around, U.S. competitors will be the clear winners, increasing
their coal exports by 42 percent as well as gaining 86.2
percent of the world market share ( Annual Outlook for U.S.
Coal , 1986 - DOE/EIA-0333,86 - ) .

There are of course numerous important factors that undermine
the competitive position of American coal producers in the
international market today. Certainly, the exchange rate of
the dollar against certain foreign currencies is still
important. The bold search for foreign exchange by some
international competitors, who directly and indirectly
subsidize their coal sectors, is another. A third cause is the
high U.S. inland rail rates charged for hauling coal by
railroads.

The Ambassador of Italy was so concerned about high rail rates
that he wrote U.S. Representatives in 1983 of his great
interest in coal pipeline legislation, which he felt would
introduce competition for coal transportation to the ports.

Appearing before a Maryland legislative committee hearing on a
state coal pipeline bill, a western Maryland producer testified
in 1984 that the state's coal producing region was being locked
out of the European market, citing the fact that it cost $14.65
per ton to ship coal from Cumberland, Maryland to the port of
Baltimore, compared to as low as $7.00 per ton from Baltimore
to Europe. These high rail rates seriously hinder the efforts
of U.S. coal producers to hold and increase international share
of market for U.S. coal.

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7. The Legislative Protection of Water Rights and Water Use

The most controversial aspect of interstate coal pipelines is
the fact that most coal pipelines that are being considered
today will use water as the medium of transportation. The
allocation and use of water is an important issue in every
region of our nation. The issue is of particular importance,
obviously, in those regions of our nation where water is
relatively scarce, such as certain areas of the west and
southwest, and in those states where water may be potentially
discharged.

a. Legislation Protects a State's Right to Make Water
Allocation Decisions

As proponents of coal pipelines, we strongly support Section 5
of S-318 which provides that decisions concerning the
allocation and use of water shall be made pursuant to state
substantive and procedural law. We support these provisions,
which provide thac federal eminent domain authority may not be
used to acquire any right to take, use, dispose of, or develop
water. This language was carefully crafted by western senators
and congressmen and water law experts who testified before
congressional hearings and reflects their concerns.

Pipeline companies understand that they will be required to
carry the burden of demonstrating the existence both physically
and legally of adequate water supplies. They will have to
prove that pipeline use of water can be made without injuring
the rights or impairing the ability of state water agencies to
plan and regulate the use of their water supplies.

States should be assured that the water provisions of S-318
will be effective. These (1) clarify that federal eminent
domain authority may not be used to acquire water rights; (2)
provide that those terras and conditions that a state includes
in a water permit shall be enforceable despite the fact that
the water moves in interstate commerce; (3) clarify that
nothing in S-318 shall be construed to override or modify state
water law or any provision of an interstate water compact; and
(4) provide that all water allocated to an interstate coal
pipeline that is determined to be in the national interest must
be allocated pursuant to state substantive and procedural law.

b. The Legislation Requires Federal, State and Local
Standards for Water Discharge to be Met

Coal-water fuels require no discharge of water because they are
direct-fired into a boiler. Using traditional technology in
the Black Mesa pipeline, no water is discharged because water
is used in the cooling system of the power plant. However, to
the extent water used in coal water slurry is discharged prior
to combustion, it is subject to federal, state and local water



214



pollution laws under the provisions of S-318. The Clean Water
Act, formally called the Federal Water Pollution Control Act,
establishes minimum quality standards and prohibits the
discharge of any water which does not meet these standards.
Before water can be discharged, permits must be obtained and
permit holders must prove that all applicable standards will be
met. The Act also authorizes the Administrator of the
Environmental Protection Agency to delegate to states certain
aspects of water pollution control. Consequently, states have
enacted water pollution laws and established agencies to
administer them.

c. The Environmental Impact Statement on Water
Discharge by ETSI

An example of the application of state and federal water
pollution control law to the water used in coal pipelines is
the ETSI Pipeline Project. A final Environmental Impact
Statement (EIS) was issued for the proposed pipeline, as
required by the National Environmental Policy Act. It examined
the environmental effects of discharging the water used in the
slurry pipeline and concluded:

(1) Water discharged into freshwater streams or rivers
will not have impacts on the beneficial uses of the
streams or rivers;

(2) Water discharge will not affect the aquatic biology
because the discharge must meet applicable state
water quality standards and National Pollutant
Discharge Elimination System standards set by EPA;

(3) Projected levels of metals after treatment of the
water would be less than all EPA Primary Drinking
Water Standards;

(4) Water treatment facilities will reduce the levels of
total dissolved solids and sulfates to state
standards.

The costs of the facilities to treat water used in a coal
pipeline in order to comply with state and federal water
pollution control laws will be borne by the pipeline company,
and are included in the construction costs. It is the
conclusion of water disposal experts appearing before many
international water conferences that, while chemical
interactions do occur between water and coal under simulated
conditions of coal pipelines, clean-up can be achieved with
technological and economic ease. The variation of slurry water
characteristics is consistent with variation in other
industrial wastewaters and with municipal wastewaters and is
recognized by personnel in the pollution control profession.



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8. The Precedent and Need for Federal Eminent Domain
Legislation

Interstate coal pipelines can be built without Federal
financial assistance. Interstate coal pipelines cannot,
however, be built without long and costly litigation to secure
rights-of-ways unless federal legislation is enacted to provide
the federal right of eminent domain to interstate coal
pipelines. Except for the special case of Black Mesa, no major
interstate coal slurry pipelines have been built in this nation
during the 27 years since federal eminent domain legislation
was first submitted to Congress in 1962.

a. State Eminent Domain

Faced with active railroad opposition, state legislatures have
difficulty dealing effectively with the issue of eminent domain
for coal pipelines in their usual abbreviated sessions,
particularly when the fundamental issues of providing essential
state services are today so difficult and time consuming.

These practical problems are especially relevant in those
states through which pipelines must be built, but in which coal
is neither picked up nor delivered. In fact, such states may
encounter legal difficulties in identifying benefits to their
citizens that would support the grant of state eminent domain
authority to such coal pipelines. Similar experiences led to
the amendment of the Natural Gas Act in 1947 to grant the
Federal power of eminent domain to interstate gas pipelines.

b. The ETSI Story

The experiences of the ETSI Pipeline Project paint a clear
picture of the difficulties involved in building an interstate
coal pipeline without federal eminent domain. ETSI's
right-of-way acquisition for the 1386-mile main coal pipeline
began in 1974. ETSI found that the greatest difficulty
encountered was in securing permission to cross under the
various east-west railroad routes which had to be crossed in
the southeasterly pipeline routing. ETSI officials initiated
contacts with the various railroads involved in an attempt to
negotiate easements or licenses to cross under the track beds
located across the proposed route. Ultimately, the p-TSI
representatives were refused crossing permits in every instance.

Faced with railroad refusals to negotiate and federal
requirements that preparation of an environmental impact
statement could not be undertaken until ETSI had demonstrated
that railway crossings could be secured, ETSI undertook what
was termed the "window program" for obtaining rights-of-way
from the railroads.

Extensive title searches were made of the railroad land grants
that lay across the proposed route. Records indicated that all
the railroads ETSI crossed were built under the Federal



11 -



216



Railroad Acts of 1862 and 1864. ETSI's land division
identified crossing points at or near the pipeline route where
the land in question was held as an easement under the Railroad
Land Grant Acts rather than in fee ownership. ETSI then began
an extensive process of legally challenging the authority of
the railroads to deny crossing requests, instituting 65
individual law suits against the railroads to establish ETSI's
rights.

ETSI's window program was completely successful at the trial
court level as well as in appellate review by both the Eighth
and Tenth Federal Circuit Courts of Appeal and the Oklahoma
Supreme Court. See Energy Transportation Systems, Inc. v.
Union Pacific Railroad Co. , 606 F. 2d 934 (10th Cir. 1979); and
Energy Transportation Systems, Inc. v. Kansas City Southern
Railroad , 638 F. 2d 459 (Okla. 1981). Also, ETSI's final
environmental impact statement issued by the Bureau of Land
Management found the ETSI coal pipeline to be an
environmentally sound way to transport coal.

Although this costly and time consuming litigation enabled ETSI
to obtain rights-of-way to cross under specific rail lines, it
had to realign the pipeline so that it would cross at the
windows opened by the courts. This legal process added at
least an additional $50 million to projected construction costs
but more important was the several years of delay and resultant
uncertainty. Based on this record of obstruction, the ETSI
partners sued the major western railroad for $8 billion dollars
in treble damages under the Sherman Anti-Trust Act.

Out of court settlements* with ETSI by Burlington Northern,
Union Pacific Railroad Co., Missouri Pacific Railroad Co.,
Kansas City Southern Railway Co. and Chicago & Northwestern
Transportation Co. amount to approximately $285 million. A
federal jury recently awarded the owners of ETSI a total of
$1,035 billion in damages from the final defendant, the Santa
Fe Southern Pacific Corp. Motions are pending in Federal
Court, but no judgment has yet been entered; Santa Fe is
expected to appeal any decision. The jury's verdict came on
the heels of a partial instructed verdict delivered by the
judge in the case in favor of the pipeline owners. The judge
decided that the foregoing railroads, including Santa Fe
Southern Pacific, had conspired or agreed to delay or stop the
ETSI coal slurry pipeline project.

After $150 million spent by the ETSI partners, and millions
more in unrealized earnings, it is clear that the window
program approach is not practical as a business approach in
developing coal slurry pipeline projects. For coal pipelines

♦Reported in the McGraw Hill Clean Coal/Synf uels Newsletter
dated March 20, 1989.



- 12



217



in other areas of this nation, the window program approach is
not possible because the railroads own the underlying land in
fee. Furthermore, uncertainties in project timing and
execution created by being unable to tie down rights of way
make it exceedingly difficult to obtain binding commitments in
marketing the coal to users.

c. Legislative Precedence

As I indicated previously, similar difficulties led to the
amendment of the Natural Gas Act in 1947 to grant federal
eminent domain authority to interstate natural gas pipelines;
the enactment of the Cole Act in 1941 to grant federal eminent
domain authority to several interstate petroleum products
pipelines that transport petroleum products consumed in the
Washington, D.C. area; the grant of federal eminent domain
authority to the land grant railroads (Santa Fe, Union Pacific
and Burlington Northern) in the 1860 's; the grant of federal
eminent domain authority to interstate bridge companies and to
certain interstate electric transmission projects.

The enactment of federal eminent domain legislation in each of
these instances allowed the development of interstate energy
and transportation facilities that have provided enormous
benefits to our nation and literally have changed the face of
our country. The adoption of this federal eminent domain
legislation will enable the nation to realize the substantial
benefits of interstate coal pipeline systems.

CONCLUSION

Mr. Chairman, the case for interstate coal slurry pipelines is
compelling. Interstate coal slurry pipelines will provide
significant energy and economic benefits for the nation. But
the development of these interstate systems needs to be
facilitated by workable federal eminent domain legislation,
such as S-318. We encourage the enactment of this legislation
expeditiously in order that the benefits of long-distance coal
pipelines can be realized.



- 13



218



STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION

TO THE ENERGY AND NATURAL RESOURCES COMMITTEE,

UNITED STATES SENATE

WITH REGARD TO S. 318, THE NATIONAL DISTRUBUTION AND

UTILIZATION OF COAL ACT.

Presented by
George L. Berg, Jr.
Assistant Director, National Affairs Division

April 20, 1989
On behalf of the American Farm Bureau Federation, I am pleased to
comment on S. 318, the National Distribution and Utilization of Coal
Act. Farm Bureau is the nation's largest general farm organization
representing more than 3.6 million member families in 49 states and
Puerto Rico.

As you know, Mr. Chairman, Farm Bureau has testified many times
before on the subject of coal slurry pipeline legislation. S. 318 is
very similar to those earlier legislative proposals which the Congress
has seen fit to reject on several occasions. My statement today will
be similar to what we said in earlier testimony. The stated purpose
of the legislation is to facilitate the development of coal pipelines
by granting the federal power of eminent domain to those coal
pipelines that are determined to be in the national interest.

Farm Bureau policy, as adopted by a resolution last January at
our annual meeting in San Antonio, Texas, is stated as follows:

"Federal legislation dealing with coal slurry pipelines
should:

"(1) Respect state water Ifiws and protect such laws from
threats of nationalization nder the Interstate Commerce Clause
of the U. S. Constitution;

"(2) Respect state laws concerning property rights and
eminent domain procedures;

"(3) Require payments to owners for damages to their
property; and

"(4) Provide that a state which has a water compact with
another state shall receive credit for the amount of water
that is transported to the other state in a coal slurry
pipeline and ensure:

"(a) that the use and appropriation of water for all
interstate coal slurry pipelines, not just those that
use the right of federal eminent domain, be made pursuant
to the law of the state where the diversion takes place;



219



Page 2

"(b) that if a state denies a water permit or exercises
conditions on such a permit or authorization, up to and
including termination, this exercise will not be prohibited
as an unreasonable burden on interstate commerce;

"(c) that federal reserved water can only be used in
a coal slurry pipeline if state law is fully complied
with; and

"(d) that nothing in the law shall alter in any way any
provision of state law or interstate compact."

Our policy further opposes legislation which grants the right
of federal eminent domain to any additional entity except in crossing
property controlled by another carrier which already has federal
eminent domain authority.

Farm Bureau continues to believe there is no real need for coal
slurry pipelines. It is doubtful whether the development of a coal
slurry pipeline would result in the production of new coal. However,
the development of such a pipeline would obviously result in the
diversion of coal from other modes of transportation — railroads,
trucks and barges. The existing transportation industry has proven
its ability to move the quantities of coal that will be produced
over the next 25 or 30 years. Therefore, given the fact that slurry
pipelines are not necessary for competition, it is difficult to see
where the coal slurry promoters can justify any case for the granting
of eminent domain power.

In addition to our concerns with respect to transportation,
farmers and other agricultural interests located mainly in the
Northern plains and intermittent states are likewise concerned as
to whether the diversion of water supplies for use in coal slurry
pipeline transportation will adversely affect agricultural production.
In some areas of minimal rainfall that correspond to areas of abundant
western coal reserves, the allocation of water for the various
competing uses is especially sensitive. Many agricultural producers
have been in the midst of one of the most disastrous water shortages
in years. This is hardly the time for Congress to consider
legislation that could divert billions of gallons of water annually
from the semi-arid Northern Plains in order to transport coal.
However, this issue is best resolved through negotiations at the local
and state level. Historically, it has been the role of the state,
not the federal government, to determine the best use for the state's
water resources.

It is our understanding that the Energy Transportation System
project (ETSI), the most significant pipeline project in the past
few years, acquired easements for the rights-of-way on nearly 2,400
parcels of land stretching from Wyoming to Arkansas. Only 14 parcels



220



Page 3

of land were obtained through the exercise of eminent domain. This
would hardly justify the enactment of federal legislation with respect
to eminent domain procedures.

Farm Bureau is also concerned about the impact coal slurry
pipelines will have on rural communities and rural development. If
coal pipelines are permitted, some railroads will have no choice
but to reduce service or abandon many of their rail lines because of
unprof itability . Whenever a railroad abandons a branchline, there
are several companion effects that adversely impact rural communities.
Rail abandonment can mean loss of current employment, loss of
income, loss of investment, deterioration of rural roads and bridges,
relocation of facilities and increased taxes. It is essential to
maintain a strong reliable transportation system, particularly a
strong and viable rail system for the shipment of grain and other
agricultural commodities. Therefore, we oppose any action by Congress
which would, in the long run, weaken or jeopardize the current rail
transportation system.

Mr. Chairman, while the coal slurry pipeline legislation
pending before the Senate this year has appeared to resolve some
of agriculture's concerns, there is no denying the fact that if the
legislation is enacted, farmers will bear the burden, yet realize no
benefits. The price for coal slurry pipelines will be paid by rural
America. It is our land that will be taken; it is our water that will
be diverted; it is our rail transportation that will go up in price;
and it is our property that will deteriorate. In return for this, we
get nothing.

In summary, public policy decisions that involve coal slurry
pipelines should be based on a careful evaluation of each project. No
one can say how many proposed coal slurry pipelines projects will be
built. Furthermore, the extent and form of the pipeline project, the
number of states through which each pipeline would pass, the rail coal
traffic patterns, and the projected annual revenues for transportation
can reasonably be expected to vary from situation to situation.
For these reasons, and until the impact of coal slurry pipelines
on agricultural production and rural development can be properly
evaluated. Farm Bureau will continue to oppose granting the federal
power of eminent domain to coal slurry pipelines.

Mr. Chairman, we appreciate the opportunity to present Farm
Bureau's views on S. 318, the National Distribution and Utilization of
coal Act.



221



Smamprogetcn USA ioc.



656 Fifth Avenue, New York. NY 10103
Telephone: 212-399-1090 Telex: 680 1080 ENIUSA



LTR 2074
April 17, 1989



The Honorable Senator

J. Bennett Johnston
Chairman, Committee on Energy

and Natural Resources
United States Senate
Washington, D.C. 20510-6150



Dear Senator Johnston,



Mr. Stuart Serkin, Executive Director of the Coal & Slurry
Technology Association, informed Snamprogetti that the Senate
Committee on Energy and Natural Resources had scheduled a
hearing on April 20, 1989, for "The Coal Distribution and
Utilization Act," S.318, and that it would have liked Mr. R.M.
Braca to appear as a witness at the hearing.

Mr. Braca, unfortunately, must decline this opportunity to
testify on behalf of coal pipelines as he is in Europe on
business the week of April 17-21, but he appreciates the
opportunity to submit his written testimony to the Committee to
be included as part of the Senate S.318 hearing record.

Please advise if we may be of further assistance to you and the
Committee on Energy and Natural Resources in your efforts with
this important legislation.

Sincerely yours,



Merry^. Pantano

Public Relations Manager



Enclosures (2 copies)
PS 06/1



222

Statement of

R.M. Braca, P.E.
President
Snamprogetti USA Inc.
666 Fifth Avenue
New York, New York 10103



Prepared for

The Committee on Energy and Natural Resources

Hearing on S.318
"The Coal Distribution and Utilization Act"

April 20, 1989

U.S. Senate
Washington, D.C.



223



Mr. Chairman and members of the Committee, my name is
Mike Braca. I am the President of Snamprogetti USA Inc. of
New York, representing on the North American market
Snamprogetti S.p.A. of Milan, Italy, a research and
engineering company within the Italian energy group, ENI.
I am pleased to have the opportunity today to tell you
about our group's activities in the fields of coal-water
fuels and related coal pipelines where we are heavily
engaged in and committed to the development of the relevant
technologies and their commercial applications. As part of
this commitment, Snamprogetti has been a long-standing
member of the Coal and Slurry Technology Association in
Washington, D.C., and is participating in the U.S. -Italy
Cooperative Project on Coal-Water Mixtures. The project is
conducted under the provisions of Annex I to the
"Memorandum of Understanding between the Government of the
United States of America and the Italian Republic
concerning Energy Research and Development Cooperation,"
signed in Rome on December 5, 1985. Under this program a
new agreement was signed in 1988 between the U.S.
Department of Energy and the Italian Government, which sets
up a collaborative program to prepare and conduct



224



combustion tests on 20,000 tons of "superclean" coal-water
fuel mixtures based on U.S. coals. The tests will be done
both in Italy and the U.S.A.

It is interesting to note why a coal-importing country
such as Italy should have become so interested in
developing new coal technologies. In the face of rapidly
rising oil prices in the 1970 's, it was anticipated that
there would be a fourfold increase of coal imports into
Italy, which would soon strain the existing
infrastructure's capacity to receive, transport inland and
store the additional amounts of coal that would be consumed
by the industrial and utility sectors. There was the
additional problem at the end of the coal supply chain, of
converting a large number of boilers and furnaces from oil-
to coal-firing.

After many studies, the solution proposed to these