Category Archives: Regulation

A Sign of the Coming Grid Wars


It happened in Nevada first, but it could come to Virginia eventually — the effort by major electricity consumers to bypass their local utilities and purchase power from wholesale electric markets.

Three big casino companies — Wynn Resorts, MGM Resorts International and Las Vegas Sands — say they could slash millions of dollars from their electric bills if they could buy power directly from merchant power producers, reports the Wall Street Journal. Power-hungry casinos would like to use more renewable energy to live up to commitments to shareholders and customers but they say NV Energy, the monopoly utility, charges too much for green power. They could acquire the energy far cheaper by contracting directly with independent power producers.

NV Energy is doing everything it can to thwart the departure of some of its largest customers, and so far regulators have obliged. But as long as it’s possible to purchase solar power wholesale for 4 cents per kilowatt-hour (and conventional power  for 3.5 cents per kilowatt-hour) and the company charges big commercial clients between 9 and 10 cents per kilowatt-hour, big consumers will have enormous incentive to cut their own deals.

The WSJ didn’t explain the regulators’ thinking, but it should be obvious. The loss of major customers would throw the burden of supporting the vast sunk cost of the existing electric-generating infrastructure onto remaining customers, forcing the utility to raise rates in order to prop up profit margins. And Nevada needs a financially healthy power company to maintain a reliable source of electric power for those who don’t have the size and clout to cut their own deals with merchant power companies.

“The same struggle is occurring across the country,” writes the WSJ, “as large power users watch wholesale energy prices fall while their utility bills rise.” Some states allow residents and businesses to buy their electricity from competitive suppliers. While favoring the power companies, Virginia’s regulatory system does allow options.

Wrote the SCC in its 2015 report on Electric Utility Regulation in September:

The ability of most customers to purchase electric generation service from competing suppliers has been limited. The Regulation Act permits large customers (those exceeding 5 MW of electricity demand) to shop among licensed competitive service providers (“CSP”), and nonresidential customers may apply with the Commission to aggregate load up to the 5 MW threshhold to receive services from a CSP. Residential retail customers currently have the statutory right under the Regulation Act to purchase electric generation service from CSPs selling electric energy “provided 100% from renewable energy.”

The SCC lists 29 such CSPs licensed to sell 100% renewable energy in Virginia.

These retail aggregators can purchase green power from the PJM wholesale market, of which Virginia is a part, but they don’t appear to have made any meaningful inroads. Whether that’s due to a lack of consumer interest or an inability to deliver green energy at a competitive price, I don’t know.

As for big customers, Amazon Energy Services recently contracted with a merchant producer to generate solar electricity in the Eastern Shore for data centers in Northern Virginia. But Amazon is holding everyone to a non-disclosure agreement, so the terms of the detail are not generally known. Acbar, a frequent contributor to the Bacon’s Rebellion comments section, tells me that many of the documents outlining the terms of the deal are publicly available, but I have not had time to track them down. In any case, I have not risen to a level of competency to decipher the meaning of these hyper-technical documents, and I’m not sure, given all the other issues to write about, that it’s worth the effort.

But the electric power industry is changing fast, and my priorities could change with it.


An Intractable Dilemma


When Dominion shuts down the Yorktown Power Station, Virginia’s Peninsula will need another source of electric power. Dominion says a 500 kV transmission line over the historic James River is the best option. Conservationists disagree.

by James A. Bacon

Communities in the historic Virginia Peninsula face a devil’s alternative: Immediately accept a high-voltage transmission line that foes say could mar views of a historic stretch of the James River or face the prospect of rolling blackouts that Dominion Virginia Power says could disrupt the economy for 500,000 people.

The State Corporation Commission (SCC) and the PJM Interconnection regional transmission organization have given the go-ahead to build the 500 kV Surry-Skiffes Creek transmission line to balance electricity lost when Dominion Virginia Power shuts down two antiquated coal-fired units at the Yorktown Power Station. But many residents in and around the history-rich region are up in arms, and Dominion cannot begin construction on the line until it obtains necessary switching-station zoning approval from James City County and a nod from the U.S. Army Corps of Engineers.

If a decision isn’t made immediately, contends Dominion, the power company will be unable to complete construction of the transmission line before it shuts down the Yorktown power plants in April 2017 at the latest.

At that point, reliance upon four existing 230 kV transmission lines will put the electric grid only one or two “contingencies” — unplanned transmission-line outages — away from a meltdown that could send uncontrolled blackouts cascading to the Richmond region and beyond. Rather than risk such a catastrophe, federal regulations would require Dominion to take customers offline on a rotating basis. Depending upon weather conditions and other events, the Virginia Peninsula will be at risk of rolling blackouts 50 to 80 times a year.

“If there’s a one in million chance of a breakdown, PJM tells us to shed load,” says Kevin Curtis, Dominion’s director of transmission planning, referring to the regional transmission organization that would issue the command to pull the trigger. If Dominion failed to follow through, it could face fines of $1 million per day for violating North American Electric Reliability Corporation standards.

But foes of the transmission line are still fighting back. In early August, the James City County Planning Commission recommended denial of a rezoning request that would allow Dominion to construct a sub-station critical to the project. Meanwhile, the USACE says,  “Due to the many variables yet to be addressed, we are unable to provide a discrete timeline” for when it might decide whether or not the project requires a full-fledged Environmental Impact Statement, which could delay it yet another year.

Margaret Nelson Fowler, founding member of the Save the James Alliance, isn’t buying Dominion’s warning of rolling blackouts. Dominion is making a business decision to shut down the Yorktown power plant, she says. Dominion can continue operating the coal-fired units in a non-compliant status. It will have to pay fines, but fines are Dominion’s problem, not the community’s, she says. “We’ve been told by people who know that blackouts would never be permitted. … This is all scare tactics.”

Surry-Skiffes Creek is perhaps the most controversial of some three dozen transmission line projects that Virginia’s major power companies are planning or implementing as they undertake a sweeping re-engineering of Virginia’s electric grid. Under heavy regulatory pressure, power companies are shifting from coal-fired generating plants to gas, wind and solar energy sources; transmission lines must be built or upgraded to accommodate the re-routed flow of electricity. Dominion lists 27 Virginia projects at some stage of approval or construction; Appalachian Power lists seven approved and pending projects.

The problem is that no one likes looking at power lines, and proposals often encounter local resistance. The Surry-Skiffes Creek proposal arises from a set of circumstances that is particularly complex and intractable. The engineering logic that dictates building a 500 kV Economic transmission line across the James River is persuasive. But so are objections by conservationists and property owners, who say Dominion’s cost-benefit analysis fails to take important non-monetary values into account. The result is institutional gridlock as the proposal works its way through federal, state and local oversight. In this case, the economic consequences of a failure to reach a timely resolution could be highly debilitating to the Peninsula economy. Continue reading

The SCC’s Last Crack at Dominion before the Rate Freeze

electric_meterby James A. Bacon

The State Corporation Commission is conducting a two-week hearing to determine whether or not Dominion Virginia Power should rebate $66 million in excess profits to ratepayers, as calculated by the SCC staff.

This review of Dominion’s base electric rates (which cover operating costs, not fuel or rate adjustment clauses) will be the last until 2022. Rates will be frozen until that time as part of a legislative deal designed to provide rate stability as Virginia electric utilities implement Clean Power Plan mandates. The Virginian-Pilot explains the issues at stake here.

According to SCC staff calculations, Dominion earned a profit of 11.34% over the two-year period covered, significantly more than the 10% allowed. The SCC maintains that Dominion owes a refund; Dominion contests the SCC’s accounting. A key issue is how to account for the closure of coal ash ponds at three power stations under the threat of litigation from environmental groups.

The SCC also contends that Dominion will generate a return on equity of 12.9% going forward, which could create $300 million in extra profit each year. Thanks to the rate freeze, the SCC cannot adjust Dominion’s base rate or order rebates for six  years. Dominion maintains that the SCC analysis is flawed, assuming no storm or environmental costs going forward.

The accounting issues are all very interesting, but what’s most fascinating to me is the number that’s not discussed — the 10% Return on Equity (ROE). Earning 10% on your money is a pretty good deal if you can get it, especially given the relatively low-risk nature of the business. While Dominion isn’t guaranteed a profit, the rules are structured in such a way as to make it likely that the company will meet the target. No small-time investor can hope for a risk-adjusted return anywhere near that high. And given the prolonged interest rate suppression engineered by the Federal Reserve Bank, even the braniacs administering the nation’s biggest pension funds are adjusting the projected long-term return on their portfolios downward from 8% or thereabouts to 7%.

Dominion’s 10% ROE compares to 9.76% ROE for the electric utility industry as a whole in the 2nd quarter of 2015, according to CSI Market, up from 8.48% the same quarter in 2014. By a different set of metrics published by New York University, the utility industry (electric and gas) was earning 11.0% as of January 2015. That was higher than 32 other industry sectors and lower than 61.

The electric utility business is undergoing massive change. Environmental Protection Agency regulations are pushing the industry into a shift from coal-fired generation to natural gas and renewables, which entails the shuttering of old power plants and rerouting of electricity flows. Meanwhile, renewables and smart grid technologies are challenging the old business model of building large-scale, centralized power plants and giant transmission lines. It is easier than ever for electric customers to generate their own power. Yet everyone needs backup, and someone has to maintain the electric grid.

These are interesting times indeed for the State Corporation Commission: many questions and no easy answers.

Understanding Your Electric Bill

Dominion's Brunswick power plant: a $1.3 billion rate "rider."

Dominion’s Brunswick power plant: a $1.3 billion rate “rider.”

by James A. Bacon

In 2009 Virginia enacted a law providing for the re-regulation of the electric power industry. There was a flurry of publicity surrounding the legislative process, then the media promptly forgot about it. Only with the sweeping mandates of the Environmental Protection Agency, which is compelling a massive re-engineering of Virginia’s electric power system, have reporters started to pay attention to how rates are set.

This morning John Ramsey with the Richmond Times-Dispatch highlighted the increasing importance of rate “riders,” also known as Rate Adjustment Clauses or RACs, in determining the rates electric consumers pay to Dominion Virginia Power, Appalachian Power Co., and local electric cooperatives. These clauses now account for nearly 9% of a Dominion customer’s monthly bill, he writes. And, I would add, they likely will account for a higher percentage in the future.

Your electric bill reflects three main components: the base rate, fuel costs, and riders. The base rate reflects the overall cost of operating the power company, excluding fuel costs. Fuel costs vary with market conditions; higher and lower costs are designed to flow through to rate payers. Riders cover new projects, most notably new power plants but also such initiatives as the hardening of the electric grid against threats like terrorism and sabotage.

Electric companies must submit these Rate Adjustment Clauses to the State Corporation Commission for approval. The SCC is not a rubber stamp. The commission recently rejected a Dominion propose to bury its most vulnerable power lines to reduce the incidence of power outages during bad weather.  (Boo! As one whose power goes out frequently, and for long periods of time, I thought it was a great idea.)

To understand how Virginia’s power companies respond to the challenge of EPA-mandated reductions in toxic emissions and CO2 emissions, it is critical to understand the incentives created by the rate structure. Writes Ramsey:

Although [Dominion’s] base rates provide for a regulated rate of return up to about 10 percent, the riders guarantee a 10 percent return. With the base rate frozen [under legislation enacted this year], new riders offer Dominion Virginia Power an opportunity to increase its profitability.

Dominion says the arrangement allows the company to recoup its investment in smaller chunks as it builds new plants, instead of waiting until construction is complete and hitting customers with bigger increases. It also allows for easier, and presumably cheaper, financing, which also benefits customers.

But Glen Besa, director of the Virginia chapter of the Sierra Club, says that Virginians will continue to see rate increases despite the freeze in the “base” rate. “We kept trying to tell the legislature that [freezing base rates] didn’t set a ceiling. It set a floor.”

Ramsey also quotes Albert Carr, who teaches a course in utility regulations at the Washington and Lee University law school, who thinks the riders make sense. “Going the rider route will give the regulator a much clearer focus on what amounts to additions to those base rates,” he says. “It eliminates some of the problems we’ve had in the past with regulation. You don’t have to take the whole car apart to fix the window.”

I’m not sure how well anyone outside of the SCC, the power companies, and a handful of utility and environmentalist lawyers really understand how Virginia’s electric rates work. Consumers certainly don’t. I don’t. I know a lot more than I did three months ago, but I’m still moving up the learning curve.

Even more opaque is how the structure for setting electric rates guides corporate strategy for building gas-fired and renewable power facilities, constructing new transmission lines, and purchasing power from the regional PJM grid. As a generality, power companies will steer capital investment to projects that provide the highest risk-adjusted rate of return. Does Virginia’s current rate structure bias utility investment in certain types of projects over others? I’m trying to figure that out.

Student Debt and the Decline of New Business Formation

by James A. Bacon

Many are the ways in which burgeoning student debt — $1.2 trillion and rising — cripple the economy. On this blog we’ve discussed how debt delays family formation, housing purchases and consumer spending. Recent research from the Philadelphia Federal Reserve Board also suggests that student debt dampens new business formation, an insight that ties into another line of inquiry on this blog: understanding the slow rate of job creation in the current economic cycle.

The engine of job creation in the U.S. economy is new business formation. The spawning of new businesses has experienced a long-term decline since 1978, but that decline has been particularly pronounced since 2005. In recent years more firms have exited the marketplace than have entered it, as seen in this Brookings Institution graph below, taken from “Declining Business Dynamism in the United States: A Look at States and Metros,” published in 2014. The numbers may have improved in the past two  years, but probably not enough to change the long-term picture.


I have argued on this blog that the massive wave of regulation enacted in the past six years has dampened the economic recovery by imposing large new costs on businesses. As the regulatory burden has increased, economies of scale have shifted in favor of larger firms which have the resources to deal with the regulations. Numerous industry sectors are consolidating: banking, hospitals and health insurance most visibly. Industry consolidation may be a factor in explaining the decline in overall net business formation but it only goes so far.

The Brookings data shows that the problem isn’t an accelerating death rate of businesses — the exit rate of firms from the economy has remained fairly stable since 1978 — it’s the dearth of business births. I would suggest that regulation has dampened new business formation by creating barriers to entry in many industries.

While I still hew to that view, I think there’s more to the story. There also is strong evidence that the surge in student debt — $1.2 trillion and rising — has depressed new business creation among young people.

Image source: Federal Reserve Bank of Philadephia

Image source: Federal Reserve Bank of Philadephia. (Click for larger image.)

The authors of the recently published Federal Reserve Bank of Philadelphia paper, “The Impact of Student Loan Debt on Small Business Formation,” has found a “significant and economically meaningful” negative correlation between geographic variation in student loan debt and net business formation for small firms of one to four employees. “Based on our model, an increase of one standard deviation in student debt reduced the number of businesses with one to four employees by 14% on average between 2000 and 2010.” (Please don’t ask me to define “standard deviation.” Here’s an an explanation.)

Image source: Federal Reserve Bank of Philadelphia. (Click for larger image.)

Image source: Federal Reserve Bank of Philadelphia. (Click for larger image.)

To launch a business, especially a small business, individuals need access to capital, the authors argue. Small businesses receive approximately 75% of this capital from banks in the form of loans, credit cards and lines of credit, which are contingent upon the borrower’s credit-worthiness. “Given the importance of an entrepreneur’s personal debt capacity in financing a startup business, personal debt that is incurred early in life and that restricts a person’s ability to take on future debt can have profound implications for growth in small businesses,” the study says.

The growth in student debt over the past decade has damaged the credit-worthiness of an entire demographic cohort: 17% of student loans are delinquent, and another 44% are not being repaid due to borrowers either still being in school or having received a repayment deferral or forbearance. Even students who are paying their debt on schedule find their credit worthiness downgraded.

As the Wall Street Journal noted in an editorial today, the Kauffman Foundation has found that new entrepreneurs ages 20 to 34 fell to 23% of self-starters in 2013, down from 35% in 1996.

The U.S. system of higher education may be creating the best educated generation in American history, but it may be the least entrepreneurial in decades.

As Virginians seek ways to reignite a state economy hobbled by the decline in federal spending and an eroding business climate, we need to give more attention to what it takes to stimulate new business formation. And that should entail taking a closer look at the link between higher ed and student debt, and the link between student debt and new business formation. All the state and federal “programs” designed to promote new business formation, I suspect, don’t amount to a hill of beans compared to the rise in student indebtedness. Tackling student indebtedness gets us into a thicket of very complex issues that aren’t easily solved but that’s no excuse for failing to focus on what really matters.

Apex Encounters Headwinds in Botetourt Wind Project

by James A. Bacon

An interesting player is emerging in the Virginia renewable energy scene — Apex Clean Energy. The Charlottesville-based company has announced that it has erected two test towers for a proposed wind farm in Botetourt County to gather data about wind strength and frequency. The company has proposed constructing up to 25 wind turbines on a ridgeline about five miles east of Eagle Rock, according to news reports.

But the Rocky Forge project is encountering legal headwinds. A lawsuit filed a month ago sought to block the project on the grounds that “industrial turbines are known to catch fire, to collapse, emit audible and low frequency noise, cause shadow flicker and to throw ice from spinning blades in the wintertime,” reported the Roanoke Times. The lawsuit also noted that turbines kill birds and bats and destroy their habitat.

Dominion Virginia Power is running into similar obstacles in Tazewell County, where the energy giant faces stiff local opposition. The Tazewell County has proposed a zoning plan that would classify solar panels and wind turbines with other undesirable developments such as medical waste facilities that require a special permit.

For Apex Clean Energy, Rocky Forge is one of two wind power projects in Virginia. The facility would have a capacity of 80 megawatts, enough to power 20,000 houses. The expected completion date is 2017-2018, according to the company website. Another project, Pinewood Wind in Pulaski County, would have a capacity of 180 megawatts, enough to power 50,000 houses. All told, the company lists 53 projects in its portfolio, with the greatest concentration in the plains states of Texas and Oklahoma.

The company was founded in 2009 with the mission of building “a new kind of energy company.” The founders, who had sold their previous company, Greenlight Energy, to BP Alternative Energy, assembled a team of wind and solar energy professionals with skill sets that could originate projects, finance them, build them and manage them.

It’s not clear from the company website or news reports what the business model is for the Virginia wind farms. Among the possibilities: Purchase Power Agreements, in which a customer signs a contract to purchase a specified amount of energy from a project; project ownership in which Apex delivers a turn-key facility along with asset-management services over to a buyer; and a Structured Purchase Agreement, a long-term price agreement that allow companies to hedge against volatile fuel prices. Or Apex simply may sell electricity into the PJM electric bid, which supports a market for green energy.

A Plethora of Pipelines

pipeline_constructionFour companies are talking about building gas pipelines through Virginia. How many are needed — and who decides?

by James A. Bacon

How many natural gas pipelines does Virginia need? A lot of people are asking that question as two projects — the Atlantic Coast Pipeline and the Mountain Valley Pipeline — are actively developing routes between the Marcellus shale gas fields to the northwest and fast-growing markets to the south. Meanwhile, the Williams Companies, owner of the giant Transco pipeline, is talking up the Appalachian Connector, and Columbia Gas Transmission says it might upgrade an existing pipeline terminating in Northern Virginia.

All told, the four projects would add a capacity of 6.8 billion cubic feet per day, or roughly 200 billion cubic feet monthly. While much, if not most, of that gas would be destined for markets outside Virginia, that’s still a tremendous amount of capacity. By way of comparison, existing pipelines deliver to Virginia between 20 billion and 60 billion billion cubic feet monthly, depending on the time of year.

The question of how much is too much has become an urgent one as landowners in the path of the proposed pipelines resist survey crews from entering their property and vow to resist acquisition of their land by eminent domain. To acquire right of way using eminent domain, they say, companies must articulate a compelling public need to the Federal Energy Regulatory Commission (FERC). While there may be a need for some new pipeline capacity, they contend, it’s hard to justify all four projects.

“We’ve got a big infrastructure build-out proposed,” says Greg Buppert, staff attorney for the Southern Environmental Law Center (SELC), who is tracking the issue. “My suspicion is that some but not all of this capacity is needed. There is even a possibility that existing infrastructure can meet the need.”

But some say the market is self-limiting. Pipeline companies won’t spend billions of dollars adding new capacity unless they get enough long-term contracts to ensure they can pay for a project. If there is insufficient demand to support all four pipeline projects, all four pipelines will not get built.

For decades, Virginia has relied mainly upon two companies, the Williams Companies and Columbia Gas, to deliver gas to the state. Williams operates the high-capacity Transco pipeline — energy journalist Housley Carr refers to it as “the gas-transportation equivalent of an eight-lane highway”– connecting the Gulf of Mexico gas fields with New York by way of Virginia and other Atlantic Coast states. Columbia Gas runs a parallel pipeline highway west of the Appalachias, which serves a multi-state distribution system that feeds into Virginia via West Virginia.

Traditionally, most gas from both pipelines has come from the Gulf of Mexico. But fracking has turned North American energy economics topsy turvy. Gas fields tapping the Marcellus and Utica shale deposits in West Virginia, western Pennsylvania and Ohio are reputed to contain as much natural gas as Saudi Arabia. Marcellus gas is abundant and cheap, and gas pipeline companies have been scrambling to develop new markets, mostly in the U.S., but also for foreign markets by means of Liquefied Natural Gas.

The explosion in supply coincides with a surge in demand, especially from electric power companies. In two major waves of regulation in recent years the Environmental Protection Agency (EPA) has mandated power companies to reduce their toxic emissions from coal-fired power plants and then, with final rules issued early August, to reduce emissions of carbon dioxide by 32% nationally. In both cases, utilities are shifting en masse from coal to natural gas. While renewable sources such as solar and wind power are expected to gain electricity market share, industry officials say they must be backed up by gas generators to take up the slack when the sun doesn’t shine and the wind doesn’t blow, so demand growth for renewables actually supports demand growth for natural gas. Meanwhile, gas companies foresee a kick in long-term demand from a growing population and economy, especially among manufacturing operations seeking to tap some of the world’s lowest cost energy and chemical feedstock.

“Virginia is in need of new natural gas transmission that can get these new reserves to the parts of Virginia that need it the most,” says Christina Nuckols, deputy communications director for Governor Terry McAuliffe. “Hampton Roads is considered an energy cul-de-sac where natural gas capacity constraint has been an issue for years.  Particular counties in central and southern Virginia also have reported on numerous occasions that they lose out on manufacturing-related economic development opportunities almost immediately because they cannot provide access to natural gas.

“With any new market opportunity, there are going to be a number of companies looking to find success,” she says. “All of these proposed pipeline projects are recognition that Virginia is in need of additional natural gas capacity and the infrastructure to provide it.  It remains to be seen which projects will get approval from the appropriate entities.”

Here are the major projects proposed for Virginia: Continue reading

The Next Battle in Virginia’s Sharing Economy: Airbnb

airbnbby James A. Bacon

The fracas in Virginia over Uber and Lyft has settled down. The two “transportation network companies” have submitted to regulation requiring background and safety checks of drivers, and nearly 19,000 vehicles have registered with the state, according to the Richmond Times-Dispatch. The next legal front in the sharing economy is likely to focus on Airbnb, the company that enables individuals to rent out houses, rooms and apartments for short-term lodging.

The problem, according to the Commonwealth Institute, is that Airbnb does not collect and remit the lodging taxes on these rentals, meaning that local governments could be losing millions of dollars in tax revenue.

Thousands of Virginians have signed up on Airbnb to offer accommodations to paying visitors. A check this morning showed 692 rentals being offered in the City of Richmond as the UCI Road World Cycling Championships approaches, 288 rentals in beach destination Virginia Beach, 489 rentals in the college town of Charlottesville and more than 1,000 rentals each in Fairfax County, Arlington County and Alexandria near the nation’s capital. Charges can vary from $37 per night for a “very, very rustic cabin by the river” in Hinton… to $225 per night for a three-bedroom house in Blacksburg during football weekends… to $2,000 per night for a three-bedroom house in Old Town Alexandria.

The state requires hotels, motels and campgrounds to collect a sales tax of 5.3% to 6% for reservations of less than 90 days. Many localities also collect a local occupancy tax, which in the case of Richmond, Henrico, Hanover and Chesterfield amounts to 8% to cover debt from building the Greater Richmond Convention Center. Other communities use the occupancy tax to support local convention and visitors bureaus (CVBs) and tourism initiatives.

Airbnb is not collecting taxes in Virginia. According to the Commonwealth Institute, the company suggests that renters charge and remit occupancy taxes on their own. But the taxes can be confusing for casual Airbnb hosts to understand and localities are not set up to monitor and enforce collections on casual rentals.

Earlier this year, however, Airbnb reached an agreement with Washington, D.C., to collect and remit occupancy taxes on all of its rentals in the District. That follows agreements in Portland, San Francisco and Wake County (Raleigh, N.C.) to do the same.

Bacon’s bottom line: I can see why the hospitality industry is up in arms over Airbnb. Airbnb rentals under-price hotels and motels offering comparable accommodations but they don’t contribute to the collective efforts of CVBs to market and promote their metropolitan region as a destination. Forcing casual renters to handle the paperwork would be a deal breaker for many, but Airbnb’s administrative systems should be able to execute the task of remitting taxes with little difficulty. I agree with the Commonwealth Institute that the Commonwealth of Virginia and its localities should seek the same kind of tax-collection deal that North Carolina and several of its jurisdictions have struck with the company. Create a level playing field and may the best competitors win!

Next Step for Offshore Wind

Alstom wind turbine like that contemplated for installation off Virginia Beach.

Alstom wind turbine like that contemplated for installation off Virginia Beach.

Earlier this year Dominion Virginia Power received a bid for building two experimental offshore wind turbines that exceeded internal cost projections by more than half, making the proposed project unlikely to win State Corporation Commission approval. In a July stakeholder meeting, DVP executives laid out their analysis of what went wrong. Now stakeholders will convene in three “problem solving cohorts” to determine how to bring down the cost of the project.

According to Nancy Lowe, with the Virginia Center for Consensus Building, which Dominion has engaged to lead the process, the groups will be broken down as follows:

  1. “Contract process and logistics – horizontal vs. vertical contracting, how to cut costs and balance risk through implementation and execution strategies, including multiple contracts versus a single contract, etc.
  2. Technology – focus on  balancing the cost issue with the amount of innovative technology to be developed and explore other technology issues.
  3. Policy Issues – determine the laws or regulations that could be changed to improve the chances of success. Determine the likelihood of being successful in achieving the modification noted, identify and quantify benefits to Virginia ratepayers.”

The stakeholders will not address the issue of cost sharing. Finding other groups to help shoulder the cost of funding the project, which would demonstrate the efficacy of new technologies benefiting the wind power industry broadly, would best be pursued by “the facilitator,” i.e. DVP, wrote Lowe in a communication to stakeholders.

Among the critical technologies to be demonstrated in this proposed pilot test are adaptations to the kind of hurricane-force winds that turbines are likely to encounter in the Atlantic Ocean. Without that technology, investing billions of dollars in an offshore wind farm might be too risky to win regulatory approval.


Clean Power Plan: What Comes Next?

by James A. Bacon

I may be like the proverbial three-year-old playing with matches with this blog post, but as I decipher the Clean Power Plan, Virginia’s final CO2 emission goals should be fairly easy to attain — far easier than anyone was anticipating based upon the draft goals published last year.

According to the EPA’s “State at a Glance” document for Virginia, the Old Dominion can pick from one of two ways to determine its CO2 emission goals — pounds of CO2 emitted per megawatt of electric power generated or total tons of CO2 released by the electric power system. Let’s look at each in turn.

First, pounds of CO2 emissions per megawatt of energy produced:


Virginia is already on track for major CO2 reductions thanks to the retirement of several coal- and oil-fired power plants implemented in response to the EPA’s previous mandated reductions of toxic emissions. As the EPA “State at a Glance” profile of Virginia indicates, the state is projected to cut CO2 emissions from 1,477 pounds in 2012 to 959 pounds per megawatt-hour generated in 2020. That reduction exceeds EPA goals through 2029, and it falls short of the final 2030 goal by only 25 pounds, or 2.6%!

In other words, assuming they stay on their current course, Virginia’s power companies will have another ten years to devise a 2.6% reduction in carbon intensity over what they’re already planning.

Second, total CO2 emissions (in short tons):


These goals would not require Virginia to make any changes at all. Indeed, the final 2030 goal for CO2 emissions is the same as the 2012 level! If Virginia’s power companies hew to current projections, they will exceed the final 2030 goal without any changes! If Virginia adopts this metric, the state won’t have to modify its electricity policy at all. So much for pushing through scads of new solar and wind plants!

I think it’s safe to say that a lot of key players in the Virginia debate got caught flat-footed. An hour after President Obama formally rolled out the plan, General Assembly Republicans issued a statement citing a $6 billion State Corporation Commission cost estimate, based upon the cost of achieving the far tougher draft goals,  in criticism of the plan. Stated House Speaker William J. Howell, R-Stafford:

The E.P.A. rule released today is not only another example of an overreaching federal government, but more importantly it will drive up energy costs for hardworking Virginians and further damage our already struggling economy.

Oh, really?

Environmentalists seemed to be caught equally off guard. The Southern Environmental Law Center issued a press release just before Obama’s speech praising the plan for forcing CO2 cuts nationally. Senior Attorney Frank Rambo, leader of the organization’s Clean Energy and Air program, released the following statement regarding the regional impact:

The release of the Clean Power Plan today is a milestone event for the country, but for states in the Southeast the real work now begins. We need to make smart choices about how we can meet these targets, which will improve public health by reducing pollution while also providing the opportunity for new jobs through clean energy investments.

Real work? What real work?

Even today, environmentalists had not absorbed the significance of the new target. In a fund-raising letter, the League of Conservation Voters referred to the Clean Air Act as “good news here in Virginia.”

I can’t imagine that Virginia environmentalists will be happy when it sinks in that modified targets lock the status quo into place.

The big question at this point is which metric does Virginia choose? I’m not sure who does the choosing, but I would expect environmental groups to lobby for the “rate” metric, which requires at least modicum of additional tightening for Virginia, and I would expect the McAuliffe administration, which has a stated goal of fighting climate change, to go along because it will cause little economic pain. However, unless closer analysis by the experts finds otherwise — and I’m totally open to the possibility that I may be overlooking something — it appears that Virginia  has enacted nearly all of the changes it needs.

Update: I stand corrected. The final CO2 emission targets represent a 37% reduction for Virginia. For details, see “Yes, Virginia, the EPA Is Still Cracking Down on You.” I also take back the snarky things I said about Bill Howell’s quote and Frank Rambo’s quote. Sorry, guys, I was wrong.