax credits.

The ITC, PTC, and carbon capture credits also would be made available — including to public power utilities, rural electric cooperatives, and Indian tribal governments – as refundable direct payment tax credits. The investment tax credit is also expanded to include energy storage technology, qualified biogas property, and microgrid controllers.

The legislation also creates a 30 percent investment tax credit for certain electric transmission property and for zero-emissions electric power generation facilities and a production tax credit for existing nuclear facilities.

Fitch Revises Outlook On LIPA To Positive, Cites Improved Leverage Ratio

September 8, 2021

by Paul Ciampoli
APPA News Director
September 8, 2021

Fitch Ratings recently revised its outlook on the Long Island Power Authority (LIPA) from Stable to Positive, with the rating agency saying the Positive Outlook reflects LIPA’s improved leverage ratio and Fitch’s expectation that the deleveraging trend that began in 2015 will continue through 2025.

“Debt has been a stakeholder concern since LIPA acquired the investor-owned Long Island Lighting Company in 1998,” said Tom Falcone, LIPA’s Chief Executive Officer. “The Board adopted a plan in 2015 to reduce LIPA’s leverage and the cost of debt. That plan has saved customers over $500 million and achieved four upgrades of LIPA’s bond ratings,” he said.

“This new positive outlook from Fitch Ratings — indicating another upgrade within the next year or two — shows we continue to be on the right path on behalf of our customers,” Falcone said.

Falcone discussed the factors behind rating agencies giving LIPA a series of rating upgrades in recent years in an episode of the American Public Power Association’s Public Power Now podcast.

Rating agencies have not only recognized LIPA’s success at deleveraging its balance sheet, but also the fact that the public power utility has seen significant improvement in the areas of customer satisfaction and reliability, Falcone said in an interview with APPA in 2000.

Fitch Cites Leverage Improvement

Fitch said that despite the challenges related to the coronavirus pandemic and Tropical Storm Isaias that hit Long Island in August 2020, leverage, as measured by net adjusted debt-to-adjusted funds available for debt service (FADS), improved to 8.4x at year end 2020 from 8.8x the two years prior. The improvement was attributable, in part, to LIPA’s strategy of budgeting to achieve higher fixed obligation coverage, the rating agency said.

“Going forward, leverage ratios are expected to trend below 8.0x in 2023, consistent with a higher rating, as performance continues benefitting from LIPA’s revenue-decoupling mechanism (RDM) as well as modest but consistent rate increases designed to achieve higher fixed charge coverage,” Fitch said.

“LIPA’s very strong service area, more disciplined approach to rate setting and authorized RDM should sustain its very strong revenue defensibility and overall performance even through the periods of stress, further supporting its financial profile,” the rating agency said.

Fitch also said that anticipated benefits that could accrue as a result of renegotiating LIPA’s operating services agreement with LIPA’s system operator PSEG Long Island (PSEGLI) are factored in the rating. The changes were triggered by PSEGLI’s poor response to Tropical Storm Isaias and follow a number of investigations, LIPA’s notice to terminate the contract and an analysis of alternate options for managing its assets, Fitch noted.

LIPA’s estimated costs incurred for Tropical Storm Isaias were $307 million, but the net financial impact of the storm will be limited as a result of Federal Emergency Management Agency (FEMA) reimbursements and other offsetting responses.

Fitch Rates LIPA Electric System Revenue Bonds “A”

Fitch also said that it assigned an “A” rating to the following LIPA bonds:

• Approximately $368 million electric system general revenue bonds (tax-exempt fixed rate) series 2021A;
• Approximately $175 million electric system general revenue bonds (mandatory tender, tax-exempt) series 2021B;
• Approximately $195 million electric system general revenue bonds (federally taxable) series 2021C

Proceeds from the series 2021A bonds will be used to fund system improvements, refund existing debt and pay the costs of issuance. Proceeds from the series 2021B and C bonds will be used to fund system improvements and to pay the costs of issuance. All of the bonds will be sold with a fixed interest rate. The series 2021A and B bonds will amortize through 2042 and 2051, respectively. The series 2021C bonds will mature on March 1, 2023.

In addition, Fitch affirmed the following LIPA ratings at “A:” Issuer Default Rating and approximately $3.9 billion senior-lien electric system revenue and refunding bonds.