A vicious cycle

We learned this past week that WV American Water used to have a gas chromatograph (the equipment used by Cincinnati and other water utilities to monitor for contaminants upstream of their intake) and other chemical testing equipment at their Kanawha Valley plant, but got rid of it in 2004. This is part of a broader focus on cost-cutting by the company – which is reflected in their high and growing unaccounted for water (leakage) rate, and their attempt to cut 10% of their staff back in 2011.

It is tempting to lump these activities under the general corporate management trend over the past 30-40 years of aggressively cutting costs and eliminating redundancies, but there is a more specific dynamic at work here. WV American Water is facing a declining market. Its overall sales have been on a declining trajectory since the late 1990s, and industrial sales have declined 60% since 1991. Because so much of a water utility’s rates go to cover the cost of infrastructure that has already been built, then when sales decline the utility has to raise rates on the remaining customers to be able to cover those costs.

The Public Service Commission has tried to hold WV American Water’s rate increases in check, but this means that the company has not been able to earn much of a profit on its WV operations. WV American Water’s return on equity (the return that shareholders get for investments in WV) has hovered in the range of 4%-5.5% for the past 5 years (see p. 116 here). Utility returns on equity are more typically in the 9-10% range. Because WV American is owned by a holding company, American Water Works, that owns water utilities across the country, the WV subsidiary is essentially in competition with the other subsidiaries for investment by the parent holding company. As stated by former WV American Water president Wayne Morgan in a 2010 rate case, “Why would American Water – or any company for that matter – invest in West Virginia when it can earn much more in Pennsylvania or New Jersey?”

The Public Service Commission’s attempts to keep a lid on WV American Water’s rate increases have almost certainly played a role in the company’s decisions to cut corners on operations & maintenance. This regulatory history also probably makes the utility vary wary of making any new infrastructure investments on its own (a second intake, for example) for fear that the PSC will not let them raise rates enough to cover it.

The underlying reality of gradual economic decline doesn’t appear to be going away any time soon. That means its time for some new thinking here – this vicious cycle of rising rates and under-investment in infrastructure hasn’t worked for us in the recent past, and it’s not going to work in the future.

What are our candidates planning to do about the water?

The election is less than one month away.  There are several candidate forums happening in the next few weeks (here and here, for examples).  If you’re going to any of these events, here are some important questions to ask:

1. What changes do you think need to be made to Senate Bill 373?
Several legislators, led by House Speaker Tim Miley, are already calling for more exemptions to be inserted into SB 373.  Their call earlier this year for a special session to make changes to Senate Bill 373 was unsuccessful, but it is likely that SB 373 will be under attack during the 2015 legislative session starting in January. We need to know which candidates will be champions in defending the bill.

2. Do you support increased funding for the Department of Environmental Protection to increase its capacity for inspections and enforcement of SB 373 and other laws?
Legislators like to complain that there is no money for anything, but this lack of money is at least partially their fault. As we posted previously, corporate tax cuts since 2006 are a major contributor to our state’s current budget shortfall.

Failure to enforce existing regulation was a key factor in this year’s water crisis.  We can pass all the new regulations we want, but unless we have the capacity to enforce them, we won’t get very far.  We need legislators that are willing to restore funding so that state agencies actually have resources to protect our state.

3. Would you support or sponsor legislation to implement a Hazardous Chemical Release Prevention Program, as recommended by the US Chemical Safety Board?
In 2011, the US Chemical Safety Board recommended the adoption of a Hazardous Chemical Release Prevention Program, modeled after a successful program in Contra Costa County, CA.  The only place where the Chemical Safety Board appears in SB 373 is the requirement that the Public Water System Supply Study Commission review and consider their recommendation.  The Chemical Safety Board’s recommendation is already more than 3 years old, and the legislature has yet to take any action that would suggest that they plan to implement it any time soon.

SB 373′s water system study commission finally gets started

The Public Water System Supply Study Commission established by Senate Bill 373 met for the first time last week. The Commission is charged with:

(1) A review and assessment of the effectiveness and the quality of information contained in updated source water protection plans required for certain public water systems by the provisions of section nine-c, article one, chapter sixteen of this code;
(2) A review and assessment of the effectiveness of legislation enacted during the 2014 Regular Session of the West Virginia Legislature, as it pertains to assisting public water systems in identifying and reacting or responding to identified potential sources of significant contamination, and increasing public awareness and public participation in the emergency planning and response process;
(3) The extent of available financing and funding alternatives which are available to existing public water systems to pursue projects which are designed to create alternate sources of supply or increased stability of supply in the event of a spill, release or contamination event which impairs the water system’s primary source of supply;
(4) A review and consideration of the recommendations of the U. S. Chemical Safety and Hazard and Investigation Board after its investigation of the Bayer CropScience incident of 2008; and
(5) Any recommendations or suggestions the study commission may offer to improve the infrastructure of existing public water systems, to provide safe and reliable sources of supplies, and to pursue other measures designed to protect the integrity of public water service.

The Commission has set up working groups to address each of these 5 subjects; the membership of the working groups is available on the Committee’s website.

There are already several organizations and people that are very knowledgeable about the issues that the Commission will study. People Concerned About Chemical Safety, for example, has long advocated for the adoption of the Chemical Safety Board’s recommended Hazardous Chemical Release Prevention Program; the West Virginia Rivers Coalition and Downstream Strategies are experts in source water protection; and Fred Stottlemyer (former director of the Putnam PSD) and Joe Mullins have released a proposal for a public-private partnership to create an alternate source of water supply for the Kanawha Valley. Hopefully the Commission will take full advantage of the available local expertise.

The meetings of the Commission are open to the public. The working groups are not covered by the state’s Open Meetings Act and thus there is no requirement that they be public – although there is no reason that they shouldn’t be. The next full commission meeting is October 27th, 2014 at 10 a.m. in the Governor’s Conference Room.

The members of the Commission are: Jimmy Gianato (Director of Division of Homeland Security and Emergency Management; Commission chair); Mike Albert (Public Service Commission); Tim Ball (general manager of the Morgantown Utility Board); Letitia Tierney (Commissioner of the Bureau for Public Health); Randy Huffman (Secretary of the Department of Environmental Protection); Nancy Guthrie (Kanawha County Delegate); Rahul Gupta (Director of Kanawha-Charleston Health Department); Mike McCawley (WVU professor of public health); Rick Roberts (engineer from E.L. Robinson Engineering); Ed Watson (hydrologist from Canaan Valley Institute); Pam Nixon (citizen representative); and Amy Swann (Rural Water Association).

WV American Water violates PSC order and continues to “keep the public in the dark”

Two motions were filed at the Public Service Commission today in the ongoing battle over WV American Water’s lack of transparency.

As you may recall, WV American Water had initially refused to answer many of the questions that parties in the investigation had asked in seeking to bring to light more details about the water utility’s response to the Freedom spill. The Commission ultimately held a hearing on the dispute and ordered WV American Water to disclose much of the information that it had been withholding. The Commission noted that some information might be sensitive (for example, relating to assessing water system vulnerability) and therefore the utility could file this information as confidential with the Commission and the parties; the Commission would rule later on whether such information should be publicly disclosed.

In violation of this order, WV American Water chose to file some information with the Commissioners only and not with any of the parties in the case. The parties (the Consumer Advocate Division, the PSC’s Staff, the WV Sustainable Business Council, and Advocates for a Safe Water System) filed a joint motion today asking the Commission to order the company to make this information available to the parties. They noted that WV American Water’s decision to share information with only the Commission was effectively an “ex parte communication” – a communication between a judge and one of the parties to a case that is not part of the formal evidentiary record in the case.

In addition, Advocates for a Safe Water System and the WV Sustainable Business Council argued in a separate motion filed today that much of the confidential information that the company did provide to the parties didn’t really need to be confidential. Advocates and the Business Council stated that “[t]he Company’s gross over-use of the ‘confidential’ designation … keeps the public in the dark regarding matters of legitimate public concern.” They also argued that WV American Water had attempted a “bait and switch” – even though it had emphasized homeland security concerns in its previous refusals to disclose information before and at the August hearing, the company is now saying that these documents are “trade secrets”, not posing any homeland security risk. The motion states:

While there may be aspects of the operation of even a water utility which involve competitive markets, it seems tremendously cavalier to imply that virtually all of its operations are somehow the subject of a closely guarded trade secret. In the case at hand there is no credible showing that anything that the Company seeks to hide would, if disclosed, give unwarranted business advantage to its competitors. Indeed, there is nothing that would even suggest this.

It is not clear that this issue is going to be resolved any time soon. Both of motions filed today are asking the Commission to take action: to order the company to provide more information to the parties, and to rule that some of the confidential information should be disclosed. But, as the PSC’s General Counsel recently pointed out, “[i]n order to constitute an action of the Commission, the concurrent judgment of two Commissioners is required… Consequently, until another Commissioner is appointed, the Commission is unable to rule.”

Who will the governor appoint?

Comments due Oct 24th on DEP’s draft tank rule

The DEP released its draft rule to regulate aboveground storage tanks under SB 373. The final version of the rule will likely be released in December, before the 2015 legislative session. According to DEP’s website:

Members of industry groups, environmental groups and other members of the public who asked to be identified as stakeholders in the rulemaking process earlier this year are invited to a working meeting on Oct. 1 to discuss the draft rule and ways to enhance its effectiveness.

Any other members of the public who would like to offer suggestions on ways to improve the rule can email those comments, by Oct. 24, 2014, to
WVDEPtankrules@wv.gov or mail them to:
West Virginia Department of Environmental Protection – Public Information Office
AST Emergency Rule Comments
601 57th Street SE
Charleston, WV 25304

SB 373 left many of the details of the regulatory program for aboveground storage tanks up to the DEP, and this rule explains how the DEP plans to regulate them. As the DEP indicated a couple weeks ago, it has decided to divide tanks into three categories based on their potential to contaminate waterways and harm the public. The DEP does not appear to have added any major new exemptions to the tank rules, but it will exempt Level 3 tanks (the lowest risk tanks) that are already covered by federal hazardous waste regulations.

The draft rules do not contain much detail on the financial aspects of the rule. The DEP did not provide any more details about how penalties will be assessed for violating the rule (SB 373 sets maximum penalty amounts, but not minimums). And the last section of the draft rule, “Financial Responsibility Requirements for ASTs [aboveground storage tanks]” is left blank.

We will provide a more detailed analysis of the rules in the coming weeks.

Bankruptcy judge supports $2.9 million settlement to benefit impacted community

Bill posted a few weeks ago on WV American Water’s opposition to a proposed settlement that would give $2.9 million back to the community. The $2.9 million would come from Freedom’s insurance money but, because Freedom is in bankruptcy and its insurance money is an asset of the company, any settlement making use of this money must first be approved by Freedom’s bankruptcy judge. WV American Water had urged the bankruptcy judge to reject the proposed settlement so that it might be able to get access to the insurance money through the bankruptcy case.

The Gazette today announced that bankruptcy judge Pearson has approved the settlement.

CDC visits West Virginia, but no medical monitoring yet

The Gazette had a couple articles last week (here and here) on the failure to come up with an adequate medical monitoring program for the population impacted by the Freedom spill.

In July, the Gazette reported that CDC had promised to “send a team to West Virginia within the next two months to help state officials determine what sorts of long-term health monitoring is needed for residents exposed to leaked chemicals,” according to the Gazette. The CDC did not promise any funding for monitoring.

The CDC team came to WV this past week and, according to a press release from the Department of Health and Human Resources (DHHR), “has committed to partnering with DHHR to develop plans that will allow the state to monitor a number of health outcomes over a long-term period. While this will not be directed toward the specific population involved in the chemical spill, it will allow health officials to closely monitor any significant changes or “spikes” in health care indicators. The monitoring is not on an individual level or even a specific event level, but it will closely monitor the overall health indicators in the state.”

This language is pretty vague, but it’s quite clear that the CDC and DHHR are not planning any medical monitoring program to track individuals exposed to crude MCHM and PPH.

This failure to come up with an adequate plan for medical monitoring seems to be at least as much a failure of the state government as the CDC. Although the Gazette article points out that SB 373 requires DHHR to “endeavor to engage” the CDC in health studies, the legislature never bothered to provide any funding for health studies. (Where did the money go?) Given that the WV government itself hasn’t ever demonstrated that it thinks medical monitoring is a priority, and given that the Tomblin administration is attacking the federal government left and right on many other issues, perhaps it shouldn’t be a surprise that providing WV with federal assistance is not a huge priority.

DEP issues new guidance on SB 373 implementation

Bill posted last week on legislative efforts to undermine SB 373. Several legislators, mainly those representing natural gas interests, called for a special session of the legislature to roll back the implementation date of SB 373, arguing that the January 1, 2015 deadline for tank owners to complete inspections of their above ground tanks was too strict. Of course, there is a very real possibility that a special session would also lead to other changes to weaken SB 373.

This week, DEP issued an “interpretive rule” which looks like it will eliminate the “need” for a special session. An “interpretive rule” is a rule that provides information regarding the agency’s interpretation of the rule. In this case, DEP has decided to divide above ground storage tanks into three categories: “Level 1″ tanks, which include all tanks in the zone of critical concern of a water system, are those that pose the greatest risk to the public; “Level 2″ tanks pose less risk; and “Level 3″ which pose the least risk, due to their size, location and/or contents. The rule states that the initial inspection of Level 2 and Level 3 tanks (the inspection that has to be conducted before January 1st) can be conducted by the tank owner or operator. Level 1 tanks still must be inspected by a qualified professional engineer or person certified to perform tank inspections. Inspections in future years are not covered by the interpretive rule.

Tanks regulated under SB 373 are also required to produce a Spill Prevention Response Plan. Under the DEP’s guidance, Level 2 and 3 tanks will be able to use an existing Groundwater Protection Plan to meet this requirement. (The coal industry had previously argued in its comments to the DEP that it should be exempted from SB 373 entirely because coal operations are required to have Groundwater Protection Plans).

It looks like the governor and the DEP were able to head off the push for a special session to introduce new exemptions into SB 373. But the regular legislative session starting in January 2015 will give industry another opportunity to push for changes. As stated by WV Rivers Coalition’s director Angie Rosser in the Gazette, “The interpretive rule is a practical step… Self-inspections for most tanks this first round is not ideal, but it’s better than delaying inspections altogether. Moving forward with the permanent rule, we need to make sure adequate accountability measures are in place for inspections and spill plans.”

WV American Water opposes federal settlement that could fund help for local area

This is a complicated situation, so you will have to follow some of the links in this post to get the details.  Here is the basic outline:

  • Shortly after the Freedom Industries spill in early 2014, a number of affected citizens, businesses and government agencies sued Freedom Industries and other parties for damages in the federal Southern District Court in Charleston.
  • In June, AIG Specialty agreed to pay an insurance claim to Freedom Industries of $2.9 million pursuant to Freedom’s insurance policy with AIG.  Here is a link to Ken Ward’s article on the insurance settlement in the Charleston Gazette.
  • In July, the lawyers for the plaintiffs in the federal case announced that they had reached a tentative agreement with Freedom Industries to use some of the AIG $2.9 million to settle the federal case, and use the AIG money to fund services to help people affected by the Freedom spill.  The lawyers also announced that they would take no fees from the settlement amount.  Here is a link to Ken Ward’s article which provides details of the federal court settlement and how it would be implemented.
  • In September, West Virginia American Water announced that it opposed the federal court settlement, because it wanted a big chunk of the AIG money for itself.  Here is a link to the AP story on WV American Water’s opposition to the federal court settlement.

The overall situation is complicated because there is also a case in federal bankruptcy court to liquidate all the assets of Freedom Industries and settle claims by Freedom’s creditors in that case.  WV American Water is a creditor in the bankruptcy case with significant claims against any money that comes into Freedom Industries’ bankruptcy estate.  Because the $2.9 million paid by AIG to Freedom is part of that bankruptcy estate, the judge in the bankruptcy case must get all the claimants in that case to allow a big part of that $2.9 million to go toward settling the federal damage suit in federal circuit court.

WV American Water executives, and their bosses at American Water Works, care about their company profits and shareholder dividends.  The health and safety of WV American Water’s customers and the people of the Kanawha Valley are hardly their highest priority.


Governor and legislative leaders begin SB 373 roll back

Last Tuesday, Ken Ward described the attack being mounted on the early phases of the implementation of SB 373, the above ground storage tank and source water protection bill passed unanimously by the WV Legislature in its 2014 session.  That attack seems to be coming primarily from Senate President Jeff Kessler and House Speaker Tim Miley.

Ken provided more details of the controversy in his post on Sustained Outrage, his blog at the Charleston Gazette.  He quotes from the joint statement from Mr. Kessler and Mr. Miley:

While we are extremely proud of the comprehensive regulatory legislation produced earlier this year to protect drinking water for our state citizens, it has become apparent that the Jan. 1, 2015 deadline for these inspections is unattainable. Extending that deadline will allow the state Department of Environmental Protection to put in place, with public input, agency rules to fairly and effectively govern the inspection and certification process.

Any continued delay in taking action on this matter only causes uncertainty within affected industries and the families that rely on them for employment.

Meanwhile, the DEP will move forward with creating an inventory and conducting a risk assessment of above ground storage tanks statewide.

Mr. Ward then goes on to explain how the call for a special legislative session to delay implementation of SB 373 is being portrayed in WV’s industry-friendly media outlets:

The usual suspects among our state’s media outlets are right on top of this. Hoppy Kercheval is all over this, and the MetroNews coverage sticks pretty close to his talking points:

As of now, as many as 40,000 tanks in West Virginia must be registered with the state by Oct. 1 and certified inspections of those tanks have to be completed by Jan. 1.  The state Department of Environmental Protection has not yet finalized the inspection protocols and, DEP officials have said, it could be December before those guidelines are available.

After appearing at times to actually care about drinking water protections, the Daily Mail editorial page is back to its old self, and repeating the same misinformation West Virginians are getting from MetroNews:

But the biggest issue is the uncertainty facing storage tank operators as the Department of Environmental Protection, the agency charged with enforcing the law, has yet to define the inspection parameters for storage tanks. Once it does, operators of the estimated 40,000 storage tanks affected by the law are unlikely to have time to complete their inspections by the Jan. 1 deadline.

And he concludes:

It’s simply false to say that DEP has not yet issued “inspection protocols” or defined “the inspection parameters.” Officials at DEP, working very hard under tough deadlines and constant pressure from industry, published guidance for tank owners spelling out what should be examined in these inspections. It’s right here on the agency’s website. There’s a checklist for what the inspections should include and there are forms (see here and here) to use in certifying to DEP that you’ve done these inspections and your tanks are safe.

And DEP was very, very clear about how this is going to work for the initial inspections due Jan. 1 and for future annual inspections:

For the certification due on or before January 1, 2015, compliance with a nationally recognized tank standard such API or STI following the attached checklist shall be deemed compliance with the requirements. Subsequent Annual Certifications will be required to comply fully with legislative rules promulgated by the Secretary.

And if you read SB 373, it suggests that this sort of path is what was intended. In creating the new above-ground storage tank regulatory program, lawmakers said this about chemical tank safety standards and other parts of that program:

The secretary shall promulgate for review and consideration by the West Virginia Legislature legislative rules during the 2015 Regular Session of the West Virginia Legislature, on all matters related to this article.

Despite that language, lawmakers also said, concerning annual tank inspections and certifications by experts hired by tank owners:

The certification form shall be submitted to the secretary  on or before January 1, 2015, and each year thereafter.

So, while it’s true that DEP hasn’t yet written the rules that will eventually govern chemical tank safety standards, agency officials have issued “protocols” and “parameters” that the industry can follow in making its initial inspections and certifications.

So as Ken says, there really isn’t a big problem here.

In his August 26 Gazette article linked above, Ward indicates that Gov. Tomblin and DEP Secretary Randy Huffman are also waffling on the SB 373 roll back:

After the meetings, Stadelman said that a special session “is one possibility” but that the administration is considering other options to address concerns about the deadline and that “no decision has been made.” Stadelman said the governor is unlikely to call a special session unless legislative leaders agree to the agenda beforehand, and that Tomblin would be supportive only of “very narrow” changes, not major modifications in the new law.

Earlier Tuesday, Huffman said he was personally supportive of a special session that would push back the Jan. 1 deadline for tank owners and operators to have tanks inspected and certified and have reports of those certifications filed with the Department of Environmental Protection.

Huffman noted that his agency has yet to make public a draft of the proposed standards for safety and integrity of chemical storage tanks, making it difficult for tank owners and operators to know what standards their tanks have to meet. Huffman said pushing back the Jan. 1 deadline would give more time for lawmakers to consider other industry concerns about the legislation during the 2015 regular session.

DEP staffers have been working hard to complete a proposed rule, Huffman said, but are also trying to build in additional time for more public review and comment before a final version is written.

“From a regulator’s standpoint, it’s not a practical deadline,” Huffman said of the Jan. 1 certification mandate. “The politics of it aside, it’s a logistical issue.”

- See more at: http://www.wvgazette.com/article/20140826/GZ01/140829430#sthash.Du967jLG.dpuf

After the meetings, Stadelman said that a special session “is one possibility” but that the administration is considering other options to address concerns about the deadline and that “no decision has been made.” Stadelman said the governor is unlikely to call a special session unless legislative leaders agree to the agenda beforehand, and that Tomblin would be supportive only of “very narrow” changes, not major modifications in the new law.

Earlier Tuesday, Huffman said he was personally supportive of a special session that would push back the Jan. 1 deadline for tank owners and operators to have tanks inspected and certified and have reports of those certifications filed with the Department of Environmental Protection.

Huffman noted that his agency has yet to make public a draft of the proposed standards for safety and integrity of chemical storage tanks, making it difficult for tank owners and operators to know what standards their tanks have to meet. Huffman said pushing back the Jan. 1 deadline would give more time for lawmakers to consider other industry concerns about the legislation during the 2015 regular session.

DEP staffers have been working hard to complete a proposed rule, Huffman said, but are also trying to build in additional time for more public review and comment before a final version is written.

“From a regulator’s standpoint, it’s not a practical deadline,” Huffman said of the Jan. 1 certification mandate. “The politics of it aside, it’s a logistical issue.”

Huffman’s willingness to delay implementation to allow industry to make changes to the law in the 2015 Legislative session is a clear indication that Gov. Tomblin and Sec. Huffman are willing to entertain many more changes then just delaying tank registration.  It looks like a clear invitation to lobbyists from the chemical, coal, oil and gas industries to rewrite last year’s law.

Business owners in Charleston are not happy about this new threat to protection of our state’s water.  WV Public Broadcasting reported that leaders of the WV Sustainable Business Council oppose a special session:

Co-founder of the West Virginia Sustainable Business Council Nancy Ward says pushing back the deadline won’t help her business regain the customer trust it lost during the water crisis.

“Weakening the bill or pushing back deadlines [won’t help],” Ward said.

Jeni Burns, Ward’s Sustainable Business Council co-founder, said at Friday’s meeting, Huffman presented his department’s proposal for rules to regulate above ground tanks.

The system includes three levels of classification with regulations for each, but representatives of the DEP didn’t respond to requests for a more detailed explanation.

The group is working to avoid a special session by fixing the unintended consequences of the legislation and addressing the concerns of interested parties through rulemaking.

“If we go into special session, we kind of leave it up in the air for whatever to happen,” Burns said, “but if we can sit down around the table and look at the best interest of everybody they represent and try to come to a solution, I think that’s better in the long run for West Virginians.”