Pipelines and Property Lines

Pipelines and Property Lines

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.

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Salvaging Wind Power in Virginia

Salvaging Wind Power in Virginia

Dominion thinks $400 million is too much to pay for two experimental offshore wind turbines. The utility is exploring ways to drive the cost down.

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Cutting CO2 One Refrigerator at a Time

Cutting CO2 One Refrigerator at a Time

Energy efficiency is everybody's favorite strategy for reducing carbon-dioxide emissions. But conservation programs are not always economical.

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Shining Sunlight on the Accomack Solar Project

Shining Sunlight on the Accomack Solar Project

Amazon's giant solar power plant will lighten the environmental footprint of the company's growing cluster of Northern Virginia data centers. It won't do much to lighten the tax burden of Accomack County.

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Grid Pro Quo

Grid Pro Quo

The EPA wants to restructure Virginia’s electric grid. Skeptics argue that slashing CO2 emissions will drive electric bills higher. Environmentalists disagree. Who’s right?

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Note to Subscribers….

Subscribers to the Bacon’s Rebellion email alert received notification of a newly published article about legal issues surrounding the Atlantic Coast Pipeline. That story was incomplete. I published it by clicking on the wrong button in WordPress, and I deleted it from the blog as soon as I recognized the mistake. My apologies for the confusion.

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.

Salvaging Wind Power in Virginia

One of these bad boys costs $100,000 to $200,000 per day, and it has to come all the way for Europe -- a big expense for just two experimental turbines.

One of these bad boys costs $100,000 to $200,000 per day, and it has to come all the way from Europe — a big expense for just two experimental turbines.

Dominion thinks $400 million is too much to pay for two experimental offshore wind turbines. The utility is exploring ways to drive the cost down.

by James A. Bacon

When Dominion issued a request for bids this spring to erect experimental wind turbines off Virginia Beach, senior executives knew the project would be expensive. Offshore wind farms are built most economically on a scale of dozens or hundreds of turbines. But this project would have only two, and both would incorporate untested technologies. Moreover, there was no supporting maritime infrastructure on the East Coast of the United States. Key components and construction vessels would have to be imported from Europe.

Internal estimates put the cost around $230 million. The cost per kilowatt of power generated would be so expensive that Dominion executives expected the project to be a tough sell to the State Corporation Commission. But they figured they could make the case that the company would learn enough from the turbines that it could bring down costs for large-scale wind development — some 300 turbines — down the road.

So it was an unpleasant surprise when only two companies bid to build the project, and only one of them in full compliance with the contract specifications. And it was even more discouraging when the sole compliant bid came in at more than $375 million.

“We thought we’d have a challenging [approval] process at $230 million,” said Thomas Wohlfarth, vice president for regulatory affairs at a stakeholders meeting Friday to discuss the future of offshore wind in Virginia. “When the cost went to $375 million, we went, “Whoah!’ We like to show a positive net present value to customers. This would be very challenging.”

Until that point Dominion had moved steadily, if ploddingly, ahead with plans to exploit Virginia’s offshore wind resources as a source of renewable carbon-free energy. The company had conducted a cost-reduction study in 2011, completed two internal transmission studies — finding that it could bring in up to 45 megawatts of offshore electricity to its Virginia Beach power grid without significant cost — spent $1.6 million in a blind auction to acquire offshore wind rights, and successfully solicited Department of Energy grants to help underwrite preliminary engineering and design on the two experimental turbines.

The disappointing $375 million bid threw a monkey wrench into Dominion’s rotor. Putting wind development on hold, the company convened in Richmond a gathering of dozens of stakeholders — from business vendors and partners to government officials and environmentalists — to deconstruct what went wrong and to plot a more cost-effective path to full-scale development.

“Dominion really wants to see his project move forward ,” said Mary Doswell,  senior vice president of energy solutions, told the stakeholders. “We need to push our way through, and we need your help to do that.” While she did not say development of the larger offshore wind project would be stymied if the experimental turbines weren’t built, she didn’t deny it either.  It’s not something she had thought about, she responded to a question. “We’ve been so laser-focused on this project that we haven’t considered what might happen.”

The experimental turbines would incorporate state-of-the-art technologies, never tested before anywhere else, that would affect the cost efficiency of a subsequent, large-scale wind development off the Virginia coast. The most feature important would be a hurricane-resilient design affecting the interaction of rotors and blades in high winds. While wind turbines operate in harsh weather conditions in the North Sea, where winds have been known to reach 90 miles per hour, turbines off the Atlantic Coast would be at risk of exposure to Category 3 hurricanes which generate wind speeds of up to 129 miles per hour. “It’s a very robust design,” said Mark Mitchell, the project construction manager.

The experimental turbines also would incorporate a new Alstom design for the drive train, and a twisted jacket foundation for the turbine. The turbines would be placed in a configuration that would enable Dominion to measure what kind of wind wake one turbine creates for another another — critical for determining layout in a wind field of 300 turbines. Additionally, Dominion would test remote monitoring technologies that would allow for predictive maintenance, such as replacing fatigued parts before they wore out.

Dominion expects to learn much else that would help it advance the 300-turbine project. For example, what are the seabed conditions? “You can’t just run a cable out there,” Mitchell explained. Hampton Roads is a major naval base. Is there unexploded ordinance on the sea floor? How hard is the seabed? What are the sand migration patterns? Ideally, the cable is buried a couple of meters underground. Dominion doesn’t want the sand to drift away and leave it uncovered. In a related matter, Dominion needs to know how deep to drive the steel piles underground to provide the needed stability for the turbine. More steel translates directly into higher costs.

Most of the feedback came from Dominion’s contractors and suppliers who helped put the bid together. Several main themes arose from the conversation. Continue reading

Higher Ed as Engine of Social Injustice

tuition_hikesby James A. Bacon

College tuitions have soared over the past several decades, and so have federal grants and subsidized student loans. Many observers of the higher ed scene believe that easy credit has been a driving force behind the tuition hikes: The more Uncle Sam subsidizes student participation in higher education, the greater the pricing power exerted by colleges and universities. But correlation does not necessarily equal causality. Proof that escalating college loans enables tuition hikes has been hard to come by.

Three economists working for the Federal Reserve Bank of New York think they have found the proof. In a new paper, “Credit Supply and the Rise in College Tuition,” the authors note that federal loan programs have accounted for 90% of all student loan originations since the 2009-2010 school year, and 75% to 80% in the preceding years. Drawing from three separate Department of Education data sets, they show how closely tuition increases track changes in federal lending policy.

When we control for all forms of aid, we find that each additional Pell Grant dollar to an institution leads to a roughly 55 cent increase in sticker price tuition. For subsidized loans, we find a somewhat larger passthrough effect of about 70%. We also find a loading of tuition on unsubsidized loans of 30 percent. All of these effects are highly significant.

Note: To the best of my knowledge, the Federal Reserve Board of New York is not funded by the Koch Brothers or affiliated with the Tea Party.

Bacon’s bottom line: While increased federal support has made it somewhat easier for students to finance their college educations through borrowing, the higher ed establishment captures the majority of the funds. Little of the money has gone to hire more professors, increase faculty pay or otherwise improve the quality of education. Most of it has paid for bloated administrations. Meanwhile, outstanding student-loan debt has skyrocketed to more than a trillion dollars, creating a new class of indentured servants.

This is the hardest evidence yet that one of America’s most ideologically liberal institutional complexes, higher education, is also one of the most exploitative. Colleges and universities talk a good game about social justice, but in the end, they put their institutional prerogatives first.  In the end, higher education has become a powerful engine of social injustice.

(Hat tip: Tim Wise)

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.

Why Can’t Dominion Do Big Wind Projects?

A wind farm in Texas

A wind farm in Texas

 By Peter Galuszka

Down in the swamplands and farmlands of northeastern North Carolina, construction has begun on a huge new wind farm that will be the largest so far in the southeastern U.S.

Iberdrola Renewables LLC, a Spanish firm, has begun construction on the long-awaited $600 million project with financial help from Amazon, which also plans a solar farm on Virginia’s Eastern Shore. The Tar Heel project will stretch on 22,000 acres and could generate about 204 megawatts of power.

The curious part of this is that the farm is only about 12 miles of the Virginia line northwest of Elizabeth City, N.C.

That’s not far at all from the Old Dominion. But Dominion Resources, Virginia’s leading utility, has been sluggish in pushing ahead with wind, citing concerns about cost. It pulled the plug on an offshore pilot project involving only two wind turbines that would have a relatively tiny power output off of Virginia Beach.

So why were renewable energy firm executives and public officials celebrating yesterday in North Carolina and not Virginia?

That’s an easy one. North Carolina has a renewable portfolio standard that requires utilities to produce at least 12.5 percent of their power from renewables. Virginia has a similar plan, but being a “pro-business” state, Virginia has made it voluntary. So, Dominion doesn’t really have to do anything at the moment to push to wind, solar or other renewable.

It might have more incentive to do so when the U.S. Environmental Protection Agency finalizes rules on its Clean Power Plan later this year, but no one really knows what the final form will be.

Nonetheless, Dominion has marshaled its money and its lobbyists to change how regulators over see it in this regard. The General Assembly, some of whose members get huge contributions from Dominion, hurriedly passed a bill this session changing the rules in ways that Dominion wants.

To be sure, Dominion has some wind farms in other states. But here in Virginia, it is pitching the old saw that wind power is too expensive and unreliable and so on.

It may have been at one time. When Iberdrola pitched the plan to put 102 wind turbines on 22,000 acres in N .C., the common wisdom was that the southeast just doesn’t have the natural wind power. The winds are too light, usually.

But this changed when new technology allowed wind turbines to go from about 260 feet into the air to more than 460 feet or almost as much as the Washington Monument. Once that happened, the Carolina wind farm became a go. Of course, critics say that wind turbines have negatives such as their capacity to slice apart birds and be an eyesore.

What’s better for humanity, however? Coal or even natural gas plants or ones that have no pollution, especially carbon, footprint?

Another interesting aspect of this story is how Amazon is getting involved. The retailing giant is becoming an electric renewable utility in its own right. It wants to have renewable power run the massive servers that it relies upon to do business. But instead of screwing around with hidebound, traditional utilities like Dominion that are often reluctant to warmly embrace renewable energy, Amazon is doing it itself.

Amazon is also putting in a 170 megawatt solar farm in Virginia’s Accomack County which has terrain similar that of Perquimans and Pasquotank Counties in North Carolina that will host the wind farm.

To be fair to Dominion, the utility has a legal responsibility to supply its customers with electricity on a 24/7 basis. It needs a diverse energy mix to be able to do that.

But one wonders why Dominion keeps pushing this bugaboo about wind. Its sister utilities have raised the same cry. That could be why wind represents only 5 per cent of the electrical mix in the U.S., even though there are wind farms in 36 states.

It’s different in other countries. Denmark gets 28 percent of its power from wind. Spain, Portugal and Ireland each get 16 percent from wind.

Isn’t it time for Dominion to get off the dime and do more with wind, rather than using its deep pockets to get paid-for Virginia politicians to do its bidding and change regulatory rules at its whim?

Big City Advantage in Innovation Not What It Used to Be

agglomeration

Image credit: “Cities and Ideas,” National Bureau of Economic Research.

by James A. Bacon

Maybe the Internet is allowing innovation and creativity to break free from the confines of geography after all. Economists conventionally argue that large metropolitan areas are better incubators of inventions and innovations than smaller cities and rural areas. However, a new study, “Cities and Ideas,” by Mikko Packalen and Jay Bhattacharya, finds that the relationship between city size and inventiveness is not as strong as it once was.

I partially jest when I refer to the impact of the Internet. In the 1990s, starry-eyed dreamers theorized that the Internet would enable people to plug into global commerce from a mountain cabin or small town coffee shop. As rural America continues to empty out and population migrates to the bigger cities, that promise now seems a cruel joke. But something is changing. As Packalen and Bhattacharya demonstrate, big cities are far less dominant than they were a century ago. Furthermore, the geographic de-concentration of invention long preceded the rise of the Internet. Other trends — the proliferation of telephones, the spread of roads and the automobile, the rise of land-grant universities in out-of-the-way places — may have played equally critical roles in diffusing the capacity for invention.

Scholars first theorized about the correlation between city size and innovation, which they called an “agglomeration effect” in the 1920s. There was a solid basis for the theory then — large cities were the dominant incubators of innovation; rural areas were backwaters. But even as agglomeration-effect theory became more deeply rooted among scholars studying urban geography, the reality upon which the theory was based was steadily eroding.

To measure invention, Packalen and Bhattacharya built a database of U.S. patents between 1836 and 2010, identifying the inputs for each patent from previous patents, how old those inputs were, and where the inventions took place. The study gives great weight to the age of the patents, distinguishing between patented inventions that draw upon new ideas and inventions that draw upon older ideas. The authors explain:

If we find that inventors in large cities build on fresh ideas more often than inventors in smaller  cities, the evidence would quantify a specific benefit to locating inventive ideas in large cities. On the other hand, if we find that inventors in large cities are no more likely to try out new ideas in their work than inventors in smaller cities, the evidence would suggest that location may be largely irrelevant for inventive performance.

The dominant theory in academia today is that size and density matter. The bigger and denser a metropolitan region, the greater the number of people who can interact on a face-to-face basis. Proximity to other people allows innovators to conceive, discuss and test new ideas, and commercialize them in the marketplace. As can be seen in the chart above, which compares idea inputs of patents between cities in the 95th and 50th percentiles (large versus midsized cities) that was certainly true a century ago. But the dominance of big cities has declined, despite a few ups and downs, since then. Today, adjusted for the margin of error, there is very little difference at all.

Bacon’s bottom line: I am not equipped to dissect the statistical methodology employed to reach these conclusions, although I do have a couple of questions. Why the focus on the newness of the ideas behind the patents? Are patents based on newer ideas necessarily more consequential than those based on older inputs? Why not measure the frequency of patents? Surely the number of patents, adjusted for population size, is also an important indicator — perhaps the most important indicator — of inventiveness.

Those questions aside, “Cities and Ideas” would seem to provide hope for America’s small towns and rural regions. In this blog, I have frequently written about the tremendous disadvantages facing smaller communities when competing with big cities for human capital and corporate investment. The odds seem hopelessly stacked against the little guys. But if it turns out that it’s just as easy to keep up with the latest technology in Small Town USA as it is in Big City USA, a lot of people — and that includes me — may have to adjust their thinking.

Cutting CO2 One Refrigerator at a Time

old_refrigerator

Energy efficiency is everybody’s favorite strategy for reducing carbon-dioxide emissions. But conservation programs are not always economical.

by James A. Bacon

Earlier this month Dominion Virginia Power launched an initiative to encourage residential customers  to turn in old refrigerators kept in the garage. If you have a clunker that is at least 10 years old and has a capacity of at least 10 cubic feet, Dominion will pick up the appliance, recycle it and pay you $50 in the bargain. By  swapping an old fridge for a new energy-efficient model, you could shave up to $100 per year off your electric bill.

Sounds so simple. But there is more to this story than meets the eye, and it provides a glimpse into an under-appreciated question — the extent to which energy efficiency can substitute for new electric power plants in achieving Virginia’s CO2 reduction targets under the Environmental Protection Agency’s Clean Power Plan.

In its 2015 Integrated Resource Plan, Dominion predicated its options for investing in electricity generation and distribution upon the assumption that it will be able to achieve more than 3,000 Gigawatt hours of energy savings through Demand Side Management (DSM) programs by 2030. That savings will eliminate the need to build 611 Megawatts of generating capacity, equivalent to about 3.4% of the power company’s current generating capacity of 17,500 megawatts.

But some environmental groups contend that Dominion should invest more aggressively in energy efficiency to achieve the draft targets set by the Clean Power Plan. “Virginia has a large amount of untapped potential when it comes to energy efficiency,” contends the Natural Resources Defense Council in a 2014 issue brief. The state ranks 47th among the 50 states for energy efficiency. “Other states have been able to achieve significantly higher levels of low-cost efficiency, to accrue substantially more customer and energy benefits. Virginia can do the same.”

Power companies and environmentalists can argue back and forth over whose analysis is the most valid but in Virginia, the State Corporation Commission calls the shots. Power companies must make a business case for a particular energy efficiency initiative and persuade the SCC, which gives great weight to the impact of on rate payers, that the cost of implementing the plan is less than the cost of building new electric-generating capacity. In a recent ruling involving the garage-refrigerator program, the SCC took a harder line than either Dominion or the environmentalists.

A seemingly strong case can be made for recycling the old fridges.Refrigerator efficiency has improved dramatically in the past 20 years,” said Ken Barker, vice president of technical solutions at Dominion in a press release announcing the roll-out. “Homeowners oftentimes don’t realize how much their old refrigerators may be impacting their energy bills. We not only want to educate our customers on this lesser-known source of wasted energy, we want to help them do something about it.”

Roughly 60 million refrigerators are at least ten years old nationally, and Energy Star models are more than 15% more efficient than those built in conformance with 2009 regulations. The fact that refrigerators kept in garages are exposed to extreme heat makes energy efficiency an even more important consideration. Swapping an old fridge for a new one could save up to $100 per year.

Most studies of consumer behavior, says Dominion in its 2015 Integrated Resources Plan, indicate that consumers expect payback on their energy-efficient investments within 10 years or less. By handling the pick-up and recycling and paying the $50 incentive, Dominion hopes to improve the payback from making an upgrade.

Last August the company filed a petition with the SCC for approval to implement the garage-refrigerator initiative and two other demand-side management programs. A second was a home-improvement program for the poor and elderly, and a third targeted small businesses. In each case, Dominion sought approval to operate the programs for five years.

The SCC was not entirely cooperative. Ruling in April, the commissioners approved the refrigerator program but for only three years on the grounds that its cost-effectiveness was unproven. They said the program should be evaluated over three years before being extended. The SCC also limited the program budget to 50% of the original proposal, or about $4.8 million. The commissioners followed similar logic for the poor and elderly home-improvement program, limiting it to three years and $15.2 million.

The SCC nixed the small business program entirely, declaring that Dominion had not developed it sufficiently. “The lack of detail regarding important elements of the program,” stated the commissioners, “calls into question the accuracy of the Company’s cost/benefit analyses offered in support.”

“We are particularly sensitive to the impact on the bills of customers not participating in the programs, for whom the program costs represent net increases in their monthly bills,” explained the SCC in its final order. In a separate order on an Appalachian Power Co. request, the SCC elaborated: The conservation program “represents an involuntary wealth transfer (i.e., cross-subsidy) from one set of [the Company’s] customers to another.” Non-participants “will pay higher rates with no equal and offsetting monetary benefit.”

Energy efficiency programs vary widely in cost, just as different forms of electric generation do. According to Dominion’s 2015 IRP, costs range from nearly as low as $16 per megawatt hour for a non-residential energy audit program to $158 per megawatt hour for a residential home energy check-up program — and even more for other programs.

Under Virginia’s regulatory structure, energy efficiency programs have a high hurdle to overcome before the SCC will declare them to be in the “public interest.” Not only are Virginia power companies entitled to recover the cost of administering an energy-efficiency program, they normally are entitled to recover revenue lost from electricity not sold.

That helps explain why the SCC is skeptical that energy efficiency will contribute much toward Virginia’s attainment of the Clean Power Plan. In comments submitted to the EPA last fall, the SCC staff wrote: “The Virginia SCC Staff is unaware of any electric energy efficiency resource deployable in Virginia that both (1) has a cost less than its associated avoided variable operating costs, and (2) is scalable to a level that would meet the Proposed Regulation.”

The refrigerator recycling program is a case in point. The program is expected to save about 2,700 megawatt hours of electricity annually, according to Dominion spokesperson Daisy Pridgen. That’s about 7.4 megawatt hours daily, less than one megawatt per hour — a tiny fraction of the total energy-efficiency savings that Dominion is aiming for, and an even smaller percentage of what environmentalists say is possible. It would take dozens of such programs to avoid the cost of building even a single power plant.

Capitalism Triumphs Again!

RAM clinic, Pikesville Ky., June 2011. Photo by Scott Elmquist

RAM clinic, Pikesville Ky., June 2011.
Photo by Scott Elmquist

By Peter Galuszka

If there were any questions about just how capitalism has failed, one need look no farther than Wise County, where, this week, hundreds, if not thousands, of people will line up for free medical care.

The event is ably noted in The Washington Post this Sunday by a young opinion writer named Matt Skeens who lives in Coeburn in the coalfields of southwestern Virginia.

This week, the Remote Area Medical clinic will come to the Wise County fairgrounds to offer free medical and dental care to anyone who needs it.

You might ask yourself a question: why do so many people in one of the parts of the United States that is fantastically wealthy with natural resources need free medical care? Where is the magic of capitalism so often lauded on this blog?

A few insights from Mr. Skeens:

“Local representatives of Southwest Virginia will travel to the fairgrounds to stand on a coal bucket and assure us they’re fighting against President Obama and the ‘war on coal.’ These politicians won’t mention that with their votes to block Medicaid expansion, they ensured that the lines at RAM won’t be getting any shorter. But hating Obama in these parts is good politickin.”

Skeens runs through a list of mountain folk who can’t afford health care. One is a breast cancer survivor who hasn’t had a screenings in years. His grandfather, a retired electrician and coal miner, had also camped out at RAM clinics to get help.

Odd that this is the way I found neighboring West Virginia when I moved there with my family from suburban Washington, D.C. in 1962. Just as it was then, the riches that should have helped pay for local medical care went out of state. Much of the coal left by railcar or barge. Now, natural gas released by hydraulic fracking will find its way to fast-growing Southeastern cities or perhaps overseas thanks to new proposed pipelines such as a $5 billion project pitched in part by Dominion Resources.

While I have never been to the Wise County RAM clinic, I did happen to drop by one in Pikesville, Ky., a coalfield area that is one is Kentucky’s poorest county. It is not far from Wise. I was busy researching a book on Richmond-based Massey Energy, a renegade coal firm, in June 2011.

Photographer Scott Elmquist and I were on our way from Kentucky to an anti-strip mining rally in West Virginia when we noticed the RAM signs. More than 1,000 people had started lining up at the doors around 1:30 a.m. at the local high school.

It was packed inside. A Louisville dental school had sent more than 50 dental chairs that lined the basketball court. Some of the patients said they were caught in a bind: they had jobs but didn’t have enough health coverage and couldn’t pay for what they needed.

Since then, there’s been some good news. Unlike Virginia, whose legislature has stubbornly refused to expand Medicaid to 400,000 residents who need it (supposedly in a move to tighten federal spending), Kentucky expanded Medicaid last year. Now, 375,000 more people have health insurance.

Not so in Virginia. People continue to suffer while those with comfortable lives laud the miraculous benefits of capitalism.