1. Pipeline Mile Post 222 and 244 were ruptured February 18,
1977, when Mohave Generating Station personnel closed Blacl<
Mesa's main line valve at the Generating Station without
shutting the pipeline down. Black Mesa's high pressure
relief system failed to function, because a rupture disc had
leaked and allowed the system to become plugged. After
these ruptures, a redundant low pressure relief system was
installed by Mohave and a redesigned redundant high
pressure relief system was installed by Black Mesa.
Estimated coal loss from this rupture was 2,157 tons.
2. A leak occurred just outside the Station U fence (Mile Post
176.7) on February 26, 1979. The rupture was apparently
caused by a pipe mill defect and/or slight flattening incurred
during construction. Coal lost is estimated at 800 tons.
3. A leak occurred February 23, 1986, in a 4-inch elbow
installed as a part of a temporary throttling station at Mile
Post 260.3. This leak was in 0.500-inch wall pipe and
resulted from high velocities across an out-of-line weld.
Estimated coal loss was 1 ,550 tons.
a. March 4, 1986, the pipeline leaked at Mile Post 180.0. The
leak was a 2.5-inch axial rupture that took place at 42% of
pipe yield strength, calculating strength based on the
surrounding wall thickness. Apparently a major flaw on the
inside of the pipe gradually eroded away allowing the
rupture. Estimated coal loss was 515 tons.
None of the above described spills have required extensive cleanup.
Regarding the pipeline rupture in February, 1977, Mr. Tom Gey, Realty
Specialist with the U.S. Department of The Interior, states:
Tom Lyies of the Arizona Game and Fish Department confirms that
based on a chemical analysis of a spilV in Sacramento Valley in
1977, the coat slurry is inert and nontoxic^ Mr. LyIes stated
that past experience showed the material will incorporate into the
environment in several months with no adverse effects.
Based upon the chemical nature of the slurry, the spill is not
ecologically damaging. The slurry spill does pass through two
miles of the NW 1/4 of the Mt. Nutt WSA (2-2U). The spill will
be evident for several months until it is diluted by rains, and
incorporated into the alluvial wash.
In every case of a spiil, the decision of the EPA and Arizona state agencies
has been "better left in place" since coal is nonhazardous, nontoxic materia!
that represents no danger to the environment.
In a more recent development, Mr. Dale A. Altshul, Environmental Project
Coordinator, Arizona State Land Department, writes:
it is the determination of the Department that the materials
transported through your pipeline and related facilities are
designated as nonhazardous under current Federal and State
statutes. Therefore, your pipeline is considered exempt from
permitting requirements of ARS Title 49. Further, you have
provided adequate information to demonstrate that coal slurry has
been designated as nonhazardous in the event of spillage.
The leaks described above resulted in the estimated loss of 5,022 tons of
coal during Black Mesa's 18 years of operation and over 68 million tons of
coal t:ransported. Compared to rail transportation, this figure represents a
very low percentage of coal lost in transit. "Blow out" from railroad
transportation is estimated to be from 0.5% to 3% depending on several
factors such as distance of travel, type of coal, etc. Using the
conservative estimate of 0.5%, the loss from rail cars over the 400 miles of
rail route haul would have been in excess of 300,000 tons.
The Black Mesa Pipeline presently transports coal for less than 1.1 cents
per ton mile. Therefore, as stated earlier, allowing the Mohave Generating
Plant to maintain its status as the lowest cost power generator in the
To demonstrate the pipeline's low inflation rates, initial comparisons of
pipeline versus rail costs in 1970 showed a difference in tariff of less than
$0.50 per ton, the pipeline being the lower cost transporter. The estimated
difference today is $6.00 to $8.00, with the pipeline still providing the
lower tariff. The estimated difference today is based on a rail rate of
$0,025 to $0.03 per ton mile which is common for this haul distance.
One of the most positive aspects of the Black Mesa Pipeline is that it
provides a method of transportation that allows the coal on the Navajo and
Hopi lands to be mined, providing over UOO jobs in a region that has
historically been economically depressed, thus allowing these Native
Americans to remain in the area if they so desire and still maintain a good
The Black Mesa system has proven since 1970, that slurry pipelines are an
economically and environmentally safe alternative to other means of
transportation. In many cases, pipelines may be the only means of
transportation from remote areas like the Navajo and Hopi Reservation in
northeastern Arizona, where it is either uneconomical or environmentally
undesirable to build a railroad.
There is always the element of competition. The Ohio coal pipeline was the
first long distance coal slurry pipeline in the world running from Cadiz to
Eastlake, a distance of 108 miles. The Ohio pipeline was considered a
novelty by the railroads and not a threat to the revenue stream, until a
larger pipeline was proposed that would run from the coal fields of West
Virginia to New Jersey. It was at that time that the railroads began to
realize the technology for transporting large volumes of coal via pipeline
had been developed, and were forced to adopt methods of less cost to
compete with slurry pipelines. Therefore, the unit-train concept was
developed and subsequent defensive measures vigorously pursued.
The operating record of Black Mesa Pipeline clearly supports the viability of
coal slurry pipelines to be a competitive, reliable and safe transporter of
coal. A major reason why other coal slurry projects have not been
implemented in the U.S. is Federal Eminent Domain Legislation has not been
enacted. Coal slurry pipelines could provide significant economic and
environmental benefits to the nation. Federal Eminent Domain Legislation
will assist in letting the marketplace determine economic feasibility and we
strongly support enactment of this legislation.
"" ae a.
si 5 §
The Chairman. Thank you very much, Mr. Brolick.
STATEMENT OF WILLIAM H. DEMPSEY, PRESIDENT,
ASSOCIATION OF AMERICAN RAILROADS
Mr. Dempsey. Thank you, Mr. Chairman. I appreciate your re-
marks. I am only mildly disappointed because, as I recall, the last
time you suggested that my board increase my salary, and I would
appreciate it if you would take that into consideration. [Laughter.]
You will not be surprised to hear, nor will the committee, that I
have not changed my mind and the industry has not, and that we
remain strongly in opposition of this legislation.
The Chairman. Well, I know you cannot admit that, anyway.
Mr. Dempsey. And get paid at the same time.
I will be brief, I have testified a number of times before. We are
opposed to the legislation on fundamentally two grounds. One is
that there is no need for it. And the second has to do with the ad-
verse consequences that the legislation would have with respect to
the railroads and their employees, and the shippers and communi-
ties that they serve.
As to need, when this whole matter became important about 10
years ago, as you will recall, the main argument in favor of coal
slurry pipelines was that the rail industry would not be able to
cope with the projected increased transportation of coal.
That, we said at the time, was clearly wrong. As as time has
gone on, that has been demonstrable true. And so that argument is
no longer raised, and I will pass over it.
The argument now, essentially, is, as I understand it, that the in-
troduction of additional competition in the transportation of coal is
important. And that has to dc with, then, the lowering of rates for
transportation of coal.
I make two points, briefly. One is that one might expect that the
argument would be supported by evidence that there has been
some sort of explosion in rates for the rail transportation of coal,
particularly since the partial deregulation of the industry in 1980.
In fact, that is not the case. What has happened has been that,
in real dollar terms, coal rates, on average, have gone down since
1980 about 10 percent. That has been just almost exactly the same
reduction in rates that we have experienced with respect to all of
our commodities on average.
And that has to do with all kinds of competitive factors that op-
erate in the market place, both on the railroads and on the produc-
ers of coal.
So there is not that sort of crying need for a restraint on the rail
rates for transportation of coal.
Secondly, and I think terribly importantly, it has not been men-
tioned yet, is the fact that under the recently adopted coal rate
guidelines for the regulation of rail coal rates adopted by the Inter-
state Commerce Commission, in effect, the shippers of coal get the
benefit of coal slurry pipeline competition without any coal slurry
pipeline being built.
That is to say, under these guidelines, a shipper complaining
about the level of rail rates for the transportation of coal or other
commodities, if the Commission extends the rule, produces evi-
dence with respect to what would, in the shipper's judgment, be the
lowest cost, most efficient operator of that transportation service.
That could be another truncated rail line, it could be a barge line,
or it could be a coal slurry pipeline.
And if the evidence then establishes that a coal slurry pipeline
would probably transport the coal at a lower rate than that which
is proposed by the railroad, the railroad must reduce its rates to
So that without replication, without the creation of redundancy
in the transportation of coal, the shippers essentially have the ben-
efit that is suggested would be produced by this bill.
As to adverse impact, Mr. Otero has discussed the question of
impact on labor. I add, by way of emphasis, that because of com-
petitive pressures, we have had to reduce our labor force in Class I
railroads over the last eight years by about 40 percent. That is an
enormous burden upon our employees. It is one that we are scarce-
ly happy with.
What we are dealing with here is a threat, and a major one, to
rail employment. And by way of illustration, I take you back to the
1979 report of the Office of Technology Assessment, with respect to
impact on employment. That report concluded that — I am talking
now about permanent jobs — for every permanent new job in the
coal pipeline industry, there would be a loss of 6 to 10 permanent
jobs in the rail industry.
That scarcely is a job spill, I suggest. And it is ironic that when
the bill was originally proposed, many of its supporters claimed
that its major advantage in terms of cost would be that coal slurry
pipelines are less labor intensive than railroads, and that, there-
fore, because that was a time of burgeoning inflation, that cost
lines between competition between rails and coal slurry pipelines
would at some point cross.
As to impact on railroads, the Office of Technology Assessment,
it its 1979 report, estimated that if the coal slurry pipelines then
on the drawing boards were built, that the railroads would lose
something in the way of $700 million a year in net revenue.
That, today, would translate into something over $1 billion a
year, or two-thirds of the net operating revenues of the rail indus-
Now, the Congress if familiar with the decade of the 1970s and
the efforts of the Congress and the billions of dollars in taxpayers'
monies that were necessary to rescue the Northeast railroads from
bankruptcy, and much of the Middle West.
The industry is not at a revenue adequate position yet. It is only
about two-thirds there. And what this suggests is an invitation to
return to those destructive days. The industry is simply in no posi-
tion to withstand that sort of punishment.
The reaction of the industry would be obvious. We have been
through this before. It would try to raise rates on other services
that it performs and therefore the first victims would be other
shippers. That is to say, shippers that would not be able to use coal
slurry pipelines. That is to say, most shippers — the vast majority of
them — and the communities that they serve.
But our experience has been clear since 1980. Notv^^ithstanding
partial deregulation, we face enormous competition and it would
not be possible to raise the rates an3rwhere close to the level that
would be necessary to recapture this net revenue. Accordingly,
what would happen would be, again, the spiral of the '70s — de-
ferred maintenance, deteriorating service, loss of shippers and the
inevitable financial collapse of at least a major part of the indus-
Now I understand that is gloomy picture that I paint, but I think
we speak from some experience and I do rely upon the estimates of
the Office of Technology Assessment.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Dempsey follows:]
statement of William H. Dempsey
President of the
Association of American Railroads
Senate Committee on Energy and Natural Resources
on S. 318
The Coal Distribution and Utilization Act
April 20, 1989
Mr. Chairman and members of the Committee, I appreciate
the opportunity to present the views of the Association of
American Railroads on S. 318, the Coal Distribution and Utiliza-
In considering S. 318, the Committee is revisiting one of
the most debated transportation issues of the last ten years:
Should the Federal Government confer the privileged power of
eminent domain on coal slurry pipeline companies? That question
has been debated in seven of the last eight Congresses and, when
subjected to a vote, has been answered in the negative. With each
Congress, the argument for granting the federal power of eminent
domain to coal slurry pipelines has become less persuasive.
The power of eminent domain is to be exercised or
conferred by government only where it is found necessary to take
private property for public uses. Because private property rights
are being infringed, eminent domain is a power to be exercised
only when the public's need is a compelling one.
It is a well-settled general principle that
incidental benefits accruing to the public are
not sufficient to make the purpose of an
improvement or enterprise a public one. Thus,
where the chief, dominating purpose or use is
private, the mere fact that a public use or
benefit is also incidentally derived will not
warrant the exercise of eminent domain. l^
The past attempts to enact legislation conferring the
power of eminent domain on coal slurry pipeline companies have
failed because quite plainly, "the chief, dominating purpose or
use is private. ..." The absence of a public purpose or use is
even more evident today:
(1) There is no need for additional coal transporta-
tion capacity; and
(2) There is no need to construct slurry pipelines
in order to constrain rate rates.
The disbenefits to the public, on the other hand, are sub-
(1) Coal slurry pipelines will result in long-term
(2) Coal slurry pipelines will impair the financial
viability of the railroads and, ultimately,
lead to poorer service at higher prices for
most rail users;
(3) Coal slurry pipelines will hasten the depletion
of one of our nations most scarce resources -
its water supply.
I will address briefly each of these points.
There Is No Need for Additional Transport Capacity
Domestic production of coal in 1987 was 917 million tons.
The forecasts of domestic coal production through the year 2000
which we have reviewed range from 1.1 to 1.2 billion tons.-''
1/ 26 Am. Jr. 2d, Eminent Domain §33 (1966).
2/ The National Coal Association forecasts 1.11 billion tons and
the U.S. Department of Energy forecasts 1.17 billion tons.
At the top end of the range the forecasted growth in coal produc-
tion represents an increase of only two percent per year from
1987-2000. This increase clearly will not tax the capability of
the railroads. In the past ten years the railroads have annually
increased the amount of coal hauled by approximately four percent,
double the projected annual increase between now and the year
2000. And the railroads handled these increases in tonnage over
the last ten years while the average length of haul for coal
traffic grew approximately twenty-five percent.
The manufacturers of rail cars currently have the
capacity to manufacture 50,000 cars yearly. During the last five
years an average of only 14,000 cars were manufactured. Assuming
the railroads' share of the market for the transportation of coal
remains relatively constant, less than 60,000 additional hopper
cars will be needed to haul the increased coal traffic. Stretched
over a ten-year period this would be a de minimus requirement in
light of the excess car building capacity in this country.
There Is No Need To Construct Slurry Pipelines In Order To
Constrain Rail Rates
The key argument made by coal slurry promoters has been
that, without coal pipelines, rail coal rates would be unreason-
ably high because railroads do not face competition for the trans-
portation of coal. The facts belie that argument. Far from being
unreasonably high, in the eight years since enactment of the
Staggers Act, rail coal rates have failed even to keep pace with
inflation and have actually declined by approximately ten percent
in constant dollar terms. That decrease virtual-Iy^ mirrors the
constant dollar decrease for rates on all rail commodities which
has occurred during the same period. ' '
Like the rates on all rail commodities, coal ratfes are
kept in check by pervasive competition among railrdads and between
railroads and other modes of transport, by geographic and- product
competition, and by the potential competition that exists' from all
of these forms of competition. Indeed, under the Interstate
Commerce Commission's Coal Rate Guidelines,— any price advan-
tage a coal slurry pipeline might have can be realized by a
shipper without the pipeline ever being built. There can be no
more conclusive evidence that the construction of a 6oal slurry
pipeline does not meet the public use test demanded bysa grant of
the eminent domain power.
In its Coal Rate Guidelines, the Commission' adopted the
concept of Constrained Market Pricing or "CMP," which it explained
as follows:-* ■*
1/ These figures point up the essential errors in the 1985 Energy
Information Administration report frequently cited by slurry
proponents which estimated that by 1995 coal pipeline rates would
be from $12 to $20 per ton less than 1995 railroad rates (see
"Coal Slurry Pipelines: Impact on Coal Markets," April, 1985).
We estimate that in 1988 the average railroad coal rate was only
$12 per ton. The report also estimated that from 1984 to 1995
railroad coal revenue would increase 4.4-5.0 percent per year,
excluding inflation, while from 1984 to 1988 coal revenues for
Class I railroads actually decreased 6% in constant dollar terras.
Other errors in the report are equally egregious. i ^
4/ Ex Parte 347 (Sub-No. 1), Coal Rate Guidelines. Nationwide ,
decided August 8, 1985.
5./ lA^ at 9.
An important feature of CMP is that a captive
coal shipper need not bear the costs of any
facilities or services from which it derives no
benefit. One means of assuring that such cross-
subsidization does not occur is the 'stand-
alone cost' (SAC) test. This test is used to
compute the rate a competitor in the market-
place would need to charge in serving a captive
shipper or a group of shippers who benefit from
sharing joint and common costs. A rate level
calculated by the SAC methodology represents
the theoretical maximum rate that a railroad
could levy on shippers without substantial
diversion of traffic to a hypothetical
competing service. It is, in other words, a
simulated competitive price. (The competing
service could be a shipper providing service
for itself or a third party competing with the
incumJbent railroad for traffic. In either
case, the SAC represents the minimum cost of an
alternative to the service provided by the
In plain terms, under the Guidelines any "captive" coal shipper
that can show its rates would b-i lower if a coal slurry pipeline
were built to serve it could force the railroad to lower its
rate to the rate that the slurry pipeline would charge!—
The importance of this regulatory standard to the coal
slurry debate cannot be overstated. For over a decade slurry
promoters have been asserting that pipeline rates would be lower
than railroad rates if pipelines were built. The ICC has now
provided that a railroad cannot charge a shipper more than a
^/ Where a railroad did not have "market dominance" (e.g., the
rail rate was below the statutorily prescribed rate-to-variable
cost ratio) , a shipper could not force a reduction in the rate by
such a showing because the Commission would not have jurisdiction
over the rate. The Congress denied jurisdiction for rates below
prescribed variable cost levels because they were conclusively
presumed to be competitive. In such circumstances, coal slurry
pipelines cannot be deemed necessary to provide competition.
slurry pipeline (or any other competitor) would charge that
shipper. If, indeed, a coal slurry pipeline would provide cheaper
transportation, coal shippers can now force railroads to reduce
their rates to coal pipeline levels without incurring the risk of
a long term take or pay pipeline contract ." There is no need,
therefore, to build a pipeline in order to get the competitive
advantages of a pipeline. Under any scenario a coal pipeline
would only add redundant transportation capacity and its
construction would do nothing to constrain rail rates that could
not be done without its construction — it would utterly fail the
public use test for condemnations of private property.
Coal Slurry Pipelines Will Result in Long-Term Employment Losses
A decade ago pipeline proponents were asserting that in
the long run it would cost less to move coal by pipelines than by
rail, because pipelines were capital intensive compared to the
labor intensive railroads and, due to inflation, railroads would
be more affected by rising labor costs than slurry pipelines. -
With the onset of the unemployment problem, the pipeline propo-
nents muted that argument and emphasized the pro-employment
7/ Where shippers want the price stability afforded by contracts,
railroads are now authorized under the Staggers Act to negotiate
the prices and terms of service.
8/ For example, testifying before Congress on July 30, 1981, the
President of the Slurry Transport Association noted that, contrary
to the proposed pipelines, ". . .railroads have a cost structure
heavily weighted by such inflationary factors as labor and fuel."
virtues of coal slurry pipeline legislation — over 300,000 new jobs
they now allege.
While the source of the 300,000 is not disclosed, one can
surmise that it was generated by the same process as the figure of
500,000 jobs which pipeline promoters were claiming in the 98th
Congress. That figure, we found, was derived by plugging into the
Bureau of Labor Statistic 's model for estimating the effects of
revenue increases on various segments of the national economy — in
this case heavy construction — the estimated amount of money needed
to construct proposed pipelines. By doing so, one generates the
number of job-years that would be needed to construct planned
pipelines. So, evidently, using the BLS methodology pipeline
proponents have calculated that slurry pipelines will create over
300,000 job-years. It is to be noted that this is the total
number of job-years it would take to build the slurry pipelines
— it is not over 300,000 jobs per year. These jobs would
disappear as soon as the pipelines were built, never to reappear.
The adverse long term effect slurry pipelines would have
on unemployment offsets by far the over 300,000 job-years that
supposedly would be required to build slurry pipelines. In its