New, delayed schedule in PSC investigation of WV American Water

A few weeks ago, the PSC issued an order suspending the general investigation until the dispute between the parties about what information WV American Water had to turn over to the PSC could be resolved. The resolution of that dispute took a little more than two weeks. The PSC’s order yesterday rescheduling the case announced a delay of about four months. Here is the new schedule:

  • WV American Water’s supplemental testimony: September 25
  • Other parties’s testimony: November 6
  • All parties’ rebuttal testimony: January 20, 2015
  • Hearing: February 10-12, 2015

 
With the hearing now in February, this probably means that the Commission will not issue an order until April 2015, at the earliest.

PSC Commissioner Ryan Palmer resigns

Big news out of the Public Service Commission yesterday.

Commissioner Ryan Palmer resigned to take a new position at the Federal Communications Commission in Washington, DC. Mr. Palmer’s departure leaves a gaping whole on the Commission. Mr. Palmer has been a strong advocate for ratepayer interests, taking the unusual step of writing a dissenting opinions in a recent high profile case (see here and here). The loss of Mr. Palmer is bad news, not just for the investigation of WV American Water but for all cases before the PSC.

Immediately after Mr. Palmer announced his resignation, the Public Service Commission issued an order announcing a delay in the general investigation AND PSC Chairman Mike Albert’s decision to recuse himself from the case. That leaves just one Commissioner, Jon McKinney, to preside over the general investigation until someone else is appointed by the governor. Mr. McKinney, a former manager at the Monsanto plant in Nitro, has established himself as an uncritical champion of utility interests on the Commission. Mr. Albert could have recused himself at any time in the past three months, but that would have meant leaving the investigation to both Mr. McKinney and Mr. Palmer.

These events leave the PSC investigation in a bizarre situation. Mr. McKinney’s term expired in 2011. He has been occupying his seat since 2011 without having been officially re-appointed by the governor. This is a perfectly legal situation; Mr. McKinney is allowed to continuing serving in his post until he is re-appointed or someone else is appointed to replace him.

In theory, PSC commissioners are appointed for six-year terms so that they can be relatively independent from the governor’s office; unlike some gubernatorial appointments, they serve for terms, rather than serving at the will and pleasure of the governor. But not Mr. McKinney, who could be replaced at any time.

Now the governor has two seats he can fill – Mr. Palmer’s and Mr. McKinney’s. Yesterday’s Gazette article quotes a spokesperson from the governor’s office stating that the delay in the investigation gives the governor more time to appoint someone to replace Mr. Palmer. Who will he appoint?

WV American Water ordered to turn over planning documents to PSC

Today, the Public Service Commission issued an order requiring West Virginia American Water to turn over documents that it had previously refused to disclose.

On Monday, the Commission held a hearing on the dispute between West Virginia American Water and the other parties to the Commission’s investigation – Advocates for a Safe Water System, the WV Sustainable Business Council, and the PSC’s Consumer Advocate Division. Those parties had all filed “motions to compel” asking the Commission to order WV American Water to provide meaningful answers to questions that those parties have raised in the case. WV American Water has so far refused to provide any documents pertaining to its emergency planning, or lack thereof.

In a document filed with the Commission on Wednesday, the water company insisted that everything having to do with its emergency planning is confidential under the 2002 Bioterrorism Act. The Bioterrorism Act requires all water utilities serving more than 3,300 customers to complete vulnerability assessments, assessing the vulnerability of their system to intentional terrorist acts. Such assessments are indeed confidential. In its filing on Wednesday, WV American Water insisted that all of its emergency planning is somehow derived from its assessment of vulnerability to intentional terrorist acts:

Documents in the Company’s possession that discuss infrastructure (e.g., pipes and conveyances, operation and maintenance), prevention of contamination (e.g., physical barriers, collection, treatment, testing, storage, distribution, automated systems), contingency planning, alternative water sources, and emergency response are either “contained in” or “derive from” the Company’s assessment of system vulnerabilities and should not be loosed heedlessly into the public realm.

 
There are so many bizarre things about this statement it’s hard to know where to begin. First of all, I would note that West Virginia American Water’s sourcewater protection plan for its Fayette County Regional Water System is publicly available (thanks to a Freedom of Information Act request by Plateau Action Network) and contains information about contingency planning. Secondly, it’s a bit strange to imagine that WV American Water could have an emergency plan or contingency plans that are not shared with local emergency planning officials or local health department officials – how useful could such a plan be?

And finally, nobody was suggesting that sensitive information be “loosed heedlessly into the public realm.” All other parties to the case were willing to sign a confidentiality agreement so that the Commission and parties could make use of confidential information that could not be released publicly.

Fortunately, the PSC did not buy the water company’s insistence on secrecy. The PSC seems to believe that emergency planning and preparedness at the time of the spill are, in fact, relevant to its investigation of the company’s response to the spill. The PSC ordered West Virginia American Water to answer the majority of the questions that it has refused to answer thus far – including questions relating to the company’s emergency plans, contingency plans, and sourcewater protection plans that were in effect as of January 9th. The PSC is allowing the water company to file some of this information as confidential, and the PSC will ultimately make the decision as to whether the information that the company files on a confidential basis actually needs to be withheld from the public.

The PSC also indicated in its order today that it believes that part of its duty in this investigation is to look towards the future and order changes to WV American Water’s operations:

The Commission does not make a determination regarding the reasonableness or unreasonableness of practices, acts or services under W.Va. Code 924-2-7 for the mere purpose of making a determination regarding reasonableness. The statute instructs that if the Commission finds practices, acts or services of a public utility to be unreasonable,
then the Commission must order reasonable practices, acts or services to be followed in the future.

Ken Ward digs up history of WVAW’s past decisions

Last weekend, Ken Ward filed two excellent accounts of the series of bad decisions by WV American Water and WV state regulators that led to the January 9 water crisis.  Saturday’s story focused on decisions, going back to the 1960s, that led to WVAW having only one intake on the Elk River, down river from the then Pennzoil tanks that were recognized at the time as a threat to Charleston’s water system.  Sunday’s article detailed the repeated failure of WV American Water to comply with requirements by the WV Bureau for Public Health that they identify hazards upstream from their water intake and develop a plan for handling chemical contamination.

As Mr. Ward explains in Sunday’s story:

Back in April 2006, officials from West Virginia American Water told state regulators they were planning to review the Elk River watershed to find out what potential contamination sources were upstream from their Kanawha Valley water treatment plant.

Water company officials told the state Bureau for Public Health the same thing in August 2006, and again in March 2008, state records show.

Three times over a two-year period, West Virginia American officials marked a “P” — meaning “Planning to do” — next to a question about whether the company was going to “review” the treatment plant’s watershed “for potential contaminant sources.”

The review was not completed — and it still hasn’t been.

In his Saturday story, Ken went back into the records of the PSC case from 1969 that approved plans for the then new water plant that WV American Water was planning to build at its current location.

When West Virginia American Water built its Kanawha Valley drinking water plant 45 years ago, the company dropped a plan that would have kept an existing intake near Coonskin Park, upstream from an industrial facility that would later become Freedom Industries, according to state records and new federal court filings.

West Virginia American got approval from what was then known as the West Virginia Department of Health for a single river intake at the new treatment plant site on Aug. 15, 1969, just a month after the state Public Service Commission issued an order that appears to have contemplated two Elk River intakes — the then-existing Coonskin intake and a new intake at the treatment plant.

The final plans for the treatment facility excluded a third intake. West Virginia American had proposed building an intake on the Kanawha River upstream from Belle, but the PSC rejected that idea after state health officials ruled that the Kanawha’s water was not “suitable” for drinking, according to state records from the PSC and the health department.

The Kanawha River intake was vetoed by the state Dept. of Health, but Ken could find no explanation in the records of why the Coonskin intake, which was functioning at the time the new plant was planned, was shut down, leaving WV American Water with a single intake downstream from the Pennzoil (now Freedom Industries) tank farm.

Ken Ward is doing very important work with these articles.  He is digging up the history that state politicians and regulators are trying to sweep under the rug.  The fact is that the Freedom disaster was the result of a perfect storm of corporate and government failures.  Thank goodness that the Charleston Gazette and Ken Ward are telling this story.

These two articles are must reading for everyone who wants to understand why we are in the mess we’re in today.

Water company officials told the state Bureau for Public Health the same thing in August 2006, and again in March 2008, state records show.

Three times over a two-year period, West Virginia American officials marked a “P” — meaning “Planning to do” — next to a question about whether the company was going to “review” the treatment plant’s watershed “for potential contaminant sources.”

The review was not completed — and it still hasn’t been.

- See more at: http://www.wvgazette.com/article/20140817/GZ01/140819358#sthash.3QeOTzKF.dpuf

Public Service Commission hearing on Monday

Next Monday (8/18) the Public Service Commission will be holding a hearing to resolve the dispute between West Virginia American Water and other groups that are asking the water utility to provide more details in the ongoing PSC investigation of the water company.

As we posted previously, the PSC’s Consumer Advocate, the WV Sustainable Business Council, and Advocates for a Safe Water System have all filed “motions to compel” asking the Commission to order WV American Water to provide meaningful answers to questions that those parties have raised in the case. Many of the questions that WV American Water has refused to answer have to do with the water utility’s emergency planning (or lack thereof).

Whatever decision the Commissioners make after Monday’s hearing will have a big impact on the scope of this investigation. If the Commission decides that questions about WV American Water’s emergency plans are off the table, then they are effectively signaling that they are not going to order any changes to the company’s planning practices.

Attending Monday’s meeting would be a good opportunity to see first-hand how the PSC operates and how the Commissioners are approaching this case. The hearing will begin at 9:30am on Monday at the PSC (201 Brooks St).

WVAW shareholders need to accept responsibility for their role in water contamination

On July 28, Tom White, an attorney with the WV PSC’s Consumer Advocate Division (CAD) filed a motion to compel WV American Water to answer questions about its emergency planning at the time of the Jan. 9 water system contamination.  This motion contains the following passage:

CAD is not interested in punishing WV A WC or re-litigating any prior cases surrounding the intake or the Elk River plant site. CAD is interested in what steps the Company took to anticipate, prepare, and plan for the possibility of such a contamination event which is directly relevant to how the Company reacted to the spill.Why does this matter? In its last rate case (Case No. l2-1649-W-42T), WVA WC agreed to stay out until at least 2015. Parent company American Water Work’s first quarter SEC 10Q filing (p. 23 attached, Ex. B) indicates that WV A WC has spent $5.9 million in spill remediation costs. If the Company took little or no steps to anticipate and plan for such a catastrophe it suggests that the Company was taking a risk that such a spill would never happen. CAD suggests that is the type of risk that should be borne by shareholders, not ratepayers. In other words, this is the type of risk-taking that is an “unreasonable practice,” and ratepayers should not be asked to pay for it. If the point of this General Investigation is to determine whether the Company acted reasonably, CAD will almost certainly be precluded from revisiting that question in the upcoming rate case. [emphasis mine]

Mr. White refers to the $5.9 million cost that WVAW’s parent company American Water Works identified as the first quarter damage to the company done by the Jan. 9 spill in its Form 10-K filing that the company made with the SEC.  American Water Works’ second quarter 10-K has raised that total cost to $10.9 million.

Note the bolded section of Mr. White’s statement above.  If WVAW (and its parent American Water Works) had no plan for how to deal with contamination of its water intake in Charleston, then the company (and its owners, its shareholders) was betting that it wouldn’t need to take costly steps to prevent it from devastating its water system and poisoning its customers.  WVAW’s customers were not in a position to make that decision about accepting that risk.  The managers of the company and its shareholders were in that position.

I agree with Mr. White that the shareholders made a decision to ignore the recommendations of the WV Bureau for Public Health, whose 2002 source water assessment report found WVAW’s system “highly susceptible” to contamination and recommended that the company develop a source water protection plan.   WVAW’s customers had no part in that decision to ignore the Bureau for Public Health.

WVAW, in its next rate case, will certainly try to recover some or all of that cost, which now stands at $10.9 million, from its customers.  As Mr. White says, the PSC needs to determine the extent of the risk that WVAW’s shareholders pushed off onto their customers, so that the PSC can determine how much of the cost of the disaster must be paid by rate payers and how much should be accepted as the shareholders’ responsibility.  Considering that rate payers had no part in the decision, its clear that they should not have to pay for the costs of WVAW’s mistakes.

WV American Water chooses sides

West Virginia American Water has come out against the Department of Environmental Protection’s proposal to reclassify the Kanawha River to “Category A.” Reclassifying the river would require industries along the river to meet stricter pollution regulations so that the river would meet standards for drinking water, opening up the possibility that WV American Water could use the Kanawha River as a backup water supply. The DEP’s proposal represents the common-sense view that some alternative source of water is obviously needed, and reclassifying the Kanawha River would expand the options available to the water utility — and possibly reduce the cost to rate payers of a secondary intake.

But, as Ken Ward reports in the Gazette, WV American Water is apparently uninterested in this idea.

Jeff McIntyre, president of West Virginia American, did not oppose the West Virginia Department of Environmental Protection proposal, but warned that the agency should more carefully “evaluate how this reclassification could impact our local economy.”


“If our local industry is required to comply with more stringent discharge requirements and/or find alternative transportation methods, the costs of doing so could potentially drive industry out of the area,” McIntyre wrote in his July 21 letter to DEP water-quality-standards program manager Kevin Coyne. “This would not only impact the affected industries, but also those who work for such industries, and in turn, the local economy as a whole”

 
Shouldn’t a water utility’s highest mission be to ensure that its customers receive safe water? Shouldn’t a water utility be one of the strongest advocates for ensuring clean sourcewater?

Instead, we see our water company joining sides with the chemical and coal industries, making the same argument as to why those industries shouldn’t be held to higher standards. Why? WV American Water is worried about the economic impact to those large industries because of its fear that job loss would result in reduced water sales and reduced profit for their company. The company is apparently not taking a long-term view of the potential economic development benefit from cleaning up the Kanawha River and the sorts of new businesses that might be attracted to an area with a safe and healthy water system. Once again, we see WV American Water putting the short-term interests of parent company American Water Works’s shareholders above the interests of residents and small businesses in Charleston and surrounding counties. Indeed, although it doesn’t seem that interested in people in the Kanawha Valley, American Water Works is keeping enough profits for itself that it increased dividends to its shareholders last quarter.

While he is talking about the potential economic impact of reclassifying the Kanawha River, has Mr. McIntyre forgotten the very real economic impact of his company’s failure to have a backup source of water? Businesses lost an estimated $61 million just during the period that the “Do Not Use” order was in effect. But this is probably just the tip of the iceberg. For instance, tourism is down this year along West Virginia’s New River, outside of the impacted area, perhaps due to the negative image of the state created by the water crisis.

I agree with Mr. McIntyre that there needs to be a careful evaluation of all the options on the table for improving the safety of our water supply. This should include not just a careful evaluation by the DEP of reclassifying the Kanawha River, but also a careful investigation by the Public Service Commission into the reasonableness of WV American Water’s operation — an investigation which WV American Water is currently blocking by refusing to provide critical information.

Groups ask PSC to order WV American Water to actually answer questions in PSC investigation

Last week, all of the groups that have intervened in the Public Service Commission’s investigation of West Virginia American Water – Advocates for a Safe Water System, the WV Sustainable Business Council, and the Consumer Advocate Division (a state agency charged with representing residential ratepayers in Public Service Commission cases) – filed “motions to compel” with the Commission. As intervenors in the case, all of these groups have been engaged in the “discovery” process; intervenors are able to ask discovery questions of WV American Water to help the intervenors develop their own testimony that they will present to the Commission later this month. The questions, and WV American Water’s answers, are available on the PSC’s website: Advocates for a Safe Water System, WV Sustainable Business Council, and Consumer Advocate Division. WV American Water has objected to many of the questions asked and often provided limited answers.

Here are examples of questions to which WV American Water has objected and refused to answer:

  • “Please describe all activities undertaken by WVAW between January 1, 2010 and January 8, 2014 to identify and/or access potentially significant contaminant sources in the zone of critical concern of the Elk River drinking water intake.”
  • “Were MSDSs [Material Safety Date Sheets] for any known chemicals stored in any facility upstream from the WVAWC intake on file or maintained at the water treatment plant beforeJanuary 9, 2014?”
  • “Was an early warning monitoring system in place on or before January 9, 2014?”
  • “[P]lease state what steps or efforts, if any, WVAWC made to identify, assess and prepare to respond to the risk of a chemical contamination incident specifically from the Freedom Industries tank farm (formerly Pennzoil).”
  • “In the 24-hour period from 9 a.m., January 8, 2014 to 9 a.m, January 9, 2014, please state whether the Elk River treatment plant was fully staffed or whether it was at any time operating under any form of automated operator system permit. Please include title, duties and shift of employees on duty during this period.”
  • “Produce all documents in your possession on and before January 9, 2014, which relate to emergency or disaster planning for WVAWC.”
  • “Produce all agreements WVAWC had in place before January 9, 2014, with other agencies and organizations related to emergency or disaster response.”

 
Advocates for a Safe Water System, the WV Sustainable Business Council, and the Consumer Advocate Division have now filed separate motions to compel (here, here and here), asking the Commission to over-rule the water company’s objections and provide complete answers to some of the unanswered questions. There is no deadline by which the Commission has to rule on these motions.

As the Consumer Advocate Division stated:

[T]he facts in the public domain so far are that the Company took no steps to prepare for the possibility of a water crisis such as occurred on Jan. 9, 2014 and how to respond to same. None. This is what the CAD’s discovery requests are about. All we really have right now is Mr. McIntyre’s testimony that the Company thought its treatment processes could handle the spill. If the Company took no steps to investigate what major risks lay upstream and how to respond to a potential contamination event, then it should just say so and be done with it.

Updates from other water crises

It’s been a big news week for other cities’ water crises.

First, Detroit’s emergency manager returned control of the city’s water system to the control of the city last week amid massive protests about water shutoffs. Bankruptcy attorney Kevyn Orr was appointed emergency manager by the governor of Michigan last March to try to bring the city’s finances under control. He was granted “sweeping powers to remake the city’s financial plan, change labor contracts and sell city assets,” without the approval of the mayor or other elected officials of Detroit. Orr has insisted that the bondholders of Detroit’s water and sewer bonds must be paid in full as the city of Detroit goes through bankruptcy. One of the effects of prioritizing Detroit’s bondholders over residents is the decision to shutoff water to more than 17,000 people. The city imposed a temporary moratorium on the water shutoffs this past week, after it was given back control over the water system. The moratorium will end at midnight on Monday.

Meanwhile, 500,000 people in the city of Toledo are now without water for a second day after a toxin from an algae bloom in Lake Erie contaminated their water supply. The toxin, microcystin, was discovered in the water by the city’s water utility. More information is available (here and here, for example) about the toxicity of microcystin and its effects on humans than was (or is) known about MCHM. It is not clear when water service will be restored.

When will we pay for replacing our infrastructure?

One of the tricky aspects to thinking about improving the Kanawha Valley’s water system is the question of who will pay for it. WV American Water’s standard excuse for not investing in an alternative intake or upgrading its old pipes (with their 38% leakage rate) is that people won’t be willing to pay for it.

Underinvestment in infrastructure is a problem nationally. The Environmental Protection Agency estimates that water infrastructure is replaced at a rate of 0.5% per year. At that rate, a given pipe is replaced every 200 years. Most pipes are only designed to last 50 to 100 years.

By putting off infrastructure replacement, we are racking up a higher bill for the future. This video presentation (starting at about 12:30) from the head of the DC Water and Sewer Authority talks about what it takes to increase the rate of water infrastructure replacement in DC. In three years, DC has tripled the infrastructure replacement rate, and water bills have approximately doubled. The DC Water and Sewer Authority is projecting water rates increasing faster than inflation for the next 20 years.

Why does it feel like we are unable to pay for what is needed to maintain our infrastructure?

Part of the problem here, as I’ve mentioned before, is that a lot of public federal funding for infrastructure has dried up over the past several decades, meaning that more of this investment is directly borne by water customers.

Another problem is more systemic to our economy. As this graph shows, real wages in the US have been basically flat since the 1970s, even while productivity has risen. In order to enjoy a rising standard of living without real wage growth, several things have happened – people generally work longer hours, more women work, and households have gone increasingly into debt.
productivity_wages
Letting infrastructure investment slide, putting it off to the future, is another strategy that we have collectively pursued to mask the fact that real wages haven’t gone up in forty years.