Category Archives: Economic development

A Once-in-a-Century Opportunity to Get Transportation Right

Photo credit: Wall Street Journal

Photo credit: Wall Street Journal

by James A. Bacon

Take the Uber revolution of summoning rides with a smart phone. Then add driverless cars, which eliminate the expense of paying someone to drive the car. Then overlay the emerging business model of Transportation As a Service, in which people pay for rides when they need them rather than buy cars that sit idle 90% of the day, often incurring parking fees in the process. Shared self-driving cars could take up to 80% of all vehicles off the road, according to a Massachusetts Institute of Technology study noted in a Wall Street Journal thought piece by Christopher Mims.

How would the impact of such an eventuality ripple through the rest of the economy? While acknowledging that such things are impossible to predict, Mims speculates that shared, self-driving cars will spur “suburban sprawl.”

Nearly everyone who has studied the subject believes these self-driving fleets will be significantly cheaper than owning a car…. With the savings you will be able to escape your cramped apartment in the city for a bigger spread farther away, offering more peace and quiet, and better schools for the children.

As for the putative preference the Millennial generation has for living in the city, writes Mims, it’s a myth. “Not only do 66% of millennials tell pollsters they want to live in the suburbs, they are moving there, as population growth in suburbs outstrips growth in cities.”

I don’t agree with Mims’ conclusion, but these are ideas worth exploring. I’m most intrigued by the MIT forecast that the shared, driverless-car future will take 80% of all vehicles off the road. For purposes of argument, let’s say that shared, driverless cars take only half of all vehicles off the road. That’s still an astounding number.

My first question is this: Will the streets, roads and highways in a world of shared, driverless cars be less crowded? To answer that, we must distinguish between the number of vehicles and the number of trips taken. Unless people take fewer trips, they still will need means of conveyance. If everyone rides solo cars, the country may need fewer cars but there will not be fewer cars on the road. Only if people share rides — either in conventional cars, vans or micro-buses like the one pictured above — will there be a need for fewer cars on the road. I think it’s possible that we’ll see fewer cars on the road, but no one can make such a prediction with any confidence.

Here’s what we can predict: A shift to shared, driverless cars will reduce the number of vehicles needed to serve the population. To the extent that fleet operating companies maximize the asset value of their fleets by running them 24/7, most cars will be on the streets (or in maintenance garages or recharge stations) instead of sitting in parking lots and parking decks. The most confident prediction we can make is that America will need fewer parking spaces.

Shrinking acreage dedicated to parking will have a profound impact on human settlement patterns. While it will free up some land in densely settled urban areas — putting a lot of parking garages out of business — the biggest impact will be in the scattered, low-density areas we think of as suburbia. Millions of acres of parking lots across the country will become redundant and unnecessary.

If localities are intelligent enough to eliminate minimum parking requirements, retailers would have every incentive to convert acres of land into something useful — offices, townhouses, apartments, parks, whatever. So much land would be freed up from redundant parking lots that there would be no need to develop another acre of greenfield land for another generation. Localities that anticipate this opportunity by revising their comprehensive plans and zoning codes will enjoy a huge advantage over the laggards in attracting new development.

Now, back to Mims’ observation that Millennials prefer “the suburbs” by two to one over “the city.” That’s a meaningless statement. True, young families may prefer so-called “suburban” jurisdictions with quality school systems, but the operative factor is the quality of the schools, not the low-density and auto-centric design of the communities. Other research shows that Millennials also prefer walkable, bikeable communities. The preference for good schools may be stronger, but that doesn’t mean the Millennials wouldn’t jump at the chance to live in a community that offered both good schools and walkable-bikable places.

In contrast to Mims, I do not think that shared, driverless cars will spur more of the scattered, disconnected, low-density that we call “suburban sprawl.” To the contrary, I believe it will stimulate the redevelopment of low-density, auto-centric communities into walkable urban places.

Localities across Virginia will enjoy a once-in-a-century opportunity to convert parking lots into taxable development without incurring the offsetting liability of needing to upgrade the transportation infrastructure to support the denser population. But this will happen only if they stop mandating parking lot requirements and revise their comprehensive plans and zoning codes to accommodate the new possibilities.

Likewise, the Commonwealth of Virginia, which once again (and as predicted) finds itself short of dollars to fund the roads, highways and rail systems, needs to re-think the twenty-year future. The transportation infrastructure of the 21st century will be Uber-fied. Throw out all long-range traffic projections! Rather than sinking hundreds of millions of dollars into expensive new highways, light-rail rail and Bus Rapid Transit systems, we need to start thinking what kind of investments will expedite the coming of shared, driverless cars.

States and localities that work out the solution first will be winners. Those that stick to the current transportation paradigm will lose.

Amazon-Dominion Renewable Energy Deal a “Game Changer”

Amazon data center. Photo credit: New York Times

Amazon data center. Photo credit: New York Times

An energy-services deal between Dominion Virginia Power (DVP) and Amazon Web Services (AWS) is a “first-of-its-kind agreement” that could accelerate the integration of renewable energy into the electric grid, according to a recent analysis by the Rocky Mountain Institute (RMI), an organization dedicated to unlocking market-based solutions to combat climate change.

“This is a turning point in the electricity industry,” says Hervé Touati, head of RMI’s Business Renewables Center, which streamlines and accelerates corporate renewable energy procurement. “By offering these services to Amazon to help the company manage its purchased power, [Dominion] is . . . working directly with a corporation like no utility has done before.”

Amazon, the world’s largest cloud provider, has set a goal of supplying its data centers with 40% renewable energy by the end of 2016. The company has signed power purchase agreements (PPAs) for four utility-scale renewable energy projects in the Eastern U.S. In the past, electricity generated from these projects would have been fed into the PJM regional grid at the wholesale market price, while data centers in Northern Virginia consumed energy from a different part of the grid, paying the retail rate of electricity based on Dominion’s power mix, which includes coal, nuclear, natural gas and renewables.

Now Dominion may administer the scheduling and settlement activity related to Amazon’s wholesale market activities, while Amazon pays a market-based retail rate that closely matches the wholesale market rates of its renewable energy projects. Aligning the production and consumption of renewable energy more exactly reduces market risk for Amazon.

States the analysis:

This arrangement allows DVP to accommodate AWS’ renewable energy commitments without shifting costs to other customers. And most importantly it helps AWS bring renewable energy to the same regional grid that supplies its data centers in Northern Virginia, meaning AWS can reach its ambitious sustainability goals while encouraging local economic development.

“With this agreement Dominion is evolving its business model and putting its customer first,” says Letha Tawney, director of utility innovation at World Resources Institute. “This unique agreement shows the importance of corporations working with utilities to come up with solutions to their goals.”

A similar proposal before the State Corporation Commission would allow other qualifying customers  to enter into similar arrangements. States the analysis: “This could dramatically change the way that corporations enable large-scale renewable energy projects in Virginia, allowing them to work with their utilities to tailor solutions to the companies’ unique energy needs on the regional grid.”

There could be big benefits for Virginia as well, said the Rocky Mountain Institute. The deal could pave the way for the state to win new data center business and build its renewable energy industry.

— JAB

Who Should Pay for Haymarket Transmission Project, Amazon or Ratepayers?

transmission_linesby James A. Bacon

Dominion Virginia Power wants to upgrade its electric grid to serve a new data center campus in the Haymarket area of Prince William County. Residents are up in arms about the potential loss to property values, and the cost of the project could range between $51 million for the least expensive alternative to $166.7 million for the lowest-impact alternative.

The Haymarket project is re-playing familiar controversies bubbling up around the state as Dominion undertakes a wave of improvements to its transmission and distribution system in response to the shift from coal toward natural gas and renewable sources. But this project has a twist. The justification for the project is to serve a single customer, widely believed to be Amazon Web Services (AWS). (Dominion is constrained by a confidentiality agreement not to identify the customer.)

The State Corporation Commission faces two big decisions: (a) Which alternative should it approve, and (b) who should pay for it — Amazon or Dominion rate payers?

Dominion has applied to the SCC for approval to construct a new substation in Haymarket, upgrade an existing distribution line from 115 kV to 230 kV, and construct a new 5.1-mile overhead line. The purpose is to deliver service to a proposed campus expected to house three data center buildings

According to testimony submitted by SCC utilities engineer Neil Joshipura last week, the data centers cannot be served reliably by the existing distribution system and connecting them to the grid would not comply with federal grid reliability standards. While Dominion has demonstrated a need for the project, noted Joshipura, “the Project is needed to serve a new customer, rather than to enhance overall system reliability, and the Staff notes that without the request for service to the Haymarket Campus, the Project would not be needed.”

The SCC has received dozens of letters from Haymarket residents opposed to the project. The area is part of Prince William County’s “rural crescent” slated for lower density development, and residents have famously fought off efforts to develop land near the Manassas National Battlefield Park and, more recently, build the Bi-County Parkway through the area. Most letters express the fear that the power lines would be visually intrusive in a quiet, rural area and would impact property values.

“We did not move to Gainesville 13 years ago to have an eyesore in our back yard,” wrote Peter Menard in a typical statement filed with the SCC.

If a line must be built, citizens tend to favor the “hybrid” above ground/buried cable alternative, although it costs three times as much as Dominion’s preferred alternative.

Citizens also object to the idea of making Dominion ratepayers pay for AWS’s business decision to locate its data center campus in Haymarket rather than Prince William’s Innovation business park. Joseph Knight put it this way in a letter to the SCC:

Amazon chose to buy cheaper land elsewhere in the Haymarket area, knowing that data center expansion is a key factor in Amazon’s overall long-term growth plans and knowing full well that the power at the Haymarket site was totally inadequate to support such an expansion and would require a major power substation upgrade. … Amazon must have intended from the very beginning to lay the entire cost of the upgrade, the property destruction, and the immense loss of value in private property on a wide swath of Western Prince William County.

Dominion classifies the Haymarket improvements as transmission facilities, not distribution facilities, which would make the project subject to the control of PJM Inter-connection, which operates wholesale electricity markets in a 12-state region. As a transmission facility, the improvements would be paid for by ratepayers in the Dominion Transmission Zone, which extends into North Carolina. A residential customer using 1,000 kWh would see a bill increase of $0.09 under Dominion’s preferred proposal and $0.37 under the hybrid proposal, said Joshipura.

Dominion had no comment on Joshipura’s testimony. “We are aware of the SCC staff report, and it’s under internal review,” said Chuck Penn, Dominion spokesman. “We’ll address it in our rebuttal” to be filed tomorrow.

New Gas-Fired Power Station Brings Hope to Brunswick County

Brunswick County Power Station in final stages of construction. Photo credit; Dominion Virginia Power

Brunswick County Power Station in final stages of construction. Photo credit; Dominion Virginia Power

by James A. Bacon

To Joan Moore, executive director of the Brunswick County Industrial Development Authority (IDA), the opening of the $1.2 billion Brunswick County Power Station means more than the thousand construction jobs that pumped money into the local economy for a year, more than the 40 permanent operating jobs, and even more than the $5 million in annual tax revenue, a sum roughly equal to what the county collects from real estate property taxes.

What really gets her excited is the $300 million natural gas pipeline, made possible by Dominion Virginia Power, that will provide industrial volumes of natural gas to Brunswick County and four other Southside jurisdictions.

Local jurisdictions could not afford to finance construction of a pipeline solely for the purpose of recruiting industry. But now, says Moore, Brunswick County and neighboring jurisdictions can compete for a large category of business that it could not before. Brunswick, which is 57% African-American, has suffered economically in recent years from a shrinking population, the decline of U.S. manufacturing and the shutdown of the St. Paul’s College, a historically black university.

Construction of the natural gas-fired power plant required Dominion to cut a deal with the giant Transco pipeline to build a high-capacity extension to Brunswick County. With help from a $30 million grant from the Tobacco Region Revitalization Commission, the Brunswick IDA is piggybacking on the Transco line to add additional capacity at incremental cost to serve local industry.

Brunswick County has access to natural gas but not in large enough volumes to attract industrial customers that use gas as an energy source or feedstock. Thanks to the grant, the new pipeline will provide roughly 100,000 decatherms (100 million cubic feet) per day over and above the supply that Dominion has contracted for, said Jim Eck, Dominion vice president for business development. As a rule of thumb, a big industrial user will consume 5,000 decatherms per day.

Among the facilities expected to benefit from the new supply of natural gas is the Mid-Atlantic Advanced Manufacturing Center (MAMaC), in neighboring Greensville County, which has 1,600 acres, abuts Interstate 95 and enjoys CSX Corp. rail access. Industrial volumes of natural gas will make MAMaC far more competitive, said Sen. Frank Ruff, R-Clarksville, who attended the ribbon-cutting ceremony.

Dominion’s search for a location to build a new gas-fired plant was the catalyst. When deciding  2011 and 2012 where to locate the plant, the electric utility narrowed the choice to between Brunswick and Chesterfield County. To serve the Brunswick power station as well as an anticipated gas-fired station next door in Greensville County (still in the regulatory approval process), Dominion would have to cover the cost of building a 100-mile pipeline from Transco’s trunk line in Pittsylvania County by reserving capacity of 250,000 decatherms a day for Brunswick and 250,000 decatherms to the Greensville plant.

Brunswick County applied for the $30 million grant from the tobacco commission. “The idea was to build a larger pipe than Dominion needed,” said Dan J. Poteet, senior manager-generation business development.

The Tobacco Commission’s grant caused a brief flap in 2014 when the Associated Press ran an article suggesting that the commission awarded the grant to induce Dominion to locate in Brunswick County. Dominion was listed as a beneficiary of the grant application, although the money was paid to Transco “to lower the construction cost” of the pipeline. The AP article noted that “Dominion is without peer in terms of political sway in Virginia and routinely gets friendly legislation passed with broad bipartisan support.” The article was picked up by a Washington Post columnist who cited the incident as evidence that the tobacco commission “serves at times as a kind of slush fund to help the politically connected.”

At the time, Dominion officials insisted that the company never lobbied for the grant, and that the grant was only one of several factors the company considered when deciding to locate in Brunswick County. In any case, the $30 million will not benefit Dominion shareholders. The company would have built a power plant, upon which it would be allowed to generate a return on investment, one way or the other. By contrast, the cost of purchasing and transporting natural gas is passed on to ratepayers in a fuel adjustment clause. Dominion officials have projected that the Brunswick plant will result in $1 billion in fuel savings over the life of the plant, which could generate power over the next 40 to 50 years.

Meanwhile, Brunswick County officials are delighted with their new corporate citizen. Said Joan Moore: “Dominion has been one of the greatest business partners ever to work with the county.”

Could Virginia Beach Become the Next Mecca for Data Centers?

This map shows the route of transatlantic cables, circa 2012.

This map shows the route of transatlantic cables, circa 2012. Note: no Mid-Atlantic connections.

by James A. Bacon

Virginia Beach is finally getting its Tide — not the Tide light rail system, but MAREA, the Spanish word for tide, which happens to be the name of a transatlantic cable project recently announced by Facebook, Microsoft and Teleconica, the Spanish telecommunications giant, according to the Virginian-Pilot.

The 4,000-mile cable will have a capacity of 160 terabytes of data per second, the highest-capacity cable of its kind to be laid under the ocean. The cable will be operated by Telxius, a unit of Telefonica. The company also will build the first transoceanic fiber cable station in the MidAtlantic region, in Virginia Beach off General Booth Boulevard.

Also, according to the Virginian-Pilot, Telefonica recently announced construction of a 7,000-mile cable stretching from Brazil to Puerto Rico and VirginiaBeach.

Virginia Beach officials see an economic opportunity. Said City Councilman Ben Davenport, chairman of the Virginia Beach Broadband Task Force: “Having Microsoft, Facebook and Telefonica come into Virginia Beach is an exciting development for our city, and it helps us continue our mission of becoming one of the most connected cities in the world.”

Questions, questions. Most transoceanic cables serving North America land in New York and New Jersey. This is a first for the Mid-Atlantic. Just how big a coup for Virginia Beach is this? Will Virginia Beach businesses benefit from higher speed access to Europe? Will access to the two transoceanic cables make Virginia Beach a logical location for the placement of data centers? In particular, are Microsoft and Facebook likely to build data centers there?

Then there are the spin-off questions. How would the rise of a major cluster of data centers in Virginia Beach affect the demand curve for electricity in the Dominion Virginia Power service territory? Would Microsoft and Facebook want access to “green” electricity from solar and wind? Could demand from a cluster of data centers be parlayed into a market for offshore wind?

This development could be a game changer. It bears close watching.

Are Smaller Metros Becoming Competitive with Big Metros?

Governor Terry McAuliffe (left) and Steve Case

Governor Terry McAuliffe (left) and Steve Case. Photo credit: Richmond Times-Dispatch

by James A. Bacon

The flight of promising startup companies from smaller cities to big ones “is beginning to change,” AOL co-founder Steve Case said yesterday during an entrepreneurship event in downtown Richmond yesterday. Regions such as Richmond can avoid losing startups to bigger metros, he told the Richmond Times-Dispatch, “if you build up the right infrastructure in terms of capital and talent.”

You can take Case’s words with a heavy helping of salt — he was on a cross-country bus tour to promote entrepreneurship and his new book, “The Third Wave,” in which he argues that the third phase of the digital revolution is integrating the internet “in seamless, pervasive and sometimes even invisible ways” throughout our lives. This third wave, he contends, will revolutionize traditional sectors such as energy, health care, education, transportation, and food.

Currently, about 75% of all venture capital deals are consummated in just three states — California, New York and Massachusetts. “That does not reflect the distribution of great entrepreneurs with great ideas,” Case said. “There are a lot of great entrepreneurs in Virginia.”

The T-D article provided little explanation of why Case thinks why smaller cities will fare better than the past, other than citing the rise of crowd-funding, which allows average investors to find and invest in small startups.

Indeed, Case’s prognostication makes quite a contrast to a post I published earlier this week, “A New Map of Economic Growth,” which suggested new business formation is becoming more concentrated in a few large cities, not less. There is a large body of economic theory to suggest that, all other things being equal, larger metropolitan regions enjoy a big competitive advantage in the Knowledge Economy over smaller ones. Both job seekers and the companies that hire them prefer doing business in larger labor markets where they have more choices.

There wasn’t enough in the T-D article to make Case sound terribly persuasive. However, Case is one shrewd guy. He built AOL into an internet powerhouse and then, seeing that his subscription-driven business model was living on borrowed time, sold out to Time Warner at an extraordinary premium.

I’d like to think that there’s a strong case to be made for a smaller-metro revival in fortune. It just can’t be divined from Case’s remarks yesterday.

However, Governor Terry McAuliffe left no doubt in his remarks what he thought the secret is — a business-friendly environment and workforce training. He said his goal is to revamp high school education to produce graduates better prepared for the 21st century economy. “My goal is when every child gets out of high school that they have a skill to match the jobs that are out there today.”

The New Map of Economic Growth

Jobs growth during the recovery from EIG

by James A. Bacon

Not only has job creation and new business formation been weak in the current business cycle, it has been more concentrated geographically than in the past. Unfortunately for the Old Dominion, between 2010 and 2014 that concentration did not occur here.

This analysis points to very different futures for American communities, suggesting that the gains from growth have and will continue to consolidate in the largest and most dynamic counties and leave other areas searching for their place in the new economy,” writes the Economic Innovation Group in a new publication, “The New Map of Economic Growth and Recovery.”

The report buttresses an argument familiar to Bacon’s Rebellion readers: that larger metropolitan areas enjoy a significant competitive advantage in the Knowledge Economy. Skilled and educated employees seek large labor markets that provide a diversity of employment opportunities, while corporations seek larger, deeper labor markets that provide access to a diversity of skilled and educated employees. The dynamics of labor markets outweigh factors that confer competitive advantage in the old industrial economy such as access to transportation and natural resources, lower labor costs, low taxes and a low cost of doing business.

In summary: Large metros enjoy a major competitive advantage, smaller metros are teetering on a knife’s edge, and rural areas and small towns are hosed.

“The U.S. economy is becoming far more reliant on a small number of super-performing counties to generate new businesses,” EIG says. “A mere 20 counties accounting for only 17 percent of the U.S. population were responsible for half of the net national increase in business establishments from 2010 to 2014.”

The report does not speculate whether the trend is the result of temporary economic or political factors or is an irreversible long-term trend.

Graphic credit: EGI

Graphic credit: EGI

Two trends contribute to the sharp decline in the number of businesses: a higher rate of firm deaths (more companies getting acquired or going out of business) and a collapse in new business formation, as can be seen below.

births_deaths

What could account for these trends? One logical possibility: In a blast of creative destruction associated with the digital economy, a relatively small number of new companies are displacing many established businesses. Another possibility: A wave of economic regulation in recent years has hobbled large swaths of the economy — the banking industry, the Internet, health care, energy, and so on — and has created new economies of scale that favor large, established corporations, encourages mergers and consolidations, and throws up barriers to entry to new firms. Most likely, both are at work.

Weakness in the national economy means that everyone is swimming upstream. Only a small number of metropolitan areas are strong enough to make any progress swimming against the current. Mega-trends favor the mega-metros.

But mega-trends won’t tell the whole story. Some large metros bungle their opportunities though corruption, business-hostile policies and mal-investment of public resources. Some smaller communities buck the broader trends by building defensible economic niches. The news from the EIG report is discouraging, but short-term trends need not dictate our long-term destiny.