Tag Archives: James A. Bacon

Digging into Your Electric Bill

Apco = Appalachian Power Co. DEV = Dominion Energy Virginia. Source: State Corporation Commission.

Monthly electric bills for a typical Virginia household (using 1,000 kilowatt hours) increased by $48.64 for Appalachian Power Co. customers over the past 10 years, and $26.61 for Dominion Energy Virginia customers. Those numbers come from a presentation by Kimberly B. Pate, director of the division of utility accounting at the State Corporation Commission, at a hearing last week of the Commission for Electric Utility Regulation.

The cost to Apco of cleaning emissions from its coal-fired power plants, which accounted for three-quarters of its generation in 2007, pushed up electric rates much faster than it did for Dominion, which relied on coal for only 36% of its output. Apco’s rates, which were lower than Dominion’s for decades, are now almost at parity.

For policy geeks, it is helpful to plumb beneath the surface of those numbers to see what forces drove the cost increases. Pate looked at the three categories of rates, which, when combined, create the overall rate: base rates, which encompass mainly operating costs; the fuel rate; and RACs, or rate adjustment clauses that pay for capital projects like new transmission lines or power plants.

Over the past decade Apco experienced a 75% increase in its fuel rate, as seen above. However, because fuel is a modest portion of the overall cost, that increase added only $9.89 to the typical household’s monthly fuel bill. For Dominion, which benefited from declining natural gas prices over the decade, the rise in fuel prices was modest indeed, only 7%, and it added only $1.51 to customers’ monthly bill.

Base rates, the rates that were frozen by 2015 legislation, are the biggest component of overall electric rates. A 50% increase in Apco base rates added $25.75 to the monthly bill, making it the driver of its higher electric rates. By contrast, a mere 10% increase in Dominion base rates added $7.03.


RACs have been a major contributor to higher costs for both utilities. By adding four additional rate “riders” since 2007, Apco pumped up its average household bill by $13.00. Dominion added 11 rate riders, accounting for $18.07 in new expense passed on to rate payers.

Understanding how electricity rates are constructed illuminates corporate strategy.

For example, Dominion is facing potential multibillion-dollar liabilities to safely dispose of the coal ash at four of its power stations. Some of the costs are rolled into the base rate and some can be passed along to rate payers in the form of a rider. If the rate base stays frozen, those costs cannot be passed along to ratepayers, and shareholders will take a hit. Last month Dominion released a study showing a range of alternatives for burying the coal ash; one option, creating a central landfill to accommodate the material from the three largest coal-ash sources, could cost more than $4 billion. It’s not clear from an accounting perspective how much of that liability would be assigned to the base rate and how much could be passed through to rate payers. But, if Dominion were compelled to bury its coal ash in lined landfills, the utility potentially could take a body blow to the bottom line. Could coal ash liabilities have factored into Dominion’s suggestion last week that it was time to end the freeze? It’s a question worth asking.

Another example: Both Dominion and Apco are bringing more renewable sources, mainly solar and wind, into their electric generating portfolios. Renewables have high up-front capital costs (which would be recouped through a Rate Adjustment Clause), modest operating costs (recouped through base rates), and zero fuel costs (addressed by the Fuel Adjustment Clauses). Integrating renewables into the fuel mix would push electric rates higher initially but be almost immune to prices increases in the future.

Bacon’s bottom line: Different categories of cost have differential impacts on Apco and Dominion and their customers, depending upon their fuel mixes and upon how those costs are treated from an accounting point of view. Apco and Dominion make it their business to understand how those costs flow through to their bottom lines, and they adjust their corporate strategies accordingly. To defend the public interest, state officials need to understand the factors that drive their actions as well.

Atlantic Coast Pipeline Inks Labor Contracts

Now that the State Water Control Board has approved water-quality permits for the Mountain Valley Pipeline (MVP), the odds look exceedingly good that the board will approve comparable permits for the Atlantic Coast Pipeline (ACP) as well. Indeed, state regulatory approval looks like such a lock that the ACP has signed project labor agreements with four major construction trade unions.

The agreements cover these four unions:

  • Laborers’ International Union of North America. Laborers install environmental control devices, perform ground clearing, coat and install the pipe and restore the right of way.
  • Teamsters National Pipeline. Teamsters transport personnel, materials and equipment.
  • International Union of Operating Engineers. Operators operate excavators, bull dozers, pipe bending and laying machines, cranes, forklifts and other construction equipment.
  • The United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States. Welders weld and bend the pipe, install road bores and perform hydrostatic testing.

“This is the biggest job-creating infrastructure project we’ve seen in our region for many decades,” said Dennis Martire, LiUNA’s Vice President & Mid-Atlantic Regional Manager. “This is a once-in-a-generation opportunity to rebuild our region’s infrastructure and bring back the middle class jobs that have disappeared from too many of our communities. Our members live in these communities, so we have a personal stake in doing this the right way and with the utmost care for safety and the environment.”

While the two pipeline projects will be a boon to the construction unions — 13,000 workers will be needed to build the ACP — landowners and others living along the path of the pipeline routes remain adamantly opposed to both projects.

“[Governor] Terry McAuliffe has harmed farmers, consumers, drinking water, and the climate by pushing the Virginia Water Control Board to give final approval today of the Mountain Valley Pipeline,” said Mike Tidwell, executive director of the Chesapeake Climate Action Network said after the 5 to 2 vote. “The 301-mile pipeline for fracked gas constitutes a colossal misallocation of resources and will permanently harm the Governor’s economic and environmental legacies.”

“We are thoroughly disappointed by the board’s decision. Thousands voiced their opposition to this pipeline based on evidence that it cannot be built without violating the federal Clean Water Act and the board’s obligation under Virginia law,” said Tom Cormons, executive director of Appalachian Voices. “DEQ created a rushed, haphazard process, limited the scope of the board’s review, and abdicated the state’s authority to the Corps of Engineers for oversight of pipeline construction at almost 400 water crossings.”

While pipeline foes have cited many reasons for opposing the two projects, they have focused in recent months on blocking state regulatory approval on the grounds that the regs cannot adequately protect water quality from construction on steep mountain slopes in karst terrain riddled with underground streams.

Having met defeat at every turn at the federal and state levels, the last resort is the courts. “We are considering all options,” said Cormons, “and expect the outcome will be determined in the courts.”

If Mountain Valley Pipeline breaks ground on the project, he added, “citizens along the entire route are prepared to watchdog every action, along every mile, every day of construction and afterwards, and compel agencies to act when violations inevitably occur.”

The water control board is expected to vote on the Atlantic Coast Pipeline this Monday.

Update: That was fast! Minutes after I posted this story, Appalachian Mountain Advocates announced that it has filed suit in Richmond’s U.S. Court of Appeals for the Fourth Circuit. “The DEQ’s erosion and sediment control plans and stormwater control plans are incomplete and have not been presented to the Board,” said David Sligh, conservation director of Wild Virginia, which is allied with Appalachian Mountain Advocates. “Karst analyses are incomplete. Data related to specific waterbody crossings is non-existent. The Nationwide 12 permit has not yet been authorized and determined to be applicable.  The procedure is not based on sound science and is legally flawed. We cannot accept this betrayal of our trust and our rights without challenge.”

Let’s Hope This Act Never Grows Old

I’d never heard of the Church Sisters — Savannah and Sarah Church — until this week, when I read they were coming to play in Richmond. These young ladies who were raised in the heart of the Virginia coalfields, Dickenson County, and in Danville, meld Bluegrass and Gospel. The melody in this video, “Where We’ll Never Grow Old,” has a slow tempo but the twin sisters’ harmonies are lovely. (Skip through the first 30 seconds of the video to get straight to their performance.)

Southwest Virginia may be down and out economically, but the cultural traditions of Central Appalachia are as vibrant as ever. The twins have signed a record contract with Taylor Swift’s label, which could well push them into the big time.

Actually, Travel Times Are Faster on I-66, VDOT Says

Image credit: Virginia Department of Transportation

Many Northern Virginia motorists and politicians seem to be having mental breakdowns over the opening of HOT lanes on Interstate 66 inside the Beltway. Most notably, they point to the first-day, one-way $34.50 peak toll as an outrage against the driving public. Ironically, though, morning and afternoon commutes were faster during the first four days of HOT lane operation than the same period last year, asserts the Virginia Department of Transportation.

The average toll price during morning rush hour was $10.70 and during evening rush hour $3.80, stated VDOT in a press release issued yesterday evening. Only 39 vehicles paid the posted highest toll of $34.50. A third paid less than $10. And average travel times for the 10-mile route were 10 to 12 minutes compared to 15 to 30 minutes last December.

VDOT analysis also showed that of the 13,307 vehicles that used I-66 Inside the Beltway between 5:30 a.m. and 9:30 a.m. Monday, 5,082 were carpoolers who traveled free. Traffic was heavier but travel times were comparable during the evening commute the other direction.

“Contrary to the continued political rhetoric of critics, I-66 Inside the Beltway Express Lanes tolls have been based on sound planning and with the ultimate goal of improving travel for everyone,” said Secretary of Transportation Aubrey Layne. “We want to move more people, improve connectivity and provide additional travel choices. This is about unlocking gridlock on I-66 as Governor McAuliffe pledged.”

VDOT also noted that, except for an incident that closed two or three lanes of traffic on Route 50 Monday evening, travel on parallel roads such as Route 50, Route 29, and Route 7 were “either similar or improved compared with last December.”

The VDOT statement did not address observations that serious delays occurred at points accessing I-66 inside the Beltway.

Bacon’s bottom line: Assuming VDOT is not cherry picking its data, it appears that the HOT lanes are working as advertised, and that the people who are most upset by the HOT lanes are those who were prepared to be upset by HOT lanes to begin with. However, any conclusion is preliminary until the public has had a chance to review and critique the travel data.

Adjunct Faculty: Higher Ed’s Lumpenproletariat

Heide Trepanier at her studio. Photo credit: Style Weekly. Her artwork hangs in the Virginia Museum of Fine Arts but as a VCU adjunct faculty member, she would get paid only $3,000 for teaching an art course next spring.

I have a pet theory. One of the reasons that employees of colleges and universities are so politically liberal and obsessed with inequality and privilege is that colleges and universities themselves are such unequal and hierarchical places. Those on the lower rungs feel oppressed. Those on the upper rungs feel guilty.

A case in point: A group of adjunct art faculty members at Virginia Commonwealth University has circulated a petition calling for a pay increase. The part-time instructors, who are hired on a contractual basis and are not on the tenure track, currently are paid $800 per credit, a sum that is scheduled to rise to $1,000 per credit this spring. But adjunct faculty members are calling for pay of $2,000 per credit.

“A lot of people feel exploited,” artist Heide Trepanier, who has worked as an adjunct at VCU, told Style Weekly. “Things like the School of the Arts don’t pull in big funding,” she says, “so their big way of [making] money is pulling in more students and cutting costs. You have these upper-level administrators earning hundreds of thousands of dollars and most of the people there teaching, who are in direct contact with the students, [have no chance] for full tenure track positions.”

Adjuncts receive no benefits or no free parking, the cost of which Trepanier says translates to teaching one day a week free. “Adjuncts don’t have any say in the process. VCU is using a successful business model that is not working in higher education. Now they’ve got a problem because the majority is starting to organize.”

The inequality is national in scope, not limited to VCU. There are wide disparities in universities between similarly educated and qualified individuals and the pay and privileges (like paid sabbaticals) they enjoy. Adjunct faculty are the lumpenproletariat of the academic world. Above them, the petite bourgeoisie, are “instructors” who, though they may not be on a tenure track, do enjoy the benefits of full-time employment. Then come the gentry and aristocracy: the assistant professors, associate professors, and full professors. Within the ranks of full professors, there are innumerable gradations of pay and status. The elite occupy endowed chairs, with endowment-funded supplements to their salaries, and are assigned a complement of graduate students. And, unless they violate the code of politically incorrect behavior and discourse, they enjoy virtually life-time job security.

Granted, not all adjuncts, instructors, and professors are equally accomplished. Some contribute more intellectually to their fields — through research and writing — than others. The irony for institutions whose primary mission is to educate people is that the most accomplished professors — those who have reached tenure — do the least teaching. They get the lightest teaching loads so they can devote more time to pursue research and writing. The system is captive to the publish-or-perish phenomenon in which those who create knowledge (much of it of dubious value) are valued far more highly that those who disseminate it.

I have two close friends who are, or have been, adjunct faculty members of Richmond-area universities. One has a law degree, the other has a Ph.D. in psychology — the same educational credentials as those who occupy much loftier positions in the academic hierarchy. Both have intense and/or engaging personalities and both, I would wager (although I have not seen them in a classroom setting) are engaging teachers. As it happens, both are women, which may or may not be typical of adjunct faculty generally. And both either are, or have been, frustrated or embittered by their treatment.

Universities respond that they would love to increase pay for adjunct faculty but they just can’t. Cutbacks in state support for higher education, you know.

Here’s how Shawn Brixey, dean of VCU’s School of the Arts, justifies the pay disparities, as summarized by Style:

He notes the fiscal reality that budget cuts occurred last year, which leaves little discretion “beyond meeting unavoidable costs.” Throughout the years, tuition increases have, for the most part, replaced state funding cuts. He adds that the university’s administrative costs are “very low compared to like institutions” and that he’s working on generating new revenue streams to ease the tuition burden.

“We know that faculty compensation at VCU of all types – including for our teaching and research faculty and administrative and professional faculty – is below the average of that of our peers and fellow state tier 3 institutions,” Brixey explains via email. “The administration is working to improve that. They have made adjunct faculty compensation a top priority for the FY19 budget.”

Brixey has a point… assuming you accept the hierarchical nature of the faculty as an immutable feature of higher education at VCU and nearly every other nonprofit college and university in the country.

Hey, I-66 Whiners: Join a Friggin’ Carpool!

Interstate 66 east at the Capital Beltway in Virginia. Jan. 2016. (WTOP/Dave Dildine)

The Interstate 66 toll lanes opened yesterday in Northern Virginia, and dynamically priced tolls during the morning commute hit $34.50 for the 10-mile stretch from the Beltway to Washington, D.C., reports the Washington Post.

The high price for the tolls — among the highest that drivers have paid for the privilege of traveling on a state-owned highway in the United States, the Post observes — induced the usual hand wringing. Reports the Post:

“I drove onto I-66 around 8:10 this morning to Washington and my one-way toll was $17.25 — which I at first thought I’d misread,” Justin Cole said. “With tolls reportedly climbing to around a daily one-way peak of $34.50, that is going to introduce a real hardship for people on low wages or working in the nonprofit or public sector.”

Others took to social media to express their outrage, with the hashtags #I66tolls and #highwayrobbery trending.

“This is like a bad telethon, watching the number go higher and higher all morning,” tweeted commuter Cameron Gray.

“The tolls on I-66 are being increased so only the 1% can afford to use it. Time to get that private jet,” said another.

“It’s price gouging,” said Virginia Del.-elect Danica Roem (D), who won office last month on a platform that focused on traffic in her suburban Prince William County district. She said she will push to cap tolls in the coming General Assembly session.

“We are talking about $34.50 for a few miles inside the Beltway. That’s clearly price gouging,” Roem said. “Where else in the country do you pay a $34.50 toll to go somewhere?”

I have to say, a $34 toll for a 10-mile trip is extravagantly high. I would never pay it. Here’s a tip to the whiners: Don’t have to pay it either! Just drive on I-66 like you always have! There are no fewer lanes than there were before. Was traffic on I-66 this morning any worse than it was last week? No? Then get over it!

As long as you’re not the person paying them, high toll fares are good news. When the state covers its cost of setting up the HOT lane infrastructure, it will devote surplus revenue to multimodal improvements — buses, Metrorail, bicycle, pedestrian facilities — that take commuters off I-66 and make the highway a little less congested for everyone else.

As for the proposal by Del.-elect Danica Boem, D-Manassas, to cap the tolls, it’s time for an economics lesson. The tolls are driven by demand. If the toll reaches $34, that’s because people are willing to pay that much for a quicker trip. If you cap the toll at, say, $10, too many people will crowd the HOT lanes, and average driving speed could well drop below the guaranteed 45 miles per hour. That would kill the reward for ride sharing, and fewer ride shares would mean more cars on the road.

Carpools, vans and buses get to use the HOT lanes for free. If you really, really, really want to use the HOT lanes, then stop your bellyaching, relinquish your privilege as driver of a single-occupancy vehicle, and join a friggin’ carpool!

Dominion Open to Ending Rate Freeze

Mark O. Webb

Take surplus revenue and invest it in modernizing the electric grid, the Richmond utility proposes.

Dominion Virginia Energy has proposed ending a controversial freeze in base electric rates and plow surplus revenues owed to rate payers into modernizing the electric grid.

“We believe it is time to transition away from the rate freeze as the outlines of state carbon regulation have become more clear and the need and the opportunity to reinvest in grid transformation becomes more pressing,” said Mark Webb, senior vice president for corporate affairs, in remarks made during a hearing of the Commission on Electric Utility Regulation.

None of the commission members seemed surprised by Dominion’s dramatic shift, which it aired publicly for the first time, nor did they have any questions. Dominion’s presentations were orchestrated with comments made by Technology Secretary Karen Jackson, who emphasized the need to bolster the grid against cyber-security attacks, and a representative of the Edison Electric Institute, who discussed how grid modernization sped the restoration of electric surface this year after Hurricanes Harvey and Irma.

In a separate presentation, Kimberly B. Pate, director of the division of utility accounting at the State Corporation Commission, noted that a reduction in the corporate tax rate from 35% to 20% embedded in Congressional tax legislation would reduce the tax liability of Dominion by $165 million and Appalachian Power Co. by $80 million. If the freeze in electric rates were still in effect, she said, the tax savings would flow straight to shareholders rather than rate payers.

Dominion pushed for the rate freeze in 2015 after the Obama administration had proposed its Clean Power Plan designed to electric utilities’ reduce carbon-dioxide emissions as part of the U.S. commitment to combat global warming. No one at the time knew what impact the regulations would have, but the SCC warned that the regulations potentially could cost Virginia rate payers billions of dollars. Since the Trump administration declared its intention to scrap the Clean Power Plan, critics have charged that the freeze would allow Dominion to keep potentially hundreds of millions of dollars of excess earnings instead of rebating them to rate holders, as it would without the freeze. Dominion officials have conceded that the company has generated excess revenue but contended that it faced other potential liabilities, such as storm damages and coal-ash disposal costs, and that the excess revenue could easily turn to a shortfall.

In endorsing an end to the freeze, Dominion positioned the rollback as a way to finance modernization of the electric grid.

“As you have heard today, there are new challenges to our ability to keep the lights on in the form of cyber threats, physical security threats, and super storms,” Webb said. “We need to modernize and transform the grid to know immediately when your power is out or even about to go out, and where to deploy our crews to restore power. We can, with the right investments, come ever closer to our goal of power that is always on.”

He continued:

Under any regulatory construct there will be years with excess earnings due to favorable weather, the absence of severe storms, economic growth, and business efficiencies. In this respect, forecasts of utility earnings are similar to forecasts of the state budget. Some years, forecasts may prove too optimistic, in others too pessimistic. The General Assembly may wish to consider a reinvestment model, where in years when there are such excess earnings, they are reinvested in modernizing and transforming the electricity grid, similar to how the Commonwealth sets guidelines for use of a budget surplus.

While the excess revenues would not be returned directly to rate payers under the proposal, Webb told Bacon’s Rebellion, rate payers would benefit indirectly: Dominion would not need to recoup the investment through a Rate Adjustment Clause, the usual mechanism for passing on the cost of capital investments to rate payers.

In addition to better managing power outages, Webb said that a modernized grid would facilitate the two-way flow of electricity in the distribution system that would make it easier to integrate increased production from solar energy.

Chris Eisenbrey, senior director of business continuity for the Edison Electric Institute, described the benefits of grid modernization for Florida Power & Light and CenterPoint Energy in Houston. Since 20016 FP&L has invested $3 billion in a stronger, smarter more resilient grid, he said. The utility estimates that the ability to identify problems, turn devices on and off remotely, and efficiently allocate its linemen and other resources saved its customers 40 million outage minutes.

Jackson, Virginia’s secretary of technology, said that the threat of cyber sabotage has evolved from teenager hackers in their basements to state actors with vast resources. She quoted an estimate that China had 100,000 people employed in its cyber-espionage division. Russia, Iran, and North Korea have thousands more. If a foreign power wants to launch a cyber-attack on the United States, the electric grid is a primary target. “Electric power companies are in an unenviable position,” she said.

“Our goal is to come ever closer to always keeping the lights on, and to dramatically reduce the time required to restore power outages,” Webb said. “Through investments in new technology, careful planning, and grid modernization we can keep the lights on to a degree unimaginable even a decade ago.”

No one responded to the Dominion proposal at the hearing. “It’s hard to react to something that is just a shadow of a hint with zero details,” said Stephen Haner, a lobbyist representing the Virginia Poverty Law Center (and a contributor to this blog). “Are they talking $1 billion or $5 billion? Paid for over three years or ten years or twenty years? What [Return on Investment] are they looking for?  What will be the long term impact on operating costs? Details matter a lot.”

Speaking generally, he favors the idea of modernizing the electric grid that saves money and manpower, Haner said. “I think the ratepayers and the SCC will be very supportive of moving in that direction.”

But he has reservations. “At one point I think Mark Web said they have to end the freeze in order to undertake the grid modernization and that is just laughable,” Haner said. “They only have to end the freeze if they are going to try to charge us more … in base rates, or they want to eliminate the legal authority of the SCC to order refunds or reduce rates. I doubt I will like their first draft.”

When asked to explain the change in policy regarding the rate freeze, Katherine Bond, senior policy adviser for dominion, acknowledged that Dominion has been heavily criticized for the freeze. “We’re active listeners,” she said.

Update: Senate Majority Leader Thomas K. Norment, Jr., R-James City, said he was “a little perplexed” by Dominion’s proposal, reports the Richmond Times-Dispatch. “I don’t think we’re going to be moving in that direction at a rapid pace,” said Norment, who chairs the utility restructuring commission. The T-D article provides other useful background not found in my blog post.

“A significant failure that has diminished the City’s faith in its elected leaders”

I haven’t had time to do anything more than scan Timothy Heaphy’s report on the tragic events in Charlottesville on Aug. 11-12, but I’ve seen enough to know that it provides a sober, just-the-facts-ma’am narrative of events leading up to the Unite the Right rally, a blow-by-blow account of the rally itself, and critical context to evaluate the performance of both politicians and police. A formidable research effort, the 207-page report represents a ddraws upon interviews with hundreds of participants, hundreds of thousands of documents, thousands of photographs and many hours of video.

I extract some of Heaphy’s key conclusions about what went right and what went wrong at the United the Right rally. (Most of what follows is quoted verbatim, although I have made occasional modifications for purposes of readability.)

What Went Right

Despite the presence of firearms and angry confrontations between protesters and counter-protesters, no person was shot and no significant property damage occurred.

The Charlottesville Fire Department and UVA Health System had effective operations plans that allowed rescue personnel to extract and treat a large number of injured persons within minutes of a violent attack.

Law enforcement planning and response was informed by thorough, accurate intelligence before and after the event.

What Went Wrong

The Charlottesville Police Department (CPD) did not seek input from law enforcement personnel experienced in handling similar events, and the CPD did not provide adequate training or information to officers in advance of the event.

The City of Charlottesville waited too long to request the specialized assistance of the Virginia Department of Emergency Management.

The Charlottesville City Council unduly interfered with operational planning by directing that the event be moved to McIntire Park just days in advance.

Rather than micromanage professional staff and second-guess their decisions, Council should have helped the community understand the rules that govern these events. Rather than overruling law enforcement and forcing them to prepare for a more complex event, Council should have helped the community understand the public safety challenge and anticipate the law enforcement response to the event. Instead of working as a team, City staff and City Council worked at cross purposes and stoked public uncertainty about the event. This was a significant failure that has diminished the City’s faith in its elected leaders.

The timing of the decision to move the rally to McIntire Park was initiated much too late. The City of Charlottesville did not provide adequate information to the public about plans for the event. City planners mistakenly believed that they could not limit the possession of certain items used as weapons at the Unite the Right event.

The owners of private property adjacent to Emancipation Park — the Central Branch of the Jefferson-Madison Regional Library and Christ Episcopal Church — refused police access to their facilities, which hampered law enforcement response.

The University of Virginia Police Department refused multiple offers of mutual aid assistance from the Charlottesville Policy Department, resulting in violent encounters that emboldened protesters at the Unite the Right rally.

The Charlottesville Police Department implemented a flawed operational plan that failed to protect public safety on August. 12. Specifically, it failed to ensure separation between Alt-Right protesters and organized counter-protesters. The CPD was insufficiently equipped to respond to mass unrest, and it failed to intervene in violent disorders and did not respond to requests for assistance.

The Virginia State Police directed its personnel to remain behind barriers within Emancipation Park.

It is remarkable that VSP officials attended weeks of planning sessions with CPD and weighed in on CPD’s operational plans without ever specifying in writing or verbally that VSP did not expect its officers to police serious incidents of lawbreaking by participants. Their inaction in the face of violence left CPD unprepared.

Upon declaration of an unlawful assembly, protesters were pushed directly toward counter-protesters without separation. Continue reading

The Looming Mass Transit Apocalypse

Outside of a handful of the nation’s largest, densest cities, public transit in the United States is doomed, contends Randal O’Toole, a Cato Institute scholar, in a new analysis, “The Coming Transit Apocalypse.”

Nationally, commuter rail and buses already commandeer $50 billion a year in public subsidies to cover operating expenses, O’Toole says. The cost to the public will only grow as the industry grapples with billions of dollars in maintenance backlogs and unfunded pension and retirement healthcare liabilities. The coup de grace will come within five to ten years as driverless ride-hailing services provide greater convenience — door-to-door service — at roughly the same cost per mile as mass transit.

The industry response to these pressures, says O’Toole says, has been to seek ever bigger subsidies. Rather than throw good money after bad, he advises, municipal governments should plan for an “orderly phase-out” of publicly funded transit services.

O’Toole’s critique of the industry is especially timely for Virginians to ponder as the Commonwealth, along with Maryland, Washington, D.C., and the federal government patch together a rescue package for the fiscally ailing Washington Metro service. Do Virginia taxpayers want to saddle themselves with huge new obligations for a commuter rail and bus system that might not survive the driverless car revolution?

Transit is the most expensive and heavily subsidized form of travel in the United States, O’Toole says. In 2015 transit agencies nationally spent an average of $1.14 per passenger mile (only a quarter of which was passed on to passengers in the form of fares). That compares to 60 cents per passenger mile for Amtrak, 26 cents for driving, and 16 cents for flying. While massive subsidies have helped expand total transit ridership as the population has grown, urbanites are taking fewer transit trips per person than in the past.

Metro is an essential piece of transportation infrastructure in the Washington region, but nowhere near dominant. While Metro accounts for only 3.8% of overall metropolitan travel, according to O’Toole, 17.6% of commuters use it. The percentage rise to 28.1% in the central city.

Mass transit is a marginal contributor in Virginia’s smaller metros. In Richmond, buses accounts of 0.3% of all trips, 1.9% of commuting, and 5.5% of commuting in the central city. The numbers are comparable in Hampton Roads. Light rail and buses account for 0.4% of all travel, 2.0% for commuters, and 5.5% for central city commuters.

The declining price of gasoline in recent years has contributed to a fall-off of mass transit after it peaked briefly in the mid-2000s, says O’Toole. Lower-income people are especially sensitive to the price of gasoline, and when gas prices fall, many switch to automobiles. The fracking revolution has kept U.S. gasoline prices relatively stable in recent years, and O’Toole does not expect that to change any time soon.

Meanwhile, despite massive subsidies, mass transit agencies have racked up a maintenance backlog that federal officials estimated to be $87 billion nationally (in current dollars) in 2010 and $95 billion (in current dollars) in 2015. To eliminate the backlog within 20 years, 100% of funds now spent on improvements would have to be shifted to maintenance, O’Toole says. That shift is unlikely to ever take place, he adds, because politicians show a pronounced bias in favor of “ribbons over brooms” — headline-generating new projects over nitty gritty maintenance work.

Rail infrastructure has an estimated life of 30 years, after which time it needs to be thoroughly rebuilt or rehabilitated to avoid the risks of delays and accidents. Those are precisely the problems that have dogged the Washington Metropolitan Area Transit Authority (WMATA) as it allowed its maintenance backlog to grow, leaving it with $17.4 billion in unfunded capital needs over the next 10 years. As service and safety have deteriorated, the commuter rail system has been experiencing a steady erosion of riders and fares that has intensified the fiscal crunch.

WMATA is facing another disastrous predicament that has garnered relatively little attention: The agency has accumulated $1.027 billion in unfunded pension obligations and $1.767 billion in unfunded health care obligations. Those massive liabilities are over and above the authority’s unfunded maintenance needs.

When driverless cars become a reality, the cost of operating a ride-hailing service will be decline to the cost of operating the car, says O’Toole — about 40 cents per vehicle mile. “Door-to-door driverless service will also be far more convenient than transit, thus making transit inferior to shared driverless cars in every way.”

As riders shift to driverless ride-hailing services, the economics of mass transit will deteriorate even more rapidly: fare revenues will decline, maintenance backlogs will grow, and there will be more schedule delays, more safety incidents, more poorly maintained facilities, and more disillusioned riders.

How can municipal authorities respond to this ticking fiscal time bomb? First, says O’Toole, they can stop building fiscally unsustainable new projects. Second, as rail lines wear out, transit agencies should replace them with cheaper-to-operate buses. Third, plan express buses and bus rapid transit services that share lanes with other traffic rather than rely upon dedicated lanes. Fourth, make a priority of paying down debts and unfunded liabilities. And fifth, instead of subsidizing all passengers, convert subsidies into vouchers for lower-income riders.

Bacon’s bottom line: Predictably, transit agencies will do none of these things. Instead, they will lobby for bigger subsidies. The big question is how much tolerance taxpayers will have for pumping new money into a failed business model. My guess is that taxpayers will continue to be cajoled into paying continued subsidies until such time as driverless cars and jitneys take so much market share from commuter rail and buses that the impending collapse of public transit is obvious to all. Of course, by then, it will be too late to salvage much from the situation.

The only thing that can possibly save mass transit is a rapid evolution toward denser, mixed-use land use s along transportation corridors that would enable rail and bus to serve more riders and generate more fare revenue. That evolution is happening along Washington’s Metro system, but it is a slow, herky-jerky process that speeds up and slows down with business cycles and metropolitan booms and busts. Even then, I am highly skeptical that mass transit could ever pay for itself. If rail loses money in New York, it will lose money everywhere in the U.S. (Yes, yes, I know that roads and highways are subsidized, too, but the subsidies are much smaller per passenger mile. In any case, the road network should move to a pay-as-you-go system just as mass transit should.)

What seems absolutely foolhardy, given what we know now, is to double down on our commitment to new money-losing mass transit projects. State and local governments can sustain the fiscal drain for only so long. When they inevitably have to cut back — read my posts about Boomergeddon — the retrenchment will be all the more painful for riders, transit agencies and taxpayers alike.

The Ascendancy of Gas and Wind

A front-page article in the Wall Street Journal today highlights how the rapid rise of wind and natural gas is forcing electric utilities to close older coal- and nuclear-powered generating units. Last year natural gas surpassed coal as the leading source of electricity, and wind provides energy at the lowest price of any source.

Last year the wholesale price of electric power averaged less than $25 per megawatt hour in Texas, which has the most deregulated electricity market in the country. The wholesale price has fallen as low as $29 in the PJM Interconnection grid (of which Virginia is a part), which arguably operates the most sophisticated interstate grid in the country. PJM benefits from the construction of gas-fired plants tapping cheap Marcellus shale gas and extensive wind farms in the Midwest.

Citing a study by investment bank Lazard, the WSJ gave the following average unsubsidized cost of generating power from different electricity sources:

  • Natural gas — $60
  • Coal — $102
  • Nuclear — $150
  • Solar — $49.50
  • Wind — $45

But the WSJ provides one very big caveat: Those numbers don’t factor in the intermittent production of wind and solar. A megawatt of electricity that is “dispatchable” — that is, it can be produced when called upon to meet demand — has greater economic value than a megawatt of electricity from a source that produces output when the sun is out and the wind is blowing.

I’m still trying to figure out the economics of this. As I understand it, the marginal cost of operating a wind or solar facility is essentially zero. The energy source is free, and the manpower requirements are negligible. Thus, wind and solar producers dump all of their production into wholesale markets, undercutting coal, gas and nuclear generating units that actually have operating costs. As a consequence, coal and nuclear are losing market share and, increasingly, many units are unable to operate profitably. Even less efficient gas-fired units may be in trouble.

Question: If the wholesale price for electricity is below the unsubsidized cost of generating electricity in the PJM system, how can anyone justify building new capacity of any kind?

Another question: What happens if dozens of coal and nuclear plants in the PJM system shut down? Will there be sufficient capacity to meet base-load demands for electricity, especially at night when solar isn’t producing? There is plenty of wind power at night, but not in Virginia. There is only so much power the electric grid can transmit from Midwestern wind farms to Virginia.

I have seen no indication that PJM’s experts are worried about these problems, so maybe I’m raising a non-issue. All I can say is that the electrical industry works according to laws of economics like no other.