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Developing U.S. Infrastructure in an Era of Emerging Challenges

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Storm Tracker: Power Utilities in Hurricane Michael's Path Stage Thousands of Workers

Approaching Michael shuts in 30% of Gulf gas, expected to whip prices

Developing U.S. Infrastructure in an Era of Emerging Challenges

Emerging challenges – including the impact of disruptive technology and the demand for sustainable projects – are adding to traditional financing pressures facing America’s infrastructure industry. S&P Global Ratings has observed that there are various tools being used by the public sector to collaborate with the private sector to bridge the financing gap and address these challenges. This paper discusses our observations on policies and financing techniques applied to various infrastructure sectors.

The pressure on governments in the U.S. – whether at the federal, state, or municipal level – has mounted as they face the twin challenges of fiscally constrained budgets and aging infrastructure. Across the country, municipalities are struggling to manage the repair of roads and bridges reaching the end of their life cycles. U.S. airports fall short compared with international peers in terms of passenger comfort and overall investment with an increasingly outdated air navigation traffic control network constraining long-term growth. Even with the most fundamental of services, water supply, we observe funding shortfalls (particularly with respect to midsize and smaller systems), significant levels of deferred maintenance, and only nascent asset management leading to higher operating costs for the taxpayer over the long term.

Emerging risks add to traditional infrastructure pressures

Crucially, as the global trends of digitalization and sustainability increase, we expect the U.S. will need new infrastructure development to increase competitiveness, enhance productivity and efficiency, generate jobs, and attract investment and talent. New challenges exacerbate the concern that America’s prevailing infrastructure funding model in sectors such as transport, social infrastructure, and water – which relies predominately on traditional municipal financing – will be hard-pressed to satisfy the country’s evolving infrastructure needs over the next 50 years.

Much has changed since the days of President Dwight Eisenhower and the great interstate highway buildout of the 1950s: The U.S. has entered the age of information and development of smart cities. Based on observations of disruption in other industries, we believe that new infrastructure investment is needed for the U.S. to stay relevant and competitive in a world measured by smartphones and other connected devices, rather than the clunky solid state calculators engineers used 50 or more years ago. And accompanying the rise of digitalization is the growing risk of cybercrime.

While technology permeates nearly every aspect of modern life, America still struggles to integrate it into its aging infrastructure. In fact, as things stand, some elements of U.S. infrastructure may hinder technological advancement. The state of U.S. roads and airports may be obstacles to – rather than facilitators of – driverless cars and next-generation aircraft. Big data has the potential to lead to radical changes in physical urban infrastructure. Tomorrow’s infrastructure projects are likely to include sophisticated information systems and other advanced technologies to support U.S. productivity and keep pace with growth seen across the globe.

There is also a greater call for eco-friendly and environmentally sustainable infrastructure that can adapt to adverse weather conditions in a world increasingly affected by climate change, can offer long-term resilience to its effects, and can even contribute to the reduction and mitigation of global warming.

Importantly, some governments are placing greater focus on life-cycle management and looking for more strategic and efficient use of taxpayer monies over the long term. But the question remains: How can government revitalize infrastructure and ensure that it stays relevant in the digital and sustainable era – and do it in a cost-effective manner?

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Communications providers are working to restore services in areas impacted by Hurricane Michael, but storm debris, power outages and significant fiber damage are hindering progress in those counties most devastated by the storm.

As of Oct. 14, a number of counties along the Florida Panhandle had more than half of their cell sites down, including Bay County — home of Panama City and Mexico Beach, described as "ground zero" of the storm by U.S. Federal Emergency Management Agency administrator Brock Long — where 66.1% of cell sites were down. Similarly, neighboring Gulf County had 69.6% of cell sites down, according to data from the U.S. Federal Communications Commission.

Based on the amount of damage in the area and ongoing power outages, it could be weeks before services are restored. Long said Oct. 12 that after search and rescue, restoring communications in impacted counties is among FEMA's top priorities.

"You have to be able to communicate to appropriately respond and we are trying to do everything we can to get the private sector vendors, the Verizon [Communications Inc.]'s of the world, to get in to try to get their systems back up and running," he said.

Long added, however, that the process is not easy. "There was a tremendous amount of debris. When you look at the damage in Mexico Beach, that is where the ocean rose potentially 14 feet … and shoved buildings out of the way. When you have that type of damage, it takes time to get in and go through," he said.

Hurricane Michael made landfall Oct. 10 near Mexico Beach as a Category 4 hurricane with 155-mile-per-hour winds.

For its part, Verizon said the "vast majority" of Florida and Georgia service has been restored, with 99% of the company's network in Georgia in service and 97% of its network in Florida. But the company noted there are pockets, particularly near Panama City, where the damage is severe.

"The storm caused unprecedented damage to our fiber, which is essential for our network — including many of our temporary portable assets — to work. Our fiber crews are working around the clock to make repairs, and while they are making good progress, we still have work to do to get the fiber completely repaired," the company said Oct. 14.

Fiber is the connecting component of a network that carries data from point to point. It is necessary for Verizon's permanent and temporary cell sites to be operational. The company noted that while it has multiple fiber paths to carry data, "The severity and intensity of the storm caused damage to all duplicate routes in the Panama City and Panama City Beach area."

In terms of wireline services, the FCC said 291,300 subscribers remain out of service as of Oct. 14, including 205,643 subscribers in Florida. The figures were down from a day earlier, when a total of 337,223 subscribers were without service, including 233,843 in Florida.

The top residential video and broadband provider in Bay County is Comcast Corp., according to MediaCensus data from Kagan, a research group within S&P Global Market Intelligence. Comcast, the largest cable operator in the U.S., said in an Oct. 12 statement that it is working to get Xfinity services back online.

"As power returns … and it becomes safe for our technicians and restoration crews, we will work to repair any damages affecting our network," the company said.

As of Oct. 15, more than 162,000 customers in Florida remained without power, including all 27,275 customers served by Gulf Coast Electric Cooperative. The cooperative said in an Oct. 12 Facebook Inc. post that its distribution system "suffered catastrophic damage"

In Gulf County, the top residential video provider is AT&T Inc.'s satellite video service DIRECTV, according to MediaCensus data, while the top residential broadband provider is Mediacom Communications Corp., the fifth-largest cable operator in the U.S.

Mediacom said Oct. 14 that its recovery efforts are underway but its network in Florida has 14 miles of severely damaged fiber near Walton County, as well as 25 miles of damaged fiber east of Panama City that is obstructing video transmission from Gulf County to Walton County.

"Our current priority remains focusing on repairing damage to our high-speed data transport network and main transmission facilities and repairing downed lines where we have access to the area. We have outages from widespread loss of commercial power along with downed lines, and structural damage throughout our systems," the cable operator said.

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Houston, Oct. 11 2018 — Hurricane Michael made landfall at the Florida panhandle as a Category 4 hurricane Wednesday with 155 mph winds, quickly destroying demand for power, natural gas and refined oil products. Shut-in oil production rose modestly from Tuesday to over 700,000 b/d, but the storm has stayed east of much of the region's production, which means supply should be back online quickly.

Meanwhile, the severity of the storm has surprised to the upside, which could a mean longer lasting and more severe impact on demand for power, natural gas, refined products and ultimately crude oil.

"We expect the impact on refined products demand to be below that of previous hurricanes in the Gulf Coast such as Harvey in 2017, as the region impacted by Michael has lower population density than Houston ... Nevertheless, the impacts are favoring the high side of our estimates given the sheer severity of the storm," said Claudio Giamberti, Head of Demand and Refining at S&P Global Platts Analytics.

As of 7 pm EDT, the eye of Michael was moving over southwestern Georgia with maximum sustained winds still at 100 mph, according to the National Hurricane Center. The storm is expected to move northeast across the Carolinas before heading back out to sea Friday morning.

Storm Tracker: Power Utilities in Hurricane Michael's Path Stage Thousands of Workers


Loads to drop 20-30%

Prices may rebound after the storm

Houston, Oct. 09 2018 — Power utilities in the forecast path of Hurricane Michael have staged thousands of workers to help restore power for customers along the Florida Gulf Coast plus parts of southern Alabama and Georgia, where power demand is likely to fall by 20% to 30%

As of 1 pm CDT Tuesday, the storm was about 335 miles south of Panama City on the Florida Panhandle, packing maximum sustained winds of 110 mph, traveling north at 12 mph, the National Hurricane Center said in a public advisory.

The storm center is set to land in Northwest Florida Wednesday "and then move northeastward across the southeastern United States Wednesday night and Thursday, and move off the Mid-Atlantic coast ... by Friday," the advisory states.

Approaching Michael shuts in 30% of Gulf gas, expected to whip prices


726 MMcf/d of Gulf of Mexico gas shut in

Storm triggers gas demand destruction

Houston, Oct. 09 2018 — Hurricane Michael was barreling down on the Florida Panhandle Tuesday, shutting down nearly 30% of gas production and 40% of oil output from the offshore Gulf of Mexico. The Category 3 storm also was whipping prices up and down, while threatening to knock out power service and drive down regional gas demand upon making landfall.

The storm's path will take it over a large swath of the Gulf's oil and gas producing region, resulting in the shutting in of 726 MMcf/d of gas, or more than 28% of the Gulf's total gas output, and 670,831 b/d of oil, representing nearly 40% of total Gulf production, the US Bureau of Safety and Environmental Enforcement said Tuesday afternoon.