Category Archives: Infrastructure

The Market-Driven Path to Renewables

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Texas wind turbines. Photo credit: Wall Street Journal

by James A. Bacon

Texas, one of the most conservative states in the country, is not exactly what you’d call a hotbed of environmental activism. Yet the Lone Star state has added more wind-based generating capacity than any other; wind turbines and other renewables account for 16% of electrical generating capacity — and as much as half of electricity production at night. Now the state is anticipating a surge in solar power, reports the Wall Street Journal.

Moreover, Texas, long associated with the oil & gas industry, has become a pace-setter in renewable energy while moving from an average retail electricity rate higher than the national average to a rate below the national average — 8.6 cents per kilowatt hour compared to 10.4 cents nationally.

Oh, and it did so within the context of a free-market-based electricity system — no  state subsidies. (Federal subsidies still apply.)

“Texas officials didn’t invoke global warming to sell the program,” writes the Journal. “They touted renewable energy as a consumer-choice issue, jobs producer and a way to pump money into rural economies.”

Consumer choice: Residents of Houston can pick from 107 rate plans offering 5% to 100% renewable power. Reliant, a unit of NRG Energy Inc., charges 7.1 cents per kilowatt-hour for an all-renewable plan compared to 5.9 cents for one that’s 5% green.

Jobs: The Texas Workforce Commission estimates that the state now has more than 100,000 people working in renewable energy, which includes manufacturing, construction and ongoing operations. Construction of wind turbines and power lines  created jobs in rural counties and gave landowners new sources of income.

How did this transformation occur? The Journal doesn’t delve into details, but here are the highlights. In 1999 then-Governor George W. Bush signed legislation overhauling the Texas power market. Deregulation broke the grip of monopoly utilities that controlled generation, transmission and retail sales of electricity and introduced competitive auctions for wholesale power. Texas also mandated at least 2,000 megawatts of renewable generating capacity by 2009, not an idea inspired by free market principles, but the mandate wasn’t a major factor. Texas blew past that goal by 2005.

State government also charged electric-system users billions of dollars to build transmission lines to wheel power from windy west Texas where the wind turbines were to urban centers where the demand resided.

The Journal article doesn’t address the issue of service reliability, other than to note that Texas officials are “obsessive” about anticipating changes in the weather that might affect wind-powered production.

Bacon’s bottom line: It would be a mistake to portray the Texas approach as purely market driven. The state did enact mandates (although they apparently were not decisive) and it did dun ratepayers to upgrade transmission lines. But the deregulation of retail allowed Texas greenies to exercise their consumer power by purchasing renewables at a modest premium. And the development of wholesale electricity auctions ensured that new wind and solar producers had someone to sell to.

The big question for Virginians is whether the Texas model can be replicated here, and I’m just not sure of the answer. Some of the necessary elements are in place. For example, Virginia does participate in wholesale electricity markets; we’re part of PJM Interconnection, a cooperative zone of a dozen states in the Midwest and Mid-Atlantic. On the other hand, building transmission lines is exceedingly contentious. It’s one thing to install high-voltage towers in empty Texas ranchland; it’s quite another to build them in a Virginia countryside rich in historical, cultural and environmental resources where landowners value the land not only for its productive capacity but for its viewsheds.

Virginia also experimented with retail deregulation, which was deemed a failure. But it’s been a decade since re-regulation, and times have changed. Thanks to the success of retail deregulation in places like Texas, there are enterprises with proven business models that might make retail competition more meaningful here in Virginia.

Finally, there are important climatic differences between Texas and Virginia. With its vast, windy plains, Texas is superbly suited to on-shore wind. Except along isolated mountain ridges, Virginia is not. While the Old Dominion potentially could tap off-shore wind, the business infrastructure to support it does not exist. As for solar, Texas is an arid state where solar panels get more direct sunlight than in Virginia.

Still, while politically “blue” states from California to New York give extensive thought to what the electric grid of the future will look like, Virginia needs to do so as well. Texas’  market-oriented model might be one that Virginians are more comfortable with.

Dominion to Recover $140 Million for Burying Electric Lines for Outage-Prone Customers

A screen capture from a Dominion video shows the machinery used to bury electric lines.

A screen capture from a Dominion video shows the machinery used to bury electric lines.

by James A. Bacon

The State Corporation Commission ruled earlier this week that Dominion Virginia Power can recover up to $140 million on what it has spent to bury about 400 miles of electric distribution lines. By putting the overhead tap lines of the 6,000 most outage-prone customers underground, the electric company hopes to significantly reduce time spent restoring electric power after hurricanes, ice storms and other widespread service disruptions. The benefit to improved reliability will cost customers an average of fifty cents to the monthly bill.

The General Assembly had passed enabling legislation in 2014 but the State Corporation Commission (SCC) turned down Dominion’s first proposal to bury 4,000 miles of overhead lines serving some 150,000 customers on the grounds that there was insufficient data to show a positive cost-benefit ratio. But the SCC approved the pilot program, which will apply retroactively to overhead lines that Dominion has already buried, with the expectation the Dominion will regularly provide data on outages and restoration times to use in evaluating the program.

“If we were to get the full 4,000  miles of underground line, it would cut the typical hurricane outage period of seven to ten days in half,” says spokesman David Botkins. There is no way to estimate what difference the pilot project will make until the data comes in, but he said Dominion targeted “the most outage-prone and most difficult to repair tap lines” in its service territory — “the worst of the worst.”

In granting approval, the SCC wrote, “We find that the [project] satisfied statutory requirements, and is reasonable, prudent, and in the public interest.”

Even with the kind of automated equipment shown in the photo above — Dominion will not be handing the job over to ditch diggers — the expense is considerable. The cost of $140 million spread over 6,000 customers is $23,000 per customer. Dominion’s long-term vision, covering about 150,000 customers, would cost an estimated $2 billion.

But Dominion contends that cost-per-customer is not a relevant metric. Payback will accrue to all customers when restoration is shorter following large weather events, allowing the Commonwealth to return to normalcy sooner, says Botkins. In fact, an industry expert estimates that the economic benefits of the first 400 miles of undergrounding exceeds the cost by a ratio of over 2 to 1.

Stated the SCC ruling:

Dominion should be prepared to establish, with specificity, how the [Strategic Underground Program] has resulted in demonstrated system-wide benefits, as well as documented local benefits to the neighborhoods in which distribution lines have been placed underground. The Company has the burden to collect the data necessary to measure … “whether the SUP can be a cost effective means of ensuring reliability for its entire system.”

The buried lines are scattered throughout more than 80 cities, towns, and counties in Dominion’s service territory. In a typical example, The company placed 11 miles of overhead lines to underground in King George County; 24 separate projects impacted 68 customers.

In major outages, Dominion has a hierarchy of response. First, it attends to hospitals, water pumping stations, emergency centers and other critical needs. Next it tackles major circuits where a single repair job can put a large number of customers back on line. Then the company works its way down to subdivisions with a few customers, and finally to individual houses.

“The overhead lines in the back lots are very labor intensive,” explains Botkins. “It’s hard to get the truck back in there. The crew has to do a lot of the work by hand. It’s very time consuming.”

Spending Your Transportation Tax Dollars More Wisely

tax_dollarsI had lunch the other day with Nick Donohue, Virginia’s deputy secretary of transportation, and he brought me up to speed on developments in state transportation policy that have occurred since the good ol’ days when I covered Commonwealth Transportation Board meetings. It was just a casual chat, and I wasn’t taking notes, but a couple of points stood out.

First big test for new-and-improved P3 law. Last month the Virginia Department of Transportation (VDOT) issued its final Request for Proposal to design and build an estimated $2.1 billion in improvements to Interstate 66 outside the Capital Beltway. The McAuliffe administration is not ideologically committed to privatizing the project. Rather, it has a clear idea of how much it will cost VDOT to do the job. If a private consortium can meet the project specifications at lower cost, VDOT will go the public-private partnership (P3) route. If not, VDOT will handle it.

Weeding out worthless projects. The new system for scoring transportation projects according to six sets of metrics such as congestion mitigation, safety, environmental impact and economic development, has already proven its value. Numerous projects in the Six Year Improvement Plan, with total costs running into the hundreds of millions of dollars, were demonstrated to be of marginal value. They’d been moving slowly through the bureaucratic pipeline, and it wasn’t anybody’s job to question or re-evaluate them. But the new scoring system, which ranks hundreds of proposed projects on the “bang for the buck” they deliver, laid bare the flimsy justification for the projects. More worthy projects have been elevated in their place.

Defense of express lanes. It is getting increasingly expensive to expand the capacity of Interstates and other transportation arteries by widening them. In urbanized areas, the highways are getting hemmed in with expensive commercial property. The cost of purchasing Right of Way and running the regulatory gamut is getting prohibitive. How, then, do we increase the capacity of these vital transportation corridors? By using more express lanes. Express lanes do three useful things: (1) they provide a congestion-bypassing option that didn’t exist before; (2) they raise money to continue making improvements to the corridor, and (3) they double as HOV lanes that give preferential access to buses, vans and carpools. As a practical matter, the most cost-effective way to increase capacity of many highways is to encourage more shared ridership.

Bacon’s bottom line: The system for raising transportation revenues is still a mish-mash that decouples a driver’s use of public roads from the payment for those roads. Riddled with subsidies and cross-subsidies, the arrangement encourages excess driving. The McAuliffe administration has not seen fit to grapple with this legacy of the McDonnell administration, but it has made great strides at least to see that the funds raised from this dysfunctional revenue-raising system are at least spent more carefully.

— JAB

Want more Solar and Wind Power? Then You Need More Gas Backup.

transmission_lineby James A. Bacon

Elona Verdolini, Francesca Vona and David Popp are deeply concerned about climate change and the need to deploy more renewable energy sources. “Decoupling economic activities from fossil-fuel use (and hence, from anthropogenic carbon emissions) is the only way to avoid severe and pervasive impacts from climate change while sustaining economic growth,” they write in a paper just published by the National Bureau of Economic Research.

But they also acknowledge a reality typically missing from economic studies of renewable energy. Wind and solar are not “dispatchable,” that is, they do not generate electricity upon demand; they generate electricity when the wind is blowing and the sun is shining. “This translates into high system costs of renewable generation, as it requires holding significant back-up capacity to ensure a balanced energy supply throughout the day. In fact, these challenges will only further increase as the share of energy generation increases to levels never witnessed before.”

Unless cheap electricity storage options become widely available in the immediate future, “the penetration of renewable energy will increase system costs, as a significant amount of capital-intensive and under-utilized back-up capacity will have to be maintained,” write the authors, who hail from Italy, France and the United States respectively.

Delving into data for 26 Organization of Economic Cooperation and Development (OECD) countries between 1990 and 2013, the authors found that an 0.88% increase in renewable energy capacity is associated with a 1% increase in the share of fast-reacting fossil generation capacity.

“To date [fast-reacting fossil] technologies have enabled [Renewable Energy] diffusion by providing renewable and dispatchable back-up capacity to hedge against variability of supply.  Our paper calls attention to the fact that renewables and fast-reacting fossil technologies appear as highly complementary and that they should be jointly installed to meet the goals of cutting emissions and ensuring a stable supply.”

Bacon’s bottom line: This is essentially the argument that the utility industry has been making, although the implications for Virginia of this high-level conclusion drawn from 26 OECD countries, many of which are far farther along in the deployment of renewables than the United States, are not immediately apparent.

PJM Interconnection, the regional transmission organization that supports wholesale electricity markets for Virginia, has estimated that the electric grid can accommodate up to 30% renewables without threatening the integrity of the electric grid. The current level of wind and solar in Virginia is a tiny percentage of that level, and even Virginia’s voluntary Renewable Portfolio Standard for 2025  is only 15%. So, it’s not as if wind and solar are likely to create the reliability issues seen in countries that heavily committed to renewables.

But this is not an issue we can ignore in the Old Dominion. If solar penetration is merely 1% or 2% of Virginia’s electricity, the need for back-up capacity is de minimus; any needed power can be purchased from wholesale markets. But what happens if solar and wind reach 15%? There is a finite amount of electricity that can be purchased from outside Virginia because there is a finite amount of transmission capacity. At what level of solar/wind penetration would Dominion Virginia Power, Appalachian Power and the smaller electric utilities be required to maintain expensive backup capacity? I don’t know of anyone who has even asked that question.

The question goes to the heart of the debate over energy policy in Virginia in the era of the Clean Power Plan, which will accelerate the phase-out of coal-powered electricity production. Environmental groups have pushed not only for more wind and solar, but they oppose the construction of new gas-fired plants, new pipelines to supply them, and new nuclear units. Some even oppose extending the life of existing nuclear units. Again, that’s fine when solar/wind is a negligible component of electricity output, but it creates problems if renewables come to dominate the system. The NBER paper reminds us that we need to understand the tradeoffs better as we make decisions that we’ll live with for decades. Right now, I fear that we lack the information needed to make intelligent choices.

Guarding the Grid

transmission_lineby James A. Bacon

It’s easy to spin nightmare scenarios leading to the collapse of the electric grid. North Korea detonates a nuclear weapon a mile overhead, sending out a super-charged electro-magnetic pulse that melts down transmission lines and blows out substations. The electricity overload races ahead of anyone’s ability to control it in a cascading effect that knocks out power for vast swaths of the country. Because key components of the grid take more than a year to manufacture and deliver, electric power takes interminably long to restore. The economy collapses. Millions die.

If you find that threat implausible, how about this one? A massive discharge of radiation from the sun overwhelms the earth’s magnetic field, melts down transmission lines, blows out sub-stations, and…. you know the rest. Or, this: In coordinated strikes, terrorists knock out vulnerable sub-stations, triggering the meltdown of electric lines…. Or cyber-terrorists infiltrate a utility network, overriding the power company’s controls, creating overloads and triggering a meltdown…

Such story-lines sound over-wrought, the stuff of grade B movies or pulp novels. They could never happen in real life, you say. Yet there have been enough deliberate physical and cyber attacks on a small scale, as if someone is probing the system, that many experts deem the threat to be very real. And most of us can still remember the great Northeast Blackout of 2003, caused by sagging electric lines coming into contact with overgrown trees, which demonstrated how a failure in one location can ripple across an entire grid. Fifty-five million people in the U.S. and Canada were effected.

The United States and the Commonwealth of Virginia have been moving in their slow, ponderous way to protect against those threats, and Garry Kranz has written an excellent article in Virginia Business magazine describing what Dominion Virginia Power and others are doing to safeguard against the disaster scenarios.

Writes Kranz:

Dominion plans to spend up to $500 million over the next five to seven years on a variety of security initiatives. The strategy is to harden its transmission substations and other critical infrastructure, add more mobile transmission equipment and boost stockpiles of backup gear. It plans to bolster perimeter security with ultramodern construction and use sophisticated technologies to pre-empt intruders. …

Dominion also is investing in increased grid reliability through the construction of a new systems operations center in Henrico County. Costing an estimated $100 million, the center will be able to perform real-time monitoring of the transmission grid to maintain electric reliability. Projected to open in 2017, the facility will replace Dominion’s current operations center at the Innsbrook Corporate Center in Henrico, which has been around since 1992.

Another tool in the security toolbox is penetration testing.  A standard security technique for utilities and related industries, it allows companies through what is known as a “pen test” to systematically try to defeat internal security controls and procedures to pinpoint any weaknesses.

“We give penetration testers an advantage by moving them inside our network to see how far they get. Sometimes we tell our people the tests will take place, but often we don’t tell them. We want to see if our processes help them detect abnormal activity and report it,” says Engels, who does not share any improvements Dominion has made as a result.

Micro-grid technology also promises enhanced grid reliability, according to Jason Nichols, director of Scitor Corp.’s iSpace lab. Scitor is part of McLean-based defense contractor SAIC. Some military bases in Virginia already deploy micro-grids. Dominion also is funding micro-grid demonstration projects using renewable fuels at several state universities.

“If a portion of Virginia’s public grid goes down, a micro-grid gives the military base the potential to provide local generation to keep hospitals and other critical services running in some sort of degraded state,” Nichols says.

As it happens, while attending freshman orientation earlier this week at a certain unnamed university my son will be attending this year, I encountered a cyber-security professor who had just arrived for his first day on the job. He and I struck up a conversation about this very topic: cyber-security on the grid. What he told me was alarming. Speaking from his personal experience consulting with a major electric utility in the Southeast U.S. (not in Virginia), he found that the control systems cobbled different generations of technology as far back as the 1950s. Vulnerabilities were rampant. I was left with the impression that the only thing preventing infiltration by cyber-enemies was the overwhelming complexity of the chewing-gum-and-bailing-wire system that only a handful of long-time company employees even understood. Whether senior management comprehends the magnitude of these vulnerabilities is an interesting question. Continue reading

In Hampton Roads, Life Is Not a Gas

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Hampton Roads and other Tidewater communities see proposed natural gas pipelines in Virginia as a boon to economic development.

by James A. Bacon

While debate rages in western Virginia over the economic impact of natural gas pipelines on property values and local economies, we hardly hear a peep from the low country areas of Virginia and North Carolina that would benefit from an expanded supply of gas.

Elected officials claim, and economic developers confirm, that inadequate supplies of gas to Hampton Roads and outlying communities prevent them from competing for energy-intensive industrial customers, crimping efforts to grow their economies and create jobs.

“I’ve heard from cities and developers and builders. … We’ve got to get more capacity here,” says Sen. Bill DeSteph, R-Virginia Beach, chair of the Hampton Roads Caucus, who persuaded the region’s 33 state senators and delegates to sign a March letter supporting the proposed Atlantic Coast Pipeline (ACP).

Voices from Hampton Roads and places like Brunswick and Greensville counties, where new gas-fired power plants are being built, have been quiet during the pipeline controversy. The impact of pipeline construction is less tangible and immediate than it is for, say, landowners in the path of the ACP and the proposed Mountain Valley Pipeline. And the benefits are more theoretical — fresh gas supplies would put their communities in the running for manufacturing projects they can’t compete for now, but it’s not as if there’s a big job-creating project waiting in the wings. Natural gas proponents aren’t barraging the media with press releases, filing lawsuits or marching on the state capitol.

Still, economic developers and political leaders have quietly lined up behind pipeline development, especially the Atlantic Coast Pipeline. For DeSteph, the aha! moment occurred about two-and-a-half years ago when demand from a severe cold snap swamped the local gas distributor, Virginia National Gas. The utility had to tell some of its largest customers to curtail their use of the fuel, as called for under contract. “I was shocked that we shut down the gas supply,” says DeSteph. “In my opinion that’s something we should never do.”

While big industrial customers usually can manage such outages, supply curtailments send a signal that gas supplies are limited. No energy-intensive manufacturer would want to locate or expand in Hampton Roads when they could locate worry-free in other communities. Noting that the Norfolk Naval Station was one of the entities that curtailed its gas use, DeSteph even fears that the capped gas supply could undermine the region’s status as a military hub.

The decline in natural gas prices made possible by fracking and the exploitation of the Marcellus/Utica gas fields has driven the re-shoring of energy-intensive manufacturing back to the United States, says Rick Weddle, president of the Hampton Roads Economic Development Partnership. But the areas benefiting from the trend have been those with access to the abundant gas supplies. Hampton Roads isn’t in the running.

The Atlantic Coast Pipeline, designed to carry 1.5 billion cubic feet of gas per day, could change that. The pipeline would run from West Virginia through Virginia to North Carolina. A spur would split off from the main pipeline to deliver gas to Virginia Natural Gas, which has signed a 20-year customer agreement, and whose parent company AGL Resources is one of the partners in the project. The pipeline also would serve Piedmont Natural Gas serving the North Carolina market, which is a partner, too. (Dominion Resources, a sponsor of this blog, is the managing partner.)

A bigger supply of natural gas to the region would expand the prospects that Hampton Roads could compete for. “We would target new industries,” Weddle says.

The same logic applies to smaller communities in eastern Virginia and North Carolina, which also sit at the end of the existing pipeline distribution system.

The big five utilities in the industrial recruitment game are wastewater, electricity, fiber-optic cable and natural gas, says Christopher Chung, CEO of the Economic Development Partnership of North Carolina. “Most companies want gas, whether they’re using it for heating or as part of the manufacturing process. Not one hundred percent need it, but most do. It’s really hard for a community to make the case to recruit a manufacturer if it doesn’t have natural gas. Not impossible. But so many locations do have it that you’re at a major competitive disadvantage if you don’t.” Continue reading

Metro Positions Itself for the Big Ask

metroby James A. Bacon

Staring into a fiscal black hole, Washington Metropolitan Area Transit Authority Chairman Jack Evans is trying to nail down the authority’s 2018 spending plan by November, months earlier than usual. The move, suggests Washington Post writer Martine Powers, “is a signal that the transit agency is preparing to ask the District, Maryland and Virginia for additional money if fares are not raised or the federal government does not come forward with more funding.”

How much money? Between $75 million to $100 million per jurisdiction.

Evans issued the warning after a meeting in which the WMATA board discussed a presentation by McKinsey & Company indicating that the mass transit organization was paying significantly more for expenses than comparable transit agencies.

The McKinsey report, issued in April, is must reading for Virginia legislators pondering how to respond when WMATA approaches, tin cup in hand, begging for more money or risk seeing the collapse of the mass transit service so critical to Northern Virginia’s economy. That report clearly lays out the management challenges facing the authority and provides concrete ideas on how to address them.

WMATA’s long-term mismatch between revenues and expenses has been getting worse, not better. According to McKinsey, Farebox recovery has declined from 47% of costs in 2011 to 45% today and will continue to drop further as passengers fed up with the rail system’s poor reliability commute by other means. Rail system revenues would need to grow at 7% yearly just to maintain the current operating deficit. Personnel growth averaging 5% annually has driven most of the cost inflation. The authority has more employees who getting paid more (wages growing 4% annually) to work less (regular hours per full-time equivalent employee down 2% annually).

Poor railcar maintenance is the single-most important driver of service unreliability — 63% of all rail line delays are caused by railcar failures, the report says. There are two main reasons for cars being unavailable: parts are frequently out of stock, and repair throughput is exceptionally low. “Estimated technician wrench time ranges between 25% and 40%, below a best-in-class standard of 60%.” The reasons for the low productivity can be traced to systemic management failures such as the uneven distribution of cars between shops, turnover in mechanic staff, and technicians starting work orders without all necessary tools and parts.

The report also took note of the high cost of MetroAccess, a transportation service for people with disabilities. McKinsey estimated that WMATA could cut the $110 million program’s costs 20% by experimenting with innovative delivery models. The report also recommended extensive changes to WMATA’s capital allocation model and the structure of its pension, retirement-benefits plans and workers compensation plans.

Bacon’s bottom line: The McKinsey report provides an objective checklist of reforms that WMATA needs to make before entrusted with any more Virginia taxpayer dollars. Give management the money without conditions, and the urgency to implement the reforms disappears. Make added money contingent upon implementing reforms, and WMATA actually might wind up needing less than it thinks it does. If WMATA’s board and management are unwilling or unable to execute these of equivalent reforms, Virginia should give them no more money.

Hat tip: Tim Wise