work force reduced by approximately 40S6 class A workers. The
author of that outdated study has later stated that at no time
did he indicate that rail workers would be replaced by each
pipeline worker. In fact, competition by bringing down the rail
delivered price of coal might spur a boost in rail and pipeline
delivered coal.

To the best of my knowledge not only were no rail jobs lost
because of the Ohio pipeline, but the introduction of unit train
rates kept utilities burning American coal rather than seeking
alternatives .

There is no reason to conclude that construction of a coal
pipeline in Kentucky would be any different than the data
applicable nationally. We do not anticipate that there will be
any rail job loss in Kentucky if a coal pipeline were constructed
there; to the contrary, we think that there would be a net job
increase for the railroads, construction industry and the mining
industry.

A brief summary of the OTA findings is as follows;

1. Even though railroads overall are more labor intensive
than pipelines, the employment Impact of coal pipe-
lines compares favorably with employment generated by
railroads for 20-year period due to the indirect em-
ployment each transportation mode generates in con-
struction and equipment manufacturing,

2. The railroad industry would not be financially ruined,
but would continue to enjoy increased revenues due to
increases in coal and other commodity transportation,
as the 1985 EIA report also concluded.

3. The reductions in railroad employment cited in the OTA
report were not references to reductions in current
employment, but references to future additional rail-
road employment that may exist in the absence of
pipelines .

4. The OTA report does not state anywhere in the study
that there is a ratio of six railroad jobs lost for



185



each pipeline job gained, according to the director of
that part of the study.

Today railroads carry about two out of every three tons of
coal produced in the United States to utility and industrial
plants and to ports engaged in shipping America's coal to export
markets. The long-run demand for coal and the ability of rail-
roads to sign long-term contracts granted by the Staggers Act of
1980 assure that the vast majority of domestic coal shipments
will continue to be made by rail in the foreseeable future with
or without coal pipeline competition.

Coal production is projected by the Department of Energy to
rise to over 1.1 billion tons of coal by the mid-1990' s, 230
million tons more than was produced in 1984. If the four pipe-
lines estimated by the Energy Information Administration (EIA) in
its extensive 1985 economic assessment were operating by 1995,
they would carry about 47 million tons of coal each year [EIA,
Coal Slurry Pipelines t Impact on Coal Markets, DOE/EIA-0468,
1985] .

This leaves a rounded 1 billion tons annually to be carried
by existing coal transportation. Railroads, the major carriers
of coal, then will carry the bulk of the existing market and they
will carry the greater share of the expanding market.

It is also important to recognize that the contract provi-
sions of the Staggers Act provide railroads with a secure climate
for investment and railroad labor with a safety net against
sudden job losses resulting from internecine market warfare.
With approximately 70 percent of coal traffic under long-term
contracts today, railroads and rail labor are protected from
sudden, massive shifts of existing coal traffic and rail jobs to
their competitors.

Moreover, lengthy pipeline engineering, contracting, permit-
ting and construction periods — approximately five years — also
provide for smooth market transition.

Because railroads would continue to haul the bulk of coal,
EIA found that should the four pipelines they assessed be built
and operate at the agency's projected rates, railroad revenues
would not be adversely affected and coal users would benefit i

"...Railroad revenues from coal carriage would
still be almost 60 percent higher and railroad
ton-miles nearly 30 percent higher in 1995 than
in 1984..." and "Coal users could realize sav-
ings of between $200 million and $1 billion in
1995 ...." [EIA, Coal Slurry Pipelines ; Impact on
Coal Markets . p.x]

To appreciate the magnitude of potential job creation of
coal pipeline systems, it might be instructive to review some
past estimates of the direct and indirect employment benefits of
conventional coal pipeline systems. Based on data computed by
Bechtel engineers for the ETSI pipeline and extrapolated for the



186



oonstrucilon of the major past propossd pipelines, the construc-
tion of these pipelines offered a wide range of new jobs and
materials production for the American worker,

In the construction sector, 50,000 new jobs would have been
created for bollermakers, carpenters, cement masons, electri-
cians, Ironworkers, laborers, millwrights, operating engineers,
pipefitters, welders, teamsters and others. The construction
support sector would have required 100,000 jobs and the produc-
tion of valves, pumps, steel and heavy equipment would require
350,000 jobs. Demand for steel pipe would have required the
production of 2.9 million tons of pipe, more than twice the
average annual production of the 1970' s — good years for steel.
To run the pipeline systems on an annual basis, 5,000 new jobs
would have been created for pipefitters, welders, mechanics,
laborers, electricians, engineers and others working at the coal
preparation stations and pump stations.

To assure that the full range of transportation and coal
processing technologies will be available for application in the
1990' 8, coal pipeline enabling legislation needs to be enacted
this Congress, Failure to enact such legislation will deny a
competitive mode of transportation access to the market, locking
out new Investment into the pipeline Industry, vital to our
nation's economy and security, and limiting our technological
response to the challenge of coal-rich products, This is an
expensive price to pay when the bottomllne conclusion of govern-
ment and congressional studies is that pipeline competition would
not threaten the financial health of the railroads or the job
security of railroad labor.



187




ASSOCIATION
William H. Dempsey OF AMERICAN

Presidem RAILROADS



May 8. 1989



The Honorable J. Bennett Johnston

Chairman

Committee on Energy and Natural Resources

United States Senate

Washington. D.C. 20510

Dear Senator Johnston:

On April 20 your Committee held hearings on proposed
legislation which would grant coal slurry pipeline operators the
power of eminent domain. On behalf of the Association of
American Railroads (AAR). I testified in opposition to the
passage of such legislation. Subseguent to the hearing Senator
McConnell submitted five questions to the AAR. each preceded by
a statement by Senator McConnell. Those questions and the AAR ' s
answers are as follows.

Question 1: In your opinion and I realize you'll have to

speculate somewhat, if a coal slurry pipeline were
in place in Kentucky today which could move
Kentucky coal to markets in states like Florida,
Georgia. Michigan and overseas shipping terminals
at Hampton Roads and New Orleans, would rail rates
be about the same as they are now or would they be
lower?

If a coal slurry pipeline were in place today in
Kentucky, railroad customers would face higher, not lower,
rates. To get the financing necessary to support construction,
pipelines would need to enter into long term take-or-pay
contracts with their customers. These customers would be high
volume shippers who ship coal over long distances. Long
distance, high-volume transportation, of course, is the most
profitable business for railroads. Take away the railroads'
most profitable services and the remaining railroad customers
will be forced to pay increased rates, face deteriorating
services, or both.



50 F Street, N.W., Wubington, D.C. 20001 (202) 6S9-2402



188



Question 2: I've read a little bit about the coal slurry
pipeline built by Consolidated Coal in Ohio and
how, whether as a direct or an indirect result of
that slurry line, rail rates in the area dropped by
about forty-five percent. Do you think that what
occurred in Ohio was an isolated situation
involving special circumstances or would similar
results be experienced in Kentucky?

The drop in rail rates referred to was due to the intro-
duction of unit trains. The rail cars in regular trains must be
switched in rail yards so that they are placed in trains with
other cars going in the same direction. The cars in unit trains,
of course, do not have to be switched since they are going to
the same destination. Switching is a very expensive process.
Unit trains, therefore, increased the productivity of the rail-
road industry tremendously and enabled the industry to reduce
rates substantially on high volume movements such as those for
which coal slurry pipelines are feasible. There is no oppor-
tunity now available to similarly increase productivity, regard-
less of whether pipelines are built, since unit train service is
now employed wherever feasible.

The predicate to this question indicated that "the
largest component of the delivered price of coal is transporta-
tion." For the record, the rail share of the delivered price of
coal, on average, has never been the largest component of the
delivered price of coal. Since the Staggers Act was enacted,
the rail share of the delivered price has fluctuated between
thirty and thirty-four percent.

Question 3: I'll start by asking you to explain the [ICC]
procedure a coal shipper would go through to prove
he could ship cheaper by a slurry line which does
not exist. As I've said many times, it seems the
one thing coal operators in Kentucky agree on is
that it costs a lot of money to transport coal by
rail. Do you know if these operators, or the
shippers of these operator's coal, have tried to
show that their rates would be lower on a slurry
pipeline and therefore tried to force you to lower
rates? (If yes) - What was the outcome of that
effort? (If no) - Why not?

In Ex Parte No. 347 (Sub-No. 1). Coal Rate Guidelines.
Nationwide , (served Sept. 3. 1985) the Commission adopted
"constrained market pricing" (CMP) to aid in the determination
of the reasonableness of railroad rates for captive coal
shippers. CMP imposes four constraints on railroad rates, one
of which is the "stand-alone cost" (SAC) constraint. Under the
SAC constraint, "a captive shipper can have its rates based on
the lower costs of an alternate, 'stand-alone' [transportation]



189



-3-



system in which the plant size and traffic-base are designed to
maximize the efficiencies and production economies" ( id. at
27) .

The Commission did not impose a formula for applying
the SAC. Rather, it "encourage[d] the parties in individual
proceedings to develop the evidence which best presents their
case" ( id. at 31). Essentially, a shipper utilizing the SAC
constraint would determine all the costs involved in construc-
tion of an alternative transportation system (rail, rail-water,
truck-rail, slurry pipeline, etc.) on the assumption that there
were no barriers to entry such as the need to exercise eminent
domain, and then derive the transportation rate necessary to
cover those costs. That rate would then become the ceiling on
the rate the railroad could charge the shipper.

While there have been successful challenges to rail
rates under the SAC constraint that have been based on hypo-
thetical alternative rail lines, no challenge has ever been
based on a hypothetical coal slurry pipeline as the alternative
transportation system. Since the SAC analysis proceeds on the
assumption that there are no barriers to entry, the logical
conclusion is that no shipjer has thought it could show that a
slurry pipeline could transport coal at rates lower than those
charged by the railroad serving it.

Question 4; In your opinion, does this provision [S. 318
relating to small shippers] address the situation
of small operators being locked out of the use of
the line?

Section 4(c) of S. 318 states that a slurry pipeline
operator must make available to small coal producers up to ten
percent of the pipeline's capacity "under the same terms and
conditions as other contracting entities." Small coal producers,
however, would not be able to compete with large coal shippers
under this provision. Pipelines are designed to ship large
amounts of coal and therefore they would originate in areas
where there are large coal mines. To utilize slurry pipelines,
small producers would have to transport their coal to the large
coal mining areas where pipelines originate. This added trans-
portation cost would always place the small producer at a
competitive disadvantage. In addition, small shippers might not
be able to take advantage of any large volume rates that a
pipeline operator might still be able to offer under this
provision.

Question 5: Do you know of any studies which show the

projected job losses within the State of Kentucky
which might result from the construction of a coal
slurry line within the state? Do you know the



190



•4-



number of railroad jobs which were lost when the
Consolidated Coal Company built its pipeline in
Ohio?

We do not know the number of jobs lost when the Ohio
pipeline was operating. In projecting employment that would be
lost if coal slurry pipelines were built, we've relied on the
1978 Office of Technology report which did not study any
pipelines passing through Kentucky. The Tennessee to Florida
pipeline, the only southeastern route studied, was projected to
transport 32 million tons in the year 2000 at a cost of 2005
railroad jobs (OTA report, p. 78).

Mr. Chairman, thank you for the opportunity to answer
these questions. We would be happy to provide any further
information you or any members of your Committee might need.

Sincerely,



9"/^' J)^^;^



191



EDISON ELECTRIC

I |k| CT I T I I T C The association of electric companies

1111 19th Street, N W
Wastiington. DC 20036-3691
Tel; (202) 778-6400

May 8, 1989



The Honorable J. Bennett Johnston

Chairman

Committee on Energy and Natural

Resources
United States Senate
Washington, D. C. 20510

Dear Mr. Chairman:

Thank you for your letter of April 26, 1989. As requested,
enclosed are my responses to additional questions for the record
relating to the April 20, 1989 hearing on S. 318, the Coal Dis-
tribution and Utilization Act. We appreciate your leadership on
this important legislation and look forward to working with you.
Please contact me at (202) 778-6888, or Jan McKenzie, Senior
Legislative Affairs Representative at (202) 778-6470 if you
should have further questions or would like additional infor-
mation.



Sincerely yours.




/f?:^*<s^£y



n J. Kearney



JJK: jkj
Enclosures

cc: The Hon. Mitch McConnell



192



From: Senator McConnell

For: John Kearney

Edison Electric Institute

Henry Brollck

ENVIRONMENTAL CONCERNS

IT HAS BEEN SAID THAT COAL SLURRY PIPELINES CANNOT BE CONSTRUCTED
AND OPERATED IN AN ENVIRONMENTALLY SOUND MANNER. YET I'VE ALSO
HEARD THAT WHEN COAL IS HAULED BY RAIL ROAD, A LOT OP COAL DUST
IS BLOWN OFF- THE CAR.

QUESTION;



IN YOUR OPINION, WHICH OP THE TWO TRANSPORTATION METHODS
POSES THE GREATER THREAT TO THE ENVIRONMENT?

AS I UNDERSTAND CHAIRMAN JOHNSTON'S BILL, IT CONTAINS A
PROVISION STATING THAT PIPELINE SYSTEMS WILL BE SUBJECT TO
THE FEDERAL WATER POLLUTION CONTROL ACT AND OTHER APPLICABLE
FEDERAL ENVIRONMENTAL PROVISIONS. IN FACT, I DON'T THINK
THE SECRETARY CAN GIVE THE GO AHEAD TO CONSTRUCT A PIPELINE
UNTIL THE EPA ADVISES THAT THE APPLICANT CAN BE EXPECTED TO
COMPLY WITH FEDERAL REQUIREMENTS.

IN LIGHT OF THIS REQUIREMENT, WHAT DO YOU THINK LEADS SOME
PEOPLE TO BELIEVE SLURRY PIPELINES ARE ENVIRONMENTALLY
UNSOUND?

DO YOU THINK THAT SOME OP THE ENVIRONMENTAL CONCERNS RAISED
OVER THIS ISSUE STEM FROM THE FACT THAT SOME PEOPLE SIMPLY
OBJECT TO THE USE OP COAL AS AN ENERGY SOURCE AND SEE THE
END RESULT COAL SLURRY LINE AS OPENING NEW MARKETS FOR COAL?



193



ANSWERS TO QUESTIONS ON ENVIRONMENTAL CONCERNS

1) All transportation systems, including both railroads and
pipelines, involve some impact on the environment. Railroads
have environmental and safety considerations such as: noise
pollution, potential street grade crossing hazards, traffic
tie ups, coal dust blown off cars, etc.

Because most pipelines would be constructed underground,
they would have a number of environmental benefits in that
they would not contribute to noise pollution, nor traffic
congestion. Pipelines have been proven to be a reliable,
safe, and efficient means of transportation for both oil and
gas. S. 318 requires that each pipeline be analyzed on a
case by case basis. Each would be subject to the Federal
Water Pollution Control Act and other applicable federal and
state environmental laws. The bill also requires that the
Environmental Protection Agency (EPA) determine whether it
feels an applicant can comply with these environmental
requirements before a pipeline can be determined to be in the
national interest.

Slurry pipelines are a proven technology. According to
an Office of Technology Assessment study, "A Technology
Assessment of Coal Slurry Pipelines," pipelines have been
used in many other countries to ship coal, sulfur, limestone,
iron and other minerals for many years.

Given the fact that the proposed legislation ensures
that the pipelines must meet all relevant federal and state
environmental requirements, EEI supports the development of
coal slurry pipelines as a competitive alternative means of
coal transportation.

We believe that under the provision of the proposed
legislation, coal slurry pipelines can be constructed and
operated in an environmentally sound manner; and that both
railroads and pipelines are needed to ensure that coal
transportation costs are reasonable.



194



From: Senator ffcConnell

For: John Kearney

Edison Electric

David Senter

WATER CONCERNS

IT HAS BEEN MENTIONED THAT THE COAL SLURRY PIPELINE WOULD BE
LIKELY TO TO TAX THE ALREADY OVERBURDENED WATER RESOURCES OF SOME
STATES.

QUESTIONS;

CHAIRMAN JOHNSTON'S BILL HAS A PROVISION WHICH GIVES STATES
THE POWER TO REGULATE THE USE OR EXPORT OP WATER IN THE
INTERSTATE COAL SLURRY PIPELINE SYSTEM. IN OTHER WORDS,
STATE WATER LAW WILL HAVE PRIMACY IN THE INTERSTATE COMMERCE
OP COAL SLURRY.

IN YOUR OPINION, DOES THIS PROVISION ADEQUATELY ADDRESS THE
WATER CONCERNS ASSOCIATED WITH THIS BILL?



195



ANSWER TO QUESTION ON WATER PROVISION

2) A very real concern regarding coal slurry pipelines is
the use of water. Ensuring that water used in a pipeline
does not jeopardize water needed for drinking, agriculture or
other purposes is a critical component of this legislation.
We believe that giving states the power to regulate the use
or export of water adequately addresses any water concerns.

Additionally, we understand that new technologies are
being developed which may reduce the amount of water needed.

The water provisions in S. 318 have been carefully
crafted over the years to ensure that the issue of water
rights and use are fair and meet the concerns of the many
competing interests. The legislation requires that the
pipeline distribution systems, including any discharge of
water, meet the requirements of the Federal Water Pollution
Control Act and other applicable State and Federal
environmental control laws. Much of the language in the bill
concerning the use of water reflects the concerns of
Congressional members from water-scarce states. We therefore
believe that this legislation adequately addresses any water
concerns.



agriculture

America Needs Parity!



196



American Agriculture Movement, Inc.

1 00 Maryland Ave., N.E., Suite 500A, Box 69, Washington, D.C. 20002
(202) 544-5750



Senator J. Bennett Johnston May 3, 1 989

Chairman

Committee on Energy and Natural Resources

United States Senate

Washingtoa D.C. 20510-6150

Dear Chairman Johnston:

I am responding to questions submitted for the record relating
to the April 20, 1989 legislative hearing on S. 318, the Coal
Distribution and Utilization Act.

From Senator McConnell:



1. Question: Chairman Johnston's bill has a provision which
gives states the power to regulate the use or export of water in
me interstate coal slurry pipeline system. In other words, state
water law will have primacy in the interstate commerce of coal
slurry. In your opinioa does the provision adequately address
the water concerns associated with this bill?

Answer: No, we are not satisfied that this provision
adequately addresses the concerns over water associated
wtth this bill.

While it Is important that the states have the power to regulate
the use or export of water in the proposed pipeline system, this
leaves unresolved the reasonable fears of agricultural and
other water users downstream that water will be diverted
upstream in sufficient quantities that there will be insufficient
water for their established needs.

We would not like to see a situation in which some state, or
some water czar, hod to decide whether to provide water for
the coal slurry pipeline or for agricultural producers. Once the
tremendous investment required for a slurry pipeline was in
place, it is doubtful that anyone wiil have the political courage
TO say "no" to their demands for preferential treatment for



197



water. This is especially problematic for states during times of
budget deficits, when The water can be sold for needed
revenue.

We are also concerned with the precedent which would be
established by this proposal for the transfer of water from one
basin to another. While the quantity of water necessary for this
proposal might not be sufficient in itself to permanently impact
the ovailabilrtY of water in a given area, once the transfer of
water from one basin to another is approved, other projects
and proposals will ajrely follow. We believe it is dangereous
precedent to establish and invites similar initiatives which will
adveresly impact water resources.



Since there ore reasonable alternatives already in place for
moving cool which do not require a diversion of scarce water
resources, we believe those alternative systems should be
used. Those scarce and valuable water resources should be
reserved for those industries, such as the production of food
and fiber, which require it for their existence.

2. Question: Maybe you can address one of the farm group's
concerns for me. They ore apparently worried that this bill
would grant the federal power of eminent domain to private
entities, allowing them to force farmers to give up valuable
acreage being used for crops and grazing.

Con you comment on this point? Do you think it is a valid
concern?

Answer: Yes, we do believe this is a legitimate concern. In
fact, it Is probably the objection most often expressed by
agricultural producers to the coal slurry pipeline proposal.

The federal power of eminent domain is an extraordinary
power which is traditionally reserved for matters of great public
need. When public roads are being constructed, for example,
the general public has a shared need for and benefit from
those roods, and therefore the government is justified in using
its power of eminent domain to force the sale of private land.

Cool slurry pipelines are different. The companies advocating
these projects are private companies who seek to moke a
profit. They are not planning to build a transportation system
available for the public to use; they are constructing a private

2



198



system which they will operate for o profit. There is simply no
justification to use the Congress's power of eminent domain to
help private companies undertake a profitable project.

Those proposing to build the pipeline should negotiate with
private landowners for the needed right-of-way over land they
seek to use. In that manner the individual landowner can
evaluate the disruption that would be caused by the pipeline
passing through his land, and can negotiate a fair value for
allowing that nght-of -way Or, if he determines that the pipeline
would pose too great of a threat to his land and resources, he
can simply refuse to allow the right-of-way.

Our system of private ownership of property is extremely
imporrant to farmers and rural citizens, and we should not
abrogate those rights traditionally associated with the
ownership of private property except in rare coses where the