Caution Flag on Amazon Inducements

The Virginia response to the Amazon’s 1/2 HQ2 (half of the originally proposed second headquarters) announcement is not uniformly delirious. Here are a couple of responses landing in my in-box — one from the center-left Commonwealth Institute (CI) and the other from the center-right Mercatus Center that urge caution in approving $1.7 billion in subsidies and inducements.

Writes CI on its Half-Sheet blog:

It’s critical that elected leadership, media, and the rest of us take a careful look at the realistic benefits and drawbacks of the deal, including related public subsidies and the tradeoffs that come with adding thousands – or tens of thousands – of jobs. And regular folks deserve to know what’s in the deal when their public land or public tax dollars are on offer to private corporations. …

With the megadeal promising to add thousands, and eventually tens of thousands, of high wage jobs, it is likely to further exacerbate the housing shortages in the region. … Early details do not appear to show any required direct support by Amazon in the provision of affordable housing, instead relying on local governments to make some investments, although the projected additional housing units fall far short of the projected shortfall for the region. …

The new development will bring new long-term costs – more need for fire protection, more children needing a high-quality education, and more need for public roads and transportation. Avoiding deals that cost more than they will raise over the long term is critically important to make sure ordinary residents aren’t paying the price for subsidies to megacorporations.

Meanwhile, Mercatus questions whether Amazon really needed the inducements to reach its decision to locate in the Washington metropolitan area. A NoVa location, I might elaborate, provides access to one of the nation’s largest high-tech labor pools and to the federal government, which is an increasingly important customer for its cloud services enterprise. Writes Mercatus:

We find it implausible that Amazon’s corporate leaders didn’t already have a good idea of where they would locate HQ2 even before launching the competition between cities.  The research on corporate location decisions finds that subsidies rarely affect the final decision, lending weight to our skepticism. It also suggests that any relocation subsidies would simply be extra icing on the cake that Amazon had already picked.

The general conclusion of academic research suggests that targeted economic development subsidies don’t lead to broad-based economic growth or improvements in community welfare when measured against comparison cities. Why? First, when government officials grant targeted tax cuts, they distort the market-determined prices that lead to the most efficient use of resources. Second, nearly every kind of tax causes additional price distortions and corresponding “deadweight loss”—a pure loss of economic value. This means that keeping taxes high for some businesses to give a subsidy to favored corporation causes further harm to economic efficiency—a better approach for economic growth would be a broad-based tax cut.

I have raised many of these points on this blog — good to hear that other people share the concerns. Amazon is a once-in-a-generation economic opportunity for Virginia. There are many reasons to welcome the deal. But CI and Mercatus both raise legitimate issues. When more than $1.7 billion in public subsidies are at stake, Virginia needs to give the deal a thorough airing. I would agree with CI’s admonition:

Community members, press, and elected officials should be provided time to absorb these details – and receive more details if some needed information is not available – before Virginia or its localities commit public dollars to a deal.

Meanwhile, up in New York… From CNBC:

Democrats from New York’s Queens borough slammed Amazon’s plan for offices in the area, setting up a potential political fight with one of the world’s most powerful companies. The criticism came even as Virginia lawmakers largely welcomed the e-commerce company’s decision to open up another facility outside Washington, D.C.

Amazon couldn’t see that coming?

Nailed It (with the Help of $1.7 Billion in Incentives)!

The suspense is over. Amazon, Inc., has officially announced that it will invest $2.5 billion to establish a new headquarters in Northern Virginia. The facility will be located in the Pentagon City and Crystal City area of Arlington County and the Potomac Yard in the City of Alexandria. In addition to the 22,000 jobs created directly by Amazon, the project is expected to generate an additional 22,000 direct and indirect jobs in Virginia.

“This is a big win for Virginia—I’m proud Amazon recognizes the tremendous assets the Commonwealth has to offer and plans to deepen its roots here,” said Governor Ralph Northam in a press release today. “Virginia put together a proposal for Amazon that we believe represents a new model of economic development for the 21st century, and I’m excited to say that our innovative approach was successful.”

Virginia offered a substantial incentive package to induce the commitment from the online-retailing and cloud-services giant, which received 238 proposals from across North America. Originally, the company said it would invest $5 billion in a single second headquarters, but in the end decided to split the project between Northern Virginia and Long Island.

Said Northam: “The majority of Virginia’s partnership proposal consists of investments in our education and transportation infrastructure that will bolster the features that make Virginia so attractive: a strong and talented workforce, a stable and competitive business climate, and a world-class higher education system.”

“Virginia’s biggest employment growth opportunity in the years ahead will be in tech—from artificial intelligence to cloud computing to cybersecurity, and everything in between,” said Stephen Moret, CEO of the Virginia Economic Development Partnership, which led the recruiting effort. “The tech-talent pipeline investments that Governor Northam and the General Assembly are launching will position communities across the Commonwealth for healthier, more diversified economic growth.”

As part of the Commonwealth’s long-term incentive agreement with Amazon for the creation of at least 25,000 jobs, Virginia will:

  • Provide post-performance incentives to Amazon that will be paid annually based on job creation and wage levels, with minimum average wages of at least $150,000. Subject to General Assembly approval, the company will be eligible to receive up to $22,000 per job or up to $550 million in incentives. Additional incentives would be available if Amazon creates more than 25,000 jobs; and
  • Invest up to $195 million of non-general fund money in transportation projects that will improve mobility in the region, including additional entrances to the Metro stations at Crystal City and Potomac Yard, improvements to Route 1, a connector bridge from Crystal City to Washington National Airport, and a transitway expansion supporting Pentagon City, Crystal City, and Potomac Yard. Additional funding would be available if Amazon creates more than 25,000 jobs.
  • In addition, Arlington County and Alexandria will fund another $570 million for transportation projects, including including rail connections, transit facilities, multi-modal streets, and corridor connectivity serving the site.

To support the growth of the technology sector across the Commonwealth, Virginia will:

  • Make performance-based investments in bachelor’s degree programs in computer science and related fields that will be distributed statewide based upon a negotiated agreement with each public university or community college that wishes to participate;
  • Make performance-based investments of up to $375 million over 20 years for new master’s degree programs in computer science and related fields at George Mason’s Arlington campus and for Virginia Tech to establish a new Innovation Campus in Alexandria, both of which are subject to a one-to-one match from the universities with philanthropic funds; and
  • Invest $50 million over 20 years in K-12 tech education and internship programming to connect higher ed students to tech jobs.

Bacon’s bottom line: The announcement is exciting news for Virginia and should prove transformative to Northern Virginia’s economy. If inducements must be made, I would much rather see them in the form of infrastructure improvements, K-12 and higher-ed investments than in payments to Amazon.

As Reed Fawell has opined elsewhere on this blog, a corporate and public investment investment of this magnitude represents a once-in-a-lifetime opportunity to create a functional transportation system in Northern Virginia’s urban core. Will the transportation investments serve the region or just Amazon? The devil is in the details, but the potential benefits are enormous.

The one provision that triggers my gag reflex is the $550 million — up to $22,000 per job created — paid directly to Amazon. Where will those employees come from? How many will be recruited away from other Northern Virginia companies, accentuating shortages of critical skills in a tight labor market and reducing their competitiveness? While many will welcome the coming of Amazon, I would expect others to resent the hefty subsidy. I will be interested in hearing the justification for this particular element of the deal.

Virginia’s Diabetes Problem

Source: Gallup-Sharecare Well-Being Index

Health may be correlated with income and Virginia may have the ninth-highest average household income among the 50 states, but the Old Dominion ranks 23rd in the nation for the incidence of diabetes, according to a Gallup-Sharecare report based on 2017 data. The incidence of diabetes has increased from 10.6% of the population to 11.1% since 2008-09. Meanwhile, in a parallel development, the incidence of obesity has risen from 25.1% to 27.3%.

Central Appalachia is particularly afflicted with the disease. West Virginia has the highest incidence in the nation, and among metropolitan areas, Kingsport-Bristol is ninth highest. Among Virginia metros, the rates are:

35. Washington — 9.3% incidence of diabetes, 24.6% obesity
75. Lynchburg — 10.8% diabetes, 29.5% obesity
76. Charlottesville — 10.8% diabetes, 21.9% obesity
100. Richmond — 11.7% diabetes, 31.3% obesity
103. Hampton Roads — 11.8% diabetes, 28.3% obesity
126. Roanoke — 12.5% diabetes, 32.1% obesity
185. Kingsport-Bristol — 20.3% diabetes, 34.8% obesity

The survey covers the 186 largest metro areas in the country.

The spreading prevalence of diabetes is distressing news for those afflicted by the disease. And, given the socialization of medical costs by means of government programs and innumerable subsidies and cross-subsidies, it is distressing for all of us who have to pay for it.

Gallup-Sharecare explained the economic costs associated with the disease:

If the diabetes rate had remained at its 2008 level, about 2.3 million fewer U.S. adults would have the disease today, and healthcare costs due to diabetes would be an estimated $19.2 billion less than current costs.

Diabetes not only impacts the U.S. economy through direct costs, but also through lower employee productivity due to unplanned absenteeism. After controlling for all major demographics as well as BMI weight class, over 57 million additional unplanned days of work are missed each year by workers who have diabetes as compared to workers without diabetes. This costs U.S. employers $20.4 billion annually.

Diabetes represents both a problem and an opportunity for Virginia. Medical costs weigh heavily upon the state, creating a major economic burden. Conversely, successfully targeting diabetes could reap an economic boon.

Bacon’s bottom line: I have become acutely attuned to the perils of diabetes since I was diagnosed with pre-diabetes a year ago. My glucose level has not risen to a dangerous level, but it’s been bouncing around in the undesirable zone. Since getting the unwelcome diagnosis, I have made tremendous efforts to take control of the situation. I’ve lost about 12 pounds and kept the weight off. I have altered my habits and routine to get more exercise (not a terribly hard thing to do because I enjoy exercise), and I have cut my carbohydrates (a very hard thing to do because it has meant giving up milk shakes and french fries).

If I can do it, so can others. And if others don’t do it, I get miffed. While there may be a genetic component to the disease, diabetes is largely the result of behavior. Why should I pay more in taxes and health insurance because others don’t make greater efforts to take care of themselves? Our system of health insurance creates a moral hazard — it does not punish poor habits or reward good ones. I don’t know how we, as a society, lick this problem. Treating diabetics like smokers and charging them more for insurance does not seem like a humane solution. But something has got to give.

Virginia to Consider New Marijuana Decriminalization bill in 2019 General Assembly Session

If at first you don’t succeed … State Sen. Adam Ebbin (D-30) has pre-filed a 2019 bill to decriminalize possession of small amounts of marijuana in Virginia. The matter will be taken up in the General Assembly session in early 2019.  Last year Ebbin patroned a similar bill that was defeated 9-6 in the Senate Courts of Justice Committee along party lines.

Still illegal.  The new Ebbin bill, like the one in 2018, proposes to decriminalize (rather than legalize) the possession of small amounts of marijuana in the Old Dominion. The law presently in place provides for a maximum $500 fine and up to a 30 day jail term for the first offense.  Penalties escalate for subsequent offenses. Ebbin’s proposed bill makes possession of a small amount of marijuana a civil offense with fines of $50 to $250 depending on a variety of circumstances such as whether it was the first offense or a subsequent offense.

Another loser for the RPV / GOP.  The vast majority of Americans and Virginians support the decriminalization of marijuana. In fact, a notable majority of Americans and Virginians go so far as to support legalization of marijuana. Yet the supposedly liberty loving, regulation hating Republican Party has done everything it can to oppose both decriminalization and legalization. As previously mentioned, the nine Republicans on the Senate Courts of Justice Committee blocked full house consideration of Sen Ebbin’s bill in 2018. At the national level it’s much the same. Rep. Earl Blumenauer (D-OR) has written a “Blueprint to Legalize Marijuana” .  It’s a pretty simple plan … take control of the House then enact marijuana reform. Up until now that blueprint was blocked by the House Rules Committee led by its chairman, Pete Sessions (R-TX).  But things are different now that the Democrats have taken control of the house.  Plant prohibitionists like Rep Sessions are no longer calling the shots.

2019. Another year, another marijuana decriminalization bill in the Virginia General Assembly. What will become of SB997 in 2019? My guess is for a repeat of 2018 with Republicans killing the bill in committee.

Demographic changes? There has been a lot of discussion about the recent federal election on this blog. Much has been made of how the success of Democrats in Virginia is an inevitable consequence of demographics and the influx of those from outside Virginia. Some have even taken to calling Virginia the southernmost northeastern state. Balderdash. The real problem is that Virginia’s Republican politicians and the RPV are clueless. The question of marijuana reform crosses demographic boundaries. Middle-aged adults are using marijuana at an increasing rate. Last year, all nine of the Republicans on the Senate Courts of Justice Committee voted to block the decriminalization bill. At the same time 76% of the Virginians these Republicans claim to represent support marijuana decriminalization. Meanwhile, arrests in Virginia for marijuana rose 20% in the last year. Arrests for a “crime” that more than three quarters of Virginians don’t think should be a crime are skyrocketing while the aged political elite in the RPV blocks so much as a full vote on the matter. I wonder why the Republicans keep losing in Virginia? It has far more to due with a lack of competence than a change in demographics.

— Don Rippert

Scooter Dudes

My wife and I visited downtown Washington, D.C., over the weekend and marveled at the sight of so many people using scooters. Nearly all of them were young men. When young men are involved, it should come as no surprise that some traveled at what struck me as excessive rates of speed. Scooters are too slow to travel with traffic in streets but can move too fast to travel safely on sidewalks. I can understand why city officials in Richmond and Norfolk might want to regulate scooter speeds. Hopefully, they will make up their minds and end their scooter embargoes quickly because, if D.C. is any example, they will prove to be a popular mode of conveyance.

Virginia’s New Incivility

Hate the man, hate his children.

A month ago Fox News television host Tucker Carlson was dining at the Farmington Country Club, just outside Charlottesville, with two of his children and family friends. In a tweet yesterday, he described the following incident:

Toward the end of the meal, my 19-year-old daughter went to the bathroom with a friend. On their way back through the bar, a middle aged man stopped my daughter and asked if she was sitting with Tucker Carlson. My daughter had never seen the man before. She answered: “That’s my dad,” and pointed to me. The man responded, “Are you Tucker’s whore?” He then called her a “fucking cunt.”

My daughter returned to the table in tears. She soon left the table and the club. My son, who is also a student, went into the bar to confront the man. I followed. My son asked the main if he’d called his sister a “whore” and a “cunt.” The man admitted that he had, and again became profane. My son thew a glass of red wine in the man’s face and told him to leave the bar, which he soon did.

Immediately after the incident, I described these events to the management of the Farmington Country Club. The club spent more than three weeks investigating the incident. Last week, they revoked the man’s membership and threw him out of the club.

I love my children. It took enormous self-control not to beat the man with a chair, which is what I wanted to do. I think any father can understand the overwhelming rage and shock that I felt seeing my teenage daughter attacked by a stranger. But I restrained myself. I did not assault this man, and neither did not son. That is a lie. Nor did I know the man was gay or Latino, not that it would have mattered. What happened on October 13 has nothing to do with identify politics. It was a grotesque violation of decency. I’ve never see anything like it in my life.

Once upon a time, Virginians prided themselves on their civility. But many today deride the virtues of courtesy and self-restraint as tools of social oppression created by privileged elites. It’s nice to know that at least the Farmington Country Club is willing to enforce basic norms of behavior. Had the incident occurred anywhere else, I doubt the man would have been chastised in any way.

The Left’s New Social Experiment: School Discipline

Progressive social engineers are conducting another experiment — with Virginia’s African-American children as the guinea pigs.

The move to revamp school disciplinary policies in Virginia is gaining momentum. The National Women’s Law Center has published a study, “Let Her Learn: A Tool Kit to Stop School Push Out for Girls of Color,” which advances the argument that schools are unfairly suspending girls — disproportionately blacks, Hispanics, and American Indians — for violating dress codes or “talking back.” A group of “state lawmakers and community members” met Saturday in Richmond to “prevent discrimination in the classroom,” reports WVIR. And next, according to WTOP:

Change is in the works in Virginia. The Virginia Department of Education is scheduled to review a major revision to their student code of conduct on Thursday. The Model Guidance for Positive and Preventive Code of Student Conduct Policy and Alternatives to Suspension is meant to establish framework for alternatives to short and long-term suspensions.

“We’ve taken a great deal of time to develop those guidelines, and they really do focus on less punitive responses to discipline infractions, and increased focus on the supports that students need in order to be successful in the classroom and, at the same time, frames the entire context of school discipline policies and codes of conduct with an equity lens,” said Leah Walker, the Virginia Department of Education director of equity and community engagement, at the forum.

So, the overhaul of school disciplinary policies in Virginia, which began with selective Department of Justice actions against individual school districts such as the City of Richmond and Henrico County, could well be imposed across the state. The underlying argument is (a) that the traditional approach of suspending students for disciplinary fractions is discriminatory because African-Americans are disproportionately impacted, and (b) that schools must adopt a more therapeutic, “restorative justice” approach.

This week the Board of Education is scheduled to discuss revised “Model Guidance for Positive and Preventive Code of Student Conduct Policy and Alternatives to Suspension,” a document that has been under development for 24 months. The guiding philosophy of the Model Guidance is expressed here:

[Focus] on prevention and [provide] a leveled system of responses to discipline incidents that uses instructional, restorative and age-appropriate responses before resorting to exclusionary practices while respecting the social-emotional development of children at elementary, middle, and high school.

Bacon’s bottom line: Let me be clear, the traditional disciplinary system may well be outdated and in need of reform. I’m not defending every practice, every suspension and every expulsion. But I am concerned that these new guidelines are being driven by ideology with little thought to how they will play out in practice.

I don’t want to make hard-and-fast predictions because our society is so complex with so many invisible feedback loops that nothing ever turns out quite like anyone expects. Intellectual humility should rule such discussions. But here is what I hypothesize will happen:

  • The new guidelines will accelerate a continued deterioration in the classroom as misbehaving students are emboldened and as teachers, filling the role of social counselors for troubled youth, spend less time actually teaching.
  • Students in classrooms with disruptive kids will learn less, which will be reflected in their Standards of Learning test scores.
  • The students most negatively affected will be concentrated in schools with the greatest number of disruptive youths, which will tend to be dominated by disadvantaged or disability-suffering African-Americans.
  • The pressure to deny reality will be so strong that the negative repercussions will be ignored entirely, or will be cause to double down on destructive policies on the grounds that revised guidelines weren’t strong enough.

I worry that, in the end, a program designed to reduce discrimination against African-American kids who disrupt classes will disproportionately punish African-American kids who come to school prepared to learn.

I have seen no evidence that anyone else, not even Republicans, have picked up this theme. I expect that people are afraid of being labeled as racist. As long as their own kids aren’t affected, why would politicians take the risk of sticking out their necks? Given the absolute lack of push-back, I feel certain that the new Model Guidance will be put into effect.

Virginia is embarking upon a massive social experiment in which African-American children are the guinea pigs.

Market-Based Social Justice: Roll Back Zoning Restrictions on Housing Supply

Source: StatChat blog

Unaffordable housing is a problem for more Virginians today than it was during the 2000s housing bubble. Median rent has increased at three times the rate of incomes since the end of the recession, says Hamilton Lombard with the Demographics Research Group at UVa on the StatChat blog.

Among Virginians earning between $35,000 and $75,000 (the second from bottom income quartile), the share of income they spend on rent above the HUD-recommended limit of 30% reached 41% last year, nearly double pre-recession levels. The share of 18- to 34-year-old adults living with parents  surpassed 45% last year.

In Lombard’s analysis, the problem can be traced to an imbalance in supply and demand. To house its growing population, Virginia needs to build more than 40,000 new homes each year. As can be seen in the chart below, home builders have been erecting around 30,000 a year.

When new homes are built, they tend to be geared to higher-income households because those houses have the highest profit margins. In a properly functioning housing marketplace, however, as housing stock ages, it depreciates in relative value and becomes affordable to households lower in the income spectrum. In a process that economists refer to as “filtering,” aging houses continually replenish the supply of lower-cost dwellings. A higher rate of new home construction accelerates the filtering process. However, writes Lombard:

In Virginia, where fewer new homes are being built, census data shows that many of Virginia’s older homes are not depreciating in relative value as quickly as in past decades (particularly in Northern Virginia), indicating that the filtering process has slowed. This lines up with [the] analysis that found filtering is typically slower in regions with rapid home price increases and low rates of new home construction. Rising home prices and a limited supply of new homes often encourages investors and home buyers to demolish or renovate older homes that might otherwise have become low income housing.

The slowdown in new construction is at the root of Virginia’s affordable housing crisis, which contributes to ancillary problems such as the rise in homelessness and the increase in the number of evictions. If we want to solve these “downstream” problems, we need to address the source. Why has home building slowed down? I would argue that home builders would eagerly meet the demand for new housing if only they could get the required zoning permissions.

For decades it was relatively easy to get permission to build low-density cul-de-sac subdivisions on the urban fringe, but housing preferences have shifted decisively toward walkable urbanism closer to the urban core. Re-developing real estate at higher density in established areas runs into intense neighborhood resistance, which throttles the supply of new housing projects. Meanwhile, zoning policy has all but exterminated affordable-housing options such as boarding houses, single-room-occupancy housing, granny flats, garage apartments, and construction of new trailer parks.

Bacon’s bottom line: Parents, if you want to get your 24-year-old kid out of the house, support the rollback of zoning restrictions! Even if developers want to build luxury condos, they’re still contributing to affordable housing simply by increasing the housing supply. Market-driven development will even advance social justice by easing evictions and homelessness!

Grousing on a Grey and Wet Friday

Source: Blue Virginia

“It’s the end of the world as we know it.” 

More than 30 years ago I told Jim Gilmore that his election as Henrico County Commonwealth’s Attorney was the most important Republican victory on the ballot that year, so it’s only fair to recognize that the real bell weather Tuesday was the election of a Democrat to the same job in Chesterfield County.

Chesterfield.

The folks at Blue Virginia have a simple set of charts displaying the harsh reality Republicans face in 21st Century Virginia, now the southernmost Northern state due to several demographic waves and several GOP tactical mistakes.  Perhaps it’s not quite time to find that old phone booth a previous generation of Virginia Republicans used as a meeting place, but a coming federal court revision to the legislative map may pull forward the final chapter to the Great Fall from Power to 2019 instead of 2021.

It’s news when the Chamber is handing out a bunch of F’s

Here’s a new twist in the on-going saga of which stories on electronic media “news” outlets win the brass ring of inclusion in the daily VPAP summary.  The office of Speaker Kirk Cox issued a press release about some pro-business rankings for members of his caucus, which was dutifully printed (with no additional reporting content) on the party organ The Republican Standard.

That partisan news release shows up in today’s VPAP summary, which as loyal readers of Bacon’s Rebellion know is no longer happening with the writings of James Bacon or yours truly.  We were (are) producing many stories with actual reporting and great fairness, digging deeper than the ideological or party line, but aging curmudgeons that we are we also engage in biting commentary in other posts.

Apparently, the difference is that the GOP organ has an obvious bias, which is also the case with the Virginia Mercury coming from the left, but we at Bacon’s Rebellion can be unpredictable (well, I can).  Yes, the reporting at Virginia Mercury ranges from fine to excellent, but so does mine and Jim’s, and given encouragement I could do it more. Something else is going on here, I must suspect.

Ironically, my commentary pieces are just fine for VPAP if I get them published first in The Washington Post or the Richmond Times-Dispatch, but my news writing on Bacon’s site is tainted. I swear, you need a map to follow this logic.

And while we’re addressing that Chamber ranking

You will search in vain for any indication of which specific roll call votes were used to separate sheep and goats on this ranking produced by the Virginia Chamber of Commerce. Absent that minor element of transparency, it must be taken with a handful of salt. That may explain why no news outlet wrote about it (but Speaker Cox got it out to everybody, understandably).

I once was the Chamber’s chief lobbyist and such a partisan outcome would have made me very nervous, very concerned that it would burn bridges with an entire political party. The “grades” are going to be used heavily in campaign mailings and ads, perhaps providing counterweight to similar rankings with a different tilt. But any of them which do not reveal the underlying roll calls are suspect.

At the same time as that conversation with Gilmore mentioned above, there existed an annual poll on effectiveness in state government. Norfolk’s Virginian-Pilot sent out a survey to legislators, gubernatorial appointees and lobbyists asking who was and who wasn’t “effective” in Richmond. The results were predictable, given Democratic dominance of Richmond at the time, and proved an annoying problem in each campaign against an incumbent Democrat.

After a couple of years of our beating on the Pilot, they stopped doing it. It was truly bogus – of course a committee chairman with 20 year of experience is going to be ranked higher, and of course the partisan imbalance in the sample would skew the outcome. The difference with this is……impossible to judge without full disclosure.

And yes, in part I’m pushing this because I am sure that Senate Bill 966 which did so much damage to Virginia’s electricity consumers (including business consumers) was included as a pro-business vote at the behest of one of the Chamber’s largest members. Let’s see how the other bills match the Chamber membership list. I was on the committee for Virginia FREE years ago, and time after time a Virginia FREE donor demanded that its sponsored legislation make the scorecard as a pro-business vote.

Could Co-ops Save Money Buying Cheap Electricity from Wholesale Markets?

Service territories of Old Dominion Electric Cooperative’s member co-ops.

The Old Dominion Electric Cooperative (ODEC) provides electric power to eleven regional cooperatives in Virginia, Maryland, and Delaware. The Virginia co-ops supply electricity to about 10% of Virginia’s population. Now comes a study by the Institute for Energy Economics and Financial Analysis (IEEFA) claiming that customers of Rappahannock Electric Cooperative (REC) are paying 1.4 to 2.4 cents per kilowatt/hour more than they would had they purchased it from the PJM wholesale electricity market.

REC purchases 89% of its energy from ODEC, with which it has a contract through 2054. ODEC generates its own power through three gas-fired plants, a 50% ownership stake in the Clover coal-fired plant, and an 11% share of the North Anna nuclear plant. It supplemented that power with purchases on the wholesale market.

In 2017, ODEC reported that it purchased power (energy and capacity) at an average of $46.56 per MWh (4.6 cents per kilowatt/hour). That is consistent, states the report, with the following chart comparing ODEC power costs with the costs from outside suppliers:

Concludes IEEFA: “It appears that REC customers could enjoy significant savings in power supply costs of REC were not locked into a long-term contract with ODEC.”

The study was commissioned by Repower REC, which describes itself as “a grassroots group of concerned REC members working in partnership with Solar  United Neighbors of Virginia, a nonprofit group that helps homeowners go solar, ‘to promote a more transparent and democratic Rappahannock Electric Cooperative (REC).”

Bacon’s bottom line: The comparison is useful. It shows how purchasing electric power from PJM’s wholesale market could be cheaper than building new generating capacity… at least in the short run. But, then, short-term benefits need to be weighed against long-term prospects. There is an abundance of electricity supply in the PJM territory right now. That may not always be the case, especially if power companies continue shutting down legacy coal and nuclear power plants. The advantage of signing a long-term contract is that it guarantees cost stability for decades at a time.

A prudent compromise might be to nail down a significant percentage of capacity — say, half — in long-term contracts and let the balance float with wholesale market conditions. And that appears to be exactly what ODEC has done. As the IEEFA report itself says, ODEC purchases between 55% and 63% of its total power supply from the outside.

One other cautionary note: The lower cost of purchased power requires maintaining an adequate transmission system to wheel in the power from other states. If Virginia starts pulling in too much power from the outside, capacity constraints result in transmission congestion charges. There are limits to how much power can be imported without building more transmission lines. And as we have learned in recent years, nobody likes transmission lines.