WV Bill Would Let Utilities Pay Producers to Drill New Gas Wells

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The West Virginia House Energy Committee passed a bill yesterday that appears to be picking up steam and possibly headed for approval by both the House and Senate. It’s an interesting bill that allows local natural gas utilities to pay drillers to drill new gas wells in areas where there is not a reliably sufficient supply of gas.

Yeah, it sounds really strange to us too. Dominion Energy is pushing the bill. The language in the bill, as you will read, would allow a local gas utility (like Dominion) to offer incentives (which are not specifically outlined in the bill) to drillers to either expand existing wells, or drill new wells. Are the drillers intended by the bill conventional, or shale? We can’t tell.

Here’s the justification: Utility company A supplies gas in a town or village and gets the gas for those customers from local conventional gas wells. But those local conventional wells can no longer compete with shale wells and are either turned off, or producing a lot less, without new conventional wells being drilled to supply said local utility. The local utility, under this bill, can (with approval from the state Public Service Commission) offer an “incentive” (i.e. pay the driller above market rates) to supply more gas.

Say market rates are $3.00/Mcf. The utility may tell a local driller, “We’ll pay ya $4/Mcf instead”–and pass along the $1/Mcf higher cost to all of its customers. In essence, the bill will require all ratepayers to fund uneconomic gas supplies in parts of the utility’s territory. One neighbor would underwrite cheaper gas for another. Not our idea of letting the free markets do their thing.

Oh, and if the utility can’t find any gas at a reasonable price, and can’t convince a local driller to provide more via “incentives,” the utility can (with permission from the PSC) dump their natgas pipeline network and convert those customers to something else, like electricity–again passing along the huge cost of such a conversion to the rest of the ratepayers.

We wonder, can’t the utility just buy their gas from an interstate pipeline flowing unending supplies of shale gas being produced in the state? That’s what doesn’t make sense to us about this bill. Perhaps those local pipeline networks are not currently connected to larger interstate gas pipelines, and are fed only by local conventional wells? We’re just not sure. Something seems strange about this to us.

At any rate, we mention it because the bill may have the power to encourage more gas well drilling, whether conventional or shale, we don’t know.

The House Energy Committee approved a bill intended to help keep natural gas supplies flowing to communities served by old vertical wells that are producing little gas or are uneconomical to run.

HB 2661 is backed by Dominion Energy and Dominion officials explained and promoted the bill during the meeting.

The bill allows a gas utility to petition the Public Service Commission to offer incentives (unspecified in the bill) to gas producers to increase well production or drill new wells for areas lacking dependable, low-cost supplies of natural gas.

If the options of increasing production or drilling news wells fail, the bill allows the utility to convert its customers to another form of energy — liquid natural gas, propane or electricity for instance — and recoup the costs of conversion from across its entire customer base.

Dominion’s Jeff Murphy explained that conventional vertical well production has decreased by 58 percent in the last 10 years. With the current low prices for natural gas, it’s difficult for the small companies to maintain existing wells or drill new ones.

These communities are often located in areas served by higher-volume shale gas production from vertical wells, he said, or their systems are too old to handle the higher pressures and volumes of shale gas transmission.

“There’s no silver bullet here,” he said, but this bill provides a couple options. And a gas utility can only offer the incentives, not force a producer to accept them. Which accounts for the conversion provision: those communities would be “abandoned.”

Murphy named about a dozen counties facing this problem, including major shale-gas counties Doddridge, Harrison and Wetzel, and others such as Braxton, Gilmer and Calhoun.

The bill doesn’t specify, and incentives weren’t discussed during the meeting, but people who know the industry said in hallway conversations that one would be guaranteeing the producer a certain price for the gas. Murphy told members that current gas prices are in the $2 to $3 per thousand cubic feet range, and a more realistic price for these producers is $5-$7.

As with the conversion costs, recouping incentive costs would be spread across the entire customer base, he said, to minimize impact. Cost-based rate hikes would have to be approved by the PSC.

Dominion has about 112,000 customers (households, not individuals) and about 15,000 – more than 10 percent of them – face this problem. Dominion’s Jonell Carver cited the 2017 Weston gas outage as an example of a community facing limited supplies.

Members approved the bill unanimously. It goes to the full Senate now.*