Category Archives: Regulation

Comments on a Book Review

Yesterday, on this site, a book entitled “Ethics and Economics ,” authored by      Mr. Wight,was discussed. The review raised a few points that were a bit unclear to me.

One of the points made was that the government lacks knowledge about society. This is a bit surprising since the Bureau of Labor Statistics, the Commerce Department, and the Board of Governors at the Federal Reserve are probably the largest suppliers of raw economic data in the United States.  If, as a review of the book states,  legislators often act in a manner contrary to the public interest, perhaps a review of the Supreme Court’s recent Citizens United Case, which allows for virtually unlimited campaign contributions should be in the cards.

Like most conservative analysis, Mr. Wight ignores the basic concept of externalities.  When the state improves the highway system, this helps all by providing economic growth via ease of transportation.  When an entity pollutes, passing on the cost of cleanup to the wider society, this is a negative externality.  A purely market-driven economic policy will not provide positive for the wider society.

An examination of the 2008-2009 financial crisis demonstrates the folly of totally unregulated markets.  The institution at the core of the debacle was the insurance giant A.I.G. and its subsidiary A.I.G. Financial Products.

A.I.G.F.P. was the largest player in the credit default swap market.  Credit Default Swaps are insurance written to guarantee the principle of a bond.  A yearly premium is a percentage of the interest paid on the bond.  A.I.G.F.P. was a leader in insuring mortgage-backed securities.  This market was totally unregulated and unlike most insurance products and derivatives written against currencies or S&P movements, no reserves were required.  The A.I.G.F.P. was in effect renting the rating of the parent company to issue unreserved for insurance.

A.I.G.F.P. was closely monitored by then-C.E.O. Hank Greenberg until he was forced out in an accounting scandal brought on by Elliott Spitzer then Attorney General of New York.  The charges were later dropped but without Greenberg’s oversight, A.I.G.F.P. ramped-up its business, and in the short run was a significant contributor to the company’s overall products.

When the housing market burst, payments were required to fund the credit default swaps written against defaulted mortgages.  Because no reserves had been required, and there was no regulatory oversight for that market, the Federal Reserve Bank of New York was forced to bail-out the company to the tune of about US$180 billion.  Had the activities of A.I.G.F.P. been monitored in thee way Futures Exchanges and traditional insurance companies, the Great Recession and the recovery would have been less severe and costly.

Sometimes, the Government should play a role.

— Les Schreiber

Market Failure and Government Failure

ethics_and_economicsby James A. Bacon

Jon Wight, a business school professor at the University of Richmond, is a huge fan of Adam Smith, best known for his classic economic treatise, “The Wealth of Nations.” Wight thinks Smith is one of the greatest economists who ever lived, not as much on the grounds that he championed “free markets,” as many conservatives might think, as on the way he built his economic theories upon a platform of morals and ethics, as articulated in his earlier, lesser known work, “The Theory of Moral Sentiments.” Not surprisingly, Wight makes frequent references to Smith in his own, recently published book, “Ethics in Economics: an Introduction to Moral Frameworks,” in which he outlines a moral framework for understanding markets.

Wight, a friend of mine, argues that is impossible to disassociate markets from the cultural and moral context in which they are embedded. In one chapter, “Moral Limits to Markets,” he argues that not all human relationships can, nor should be, market relationships. Relationships between husband, wife and children, for instance, are not, and should not be, conducted in accordance with market rules. Similarly, he argues against price gouging in times of crisis, discrimination on the basis of race and the commercial transaction of human body parts (made all the more timely by the recent revelation of Planned Parenthood’s commerce in fetal tissue). At bottom, his book is an argument for social justice and a retort to the “modern welfare theory” school of economics that argues that voluntary transactions between willing buyers and sellers maximizes consumer preferences and economic welfare.

The book is an easy read, spiced with lots of contemporary allusions, of an incredibly abstract subject, and I urge Bacon’s Rebellion readers of a philosophical bent to buy it. The book advanced my thinking about the moral context of economics immeasurably. If you’re too cheap to buy the book, at least check out Wight’s “Economics and Ethics” blog here. He doesn’t always reach the same conclusions I do… well, let’s say he often reaches entirely different conclusions… but I like the way he thinks. He acknowledges the complexity and nuances of issues. He takes the trouble to understand the arguments of others even if, in the final analysis, he doesn’t agree with them.

To my mind, if there was one philosophical flaw to Wight’s book, it is this: While Wight does a masterful job of dissecting “market failures” — they are many, and they are real — and while he does acknowledge parenthetically that many government fixes to market failures do themselves have flaws, he doesn’t give the same level of attention to the “government failure” as he does to “market failure.”

That is a very lengthy and roundabout way to get to the subject of today’s post. A new Cato Institute paper by Chris Edwards, “Why the Federal Government Fails,” struck a chord precisely because Wight’s book had sensitized me to the issue of market failure and I had begun thinking that someone needs to categorize government failure in the systematic way. Just as Wight provides a taxonomy of market failure, Edwards provides a taxonomy of government failure.

I cannot say it better than Edwards himself in his executive summary:

Most Americans think that the federal government is incompetent and wasteful. Their negative view is not surprising given the steady stream of scandals emanating from Washington. Scholarly studies support the idea that many federal activities are misguided and harmful. A recent book on federal performance by Yale University law professor Peter Schuck concluded that failure is “endemic.”

What causes all the failures?

First, federal policies rely on top-down planning and coercion. That tends to create winners and losers, which is unlike the mutually beneficial relationships of markets. It also means that federal policies are based on guesswork because there is no price system to guide decisionmaking. A further problem is that failed policies are not weeded out because they are funded by taxes, which are compulsory and not contingent on performance.

Second, the government lacks knowledge about our complex society. That ignorance is behind many unintended and harmful side effects of federal policies. While markets gather knowledge from the bottom up and are rooted in individual preferences, the government’s actions destroy knowledge and squelch diversity.

Third, legislators often act counter to the general public interest. They use debt, an opaque tax system, and other techniques to hide the full costs of programs. Furthermore, they use logrolling to pass harmful policies that do not have broad public support. Continue reading

Will Virginia COPN Study Group Ask the Critical Questions?

Data source: Virginia Department of Health

Data source: Virginia Department of Health

by James A. Bacon

State Certificate of Public Need (COPN) programs come in many shapes and sizes across the United States. Fourteen states have abolished the health-care regulatory program entirely, while states that continue to regulate capital investments in health care facilities and high-end equipment vary widely in what they regulate.

Among states with COPN, Virginia regulates about 19 of 30 categories of medical services, placing it in the middle of the pack for regulatory intensity, according to a state-by-state comparison presented to Virginia’s COPN work group earlier this month. Virginia’s application fees are relatively modest, but the review process, at 190 days, is the longest in the country.

The work group is studying Virginia’s COPN law to determine if it needs reform, in light of the enactment of the Affordable Care Act and other changes in the medical marketplace. The justification for COPN when it was instituted nationally in Virginia in 1973 was that normal competitive processes did not work in health care. When hospitals and other providers added hospital beds and purchased high-tech equipment, they supposedly made sure that patients utilized them, which added to the run-up in health care costs.

However, critics of COPN argue that the cost-plus system for reimbursing providers, which created financial incentives for providers to over-diagnose and over-treat patients, is no longer prevalent. The primary justification cited now for COPN is that by restricting competition, it shores up hospital profits and guarantees as a condition of receiving a certificate that hospitals will provide charity care for thousands of Virginians lacking insurance.

Virginia Secretary of Health and Human Resources Bill Hazel explained the logic of the national survey this way: “Do we know anything about … what actually happens in states where there has been deregulation?” (See the Richmond Times-Dispatch coverage here.)

Those are worthwhile questions to start with, but the study group needs to delve a lot deeper. One question I would ask is this: Does Virginia’s COPN really accomplish anything? The chart above, based upon Virginia Department of Health data, shows the dollar value of COPN applications approved and denied. Virginia approves the overwhelming majority of applications, a trend that has become especially evident since 2009. If the COPN reviews are just rubber-stamping applications, what’s the point in reviewing them at all? Alternatively, does the COPN process discourage entrepreneurs from even submitting proposals to a process they deemed to be rigged in favor of established players?

The chart raises another question: What accounts for the dramatic fall-off in health care-related capital spending in Virginia since 2009? We can’t blame it on the 2007-2009 recession, a period during which hospital spending actually peaked. Arguably, spending tanked as a reaction to uncertainty created by the enactment in 2010 of the Affordable Care Act (Obamacare). But even that explanation begs another question: Why has capital spending remained so low in subsequent years when regulations have been written, the law applied and uncertainty is less prevalent? Have Obamacare or changes in the commercial health insurance market created incentives to restrain capital spending? And, if so, why would we still need COPN?

I would add an even more fundamental set of questions: What impact has COPN had on health care productivity in Virginia? The health care sector is notorious for its low level of productivity growth, an underlying cause of escalating health care costs. There are two schools of thought. The first is that maximizing utilization of a restricted supply of beds and equipment, which COPN is designed to do, will lift productivity. The countervailing theory is that the path to greater productivity lies in embracing new processes, which often entail redesigning the physical layout of hospital floors or even building specialized, dedicated facilities. COPN would slow such changes. Which school of thought is right? Without more evidence, we don’t know.

The debate over U.S. health care focuses overwhelmingly on who pays. It’s a zero-sum game of slicing up a fixed pie so that some get bigger pieces and others get smaller pieces. The only way out of this morass, to borrow a hoary cliche, is to grow the pie — to make more health care available at more affordable prices for all. One way to do that is to overhaul the way health care is delivered: to evolve from a system dominated by general-purpose hospitals that provide a wide range of services to one that includes focused factories specializing at performing a narrow range of procedures exceptionally well and exceptionally efficiently.

That’s not happening. Rather than encouraging entrepreneurial specialization and experimentation, the health care industry is consolidating. Both the insurance and hospital sectors are becoming cartels, and they’re absorbing independent physician practices. The causes are bigger than COPN alone. But COPN may contribute to the trend. The big-picture question Virginia policy makers need to ask is this: Do we want cartels or entrepreneurs to dominate state health care? I don’t hear anyone asking that question.

Alpha Natural Resources: Running Wrong

Alpha miners in Southwest Virginia (Photo by Scott Elmquist)

Alpha miners in Southwest Virginia
(Photo by Scott Elmquist)

 By Peter Galuszka

Four years ago, coal titan Alpha Natural Resources, one of Virginia’s biggest political donors, was riding high.

It was spending $7.1 billion to buy Massey Energy, a renegade coal firm based in Richmond that had compiled an extraordinary record for safety and environmental violations and fines. Its management practices culminated in a huge mine blast on April 5, 2010 that killed 29 miners in West Virginia, according to three investigations.

Bristol-based Alpha, founded in 2002, had coveted Massey’s rich troves of metallurgical and steam coal as the industry was undergoing a boom phase. It would get about 1,400 Massey workers to add to its workforce of 6,600 but would have to retrain them in safety procedures through Alpha’s “Running Right” program.

Now, four years later, Alpha is in a fight for its life. Its stock – trading at a paltry 55 cents per share — has been delisted by the New York Stock Exchange. After months of layoffs, the firm is preparing for a bankruptcy filing. It is negotiating with its loan holders and senior bondholders to help restructure its debt.

Alpha is the victim of a severe downturn in the coal industry as cheap natural gas from hydraulic fracturing drilling has flooded the market and become a favorite of electric utilities. Alpha had banked on Masset’s huge reserves of met coal to sustain it, but global economic strife, especially in China, has dramatically cut demand for steel. Some claim there is a “War on Coal” in the form of tough new regulations, although others claim the real reason is that coal can’t face competition from other fuel sources.

Alpha’s big fall has big implications for Virginia in several arenas:

(1) Alpha is one of the largest political donors in the state, favoring Republicans. In recent years, it has spent $2,256,617 on GOP politicians and PACS, notably on such influential politicians and Jerry Kilgore and Tommy Norment, according to the Virginia Public Access Project. It also has spent $626,558 on Democrats.

In 2014-2015, it was the ninth largest donor in the state. Dominion was ahead among corporations, but Alpha beat out such top drawer bankrollers as Altria, Comcast and Verizon. The question now is whether a bankruptcy trustee will allow Alpha to continue its funding efforts.

(2) How will Alpha handle its pension and other benefits for its workers? If it goes bankrupt, it will be in the same company as Patriot Coal which is in bankruptcy for the second time in the past several years. Patriot was spun off by Peabody, the nation’s largest coal producer, which wanted to get out of the troubled Central Appalachian market to concentrate on more profitable coalfields in Wyoming’s Powder River Basin and the Midwest.

Critics say that Patriot was a shell firm set up by Peabody so it could skip out of paying health, pension and other benefits to the retired workers it used to employ. The United Mine Workers of America has criticized a Patriot plan to pay its top five executives $6.4 million as it reorganizes its finances.

(3) Coal firms that have large surface mines, as Alpha does, may not be able to meet the financial requirements to clean up the pits as required by law. Alpha has used mountaintop removal practices in the Appalachians in which hundreds of feet of mountains are ripped apart by explosives and huge drag lines to get at coal. They also have mines in Wyoming that also involve removing millions of tons of overburden.

Like many coal firms, Alpha has used “self-bonding” practices to guarantee mine reclamation. In this, the companies use their finances as insurance that they will clean up. If not, they must post cash. Wyoming has given Alpha until Aug. 24 to prove it has $411 million for reclamation.

(4) The health problems of coalfield residents continue unabated. According to a Newsweek report, Kentucky has more cancer rates than any other state. Tobacco smoking as a lot to do with it, but so does exposure to carcinogenic compounds that are released into the environment by mountaintop removal. This also affects people living in Virginia and West Virginia. In 2014, Alpha was fined $27.5 million by federal regulators for illegal discharges of toxic materials into hundreds of streams. It also must pay $200 million to clean up the streams.

The trials of coal companies mean bad news for Virginia and its sister states whose residents living near shut-down mines will still be at risk from them. As more go bust or bankrupt, the bill for their destructive practices will have to borne by someone else.

After digging out the Appalachians for about 150 years, the coal firms have never left coalfield residents well off. Despite its coal riches, Kentucky ranks 45th in the country for wealth. King Coal could have helped alleviate that earlier, but is in a much more difficult position to do much now. Everyday folks with be the ones paying for their legacy.

Pipelines and Property Lines

Charlotte Rea. Photo credit: All Pain, No Gain

Charlotte Rea. Photo credit: All Pain, No Gain

The Atlantic Coast Pipeline wants to inspect land along a proposed 550-mile route. Legal challenges from landowners could re-write a 2004 law governing property rights in utility surveys.

by James A. Bacon

Charlotte Rea decided when she retired that she wanted to live near where she grew up near Charlottesville. She found “a little piece of heaven” in Nelson County: a 29-acre spread on the north fork of the Rockfish River. With her retirement savings, she purchased the land with the idea of keeping it undeveloped if things worked out but selling two lots if she needed the cash. “All of my money is in the land,” Rea says. “It’s my long-term care insurance.”

She never imagined that someone would want her land for industrial purposes. But her homestead, as it turns out, came to be situated on the proposed route of the Atlantic Coast Pipeline (ACP) linking the natural gas fields of West Virginia with markets in Virginia and North Carolina. The 125-foot pipeline right-of-way would cut a swath across the river and through forested wetlands on her property that host a species of rare orchid. An ag-forestal district designation restricts development and prohibits industrial uses, she says. “Except it appears Dominion can industrialize it by running a pipeline through it. My property  will become an underground natural gas storage site.”

Since announcing its original plans, ACP has redrawn its proposed route, leaving her property untouched. But Rea doesn’t consider the new route to be definitive, and she is little reassured. “My future is totally blown up, not knowing what’s happening to my property. No one wants to buy land with a natural gas pipeline going through the middle of the view shed. I stand to lose $50,000 in property value. I couldn’t sleep at night worrying about the darn thing coming through.” 

The 63-year-old career Air Force veteran decided to fight back, signing up as co-chair of the “All Pain No Gain” group opposing the pipeline. Not only does Rea not want to see the pipeline built, she objects to ACP or its contractors even coming onto private property to survey the land. And she is just one of dozens of landowners who view the pipeline the same way.

Dominion Transmission, ACP’s managing partner, filed suit this spring in local courts against more than 100 property in order to gain access to their land. Many, like Rea, were clustered near the Blue Ridge mountains in Augusta and Nelson Counties. A local judge ruled that the notice letters had been improperly issued by Dominion Transmission, so the pipeline company withdrew the pending cases and started re-filing lawsuits as ACP. As of early July, says Rea, she knew of 27 re-filed lawsuits. Meanwhile, pipeline foes have filed two of their own lawsuits in federal court challenging the constitutionality of the state law.

The lawsuits are shaping up as the Old Dominon’s biggest battle over property rights in years. The courts will be called upon to define the balance between landowners like Rea who wish to be left alone and utilities like the four corporate partners of the $5 billion Atlantic Coast Pipeline — including Virginia energy giant Dominion, Duke Energy, AGL Resources and Piedmont Natural Gas — who argue that there is a compelling public need to build more gas pipelines as electric utilities replace coal with gas in their fuel mix. The legal outcome could influence other pipeline projects as well. Three groups besides ACP have expressed possible interest in building pipelines from the West Virginia shale fields to markets in Virginia and points south.

Pipeline foes make two overarching arguments. First, the Federal Energy Regulatory Commission (FERC) has not yet issued a certificate declaring the ACP project to be in the public interest, says Joe Lovett, an attorney with Appalachian Mountain Advocates. Because ACP cannot yet argue that the pipeline is for “public use,” it has no right to survey land without the consent of property owners.

Second, pipeline foes say, landowners deserve compensation for survey crews tramping over their property. The right to exclude others from entering your property “is one of the most important rights in the bundle of property rights,” says Josh Baker, an attorney with Waldo & Lyle, one of the preeminent landowner rights firms in Virginia. When multiple survey teams — ACP lists five different categories of crews — enter the property, they can cause considerable inconvenience. While the Virginia code allows for “actual damages” resulting from a survey, it allows nothing for inconvenience.

Dominion asserts that it is fully within its rights to conduct the surveys as long as it complies with requirements to request permission in writing to inspect the land and then provide a notice of intent to enter. Obtaining a certificate of public convenience and necessity from FERC is necessary to acquire land through eminent domain authority but not to survey land, says Jim Norvelle, director media relations for Dominion Energy. Surveys are governed by state law.

As for land surveys constituting a “taking,” there is plenty of legal precedent to support ACP’s position, Norvelle says. “We do not expect to damage anyone’s property when surveying. In the unlikely event there is some damage, we will reimburse the landowner.”

A half century ago, pipelines in Virginia were either intrastate pipelines under State Corporation Commission jurisdiction or they were segments of interstate pipelines built and “stitched together over time,” says Jim Kibler, who was active in eminent domain litigation in Virginia before joining Atlanta-based AGL Resources as senior vice president-external affairs. Local public utility commissions, including Virginia’s SCC, provided most regulatory oversight. Continue reading

Renewable Energy: A Tale of Two Virginias

Apologies to Mr. Dickens

Apologies to Mr. Dickens

By Peter Galuszka

Call it a tale of two Virginias – at least when it comes to renewable energy.

One is the state’s traditional political and business elite, including Dominion Resources and large manufacturers, the State Corporation Commission and others.

They insist that the state must stick with big, base-loaded electricity generating plants like nuclear and natural gas – not so much solar and wind –to ensure that prices for business are kept low. Without this, recruiting firms may be difficult.

The other is a collection of huge, Web-based firms that state recruiters would give an eyetooth to snag. They include Amazon, Google, Facebook and others that tend to have roots on the West Coast where thinking about energy is a bit different.

Besides the Internet, what they have in common is that they all vow to use 100 per cent of their electricity from renewable sources. What’s more, to achieve this goal, all are investing millions in their own renewable power plants. They are bypassing traditional utilities like Dominion which have been sluggish in moving to wind and solar.

So, you have a strange dichotomy. Older business groups are saying that the proposed federal Clean Power Plan should be throttled because it would rely on expensive renewables that would drive away new business. Meanwhile, the most successful and younger Web-based firms obviously aren’t buying that argument.

I have a story about this in this week’s Style Weekly.

In Virginia, the trend is evidenced by Amazon Web Services, which sells time on its cloud-computing network to other firms. It is joining a Spanish company, Iberdola Renewables LLC, in building a 208-megawatt wind farm on 22,000 acres in northeastern North Carolina, just as few miles from the Virginia border. Three weeks earlier, on June 18, Amazon announced it plans a 170-megawatt solar farm in Accomack County on the Eastern Shore.

Dominion, which has renewable projects in California, Utah and Indiana and the beginnings of some small ones in Virginia, says it is not part of the projects. It could possibly get electricity indirectly from them. Amazon’s power will be sold on regional power grids to business and utilities.

When they complete such sales, the Net-focused firms will get renewable energy certificates that can be used to show that they have put as much renewable energy into the electricity grid as they have used, says Glen Besa, director of the Virginia chapter of the Sierra Club.

This will be especially important in Northern Virginia where there are masses of computer server farms used by Amazon and others. These centers used 500 megawatts of power in 2012 and demand is expected to double by 2017. Also, for years, the region has hosted such a large Internet infrastructure that at least half, perhaps 70 percent, of the Net’s traffic goes through there.

Part of the back story of this remarkable and utility-free push for renewables is that environmental groups are shaming modern, forward-looking firms like Amazon to do it.

Amazon Web Services was the target of criticism last year when Greenpeace surveyed how firms were embracing renewable energy. The report stated that the firm “provides the infrastructure for much of the Internet” but “remains among the dirtiest and least transparent companies” that is “far behind its major competitors.”

Dominion also got bashed in the report. Greenpeace says, “Unfortunately, Dominion’s generation mix is composed of almost entirely dirty energy sources.” Coal, nuclear and natural gas make up the vast majority of its power sources.

Its efforts to move to renewable sources have been modest at best. In regulatory filings, Dominion officials have complained that renewable energy, especially wind, is costly and unreliable although they include it in their long-term planning.

Dominion has plans for 20-megawatt solar farm near Remington in Fauquier County and is working on a wind farm on 2,600 acres the utility owns in southwestern Virginia. It has renewable projects out-of-state in California, Utah and Indiana. The output is a fraction of what Amazon plans in the region.

In a pilot offshore wind project, Dominion had planned on building two wind turbines capable of producing 12 megawatts of power in the waters of Virginia Beach. It later shut down the project, saying new studies revealed it would cost too much. It says it might continue with a scaled down project if it got extra funding, such as federal subsidies.

The utility says it must build more natural gas plants and perhaps build a third nuclear unit at its North Anna power plant to make sure that affordable electricity is always available for its customers.

As Amazon announced its new renewal projects, Greenpeace has changed its attitude about the company. Now it praises Amazon for its initiatives in Virginia and North Carolina. “I would like to think we have pushed Amazon in the right direction,” says David Pomerantz, a Greenpeace spokesman and analyst. He adds that Amazon has some work to do in making its energy policies “more transparent.”

One unresolved issue is that two neighboring states, North Carolina and Maryland, have “renewable portfolio standards” that require that set percentages of power produced there come from renewables. West Virginia had such a standard but has dropped it. In Virginia, the standard is voluntary, meaning that Dominion is under no legal obligation to move to solar or wind. It also gives the SCC, the power rate regulator, authority to nix new power proposals because they might cost consumers too much, providing Dominion with a handy excuse to move slowly on renewables.

Another matter, says Pomerantz, is whether Virginia’s legislators will enact “renewable energy friendly policies” or watch hundreds of millions of dollars in renewable project investments go to other states, such as North Carolina.

So, you have a separate reality. Traditionalists are saying that expensive renewables are driving away new business, while the most attractive new businesses are so unimpressed with traditionalist thinking that they are making big investments to promote renewable energy independently.

It isn’t the first like this has happened.

Stricter Penalties, Safer Roads

safety_penalty_correlation
by James A. Bacon

I will concede this upfront: Bacon playing with statistics is like a toddler playing with a gun. Nothing good can come of it. With that word of warning, I ask readers to indulge me for a moment.

WalletHub, the financial advisory website, has come up with yet another listicle — a ranking of the 50 states (and Washington, D.C.) by the strictness of their speeding and reckless driving laws. This is a matter of more than passing interest to me because my son got his driver’s license just last week and my wife is a nervous wreck. Oh, no, it’s drizzling outside — the streets are dangerous. Oh, no, it’s bright and sunny outside — the glare can blind you. Readers who have had wives and teenage drivers know exactly what I’m talking about.

Back to WalletHub… It turns out that Virginia has the sixth strictest penalties in the country for speeding and reckless driving. Knowing the strictures put on teen drivers and drunk drivers, I can well believe that the traffic regimen is tough on speeders as well. But I asked myself a question that WalletHub didn’t answer: Do tough driving laws make a difference? Do they save lives, or do they just punish drivers for no reason?

In the spirit of social scientific inquiry, I compared the WalletHub ratings with data from the Insurance Institute for Highway Safety on the incidence of fatalities per 1 million vehicle miles traveled (VMT). The results can be seen in the chart above. The Y axis shows the WalletHub ranking, with the strictest states at the bottom and the most lenient states at the top. The X axis shows deaths per million VMT. The red dot shows Virginia.

Assuming I am analyzing the data properly (not something to be taken for granted), Virginia does seem to get some benefit from its strict speeding and reckless driving laws — but not as much as might be expected. The R², a measure of correlation, suggests that 5.6% of the difference in highway fatalities between states is explainable by the variation in speeding and reckless-driving penalties. That’s not a dominant determinant but a non-inconsiderable one. Yet the Old Dominion has the sixth strictest laws in the land but only the 11th lowest fatality rate.

Speeding enforcement and penalties are not the only means to reduce speeding. Other options include lower speed limits, road design and traffic-calming measures, and driver education, especially for young drivers. Other factors may come into play as well. Insofar as fatalities are correlated with driving speed, states with large rural populations driving on country roads may be at greater risk of fatalities, for instance, than largely urban states where city streets have lower speed limits. It is no accident that Washington, D.C. has a lower fatality rate per miles driven than any of the 50 states.

Could Virginia do a better job? My job is to ask the questions. Keener analytical minds are needed to come up with answers.

A Glimpse into the Byzantine World of Virginia Health Care

Murky

Murky

by James A. Bacon

To call the United States health care system Byzantine is to cast a slur upon the ancient empire of that name. A glimpse of the bizarre, Rube Goldberg-esque way in which the system functions in Virginia can be seen in today’s Richmond Times-Dispatch article about the state’s Certificate of Public Need (COPN) program.

A state working group is studying whether to scrap or modify the regulatory system, which requires hospitals and other health care providers to seek state approval for new or expanded medical-care facilities and the acquisition of expensive equipment. The system curtails competition by making it difficult for new enterprises to enter the marketplace, and it often ties regulatory approvals to promises to provide charity care.

In 2013, health care providers donated $1.34 billion worth of charity care to comply with the state-mandated obligations, the T-D quotes Peter Boswell, chief of Virginia’s Department of Health Office of Licensure and Certification, as saying. Statewide, 195 certificates of need are conditioned upon requirements of providers to administer free care. As an example of how that might work, the T-D says a cardiac catheterization lab might have a requirement to provide 3.8 percent charity care.

Don’t get me wrong. We need a mechanism for providing health care to poor people who fall between the cracks of government assistance, Obamacare and private insurance. This is just an insanely opaque way of going about it. That $1.34 billion is not subject to any form of market discipline or legislative review. State regulators cut deals with health care providers, and then it’s up to the providers to live up to their obligations. The state lacks the resources to audit compliance.

Assuming hospitals and other providers do comply, who ultimately pays? Do the $1.34 billion in payments come out of hospital profits? Or do hospitals simply pass on the cost by jacking up charges to paying customers? I doubt anyone really knows. If there’s one thing as opaque as the health care sector’s pricing system, it’s health care accounting.

Health care is an inherently complex business, involving trade-offs between price, quality, convenience and other factors that few consumers are equipped to make. That inherent complexity is compounded by layer upon layer of regulation, subsidy, cross-subsidy and other forms of complexity. I don’t see how it’s possible for anyone participating in the industry to make economically rational decisions. No wonder there is so much waste and inefficiency. No wonder costs are out of control. No wonder private health care insurance grows more unaffordable with each passing year. No wonder Congress felt compelled to enact health care “reform” (although the reform known as Obamacare makes the system even more bureaucratic, complex, opaque and uncompetitive).

Eliminating COPN in Virginia is not a silver bullet that will miraculously create a transparent, competitive market-based health care system. Other states have abolished COPN, and their systems are not notably lower cost or more efficient (that I know of). But it is one layer of anti-competitive complexity that Virginia legislators can strip out of the system, thereby making the state marginally less hostile to innovation and competition. Combined with other market-based reforms, it could make a difference.

If Virginia abolished COPN, what would happen to uninsured people who depend upon that $1.34 billion a year in uncompensated care? Aye, there’s the rub. Politically, it may be impossible to dismantle the program. Perhaps we are doomed to living (and dying) with an opaque, irrational and inefficient system.

The Ironies of Virginia’s Growing Diversity

Midlothian’s New Grand Mart taps state’s growing diversity

 By Peter Galuszka

Suddenly immigration is popping up as a major issue in Virginia and the nation.

Virginia Beach has been dubbed a “sanctuary city” for undocumented aliens by Fox News and conservative Websites. GOP presidential hopeful Donald Trump is scarfing up poll number hikes by calling Mexicans trying to enter the U.S. illegally “rapists” and proposing an expensive new wall project to block off the southern border. Pro-Confederate flag advocates are pushing back against anti-flag moves, but they can’t escape the reality they are conjuring up  old visions of white supremacy, not their version of respectable Southern “heritage.”

So, if you’d like to look at it, here’s a piece I wrote for The Washington Post in today’s newspaper. When I visited a new, international food store called New Grand Mart in Midlothian near Richmond, I was impressed by how large it was and how many people from diverse backgrounds were there.

Looking further, I found one study noting that Virginia is drawing new groups of higher-income residents of Asian and Hispanic descent. In the suburbs, African-Americans are doing well, too.

The Center for Opportunity Urbanism ranked 52 cities as offering the best opportunities for diverse groups. One might assume D.C. and Northern Virginia would rank well, and they do. More surprising was that Richmond and Virginia Beach rank in the top 10 in such areas as income and home ownership. True, mostly black inner city Richmond has a 26 percent poverty rate but it seems to be a different story elsewhere.

Stephen Farnsworth of the University of Mary Washington says that economic prosperity and jobs that had been concentrated in the D.C. area, much of it federal, has been spread elsewhere throughout the state. It may not be a coincidence that New Grand Mart was started in Northern Virginia by Korean-Americans who undertook research. It revealed that the Richmond area was a rich diversity market waiting to be tapped. They were impressed and expanded there.

Other areas that do well in the study are Atlanta, Raleigh, N.C. and ones in Texas, which show a trend of job creation in the South and Southwest outpacing economic centers in the Northeast, Midwest and in parts of the West. Another story in today’s Post shows that there are more mostly-black classrooms in Northern cities than in the South. The piece balances out the intense reevaluation of Southern history now underway. A lot of the bad stuff seems to have ended long ago, but somehow similar attitudes remain in cities like Detroit and New York.

This progress is indeed interesting since old-fashioned American xenophobia is rearing itself again.

In Virginia, the long-term political impact will be profound as newer groups prosper. They may not be as inclined as whites to embrace Virginia’s peculiar brand of exceptionalism, such as their emotional mythology of Robert E. Lee and Thomas Jefferson. Their interest in them might be more dispassionately historical.

And, as the numbers of wealthier people from diverse backgrounds grow, they may be less willing to keep their heads down when faced with immigrant bashing. That’s what people of Hispanic descent did in 2007 and 2008 when Prince Williams County went through an ugly phase of crackdowns on supposed illegals. They could strike back with their own political campaigns.

Whether they will be blue or red remains to be seen. It’s not a given that they’d be Democratic-leaning. Farnsworth notes, however, that as more diverse people move to metropolitan suburbs, whites in more rural, lower-income places may become more reactionary out of fear. Hard-working and better-educated newcomers might be out-classing them in job hunts, so they might vote for politicians warning of a yellow or brown peril.

In any case, New Grand Mart presages a very crucial and positive trend in Virginia. It shows the irony of the hard right echo chamber peddling stories designed to inflame hatred and racism, such as the one about Virginia Beach being a “sanctuary” for illegals. In fact, the city is attracting exactly the  well-educated and hard-working newcomers of diverse backgrounds upon whom it can rest its future.

But we’re in an age of bloated billionaires with helmet hairdos and no military experience claiming that former Republican presidential candidate John McCain, a shot-down Navy pilot who spent five years in a brutal North Vietnamese prison, is not a hero. If Virginia can ignore such time-wasters and embrace diversity, it will be a better place.

Can’t Beat those Old Nukes for Cheap Energy

Image credit: Nuclear Energy Institute

Image credit: Nuclear Energy Institute

by James A. Bacon

Dominion has shut down both nuclear power units at its Surry County station to repair water leaks. The first one was taken offline over the weekend, the second was deactivated Monday. Reports the Richmond Times-Dispatch:

The leaks amounted to about 1,000 gallons, all of which was captured and processed for reuse once the reactors are running, [spokesman Rick] Zuercher said. Each reactor’s coolant system operates with about 71,000 gallons of water.

“These happen occasionally. They’re not significant,” Zuercher said. “There are levels of leakage that require us to shut down, but these did not rise to that level. We always try to capture problems when they’re small and fix them so they don’t become big problems.”

The incident follows a leaking pump in January that reduced the Unit 2 reactor to 60 percent capacity during repairs, and a shutdown this spring to refuel the two units. When Dominion shuts down its nuclear units, it has to make up the difference from other sources, either within its own fleet of power plants or by purchasing power from other companies over the PJM Interconnection grid. That energy can be expensive during the peak demand period of the summer.

Every time a nuclear plant shuts down for repairs, it seems to make the news. I suppose it’s the old Three Mile Island syndrome. Stuff that happens at a nuclear power plant is way scarier than the stuff that happens in any other kind of power plant. Other kinds of power plants shut down for maintenance and repairs, too — we just don’t hear about it.

The reality of the situation is that nuclear power plants spend more time online, operating 24/7, than any other type of electricity-generating plant. Based on 2013 data, the Nuclear Energy Institute asserts that nukes operate 90.9% of the time. That handily beats coal- and gas-fired plants and it clobbers wind and solar (although biomass plants experience relatively little downtime). That’s why Dominion Virginia Power can seriously talk about building a third nuclear generator at its North Anna facility despite a mind-numbing price tag measured in the billions of dollars. Not only do nukes generate power two to three times more of the time than alternatives, they tend to be longer-lived — 40 years routinely, and potentially as long as 60 years.

surry

The Surry nuclear station

In its 2015 Integrated Resources Plan, Dominion expressed its intention to inform the Nuclear Regulatory Commission of its intent to “potentially submit” a license application to extend the Surry Power Station Units 1 and 2 for another 20 years. Built in 1972 and 1973, those units are already 40 years old. I presume that the initial construction cost of the two units has been fully written off. Assuming they can be operated safely, extending their life another 20 years would provide incredibly inexpensive power for Virginia.

Old versus new. That’s not necessarily to say that nuclear is the best option for new plants. Nuclear has hard-to-quantify risks not shared by other power sources. The fact that the North Anna station is built on a fault line does not inspire confidence. Neither does the fact that United States has yet to devise a permanent solution for the disposal of radioactive waste. The engineering and physics of nuclear power are so complex that anyone (from power companies to environmentalists to neighborhood kooks) can make any claim and members of the public have no ability to appraise them. That inherent uncertainty weighs heavily against nukes in the popular mind.

Not long ago, Dominion appeared ready, willing and able to start pushing for a third, 1,453-megawatt nuclear unit at North Anna, a proposal that would be sure to ignite massive controversy. For now, having spent hundreds of millions of dollars in preliminary work, the company is keeping that option alive. But the 2015 IRP seems less settled upon nuclear than before. The company’s own portfolio risk assessment showed that, on a risk-adjusted basis, new nuclear was marginally more expensive than alternatives that rely more upon gas or solar.