Bob McDonnell’s Energy Plan

guest post by tx2vadem

Not to take away from the discussions Bob McDonnell’s positions on social issue, but I thought it would be a good to start also revisiting Bob McDonnell’s policy proposals. Since some are quick to point out that McDonnell has plans and he’s running on those plans, it would be helpful to examine those plans other than just throwing out there that he has plans. That being said, I started with looking at both his Energy Plan and his Transportation Plan. Now since others have offered recent critiques of his transportation plan, I thought it would be more beneficial to revisit his Energy Plan.

Reading through McDonnell’s Energy Plan, I was quite confused. I thought Republicans were against the stimulus package (American Recovery and Reinvestment Act or ARRA) and against the American Clean Energy and Security Act (ACES). And further I have gotten the impression that Republicans generally think Global Warming is a sham. But then reading Bob McDonnell’s plan, it sounds like he is either out of touch with his own party or I have completely misunderstood Republicans in this area. This equally perplexes me about their boosterism of his plan; did they only read the offshore drilling section?

What I ended up taking away from McDonnell’s Energy Plan are these three points:

1. He has a deep admiration for the work that Congressional Democrats are doing as most of this plan is just directly drawn from the ARRA (the stimulus bill) or ACES. Not that I am pooh-poohing bipartisanship. It’s just surprising. But you know if that isn’t “Me Too”, I don’t know what is.
2. He’s focused on a national issue (offshore drilling in federal waters) that is really beyond his control. Yet he already has designs on estimated revenues that might flow into state coffers in 2012 or 2013.
3. And what I would think should be most troubling to conservatives is that all of this represents an expansion in state government. Albeit the funding (the ARRA) for many of his initiatives will dry up in 2011, does anyone accept at face value that once these programs are in place they will just die out once the stimulus funds are gone? I thought that was the entire argument Republicans made against taking additional unemployment benefits money.

Now on to the details…

The Intro
The entire first page is just an introduction, but he says some things that I just can’t leave alone. First, he has to establish his credentials. I think it quite telling what he has chosen to demonstrate his leadership on this issue. He starts this entire intro with his support for hydrogen power. Hydrogen, you may know, is a very prevalent element; however, it is bonded to other elements. The two main ways to make hydrogen gas are: by splitting it out of hydrocarbons (like natural gas), and by electrolysis (splitting it from water). Currently, it is both costly an inefficient (as compared to other sources) to use hydrogen to power our cars or our homes. Popular Mechanics has good article from 2006 that went into all the issues there are with hydrogen (you can find that here). And unless you are using wind, solar, biomass or nuclear (at some future point in time anyway) to generate it, then it’s usefulness as a green alternative is nil. So, I guess this is really about how he is willing to try anything irrespective of the merits of the technology. And that I don’t think is a good thing. Aren’t Republicans against picking winners and losers in the economy?

He then makes a claim that stunned me. He says he “brought together all the necessary stake holders to re-regulate electricity in Virginia.” So, first, as I recall, it was Dominion who brought together a near unanimous legislative coalition to pass this bill that they designed. The genesis being that the de-regulation bill, that they also designed, wasn’t working out for them. But the biggest jaw dropper is that he is claiming credit for re-regulation. This is super confusing because I thought McDonnell and Republicans were against government regulation. The other point is he likes to claim credit for legislative monstrosities. So, when he wasn’t masterminding HB3202, he was masterminding the re-regulation of our electric markets.

Last on the introduction, we sort of get to his statement of the problem. He notes how we import a lot of electricity which he thinks is a big deal. Well, a lot of the import comes from the GIANT coal-fired generation plant called Mt. Storm in West Virginia, and then generally from West Virginia that is an exporter of power. Is it a crisis that we need to solve though? We operate within PJM (a Regional Transmission Organization). We should be worried about the reliability of the grid as a whole, not just Virginia’s share.

Offshore Drilling
The major piece of his proposal is offshore drilling. And while we can all salivate over the potential revenue that this might generate for the state, it is just that: potential. Being just a potential and one that is not even a solid probability yet, it seems odd to start planning how the government will collect money from this activity and spend it. The first barrier to this is the fact that the lease sale has been put on hold. The lease in question is Lease 220. Even still, the sale would not occur until 2 years into the next governor’s administration. And it would take time to explore and then develop the resources if something economically viable was found. So that money, if this does come to fruition, is still a long ways off. Nothing to base a plan off of anyway. The barriers you have to get beyond are that the Obama Administration (via executive order) or Congress won’t re-enact the moratorium. After that, under the Outer Continental Shelf Lands Act (OCSLA), the lease would need to be within 3 nautical miles of our coastal watershed in order for us to get a slice of the royalties. Congress would have to pass a new law in order for us to get royalties as they did for the Gulf States. However, the major player behind that piece of legislation was Senator Landrieu, the basis being that this money could help restore the Louisiana coast. That’s a lot of moving parts in order to get money that won’t come into government coffers until well past 2011. But I guess if the timing were just right, this money would come in just as the stimulus money he is using to fund the rest of this plan was fading out.

Supporting Coal and Nuclear
The next piece is supporting our coal and nuclear industry. He plans on using the stimulus money allocated for Carbon Capture & Sequestration (CCS) technology to fund those projects. So, in essence, his plan for supporting coal power is what the federal government tells him he should do. CCS also gets a big boost from ACES as well. I know Republicans generally hate all that is ACES, but it doesn’t seem like Bob does.

For nuclear, he doesn’t really have a plan. He just restates Dominion’s plan. The only novel thing here is his desire to speed up the approval process. Environmental reviews and public input take time. So, what is lost when the process is sped up? Coordination with the feds may save time to the extent we are not doing that now, but I don’t know that it will offer a drastic improvement in the length of time. I’d like to see a better definition of the problem first. How long does the permitting and approval process take? What are the primary drivers behind the length of time? If we speed up just to speed up, surely the utility gains from that, but who loses?

Green Jobs
On alternative energy, he wants to create $500 tax credit per “green” job (up to a max of $175k). He wants to create tax credits in other places too, like his jobs plan. So, I don’t know whether he has done the math on all his plans to see whether he can actually fund all these things. After reading through them all, I’ll try to see whether I can make out what the net budgetary impact would be. It depends on how this credit ends up being worded. But if it only applies to new jobs, then I wouldn’t expect it to amount to much. It certainly won’t drive companies to create those jobs; it would just be incidental if they did. But I would expect a lot of companies to try to work with the definition of “green job” in order to get the credit.

His last point on this topic is the Virginia Alternative Fuels Revolving Fund, which has no funds. His plan is to fund that and also include infrastructure as a part of its scope. He will be funding that with seed money; I’m guessing that will be a paltry amount considering he is not raising taxes and has to fund all these other initiatives he is proposing. And again, what is surprising here is the reference that the federal government has incentives for alternative fuel vehicles and we lag behind. So, he is taking his policy queues from the Democratic Congress again?

Transforming Southside and Southwest VA Plus R&D
His next two points are to turn Southside and Southwest Virginia into America’s Energy Corridor and make us a global leader in energy R&D. FYI, those areas are currently in America’s Energy Corridor. There are major natural gas and oil pipelines that come up from the Gulf and pass through that area on their way to the North East. And on top of those pipelines, Bob wants to setup a Virginia Energy Institute using Tobacco Commission existing funds and stimulus money (have you gotten tired of that yet, oh wait there’s more). On the R&D point, he wants to setup a non-profit foundation to help get stimulus dollars for R&D projects related to energy. I think both of these are good ideas. Though on the latter, I would think the universities already have folks in place applying for stimulus funds and government grants. But again with all this reliance on stimulus money, he is just taking the Democratic Congress’s initiatives and putting them into action. It’s sort of a heads-I-win, tails-you-lose scenario for conservatives though.

Energy Efficiency
The last two points are nothing new. On energy efficiency and conservation, he again wants to use those stimulus dollars as Congress has already directed (in this case to weatherize homes). He applauds Governor Kaine’s leadership on LEED standards and he wants to expand on that. He wants to also do something that the federal government is also already doing which is to utilize Energy Savings Performance Contracting. A good idea is a good idea though even if you are just following someone else’s lead.

Smart Grid
The final piece of this plan is about Smart Grids, but I don’t know why it is here. He’s just stating what they are and that they need to be implemented. There is nothing about how he plans to help that. There are many provisions supporting the development and implementation of Smart Grids in the ACES. In addition, there was also money in the ARRA for making smart grid investments. Though not explicitly stated as elsewhere throughout the plan, I take it for granted at this point that he also appreciates the money from the ARRA in implementing smart grid technology.

The smart grid section does finish this entire plan off nicely by allowing me to make a point about cost. So, McDonnell wants to make Virginia the energy capital of the East Coast. And his plan is primarily directed towards higher electric generation. At the same time, Republicans have been hemming and hawing about higher utility bills. What McDonnell glosses over here is that the infrastructure improvements whether that be to implement smart grid technology or build a new nuclear reactor amounts to billions of dollars. All of those capital expenditures get recovered from consumers through the utility rate making process. So, where is the concern about higher utility bills here? You cannot have both massive capital investments by the utilities without higher rates.

The End
On balance, this plan has so little in it for conservatives. So much of it is funded from the ARRA an act of Congress that Republicans regularly condemn. While I appreciate the acclaim for the Democratic Congress’s initiatives, I would think this would be disturbing for conservatives and not something to regularly trot out. As to the efficacy of his plan, offshore drilling is far off; and it is hard to see the tiny sliver of offshore area that Virginia has outdoing Florida. And the rest of the plan doesn’t turn us into an energy giant either. Nothing in it increases the production of other fuels. The only increased electric generation envisioned is Dominion adding on to its North Anna Nuclear Plant. So, his goal of making Virginia the energy capital of the East Coast ends up being just wishful thinking.