Too Early to Predict Impact of Medicaid Expansion on Carilion

Carilion Roanoke Memorial Hospital, flagship of the Carilion fleet.

Information continues to dribble out about the impact of Medicaid expansion on Virginia hospitals, although there still seems to be no consensus on whether or not the costs of a hospital “assessment” will be passed on to privately insured patients. The uncertainty reinforces the impression that Governor Ralph Northam and GOP lawmakers bought a proverbial “pig in the poke” when they agreed to enlarge Virginia’s largest entitlement program.

The latest evidence on the hidden cost of Medicaid expansion comes from Don Halliwell, chief financial officer of Carilion Clinic, the health system serving much of western Virginia. Halliwell tells the Roanoke Times that the health system will pay about $27.5 million a year once expansion is fully underway, but he cannot tell how much the system will reap in return.

“It is a victory for our communities and a victory for our patients, but boy, it’s complicated,” Halliwill said. “We know the direction and what has been stated as the intentions. But how it will play out we just don’t know.”

Left unaddressed in the article is the question of how much Virginia will need to spend to raise Medicaid reimbursements to physicians — an issue that was deferred by this year’s legislation. Reimbursement rates of about 71% of cost are so low that many primary care doctors refuse to accept money-losing Medicaid patients. There is a growing awareness that expanding Medicaid coverage to Virginia’s near-poor population is meaningless if patients can’t find doctors to treat them.

Luanne Rife does not address that issue, but her article in the Times otherwise does the best job I’ve seen yet of exploring the financial implications of Medicaid expansion at the provider level.

If everyone who will soon qualify for Medicaid signs up, Carilion will gain at least 17,000 paying patients in its core service area and a share of another 17,000 people living in outlying areas.

Most of these patients are now what Carilion calls “self pay.” Last year, this group represented about 6 percent, or $255 million, of Carilion’s charges for inpatient and outpatient services. Much of it is written off.

In the first year of Medicaid expansion, the hospital assessment on all acute care hospitals (with the exceptions of the University of Virginia, Virginia Commonwealth University and the Childrens Hospital of the King’s Daughters) will pay an assessment of 1.1% on net patient revenue, or an estimated $190 million statewide. In the second fiscal year the tax will increase to 2.3%. In exchange, states the Times article, the state will boost reimbursements for Medicaid services from 70% of hospital costs to 88%.

With higher reimbursements and thousands more paying patients, budget makers figured that after assessments, hospitals across the state would net $263 million the first year and $617 million in the second full year of expansion.

Hospitals with few Medicaid patients might pay more than they gain, and there is speculation they will pass along their losses to commercial insurance payers.

What does that mean for Carilion? Halliwell isn’t sure. “I can only speak for myself, but I don’t see a way where we would be in a position where our assessment would be greater than the benefit,” he said. “If your assessment was greater than the benefit then you would have excess costs. A system would have to figure out a way to pay for it. I wouldn’t speak for them, but it could be passed on.”

Bacon’s bottom line: The politicians don’t know what the impact will be. The hospitals don’t know. Nobody knows. All anyone can say is that in the aggregate, more Medicaid money will flow into hospitals as will flow out. While hospital lobbyists engineered what looks like a political deal for their industry, the hospitals themselves have not figured out how the money flows will work internally. One thing you can bet on, more money will mean bigger hospital profits — including those of the so-called nonprofit hospitals.

Here are some benchmark figures for the Carilion Medical Center, the flagship operations in Roanoke, to monitor in the years ahead as Medicaid expansion unfolds (2016 figures):

Charity care — $142 million
Bad debt — $71 million
Net patient revenue — $1,174 million
Operating income –$66 million
“Surplus” (profit) including non-operating gains — $100 million

New Chapter for Bacon’s Rebellion

Today marks the end of a three-year era at Bacon’s Rebellion — the final day of Dominion Energy’s sponsorship of reporting and commentary on energy issues in Virginia. Dominion and I are parting on excellent terms, but I have decided to let the sponsorship expire in order to take the blog in a new direction. One option I am considering is creating a new business model that will allow the blog to become a bigger force in Virginia journalism.

It’s a sad fact that shrinking news staffs and editorial holes in Virginia newspapers are leaving vast gaps in journalistic coverage. Sponsorships over the years gave me the freedom to cover important state boards such as the Commonwealth Transportation Board and the State Council of Higher Education for Virginia, whose activities would have gone largely unreported otherwise. I have reported in-depth about transportation, land use, smart growth, public health, higher education, and the electric grid.

The one-man-blog model allowed me to make a comfortable living doing what I loved to do, but it was impossible to grow. For a long time, I really didn’t care if Bacon’s Rebellion grew — it did what I wanted it to do. But now I worry that Virginia’s newspapers are in meltdown mode. The press corps covering the Governor’s Office and General Assembly is a shadow of its former self. Increasingly, state government agencies are operating in the dark. A handful of statehouse reporters are still doing yeoman’s work, but it’s not clear how long Virginia’s newspapers can continue to employ them.

If newspapers continue their meltdown, who will report the news? Who will hold government accountable?

An emerging model of journalism is based on funding by non-newspapers — conservative government watchdogs or liberal environmental advocates. Agenda-driven journalism is better than no journalism at all, but… it’s agenda driven.

All reporters have biases, conscious or unconscious. I freely acknowledge that I am favorably disposed to limited government and free markets, and I am unfavorably disposed to social engineering. However, I firmly believe that you can’t understand one side of the argument unless you also understand the other side of the argument. Ironically, under my Dominion sponsorship, I felt an obligation to give greater voice to anti-Dominion environmental groups than I might have been inclined to do had I remained an unsponsored commentator. As an aside, while Dominion would pitch stories to me as it did to other reporters, the company never tried to control what I wrote. I question if the backers of agenda-driven journalism will be willing to take the same hands-off approach.

Beginning with the “Big Bacon Fry” event late last year, I have been holding conversations with a variety of people about the future of Bacon’s Rebellion. I have concluded that there is a viable business model for a non agenda-driven publication focused on covering the Virginia statehouse. Such a venture would re-conceptualize reporters from people who report to editors and publish articles in newspapers into people who create a nexus for the flow of information on a chosen topic, such as the future of the electric grid, innovation in transportation, productivity in health care, or something similar. Content would run the gamut of written journalism, commentary, white papers, video presentations, networking luncheons, seminars and conferences.

Another possibility is to reinvent Bacon’s Rebellion as a platform for cranky old men (and women). At 65 years, I’m in a financial position to do whatever I want in “retirement,” and that might include doing what I’ve been doing all along — without the necessity of focusing on subject matter aligned with sponsorships. Steve Haner, who has reached a similar stage in life, already has made a tremendous contribution to Bacon’s Rebellion, adding his valuable perspectives as a former journalist, political operative and lobbyist. Perhaps there are others who would enjoy blogging as a serious retirement activity.

I have some personal decisions to make about how to allocate my time over the next couple of years — I do have a major commitment writing a corporate history — so I may or may not have the bandwidth to oversee a full transformation of the blog. But I am open to talking to and partnering with others. If anyone has thoughts to share, I would love to talk to you.

Solar Farms and Rural Blight

Non-solar visual blight in rural Virginia

Governor Ralph Northam is committed to solar energy in Virginia. So is the General Assembly. So are Virginia environmentalists, investor-owned utilities and entrepreneurial solar developers. Now all we have to do is convince the people of rural Virginia that installing massive arrays of solar panels in their neighborhoods poses no threat to their quality of life.

I’ve documented numerous instances of resistance to solar projects around the state on this blog. Here are a couple more.

Campbell County. The Campbell County Board of Supervisors is moving forward with an ordinance to regulate solar farms, three of which have been proposed for the Central Virginia county, reports the News & Advance. Much of the discussion at a hearing yesterday focused on the noticeable hum emitted by solar inverters, which convert the electricity from solar panels into a form that can enter the electric grid. One supervisor argued for a 200- to 300-foot setback for the devices, which can generate noise at a level comparable to an air conditioner or dishwasher. Other supervisors rejected the idea, but the ordinance does require solar projects to conduct traffic studies and decommissioning studies.

More non-solar visual blight in rural Virginia.(Image credit: Hamell.net.)

Culpeper County. Meanwhile, a standing-room-only crowd turned out for a public hearing yesterday on a proposed 1,900-acre solar farm in Culpeper County. Concerns included impacts to view sheds in the area, screening, construction noise, setbacks and property values, reports the Free Lance-Star.

Bacon’s bottom line: I find noise concerns laughable. If inverters required 200-foot setbacks to mitigate an air conditioner-level hum, so would every new house constructed in Campbell County! Is construction work on solar panels louder and more objectionable than construction work on convenience stores, housing subdivisions and manufacturing plants? As for traffic impact, c’mon, a solar farm might generate two or three trips on a typical day. Solar farms are about as low-impact an activity as it’s possible to get. Even cemeteries see more action! 

Even more non-solar visual blight.

People may have a point about the aesthetic impact of solar farms upon bucolic rural views. But, dude, why just pick on solar farms? I’ve seen plenty of run-down shacks, gas stations, and industrial structures barns in rural Virginia that no one gets exercised about. Why not clean them up, too?

Solar’s time has arrived. Virginia was prudent to not mandate solar power when the technology was more primitive and the electric output far more expensive than it is today. But costs have plummeted, and a big chunk of solar in the electric-generating mix makes economic sense. Plus, solar is clean. Even if you don’t lay awake at night worrying about global warming — which I certainly don’t — that’s a major bonus. Get with the program, people! Solar farms bring tax and royalty revenue into your community. Find something else to worry about!

Could Amazon Fixation Cost Virginia $1 Billion Micron Expansion?

Nyah! Nyah! Come and get us!

Will a fixation with winning Amazon.com’s massive HQ2 project cost Virginia a $1 billion expansion of the Micron Technology, Inc., plant in Manassas? It could, says a Wall Street Journal article today:

When semiconductor-maker Micron Technology Inc. approached economic-development officials in Virginia about a tax-incentive package for a $1 billion expansion of its Manassas site, it got the cold shoulder.

The state was too busy preparing its bid for Amazon.com Inc.’s second headquarters project, according to a person involved in the discussions. Now, the company is negotiating with officials in New York about taking the project—and the 500 new employees it would require—there, said the person. …

With 1,800 employees, Micron’s Manassas, Va., microprocessor plant is one of the area’s largest employers. The plant is expanding to meet increased demand—particularly in the automotive industry, for which the company produces memory-storage devices, said a person familiar with the matter.

Stephen Moret, CEO of the Virginia Economic Development Partnership, which is mostly publicly funded, declined to comment on the specific negotiations with Micron.

In an email, he said the group heavily relied on consultants to aid it in its Amazon proposal. “Consequently, we don’t think there has been an opportunity cost to our HQ2 efforts, other than the financial investment we made in third-party support,” he wrote. He declined to say how much the state authority spent on its HQ2 bid.

Bacon’s bottom line: I have long been ambivalent about Amazon HQ2. Admittedly, a major Amazon presence in Northern Virginia would be transformative, spurring a much-needed diversification of the economy away from the federal government. But the sheer magnitude of a $5 billion investment and hiring of 50,000 employees would disrupt regional labor markets and create enormous population and development pressures which state and local governments would be hard-pressed to pay for, especially if tax breaks and subsidies were needed to clinch the deal. Better to aim for projects that are big by any non-Amazon measure such as a major facility expansion planned by Apple, I have argued.

Better yet to win projects, such as Micron, which by all logic would locate in Virginia with only a modest effort. Hopefully, Virginia’s economic developers can rescue the Micron expansion, as I am confident they will. A loss to New York, a state from whom Virginia has been draining investment from for decades, would be humiliating.

While Northern Virginia arguably has as good a shot as any competing region at winning Amazon, let’s face it, snagging HQ2 is a long shot. NoVa is one of 20 regions competing for the business. To re-tread an old metaphor, we can take the bird in our hand or go for two in the bush. With the economy at full employment, I’d happily settle for the bird in hand.

Update: There’s more to the story than reported by the WSJ. Regarding the implication that the Commonwealth has given Micron the cold shoulder, Stephen Moret can say this:

Because Micron is one of our largest traded-sector employers, they interact regularly with VEDP staff members and other state officials.

Including a plant tour back in February, several in-person meetings with Manassas and/or headquarters officials of Micron, and many phone calls, I’ve personally talked with Micron at least 15 times since late last year. I’ve interacted more with Micron than with nearly any other company that has operations in Virginia.

Also, in regard to Amazon HQ2 incentives, Moret said in an email response to the Journal: “We would be thrilled for HQ2 to locate in Virginia, but our efforts to date relative to HQ2 will produce a positive ROI for Virginia whether or not we secure HQ2.” Read the full text of that email here.

Aunt Virginia Needs You (As An Election Officer)

The EPB! (Electronic Poll Book)

One of the sheets of paper taped on the wall in Richmond’s Maple Avenue Fire Station Tuesday was a recruiting poster seeking additional qualified people to become “one of the elite!”  Not Marines, not Green Berets or fire fighters – election officers.  Uncle Sam and Aunt Virginia need you for this job, too.

The various disputes in House of Delegates races last fall reminded me that I had always wanted to try working inside the polls.  For many years I was doing precinct work on the outside, taking care of the GOP signs and giving voters a handout or final harangue, and sometimes I watched the count process as a party observer.  That’s not happening in the Age of Trump so I wanted another way to get involved.

This year brought some certainty that I could keep the days of the primary and general elections free, so Tuesday at five a.m. I stumbled into the firehouse for my rookie effort.  Given it was an abysmal-turnout primary (GOP ballot only in Richmond) and the voters would be few and far between, it was a perfect practice run.  A few general observations:

First, I really would encourage you to try this assuming you are up to a 15-16 hour day with a good bit of time on your feet.  It is vital that people who respect the election process are conducting it, because it is still very hands-on and open to error.

Second, somebody needs to put in a bill that gives local electoral boards full powers of eminent domain for election days.  Finding the right locations with sufficient parking is also important as long as we continue one-day, in-person voting.   Yours truly failed in his morning mission of protecting a few parking spaces in the nearby public lot as reserved for voters, and suddenly there was only one space open.  I chased many non-voters out of it.  I’m semi-serious that a short term grant of eminent domain might help secure locations and parking.

Third, changing precinct lines should be hard to do and happen very seldom.  It breeds great confusion, and we had scores of voters complaining “but I’ve always voted here!” and “I never saw any notice!” when they were turned away.  The new electronic poll books automatically generate actual driving directions to the correct polling place, printed on a slip to hand to the unhappy voter.  That helps.

Fourth, it’s amazing how many voters remain unaware of which candidates match their districts.  That part of Richmond used to be in the Seventh Congressional District, Dave Brat’s district, and a few years ago was moved by court order to the Fourth District, now represented by Donald McEachin.  We had another subset of voters, larger than the group coming to the wrong poll, who wanted to vote in the Seventh District Democratic primary.  Some got all the way checked in before realizing they didn’t want to vote in the GOP primary.

This problem is on the voters, and to some extent on the parties who could consider at least one pre-election mailing to each registered household with that basic information.  We started stressing to people at the door that our precinct had no Democratic primary.  It will happen again in November because of the spirited race coming in that neighboring district.

Electronic poll books, paper ballots that are automatically assessed and counted by the voting machine, a new machine for the visually impaired which we didn’t need – the technology is great, but at the end of the day civility and humor and patience keep the flow moving and human eyes need to confirm that the person standing there is indeed who they say they are, and that the numbers on the poll books, on the paper ballot tally, and on the voting machine all balance.  We check every 15 minutes.

It was a breeze Tuesday.  When five or six times that many voters come in November, it will be more problematic.  Think about joining us.

A Trump-Stewart Republican Party?

Map credit: Virginia Public Access Project

What do we make of Corey Stewart’s nomination as Republican candidate to run against Tim Kaine for the U.S. Senate seat? Does Stewart’s narrow victory portend a reshaping of the Republican Party of Virginia along more populist, Trumpian lines?

I think a fundamental political realignment could be occurring, but the outcome hinges on events yet to unfold. A lot will depend on what happens to President Trump. If his administration collapses in scandal, as it very well could, so does the populist movement within the Virginia GOP. If, on the other hand, Trump is vindicated in the “Russia collusion” concoction, if the machinations of the Deep State are revealed for all to see (see the release today of the OIG report), and if the economy continues to boom, many people will forgive his character flaws and rhetorical abominations, and Trumpism could very well take lasting root in the party of Lincoln, McKinley and Reagan.

The prospect of a realignment also depends upon how successful Stewart will be in what he promises to be a “vicious campaign” against Kaine, who, whatever one thinks of his politics and his off-putting performance during 2016’s vice presidential debate, is widely regarded as a likable person and the antithesis of vicious. It was one thing for Trump to run a nasty campaign against Hillary Clinton, who had more baggage than Kim Kardashian on a trip to Cannes, and quite another to run one against Mr. Clean. I further question whether Virginia voters, after two years of watching the politics of personal destruction in Washington, D.C., have an appetite for more of the same closer to home, so I am skeptical that Stewart’s pledged scorched-earth campaign will resonate. Indeed, I expect that it will fail spectacularly, in which case Stewart will be repudiated and the GOP could become safe once again for moderates and libertarians.

But my opinion may not count for much. I’m an educated suburbanite, and Stewart isn’t appealing to people like me. He’s hoping to mobilize the forgotten men and women of the white working class and middle class — those who feel alienated from elitist culture and the structures of power.

There may have been enough such voters to capture a GOP nomination, but are there enough to win a statewide U.S. Senate campaign? Stewart won only 45% of the Republican vote in a relatively low turnout primary. If he can unite the party, he has a remote chance of winning the election. If he can’t, he has zero chance. He drew disproportionate strength from the predominantly white localities west of the Blue Ridge Mountains, moderate support in Northern Virginia and the southern Piedmont industrial quadrangle (Roanoke, Lynchburg, Danville, Martinsville), but little anywhere else.

Here’s his problem. While nearly all Republicans and many independents recoil from the Democratic Party’s identity politics, they are divided about how to respond. Stewart answers the rhetoric of minority grievance and resentment with the rhetoric of white grievance and resentment. In a demographically diverse state like Virginia, that’s a losing proposition. Nick Freitas and E.W. Jackson, Stewart’s primary opponents, staked out more inclusive positions of opportunity for all. That’s a fundamental philosophical dividing line.

In the current political environment, I see three big buckets of voters — (1) those who hew to the Democratic tribe emphasizing grievances based on color, gender and sexual orientation, (2) those who hew to the Trump-Republican tribe emphasizing white working/middle-class grievances, and (3) those who eschew tribal identities altogether and see people as individuals with cross-cutting identities and priorities. The third group, I would suggest, overlaps significantly with a voting bloc I have referred to in the past as “natural libertarians” with a tolerant live-and-let-live philosophy — and that includes many Republicans who didn’t vote for Stewart.

The logical home of the natural libertarians, I would suggest, is within the Libertarian Party — if only the LP could broaden its appeal beyond its core base of intellectual purists by finding a large demographic constituency. In case you missed it, the LP has fielded a U.S. Senate candidate, Matt Waters. With a platform that includes ending the federal income tax, however, it’s hard to imagine voters taking him seriously.

Where Are the Consumer Rights Advocates When You Really Need Them?

Consumer rights advocates work themselves into a wrathful froth over the misdeeds of banks, payday lenders, credit card companies, and mortgage lenders. But what about the truth-in-lending abuses perpetrated by institutions of higher education? We don’t hear so much.

With the cost of attendance of a four-year degree routinely exceeding $100,000, selecting a college can be one of the biggest financial decisions that Americans can make — probably the biggest decision for low-income families that never purchased a house. But the financial terms and conditions provided in acceptance letters are notoriously opaque, finds a study by the New America think tank and financial-counseling firm uAspire.

The two outfits published a study last week based upon an examination of 11,000 award letters sent in 2016 by more than 900 colleges. Summarizes NewAmerica’s Kevin Carey in the Wall Street Journal: “It found most of them use obscure terminology, omit vital information, or present financial calculations that appear deliberately deceptive. Many letters are confusing in their own unique ways, making it difficult for students to compare colleges.”

Of the 515 colleges that awarded them via nonstandard letters, more than a third provided no information about how much attending school would cost. The letters highlighted grants and scholarships as a way of convincing students to enroll, but without listing tuition or explaining how much money students would owe. …

The letters that did disclose costs were inconsistent. Some listed only tuition. Others included room and board. Others added books and estimated living expenses. … Seventy percent of colleges with nonstandard letters created further confusion by lumping together grants and loans, as if both were freebies.

Carey cited a letter sent by the University of Arizona that told a student that the cost of attendance was $48,200 a year, then subtracted $5,815 in grants, $5,500 in work-study opportunities, and $26,885 in loans. “Net Costs After All Aid” were “$0.00.”

A used car dealer who delivered a pitch like that would be slammed with a fine and driven out of business.

Many (not all) public colleges and universities engage in practices that would make a payday lender blush. It all makes sense when you understand that higher-ed institutions are, beneath the lofty rhetoric about justice and equality, mechanisms for the extraction of wealth from students and taxpayers, the pursuit of status and prestige within the academic community, and the remuneration of elite faculty and administrators.

Feeding the system requires inducing as many students as possible to enroll, which is becoming increasingly difficult as the cost of attendance continues to outpace incomes and financial aid.

How can lower-income Americans be protected from the higher-ed racket? New America recommends requiring colleges to use a standardized award letter that explains expenses, grants and loans clearly so recipients can easily compare offers by competing institutions. The Department of Veterans Affairs already mandates this kind of transparency for students benefiting from the GI Bill. Congress should require a standardized letter for all institutions receiving federal money.

And if Congress doesn’t act, I would suggest, the Commonwealth of Virginia could require a standardized letter for all state institutions — or, at the very least, for institutions offering state-funded financial aid. Colleges and universities should be free to determine the substance of their own financial aid packages, but there should be full transparency in how those packages are presented to students and their families.

Being Dealt A Losing Hand That Lingers

There are times in life when four aces is a tough hand to hold.

Common themes on this public policy forum include poverty and its causes and cures, school failure and related discipline matters, health problems and the difficulty understanding why these conditions remain so widespread in this great nation and commonwealth.  I invite you to temporarily suspend your preconceived notions and examine some hard data that upset some of mine.

My quick summary is not doing this work justice but this is a blog, not the New Yorker.

More than twenty years ago two researchers on opposite sides of the country were feeling their way toward explaining strong correlations they observed between childhood experiences and later physical diseases.  One noted that people who dropped out of obesity treatment were often sex abuse victims.  A collaborative study was funded by the Centers for Disease Control and Kaiser Permanente.  About 17,000 people were asked to fill out a simple 10-question survey on various adverse childhood experiences (ACEs) and then the results were correlated with their health records.

Here, take the test yourself.

The results were astounding.  Adults who had high ACE scores also were substantially more likely to have – decades later — a number of health problems up to and including early death. People with a score of six or more were potentially looking at lifespans of 20 fewer years.  From the summary I linked:  “Compared to an ACE score of zero, having four adverse childhood experiences was associated with a seven-fold (700%) increase in alcoholism, a doubling of risk of being diagnosed with cancer, and a four-fold increase in emphysema; an ACE score above six was associated with a 30-fold (3000%) increase in attempted suicide.”

It was widely known that children who were physically or sexually abused were more likely to become offenders themselves, and the concept of psychosomatic illness is ancient.  We’ve long talked about the cycle of poverty.  But here was hard proof in a simple and easy to replicate study.  It then led to brain studies that discovered that trauma and the resulting floods of cortisol and adrenaline actually change physical brain structures.  The how is becoming clearer.

This initial group was not a low-income population.  Heart disease, depression, family violence, drugs and learning problems are not limited to poor neighborhoods.  But the work has sparked a slowly spreading revolution in education and social services.

Consider the implications of simply changing the question “What is wrong with this child?” to “What has happened to this child?”  When you make that mental shift, does it change the way you think about the argument over long suspensions for primary school students with control issues?  Do you really think sitting out of school for a long period (unsupervised) is going to change anything?  Do you worry a little bit more about the impact on a child of a being evicted a series of times?  Are you a bit more interested in providing Medicaid to the whole family instead of just the children?

Source: CDC

Continue reading

The “Energy Cloud” — Buzzword or the Future?

To get an idea of how people outside of Virginia are thinking about energy policy, I listened two days ago to a webinar produced by Navigant Consulting on the emerging “energy cloud.”

The energy cloud, says Navigant, will come from applying digital technologies to the electric grid, shifting from a one-way flow of electrons on power lines to a multi-directional flow and moving from large, central power stations toward Distributed Energy Resources (DER). “A cleaner, intelligent, increasingly mobile, and more distributed grid is just around the corner.”

After decades of relative stability, Navigant opines, the U.S. is entering a period of great change. “New value will be created and captured across highly dynamic and disruptive Energy Cloud platforms. … Energy incumbents, especially utilities, have less than 5 years to reorient their products and business models around fast emerging technology ecosystems like iDER, Smart Cities, and IoE (Internet of Everything) or risk becoming a fringe player in the emerging energy economy.”

Now, I recognize that Navigant charges exorbitant fees for business-intelligence services by persuading people that its consultants and analysts perceive the onrushing future with greater clarity than anyone else. The firm touts the Next Big Thing and makes the case that disaster will befall anyone who gets left behind. That said, Navigant talks to a lot of people, including those with potentially disruptive technologies and business models, not just established players wedded to the status quo. It would be unwise to dismiss its prognostications out of hand.

Distributed energy will be as disruptive to the electric power industry as solar and wind power, Navigant says. For example: Electric-powered vehicles, which operate on batteries and plug into the grid, will be huge. Over the next 10 years, distributed energy resources — which includes fleets of electric vehicles that can feed into and draw down from the grid at will — will grow at eight times the pace of central-station generation, the firm predicts.

Also, says Jan Vrins, managing director-energy for Navigant, the industry is moving away from one-size-fits-all electric power to highly personalized products and services. “Energy providers are providing what customers are looking for. As energy and electric power becomes more important to our society,” he says, “there’s a significant opportunity to go after new revenue streams around transportation, around industrial and commercial customers.”

Mary Powell

The Un-utility. One of the presenters was Mary Powell, CEO of Green Mountain Energy, a Vermont utility. “I don’t view DER as a threat,” she says. “We see opportunities to create deeper, more substantial relationships with our customers. We have a customer-obsessed culture. … Three or four years ago, we began to focus on how do we accelerate the consumer-led revolution to distributed resources.”

Vermont customers are politically progressive, and they want a different energy future. A decade ago the emphasis was on solar energy and putting solar on rooftops. The conversation has evolved since to smart grids, demand-management, energy efficiency, energy storage, and flattening the peak in energy demand. “We’re not just attacking the peak, we’re crushing it,” Powell says.

Reinventing itself as the “un-utility,” Green Mountain Power has transformed its corporate culture. Instead of thinking about how to grow demand for electricity, the team has asked, “What happens if we lost 40% of our traditional revenue over 10 years? How do we create a new value stream?” The approach has been to experiment a lot. “Try something in a nimble, gritty, low cost way,” says Powell. “Don’t take massive bets. Make lots of small bets, and lean into the ones that offer great value for customers.”

How’s that all working out for Vermonters? The webinar didn’t get into that. Vermont’s electric rates are about 50% higher than Virginia’s. But then, electric bills are lower. Vermonters don’t need air conditioning, and they typically use gas or oil to heat. Can lessons learned in Vermont apply to Virginia? That would make an interesting discussion.

Paula Gold-Williams

Utility-scale solutions in an era of DER. CPS Energy, which supplies electricity to the San Antonio, Texas, area, serves a very different customer base. Energy customers aren’t as politically driven in Texas as in Vermont, but they are changing, and CPS Energy is changing with them, says CEO Paula Gold-Williams.

Some customers want the kind of personalized electricity described in the Navigant playbook. But, Gold-Williams says, “I have customers on the other end of the spectrum who say, ‘I don’t even want to think about it. I don’t want to think about technology. You’re the energy expert, you do what you think is right.'” Continue reading

What the 2018 Tax Cuts Mean for Virginia

How will the tax cuts from the 2018 Tax Cuts and Jobs Act impact Virginia households? The results vary considerably by income bracket, according to a tax calculator published by the Tax Foundation. Higher income households, making over $200,000 per year, will get the biggest income tax breaks as measured in absolute dollars and by percentage of income.

But, despite the hand-wringing over the elimination of the tax deduction for state and local taxes, there is only modest variance among high-income households between high-tax Northern Virginia and other parts of the state.

To illustrate the impact by income category, I selected Congressional District 7, which stands at the geographic center of the state and encompasses a range of higher-income suburban households and lower-income rural households. As seen in the table above, there is very little in the tax package for people making less than $25,000 per year. Of course, given the highly progressive structure of the tax code, people making less than $25,000 per year pay almost no taxes to begin with.

The tax act is fairly generous to working-class and middle-income Virginians but most generous to those making over $200,000 per year. If your No. 1 concern is sticking it to the rich, this bill doesn’t do it. In fact, the Tax Foundation data makes the tax act look like a giveaway to the rich — more or less as its Democratic Party critics described it.

Unfortunately, this static analysis obscures as much as it reveals. By eliminating many deductions employed by the wealthy, tax reform should flush considerable income out of tax shelters into the taxable open. One can predict several things: (1) that taxable income will rise, which (2) will induce hysteria among the social justice warriors obsessed about income inequality without appreciating the difference between gross income and net (taxable) income, and (3) will result in higher tax payments than would be predicted by static analysis. If your No. 1 concern is ensuring that the rich shoulder an increasing share of the income tax burden, then such an outcome is entirely possible under the tax plan — although we won’t know for sure until the data comes in.

Another thing that static analysis overlooks is the impact of the tax cuts on the economy. At a minimum, lower taxes will create more disposable income, some proportion of which will be plowed back into the economy in the form of increased consumer spending. If the money isn’t spent, it will be used either to pay down debt (a good thing) or invested (also a good thing). It seems pretty clear that Democrats’ fears of an economy cataclysm resulting from the tax cuts are not being borne out. In the short run, the cuts clearly are boosting the economy. They’re also boosting deficits, however, which does aggravate the long-term problem of endemic deficit spending and make a Boomergeddon scenario all the more likely.

There is some geographic variability in tax cuts for top-earning households ($200,000 and up), as can be seen in the chart to the left, but it is modest. Fears fanned by critics that high-income earners in high-tax districts might be losers do not appear to be panning out in Virginia. Northern Virginia districts 8, 10, and 11 don’t get tax breaks as big as their high-income earners in other districts, but they do get tax breaks. Big ones. If anyone has a problem, it’s Maryland’s 4th and 5th districts east of the District of Columbia. There, top income earners get tax breaks averaging only $9,000 per household. Is that a big enough difference to induce some to move across the Potomac? We’ll see.