Ditto says public power access to clean energy tax incentives is ‘low hanging fruit’

March 24, 2021

by Paul Ciampoli
APPA News Director
March 24, 2021

Allowing public power utilities to have access to clean energy tax incentives is “low hanging fruit” in terms of policy-related action that can be taken in the short term in order to incentivize not-for-profit utilities to build their own clean energy generation, said Joy Ditto, President and CEO of the American Public Power Association (APPA) on March 22.

She made her comments while participating in a panel at the Sixth Annual Sustainable Energy Week sponsored by The Economist. The panel discussed how utilities can prepare their business models for the future.

“U.S. electric utilities overall have actually done quite a bit to address climate change in the last fifteen years,” Ditto pointed out. “We have more to do, but we have reduced greenhouse gas emissions thirty percent since 2005,” which she said is attributable to a number of factors.

“One is there has been some form of incentive for clean energy production since the 1992 Energy Policy Act, and more was added in the 2005 act and subsequently, particularly related to clean energy tax incentives” that investor-owned utilities and independent power producers can take advantage of. This helps to explain why there has been “an exponential growth in wind, solar and other clean energy technologies,” Ditto said.

But the not-for-profit electric sector is not able to take direct advantage of those tax incentives. Allowing not-for-profit utilities to have access to these clean energy tax incentives is a “low hanging fruit that we could do in the very short term to incentivize not-for-profit utilities to build their own clean energy generation going forward.”

Meanwhile, Ditto noted that there have been technology improvements in terms of electrification.

She noted that there is “a very major focus” in the U.S. on electric vehicle deployment including among public power utilities that are putting in place programs to incentivize EVs and the infrastructure to support them.

Moreover, public power utilities are hearing from their customers that they want to decarbonize to reduce greenhouse gas emissions and they often want to contribute to that locally, Ditto said.

There has been an influx of community solar programs “particularly within our membership and other ways to improve the clean energy landscape.” Even in the absence of federal legislation “we’ve seen great strides made in this country.”

If federal policy does emerge in the short term under the Biden Administration, APPA believes that Congress should pass an economywide bill to address greenhouse gas emissions, “as well as to focus on the reliability and affordability of electricity as we move forward,” Ditto said.

Power plant in Holland, Mich., prepares to retire $91 million of debt this year

March 9, 2021

by Paul Ciampoli
APPA News Director
March 9, 2021

Holland Energy Park (HEP), a power plant in Holland, Mich., is preparing to retire $91 million of debt this year, during only its fourth year of operation, pending final approval from the Holland City Council.

Additionally, there is a plan to retire an additional $40 million over the next two years, completely retiring the debt in a total of nine years since it was issued in 2014, the Holland Board of Public Works (BPW) said on March 8.

The $240 million power generation facility was financed with $160 million of debt and $80 million of reserves.

Originally, the Holland BPW planned to service the bonds for 25 years. Retiring the debt early will save tens of millions of dollars in interest.

The reduced cost results in a proposed rate decrease of about 10% for Holland BPW electric customers.

HEP is a combined-cycle power plant that produces electricity using natural gas. The plant has strengthened the community-owned electric utility since it came online in 2017, Holland BPW noted.

HEP provides the Holland BPW with more electricity than is needed, allowing excess capacity to be sold to other providers in Michigan.

The utility and the City of Holland have received significant value from selling HEP’s excess capacity, Holland BPW said.

In 2018, Holland BPW was able to reduce electric rates by an average of 6% for customers. This year, Holland BPW electric customers will receive another rate reduction, the second reduction in three years.

Also, the wholesale revenue made possible by HEP has allowed the Holland BPW to increase its annual contribution to the City of Holland from $6.6 million to $8 million.

Holland BPW said its electric rates rank among the lowest in Michigan. This year’s proposed rate decrease, which averages 10% across all customer classes, will save the average residential customer about $60 on their energy charges over the year.

If approved by the City Council in May, the new rates will go into effect on July 1, 2021.

The average Holland BPW residential customer now enjoys nearly a 40%, or $35 per month rate advantage to the investor-owned utilities in Michigan, Holland BPW noted.

Environmental paybacks are proven through reduced carbon dioxide emissions, the utility said.

HEP, along with investments in renewable energy sources, reduced CO2 emissions from Holland BPW’s portfolio by 46%. Additionally, HEP “has virtually eliminated emissions of sulfur dioxide, lead, and mercury from power generation sources in our community,” Holland BPW said.

Legislation would reinstate the ability to issue tax-exempt advance refunding bonds

February 26, 2021

by Paul Ciampoli
APPA News Director
February 26, 2021

Sens. Roger Wicker, R-Miss., and Debbie Stabenow. D-Mich., on Feb. 25 introduced legislation that would reinstate the ability to issue tax-exempt advance refunding bonds. The bill is supported by the American Public Power Association.

The Lifting Our Communities through Advance Liquidity for Infrastructure (LOCAL Infrastructure) Act of 2021 is cosponsored by Sens. John Barrasso, R-Wyoming, Michael Bennet, D-Colo., Jim Inhofe, R-Okla., Tammy Baldwin, D-Wis., Shelley Moore Capito, R-W.Va., Bob Menendez, D-N.J., Jerry Moran, R-Kansas, Jeanne Shaheen, D-N.H., Lisa Murkowski, R-Alaska, Chris Van Hollen, D-Md., Deb Fischer, R-Neb., John Boozman, R-Arkansas, and Jacky Rosen, D-Nev.

Advance refunding would allow state and local governments to refinance outstanding municipal bonds to more favorable borrowing rates or conditions before the end of the initial bond term on a tax-exempt basis. This process is very similar to how a homeowner may refinance the mortgage on their property to lock in a lower interest rate.

The federal tax-exempt debt could be refinanced only once, but local communities would be able to take advantage of the lower interest rates to generate additional savings on existing bonds. Local governments could reinvest these savings to fund infrastructure, education, health care, or other capital improvement projects.

Advance refunding has saved state and local governments billions of dollars over decades but has been unavailable to state and local governments since 2017.

The Tax Cuts and Jobs Act of 2017 eliminated the ability to issue advance refunding bonds and since that time, APPA has worked to put back in place advance refunding bonds.

A companion bill to the LOCAL Infrastructure Act of 2021 has not yet been introduced in the House.

Bills would allow public power to access payroll, energy and investment tax credits

February 8, 2021

by Paul Ciampoli
APPA News Director
February 8, 2021

Public power utilities would gain access to payroll tax credits for emergency paid sick and family leave and to energy production and investment tax credits under two bills introduced in Congress on Feb. 4 and supported by the American Public Power Association.

The payroll tax credit legislation was included in the House-passed HEROES Act last year and has a good chance of being included in COVID-relief legislation that the House and Senate Committees are expected to begin debating this week.

The energy tax provisions were included in the House-passed Moving Forward Act last year and could be included in infrastructure legislation that the House and Senate are expected to take up later this year.

The Growing Renewable Energy and Efficiency Now (GREEN) Act (H.R. 848) was reintroduced by House Subcommittee on Select Revenue Mike Thompson, D-Calif., and cosponsored by all other Ways and Means Committee Democrats, including Chairman Richard Neal, D-Mass.

APPA has worked closely with the subcommittee on ensuring that the legislation benefits public power utilities, including special provisions to benefit tribal utility authorities while protecting their unique status under the federal Tax Code.

Ditto sends letter to Rep. Thompson

In a Feb. 4 letter sent to Rep. Thompson, APPA President and CEO Joy Ditto noted that the GREEN Act addresses the underlying inequity of providing investment incentives through the tax code. It does so 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 addressing climate change, and would allow the full value of these credits to pay for additional investment or be passed on to our 49 million customers,” she wrote.

Details on GREEN Act

Section 4 of the GREEN Act allows taxpayers to elect to be treated as having made a payment of tax equal to 85 percent of the value of the credit they would otherwise be eligible for under the investment tax credit, production tax credit or Tax Code Section 45Q credit for carbon capture and sequestration.

Rather than opting to carry forward credits to years when their credits exceed their tax liability or being prevented from claiming the credit at all in the case of public power utilities, taxpayers can take a reduced credit and request a refund of any resulting overpayment of tax. This allows entities with little or no tax liability to accelerate utilization of these credits or claim them when previously they would have been prevented from doing so. Tribal governments are treated as making a payment equal to the full value of the credit, instead of 85 percent.

Payroll tax credits

Meanwhile, the Supporting State and Local Leaders Act was introduced in the House and Senate on Feb. 4. The bill is H.R. 786 in the House, but a bill number is not yet available in the Senate.

It would allow state and local entities, including public power utilities, to claim payroll tax credits intended to offset the cost of providing emergency paid sick leave and emergency paid family leave as required under the Families First Coronavirus Response Act of 2020. It would also make these tax credits available to utilities that voluntarily extend these benefits through March 20, 2021.

Original bill sponsors in the House are Representatives Brad Schneider, D-Ill., John Katko, R-N.Y., and Diana DeGette, D-Colo., and in the Senate, Tina Smith, D-Minn., and Richard Durbin D-Ill.

APPA strongly supports this bill and is listed as one of the supporting organizations on a Dear Colleague letter from the bill sponsors seeking additional cosponsors.

Moody’s affirms Heartland Consumers Power District credit rating

February 5, 2021

by Paul Ciampoli
APPA News Director
February 5, 2021

Moody’s Investors Service has released its latest credit opinion of South Dakota-based Heartland Consumers Power District with a rating of A2 and a stable outlook.

Moody’s previously upgraded Heartland’s rating to A2 from A3 in 2018, shortly after Heartland divested of ownership in the Missouri Basin Power Project (MBPP), namely 51 megawatts from Laramie River Station.

“This rating reflects not only the actions Heartland has taken to bolster our profile and create a stable future, but also the sound financial metrics of our customers,” said Heartland Chief Financial Officer Mike Malone in a statement.

The A2 ratings reflect the A2 weighted average credit quality of Heartland’s 27 full and supplemental requirements members. It also reflects the steps taken by Heartland to “right-size” its existing generation capacity through divestiture of capacity assets, including the stake in MBPP.

The sale of MBPP allowed Heartland to pay down outstanding credit line drawings related to bringing Laramie River Station into compliance with environmental standards, Heartland noted.

Heartland’s current baseload resource, Whelan Energy Center Unit 2, is in compliance with existing regulatory standards and not anticipating any environmental capital expenditures in the near future, it said.

Moody’s recognized other actions Heartland has taken to strengthen their position and decrease costs.

Heartland issued $35 million in taxable debt in 2018 to buyout a no longer needed transmission service agreement with Nebraska Public Power District. The buyout led to the stabilization of otherwise escalating transmission costs. It also resulted in cash flow savings, Heartland noted.

Moody’s also noted Heartland’s fairly diverse capacity available, with about 27% being coal-based from WEC2.

The stable outlook reflects Moody’s expectation that Heartland’s financial position will remain relatively stable as it reduces leverage over the coming years. It also notes that ample levels of liquidity will serve as a buffer to address any outages or other underperformance in operations.

Moody’s utilizes the U.S. Municipal Joint Action Agencies methodology for Heartland’s rating.

S&P rates Guam Power Authority senior-lien revenue bonds “BBB,” with stable outlook

February 4, 2021

by Paul Ciampoli
APPA News Director
February 4, 2021

S&P Global Ratings on Feb. 1 released its credit rating on the Guam Power Authority’s (GPA) revenue bonds.

S&P Global Ratings’ long-term rating and underlying rating on GPA’s senior-lien revenue bonds outstanding are “BBB.” The outlook is stable.

In the credit rating agency’s opinion, GPA’s enterprise risk profile and financial risk profile were rated adequate.

In its credit overview, S&P reported its view of GPA’s adequate financial capacity to meet its obligations and its expectation that GPA will continue to adjust base rates or its levelized energy adjustment clause as needed to maintain stable financial metrics as the authority proceeds with its plan to significantly overhaul its power supply portfolio.

S&P also cited environmental, social and governance factors that impact GPA overall in the report.

“GPA acknowledges S&P’s comments, and is committed to continually improving our operations, including modernizing our fleet, expanding fuel diversity, adding more efficient and flexible renewable energy resources, complying with all environmental regulations and the addition of the new 198-mewagatt Ukudu base load power plant, all of which contribute to maintaining or strengthening GPA’s financial health,” noted GPA General Manager John Benavente, P.E.

“GPA’s energy demand demonstrated resiliency on an overall basis in fiscal 2020 ended Sept. 20, 2020, versus the prior year, with overall demand declining just 3% (including a 7% increase in residential demand offsetting 4%-19% reduced demand from commercial and industrial loads, with governmental and Navy loads down 7% and 3% respectively),” S&P said.

“We welcome this positive confirmation of GPA’s creditworthiness and resiliency in fiscal year 2020 by S&P, particularly in these challenging times of a worldwide health pandemic, and all its economic effects globally and here on Guam,” said Benavente. “This is good and welcome news for all ratepayers, the Authority and all of us who call Guam home,” said Benavente in a statement.

Senate Commerce Committee Chairman, Buttigieg support advance refunding bonds

January 25, 2021

by Paul Ciampoli
APPA News Director
January 25, 2021

U.S. Senate Commerce Committee Chairman Roger Wicker, R-Miss., and Peter Buttigieg, who is President Joe Biden’s nominee to serve as Secretary of Transportation, praised tax-exempt advance refunding bonds during Buttigieg’s nomination hearing on Jan. 21.

Speaking to Buttigieg at the hearing, Wicker noted that tax-exempt advance refunding bonds have historically been used to help state and local governments refinance debt at lower interest rates and asked the nominee “do you agree that they provide one more additional financing tool for state and local governments?”

“As mayor few things gave me more fiscal pleasure than to find that we could save taxpayer dollars by refunding previously existing debt,” said Buttigieg, adding that he thinks tax-exempt advance refunding bonds “hold a lot of promise for providing relief to state and local governments.”

Buttigieg is the former Mayor of South Bend, Ind.

Wicker noted that he and Senate Finance Committee member Debbie Stabenow, D-Mich., intended to reintroduce S. 4129 from the 116th Congress that would reinstate the ability to issue tax-exempt advance refunding bonds with the hope of seeing it enacted. He also asked the nominee for his support.

The Tax Cuts and Jobs Act of 2017 eliminated the ability to issue advance refunding bonds.

The American Public Power Association strongly supports enactment of legislation to reinstate advance refunding bonds.

Silicon Valley Clean Energy receives “A” issuer credit rating from S&P Global Ratings

January 7, 2021

by Paul Ciampoli
APPA News Director
January 7, 2021

S&P Global Ratings on Jan. 5 assigned an “A” issuer credit rating to Silicon Valley Clean Energy (SVCE), a California community choice aggregator.

This credit rating, the second investment-grade credit rating for SVCE, “reflects the assessment completed by S&P Global, and speaks to SVCE’s financial strength and robust energy risk management policies,” SVCE said in a news release.

“New opportunities from this credit rating allow SVCE to provide affordable clean electricity while continuing to fund innovation and decarbonization programs within the SVCE service area,” said SVCE CEO Girish Balachandran.

SVCE said that S&P Global’s “A” rating recognizes the stability of the customer base since service began in 2017, a diverse clean power supply, low rates and internal credit-supportive policies seen at SVCE.

S&P Global views SVCE financial and enterprise profiles as strong, with approximately $160 million in cash reserves, the CCA said.

In addition, the rating will enable SVCE to negotiate new energy supply contracts at lower costs, resulting in lower energy rates for customers, it noted.

In 2020, SVCE received a Baa2 credit rating from Moody’s Investors Service.

The American Public Power Association has initiated a new category of membership for community choice aggregation programs.

Fitch says public power utilities are well positioned financially headed into 2021

December 14, 2020

by APPA News
December 14, 2020

U.S. public power utilities are well positioned financially headed into next year, as lower expenses have helped preserve margins and liquidity in the wake of pandemic-driven declines in electric demand and revenue, according to Fitch Ratings.

However, Fitch’s 2021 outlook report points to some concerns related to the lingering effects of the coronavirus pandemic and economic contraction, as well as more aggressive climate issues, the rating agency said on Dec. 9.

The rating outlook for the public power sector is stable.

“The operational and financial resilience exhibited by the public power sector through 2020, together with improving operating fundamentals, support Fitch’s stable outlook,” said Managing Director Dennis Pidherny.

Fitch said that electric demand is expected to stabilize in 2021 as the U.S. economy recovers from recession and achieves pre-pandemic gross domestic product levels.

“A continuance of low, stable energy prices and interest rates should also help preserve operating margins and affordability. These factors are to expected ease upward pressure on electric rates, support strong cash flow and moderate leverage throughout the sector,” Fitch said.

At the same time, uncertainty surrounding the lingering effects of the pandemic and the potential for more aggressive environmental mandates could disrupt longer term performance, according to the rating agency.

Greater support from public power systems may be required by local governments facing pandemic-related fiscal challenges, particularly those facing severe declines in tax revenue, Fitch said.

Meanwhile, Fitch said that an increased focus on carbon dioxide emissions reduction by federal leadership is expected to develop under President-elect Biden and could lead to more aggressive environmental policies with an evenly divided Senate.

“While many states continue to forge their own paths to address climate issues, the implementation of a national renewable standard could pressure operating costs, as well as the affordability metrics, at public power systems located in states with no standards or targets, or that have exemptions in place,” Fitch said.

Moody’s says 2021 outlook for public power is stable

Moody’s Investors Service this month said its outlook for the U.S. public power sector is stable because the rating agency expects the sector to be relatively resilient through the ongoing global recession.

“Public power utilities’ business model inherently helps maintain stability; they provide essential services in a non-profit oriented manner, have strong liquidity and have self-regulated rate-setting ability to help manage cost recovery,” Moody’s said in a Dec. 7 report.

Moody’s says 2021 outlook for public power is stable

December 10, 2020

by Paul Ciampoli
APPA News Director
December 10, 2020

Moody’s Investors Service said its outlook for the U.S. public power sector is stable because the rating agency expects the sector to be relatively resilient through the ongoing global recession.

“Public power utilities’ business model inherently helps maintain stability; they provide essential services in a non-profit oriented manner, have strong liquidity and have self-regulated rate-setting ability to help manage cost recovery,” Moody’s said in a Dec. 7 report.

At the same time, the rating agency said that while it expects financial metrics to weaken over the next 12-18 months as a result of lower sales revenues and continued moratoriums on service disconnects, “metrics should still remain within our range for a stable outlook.”

Load demand

Moody’s expects overall net negative load demand nationally for 2020, with continued recovery and demand growth through 2021.

But loads have not declined evenly throughout the country because of varying degrees of shelter-in-place orders and weather-related reasons, it pointed out.

“We also expect demand growth and recovery to vary depending on how long it takes local economies to recover. In the event of another national wave, there could be another significant reduction in commercial and some industrial activity, with more permanent job losses because of permanent closures of commercial establishments unable to recover.”

Depending on the proportion of industrial and commercial customers of particular issuers, as well as the types of industries located in their service territories, “some issuers may actually experience load demand growth, as in food products, hygiene and medical supply-related industries, as well as home improvement industries.”

The report said that although there was an increase in residential load demand across the board given shelter-in-place orders, “for the most part, this increase is not enough to offset the decline in commercial and industrial load expected for the full year 2020, as a result of significantly reduced commercial and industrial activity in the first half.” But demand has continued to improve since the peak declines observed in April and May.

Moody’s said that issuers with service territories with high poverty levels are likely to be more severely affected “because job losses during the pandemic have disproportionately fallen on lower income individuals, many of whom work in the commercial sectors where the virus has caused the most upheaval, such as retail, restaurants, apparel, hotels, entertainment and transportation.”

These workers will continue to face job insecurity as long as COVID-19 remains a health threat, “with implications for consumer confidence and spending, demands for social services, and in some economies, a further divide in access to healthcare.”

Although the Coronavirus Aid, Relief and Economic Security (CARES) Act funded $900 million to a program that helps low income households make home energy payments, “according to the American Public Power Association (APPA), more funding is needed,” the report noted.

Moody’s said that federal aid to local governments has provided only limited short-term relief and is unlikely to alleviate budgetary stress in 2021.

“The CARES Act stipulates that funds may be used only to cover coronavirus-related expenses, not to replace lost revenue. Further, the relief package has been focused on states, with cities and counties receiving no more than 45% of each state’s allocation. Disbursement of this aid is on a reimbursement basis for costs incurred through 30 December 2020.”

The rating agency’s forecast assumes limited additional federal aid.