Responding to the Freedom Industries chemical spill
WV American Water is proposing to raise rates 28% (30% for residential customers). This is the second in a series of posts dealing with the rate increase.
For private utilities like WV American Water, rates are set to recover their annual operation & maintenance expenses, and to allow the utility to recover the money it spends on capital investments plus a return (profit) on that investment.
In this case, the proposed rate increase is mostly about capital expenditures, according to the document that the company filed with the Public Service Commission to justify its proposed rate hike. The company states that it will have made $150 million in capital investment from its last rate case until Feb 2016, when its new rates will go into effect, and it plans to make an additional $46 million through February 2017. The company wants to start recovering and profiting on all of that investment in this case. If the Public Service Commission approves this plan, it will be a break from previous rate cases, in which the utility has not been able to recover planned capital expenditures, only past expenditures.
WV American Water is also seeking to greatly increase the return on equity (profit) that it earns on capital investments. As I’ve posted about before, the declining population of the Kanawha Valley is a real problem for WV American Water – because water rates are set per gallon of water sold, declining sales have meant that the utility tends to collect less revenue than its rates were actually set to collect. Additionally, WV American Water typically experiences a delay between when it makes a capital expenditure and when it gets to start recovering that money in rates, which drives down the utility’s profit margin. Those two factors have meant that WV American Water earns profits of 4-5% — much lower than the overall 8-9% profit rate earned by its parent company, American Water Works. American Water Works is a very profitable company (and its shareholders have seen their dividends increase every year since 2008), but WV American Water has argued that the low profit rate in West Virginia makes investing in West Virginia’s infrastructure unattractive.
As part of its rate increase, WV American Water is seeking a profit rate of 10.75%, more than double the profit it has earned in recent years. Is this really the best way for us to pay for fixing our infrastructure in the Kanawha Valley?
WV American Water wants to raise water rates, again. This is the first in a series of posts dealing with the rate increase.
The company made a 1250-page filing with the Public Service Commission to justify its proposed 28% rate increase (30% for residential customers). According to the utility, its rate increase does not include any of the costs that it incurred as a result of the Freedom spill, but it plans to pass these costs onto customers through a separate rate increase at a later date.
The rate increase will have to be approved by the Public Service Commission before it goes into effect. The PSC must make its decision by February 25, 2016. In making a decision, the Commission will hear evidence from the water company as well as evidence from any other parties that choose to intervene in the case. Any organization represented by a lawyer, or any individual representing him/herself, can petition the Commission to intervene in the case. So far the only groups that have asked to intervene in the case are the Consumer Advocate Division, a state agency charged with representing residential utility consumers before the PSC, and the Kanawha County Commission. The deadline to intervene in the case is July 29th.
If you want to see how a case works at the PSC and see what arguments are being made for/against this rate increase, you can subscribe to get email notifications of new filings in the case:
Go to http://www.psc.state.wv.us/scripts/CaseSubscriptions/SubscriberLogin.cfm
Create an account and then click “Add a subscription”. Enter a description, like “water rate case.” Under “Recent Cases”, scroll down to 15-0676-W-42T. Then click “Submit.”
Advocates for a Safe Water System is hosting a “Safe Water System Orientation Training” on Saturday, May 30th. From the group’s website:
We know that a safe water system won’t happen without active citizen involvement. Come to this training to learn how you can get involved in strengthening the movement for a safe water system in the Kanawha Valley. The training will cover what a safe water system is, how WV American Water measures up, and the steps you can take to advocate for the changes we need. It will take all of us to make a safe water system!
The training is from 9am to 1pm on Saturday May 30th at the Islamic Center (1 Valley Dr., South Charleston).
Freedom’s participation in the Department of Environmental Protection’s “voluntary remediation” program is off to a rocky start. Freedom sought acceptance into the program so that it wouldn’t have to remove all MCHM from the Elk River site, but would instead have to comply with a “risk-based standard” (whatever that means). Under the schedule laid out in its voluntary remediation agreement with DEP, Freedom had to submit its first “initial site investigation and interim measures report” by April 30th and the remediation work was scheduled to be complete in the first half of 2016. Instead, Freedom – in an apparent rush to sell the property by June – filed its first plan for approval with DEP a week early and announced that it would complete remediation in two weeks.
Meanwhile, Freedom has tried to convince its bankruptcy judge that it doesn’t have the money to put towards remediation. In a bankruptcy court filing on April 30th, Freedom proposed to set aside $150,000 for remediation work. DEP objected, asking the bankruptcy judge to order Freedom to direct $1 million towards remediation. Last week, Judge Pearson ordered Freedom to “access and control funds necessary to comply with requirements of the West Virginia Department of Environmental Protection”.
But there is still the fundamental problem that no one has come up with a standard for an acceptable level of MCHM in the soil at the site. DEP Secretary Huffman insists that the site must be remediated until there is no risk of MCHM getting into the drinking water. But it’s not clear how that translates into work being done at the site, or to the $1 million that DEP wants Freedom to come up with for the cleanup. Or, as Freedom’s Chief Restructuring Officer Mark Welch put it, “everyone is just guessing.”
It’s also going to be tough to determine whether Secretary Huffman’s requirement is being met since WV American Water’s installed chemical monitoring equipment at its intake that can’t detect for MCHM.
I am deeply saddened to report that Bill Howley, co-founder and co-editor of this blog, died suddenly in a car accident last Thursday.
Bill will always be remembered for his incredible intellect, compassion and deep commitment to fighting for the land and people of West Virginia – and for so much more.
- Cathy Kunkel
If you or your business were harmed by, or you incurred damages from, the Freedom Industries disaster in January 2014, there is a new opportunity you should consider for recovering your losses. Here is a link to the Charleston Gazette story from this past week.
Federal prosecutor Booth Goodwin has created a Web site for victims of the indicted officials of Freedom Industries. All victims of federal crimes have rights, created by federal law, in federal criminal cases. As listed in the Gazette story, these rights include:
Unlike the federal bankruptcy case involving only the empty carcass of the Freedom Industries corporation, the federal criminal case involves the human beings who made the decisions that created the disaster.
You can register your victim claim using this form, provided on Goodwin’s Web site. The form specifically asks you for any damages you have incurred as a result of the crimes committed:
You are not automatically entitled to recovery of your damages, because it will be up to the judge in the case to award restitution. But you will never have a chance for recovery unless you tell the judge what the criminals owe you. Note that you also have a right to speak at any public hearing on plea deals or sentencing of the criminals involved.
On Tuesday, WV American Water filed its “notice of intent to file a general rate case.” Under Public Service Commission rules, the company has 30 days until it has to file more information, including the amount of the rate increase and the supporting financial documentation. The PSC then has 300 days to decide how much of a rate increase it will allow – so a decision should be expected sometime in the first quarter of 2016.
The Charleston Daily Mail provided a little bit more information, including that WV American Water has spent $105 million in capital expenditures since 2012 that it wants to put into rates and that the losses incurred during the Freedom spill “could be included.”
As we know, WV American Water was completely unprepared for a chemical spill. It had even removed chemical testing and monitoring equipment from its Kanawha Valley plant about ten years ago to cut costs. Effectively, WV American Water was betting that a spill would never occur. That business strategy created a risk that should be borne by shareholders of its parent company, American Water Works — not its customers.
Though WV American Water hasn’t said so publicly yet, their proposed rate increase may well also include a request to increase the company’s return on equity (profit). WV American Water has consistently been earning only 4-5% per year – dragging down the overall return of its parent company American Water Works, which has averaged a 8-9% return for the past couple years.
On Tuesday evening, Freedom Industries and the DEP held a public meeting to discuss the remediation of the Freedom Industries site. But there didn’t seem to be too much real information to share. Freedom appears to be trying to minimize the cost of the cleanup because there is not enough money in Freedom’s bankruptcy estate to meet DEP Secretary Huffman’s earlier requirement that there should be no detectable MCHM left at the site. DEP gave Freedom permission to enter the DEP’s “voluntary remediation” program, which Freedom was desperate to do in order to avoid having to remove MCHM down to “non-detect” levels. Now Freedom must remediate the site according to a “risk-based” approach, which has never been defined. It’s not really clear what “risk-based” would mean in a context where the long-term health risks of the chemical are unknown.
Freedom and DEP have until the end of this month to agree on a plan for the cleanup of the site, unless they agree on an extension. One plan discussed at the public meeting was the idea of putting a cap over the soil so that rainwater runoff will not wash MCHM into the Elk River. DEP and Freedom officials did not provide any information about sub-surface movement of water through the site, so we have no assurance that a surface cap will really control migration of MCHM from the site.
When DEP and Freedom do come up with their plan, they should provide the public with real answers to questions like:
And, speaking of transparency, it would also be good to know at what level WV American Water’s new chemical monitoring equipment, due to be installed by the end of this month, can actually detect the various chemical constituents of MCHM.
Even after all that happened in January 2014, it is stunning to see that the officials at Freedom and the DEP still don’t seem to be taking seriously the fact that the former Freedom tank site lies 1.5 miles upstream from the only water intake for the only water treatment plant for 300,000 people.
On Tuesday, March 24th from 5-7pm at the Charleston Civic Center, consultants from Freedom Industries and the Department of Environmental Protection will host a public meeting about the remediation of the Elk River site.
Though the tanks have been removed from the site, the ground is, of course, still contaminated with MCHM and the other chemicals that leaked from the tank.
Last week, Freedom Industries was accepted into the DEP’s voluntary remediation program, which requires “risk-based remediation”, whatever that means, as opposed to the more expensive alternative of full removal of MCHM from the site. According to the Gazette, Freedom’s chief restructuring officer, Mark Welch, hopes that “there is little remediation left to do, other than put a cap over the site and establish some sort of environmental monitoring program.” The DEP, meanwhile, has repeatedly stated that it will not accept any plan that does not eliminate the risk of MCHM contaminating the Elk River.
Under the requirements of the voluntary remediation program, Freedom and DEP have until March 30th to agree on a timeline for sampling, risk assessment, and development of a workplan for the site – unless both parties agree on an extension. No such agreement has yet been reached.
Freedom’s chief restructuring officer told the Gazette’s Ken Ward that, at the meeting, Freedom will provide “further assurances on remediation, soil removal and chemical analysis.” Yet the DEP spokeswoman said, “[w]e can’t give any specifics about the plan for Freedom, though, because there isn’t one yet.”
Should be an interesting meeting.
Everyone said that having the water crisis happen during the legislative session last year was a great thing. I disagree.
The timing of the water crisis meant that public attention focused immediately on the legislature with the expectation that legislators would “fix” the problem. There was less discussion of the longer-term causes of the crisis, particularly the failure of existing regulations – a problem that has persisted in this state for many decades. Instead, the prominence of the legislative response meant that the dominant narrative was based on the idea that the problem could be fixed quickly through legislation.
Let’s take a step back and remind ourselves of the factors that contributed to this crisis. They include:
1. Lack of regulation of aboveground storage tanks
2. Weak enforcement of existing regulations, including the Clean Water Act and Safe Drinking Water Act.
3. An unsafe water system controlled by a holding company that is not interested in investing in West Virginia infrastructure
4. Lack of federal regulation of tens of thousands of chemicals that were grandfathered into the Toxic Substances Control Act
While passage of Senate Bill 423 is a step backwards as regards regulation of tanks, it has nothing to do with any of these other issues that were exposed during the water crisis. And, in fact, slow progress is being made on some other fronts. The Freedom Industries executives have been indicted. And public pressure pushed the Public Service Commission into opening an investigation into WV American Water; Advocates for a Safe Water System is continuing to build pressure on WV American Water to fix its system.
The legislature has proven that they are not going to be much help to us in fixing the problems that led to the water crisis. But there is still plenty to do.