Natural Gas Is Getting Cheaper. Thousands Are Paying More To Heat Their Homes Anyway.

Natural Gas Is Getting Cheaper. Thousands Are Paying More To Heat Their Homes Anyway. – In September 2020, West Virginia’s chief utility regulator told the state’s natural gas customers that she had good news: Their bills were about to drop significantly thanks to the state’s drilling boom and the declining price of wholesale gas.

“I hope that this news will brighten your day and help to keep you and your family warm throughout the upcoming heating season,” Charlotte Lane, chair of the state Public Service Commission, wrote in a column that was syndicated statewide.

Never miss the most important reporting from ProPublica’s newsroom. Subscribe to the Big Story newsletter.

For many West Virginians, it was welcome news. As the COVID-19 pandemic raged, tens of thousands of residents had lost their jobs. And even before the expensive winter months arrived, so many people were financially struggling that more than 130,000 West Virginians were eligible for pandemic-related state assistance because they had missed a utility payment.

But the price drop Lane promised turned out to be brief. In fact, by January, a majority of customers’ bills in the state had gone up. While gas prices had declined, as Lane predicted, a utility surcharge on every monthly bill had increased, wiping out the savings.

The fee was the direct result of legislation that Lane had pressed for five years earlier as a lobbyist for the natural gas industry — something she did not mention in her column.

In 2015, Lane — working on behalf of the West Virginia Oil and Natural Gas Association, an industry trade group — pitched the surcharge as necessary to pay for the repair of thousands of miles of decaying and damaged pipelines, which represented a growing threat to the environment and nearby residents. Since then, the law, known as Senate Bill 390, has enabled an infrastructure bonanza for utility companies, with few consumer protections.

The new measure allowed industry to charge customers up front for planned work, and overwhelmed regulators tasked with keeping utility spending in check. Through that authorization, the industry has spent at least $240 million on pipeline projects since 2016. Total capital spending by the state’s two largest natural gas utilities, Mountaineer and Dominion Energy, more than doubled in the first three years of the program’s existence.

And, Lane’s predictions notwithstanding, consumers are paying more and more for companies’ infrastructure efforts. Dominion customers, for instance, have seen the costs from the infrastructure fee nearly double in the last two years alone, even as their overall average bill has dropped. The surcharge now amounts to nearly $100 a year for a typical customer, according to an analysis by Mountain State Spotlight and ProPublica. (The calculation was confirmed by the PSC.) And the fee is poised to rise even higher. According to the two companies’ projections, they will spend at least an additional $500 million by 2025 — which will be passed on to ratepayers.

Regulators, however, say they can’t keep up with the proposals they’re being asked to vet, and in some instances they have approved costly expansion projects that some other states have barred. In one case, the Public Service Commission greenlighted a surcharge for a new pipeline to provide gas to an insulation plant in West Virginia’s eastern panhandle — something the private company would typically pay for.

That leaves consumers on the hook, a particular hardship in this pandemic year. Ellen Allen, executive director of Covenant House, which helps vulnerable families in Charleston, said the economic downturn has greatly increased the number of people coming to her organization for help paying for utilities, as well as the amount of money those individuals needed.

“We’re seeing people ask for help who never had to ask for help before,” Allen said. “Certainly, it would have been preferable to have lower rates.”

In an interview, Lane said she had neglected to consider the surcharge when she penned her column. “I apologize for that,” she said. “That was my mistake.” Nevertheless, she called the program a “fabulous success,” citing the construction spending it has spurred.

In response to a list of questions from Mountain State Spotlight and ProPublica, Dominion said in a statement that its investment would “enhance pipeline safety and reliability,” reduce greenhouse gas emissions, and ultimately provide “beneficial impacts to local economies.”

But critics say the system that Lane lobbied for in 2015 lacks important consumer protections, leaving ratepayers vulnerable to escalating fees. “We’ll live with it,” said Tom White, a lawyer at the PSC’s consumer advocate division, whose job it is to keep rates low. “But we hate it.”

A New Way of Doing Business

When it comes to the utility rate that consumers pay, the price is typically split between covering the wholesale cost of gas and the cost of getting that gas to homes.

It’s that latter portion that regulators and utility executives argue over, for good reason. If it’s too low, utilities are forced to cut back on maintenance or go out of business entirely. But if it’s too high, utilities, which are natural monopolies, earn excessive profit on the backs of customers. It is the job of regulators like the Public Service Commission to find a balance that protects consumers while making sure utilities stay afloat.

These battles can take around a year, and traditionally they don’t happen often. In the decade before SB 390 passed, Mountaineer had come to the commission three times asking to adjust its rates in West Virginia; Dominion had done the same twice.

This process frustrated the utilities, who prefer to recoup the money they spend on investments — and get the increased return they are guaranteed for additional capital outlays — as quickly as possible. Utilities were required to hand over reams of documents detailing their businesses to the Public Service Commission, where teams of lawyers, engineers, economists and accountants would comb through the data and, together with the utility, agree on how much of the burden should be borne by customers.

So when federal regulators warned that new infrastructure investment was necessary to fix failing pipelines, the companies saw an opportunity to push for a system that would get them more cash, faster.

The new law would also help with the utilities’ paperwork problem: Under SB 390, the utilities would hand over a list of projects and some documentation, but the PSC would only have a matter of months to review them. Once the projects were approved, the utilities could add a surcharge immediately, and get paid before work even begins.

The whole process encourages utilities to spend on projects, and the preapproval by the commission relieves the companies of risk and puts it squarely on ratepayers.

Across the country, states have adopted “accelerated replacement programs” that have allowed utilities to pass their costs on to customers faster, often through annual surcharges, and without some of the protections built into the regulatory negotiation process. By 2015, these programs had been implemented, using various techniques, in 38 states.

Although necessary to encourage utilities to replace their decaying infrastructure, these programs are “ripe for abuse,” explained David Springe, who was a utility consumer advocate in Kansas for over a decade and now leads the National Association of State Utility Consumer Advocates.

Typically, utilities are guaranteed a rate of return on all capital investments, meaning the more they build, the more they make. Without the careful oversight of regulators, Springe said, companies are encouraged to spend as much money on capital expenses as possible to increase that return. The practice is known as “gold plating.”

“If you create that incentive, and if it’s not specific and direct and well-managed, then it just becomes the business plan,” Springe said.

This was the challenge facing West Virginia policymakers and utility executives in 2015 as they worked out the details of the law that would become SB 390.

The utilities had a powerful ally in Charlotte Lane. At the time, she was a registered lobbyist for the West Virginia Oil and Natural Gas Association, and her connections to state government ran deep. During the 1980s and 1990s, she served two terms as a delegate in the state legislature and two stints as a commissioner on the PSC, including four years as head of the commission. In 2003, then-President George W. Bush appointed Lane to the United States International Trade Commission, where she served until 2011 before returning to Charleston and becoming a lobbyist. (Lane later served a third term as a delegate from 2017 to 2018.)

In emails reviewed by Mountain State Spotlight and ProPublica, Lane was the go-between for Dominion executive Jo Carol Farmer and David Ellis, a top official at the Public Service Commission, as the parties drafted the legislation. Although significantly smaller in West Virginia than Mountaineer at the time, Dominion had a much larger national footprint and continues to play a bigger role in state politics.

Ellis’ suggestions, including adding a month to the amount of time regulators had for reviewing project proposals, were largely incorporated into the final bill. He appeared to sign off on the idea on behalf of the commission. The goal and intent of the legislation — “expedited cost recovery” — “appears to be reasonable,” he wrote to Lane.

Lane then took her case to lawmakers. She wrote a summary of the legislation, which was named the “Infrastructure Expansion, Development, Improvement and Job Creation Act,” and extolled its benefits. The bill “will create jobs,” she explained, by motivating utilities to spend more, not only on replacing their aging pipelines, but also on extending service to underserved areas.

But her summary glossed over a key consequence of the legislation. The last of nine bullet points simply said that, if the bill was passed, customers would experience “gradual rate adjustments.” In other words, West Virginians would start paying more for their gas.

The legislation passed easily, unanimously in the Senate and with an overwhelming majority in the House. Then-Delegate Don Perdue, a Democrat from Wayne County, was one of only five House members who voted against the bill. He recalled that he was concerned by efforts to streamline the regulatory process for utilities. “If you have an industry that has this much influence and this much impact, they should be scrutinized at a higher level,” Perdue said.

Then-Gov. Earl Ray Tomblin signed it into law.

A “Blank Check” for Infrastructure Spending

Almost immediately after the legislation went into effect, each of the state’s largest gas utilities began filing requests with the Public Service Commission to hike customers’ rates by adding new infrastructure surcharges to bills.

Tom White, the consumer advocate, pushed back. Unlike some of the similar laws passed across the country, SB 390 gave utilities wide latitude to include almost any new infrastructure project, and provided regulators with little guidance on how to police the program. In Kansas, a law prevented utilities from using that state’s program to build pipelines to new customers. Massachusetts capped spending in its program at a percentage of the utility’s revenues.

West Virginia did neither. Its law simply said that projects should be “just, reasonable, not contrary to the public interest.” Over the years since it passed, regulators have struggled with making those determinations. In one case, they rejected millions of dollars in spending on new lines to expand service, which are typically paid for by new customers, not built into rates paid by everyone. But in another, they approved such a proposal.

In the latter case, Mountaineer included in its infrastructure plans the construction of a pipeline to provide gas to a new Jefferson County insulation plant. Local residents opposed to the facility packed a PSC public hearing. Commissioners approved the project, though, citing the Legislature’s intent to help the state economy by “improving the availability of natural gas services.” It was the type of situation that states like Kansas had banned.

From the outset of West Virginia’s program, White petitioned commissioners to formalize its rules, cautioning that more details were needed to “head off confusion in applying this new law.”

The commissioners rejected White’s petition, on advice of their regulatory staff, who felt that taking the time to draw up clearer rules would undercut the legislation’s underlying goal: getting new pipe in the ground as fast as possible.

Tensions simmered. Each year, utilities came forward with a request for the next year’s spending, and the commission approved an associated rate hike after some negotiation. Regulators, however, complained they simply didn’t have the time or personnel to delve deeply into the plans. By 2018, commission staff had had enough. After approving that year’s request from Mountaineer, regulators faced a similar request from Dominion for 145 separate projects — and a projected 22% increase in customer rates. This time, staffers objected.

During a hearing before the three voting commissioners, lawyers for the PSC and its consumer advocate division grilled Dominion executives on their spending of the prior year’s surcharge revenues and the necessity of newly proposed projects.

When the state’s chief consumer advocate asked for evidence that the three-year-old program was actually reducing pipeline leaks, Dominion said that it was not keeping track.

Moreover, the company was proposing new projects before it had finished ones that had previously been approved, leaving PSC staff attorney Linda Bouvette to wonder if the work was really as urgent as the company had argued.

She cited two pipeline replacement projects, together just over a half-mile long, that Dominion had included in its most recent proposal. Despite the company having put them in a separate request three years earlier, they remained unfinished, she noted.

Bouvette also flagged other aspects of Dominion’s request. In the previous year, the company, then known as Dominion Hope, had spent more than $7 million on projects that had never been preapproved by the commission — and passed on the costs to current and future ratepayers anyway.

“There is no rhyme or reason to Hope’s PREP program,” Bouvette wrote in a brief outlining her concerns, referring to the Pipeline Replacement and Expansion Program that the company established under SB 390.

In response, Dominion denied any wrongdoing, saying that in some cases, unforeseen events might require the company to reprioritize PREP projects.

But Bouvette wasn’t just frustrated with Dominion. She was frustrated with the law, and said the three-month time frame provided to review utility projects resulted in “very little oversight” of these proposals.

“There is simply not enough staff at the Commission to look at every single project being proposed in the very short time period provided by statute,” she added.

The commission chair, Mike Albert, echoed Bouvette’s concerns during the hearing. “I don’t want to call it a blank check, but it’s a lot of spending on capital projects that may or may not be necessary,” he said.

In response, Dominion’s Jo Carol Farmer argued that it was the commission’s responsibility, not Dominion’s, to determine whether the proposed projects were reasonable. When pressed by Albert on whether all the new projects were truly necessary, Farmer responded: “I think Senate Bill 390 said that it is necessary.”

The commission eventually approved Dominion’s rate hike for 2019 after the company promised to open its books the next year to a full regulatory review, giving regulators transparency into how all of the money was being spent. It will finish later this year, and will be the commission’s first full review of Dominion’s books in over a decade — and over five years after the surcharge was first introduced. Mountaineer agreed to do the same.

Rising Costs for Consumers

All of this has taken place mostly behind the scenes, in legal filings before the PSC or in rarely noticed commission hearings. When gas customers get their monthly bills, they don’t see a line item for the surcharge set up by SB 390.

But in January 2019, with just about six months left in his term as PSC chair, Albert cautioned lawmakers that the law was handcuffing the commission’s ability to review projects.

“We’re now getting requests almost to include a line item under which they can include any construction they want,” Albert told members of the Senate Finance Committee. Albert also warned lawmakers that water and electric companies would seek similar legislation.

At the same hearing, Albert, a former utility company lawyer himself, did acknowledge that the PSC served not only the public, but industry as well. “Most people don’t understand, but the statute charges us with responsibility for the care and feeding, if you will, of the utilities,” he told the group.

Still, staff at the commission continued to press for “some measure of protection” for ratepayers. The utilities wanted to keep the current system largely unchanged. The two sides came to a compromise in 2019. The commission instituted a cap on the program: Each year, a utility could spend up to 9% of the total value of its existing infrastructure.

Because any new investment is added back to the total, the cap rises, growing bigger and bigger each year.

The commission wrote that the compromise balanced the need to provide utilities with more capital against the regulator’s responsibility to ensure customer rates were reasonable.

But over the years, the infrastructure surcharge exploded. It now makes up nearly 14% of a typical Dominion customer’s pretax gas bill, according to the analysis by Mountain State Spotlight and ProPublica.

Meanwhile, rates are almost certain to increase further, in part because Dominion has found a way around the spending cap. Under the terms of the compromise hammered out with regulators, expenditures over the 9% limit are allowable if justified by an external study. So Dominion contracted Black & Veatch, an engineering consultancy, to write a report. The firm recommended accelerating the company’s plans by replacing pipelines within 24 years, twice as fast as Dominion had previously projected. Dominion has not yet exceeded the cap, but has told regulators it may in the future.

Mountaineer is now following suit by promising to accelerate its own replacement timeline.

Regulators Are “Completely Outgunned”

In June 2019, with Albert’s term atop the Public Service Commission expiring, Gov. Jim Justice filled the vacancy by appointing Lane, the lobbyist who had helped write the infrastructure legislation.

In an interview, Lane defended her role as chief regulator of an industry with which she has close ties. “I have a really good understanding of the issues, both from the utility standpoint and from the public standpoint,” she said. “I can be fair and balance all of the interests.”

But the small group of a half-dozen or so lawyers, analysts and administrators in the commission’s Consumer Advocate Division, tasked with fighting the steady drumbeat of rate hikes, have limited resources. Until 2019, they made do with barely over $1 million a year.

The state formed CAD in the early 1980s to look out for the interests of residential customers, who don’t have the time or money to hire lawyers to lobby the commission, as do the utility companies and their large industrial customers.

But CAD, like the customers it represents, remains an underdog at the commission. CAD’s chief in 2019, Jackie Roberts, told legislators at the time that her section was “very challenged” and noted that her budget hadn’t changed in recent memory. When she transferred to another department at the PSC in late 2020, she called the consumer office “completely outgunned” in an interview published in the Charleston Gazette-Mail.

“The CAD is concerned with the level of new rate increases and the affordability of rates,” Roberts wrote in her final annual report for the office, released earlier this year.

Roberts’ replacement, Robert Williams, echoed the sentiment of his predecessor in a statement for this story. Despite a recent budget increase, up to $1.3 million per year, Williams called the task of reviewing the proposed projects under the surcharge program “a large challenge for a small CAD staff with limited resources.”

He urged the state legislature to fund “additional technical staff and in-house expertise” for the tiny division. Instead, a key state delegate introduced a bill in March, similar to ones lawmakers tried to pass unsuccessfully in prior years, to eliminate one of the program’s few safeguards: the 9% cap. It never received a hearing.

As West Virginia struggles to rebound from the pandemic, Lane continues to write her monthly “Chairman’s Column” for local newspapers, touting the commission’s own efforts to ease ratepayers’ economic pain. The PSC does not keep records of the number of delinquent utility payments in the state, according to its spokesperson, but Lane told MetroNews in October that over 133,000 households had fallen behind amidst the pandemic. Since then, the state has directed $25 million in pandemic assistance funds to help pay down utility bills.

Meanwhile, Lane has never clarified or updated her September column, in which West Virginia consumers were promised lower bills.