Category Archives: Regulation

Sierra Club’s Coal Ash Gambit

Coal ash pond at the Chesapeake Energy Center

Coal ash pond at the Chesapeake Energy Center

by James A. Bacon

The Sierra Club has filed a lawsuit charging that coal ash stored at Dominion Virginia Power’s shuttered coal plant in Chesapeake is leaking arsenic into the Elizabeth River. The environmental organization wants the U.S. courts to compel Dominion to scrap plans for burying the coal ash in place at four power stations around the state and to truck the material to lined landfills instead.

Earlier today, attorneys for the environmental group began presenting their case in the Richmond courtroom of U.S. District Court Judge John A. Gibney, advancing the argument that unsafe levels of arsenic found in sediment samples originated from underground water that migrated through the coal ash pits.

“These discharges of arsenic will continue indefinitely with no end in sight,” said Deborah Murray, the attorney representing the Sierra Club. “The only way to stop the pollution is to remove the ash to a lined landfill.”

Dominion countered that the Sierra Club’s arguments are totally unproven. The organization cherry picked “snippets” from the voluminous testing data filed with Virginia’s Department of Environmental Quality (DEQ), wore “blinders” to the mountain of evidence showing that water quality complies with the law, and offered a “tortured interpretation” of how the arsenic got from the coal ash to the surrounding waters, argued Dabney Carr for Dominion.

DEQ has consistently found Dominion to be in compliance over four decades, said Carr. “The goal of this suit is to overturn DEQ’s decision,” he added, addressing the judge. “The Sierra Club is asking you to substitute your judgment for the DEQ’s judgment.”

Dominion has been accumulating coal ash, the mineral residue from coal combustion, at the Chesapeake Energy Center for decades. Like other utilities, the company mixed it with water to keep the dust down and stored the material in lagoons. After years of study, the Environmental Protection Agency issued new standards last year for cleaning up coal ash. The first step is to de-water the ash, treat the water, and discharge it into rivers and streams. For the most part, Dominion has reached agreement with DEQ and environmental groups on how to do that.

The second step is to store the coal ash in a place where it will not continue to contaminate water supplies. Dominion proposes to consolidate the residue and cap it with an impermeable lining to prevent the infiltration of rain water. DEQ is studying those permits now.

Contending that a cap does nothing to stop the infiltration of groundwater, environmental groups have pushed Dominion to truck the material to lined landfills — a project that Dominion estimates would cost $3 billion. While some environmental groups focus their efforts on DEQ, the Sierra Club is going the federal route. The organization believes the lawsuit against Dominion is the first challenge of its kind to the Clean Water Act. If the group wins the case, it will set a precedent not only for all four of Dominion’s coal ash sites but for power companies across the country.

While the implications are national, the facts of the case are highly localized. And, as was clear from Murray’s presentation, Sierra Club’s case is circumstantial.

The Chesapeake facility sits upon land comprised of loose and sandy soils that allow water to travel through easily. The coal ash ranges from 15 to 30 feet thick, and the bottom of the pile varies in elevation from 16 feet above sea level to six feet below. A liner was placed between the disposal site and the ground but it is leaking, Murray said.

However, when asked by Judge Gibney how she knew the liner was leaking, she had no persuasive response.

The key evidence presented for the accumulation of arsenic came from a 2010 report commissioned by Dominion that analyzed sediment “cores” — cylindrical-shaped samples of creek and river bottom — to determine if there was “natural attenuation” of arsenic. (Natural attenuation is when nature takes care of the problem, in this case by binding the arsenic with iron to form a harmless substance.) Five of the samples at a depth of zero to three inches contained arsenic in excess of the permitted level of 36 micrograms per liter.

The Sierra Club cherry picked these data points from mountains of data collected from samples taken twice a year over decades, countered Carr. All tests of surface water, as opposed to sediment, have indicated arsenic levels at concentrations well below drinking water standards. Every water sample — 73 taken over the past thirteen years — were well below Virginia and EPA water quality standards for arsenic. Said Carr: “There is no evidence of arsenic in the surface waters.”

Where did the arsenic in the sediment come from if not from the nearby coal ash pits? Dozens of other industries release discharges in the Elizabeth River, said Carr, and some are known to release arsenic. The Sierra Club has offered no proof that the arsenic levels in found in the sediment differs from those elsewhere in the river. The group has conducted none of its own research and offers no additional evidence. It relied entirely upon data that DEQ used to find Dominion in compliance with the Clean Water Act — “the very same data and information DEQ has relied upon to conclude that Dominion is in compliance with its permit at CEC (the Chesapeake Energy Center).”

Maryland Drops Coal Ash Appeal

The coal ash ponds at Possum Point

The coal ash ponds at Possum Point

The state of Maryland has dropped its appeal of permits granted to Dominion Virginia Power for discharging treated water from its Possum Point Power Station coal ash ponds into Quantico Creek and the Potomac River.

“Maryland is supportive of recent agreements in Virginia to increase wastewater treatment protections and monitoring protocols,” Ben Grumbles, Maryland’s secretary of the environment, said in a statement. “We are engaged in and encouraged by the ongoing discussions with Virginia and Dominion to do even more testing for fish tissue, water quality and sediment in the river beyond the current testing and monitoring in current or soon-to-be-proposed permits.”

Jay Apperson, a spokesman for the department, cited Dominion’s commitments to enhanced treatment of the water drawn from coal ash ponds and to specifications that meet or exceed Maryland’s water quality standards, reports the Richmond Times-Dispatch. He continued:

Moreover, Virginia DEQ has pledged to draft a stringent and comprehensive solid waste permit for the Dominion facility that incorporates all federal requirements. Virginia DEQ has further discussed its intent to engage Maryland during this permitting process as groundwater monitoring and surface water monitoring safeguards are included to protect Quantico Creek and the Potomac River.

The only group persisting in an appeal of the coal ash water-discharge permits is the Potomac Riverkeeper Network.

Bacon’s bottom line: The big remaining issue is how Dominion will dispose of the coal ash itself. Dominion has applied for permits to consolidate the material in capped pits on-site, asserting that the alternative preferred by environmentalists — trucking it to lined landfills — would cost $3 billion more. The statements from Maryland’s Department of the Environment suggests that Maryland has taken part in intensive, behind-the-scenes negotiations with Virginia DEQ, as Virginia regulators decide whether to grant the solid waste permits or not.

— JAB

Virginia Procurement Process Needs Reform

Complex projects from transportation to IT need risk management.

Complex projects from transportation to IT need risk management.

by James A. Bacon

The Commonwealth of Virginia needs to reform its procedures for contracting and administering billions of dollars of contracts, the Joint Legislative Audit and Review Commission (JLARC) has found in a new study.

In 2015 Virginia spent more than $6 billion through contracts, including for transportation projects, information technology, and building construction, noted JLARC. The process for managing the contracts is decentralized, with each agency handling its own work. State procurement staff are insufficiently schooled in risk management, and the state pays insufficient attention to monitoring and enforcing the contracts.

Even though contracts account for a significant portion of state spending, the state does not maintain comprehensive information on how contracts are performing. This prevents individual agencies and state-level decision makers from assessing whether their investments in individual contracts have provided value to the state. It also prevents agency staff from avoiding problematic vendors and developing and administering contracts in a way that takes into account previous “lessons learned” at their own agency or other agencies.

JLARC embarked upon the study in 2014 after the maladministration of the U.S. 460 superhighway project resulted in a $250 million loss to the state without any ground being cleared or asphalt laid. The state has been embroiled in other high–profile contractual disputes involving the provision of IT services and the explosion of a rocket at the Wallop’s Island space port.

“Risk management isn’t on the radar,” said Tracey Smith, study project leader, in a presentation to lawmakers Monday. Writes Michael Martz in the Richmond Times-Dispatch:

Legislators on the commission, particularly the lawyers, expressed shock that state agencies routinely enter into big, often risky contracts without legal advice from the Attorney General’s Office.

Del. David B. Albo, R-Fairfax, chairman of the House Courts of Justice Committee, called it “ludicrous” that agencies would draft major contracts without lawyers.

Bacon’s bottom line: State procurement laws reformed corrupt practices of an era in which politicians routinely gave contracts to their friends and supporters. The laws emphasized putting contracts out for competitive bids, procuring the lowest price and making the process transparent. The nature of business has changed over the decades, but with one important exception, the state procurement process has not kept pace.

Unless you’re procuring commodity products like office supplies or janitorial services, the lowest price is almost meaningless. The quality of work is often a critical but hard-to-define variable. Another is the allocation of risk — who pays when something goes wrong? Identifying and allocating risk is why we have lawyers. Sometimes the lawyers get carried away, picking at nits, but they perform a critical business function because things often do go wrong. Accidents occur. Disagreement arise. Unanticipated events throw everyone for a loop.

Government employees are not trained to think about risk. Politicians aren’t inclined to worry about risks that might explode on someone else’s watch.But as contracts grow increasingly complex with the trends to outsourcing and public-private partnerships, the allocation of risk can be as important as the price.

There is one outfit in state government that has been acquiring the competencies to engage in sophisticated risk management — the Office of Public-Private Partnerships (OP3), which oversees contracts for some of the state’s most complex transportation projects. As I recall, OP3 raised red flags relating to the infamous U.S. 460 project but its warnings were overruled for political reasons. The office has developed a network of contacts it can call upon to supplement the skills of its in-house staff. Virginia’s Secretary of Technology and the head of the Department of General Services should have comparable capabilities.

Good management doesn’t excite the electorate like, say, banning guns or restricting bathroom options for transexuals. But billions of taxpayer dollars are at stake. And that makes it a sexy topic for me.

Coal Ash, Parts Per Billion, and Risk

PP_coal_ash

Coal ash ponds at Possum Point before Dominion Virginia Power started draining the ponds and consolidating the coal ash.

Kudos to Robert Zullo with the Richmond Times-Dispatch for digging beneath the dueling press releases to shed light on the contamination risks that coal ash ponds pose to drinking water. Focusing on the carcinogenic chemical hexavalent chromium, which has been detected in well water near Dominion Virginia Power’s Possum Point Power Station, he broaches key questions: How much of the chemical is too much? What level should the state permit?

Other questions he touched upon in passing: If hexavalent chromium exists in well water, how did it get there? Did it come from the coal ash ponds, or does it occur naturally in minute quantities?

The Environmental Protection Agency (EPA) sets a drinking-water standard of 100 parts per billion for chromium, which Virginia’s Department of Environmental Quality (DEQ) has adopted as its own standard. However, hexavalent chromium is widely regarded as a more dangerous version of the metal. California has set a separate limit of 10 parts per billion for drinking water for that compound, Zullo reports, reflecting a balance between health risks and the cost to water utilities of meeting the level.

Dealing with its own coal ash problem, the state of North Carolina conducted tests last year of well water within 1,500 feet of coal ash basins, using a standard of 0.07 parts per billion, which it determined was associated with a “potential one-in-a-million cancer risk for an average person drinking this water over an average lifetime.” Tarheel regulators issued several hundred “do not drink” letters to private well owners last year. Critics contended that the 0.07 parts-per-billion level was so strict that even municipal water systems could not meet it, and the state reversed course, telling residents that their well water was “just as safe as the majority of public water supplies in the country.”

The issue surfaced in Virginia when DEQ tested seven private wells near Possum Point and found hexavalent chromium in one — 5 parts per billion, right at the state’s reporting limit. The Southern Environmental Law Center (SELC) commissioned other tests and found another house where the chemical was found at a 1.2 parts-per-billion level.

SELC argues that DEQ should use testing methods that identify the chemical at levels lower than its 5 parts-per-billion standard. Said Greg Buppert, an SELC attorney: “This is a human carcinogen and we should be looking at it at lower concentrations, because we know it’s a concern.”

Bacon’s bottom line: What we’re talking about here is measuring minutes quantities of hexavalent chromium and parsing minute risks. From my (admittedly primitive) understanding, there is no known level above which a given chemical in the drinking water is dangerous and below which it is “safe.” We’re dealing with a continuum in which the statistical risk diminishes with smaller concentrations of the chemical. North Carolina’s level of 0.07 poses a risk of one-in-a-million people getting cancer after a lifetime of drinking the water. That’s crazily low. Even if hundreds of households drank the well water for years, the odds are remote that a single person would get cancer from the chemical.

One must balance that against the cost of eliminating that risk, which in Dominion’s service territory could approach $3 billion. If Virginia rate payers kept that money, what would they do with the money? Presumably, they would spend it on other things. Sure, they might buy a bigger house or purchase more movie tickets. But they also might purchase safer cars, have more frequent medical check-ups, eat healthier food, or join a health club. When we take money from people, whether through taxes or regulation, we fail to take into account the fact that we deprive them of the means to mitigate every-day risks to their health and safety.

Life is full of risks but we as a society say we can live with them. The Virginian-Pilot reports today on a fluke accident in which a beach umbrella on Virginia Beach was blown loose from its moorings in the sand and struck a woman, killing her. Should we ban beach umbrellas to offset the risk of umbrella impalements?

On the other hand, Virginia’s legal limit for hexavalent chromium is more than 100 times North Carolina’s one-in-a-million level. Assuming a straight-line correlation between the hexavalent chromium level and the risk it poses, that implies a one-in-ten-thousand risk or greater for Virginians drinking contaminated well water. That sounds like enough risk to justify having a conversation. Continue reading

Siding with the Least Greedy Bastard

Tesla Model S -- roughly $30,000 in subsidies per car sold.

Tesla Model S — roughly $30,000 in subsidies per car sold.

by James A. Bacon

Elon Musk has a gift for spinning fabulous visions involving super-cool technology — everything from solar energy and rocket ships to high-speed rail and electric cars. But he has also mastered the art of scrounging money from government. According to a year-old Los Angeles Times article, his enterprises had racked up some $4.9 billion in government subsidies.

So it is with mixed feelings that I read that Tesla is applying to open a second store in Virginia, this one in the Richmond area, against the opposition of the Virginia Automobile Dealers Association. The auto dealers fought Tesla’s application to open a store in Fairfax a couple of years ago on the grounds that long-standing state law prohibits automobile manufacturers from owning dealerships in most cases. Musk won that round — I’m not sure upon what grounds — and now he hopes to win again.

Whom does one root for — the big, fat, out-of-state crony capitalist or Virginia’s little, skinny home-grown crony capitalists?

On the one hand, I oppose laws prohibiting auto manufacturers from selling their own cars directly. Such restrictions benefit a select class of multimillionaires — local auto dealers — from competition, probably at the expense of the consumer. Therefore, I think, let Musk open his second Tesla store.

On the other hand, I think, dude, haven’t you benefited enough from manipulating the government? Isn’t $4.9 billion enough? Back away from the trough and leave something for the smaller piglets! Writes Phil Kerpen in National Review:

Every time a Tesla is sold, we witness a transfer of wealth to a rich hobbyist (most Teslas are their owners’ third or fourth car), while average Americans are on the hook for at least $30,000 in federal and state subsidies. Tesla is more a regulatory arbitrageur than an auto manufacturer.

This increasingly represents how the U.S. economy is organized. There are so many subsidies, tax breaks, regulations and exemptions that almost every business benefits from government-provided preferences somehow. If a company doesn’t work the system, then some predator will come along with its lawyers and lobbyists and campaign contributions and put it out of business. You’ve got to lawyer up just to stay alive.

In such a world, I suppose my sympathies go to the least greedy bastards who fleece me the least, whose kid goes to school with my kid, who supports the same local causes that I support, and who circulates his wealth in the local economy, patronizing local law firms, advertising agencies and the like. I suppose I root for the automobile dealers…. although I do so with little enthusiasm.

APCo Forecast: One Quarter Renewables by 2030

Image credit: Roanoke Times

Image credit: Roanoke Times

by James A. Bacon

While acknowledging regulatory and market uncertainties that could change its thinking, the Appalachian Power Company (APCo) plans to meet its projected demand growth over the next 15 years through solar power, wind power, battery storage, energy efficiency initiatives and demand-side management strategies, according to the company’s 2016 Integrated Resources Plan filed earlier this month. Renewable solar and wind energy sources would provide roughly one-quarter of APCo’s generating capacity by 2030, but the company would continue operating most of its existing fleet of coal- and natural gas-fired generators.

Roanoke-based APCo serves 526,000 customers in Virginia and another 431,000 in West Virginia and Tennessee, making it the second largest electric power producer serving Virginia.

Meeting the requirements of the Clean Power Plan, a sweeping overhaul of the electric power industry designed to reduce carbon-dioxide emissions, will result in incremental costs to APCo of $300 million to $600 million, the company estimated. Several states have challenged the constitutionality of the plan, however, and U.S. Supreme Court action may not resolve the legal issues until next year.

APCo forecasts that electricity demand will increase at an average annual rate of 0.3% annually. For purposes of comparison, that is considerably lower than the 1.5% annual growth rate projected by Dominion Virginia Power, whose service territory is expected to experience faster population and economic growth, goosed by growth in power-hungry data centers in Northern Virginia. APCo also assumes that the installation of 60 MW (megawatts) of rooftop solar generation by homeowners and businesses will cut into electricity demand.

The APCo IRP describes what it calls its “Hybrid Plan” that “attempts to balance cost and other factors while meeting APCo’s peak load obligations.” Major elements of the plan include:

  • Adding 20 MW of large-scale solar energy by 2018, with subsequent additions reaching 590 MW by 2030.
  • Adding 300 MW wind energy by 2018, followed by future additions totaling 1,800 MW by 2030.
  • Implementing energy-efficiency programs reducing energy requirements by 203 MW by 2030.
  • Adding 20 MW of battery storage in 2025.
  • Retiring two natural gas-converted Clinch River generating units by 2026.

Over the 15-year planning horizon, the Hybrid Plan would reduce coal-fired assets from 61.2% of nameplate capacity to 47.8%, while wind and solar assets would climb from 5% to 24.8%. Because wind and solar generate power only when the wind is blowing and the sun is shining, actual energy output from renewables would be lower than the nameplate capacity, increasing from 2.7% to 18.5%.

Making the job trickier is the fact that APCo’s peak load demand occurs on winter mornings rather than on summer afternoons when Dominion and most other mid-Atlantic utilities experience their peaks. The early-morning winter peak demand makes solar energy a poor match. While rooftop solar will help reduce APCo’s total energy consumption, solar’s peak production mid-day in summer months “does not alleviate APCo’s overall distribution and transmission requirements as they relate to peak demand,” states the IRP.

Likewise, APCo finds itself an odd man out in the PJM regional transmission organization (RTO), which creates wholesale markets for the buying and selling of electricity. “The Company’s load profile does not align with that of PJM. APCo experiences its greatest demand during the winter, and hence is a winter-peaking entity. PJM as a whole operates as a summer-peaking RTO.” The result: APCo is short on energy in winter months.

Another challenge will be accommodating the expected surge in distributed generation (DG) in the form of rooftop solar. “Higher penetration of DG can potentially mask the true load on distribution circuits and stations if the instantaneous input of connected DG is not known, which can lead to underplanning for the load that must be served.” APCo foresees the need to install smart inverters in its distribution grid to control “voltage and other circuit parameters.”

Meanwhile, the company projects a need to upgrade its electric transmission grid (which handles larger, longer-distance electricity flows than local distribution lines) to interconnect with merchant generators providing up to 1,000 MW of additional capacity over the next several years.

To provide more flexibility, APCo will add 20 MW of battery storage. While batteries will not store enough electricity to meet wide swings in electricity demand for long periods of time, they can help smooth electricity output resulting from fluctuating solar and wind generation.

“This plan is essentially a snapshot of a process that is constantly under review based on changing market conditions, the economy, and the adoption of new products by consumers among many other variables,” said Charles Patton, Appalachian’s president and chief operating officer, in a press release. “We, as a company and an industry, continue to plan and adapt to the constant change of our markets so that we can remain healthy and deliver reliable power to our customers—now and in the future—at a reasonable price.”

Another Blow to Free Market Health Care

dpcby James A. Bacon

Citing fiscal reasons, General Assembly Republicans have blocked Medicaid expansion that would have extended medical coverage to 400,000 uninsured Virginians. But they have tried to enact other measures to make medical care more accessible and affordable. Among other ideas, they have fought for expanding medical clinics, rolling back Certificate of Need restrictions on competition, and pooling insurance company data to create databases that allow analysts to spot inefficiency and poor outcomes in the health care system.

This year, a bill sponsored by Del. R. Stephen Landes, R-Verona, would have eliminated legal ambiguities discouraging physicians from contracting directly with their patients to provide primary care services for a fixed monthly fee. The bill declared that the contracting arrangement, commonly known as Direct Primary Care (DPC), did not constitute insurance and, thus, was exempt from insurance regulation. DPC proponents say it provides a cheaper alternative to accessing primary care through health insurance, which adds layers of bureaucracy and cost.

But Governor Terry McAuliffe vetoed the bill last week, saying, “While I applaud the patron’s desire to increase access to care, I feel this concept needs further scrutiny and study. … Not only would a product like this deter an individual from purchasing health insurance, it would still not cover any catastrophic care or chronic conditions requiring a specialist.”

Landes’ bill passed the House 97 to 0 with broad backing from patients, family practice doctors, small business lobbies and chambers of commerce. But it ran into trouble in the Senate when the insurance industry began lobbying heavily against it. As reported by the Associated Press:

Insurance companies don’t oppose the idea of direct primary care in principle, but don’t want imperfect legislation rushed through, said Doug Gray, executive director of the Virginia Association of Health Plans. This legislation, he said, is unnecessary and provides no consumer protections.

McLaughlin has joined a tiny but growing movement of doctors nationally — there are only a handful in Virginia — who have begun to provide subscription-like service to patients, a model known as direct primary care.

Similar to concierge medicine for the rich, direct primary care can appeal to middle and low-income patients who struggle with high deductibles or can’t afford insurance at all. McLaughlin charges $60 a month for people over 31, $30 for 30 and under and $15 for kids whose parents are enrolled.

The change from typical primary care has been “wonderful,” McLaughlin said: She can focus on fewer patients, spend more time with each one, and worry less about dealing with insurance companies. Other doctors are taking notice, she says, including young ones, who might otherwise avoid going into primary care because of its relatively low profit margins and high-volume demands.

“This can change the trajectory of our whole system,” McLaughlin said.

That may be the real problem with Direct Patient Care — it would change the trajectory of the system. Many players in the health care industry are vested in the status quo and don’t want to see the system change, except on their own terms. And many politicians are so ideologically committed to an expanded role for government in health care that they want to grind out market-based alternatives before they can prove their efficacy. Meanwhile, legal uncertainties may discourage other physicians from following McLaughlin’s example, and Virginia consumers will be denied a choice that might benefit them.