Category Archives: Science & Technology

How the Digital Trinity is Transforming Health Insurance

surdakby Christopher Surdak, JD

In his recent post, “The Politics of Big Data,” my friend and colleague Jim Bacon asked some pertinent questions regarding how our government, and our society at-large, can put data to use for the common good. In a fairly short discourse Jim hit on a range of explosive topics, from privacy, data sovereignty, property rights, Universal Service, government regulation and legislation, universal health care, Obamacare and Medicare/Medicaid, predictive analytics and preventative medicine, and more. Each of these could fill a book in their own right; I should know, as I’m working on those books right now!

Of all of the issues raised by this discussion, the one that immediately came to mind was that of the use of our individual data to support the effective delivery of healthcare. As I have written and spoken of extensively in the recent past, healthcare stands to be the industry most disrupted by the application of Big Data in the coming decade. (Indeed, I’m keynoting a discussion on exactly this disruption at the American Health Information Management Association information governance conference this week.) In no other industry is so much valuable information put to so little use, for so little gain, at so much cost, thereby leading to suffering, the waste of human life, and the ineffective expenditure of so much treasure.

Why is this so? Why is our health system so sickly when compared to that of other countries? Why does healthcare seem to extract so little value from information, when compared to other industries? Is it from too much government regulation, or too little? Is it from the influence of commercial special interests such as the payers, or the professional special interests of practitioners, such as the AMA? Is it because our technologies cannot meet our needs, or is it because we are not prepared to accept the implications of those technologies? I would argue that all of these factors are at play in this discussion; that all of the ranting that accompanied Jim’s post were all equally spot on, and all completely off the mark.

All of these positions are equally accurate, and equally pointless in the real world. Whether healthcare providers put patient data to work for the common good or their own good is irrelevant; it will be put to work in any event, with significant unintended and extremely disruptive consequences. Whether special interests or patients will benefit from the use of data is not open to question. The answer is: both will. Whether or not our privacy will be sacrificed or not is also a pointless question; of course it will. And finally, whether or not we will willingly give up our privacy in order to gain these benefits from our data is a further pointless question; we already have.

Disruption in Insurance: The Canary in the Coal Mine for Healthcare

The best example I can give of what WILL happen in healthcare over the next decade, equally in Virginia as with the other 49 states, can be seen in what is rapidly taking over the insurance industry across the country. Insurance is an old-school, highly-regulated, data- and money-intensive industry. Insurers have both access to massive amounts of very private information on all of us, and intense motivation for putting that data to use. The potential for profit, and hence abuse, is exceedingly large.

But, the motivation for using our data isn’t necessarily nefarious. Insurers look at each of us to determine our risk profiles so that they can both make money (that is, remain solvent so their checks to benefactors or debt holders don’t bounce) and provide coverage to all segments of the population at affordable prices (or at least the perception of affordability).

The regulatory framework that governs the insurance industry is well over a century old. It is state-based, state-enforced, and is designed to provide universal coverage to people from all walks of life. If you drive a twenty-year-old pickup truck, you probably pay proportionately less than someone who drives a new European sports sedan. If you’re a 60-year-old who smokes a pack a day and loves Miller Time, you’re likely to pay more for your life insurance than a 24-year-old jogger and yoga nut. Our regulatory framework has been designed to try to make insurance available and fair for all, and to ensure that insurers remain profitable, but not excessively-so.

Despite all of this, insurance is going through a fundamental, massively disruptive, and permanent transformation right before our eyes. This transformation is being driven by what I call the Digital Trinity of mobility, social media and advanced analytics. These three technologies trends are completely transforming how we live, work, play, and interact with our world, and they are causing enormous unintended consequences across our entire society. These changes are comprehensive, and old-school, hard-line, heavily regulated industries such as insurance are the MOST likely to be disrupted, rather than the least likely.

To see these disruptions consider this. Car insurers have deployed smartphone apps that allow them to track the driving behaviors of their customers in real-time, turn by turn. These apps keep track of how fast you accelerate, how hard you brake, how fast you drive down the residential streets of your neighborhood, and whether or not you text or talk while driving. These apps create huge amounts of extremely sensitive data, they are massively invasive of your privacy, they provide an enormous source of information for discriminating against you in setting your insurance rates; and they are massively popular.

If I told you three years ago that car insurance companies soon would be tracking all of this information on the drivers that they cover, you might think I was crazy. If I then told you that customers would sign up for such apps by the tens or hundreds of thousands, in order to gain a discount in their rates, you’d probably think I was certifiable. Americans are voluntarily giving up extremely intimate details on their behavior, surrendering their Constitutionally inalienable rights, and opening themselves up to all manner of government and commercial scrutiny in order to save 15% on their car insurance? Yes they are, in droves. You may think this sounds crazy, and you’d be right.

Yet, this is exactly what is going on right now. Innovators such as Progressive Insurance started these behavior-tracking apps, providing discounts to drivers who demonstrate good behaviors. These apps have been so successful, that now all insurers are scrambling to deploy similar apps with similar capabilities, while they still have time. Continue reading

Why Is GMU Stonewalling?

stone_wallby James A. Bacon

Two months ago, Jagadish Shukla, a George Mason University professor, was one of twenty climate scientists to affix their signatures to a letter calling for a federal investigation into “corporations and other organizations that have knowingly deceived the American people about the risks of climate change.” It was imperative, stated the letter, that “these misdeeds be stopped as soon as possible so that America and the world can get on with the critically important business of finding effective ways to restabilize the Earth’s climate.”

Outraged by the assault on free speech, climate skeptics brought to light some troubling facts about Shukla’s activities. Not only did Shukla take in $250,000 in salary and compensation from GMU, he paid himself $314,000 in 2014 as president of the Institute for Global Environment and Society (IGES), the recipient of generous federal grants, and that doesn’t include the $146,000 salary paid to his wife Anastasia Shukla.

A month ago, the controversy jumped from the Internet to the political realm when Congress got involved. Rep. Lamar Smith, R-Texas, sent a letter informing Shukla that it was “foreseeable” that the Committee on Science, Space, and Technology would investigate him, along with IGES, for using science-research monies provided by taxpayers while participating in partisan political activity. Although Shukla later stated that he signed the letter in a personal capacity, he did identify himself as a GMU professor, and he did post the letter on the IGES website.

The Smith letter asked Shukla/IGES to preserve a “full and complete record of relevant communications” should the Committee decide to request documents. The request encompassed all e-mail, electronic documents, and datacreated since January 1, 2009. The congressman also asked Shukla to exercise reasonable efforts to notify employees, former employees, contractors and third parties to do the same.

Shukla is a high-profile member of the GMU faculty, whose combined salary/compensation exceeds that of GMU’s president and makes him among the highest-paid professors at the university, if not the highest paid. If you’re looking for a local hook on this story, Shukla serves on Governor Terry McAuliffe’s Climate Change and Resiliency Update Commission, which is making recommendations to the governor regarding state climate change-related policy.

While the Congressional committee seems to be focused on Shukla, I would suggest that certain questions should be put to his employer, George Mason University.

  • What is GMU’s policy regarding faculty drawing salaries from outside organizations?
  • Did Shukla disclose to GMU that he and his wife were drawing salaries from IGES?
  • Did GMU review the arrangement to ensure that it complied with the university’s disclosure requirements, conflict-of-interest guidelines and other rules?
  • Has GMU been alerted to the congressional request for Shukla and IGES employees to preserve all electronic documents?
  • Do any such documents reside on GMU servers, and what measures, if any, has GMU put into place to ensure that the documents are preserved?
  • Has GMU “lawyered up”? Has Shukla “lawyered up?” If so, is GMU covering Shukla’s legal expenses?

Let’s crowd source this bad boy!

Contacting three separate people on the university’s communications team over the past three weeks, I have tried repeatedly to get answers from GMU. I received no answer from two spokepersons, and a non-responsive email response from a third. Clearly, GMU is stonewalling. To get answers of any kind, I apparently have no choice but to file FOIA requests. I expect that GMU will maintain that certain correspondence is privileged, either because it pertains to “employee” matters or “legal” matters. I get only one shot at this, and I want to make sure I craft the FOIA request correctly.

I would invite readers to crowd-source this story. If you dig up something worthwhile through Internet research, or if you have suggestions on how to word the FOIA request, let me know in the comments.

Virginia’s Commitment to Smart Cars and Smart Roads

Virginia Tech smart car

Virginia Tech smart car

by James A. Bacon

Tom Dingus has done as much as anyone to advance vehicle automation and the advent of self-driving cars. Many of the automated features found in automobiles today — automated braking, active cruise control, rear-view cameras — were tested at the Virginia Tech Transportation Institute, where he serves as director. But Dingus is cautious about predicting the imminent arrival of self-driving cars.

Estimates range from three years to thirty for how long it will take before self-driving cars dominate the road, he told the Governor’s Transportation Conference yesterday. He would lean toward the thirty-year estimate, he said.

Automated cars are excellent at dealing with routine situations. If the car ahead jams on its brakes, the automated car will respond more quickly than the typical human could. But most traffic fatalities don’t occur in routine situations, Dingus said. They occur in “anomalous,” or unusual, situations for which cars have not been programmed to respond. “You have to solve real-world problems.” And that takes time.

Despite the challenges, Dingus said, connected vehicles — vehicles that communicate data with each other and the road infrastructure — potentially could eliminate 70% of all crashes.

Virginia is in the vanguard of research on vehicle automation and connected vehicles. The Virginia Tech Transportation Institute is recognized as a national leader, having forged partnerships with leading technology and automotive companies, that generates millions of dollars in research contracts annually. The state’s Transportation Research Council, which does work on smart infrastructure, also is highly regarded nationally. Virginia Automated Corridors on Interstate 66 and Interstate 495 provide real-world “test beds” for both connected vehicles and smart infrastructure.

Meanwhile, Virginia Department of Transportation (VDOT) personnel are taking active part in an American Association of State Highway and Transportation Officials (AASHTO) coalition that is studying connected vehicles, and VDOT is the lead funder in a pool-funded research initiative geared to move connected-vehicles from research to pilot projects and testing.

The emphasis on smart technology, said Virginia Highway Commissioner Charlie Kilpatrick is part of a larger shift in thinking at VDOT. For decades the department had a civil engineering mindset that its  jobs was to build bridges and roads. “Our job is not about building bridges and roads,” he said. “It’s about moving people.”

VDOT sees the potential to use technology to improve system performance — reducing accidents, improving safety and increasing reliability, said Dean Gufstafson, state operations engineer. And the department is asking lots of new questions: What will the future of transportation look like? What investments does VDOT have to make? What is the role of government?

Catherine McGhee, VDOT’s safety chief, described how connected vehicles could work with connected infrastructure to make roads safer for public servants who work in and near the roads — construction workers, state police, emergency service personnel. A state trooper can carry a device that alerts cars when he’s on the side of the road so that cars will switch lanes. Similarly, a road worker can wear a vest that informs cars when he steps beyond the traffic cones.

Virginia had 700 traffic fatalities last year, said McGhee. That’s too many. And the new technologies can make a big difference.

Building an “Unmanned” Industry Cluster

Virginia Tech's smart road simulates a wide variety of driving conditions.

Virginia Tech’s smart road simulates a wide variety of driving conditions.

by James A. Bacon

Two decades ago the Virginia Tech Transportation Institute (VTTI) had two sponsors, fifteen employees and a dream of becoming a major player in testing new automotive technologies. Sixteen years ago, it opened a literal road to nowhere — a 2.2-mile “smart road” cutting through the hills of Montgomery County that ended in a dead-end loop.

Today, according to John Ramsey writing in Sunday’s Richmond Times-Dispatch, VTTI has 75 sponsors and 475 employees. The institute has helped attract $300 million in research funding to the state. VTTI is by most measures the largest transportation institute in the country.

The McAuliffe administration is hoping to turn that into a magnet for attracting autonomous-related corporate investment to Virginia. The autonomous vehicle initiative is one of the more sophisticated — and promising — economic-development efforts launched by Virginia in recent years. It encompasses more than smart cars. It includes drones, another up-and-coming industry — earlier this year, the first delivery of a humanitarian package by drone took place in Wise County — and autonomous boats.

“They seem like disparate industries, but when you start to think about sensor technologies, aerodynamics, there’s a lot of overlaps in capabilities that will support a land vehicle as well as an air vehicle or marine,” said Secretary of Technology Karen Jackson.  She says Virginia has the eighth largest concentration of autonomous-related companies in the country, including those that build sensors and analyze data.

Virginia formed an unmanned systems commission this summer with the following goals:

  • Identify the state of all unmanned systems industries in Virginia. This review should look comprehensively at the industry, including the supply chain from pre-competitive research and development through production and operation.
  • Identify challenges and needs of the unmanned system industry that may be met with Virginia assets for each domain of unmanned systems (aerial, land, maritime) including but not limited to workforce, research and engineering expertise, testing facilities, manufacturing facilities, and economic development opportunities within the Commonwealth.
  • Provide recommendations, develop a value proposition for economic-development marketing purposes, and submit periodic reports on its activities and findings.

Virginia can do much without showering subsidies and tax credits on the industry. For instance, the state has designated 70 miles of highways as “Virginia Automated Corridors” where fully automated cars can be tested on public roads. The state has implemented a simpler process for getting vehicles certified and on the road for testing. The Wallops Island spaceport is building a runway for drone testing, while an initiative is underway in Hampton Roads to develop autonomous boats.

Bacon’s bottom line: Google, Tesla and conventional automobile manufacturers are, and will continue to be, dominant players in developing and manufacturing autonomous cars, but there’s no reason that Virginia can’t get a share of the spoils from this emerging industry. The technology is new and in flux. The sector is big and sprawling, and hasn’t established a geographically centered clustered yet.

From a 10,000-foot perspective, Virginia seems to be going about this the right way, combining Virginia Tech’s R&D strengths with targeted economic-development marketing and the Virginia Department of Transportation’s (VDOT) opening up of state roads for real-world testing.

The only piece not mentioned in Ramsey’s story is evidence of any study of the state’s liability laws. If anything holds back the development of autonomous vehicles in Virginia, and other states, it will be a hostile tort climate. Given the fact that 90% of all traffic accidents occur as the result of human error, autonomous vehicles will likely make the roads far safer. But if accidents occur involving autonomous vehicles, as inevitably they will, it will be virtually impossible in some instances to disprove plaintiff claims that the fault resided somewhere in the millions of line of code. (See the “Demon in the Machine.”) Sorting out liability issues in a way that both promotes the public welfare and compensates accident victims from genuine wrongs would give Virginia a huge competitive advantage.

One thing Virginia is indisputably good at is producing lawyers. We ought to bring our best legal minds together — I nominate Chris Spencer, one of the top automobile liability attorneys in the country — to craft model tort legislation. If we can add that to our list of assets, we truly can make Virginia a national leader in unmanned vehicles.

Incubating Big Ideas

Wei Zhang in his lab.

Wei Zhang in his lab.

by James A. Bacon

Wei Zhang, a research scientist at the Virginia Commonwealth University School of Engineering, concluded that the polymer coatings he was studying had commercial potential. The chemical, when applied to power lines, aircraft wings or wind-turbine blades, would prevent ice from building up. By affecting the surface bonding at a molecular level, the coating would release the ice before it became too heavy.

The science was promising enough that he won a $150,000 Small Business Innovation Research (SBIR) grant to develop it further. He needed a business incubator with low overhead and business support that would allow him to pursue the technology. Fortunately, he found a suitable location — the Dominion Resources Innovation Center. The incubator, founded in a partnership between Dominion Resources, Hanover County and the Town of Ashland, specializes in the technology and energy sectors, providing early-stage companies with inexpensive office space, mentoring, guidance and business support.

“Scientists running a company don’t do well by themselves,” said Zhang yesterday at a re-launch of the innovation center at a new location in Ashland. But the board of directors gave him valuable advice, and he got a useful letter of support from Dominion stating that the electric power industry needs his product. Zhang even worked with Town of Ashland staff to develop applications for protecting landscaping from freezing.

The work went so well that Zhang’s company, Polymer Exploration Group (or PEG for short), won a second-phase, $750,000 SBIR grant take the product to the next stage, as well as a National Institutes of Health grant to use the polymer to develop an anti-microbial coating. At present, Zhang can produce only small volumes of the polymer — a half-liter at a time — and a major challenge is to ramp up his production capability. He sees huge markets anywhere ice is the enemy. At the moment, he says, the most immediate market appears to be fishing boats in the North Atlantic and North Pacific.

PEG, which now employs five, including Zhang, is only one of several promising enterprises to emerge from the incubator, which initially was housed in an old warehouse. The new facility, shared with town public works employees, is located in downtown Ashland in the old volunteer fire department building. The incubator provides nine single-room offices, including three wet labs. The mentoring and support is just as important as the space, if not more. The hands-on board provides a network of contacts and relationships that someone like Zhang, a Chinese national who has lived in Richmond since 2000, would find incredibly time consuming to replicate.

Mary Doswell, Dominion’s senior vice president for alternate energy solutions, said the company committed to support the incubator in 2009 to “send a signal to the community about our interest in innovation.” Now, she said, the incubator is being integrated with Virginia Commonwealth University, the Virginia Biotechnology Research Park and the Innovation Council to create “a regional innovation ecosystem.”

Although Dominion does not insist that tenants work on technologies that interest the power company, things have worked out that way. Dominion could be a customer eventually for Zhang’s ice-shedding polymer, and it could be a partner of Analytics Corp., to commercialize what founder Weston Johnson calls a high-efficiency, high-torque motor that operates at low speeds. That particular cluster of attributes, says Johnson, has applications ranging from industrial fans to wind turbines.

Johnson, who earned a Ph.D. in electrical engineering from the University of Kentucky, launched an earlier business — a hand-held spectrometer to be used by law enforcement — that didn’t turn out so well. But the experience taught him a lot and prompted him to move back to Richmond, where he started work on an idea he had developed in his Ph.D. dissertation. Johnson’s insight is that new materials invested by the semiconductor industry for use in microelectronic circuits make it possible to run motors with electric fields rather than magnetic fields. The process eliminates parts and drives down costs. He claims that the technology, if perfected, could drive down the installation cost of a wind turbine by 40%.

Johnson launched his business with $200,000 raised from family and friends. Locating in the Innovation Center was critical to his success, says Johnson. “The Center provided skill sets that I didn’t have to hire.” Zhang, he says, was an especially valuable sounding board. He has nearly completed his prototype, which he hopes will provide proof of concept ideas and win him another round of investment that will let him build a field-demonstration model.

Only a handful of enterprises emerging from incubators ever create enduring businesses. Zhang and Johnson, both of whom have acquired their own facilities, still have many obstacles to surmount before creating sustainable business models. Whatever their prospects, there is no denying that the Dominion Innovation Center succeeds in incubating big ideas.

Spilt Milk

spilt_milkJust a reminder, sometimes “settled science” isn’t so settled. Headline from today’s Washington Post: “Is Whole Milk Good for Us After All?”


When Dynamic Pricing Meets Energy Storage


Will Gathright

Other states are targeting energy storage as an industry of the future but Virginia may have the most hospitable climate for it.

by James A. Bacon

Will Gathright was living in New York, where he had earned a Ph.D. from Renssalaer Polytechnic Institute, when he got fired up with the idea to use storage batteries to help business customers cut their electric bills. The idea was to buy electricity when it is cheap to charge the batteries, then draw down the batteries during periods of peak demand to offset consumption when electricity is expensive. For the business model to work, he needed to find a location where there was a wide differential in the cost of electricity.

Initially, he figured he might wind up in Hawaii, California or New York, states that are putting a high priority on energy storage. But after conducting a national search to see where his value proposition would fare best, Gathright moved to Northern Virginia.

“Virginia has the winning combination of three factors not present elsewhere in the country,” he explains. First, although Virginia’s peak-demand rates aren’t the highest in the country, they are relatively high. Second, while a few states have cheaper base rates, Virginia’s are significantly lower than the national average. The spread between low base rates and high demand charges creates a bigger potential for savings.

A third factor, Gathright says, is that Virginia electric utilities belong to PJM Interconnection, which manages the electric grid and wholesale markets for 60 million people in the Midwest and the Mid-Atlantic region. When his batteries aren’t helping shave a building’s peak demand charge, they can help PJM fine-tune short-term fluctuations in the supply and demand of electricity.

Welcome to the new world of electric load management. Power companies around the country are experimenting with novel rate structures that encourage customers to curtail their electricity consumption during periods of peak demand — typically summer afternoons when air conditioners are running flat-out. One of the most promising strategies for shifting electricity demand is energy storage, usually using batteries, and other states are targeting the sector as a strategic priority. California is requiring its utilities to purchase 1,325 megawatts of energy storage by 2020 and the state of New York state has invested $1.4 million in six battery and energy storage start-ups.

Gathright thinks Virginia may be the most promising location in the country to implement energy storage — not that the idea has gotten much attention here. What Virginia has done is experiment with dynamic pricing: using the price mechanism to encourage customers to shift electric consumption away from periods of peak demand when it is most costly to supply.

The results of Dominion Virginia Power’s dynamic pricing pilot program have been modest so far — positive enough to encourage Dominion to continue the project but not dramatic enough to persuade the company that a revolution in electric consumption is in the offing. But the outlook could change if entrepreneurs like Gathright figure out how to help customers capture the savings that the dynamic-pricing rate structures make possible.

With the encouragement of the State Corporation Commission, Dominion rolled out its dynamic pricing program in 2011, branding it as the Smart Pricing Plan. “The basic premise,” explains SCC spokesman Ken Schrad, “is that if customers are willing to modify behavior and use less electricity during high price periods, they will have the opportunity to save money, and the company in turn will be able to reduce the amount of energy it would otherwise have to generate or purchase during peak periods.”

The pilot was limited to 2,000 customers under a residential tariff and 1,000 small and midsized commercial customers under two commercial tariffs. Participation required having Advanced Metering Infrastructure (AMI) or Interval Data Recorder (IDR) meters that record energy usage every 30 minutes, thus allowing Dominion to measure consumption with greater precision.

Dominion provides customers at least 280 days a year with low-priced electric rates (“C” days), up to 30 days with high rates (“A” days), and the balance with medium rates (“B” days). Dominion communicates the classification to customers the day before to allow them to plan accordingly. Additionally, the company designates up to 25 five-hour blocks, or critical peak events, per year to commercial customers with two-hour notice. The rate differential for the critical peak hours could be literally dozens of times higher than the lowest rates.

For most customers, the jet savings have been minimal. Between October 2013 and October 2014, residential customers saved an average of $48 annually (3% of their electric bills), small commercial customers saved $92 annually (3%). However, larger customers saved $5,900 annually (14%), according to Dominion’s 2015 annual report on the program filed with the SCC. Continue reading

Building the Ed-Tech Research Network


by James A. Bacon

K-12 schools and higher ed institutions across the United States are expected to spend a combined $11.3 billion on education technology in 2015. So many new products are flooding the educational marketplace that educators are finding it difficult to make informed decisions about which to use. To address this challenge, the Jefferson Education Accelerator (JEA) is partnering with American Institutes for Research (AIR) to expand JEA’s network of experts and researchers.

JEA, an initiative of the University of Virginia’s Curry School of Education, launched in February as an educational accelerator/incubator. Its big value-add is a nationwide network of K-12 schools and colleges that provide efficacy studies of new products and services. Washington, D.C.-based AIR uses social science research to gain insights into education, health and the workforce. Among the issues it has addressed recently: what and how summer schoolers learn, school discipline reform, and early childhood education quality ratings.

“AIR brings a breadth and depth of experience in research, evaluation, and technical assistance that we believe will complement the Curry School expertise and support the objectives of JEA,” said Bart Epstein, founding CEO of the accelerator.

Last month Reston-based Echo 360, developer of a learning platform, joined as JEA’s first customer. For an undisclosed sum, JEA will help the Steve Case-funded technology company conduct research and scale its operations.  “Our review of its internal data shows strong evidence of significant impact on student engagement and outcomes,” Epstein said in a press release.

“We know that traditional lectures present a significant challenge for institutions grappling with completion rates and student engagement. Echo360 already shows strong evidence of supporting faculty and engaging students,” said Robert Pianta, dean of the Curry School. “At UVA, we’re excited to further explore how technology like theirs can help faculty and institutional leaders improve actual student success.”

Bacon’s bottom line: U.S. K-12 education is in a rut. It costs too much and it has failed to move the needle on educational outcomes. Applying technology to revolutionize teaching methods is, in theory, one way to jump-start the industry. But technology is not a magic wand; the effectiveness of the new technology tools is notoriously difficult to evaluate. Implemented carelessly, technology initiatives can squander a lot of money.  Field-testing the tools in real-world conditions and evaluating them with scientifically valid methods should help take the politics and the anecdotal out of decisions on which technologies to deploy.

Energy’s Innovation Race

Rendering of a GE combined-cycle natural gas-burning plant.

Rendering of a GE combined-cycle natural gas-burning plant.

Foes of fossil fuels are wondering if natural gas production in the United States is peaking. While some observers depict the supply  of natural gas as lasting decades, maybe a hundred years, others see signs that gas wells in the Marcellus shale formation are playing out more rapidly than anticipated. As supply becomes constricted, prices will rise, punishing electricity consumers who in Virginia will relying increasingly upon natural gas for electric generation. To protect against inevitably rising gas prices, the argument goes, states should mandate the use of renewable energy sources such as solar and wind power.

Environmentalists aren’t the only ones making the argument that gas production in the Marcellus formation has peaked. Oil and Gas Investments Bulletin Publisher Keith Schaeffer, among others, makes the same case.

But that sentiment is far from universal. “The U.S. may have far more natural gas than anyone imagined, all reachable at a profit even with today’s bargain-basement prices,” states the lead of a Wall Street Journal article today. The article quotes Mark Papa, a partner of Riverstone Holdings LLC, an energy-oriented private equity investor, as saying, “There’s a large likelihood that the United States will be enjoying very low gas prices for a very long time, maybe 20 years.”

Fossil fuel producers are showing remarkable resilience in the face of incredibly low fuel prices. They are embracing new technology, pioneering new drilling methods and figuring out how to slash production costs. Meanwhile, designers of power plants that burn natural gas are developing combustion systems that can extract 50% more energy from a BTU of gas than the previous generation. Traditional gas turbines convert 32% to 38% of the heat content from gas into electricity. The latest gas turbines incorporating advances in materials and aerodynamics and running in combined cycle mode can operate at 60% efficiency under optimal conditions.

The competition between different types of energy source is good news for consumers. The price of solar power and wind power continue to drop as R&D efforts yield technology breakthroughs, as supply chains mature, and as the solar and wind industries move up the learning curve. If the gas production/ generation industry had remained static, solar and wind might well be broadly competitive today. But the gas industry continues to innovate as well. Wind and solar (and coal, too) are chasing a moving target.

There is something to be said for hedging Virginia’s bets by encouraging the diversification of energy sources used in generating electric power, as there is for investing in energy efficiency, another field rife with innovation. But there’s also something to be said for committing to the lowest cost energy source, especially if, like natural gas, it is clean burning and emits significantly less CO2 than coal. Rather than approach energy policy with preconceived ideas that one energy strategy or the other is “the best,” Virginia should aim for an energy strategy that is flexible, adaptable and capable of exploiting opportunities created by an innovative energy economy.


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.