Tag Archives: James A. Bacon

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

Grid Optimization: More Software, Less Hardware

power_line

by James A. Bacon

Dominion Voltage, Inc., a subsidiary of Dominion Resources, has announced the deployment of its electric grid optimization platform to the Duck River Electric Membership Corporation served by the Tennessee Valley Authority. Duck River expects to generate energy savings of 2% to 4% annually and says the technology will accelerate the deployment of Advanced Metering Infrastructure, which should enable even greater energy conservation.

Dominion Voltage’s EDGE platform “leverages the smart grid network for Volt/VAR optimization and voltage stabilization, which leads to a more efficient grid,” stated Executive Director Todd Headlee in a press release today.

The most concise explanation of “voltage optimization” that I’ve seen comes from Dick Munson, director of the Environmental Defense Fund’s Midwest Clean Energy initiative, writing a week ago for the EDF blog:

Many appliances, including incandescent lighting, work just as effectively, yet consume less energy, when the flow of electricity to them is reduced. Put another way, higher voltages generally make individuals and businesses needlessly use more energy, driving up electricity bills and air pollution. Therefore, if voltage was “right-sized,” residents would get enough power to run their appliances efficiently, but not so much that they use more electricity than needed.

According to Munson, recent study by Commonwealth Edison Company (ConEd)  concluded that voltage optimization could reduce the need for almost 20,000 gigawatt hours of electricity yearly across its system, enough to power 180,000 homes, at the incredibly low cost of 2 cents per kilowatt-hour.

Bacon’s bottom line: Grid optimization technologies are a sub-set of a larger cluster of technologies including microprocessor controls, sensors and software algorithms collectively referred to as “smart grid” technologies that hold out the potential to improve energy efficiency and integrate variable power sources like wind and solar into the grid.

Richmond-based Dominion Resources is investing in some of these technologies through unregulated subsidiaries like Dominion Voltage. That makes an interesting business story. What makes it a Virginia public policy story is whether Dominion is applying these same technologies in its regulated subsidiary, Dominion Virginia Power. If not, why not. What are the hold-ups? Or has the story simply gone unnoticed?

If there’s one thing that rate payers, environmentalists, electric utilities, the Commonwealth of Virginia and just about everyone else should be able to agree upon, it’s that reducing energy consumption at the cost of 2 cents per kilowatt hour is a win-win for everyone. I will pursue this line of questioning as I have time.

The New Wave of Wealth Creation: SNL

Reid Nagle, circa 2007. Photo credit: The Hook.

Reid Nagle, circa 2007. Photo credit: The Hook.

by James A. Bacon

When most Virginians hear the letters “SNL,” they think Saturday Night Live. Perhaps in the future, they’ll think SNL Financial, the Charlottesville-based market research firm just purchased by McGraw Hill Financial for $2.225 billion.

New Mountain Capital, the New York-based private equity firm that purchased 60% of the company in 2011, will grab the lion’s share of that sum. But founder Reid Nagle other senior managers will take much of the rest — about $890 million. That’s a lot of wealth creation for a company that few Virginians had ever heard of.

SNL is a new-era enterprise that deploys Big Data to create massive wealth. The company provides reports on seven key business sectors, drawing upon a global workforce of 3,000 in 23 offices in 10 companies. Four hundred employees are located in the Charlottesville headquarters and another 50 in the Innsbrook Office Park in Richmond. CEO Mike Chinn described SNL’s business model to the Wall Street Journal this way:

We’ve developed a pretty efficient machine for both gathering and selling information. How you collect that information is the same whether it’s a bank branch or a coal mine or a power plant.

Nagle founded the company in 1987 because he couldn’t get a job after working as CFO for the notorious corporate takeover artist Ivan Boesky, who was convicted for insider trading. After two years in New Jersey, Nagle moved the company to Charlottesville, according to a 2007 profile in The Hook. It was not the kind of company that would catch the attention of economic developers. Around that time Nagle nearly ran out of money. “I wasn’t going to make payroll,” he told The Hook. An unsolicited $100,000 infusion saved the day, and he was able to raise another $300,000.

SNL officials told the Daily Progress that revenues had increased every year since its founding in 1987. Launched with a focus on the Savings & Loan industry, the company branched out to other business sectors, aided by acquisitions of boutique research firms. Nagle said in 2011 he would use the cash infusion from New Mountain Capital to continue growth, product development and “provide liquidity to existing shareholders.” It’s not clear from published reports what percentage of the non-New Mountain Capital shares were owned by Nagle, Chinn and other Virginia-based SNL executives, but it was likely a significant number. In 2011 Nagle had described himself as the “second largest shareholder” after New Mountain.

Bacon’s bottom line: Much of Virginia’s wealth creation is invisible to the media and public policy makers. No one would have targeted SNL for corporate recruitment in 1989 when the company was living hand-to-mouth. When asked in 2007 why he located the business in Charlottesville, did Nagle cite Virginia’s, ports, highways, low taxes or business incentives? No. He replied: “Quality of life and access to bright people from PVCC, Eastern Mennonite, UVA, JMU, W&M, Virginia Tech, and other Virginia colleges and universities.”

Remember that: Quality of life and human capital drive SNL-style wealth creation.

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.

Hospital Rankings and Economic Development

VCU Medical Center complex in downtown Richmond, a driver of the regional economy.

VCU Medical Center complex in downtown Richmond.

by James A. Bacon

U.S. News & World-Report has issued its 2015-2016 ranking of the nation’s “best hospitals,” and Virginia has four hospitals with at least one adult specialty receiving a “national” ranking. The online publishing company bills the ranking as a tool to help patients select hospitals that can best treat complex illnesses. But it also prompts questions about the role of hospitals as agents of economic development.

Hospitals are major employers and generators of economic activity in every community they serve. While some hospitals cater to local markets exclusively, some have such a reputation for excellence in certain specialty practices, from cancer to heart disease, that they draw patients from around the state, the nation or even the world. To the extent that a hospital draws patients from elsewhere, it can be said to be “exporting” services and making a contribution to local jobs and economic activity.

Thus, Massachusetts General, rated the best hospital this year, excels in everyone of the 16 specialties covered by U.S. News & World-Report and three pediatric specialties. The hospital employs 2,889 doctors, many of whom are highly compensated specialists, not to mention a host of nurses, technicians, administrators and others. Its reputation as one of the best research hospitals in the world brings in “thousands” of international patients — so many that the hospital maintains a dedicated “international patient center.” No wonder that Mass General is an anchor of the Boston regional economy.

Accepting the proposition that hospitals can be big contributors to regional economies over and above their contribution to public health, how do Virginia’s hospitals shake up? Here’s the score:

Virginia Commonwealth University Medical Center
National ranking in 3 adult specialties, one pediatric specialty
Doctors: 454

Sentara Norfolk General
National ranking in 2 adult specialties
Doctors: 694

Inova Fairfax
National ranking in 1 adult specialty, two pediatric specialties
Doctors: 1,689

University of Virginia Medical Center
National ranking in 1 adult specialty, 4 pediatric specialties
Doctors: 609

Sentara_Norfolk_General

Sentara Norfolk General Hospital

How significant are those rankings? That’s hard to say. There are nearly 5,000 hospitals across the United States. U.S. News & World-Report uses a methodology that combines metrics such as hospital volume and risk-adjusted survival rates for complex cases and supplements them with a physician survey of hospital reputations. To be awarded a “national” ranking, a hospital must score within the top 50. In other words, that puts VCU in the top 1% for three adult specialties and one pediatric specialty. The publication does not publish the numbers behind the scores, so there is no way to tell if VCU’s specialties rank No. 1 in the country or No. 50.

U.S. News and World-Report focuses on 16 adult specialties. With 50 hospitals recognized for each specialty, a total of 800 total hospital specialties are recognized. Only seven of those are located in Virginia. To put that in perspective, Virginia has 2.6% of the nation’s population, 3.3% of its GDP but only 0.9% of its nationally ranked hospital specialties.

These are very rough numbers that are undoubtedly subject to criticism. But they suggest to me that Virginia’s hospitals are an under-performing economic sector. If hospitals achieved a level of excellence commensurate with Virginia’s population and GDP, there would be far more centers of excellence in the state, along with more highly compensated doctors, nurses and technicians employed.

That’s not meant to be a put-down of Virginia’s hospitals. The ability to expertly handle highly complex medical cases does not tell us much about the ability to handle routine cases. It doesn’t tell us how much the hospitals charge for their services or whether they’re providing value for the dollar. It doesn’t mean that Virginia hospitals aren’t serving their community. What the numbers mean is that Virginia is missing out on an economic development opportunity to provide services outside the community.

What U.S. News & World-Report does not tell us, and I don’t know, is what it takes to become a national-class hospital. I suspect that it takes a long time to build a top oncology or heart program, so longevity is probably a requirement. It also helps to live in a community that can afford to pay the high salaries of top medical talent. And it probably helps to have wealthy philanthropists willing to endow new buildings, medical school professorships and R&D. Undoubtedly, there are other factors of which I am unaware. I think it would be interesting to know what the key drivers are, and whether building institutions known for their medical excellence is something that communities can influence through government policy and/or philanthropic endeavors.

Virginians still think of economic development either as big game hunting for corporate investments or venture capital-driven business creation. But economic development comes in many forms, and hospitals are one. It strikes me that this is an area that warrants more attention here in the Old Dominion.

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

The Huntington-Ingalls Model of Higher Ed

apprentice_school2

The Apprentice School in Newport News. Not shabby.

by James A. Bacon

The Apprentice School in Newport News is arguably the most under-rated institution of post-secondary education in Virginia. It lacks some of the attributes that many colleges and universities take for granted — no NCAA-affiliated basketball teams, no frat parties and no dormitory high jinks. But consider this: If you’re lucky enough to attend — with a ratio of 230 spots for 4,000 applicants yearly, the school is more selective than Harvard — you get a free ride, graduate debt-free and are guaranteed employment with a major area company at a starting salary of $54,000 a year. That’s $10,000 more than the average college graduate earns.

The hitch? You don’t earn a Bachelor’s degree. Instead, you master one of 17 skilled trades — pipefitting, welding, electrical work — and you get on-the-job experience at Newport News Shipbuilding helping build atomic-powered submarines and aircraft carriers.

As American industries grapple with a shortage of workers in the skilled trades, sure to grow worse as skilled, blue-collar Baby Boomers retire, and as American students grow increasingly skeptical of the value of over-priced college degrees that no longer offer any surety of employment, institutions like the Apprentice School are looking better and better. As noted in a recent New York Times article profiling the school, political enthusiasm for apprenticeships transcends partisan and ideological lines. Writes the Times:

“We know this works,” said Thomas E. Perez, [the U.S. Secretary of Labor], describing how big companies have long trained young people in Germany, which has 40 apprentices for 1,000 workers, compared to about three per 1,000 in the United States. “It’s not hard to figure out why the Germans have a youth unemployment rate that is half what it is here.”

It’s hard to find anyone who objects to apprenticeships. The problem is that they can’t seem to get traction in the United States. Between 2007 and 2013, the number of active apprentices in the United States fell from about 451,000 to 2888,000, according to Labor Department data. That number increased for the first time since the recession, the Times reports, rising by 27,000.

One problem is that apprenticeships can be expensive to support. At the Apprentice School, the U.S. gold standard, they’re really expensive. The training costs $270,000 per apprentice. That’s beyond the reach of most companies. Another difficulty may be a cultural bias in the U.S. against “blue collar” occupations, which are seen as less prestigious, even though earnings are competitive with many professions requiring a college degree.

The Apprentice School addresses the prestige problem by collaborating with Thomas Nelson Community College and Old Dominion University to provide pathways for students to earn Associates and Bachelor’s degrees. That may help explain why a school that most of us have never heard of is so incredibly popular.

Bacon’s bottom line: Virginia is blessed to have what is arguably the top apprenticeship program in the United States. The school business model may not be readily replicated — not many enterprises have the scale of Newport News Shipbuilding. But the shipbuilding company and its corporate parent, Huntington Ingalls Industries, are public-spirited companies and, I’m confident, would be willing to advise others on what it takes to build a world-class program.

As a matter of public policy, Virginia gives enormous attention to its system of higher education, including a fine system of community colleges. But apprenticeships, as measured by budgetary commitment, fall between the cracks. The Virginia Department of Labor and Industry does support the Virginia Registered Apprenticeship system providing a search of apprenticeship opportunities with 2,000 participating Virginia employer-sponsors. That program supports two “apprenticeship consultants” in the Richmond office. And the state does provide a Virginia’s Worker Retraining Tax Credit. But that seems to be the sum total.

If the state is willing to support college students majoring in English, sociology and history (my degree, and look where it landed me!) to the tune of thousands of dollars per student per year, surely it should be willing to support apprenticeship programs as well.

(Hat tip: Reed Fawell.)

Heh, Heh. Virginia Electricity Less Carbon-Intensive than Its Neighbors’ — without RPS

by James A. Bacon

The Gooze, known in more polite company as Peter G. , is a big fan of solar power and wind power and thinks we ought to have more of both in Virginia. In his most recent post, he seems particularly impressed by the activities of Amazon Web Services, which has announced plans to build the largest solar facility east of the Mississippi in Accomack County and has joined in a large wind project in North Carolina. What Virginia needs to do, he suggests, is enact a mandatory Renewable Portfolio Standard (RPS) requiring Virginia electric utilities, like those in neighboring North Carolina and Maryland, to utilize more renewables such as solar, wind and biomass regardless of how much more expensive they may be than conventional power sources.

It’s helpful to remind ourselves exactly where Virginia stands nationally in the emission of Carbon dioxide (CO2), the gas that is both essential to life and implicated in global warming. The following data comes from “Benchmarking Air Emissions of the Largest 100 Electric Power Producers in the United States,” published by M.J. Bradley Associates, which bills itself as a strategic environmental consulting firm. No, the report was not funded by the Koch Brothers. It was prepared in consultation with Bank of America, several electric utilities and the Natural Resources Defense Council.

The report looks at two broad measures of carbon intensity: Total CO2 emissions for each state, and the CO2 emissions rate — emissions per megawatt hour of electricity generated. First total CO2 emissions:

total_emissions

Texas is by far the biggest CO2 emitter in the country. That reflects the fact that (1) Texas has a large gross domestic product (GDP) and (2) a fossil fuel-heavy electric generation mix. Note that although Virginia has the 11th largest state economy in the country, it ranks 26th by total CO2 emissions. In other words, Virginia is far more CO2-efficient than the national average.

(This measure is, admittedly, a rough one and overlooks important nuances. For example, Virginia has built one of the nation’s largest clusters of data centers, which consume a tremendous amount of electricity but replace electricity that would have been consumed in other states had businesses not outsourced their computing and data storage to the cloud. On the other hand, Virginia is a net importer of electricity from other states, meaning that some of the CO2 emissions attributed to its economy is allocated to other states.)

emission_rateHere are the numbers for the CO2 emissions rate, which reflects fuel mix. Virginia’s fuel mix includes a lot of zero-CO2 nuclear power as well as natural gas, which, though a fossil fuel, releases less CO2 per kilowatt hour than coal or oil. By this measure, Virginia ranks 38th on the list — lower than the two states with renewable portfolio standards that Peter admires so much, Maryland and North Carolina.

Not only does Virginia emit less CO2 per megawatt hour than its two neighbors, its average electricity costs are lower. According to the U.S. Energy Information Administration (not funded by the Koch Brothers, by the way), here’s how electric rates compare based on 2013 data:

Virginia — 9.07 cents per kilowatt hour.

North Carolina — 9.15 cents per kilowatt hour.

Maryland — 11.3 cents per kilowatt hour.

And for purposes of comparison, California, the state that has gone “all in” with renewable energy — 13.5 cents per kilowatt hour.

My point is not that renewable energy is bad. Eventually, the cost of renewables will be competitive with other fuels, and then we should embrace them. My point is that there are trade-offs entailed with imposing renewable energy before it’s ready for prime time. One of those trade-offs is price. Once upon a time, progressives like Peter deemed it outrageous for power utilities to raise their rates on the grounds that a high cost of electricity punished the poor. No longer. Fear of global warming trumps social justice. The irony here is that Virginia’s electric power fleet outperforms North Carolina and Maryland in carbon intensity and price — all without mandated renewables. How about that?

Does Uber Save Lives?

Should have called Uber.

Should have called Uber.

Speaking of safer roads… Consider the impact of Uber on peoples’ driving habits. Richmond Biz Sense reports that more than 1,200 vehicles in the City of Richmond, Chesterfield County and Henrico County have signed up with the Virginia Department of Motor Vehicles to pick up passengers for hire under the Uber banner. That’s more than double the number of traditional taxi vehicles registered to provide service.

Twelve hundred vehicles is a lot of cars, seemingly enough to inundate the Richmond market. But Uber wouldn’t be contracting with all those drivers if there weren’t a demand for the service.

People employ Uber for many reasons, but the one with which I am most acquainted is to avoid drinking and driving. Most people know that driving while intoxicated is an exceedingly bad idea. But if staying alive and not killing others isn’t incentive enough, Henrico County courts are draconian in their punishment of drunk driving.

Many people of my social acquaintance carry breathalyzers with them. If their alcohol levels exceed the legal limit, they call Uber for a ride home. Some friends don’t even bother driving to social functions at all — they call Uber for rides both ways. I don’t know the percentage of Uber riders who are intoxicated, but I’d wager that it’s a high number.

Tough laws, breathalyzers and Uber — it’s a powerful combination. I’m betting that roads in the Richmond region are a lot safer these days.

— JAB

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.