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State officials are weighing the imminent addition of a new surcharge on many West Virginians’ electricity bills.

But, unlike prior rate hikes, the money won’t be used for anything related to electricity.

Instead, it’s an effort to raise tens of millions of dollars to fund the expansion of high-speed internet into rural southern West Virginia, a region that has long been at the epicenter of the state’s broadband crisis.

The surcharge, which is awaiting approval by the state’s utility regulator, the Public Service Commission, will amount to little more than a dollar a year on most customers’ bills — at least at first. But it will likely rise significantly in future years as construction begins on the over $60 million project, which includes nearly 400 miles of new fiber lines in Mingo and Logan counties.

It comes as West Virginians — across the state, but particularly in rural areas — struggle to get online, either because no company provides service in their area, or the service that is available is so slow it is unusable. Solving the problem is going to take millions, if not billions, of dollars in new investment, leading officials to hunt for new ways to raise funds. But some are skeptical whether tacking surcharges onto utility bills is the best approach.

 

Establishing "middle-mile" fiber

Rural West Virginia has long trailed the nation in broadband access. Sparse population and mountainous terrain provide little incentive for telecommunications companies to invest in the fiber necessary to provide quality service. Around 40% of homes and businesses in Mingo and Logan counties — around 13,000 people — don’t have access to internet fast enough to meet the Federal Communication Commission’s definition of “high-speed,” according to documents submitted with the proposal.

Jennifer Miller, the mayor of Gilbert, a town of a few hundred people in southern Mingo County, said that new investment would be welcome. Her town hall has been struggling to replace its finicky Frontier service for years, and internet problems are pervasive in the valleys surrounding the town.

“Some people have no internet at all or what they have is horrible,” Miller said. Thanks to pandemic shutdowns, she said, parents have been driving their kids upwards of 40 minutes to access new hotspots installed in town. For years, she’s watched new cell towers and new fiber lines go up around the state — but not in Gilbert.

“I feel like we’re being ignored,” she said.

Perhaps no longer.

Under the program, American Electric Power would install “middle-mile” fiber and lease access to local internet service providers, which would handle the “last-mile” logistics of connecting homes and charging customers. AEP expects more than half of homes and nearly all businesses in the two counties that don’t currently have high-speed internet would sign up for the new service.

Although the benefits of the project would be limited to those two counties, its costs will be paid by all of AEP’s customers in the state — which, between AEP’s two subsidiaries, Appalachian Power and Wheeling Power, include more than 45% of the state’s utility customers. Electricity bills have skyrocketed in recent years thanks to the state’s reliance on increasingly uneconomical coal-powered generation plants.

The hope is that, eventually, income from leasing out the fiber would exceed the upfront costs, and utility customers would benefit through lower electricity bills. But for now, ratepayers would pay the cost — and AEP would profit. The company receives a guaranteed return on any investment it makes in the state, a cornerstone of utility regulation that can lead companies to “gold-plate,” or overbuild, their infrastructure.

 

"Significant reservations"

The idea of having the state’s electricity customers subsidize the installation of new internet infrastructure is radical, but not new. West Virginia would be the second state to implement such a program, following in the footsteps of Virginia — where regulators approved a proposal from Dominion Energy earlier this year.

And the idea has a certain elegance. Electric companies are already building out their own networks — including substantial amounts of fiber — as they create modern “smart” grids. Plus, they’ve already secured the rights-of-way that are essential for building out long-distance internet transmission lines. So it’s cheaper and more efficient for utilities to install fat fiber lines with excess capacity and lease it out to internet service providers than it would be for the ISPs to build it themselves.

FirstEnergy, West Virginia’s other major electric utility, has floated similar proposals in various counties, but it has yet to win approval from the state’s Broadband Enhancement Council, which by law must evaluate and approve the proposals. The council unanimously approved AEP’s project in 2019.

Jim Kelsh, a lawyer who briefed the council on the two projects’ progress last week, said that FirstEnergy was “re-evaluating” its latest proposal in light of the significant investment in broadband infrastructure expected in the wake of the pandemic.

He praised the AEP project, calling the associated rate hike “modest.”

If their first two projects are successful, the utilities are expected to expand the program to even more counties across the state.

But not everyone is happy with the idea of electricity customers being forced to pay for the construction costs — which are projected to be more than $61 million.

Residents of West Virginia, one of the poorest states in the nation, have had to stretch their budgets in recent years to adjust to rising electricity costs. AEP has hiked residential customers’ rates 15% in the last five years alone.

“APCO’s proposed [broadband] surcharge represents yet another type of surcharge which will add to the litany of rate increases borne by utility customers,” the state Public Service Commission’s chief consumer advocate, Robert Williams, wrote in a brief filed with the commission last week. He urged the commission to reject the proposal.

Prior state efforts to build — and lease — middle mile fiber have resulted in dramatic failures. In 2010, the state took $40 million in federal funds and handed them to Frontier Communications to build an internet backbone throughout the state. The company was then asked to return some of the money — and refused — after a federal watchdog accused it of wasting millions. Frontier was subsequently sued by a local internet provider, CityNet, for failing to deliver on its promise of opening up the new fiber to competitors.

And the policy landscape has shifted dramatically in the two years since lawmakers floated the utility broadband program in 2019. Then, local funding for broadband projects was scarce. But now, hundreds of millions of dollars in grants, funded by taxpayers and telephone bill surcharges, are already flowing into the state — thanks to the pandemic, which has raised awareness of the issue as stay-at-home orders exacerbated the impacts of poor broadband access.

“It is simply unfair and unreasonable to place the entire burden of building middle mile broadband infrastructure on the backs of electric utility ratepayers, without fully investigating the possibility of accessing some additional federal, state or local funds,” Williams wrote.

Williams noted other issues with AEP’s plan. The company initially struggled to find local internet service providers willing to lease the fiber in Logan and Mingo counties. It eventually signed on GigaBeam Networks, a small Virginia company, which agreed to lease, at minimum, only six of the dozens of extra strands of fiber AEP intends to build.

But the PSC’s Consumer Advocate Division, which advocates for utility ratepayers and typically fights to limit utility rate increases, has “significant reservations” that GigaBeam has the “financial resources and viability to fulfill the requirements of the 20 year lease,” Williams wrote.

GigaBeam already has some customers in the state, and so far, on average, it’s failed to provide speeds fast enough to qualify as high-speed under the federal definition, according to speed test data published by West Virginia’s broadband council.

The company is upgrading its network to provide faster speeds, according to GigaBeam’s president, Michael Clemons, who testified before a hearing before the PSC in April. He said the company would invest around $4 million of its own money in the project.

Williams was also concerned about the timing of the surcharge. He pointed out that the small size of the initial surcharge, set to go into effect in June, is only because the company’s project will have minimal costs during the first year of planning. In fact, the company wants to charge ratepayers before any fiber is actually built.

And once fiber installation begins, costs will rise. Previous projections by the company estimated a “bill impact” of nearly $14 per year, and those are almost certainly low, given that the project’s total budget has ballooned by over $6 million since those projections were made.

The West Virginia PSC’s three voting commissioners will ultimately decide whether to approve the surcharge — and if so, how much it will be. Their final decision is expected sometime next month.

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