Category Archives: Economic development

How Hospitals Can Take the Lead in Economic Development

exxon-mobil

The Exxon Mobil facility

by James A. Bacon

As budgetary pressures continue to squeeze federal spending in the Washington metropolitan area, who will assume the mantle of economic growth in the region? An unlikely champion has emerged — Inova Health Systems, Northern Virginia’s dominant health system. The company announced yesterday its intention to lease and ultimately purchase Exxon Mobil’s 117-acre campus to house a world-class facility dedicated to genomics and personalized medicine.

The story is fascinating in many ways: first, for the ambitious thinking behind the venture, which sounds like it has a legitimate shot at success; and second, for what it says about the economic clout of Virginia’s major health care systems.

Genomics and personalized medicine is one of the hottest areas of medical science today. The human genome contains about 23,000 genes, the variations in which account for much of the difference in how individuals respond to chemotherapy-based cancer treatment. The goal is to tailor treatments for a patient’s specific genome — to “personalize” medicine — to attack cancer cells while minimizing side effects.

Under the vision laid out by Inova CEO J. Knox Singleton, the health system will establish a world-class facility, akin to the prestigious Mayo Clinic, that can recruit top physicians and draw patients from around the country, according to the Washington Post.

Inova has several advantages. First, the Washington region is a prestigious, world-class metropolitan area, which should aid in recruiting world-class scientific talent. Second, Inova’s flagship hospital, Inova Fairfax Hospital, is situated right across Gallows Road from Exxon Mobil, a campus assessed at $193 million in value. Third, while not in the same biotech league as Boston, San Francisco or San Diego, Northern Virginia does have significant assets, most notably the Howard Hughes Medical Institute. (See a list of biotech assets.) Fourth and most intriguingly, the data-intensive field of genomics could draw upon the region’s strength in IT. Writes the Post:

Singleton said the use of translational medicine to develop treatments for cancer and other diseases could be accelerated by taking advantage of Northern Virginia’s expertise in cloud computing and data analytics.

“The beauty of Northern Virginia is we’re building in sort of a greenfield when it comes to this personalized medicine, genomics research,” Singleton said. “But when you look at the big data and bioinformatics capacity, there are a ton of companies in Northern Virginia who are extremely sophisticated and well-advanced; they’ve just been working on cybersecurity or weather forecasting.”

Oh, and there’s one more advantage Inova brings to the venture: It is an incredibly profitable non-profit company. In 2013 (the most recent figures I could find), Inova generated operating income of $132 million. That profit is non-taxable. Not only can Inova make philanthropic appeals to the community — the Peterson Family Foundation also announced yesterday a $10 million gift to recruit cancer specialists — it can tap the cash thrown off by its own operations. Nobody else, not even the Commonwealth of Virginia, has that kind of money to pump into an economic development project.

It remains to be seen whether the state will contribute to the effort. A key component of the project will be a new medical school. The Post notes that Singleton has not yet struck a deal with a college or university to operate the school. Governor Terry McAuliffe told the Post the state had not been approached for funding, and he did not expect to provide it. “This is all being done privately, which is great.” But you can bet your bottom dollar that George Mason University would love to get into the medical school business, which could require some level of state support. It will be interesting to see how this plays out.

As an aside, there are parallels between Inova’s plans and the Virginia Tech Carilion School of Medicine, a partnership between Carilion Health System in Roanoke and Virginia Tech, which combines “Virginia Tech’s world-class strength in basic sciences, bioinformatics, and engineering with Carilion Clinic’s highly experienced medical staff and rich history in medical education to train the next generation of physician thought leaders.” The medical school in Roanoke, which averages 42 students, had a $59 million bond package included in a state bond issue. Don’t think that Singleton hasn’t considered that precedent.

As promising as the project sounds, caution is warranted. Inova made a similar splash in 2009 when it announced plans for a $200 million Ignite Institute, which also had a focus on genomics and personalized medicine. That project fizzled, and Ignite moved to Philadelphia instead. As GenomeWeb explained in a 2010 article:

That plan collapsed after Inova Health Systems withdrew a commitment to provide $25 million over five years to the institute, citing in a statement, “The scope and scale of the project and the time needed for capital development in the current market.” Inova’s pullout, in turn, prompted Fairfax County to retreat from its own plan to partially finance the permanent facility by issuing up to $150 million in Fairfax County Economic Development Authority industrial revenue bonds.

Hopefully, Inova has learned from the experience, and the financial chemistry will be different this time.

Dominion Resources Is on a Tear

acl pipeline map By Peter Galuszka

Dominion Resources has been on a tear recently.

It’s been muscling through a dubious law in the General Assembly that would allow it to avoid State Corporation Commission rate audits for six years.

And, it has been throwing its weight around in less populated sections of the state. It is suing to force its way on the land of private property owners to survey its $5 billion Atlantic Coast Pipeline project that would take fracked natural gas from the Marcellus Shale formation in West Virginia and Pennsylvania on new routes to the southeast.

Property owners, particularly those in Nelson and Augusta Counties, are fighting in federal court in Harrisonburg.

What’s most interesting about this case is how the Commonwealth of Virginia, which swaddles itself in the ideals of the American Revolution of individual rights , somehow ignores the rights of small property owners when a big utility with deep pockets for political donations is involved. One wonders where all the conservatives are who were huffing and puffing over the Kelo case a few years back

And (bonus question) what do the two situations have in common? Republican State Sen. Frank Wagner of Virginia Beach, that’s who. He introduced the bill for Dominion to sidestep SCC oversight with the excuse that Dominion has deal with the impacts of a yet-to-be-finalized set of new federal carbon emission rules.

In 2004, Wagner also carried water for Dominion and other power companies by getting a law passed that would allow a “public service company” to survey private property without getting permission.

This is the basis of several hundred lawsuits Dominion has filed against small landowners. In the pipeline case, it will be interesting to see whether the natural gas is used for the common good of American customers or will end up being exported to foreign countries. Dominion insists it won’t,  but time will tell.

Another oddity is that Dominion is demanding access to survey a pipeline route when it hasn’t formally applied for  the project with the Federal Energy Energy Commission. Imagine if some private landowners showed up at the front door of Dominion’s downtown Richmond headquarters and demanded access to the building because they were thinking about building a natural gas pipeline? (Somebody call security!)

Here’s an opinion piece I wrote for this morning’s Washington Post.

Best and Worst from the 2015 General Assembly

by James A. Bacon

thumbs_upThe best: crowdfunding. A bill submitted by Del. Scott Taylor, R-Virginia Beach, will make it easier for entrepreneurs to raise money for start-up businesses through crowdfunding. The bill creates an exemption from the state Securities Act applying to the first $2 million raised per year. A business still could not raise more than $10,000 from any single purchaser unless the purchaser is an accredited investor.

States Taylor: “The greatest challenge that start-ups with good ideas face is finding the capital to grow. ‘Crowdfunding’ has grown to a multi-billion dollar industry that lets entrepreneurs make their case to small investors and get their ideas off the ground. This legislation will make it easier for Virginians to invest in promising Virginia start-ups, creating a culture of entrepreneurship and more good-paying jobs.”

The bill passed the House of Delegates on a 99 to 0 vote.

pukeworthyThe worst: Selective COPN rollback: The Certificate of Public Need (COPN) law, which regulates investment in new medical facilities and expensive equipment, protects hospitals from competition — justifiable only as a way to offset hospitals’ significant obligation to provide indigent care. A bill submitted by Bobby Orrock, R-Thornburg, would roll back the law in certain instances.

The bill would provide exemptions for existing general hospitals and psychiatric hospitals when adding non-nursing home beds, exemptions for certain hospitals adding open heart surgery, and exemptions for certain hospitals adding neonatal care facilities.

Less regulation is a good thing, right? Yes, when applied to everyone equally. COPN review adds unnecessary cost and makes hospitals less responsive to market conditions. But less regulation is NOT a good thing when it serves to advantage certain players over others. Please note: The exemptions apply only to existing hospitals — not to anyone trying to enter the market. In effect, it lifts the burden of regulation for established providers while maintaining it for anyone who wants to compete.

Second, the bill provides arbitrary conditions on who qualifies for the exemption. Hospitals adding open heart surgery must have “at least 1,100 adult inpatient or outpatient cardiac catheterizations, including at least 400 therapeutic catheterizations, or discharged at least 800 patients with the principal diagnosis of ischemic heart disease during the 12 months immediately preceding such registration.” What? Is there any medical justification for such a restriction, or has it been inserted into the bill to apply to one particular hospital only? Who is that hospital? People should demand to know.

The bill also exempts “intermediate- or specialty-level neonatal special care services at an existing medical care facility that registers the new service and delivered more than 1,000 infants in the 12 months immediately preceding such registration.” Really? What’s the justification for that exemption? Who’s the beneficiary here? How about a little transparency?

Orrock’s bill was passed unanimously by the House Health, Welfare and Institutions Committee.

Hither Regency Square?

Inside Regency Square Mall -- not the experiencing people are looking for these days.

Inside Regency Square Mall — not the experience people are looking for these days.

by James A. Bacon

Thalhimer Realty Partners Inc. and The Rebkee Co., two Richmond-area developers, have closed on the purchase of Regency Square Mall for $13.1 million. That’s a bargain-basement price for a property that had been assessed for $25 million a recently as a year ago and once was the premier mall in the Richmond region.

The big question to those of us living in western Henrico is what the new owners have in mind for the mall. According to an account in the Richmond Times-Dispatch today, the new owners want to renovate the mall and reclaim its status as a pre-eminent retail location. They have no intention at present to raze the structure. However, they indicated that they are open on how to develop the property. “Nothing is off the table,” said Rob Hargett, a principal at Rebkee.

As I argued in this month’s Henrico Monthly (reproduced in the previous post) Regency Square is a strategically central property for the Tuckahoe district of Henrico County. It’s the dominant retail presence for a much larger commercial district around the intersection of Parham and Quioccasin Roads. What happens at Regency will shape future commercial re-development and determine the character of surrounding neighborhoods. If the new owners simply recycle the old mall into a new retail center that perpetuates the low-density, autocentric character of the area, we follow one path. If they re-develop the property as a walkable, mixed-use “town center,” we follow a very different path.

In other words, Henrico County residents have at tremendous stake in how the mall is re-developed.

Based on my research, Regency Square doesn’t have a future as a regional retail center akin to Short Pump Mall, which enjoys access to two interstate highways. Regency’s pull will be sub-regional — mainly from the Tuckahoe district of Henrico County — and the new property owners need to calibrate their re-development plans to that reality. Of course, having picked up the property for a thrift-shop price, $13 million, dusting off the old mall and spiffing it up may be a viable, low-risk strategy for them. Another possibility is bringing in an activity generator like a medical facility or an educational institution, as other malls have done successfully around the country.

Redeveloping the property as a town center would take longer, involve more consultation with the community and require cooperation from Henrico County to build a street grid, but the payback could be considerably higher. I have put in a call to Rebkee to see if the new owners have considered a more ambitious re-development option than the one they described to the Times-Dispatch. It’s possible that they did and that they determined that a market for such a project does not exist.

Personally, I think Henrico County is ready for islands of walkable urbanism, as long as the re-development preserves the integrity of existing residential neighborhoods. This opportunity is too good to waste. Let’s hope that Henrico County leaders make the most of it.

Malleable

This story was originally published in Henrico Monthly.

regency1Willow Lawn returned to its roots. Cloverleaf was torn down. So what will become of Regency Square?

By James A. Bacon

As a teenager growing up in rural Hanover County, Andrew Moore remembers Regency Square Mall in Henrico as the place to go. He played the trumpet in Christmas concerts there with his junior high school band. Later, equipped with a newly minted driver’s license and the family car, he hung out with friends, circling the two-level shopping promenade and sampling the edgy and exotic wares of places like Spencer’s Gifts. “In a very real sense, Regency was the center of a regional community,” Moore recalls. “For a teenager, it was the cool place to go on a Friday night.”

Today Moore lives in the Westham neighborhood in Henrico, a mere five-minute drive from the mall. He’s been to Sears a couple of times to buy some Craftsman tools; otherwise he doesn’t recall visiting Regency Square in the last seven or eight years. “I have no reason to go there. There’s nothing there that I need,” he says. With all the congestion on Parham Road, he adds: “Frankly, it’s a pain in the butt to get there.”

And that’s a shame, he says. If the southwest corner of the county has a natural civic center, it would be Regency Square. But the mall has been supplanted over the past decade as a retail destination by newer, open-air shopping centers such as Stony Point Fashion Park south of the James River and the super-successful Short Pump Town Center off Interstate 64. Retail sales at Regency Square reportedly have declined by two-thirds.

By 2012 the mall was faring so poorly and bogged down with so much debt that its owner, Taubman Centers Inc., turned it over to its lenders. The lender group has kept the mall open, but the complex continued bleeding tenants. Now the banks are attempting to sell the property at a price said to be at a discount to its $23.5 million assessed value. In late January, the Richmond Times-Dispatch reported that two local real estate companies, Chesterfield-based Rebkee Co. and Thalhimer Realty Partners Inc., were in negotiations to buy the mall by the end of January. Further details weren’t available by Henrico Monthly’s presstime.

So what comes next? Will a new buyer continue to operate the mall on the cheap? Will another developer repurpose the mall, perhaps bringing in a medical facility or an educational center, to generate traffic and anchor the stores? Does the 48-acre property, if redeveloped, have a future as a walkable “town center” that sparks the transformation of the neighborhoods and shopping centers around it?

moore

Andrew Moore, president of the Partnership for Smarter Growth, says Regency Square has struggled to remain relevant as a mall. He envisions the property being redeveloped into a walkable shopping district such as Carytown.

Andrew Moore, president of the Partnership for Smarter Growth, says Regency Square has struggled to remain relevant as a mall. He envisions the property being redeveloped into a walkable shopping district such as Carytown.

As an architect at Glave & Holmes Architecture and president of the Partnership for Smarter Growth, Moore has high hopes for the mall and the surrounding commercial area. Despite the relative walkability of Westham – his children can walk to the local elementary school – he thinks Henrico could be more livable. He is looking for somewhere pleasant to hang out, walk around and spend time with family and friends, with connections that don’t depend solely on the automobile. There are places where he can do that but they’re mostly in Richmond, like Carytown. Henrico desperately needs something comparable, he says.

“It has lots of potential,” Moore says. “But not as a mall.”

In 1977, not long after it opened, Regency Square was a destination – a center of fashion, especially at Christmas, when visitors would come from miles around to see Santa.

In 1977, not long after it opened, Regency Square was a destination – a center of fashion, especially at Christmas, when visitors would come from miles around to see Santa.

Opened in 1975, Regency Square was designed as a classic enclosed suburban mall surrounded by vast parking lots. The business model was predicated on people driving to the shopping center in their cars, parking and spending time inside protected from the elements. Enclosed malls helped define post-World War II American suburbia and the auto-centric lifestyle. They were the closest thing to public gathering places that many suburban communities offered.

Over time, tastes evolved. As Americans became more aware of environmental issues, many became disenchanted with the idea of driving to every destination in their automobiles. Concerned about the lack of exercise in their sedentary lifestyles, they placed a premium on walking and biking. As a practical matter, the suburbs were impossible to redesign as walkable communities. Zoning codes separated land uses – houses here, offices there, retail over there – by distances too vast to walk. Most streets and roads were inhospitable to pedestrians in any case. In the early 2000s, developers emulated walkable neighborhoods by building open-air malls such Short Pump and Stony Point. They are oases of walkability, but they didn’t create organic communities. They are disconnected from surrounding neighborhoods; people still have to drive to get there. The only things to do are shop and eat. Continue reading

Let Richmond Be Richmond

Virginia Museum of Fine Arts gallery. Artsy fartsy, it's who we are. Get over it. Embrace it.

Virginia Museum of Fine Arts gallery. Artsy fartsy, it’s who we are. Get over it. Embrace it.

I delivered this speech last night to a gathering at the Branch House in an event hosted by the Virginia Center for Architecture. — JAB

Buffalo, N.Y., a metropolitan region about the size of Richmond, is debating how to pay for a new $1 billion stadium complex for the Buffalo Bills National Football League team. The City of Richmond is debating how to pay for a $56 million stadium for the Richmond Squirrels AA baseball team. I don’t know if Buffalo will ever find the money, but it really doesn’t matter. If professional sports is your yardstick of metropolitan prestige, Buffalo is running – maybe I should say stampeding — Richmond into the dirt.

But, objectively speaking – assuming this audience can be objective – where would you rather live? Let’s look at some commonly used metrics:

  • The Richmond metropolitan region has a lower unemployment rate than the Buffalo metro – 4.8% compared to 5.8%.
  • Richmond has a lower poverty rate – 11.6% compared to 14.4%.
  • Richmond has a higher median household income — $55,300 compared to $46,400.

I think we can safely and objectively say that big league sports is no guarantee of metropolitan prosperity.

While Richmond can’t seem to get a minor league baseball stadium off the ground, consider VCU’s Institute for Contemporary Art. The community managed to raise $33 million through private philanthropy with no angst whatsoever.

Pro football or contemporary art. What do our choices tell us about the Richmond region? Richmond is an artsy fartsy kind of town. And that’s OK. In fact, I’m going to argue that artsy fartsy is a good thing as we reinvent ourselves for the 21st-century Knowledge Economy.

It is commonplace today to observe that the biggest challenge for any metropolitan region is recruiting and retaining the highly skilled, highly creative citizens – scientists, artists, educators, entrepreneurs – who drive innovation and contribute disproportionately to economic growth. Somewhat more controversially, I would argue, those desirable citizens are more likely to want to live and build a career in a region that has vibrant arts & culture than one that has big league athletics.

If you accept that proposition, then it tells you a lot how we ought to be investing our civic capital. For the billion dollars it would take Buffalo, N.Y., to build a bigger, better stadium for the Buffalo Bills, we could make Richmond the arts capital of the Southeastern U.S.!

The urban geographer Richard Florida made a big splash thirteen years ago when he published the book, “The Rise of the Creative Class.” His argument, boiled down to its essence, is that Americans, young Americans especially, were increasingly likely to choose where to live based on the attributes of the region rather than because that’s where they could find a job. He turned economic development on its head. Instead of recruiting corporations, we should be recruiting the creative class. Corporations will follow the creative in order to gain access to employees with the higher-order skills and aptitudes that are in short supply.

If we embrace that perspective, we need to ask two fundamental questions: (1) What does it take to attract young professionals to RVA? and (2) What does it take to keep them here? In other words, how do we do a better job with recruitment and retention?

Richmond has a relatively stable population. We don’t get a huge flux of people moving in or moving out. Fortunately, we do seem to attract more people than we lose — we experience net in-migration. Between 2013 and 2014, the Internal Revenue Service recorded the influx of nearly 32,000 new “tax returns” into the core Richmond region – by which I mean Richmond, Henrico, Chesterfield and Hanover. During the same period, those four localities experienced an out-migration of 29,000 tax returns. That represented a net gain of about 2,800 tax-paying households in a region with about 300,000 tax returns – or a gain of not quite one percent. That’s not bad. But it could be better: We’re not in the same league as national talent magnets like Austin or Raleigh, much less Silicon Valley.

Interestingly, two-thirds of the in-migration came from other locales in Virginia, only one-third from outside the state. Pending closer analysis of the numbers, I would conjecture that that RVA functions as a regional magnet for talent, as opposed to a national magnet, drawing mainly upon the hinterland of smaller Virginia cities and towns. Many could come from the many fine colleges and universities in the state. But we really don’t know. There’s a lot we still need to learn. Continue reading

Back to Big Lick

The old Norfolk & Western Railway headquarters complex, with Hotel Roanoke in the background.

The old Norfolk & Western Railway headquarters complex, with Hotel Roanoke in the background.

by James A. Bacon

In the early 1880s, Gilded Era industrialists created a railroad junction at the town of Big Lick in the Roanoke Valley, opening up the western Virginia coalfields to development. The community renamed itself Roanoke after the river running through it, and the newly formed Norfolk & Western Railway set up its headquarters there. In the late 19th century, Roanoke was a boom town: a hub of railroad traffic and manufacturing and a gateway to the burgeoning Central Appalachia coal industry.

Eventually, the boom subsided, but Roanoke continued to fare well. Besides hosting a number of corporate headquarters, the Star City of the South, so named for the giant star on Mill Mountain, served as the retail and administrative center for much of western Virginia. When I lived there in the early 1980s — covering the coal and railroad beat for the Roanoke Times — Roanoke was a delightful community surrounded by natural beauty. I enjoyed living there and was sad to leave.

But my personal journey mirrored the intractable economics that Roanoke, and other cities its size, is struggling against. As a young reporter, I didn’t see much of a career path upward. To get ahead, I had to move. Ambitious young professionals in other fields faced the same dilemma. No matter how much they liked living there, many had to relocate to rise in the world. As the United States evolved into a Knowledge Economy, large metropolitan regions enjoyed tremendous advantages over Roanoke-sized cities by virtue of larger labor markets.

Roanoke has stagnated since I lived there. The writing on the wall appeared as early as 1982 when the Norfolk & Western Railway merged with the Southern Railway and located the new corporate headquarters in Norfolk. The top jobs left the city but, as part of the deal, the combined Norfolk Southern Railway did keep a major administrative presence in Roanoke. Now, three decades later, comes news that 500 employees working in marketing, accounting, information technology and other departments — desirable white-collar jobs — will be moved to Norfolk and Atlanta.

The company said it is closing the Roanoke office building to achieve departmental synergies, to make better use of its real estate assets and to support its goal of streamlining its management workforce. According to the Roanoke Times, Norfolk Southern President James A. Squires described the action as a consolidation having nothing to do with work force or business issues peculiar to Roanoke. The Roanoke office was less utilized than the offices in Norfolk and Atlanta, he said.

But that’s disingenuous. Of course the move had everything to do with Roanoke — or, more precisely, the size of its labor market. If Norfolk Southern had excess space in Norfolk, Atlanta and Roanoke, in theory, it could have shut down a Norfolk or Atlanta office and consolidated employees to the other two. Office space in Roanoke, I’m willing to wager, has the added advantage of costing less. But, the fact is, Norfolk and Atlanta are much larger labor markets, making it significantly easier for the railroad to recruit employees with white-collar skills.

The migration of corporate operations and white collar employees in the United States goes one way — from smaller cities and towns to bigger ones. The process does not work in reverse.

Looking back, Roanoke had one shot at bucking the trend — hitching up with the scientific and engineering brainpower at Virginia Tech. In theory, Blacksburg and Roanoke could have supported one another, with Virginia Tech spinning off high-tech start-ups and Roanoke providing financial, legal and other professional services. Despite the efforts of the Roanoke-Blacksburg Technology Council to bridge the 42-mile gap, the hoped-for synergies never really materialized. The Roanoke and New River valleys are divided by rugged mountains and connected by a single thread, Interstate 81. The 45-minute travel time created a psychological divide that has been hard to overcome.

It’s tremendously sad. The people of Roanoke are good people. In my personal experience, they are friendly, community-minded and egalitarian in spirit. It doesn’t seem fair that their economic prospects are leaking away because of forces beyond their control. But the world isn’t fair.

Update: I have to modify my categorical statement that the migration of corporate operations from small cities to big cities is a one-way flow. The very day I published this post, Edelman Technology, a German manufacturer of industrial equipment, announced its intention to locate its North American headquarters in Rocky Mount, roughly 30 miles south of Roanoke. The company will hire five to 10 employees including  software specialists, electricians and industrial equipment maintenance staff. So, there are exceptions to the rule. They are few and they are minor, but there are exceptions.

Dominion’s Strange Ploy to Avoid Audits

dominion By Peter Galuszka

Dominion Virginia Power appears to be getting its way with strange legislation to freeze its rates and avoid regulatory audits for the next six years.

The state senate will hold hearings today on a bill that would cancel biennial rate reviews by the State Corporation Commission to 2020. Dominion’s rates will be frozen and couldn’t go up or down.

The utility’s reasoning is that it may have to spend a lot to comply with unfinished regulations by the U.S. Environmental Protection Agency that would cut carbon emissions from coal plants by 30 percent by 2030 compared with 2005 levels. Always looking out for its customers, Dominion doesn’t want to stick them with astronomical rate hikes resulting from the EPA rules.

The bill was drafted by Dominion, the state’s largest donor to political campaigns, by Sen. Frank Wagner (R-Virginia Beach) who is the go-to guy for laws favoring energy firms.

In 2004, Wagner sponsored legislation that allowed companies the right to survey land for proposed natural gas pipelines without having to obtain the owner’s permission first. The nettlesome law figures heavily in the current battle by property owners over proposed gas pipelines in the state, notably the $5 billion Atlantic Coast Pipeline in which Dominion is a partner. The pipeline would take gas 550-miles from West Virginia, through Virginia and on into North Carolina. Dominion has sued more than 240 landowners who have refused to grant access. They are challenging the constitutionality of the pipeline law in federal court.

There’s a lot odd about Wagner’s current bill. The first problem is that it would supposedly protect Dominion customers from federal rules that aren’t even final. It is weird that Dominion would use the excuse that it might be socked with huge costs by having to shutter coal-fired plants. Surprise, surprise! Dominion announced several years ago that it would shut down aging coal units in Yorktown and Chesapeake. So, what’s the connection between the new EPA rules and coal-plant closures?

Atty. Gen Mark Herring says that the Wagner bill is a ploy to keep Dominion from having its profits overseen by the SCC because the utility might have a $280 million surplus that ordinarily might have to go back to ratepayers. After  a 2011 SCC rate review, Dominion had to pay back $78 million to customers.

The other oddity is why Dominion and Wagner are suddenly so scared about exploding costs brought on by the EPA. After all, prices for natural gas, which fuel some of Dominion’s units and is  less polluting than coal, are very low – so low that the fracking boom that released a flood of cheap gas is slowing down considerably.

Environmental groups say that the Wagner bill is a gift for Dominion. The senator has received more than $43,000 in donations from the utility over the years.

The Many Problems of Offshore Drilling

deepwaterBy Peter Galuszka

Almost five years after the infamous Deepwater Horizon disaster in the Gulf of Mexico, President Barack Obama has again proposed opening tracts offshore of Virginia and the southeastern U.S. coast to oil and natural gas drilling.

The plan poses big risks for what may be little gain. Federal surveys show there could be 3.3 billion barrels of crude oil and 31.3 trillion cubic feet of natural gas in the potential lease area stretching from Virginia to Georgia.

Energy industry officials praised the plan while complaining it doesn’t go far enough. Environmental groups including the Sierra Club and the Chesapeake Bay Foundation condemned it. Besides the ecological risk, the move is a step away from refocusing energy on renewables that do not lead to more carbon emissions and climate change.

Obama’s plan would restrict drilling to areas more than 50 miles off the coast. This is a sop to the Navy and other military which conduct regular exercises offshore and to the commercial and sports fishing industries.

Is the restriction worthwhile? It is generally easier for oil rigs to be placed in shallow water and much of the areas off of Virginia and northeastern North Carolina and off of South Carolina and Georgia are in plateaus that aren’t very deep – maybe just a few hundred feet. Yet the Atlantic takes a huge plunge not far off of Cape Hatteras, descending as much as two miles down.

Drilling in deep water presents special problems for oil companies involving high pressure and high temperatures. That was the case with the Deepwater Horizon tragedy on April 20, 1010 that killed 11 workers. One big factor that a blowout preventer, designed to shut down the rig if drilling hits abnormally high levels of pressure, didn’t work completely. The rig was in 5,000 feet of water and crude spewed uncontrolled. Winds from the south washed the oil towards land and polluted nearly 500 miles of coastline in Florida, Alabama, Mississippi and Louisiana. An estimated 4.9 million barrels of crude were released.

oil-drilling-mapAlthough it isn’t certain if energy firms would drill in the very deep waters off of North Carolina, there is cold comfort in the fact that the Deepwater rig was only 48 miles from shore. In other words, it would have been too close in for the latest plan involving the southeastern coast. Supposedly, blowout preventers have been upgraded but there were still spills involving them off of Brazil and China post-Deepwater.

If something like that happened closer to home, it is not exactly certain where the oil would go. Winds can blow from the ocean and currents are very fickle. The Labrador Current might tend to push spilled oil back onto environmentally sensitive shoreline while the Gulf Stream might tend to take the spilled oil out to sea.

There is no question that drilling off any of the southeastern coast would be of some benefit to the now-struggling Tidewater economy since it has plenty of steel-bending industries, an able workforce and no significant bridges to pass under to reach deep water. It might help since the defense sector is winding down, but who knows what world conflicts will be like in 2025. Hampton Roads would be a more logical staging area than other ports such as Wilmington, N.C., Charleston or Savannah.

There’s a rub, however. The 3.3 billion barrels of estimated reserves isn’t that much. It is a fraction of the total estimated reserves in the country. Energy sector officials claim there is probably much more. Okay, fine, but no one knows for sure. The natural gas reserves involved are also somewhat small – just a fraction of the estimated reserves in the U.S.

It’s not the first time offshore drilling has come up locally. There was a big push for it in the late 1970s, prompting oil rig giant Brown & Root to buy up land near Cape Charles for fabricating rigs. Nothing happened and much of the land now is used for a luxury golf community. Obama was supposed to back lease sales in 2010 but then Deepwater happened. This begs the question – if the offshore petroleum is so valuable, why has it taken so long?

Yet another issue is what cut Virginia would actually get from offshore drilling. There was a flap a few years ago when offshore drilling was being pitched. Some revenues to states from offshore petroleum production are computed by how much shoreline a state has. In Virginia’s case, it is not much, at least when compared to North Carolina. Virginia politicians have pointed this out and hope for some adjustment.

No one can predict energy markets a decade from now. For instance, no one knew that hydraulic fracturing would increase petroleum production by 64 percent and possibly make the U.S. a petroleum exporter for the first time since the 1970s. Granted it is a rock and a hard place kind of choice. Fracking is fraught with pollution problems just as offshore drilling is.

There are certain to be plenty of lawsuits over the offshore plan and economics will likely determine its future. An important choice is whether it is worth risking Virginia’s military, resort and fishing businesses for Big Oil whose promise is uncertain when it comes to offshore drilling.

The Strange Story of Health Diagnostic Laboratory

HDL's Mallory before her fall.

HDL’s Mallory before her fall.

By Peter Galuszka

The biggest problem facing the health care industry in Virginia and the rest of the country isn’t Obamacare or the lack of new medical discoveries. It the lack of transparency that hides what is really going on with pricing tests, drugs and hospital and doctors’ fees. Big Insurance and Big and Small Pharma cut secret deals. We are all affected.

I’ve been wanting to blog about this – especially after Jim Bacon’s recent post on the supposed tech trend in health care – but I wanted to wait until a story I’ve been working on for a few weeks was posted at Style Weekly, where I am a contributing editor.

In it, I explore the strange story of Health Diagnostic Laboratory, a famed Richmond start-up that went from zero to $383 million in revenues and 800 employees in a few short years. The firm said it was developing advanced bio-marker tests that could predict heart disease and diabetes long before they took root. HDL’s officials thought it would transform the $1.6 trillion health care industry.

Richmond’s business elite applauded HDL founder Tonya Mallory, a woman who grew up just north of the city and had the strong personality and drive to create the HDL behemoth. Badly wanting a high tech champion in a not-so high tech town, the city’s boosters did much to publicize HDL and Mallory, believing they could draw in more startups.

The story was too good to be true. It start to deflate last summer when the federal government noted that HDL was one of several testing labs being probed for paying doctors $17 for using HDL tests for Medicare patients when Medicare authorized $3 per test. Mallory resigned Dept. 23. Several lawsuits by Mallory’s former employer, Cigna health insurance and another have accused HDL of fraud. HDL has responded in court.

One legal picture suggests that HDL wasn’t a true tech startup but a new firm that stole intellectual property and sales staff. HDL says no, but its new leader Joe McConnell has taken steps to reform sales and marketing and is said to be working with the U.S. Department of Justice to settle a federal investigation.

The HDL affair raises issues about the inside marketing and apparent payoffs that are the biggest problem the health care industry faces. It doesn’t matter what kind of “market magic” combined with new technology comes up if something like this keeps happening.

This is all the more reason for a universal payer system. That may be “socialized” medicine but in my opinion it is the only logical way to go.