PAGENO="0001" 7Q~ C a C COAL PIPELINE ACT OF 1978 (95-59) HEARINGS BEFORE THE SUBCOMMITTEE ON SURFACE TRANSPORTATION OF THE COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION HOUSE OF REPRESENTATIVES NINETY-FIFTH CONGRESS SECOND SESSION ON H.R. 1609 TO AMEND THE MINERAL LEASING ACT OF 1920, AND FOR OTHER PURPOSES MARCH 22 AND APRIL 11, 1978 Printed for the use of the Committee on Public Works and ~rrahsb6~tdtjon- ~ - ~ A ~ ~ r'~ r~ ~ )i~27 U.S. GOVERNMENT PRINTING OFFICE 32-7450 WASHINGTON: 1978 iVQ~ 107978 / PAGENO="0002" COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION HAROLD T. (BIZZ) RAY ROBERTS, Texas JAMES J. HOWARD, New Jersey GLENN M. ANDERSON, California ROBERT A. ROE, New Jersey TENO RONCALIO, Wyoming MIKE McCORMACK, Washington JOHN B. BREAUX, Louisiana BO GINN, Georgia DALE MILFORD, Texas NORMAN Y. MINETA, California ELLIOTT H. LEVITAS, Georgia JAMES L. OBERSTAR, Minnesota JEROME A. AMBRO, New York HENRY J. NOWAK, New York ROBERT W. EDGAR, Pennsylvania MARILYN LLOYD, Tennessee JOHN G. FARY, Illinois TED RISENHOOVER, Oklahoma W. G. (BILL) HEFNER, North Carolina DAVID L. CORNWELL, Indiana ROBERT A. YOUNG, Missouri DAVID B. BONIOR, Michigam ALLEN B. ERTEL, Pennsylvania BILLY LEE EVANS, Georgia RONNIE G. FLIPPO, Alabama NICK JOE RAHALL II, West Virginia BOB STUMP, Arizona DOUGLAS APPLEGATE, Ohio PROFESSIONAL STAFF RICHARD J. SULLIVAN, Chief Counsel LLOYD A. RJVARD, Chief Engineer LESTER EDELMAN, Counsel LARRY REIDA, Minority Counsel ROBERT K. DAw5ON, Administrator ERROL L. TYLER, Associate Counsel DAVID A. HEYMSFELD, Assistant Counsel (Aviation) DAVID L. MAHAN, Assistant Counsel (Aviation) DARRELL NETHERTON, Assistant Counsel JOHN F. FRYER, Assistant Counsel (Transportation Regulation) CLYDE WOODLE, Transportation Engineer JAMES H. SCOTT, Staff Member (Budget) JOAN M. KOVALIC, Staff Member (Water Resources) GORDON E. WOOD, Assistant Minority Counsel JACK SCHENENDORF, Assistant Minority Counsel RICHARD A. ASHWORTH, Associate Minority Counsel DOUGLAS COPLEY, Minority Staff Member (Aviation) RICHARD C. BARNETT, Minority Economist CHARLES C. ZIEGLER, Assistant Minority Counsel JEFFREY O'NEILL, Minority Staff Member STAFF ASSISTANTS DOROTHY A. BEAM, Executive Staff Assistant ERLA S. YOUMANS, Minority Executive Staff Assistant JOSEPH A. ITALIANO, Editor CATHY EVANS, Calendar Clerk STERLYN B. CARROLL; ANN CLINEBURG; RUTH S. COSTELLO; LINDA Cox; MARJORIE DOWL- ING; MARVIN EVANS; ROGER FUREY; AGNES GANUN; CAROL GRANVILLE; JANET HOOBLER; MACHELE IRBY; ROBERT F. LOFTUS; WALTER MAZAN; VIRGINIA MIDDLEDORF; SHIRLEY NOVOTNY; ROBERT F. SPENCE; TORY STEIN; NELL TALBERT; OGEA WYNNYK BARBARA BANNISTER; KAREN LARISON; Jo LOUGHLIN; CHERYL MEYERS; ALISE PEYTON; COLLEEN RAINEY; ANNADELE RASzICK; PAT STONE JOHNSON, California, Chairman WILLIAM H. HARSHA, Ohio JAMES C. CLEVELAND, New Hampshire DON H. CLAUSEN, California GENE SNYDER, Kentucky JOHN PAUL HAMMERSCHMIDT, Arkansas BUD SHUSTER, Pennsylvania WILLIAM F. WALSH, New York THAD COCHRAN, Mississippi JAMES D. ABDNOR, South Dakota GENE TAYLOR, Missouri BARRY M. GOLDWATER, JR., California TOM HAGEDORN, Minnesota GARY A. MYERS, Pennsylvania ARLAN STANGELAND, Minnesota ROBERT L. (BOB) LIVINGSTON, Louisiana (I!) PAGENO="0003" III SUBCOMMITTEE ON SURFACE TRANSPORTATION JAMES J. HOWARD, New Jersey, Chairman GLENN hI. ANDERSON, California BUD SHUSTER, Pennsylvania ROBERT A. ROE, New Jersey JAMES C. CLEVELAND, New Hampshire MIKE MCCORMACK, Washington DON H. CLAUSEN, California JOHN B. BREAUX, Louisiana THAD COCHRAN, Mississippi NORMAN Y. MINETA, California TOM HAGEDORN, Minnesota ELLIOTT H. LEVITAS, Georgia GARY A. MYERS, Pennsylvania JEROME A. AMBRO, New York ARLAN STANGELAND, Minnesota HENRY J. NOWAK, New York ROBERT W. EDGAR, Pennsylvania W. G. (BILL) HEFNER, North Carolina JOHN G. FARY, Illinois NICK JOE RAHALL II, West Virginia DOUGLAS APPLEGATE, Ohio TED RISENHOOVER, Oklahoma BILLY LEE EVANS, Georgia SALVATORE J. D'AMICo, Counsel RON K. ENCE, Minority Professional ~tcsff Member PAGENO="0004" PAGENO="0005" CONTENTS Proceedings of: Page March 22, 1978 15 April 11, 1978 103 H.R. 1609: To amend the mineral leasing act of 1920, and for other purposes-. 1 TESTIMONY Brown, John J., legislative director, International Union of Operating Engineers, AFL-CIO, speaking on behalf of J. C. Turner, general presi- 261 dent, International Union of Operating Engineers, AFL-CIO Curran, Jack, legislative director, Laborers' International Union of North America, AFL-CIO 43 Davenport, Chester, Assistant Secretary of Transportation for Policy and International Affairs, Department of Transportation 63 Dempsey, William H., president and chief executive officer, Association of American Railroads; accompanied by Allan Boyce, assistant vice-. president of the executive department, Burlington Northern Railroad; and John Norton, counsel, Association of American Rai1roads~_ 103 Eckhardt, Hon. Bob, a Representative in Congress from the State of Texas 135 Jennings, W. Pat, president, Slurry Transport Association; accompanied by Henry B. Taliaferro, counsel to Legislative Policy Committee; and Robert B. McNeil, assistant to the president, Slurry Transport Associa- tion 237 Murphy, Rupert L., Commissioner, Interstate Commerce Commission; accompanied by Jan Rosenak, Deputy Director, Office of Proceedings; Hanford O'Hara, Associate General Counsel for Legislation; David Jones, Economist, Bureau of Economics; and Chester Nauminow, Special Assistant to Commissioner Murphy 222 O'Leary, Hon. John. F., Deputy Secretary, Department of Energy 46 Oprea, George W. Jr., executive vice president, Houston Lighting & Power Co 99 Peterson, Russell W., Director, Office of Technology Assessment; accom- panied by Lionel S. Johns, Program Manager, and Brad Hollomon, professional staff member 34 Roncalio, Hon. Teno, a Representative in Congress from the State of Wyoming 27 Sage, Marshall, legislative research director, United Transportation Union, speaking on behalf of James R. Snyder, chairman, legislative committee, Railway Labor Executives' Association; accompanied by William G. Mahoney, counsel, Railway Labor Executives' Association 254 Udall, Hon. Morris K., a Representative in Congress from the State of Arizona 17 Wicks, Gary, Deputy Assistant Secretary, Land and Water Resources, Department of the Interior; accompanied by Thomas Rodda, Bureau of Land Management; Richard Woodcock, Solicitor's Office; and George Davis, U.S. Geological Survey 147 Wright, Hon. James C., a Representative in Congress from the State of Texas, and majority leader of the U.S. House of Representatives 22 (V) PAGENO="0006" VI MATERIAL RECEIVED FOR THE RECORD Agency responses re H.R. 1609: Page Department of Interior 151 Department of Justice 267 Interstate Commerce Commission 270 Federal Trade Commission 276 Environmental Protection Agency 279 Curran, Jack, legislative director, Laborers' International Union of North America, AFL-CIO, statement 40 Davenport, Chester, Assistant Secretary for Policy and International Affairs, Department of Transportation: Statement Responses to additional questions 68 Dempsey, William H., president, Association of American Railroads: Statement 104 Letter supplementing testimony regarding total capital needs of the railroad industry over the next decade 127 Letter supplementing testimony regarding railroads involved in plans to build coal slurry pipelines 135 Letter supplementing testimony regarding contract rates 282 Georgine, Robert A., president, Building and Construction Trades Depart- ment, AFL-CIO, statement and resolution 42 Jennings, W. Pat, president, Slurry Transport Association: Statements presented to the Subcommittees on Mines and Mining and Indian Affairs, of the House Committee on Interior and Insular Affairs by: Frank B. Odasz, vice president, Energy Systems, Inc 238 Joe H. Foy, president and chief operating officer, Houston Na- tural Gas Corp 242 Howard Cowan, Public Service Company of Oklahoma 245 O'Leary, Hon. John F., deputy secretary, Department of Energy, state- ment 44 O'Neal, A. Daniel, chairman, Interstate Commerce Commission, state- ment 222 Oprea, George W., Jr., executive vice president, Houston Lighting & Power Co., statement 97 Roberts, Hon. Ray, a Representative in Congress from the State of Texas, statement 15 Roncalio, Hon. Teno, a Representative in Congress from the State of Wyoming, statement 28 Sage, Marshall, legislative research director, United Transportation Union: Statement of J. R. Snyder, chairman, Legislative Committee, Railway Labor Executives' Association 255 Statement of C. J. Chamberlain, chairman, Railway Labor Executives' Association before the Subcommittees on Mines and Mining and Indian Affairs and Public Lands, House Committee on Interior and Insular Affairs, April 25, 1977 256 Udall, Hon. Morris K., a Representative in Congress from the State of Arizona and Chairman of the House Committee on Interior and Insular Affairs: Statement 16 Letter supplementing testimony 22 Wicks, Gary J., Deputy Assistant Secretary, Department of the Interior, Response to additional questions 151 PAGENO="0007" 95TIICONQRESS T 7 1ST SEssioN ti. ic.. 1 609 IN THE HOUSE OF REPRESENTATIVES JANUARY 10, 1977 Mr. ECKHARDT (for himself, Mr. WRIGHT, Mr. WON PAT, Mr. SEBELIUS, Mr. YOUNG of Alask~, Mr. LAGOMARSINO, Mr. FOUNTAIN, Mr. SCHEUER, Mr. ROUSSELOT, Mr. FISH, Mr. CHARLFAS WILSON of Texas, Mr. JONES of Okla- homa, Mr. BOWEN, Mr. KETcIrnM, Mr. MARTIN, Mr. MOOJiHEAD of Cali- fornia, Mr. MOORE, Mr. SCHULZE, Mr. MURPHY of Pennsylvania, and Mr. HUCKABY) introduced the following bill; which was referred jointly to the Committees on Interior and Insular Affairs and Public Works and Transportation A BILL To amend the Mineral Leasing Act of 1920, and for other purposes. 1. Be it enacted by the Senate and House of Representa- 2 tires of the United States of America in Congress assembled, 3 That this Act may be cited as the "Coal Pipeline Act of 4 1977". 5 DEFINITIONS SEC. 2. As used in this Act- 7 (a) "carrier" means any carrier of coal by coal 8 pipeline that is subject to any of the provisions of this 9 Act; (1) PAGENO="0008" 2 2 1 (b) "Department" means the Department of the 2 Interior; 3 (c) "Secretary" means the Secretary of the De- 4 partment of the Interior; 5 (d) "right-of-way" includes necessary land or other 6 property for the location of pipelines, pumping stations, 7 pressure apparatus, tanks, or other stations, equipments, S or appurtenances required for the proper operation of a 9 coal pipeline or pipelines; and 10 (e) "control" means the power to exercise control U. by whatever means: any person who (1) is a director 12 of a carrier or of any other person, or (2) owns in excess 13 of 5 per centuin of the voting stock (or any like evidence 14 of participatioi~) of a carrier or of any other person shall 15 be deemed to have the power to exercise control of such 16 carrier or other person, as the case may be. 17 BIGHTS-OF-WAY ON FEDERAL LANDS 18 SE0. 3; Subsection 28 (a) of the Mineral Leasing Act 19 of February 25, 1920, as amended by the Act of Novem- 20 ber 16, 1973 (87 Stat. 567), is further amended by in- 21 serting the word "coal" between "natural gas," and 22 "synthetic". 23 EMINENT DOMAIN 24 SEO. 4. (a) Except as provided in subsection (b), when 25 any carrier cannot acquire by negotiation the right-of-way PAGENO="0009" 3 3 1 required to construct, operate, and maintain any proposed 2 coal pipeline or pipelines, such carrier may acquire the 3 same by the exercise of the power of eminent domain in 4 the district court of the United States for the district in 5 which such property is located or in the courts of the State 6 in which such property is located. 7 (b) The power of eminent domain shall not be exer- 8 cised to acquire (1) lands owned by the United States or by 9 any State, or (2) lands held in trust by the United States 10 for an Indian or Indian tribe. 11 (c) Nothing in this section shall be construed to permit 12 acquisition of any right to use or develop water through the 13 exercise of the right of eminent domain. 14 CERTIFICATION OP PUBLIC CONVENIENCE AND NECESSITY 15 SEC. 5. (a) The power of eminent domain granted 16 pursuant to this Aët may be exercised only by a carrier 17 holding a certificate of public convenience and necessity is- 18 sued by the Department of the Interior. The Secretary is 19 authorized to issue such a certificate if the Secretary finds, 20 with respect to the particular project of the carrier as to 21 which said power is. sought,. that the project is in the na- 22 tional interest and provides the capacity necessary to fulfill 23 the requirement of a common carrier of coal, as determined 24 by the Secretary. In addition to other factors customarily 25 considered in determining common carrier status in the PAGENO="0010" 4 1 case of pipeline common carriers, the Secretary shall con- 2 sider contracts for the carriage of coal which are in exist- 3 ence or proposed as of the date of the application for 4 certification and may also consider such contracts for such 5 carriage as may reasonably be anticipated, at the time of 6 issuance of the certificate, to be entered into after such 7 date. In determining the size of the pipeline to be certifi- 8 cated, the Secretary shall take into account the resultant 9 cost to ultimate consumers of services or products affected 10 by such transportation. 11 (b) In making the findings required in (a) of this 12 section the Secretary shall consider and make independent 13 findings on the extent to which the project- 14 (1) would help meet national needs for coal utili- 15 zation, considering, among other matters, alternate 16 routes or means of transportation of coal and the rela- 17 tive costs of such alternative routes or means; 18 (2) may be impeded or delayed unless granted the 19 power of eminent domain; 20 (3) involves disruption to the environment, as 21 compared with disruption from other routes or modes 22 of transportation or other methods of utilization of the 23 coal resources involved; and 24 (4) considers the balance between the energy needs 25 of the area to be benefited by the project and~ the water PAGENO="0011" 5 5 1 requirements and other impacts on the area from which 2 the coal is to be transported. 3 The Secretary's findings as to whether a project is in the 4 national interest shall be based on the record as a whole 5 taking into consideration each of the criteria set forth in 6 this subsection. 7 (c) The Secretary shall require as a condition of issu- 8 ance of a certificate of convenience and necessity under this 9 Act that any pipeline for which such certificate is issued be 10 constructed, operated, and maintained as a common carrier 11 as provided in the Interstate Commerce Act. Any violation 12 of such condition shall he enforced as provided in such Act, 13 and nothing in this paragraph shall be construed to limit, 14 impair, or otherwise affect any provision of such Act. 15 (d) (1) No carrier granted the power of eminent do- 16 main under this Act shall transport any coal mined by it or 17 under its authority or which it may own in whole or in part, 18 or over which it may have any control, direct or indirect. 19 (2) The prohibition contained in subsection (d) (1) 20 shall not apply to the construction, ownership, and operation 21 of a feeder line for the purpose of gaining access to a coal 22 pipeline by any person who would otherwise be ineligible 23 if- 24 (A) the carrier has declined a formal request to 25 construct, own, and operate the feeder line; PAGENO="0012" 6 6 (B) the owner of the feeder line will operate the 2 line as a common carrier for any excess capacity in the 3 feeder line; and 4 (0) the Secretary has determined that an exemp- tion from subsection (d) (1) is in the public interest 6 (3) (A) No certificate `of public convenience and neces- sity may be issued to any carrier which controls, is controlled 8 by, or is under common control with any person which uses or will use coal transported by the carrier ~r which supplies 10 coal to the pipeline and (B) no carrier granted the power of ~ eminent domain under this Act may control, be controlled 12 by, or be under common control with any such person. 13 (4) The penalties and enforcement provisions of see- 14 tion 8 shall not apply to this subsection, but whenever, on 15 the basis of any information available to it, the Interstate 16 Commerce Commission finds that any carrier or other person 17 is in violation of paragraph (I) or (3) (B), it shall notify 18 such carrier or other person. If `such violation extends beyond 19 the thirtieth day `after the date of such notice, the Corn- 20 mission shall, after notice and opportunIty for hearing, issue 21 a~ order requiring such carrier or other person to comply. 22 Failure to obey, any `such order shall be subject to the same 23 penalty as provided for in section 16 (8) of the Interstate 24 Commerce Act (49 U.S.C. 16 (8)). PAGENO="0013" 7 7 1 (e) No certificate of public convenience *and necessity 2 may be issued to any person engaged as a common carrier 3 in interstate transportation of. coal by any mode unless such 4 person enters into a compact with the Secretary within two 5 years from the date of enactment of this Act providing mean~ 6 whereby rights-of-way across the lines of such person m~y 7 be acquired by a carrier on terms customarily employed with 8 reference to other types of pipeline. Any Federal court of 9 competent jurisdiction may entertain a suit by an interested -10 party to enforce the provisions of such compact. 11 (f) If the Secretary determines, in the course of the 12 consultations and findings required by subsection (b) or the t3 hearings required by section 6 that the project right-of-way 14 may be utilized for additional uses compatible with opera- 15 tions of the project line, the Secretary may, in his discretion, 16 require as a condition to the grant of a certificate of public 17 convenience and necessity that the particular project right- 18 of-way be subject to such compatible uses. 19 (g) The Secretary shall require the additional use de~ 20 scribed in subsection (e) only if he by rule (1) finds- 21 (A) the additional use is a compatible use, and 22 (B) conditioning the issuance of the certificate upon 23 the availability of the right-of-way for the additional use 24 is in the public interest, and - PAGENO="0014" 8 8 1 (2) establishes reasonable i~rovisioi~ for the paynient of 2 compensation for the additional use to the person otherwise 3 entitled to the exclusive use. 4 PROCEDURE 5 SEC. 6. (a) Applications for a certificate of public 6 convenience and necessity under this Act shall be filed with 7 the Department pursuaiit to such regulations as it may pre- 8 scribe. Each carrier applying for a certificate shall reimburse 9 the Department for adrninist~~ative and other costs incurred 10 in processing the application as the Secretary shall prescribe. 11 (b) A certificate authorized by section 5 may be issued 12 only after public notice and public hearings in accordance 13 with this section. 14 (c) The carrier shall publish, in accordance with regu- 15 lations promulgated by the Secretary, a notice that it has 16 filed an application for a certificate of public convenience 17 and necessity under this Act in a newspaper of general 18 circulation in each county in which the project will be 19 located. The notice shall, among other things, specify to the 20 greatest extent practicable the land which would be subject 21 to the power of eminent domain. 22 (d) The Secretary shall publish in the Federal Register 23 a notice of the receipt of each application under this Act. (e) The Secretary shall hold at least one public hear- 25 ing in each State in which the project involved will be lo- PAGENO="0015" 9 9. 1 cated. Any interested person may present relevant material 2 at any hearing. After all hearings in each State are con- 3 eluded, the Secretary shall hold at least one public, formal 4 adjudicatory hearing in accordance with the provisions of 5 section 554 of title 5, United States Code, in the District 6 of Columbia at which the Federal Energy Administration 7 and the Environmental Protection Agency shall, and other 8 Federal, State and local agencies may, participate. 9 ANTITRUST REVIEW 10 SEO. 7. (a) The Department shall not issue any c.ertifi- 11 eate pursuant to section 5 of this Act unless it has received 12 the advice of the Attorney General of the United States and 13 the Federal Trade Commission that such action would not 14 restrain trade, further monopolization, substantially adversely 15 affect competition, or otherwise create or maintain a situ- 16 ation in contravention of the antitrust laws. The issuance of 17 a license under his Act shall not be admissible in any way 18 as a defense to any civil or criminal action for violation of 19 the antitrust laws of the United States, nor shall it in any 20 way modify or abridge any private right of action under 21 such laws. 22 (b) (1) Nothing in this section shall be construed to bar 23 the Attorney General or the Federal Trade COmmission from 24 challenging any anticompetitive situation involved in the 25 operation of a coal slurry pipeline. PAGENO="0016" 10 10 1 (2) Nothing contained in this section shall impair, -2 amend, broaden, or modify any of the antitrust laws. 3 (3) As used in this section, the term "antitrust laws" 4 includes,, but is not limited to, the Act of July 2, 1890, as .5 amended; the Act of October 15, 1914, as amended; the 6 Federal Trade Commission Act (15 U.S.C. 41 et seq.); 7 and sections 73 and 74 of the Act of August 27, 1894, as 8 amended. 9 ENFORCEMENT AND PENALTIES AND JUDICIAL REVIEW 10 SEC. 8. (a) At the request of the Secretary the Attor- 11 ney General may institute a civil action in the district court 12 of the United States for the district in which the affected 13 operation is located for a restraining order or injunction or 14 other appropriate remedy to enforce any provision of this 15 - Act or any regulation or order issued under the authority of 16 this Act. 17 (b) If any carrier shall fail to comply with any pro- 18 vision of this Act, or any regulation or order issued under 19 the authority of this Act, after notice of such failure and 20 expiration of any period allowed for corrective action, such 21. person shall be liable for a civil penalty of not more than 22 $5,000. for each and every day of the continuance of such 23 failure. The Secretary may assess and collect any such 24 penalty. 25 (c) Any person who knowingly and willfully violates PAGENO="0017" 11 11 1 any provision of this Act, or any regulation or order issued 2 under the authority of this Act, or makes any false state- 3 ment, representation, or certification in any application, 4 record, report, plan, or other document filed or required 5 to be maintained under this Act shall, upon conviction, be 6 punished by a fine of not more than $10,000, or by im- 7 prisonment for not more than six months, or both. 8 (d) Whenever a carrier violates any provision of this 9 Act, or any regulation or order issued under the authority 10 `of this Act, any director, officer, or agent of such corpora- 11 tion or entity who authcrized, ordered, or carried out such 12 violation shall be subject to the same fines or imprisonment 13 as provided for under subsection (c) of this section. 14 (e) Petitions for judicial. review shall be filed in the 15 court of appeals of the United States for the circuit in which 16 the pipeline's originating point of coal transportation is 17 located. 18 CONSTRUCTION 0]? LAW 19 SEc. 9. Nothing in this Act shall be construed- 20 (1) as affecting in any way any existing law gov- 21 erning appropriation use, or diversion of water, or any. 22 Federal, State, or private right to water; 23 (2) as expanding or diminishing Federal or State 24 jurisdiction, responsibility, or interests in water resources 25 development or control; . 32-745 0 - 78 - 2 PAGENO="0018" 12 12 1 (3) as displacing, superseding, limiting, or modify- 2 ing any interstate compact or the jurisdiction or respon- 3 sibiity of any legally established joint or common 4 agency of two or more States or of two or more States 5 and the Federal Government; or 6 (4) as superseding, modifying, or repealing, except 7 as specifically set forth hi this Act, existing laws ap- 8 plicable to the various Federal agencies which are au- 9 thorized to develop or participate in the development of 10 water resources or to e~xercise licensing or regulatory 11 functions in relation thereto. 12 REGULATIONR 13 SEC. 10. The Secretary is authorized to promulgate 14 such rules and regulations as he. d~erns necessary to carry 15 out the purposes of this Act. 16 UNDERGROUND CONSTRUCTION 17 SEC. 11. All coal pipelines subject to this Act shall, to 18 the maximum extent practicable, consistent with environ- 19 mental protection, safety, and good engineering and tech- 20 nological practices, be buried underground. 21 RELATIONSHIP TO INTERSTATE COMMERCE ACT 22 SEC. 12. Except where otherwise provided by this Act, 23 the provisions of part I of the Interstate Commerce Act (24 24 Stat. 379) as amended (49 U.S.C. 1-40) shall be applicable 25 to coal pipelines subject to this Act. PAGENO="0019" 13 13 1 SE0. 13. Subsequent to the passage of this Act, no per- 2 son shall engage in the transportation of coal by slurry pipe- 3 line without first obtaining a certificate of public convenience 4 and necessity under sections 5 and 6 of this Act unless such 5 person enters into a compact with the Secretary within two 6 years from the date of enactment of this Act providing means 7 whereby rights-of-way across the lines of such person may 8 be acquired by a carrier on terms customarily employed with ~ reference to other types of pipeline. Any Federal court of 10 competent jurisdiction may entertain a suit by an interested 1~ party to enforce the provisions of such compact. PAGENO="0020" I,; / PAGENO="0021" COAL PIPELINE ACT OF 1978 WEDNESDAY, MARCH 22, 1978 HousE OF REPRESENTATIVES, SUBCOMMITrEE ON SURFACE TRANSPORTATION OF THE CoMMrrr~e ON PUBLIC WORKS AND TRANSPORTATION, Washington, D.C. The subcommittee met at 1:46 p.m. in room 2167, Rayburn House Office Building, Hon. James J. Howard (chairman of the subcom- mittee) presiding. Mr. HOWARD. The Subcommittee on Surface Transportation will come to order. We are meeting this afternoon for the purpose of receiving testi- mony on H.R. 1609, the Coal Pipeline Act. H.R. 1609 is a bill which is jointly to the Committee on Public Works and Transporlation `and the Committee on Interior and Insular Affairs. Earlier this month, the House Interior and Insular Affairs Com- mittee reported the bill with amendments. Because of our jurisdiction over coal pipelines, we intend to review H.R. 1609 as introduced and as amended by the Interior Committee. 1~\Te have `an extensive list of witnesses. Hopefully, we will be able to receive all their testimony today. If, however, that is not possible, alternative arrangements will be announced at a later time by the Chair. The Chair would like to state that the chairman of the Water Re- sources Subcommittee of our full committee, the Honorable Ray Roberts of Texas, had every intention of attending today's hearings and, of course, has a deep interest with regard to this legislation. Late last evening, he learned his mother had suffered `a heart attack which has necessitated his making arrangements to return to Texas this morning. Mr. Roberts has prepared a statement; and without objection, it will be placed in the record at this point. [Statement referred to follows:] STATEMENT OF HON. RAY ROBERTS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS Mr. Chairman, members of the suijcommittee, I want to thank you for the opportunity that you have given me to make a statement concerning the Coal Pipeline Act of 1977, H.R. 1609. Last year, the President set out goals for a national energy program, and the utilization of coal in place of oil and natural gas to generate electricity and other industrial power is a cornerstone of the energy policy. A responsible Con- gress must address this issue and develop workable solutions to meet our grow- ing energy demands, in light of rapidly depleting domestic oil and gas reserves. The witnesses who are scheduled to testify will afford your subcommittee with insight into the various apprehensions as well as expectations for coal pipeline legislation such as the bill presently before you. (15) PAGENO="0022" 16 Certainly, as Chairman of the Water Resources Subcommittee, I am' vitally concerned and extremely interested in this legislation. The bill as reported out by the House Interior and Insular Affairs Committee clearly addresses the water problems of the West. Surely nature was only trying to balance the bounty when she gave so much valuable coal to an area that she left thirsting for adequate water supplies. The intent of section 9 of this bill is clear in stating that nothing in the act shall be construed as affecting in any way existing law governing appropriation or diversion of water or as expanding or diminishing Federal or State jurisdic- tion in water resource development. Finally, the effect of this section leaves no doubt that a State's rights to "grant or deny water use or establish or place terms or conditions regulating or limiting such use" is clearly unaffected. All the answers to the water problems cannot be given at this time, but one overriding problem facing us must be addressed. That is to undertake affirma- tive action which will assure the future ability of this great Nation to utilize and develop its wealth of untapped coal reserves. No one bill can address the enormity of the problem, and all parties affected cannot always *be appeased. But if we are to meet the President's goal of a 2/3's increase in coal production over our present production in the next 8 years, then the demands upon all modes of transportation will be strained to the utmost. Any legislation that can fairly address our energy needs must be closely exam- ined, and after weighing all aspects of economics and placing that alongside this Nation's energy needs for the future, we must not delay in action. The time has come for statesmanship and a clear focus on the energy realities of the day. We cannot afford to unduly impede any needed energy legislation, nor can w-e continue to rely on tenuous foreign importation of oil and gas. If this Nation is not geared to meet its future demands, there is a chilling reality ahead for all of us. Mr. HOWARD. For our first witness this afternoon, we are very, very happy to have with us our esteemed colleague, the chairman: of the Conimittee on the Interior and Insular Affairs, the gentleman from Arizona, Congressman Morris TJdall. Your prepared statement, Mr. TJdall, will be made `a part of the record at this point. [Statement referred to follows:] STATEMENT OF Hox. MORRIS K. LTDALL, A REPRESENTATIVE IN CONGRESS FROM THE * STATE OF ARIZONA Mr. Chairman and members of the subcommittee, I appreciate the opportunity to testify today regarding H.R. 1609, the Coal Pipeline Act of 1978, which was reported by the Interior Committee on March 3. I urge you to give favorable con- sideration to this legislation, as it represents a crucial supplement to the Presi- dent's national energy plan and w-ill help this Nation make necessary conver- sions to coal in an economically, environmentally, and socially acceptable manner. Despite the long, arduous climb through the legislative process this bill and its predecessors have experienced, H.R. 1609 is not a very complicated piece of legislation. This bill will not authorize the construction of a single coal slurry pipeline. It has one very simple purpose-to grant the right of eminent domain to carriers of coal by pipeline who are determined, on a detailed case-by-case analysis, to be acting in the national interest. Clearly, the legislation would fa- cilitate the construction of coal pipelines, currently l)eing prevented by many of the nation's railroads who are refusing to give them rights-of-way, but only in those limited circumstances where this alternative mode of coal transportation is truly in the public interest. Coal pipelines are a proven technology that can supplement transportation of coal and save the consumer money. Recent ICC rate decisions involving unit- train coal shipments, one of which serves a utility co-op in my district, make coal slurry an even more attractive alternative, and point ou the need for coIn- petition. At the present time, there is one coal slurry pipeline in operation. It is the Black Mesa pipeline in my own state of Arizona, which has operated suc- cessfully for the last seven years, and is owned, ironically, by the Southern Pa- PAGENO="0023" 17 cific Railroad. I firmly believe that the coal slurry option should not be arbitrarily foreclosed by an industry unwilling to see a little competition. Fears that enact- ment of eminent domain legislation for coal slurry pipelines would deal a fatal blow to the railroad industry are entirely unwarranted. No one is advocating that coal slurry pipelines replace the railroads as the primary mode of transporting coal. This nation is now returning to the utilization of coal to meet a major por- tion of its energy needs. There is no question that the railroads will be carrying the bulk of this new coal. In HR. 1609, we are only talking about making an al- ternative available, to carry a small chunk of this new coal. Moreover, amendments to the bill were adopted in the Interior Committee which ensure that each pipeline proposal will be thoroughly analyzed in. terms of possible adverse impact on the financial integrity of other common carrier modes of transportation, primarily railroads. In considering whether to issue a certificate of public convenience and necessity in a particular case, the Secre- tary of the Interior is required to make specific findings in this regard, based upon the recommendations of the Secretary of Transportation and the Interstate Commerce Commission. The Interior Committee was also quite concerned over the issue of water use for coal pipelines. Proponents of the legislation, including a number of western Congressmen, were all willing to write the clearest possible language into the bill to guarantee that the decision to allocate water to a coal slurry pipeline will be left to the individual states themselves. In the West, water is a precious re- source, and I have maintained throughout that the state should have the right to decide whether a single drop of its water is used to transport coal. We have written that kind of protection into HR. 1609. As I think the 30-12 margin on final passage of this bill in the Interior Committee indicates, there is no longer any reason to oppose the coal slurry concept based on the water issue. Opponents of coal slurry legislation have already used every known method of delay, but the merits of this idea have refused to let it die. Now that the OTA has issued its long-awaited report on coal slurry pipelines, there can no longer be any reason for delaying this decision of vital importance to the United States. It is my hope that you will recognize the need for this narrow piece of legislation so that the nation can make an orderly transition to coal with a minimum of financial and environmental difficulty. Thank you very much. Mr. HOWARD. Mr. Udall, please proceed as you wish. TESTIMONY OP HON. MORRIS K. UDALL, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP ARIZONA Mr. TJDALL. Thank you, Mr. Chairman. One of the centerpieces of the President's energy program is to in- crease the production and consumption of coal. We are not going to get through the next 20 or 30 years unless we can double the produc- tion of coal by 1985 or shortly thereafter. If we double the production of coal, it means we have got to double the transportation of coal. Most coal is not used at the mine mouth; it is used at some distance away. And so, we ought to use every possi- ble technology and every possible means of moving coal, and we ought to decide the method of transporting the coal through competitive pressures and competitive operations. And that is why we are here. It is very clear to me that 90 percent of the coal, or so, the additional coal that is going to be moved, is going to be moved by the railroads. In most cases, that is the practical way to do it; it is the most economical way to do it. But the railroads are not satisfied with that 90 percent. They have been determined throughout the course of this legislation before the Interior Committee that this bill is going to be defeated or that it is going to be watered down to the point that it is useless and no coal slurry lines will be built. In other words, they want it all. And I PAGENO="0024" 18 do not think they ought to hav~ it all; I think coal slurry ought to be available in those situations where it is the most econoirncal and feasi- ble way to move coal. Let me give you the most immediate example that we have. We have said to big utilities in Houston, Little Rock, and Oklahoma City and throughout the Southwest, "Do not burn gas anymore; natural gas should not be used for boiler fueL We are going to require you to switch to coal." It turns out that the most available coal for them is in Wy- oming, and it turns out that since railroads do not go diagonally in most cases-they go either east-west along main trunk lines, or north- south-that the most practical way to move coal from Wyoming down to Texas and Arkansas would be by coal slurry pipeline. Now, this bill is a very simple bill. It does not require any coal slurry lines to be built; it does not force any company to use them. It simply says that we. are going to give coal slurry pipelines the right of eminent domain that all other kinds of transportation have. Today, if you are in Wyoming and I am in Texas, and you want to build an oil line, or a gas line or a railroad line, or a transmission line, or anyt.hing else, you can get eminent domain. But because these coal slurry lines would have to cross railroad rights-of-way, the rail- roads are using that fortuitous circumstance to try to defeat this bill or water it down, or encumber it to the point that it cannot be used. I think this committee. ought to approve, as our coirimittee did, this kind of legislation, which simply and only gives eminent domain au- thority to those who want to build coal slurry pipelines. In this country, Mr. Chairman, we preach competition we preach market forces-it is the best way to allocate; it rewards efficiency; it penalizes waste; it says let us do it the cheapest and best way in each case. Let me give you an example of just what. the existence of the coal slurry alternative means to consumers. In my district in southern Arizona, we have a little electric co-op. This co-op had been burning natural gas for many years, and we cannot get natural gas in Arizona for boiler fuel anymore. And so, they embarked on a $200 million or $300 million nroo~am to build a new coal plant. They contracted for the coal through a coal producer in Ne.w Mexico, and because of the way the railroads are laid out, railroads were going to deliver this, but it would take about 500 miles; ou would go all the way back to Albuquerque, and then down nearly to El Paso, and then back over to Arizona, on two different. railroads. Using the standard freight rate crit.eria, they understood that the cost would be something in the range of 7 mills per ton mile. Along come the. railroads, after thev had about finished the. plant, and t.hey go to the Interstate Commerce Commission and say: "Well, we have been losing money lately in the railroad business we would like to get even, and here is a good chance." And the ICC effectively said, `Well, we. will let. you charge all the tra.ffic will bear," and instead of 7 mills, it is 16.5 mills. Now, that money is going to come out of the hides of my consumers in southern Arizona. And if the coal slurry alternative had been available, they might well have said to the rail- roads. "Well, friends, in light of this judgment on our part, we are going t.o talk to a coal slurry outfit and see if we cannot have an al- ternative," and I suspect the railroads would have petitioned the ICC very quickly for a much more reasonable rate. PAGENO="0025" 19 So, all we are trying to do in this legislation, as I say, is not to authorize any slurry lines, not to demand that they be built, not to penalize the railroads-the railroads are going to get 90 percent of the new business anyway-but to simply make coal slurry an avail- able alternative. For the life of me, I cannot understand how any reasonable persOn could be against this. The railroads were unable to stop passengers moving in buses and airplanes; they were unable to stop freight and packages and mail from going onto airlines and buses, when times changed and it was not all moved on the railroads, And I do not think they ought to be allowed, on a selfish basis, simply using political power, lobbying power, to defeat legislation like this, which makes this new, technologically sound alternative available. There is only one coal slurry line in the country, incidentally; it is in northern Arizona. It is 300 miles. It is owned by a railroad; the Southern Pacific built it. It was the cheapest and best way along another railway right-of-way to get the coal to Nevada where it can be burned for electricity. So, that is all that is involved in this, and I trust that this committee and this subcommittee will approve this legislation very quickly, and that we can move on with it this year. Thank you, Mr. Chairman. Mr. HOWARD. Thank you very much, Mr. TJdall. We are very grate- ful for your appearance and for your testimony. The Chair recognizes the chairman of the full committee, the gentle- man from California, Mr. Johnson. The CHAIRMAN. Thank you, Mr. Chairman. Mr. Udall, I think you have given us a pretty good summary of your thoughts regarding this bill. It was perfected in your committee, both in subcommittee and full committee. We had it in the last Congress. and in this Con- gress. I hope that our committee can go along and perfect the bill, as we see fit; move it along and get it out of this committee without too much damage to the bill that was perfected in your committee. According to your prepared remarks, the Interior Committee held full and complete hearings; and you went into it. in detail. You heard from all, and the vote of final passage was like 30 to 13. Mr. UDALL. That is correct. The CHAIRMAN. So, I hope that our subcommittee and our full committee can perfect this bill and move it along. As I understand it, the Speaker of the House said that he was going to hold the bill after it cleared this committee for un additional 30 days to make certain that the Interstate and Foreign Commerce Committee has an oppor- tunity to mark up t'heir bill in their committee and move it out of their committee. So, there will be consideration given to the bill that. is pending in the Interstate and Foreign Commerce. Committee, and this bill that was jointly referred to your committee, primarily, and to this committee. I hope it can move forward. Mr. UDALL. I thank the gentleman. Mr. HOWARD. The gentleman from Pennsylvania, Mr. Shuster. Mr. SHTJSTER. Thank you. We certainly appreciate your testimony, Mr. Udall. Noting your distinguished record over the years in sup- port of environmental causes, and also noting the. testimony, which PAGENO="0026" 20 I have already read, that we are about to receive from Congressman Roncalio, expressing his deep concern about the impact of water being taken from States which badly need water, would von care to comment on whether you see this as a significant issue or not? Mr. LJDALL. No; I think we have put this issue to bed for all reason- able people. and I hope Mr. R.oncalio-I do not know what his testi- mony is going to be-but I hope he will support us, because in our committee we modified the bill to meet what I thought were all the legitimate objections about water. Water is very precious in the West; people get very romantic about water out there. And we have written this bill so that Wyoming, or Utah, or Colorado, or Montana have an absolute total veto; if for any~ reason any one of those States wants to keep a drop of their water from leaving the borders of that State for the purpose of moving coal, I want them to have the right to do that. And I think we have written our bill so that this is the case. The water quantities are modest. The Powder River Basin, where much of this exportable coal is located-I think the OTA report sug- gested that if you built all the pipelines that anybody has talked about, you are talking about maybe 3 percent of the water in that river for that purpose. And my philosophy is this: Wyoming owns the water; if they want to use that water to grow alfalfa, they ought to have that right; if they want to use that water for the new cities that are being built up there, they ought to have that right; if they want to use it for coal gasification, or oil shale, or whatever, they ought to have that right. But if they decide, if the owners of that water, working through the government of VVvornin~. decide that the best use of that water, the best economic use is to sell it-it has more economic value as a sub- stance to move coal-they ought to have that right, too. One of the ironic things about these people and some of my environ- mental friends who come down hard on this sacred defense of keeping every drop of water in Wyoming is that, right today, you can buy the coal-you can no from Wyoming to Houston, you can buy the coal, you can build a plant right there at t.he mine mouth, you can buy the water from the local owners and use it for cooling water-and, in- cidentally, you will use less water to move the coal by slurry pipeline than you will if you use it for cooling water there in Wyoming-and you can get a right-of-way across any railroad in America; you can get a right-of-way across anything to go all the way to Houston with the coal in the form of electricity, but they say to you, "Oh. the water is sacred, and you cannot use a drop of it to move that coal," even if the owners want to and even if the government of Wyoming, through its legislature and its Governor, wants to move it across for that purpose. Most times, the small chunk of water that these lines will take will bring the best buck you can ever get, that is the best way to sell that water, better than crops, better than manufacturing, better than mu- nicipal uses; you will make more money off the customers in Houston selling them water than you will growing alfalfa or feed grains and feeding it to cattle and trying to sell the cattle, or some other economic use of it. PAGENO="0027" 21 Mr. SHnSTER. Thank you. Mr. HOWARD. The gentleman from Illinois, Mr. Fary. Mr. FARY. No questions. Mr. HOWARD. The gentleman from California, Mr. Clausen. Mr. CLAUSEN. I think that I could best serve the purpose of this com- mittee if I were to withhold any comments that I would make until af- ter we have had a chance to hear from my friend, Mr. Roncalio. But I think that our very distinguished chairman of the Interior Committee, Mr. Udail, has certainly presented his point of view. And, incidentally, while I serve on the Committee on Interior, I voted for the passage of the legislation when it left the committee, but I would suggest that all of you evaluate very carefully the contents of this legislation with re- gard to the possible impact on the States as it relates to the water questions. Let me just take you to page 20 of the bill, where it says: "The Sec- retary shall not approve an application for a certificate of public con- venience and necessity"-and this relates to the underground water- for any areas "west of the 100 meridian, unless"-and here, of course, is the key-"the U.S. Geological Survey has conducted a comprehen- sive study which demonstrates that the use of such underground water source over the life of the coal pipeline will not cause a significant ad- verse impact on the quality and quantity of the water table in surround- ing areas or adjoining States." And, of course, the concerns of the people from that area, which I am sure will be expressed by Mr. Ron- calio, are what will the impact of the coal slurry pipeline and the demand for water supply have on the Madison aquifer, which is in that area. It has been my feeling and my contention that if we are going to be developing-if there is going to be a requirement for water, that it should be from surface water, either that which is developed or proj - ects that have the potential for development. But I think that. the gentleman from Arizona has very ably, as he usually does, presented the case, which is the majority position of the House Interior Committee. Mr. TJDALL. Mr. Chairman, could I just add that the language that Mr. Clausen referred to was the so-called Roncalio amendment. We have repeatedly said to him and to the people in Wyoming, "Tell us how we can nail it down, so that we are not taking away Wyoming water that is needed, so that the State has an absolute veto." I thought we went too far; I personally thought this went too far. But I do not think you can really argue that Wyoming water is not protected with this kind of language in the bill. Mr. CLATJSEN. Thank you. Mr. HOWARD. Thank you, Mr. Chairman, for your appearance here. We certainly are grateful for your testimony, and we hope we can com- plete the hearings in this subcommittee on this subject and be able to take some action shortly after the Easter recess. Thank you very much. Mr. UDALL. Thank you, Mr. Chairman. [The following correspondence from Mr. Udall was received for the record:] PAGENO="0028" 22 COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, U.S. HousE OF REPRESENTATIVES, TVasliington, D.C., AprU 4, 1978. Hon. JAMES J. HOWARD, Cli airm an, Subcommittee on Surface Transportation, Rayburn House Office Buildi~ig, TVashington, D.C. DEAR Jni: Thank you for giving me the opportunity to testify before your Sub- committee on the coal slurry pipeline legislation. Your help is deeply appreciated. During the hearings, I was caught a bit off-guard by the question raised by the gentleman from California, Mr. Clausen, concerning the so-called Ronealio amend- ment to HR. 1609. With your permission, I w-ould like to elaborate on my response at tl1iS time. The Rancalio amendment requires the U.S. Geological Survey to make a coin- prehensive study of each groundw-ater source for a proposed coal slurry pipeline, regardless of the need for such information. I vigorously opposed this amendment when it came before my Committee, and as I told Mr. Clausen, I believe it w-ent way too far. These Studies will be time-consuming and extremely expensive. Moreover, the amendment prevents the issuance of a certificate of convenience and necessity unless the U.S.G.S. determines that the proposed water use w-ill not "cause a significant adverse impact on the quality and quantity of the water table in surrounding areas or adjoining states." This standard may call for a subjec- tive judgment the U.S.G.S. is not equipped to make. Finally, I see the language of this aniendment as being inconsistent with the goal expressed by virtually every member of the Interior Committee-to protect states' rights to allocate or refuse to allocate water for a coal pipeline. I was sincere in my statement to your Subcommittee that I had no present plans to purge H.R. 1609 of the Roncahio language on the House floor. However. I w-ould hope that your Subcommittee would take a close, fresh look at some of the prob- lems raised by the Roncallo amendment. Although I think coal Slurry legislation can survive w-ith language like this, the bill would be much better without it. Sincerely, MORRIS 1<. UDALL, Chairman. Mr. HOWARD. Perhaps the only loss that was suffered in the Congress and in the Nation by the. election early in this Congress of a majority leader was the loss that was suffered by the Committee on Public, Works and Transportation, because the elevation of the. gentleman from Texas did take from us perhaps the most effective Public Works and Transportation member that we have had in recent decades on this committee. We are very, very grateful and happy that the majority leader is with us today, and we on the. Committee. on Public Works and Transportation wish to welcome him back, although only temporarily. The next witness, the Honorable Jim Wright from Texas. Mr. Ma- jority Leader, please proceed as you wish. TESTIMONY OP HON. JAMES C. WRIGHT, JR., A REPRESENTATIVE IN CONGRESS PROM THE STATE OP TEXAS, AND MAJORITY LEADER OP THE U.S. HOUSE OP REPRESENTATIVES Mr. l~TRIGHT. Thank you very much, Mr. Chairman, and thank you for your gracious remarks, undeserved flattery, and all those other good things. Now-. I know why I became majority leader by only one vote-all the people on Public Works were so loathe to see me leave that they voted against me. I am here today on behalf of the Congress, the country, I think, and a very impelling nationa.l need. I feel very much at home in this room, as your chairman has obser~-ecl, and I hope for maybe just a very few minutes we can reason together about. this problem. PAGENO="0029" 23 Last year, as you know, the President laid before the Congress and the American people a far-reaching energy program calling for a mas- sive increase in the utilization of coal, our most abundant source of energy in this country. And that is going to be an enormous under- taking, calling into play all of the imagination and the ingenuity that we have at our disposal. I think this bill is an indispensable part of a comprehensive national energy plan. This bill, the proposed Coal Slurry Pipeline Act, can make a sub- stantial contribution toward realizing the President's goal and the Nation's goal. And I have come here today to a:sk that you give it fa- vorable consideration and prompt approval. We have dallied too long. What President Carter asks is that we increase coal production on an annual basis by some 400 million tons in the next 7 years, and that is a two-thirds increase over our present production of 600 million tons. To move that much coal is going to tax all of our modes of trans- portation-our barges, our railroads, and all the rest. There is going to be enough business for everybody; do not make any mistake about that. Getting the job done for the Nation is going to be the challenge. Now, I surely would not want to suggest that all the problems have been worked out with regard to coal slurry pipelines; they have not. I know there are problems, particularly water problems. It is one of the ironies of nature, I suppose, that 40 percent of the country's huge reserves of coal are to be found in a region which is water deficient. Congressman Roncalio knows about this. In the northeastern part of his State of `Wyoming, I am told there are some 110 billion tons of coal awaiting extraction, but the annual rainfall is only about 12 inches. Fortunately, this legislation does not attempt to decide such ques- tions. In fact, as has been mentioned, it is very specific in stating that nothing in the act shall be construed as affecting, in any way, any exist- ing law governing appropriation, use, or diversion of water, or as expanding or diminishing Federal or State jurisdiction over water resources, or affecting interstate compact or water resource programs of any kind. I think there is ample protection contained in the legis- lation. And so, what I would personally say would be that I would like to see developed, ultimately, some means of recycling some of this water that would be used to transport this coal. But we have got to transport the coal. The great questions about the development of these coal re- sources may remain yet to be answered; in some cases, the answer may lie in gasification and liquefaction, and then transporting the final product by pipeline; in other cases, it may involve construction of mine-mouth powerplants. But no matter what answer we come up with, there is going to be a great need of water to make it work. A slurry pipeline-let us understand this-a slurry pipeline is not the option requiring the mast water; in fact, it would require consid- erably less water than some of the other options. I do not have the answer to the water problem, but I do not believe we need an answer to move forward with this legislation. All this bill would do would be to grant to coal slurry carriers the means of acquiring the right of eminent domain in a Federal or State court, and that is it. Every other mode of transporting energy products has that right, and the reason PAGENO="0030" 24 we need this legislation is that it is impossible to construct a coal slurry pipeline, or any other pipeline of any length, without intersect- ing one or more railroad lines; you just cannot do it. The railroads, seeing coal slurry pipelines as competition, just as they have opposed barge navigation because they saw it as competi- tion, notwithstanding the fact that the most prosperous railroads to- day parallel bargelines, have been unwilling to grant crossing permits. Now, that is a bottleneck and an act of obstruction that I just do not think the Nation can tolerate. The reason we need this legislation is that the future ability of this country to develop its coal resources will rest, at least in part, on break- ing the legal barrier to the construction of coal slurry lines. That is all this bill deals with. In my State, in Texas, for example, we see how serious the problem could become. Currently, most utilities and indus- tries in my State are using natural gas as boiler fuel. That is a waste of a precious product. Approximately 95 percent of the electric power generated in Texas is generated with natural gas. Now, the energy bill that is pending in the conference committee between the House and the Senate aims to put a stop to that. The purpose is to require a transfer from natural gas to the use of coal. Natural gas and petroleum in Texas are needed for higher uses elsewhere. Well, what are the Texas users of natural gas, producing electric- ity-what are they going to do; what are they going to use in place of gas or oil? Texas just does not have sufficient coal reserves to make the complete transformation. The most dependable existing supplies are inaccessible by direct rail service. About 77 percent must be trans- ported from the western part of this Nation if we are going to save the natural gas that is being wasted in my State and make it available to the rest of the country. Now, similar problems exist in other States. In many cases, pipe- lines can be built to provide the solution. That will not happen if every intersecting railroad is able to block the issuance of crossing permits. We have got plenty of problems to solve; we have a myriad of natural barriers and physical limitations to overcome, but there simply is no reason in the world why we have to allow an arbitrary barrier of this kind to frustrate our attempts at transporting the coal the Nation needs to turn our turbines and run our industry. I would just ask you this: If the railroads had been required to get the permission of entrenched right-of-way owners, like themselves, before laying their track, do you think we ever could have built the system of railroad lines that we have today? Of course, we could not. All we are asking is that they have the same consideration of other modes of transportation, which the Nation now needs, as the Nation was willing to extend to them in the initial instance. Coal slurry pipelines give promise of a great breakthrough in energy trans- portation in coming decades. Once built, they are out of sight, clean, consistent with our environmental goals. They can move, large volumes of coal over long distances cheaply, and once in place, they are far less susceptible to inflationary cost increases than most other forms of transportation. So, Mr. Chairman and my colleagues, I think we need to remove that one legal stumbling block, which along with physical stumbling PAGENO="0031" 25 blocks has been holding up progress on coal slurry pipelines in this country. I urge the subcommittee to vote out this bill and let us get on with the job. Mr. HOWARD. Thank you very much, Mr. Wright, for both your appearance and your testimony. We are grateful to receive it. The Chair recognizes the gentleman from Pennsylvania, Mr. Shuster. Mr. SHUSTER. Thank you, Mr. Chairman. Mr. Majority Leader, as I understand it, there would be no problem here if the States were to give the right of eminent domain to the pipeline, is that correct? Mr. WRIGHT. There would be no problem? Mr. SHUSTER. If the pipeline could get the right of eminent domain from the various States. Mr. WRIGHT. Well, the problem with that is that you cannot build an interstate pipeline by individual actions on the parts of individual States. It would be like trying to build an interstate highway while letting each local subdivision decide which right-of-way you can buy. It is a national mode of transportation; you have to have a con- tinuous- Mr. SHUSTER. What I am driving at is if, indeed, the problem is that the States apparently have not seen fit to give the right of eminent domain to the pipeline, but if the States retain an absolute veto over water rights, might this, even if this bill should pass, simply be an inconsequential act, because the States' still could block it. Mr. WRIGHT. That is not reason to vote against the bill. If you want it not to be an inconsequential act, if you want it to do something, if you :want pipelines to be built, if you want coal to be transported, if you want the Nation's energy needs to be served, that is not an argu- ment against the bill, certainly. I do not know that this bill is enough; we may need something else-I do not know-but I know this bill is a start and I know it is needed. Mr. SHUSTER. But is it not reasonable that if a State is unwilling to provide the eminent domain that is n~cessary and, therefore, we would have, in effect, a Federal preemption, it is reasonable that that same. State would not grant the necessary water rights that are required under this bill? Mr. WRIGHT. Let me put it this way: Last year, we had a national shortage of gas in the winter-people were suffering. The Nation needed to move and transport gas. I do not think the gentleman from Pennsylvania would say that my State of Texas wanted to hoard all its gas and not share it with the rest of the country, and we did not do that; we did not want to do that. I voted for the Emergency Natural Gas Allocation Act. I think the same thing applies here. I do not believe that States are going to be so unpatriotic and so blithely disinterested in the necessities of the Nation that they would deny the privilege of doing this. Now, I do think they have some legit- imate problems to be solved, and one of them is water; one of them is water. And as I said to you a moment ago, I would like to see an ar- rangement made whereby any State that is water deficient will get some water back in return, and I would be willing to vote for what- ever appropriations would be necessary to do that. PAGENO="0032" 26 But all I am saying is. today, let us show a resolve; let us not sit around and wait for all the little questions to be answered before we take action. Let us take action and remove the roadblock that exists, so that we open up the avenues for the States to work out their prob- lems and get on with the job. Mr. SH~STER. I have not decided where I stand on this issue yet, but it does occur to me that this bill either does not go far enough, be- cause it gives an absolute veto on water rights, or it goes too far, be- cause it preempts the States on eminent domain, and that is the quan- dary I face at this time. Mr. Chairman, but I will look forward to the other testimony in hopes that I can arrive at- Mr. WRIGHT. Well, I think~ if the gentleman takes that position, there is no way to write a bill that pleases him. This bill just does one very simple thing; it just says that railroads are not going to be able to block the right of a coal slurry pipeline to go through. Now, they cannot block the right of an oil pipeline to go through; they can- not block the right of an interstate gas line to go through. What is the difference? It is one form of energy, and the other is another form. Mr. SHuSTER. Well, the States could give the right of eminent do- main to the pipeline, could they not, and there would be no problem? Mr. WRIGHT. When we laid the Big Inch and the Little Inch pipe- lines because the Nation needed them in World War II, we did not wait around for the States to do that; the Federal Government took action. I say we have a crisis on our hands every bit as vital to the survival of the United States and our economy as we had then, and I think it behooves us in the Congress to move and to act, and not to wait around until we-just try to pass the problem off to the States. Mr. SHUSTER. Well, on that basis then, following that logic, we should also remove the veto power over the water rights, it seems to me. I thank the distinguished gentleman for his testimony. Mr. HOWARD. The gentleman from Illinois, Mr. Fary. Mr. FARY. No questions. Mr. HOWARD. The gentleman from California, Mr. Clausen. Mr. CLAIJSEN. It is always a pleasure to welcome our former com- mittee colleague before the committee. Jim, you made reference to something that was a subject of discussion over in the. Interior Com- mittee; namely, the question of recycling. And then, I think there was, I guess, a tone of your voice, possibly-you did not know whether or not it would be economically feasible. Do you have any information on the economic feasibility of a recycling effort and whether it could be done? I am assuming that the state of the art would permit it. But do you have anything that would suggest that it would be economically feasible to move in that direction? Mr. WRIGHT. The gentleman from California is every bit as good an authority as I on that subject and, undoubtedly, a better one. So far as I am concerned, moving water to places where it is needed is worth whatever it costs to do it. Water is a commodity that is worth what- ever it costs to get it, when and where you need it. It is the cheapest and, yet, the most priceless commodity that we have. And I think it would be a good investment in the long run, an in- vestment in the great Northwest and those States that are water de- PAGENO="0033" 27 ficient, to make some arrangements whereby they would be held harm- less from the loss of that precious commodity. And I would vote for whatever costs would be necessary to achieve that objective. From an engineering standpoint, of course, it can be done. Eco~ nomically, I suppose people would argue about its economic feasi- bility. There are people, including some in the White House, who do not agree with me about what is economically feasible with respect to water projects. But as far a~s I am concerned, getting water to the American, people where it is needed for drinking water, for municipal use, for agricul- ture, for industry, is worth whatever it costs, so long as you do not waste money doing it. Mr. CLAUSEN. Well, it is clear that you have put your finger on what was the thrust of the controversy, and you are going to hear a lot more from Mr. Roncalio over on the Interior Committee, and it addresses itself to this concept of water management, because cer- tainly t:he areas of origin are going to have to have assurances that their present and future needs will be protected and that they will iiot be preempted. The requirement for the coal slurry line-there is going to be an in- creasing water requirement if oil shale, in any volume, is going to be adding to the energy alternatives that we have. And so, I would just simply suggest that we are not going to resolve it here today, but we are going to have to address this whole concept of water, water re- sources, water management, conservation in a much more larger scale than we have ever addressed thus far, particularly in that area. And 1 would suggest that the emphasis is going to have to be on surface water development in order to protect the areas that have a concern over the impact on that so-called Madison Aquifer in the area. Mr, WRmIIT. I agree. I do not think that is any reason to delay action on this bill. Mr. CLAUSEN. Thank you. Mr. HOWARD. The gentleman from Louisiana, Mr. Breaux. Mr. BREAUX. No questions. Mr. HOWARD. The gentleman from Minnesota, Mr. Hagedorn. Mr. HAGEDORN. No questions. Mr. HOWARD. Thank you very much, Mr. Majority Leader. Mr. WRIGHT. Thank you, Mr. Chairman. Mr. HOWARD. The next witness is a very respected colleague of ours. He serves not only on the Committee on Interior and Insular Affairs, but also on our Committee on Public Works and Transportation. He represents the entire State of Wyoming, and it will be a great loss to both the Congress and the State of Wyoming when he retires at the end of this session. Mr. Roncalio, welcome to the subcommittee. Thank you for your patience in waiting, and please proceed as you wish. TESTIMONY OP HON. TENO RONCALIO, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP WYOMING Mr. RONGALIO. My dear colleague, thank you very, very much, Mr. Howard. I will miss the Congress immensely and this committee. It 32-745-78---3 PAGENO="0034" 28 is ironic that I had served on your subcommittee when it was yours and John Kluczynski's for 7 years, and the first time I get off of it, you get the most important bill that has ever affected my State. But we have been working with this bill in the other committee on which I serve, Interior, for lo, these many years, and I would like to follow the lead of my chairman there, Mo lJdall, by taking my prepared statement and inserting it verbatim in the record, if I may, at this time and then comment on it. Mr. HOWARD. Without objection, the statement will be made a part of the record at this point. [Statement referred to follows:] STATEMENT OF HoN. TENO RONCALIO, A REPRESENTATIVE IN CONGRESS FROM TIlE STATE OF WYOMING I appear before you to express my grave reservations about H.R. 1609, the Coal Pipeline Act, and its ramifications for my State of Wyoming. I have been actively involved in the coal slurry debate for four years. My concern is and has always been the use of large quantities of ground water from the arid west and particularly from deep wells in Wyoming's Madison Forma- tion for the transportation of coal. The Public Works Committee has had joint referral of H.R. 1609 with the Interior Committee. This Committee has an obligation to fully review the pro- visions and implications of the bill before taking any action. 1-lopefully, the Committee will see fit to strengthen the bill or consider an unfavorable report. Wyoming anticipates three coal slurry pipelines now and others will no doubt follow. The first of these is promoted by Energy ~Transportation Systems, Inc., ETSI, and it would deliver coal from the Fort Union coal formation of North- eastern Wyoming to a coal fired power plant at White Bluffs, Arkansas. This one pipeline would consume up to 20,000 acre feet of Wyoming ground water a year, enough water to serve 20 communities the size of Gillette, Wyo- ming, a coal boom town that is today desperate for additional municipal water supplies. The ETSI line would average use of 15,000 acret feet of water a year, 4,888,500,000 gallons, enough water to meet the domestic needs of 96,000 people, to provide adequate water for 900,000 head of cattle or 9,000,000 sheep. Those figures are for one year's consumption and ETSI plans to pump and deliver to Arkansas Wyoming ground water for up to 5 years. In Wyoming and the arid west, that is a lot of water. In 1974, ETSI went to the Wyoming State Legislature to secure approval for use of water from deep wells in the Madison Formation. Approval was given contingent upon review by the Wyoming State Engineer. Subsequently a permit was issued. Not much was known about the Madison Formation then, and we are only finding out more about it now. The State Legislature understood that the water was brackish and was given assurances that mining 20,000 acre feet from it a year over 50 years would have no ill effects. We now know that at least some of the water in the formation is potable. Dan Miller, Wyoming's State Geologist, testified before the Interior Committee that "withdrawal from one area directly affects all other areas. . . If saline water is withdrawn in large quantities from depths of several thousands of feet, the fresher (pure) water above at a shal- lower level moves down to take its place." His department at the University of Wyoming has completed studies which show that after just 20 years of pump- ing, water tables at Edgemont, SCuth Dakota, the closest community relying directly on Madison Formation water for municipal use, would drop by 250 feet. The Madison Formation covers a huge geographic area underlying much of Northeastern Wyoming and Western South Dakota and Nebraska. We do not know how much water is in that formation, how quickly water ente s the formation, nor how quickly it would re-charge with a continual extracti n ~romn one or more slurry lines. In the 94th Congress, we appropriated $2 million for a eomprehensivc study of the Madison Formation by the U.S. Geological Survey so that we mig~ `~ave this kind of information. That study is still underway. PAGENO="0035" 29 Even once that information is in hand, many people question the kind of priorities which would pump that resource for coal transportation when munici- pal, agricultural and local industrial water needs cannot be met. In December, President Carter told the Cheyenne WYOMING EAGLE, "I have never endorsed and would be very cautious about endorsing, the use of the coal slurry concept of transportation when water at the origin was scarce. That would not be my highest priority for use of water." In the meantime, though, the Congress is moving ahead on this legislation to authorize certificates of public convenience and necessity (Federal emillent domain authority) to coal slurry pipelines. Federal eminent domain is a broad sweeping power which is rarely given, and which may not even be necessary in this instance. The pipeline companies can and have gone directly to the indi- vidual states and to the courts to seek their right-of-ways. By providing the Federal power of eminent domain and upon the issuance of a certificate of public convenience and necessity, we are giving Federal sanction to coal slurry pipelines, and in the case of ETSI and possibly other pipelines in the West, the use of ground water for slurry lines. If we are going to sanc~ tion that use of ground water, we had better take a good, long, hard look and provide the means for a complete assessment of the water requirements and impacts before issuance of a certificate. Ideally, slurry lines in the arid west should be willing to recycle their water. Our distinguished Majority Leader, Jim Wright, a co-sponsor of this legisla- tion, has even suggested this is his preference where water is in short supply. The slurry companies contend, though, that the cost is prohibitive and they would no longer be competitive with the railroads. Yet, they have failed to propose pneumatic lines which are competitive in cost. I would hope this Committee would at least accept an amendment which would limit a slurry line to using only 50% of its water from a ground water source. That should not be an unbearable burden. If we are to put a stamp of Federal approval on a coal slurry line and its use of ground water, we should at a minimum know the quantity and quality of water involved and the ramifications of use of water from that source. If other stateS share that water source, as is the case with the Madison Formation, they should have an opportunity to give their approval or denial as the case may be. During Interior Committee consideration, that Committee adopted ray amendment which would do those two things. A certificate for public convenience and necessity could not be issued unless the U.S. Geological Survey demonstrates that there will be no adverse effects to water table quantity or quality and unless the slurry company has obtained any and all permits or authorizations required by the state. or states having jurisdiction over the surface waters to be used, or having a valid~ legal interest in the underground waters to be used and beneath whose lands the underground aquifer lies which is the source for the proposed pipeline's water. Both of these provisions protect the established state control of water in the~ Wrest. If a water formation crosses state lines, then all states affected should have a say in the use of that water. If on the other hand, the U.S.G.S. cannot dem- onstrate that there will be no drawdowns, then the Federal government should not give its sanction through a certificate. If the state wishes. to proceed with conveyance of the water anyway, they may do so with the pipeline company going directly to the states and courts for its right-of-ways, but the Federal goevrnment should not be a party to approval of a project which over its life may prove to be detrimental to one or several states. I would hope that this Committee will concur with the Interior Committees action on this amendment. Elsewhere in Interior Committee amendments to the bill, we sought to protect' existing water rights and responsibilites held in the individual states, and to, assure that any conditions placed on water use by an individual state would not be affected by this legislation or Federal action. However, I continue to have serious reservations. Once state approval is given for water use (ground water or surface water), a Federal certificate for public cOnvenience and necessity is issued, a billion dollar slurry line is built, and a utility thousands of miles away and its consumers are depending upon the coal delivered and in turn the water source for transporting that coal, I doubt if the Federal courts will allow' the shutting down of that pipeline because the supply-~ ing state has experienced adverse impacts from the water extraction. No matter ~-hat conditions or guarantees we incorporate into this bill, I fear that once PAGENO="0036" 30 water enters interstate commerce, the source state has effectively lost control over its water and over its right to halt pumping should drawdowns occur. The mes- sage from the courts on similar questions involving the Commerce Clause is all too clear. There is no great clamor to pass this legislation. The Administration is divided on the issue. The Interstate and Foreign Commerce Committee is seeking sequen- tial referral. There is strong opposition to it from agricultural groups and several environmental groups. The slurry line companies have alternatives they have not yet fully considered. I urge this Committee to exercise its jurisdiction, to consider the full impacts of the bill, to approve the strengthening water amendments added by the Interior Committee, and to make additional amendments as it sees fit to further protect the individual state's water rights and our ground water resources in the West. Mr. HOWARD. Please proceed. Mr. RoxoALlo. Let me again assert that most of the comments about this legislation you have heard so far come from those who say the railroads are fighting it., the. railroads are fighting it. I am not fighting it because the railroads would be hurt; I am fighting it because the people of Wyoming will not have the water they are entitled to in their reserves in the ground, which is the last reserve of potable water in Wyoming. We have between 2 and 3 million acre-feet a year of surface water in the various rivers that flow out of Wyoming in all directions. We are a State of low multitudes and high altitudes. We have water flow- ing in all directions, and we have between 2 and 3 million acre-feet a year and, in some years, even more that flows out and becomes surplus water when it gets down the Missouri River, or surplus water down to the certain States on the Green River, or surplus water when it hits into the Platte. But we do not find the proponents of this line going to the Wyoming's surface water and buying some water to put in its system, or going to the oil companies and seeing if they can get some of their water that is used after it has recycled water in the oilfields and use it to move some some coal out of the State. They insist they want to drill a well field of 35 or 40 wells into the precious Madison limestone, on which there is no geologic proof that a drawdown of 20,000 acre-feet a year will do irreparable damage, and they say, "We know there is enough water there for us to do it." Now, let us get to this point. ~If this company would take surface surplus water of 20000 a.cre-feet a year, I would help them get it. I will quit the Congress and go try to buy them the water to get that thing started. I would care less if they compete with the dear old Union Pacific Railroad, for which my father worked for 30 years; I Would care less about that; I would like some good competition in moving the coal out of Wyoming, but not at the cost of jeopardy to the last source of water, the last reserve of water in the State, which is the Madison limestone formation that we have got there. So, there is a difference. You have heard my beloved leader say to you that there is no dif- ferencë here between eminent domain for a gasline and why should we not have it here. There is a basic difference. A gasline, Mr. Chairman and my members, moves natural gas, and that is all it moves. Slurry lines move 1 ton of water from Wyoming for every ton of coal that is mOved; one ton of water for every ton of coal. That is the basic dif- ference, and that is why, in the State of Wyoming, we have this battle. PAGENO="0037" 31 You have heard my beloved Chairman Mo TJdall say to you, "The Roncalio amendment, which is in here now, we think even went a little too far," but it protects the State's interests because of the requirement which Mr. Clausen mentioned. If it knew that the leaders that want this legislation would leave the Boncaiio amendment alone when it gets to the floor of the I-louse, I might feel a little more secure about all of this, but we know, as a matter of fact, they are already prepar- ing amendments to cut it all up to pieces when it gets to the floor of the I-louse; they are nOt going to leave this bill alone in the form it is now. If they are, I would love to hear them say so. If Mr. TJdall will say now that he will support this bill verbatim, word for word, now, I would have to give serious thought to maybe going along with the bill. I voted against reporting it out of the Inte- rior Committee because of my concern about what would happen. on the floor. Mr. CLAUSEN. Do you want Chairman TJdall to yield to you to respond to that question? Mr. R0NCALT0. Does Chairman Udall wish to yield and respond to me on that question? I would be happy to yield. Mr. TJDALL. I can live with the bill as it is written. I think we have overprotected water, but we accepted the Roncali'o amendment, and I have no plans to try to undo it on the floor. Mr. R0NCALT0. You would support it on the floor of the House? Mr. TJDALL. That is my present position. Mr. RONCALIO. I am deeply relieved to know that, and I appreciate that. Mr. CLAUSEN. Are you not thankful that I got the question answered? * Mr. R0N0ALI0. You are a good man, Don Clausen. Now, to the other thing, Mr. Chairman, the recycling, I do believe that requiring a company to recycle 100 percent of its 20,000 acre-feet *a year, with pumps-say that you have got a 36-inch line going down to Arkansas and an 18-inch line coming back with double pump capac- ity-~the economics might put the program in jeopardy, `but no one has ever shown us the figures. We have asked for figures in Wyoming over the years, and a figure that came up was one that it will cost $3,000- that is for the electrica.I current on today's rates-to pump that acre- foot of water from Arkansas back up to Wyoming, but nobody tells, us how many tons of coal that acre-foot of water will move back down to Arkansas, and what doe.s it figure out-is it 25 cents a ton more, or 50 cents a ton `more to recycle? And I thinkS and I know, and I would swear on my word if I were under oath, under penalties of perjury, that I have had said to me from an official of the ETSI `Corp., "Oh, we will recycle all right on the second or third slurry line. But on the first one, we want all the water, from where we know there is adequate water." And they may have a point-maybe there is adequate water, but there is no proof that there is or that there is no adequate water in the Madison Limestone. It is a source of municipal water. The Wyoming Legislature was not told that when they got their permission to get `a permit for the 15,000 to 20,000 acre-feet a year. It is being used now as a source for industrial waters for oil company recycling for oil recovery. Edgemont. S. Dak., depends upon this water for its municipal system. PAGENO="0038" 32 How can we set the precedent of allowing it to be used to flush coal `out of our State when it is used to sustain life in the three-State area? That is the reason I have come asking you not to report this legislation, ~unless we can come up with some type of assurance, Mr. Chairman, that slurry companies would either recycle a substantial percentage of the water-35, 40, 50 percent should be recycled-or that they will be re- quired to look elsewhere for some of their waters. One of my amend- ments which failed was that they should look for 50 percent of the water from surplus surface sources and the other half from under- ground or ground water sources. That was defeated by one vote, 20 to 19, in the full Interior Committee. I am still insecure and uncomfortable with this legislation. I do not feel good about it, and I will continue to feel uncomfortable and inse- cure about it until they either recycle some of that water or find some surplus surface water. Otherwise, this is the most dangerous precedent for the people in the arid West that I have ever seen. Thank you, Mr. Chairman. [Whereupon, Mr. Breaux assumed the chair.] Mr. BREAtTX. Teno, our committee, of course, appreciates your pres- entation. I am just getting into this, and I have been reading some of the material while you were making your presentation. As I understand it, the certificate could not be issued if the under- ground water use would significantly affect the water table quality or the quantity of the water table. Mr. R0NOALI0. That is so. My amendment accepted by the Interior Committee requires the advance study by the u.S. Geological Survey before a certificate can be issued. I very much fear what could happen in the absence of such protec- tion, especially in Wyoming where the pipeline company already has ~errnissiOn to pump up to 20,000 acre feet of groundwater a year. Tinder the Wyoming law, if test facilities around the well field show ~.that there has been a drawdown after a while, the company can be required to compensate those whose interests will be damaged. The company can be required to pay additional pumping charges incurred by the injured party. It call be required to find another water supply for the other party. Or, as a final resort, the Wyoming law says the State may go to court to seek a shutdown of the pumps. But, realistically, I cannot see how this company is going to stop a ~bil1ion operation; once they start pumping that water, there is nothing that is going to stop them, even if we have a drawdown, because they will have conunitted that water to iiiterstate commerce; they will have put in jeopardy an investment of a billion dollars or more, and a draw- down on the reservoir is not going to stop them. In other words, as men of reason, I do not believe, and neither do you, that if you and I were running this company, that we are going to stop our pumps just because someone says there is a 23-foot drawdown in the area. [Whereupon, Mr. Howard reassumed the chair.] Mr. HOWARD. The gentleman from Pennsylvania, Mr. Shuster. Mr. SIIUSTER. Let me be sure I understand you, Congressman, on what you are saying with regard to the so-called absolute veto that the distinguished chairman of the Interior Committee referred to. PAGENO="0039" 33 Are you saying there is not `an ~ibsolute veto that Wyoming, for ex- nmple, would have, or did I understand you to say that Wyoming has, in fact, already granted the rights to drill? Mr. RONCALIO. Wyoming's legislature has already, in fact, granted statutory permission-statutory machinery for a permit to issue to Energy Transportation Systems, Inc., and ETSI has, in fact, made application for their permit, looking to something between 15,000 and 20,000 acre-feet per year of water from the Madison Limestone in the Niobrara County field. Mr. SHtTSTER. Then, presumably, the State legislature feels that the water problem is no pmblem. Mr. R0NCALI0. The State legislature, 4 years ago, did feel that; that is true. And I do not want to gainsay them; there may be men in there of good will who felt this. But this is a whole different world on energy since that day. Mr. SHUSTER. Well, can they not, then, repeal? Mr. R0NOALI0. You have no conception of how feisty a politician can get when you mention this in the Wyoming Legislature. First, you need a two-thirds vote to bring it on on the off years. Second, it has become a wholly partisan, political issue, and that is too bad. The incumbent Democratic governor agrees with me on this; the former Republican governor thinks there ought to be one test kind ~of a pipeline somewhere, somehow, and is inclined to favor deep water for this program. Everyone is a little uneasy about the thing, but that is your answer, Mr. Shuster. Mr. SHUSTER. Thank you. Mr. HOWARD. The gentleman from California, Mr. Mineta. Mr. MINETA. No questions, Mr. Chairman. Mr. HOWARD. The gentleman from Illinois. Mr. FARY. No questions. Mr. HowARD. r1~fie gentleman from California, Mr. Clausen. Mr. CLAUSEN. I think I have said most of what is needed to be said, but to backup some comments that were made by Mr. Wright, as well as Mr. Roncalio, I might point out that suggestions have been made that water for the pipeline could be pumped back from Arkansas in a parallel pipeline or brought in from a third point, such as the main stem on the Missouri. Now, rough cost estimates offered during congressional hearings are that water from planned ground water sources would cost about $50 per acre, or 1.5 cents per million Btu's worth of coal transported; water supply from the Missouri River would roughly double the cost; recycling water back from Arkansas ~would increase the cost about eightfold. I think it would be helpful for the committee to have that incor- porated into the record to put in perspective what we are talking about. Mr. R0NOALT0. But there is no proof that that is still not econom- ~ically feasible. That is the problem. Mr. CLAUSEN. Yes, right. ii\'Ir. HOWARD. The gentleman from Minnesota, Mr. Hagedorn. Mr. HAGEDORN. No questions. Mr. HOWARD. The gentleman from Minnesota. Mr. STANGELAND. No questions. PAGENO="0040" 34 Mr. HOWARD. Mr. Roncalio, thank you very much foryour testimony and your appearance here today. The next witness before the subcommittee, Mr. Russell W. Peterson, directOr of the Office of Technology Assessment, accompanied by Mr. Lionel S. Johns, program manager, and Mr. Brad Hollomon, pro- fessional staff member. Thank you for your patience and your appearance, Mr. Peterson. You may proceed as you wish. TESTIMONY OF RUSSELL W. PETERSON, DIRECTOR, OFFICE OF TECHNOLOGY ASSESSMENT, ACCOMPANIED BY LIONEL S. JOHNS, PROGRAM MANAGER, AND BRAD HOLLOMON, PROFESSIONAL STAFF MEMBER Mr. PETERSON. Mr. Chairman and members of the Committee, thank you for the opportunity to be here today and to summarize the results of our coal slurry pipeline assessment. I have with me Mr. Lionel S. Jolms, manager of the OTA energy program and Mr. Brad Holiomon, the slurry pipeline project director. OTA undertook this study in mid-1976 at the request of the House Committee on Interstate and Foreign Commerce; the Senate Com- mittee on Energy and Natural Resources; and the Senate Committee on Commerce, Science, and Transportation. Our analysis is intended to contribute to discussions of broader questions of transportation policy, western water use, and regional conflicts over energy develop- ment. We also hope that our findings will aid in congressional delib- eration on several bills that propose granting the power of eminent domain at the Federal level to coal slurry pipeline enterprises for right of way acquisition, and that our report may be a useful source of information in any certification or regulatory process to which slurry pipelines might be subjected. The assessment was managed by OTA staff with the help of an advisory panel composed of representatives of affected interests and experts in relevant fields of knowledge. The panel members are listed at the front of the report. and although our panels don't necessarily approve or endorse our findings, we are deeply grateful for their insight, perseverence, and the good will with which they participated. Four major research tasks provided the background material on which the assessment is based. The first resulted in forecasts of coal production and utilization, which constitute the market assumptions underlying the rest of the analysis. Second, an investigation of the relative costs and potential economic impacts of coal slurry pipelines and unit trains was performed. The third task was to evaluate the environmental, social, and water resource impacts of slurry and rail transport of coal. Finally, an analysis was performed of the legal and regulatory issues related to transportation, water use, environmental protection, and eminent domain. Our summaries of these four investi- gations comprise chapters IV through V]II of the report. Some major findings arising out of the assessment are as follows: Without the power of eminent domain at either the State or Federal level, coal slurry pipelines will have great difficulty competing suc- cessfully with established railroads. On the other hand, if Federal emi- PAGENO="0041" 35 nent domain legislation were passed with~ut~ addressing the regulatory restrictions on railroads, pipelines would enjoy some significant ad- vantages over railroads. Restrictions include for example, the ability to serve selected customers on a long-term contract basis, as railroads are now unable to do. Also, if regulation of gas and oil pipelines is a guide to the way coal pipelines would be treated, pipeline rates could yield a greater return on investment than those allowed to railroads. In this context, pipelines represent simply another potential competing mode of transportation to be considered in the larger debate concern- ing the best way to alleviate the problems of the railroad industry. Another major problem concerns the allocation of western water re- sources among competing uses. Although transportation of coal by slurry pipelines will require much less of the mine region's water, per ton of coal, than onsite gasification or electric power generation, they do represent a substantial potential demand on limited, remaining un- allocated resources. However, the prior appropriation system of water rights subordinates new uses to present ones, making water acquisi- tion for energy development more difficult. Satisfactory resolution of this larger question of how the West allocates water for future needs would eliminate some of the contention over the desirability of slurry pipelines as a form of transportation. Other elements of the dispute over coal pipelines reflect conflicting regional interests regarding coal development generally. If coal mill- ing and transportation is expanded to control electricity costs or to reduce the dependence onforeign gas and oil in one part of the country, another part will suffer the adverse impacts of increased mining activity, expanded train traffic, or greater competition for water. Con- gress faces the unique challenge of striking the appropriate balance as it considers not only coal slurry pipeline legislation but other energy- related measures and the degree to which those determinations will be made at the Federal level. I will now enumerate some of our more specific findings. COMPARATIVE COSTS We compared the costs of unit trains and slurry pipelines as part of four hypothetical case studies and concluded that depending on the specific conditions of a given route, either mode can represent the less costly means of transporting coal, if one ignores regulatory distortions and unquantifiable social impacts. Which mode is cheaper in a given instance can be determined only by a detailed economic and engineer- ing evaluation, and the ranges of uncertainty associated with estimated rail and pipeline costs can be as great as the difference between the estimates. REGULATORY DISPARITIES As I mentioned earlier, the present regulatory framework does not guarantee that traffic would necessarily be allocated between rail and pipeline in practice in such a way as to minimize the cost to society of transporting coal. Distortions would stem from the difference between regulated tariffs and cost of service, the ability of pipelines to serve selected customers, and the prohibition of long-term rate and volume contracts between railroads and their shippers. PAGENO="0042" 36 BAIL INDUSTRY TMPACTS The development of a substantial slurry pipeline industry would diminish the growth iii future revenues of competing railroads, pri- marily in the West. However, the rail industry's financial health and the cost and quality of the service that railroads provide is probably more sensitive to rate regulatory policy and to continued productivity improvement within the industry than to the effect of pipelines on the level of coal traffic. COAL DEVELOPMENT IMPACTS Although the argument has been raised that coal slurry pipelines would help to meet national energy goals by alleviating transportation capacity limitations, our view is that the introduction of this technology would not be likely to affect materially the rate of coal resource de- velopment and use on a national scale. The reason is that both rail and pipeline facilities can be expanded relatively rapidly, and the rate of coal development, especially in the West, is more dependent on other considerations, such as environmental restrictions. The pattern of coal distribution, however, is sensitive to transportation costs. Thus, any measure which reduces these costs will encourage the use of western coal at greater distances from where it is mined. WATER USE Slurry pipeline development could foreclose other future use of remaining western water supplies. However, our analysis indicates that sufficient unused quantities of suitable water are physically present, although not necessarily legally available, for the operation of nearly 200 million tons per year of slurry pipeline capacity from. western coal producing areas. Pipeline proposals therefore present a. choice between slurry and other forms of future water use, which may be more or less desirable. CONTROL OVER WATER RESOURCES Under the prior appropriation system for water allocation in many Western States, slurry pipelies, like any new applications of water, are accorded a lower priority relative to existing rights. This fact serves to protect present users from involuntary displacement of their water rights. As a result, pipeplines may not be able to acquire water, even if they were able to put it to a more economically productive use. It should be noted that when levels of water use exceed present users' rights, as is the case during periods of relative abundance, issuance of new rights can displace present water dependent activities. Also, within limits that vary among States, water rights may sometimes be sold by one user to another, thereby making water available for* slurry use through market forces. The Federal Government has sub- stantial constitutional power to control water resource allocation for pipelines, notwithstanding State provisions. One of the questions our analysis raises is to what degree would State `authority over water for* pipelines survive Federal certification of a pipeline project. Even if pipeline legislation were to provide that State water authority would PAGENO="0043" 37 remain unchanged, certification by a Federal agency that a pipeline would serve the national interest could under certain circumstances supercede State power in. this area. ENVIRONMENTAL IMPACTS From an environmental standpoint, the water use and certin tem- porary construction impacts of slurry pipelines must be weighed against the noise, land use disruption, and rail-highway crossing acci- dents and inconvenience associated with moving the same coal by rail. WASTE DISPOSAL One environmental area of uncertainty involves the substances that will be present in the slurry water after it has been separated from the coal and perhaps reused, for example, for powerplant cooling. This water must eventually be disposed of. As a result of questions raised by OTA's environmental analysis, the Department of Energy is now sponsoring the experiments necessary to determine what sub- stances will be leached from the coal under the anaerobic conditions prevailing in a slurry pipeline. This information should be useful for enforcing the provisions of present Federal statutes controlling the discharge of toxic and hazardous substances into surface and under- ground water, as well as for assessing the potential impacts of any coal slurry pipelines. EMINENT DOMAIN A coal slurry pipeline industry could develop if it had the power of eminent domain for right-of-way acquisition at the State, as opposed to Federal, level. All other pipeline systems except natural gas were built largely with State eminent domain authority. However, with- out this power at some level, slurry pipeline development would be diffi- cult, and not all States have statutes granting the power for building this specific type of facility. Those that have such statutes require that a public purpose be served within the States. The practical differ- ence between eminent domain at the State or Federal level lies in the degree to which national or local priorities are reflected in the condi- tions under which the power can be exercised. It follows that Congress is in a position to facilitate or to retard coal slurry pipeline development through eminent domain legislation, as it deems appropriate, based on weights it assigns to the impacts I have just mentioned. Let me emphasize that this issue cannot be viewed in isolation. Broader problems, of which the coal slurry pipe- line controversy is only one aspect, include the current railroad regu- latory structure, the allocation of limited water resources in the West, and regional conflicts over energy development. In conclusion, clarification of two issues which have heretofore been interrelated in the debate seems desirable. One revolves around the lack of eminent domain authority serving to permit one transportation mode to delay or deny the opportunity to a competing mode from en- tering the marketplace. The second issue concerns the perceived desir- ability of coal slurry pipelines and is drawn between those on the one hand who oppose Federal eminent domain for slurry on the basis of PAGENO="0044" 38 water use. Federal incursion on State powers, protection of i~ail mar- kets, or other bases, and on the other hand, those who support emment domain legislation on cost, energy availability or environmental grounds. Our report outlines policy options which permit these issues to he viewed separately. Thank you for the opportunity to testify. I hope our assessment is useful to you in your deliberations. We would be pleased to answer any questions. Mr. HOWARD. Thank you very much for your testimony and your appearance. The Chair recognizes the gentleman from Pennsylvania, Mr. Sinister. Mr. SHUSTER. I thank you; we certainly appreciate your testimony. Let me be sure I understand what you have said, and please correct me if I am wrong. You said that you have seen no evidence that says tht.a coal slurry pipelines would be more economical than. railroads. They may or may not be, depending on the specific circumstance, so we have no evidence that justifies making a decision in favor of coal slurry pipeline because they are basically more economical. Mr. PETERSON. Let me correct that, Mr. Shuster. I said that it de- pends upon the particular situation and the particular route. Mr. SHUSTER. Let me put it another way. There is no inherent eco- nomic advantage to coal slurry pipelines over railroads that one can state as a general premise. Mr. PETERSON. Not as a general premise, but you can pick specific routes and show that there is an economic advantage for slurry pil?e- lines over railroads, and other cases where rails have an advantage over slurry pipelines. Mr. SIniSTER. Further, that you do not know yet what the impact of discharges of toxic and hazardous substances into surface and under- :ground waters might be; this is being studied now? Mr. PETERSON. We have inadequate information on that; that is right. Mr. SIniSTER. And. further, that even if we did proceed with coal ~lurrv pipelines, unless action were taken to change the regulatory structure of the railroads. the railroads would be significantly injured and the coal slurry pipelines wOuld be given an inherent economic ad- vantage through the distortions resulting through the regulatory structure? Mr. PETERSON. That is rioht. Mr. SIniSTER. I also note from your testimony and from page 18 of your report: The capacity of rail systems can be expanded faster than can coal mining or electric power generation using coal,: providing the necessary investments in local rail facilities are made. Therefore, can I accurately conclude that there appears to be no case for the need for coal slurry pipelines, because the railroads cannot handle the job? The suggestion here is that the railroad can handle the job. given adequate investment. Mr. PETERSON. I think, again, you have to be concerned with a specific route. In certain areas where there is no existing roadbed, for example, there may not be any advantage, from a time standpoint, in PAGENO="0045" 39 going with one mode over the other, that is if it calls for a major con- struction effort for building a new roadbed versus building a pipeline. But where we already have an existing railroad in existence, then to increase the capacity on that railroad would be less of an assignment. Mr. SI-rn5TER. ~Tould you care, finally, to comment on Congressman Roncalio's statement that he made just a few moments ago, and I believe I am quoting him precisely: "This is the most dangerous prece- dent for the people of the arid West I have ever ~ is, this legislation. Mr. PETERSON. I think, again, you have to be concerned with what particular application you are talking about for the coal slurry pipe- line and what weight you want to put on the relative uses of the water supply. Congressman R.oncalio, I believe, was focusing on the water problem, which is obviously of tremendous importance in the semiarid West. Yet, in some of the areas, such as in easternWyoming, there is water available to handle 125 million tons of coal by slurry pipeline, and in the process use only 3 percent of the surface water available in the area~ So, it depends upon what weight the authority handling the water allo- cation gives to future uses for slurry pipelines over future uses for irrigation, et cetera. So, I think you have to face up to that critical problem, but that would not, in my judgment, rule out the possible use of some water for the coal slurry pipeline. Mr. SHUSTER. Thank you very much. Mr. HOWARD. The gentleman from Louisiana, Mr. Breaux. Mr. BREAUX. No questions. Mr. HOWARD. The gentleman from California, Mr. Mineta? Mr. MINETA. No questions. Mr. HOWARD. The gentleman from Georgia, Mr. Levitas. Mr. LEVITAS. No questions. Mr. HOWARD. The gentleman from Illinois, Mr. Fary. Mr. FARY. No questions. Mr. HOWARD. The gentleman from Minnesota, Mr. Hagedorn. Mr. HAGEDORN. No questions. Mr. HOWARD. The gentleman from Minnesota, Mr. Stangeland. Mr. STANGELAND. Thank you, Mr. Chairman. Mr. Peterson, who would be responsible for regulating rates of transporting coal through a slurry pipeline? Mr. PETERSON. I will ask Mr. Brad Hollomon to answer that, if I may. Mr. HOLLOMON. Unless there were legislation changing the situation, the coal slurry pipeline, since it does not carry natural gas or water, and to the extent that it is in interstate commerce, would be regulated by the Interstate Commerce Commission. Mr. STANGELAND. Then I gather, Mr. Peterson, from your testi- mony that you are supporting legislation and supporting the right of eminent domain, because it is in the public interest? *Mr. PETERSON. I am not supporting anything. I am coming to you with this report to present these options and facts and will leave it up to you people who have the responsibility for making the decisions to make that choice. PAGENO="0046" 40 Mr. STANGELAND. Based on the research that you have done, is it your opinion that it is in the public interest for the Federal Govern- ment to grant the right of eminent domain, as opposed to having the States take this on a case-by-case basis? Mr. PETERSON. I would prefer to have you, the Congress, answer that question. The Office of Technology Assessment was established to pro- vide objective analysis of technological issues, and my taking a posi- tion on the merits of specific legislation would be inappropriate in the light, of our charter. Mr. STANGELAND. I think maybe, Mr. Chairman, at this point, I do not have any further questions. [Laughter.] Mr. RowAiw. Thank you very much, Mr. Peterson. The next witness before the subcommittee is Mr. Jack Curra.n, leg- islative director, Laborers' International Union of North America. Mr. Curran, thank you very much for your appearance here today. We do have a copy of your prepared statement which, without objec- tion, will be made a part of the record at this point, and the statement - of Mr. Robert A. Georgine, president of the Building and Construction Trades Depar~rnent, AFL-CIO, which also will be made a part of the record at this point. [Statements referred to follow:] STATEMENT OF JACK CuRRAN, LEGISLATIVE DIRECTOR, LABORER'S INTERNATIONAL UNION OF NORTU AMERICA, AFL-CIO Mr. Chairman and Members of the Committee, my name is Jack Curran, Leg- islative Director of the Laborers' International Union of North America. I am speaking on behalf of General President, Angelo Fosco, and over 600,000 mem- bers of our Union in support of H.R. 1609, the Coal Slurry Pipeline Bill of 1976. This is not my first appearance in support of a Coal Slurry Pipeline Bill. Our Union has, from the beginning of the debate over this bill, participated in that debate and urged the passage of this legtslation. I, anti members of my staff, have closely followed the arguments which have been made in repeated hearings over Coal Slurry legislation, without discovering anything which would cause us to depart from our unwavering support for such legislation. It remains our conviction that slurry technology represents the best, most economical and least environmentally-damaging form of transportation for large volumes of coal. As the debate over this legislation has progressed, our country has been fenced in te en ever narrowing circle of possibilities, which make the passage of this legislation immediately imperative. Our increasing dependence on foreign sup- plies of energy resources is an intolerable situation which cannot be permitted to continue indefinitely. Added to this, our national reluctance to continue devel- opment of nuclear energy cuts us off `from the next most obvious source of power in the near term. Under the circumstances, it is imperative that we develop our rich national heritage of western coal as an energy source. Simultaneous with the development of the coal fields, however, is the necessity for developing a transportation system which wiii bring that coal from the sparsely populated west to the heavily populated markets of the east, midwest and southwest United States. The elements of such a transportation system are both clear and obvious. First, it should he cheap. since the primary reason that western coal has remained so long undeveloped lies in time substantial effect that transportation had on the cost of that coal. It was not, in fact, until other energy sources increased in price by a favor of three or more than we `began to seriously consider `development of our western coal fields. Second, a transportation system should he enduring; again, for cost reasons, and should operate for the maximum amount of time with little or no maintenance cost. Third, it should be uninterruptable. And, fourth, it should do as little damage as possible to the surface environment. I submit to this Committee that the slurry pipeline meets all of these requirements and, in meet- ing them, exceeds the performance of any competing transportation form. PAGENO="0047" 41 Previous hearings have clearly developed the information that the delivered cost of coal, by pipeline, is one-half to two-thirds that of coal delivered by rail. Given the conditions whicth make slurry *pi.peline delivery possible, that is, a large source at one end and a large user at the other, no one seriously contests the economy of pipeline transportation. Nor is this a theoretical claim based on mathematical models or engineering projections. Transportation by slurry pipelines is a developed, tested and successful tech- nology, currently in use in this country and others, which could immensely bene- fit the future development of energy production in the United States. Of all forms of transportation, buried pipelines are demonstrably the most enduring over the long term. In the forty year anticipated life of a pipeline, main- tenance costs, barring catastrophic accidents, are minimal and have little prac- tical impact on the delivered price of coal, compared to the projected costs of upgrading and maintaining an operating rail system in this country, which were thoroughly explained during the debate over CONRAIL. This factor alone more than justifies investment in Coal Slurry Pipelines. Goods transported by pipeline arrive in an uninterruptible supply~gain, bar- ring catastrophic accidents. Neither derailments, road accidents, weather nor the multitude of other factors which can slow down or stop most forms of sur- face transportation affect a buried pipeline. Thus, a power plant at the receiv- ing end of a coal slurry line, can minimize its stock piling requirements, which would not only reduce its inventory cost and the amount of land which it would occupy, but would open the possibility of making power plants a mu~h more attractive member of the community. There are several bases on which to question the argument that the Railroads not only can handle increased coal traffic, but that it should be reserved to them. Such a reservation violates the very principles of a competitive economy which we in this country depend upon as the principal regulator of prices and economic activities. It is true that Congress has ordered Federal regulatory agencies to preserve maximum competition in regulated industries such as Railroads and that the Railroad reorganization final system plan was drawn up with an objec- *tive of assuring that each major center would be served by at least two com- peting Railroads. Without going into my skepticism about competition in a regu- lated industry, I submit to you that even the limited competition Congress has preserved in the case of Railroads is inapplicable to delivery of coal. Coal is supplied to the power industry through the mechanism of long-term contracts between the power companies, mine operators and delivery systems. Coal is not delivered to major centers where congressionally mandated competition protects ihe consumer but rather to isolated delivery points over tracks controlled by the operator. The only effective competition that a Railroad could conceivably face in coal hauling would be from an alternative competing technology, such as coal slurry. The Railrads are already clamoring to raise their rates before making the investment in additional equipment and facilities repair that will be required by increased coal production and haulage. If that is the case now, what I ask you will be the result in terms of transportation prices if Congress puts its stamp of approval on the monopoly that obviously the RaiI operation so desires? It seems distinctly odd to me that the opponents of this legislation have made such an issue of the potential environmental damage associated with Coal Slurry Pipelines, when this country is literally laced with underground oil and natural gas lines which the majority of our population rarely even notices. A buried pipe- line, unlike a highway or railroad line, ruins no farm land, pollutes no com- munities with noise, smoke or gas, interferes with no shipping, where it crosses rivers, and, generally operates as benignly as any piece of human engineering in the history of man. By comparison, one has only to look at the gravelly, oil- soaked, and weed-engorged Rail Rights-of-Way which crisscross our country to see real permanent and, apparently, incurable damage to the environment. Such damage as may be done by a pipeline during its construction phase is as quickly undone once the pipeline is buried and normal living and agricultural pursuits resume along the Right-of-Way. Although pipeline breakage is rare in the many years of experience this country has had with oil and natural gas pipelines, it can occur. Such risks, however, are insurable costs of operation of the pipeline com- pany which can, and should, be covered to prevent losses by landowners along the Right-of-Way. In the case of slurry pipelines, as distinguished from oil or natural gas lines, such losses are unlikely to involve life or limb, since the ex- plosive or combustible qualities of the material carried in the pipeline will be negated by the fact that it is 50 percent water. PAGENO="0048" 42 Thus, in my opinion at least, the case for Coal Slurry Pipelines is complete, and certainly enough is known about them to justify the passage of this legis- lation. Especially, since not one foot of pipeline would be laid thereby. This bill after all is neither an appropriation measure nor an authorization to build or operate a pipeline. It merely grants to pipeline companies those same rights of eminent domain in federal courts which Congress has given to all other forms of surface transportation and energy transmission that have to cross state lines. All that it would do would be to prevent the capricious or selfish denial by the Railroads of permission for pipelines to cross their Rights-of-Way. Failure to pass such legislation, will not only severely damage the prospect of using a valuable, proven transportation technology, but will set tile dangerous precedent that those who are first on the ground have the power to deny the development of competing technologies. Somehow, I do not think that the Congress of the United States is prepared to accept such a precedent, for which all of us may be duly grateful. Our Union is fully aware, of course, to the relationship between slurry technology and water use, just as we are aware of the importance of water in the coal-rich states of the west. However, I do not think that the water issue should hold up consideration of this legislation. From a national point of view, the water can hardly be considered lost in any case since, once it is separated from the coal dust, it can be put to useful purposes at the receiving end of the pipe- line. More to the point, however, is the fact that state sovereignty applies to water within their borders. Before one drop moves into a Coal Slurry Pipe- line, the operators are going to have to satisfy the states' water conservation requirements. This aspect of state éontrol is untouched by H.R. 1609. More important, in this debate, is the principle which has already been enunci- ated. Congress should not permit a situation to develop in which new technology can be suppressed by the private action of individuals or corporations, acting in their own purely selfish interest. Such action would do violence to those tradi- tions of innovation and experimentation in the free market which have been the primary driving force in our national economic progress. Passage of HR. 1609 prevents that situation in this case and reaffirms our national commitment to progress in the private economy. I deeply appreciate this opportunity to present our views on this very impor- tant legislation, and wish to thank you, Mr. Chairman and the Committee, for permitting us to do so. STATEMENT OF ROBERT A. GEORGINE, PRESIDENT BUILDING AND CONSTRUCTION TRADES DEPARTMENT, AFL-CIO As President of the Building and Construction Trades Department, AFL-CIO, its 17 National and International affiliates, and their 4 million members, I greatly appreciate this opportunity to demonstrate support for H.R. 1609, The Coal Pipeline Act of 197S. A few months ago, the delegates to our National Convention in Los Angeles unanimously approved a resolution urging prompt passage of this vital legisla- tion. Building tradesmen have a vested interest in the construction of coal pipelines. It is an interest that should be shared by all Americans concerned with our energy crisis. In one of his first addresses to the American people, President Carter articu- lated the need to develop domestic sources of energy. The major thrust in this area of the Administration's energy program is "to increase our coal production by more than two-thirds, to over one billion tons a year." With this explosion in the development and production of coal, a viable, efficient, economical, safe system of transporting coal is necessary to complement the present haulage by rail. We think coal slurry pipelines are the answer. It is now obvious that the railroads alone cannot do the job. With the tripling of coal volume by 1981. hopper cars, rail lines, graded crossings cannot be built fast enough to satisfy the traffic demands. And the traffic demands will be enor- mous-almost ten times what they are today. Even if coal pipelines transport 20 percent of the mined coal, (a liberal estimate), railroads would still experience a tremendous increase in revenues and employment. Expansion in the northern and western coal mines will begin in two or three years. It is urgent that we start construction now so that coal pipelines will be ready to haul a significant share of the added volume of coal. PAGENO="0049" 43 The necessary manpower to build these pipelines is available in abundant sup- ply. The building industry is in a depression with over 15 percent of its total work force unemployed. This Nation's largest industry, which is so crucial to the entire economy, will not be revived until the construction of energy supply and transport facilities is resumed. These skilled craftsmen stand ready to build these facilities which our country sodesperately needs. The Office of Technology Assessment has now concluded its thorough, meticu- bus study of the economic and environmental impacts of coal slurry pipelilles. The findings demonstrate the feasibility of proposed pipelines: Substantial reduction of energy costs to the consumer. Efficient haulage of mined coal. No adverse effects on water supplies. No threat to loss of jobs in the railroad industry. The verdict is in. Further delay would be a shameful injury to the economy and energy independence of this nation. The unemployment of the building trades far exceeds that of the railroads in every state where coal pipelines have been proposed. With the anticipated in- crease in coal production, both railroad workers and building tradesmen stand to gain much. The 4 million building tradesmen of America strongly urge your favorable con- sideration of HR. 1609. Our country needs to get on with the job of preparing for future energy demands. Construction of convenient, safe, economical coal pipelines is a very necessary first step. I respectfully request that a copy of this Department's Convention Resolu- tion in suppoit of H.R. 1609 be included in the record. Thank you. REsoLuTIoN No. 56 Re: Support for Coal Slurry Pipeline Act. Submitted by: Executive council. Referred to: State and local organizations. Whereas, any solution to America's long-term energy problem depends on the increased use of coal to avert further dependence on foreign energy sources; and Whereas, the key to such increased use of coal is efficient transportation; and Whereas, transportation of coal by Slurry Pipeline is the lowest cost and least environmentally damaging means of moving large amounts of coal from the mine to a high-volume user; and Whereas, American railroads have entered into a deliberate policy of sabotag- ing the developing of such pipelines by denying them the right to cross railroad Rights-of-Way; now, therefore, be it Resolved, That the Building Trades supports and calls upon Congress to pass HR. 1609, Coal Slurry Pipeline bill, which will give operators of coal slurry lines the right of Eminent Domain in Federal Courts enjoyed by all other inter- state carriers of goods and services. Mr. HOWARD. You may proceed as you wish. TESTIMONY OF SACK CURRAN, LEGISLATIVE DIRECTOR, LABOR- ERS' INTERNATIONAL UNION OF NORTH AMERICA, AFL-CIO Mr. CURRAN. Thank you, Mr. Chairman. I do appreciate your al- lowing me to appear here now, and as I indicated, it will only take me a minute or so. I do have to catch a plane in a very short time. I am appearing here today in a dual capacity-that as chairman of the legislative task force of the Building and Construction Trades Department, speaking on behalf of President Bob Georgine and the 4 million members of the building trades; and in the capacity of legis- lative director of the Laborers' International Union of North America, speaking on behalf of President Angelo Fosco and our 600,000 members. 32-745-78-----4 PAGENO="0050" 44 Let me just briefly say, in presenting the statements for the Build- ing Trades iDepartment and the statement of the Laborers' Interna- tional Union, that I and my staff have been following the hearings and we have gone into all of the aspects of the need for a coal slurry pipe- line in competition with the transportation of coal by other means. It still remains our conviction that slurry technology represents the best, the most economical, and the least environmentally damaging form of transportation for large volumes of coal. Second, we feel that simultaneous with the development of the coal fields, there is the necessity for developing a transportation system which will bring that coal from the sparsely populated West to the heavily populated markets of the East, Midwest, and Southwest United States. The elements of such a transportation system are both clear and obvious. First, it should be cheap; second, transportation systems should be enduring; third, it should be iminterruptable; and, fourth, it should do as little damage as possible to the surface environment. I submit to the committee that the slurry pipeline meets all of these requirements, and in meeting them, exceeds the performance of any competing trans- portation form. I leave the rest of our statements to the committee for its considera- tion. And, again, Mr. Chairman, many thanks for allowing me to ap- pear before this body today. Mr. hOwARD. Thank you very much for your appearance, Mr. Cur- ran, and thank you for the testimony of both yourself and Mr. Georgine, which are a part of the record. The gentleman from Pennsylvania? Mr. SHUSTER. Thank you very much. No questions. Mr. HowARD. Questions by members of the subcommittee? [No response.] Mr. HOWARD. Thank you very much, Mr. Curran. The next witness before the subcommittee is John F. O'Leary, Dep- uty Secretary of the Department of Energy. Mr. O'Leary, thank you very much for your appearance and for your patience today before the subcommittee. If you do have testi- mony, it will be made a part of the record at this point, without objec- tion. [Statement referred to follows:] STATEMENT OF JoHN F. O'LEARY, DEPUTY SECRETARY, DEPARTMENT OF ENERGY Iv[r. Chairman and members of the Subcommittee, I appreciate this opportunity to appear before you to discuss some important issues associated with the trans- portation of coal, the potential role of coal slurry pipelines and specifically, HR. 1609. Last spring I testified on this bill before the House Interior and Insular Af- fairs Committee. At that time, I was unable to comment definitively on the bill since the Ad- ministration was conducting an extensive review to determine its position with respect to H.R. 1609. The Administration has completed its review and supports H.R. 1609. Pro- posed amendments have recently been submitted to you. The amendments re- flect changes to H.R. 1609 as it was originally introduced. The Administration is currently reviewing HR. 1609 as reported out by the House Interior Commit- tee. H.R. 1609 provides for Federal authority to grant certificates of public con- venience and necessity for coal slurry pipelines upon a finding that they are in PAGENO="0051" 45 the national interest. The granting of such a certificate would confer upon the project the right to seek rights-of-way by eminent domain when such rights- of-way cannot be attained by negotiation. Applicants granted certificates would be required to operate their certified pipelines as common carriers under the Interstate Commerce Act. The Administration believes that as an important part of a balanced energy program, the Federal Government should provide a regulatory framework which will allow for fair competition between vaious modes of transportation in order to achieve the efficient movement of coal, our most abundant fossil fuel. I would like to discuss briefly the elements of our energy program which are pertinent to today's hearings. The cornerstone of the Administration's energy policy is to shift as much of the energy load away from oil and gas and to coal as rapidly as possible. We an- ticipate that coal production will increase from the current rate of 670 million tons per year to better than 1.2 billion tons annually within the next decade. The magnitude of this increase will place a tremendous burden on the transpor- tation industry which must move the coal from mine to market. Presently, the railroads account for 64 percent of all U.S. coal shipments; wa- ter or barge movements account for 11 perc?nt; trucking accounts for 12 per- cent; and conveyor, tramway, and one slurry pipeline account for the remaining 13 percent. Historically, the distance from mine to consumer has been relatively short. The average train shipment for coal is 300 miles, while the average barge haul is 350 miles. However, this is changing. The distances over which coal is transported in the West are already longer than in the East, and are expected to increase. For example, it is approximately 1,600 miles from the Powder River Basin mines of Wyoming to major coal markets in Texas and Arkansas. The necessity of moving more coal over greater distances dictates the need to develop all available transportation methods to the fullest extent possible. Coal slurry pipelines are not an untried technology. The first major coal slurry pipeline in this country was built in Ohio in 1957. It was 108 miles long and had a capacity of 1.5 million tons of coal per year. A decline in unit train rates made this slurry line uneconomical, and the coal that was handled in it is now deliv- ered by rail. The coal slurry pipeline now operating between Black Mesa, Ari- zona, and a power plant in Nevada carries 4.8 million tons of coal per year a distance of 273 miles. It has operated successfully for several years. I recognize that there has been substantial debate on coal slurry legislation over the past few' years with the central issue being the granting of eminent domain" to these pipelines. The intensity of this debate has focussed on two principal concerns: 1. the competitive relationship between the proposed slurry pipelines and the railroads. 2. the availability and use of water in the Western United States where pipeline projects have been proposed. I would like to touch briefly on each of these issues. It is our view that without the ability of slurry pipelines to obtain "eminent domain" authority, an artificial barrier results which arbitrarily denies the development of this transportation mode, even whell it would otherwise be in the public interest to allow this develop- ment. This barrier does not exist for other coal transportation modes. Establish- ing a regulatory framework with appropriate safeguards will merely allow these projects to compete on an equal footing with other coal transportation modes. Such an arrangement would improve competition, not hinder it. Much of our extensive pipeline system for transporting natural gas was con- ~tructed under the pow-er of `eminent domain." Many of our electrical power line transmission systems were constructed pursuant to sinillar authority. We believe the same authority should be available for coal slurry pipelines. The creation of a regulatory framework for evaluating site specific coal slurry pipeline projects and to offer the right of eminent domain subject to certain criteria and conditions, do not suggest that any particular proposed project is deemed to be in the national interest and thus assured approval. Rather a regulatory framework for evaluating a transportation project should seek to establish a hearing record which will allow the public interest to be served. When competition between different modes of transportation is inovlved, the economic interests of the regulated carriei's and the public at large are often difficult to determine. This history of our transportation industry has shown that technology, trading patterns, and a variety of economic factors are PAGENO="0052" 46 constantly changing the comparative utility among competing transportation modes. It is essential that our regulatory framework keep pace with these changes and maintain a proper balance between the desire of the consumer for low-cost, dependable transportation and the needs of the carriers for an adequate financial return. Although we agree that in many cases it is physically possible for the antici- pated increases in coal production to l)e moved to market by rail, we believe that when an alternative mode of transportation is in the public interest, that mode of transportation should be encouraged. The recently issued study of these pipelines by the Office of TechnolOgy Assessment supports our view that the public interest would be best served if "eminent domain' authority were made available to coal slurry pipelines. The Administration recommends that the authority to issue certificates of public convenience and necessity should be placed in the Department of Energy, consistent with that Department's planned role in energy regulation, but that such certification must be preceded by concurrences from the Department of Interior and the Department of Transportation. Th~ Department of Transpor- tation concurrence would involve consideration of alternative transportation modes and impacts upon these other modes. With respect to the water issue. I believe that we are again confronted with a complex question involving important environmental and economic conse- quencies. As a former State official in Kew Mexico, a state vitally concerned with water resources, I am well acquainted with the legal precedents and regulatory framework which currently deal with water rights and usage in our Western States. These States have extensive experience, statutes and case law covering water rights. The Department of Interior's review and concurrence would be with regard to natural resources and environmental impacts in connection with rights-of- way determinations. This review would also include the pipeline's impact on water resources. We believe that this arrangement of authority among the three agencies would insure that the concerns expressed by many regarding the adverse impacts on railroads and the problem of water availability, will be substantially alleviated and that H.R. 1609. as amended by the Administration's proposals, will provide an effective regulatory framework within which to judge and decide upon coal slurry projects. We recommend your favorable consideration of legislation to grant the right of eminent domain to coal slurry pipelines and assure you of our willing- ness to work with you to enact legislation which is fully responsive to the issues and concerns associated with coal slurry pipelines. TESTIMONY OP ~OHN P. O'LEARY, DEPUTY SECRETARY, DEPARTMENT OP ENERGY Mr. O'LEARY. Mr. Chairman, thank you very much for making this~ opportunity available and for incorporating my prepared statement. in the record. I would like to very briefly augment the prepared state- * ment, if I may. first noting that we do flow have administration amend- ments. They have been submitted to the committee and are reflected in the testimony that was prepared for my appearance before you this~ afternoon. Mr. Chairman, we are here representing the administration in sup- port of coal slurry pipelines for one reason, and one reason only Because they have at least the potential for reducing cost to con- sumers of electric power. and for other products of our economy.. We do not have any particular brief for any of the projects that are now being discussed. As a matter of fact, any of the projects that are now being discussed ~mc1er the terms of this bill would have to come through i~ full litigated proceeding before they could be passed upon. But it seems to me that one of the ke~ characteristics of the last. PAGENO="0053" 47 8 or 10 years with re~garcl to energy has been the narrowing of options, and what is before the Congress here is the opportunity for a change to open up options. * Now, there is a lot of concern, I think, with regard to several points, Mr. Chairman. First of all, there is concern with regard to the impact of the railroads. I agree with Congressman TJdaU and with Con- gressman Wright in their assesstment that there is going to be plenty of business for everyone. I think that particularly with the safeguards that are incorporated with the administration's amendments, that that should not be a concern of this committee. Second, there is substantial concern over water. Now, I want you to understand, Mr. Chairman, as I am sure you do, that we are deal- ing here not simply with rights of the Federal Government that are allocated by the Federal Government or by State governments, but, in a very large sense, with property rights. I think for us now to make an intrusion into a system that has been built up over the last three generations in the West for handling water disputes and for assessing priorities or water use would be really biting off more than, at this moment in time, at least, we should chew. It seems to me, particularly from my recent experience in the State of New Mexico-which is, of course, one of the most water-short of all of the Western States-that the machinery in being in the West iiow is sufficient to take care of this and to safeguard all of the interests of the people of these affected States. There is also a question with regard to water quality. As was pointed out earlier by Mr. Peterson, the Uepartment of Energy is conducting research, taking a look at the sort of things that may occur in-and I want to repeat his word-the anaerobic-that is to say, oxygenless-. environment of a pipeline. We do not think they are going to be serious, but the safeguard here is that in order for the water to be discharged, it must receive from EPA a discharge permit. And I believe that that provides adequate safeguards for the public interest. With regard to cost, however, which is our primary concern, Mr. Chairman, we are going to see a wholesale conversion of the current electric base, which is natural gas in the Southwest, to coal over the next 15 years, or thereabouts. Indeed, if the conference report that will hopefully be before the Congress, dealing with the National Energy Act, ultimately becomes law, the southeastern utilities will be required to leave natural gas by 1993. it seems to me, in these circumstances, Mr. Chairman, that. we should do everything in our power to assure that consumers have the lowest possible cost of conversion when they go to alternative fuels. We are concerned, similarly, with the continued reliance by the utility industry of the United States upon imported oil. And, here, I must tell you, Mr. Chairman, that I disagree with the OTA assessment that the capability of construction and operation of coal slurry pipe- lines will have no impact on the rate of expansion of coal supplies in this country. Coal will expand as is economically feasible, and to the degree that the economics are not present, coal will not be utilized and we will remain with the reliance that we now have on petroleum. We are seeing that already in the northeast, and I think we will see it in the southwest, as well. * * PAGENO="0054" 48 So, Mr. Chairman, I think that from every standpoint, particularly with the safeguards that the coimnittees have put into the bill and with the additional safeguards that the administration is recommending, that you can pass this piece of legislation; open up a new option; do yeoman's service for the consumers of electrical energy and of other industrial products of this country, and will have done a good day's work. Thank you, Mr. Chairman. I would be glad to answer any questions you have. Mr. HOWARD. Thank you, Mr. O'Leary. The basic thrust of the testi- mony that was submitted would be to make the Department of Energy the lead agency in the certification process, with the concurrence of the Departmeimts of Interior and Transportation. Of course, when we look at this whole package, it is energy. Mr. O'LEARY. Yes, it is. Mr. HOWARD. It is business. Mr. O'LEARY. Energy. Mr. HowARD. Environment. Mr. O'LEARY. Dominantly energy, Mr. Chairman. Mr. How~um. Transportation. Mr. O'LEARY. Dominantly energy. Mr. HOWARD. Dominantly energy, over transportation-a coal pipe- line. Mr. O'Lr~&imr. Mr. Chairman, about the same relationship to trans- portation that a natural gas pipeline has, or an oil pipeline has-spe- cial purpose, not general purpose transportation facilities, and in the case of the regulatory activity of relating to both oil and gas pipelines, they are now lodged, by your act of Congress, in the Department of Energy. Mr. HOWARD. It seems to me that moving something is pretty much transportation. You would have it with your certification and the con- currence of Interior and Transportation; that would mean that if you wish to certify something, Interior and Transportation may endorse it. If you do not wish, originally, to certify something, then nothing can happen? Mr. O'LEARY. That is correct. Mr. HoWARD. That is all I need to know. The gentleman from Pennsylvania, Mr. Shuster? Mr. SHU5TER. Thank you. That means that you should, with the same logic, regulate coal trucks. `Mr. O'LEARY. No, Mr. Shuster. You will find that that is a matter that is done largely at the State level. Mr. SirnsTER. Well, the Interstate Commerce Commission regulates trucking to some extent. Mr. O'LEARY. To some extent, when it is in interstate commerce and, of course, that is because trucking is a general purpose proposition. The predicate that I rely on here, Mr. Shuster, is the recent Organic Act of the Department of Energy that took the Interstate Commerce Commis- sion's responsibilities with regard to oil pipelines, and the FPC respon- sibilities with regard to another special purpose type of pipeline- that is to say, natural gas pipelines-and lodged both of those sets of responsibilities in the new Department of Energy. PAGENO="0055" 49 Mr. SHITSTER. Then the Department of Agriculture should regulath the movement of unprocessed foodstuffs. Mr. O'LEARY. Mr. Shuster, I do not follow that logic, but I do think that the recent- Mr. SHtrSTER. It is your logic; it is not ours. Mr. O'LE~&ny. No. It is your logic, Mr. Shustei~. You are the ones that recently passed the Organic Act fOr the Department of Energy. Mr. SHUSTER. Thank you. Mr. }IowAiu~. The gentleman from Louisiana, Mr. Breaux. Mr. BREAUX. The gentleman Mr. BREAUX. Thank you, Mr. Chairman. Thank you, Mr. O'Leary, for yOur testimony. I think one of the supreme ironies of the whole thing is that we are debating construct- ing a coal pipeline to bring coal from Montana to the South, and we in the South are sending natural gas from Louisiana back to Montana for them to use up there. It seems like we are missing something along the way. Be that as it may, one of the sections in the bill that gives me a great deal of concern is section 5(d), subsection (3) (A), which prohibits a certificate frOm being granted to any carrier which controls, or is controlled by, or is under common control with any person which uses or will use coal transported by the carrier, or which supplies coal to the pipeline. I take that very simply to mean that anyone who is going to use the end product cannot participate in owning, or building, or construct- ing in any way the pipeline. To me, that does not make any sense. It seems like we are saying it is all right for Sears, Roebuck to build a pipeline, but heaven forbid, an oil company or utility company which might be using the product to have any participation whatsoever in building it. To me, that does not make any sense whatsoever, unless there is some other reason for that principle. Can you explain it to me? Mr. O'LEARY. I am sorry, Congressman; I cannot explain the origin of this language. It is precedential; that is to say, I do not know of any precedent for it. For example, in the highly regulated natural gas transmission business, there is no such requirement. In many cases, you do find that the owning company is both the consumer and the producer of the gas. It seems to me that as long as you have the strong regulatory input over rates that are incorporated in the Natural Gas Act, that that has not done violence to the system. Mr. BREAUX. Does the Department of Energy support section 5(d) (3) (A), or would you prefer or recommend that it be modified or de- leted? Do you have a position on it? Mr. O'LEARY. Mr. Breaux, we do not have a position on it, but I would be more than pleased to study this carefully and provide a view for the committee. In my own very quick reading of it, it seems to me that it places unnecessary constraints on the system, but I would like to give it a little more consideration. Mr. BREAUX. Is it your testimony, also, that as far as you know, there is no other section of our Government in which we are in charge of regulating any aspects of development whatsoever, where a pro- hibition of this type exists? PAGENO="0056" 50 Mr. O'LEARY. Commodity clauses are not unique. This is, in effect, a commodity clause, and they do arise with regard, particularly, to the Mineral Leasing Act of 1920, as I recall it, relating coal-producing activities to common carrier railroads. But I know of no other direct precedent and, indeed, this would seem to be going in the face of precedent in the natural gas case, which I regard as analagous, that I just described. Mr. BREAUX. I would hope the committee would take a very seri- ous look a.t it, because I think we would end up losing people who would be interested in constructing a pipeline, if this section were to remain in the bill. The last point I want to make is that we talked. to Congressman Roncalio about the water rights questionS and it seems to me that the amendment which the committee has adopted would prohibit the Secretary from issuing any ce.r~ificate for a project to be started if it would have a~ severe adverse impact on the water table. It seems like it goes further than just a water table in a particular State, but it could include surroimding areas and surrounding States. I am wondering if, in trying to~ protect the water rights of the States, we do not create a situation where we could have perhaps one State even objecting to the lessening of the water table in an adjoining State. I think we are opening the gates to a great deal of litigation. I was wonderina how you feel about that section. Mr. O'LEARY. Well. again, we have not focused on this to the point where there is an administration position, but I think that you oup:ht to seek the advice of the TJ.S. Geological Survey with regard to the ramifications of this before you place it into law. This would aI?pear to me, on the face of it at least, to be a fairly far-reaching measure; one that., again, is not employed for alternative uses for water. I think it is important that we note here that we are applying, in these sorts of conditions, requirements for coal slurry pipelines that slmpiy do not apply to the multitude of other industrial uses of water. It may be that there is a philosophical point there that you would like to address, as well. At any rate, I would urge that you seek some advice from the USGS with regard to their capacity to meet the mandate that is called for in this language. Mr. BREAUX. Thank you. Thank you, Mr. Chairman. Mr. HOWARD. The gentleman from Minnesota, Mr. Stangeland. Mr. STANGELAND. Thank you, Mr. Chairman. Just one question regarding water rights: In the area of geological survey, where it is determined that aquifer lies under two States and one State grants rights so that pumping is done in that State, what re- course does the other State have if it chooses not to have water Pumped out of that aquifer? Mr. O'LEARY. I will give you a very imprecise answer to that, Con- gressman. Generally speaking, the old common law of rule of capture applies here. lYe have situations analagous to this in the oil business, where a surface and subsurface owner will find himself drained by the activities of an adjacent owner or lessee. In that case, the protection is simply to drill a. hole to offset. I believe that we are finding very much this same sort of situation in the Southwest, where some aquifers do ç~ioss State lines and, here, PAGENO="0057" 51 there is not a well develoi~ed body of law, although it is being devel- oped over time, as this becon'ies a more serious set of concerns for the States. I think that attempting to invoke in this particular piece. of legisla- tion a rule that might become generally applicable n'iay be. something that the committee would like to question. This is a very complex busi- ness and one that I think tha.t we should not address superficially, as may have occurred in this particular instance. Mr. STANGELAND. To clarify your answer, what you are saying is that the State that chooses not to grant the water rights would have, really, no recourse? Mr. O'LEARY. It is not really clear how this legislation would impact upon that, because the particular section in question goes on to say that nothing currently in law or in private property rights will be affected by this legislation, so far as water is concerned. Mr. STANGELAND. I have no other questions, Mr. Chairman. Mr. HOWTARD. The gentleman from California, Mr. Mineta. Mr. MINETA. Thank you, Mr. Chairman. Mr. Secretary you indicate that the pipeline system for transporting natural gas and the electrical power transmission systems were con- structed under eminent domain. Was that under Federal or State emi- nent domain? Mr. O'LEARY. It is under Federal statute; it is under the Natural Gas Act of 1938, which empowers the Federal Power Commission to issue to an applicant a certificate of public convenience and necessity which then authorizes the applicant t.o go into a Federal court to obtain right of passage over private lands. Mr. MINETA. Now, the OTA report on coal slurry pipelines had indi- cated that the development of the coal slurry industry could advance, in the absence of the power of eminent domain at the Federal level. I am wondering if the department had a chance to see that report and go through it, and whether or not you agree with that, and if that is correct, why is this bill necessary? Mr. O'LEARY. Well, I think that this is a theoretical possibility, given a great deal of time and two sets of circumstances: A series of successful court cases on the part of the applying company against the railroads, or other landowner, over whose property they would have to pass; or the passage of more or less identical legislation by a number of States. I think you would have then the equivalent~ in effect~ of what we are seeking through this particular piece of legislation. I think it is. im- portant, however, for ~s to think about two elements here: Time. and cost. That probably wollld be a more costly procedure, in the event that the court suit route were chosen and States were not to provide emi- nent domain. And, certainly, from the standpoint of time, if we wai.t upon the States, each on its own timetable, to pass appropriate legislation~ the closure is indefinite. So, although the OTA observation is probably at least theoretically accurate, as a practical matter. I think if we wish to move ahead in this business, we should be doing it with a statute very much like H.R. 1609. Mr. MINETA. Fine. Thank you very much. . PAGENO="0058" 52 Mr. HowA~n. The gentleman from Georgia? Mr. LEVITAS. Thank von, Mr. Chairman. Mr. Secretary, on page 2 of your testimony, you state that you antici- pate within the next decade that the current rate of coal production will increase from 670 million tons per year to better than 1.2 billion tons annually. First of all, are those. the estimates which are contained in the energy legislation now pending? Mr. O'LEARY. These are the NEA estimates, Mr. Levitas. Mr. LEVTTAS. Now. if that is the case, and given the information that you provide, on the next page about the percentage of coal shipped through various modes at the present time, do you have any estimate, first of all, of how many more coal cars would be needed to carry this increased tonnage, and is it likely tha.t that can be supplied through the rail system? Mr. O'LEARY. I think that there is no question about the capacity of American industry to make the necessary number of railcars and loco- motives, a.nd fix up the railroads, and make the overpasses that are going to be required to ga.in public acceptance of this in this sort of a time frame. However, it is not going to be free. It is going to be a very, very expensive undertaking. And, again. I want to emphasize the point that I have been making time and time again. Our interest here is not in advancing one mode of transportation over another; it is getting costs to consumers down to the point where they are optimal. It seems to me that if we deny one mode of transportation which has, in at least some circumstances, an inherent advantage, then we are simply saying to consumers, "You are going to have to pay more for your energy." For example, in taking a look at the OTA analysis, in the four cases that they have chosen~ there are two adverse cases for coal slurry and two favorable. The net favorable balance from that rather random sample is $100 million a year of savings to consumers. Although I know that tha.t is not definitive, it seems to me it is something that we ought take quite ~eriousIy. If there is the pos- sibility of significant savings, without doing violence to other very im- portant elements-the existing transportation system, environmental concerns, water rights in the West, and the rest of it-then we ought to establish the predicate for taking advantage of those economies. Mr. LEVITAS. I am going to return to that point in just a moment, because I think it is very important. But in your prepared testimony, the adnnnistration recommends that the public convenience and ne- cessit.y certificates should be issued through the Department of En- ergy, rather than through the Department of Transportation. My initial reaction is that the Department of Transportation-we are ta.lking about a transportation mode-that it would be more rea- sonable for that to be the site of this. I would like you to comment on that, and on whether you have some idea what agency or com- mission within DOE would have this responsibility. Mr. O'LEARY. The genesis for this recommendation flows from the final resolution of the same or related questions in the debate that led to the passage of the Department of Energy Act. In the course of PAGENO="0059" 53 that act, responsibilities for oil pipelines that ~were in the Interstate Commerce Commission-~the principle responsibilities were vested in the Department of Energy. Mr. LEVITAS. I am familiar with that; it came through my Gov- ernment Operations Committee and I remember that particular point. Mr. O'LEARY. And you will recall that in the same piece~ of legisla- tion, the FPC responsibility for the other special purpose type of transportation system that we have in this country, natural gas pipe- lines, was, with all of its other regulatory responsibilities, placed in the Department of Energy. This bill follows that predicate on precisely the same grounds, and I assume that the Secretary would assign responsibility to FERC for most of the administration of the act. Mr. LEVITAS. Now, just one final point, and it is what you referred to in your prepared remarks where you speak of the framework which will allow for fair competition between the various modes of transportation. I think the key word there is "fair." In the statement of Governor Peterson, he touches upon the regula- tory disparity. What are the elements of fairness that you see in this legislation, keeping in mind the fact that we all believe that a national rail transportation system is vital to our economy and our national security? Would the imposition of this new mode of transportation, in the absence of some fairness, lead to the further economic deterioration of the rail system? Mr. O'LEARY. No, I do not think so. I think that what we are going to find, first of all, because the absolute volume of coal moved by the railroads will go up appreciably under almost any set of circum- stances over the next 10 or 15 years and, second, the length of a haul which now averages something in the range of 300 miles will go up appreciably, as well, that the total ton miles carried by the railroads of coal, under any conceivable set of circumstances, will rise and con- tinue to rise, so long as we continue to rely, as I think we will for the remainder of this century, on coal as the base fuel. The question then becomes one not of injuring the existing trans- portation industry, I think, because it quite evidently will be bene- fited by that, everything else being equal. It becomes our key concern for cost to consumers in this country. Now, the mechanism in which this fairness will be assured is spelled out in the act; that is to say, a full adjudicatory hearing where all sides can make their presentations will be a requirement. And I am quite sure that FERO is not going to take an action, given the legis- lative history surrounding this bill, that would `be in any way mimi- cable to the railroad or other transportation industries. And further safeguards are in the bill, as a result of the adminis- tration's amendment, that require concurrence from the Department of Transportation. Mr. LEVITAS. Thank you, Mr. Secretary. Thank you, Mr. Chairman. Mr. HOWARD. Thank you very much, Mr. O'Leary. Mr. O'LEARY. My pleasure, Mr. Chairman. Mr. HowARD. The Chair would like to announce that the hearings are extensive. We have a nun~ber of persons who are going to testify. PAGENO="0060" 54 The subcommittee did get a very late start today, hence, we do not believe that we can complete hearing all of the witnesses that are scheduled for this afternoon. Rather than have many of them who are located, to: a great degree, in Washington waiting around, the Chair would announce that we will, this afternoon in these hearings, hear from Mr. Chester Daven- port, the Assistant Secretary of Transportation for Policy and In- te.rnat.iona~l Affairs, and we will hear from Mr. George W. Oprea. ex- ecutive vice president of Houston Lighting and Power Co., who has come from Houston for these hearings. The hearings will continue immediately upon the return after the Easter recess, 10 days from now. If there are any additional people who are not listed to be heard today, they will so inform the Com- mittee on Public Works and Transportation, and we will be happy to hear their testimony in the continuation of these hearings. But we do not wish to have people wait around for a long period of time, only to find out that we could not get to them today, due to the circumstances with which I am sure you are all familiar. So, the Chair makes that announcement for their information. The next witness before the subcommittee is Mr. Chester Daven- port, Assistant Secretary of Transportation for Policy and Interna- tional Affairs of the Department of Transportation. Mr. Davenport, we are very grateful for your appearance today. 1\Te wish to thank you for your patience in waiting. We have your prepared statement which, without objection, will be made part of the record at this point. [The following was received for the record:] STATEMENT OF CHESTER DAVENPORT, ASSISTANT SECRETARY FOR POLICY AND INTERNATIONAL AFFAIRS, DEPARTMENT OF TRANSPORTATION Mr. Chairman end Members of the Subcommittee: I am very pleased to be here today to testify on H.R. 1609, "The Coal Pipeline Act of 1978," as reported by the House Committee on Interior and Insular Affairs. The Administration agrees with the Interior Committee that there is a need for legislation to estab- lish a certification process which will ensure that eminent domain authority is granted to facilitate the construction of only those pipelines which are consisteiit with national energy, transportation, environmental, economic and social policy. As I indicated in testimony on February 7 before the Subcommittee on Trans- portation and Commerce of the House Interstate and Foreign Commerce Commit- tee. recent studies by the Department of Transportation and by the Office of Technology Assessment indicate that national efforts to increase the use of coal as an energy source would not be slowed down by a lack of coal transporta- tion capacity. Particularly, the capacity of rail systems to carry coal can he expanded more rapidly than can demands which might be generated by in- creased coal mining or coal-fired electric power generation, provided the neees- sary investments are made in local rail facilities. The industries which supply necessary equipment as well as capital markets are adequate to meet the needs of either mode-rail or slurry pipeline. Thus, sufficient investment in either mode can keep transportation capabilities abreast of foreseeable needs. Titus, any choice made between these modes will not be determined by considering respective capacity limitations, hut by considering whether rail or pipeline investment makes the most sense economically, environmentally and socially in any given situation. One of the questions of primary concern to the Department of Transportation is whether investment in a particular mode of coal transportation makes sense economically. Whether slurry pipelines should be constructed depends. of course, upon the availability of existing alternative transport modes in areas u-here pipelines are proposed, the cost of alternative modes, and the potential impacts of slurry pipelines on competing modes. PAGENO="0061" 55 Concerning cost comparisons, our reviews of cost estimates from various stud- ies indicate that questions concerning the comparative costs of the rail and slurry pipeline modes do not lend themselves to generalized answers. Our analyses point to the need for route-specific cost comparisons, taking into account factors such as the size and geographic spacing of mines supplyiiig the pipeline, the volume of coal to be transported, and the distance over which coal is to be moved. In addition, the terrain, soil conditions, land use, and any major water crossings along the route must be considered, as well as water availability, and the number of customers to receive coal from one pipeline. On the question of the potential impact of slurry pipelines on competing car- riers, the key issue is what effect the diversion of coal traffic would have on the financial viability of competing rail or water carriers, and the extent to which such financial impact would affect the shippers of commodities other than coal. We believe that this question must also be considered in the context of route- specific examinations. It should be noted that such financial analyses will always have to be made in the context of those rail rate regulatory practices that are in place at the time of a particular slurry pipeline project application. In recognition of the route-specific nature of the trade-offs between slurry pipeline and rail transport of coal, the Administration supports HR. 1609, with certain Administration-proposed amendments, which assure that necessary transportation analyses are undertaken before a proposed slurry pipeline is granted eminent domain authority. The Administration proposes that the authority for granting the power of eminent domain be placed in the Department of Eiiergy. DOE would evaluate the applications of prospective pipeline operators on a case by ease basis. Be- cause the issues involed in coal slurry pipeline decisions--energy, trans- portation, environmental, economic and social-are not matters on which DOE has all necessary expertise, the Administration believes that, while the authority to issue certificates of public convenience and necessity should be placed in DOE, such certification must be preceded by concurrences from the Department of Transportation and the Department of the Interior as to matters within the purview of those agencies. The review and concurrence by the Department of Transportation would in- volve consideration of the availability of alternative modes, the comparative costs of alternatives, and the impacts of coal slurry pipelines on other modes of transportation. The review and concurrence by the Department of the Interior would involve natural resource and environmental impacts, including a pipe- line's impact on water resources, in connection with reiew under the Mineral Leasing Act for right-of-way determinations. Regarding the transportation issues, the Interior Committee has added two items to the list of findings which must be made before eminent domain authority can be granted to a proposed pipeline project. New section 5(b) (5) requires findings on the extent to which a proposed slurry pipeline project "would be likely to impair the financial integrity of other common carrier modes of transportation or the level and type of transportation services any such mode is able to offer." New section 5(b) (6) requires findings on the extent to which the project "will be likely to result in lower rates for the transportation of coal than would be in effect if such coal were transported by a common carrier by railroad under Part I of the Interstate Commerce Act." These findings are in addition to those required in Section 5(b) (1) of the original bill, concerning "alternative routes or means of transporting coal and the relative costs of such alternatives means." However, although the Interior Committee has indicated that there is a need to address transportation issues before certifying proposed coal slurry pipeline projects, we do not believe that the Committee's bill sufficiently provides for consideration of relevant transportation issues by the agency with appropriate expertise. First, the Interior bill (section 6(e)) requires that the Secretary of the Interior merely request that the Secretary of Transportation make recommnen- dations concerning only one of the three transportation findings required by the bill, regarding the impact of the proposed pipeline on other modes of transporta- tion. As drafted, the bill leaves the Department of the Interior with responsibility for making the other transportation findings. By contrast, the Administration's version of H.R. 1609 would place transportation responsibilities within the Department of Transportation. We do not believe that the Interior Committee's operative provision (section 6(e)) sufficiently assures that findings on transportation issues (section 5(b)) will be thorough or that those findings will be. given adequate weight in the PAGENO="0062" 56 certification process. Therefore, we support the Administration version of HR. 1609 which would require the concurrence of the Secretary of Transportation on all matters of transportation economics. We feel that this is needed to assure that full weight is given to transportation issues in the certification process. We also wish to bring to the Subcommittee's attention an apparent drafting error in section 5(e) of the Interior Committee version. The Interior Committee report indicates (at page 25) that section 5(e) is intended to require pipelines subject to this legislation to give easements over their routes to other such pipe- lines. As drafted, this provision inadvertently affects railroads as well, and would subject railroads to additional burdensome requirements whenever they apply to the ICC for authority to discontinue or extend rail service. Lastly. for the benefit of the Subcommittee, I have attached to my statement a copy of the Administration's version of H.R. 1609. In this attachment, under- lined words represent Administration-supported amendments to HR. 1609 as introduced. I have also attached for the Subcommittee's benefit a separate list of those underlined items. That list was also drafted in reference to H.R. 1609 as introduced. Thank you for the opportunity to present our views on coal slurry pipeline legislation. The Department is strongly committed to assuring the national transportation system's ability to move the greatly increased volumes of coal projected by the mid-1980's and beyond, and we stand ready to work with all interested parties in striving to achieve our national energy goals. I will do my best to answer any questions you may have. [HR. 1609, 95th Cong., 1st sess.] A BILL to amend the Mineral Leasing Act of 1920, and for other purposes Be -it enacted by the Senate and Honse of Representatives of the United States of America- in Congress assembled, That this Act may be cited as the "Coal Pipeline Act of 1.978". DEFINITIONS SEc. 2. As used in this Act- (a) "carrier" means any carrier of coal (but not `includmg synthetic oil or gas derived from- coal) by coal pipeline that is subject to any of the provisions of this Act; (b) "Department" means the Department of Energy; - (c) "Secretary" means the Secretary of the Department of Energy; (d) "right-of-way" includes necessary laud or other property for the location of pipelines, pumping stations, pressure apparatus tanks, or other stations, equipments, or appurtenances required for the proper operation of a coal pipe- line or pipelines; and (e) "control" is defined as provided in the Interstate Commerce Act, 49 U.S.C. §1(3) (b). RIGHTS-OF-WAY ON FEDERAL LANDS SEc. 3. (a) Subsection 28(a) of the Mineral Leasing Act of February 25, 1920, as amended by the Act of November 16, 1973 (87 Stat. 567), is further amended by inserting the word "coal" between "natural gas," and "synthetic". (b) (1) Section 501 (a) (2) of the Federal Land Policy and Management Act of 1.976, (43 U.S.C. § 1761 (a) (2)), is amended by adding the word "coal", after the words "oil, natural gas," and before the words ". . . synthetic liquid or gaseous fuels . . ." (2) Section 501 (a) (3) of the same Act `is amended by adding after "emulsion systems." the words "otliei than with respect to coal". (c) Evcept as provided in Sections 3(a) and (b) and 5(b) (2) nothing in this Act shall affect the authority of the Secretary of the Interior or other agency head -under Sect-ion 28 of the Mineral Leasing Act of 1920, as amended, (30 U.S.C. § 185). the Federal Lands Policy and Management Act of 1976, or any other Act with respect to issuance of rig/its-of-way over Federal lands. - EMINENT DOMAIN - SEc. 4. (a) Except as provided in subsection (b), when any carrier cannot acquire by negotiation the right-of-way required to construct, operate, and main- tain any proposed coal pipeline or pipelines, such carrier may acquire the same - by the exercise Of the power of eminent domain in the district court of the United PAGENO="0063" 57 States for the district in which such property is located or in the courts of the State in which such property is located. (b) The power of eminent domain shall not be exercised to acquire (1) lands or any interest in land owned by the United States or by any State, or (2) lands or any interest in land held in trust by the United States for an Indian or Indian tribe. (c) Nothing in this section shall be construed to permit acquisition of any right to use or develop water through the exercise of the right of eminent domain. CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY SEC. 5. (a) The power of eminent domain granted pursuant to this Act may be exercised only by a carrier holding a certificate of public convenience and neces- sity issued by the Department. The Secretary is authorized to issue such a cer- tificate if the Secretary finds, subject to the concurrenees required by Sec. 5(b), with respect to the particular project of the carrier as to which said power is sought, that the project is in the national interest and provides the capacity necessary to fulfill the requirements of a common carrier of coal, as determined by the Secretary. In addition to other factors customarily considered in deter- mining common carrier status in the case of pipeline common carriers, the Sec- retary shall consider contracts for the carriage of coal which are in existence or proposed as of the date of the application for certification and may also con- sider such contracts for such carriage as may reasonably be anticipated, at the time of issuance of the certificate, to be entered into after such date. In determin- ing the size of the pipeline to be certificated, the Secretary shall take into ac- count the resultant cost to ultimate consumers of services or products affected by such transportation. (b) (1) The Secretary shall not issue a certificate as provided in Sec. 5(a) sin- less he has obtained the concurrence of the Secretary of Transportation with respect to finding 5(c) (1) below, and the concurrence of the Secretary of the Interior with respect to the finding required by 5(c) (~~) below. Decisions regard- ing such concurrences shall be transmitted to the Secretary within a reasonable period of time. (2) Section 28(h) (2) of the Mineral Leasing Act of 1920, as amended (30 U.S.C. § 185(h) (2)), shall apply to any lands or interests in lands required for a coal pipeline right-of-way any part of which is to be acquired by eminent domain pursuant to this Act, and shall be administered by the Secretary of the Interior. Issuance of rights-of-way through Federal lands under Section 28 of the Mineral Leasing Act, as amended (30 U.S.C. § 185) and administration of the requirements of Section 28(h) (2) with respect to non-Federal lands shall be coordinated with the review of the Secretary for his certification to assure con- sistency in timing and to avoid duplication. (e) In making the findings required in (a) of this section the Secretary shall consider and make findings on the extent to which the project- (1) would help meet national needs for coal utilization, considering alternate means of transportation of coal and the relative costs of such alternative means, and impacts upon other means of transportation; (2) may be impeded or delayed unless granted the power of eminent domain; (3) involves disruption to the environment as compared with disruption from other routes or modes of transportation or other methods of utilization of the coal resources involved; and considers the balance between the energy needs of the area to be benefited by the project and the impacts on the areas from which the coal is to be transported. (4) will not cause serious or otherwise unacceptable adverse impacts on the lands, waters, and other natural resources affected by the pipeline, including consideration of the requirement of See. ~5(d). The Secretary's findings as to whether a project is in the national interest shall be based on the record as a whole taking into consideration each of the findings required by this subsection. (d) No certificate shall be issued unless the Secretary of the Interior has obtained an adequate assuranOe from the Governor or other appropriate State authority of the State from which the water would be diverted or withdrawn that all necessary rights to the use of waters under State jurisdiction necessary for the purposes stated in the application have been acquired in conformance with applicable State laws and procedures. (e) The Secretary shall require as a condition of issuance of a certIficate or convenience and necessity under this Act that any pipeline for which such PAGENO="0064" 58 certificate is issued be constructed, operated, and maintained as a common car- rier as provided in the Interstate Commerce Act. Any violation of such conditions shall be enforced as provided in such Act, and nothing in this paragraph shall be construed to limit, impair, or otherwise affect any provision of such Act. (f) (1) No coal slurry pipeline subject to Part I of the Interstate Commerce Act shall transport any coal mined by it or under its authority or which it may own in whole or in part, or over which it may have any control, direct or indirect. (2) The prohibition contained in subsection (f) (1) shall not apply to the construction, ownership, and operation of a feeder line for the purpose of gaining access to a coal pipeline by any person who would otherwise he ineligible if- (A) the carrier has declined a formal request to construct, own, and operate the feeder line; (B) the owner of the feeder line will operate the line as a common carrier for any excess capacity in the feeder line; and (C) the Secretary has determined that an exemption from subsection (f) (1) is in the public interest. (3) (A) No coal slurry pipeline snbject to Part I of the Interstate Commerce Act shall be controlled by, or shall be under common control with any person which uses or will use coal transported by the carrier or which supplies coal to the pipeline and (B) no carrier granted the power of eminent domain under this Act may control, be controlled by, or be under common control with any such person. (4) The penalties and enforcement provisions of section 8 shall not apply to this subsection, but whenever, on the basis of any information available to the Secretary, the Secretary finds that any carrier or other person is in violation of paragraph (1) or (3) (B), the Secretary shall notify such carrier or other person. If such violation extends beyond the thirtieth day after the date of such notice, the Secretary shall, after notice and opportunity for hearing, issue an order re- quiring such carrier or other person to comply. Failure to obey any such order shall be subject to the same penalty as provided for in section 16(8) of the Inter- state Commerce Act (49 U.S.C. 16(8)). (g) No certificate of public convenience and necessity may be issued to any person engaged as a common carrier in interstate transportation of coal by any mode unless such person has entered into a compact with the Secretary prior to the issuance of a certificate providing means whereby rights-of-way across the lines of such person may be acquired by a carrier on terms customarily employed with reference to other types of pipeline. Any Federal court of competent jurisdic- tion may entertain a suit by an interested party to enforce the provisions of such compact. (h) If the Secretary determines, in the course of the consultations and findings required by subsection (c) or the bearings required by section 6 that the project right-of-way may be utilized for additional uses compatible with operations of the project line, the Secretary may, in his discretion, require as a condition to the grant of a certificate of public convenience and necessity that the particular project right-of-way be subject to such compatible uses. (i) The Secretary shall require the additional use described in subsection (it) only if he by rule (1) finds- (A) the additional use is a compatible use, and (B) conditioning the issuance of the certificate upon the availability of the right-of-way for the additional use is in the public interest, and (2) establishes reasonable provisions for ~e payment of compensation for the additional use to the person otherwise entitleti to the exclusive use. PROCEDURE SEc. 6. (a) Applications for a certificate of public convenience and necessity under this Act shall be filed with the Department pursuant to such regulations as it may prescribe. Each carrier applying for a certificate shall reimburse the Department for administrative .and other costs incurred in processing the applica- tion as the Secretary shall prescribe. (b) A certificate authorized by section 5 may be issued only after public notice and public hearings in accordance with this section. (c) The carrier shall publish, in accordance with regulations promulgated by the Secretary, a notice that is has filed an application for a certificate of public convenience and necessity under this Act in a newspaper of general circulation PAGENO="0065" 59 in each county in which the project will be located. The notice shall, among other things, specify to the greatest extent practicable the land which would be subject to the power of eminent domain. (d) The Secretary shall publish in the Federal Register a notice of the receipt of each application under this Act. (e) The Secretary shall hold at least one public hearing in each State in which the project involved will be located. Any interested person may present relevant material at any hearing. After all hearings in each State are concluded, the Secretary not hwithstanding Section 402(d) o fthe Department of Energy Organi- zation Act (Pub. L. 95-91) shall conduct at least one public, formal adjudicatory hearing in accordance with the provisions of section 554 of title 5, United States Code, in the District of Columbia at which the Environmental Protection Agency shall, and other Federal, State and local agencies may, participate. ANTITRUST REVIEW SEC. 7. (a) The Secretary shall not issue any certificate pursuant to section 5 of this Act unless it has received the advice of the Attorney General of the United States that such action would not create or maintain a situation incon- sistent with the antitrust laws. Any advice under this subsection shall be rendered within a reasonable period of time, but in no event to ewceed 180 days af tar the views of the Attorney General have been solicited by the Secretary. The issuance of a certificate under this Act shall not be admissible in any way as a defense to any civil or criminal action for violation of the antitrust laws of the United States, nor shall it in any way modify or abridge any private right of action under such laws. (b) (1) Nothing in this section shall be construed to bar the Attorney General or the Federal Trade Commission from challenging any anticompetitive situation involved in the operation of a coal slurry pipeline. (2) Nothing contained in this section shall impair, amend, broaden, or modify any of the antitrust laws. (3) As used in this section, the term "antitrust laws" includes, but is not limited to, the Act of July 2, 1890, as amended; the Act of October 15, 1914, as amended; the Federal Trade Commission Act (15 U.S.C. 41 et seq.) ; and sections 73 and 74 of the Act of August 27, 1894, as amended. ENFORCEMENT AND PENALTIES AND JUDICIAL REVIEW SEc. 8. (a) At the request of the Secretary the Attorney General may institute a civil action in The district court of the United States for the district in which the affected operation is located for a restraining oi~der `or injunction or other appropriate remedy to enforce any provision of this Act, any regulation or order issued under the authority of this Act or any provision of the Interstate Com- merce Act applicable to coal slurry pipelines. (`b) If any carrier shall fail to comply with any provision of this Act, any regu- lation or order issued under the `authority of this Act or any proviston of the Inter- state Commerce Act applicable to coal slurry pipelines, `after notice of such failure and expiration of any period allowed for corrective action, such person shall be liable for a civil penalty of not more than $5,000 for each and every day of the continuance of such failure. The Secretary *may asses's and collect any suc'h penalty. S (c) Any person who knowingly and willfully violates any provision of this Act, `any regulation or order issued under the authority of this Art or any provision of the Interstate Commerce Act applicable to coal slurry pipelines or makes any false statement, representation, or certification in any application, record, report, plan, or other `document filed or required to be maintained un'der thi's Act shall, upon conviction, he punichod by a fine of not more than $10,000, `or `by imprison- ment for no't more th'an `six taonths, or both. S S S (`d) Whenever a carrier violates `any provision of this Act, any regulation or order issued under the authority of this Act or any provision of the Interstate Commerce Act applicable to coal slurry pipelines, `any director, officer, or agent of such corporation or entity who authorized, ordered, o'r carried out such violation shall 1e subject to the `same fines or im~risonmen't as provi'ded for un'der sulsec- tion (c) of thus section. S (e) Petitions `for judicial review, shall be filed in the court of appeals of the Un'ited States for the circuit in which the pipeline's originating point of coal transportation is lodated. 32-745 0 - 78 - 5 PAGENO="0066" 60 CONSTRUCTION OF LAW SEC. 9. Nothing in this Act shall be construed- (1) as affecting in any way any existing law governing appropriation use, or diversion of water, or any Federal, State, Indian, or private right to water; (2) `a's expanding or diminishing Federal or State jurisdiction, responsibility, or interests in water resources development or control; (3) as displacing, superseding, limiting, or modifying any interstate compact or the jurisdiction or responsibility of any legally established joint or common agency of two or more States or of two or more States and the Federal Govern- ment; or (4) as superseding, modifying, or repealing except as specifically set forth in this Act, existing laws applicable to the various Federal agencies which are authorized to develop or participate in the development ef water resources or to exercise licensing or regulatory functions in relation thereto. REGULATIONS SEC. 10. The Secretary is authorized to promulgate, after receiving the con- currences of the Secretary of the Interior and the Secretary of Transportation, such rules and regulations as he deems necessary to carryout the purposes of this Act. Such regulations are to be promulgated no later than one year after the effective date of this legIslation. UNDERGROUND CONSTRUCTION SEC. 11. All coal pipelines subject to this Act shall, to the maximum extent practicable, Oonsistent with environmental protection, safety, and good engineer- ing and technological practices, be buried underground. RELATIONSHIP TO INTERSTATE COMMERCE ACT SEC. 12(a) Except where otherwise provided by this Act, the provisions of part I of the Interstate Commerce Act (24 Stat. 379) as amended (49 U.S.C. 1-40) shall be applicable to coal pipelineS Subject to this Act. (b) There are hereby transferred to the Secretary such functions set forth in the Interstate Commerce Act and such functions vested by law in the Interstate Commerce Commission or the Chairman and members thereof as relate to trans- port atiois of coal by pipeline. SEC. 13. Subsequent to two years after the date of enactment of this Act, no person shall engage in the transportation `of coal by pipeline without first obtain- lug a certificate of public convenience and necessity under sections 5 and 6 of this Act unless such person enters into a compact with the Secretary providing means whereby rights-of-way across the lines of such person may be acquired by a carrier `on terms customarily employed with reference to other types of pipeline. Any Federal court of competent jurisdiction may entertain a suit by an interested party to enforce the provisions of `such compact. SUGGESTED AMENDMENTS TO HR. 1609 Page 1, line 4-Change "1977" to "1978". Page 1, line 7-Sec. 2, substitute definition of carrier: (a) "carrier" means any carrier of coal (but not including synthetic oil or gas derived from coal) by coal pipeline that is subject to any of the provisions of this Act. Page 2, line 1-Delete Sec. 2(b) and substitute new Sec. 2(b) as follows: "Department" means the Department of Energy. Page 2, line 3-Delete Sec. 2(c) and substitute new Sec. 2(c) as follows: "Secretary" means Secretary of Energy. Page 2, lines 10-16-Delete Sec. 2(e) and substitute new Sec. 2(e) as follows: "control" is defined as provided in the Interstate Commerce Act, 49 U.S.C. § 1(3). Page 2, line 18-After "Sec. 3" add "(a)." Page 2, line 22-Add new subsections (b) and (c) as follows: "(b) (1) Section 501(a) (2) of the Federal Land Policy and ~Ianagement Act of 1976, 43 U.S.C. § 1761 (a) (2) is amended by adding the word "coal", after the words "oil, natural gas," and before the words " . . . synthetic liquid or gaseous fuels . . PAGENO="0067" 61 (2) Section 501 (a) (3) of the same Act is amended by adding after "emulsion systems," the words "other than with respect to coal". (c) Except as provided in Sections 3 (a) and (b) and 5(b) (2) nothing in this Act shall affect the authority of the Secretary of the Interior or other agency head under Section 28 of the 1~Iineral Leasing Act of 120, as amended (30 U.S.C. § 185), the Federal Lands Policy and Management Act of 1976, or any other Act with respect to issuance of rights-of-way over Federal lands." Page 3, lines 8-9-After the word "lands" in each line insert, "or any interest in land." Page 3, line 18-Section 5(a), after the word "Department" strike "of In- terior." Page 3, line 19-After the words "Secretary finds," insert "subject to the con- currences required by Sec. 5(b)." Page 4, line 11-Substitute new Sec. 5(b) as follows: "(b) (1) The Secretary shall not issue a certificate as provided in Sec. 5(a) unless he has obtained the concurrence of the Secretary of Transportation with respect to finding 5(c) (1) below, and the concurrence of the Secretary of the Interior with respect to the finding required by 5(c) (4) below. Decisions regarding such concurrences shall be transmitted to the Secretary within a reasonable period of time. (2) Section 28(h) (2) of the Mineral Leasing Act of 1~20, as amended (30 U.S.C. § 185(h) (2)), shall apply to any lands or interests in lands required for a coal pipeline right-of-way any part of which is to be acquired by eminent domain pursuant to this Act, and shall be administered by the Secretary of the Interior. Issuance of rights-of-way through Federal lands under Section 28 of the Mineral Leasing Act as amended (30 U.S.C. § 185) and administration of the requirements of Section 28(h) (2) with respect to non-Federal lands shall be coordinated with the review of the Secretary for his certification to assure con- sistency in timing and to avoid duplication." Page 4, line 11-Redesignate Sec. 5(b) as Sec. 5(c) and renumber provisions accordingly. Page 4, line 12-Delete the word "independent." Page 4, lines 14-17-New Sec. 5(c) (1) will read as follows: "would help meet national needs for coal utilization, considering alternative means of trans- portation of coal and the relative costs of such alternative means, and impacts upon other modes of transportation." Page 4-5, beginning line 24-Delete number "(4)" and combine paragraph with (3) ; also delete the words "water requirement and other", so that the paragraph reads as follows: "(3) involves disruption of the environment as compared with disruption from other routes or modes of transportation or other methods of utilization of the coal resources involved; and considers the balance between the energy needs of the area to be benefited by the project and the impacts on the area from which the coal is to be transported." Page 5, after line 2-Insert new Sec. 5(c) (4) between lines 2 and 3, as follows: "will not cause serious or otherwise unacceptable adverse impacts on the lands, waters, and other natural resources affected by the pipeline, including considera- tion of the requirement of Sec. 5(d)." Page 5, line 5-Change "criteria set forth in" to "findings required by." Page 5, line 6-Add to Sec. 5 a new subsection (d) ; and re-letter succeeding subsections accordingly: "(d) No certificate shall be issued unless the Secretary of the Interior has obtained an adequate assurance from the Governor or other appropriate State authority of the State from which the water would be diverted or withdrawn that all necessary rights to the use of waters under State jurisdiction necessary for the purposes stated in the application have been acquired in conformance with applicable State laws and procedures." Page 5, line 15-Change Sec. 5(f) (1) to read as follows: "No coal slurry pipeline subject to Part I of the Interstate Commerce Act shall transport any coal mined by it or under its authority or which it may own in whole or part, or in which it may have any interest, direct or indirect." Page 5, line 19--Change "subsection (d) (1)" to "subsection (f) (1)." Page 6, line 5-Change "subsection (d) (1)" to "subsection (f) (1)." Page 6, line 6-Change Sec. 5(f) (3) (A) to read as follows: "No coal slurry pipeline subject to Part I of the Interstate Commerce Act shall be controlled by or shall be under common control with any person which PAGENO="0068" 62 uses or will use coal transported by the pipeline or which supplies coal to the pipeline." Page 6, line 13-Amend Sec. 5(f) (4) to substitute the word "Secretary" for "Interstate Commerce Commission" or "Commision" wherever it appears in that section. Page 7, lines 4-5-Change to read as follows: "person has entered into a com- pact with the Secretary prior to the issuance of a certificate providing means" (The Administration agrees that, as intended by sections 5(e) and 13 of the bill as introduced, a mechanism be developed to expedite acquisition of rights-of-way by certificated coal pipelines. We offer here technical corrections to those provi- sions. How-ever, the Administration is continuing to review the possibility that section 5(e) of the original bill might require coal transporters other than pipe- lines to undergo unnecessary and duplicative certification procedures.) Page 7, line 12-Change "subsection (b)" to "subsection (c) ." Page 7, line 20-Change "subsection (e)" to "subsection (h) ." Page 9, line 3-Delete the words "shall hold" and substitute the following: "notwithstanding Section 402(d) of the Department of Energy Organization Act (Pub. L. 95-91), shall conduct" Page 9, lines 6-7-Delete "the Federal Energy Administration an'd" Page 9, line 10-Change Sec. 7(a) to read as follows: "The Secretary shall not issue any certificate pursuant to section 5 of this Act unless it has received the advice of the Attorney General of the United States that such action would not create or maintain a situation inconsistent with the antitrust laws. Any advice under this suisection shall be rendered within a rea- sonable period of time, but in no event to exceed 180 days after the views of the Attorney General have been solicited by the Secretary. The issuance of a certif- icate under this Act shall not be admissible in any way as a defense to any civil or criminal action for violation of the aiititrust law-s of the United States, nor shall it in any way modify or abridge any private right of action under such laws. Page 10, lines 15 and 18-Delete "or any regulation or order issued under the authority of this Act" and substitute the following: "any regulation or order issued under the authority of this Act or any provision of the Interstate Com- merce Act applicable to coal slurry pipelines" Page 11, lines 1 and 9-Delete "or any regulation or order issued under the authority of this Act" and substitute the following: "any regulation or order issued under the authority of this Act or any provision of the Interstate Com- merce Act applicable to coal slurry pipelines" Page 11, line 22-Change to read "Federal, State, Indian, or private right to water." Page 12, line 13-Change See. 10 to read as follow's: "The Secretary is authorized to promulgate after receiving the concurrences of the Secretary of the Interior and the Secretary of Transportation, such rules and regulations as he deems necessary to carry out the purposes of this Act. Such regulations are to be promulgated no later than one year after the effective date of this legislation." Page 12, line 22-Change "Sec. 12" to "Sec. 12(a). Page 12, after line 25-Add a new- Section 12(b) to read as follow's: (b) There are hereby transferred to the Secretary such functions set forth in the Interstate Commerce Act and such functions vested by law in the Interstate Commerce Commission or the Chairman and members thereof as relate to trans- portation of coal by pipeline. Page 13, line 1-11-Change Sec. 13 to read as follows: "Subsequent to two years after the date of enactment of this Act, no person shall engage in the transportation of coal by pipeline without first obtaining a certificate of public convenience and necessity under sections 5 and 6 of this Act unless such p~rsnn p~t'~r~ ~ti~ ~ ~~mnact with the Secretary providing means whereby rights-of-way across the lines of such person may be acquired by a car- rier on terms customarily employed with reference to other types of pipeline. Any Federal Court of Competent jurisdiction may entertain a suit by an interested party to enforce the provisions of such compact." Mr. HOWARD. P~case proceed as you wish. PAGENO="0069" 63 TESTIMONY OF CHESTER DAVENPORT, ASSISTANT SECRETARY OF TRANSPORTATION FOR POLICY AND INTERNATIONAL AFFAIRS, DEPARTMENT OF TRANSPORTATION Mr. DAVENPORT. Thank you very much. I am pleased to be here to- day. The administration agrees with the Interior Committee that there is a need for legislation for the certification process which would basically insure that eminent domain authority is granted to facilitate the construction of only those pipelines which are consistent with na- tional energy, transportation, environmental, economic, and social policy. Our recent studies `and the study `by OTA all indicate that there is no lack of capacity for the transportatiOn of coal; that, more par- ticularly, the capacity of the rail system to carry coal can be ex- panded much more rapidly than the increase in coal production that we expect over the next decade. Thus, we `believe that the choice of mode will not rest on capacity limitations of either mode, but on whether pipeline or railroad is most desirable, economically, environmentally, and socially, in any given situation. One of `the major concerns that we have had at the Department of Transportation is whether the investments are sensible. We think that the proposed amendments by the administration to the Interior Com- mittee bill will give us the means to make sure that any pipelines ap- proved make economic sense. On the specifica question of the potential impact of slurry pipelines on competing carriers, we think `that the key issue is what effect the di- version of coal traffic would have on the financial viability of compet- ing rail or water carriers, and the extent to which such financial impact would affect the shippers of commodities other `than coal. We believe this qtiestion must be considered in the context of route- specific examinations. We should note that such financial analysis will always have to be made in the context of those `rail rate regulatory practices that are in place at the time a particular slurry pipeline proj- ect application is made. In the recognition of the route-specific nature of the trade offs between slurry pipelines and rail transport of coal, the adn'iinistration supports H.R. 1609, with the amendments that I previously mentioned. We propose that initial certification of pipelines as has been noted, be in the Energy Department, but that the Department of Transportation would have to concur in any certification a'fter determining whether or not there would be any adverse impact on any particular mode. Mr. HOWARD. Mr. Davenport, do you feel that there will be such an increase in the use of coal and the need for transportation `that if this bill were to pass that it would not have a negative impact on any other mode? Mr. DAVENPORT. We don't know that specifically. What we have tried to do to date is determine who would have certification authority and who would have veto authority over a particular prop'osed certification. `We felt that in order to make sure that any particular transportation mode would not be adversely impacted, that any proposed certification by the Department of Energy, would come over to the Department of PAGENO="0070" 64 Transportation for review. At that point, our analysts would make a determination as to whether or not they felt that the proposed pipeline would have an adverse impact.~ If we felt that it would have an adverse impact we would refuse to cOncur with the Department of Energy. Unless we were overriden by the President, the pipeline could not be built if we did not concur. There are a couple of items in the Interior bill that we are concerned about, but rather than reading through my testimony I will summarize our concerns. The main thrust of our concern is that even though the Interior Committee recognized the fact that we should look at the transportation impact of proposed pipelines should be examined they lodged the responsibility for assessing that impact in the Interior De- partment. We believe that transportation impacts should be assessed by the Transportation Department and not by the Interior Department. Mr. Chairman, I would be more than happy to answer any questions that you or any other member of the committee might have. Mr. HOWARD. Thank you. You feel, then, that the ccrtificat.ion ought to be with the Department of Energy and only concurrence by the Department of Transportation? Mr. DAVENPORT. Well, we spent a great (Teal of time trying to deter- mine who should certify coal slurry pipelines. i he aJi11~iIisLra~1on position is that we think the Department of Energy should certify the pipelines, subject to the concurrence of DOT and DOT. Thus DOE should make the initial determination as to whether or not there is a need to move particular coal from the mine to a particular place by pipeline. Once that determination is made, the administration's position is that the Department of Transportation would then say whether or not we felt it could be more efficiently carried by another mode and whether movement by pipeline would have an adverse impact on other modes. DOT could exercise a veto over any certification proposed by Energy if we found that there was an adverse impact on other modes. Mr. HOWARD. However, if there were involved a severe transporta- tion problem, not a major energy problem, let's say, the Department of Transportation would not be able to initiate any ac.tion on that; you would only be able to go to the Department of Energy and hope that they would agree with you because if they certify it-and you rubber- stamp it. Mr. DAVENPORT. No, Mr. Chairman. I was personally involved in a long debate within the administration about this. DOE could propose certification. Once that certification is proposed but before it is final- ized, we at DOT would have to concur. There can be no certification unless we were to concur in it. The oni person who can override our nonconcurrence is the President. Mr. HOWARD. But you couldn't initiate it yourself. Mr. DAVENPORT. We could not initiate a certification of a pipeline. Mr. HOWARD. That's right. Because even if you believed there. was an overwhelming transportation need for it, you would have to convince Energy to initiate it, and then you would concur. Mr. DAVENPORT. I don't think a problem like that would arise. Here is what I think would happen. Someone who wanted to build a partic- ular pipeline would go to Energy for certification. Once a person or PAGENO="0071" 65 a company came. in to apply for certification, then Energy would start the application process, and that process would include getting concur- rences from bot:h the Department of Transportation and the Depart- ment of Interior. Mr. HOWARD. Looking at it from the legislative viewpoint~ over the past few years there have been some major changes in jurisdiction of committees here in the House of Representatives. One of the major changes that was made was in the area of trans- portation. Before, a great deal of transportation jurisdiction was vested in many committees. Now almost all of transportation is vested in the Committee on Public Works and Transportation. We believe this is proper. But this could be changed by the administration's position, which seems to favor spreading out jurisdiction among several committees. It does concern us, because we believe that we have been able to im- prove all facets of surface transportation by having one subcommittee examining the broad picture, rather than limited areas as had been the case in the past. Mr. DAVENPORT. We, of course, understand that concern. There was a rather active debate over which department should have certifica- tion authority. It was decided that Energy should have the certifica- tion under the conditions that I have mentioned. Mr. HOWARD. I am sure that if we could qhange it around to have Transportation the top banana, at least you would be able to handle it in the Department of Transportation-if it were forced on you. Mr. DAVENPORT. If you decided that the administration's position was not your preferred course of action and that the Department of Transportation were to take on this responsibility, I am sure we could handle it. [Laughter.] Mr. HOWARI. The gentleman from California, Mr. Mineta. Mr. MINETA. Thank you very much, Mr. Chairman, and Mr. Sec- retary. Under the present regulatory setup, the waterway carriers, as I understand it, have some kind of a bulk commodity exemption. Truck- ers have an exemption to the extent that they have an agricultural exemption. I am wondering whether or not that kind of a bulk commodity ex- emption should be extended to the railroads since the railroads would be at a competitive disadvantage without such an exemption. Mr. DAVENPORT. Well, we are concerned that all modes receive equal treatment. One of our concerns, assuming that the pipeline legislation is passed in some form, is how we can make sure that the other modes receive equitable treatment when competing with pipelines. For instance, there are some rate problems with the railroads, and we are looking at that. Specifically we must make sure that there is no built-in competitive disadvantage to any one mode resulting from a given treatment of any other mode. We are looking at the whole question of exemptions, but we haven't made any determinations about the precise nature of any regulatory exemptions that will be recommended. PAGENO="0072" 66 IM:r. 1MIIXETA. The principle of equit.y amongst modes is part of our national transportation policy, is it not? Mr. DAVENPORT. Yes, sir. Mr. MIXETA. And have you gone into this in depth at all within the Department discussion? Mr. DAVENPORT. Yes. We. are concerned that if one gets a competi- tive advantage, we want to make sure that the present rules with re- spect to carrying that sime commodity by the existing mode are modi- fied to remove that adv~ Lntage. We are studying what changes might be required in the regulatory structure to make sure that such situations a.re eliminated. Mr. MINETA. It seems to me w-e are pouring a heck of a lot of money into the railroads right now as a result of our actions here in the Con- gress, and the railroads theniselves aren't getting a proper return on their investment. I wonder to what extent this would put them at even more competi- tive disadvantage. Mr. DAVENPORT. Well, as I said, I think that there is a question about that. We are concerned about that, as to whether or not the present regulatory rate structure with respect to railroads and the rate structure which will eventually be applied to slurry pipelines will be equitable to both modes. We hope to assure that the two modes will have the same rights to compete. We hope to make sure that any changes that are necessary in terms of the railroad ratemaking au- thority are made in order that railroads are not put at that dis- advantage. Mr. MINETA. Thank you very much, Mr. Secretary, and thank you, Mr. Chairman. Mr. HOWARD Thank you. Mr. Davenport, are you familiar with the proposed pipeline where they would be now? They have-J notice I have a map here and I don't know whether you have one. Mr. DAVENPORT. I don't have the map in front of me. Mr. HOWARD. Well, basically they seem to go all over a great part of the United States, some from Canada down through Minnesota, Wis- consin, Michigan, the upper Midwest; we have them from Wyoming going in two directions, west and southeast; one in progress now, another one down to Texas from there, in the far West, and possibly a~ proposed one from the Midwest somewhere down to Florida. I don't see any involving New Jersey. There, is an Ohio pipeline. I don't see anything in the energy-short area of the Middle Atlantic or New England area at all. And I wonder if there is any contem- plation- Mr. DAVENPORT. Mv staff just gave me a copy of this map. I don't know of a.ny contemplated line that would take coal to the East. Mr. HOWARD. But whether there is need for a pipeline because- I was going to say there is now. I received a pen from a colleague of mine today from Alaska, that says the oil in this pen, a little bit here, is from the first barrel pumped through the trans-Alaska pipeline. And I am wondering if this is New Jersey's total share of the oil we might get? [Laughter.] PAGENO="0073" 67 So often we talk about energy and I don't see much going to the New Jersey area or to the others. Now, perhaps there will be sufficient oil or there will be some consideration. But I hope whoever gets the initial certification responsibility-I am sure that you will-consider all areas of the country, especially the New England and Middle Atlantic States. Thank you very much. I did have some additional questions that mnight be rather long in answering, and rather than taking your time we will submit them to you and leave the record open, if you would respond in writing. Mr. DAVENPORT. Yes; I would be more than happy to do. that, Mr. Chairman. Mr. HOWARD. Thank you very much. . [The following was received for the record:] PAGENO="0074" 68 OFFICE OF THE SECRETARY OF TRANSPORTATION ~/`\~HNGTON DC 20590 Nay 5, 1978 ASSISTANT SECRETARY Honorable Jamez .3. Howard Chairman, Subcommittee on Surface Transportation Committee on Public Works and Transportation House of i~epresentatives Washington, D. C. 20515 * Dear Mr. chairman: S S * As a foUow~up to my testimony before your Subcommittee on H. R. 130~, the Coal Pipeline Act, I have enclosed our responses to the questions which were attached to your letter of April 24, 1978. Where appropriate, our comments address the bill as re~orted by the Hon~e Interior and Insular Affairs Comn-ittee as viell as the Administration vor3ion of the bill which I 6uhmitto~ with my testimony. S If I can be of any further assistance, please let me know. S Sincerely, S * Chester Davenport S S Assistant Secretary for Policy and InternationalAjfajrs S Enclosure S PAGENO="0075" 69 ~ 1. What is the current financial condition of the railroads? please detail your answer so as to describe the condition on an individual rail line basis for all Class I railroads. AWS~ER: In 1977, the nation's Class I railroads experienced the lowest net operating income, since .1932, dropping from $442 million in 1976 to $347 million The industrj s rate of return on investment also dropped from 1 53 percent in 1976 to 1.28 percent in 1977. While operating revenues rose to $20.1 billion in1977, from $18.6 the previous year, operating expenses also rose, from $15 billion to 16.4 billion. A carrier-by-carrier breakdown is attached. PAGENO="0076" 70 z .0 U U 0 U z C,, z'~ 0 .~ z?~ zo~ 2: 0 PAGENO="0077" 71 i L ~; ~ ~z z 0 U U 0 U z z n I PAGENO="0078" 72 QUESTION: 2. Which railroads are directly competitive for Western coal traffic with the proposed coal pipelines? ANSWER: The Burlington Northern, the Chicago and Northwestern,.thb. Union Pacific, and the Atchison, Topeka and Santa Fe all serve western coal fields. However, many other railroads, particularly in the midwest, would be involved in any long distance movements of coal from this area. Railroads which would probably receive a good portion of the traffic, depending on destination, include the Rock Island, the Milwaukee, the Missouri-Kansas-Texas, the Southern Pacific, and the ICG. PAGENO="0079" 73 QUESTION: 3. Please state which railroads own coal deposits. Does the commodities clause in Section 1(8) of the Interstate Commerce Act completely bar these railroads from transporting coal either owned directly by them or owned through their subsidiaries? ANSWER: Several railroads own lands containing coal deposits, obtained either through land grants (in the case of western carriers) or through direct purchase. Carriers with substantial amounts of coal include the Burlington Northern and the Union Pacific in the west, and the Norfolk and Western and the Chessie System in the east. The Pennsylvania Railroad, later merged into the Penn Central, also owned substantial deposits, but these remained with the trustees of the bankrupt carrier, and were not passed on to Conrail. Section 1(8) of the Interstate Commerce Act provides that it shall be unlawful for any railroad company to transport any article or commodity manufactured, mined or produced by it or under its authority, or which it may own in whole or in part, or in which it may have any interest, direct or indirect, with certain limited exceptions. The Supreme Court has held that a carrier owning coal or coal lands is not in violation of this clause if the coal is sold before it is transported (U.S. vs.Delaware Railroad Co., 238 U.S. 516). Since almost all coal is contracted for before shipment, it is likely that coal mined on land owned by a rail carrier will be marketed in this manner, and is not in violation of Section 1(8). If the coal is not sold before shipment, the degree of control the carrier has over the operations of the mining affiliate becomes the key factor. The courts have found that a violation occurs if a railroad, as the controlling stockholder in a mining company, operates the company as an agency of the railroad. PAGENO="0080" 74 QUESTIOW: 4. Would you please state the effect increased coal production will have on rail rates if: 1. coal pipelines are constructed, and 2. coal pipelines are not constructed? ANSWER: Since coal pipelines will not be built until after long term transportation contracts with users are negotiated, the potential existence of such pipelines will have a limited effect on rail rates in the immediate future. However, increased production of coal, especially in the volumes forecast for the west, would provide the carriers with more opportunities to offer unit train tariffs, the most economical and efficient form of rail transportation. Additionally, since most of the trafficwill be of this type, the carriers would be able to attract financing for upgrading, rehabilitation, and maintenance projects at more attractive rates; these savings could be passed on to shippers. To the extent that pipelines impair the ability of the railroads to attract this traffic, the carriers' ability to maintain a viable traffic base, and thus attract capital, will be reduced. Furthermore,the costs of maintaining the fixed plant would be spread over fewer shippers, thus raising transportation costs to shipper of other commodities. The response to Question 21 explains this last point more fully. PAGENO="0081" 75 5. Do you construe P.R. 1609 as permitting the pipelines to file (1) contract rates and/or (2) long-term rates? Please explain. Answer *H.R. 1609 does not address rates and conditions of service and does not in any way alter or affect the existing legal authority under the Interstate Conffierce Act and decisions rendered thereunder of pipelines to file contract rates and/or long-term rates. 32-745 0 - 78 6 PAGENO="0082" 76 6. If the answer to 5(1) and (2) is yes, please state what pro- visions of the Interstate Commerce Act provide for such filings? Answer The Interstate Commerce Act does not by its terms prohibit such filings for pipelines, and the Interstate Commerce Commission has allowed such filings. - PAGENO="0083" 77 QUESTION: 7. Do you believe the railroads are in a position to attract the necessary capital to expand their services to meet the increased demand for, the transportation of coal? ANSWER: As the report of the DOT Coal Transportation Task Force concluded, most railroads do have the capability to attract the necessary capital -- indeed, many carriers have already begun to initiate projects to help them handle this increased traffic. Some railroads in bankruptcy or in marginal financial conditior~ which ma~' connect with lines directly serving the coal fields, may experience difficulty in attracting sufficient capital, but they can be assisted through Title V of the RRRRA, which provides loan guarantees and redeemable preference share funding. PAGENO="0084" 78 8. What are the respective common carrier duties of railroads, and how would they differ from coal pipelines under existing law and under the provisions of H.R. 1609? Answer Because the question of common carrier obligations is intimately intertwined with the regulatory practices of the relevant economic regulatory agencies, those agencies could more appropriately respond to this question. PAGENO="0085" 79 9~, In Section 5(a) of the bill it is stated: The Secretary is authorized to issue such a certificate if the Secretary finds, with respect to a particular project or the carrier as to which said power is sought, that the project is in the national interest and provides the capacity necessary to fulfill the requirements of a common carrier of coal, as determined by the Secretary. A. Do you regard this as empowering the Secretary to establish the common carrier obligations of the coal pipeline in the certifi- cate of public convenience and necessity? B. If you do, would this not preclude any authority of the ICC from imposing a common carrier duties upon the carrier that are not included in the certificate? Answer - In the Interior markup of H.R. 1609, the common carrier obligations derive primarily from the Interstate Commerce Act, rather than from the certificate. Since the common carrier obligation goes with the fact of being an interstate pipeline, the Secretary would not need to include common carrier obligations specifically as part of the certification process. However, in the event that a proposed pipeline would be too small t~o meet effectively its common carrier obligation to provide service to all users, H.R. 1609 would allow the Secretary to impose minimum capacity conditions in the pipe- line certificate. PAGENO="0086" 80 QUESTION: 10. What provisions of the Railroad Revitalization and Regulatory Reform Act provide railroads with new regulatory controls for rates? Would these help the railroads in competing with coal pipelines? Please comment on how these provisions have been construed by the ICC, especially those contained in Section 202, 205 md 206. ANSWER: Although the Railroad Revitalization and Regulatory Reform Act does provide for some significant changes in the rail regulatory structure, few Of these would have any direct impact on rails competitiveness with potential slurry pipelines. Section 202 of the Act provides for peak and seasonal ratemaking and distinct service pricing. These new ratemaking procedures would not have an impact on coal transportation, since they are designed to ease rate- making for other types of traffic. The section also prohibits the ICC from finding rates unlawfully high when a carrier does not have `market dominance' over the traffic in question. As interpreted by the Commission, market domainance has been construed so as to set narrow limits on the types of movements whose rates are exempt from suspension. Section 205 directed the Commission to establish procedures for the achievement of adequate revenue levels for carriers, A case on this matter is currently before the Commission. Section 206 directs the establishment of procedures for rate incentives for capital investment; this provides that, where a rate covers a movement for which the carrier or shipper invests at least $1,000,000 in equipment or facilities, the rate, once approved, cannot be suspended for 5 years. Several cases on this provision are now pending before the the Commi~sjon; ~thedetermination of what is. a.perniissible rate level for niovernents of this type will ba the crudal factor inçiecis~ons by the carriers to use this provision. PAGENO="0087" 81 QUESTION: 11. Do you believe that the new abandonment provisions of Section 802 of the RRRRA ~iill help or hinder the railroads in meeting pipeline competiton. ANSWER: The new proceedings, which only streamline the abandonment * process, will not have any direct effects on rail/pipeline competition. If the provisions enable the midwestern * carriers to divest themselves of unneeded and costly sc vice faster than would have been the case in prior years, then the provisions will have the indirect effect of strengthening the remaining rail network. PAGENO="0088" 82 ~UESTI0N: 12. Does the Department believe that the ICC has the necessary power to regulate the rates and common carrier responsibilities of coal pipelines? ANSWER: - Yes, we believe that the Interstate Commerce Act does provide the necessary authority to regulate coal pipelines. However the Department supports the Administration version of H.R. 1609, which places certification authority in the Department of Energy, subject to concurrences of the Department of Transportation and the Department of the Interior. We believe that this arrangement will be conducive to development of coal slurry pipeline policy which is in consonance with Federal transportation, energy and environmental programs. The Administration version of the bill would transfer the regulatory authority over coal pipelines now vested in the ICC to the Department of Energy which would also have certification authority. PAGENO="0089" 83 QUESTION 13: Do you have an opinion on whether or not the current regu- latory provisions of the Interstate Commerce Act provide a means ~ihereby that agency can properly assess the effects of rates for the transportation of coal between competing carriers? ANSWER: The Interstate Commerce Commission is capable of assessing the effects of one mode's rates for the transportation of coal on the traffic and financial condition of competing modes. The examination by all agencies involved of the effects of a coal slurry pipeline on railroads is important prior to granting a permit to construct the pipeline. One should be sure that construction of the pipeline does not un- desirably reduce the ability of railroads to render other services. PAGENO="0090" 84 14. In Section 5b(6), the Secretary is reciuired to make findings on the extent to which the project is likely to result in lower rates for the transportation of coal than would be in effect if such coal were transported by railroad under Part I of the Interstate Commerce Act. (a) Do you regard this as requiring the rates to be included in the contracts that must be considered by the Secretary in 5(a)? (b) How could this be done_before the pipeline is constructed? (c) What, if any, effect would this have upon ICC authority over the rate when it is filed with that agency. ANSWER: Our understanding of the complexities surrounding slurry pipeline contracts is that a rate agreement with the utility is an integral part of the package presented to potential financial backers, as well as to the certifying agency. Pipelines will not be built on speculation, with the backers hoping the utility at the other end will agree to purchase the coal. Therefore, rates and volume of traffic to be carried must be agreed upon before construction. The Administration version of H.R. 160 recognizes this fact by having the certification and rate regulation powers reside in the same agency. Since both issues must be considered simultaneously, the~ratč question cannot be decided after the fact: PAGENO="0091" 85 ~~ESTION: 15. Why is the definition of coal amended to exclude synthetic oil or gas derived from coal in the amendment proposed by the Administration? ANSWER: Synthetic oil and gas derived from coal have properties * similar to natural oil and gas. .Rŕtherthan being trans- * ported in slurry pipelines they would be transported in * oiland/or gas pipelines and.thüs would be subject to regulations different from those in H.R. 1609. PAGENO="0092" 86 16. Does the definition of control as set forth in section l(3)(b) of the Interstate Commerce Act limit or broaden the control test set forth in H.R. 1609? Why does the Department prefer to apply the "control't definition in sectioü l(3)(b) of the Interstate Commerce Act? Answer Neither definition of "control" is broader because each would encompass situations not touched by the other. The Interstate Commerce Act definition of "control" is used in the Administration's version of H.R.~ 1609 because that definition is sufficiently broad and has been jndicially tested in a variety of situations. Therefpre, no benefit is, seen in changing to an untested definition at this time. PAGENO="0093" 87 QUESTION 17: Does the Department have an opinion on whether or notthe purchasers of coal should be able to (1) own the pipeline, or (2) own the coal mine? If the answer is yes, to what extent should ownership be permitted?~ ~j~WER: With respect to the purchasers of coal owning the pipeline, the Department does not object to the Administration position on this issue (See specifically Section 5(f) of the Adminis- tration version of the bill submitted with DOTs testimony.) With respect to the purchasers of coal owning the coal mine, the t~ejartment has never opposed the ownership of coal mines by the users of coal. PAGENO="0094" 88 çp~STION 18: What is the Department's position on multimodal - ownership with respect to railroads or water carriers and coal pipelines? ANSWER: Each case would have to be examined on its own merits to determine if there would be any adverse impact on competition. PAGENO="0095" 89 QUESTION: 19. In the Department's opinion, does H.R. 1609 provide adequate means for determining the true ownership for coal pipelines? ANSWER: Yes. Section 10 of the Interior markup of H.R. 1609 authorizes the Secretary of the Interior to promulgate such rules and regulations as he deems necessary to carry out the purposes of this Act The Administration version of the bill authorizes the Secretary of Energy to promulgate, after receiving the concurrences of the Secretary of the Interior and the Secretary of Transportation such rules and regulations deemed necessary. The regulations provide a means for requiring that any application for certification include full information on ownership. PAGENO="0096" 90 QUESTION 20: What effect will construction of coal pipelines have on domestic water carriers? ANSWER: Although a pipeline could be built parallel to a waterway or in a manner that replaced a joint rail/water movement, thus, taking traffic from the waterways, the costs of carrying coal by water carrier ara sufficiently low that pipelines may be built in a manner that would encourage transshipment by. barge rather than ma manner that competes with waterways. For this reason, water~ŕy traffic is most likely to remain constant or to increaseas a result of construction of coal slurry pipelines. PAGENO="0097" 91 ~JESTIO~1: 21. What effect would construction of coal pipelines have on rail rates for commodities other than-coal? ANSWER: Transportation of coal, particularly from the west, will help to improve the financial picture of the rail industry. Loss of such traffic, or uncertainty about rail `s role in its carriage, would tend to make it more difficult, if not impossible, for some carriers to attract the necessary capital to rehabilitate and/or upgrade various portions of the system. In addition, revenues from such traffic would contribute to the fixed cost of maintaining the rail plant. Net losses of potential coal-related revenues must be made up by other shippers. The Office of Technology Assessment's finding in this matter was that the current rate of decline in average rail tariffs (after adjustment for inflation) would be reduced, especially for shippers with no alternative to rail transportation. 32-745 0 - 78 - 7 PAGENO="0098" 92 ~~~flON: 22. To what extent does the Department participate in the construction of pipelines for natural gas arid oil? ANSWER: The Department establishes safety regulations for the design, construction and operation of gas and oil pipelines. The Natural Gas Pipeline Safety Act of 1968 authorizes issuance and enforcement of regulations for the safety of onshore pipelines in the transportation of natural or other gases. The Hazardous Materials Transportation Act authorized issuance and enforcement of safety regulations for onshore pipelines used in the transportation of hazardous materials, other than pipelines subject to regulation under the Natural Gas Pipelines Safety Act. Section 21 of the Deepwater Port Act of 1974 pr~ovides that the Secretary of Transportation, in cooperation with the Secretary of the Interior, shall establish and enforce standards and regulations to assure the safe construction and operation of oil pipelines on the Outer Continental Shelf. With respect to pipelines which are part of a deepwater port, sections 5 to 10 of the Deepwater Port Act of 1974, which cover 1.icensino orocedures and regulation with respect to marine environmental protection and navigational safety, are administered by the U.S. Coast Guard. PAGENO="0099" 93 QUESTION: 23. Does H.R. 1609 impose any new function upon the Department of Transportation that the Department is not now able to carry out under its existing authority? ANSWER: Based on our analysis to date, we believe that the authority granted to the certification agency under the Interior markup and the Administration version of H.R. 1609, in conjunction with this Department's existing authority should be sufficient for the Department to perform any new functions created by either version of the bill. PAGENO="0100" 94 QUESTION: 24. What costs would be incurred by the Department of Transportation and for what purpose? ANSWER; Under the Interior markup of H.R. 1609, analyses would have to be performed to develop recommendations to theSecretary of the Interior concerning the impact of each proposed pipeline on other modes p~ transportation. Under the Administration version of H.R. 1609 comparative cost analyses and impact study would be required as part of the Department's concurrence responsibility. Since the transportation economics of slurry pipelines vary with individual routes, site-specific cost analyses are believed necessary. The costs incurred will vary~ depending on the length of the route, the number of alternative rail or water lines, the complexity of the proposed pipeline design and other factors. It should be indicated that Section 6 (a) of the Administration bill provides that each carrier applying for a certificate shall reimburse the Department of Energy for administrative and other costs incurred in processing the application, as the Secretary of Energy shall prescribe. PAGENO="0101" 95 ~ESTION: 25. The Administration is recommending that authority for granting certificates of public convenience and necessity be vested in the DOE, subject to the concurrence by DOT and Interior. In your opinion does this mean that DOT would be able to veto projects? Would you have any objection to an amendment which would clearly give DOT a veto over the granting of certificates. ANSWER Although we would not have any objection to an amendment which would state that DOT has a veto over the granting - of certificates, the DOT concurrence authority in the Administration version-of H.R. 1609 would be preferable. PAGENO="0102" 96 QUESTION: 26. Recognizing that there are a nuniber of important issues that must be addressed in making the determination of whether a prt:osed pipeline should be certified, do you agree with testimony before this Committee that transportation the foremost issue? If not, what is the most import~t issue in deciding whether to grant a certificate? ANSWER: We agree that tr nsportation is the foremost issue since the coal slurry pipeline represents a means of transporting energy materials. However we believe that the transportation issue is very ti~htly intertwined with complex questions concerning among others, energy, environment, water use and antitrust metters. PAGENO="0103" 97 The final witness this afternoon, Mr. George W. Oprea, executive vice president, Houston Lighting & Power Oo., of Houston, Tex. Mr. HOWARD. We do have your prepared statement, Mr. Oprea, and without objection that will be made a part of the record at this point. [Statement referred to follows:] STATEMENT OF GEORGE W. OPREA, JR., EXECUTIVE VICE PRESIDENT, HousToN LIGHTING ~& POWER Co. My name is George W. Oprea, Jr. I am Executive Vice President of Houston Lighting & Power Company, an investor-owned electric utility serving a 5,600 square mile area of Texas that includes 23 percent of the state's population. The area is highly industrialized. Our customers refine 12 percent of the nation's petrochemicals, and serve the nation's market for steel and other highly diversi- fied finished products. They also supply fuels to the Midwest and East, rubber to Akron and Detroit, plastics to New England, textiles to Georgia and the Caro- linas, and agricultural chemicals to the Atlantic states. Large quantities of oil and natural gas are processed in the region and it is a center for worldwide oil and gas exploration and production activities. Mr. Chairman, we strongly support enactment of legislation authorizing and facilitating the development of coal slurry pipelines. Slurry pipelines are a proven technology. They will constitute a needed supplementary mode to help in transporting the very large volumes of coal required under the pro- visions of federal and state legislation mandating conversion to coal by utilities and industrial facilities. Houston Lighting & Power historically has been wholly dependent upon natural gas to meet the massive power demands of its service area. Recently, nearly one-half of our existing capacity has been modified to burn some oil as well as gas. The crisis faced by our nation with regard to both of these fuels is well known and I will not belabor it here in the context of HL&P's par- ticular problems other than to say that the problems in replacing our existing oil and gas facilities are indeed great. To meet its public service obligations and to respond to the national ob- jective or replacing existing oil- and gas-fired facilities with coal and other fuels. HL&P has committed nearly $1 `billion to a comprehensive coal conversion program. At the outset, I must stress that our willingness to spend nearly $1 billion to burn coal was influenced greatly by calculations indicating that our coals could be transported at freight rates which, when adjusted to today's cost levels, would work out to approximately $11.00 per ton. The $15,60 per ton tariff recel1tly authorized by the I.C.C. constitutes more than a 40 percent in- crease over the calculations upon wrhich we relied and far exceeds the rates which should be charged on the basis of actual costs. This is an annual increase of $23 million in our transporation costs, an increase which goes a long way in eliminating the reduction in fuel costs we had hoped to achieve. We do not feel that our customers should bear a disproportionate cost of revitalizing the nation's railroads, the rationale of the I.C.C. in approving this tariff, especially since our customers must already bear a disproportionate cost of the national objective of reducing the use of natural gas and oil as boiler fuels. Mr. Chairman, we are currently challenging the legality of the I.C.C. decision in court. Should we fail to reverse that decision on appeal, our customers have no alternative but to pay this unreasonably high rate. We believe that the situa- tion faced by HL&P could be entirely different were there a viable coal slurry pipeline industry in operation today. For coal slurry lines would provide an alternative form of transportation that at the very least would create a com- petitive incentive for the establishment of more realistic rates by railroads. We are convinced from our own experience that such an incentive is urgently needed. We are equally convinced that without reasonable transportation rates, the national policy of developing and utilizing this country's vast coal resources will be seriously jeopardized. The Office of Technology Assessment recently concluded that cost-based rates for transportation by slurry pipelines frequently will be lower than by rail. The use of slurry transportation by a utility may thus cut costs for its customers. In addition, since interfuel substitution, is extremely sensitive to the cost of PAGENO="0104" 98 transportation, the availability of coal pipeline transportation at reasonable rates to certain areas of the country may provide important indirect benefits to other regions in the form of a reduced outflow of capital for imported oil. Nevertheless, we believe that HR. 1609, as reported by the House Interior and Insular Affairs Committee, should be modified to reflect three basic con- cerns of our industry: 1. Commodities clause: Section 5(d) would sharply limit the classes of per- sons who could participate substantially in the ownership of a slurry line. Ex- cluded would be: (1) any coal producer or supplier who wished to deliver his coal by pipeline instead of railroad or barge; and (2) any electric utility or industrial user who wished to participate extensively in ownership of a coal slurry pipeline as a means of developing and using a reliable, low cost supply of coal. Apparently, only railroads, barge lines, natural gas pipeline companies, oil pipeline companies, and new entrants who neither mine nor use coal could qualify-assuming they have no ownership of the particular coal being trans- ported. The restriction on potential slurry pipeline owners thus limits those with the most incentive to utilize such pipelines from participating in their develop- ment. There is no doubt that slurry lines will be extremely expensive to con- struct. Every possible source of potential financing should be encouraged to par- ticipate. We also believe that encouraging as many new entrants as po~sible will lead to greater competition within the slurry pipeline industry itself and with the railroad industry. Therefore, we recommend that the Committee modify the restriction of Section 5(d) on those who own or use the coal to be transported by the slurry pipeline. Otherwise, those who own competing forms of transpor- tation shall be permitted exclusive control over coal slurry pipelines as well. 2. Roncalio amendment: Section 5(h) of the reported bill would require that before a certificate is issued with respect to a project utilizing underground water from a western state, the U.S. Geological Survey must conduct a com- prehensive study which demonstrates that the use of water source will not cause a significant adverse impact on the quality and quantity of the water table in surrounding areas and adjoining states. This provision would make the entire licensing procedure unworkable. It should be deleted because other provisions of the bill provide strong water resource protection. 3. Antitrust review: Section 7(a) provides that no certificate shall be issued unless the Interior Department has received opinions from both the Attorney General and the Federal Trade Commission that the certification requested will not lead to specified anticompetitive effects. There is no question that competi- tive considerations are a significant factor to be taken into account in deter- mining whether a particular application for certification should be granted. However, giving a veto power to both government antitrust-enforcem~nt agen- cies attributes a disproportionate weight to the competition factor, and is incon- sistent with the a1mpro~ ch taken in other regulated industries such as that estab- lished by the Atomic Energy Act. We suggest that both agencies be permitted the opportunity to evaluate the competitive impacts of a particular application and to make non-binding recommendations to the Secretary of the Interior. We believe that extensive delays may result even from this provision, however, and will cause substantial financial burdens and uncertainties for applicants. Therefore, we suggest that the Federal Trade Commission and Justice Depart- ment be required to consider the anticompetitive effects contemporaneously with the Interior Department's own initial consideration of the arplication and to make their recommendations to the Secretary within specific time frames. In addition, we understand the Administration will propose amendments to H.R. 1609 that would vest ultimate certification approval in the Department of Energy. This proposal would require both the Interior Department and the Department of Transportation to concur in the approval `of any certificate. We believe that the involvement of three separate federal agencies, each with dif- ferent statutory objectives and responsibilities, will result in an administrative procedure plagued by extensive delays and conflicts. We strongly recommend that the proposed Administration amendment be evaluated closely and modified to prevent such delays. In summary, we strongly support enactment of HR. 1609, provided it is modi- fied to reflect the concerns we have raised here today. I would be pleased to an- swer any questions, Mr. Chairman, ~ou or the Members may have. Mr. HOWARD. Please proceed. PAGENO="0105" 99 TESTIMONY OF GEORGE W. OPREA, JR., EXECUTIVE VICE PRESI- DENT, HOUSTON LIGHTING & POWER CO. Mr. OPREA. I would like, with your indulgence, Mr. Chairman, to give you an oral summary based on notes I have that will offer you some additional information, I hope, beyond what I have presented in my formal testimony. We look with delight at this opportunity to talk with your subcom- mittee relative to the House bill 1609, and, of course, the enactment of legislation pertaining to coal slurry pipelines. *We feel that the technology is sound, environmentally strong; it is a clean, quiet, unseen operation of slurry pipelines, and we feel, be- cause of our absence of interference of other forms of transportation, will. incur from the general public full acceptance. In addition to that, we feel that there is a definite need for a sec- ondary delivery system of coal to supply the 900 million tons of coal by 1986 that the electric utility industry will consume. And, mind you, that is 400 million tons over the consumption of 1977. Today, Houston Lighting & Power Co. is fully dependent upon the use of natural gas to fire its boilers. Several years ago we converted roughly half of our capacity, about 5,500 megawatts of capacity, to burn oil continuously as well as gas. We also installed a pipeline to service major parts of our system. Now, the crisis faced by this Nation, as you gentlemen are aware, in regard to these fuels, gas and oil, plus the demand imposed upon us by the national energy policy, presents many drastic problems, im- mense problems, to our sector of the country. Now, to meet our public service obligations and to do transition from gas and oil to coal and nuclear, our company has embarked and committed, starting this year through 1990, to a capital investment pro- gram of $8.3 billion, of which roughly 75 percent of that capital in- vestment will go toward the placement of new generating facilities in our system. Part of that investment will be to supply 6,500 megawatts of coal- fired facilities that will consume 23 million tons of coal per year and the balance will take care of 2,000 megawatts of nuclear generation facilities. Now, late in 1972 we commenced negotiations and various sessions with the Burlington Northern relative to establishing a tariff to de- liver our coal from Wyoming and Montana to a plant we have in southweFt Houston. We felt that our deliberations with the Burlington Northern would lead to a basic tariff of between ~10 and ~11 Der trn~. You gentlemen are aware of the recent edict by the Interstate Com- merce Commission as of November 1977. They have invoked a rate of $15.60 per ton on our company-and, mind you, using our own ears, which cost us $35 million, under the capricious use of the capital incentive rate it provides under the Four-IR Act enacted in 1976. We feel that provides in itself, served as a preemptive device, and on a ratemaking, and, to some degree, represents discrimination in regard to ratemaking. PAGENO="0106" 100 The tariff of $15.60 represents a 40-percent increase over the rate we anticipated, or an added $23 million per year that the ratepayers from our service area will have to be burdened with. `We don't feel that our customers should shoulder the dispropor- tionate share of the costs to revitalize the Nation's railroads, which obviously was the ICC's rationale. The national objective of reducing the use of gas and oil as boiler fuel has already imposed drastic financial burdens on our ratepayers as of today. Mr. Chairman, we currently are challenging the legality of the ICC's decision in court.. Should our appeal fail, our customers will suffer the burden of the unreasonably high rates. `We have found the. entire area of railroad rates for unit train opera- tions exceedingly murky. Much progress is needed to develop equi- table rates. The situation faced by our company we feel would be drastically different were a viable coal slurry pipeline in operation today. Coal slurry pipelines, an alternate form of transportation at the very least, we feel would create a competitive incentive for not only the rail- roads but also for slurry pipelines. Mr. HOWARD. Excuse me, are you saying that you feel that if this were in place today that the competition invOlved would have the rates lower than what you have to pay now without the competition? Mr. OPREA. That would be my judgment, yes, sir. Now, without a reasonable transportation series of rates invoked by ICC and perhaps by other ratemaking agencies, the national policy for developing and utilizing the Nation's coal reserves we feel will be drastically curtailed. We feel the use of slurry transportation can cut the cost to our customers. As an example. we ran some estimates, kind of order of magnitude estimates, and our best estimate indicates that there could be a poten- tial saving of $2 billion over the lifetime of a 1,500-megawatt plant should it be served by a slurry pipeline. Now, $2 billion, gentlemen, represents an investment that we could utilize for 3,000 megawatts of additional coal-fired facilities, using scrubber technology. `We believe coal will be the pivotal fuel for our region. We feel this Nation must develop at least a second coal-delivery system in order to assure continuous delivery of coal throughout this country. We would like to ask you to consider three modifications to the House bill 1609. And these three are as follows: Under the commodities clause, section 5(b), we feel the ownership in slurry pipelines should be expa.nded to include those that own coal as well as those that ultimately will be the users. We feel that pipelines will be expensive, and every possible source of potential financing should be encouraged. New entrants to the own- ership, we feel, will lead to greater competition within the slurry pipeline industry as well as with the railroads. It just doesn't make sense that bills with the most incentive to utilize slurry pipelines are indeed excluded from participating in their development.. The second area we would like you to consider is the Roncalio amendment, section 5(h). `We feel the use of the USGS for compre- PAGENO="0107" 101 hensive water studies within a State and adjoining States seems to border on intrusion on States' rights and their ability to conduct their own surveys, their own studies and evaluate the results, and the end action that would pertain to the State's operation. We recommend deletion of this proviso. The third item is the antitrust review, section 7(a). We suggest where the Federal Trade Commission and Justice Department have the opportunity to evaluate the competitive impact of a particular application, that it should be done with no binding recommendation to the Secretary of Interior. They should not be given veto power over an application. We feel the Federal Trade Commission and Justice should consider anticompetitive activities in parallel with the Department of Interior, and in turn make a recommendation within a specific period of time. Lastly, we understand, through a recent letter that had gone out from the administration today, that the administration will propose an amendment that gives the IDepartment of Energy ultimate certi- fication approval. As we view this whole procedure, certification approval will then follow Department of Energy, Department of Transportation, and Department of Interior. This mechanism in itself will be an instrument of delays and con- flicts, and we encourage you to amend that consideration in order to prevent delays and the conflicts. The use of slurry pipelines should not be circumscribed with artificial restrictions, but rather be given the opportunity in a com- petitive society to assume whatever role they can rightfully earn. Thank you for the opportunity of testifying. Mr. HOWARD. Thank you very much, thank you for your testimony. You did state-we were `discussing briefly about the fact that right now there is no competition-you have the railroads, they may bring it. If, however, there were a pipeline, you would `then have competition with each one working out its costs and its profits and what not, and that would `bring the price down because you would be able through competition to ~et the price as low as feasible. Then in `another statement you felt that perhaps it ought to be amended so that your company could own its `own pipeline, and operate it. Would that, then, take away the lack of `bias and still permit the free competition, if you owned one of the modes and `didn't own the other? Mr. OPREA. As I understand it, if we had the perhaps nerve and the opportunity that we could even own a railroad today. And some of us in Texas and other Southwestern States have been considering that approach. So whether you owned `a railroad or whether you owned an equity share in the transporta.tion of coal, we feel are comparable types of activity. We feel the `bias in this particular bill is such as to provide favoritisn-i in the area `of one or several other modes of transportation to the detriment of the other. We feel that the people that have need of the coal, that indeed de- vel'op `it-as an example, the railroads own coal reserves as well as ship the coal. PAGENO="0108" 102 Now, why shouldn't that feature be included in the slurry pipeline bill? I think that is a position of equity. Mr. HOWARD. The ultimate in competition would be, though, that if you were just standing back as the consumer or the buyer, letting the others fight out their own and their opposition's costs and profits and what not, and you taking the lowest offer-would probably be the ultimate in keeping down the price, more so than owning either the pipeline or the coal or the railroad or the coalcompany, for that matter. Mr. OPREA. That is a fact, that's true. Mr. HOWARD. Thank you. The gen~1eman from California, Mr. Mineta. Mr. MINETA. No questions. Mr. HOWARD. The gentlema.n from Minnesota, Mr. Hagedorn. Mr. HAGEDORN. No questions. Mr. HOWARD. The gentleman from Illinois, Mr. Fary. Mr. FARY. No questions. Mr. HOWARD. Well, thank you very much for your testimony. We certainly appreciate your taking the time to come here. WTe will set a date as soon as we can for after the recess to resume these hearings. Thank all of you for your patience in spending the amount of time that you have with us today. And I wish to thank my colleagues and also the staff. The subcommittee sta.nds in recess pending call of the Chair. [The subcommittee recessed at 3 :50 p.m., pending the call of the Chair.] PAGENO="0109" COAL PIPELINE ACT OF 1978 TUESDAY, APRIL 11, 1978 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON SURFACE TRANSPORTATION OF THE COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION, Wa$hington, D.C. The subcommittee met, pursuant to notice, at 10:06 a.m., in room 2167, Rayburn House Office Building, Hon. Robert W. Edgar, presiding. Mr. EDGAR. The subcommittee will come to order. We are meeting this morning for the purpose of continuing the hearings on H.R. 1609, the Coal Pipeline Act. The paramount question involved in these hear- ings is whether coal pipelines should :be afforded a legal mechanism whereby they can exercise the Federal power of eminent domain. Hopefully, the subcommittee will be able to complete the hearings on this issue today. We have a number of witnesses before us. Our first witness is Mr. William H. Dempsey, president and chief executive officer of the Association of American Railroads. Mr. Dempsey, we welcome you here this morning and appreciate your coming, and we will ask you to begin. TESTIMONY OF WILLIAM H. DEMPSEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, ASSOCIATION OF AMERICAN RAILROADS; ACCOMPANIED BY ALLAN BOYCE, ASSISTANT VICE PRESIDENT, EXECUTIVE DEPARTMENT, BURLINGTON NORTHERN RAIL- ROAD, AND JOHN NORTON, COUNSEL, ASSOCIATION OF AMERI- CAN RAILROADS Mr. DEMPSEY. Thank you, Mr. Chairman. I `am accompanied on my left by Mr. Allan Boyce, who is assistant vice president of the execu- tive department of the Burlington Northern, and who has served as a member of the advisory panel for the Office of Technology Assessment on the study that they made of the coal slurry pipeline issue; and on my right by Mr. John Norton, `an `attorney with the staff of the Asso- ciation of American Railroads. I appreciate very much the opportunity to appear `before the subcom- mittee and to express the views `of the railroad industry with respect to this legislation that we regard as critically important to our industry. Our position, as is well known, is vigorous opposition to H.R. 1609. I have submitted a rather detailed statement of the basis for our opposition which I would ask be made a part of the record, Mr. Chairman. (103) PAGENO="0110" 104 Mr. EDGAR. Without objection, so ordered. [The following was received for the record:] STATEMEI~T OF WILLIAM H. DEMPSEY, PRESIDENT, ASSOCIATION OF AMERICAN RAILROADS My name is William H. Dempsey. I am President of the Association of Ameri- can Railroads, with headquarters in Washington, D.C. The railroads which are members of the Association operate 92 percent of the line-haul mileage, employ 94 percent of the workers and produce 97 percent of the freight revenues of all railroads in the United States. I appreciate the opportunity to appear before you today to present the views of the Association and its members on HR. 1609, a bill which would grant the federal right of eminent domain to builders of coal slurry pipelines. The railroad industry vigorously opposes H.R. 1609. I have brought with me statements on H.R. 1609 made on April 26. 1977, before joint subcommittees of the Committee on Interior and Insular Affairs by Mr. Louis W. Menk, Chairman of Burlington Northern Incorporated, Mr. James R. Wolfe, President and Chief Executive Officer of the Chicago and North Western Transportation Company and Mr. Hays T. Watkins, Chairman of the Board and President of the Chesapeake and Ohio Railway Company and President and Chief Executive Officer of the Baltimore and Ohio Railroad Company. These three statements offer useful information regarding the plans and prospects of specific companies and regarding the impact the proposed legislation could have upon them. With your permission, I will submit them for the pur- pose of amplifying the record.1 The railroad industry's opposition to this legislation is, to be sure, based upon self-interest. The railroad industry believes that the introduction of coal slurry pipelines w-ould bring about an inequitable competitive situation and cause seri- ous financial harm to many railroads. But the important consideration is that in this instance the self-interest of the railroad industry parallels the public interest. The railroads carry a w-ide range of essential commodities in addition to coal. Their financial stability is important to the Nation. Recognition of this fact was demonstrated by the enactment of the Railroad Revitalization and Regula- tory Reform Act of 1976, which is an extremely comprehensive package of legislation aimed at improving and revitalizing the Nation's rail system. I find it paradoxical that the enactment of that measure should be follow-ed by the consideration in Congress of a measure which w-ould make that revitalization and equalization of federal policies all the more difficult and costly. As the controversy over coal slurry pipelines has progressed a number of ques- tions have been debated. These have included: the ability of the railroads to keep pace with increasing coal production and use, the water requirements of coal slurry pipelines, competitive equity, cost comparisons, and the impact upon existing transportation modes and their users. In a long-aw-aited study. the Office of Technology Assessment addressed these questions-and has provided the Congress with information that should be ox- tremelv helpful in its consideration of the question whether the federal govern- ment should foster the development of a coal slurry pipeline industry. If coal slurry pipelines were needed to insure that the Nation's energy goals be met, the answ-er might be affirmative. Certainly, pipeline advocates have striven mightily to make this case. Thus, on April 26, 1977, in testimony before joint subcommittees of the Committee on Interior and Insular Affairs,2 W. Pat Jennings, President of the Slurry Transport Association, said: "Only two issues are involved . . . They are capacity and competition in coal transportation. Will there be adequate capacity to ship the great volumes of coal this nation needs?" I don't know- if Mr. Jennings w-as pleased, but I certainly was w-hen the OTA reported that yes, indeed, there w-ill be adequate rail capacity to keep pace with coal production. 1 Ste tements referre(l to retaineil in Subcommittee Files. 2 Similar testimony was also given by Mr. Jennings on February 7, 1978 1)efOre the Subcommittee on Transportation and Commerce of the Committee on Interstate and Foreign Commerce. PAGENO="0111" 105 Quoting from the report: "The capacity of rail systems can be expanded faster than can coal mining or electric pow-er generation using coal, provided the necessary investments in local rail facilities are made" and "The choice between transportation modes will not be determined by their respective ca- pacity limitations." (p. 18) Thus, the OTA has squarely refuted the oft-repeated charge that the railroads cannot meet the Nation's coal transportation needs-w-hich means that coal slurry pipelines are not a matter of public necessity in terms of transportation of coal. This past January, the Department of Transportation released report by its Coal Transportation Task Force which echoed this finding. Est. ating that the demand for rail transportation of coal will require an investment of over $10 billion, the report said: While some problems may exist, we believe that this investment can be made" and "In many instances . . . the rail coal hauling ca- pacity already exists and the expected new traffic will allow the railroads to make better and more efficient use of their heavy past investments." I would like to augment these findings with a matter of actual experience. In the fall of 1977, when utilities and others were preparing for the coal miners' strike which did, in fact, come to pass, rail carloadings of coal soared to new highs. In a single six-week period, railroads were averaging better than 111000 carloads per week. If you were to assume that level of demand for a full year- allowing for lessened activity during the annual coal miners' holiday and during the Christmas season-then the railroads' present coal-hauling capacity is close to 500 million tons per year, or about 23 percent over 1976 without any further equipment additions or improvements in car utilization. This experience-and the findings of the OTA and the DOT's Coal Transporta- tion Task Force-should not be startling. They are not materially different than those of at least three other studies done under government auspices.4 As noted, the testimony of Mr. Jennings -also asserted a need for competition. He asked the Congress to consider whether there will be "the discipline of competition to control the significant cost of hauling coal long distances from mine to power plant." Of course, the fact is that competition already exists in coal transportation- between railroads and other transportation modes, between coal from various regions and among the railroads themselves. In addition, railroads are regulated with regard to rates as though they enjoyed a monopoly. The San Antonio case (ICC Docket No. 36180) involving unit train rates quoted l)y a western railroad is often cited in support of the contention that railroads need the discipline of competition with pipelines. But, if the San Antonio case proves anything, it is that the Interstate Commerce Commission stands as a protection-excessive protection sometimes, in my opinion-against arbitrary or unreasonably high rail rates. *Remember, too, that railroads are true common carriers. A railroad cannot say "here is our rate for hauling coal-accept it or do without." If a customer feels the rate is too high, he may appeal to the Commission. If he is successful, the railroad is required to deliver the coal-whether or not the railroad believes the rate to be properly compensatory. What about slurry pipelines? What sort of competition would they provide? The ansu-er is that there would be no equitable competition. The OTA stated it rather succinctly: "Even if pipelines were required to be common carriers in name and subjected to the Interstate Commerce Act, they would still behave like contract carriers in practice due to the practical re- quirements imposed by the economics and mechanics of their operations." (p. 17) The OTA also noted that pipelines would enjoy significant regulatory advan- tages over railroads, among these the ability to serve selected customers and the prohibition of long-term contracts between railroads and their shippers. Not a mile of any pipeline will be built until the traffic that pipeline will carry is guaranteed l)y a long-term "take-or-pay" contract. The contract will then be used as a vehicle to finance construction of the pipeline. U.S. Department of Transportation, Transporting the Nation's Coal-A Preliminary Assessment 197S. 4 Long-Distance Coal Transport: Unit Trains or Slurry Pipelines-Bureau of Mines Information Circular 8690 Railroad Freight Car Requirements for Transporting Energy. 1974-~08i-prepnred by Peat, Marwick. Mitchell and Company for the Federal Ener~ Administration, the Commerce Department and the Department of Transportation; Rail Transportation Requirements for Coal Movement in 1080-prepared by Input Output Computer Services, Inc., for the Department of Transportation. PAGENO="0112" 106 I should note that a "take-or-pay' contract is a very different animal from the tariff publications under which railroads must provide service. It is not a simple statement attesting to provision of certain services at a specified rate. In a "take-or-pay" contract, the customer is committed to pay the price for services- whether or not he uses those services. As a specific example, let us say a utility company signs such a contract with a pipeline company for the delivery of 25 million tons of coal per year for 30 years. If, in any given year, the utility finds it cannot make use of all 25 million tons, it must nevertheless pay for transportation of 25 million tons. Contrast this with a typical unit train tariff rate which the utility could decide not to use at any time. Through the `take-or-pay" device, competition is foreclosed for a period of perhaps 30 years at the instant the contract is signed. No railroad can win back the traffic lost to a pipeline-not by cutting rates, not through innovations, not by any means. Since a railroad may not enter into such a long-term `take-or-pay" contract, there is no real competition even at the outset. There cannot be com- petition when the so-called competitors operate under different and unequal rules. A claim of pipeline proponents is. of course, that coal slurry pipelines can pro- vide coal transportation more economically than can railroads. Those proponents point to certain passages in the OTA report b.earing on this question, since they are about the only passages that can be said to provide any support at all for coal slurry advocates on any major issue involved in this controversy. But in fact, as I shall now indicate, an examination of the entire OTA anlysis of this cost question demonstrates that here, too, the case for coal slurry pipelines has been dismantled. The OTA did find that, under certain circumstances and after making a number of assumptions having to do, for example, with the mines, the markets, the distances, the terrain, the water supply, and rail service, the cost of slurry transportation might be less than the cost of rail transportation-if, as the OTA put it. "one ignores regulatory distortions and larger social costs." I'll return to that phrase in a moment-. But first I note parenthetically that one of the circumstances listed by the OTA as favoring pipelines is high an- ticipated rates of inflation. It surely seems incongruous that the same Admin- istration that has pledged a reduction of inflation is being asked to endorse a concept that depends for success on high inflation. In any event, the OTA examined four hypothetical cases in which pipelines and rails were considered. Two of the cases showed pipelines less expensive and two showed rails less expensive. In testifying before the House Committee on Interior and Insular Affairs on January 23. 1978, Governor Peterson, the new Director of OTA, emphasized that this should not be taken to mean that pipelines would prove economical in 50 percent of all situations. Rather, all four cases involved circumstances favorable to pipelines, and still they came out ahead in only two. Beyond that, the OTA described its pipeline scenario as "highly conjectural. The necessity to predict factors such as future construction costs, labor pro- ductivity, and inflation rates added a maior element of uncertainty to the OTA projections" (p. 16). Indeed, in testifying last month before the Com- mittee on Interstate and Foreign Commerce, Governor Peterson acknowledged that the uncertainty was so great that one had to conclude that there was no evidence that pipelines would in fact be cheaper than railroads. How could it be otherwise when one reflects on the Alaskan pipeline experience, where costs ballooned from an original estimate of under one billion dollars to a final cost of nearly eight billion dollars in nine years. As the OTA noted, "Areas of par- ticular uncertainty include future construction costs and the appropriate price for water" (p. 61). Indeed, OTA stated that "the range of uncertainty associated with predictions of rail and pipeline costs in a given case is often ~s great as the difference between them." As a matter of fact, it appears that what OTA did was simply to make arbitrary assumptions favorable to pipelines so that esti- mates of economic and environmental impact could be made. Consider this rather startling description of OTA's methodology: "The second scenario [in which both pipelines and railroads would carry coal] is necessarily highly conjectural, depending not only on the simplified projec- tions of the coal transportation market. but also on crude cost estimates and uncertain predictions of the behavior of transnort~tion firms. their cu~to'i,ers, and government regulatory bodies. However, the purpose of this section is to de- PAGENO="0113" 107 rive a plausible if arbitrary set of market share and cost assumptions that are sujjleiently favorable to pipelines to provide a basis for comparison with a `no pipeline' alternative." (p. 59) (Emphasis supplied). In short it has not been demonstrated that in the real world pipeline trans- portation would ever be less costly than rail transportation. Moreover, the OTA noted that under the long-term, `take-or-pay' contracts typical of slurry opera- tions the "costs of errors in judgment will probably be borne largely by the public and not necessarily the utility investors." (p. 16). It is for this reason that OTA observed that "regulatory agencies governing utilities should scrutinize long- term contracts for pipeline transportation with great care" (p. 16). But even assuming that in some cases pipeline costs might be less than rail costs, two other findings by the OTA cancel out any advantage this might be thought to confer upon coal slurry proponents. First, the public might well not benefit at all. As the OTA. notes, "pipeline rate regulation would probably pro- vide for a return on investment substantially higher than the ICC has historically allowed on direct rail investment (p. 17). Second, and even more important, because of the regulatory framework in which railroads must operate-in particular the common carrier status of rail- roads- "pipelines could capture coal traffic from railroads even, where the incre- mental rail cost is lower" (p. 17) (emphasis supplied). To put it differently, be- cause "rail rates contain an element of fixed system costs and losses which result from the requirement to maintain certain unprofitable services, e.g., low volume branch lines," and because "even if pipelines were required to be common carriers in name . . . they would still behave like contract carriers in practice due to the practical requirements imposed by . . . their opera- tion," there would be "a distortion in relative rates, permitting selection of pipeline transportation i11 some cases where rail represents a lesser cost to society" (ibid.). The short of it is, then, that even if in some circumstances slurry transporta- tion would be cheaper, in others where it would be more expensive the traffic would move by pipeline anyway because of the regulatory constraints imposed on railroads. So it is impossible to say that in terms of cost of service, there would be a net gain to society even if one assumes conditions most favorable to slurry transportation. This ought to end the matter. There is no need for slurry pipelines because railroads can carry the traffic; pipelines w-ould compete unfairly with railroads; and slurry transportation w-ould promise no net gain in terms of cost. But there is more, much more. First, the OTA found adverse effects to rail- roads and rail customers through the introduction of coal slurry pipelines. While the OTA observed that railroads could also be damaged through adverse regu- latory policy and declines in the rate of productivity gains-and I certainly agree-it also found that "the reductions in revenue threatened by pipelines could represent a threat to the financial health of a particular railroad". (p. 17). As to shippers, the OTA found that "the most probable effect . . . will be a lessening of the present rate of decline in average tariffs . . ." (p. 18). Finally, OTA noted that their foregoing findings were based on the assumption that pipelines would develop gradually and would divert only new coal, and that "diverting traffic rapidly from rail after substantial resources have been in- vested to expand service would clearly have an additional adverse impact on the rail industry." (Ibid.). If one looks beyond OTA's general statements to its actual findings, the grim character of the prospective impact becomes even more clear. OTA concluded that, in the year 2000, the rail industry would be deprived of $687.87 million in net operating revenues and the western railroads alone would be deprived of $628.3 million (p. 92). This is considerably more than the entire net operating income for both the industry and the west in 1976; it exceeds the net operating income for the west in every prior year; and it `exceeds the net operating in- come for the industry for every year since 1966 except 1974. Moreover, there have been recent developments in the Midwest that the OTA was not able to take into account. I'll return to that subject in a moment. First, let me say a word about rail shippers. We believe that the impact of pipeline development on rail shippers and communities served by rail would be great. All railroads have high fixed costs-which can be both an advantage and a disadvantage. Fixed costs are not related to operations, so they do not rise when traffic rises. By the same token, however, fixed costs do not drop when 32-745 0 - 78 - 8 PAGENO="0114" 108 business drops. What this means is that-if the railroad is to remain solvent- it must charge more for the services it still provides. And that means that vir- tually all rail shippers will face increased rates. Obviously, however, there are regulatory-and practical-limits to the amount by which rates can be increased. Railroads cannot simply pass their problems along to their customers. There are now two bankrupt railroads in the Midwest. Fears have been ex- pressed that the Midwest is following the pattern already seen in the North- east. The biggest problem of some midwestern railroads is excess capacity. This, I might add, is a problem throughout the industry, but it is felt most keenly now in the Midwest. A railroad in such a position has, three options. It can disinvest-that is get rid of the excess capacity by abandoning track-but this is not a simple matter in a totally regulated industry. It can obtain new traffic which will make use of the excess capacity. Or it can go out of business. I submit that the second option is preferable, because it expands, rather than contracts, railroad service-thus spreading the fixed costs out over more units to the benefit of railroad customers. The goals for increased coal production and use outlined in President Carter's program seem made to order for this situation. Many of the Midwestern rail- roads now experiencing financial difficulties are not now major coal haulers. Coal represents new and profitable traffic for these railroads. Even one large- diameter pipeline could dash that promise. One pipeline, for example, might carry 25 million tons of coal per year. In 1976, the Rock Island's total tonnage was less than 41 million tons. The Milw-aukee Road's total tonnage was less than 47 million tons. The traffic represented by a single pipeline could have increased the tonnage of either railroad by more than 50 percent. If pipelines do take the coal that could help the Midwestern railroads, it is difficult for me to see where a comparably profitable source of new traffic might come from. One more issue has been prominently involved in this debate-western water. The OTA's findings on this subject are ominous. In his earlier-noted testimony before joint subcommittees of the Committee on Interior and Insular Affairs, on April 26, 1977, Slurry Transport Association President, W. Pat Jennings characterized the bill pending before that com- mittee as a simple and innocuous measure. It did not, he said, "provide water or customers for a single coal slurry pipeline." He was obviously seeking to allay the fears of many regarding the enormous water requirements of coal slurry pipe- lines-well-founded fears, w-hen you consider that the pipeline furtherest along in the planning stages would export six billion gallons of water each year from a region in which water is far from abundant. The OTA found that, not only was there reason for concern about these water requirements, but that passage of federal eminent domain legislation could well guarantee water to the pipelines-regardless of the wishes of the states involved. Specifically, the OTA said "the courts may rule that federal certification of a coal slurry pipeline will negate state attempts to restrict unallocated water to the project I leave it to others who are more directly affected to expand upon this issue- though railroads are affected too, for our prosperity depends upon the prosperity of the regions we serve. I note only that the OTA pointed out that "pipelines do compete directly with other possible future uses" of western water (p. 20), that "when levels of use exceed users' rights . . . new appropriations may displace present, as well as future., uses" (p. 20), that the future character of these re- gions will turn largely upon the development of these uses of water, and that the Congress ought not imperil that development by enactment of legislation that is not only unnecessary but that will undermine the rail system of the country. It is instructive to look at some of the specific findings of OTA on the water issue. OTA concluded that "in all potential coal slurry pipeline origin areas except Tennessee, demand projected for the 1985-2000 period exceeds the legally avail- able supply" (p. 111). The character of the impact of a pipeline is illustrated as follows: [T]he Montana pipeline would take enough water to revegetate about 3,000 acres of surface-mined land in the Colstrip area in 1985. If all the water for the four pipelines carrying 74.5 million tons of coal per year were redirected, PAGENO="0115" 109 it could be used to mine 160 to 220 million tons of coal, reclaim 16,000 to 21,000 acres of surface-mined land, serve up to 10 coal gasification plants or up to 5 coal liquefaction facilities, or provide cooling for 2 to 4 powerplants" (p. 111). * It is notable, I believe, that as this statement indicates, one of the consequences of the establishment of pipelines would be to inhibit the future mining of coal and shale-a consequence obviously at odds with national energy policy. More- over, the OTA also found that rail transportation is much more energy efficient than pipelines-only 300 btu's per net ton mile for rail versus 610 btu's for pipe- line. Thus, even on the basis of energy policy alone, pipelines make no sense. Let me summarize the situation as it exists in the wake of the OTA report. On the important issues-those which bear on the public interest-the contentions of pipeline proponents have been refuted. The Office of Technology Assessment has found that: Enactment of federal eminent domain legislation could guarantee the right to drain away immense quantities of precious water, regardless of the wishes of the states involved. Coal slurry pipelines are not necessary to guarantee adequate coal transportation. The potential for cost savings is highly questionable and, in any case, would probably not accrue to society. Whatever economic advantage pipelines might enjoy would be more a matter * of inherent superiority. Railroads and rail shippers would be adversely affected. In addition, the report released by the Department of Transportation last January warned that: "There are several major unresolved issues that must be settled prior to any determination on construction of coal slurry pipelines. These issues involve a broad range of problems, including legislative and timing de- cisions, water resource and environmental impacts, ownership and competitive considerations, and the costs of construction and operation of the pipeline and ancillary systems". Given these findings, there is no justification for a government decision to foster the development of coal slurry pipelines. An illustration may place this matter in perspective. Disregarding physical differences, the function of a coal slurry pipeline is, in essence, the same as that of a railroad unit train. That is, it moves coal from one place to another. If a group Řf promoters were to come to the Congress seeking assistance in a - scheme to build an extensive new railroad system to haul coal in the West-or in any other area-they would surely be laughed out of Washington. Yet this is precisely what the coal slurry pipeline promoters are proposing to do-superimpose a redundant transportation system upon an area in which ade- quate transportation capability already exists. I believe that the public interest requires rejection of this unwise proposal. Mr. DEMPSEY. I will simply summarize the principal points that are made in the statement, and I would like, in particular, to address some of the issues that were the subject of colloques during the preceding day of hearings on this issue. I also, however, before I do that, would like to s~ibmit, not as part of the record, in the interest of government economy, because they are ex- tensive, but as part of the file so that they could be available to the sub- committee and its staff, two statements that were submitted in the April 1977 hearings before the Committee on Interior and Insular Affairs; one by Mr. Louis Menk, who is Chairman of the Burlington Northern, and another by Mr. Jalnes Wolfe, who is President of the Chicago and North Western. What these statements do is to provide a good deal of detail with respect to the plans of particular companies for transportation of coal, and more detail than I do about the probable impact of coal slurry pipeline legislation upon individual railroads. Mr. EDGAR. Without objection, they will be made a part of the com- mittee file. PAGENO="0116" 110 Mr. DEMPSEY. Thank you very much, Mr. Chairman. There has been, of course, a prolonged debate and controversy over this coal slurry pipeline legislation. W e and the Congress are now for- tunate to have at our disposal a very extensive, elaborate, and I think carefully a.nd well-considered report by the Office of Technology As- sessment. That report addresses, each and every one of the issues that are at the heart of this controversy. Of course, as Governor Peterson said when he testified the other day, it is not the role of the Office to recommend either for or against legis- lation and, accordingly, the report refrains from making any recoin- mendation, affirmative or negative, with respect to H.R. 1609, or any similar legislation. But I do submit to the subcommittee that if this report is examined with care and with impartiality, the case against H.R. 1609 becomes overwhelming, and I would like to consider each of the important issues that are involved here, primarily in the light of the report of the Office of Technology Assessment. Let me begin with what, at the outset of this extended argument, was asserted to be the principa.l reason for the enactment of this legislation, and that is the asserted need for coal slurry pipelines in order to meet the energy requirements that this country will face in the forthcoming decades. For example, my good friend, Mr. W. Pat Jennings, the president of the Slurry rllransport Association, in his testimony on April 26, 1977, said this: Only two issues are involved; they are capacity and competition in coal transportation. Will there be adequate capacity to ship the great volume of coal this nation needs? I should add that Mr. Jennings' position-namely, that the railroad industry was not up to the job of transporting the additional cost that will be mined under the President's energy program, if it is adopted by Congress-that position ~was shared by the Department of Energy until very recently. But I was pleased to note that in his testimony be- fore this committee the other day, Mr. O'Leary, speaking on behalf of the Department of Energy, refrained from making any contention that the railroad industry would not: be able in the future to transport all of the coal necessa.ry to meet this country's energy requirements. Rather, he said that the only issue now was one of price, and I mean to get to that issue in just. a moment. But let me continue with this question of need; that is to say, are coal slurry pipelines essential if the coal that will be mined is to be moved. OTA's report on this question is unequivocal. The report says, and I am quoting from page 18 of the draft report which is now in its final form and substantially unchanged: The capacity of rail systems can be expanded faster than can coal mining or electric power generation using coal, provided the necessary investments in local rail facilities are made, and that the choice between transportation modes will not be determined by their respective capacity limitations. The conclusion squares exactly with a report issued this past Janu- ary by the Department of Transportation. Its coal transportation task force estimated that there would be required an investment by the rail- roads of somewha.t over $10 billion, amid concluded that, "While some PAGENO="0117" 111 problems exist, we believe that this investment can be made," and that, accordingly, there is no need to look beyond the rail system for capacity to move the coal that will be mined in the forthcoming decades in this country. That conclusion is mirrored in the recent experience of the railroad industry. In the months before the recent coal strike, the utilities, of course, were storing up coal and during a single 6-week period, the rail- roads hauled somewhat over 23 percent of their average coal-hauling capacity as was experienced in the prior year, without any additions of equipment or track. Now, the conclusions of the Office of Technology Assessment and of the Department of Trtnasportation could hardly have been surprising, because they simply mirrored the findings of at least three other studies that have been made under Government auspices. Indeed, there is not a single disinterested party that has ever examined this issue that has come to a contrary conclusion. So, the case for coal slurry pipelines, in short, cannot be made on the ground of need. Let me then turn to the second question that Mr. Jennings raised, and that has been raised by other advocates of coal slurry pipelines. That is the contention that there is a requirement, or a desirability, in any event, for additional competition for the railroads in the transpor- tation of coal. That ignores the fact, of course, that a great deal of competition already does exist in coal transportation between rail- roads and other transportation modes, between coal from various re- gions, and among the railroads themselves. But, beyond all that, as this committee knows, the railroads are, in fact, regulated as though they enjoyed a monopoly. The so-called San Antonio coal rate `case is often cited as evidence that something is needed in the way of competition for railroads. But if anything is dem- onstrated by the San Antonio case, or any of the other coal rate cases that are pending before the Interstate Commerce Commission, it is that the Commission stands as protection-_indeed, in my view, often exces- sive protection-_against arbitrary or unreasonably high rail rates. I think the more interesting question is what kind of competition would the coal slurry pipelines confront the railroads with. I think the short answer to that, again, can be derived from the OTA report, and it is that that competition would be very unequal competition, indeed. As the OTA stated the matter rather succintly, and I am quoting now from page 17 of their report: Even if iipelines were required to be common carriers in name and subjected to the Interstate Commerce Act, they would still behave like contract carriers in practice due to the practical requirements imposed by the economics and the mechanics of their operations. What the coal slurry pipelines that are visualized would be, would be massive operations that would move 20 to 25 million tons of coal a year from large producers to large users. That would be their sole function; that would be moving the cream of the coal business. That is the kind of coal business that the railroads need badly. It is the kind of coal transportation that we do the best with our unit train operations. The augmentation of this market is essential for the financial health of the railroad industry, a matter that I mean to get back to in more PAGENO="0118" 112 detail in a moment. But, here, I simply want to point out that it really does not do much good calling a coal slurry pipeline a common car- rier, because it would not, in fact, be a common carrier like the rail- roads are. Railroads have to serve the large suppliers and the small suppliers, and the large users and the small users, and the relatively profitable traffic and the relatively unprofitable traffic. There is no way that legislation can be written that would impose those kinds of obligations upon a coal slurry pipeline, so that, in short, there would be competition, bUt what it would be, would be unfair competition. The kinds of contracts that coal slurry pipelines have are most un- usual. They are called "take or pay" contracts, and what they oblige the shipper to do is to pay for a. specified tonnage of coal per year at a prescribed rate, whether or not that tonnage is moved. That is a sig- nal advantage to a transportation enterprise. It is an advantage that the railroads have never been permitted to enjoy. What happens. then, with such a "take-or-pay" contract-and they run for 25 or 30 years. and no coal slurry pipeline is built until that kind of business is assured by virtue of such a contract-what happens when that kind of a contract is signed is that competition is foreclosed. This is not a matter of introducing competition; this is a matter of foreclosing competition for these vast quantities of coal for periods of 25 or 30 years at the very instant that the signature is put on that contract. No railroad could ever win back the traffic that is lost to a pipeline in this manner. They could not win it back by cutting rates; they could not win it back by innovations that would improve productivity; they could not win it back by improving service; they could not win it back by any means. Now, that is the kind of enhanced competition that would be brought about by the introduction of coal slurry pipe- lines. Now let me come to the issue that Mr. O'Leary said really is the only issue that is involved-that is, the only basis upon which the Depart- ment of Energy insists that IH.IR. 1609 is justified in the public inter- est-and that is the question whether the building of coal slurry pipe- lines might, and probably would, reduce the cost of energy to the consumer. Here, again, I invite the subcommittee to examine the careful analy- sis of the Office of Technology Assessment very carefully, because it seems to me tha.t with a careful reading of that report and all of the features that relate to this question of cost, that the case for coal slurry pipelines has been dismantled. The OTA examined four hypothetical cases involving pipeline and rail transportation, and I want to emphasize-and I will come back to this again-that they were hypothetical. We do not have any, and the OTA does not have any, actual cost data that comes off the drawing boards of coal slurry pipeline engineers. Two of these hypothetical cases showed coal pipelines less expensive, and two showed rails less expensive. They were both very long opera- tions, involving operations of 1,000 miles, approximately, more or less. Now, Governor Peteron emphasized in his testimony before the House Committee on Interior and Insular Affairs a number of things. PAGENO="0119" 113 First of all, he emphasized that this should not be taken to mean that in 50 percent of the cases, pipelines would be cheaper than rail, or that rail would be cheaper than pipeline, either, in 50 percent of the cases, because all of these four cases involved circumstances that were favorable to pipelines, and not to railroads. Now, beyond that, OTA described its pipeline scenario as, and I am quoting from page 16 of the report: highly conjectural. The necessity to predict factors such as future construction costs, labor productivity, and inflation rates added a major element of uncer- tainty to the OTA projections. Indeed, in testifying before the House Committee on Interstate and Foreign Commerce last February, in response to a question by Repre- sentative Skubitz, Governor Peterson acknowledged that the uncer- tainty was so great that one really had to conclude that there was no real evidence that pipelines would, in fact, in any circumstances, be cheaper than railroads. And I suggest for your consideration that one could hardly come to a contrary conclusion w-hen one reflects, for example, on the experience of the Alaskan pipeline, where we had, initially, a projected cost of around $1 billion and a final cost of nearly $8 billion; an escalation from $1 billion to $8 billion in construction costs over only a 9-year period. OTA pointed its finger at this particular element of doubt when it stated that: Areas of particular uncertainty include future construction cOsts and the ap- propriate price for water. I should add as an aside that I find it somewhat ironic that the ad- ministration is supporting coal slurry pipeline projects that, as OTA pointed out, depend for their success in pricing upon high rates of inflation, because it is only under circumstances involving high infla- tion rates that it is argued at some point during the 25- or 30-year or 40-year lifetime or cycle of coal slurry pipeline operations their costs would come below rail costs, and that is because of the undeniable fact that the fixed costs of coal slurry pipelines are less than the fixed costs of railroads, so that they are less subject to the pressure of infla- tion. Again, I do want to underscore this element of enormous uncertainty in the projections that have been made in this area. OTA stated at another point: The range of uncertainty associated with predictions of rail and pipeline costs in a given case is often as great as the difference between them. I would like to read just one more quotation from the report, because it is really quite startling. What it says, quite plainly, is that what OTA did was simply to make arbitrary assumptions-I do not mean this in an invidious sense at all-but assumptions not grounded in any facts, in order to make estimates of economic and environmental impact that arise from the operation of coal slurry pipelines, because they felt they had to make those kinds of projections in order to deal with other issues that are involved in the case. Here is t.he quote I would like to read-and this is a scenario in which both pipelines and railroads would carry coal-and this is from page 59: PAGENO="0120" 114 The second scenario is necessarily highly conjectural, depending not only on the sim~Iified projections of the coal transportation market, but also on crude cost estimates and uncertain predictions of the behavior of transportation firms, their customers, aiid government regulatory bodies. However, the purpose of this section is to derive a plausible, if arbitrary, set of market share and cost as- sumptions that are sufficiently favorable to pipelines to provide a basis for a comparison with a "no-pipeline" alternative. In short, it has not been dernonstrated-let me begin with my first point. It has been demonstrated that there is no need for coal slurry pipelines, and it has not been demonstrated that in the real world, coal slurry pipelines would ever be less costly than railroads. I suggest that in those circumstances, when one is talking about legislation that would confer an extraordinary power of Federal eminent domain in place of State eminent domain, which is the direc- tion in which. of course, the coal slurry pipeline advocates are free to go, that there has been a signal failure of proof. I would like to make two other points, and they are important, about this question of cost of energy. Even assuming that in some cases, coal slurry pipeline costs might be less than rail costs, there are two other findings by OTA that negate that hypothetical advantage, in any event. First, the OTA found that tile public might well not I?enefit at all, because, as the OTA noted, and I am quoting now from page 17 of its report: Pipeline rate regulation would probably provide for a rate of return on invest- ment substantially higher than the ICC has historically allowed on direct rail investment. So, it is unlikely that the public would benefit, in any case. Second, and this is a terribly important point, because it goes to the inequity that would be brought about by the Federal sponsorship of coal slurry pipelines in competition with common carrier railroads, the point is this: Because of the regulatory framework in which rail- roads must operate-and, in particular, our common carrier status which obliges us to serve the small as well as the large and the poor as well as the rich and tile relatively unprofitable traffic along with the relatively .profitable-"pipelines could capture coal traffic from railroads, even where the incremental rail cost is lower." Or, to put it differently, because "rail rates contain an element of fixed system costs and losses which result from the requirement to maintain certain unprofitable services, for example, low-volume branch lines," and because "even if pipelines were required to be com- mon carriers in name . . . they would still behave like contract car- riers in practice," there would be "a distortion in relative rates, per- initting selection of pipeline transportation in some cases where rail represents a. lesser cost to society." I want to restate that point again. Even if, in some circumstances, coal slurry pipelines might be cheaper t.han railroads-first, that bene- fit might never go to the consumer, because of the regulatory frame- work in which they operate-but, second, they could capture traffic from railroads, even where their cost was higher than railroads, be- cause of the obligation of the railroads to maintain this huge, fixed- cost transportation network in tile United States. It is that fundamental competitive inequity between these two modes of transportation that I suggest argues most strongly against Federal PAGENO="0121" 115 endorsement of coal slurry pipelines, through the medium of this most unusual conferring of eminent domain upon this form of transpor- tation. Now, I suggest that really ought to end the matter. There is no need for coal slurry pipelines. rllhere is no evidence that that they would transport coal more cheaply than railroads. It is clear that they would compete unfairly with railroads. That, as I say, should end the matter, but there is more. I want to speak now about the impact of coal slurry pipelines upon railroads and upon those who depend upon railroads. I am frank to say that if the rail industry were earning a rate of return comparable to public utilities that they serve-lO, 12, 14, or 15 percent on net in- vestment-that I expect this committee would not listen to me very long on this point. But, as this committee and the Congress knows, that is far from the fact. We are facing a serious crisis in the rail transportation sys- tem in the United States, and we have been facing it now for several years. The Congress is well aware of it. It evidenced its concern by the enactment, in 1976, of the 4-ZR Act, but I simply want to illustrate the point by referring to a few key figures. We just issued the industry's 1977 financial data. The industry had its worst year since 1932. The industry had a rate of return on net investment of 1.28 percent. That was down, but only modestly, from 1976, when we had a rate of return on net investment of 1.51 percent. That, had been the previous worst year since the 1930's. The railroad industry has not had a rate of return on net invest- ment of higher than 3 percent since the 1960's; higher than 4 percent since the 1950's. As an industry, we have been in a state of chronically depressed earnings, which has affected our ability to render service to the public for the last 15 to 20 years. Kow, what did the OTA find with respect to the probable impact of coal slurry pipelines on railroads? Well, as you might expect, it found that there would be a threat to the financial health of railroads. So far as shippers are concerned, OTA found, "the most probable effect will be a lessening of the present rate of decline in average tariffs." In other words, the shippers would have to pay more for rail- road transportation than they otherwise would. Now, I would like to go beyond OTA's general statements on this matter to their actual findings, because they are truly, truly startling. I direct the attention of the committee to page 92 of the OTA draft report. OTA concluded that in the year 2000, the rail industry would be de- prived of $687.87 million in net operating revenues-not gross, but net-and the western railroads, alOne, would be deprived of $623.3 million. Now, this is much more than the entire net operating income for both the industry and the West in 1976, and much more, as I have just indicated, than in 1977. Beyond that, these figures exceed the net operating income for the West in every prior year in history, and exceed the net operating in- come for the whole industry in every prior year in history since 1966, except for one relatively prosperous year in 1974. The deprivation of net revenue of those magnitudes from this in- clustry that is suffering such a chronically depressed state of earnings PAGENO="0122" 116 would be truly catastrophic, and I really do not see how any other conclusion can be reached. Now, I would like to direct the committee's attention to the prob-. lem that we face in the Midwest. Everyone is familiar with the problems that the railroads face in the Northeast, after the collapse of the Penn Central-the largest bankruptcy in the history of the American economy. And, now, we find ourselves with two major bankrupt railroads in the Midwest-the Milwaukee Road and the Rock Island. I think it would be wise just to reflect for a moment on the funda- mental character of the problem that we face. It is that our fixed plant is too large for the business that we carry The railroad system in some areas of the country, including the Midwest and the East, is radically overbuilt. What has happened here, just to give you one figure, is that the entire industry is carrying only 50 percent as many tons per mile as we were at the end of the Second World War. We are over-invested, but because we are a regulated industry, it is terribly difficult for us to disinvest. Now, the only answer here that would be a satisfactory one from the point of view of public policy is to have some disinvestment, but, at the same time, some increase in traffic. And if you do have that increase in traffic to cover your fixed costs-and our fixed costs, as I say, are a very large portion of our costs-then all of your shippers benefit. It is as if you own a taxicab and you have to pay the carrying costs on the taxicab. Your gas and oil, of course, are variable costs and they do not go up if your traffic does not go up, but you have got to pay that carrying cost. So, if you can carry 100 passengers instead of 10, obviously you can have taxicab fares for the 100 that are much lower than they would be for the 10. That is a vastly oversimplified illustration, but it does get to the heart of the problem that the railroad industry faces, particularly in the Midwest and the East. Now, it is said that the coal slurry pipelines, after all, will only take a part, even though a substantial part, of the new coal that is going to be mined, and therefore the railroads should not have any concern about it; that is to say, that there will not be an erosion of their exist- ing traffic base. What I am trying to say, by the data that I am presenting to the committee now, is that that is of scant comfort to the railroad industry, and should be of scant comfort to the Congress and to the shippers that depend on the railroads, because what we need is not simply a maintenance of our present level of traffic-what we desperately need is a radical increase in our traffic. The energy program that the President has submitted to the Con- gress seemed made to order, a.t least in this respect, for the financial plight of the midwestern railroads. When I say "at least in this re- spect," I am talking about one of the centerpieces of the program which has to do with the conversion to coal as the major bridge fuel for the United States between our present petroleum-based economy and whatever more exotic kinds of energy sources will develop in the next century. PAGENO="0123" 117 I say that it seemed made to order because many of the midwestern railroads that are now experiencing financial difficulties are not now major coal haulers. Coal represents a new and potentially profitable traffic for these railroads, and even one large diameter pipeline could dash that promise. For example, a pipeline could carry 25 million tons of coal a year, and that is generally what these pipelines are designed to do, within that range, so that they can be economical. In 1976, the Rock Island's total tonnage of coal was less than 41 million. The Milwaukee Road's total tonnage was less than 47 million, so that the traffic represented by a single pipeline could have increased the tonnage of either of these railroads by more than 50 percent. Now, that is an enormous potential benefit for these struggling mid- western carriers. So, I say again, it really is not very comforting to say that, "Oh, well, there is going to be plenty for all." There is not plenty for all, not in the present state of the American railroad industry. Let me address one final point; it has to do with water. Now, the committee is well aware that the question of the use of western water is one that has been heatedly debated. I think that it would be appro- priate for me-and I mean to-to defer to others, such as Representa- tive Roncalio, who stated the case most eloquently, because they are more directly affected by the water question than are the railroads. The railroads are affected, too, because, after all, we serve these areas and we depend upon their future economic development for the health of the railroads that serve the West. The depletion of water resources, therefore, does have an important meaning for the railroads, and I therefore would like to say just a few words about what the OTA con- chided with respect to the water issue. First of all, OTA found that passage of Federal eminent domain legislation could well guarantee water to the pipelines, regardless of the wishes of the States involved. "The courts may rule that Fed- eral certification of a coal slurry pipeline will negate State attempts to restrict unallocated water to the project." They cited a judicial deci- sion which underlines that conclusion which I simply refer to the~ committee for examination. Second, they pointed out the obvious fact that pipelines which use 1 ton of water for every ton of coal-they are enormous users of water and, of course, the problem here is that they need the water where the coal is and the coal is where the water is not; that is the problem. OTA pointed out that the establishment of coal slurry pipelines would com- pete with other important uses for water, both future and, under cer- tain circumstances, present users. I think it is useful here to try to quantify this, and OTA did. I will just give you one illustrative quotation. This is from page 111 of their report~ and the OTA said: "In all potential coal slurry pipeline origin areas except Tennessee, demand"- that is, water demand-"projected for the 108~ to 2000 period exceeds the legally available supply." And then they illustrated the character of the impact of a pipeline this way: "The Montana pipeline would take enough water to revegetate about 3,000 acres of surface-mined land in the Coistrip area in 1985. If all the water for the four PAGENO="0124" 118 pipelines carrying 74.5 million tons of coal per year were redirected, it could be used to mine 160 to 220 million tons of coal, reclaim 16,000 to 21,000 acres of surface-mined land, serve up to ten coal gasification plants, or up to five coal liquefaction facilities, or provide cooling for two to four power plants." I think it is notable tha.t one of the consequences that is identified here would be to inhibit the future mining of coal and shale. That. con- sequence obviously seems at odds with national energy policy, and in that connection, I would like to point out that OTA found that rail transportation is much more energy efficient than pipelines-only 390 Btu's per net ton mile for rail, versus 610 Btu's for pipeline. Therefore, even on the basis of energy policy, alone, pipelines, I respectfully sug- gest, make no sense. That concludes the points that I wanted to touch on in respect of my statment. I would like to make one or two comments about- Mr. EDGAR. If I could interrupt you at this point, we have a number of witnesses tha.t need to appear today, and a number of Congressmen that would like to approach you with some questions. So, if you could try to summarize those remaining points relatively quickly, I think some of the Members of Congress would like to have an opportunity to ask questions. Mr. DEMPSEY. It will not take me but 30 seconds to make the one point that I wanted to make, Mr. Chairman, and that had to do with the structure of the authorizing power under H.R. 1609. There was considerable debate at the last day of hearing as to why, in any event, the Department of Energy should be the certifying authority, and I would simply want to aline myself with those who would take the view that the transportation of coal slurry through a pipeline is fundamentally-I concede, obviously, that it is an energy problem, just as the transportation of grain is an agricultural prob- lem-but, more fundamentally, it is a transportation problem, and therefore ought properly to be dealt with, if it is every dealt with, by an agency such as the Interstate Commerce Commission, where, I want to note, jurisdiction over coal slurry pipelines was left last year when jurisdiction over oil and gas pipelines was moved to DOE. Conscious decision was made last year to keep coal slurry pipelines under the ICC. So, in any event, any dealings with coal slurry pipelines through Federal legislation ought to be by transportation agencies. We would suggest the Interstate Commerce Commission, but if not the Commission, then, surely, the Department of Transportation should be the certifying agenc , and not the Department of Energy. Mr. Chairman, that concludes what I had to say. Mr. EDGAR. Thank you very much for your very comprehensive state- mont before our committee. this morning. I am going to request that the. Members of Congress try to hold their questioning to the 5-minute rule, and we will begin our questioning this morning with the chairman of the full committee, Mr. Johnson. The ChAIRMAN. Thank you. Mr. Chairman. Mr. Dempsey, you have given us a very passionate report stating your position. What type of contracts are now entered into by a rail- road that is using the slurry system to furnish coal to a power facility? Mr. DEMPSEY. The Southern Pacific does operate a coal slurry pipe-~ line. PAGENO="0125" 119 The CHAIRMAN. Are they not under a contract? Mr. DEMPSEY. I am sorry. I am not familiar with that operation, Mr. Chairman, and I simply am not able to answer that question. I do not know, but are you talking about their coal slurry pipeline operation. The CHAIRMAN. The most successful slurry line we have at the pres- ent time, as I understand it, is that one. Mr. DEMPSEY. It is the only one. The CHAIRMAN. And it is the only one that is of any major size. We have other slurry lines moving other types of commodities, such as minerals, but they are minor to the scope of the Southern Pacific's slurry line, in operation. I believe that they entered into a contract for the delivery of that coal to the generating facility. By the same token, when they looked it over, as far as moving the coal and securing the right-of-way and the necessary authority to go ahead, this was negotiated, too, with another railroad company for the crossing of a railroad right-of-way. Mr. DEMPSEY. Yes, I expect that is right. The CHAIRMAN. Now, are they not, too, making a profit in that opera- tion at the present time? Mr. DEMPSEY. The Southern Pacific would have to answer that ques- tion, Mr. Chairman. I do not know. There was a pipeline in Ohio which closed down when the railroads introduced unit trains. The Black Mesa Pipeline represents a circumstance in which pipelines make sense. We have never taken the position that where there are no existing railroads, where the terrain forbids the construction at a reasonable cost of a long, new railroad line, that pipelines should not be built. There would be no question involved here before Congress if those were the only kinds of situations where pipelines were to be constructed. The CHAIRMAN. Are there not various types of considerations now being given to the transportation of huge amounts of coal by rail to an entity where a contract will be entered into, or a rate that will be agreed to between the railroad and the company and, if necessary, they will go before the ICC and request a rate for that particular operation? Mr. DEMPSEY. That would be a typical kind of negotiation between a railroad and a user, yes. But, we cannot enter into contract rates; we cannot enter into 25- or 30-year rates. The CHAIRMAN. In effect, you do about the same? Mr. DEMPSEY. No; we cannot. The CHAIRMAN. Well, you can go and make your case for the rate. Now, this was done in the case of other types of commodities. Mr. DEMPSEY. No; the coal slurry pipeline contracts are "take-or- pay"; 25 million tons a year, whether they are shipped or not, at a prescribed rate. The railroads cannot enter into any contract of that sort. The CHAIRMAN. That is true. But I mean as far as the rate for haul- ing the coal in huge amounts to service powerplants. Mr. DEMPSEY. Well, so far as the rate is concerned- The CHAIRMAN. We have utilities that are trying to negotiate vari- ous rates and contracts, or understandings of agreement, based upon the cost of transporting coal. Someone is going to have to go before the regulatory authorities and ask for a rate. Mr. DEMPSEY. Well, if the railroad and the shipper can agree upon a rate, then they can agree upon a rate and there is no particular prob- PAGENO="0126" 120 len-i, unless some other shipper comes to the Interstate Commerce Com- mission and says that that is discriminatory or prejudicial. The big difference here in this respect is that if they are unable to agree upon a rate, the railroad is still obliged to serve the shipper and the shipper can go to the Interstate Commerce Commission and say, "Prescribe a rate." That cannot be done with the coal slurry pipeline. The coal slurry pipeline would never be built. The CHAIRMAN. If coal is going to be competitive with other fuels, I think there is some consideration being given to that at the present time to meet the energy needs of the country. Mr. DEMPSEY. Let me say this about that. The Interstate Commerce Commission has been enjoined by the Congress in the 4-R Act to con- duct a number of studies, all aimed at trying to analyze the problems of the rail industry and trying to increase the revenues of the rail- roads, because we have something in the way of $4 billion deferred maintenance right now, for an example. Now, coal rates ought to be fully compensatory. They ought to be reasonable. Those are the tasks that are set for the Interstate Com- merce Commission in these rate proceedings. But I do respectfully suggest that if any element of American society is to be called upon to subsidize the use of coal in order to encourage conversion to coal, that about the last element of American society to look to for that task, in terms of their respective financial help, is the railroad in- dustry. The CHAIRMAN. I will not take any more time. Thank you, Mr. Chairman. Mr. DEMPSEY. Thank you, Mr. Chairman. Mr. EDGAR. The ranking minority member of the full committee, Mr. Harsha. Mr. HARSHA. Thank you, Mr. Chairman. Mr. Dempsey, you say that you represent the Association of Amer- ican Railroads, and that the railroad industry opposes this particular legislation. Do all railroads oppose it? Mr. DEMPSEY. To my knowledge, yes. Mr. HARSHA. Does the N. & W. oppose it? Mr. DEMPSEY. Yes, sir. Mr. HARSHA. And this B. & 0.-of course, they are part of the C. & 0. now, I gather? Mr. DEMPSEY. Yes, sir. Mr. HARSHA. Do you have any statement from the N. & IV.? Mr. DEMPSEY. No, I do not have one from the N. & W. What hap- pened here, Mr. Harsha, was that at a previous hearing, we appeared as a panel, and that is the reason that I have these statements available. I could have them from every president of every major railroad in the United States, if the committee wanted then-i. Mr. HARSHA. If I understood you correctly, also, you said that the railroads now are carrying only 50 percent of the tonnage that they were carrying at the end of World War II? Mr. DEMPSEY. Only 50 percent of tons per ton-mile. Mr. HARSHA. And that is freight, only? Mr. DEMPSEY. Freight, only.' Mr. HARSHA. And under the OTA report, it is estimated that the railroads will lose approximately $688 million in revenues? PAGENO="0127" 121 Mr. DEMPSEY. By the year 2000; net income. Gross would be much higher, of course. Mr. HARSHA. Are you suggesting, then, that if the pipeline legisla- tion goes into effect, we may wind up with something like an Amtrak, dealing freight only? Mr. DEMPSEY. Yes. If one looks at the whole railroad situ~tion, we see a struggling ConRail in the Northeast; we see genuine difficulties in the Midwest. We see some elements of the system that are relatively healthy. But unless there can be a recapture of the situation in these critically affected areas, nationalization is a distinct possibility, and I find it difficult to believe that we can run a system, in the end, that will be half nationalized and half privately owned. Mr. HARSHA. Now, the administration, I believe, has argued that we need to encourage the development of coal slurry pipelines in order to hold down the cost of electricity for the consumer. If any of the other Members' mail from their constituency is like mine, that is the predominate question that is being asked by the voters in the country today. Do you agree with this assessment that it will hold down the ultimate cost of electricity for the consumer? Mr. DEMPSEY. No, I do not, Mr. Harsha. The OTA study is the most reliable study that we have on this subject. It points out that all that it had to operate upon in making its judgments were a variety of hy- potheses. Even making hypotheses very favorable to coal slurry pipe- lines, it concluded that any cost benefits might never be passed to the consumer, because the regulatory agencies governing energy compa- nies are much more generous than the Interstate Commerce Commis- sion is, and also pointed out that because the railroads must necessarily try to ~et revenue from all the sources they can to cover their fixed costs, that coal slurry pipelines might be able to take traffic from rail- roads, even where the cost of rail transportation was higher. Now, I would like to add this: While it is only conjectural, at best, that there would be any energy cost savings, it is perfectly clear that the shippers of grain, the farmers, and the people that depend upon railroads would have higher rates, and the Office of Technology Assessment concluded that very explicitly. I am sure that your mail with respect to food prices is running pretty heavily, too. Mr. HARSHA. M~r. Dempsey, assuming that this committee would re- port a bill which would give the coal slurry pipeline the power of eminent domain, are there any amendments that you would suggest to the bill dealing with that subject of eminent domain, other than to strike it all out? Mr. DEMPSEY. Well, that is a hard question, Mr. Harsha. We are fundamentally and stronirly opposed to any bill, and I am sure I have made that clear. This bill is defective in many other respects. I men- tioned one; for example, the certifying agency ought not to be, in our judgment, the Department of Energy. Beyond that, I could find many thmrs wrong with the bill. The procedure ought to be an adjudicatory procedure. It is said, for example, by proponents of the bill that the interests of the rail- roads are adequately taken care of, because the ICC and DOT are asked to give their views on adverse impact to the Department of PAGENO="0128" 122 Energy. But there is nothing in the bill that requires that those views be heeded at all. It is not, in short, an adjudicatory proceeding that has been set up here under which certificates would not issue if there were substantial adverse impacts on the railroads; under which certificates would not issue unless, in fact, it were demonstrated that rates to the consumer would be lower. It is an infirm bill in many, many ways, and if I were asked to re- cast it, it would come out quite differently, Mr. Harsha. But I do not have anything specific to propose right now, because our fundamental position is one of opposition. Mr. HARSHA. Well, the record will be open for a couple of weeks. If you have some suggestion of amendments, would you submit it for the record? Mr. DEMPSEY. Of course, Mr. Harsha. Mr. HARSHA. That is all I have. Mr. EDGAR. Thank you, Mr. Harsha. Mr. Hefner? Mr. HEFNER. Thank you, Mr. Chairman. Mr. Dempsey, you mentioned at the opening of your statement that competition already exists in the transportation of coal. Where is this competition in the areas we are talking about with the pipeline? Are there any other means? Do you have any barges that haul coal in these areas? Mr. DEMPSEY. Barges do haul coal, as you well know, and so they provide- Mr. HEFNER. I mean in `the areas potentially affected by the pipe- line; is there any competition in these areas, now? Mr. DEMPSEY. The pipeline scenarios here involve transportation across the width and breadth of the United States, and there is a map here someplace that shows half a dozen projected pipelines and they run, as I say, across the whole country. One from Tennessee to Florida, for example, is one of those that OTA studied. So, I am not sure exactly what section of the country it is that you are speaking of. Mr. HEFNER. I mean existing competition. Mr. DEMPSEY. Well, there is a good deal of existing competition among railroads, for example, in all part of the country. Mr. HEFNER. I mean other than railroads. Mr. DEMPSEY. `We haul about two-thirds of the coal that is mined in the United States. The balance is hauled by bargelines and trucks. So, there is competition between railroads and trucks, railroads and bargelines, among railroads, and then among coalfields. Mr. HEFNER. But in the areas w-here these proposed pipelines would go, there is nothing other than railroad's hauling coal? Mr. DEMPSEY. WelL er~ain~ it would depend on which one you are talking about, Mr. Hefner. `Certainly, there can be a pipeline built in which bargelines would rot be effective, competitors. If that is the point., I am sure t.ha.t that is one of the possible scenarios. Mr. HEFNER. I am talking about the area from Idaho to `Wyoming, and this area. Currently, there is nothing, other than railroads, that haul coal in this area. Mr. BOYCE. Mr. Hefner, could I comment on that point? Mr. HEFNER. Yes. PAGENO="0129" 123 Mr. BOYCE. There are several railroads that haul coal from that area and compete fiercely with each other. But the key point on com- petition is the choices that are available to the electric utility at the destination. Those choices include not only coal from this area, but Coal from other coalfields; in the case of Arkansas and Texas, very substantial local lignite sources which would involve no transporta- tion at all; nuclear power, gas, and oil. The choices available to the customer, which is the utility, are many. Mr. HEFNER. If you had to project cost, assuming the pipeline were in place now, what would be the cost of moving coal by pipeline, com- pared to rail? What would be the competitive cost? Could the pipe- line compete with you? Mr. DEMPSEY. Well, one of the problems is that we do not have any way of making that kind of cross comparison, and OTA did not either, because we do not have the kinds of cost data that an econ- omist would need to make that kind of a comparison. Now, the ETSI people have been using cost data from 1974, and obviously that is not up to date. We have not had an opportunity to examine it, in any event. Mr. Boyce? Mr. BOYCE. There has only been really one definitive study of cost done by a pipeline company that I have seen, and that was the one done by Houston Natural Gas. They predicted that it would cost something like 12.2 mills per ton mile to ship coal by pipeline from Colorado to Texas, and at that time, we were charging about 7 mills to ship coal into Texas on that same route. They thought that some- time in the future, pipelines might become cheaper. Mr. DEMPSEY. I think that that is one of the principal points that is made by the advocates. It has not often been contended that in the initial years of operation of coal slurry pipeline, it would be cheaper than rail transportation. The contention has been that because inflation affects rails more than it does pipelines, at some point there would be a crossing of the lines and at the end of the 25- or 30-year period, the net advantage would be for the pipelines. Obviously, this is terribly conjectural. But, I would say this in that connection: It does seem to me that before the Congress should take action of this extraordinary type, because Federal eminent domain legislation is quite extraordinary, there ought to be the kind of cost demonstration by the advocates of coal slurry pipelines to the Congress that you are talking about, and there has not been. Mr. HEFNER. Twenty or thirty years down the road, coal couldbe- come the main source of our energy supply; is that part of your argument? Mr. DEMPSEY. Well, not really, except that from the consumers' point of view, should that happen, under the coal slurry pipeline con- tracts, the utility would be locked in. The consumers would be un- able to take adavntage of any alternate supplies of energy. They would have to keep using the coal at 25 million tons a year, or 30 million, or whatever the contract provided. Mr. HEFNER. You cannot move anything by the slurry line execpt coal, is that right? 32-745 0 - 78 - 9 PAGENO="0130" 124 Mr. DEMPSEY. That is right. Passengers have not yet been~suggested. Mr. HEFNER. Your argument, then is that you can move the quan- tity of coal that is needed to meet the projected energy needs of the President's energy policy? Mr. DEMPSEY. That is correct, Mr. Hefner, and our conclusions are supported by OTA, DOT, and three other independent Govern- ment studies. Mr. HEFNER. What is the projected cost of the pipeline? Mr. DEMPSEY. Which one? Mr. HEFNER. Is it a very definite figure, like the Alaskan pipeline that was nailed down pretty close? Mr. DEMPSEY. Well, if you are talking about the ETSI pipeline, again, I do not have those figures. Mr. BOYCE. If those figures are available, they have not been made public. The origina.l estimate was $750 million. That was 4 years ago and we still hear the same number. I do not know what the current number is. Mr. HEFNER. Thank you, Mr. Dempsey. Thank you, Mr. Chairman. Mr. EDGAR. Thank you. Mr. Shuster, who is the ranking minority members of the Surface Transportation Subcommittee. Mr. SHUSTER. Thank you, Mr. Chairman. Mr. Dempsey, I want to compliment you on your statement, which I believe states the case against this legislation both comprehensively and eloquently. There is one question which troubles me and I do not think I have heard it addressed, and let me put it to you. In the light of the fact that natural gas pipelines have been granted Federal power of eminent domain, why should we not do the. same for coal slurry pipelines? Mr. DEMPSEY. The situation was with respect to natural gas pipe- lines-this was essentially a wartime measure-but, in any event, is critically different, because, after all, there is no other way to transport natural gas. The public interest in having natural gas transported was critically important, so that I take. it that it was concluded by the Congress, given the emergency character of the situation, that, one, it had to be done fast; and, two, since there. was no other way to do it, one ought not to permit a single State to block the transportation of natural gas. That simply is not the. situation that we confront here at all with respect to coal slurry pipeline. One, there is no emergency; two, you can transport coal by many other methods, including railroad. Mr. SHUSTER. Thank you very much. Mr. EDGAR. Mr. Mineta? Mr. MTNETA. Thank you very much, Mr. Chairman. Mr. Dempsey, first of all, assuming a 150-car unit train, how long would that be from the engine back to the caboose? Mr. BOYCE. Could I answer that question? Mr. MINETA. Surely. Mr. BOYCE. There have been not unit train operations set up that long. We could answer hypothetically, if you like. Mr. MINETA. How many cars would there be? Mr. BOYCE. The typical train is 100 to 110 cars, which is approxi- mately 1 mile long. There are. regular freight trains of mixed freight- PAGENO="0131" 125 Mr. MINETA. Given a train of let us say 110 cars, how long would grain and other commodities-which frequently run longer than that, perhaps up to 150 cars. it take to pass a given point at, let us say, 25 miles per hour? Mr. BOYCE. At 40 miles an hour, it is about 90 seconds. At 25 miles an hour, it would be in the neighborhood of 2 to 3 minutes. Mr. MINETA. Mr. Dempsey. you mentioned a little while ago the long-term contracts which the coal slurry operators would have to have-let us say for 25 million tons per year. I take it that railroads are prohibited from these kinds of long-term contracts? Mr. DEMPSEY. They have been, by the Interstate Commerce Com- mission, Mr. Mineta, yes. Mr. MINETA. Are there. any railroads that have any kind of "take- or-pay" contracts? Mr. DEMPSEY. No. Mr. MINETA. What was it in the Ohio situation that made the pipeline uncompetitive; what caused the pipeline not to be used and the railroad to come in? Mr. DEMPSEY. Well, it was a much smaller pipeline, to begin with. I think it was a 6-inch pipeline, and that cuts against the economy of the pipeline. That is why these much larger ones are the ones that are now being proposed. Then, the railroads that served the area intro- duced the concept of the unit train, which enabled reduction of rail rates. Mr. MINETA. Did they do that under an exemption from the ICC? Is it just by having a unit train, they are able to come in with a lower rate? Mr. DEMPSEY. It is a very efficient operation. Your cars are con- stantly being utilized in a chain. They are just always operating, load- ing and unloading, and so you lose no utilization of your cars. It is the most efficient rail operation there is, really. Mr. MINETA. There is no empty back haul? Mr. DEMPSEY. Well, there is an empty back haul, hut it is not an empty back haul that has the cars scattered all over the country and coming back from different points. As I say, it is the most efficient rail operation there is. Mr. MINETA. As far `as equity among modes, since the barge operators have a bulk commodity exemption and truckers have an exemption as far as agricultural commodities are concerned-and I guess that just about becomes a de facto exemption for them-suppose there was a bulk commodity exemption for railroads; what would happen in that instance? Mr. DEMPSEY. I am not really prepared to answer that question, Mr. Mineta. We have been strongly in favor of regulatory reforms that would put us on competitive parity with bargelines. As you say, 90 percent of barge traffic, its bulk commodity traffic, is exempt. As for motor carriers, as you indicate, the agricultural exemption is terribly important to them. On the other hand, if there were to be a total exemption with respect to all of these commodities, and if that were to mean that the rails would be free to enter into "take-or-pay" contracts of this sort, I would have a reflect with my colleagues for a long time before I would be able to express on opinion on that. PAGENO="0132" 126 It could be argued, for example, that if the locking up of a market for 25 to 30 years in anticompetitive with respect to coal slurry pipe- lines, that it might be anticompetit.ive. with respect to rails. It is an interesting suggestion. It may very well be one that the in- dustrv would, in the end, endorse.. It is certain that we seek further deregulation, but I regret that I am not in a position to respond firmly to that question, Mr. Mineta. Mr. MIXETA. What would be your estimate of the capital needs of the railroads to improve their roadbed? You mentioned the rate of return going from, let us say, 1.51 down to the 1.286 figure. ~\That do you estimate the needs of the railroads to be, from now until the year 2000? I would imagine you have clone some estimating on whatever those figures are for whatever year it might be. Mr. DEMPSEY. WTell, the Department of Transportation has been charged with the responsibility of issuing a capital needs study which will be out shortly. There may be. some differences of view as to the precise dimensions of the problem, but I think that if you talk in terms of $7 to $10 billion, you cannot be very far off. Mr. MINETA. Over what period of years? Between now and when? Mr. DEMPSEY. Between now and 1985 or 1990. We have $4 billion, pius, in deferred maintenance right now, and I am excluding the new coal program, because for the new coal program, we will need to in- vest approximately $10 billion, according to the Department of Transportation. I may say in that connection that the only doubt that was raised in the OTA study's report about the capacity of the railroads to raise necessary capital has to do with the introduction of a new and threatening mode of competition from coal slurry pipelines. We must go to the financial community to raise capital. We feel that we will be able to do that with respect to coal transportation because it is profitable traffic. But, on the other hand, if there is the threat of coal slurry pipelines taking 25 million tons at a crack from that poten- tial market, then I must say that there is thrown into doubt the capacity of the railroad industry to meet the coal transportation needs of this country. Mr. SHuSTER. Would the gentleman yield? Mr. MTNETA. Yes. Mr. SHUSTER. I want to be sure I understand correctly. When you say $7 to $10 billion, you are speaking, are you not, of roadbed improvement? Mr. DEMPSEY. Yes. Mr. SHUSTER. You are not speaking about the total capital require- ments between now and 1980, which is substantially greater? ~ Mr. DEMPSEY. Of course. Mr. MINETA. I was just speaking of the roadbeds. Mr. DEMPSEY. Just to rehabilitate, we spent $9 billion in capital investment last year, alone, in the railroad industry. Mr. SHUSTER. What are the total capital needs, as you see them, for the railroads between now and 1990? Mr. DEMPSEY. Could I submit that for the record. Mr. SHUSTER. Please do. PAGENO="0133" 127 Mr. DEMPSEY. I would like to be more accurate than I can be right now. [The following was received for the re.cord:] ASSOCIATION OF AMERICAN RAILROADS, April 19, 1978. Hon. HAROLD T. JOHNSON, Chairman, House Public TVorks Committee, House of Representatives. DEAR MR. CHAIRMAN: During my appearance before the committee on April 11, I was granted permission to submit, for the record, information Oil the total capital needs of the railroad industry over the next decade. I thank you for the opportunity to do so now. Starting with the 1970 report of ASI1RO (America's Sound Transportation Review Organization) a number of studies have been done of the railroad industry's future capital needs. While the projections are not identical in every study, they have been rela- tively similar. The original ASTRO study sponsored by the railroad industry based its esti- mates upon an assumption of an annual traffic growth of 3.5 percent. This Study projected capital needs over the period 1971-1980 at $33.2 billion. Adjusting for 1976 dollars, the capitalized portion of these needs average nearly $5.3 billion per year. The Department of Transportation, produced estimates, in 1972, of needs for $3.3 billion per year. In 1976 dollars, the capitalized position of these needs come to $5.2 billion per year. In 1974, the ASTRO methodology w-as updated to provide estimates for the Interstate Commerce Commission. This railroad industry study, called ASTRO II, found that 10-year needs, in terms of 1973 dollars amounted to $38.1 billion. In 1976, this becomes $45 billion over the ten-year forecast period. As part of its Ex Parte 271 proceeding, the Interstate Commerce Commission, reviewed the industry's capital needs i11 terms of 1975 dollars. This study pro- duced 10-year equipment needs of $27.8 billion-including an estimated $2.9 billion for Conrail and bankrupt carriers. For fixed facilities-including the achievement of a normalized track maintenance level for carriers other than Conrail those undergoing reorganization-$18.5 billion was estimated. Elimi- nating the portion of these needs w-hich would be expensed rather than capi- talized, the entire industry's 10-year needs are in the range of $35.6 billion at 1976 price levels, according to the ICC figures and adjusting for the excluded carrier. Thus, the four studies produce the following breakdown of average annual capital needs (stated in millions of 1976 dollars) Other Freight cars Locomotives equipment Fixed plant Total ASTRO DOT ASTRO II ICC $2, 779 2,810 2,703 1,933 $890 840 836 689 $322 288 213 $1, 257 1,222 927 723 $5, 248 5, 160 4,465 3,558 To further amplify the record, I have enclosed a chapter from material filed in support of the railroad industry's current rate increase proposal. The infor- m.ation presented in brief in this letter is given in full detail in this document. Again, I thank the Committee for the opportunity to present this information. Sincerely, WILLIAM H. DEMPSEY. Mr. MINETA. Last summer when we returned from the August recess, I brought my family back by train from Oakland to Chicago, and we flew from Chicago to D.C. We found that the tracks of the Southern Pacific from Oakland to Ogden were not bad; Union Pacific from Ogden to Denver was excellent; from Denver to Chicago, it was a disaster. PAGENO="0134" 128 I do not know how, frankly, you would be able to have unit trains running on that section. It seems to me we would be in the position 9f a Waverly-type of situation, with potential and dangerous derail- ments. We were going at 40 to 45 miles an hour on the bad tracks. On the Union Pacific. we were going as high as 90. I understand the needs of the railroads for capital requirements to improve the roadbeds, but I do not know how you are going to get a 110-unit train, with the condition of these tracks as they are right now, with any degree of speed. Mr. DEMPSEY. Well, the situation in the West is roughly this : By and large, the main lines are in good shape in the West. We are dealing with relatively prosperous railroads. I say "by and large"; there are some exceptions, undoubtedly. The branch lines will have to be upgraded. We do not know exactly how many and how much mileage and where, because we do not yet have the market pattern of distribution of the coal, but that will have to be done. Now. the Burlington Northern, alone, has a capital invest- ment-Allan, what is your capital investment program for dealing with the coal transportation? Mi.. BOYCE. Between now and 1981, we will spend approximately $1 billion to provide for coal transportation, largely rebuilding many of these lines. Mr. MINETA. I was thinking tha.t if the condition of the tracks on a main line is like that, what would it be like on the feeder lines? I can well understand that there will be accidents, like the derailments in Tennessee and in Florida~. Mr. DEMPSEY. You are unquestionably right; the tracks are going to have to be upgraded, and the $10 billion estimate by the Department of Transportation is essentially for that. Mr. MINETA. One last quick question. Do you believe it is possible to achieve an equitable competitive situation in which railroads and pipelines could both participate on an equal basis in the transportation of coal? Mr. DEMPSEY. No, it is not possible. It is not possible, no matter what is done, for example, with respect to exemptions for bulk commodi- ties, for the simple reason tha.t coal slurry pipelines__and it is not an invidious thing that I am saying about them-_they cannot be made to operate like common carriers; they simply cannot. They are designed, by nature, to serve only the large shipper and the large consumer. Whereas, the railroads, by virtue of their legal status, cannot do that. We cannot concentrate on the cream of the crop; we have got to carry everything. Because of that fundamental difference, which cannot be corrected in any legislation, it would not be possible to construct le~islation that would bring about competitive equity between these two different modes. Mr. MINETA. Thank you, Mr. Dempsey. Thank you, Mr. Chairman. Mr. EDGAR. Mr. Dempsey, just in line with that ouesiton, and then I will go on to Mr. Stangeland, would you suggest that the railroads would not expend the kind of dollars you are talking about if this bill is passed? Mr. DEMPSEY. The railroads will do their best. Mr. Chairrn~n. and I do not mean to press the point beyond what the OTA said, but I think PAGENO="0135" 129 what they said is almost unchallengeable. It is simply this: The rail- roads can get money for equipment, because equipment itself is ex- cellent security. But when the railroads must go to the financial community to get money for the kind of thing that Mr. Mineta is talking about, for rail rehabilitation, that is a wholly different matter. Their ability to attract that kind of capital depends upon the assessment of the finati- cial community on the prospective success of the enterprise. When one is talking about the transportation of coal, one is talking about good traffic, and therefore we should not anticipate any major difficulties. But if there is a threat to that market, and a serious one, by coal slurry pipeline operations, then, as the OTA report pointed out, one can only have doubts about the response of the financial com- munity. Now, some railroads will not have to face that problem, because they can generate the necessary amount of capital, by and large, in- terTnally. But a railroad like the Chicago Northwestern that wants to build. with the Burlington Northern-how long is that line into the Powder River Basin, Allan? Mr. BOYCE. About 116 miles. Mr. DEMPSEY. A 116-mile new line into the Powder River Basin- has to go to the market for $250 to $275 million, and it is having dif- ficulty doing that now. If it were faced with this kind of legislation, as Mr. Wolfe has testified, it would be undoubtedly faced with much more difficulty. Mr. EDGAR. Mr. Stangeland? Mr. STANGELAND. Thank you, Mr. Chairman. Mr. Dempsey, just one question. If the railroads are going to be re- lied on to handle the coal, and looking at the future uses of coal in this country and the amount of coal that is going to be moved, do you see part of the railroads' role as providing assistance in grade sepa- rations to alleviate the jams and the autorail impacts that are created as a result of that? Mr. DEMPSEY. We appreciate that the increased movement of these large-unit trains in areas of the West and Midwest and other parts of the country will create what can be called environmental problems. We do not think they are anywhere near as serious as the water problem. But, still, there are matters of inconvenience to residents of communi- ties and, here, again, the Burlington Northern has been very concerned about this. And Mr. Boyce, you might want to say a word or two about that. Mr. BOYCE. Well, of course, the problem of vehicle conflict is a problem not only of increased rail traffic, but also increased auto traf- fic at these crossings. To the extent to which our trains are responsi- ble for the conflict and to the extent to which we could benefit from grade separations, we have been willing to participate in those. We have done a study, for example, in Minnesota that shows that even with all the coal trains which will be moving through the St. Cloud-Fargo-Moorehead corridor, the total number of trains which will be operating in the early eighties will be about the same as were operating in 1929. And, yet, the vehicle traffic is dramatically increased during that time period. We think that should be taken into considera- tion in solving the problem. PAGENO="0136" 130 [Whereupon, Mr. Hefner assumed the Chair.] Mr. STANGELAXD. Well, of co:urse, the benefit of the grade separation is certainly, to a great extent, to the traveling public. But there is a side benefit to grade separations, in that there are tremendous lawsuits that are being decided through: accidents, and this type of thing. I guess the commitment that I would like to hear is that the rail- roads are willing to bear their share of the cost of grade separations, recognizing that they are a partial cause, at least, of the inconvenience that the excessive use of the railroads is going to cause. Mr. BOYCE. We are willing to work with each community, individu- ally, and we are working now. We have one man full-time and others part-time, working directly with the communities to solve these prob- lems. To the extent that we are responsible, we are willing to partici- pate in the solutions. Mr. STAXGELAXD. No other questions. Mr. HEFNER. The gentleman from Georgia, Mr. Levitas. Mr. LEVITAS. Thank you. Mr. Chairman. Mr. Dempsey, the prohibition against railroads entering into long- term contracts, is that provided by statute or by Commission rule ~ Mr. DEMPSEY. That is provided by Commission rule and Commission interpretation, and it is my understanding from previous testimony by the Interstate Commerce Commission-and, perhaps, from what they may say today, although I would not want to anticipate them- that they may reconsider, to some degree, the rulings that they have made with respect to contract rates. That is all that I can say on that subject. Mr. MINETA. Well, let me take it another step. It would just seem to me that even if the ICC were to change that rule, it may not be greeted enthusiastically by the railroads as a means of dealing with the problem that you are addressing. Mr. DEMPSEY. There are different views in the railroad industry about this matter of contract rates, and I want to be frank with the committee about that. There are some who believe that just as it is con- trary to the best interests of the industry and the public to have compe- tition foreclosed for a 25- to 30-year period by coal slurry pipeline, so would it be contrary to the interests of the industry and the public to have that competition foreclosed by another railroad. On the ot.her hand, there are other railroads that would welcome the opportunity to have that kind of freedom. I may say that I have not heard the Commission suggest-perhaps they will-but I have not heard them suggest yet that they would permit the railroads to enter into "take-or-pay" contracts that would oblige the shipper to pay for 25 or 30 million tons a year, even though they did not ship it. Mr. LEVITAS. I see. As I understand the jurisdiction of this com- mittee under the legislation now pending, it is basically to determine whether eminent domain power should be provided to the coal slurry pipeline operators. Frankly, I have not resolved in my own mind the way I feel about the ultimate issue. Leaving aside the question of water and environmental matters which are involved in other aspects of this consideration, to me, the two principal questions are, where does the consumer benefit the great- est, and in terms of our energy needs, what is the most efficient, least PAGENO="0137" 131 costly way to provide coal to the end user, primarily the utilities for the generation of electricity. Now, if a case can be made that the coal slurry pipeline is the most cost efficient way for doing that, should the committee not then, in terms of a national policy, encourage that? Mr. DEMPSEY. I would like to answer it on several levels. My first answer is no, and let me use an illustration, if I might. The answer is no, simply because even though, under that hypothesis, some relatively small group of consumers might benefit, the larger public would be greatly disadvantaged. Now, my illustration is this: Let me assume that someone came to the Interstate Commerce Commission, or to the Federal Government in one of its forms, and said: Look, we want to build a new railroad and we want to build it only to serve this large coal field and these two or three large points of consumption. We do not want to have to serve anybody else, and we want to be able to move this coal just in these huge unit train operations and we figure we are going to be able to, there- fore, cut rates below those railroads that are serving those areas now, because those railroads have got to serve everybody; they just cannot take the cream of the crop. That really is all we are de~1ing with here, because coal slurry pipe- lines look like an exotic kind of technology. They look different than a railroad, but, really, they do the same thing that a railroad does; that is all they do. They move one commodity, coal, from one point to another. Now, if that kind of group of railroad entrepreneurs were to come to the Congress and say, "We need the power of eminent domain," or to the Interstate Commerce Commission and say, "We need a certificate," I suggest, with all respect, that they would be laughed out of town. They would be laughed out of town, because everybody in town- the Congress, the administration, the Department of `Transportation, the Interstate Commerce Commission-has been saying to the industry for years; "What is your problem? Your problem is that you have got too much capital investment; somehow, you have got to find a way to increase your traffic, to constrict your fixed costs," and that sort of thing. So what I am saying is that even if, in some circumstances, it could be demonstrated that this kind of special purpose project might bene- fit some limited class of consumers, it clearly would not be in the public interest, because everybody else would be paying more-everybody else using the railroads-and I am talking about the whole United States. I am talking thout the farmers who would be paying more to ship their grain, and the housewives who would be paying more to `buy their loaves of bread; about the people who would be paying more for their automobiles, because automobile transportation costs would be up. That is the kind of broad public interest that I think ought to be paramount. Now, beyond that, I say the case has not been made. I say the case has not been `made because of the very, very foggy and vague kinds of data and `hypotheses that the OTA had to engage in, because they did not have any real cost data before them. So, I do not think you even get to your question, but if you get to it, my answer would be no. PAGENO="0138" 132 Mr. LEVITAS. That last aspect of your response was that I was going to pursue next. Do you have available, other than the OTA report, any data which would quantify what are, in effect, the cross-subsidizing consequences of a coal slurry operation? Mr. DEMPSEY. I am not sure that I understa.nd the question. Mr. LEVITAS. Well, are there any data available which would support your contention that the price of other freight would go up, and there- by be passed on to the consumer, `which would offset any `benefit which might be derived here? Mr. DEMPSEY. Of course, we have the OTA conclusion on it. I really think if you consider the estimated lost revenue to the railroad system of $680-some million a year in net revenue, the `conclusion is self- evident. We are not `dealing with an industry that can absorb that kind of deprivation of net revenue. Accordingly, the rate to the consumers will have to go up. Actually, they have been going down. Or, as the OTA said, the downward slope of rail rates will be arrested. Mr. LEvITA5. What is disturbing me is what lies at the heart of this issue. My guess is that over a century ago, there were wagons and teamsters who were hauling freight across the country. When the rail- road industry was getting started, they were seeking land grants an'd eminent domain, and things like that. I am sure the teamsters and the wagon haulers were objecting loudly to the State legislatures `and the Congress, or whomever was involved in it, making the same argument, in effect, that the price of these other things we are `doing is going to be affected, and whether or not it is our responsibility to recognize that there `are new techn'olorries and new modes always coming along, and while we should not legislate them and require them, that we should give them the tools to compete, and see whether modern or new technologies are better able to serve the public interest and let existing modes modify their operations to take into account new modes. The same would be true of air transportation or other modes of surface transportation. Mr. DEMPSEY. Well, I think you state a principle that, apart from the concrete situation in which we find our national transportation system, has a lot to be said for it. I say again what I said before, that if the railroad industry now were in `a healthy condition so that there would not be this spectre of a decreasing deterioration of the rail system and service to the shippers and consequent higher rates to the ship- pers- if we did not have that-seconcT~ if it could be established that the rail system either could not meet the need for the transportation of coal or clearly established that coal slurry pipelines were a superior technology an'd would be able to perform that kind of transportation service better than railroads, then I would say I agree. But we do not have any of those situations here. We have a rail system that is expected `to operate as a servant to the whole public that cannot `disinvest and cannot say, "I want to pull `out of this kind of transportation because I am not making any money there; I want to confine myself to the kinds of operations that are profitable." We `cannot do that, and when you have that kind of public charge that is given to a transportation industry like the railroad industry- the kind of regulation under which it must manage itself-then if PAGENO="0139" 133 seems to me that there is an obligation on the part; of the Congress to prevent that system from, in effect, going off the deep end. I think Mr. Boyce would like to say something. Mr. BOYCE. I would like to emphasize a point which was made in the OTA report. There is no legislation today and no set of circumstances which prohibits the construction of coal slurry pipelines. The line in Ohio which only lasted 6 years was built without Federal eminent domain. The Black Mesa line which is operating today was built across a railroad-not the railroad that owns it-without Federal eminent domain. The sponsors of the proposal to build the ETSI line from Wyoming to Arkansas have publicly stated that they can build their line without Federal eminent domain. The States through which the lines Texas, through Colorado, would be building have individually granted the right of eminent domain. What is being sought here is not a piece of legislation that would permit an industry that could not otherwise be developed. What is being sought is a special benefit_and extra push-from the Federal Government and from the Congress for an industry which can, on its own, develop, and is now developing without this power. Mr. LEvITA5. The special push or the special benefit is to have a uni- form Federal system of eminent domain, as opposed to s~eking that authority, severally, from the different States through which it would traverse. Mr. BOYCE. Which is what all other forms of transportaLion, except natural gas pipelines, have done. Mr. LEVITAS. Thank you, Mr. Chairman. Mr. HEFNER. Mr. Clausen from California. Mr. CLATJSEN. Mr. Dempsey, are any of the railroads new, to your knowledge, involved in, or do they contemplate involvement in, the development of a coal slurry pipeline transportation system? Mr. DEMPSEY. Well, the Southern Pacific operates the oidy existing coal slurry pipeline in the United States, the so-called Black Mesa Pipeline. It was built because there was no existing railroad. there, and the features of terrain made it more economical to build a pipeline than it would have been to build a brandnew railroad. There are no other railroads that operate coal slurry pipelines, because that is the only one. There are no other railroads, to my knowl- edge, that have any plans to operate coal slurry pipelines. [See supple- mental response, page 135.] I might say, and Mr. Boyce might want to elaborate on this, in the very early stages of exploration of the concept of coal slurry pipe- lines, the Burlington Northern did participate with others in a study of the feasibility of coal slurry pipelines, and it concluded that it would be far better to invest the money that is necessary in its own rail system than to invest the additional capital that would be needed in coal slurry pipelines. That represents its judgment as to the most efficient, economical method of transporting coal. Mr. CLATJSEN. You make reference to the Office of Technology As- sessment. You also noted that pipelines would enjoy significant regu- latory advantages over railroads: among those, the ability to serve selected customers, and the prohibition of long-term contracts between PAGENO="0140" 134 railroads and their shippers. Then, of course, it goes on to make ref- erence to the common carrier aspect and the regulatory requirements you have. Is there any way of developing legislatively an effort to assure equal- ity of competition between the rail and/or the coal slurry transporta- tion system, taking into consideration that you are a controlled, regu- lateci organization? Mr. DEMPSEY. I appreciate the importance and relevance of the question and, in a way. because it is such an important and relevant question, I am sorry to have to answer it so squarely, no, but that is the fact of the matter. There is no way to fashion legislation that would permit these two modes of transportation to compete equally, except one, possibly, and that would be-this would not even do it, but the only step that could go part way toward it w-ould be the abolition of the Interstate Com- merce Act and the complete abolition of the obligation of railroads to operate as common carriers. Now, even that would not do it, because of all of the difficulties that would be involved then in dlisinvesting the railroad industry that then would be part way down the road toward becoming a special purpose carrier. But, then it would lia~~e to disinvest and it would have to con- centrate all of its efforts on serving only the most lucrative kinds of traffic, because that is what the coal slurry pipeline operation is. If I were seeking to invest money in coal slurry pipelines, that is all that I would want it to be~ I would want it to be a single-purpose carrier of highly profitable traffic. Now, there is no way that legisla- tion can be fashioned that I can think of, and I suggest that anyone else can think of, to convert the railroad industry from what it is now- broad-based common carriers with obligations to serve everyone-into companies that specialize in serving only the most lucrative kinds of traffic. Mr. CLAUSEY. Are you saying that you do not believe the slurry pipelme could serve in the category of a common carrier? Mr. DEMPSEY. As a practical matter, no, and that is what the OTA concluded. It cannot, because it must be built to serve only one source of supply-_perhaps two or three-and one point of distribution, or perhaps two or three at the end. There is no way that it can be built as an elaborate pipeline with arms scattered out to every little mine that wants to put a few tons into it, as wc must do. That is what the rail- roads must do. The problem here, Mr. Clausen, is that that is really why the OTA concluded that there would be circumstances in which the coal slurry pipelines would be able to capture this traffic, even where their costs were actually higher than rail costs. Now, that is a terribly important point. I have said it three or four times, but I will say it again. The reason that that is so is that railroads, with this enormous fixed capital investment and this obligation to transport everything, must look to certain kinds of traffic to cover the losses that they suffer else- where, and bulk commodities like coal are among those kinds of traffic. Now, what that means is that a coal slurry pipelme operator, as the OTA concludledi, even with costs that are higher than rail, could PAGENO="0141" 135 come in and undercut rail rates. That does not mean any long-term or broad-based advantage for the. American public. It means a short- range, narrow advantage for a few consumers of electricity. But really, what it means is that the higher cost mode of transport- ing coal is being used, instead of the lower cost. And the net is a dis- advantage to the shipping public, because it means that the railroads have to make it up elsewhere. Mr. CLATTSEX. Mr. Chairman, I may have some other questions, but I will probably submit them in writing, if you would be willing to respond. Mr. DEMPSEY. Certainly. Mr. HEFNER. Mr. Fary? Mr. FARY. No questions. Mr. HEFNER. I believe that is all the committee members presentS I would like to thank you, Mr. Dempsey, for being with us through all the questions. We were happy to have you with us. Mr. DEMPSEY. Thank you very much, Mr. Chairman. [The following was received for the record:] AssocIATIoN OF AMERICAN RAILROADS, Washington, D.C., April 20, 1978. Hon. JAMES J. HOWARD, Chairman, ~ubeonnn ittee on surface Transportation, Committee on Public TVor1~s and Transportation, House of Representatives, Washington, D. C. DEAR MR. CHAIRMAN: During my testimony on April 11th before the Sub- committee on Surface Transportation of the Committee on Public Works and Transportation on HR. 1609, the Coal Pipeline Act of 1978, Mr. Clausen asked me whether any railroads have been involved in plans to build coal slurry pipelines. In response I stated that the Southern Pacific presently operates the Black Mesa pipeline which is the only such pipeline in the United States. I also men- tioned the Burlington Northern's early participation in a study of the feasibility of coal slurry pipelines. The Burlington Northern, I said, concluded that it would be far better to invest in its own rail system rather than to invest that same capital in a coal slurry pipeline. `I then stated that, to my knowledge, no other railroads have any plans to operate coal slurry pipelines. In responding to Mr. Clausen's question I had simply forgotten the involve- inent the parent company of one of our member roads has had in a coal slurry pipeline proposal. I would like to correct the record in that regard. The railroad involved is the Denver & Rio Grande Western. The D&RGW's parent company is Rio Grande Industries. Rio Grande Industries and Houston Natural Gas are studying the feasibility of constructing a coal slurry pipeline from Walsenl)urg, Colorado to Houston, Texas. It is my understanding the first 450 miles of the move will involve the D&RGW after which the coal will be transferred to the planned pipeline for the completion of the move to Houston. I respectfully request that tins letter be made a part of the record of the Subcommittee's consideration of H.R. 1609. Sincerely, W. H. DEWPSEY. Mr. HEFNER. Our next witness is a colleague from Texas, Mr. Eckhardt. TESTIMONY OP HON. BOB ECKHARDT, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP TEXAS Mr. EOKIIARDT. Thank you, Mr. Chairman. Mr. Chairman, I should like to ask your consent to speak orally and put my complete statement in the record. PAGENO="0142" 136 Mr. HEFNER. Without objection it is so ordered. [i1\'lr. Eckhardt's prepared statement follows:] STATEMENT OF HON. BOB ECICUARDT, A REPRESENTATIVE IN CONGRESS FROM TUE STATE OF TEXAS Mr. Chairman and members of the Subcommittee on Surface Transportation, I am most pleased to be able to appear before you to urge your favorable and expeditious action on H.R. 1609, the Coal Pipeline Act of 1977, which I authored. This bill is scarcely a new proposal. In 1962, President Kennedy suggested coal pipeline legislation. The Senate, in September of 1974, enacted coal pipeline legislation which had been reported from Senator Jackson's committee. Exten. sive hearings have been held in the House Interior Committee in the 93rd Con- gress, the 94th Congress and again in the 95th Congress, when we had four days of hearings in `Washington, as well as field hearings in the Far West. The Office of Technology Assessment has completed an extensive assessment on coal slurry pipelines with background and task reports on the market for coal transporta- tion, economic considerations, an environmental study and an investigation of legal and regulatory issues. The combined report runs well over 1,000 pages. Clearly, this is not legislation which has been considered in haste or without adequate legislation which has been considered in haste or without adequate technological, environmental or legal study. On February 22 of this year, after four dais of mark-up, the House Interior Committee voted 30 to 13 to report H.R. 1609. H.R. 1609 is not a complex bill. The major objective of the Act is to facilitate the acquisition of easements by coal pipeline carriers across private land. The legislation authorizes the Secretary of the Interior, after consultation with several agencies, to issue certificates of public convenience and necessity with respect to coal pipeline projects. A carrier which has received such a certificate and which cannot acquire by negotiation the right-of-way required to construct the proposed coal pipeline may acquire the right-of-way by the power of eminent domain in a state or federal court. The eminent domain authority of the Coal Pipeline Act is essential to over- come the refusal of the railroads to negotiate rights-of-way with coal pipeline carriers across their land. The magnitude of the problem is suggested by the case of one proposed slurry line w-hich w-ould cross railroads in 28 different locations. The intransigence of the railroads stems from the fact that they would in many instances be direct competitors with the pipelines in the coal transportation business. However, at the same tithe, a railroad subsidiary is operating the only existing coal pipeline and additional coal pipelines can be expected to be con- structed by the rail carriers. Thus, it is clear that the Coal Pipeline Act is necessary to remedy a severe anti-competitive situation which adversely impacts consumers. To those who might ask, "w-hy should I support coal pipeline legislation", I would urge you to consider the relationship betw-een coal pipeline development and utility costs and the implementation of this Nation's coal conversion pro- gram. The Office of Technology Assessment Study has indicated that coal pipelines, in specific circumstances such as high-volumes and long-distances, may provide significant cost advantages Over other modes of transportation. Thus, slurry lines could help hold dow-n the user's cost for electric service. The potential economic advantages of coal pipelines and the importance of such potential cost savings has been highlighted by recent developments. In the so- called Houston case (ICC Docket No. 36608), the Interstate Commerce Commis- sion authorized in late 1977 a rate of $15.60 per ton for hauling coal from Montana to Smithers Lake near Houston, Texas. This transportation cost is over 200 percent of the price of the coal, and under the rate schedule authorized by the ICC, the delivered cost of coal w-ill exceed the cost of natural gas. A similar dramatic rate increase w-as issued at the same time for rail transportation of coal to a power cooperative in Arizona. (ICC Docket No. 36612). And just re- cently, the ICC reopened the San Antonio case (ICC Docket No. 36180) seeking a rate of $18.23 per ton which w-ould cost consumers $20 million a year over present rates. The Houston and Arizona cases are precedent-setting cases under the 1976 Railroad Revitalization and Regulatory Reform Act. They underscore the fact PAGENO="0143" 137 that the development of coal pipelines is essential in moderating the utility rates of consumers in the Southwest and West where coal pipeline projects are cur- rently planned. In addition, as the National Association of Electric Cooperatives has recently stated: The potential cost savings of coal pipeline transportation will not only directly benefit the regions served by these pipelines. Since interfuel substitution is ex- tremely sensitive to the cost of transportation, the availability of coal pipeline transportation at reasonable rates to certain areas of the country may provide important indirect benefits to other regions. These benefits can be expected to accrue in the form of increased availability of natural gas and a reduced national outflow of capital for imported oil. Statements from other quarters verify this point. For example, in a February 13 statement of the Department of Energy in the San Antonio case, the Depart- ment indicated that at the level of the proposed tariff, it was more economical to operate the utility on imported oil rather than coal. Moreover, while the Public Utility Commission in Texas has led the Nation's coal conversion program by refusing to certify any new natural gas generating units in recent years, the Chairman of the Commission has recently stated that "two and threefold trans- portation cost increases could well force us to seriously reconsider our position on conversion." Thus, transportation of coal at reasonable prices is an integral part of our national energy policy. As it becomes more economical to convert to coal, more and more gas and oil will be freed for higher and better uses such as the direct heating of homes. Without coal pipelines, it is entirely possible provisions of the proposed National Energy Act on coal conversion cannot be implemented. That bill contains exception authorities, if adequate transportation of coal is not available or transportation of coal at a reasonable price is not avaialble. In many ways, coal pipeline legislation is a very necessary correlary to the successful im- plementation of the coal conversion policy contained in the National Energy Act. These statements are however not intended to suggest that HR. 1G09 is not a controversial measure. I am certain you know otherwise by now. However, I believe that all the truly major concerns of Members regarding this legisla- tion were effectively resolved by amendments adopted in the Interior committee. One legitimate concern of Members had to do with competition between rail- roads and pipelines. Such competition should be on equitable terms. The bill provides that the pipeline shall be a common carrier, available to all customers. To guard against vertical monopoly and to ensure that the savings of coal pipe- lines accrue to consumers, the bill prevents common ownership between the pipeline and its coal suppliers or its coal customers. After a pipeline goes into operation, it becomes subject to Interstate Commerce Commission regulation as in the case of other carriers, such as railroads. Moreover, proponents of the legis- lation cited findings by the OTA that the potential impact of coal pipelines on the railroad industry "appear to he substantially less than that of possible adverse regulatory policy or a decline in the present rate of improvement in productivity." With the enormous increase of coal transportation anticipated, coal pipelines might reduce the growth in rail revenues but would clearly not result in a decrease of current rail revenues. Moreover, the railroads with which coal pipelines will compete are not the financially troubled eastern roads but economically sound western lines. But critics of the Coal Pipeline Act still expressed concern about the impact of the legislation on competing transportation modes, such as railroads. To quiet these remaining doubts three amendments were adopted by the Interior Com- mittee. They respond directly to the legitimate concerns expressed with respect to adverse railroad impact. It is conceivable that in a particular case it would be contrary to the *national interest to issue a certificate for a coal pipeline because of the extreme adverse impacts on a particular railroad. Thus, the Florio amendment adopted by the Committee requires the Department of Trans- portation and the Interstate Commnerce Commission to make recommendations with respect to the impact of the proposed pipeline on other modes of trans- portation. This amendment assures that evidence of adverse impact will be thoroughly investigated and presented. A second amendment by Representative Seiberling requires that lead agency to consider, in determining whether or not to grant a certificate and related eminent domain authority, the impact of the proposed pipeline on the financial PAGENO="0144" 138 integrity and services of competing modes of transportation. Thus, a coal pipe- line project would not be authorized if undue adverse impacts on competing transportation modes were demonstrated. A third amendment requires the Secretary to consider the extent to which the proposed pipeline is likely to result in actual coal transportation rate savings, an important protection for the public. The Interior Committee also dealt directly with the water concerns of Western Congressmen. While export by coal pipelines would use less onsite water in the water scarce Wrestern States than mine mouth electric power generation or coal gasification, Western State representatives are legitimately concerned about altering an age-old precedent that States shall order their own priorities of use of their surface and ground water. H.R. 1609 had stated un- equivocally that none of its provisions would affect existing water law. Thus, though the bill permitted the pipeline to obtain right of way by eminent domain, it l)y no means permitted commandeering of water within a State. There remained, however, the question of whether or not a State could make legitimate restrictions in water permits to a slurry pipeline which would permit that State at a later time to curtail w-ater use under the conditions of the original permit. It was feared by, Western representatives that, once the pipe- line usage became entrenched and the energy supply of whole regions became dependent upon the flow of water through these pipelines, curtailment in accord- ance with the original conditions of the permit might be considered an uncon- stitutional burden on commerce. Therefore, the Marriott Amendment provided that legitimate conditions in the original permit could, as a matter of federal policy, be enforced at any time, even if they required curtailment of such entrenched water use. However, there is one w-ater amendment adopted in the Interior Committee which I hope this Committee w-ill reconsider. Section 5(h) of the reported bill would require that before a certificate is issued with respect to a project utiliz- ing underground water from a w-eStern state, the U.S. Geological Survey must conduct a comprehensive study which demonstrates that the use of the water source w-ill not cause a significant adverse impact on the quality and quantity of the w-ater table in surrounding areas and adjoining states. This provision w-ould make the entire licensing procedure unworkable. It should be deleted because other provisions of the bill provide strong water resource protection. Moreover, there has been substantial concern expressed by several Western Representatives that this provision may limit traditional state water authorities. In conclusion, I urge your prompt consideration of the Coal Pipeline Act. I would once again remind you of the extensive consideration in hearings, studies and mark-up sessions given to this legislation and urge you to utilize that record in making your own decisions. Time is growing short. I hope you will act quickly so w-e may move H.R. 1609 to the floor of the House. I appreciate your courtesy in inviting me to appear before your Committee. Mr. HEFXER. Please proceed. Mr. ECKHARDT. Mr. Chairman, I never cease to be astounded at the audacity of the railroads. I know Mr. Dempsey from `a considerable way back. I serve on the Interstate and Foreign Commerce Commit- tee, as well as the Interior Committee, and I know he comes out slugging, but I never saw him slug so wildly as he has slugged today. For instance, he points to my bill as be.ing deficient in some respects, amongst which, he says, is the failure of the bill to provide an adjudi- catory process with respect to certification. I would point to the pro- cedural provisions of the bill in section 6 on pages 21, 22, and 23. I am reading from the latter part of it, but, of course, the committee may look at the whole. The latter part of these provisions requires that hearings be held in the States affected. After all hearings in each state are concluded, the Secretary shall hold at least one public, formal, adjudicatory hearing, in accordance with the provi- sions of Section 554 of Title V United States Code in the District of Columbia. PAGENO="0145" 139 Mr. Dempsey, that happens to be the adjudicatory section of the Administrative Procedure Act, "at which the Secretary of Energy and the Environmental Protection Agency shall, and other Federal, State, and local agencies may, participate." Also, in answer to one of your questions, Mr. Dempsey said it is not possible that coal pipelines and railroads could operate together under certifications, each taking a portion of the business which it may do the most efficiently. His position is that they may not share it unless the railroads own the pipelines. Presently, the Black Mesa Pipeline, owned by Southern Pacific Railroad, shares the carriage of coal in an area in which it can produce most efficiently. Mr. Dempsey also said that the railroads had never taken the position-and I submit that this is somewhat contrary to the other statement-that where railroads cannot haul coal as efficiently as pipelines, because of difficult terrain or because of inadequate or in- sufficiently direct rail lin~, that coal pipelines should not be built to haul coal. That is what they have consistently argued against in this bill. They have consistently argued that coal pipeline operators ought not be permitted the mere right of eminent domain to build another means of haulage of coal under circumstances in which such haulage is more efficient than by railroads. That is the crux of their argument. Now~ Mr. Chairman, lie also said that the railroads would be laughed out of two if they should ask to obtain certifications to build coal pipelines. I suppose they would; they would be laughed out of town because they have already got the right-of-way. Why should they ask any further authority to build such pipelines? Enough of this rebuttal to my adversary's position in this case. I say ho is an adversary; lie represents the railroads, and I have been attempting to represent both my district, with its great needs for the haulage of about 10 times as much coal into that area within the next 10 years, and also the Nation at large, which needs gas out of our area- gas, which is now fueling boilers, for use in the rest of the country for residential and commercial purposes for which coal is not efficient. Now, the summary by OTA, on page 3, states quite clearly that based on analysis performed in its assessment, coal slurry pipelines do rep- resent, under some specific circumstances, the least costly available means for transporting coal, measured in economic terms. Whether this is true of any particular pipeline can only be determined by a detailed evaluation of the conditions specific to the route. Now, I submit that is precisely what this bill does. It permits con- sideration by the Secretary of the specific circumstances under which pipelines may properly be built in order to best serve the public at the best price. Under such circumstances, pipelines could be certified. I i~oint here to the provisions of the act that set up the certification proc ~dure. Section 5 on page 15 of the act provides that "the power of emment domain granted pursuant to this Act may be exercised only by a carrier holding a certificate of public convenience and neces- sity." The Secretary of Interior can grant such a certificate if lie makes certain findings. Those include a requirement that a pipeline provide the capacity necessary to fulfill the requirements of a common carrier. The act provides certain additional standards under which the findings 32-745 0 - 78 - 10 PAGENO="0146" 140 are to be made-a pipeline must help meet national needs. The Secre- tary has to consider whether a. project would be likely to impair the financial integrity of other common carriers, such as railroads. He also has to take into account whether a pipeline will be more likely to result in lower rates for the transportation of coal than if such coal were transported by a railroad, and such matters. So, what the act does is permit certification, and permits exactly the same standards for carriage of coal by a common carrier pipeline as are preseiitly applicable to the railroads under their historic acquisi- tion of railway lines, usually by State eminent domain. It puts them in the same position, as closely as possible with railroads in competition, and provides that if there are differences adverse to the financial secu- rity of the railroads, the certificate of convenience and necessity may be denied. Ultimately, the ICC determines the rate structure. Now, over a long period of time, the railroads have created an im- pression that the ICC will not grant fixed contracts over long periods of time for the cost of haulage. I would like to point the committee to a publication of April 10, 1978, a. publication called Inside DOE, which puts to rest this fable, I hope, for all time. If it were not true that the ICC could grant fixed contracts over periods of time, this would, if the ICC's staff recommendation is carried, clearly permit it. It says: The Commissioners also voted to take quick action to reverse an "impression" that the ICC considers fixed contract rates illegal. While noting that escalation clauses may be warranted in some instances, the Commissioners instructed the staff to make clear that fixed contract rates for long-term coal might be advisable. The railroads have complained that the ICC's rigidity on the fixed contract policy puts them at a competitive disadvantage with coal slurry pipe- lines, and so forth. Now, I would like to pomt out these salient points to the committee. No. 1, the issue here and the situation which could occur if pipelines are given eminent domain is not that coal pipelines would enter in and deprive railroads of existing profits now made by the haulage of coal. It is only that they might `deprive railroads of the prospect of avoid- ing the sharing of additional revenue brought about `by the haulage of a greatly enhanced quantity as coal, as coal replaces gas as a boiler fuel. In my area, for instance, where approximately 90 percent of the electric generation is done by gas and where, by 1990, all but peak load- ing capability for generating electricity must move to coal, there will he an increase of tenfold in the coal imported from the Western coal- fields. So, the railroads' fight is not to retain business that they now have, but to take over a monopolistic position in that greatly enhanced amounts of revenue which may be derived from hauling coal under these circumstances. I am not just talking about an imaginary situa- tion; this situation is already coming about. For instance, the city of San Antonio, which, along with Austin is one of the two cities in the United States that pays the most for elec- tric generation because of the extremely high price of gas in the intra- state markets, recently decided that it had to convert and build gen- era.ting facilities for the use of coal. PAGENO="0147" 141 The city thought it had something like a commitment from the rail- roads to I1aul that coal for $7.90 per ton from Gillette, Wyo., to San Antonio. But after the utility had committe.d itself to building gener- ating stations, the carrier refused to post any firm r~te and, eventually in 1976, the ICC established a rate of $10.90 a ton, which stands today, after several adjustments, at $11.90. And I quote ICC Docket 36180. Then, in the Houston case, in ICC Docket 36608 in late 1977, the ICC permitted a rate of $15.60 per ton for hauling coal from Montana to Smithers Lake, near Houston. This transportation cost is over 200 J?ercent of the cost of the coal itself. In addition to that, the Houston Lighting & Power Co. was required to purchase 1,100 coal cars to transport that coal. That is more than some railroads have in their entire fleet. Moveover, the rate schedule approved by the ICC in the Houston case calls for minimum shipments of 4 million tons during the first 12 monthes of its use, notwithstanding the fact that the utility has advised the carriers that shipments totaling only 2.4 million tons could be made. Tinder the same schedule, the utility will be assessed $22 million in penalty charges, making its effective freight rate $24.83 per ton. What we are running into here is an argument by the railroads- and I very sincerely point out that it is a very audacious one-that they should not be given what they will have with the building of all the coal slurry pipelines now on the books; that is, about 82 percent of the haulage of all coal by 1985. Rather, they argue that should have all of it. Of course, if they have all of it, the rates of the type I have been reading here may maintained. The ICC has permitted consideration in the base rate of the increased value of coal and the increased demand for its transportation. With the extreme increase in demand, prices are likely to go up. Of course, they do not want some other business entity, not controled by the railroads, to constitute what really amounts to a competitive yardstick for the cost of carrying coal, even though that competitive yardstick will constitute only 18.2 percent of the total carriage. Now, that is a relatively small amount. Of course, if the ICC determines that another means of determin- ing rate base should be granted the railroads, ICC should do it, and can do it. But the argument against the coal slurry pipelines, as Mr. Dempsey has made very clear, is absolute. They are against them, no matter what we do with respect to a fair, competitive basis between railroads and coal slurry pipelines. I was interested in Mr. Levitas' comments which I thought were very apt with respect to the carriage of certain commodities by wagon, in- stead of railroad. Of course, there was a time in my area of Texas where there was a really serious dispute as to whether or not "corduroy roads" should be built to facilitate ca*rrvin~ cotton out of the Brazos River bottom into Houston, or whether the Buffalo, Brazos & Colorado Railroad, which became the parent t.o the Southern Pacific in my area, should be built. Of course, these arguments occurred in the past. rrhey occurred with respect to the clipper ship. It could have been very well argued that all of the grain that needed to go to China could have been carried by clipper ship at that time, rather than by steamship. PAGENO="0148" 142 The question of capability of railroads t.o carry nfl the coal, given enough price, is not at issue. The question is: Should the railroads have an absolute, noncompetitive monopoly position with respect to that carriage? Also, should they be able to insist that coal be carried by railroad and not by slurry pi~Deline, even if the slurry pipeline is cheaper and hauls the coal at a cheaper rate under the conditions provided under the bill? We are not saying that it does in all instances. There is no question but that haulage of coal over relatively short lines where good rail exists and where the route is direct is a perfectly feasible and eco nomic way to carry coal. It should and will continue long into the fu t~are. The question is: Should we~ in the area from which gas is being re- moved in tremendous quantities, and rightly so, to be shared with the rest of the Nation-should we be hampered by the fact that railroads want to carry all the coal, even though their lines are not. direct, in not very good condition, and they are not able to give prices, to a city like San Antonio, competitive to the rates that could be obtained through the coal slurry pipelines? I wonder what has happened to the whole concept of a free, com- petitive economy, when there is an argument here leveled by railroads that some other means of transportation should be studied by a Fed- eral agency to determine whether it is the most efficient competitioli for the railroads. Why not just let it be tested in the marketplace? There is capital available for buik~ ng the coal slurry pipelines. Utilities want the capital to be expend~d; they want to be given the opportunity to contract to obtain their coal through a pipeline. They want another competitor with respect to the hauling of coal. Why do we have to first determine, through a Federal agency, whether we should or we should not bring in a new, technologically feasible means of hauling coal, particularly in light of the fact that the Black Mesa line already proves its technological feasibility? I think there is a perfectly valid argument, No. 1, that if we permit eminent domain for coal slurry pipelines~ we should determine in a fair and equitable manner whether the pipeline is competing fairly with the railroad and whether or not its rate structure is in some way slanted or altered in such a way as not to reflect actual costs. That is in the bill, and that is the authority that is exercised by the a.gencies in control of the pipeline. The argument has been answered. The other question that I think needed an answer-and it has been adequately answered by several amendments, particularly the Mar- riott amendment to the Interior committee bill-was the question of western water. The chief engineer for the State of Wyoming testified before our committee-and, incidentally, he was testifying in opposition to the coal slurry pipeline-in answer to my question. that the percentage of Wyoming's water used under the permits for the planned coal slurry pipeline-that is, the ETSI line-would be infinitesimal, as compared to the use of water for other purposes. The OTA study has confirmed the conclusion that a relatively small amount of water is used. But, even so, the original bill provided that we did not in any way impair a State's rights to cleterniine its priorities with respect to water PAGENO="0149" 143 use. The State could, in effect, veto the coal slurry pipeline by literally cutting their water off. We do not provide any means of obtaining water by eminent domain. However, legitimate questions were raised by western members of the Interior Committee. And as you know, that committee is very heavily balanced toward the `\Vest, and I think properly so, because of the public lands in the United States. These members were very astute to protect water rights. The Marriott amendment made it clear that not only were the States to be protected with respect to permitting them to control their water rights, theoretically, but, also, actually. The issuance of a cer- tificate of convenience and necessity was not considered to alter what would be looked into, had the certificate not initially been issued. In other words, the certificate could not be used as a kind of left-handed way of getting through the door to command the States to deliver water. The Marriott amendment is a good one, and I support; it. There were also several amendments put on by your own colleague on this committee, Teno Roncalio. Most of those, I favor. There is one on which I raised a question with your committee. You should use your own judgment on that. However, I would support the bill as it came to your committee, and would hope that it would come out in that form. I think that just about completes my statement, but I will be avail- able for questions if the committee would like to raise them. Mr. HEFNER. Thank you, Mr. Eckhardt. The ranking minority member, Mr. Shuster. Mr. SHusl'ER. Thank you very much, Mr. Chairman. I certainly want to commend the gentleman from Texas, particularly for acknowledging to this committee. that his interest in this legisla- tion at least, in part, stems from his attempt to represent his dis- trict's needs. Certainly, if I were a Representative from Texas, I would be very much interested in getting the coal and the water from Wyoming and Montana, and anyplace else I could get it from, for my State and my district, so I commend the gentleman. In fact, I have before me a copy of legislation recently passed by the legislature in Texas, signed by the Governor on August 29, with regard to coal slurry pipelines. The gentleman might be aware of it. It says in section5(c) The right to eminent domain granted under this chapter to such pipelines shall not include and cannot be used to condemn water or water rights for use in the transportation of coal by pipeline, and provided further that no Texas water from any source shall be used in connection with the transportation, mainte- nance, and operation of coal slurry pipelines. I would ask the gentleman: Does this not expose this issue for what it really is, and that is an attempt by one region to use the power of the Federal Government to grab valuable resources from another region? *Mr. ECKTTARDT. No. If this bill were passed, and probably even without the passage of this bill, the State of Texas may not, in my opinion, make a discrimination between the use of water within the State and outside. That has been determined by a case some time ago PAGENO="0150" 144 in connection with a Texas law that prohibited the use of irrigation water outside the State of Texas. The State of Oklahoma, as I recall, brought an action in that case that overturned such a parochial attitude with respect to a particular use as an unconstitutional burden on interstate commerce. I have been in the Texas Legislature. I know that kind of legisla- tion, and I may say that that is one reason I am glad I am in the U.S. Congress today, and not in the Texas Legislature. Mr. SHUSTER. I would also ask the gentleman: Is it not true that coal slurry pipelines can be built by receiving the right of eminent domain from the various States, just as the railroads did? Mr. ECKHARDT. Well, when the railroads got their right of eminent domain, States were so anxious to get them t.here that, in my State, they even gave the railroads $10,000 a mile-that was a Yankee legisla- ture-to build an international railroa.d from Texarkana to Laredo. Fortunately, when we took over the State again from the carpet- baggers, we reversed that action. That gives you an indication of how anxious we were to get rail- roads. As a matter of fact, we ultimately gave them alternative leagues of land in order to get them to build railroads. We not only gave them eminent domain, but we gave them a heck of a lot of oil. But that situation does not exist today with respect to coal slurry pipelines. Mr. SHUSTER. For example, on page 135 of the Office of Technology Assessment report, it points out that t.he extensive network of inter- state oil pipelines, ammonia fertilizer pipelines, and railroads has been built with only State eminent clr~main authr'ritv. Cerfn~nlv, inferstnte oil pipelines and ammonia fertilizer pipelines have been built much, much more recently than the railroads. Mr. ECKHARDT. Well, Mr. Shuster, if that is true, why are the rail- roads opposing this bill? Mr. SHtTSTER. Well, I certainly cannot speak for the railroads, but I am asking you. Mr. EOKHARDT. They are opposing it because they know the pipe- lines cannot be built without Federal eminent domain. Mr. SHTTS~VFH. I am asldno~ von Why sl~riiiid not the eo~l &nrrv nine- lines get their eminent domain from the States, and why should the Federal Government he used to &rcumvent a preeecliire w~h~ch seems to have worked reasonably well be going to the States, as have the oil pipelines, for examnie? Mr. EOKHARDT. Well, I thought I answered that, in that the railroads and the oil pipelines were built at a time when people very much wanted to move those commodities in those ways. But, today, it has been necessary, in the case of gas pipelines, and it will be necessary in coal slurry pipelines, to have some uniform national policy. It does seem shameful to me that gas may be moved all over the coun- try from the Southwest by gas pipelines granted Federal eminent do- main, but the coa.l may not be brought in to replace that gas by coal sTurry pipelines granted eminent domain in t.he same manner by the Federal Government. Mr. SHUSTER. If the people of the States involved do not want to grant the right of eminent domain, why should the Federal Govern- ment stuff that down their throats? PAGENO="0151" 145 Mr. ECKHARDT. Well, because the States, say, between the location in Montana of a coal mine and my area in Houston may say, "No, we are going to cut your water off. You are sending us gas through eminent domain-granted gas pipelines, but we are going to cut your water off, because we can do it." Now, is that fair? Do you really consider that to be a fair deal, to use gas as a matter of right from a pipeline granted eminent domain by the Federal Government, hut to cut off pipeline- delivered coal to the State which is going to have to give up that gas because some State wants to shut the water off by refusing eminent domain? Mr. SHUSTEIm. I think if there is one thing we have to be very sensi- tive to in this Congress, it is the concern of the American people about the Federal Government exercising more and more power, not only over the people, but over the States. I think this simply, in a broader context, is one more example of the Federal Government, or an attempt to use the Federal Government, to exercise its power, bypassing the States, to benefit one region at the possible expense of another. There is one final question I would like to deal with, Mr. Eckhardt, and that relates to the OTA report and testimony that we had before this subcommittee from OTA in which they talked about the environ- mental problems with regard to waste disposal. Governor Peterson testified that there is an area of uncertainty con- cerning the substances that would be present in slurry water after it is separated, and I know of your concern and long interest and leader- ship in the area of environmental protectibn. So, I just wondered I you would care to comment on their observation that the discharge of toxic and hazardous substances into the surface and underground water is something whose implications are really not known. Mr. EOKHAIIDT. Yes, that was a very legitimate concern that the OTA raised. As a result, we added, in section 5(b) (7), that in making the findings required to grant the certificate. The Secretary would have to consider whether or not the pipeline would unduly impact on the surface and ground water at the point of destination, and what impact the disposal of such water would have on the environment. I think that was a good amendment, and I think that was a good point to have been raised. Mr. SHUSTER. Do you think that that adequately covers the problem? Mr. EOKHARDT. Yes, sir. Mr. SHUSTER. Thank you very much. Mr. HEFNE1I. The gentleman from Cali fornia, Mr. Mineta. Mr. MTNETA. Thank you very much, Mr. Chairman. Mr. Eckhardt, thank you very much for your fine testimony. First of all, although Mr. Demnsev stated it would not be nossible, do von be- lieve it would be possible to establish a regulatory framework which would treat each mode equally? Mr. FJCKHARDT. Yes, I siir~ly do. and in that connect~on. we added several amendments to the bill. The amendments were by Mr. Seiber- ling, to require the consideration of the effect on other modes of trans- portation, and several others. All in all, what the bill does is require a determination by that Agency which we consider to be somewhat neutral on the question- that is, the Department of the Interior. After all, the Secre~arv of Energy may be too anxious to move coal and, on the other hand, DOT PAGENO="0152" 146 may be a little bit reluctant and ICC, particiiraly, may be somewhat reluctant to disturb the railroads position. WTe felt that Interior was a good Agency to make the ultimate determination, as a sort of a half- way point. Mr. MINETA. It seems to me that one of the major points of conten- tion in this bill has to do with the potential competitive advantage given one mode over the other. Could you discuss your reasons for not dealing specifically with the impact on the railroads in this legislation, that is, other than taking notice of whether the pipeline would be likely to impair the financial integrity of other common carrier modes of transportation. Mr. ECKHARDT. Well, we did several things in the bill in that con- nection. The one you mentioned had a very important, direct effect on that question, but we had it in the original bill that the power of eminent domain may be. exercised only by a carrier holding a certifi- cate of public convenience and iiecessity issued by the Secretary of the Interior. The Secretary was authorized to issue such a certificate if the Secretary found, with respect to the particular project of the carrier for which said power is sought, the project was in the national interest and provided the capacity necessary to fulfill the requirements of a common carrier. Then we added the provision you refer to about the consideration of the effect on other carriers. Then, of course, we left the ultimate determinations with respect to regulation of the pipeline to the ICC, as in the case of other carriers. There is one other thing we did and, incidentally, I insisted on this, even to the opposition of some of the coal slurry pipelines. That is I was insistent on keeping pipelines independent of the recipient of the coal which is hauled, say, the utility, and independent of the min- ing company, because I do not believe that we should create a vertical monopoly in which the comparative earnings of this common carrier cannot be determined, as against others. I have even been accused by some of the oil companies of being for divestiture, and I do not understand how that applies. All I am say- ing is that they cannot acquire a vertical monopoly position under these circumstances. All of these things look toward equality of the pipeline with the railroad. Mr. MINETA. As you know, the Speaker has allowed the Commerce Committee to come in with their own bill within 30 days of the action of the Public Works and Transportation Committee to develop its own legislation to correct aiiy problems that might be created by the passage of this bill. Would you have any recommendations for the Interstate and For- eign Commerce Committee relative to that? Mr. ECKHARDT. I tlnnk that simply leaving the traditional authority of the ICC to control this common carrier as it does others would be sufficient, and I think it is within the ICC's authority to so do. 1f~there is any contest made of the action of the ICC that I referred to-if there is any contest respecting their authority to permit fixed* rates over long periods of time, then it might be necessary to give. them that authority, legislatively. But I do not think that it will be. Mr. MIXETA. And. very quickly, one more ciuestion. During the con- sideration of this bill by your committee, did you obtain any corn- PAGENO="0153" 147 ments from the Department of Justice relative to whether or not this legislation would create a Federal preemption over State water rights? Mr. ECKHARDT. Yes, as a matter of fact, that is the basis of the Marriott amendment. We wanted to be sure that the bill did not cre- ate, de factor, a contention under the Constitution that State water law could be overridden, subsequent to the granting of the certificate, by virtue of the granting of the certificate, alone. The Marriott amendment makes it clear that the granting of the certificate will not result in a situation in which changed situations after the granting of a certificate based on the certificate's authority, will provide for action based on the certificate's authority, which would prohibit the State from withdrawing water under its preferential standards for water use. Mr. MINETA. Thank you very much, Mr. Eckhardt. Thank you very much, Mr. Chairman. Mr. HEFNER. Thank you, Mr. Eckhardt. We have a quorum call. The committee will stand in recess until 1:30 p.m. [Whereupon, at 12:17 p.m., a recess was taken.] AFTERNOON SESSION [Whereupon, at 2:06 p.m., the subcommittee reconvened, Hon. Rob- eri A. Edgar, presiding.] Mr. EDGAR. The subcommittee will now come to order again, and we will continue, hearing Mr. Gary Wicks, Deputy Assistant Secretary, Land and Water Resources, Department of Interior. TESTIMONY OP GARY J. WICKS, DEPUTY ASSISTANT SECRETARY, LAND AND WATER RESOURCES, DEPARTMENT OP THE IN- TERIOR; ACCOMPANIED BY THOMAS RODDA, BUREAU OP LAND MANAGEMENT, RICHARD WOODCOCK, SOLICITOR'S OFFICE, AND GEORGE DAVIS, GEOLOGICAL SURVEY, DEPARTMENT OP THE INTERIOR Mr. WICKS. Chairman, I am Gary Wicks, Deputy Assistant Secretary for Land and Water, Department of Interior. And I have with me today a couple of individuals who I think will help answer some questions that might come up regarding H.R. 1609. On my left, I have Thomas Rodda, who is a natural resource specialist in the Bureau of Land Management. On my right, I have Richard Wood- cock from the Department of Interior's Solicitor's Office, and we have also with us George Davis from the Geological Survey. My statement will be brief. We have appeared on this bill a number of times to date, but we are pleased to be here and present the views of the Department of Interior on H.R. 1609, which would provide for Federal review of prospective coal slurry pipelines under the leader- ship of the Department of the Interior and amend the Mineral Leasing Act of 1920. The administration has given considerable attention to H.R. 1609. Although there are many features in the bill which the administra- tion favors, the President decided last year that he would support legislation providing authority in the Department of Energy to grant PAGENO="0154" 148 certificates pf public convenience and necessity for coal pipelines. Since that decision, the administration has developed proposed amend- ments to H.R. 1609 which designate the Department of Energy as the authorizing and lead agency, subject to concurrence by the Depart- ment of Transportation with regard to the effect proposed pipelines would have on other transportation systems and by the Department of the Interior with regard to water, land use, and natural resource questions. Mr. Jack O'Leary, Deputy Secretary of the Department of Energy generally discussed tl~ie administration's amendments on March 22. I will address the amendments to H.R. 1609 from the aspect of the Department of the Interior's involvement. We believe that, first of all, H.R. 1609, if amended, as proposed by the administration, is an appropriate vehicle for Federal legislation on coal pipelines and would provide a balanced framework for ex- peditiously reaching a decision in the national interest without prej- udice to the well-being of the railroads or other transportation systems. The Department of the Interior would have a number of significant responsibilities under the administration proposal. First, it would clearly have the same authority to issue rights-of-way for coal slurry pipelines on Federal lands as it now does for oil and gas pipelines under section 28 of the Mineral Leasing Act, as amended. The Depart- ment's existing authority to review slurry pipelines under title V of the Federal Land Policy and Management Act would be repealed and would be consolidated under section 28 of the Mineral Leasing Act. In the Denartment of the Interior's view, however, the most im- portant requirement addressed by the administration's amendments is the need for a thorough review of water, land use, and natural re- source questions involving slurry pipeline proposals. Section 28 would be further amended to extend the environmental requirements and controls of subsection h (2) of section 28 to private as well as Federal lands. Interior would have the lead role in the application of these provisions. `We do not intend, hOwever, that the Federal environmental review led by Interior would preempt the application of State and local requirements for environmental review, and permits or land use. I think an important point-Mr. Dempsey, in earlier testimony, referred to the fact that there is no requirement that the Department of Transportation or other departments be involved in the decision- making, but under the administration's proposal, both the Department of Transportation and the Department of the Interior would have concurrent authority, so that we would have to concur in the issuance of a certificate on all questions of impacts on lands, waters, and other natural resources affected by the proposed pipeline. This concurrence would be based upon the independent review con- ducted by the Department in these areas of concern to us and in connection with our Mineral Leasing Act responsibility. DOT's review would be coordinated with that of the Department of Energy to achieve maximum efficiency, cooperation, consistency in timing, and avoidance of duplication. We strongly believe that thorough review of environmental effects of any pipeline proposal is vitally important, particularly with regard to impacts on water use. PAGENO="0155" 149 In that regard, I would like to point out one very significant feature of the administration's proposed amendments, and that is, before a Federal certificate could be issued, the Secretary of the Interior would be required to obtain assurance from the Governor or other proper authority of the State from which water would be diverted that all rights to water under State jurisdiction for pipeline use have have been obtained according to applicable State laws and procedures. We believe that this amendment will provide the necessary assurance to State and local governments that State water laws will be respected and that the Federal Government will not interfere with whatever State authority exists for State water use decisions. We share the belief of the administration that the development of specific coal pipelines might be in the national interest, and we be- lieve that the administration's proposed amendments would best serve the purpose of balanced consideration of pipeline issues. I think it is important to point out that what we are supporting here is a pro- cedure. There was much talk this morning about hypothetical facts and about conjectural facts and the OTA report, and some of the other testimony that has been presented. It seems to us that the way to get around the hypothetical and the way to get around the generalities is to have a particular application before the Department or before the Federal Government, and only then will be able to make a determi- nation as to whether or not a particular pipeline will be the best mode of transportation, will have the least impact on the environment, and will have water use in a way that is acceptable to a particular State. So, what we are supporting here is a process for reaching some kind of conclusion as to whether or not the coal slurry pipelines are a proper mode of transportation in a particular instance. And with that, Mr. Chairman, I will close. We would be glad to answer any questions that you or other members of the committee might have. Mr. EDGAR. Thank you very much for your testimony, and we will have a number of questions. I would like to ask unanimous con- sent to submit to the Department of Interior a list of questions which are raised by our testimony for answering for the record. Mr. Wici~s. That will be perfectly acceptable. [The following was received for the record:] PAGENO="0156" PAGENO="0157" 151 United States Department of the Interior OFFICE OF THE SECRETAky WASHINGTON, D.C. 20240 JUL 12 1978 Honorable Jarras J. Howard thairman, Subcarrnittee on Surface Transportation Cairnittee on Public Works and Transportation House of Representatives Washington, D. C. 20515 Dear Mr. Ha~ard: I have attached answers to questions relating to H.R. 1609, the coal pipeline bill recently ponsidered by your Subccmniittee. The questions were forwarded with your letter to ire of ?pril 24, 1978. We regret any delay in providing these responses; ha~ever, as you can see from the attachnent a great deal of work was involved. The answers have been carpiled through a joint effort of this office, the Bureau of Land Management, the Office of the Solicitor, and the Office of Legislative Counsel, and they have been revi~ied by the Administration. Thank you for your interest. If you have any further questions please do not hesitate to call. Sin ely, DEIUTY ,~S/ST~NT S5ER121\RY Enclosures / PAGENO="0158" 152 Qi~stion: 1. At page 2 of your testirreny, in the second full paragraph, you refer to sectior~ 28 of the Mineral Leasing Act of 1920 and Title V of the Federal Land Policy and Managecent Act of 1976. You conclude that H.R. 1609 would put coal slurry pipelines in the saxe category as rights-of-way for oil and gas pipelines. Would you please state (1) Wnat the Deparirrent' s powers are under section 28 of the Mineral Leasing Act, and how those powers have been exercised in the past? Answer: 1. (1) The basic power exercised by the Departh~nt under section 28 of the Mineral Leasing Act, 30 U.S.C. 185, is the discretionary authority delegated to the Secretary to issue rights-of-way and terrporary permits for pipelines for the transportation of oil, natural gas, synthetic liquid or gaseous fuels, or any refined product produced therefroa through the following Federal lands, a tern defined by the statute: (a) - a11 surface areas administered by the Secretary - of the Interior: (b) aU surface areas administered by two or rrore Federal agencies (one of which cey or nay not be this Department), provided the Secretary consults with the interested agencies and otherwise caiplies with the ra~uireirents of the statute. (c) (XIS lards, National Park System lards, and lands for an Indian or Indian tribe are not subject to - Other supplarental pcwers are provided for, ircluling authority to: - Inpose stipulations in the right-of_way grant or by regulataon reu1r~ents for: - Reguire operation of the pipeline and facilities to protect safety of workers and public frau ruptures or slow degradation of the pipeline. - Peguire envirorrrental protection, adherence to air and water quality, and facility siting standards established bylaw. PAGENO="0159" 153 - jrevent damage to public or private property and hazards to public health and safety. - Obtain the disclosure of the applicant's identity. - Assure the applicant's technical and financial capability. - Obtain reimbursement of administrative and other costs in processjn~ applications and monitoring construction, operation, maintenance, an termination of pipeline. Require bonds. - Suspend or terminate the right-of-way, and when protecting public health or safety or the environment is needed, abate such activities prior to administrative proceedings. - Require, joint use of the right-of-way as practical for compatible purposes. - Require: cczrrron carrier status except for regulated natural gas pipelines; ccirrron purchaser status for all oil and gas pipelines; and prpratiorring proceedings for, oil or gas produced from Federal lands or from resources on the Federal lands in the vicinity of the pipeline. - - Lwose liability arid indemnification standards, including liability without fault, on holders of rights-of-way. The Secretary has actively administered. Section 28 since its inception in 1920. In 1973, the Secretary's authority under Section 28 was updated by Congress. Since the latter dato the oust notable example of the exercise of the Secretary' s authority under Section 28 has been the right-of-way granted ir~ connection with the Trans Alaska Pipeline. Proposed regulations were published on March 2, 1978, in the Federal Re ister to fully irrulenent the act. A copy of the proposed regulations (43 C .F .R. Part 2200) is enclosed. The provisions of the rulemaking indicate hcw we intend to proceed Carrrents will be in shortly, after which we will analyze those ccrrrrents and formulate the final notice. PAGENO="0160" 154 Question: 1. (2) ~at the Departrrent' s powers are under Title V of the Federal Land Policy and Managenent Act of 1976, and ha~i those pcwers have been exercised in the past? Answer: 1. (2) Under Title V of the Federal Land Policy and Managerrent Act of 1976, 43 U.S.C.A. 1761-1771, the basic po~iers conferred upon the Secretary of the Interior are: (a) the discretionary authority to issue "rights-of-way as defined by the statute, as well as terrmoraxy use authorizations or permits, in relation to the "public lands" which, in general are defined by the Act as Federally o.rned lands administered by the Secretary through the ~reau of Land Managerrent, including acquired as well as public danain lands. The types of rights-of-way that are authorized are specified by the Act. In general, they are of a lineal nature. Section 28, Mineral Leasing Act rights-of-way are excluded. "Coal pipelines" to the extent that they would constitute a "slurry' or an "Erailsion" system for the transportation and distribution of solid materials are expres5lv incleded. (b) the discretionary pover to authorize the acquisition, constrtxtion and maintenance of foads within and near the "public lands", as that term is generally defined above. Other ancillary p~iers are conferred on the Secretary in this connection; - Cc) the discretionary authority to permit the use of lands, administered by the Secretary, by another Federal department or agency, subject to approoriate terms and conditions; Cd) the Act requires disclosure of all plans and information pertinent to right-of-way applications, includinq effects on carpetition. In many respects the povers in Title V are canparable to those in Section 28 of the Mineral Leasing Act of 1920, as amended. The D~artimnt is in the process of promulgating regulations to irrplerrent Title V of the Federal Land Policy and Management Act of 1976. Since FL~A is a ne~z Act we have had only minimal experience in administering these particular provisions. Hovever, to the extent that previous law gave the Secretary discretion and flexibility in issuance of rights- of-way, we have had considerable experience with such authority and have exercised our discretion to consider environmental and other resource impacts in imaicing right-of-way decisions. PAGENO="0161" 155 `U- THURSDAY, MARCH 2,1978 PART VI DEPARTMENT OF THE INTERIOR Land Management Bureau RIGHTS-O F~WAY * UNDER THE MINERAL LEASING * ACT Management of Oil and * Natural Gas Pipelines and Related Facilities on Federal Lands and Reimbursement of Costs 32-745 0 - 78 - 11 PAGENO="0162" I~i ~; ~ z °> ~ ~ a ~ ~ g) ~ 7 p A 2 pa I, U PAGENO="0163" 157 ~Gc°'~'~D 3Ut.!S ~771 `ace hemtei `en Federal !aude, and (b) A bolder elsafl not tine a rçht-~:t- which are authorized under the Act, way for arty purpose other than for including but not ltrrlti'-d to: Sironort' the orotr'nrtnon, oper~t1on, unninto- big structures. r.L'etrlnz roads; ramp- pence, end termination of the pfr~ol-ne cites. gathering sment ramp ~tsUans, e'nectf led in the bolder's ht-of.ara onciochne apex-cited hailports, ~ n'ent. A bolder shall not locate or con- tours, pares.. irs. fences; talves, ~d etr'zct `ny other pinelines, including rP "trod ceo, e"-o and a' `-og ito or other iz'p"ove-" age tanzs. ,. then munitceong and hithin ~ ~ without first PC. bous rig them: ~ ~ cs.finz approuriate as.thormzaclon (c)The width of a rtght-of.way shell iserms, tIdies, ditches, ecito, and fills; be the width a! the pipeline plus do * tn'nctures and areas for atmang ~ ~eet on eac,h side thereof unless the piles and etiuloment. ŕuthttr,zed officer determines that a Q) "Right-of-way" ~seans the Fader. ~eater or lesser width should be al- al land authorized to be ocoupied pur. lowed. stint to a right-of-way ~ (d) An applicant may apply to the (in) " it-of-way grant" means ~ authorized officer for a wider right-of- rconpos,oessory, ponexeluolve debt to way in limited areas. If necessary: (1) line Federal lands for the limited pur- for the operation and maintenance of aose of construction, operation, main- the project after Conatructiorn (2) to dan.ante, anti termination of a pipeline. protect the environment; or (3) to pro- In) "Secretary" means the Secretary vide for the public safety. If the eu- at the Interior. thorizéd officer finds that the addi. lions.) width La neceesary for one of the above reasons, he moe authorze a La) These regulations atiply to any ~er width, Such authonizetlon tIcall application now on IDe or hereafter teclude a written report renorume the flied with Federal agencies for Issu. vc~p~ `ah,y the additional width Is arace, modification, or renewal of a -"'nozsary rognt-of.way grant or a temporary Use (")A right-of-way grant Issued or re- permit, except where the zurfa,ce of mixed under these regulations shall be sue seoersl land Involved In the nisflt- Dndted to a reasonable term, not to of.way or temporary use permit area Lu --P- d "0 N to shall be under inc Jurn-,diction of a single Fed- ,,, I. oral agency, including bureaus and f~~' ecessarY ~ Mencies within the Department of the ~, purpo~e o .e grant. n. 0- Interior, other than the Bureau of ,rL,ed oif,~cer shall determine the aura- Land nianagement, lion of oath right-of-way grant, tinint di) In addition, the telom of into constoeration, among other Lt33.5 of tInts title aopl.y to all right'. `things: (1) The coat of the facility, (2) c,-oay grants and temporary one per. ~a useful life. (3) any public purpose it cciii heretotore issued pursuant to nec- serves, and (4) potentauiiy corsthcting ti no 23 of the Mineral Leasing Act by uses of the lend. the Iiureau of Land Martavement, end If) ltxest where a right-of-way * to fenlnitz, grants, and other authorl. grant has terminated by its tercrs iirm-etcfore insrocd by the 5-cre- coon the occurrence of a fIxed or cc Intl tIclonate in connectIon with agreed open conditIon, event, or time, tIne Trum-Alasha Oil Pipeline System it shall be renewed if the pro~act is t'IttPSi. heinz operated and Ooaintstheel In ac~ ntOchc~ lidill-!arsas ~ ~ icorciausee with all pcevlsloccs of the ~ .,~ , ~ nI~Iitof-eay grant, these regulations IOt~ 05. )serrsIfI fg) Plo purported transfer of an to' Icrest In a right-of-way grant, a right' *,fil,l a hbeSSI' - a!.way or any portion of a pipeline ~zS1ui ftt~5 of ~ z,uU be valid without the ulor avit' (a) ~ne timitted Slates retclienz a richt trn approval of the authorized officer. otsse a i-ght-of-rey or authorIze the tnpiicetions for such approval stall -o th~ In ti ~0tiu1 t be directed to the authorized officer. en ~ ~ Trarisferees must meet all the reciuire' lnirolOo, The holder of a ri'lst-of-ivsy roenla of an original pipeline rignil-'of- ~css no right to `soy ~ ~ ~ ~ grantee and roust assume all of `inns of the land ln~1uUipg. b `sot the transferor's responsibility to the tionited to, Limber, !eraze, mineral, ~nd Doited States with resPect to the `oninr,el resource's, The balder may not .mie~T~<~ interest and snail agree to allow the use of a nt-eht-of-wsy by be ootsnd by all terms of any cutsiand- `ethers except Its contractors, .ubcoa- in8 right-cf-way grant or temporary tractors, or agents for purposes of mci. use permit, Applications shall lie ac- xtruetic,gi, operation, ine,intscoartce, or eompsniiud by a n~irefundalhle lee of leruilnation of the pipeline. 450. *9ubp.at 2~PoO-.~~8 a-sd ~Lsbnr'eI floe fipulinas aod ~aiof~d Tatiicti~s, G.noi'al - 2880,0-3 Authority. The prorloforca of this aobport are ~sued ander the authority of Section 28 of the Mineral Leasing Act of 1920, as amended 130 IILS,C. 115), sinless otherwIse noted. 4 2880.0-9 ~e1la1tlaai. * (a) "Act" means SectIon 23 of the Kineral Leasing Act of 1921), as amended (30 U_s_c, 185). Ib) "Agency head" oceans the head .( any Federal decartzoeutt or tncleoen' dent Federal off Ice or agency, Stiter than the Secretary of the interior, who bus jurisdiction over the surface of Feslorad lands, Cc) "Applicant" means arty lndlvid' ~al, pas-thership, corporation, issued- scion, or other business entity, or any State or local govenmental entity or agency, whIch applies for a right-of' way grant or temporary _ permit emder the Act, (d) "Authorized officer" w.eans any * employee of the Deoarmnent of the Interior to whcen has been delerated the authority to perform the duties * dacrlbed in this part. Ce) "Federal lands" m~itz aB lands owned by the United States except ,b,nds In the Natlorisl Park System, lands held In trust for an In-olian or Indian tribe, and ~ls on the -Outer Continental Shelf. (I) `Solder" means arty individual, partnership, corporation, ansoclatlon, er other business enuty, m' amy State or local governmental entity or seenccy which has received a right-of-way ~ant or tempora,ry ~e pa,rmit icocter the Act. (g) "011 nc ens" macsos o(l, toatural zas. wynthetic tlcadd cct yseecus fuels. arty vericasl presious ~rodeced therefrom (hi "Temporary `.tse nor-mit" mom.a a zevocable rtcxcpces',esrcry srtvii'-e to use specified Federal lends hi the vi- cinity of a right-of-wa'; to ntnrtection with the cansgructacue, eperatlon, maintenance, or terminatIon of a p'pe- line or for the protectIen ol' the met,u. ~l en-eirtmmeot or public eafety. (I) "Pipeline" means a line `if gino ~avaralng Federal leetsi far tranoports. lion of oil or gas. The term Osi'~oodes ~ank lines, gathering lines arid relat' *edlacllitles, * Li) "PiPeline systessi" mesre rfl f ~. ciultles, whether or not located sea i~ed' er-al land, used by a holcies' fri coonec~ ~ma with the essostr-tctlao. operatIon, * maintenance, or e,ecounatlon a! a pipe' line.,, * (k) "Related facilities" means those ~rt2ctiirra, devices, trotiroverruenta, sued ~ the ~ibetantialli continuous use ef which Lu neceasary for the operation ~ ~uathtensnne Laf a pipolins, which `iWeaM arsecTea, ~OI.. 43, #10. 43-.~l~I~Y, P~5UI 2, 1-972 PAGENO="0164" 158 * S772 - PROPOSED RULES 2331,1-2 Nature of teznperary aug peesnlt Individuals living In the genera] vielni- Federal lands prior to the Issuance of Interest .ty of the right-of-way or temporary a right-of-way grant except pursuant (a) A temporary use permit does oot use permit area who rely on the fish, to temporary use permits or other ap- grant any interest in land and is rsvp- at~Je, and b,otic resources of the propriate authorizations. -cable at will by the authorized officer. area or subsistence purposes. fbi The area covered by a temporary 1bs RIght-of-way grants or tenipo- 23-32.2 RequIrements for applications far use permit shall be no greater than ts rary usc permits issued, renewed, or rights-of-way giants tad temporary use necessary to accommodate the autho- ..nicnstd under this Act snail include permits, rlzed or to pro'ect the ervu-on- roiiulrfmento that will protect the or provide for public aafety. safety and health of plpeilne workers 28322-1 Applicant qu.atlftcatioes. - (ci The duration of a temporary use and the general public, lnclodtng, but fa) An applicant for a rleht-of-wsy permit shall ordinarily be short and us~ uzuted to. protection against the grant or temporary use permit must never longer than is necessary to ac- zuoson rupture and stow dogranatlon be a citizen of the United States, an complish the authorized purpose, of the p:pellne. Applicants and holoem eaaociatlon of such citizens, a corpora. (di A temporary use permit may be ana.ii design, oomtrum, operate, and don organized under the Iowa oi the renewed at the discretion of the su~ mamtain all facilities in accordance United States, or of any State or Ter- thorized officer, but the permittee has with all Federal. State, and local laws ritory thereof, or a State or iocal gov- no right of renewal, and ordinances governing pipelines - ern.ment. Each applicant, other than (ci -A temporary use permit is not and pipeline constnictloru ` individual citizen applicants, or State transferable. §23312 Unauthorized oupaery. or local governments or agents or mi §2831J-3 Reuernlien - of rights to the No holder ofarlght-of~way grant or r°ta1~ thamof,eliall5tiite - ~h whose laws, customs, or regulatIons All rights in land subiect to a right- ~t-o~ ?` ° Le pe - uaehboe ~ deny similar or like privileges to citi- -of-ny grant or temporary use permit y, ~ uthrised seas of corporations of this country, not expressly granted ore retained by - ~` ~ shall by stock ownemhlp, otockhold- the United States. These rights in- ~ - y es-an or te ~°` tog or stack control own any mterest dude but are not hmstedto:lo)Acon- ~ tT~ur~°i~ In the right-of-way if It is authorized. og - , zztlon is subject to prosecution and il s.ach applicant corporation shall lden- I cu `ig t e ou ur.ace an Mile... -~ II bi stat hit- tify,totheextentofltsknowledee,ali air space); fbi a continuing right of ~ Zj~ foreign Individuals or entitles who di. physical entry to any part of the pipe- ` r - - rectly or Indirectly own over 1 percent line ayatem for inspection, monitoring, . of Its voting shares, or who would by or for any other purpose or reason .ubpofl 2182.-Applieohons law, directly or indirectly, own any in- consistent with any right or oblization * 2832.1... Pre-applicalinn aesisity. terest in the right-of-way if It were au- of the Umted States under any law or lai Upon determining that a pt'o~ thorized, and shall provide the caine, regul t on. and I ith right to ake, posed pIpeline prolect Is contemplated address, and country of citizenship of - gran n5 t - y gi" - which would cross Federal lands under each such individual or entity. temporary use pernalto, eav.ments, the jurisdiction of the Department of fbi An application by a private cor- - - nt -- p ten-a, per- the interior, or two or more Federal poratlon shali be accompanied by a with d O~ ef a~t orszatlons to or ugeno:m, the proponent of such proS copy of Its charter or articles of incor- o und b * d - t to th 2oct is entouraged to promptly notify poration, duly certified by the proper ~ - 83 b' ~ h~-o the appropriate office Identified In State official where the- corporation te cc ~t - y 2182.2-2 or the Secretary. was organized and a copy of Its bylowo, porary pe - fbi The authorized officer will pro- - duly certified by the secretary of the * 28012 Teresa and eoediliona of interest tide guidance to the pipeline project corporation. granted. - proponent as to: eli routing con- ed A corporation, other than a pri- (a] All right-of-way grants and tern- straints which exist because of current vote corporation, shall file a copy of porary use permits Issued, renewed, or lnnd status as reflected in land use the law under which It was formed amended under these regulations shall piaiui and land status records; (2) nec- and provide proof of organization contain ouch terms, conditior,s, and rosary information to be Included In under the same, and a copy of -Its stipulations as may be prescribed by Of plirations for right-of-way grants or bylaws, duly certified by the secretary ,the outhorized officer regarding temporary use permits; (3) qualiflca- -of the corporation, - extent, duration, survey, location, con- tions required of applicantg and (4) (di When -a corporation 10 operating ztruetion, operation. enalnter,snce, use, let~tificatlon of on-the-round lnvestl- In a State other than that In which It and termlnatlon:The authorized offi. potions which will require temporary --in incorporated, It shall submit a certi- car shall loopose stipalatleno which use permits, - - ficate from the Secretary of State or shall include but shall not be limited (ci ito right-of-way application pro- other proper official of that State in- to: (ii requirements for restoration, re- ceosing work, other than that Incurred dirating that It has complied with (he vegetation, and curtailment of erosion irs the processing of temporary use laws of the State governing foreign of the surface of the land; 12) requIre- permits under paragraph (di of this corporatlons to the extent required to nsents to Insure that activities in con- section shalibe unnertaken by the au~ entitle the company to operate in such nection w(th the right-of-way grant or tnonzed offlter prior to the filing of State, and that the corporation Is in -temporary use permit will not violate an acceptable application together good standing under the laws of that - wpplicabte air and water quality stan- with advance payment as required by State. - darda or related faculty olting stan- 2501.t-2 of this title. Such work lo~ (ci A copy of the resolution by the dardo established by or pursuant to clod eo, but Is not limited to, special directors of the corporation. authors' taw'i (3) requirements designed to con- stodim such as environmental analy. ins the filing of the application shall trot or prevent damage to the ens-iron- -sea, environmental impact statements, also be flied. - ment (including damage to fish and -engineering surveys, reanurte inven- Cf i II the corporation has previously -`wildlife habitat), damage to public or tones, end detailed land record anaty- - filed with the Department the papers private property, and hazards to ceo. required by this subsection, the re- --public bealth and aafety- and 14) ic- - - IdI No su,"veys or other preconstruc. oulrements shall be held to be met if, quiremento to protect the interests of tion activities may be conducted on In making subsequent applications. - ;~UAL 20011788, VOl. 43, at 42-ThtII5OAT, 5.8804 2, In PAGENO="0165" ~CPO~D ~1JLES 8773 nor, appitcatlon shaLl bc filed with any individual, the name arid addresc of .ftate cririce of the Bureau of Lend the applicant's agent who is autho- ~,Lenavement that he.s ittrtsdiction rized to receive notIce of actions per over the Federal Lands involved. taming to the applicatmon. (2) Where the :`oderal hinds In- 12) A general description of the pro `solved are under the fursidictlon of posed pipeline system. InCludfnz vie- two or more atencies of ti's Depart- -merits of the project which may be mv-nt of the Litter-i or. or where the constructed on non-Federal lands. Lesdersi Lands involved ire under the t3) A general description of all Fed- j'strisuictlon of one or more aroncies of er-al lapds which would be involved In the Department ci the Interior and the pipeline system, wIth a statement one or more other Federal apencies, Or Identifying the Federal agencies con- -wnere the Federal Lends involved are c~ned. antler the jurisdictIon of two or more - gg) Fel)owirig the filing of an appli- non-Interior agencies, the Initial appli- cation for a right-of-way grant or terre- cation may be filed at the moot conve- ~orary use per-mit. the authorized off ment State Office of the Bureau of ceo may require the applicant to fur-- Land Management, at locations listed -~j~h such additional Information as he en 1821.2-1 of this title. The Director. deema necessary. icureau of Lend Manacernent will, upon nstlce of the application by field 2882,2-3 Other data reqais-ed. esficials, ascign a lead official end ta~ S3ich application for a right-of- notify the aPparent whore all foture way grant or temporary use permit u~ifl6 the ~ ~haflmnc1adehighqu2,UtY and detaded 9) d the s-odor-al Bnds In- ~ E~,Ch appu~tlon for a right-of- but one Federal agency, including Bu. ~Y~ntOr temporary use permit reaus and aerncies within the Depart- ~aiiich contains plans for construction. Lreau of Land Management, ap~piica~ C;oratIoIt maintene.nce. and terrrsina- be orrected to that ~-jp~on h~ifei~ in an acceptable ib) Appilcatlorm flied ~ith Federal r~-dfV d~mfVi ~ ugenctes, such as the ? .era,i ~ enable the authorized officer to deter- ~s~e "~~iflc~°~' ~~r0outrority same the feasibility Of the pipeline. for a project olsich ri~'~ rights-of- the benefits to the public from the -~ - - tisr a proposed pipeline, the ptpeline safe. `~"'rai ~ ~ t-~ ~ c-iards. and whether the propcsai ~lli'~ w"tst'ie Bureau of Lad Stan compiles with these regulations and ~--me" in a"''ordsnce with the cs-sri. the Act. The project description shall ft "532 3-°l include at least the following data: `c) Earn acnllorstioa for a right-of. (1) A detailed description of the pro- ray grant or temporary use permit ~0,sed pipeline system, -v-hi ~hos' that the a'-tilicsnt lies the (Ii A detailed schedule for construc- inchr,lcaI ~nd riisariczal capabilIty ~ lion of all facilities including manpow- c-instruct, oPerate, maintain, and tsr- er requirements. `vir,ate the zroiect for which the (31 A plan for the protection and re- :1 ;Lit-cf-way cyacot or tamporary ng* lmabthtation of the environment permit ii rvr,ucsted. The acoilcation during construction, operation, main- pt'sail state the (scl,s arid costs-in sup- tenauce, and termination of the pipe- duttrsg dxumen',s which demonstrate line. the appLicant's capabillties. (4) An oil spill coortlngency plan to (dl If Cssce are any related right-of' repair any rupture during operation crs~ pt-art or nporary ste par-mit ~>, and for containment of effluent and phcrtlsns oeuesLcc, or if the isppil' for restoration of damage. cr115 plans include anrrllc-ation for ad. (5) A detailed description of the d:ior.al ~lpeine ,-ights-ssf -way s~ yipellne construction techniques to be per-ary use per,nita. the application for mcd, ri~hi.~of.aay grant sr temporary ma (61 Total es-tlrrsated conztroctlori ptrrrielt shall so indicate and refer to cost.S. iptl PICVIOUS applications, (7) A description of the applicant's `e) Applications for if tsat-of-way alternate route considerations. grants arid temporary use permits (c) Each applicant for a right-of-way s-hall be filed on for-ni approved by grant or temporary use permit shall `the Director or eppropr-Latc agency furnish suffinent data to enable the head, shall be legible, and alas.'.) sot authorized officer to Identify the len- `forth the Information required by pacts on the environment of the con~ `P332.2-2(f). ecruction, operation. maintenance, and If) Each application for a right-of- termination phases of the proposed ss-av or e,empor,Iry nsa ~~erinlt shall pipeline system, Including, but not contain the foilswtrsgf limited ice U) The name and address of the an- - (1) The changes In the surface of the -pllcant and, 11 the applicant is not an isridi 159 specific references try `cede to such previous filing by dste, place. `s,cf erase number, and tf there hive not been any arsendcrsenl.s or reclslons `of the corporation's charter, articles of Incor- por-atlon, or bylaws. (g) If the applicant is a oar'treerehip. associatIon, or other `mL'rrorportted entity, the applIcation shell be rrrcom~ panled by a certifIed copy of the ar-ti- tles of association or other similar foe- ament creating the entity, if any. The application shall be sinned by each partner or member of the erailLe, and each shall furnish the evicience of qualification which would be reri'.rar-ed if the partner or memaner were apply- Ing separately. (hI If the applicant Is a Slate or local government, or agency or instru- mentality thereof, the appiication shall be accompanied by a statement to the effect and a cony of trie law, resolution. order, or other authoriza- tion under which the applicailon is oaade. (I) Each application ~y a partner. ship, corporation, association, or other business entity shall disciose the Iden- lily of the partir,ipm,nts in the enlity and shall include where acpiicable: (1) - The name, address, and citizenship of each participant Ipso-trier, associate or other): (2) the name, address, and till. zenship of each shareholder owning 3. .percent or more of each class of - - shares, together with the number end percentage of any class of voting shares of the entity which each share- holder Is authorized to tote: and (3) the name and address 0f each affiliate controlled by, or that controls, the entity, either directly or indirectly. Where an affiliate Is crantrolied by the entity, the application vhs-Il disclose the number of shares and the percent- age of each clans of reeving attest of that affiliate owned, directly or Inch- rectly, by the enmity. if an adulate controls the entIty, the number of shares and the pcr-ct'ntage eel reach class of voting start of the cs-silty owned, directly sr Indireertly. by the affiliate shall be iiscl'.rded. In thus orate of an affiliate that oirst.-tly or lnnirmt- 1,7 controls the entity, the oppllcatleen shah include the name and id,L-eues of each participant (partner, se-acciatu, or other) In the affiLiate or, if the cifiti. ate Is a corporation. the name, i-i-IdcesS and citizenship of each shareholder -ownIng 3 percent or more of all shares together with the number and tier- centage of e.agfm class of voting shares of the entity which each shareholder is entitled to vote. 4 2832,2-! ApplicatIon ~lIIa~. (a) .Appticsstlors- - for rigtit-of-way 53-tui.s and temporary use permits afr~aLl be filed as follows: (1) Where the Federal lands involved are cinder the jurisdiction of the Burenrs of Land Ma.nagernent, Department of the Irste- 7!DtlAt'lIOriiU, wnt. ss, wo. t2-ThtJSrOAT, $.AaCrI s, isis PAGENO="0166" cZ74 (2) The effect on air quality: (3) The effect on water quality: (4) Damages to or changes In vegeta- lion; (5) Changes In fish and wildlife habI- tat: (6) The risk of damage to public or private property; (7) The risk of hazards to public bealth and safety; (8) The effect of the proposed pipe- line on Individuals living in Its general vicinity who rely on the fish, wildlife, and blotlc resources of the area for ubststence purposes. (dl After review of the applicant's project descriptIon required under ~2882.2-3(b), the authorized officer may require the applicant to perform additional studies or submit adoitior.al environmental data, or both, so so to enable the agency hesd or the Secre- tary or his authorized representative to prepare an envL-ortmental state- ment In accordance with section 102(2)(C) of the NatIonal Environmen- tal Policy Act of 1909 (42 U.S.C. 4321 et seq.), and comply with the require- ments of the National Historic Freser. cation Act of 1966 (16 USC. 4701; the Archeological and Historic Preset-va- tlon Act of 1974 (16 U.S.C 469 ci seq.); Executive Order 11593, "Protection and Enhancement of the Cultural En- .vlronnsent" of May 13, 1971 (36 FR 8921); `Procedures for the protection of historic and cultural properties" (36 CFR Part 300); and other laws and regulations as applicable. (e) If the proposed right-of-way or temporary use permit area Is within a Federal reservation, the applicant shall submit additional data as re- quired by the authorized officer to assist the Secretary in determining whether the right-of-way grant or temporary use permit would be Incon' alstent with the purposes of the reser- vation, 2882.3 Application proeeulng. (a) The Secretary shall notify the House Committee on Interior and In- aular Affairs and the Senate Commit- tee on Energy and Natural Resources promptly upon receipt of an applies- lion for a right-of-way grant for a pIpeline 24 inches or more In diameter and no right-of-way grant for such a pipeline shall be Issued untIl 60 days (not counting days on which the House of Representatives or the Senate has adjourned for more than 3 days) after a notice of intention to Issue the right.of-way grant, together with the authorized officers detailed findings as to terms and conditions he proposes to impose, has been submit- ted to such cOmmittees, unless earn committee by resolution waives the waiting period, (b) Upon receipt of an application for a right-of.way grant, the autho- rized officer al'.all publish a notice of 160 PROPOSED RULES the application ha the Fracs.ax. Rests. ~ra and an announcement in a news- paper or newspapers having general circulation in the vicinity of the lands affected, or. If In the opinion of the authorized officer, the pIpeline ha- pacts are of a minor nature, the notice of application may be waived or pub- lished only in a newspaper having gen- eral circulation In the area or areas in the vicinity of the affected Federal lands. The notice snail contain a gen- eral description of the application and the Federal lands to be affected, to- gether withsuch other Information as the authorized officer deems perti- nent. The notice shall state where the applicatIon and reiated documenis will be held available for intefested per- sons to review. Copies of the notice shall be sent to the Govemor of each State within which the pipeline system would be located, the head of each local government or jurisdiction within which the pipeline system would be located, and each agency head. (C) Where an application for a right- of-way grant or temporary use permit Is incomplete or not In conformity with the iaw or regulations, the autho- rized offfber-may reject the applica- tion or notify the applicant of the de- ficiencies and afford the applicant an opportunity to correct them. Where deficlencynotlces have not been ade- quately complied with, the authorized officer may reject the application or notify the applicant of the continuing deficiencies and afford the applicant an opportunity to correct them. (dl The authorized officer may re- quire the applicant for a right-of-way grant or temporary use permit to submit such additional Information as he deems necessary for review of the applicatlon. (e) An application for a right-of-way grant or temporary use permit which meets the requirements of the Act and of these regulations entities the appli- cant only to full review of the applica. tiara Such application may be denied If the authorized officer determines that the right-of-way or use applied for would be Inconsistent with the purpose to which the Federal lands In- volved have been committed, or would otherwise not be in the public Interest, (f) T'ne authorized officer shall hold public meetings or hearings on an so- pllcatlon for a right.of.way grant or temporary use permit if he determines that sufficient public Interest exists to wa"rant the time and expense of such meetings or hearings, Nouce of any such meetings or nearings shall be published In the FEDraAL R,rctsrax and In local newspapers. (g) If the application Involves a rlght-of.way through lands under the jurisdiction of two or more Federal agencies, the authorized officer shall refer the application to the agency beads for consultatIon and other ap- propriate actions. (h) The authorized officer shah con- sultas appropriate with other agencies as to the application, any additional Information which should be required from the applicant, conditions or stip- ulatIons which should be imposed, and whether the right-of-way grant or temporary use permit should be issued. (I) No right-of-way grant or tempo- rary use permit over lands under the jurisdiction of two or more Federal agencies and not within the jurisdic. lion of the agency by which the au- thorized officer Is employed will be issued by the authorized oificer with- out the concurrence of the heads of the agencies administering such lands or his authorized representative. (1) Where the surface of the Federal lands Involved is administered by the Secretary or by two or more Federal agencies, the Secretary may. after con- sultation with the non-Interior sgen- dies Involved, grant or renew a right- of-way or temporary use permit through the Federal lands Involved. with or without the concurrence of the heads of the agencies administer- ing such lands. A right-of-way through a Federal reservation shall not be granted If the Secretary determines that It would be Inconsistent with the purposes of the reservation, (kl A right-of-way grant or tempo- rary use permit need not conform to the applicant's proposal, but may con- tain such modifications, terms, supuia. lions or conditIons Including changes In route site location as the authorized officer may deem appropriate. (1) No rlght.of.way grant or tempo- rary use permit shall be considered as being In effect until the applicant has accepted In writing the terms and con- ditions of the grant or temporary use permit, Written acceptance shall con- stItute a contract between an sppii. cant and the United States that. In consideration of the right to use Fed' cmi lands, the applicant shall abide by all terms and conditions contained therein and the provisions of applica- ble laws and regulations. (ml at the discretion of the autho- rized officer, a provision may be placed In a right.of.way grant or tem- porary use permit requiring that no construction or use shall occur until detailed construction or use plaits have been submitted to the authorized officer and a notice to proceed has been Issued. This requirement may apply to the entire pIpeline or seg- menis thereof. (n) The authorized officer shall take Into consideration and, to the extent practical, comply with applicable State standards for right-of'WaY construc- tion, operation, and maintenance. ~flAL R200TU. VOL 43, NO, 43-TW)LSOAY, MA*O~ 2, 1573 PAGENO="0167" 161 Subpart 33-Adminlots-aflon of rghts grrint.d * 2383.1 General requirements. ~2S83.1-l ~teimbureement of costa. Reimbursement of costs for appllca- lion processing and administration of right-of-way grants and temporary use permits shall be made in accordance with 2302.1-2 of this title. 12883.1-! Rental payments. * Holders of right.of.way grants and temporary use permits shall pay annu- ally. in advance the fair market rental value of the right-of-way or temporary use permit area as determined by the .~uthori.zed officer. j2833.1-1 Bonding. The authorized officer may require a holder of a right-of-way grant or tem- porary use permit to furnish a bond. or other security satisfactory to him. to secure oil or any of the obligations imposed by the rIght-of-way grant and temporary use permits and applicable laws and regulations. * 2883.1-4 Liability. (a) Holders of right-of-way grants or temporary use permits shall pay the United States the full value for all Injury or damages to Federal lands or other property of the United States caused by the holder or by its employ- ees, contractors, or employees of the contractors, and shall indemnify (or hold harmless) the United States against any liability for damage to life or property arising from the autho- rized occupancy or use: Provided, how- ever. That where a rteht-of-way grant to Issued to a State, or local govern- ment or any agency or instrumentality thereof, which has no legal power to assume such liability with respect to dAmages caused by it to iands or prop- city, such State or local government or agency In lieu thereof wail be re- * quireci to repair all damages. (b) Holders of right-of-way grants and temporary use permits Issued under these regulations shall be sub- ject to liability without fault for Injury acid damage to the land and property of the United States and for mats, such as fire control, abatement of oil spills, etc., up to a specified maximum limit commensurate with the foreseeable risks or hazards pre- ocnted. The amount of no-fault liabil- ity for each occurrence Is hereby limit. eel to no more than 01.000.000. Liabll- Ity for damage, injury, arid costs in exceas of this amount will be deter- mined by ordinary rules of negligence. 2883.0-5 Common carriers. (a) Pipelines shall be constructed, operated, and maintained as common carriers. The owners or operators of pipelines shall accept, convey, trans- port, or purchase without discrimina- tIon all oil or gag delivered to the pipe- 5113 gbl An applicant shall promptly notIfy the authorized officer of any changes in Its plans, financlai cor.dl. tion, or other factors relevant to the application, and shall modify the ap- plication promptly to reflect any such changes. If the requirements of this subsection are not compiled with in the opinion of the authorized officer, lie may relect the appilcatiort (ci ~°~ny proposed change In the route of the pipeline or change In the use of Federal lands under the Act wall require an amended or new ngnt-of. way grant or temporary use permit from the authorized officer. Any un- authorized activity may be subject to prosecution under applicable statutes and liability for trespass. (dl Holders of pipeline right-of-way grants Issued before November Ii, 1973, must apply under the Act anci these regulations for modifications of the route or change in the use of Fed- eral lands in connedlion with such right-of-way. (e) The authorized officer may ratify or confirm a right-of-way grant or temporary use permit that was issued under any provision of law If the right-of-way grant or temporary use permit Is modified to comply with the provisions of the Act and regina- lions. Such modifications are subject to the joint approyal of the right-of- way holder and the authorized officer. 2083.3 Conniruetlon procedures. (a) Unless otherwise stated in the right-of-way grant or temporary use permit, construction may proceed im- mediately after delivery to the autho- rized officer 0f the applicant's written acceptance of the right-of-way grant or temporary use permit. (b) If a notIce to proceed require- ment has teen imposed under 2882.3lm), the holder shall Initiate no construction, occupancy, or use until the authorized officer Issues an appropriate notice to proceed. 68883.4 Operation and maictnnance. (a) Prior to the beginning of pipeline operations, the holder shall submit to the authorized officer a certification of construction, verifying that the pipeline system has been ronstructed and tested in accordance with the terms of the right-of-way grant, and in compliance with any required plans and speciilcatlons, and appiicable Fed- eral and State laws and regulations. *2883.5 Immediate demporary suspension of activities, (a) If the authorized officer deter- mines that any activity being conduct- ed or tolerated by a holder within a right-of-way or temporary use permit area to endangering public health or safety or the environment, he ohall order the Immediate suspension of that activity. PROPOSED RULES line without regard to wlsether ouch oil or gas was produced on Federal or non-Federal lands. J.n the case of oil or go-s produced from Federal lands or from the resources on the Federal lands in the vicinity of the pipeline, the Secretary may, after a full hearing with due notice thereof to interested parties and a proper finding of facts, determine the proportionate amounts to be accepted, conveyed, transported, or purchased. (b) The common carrier provisions of this section shall not apply to any natural gas pipeline operated by any person subiect to regulation under the Natural Gas Act or by any public util- ity subject to regulation by a Slate or municipal regulatory agency having jurisdiction to regulate the rates and charges for the sale of natural gas to cor.sumers within the State or munici- pality. Where natural gas not subject to State regulatory or conservation laws governing Its purchase by pipe- line companies is offered for sale, each pipeilne company ohall purchase, without discriminatIon, any ouch natu- ral gas produced In the vicinity of the pIpeline. (ci The authorized officer shall re- quire, prior to issuing or renewing a rigrit-of-way grant, that the applicant submit and disclose all plans, con- tracts, agreements, or other informa- tion or material which the authorized officer deems necessary to determine whether a right.of-way grant shall be Issued or renewedo.nd the terms and conditions which should be Included in the grant. Such information may In- clude, but Is not limited to: (1) CondItions for, and agreements among, owners or operators regarding the addition of pumping facllities, looping, or others'ise increasing the pipeline or teripinal's throughput ca- pacity in response to actual or antici- pated increases In demand; (2) ConditIons for adding or aban- dor~irig intake, bfftake, or storage points or facilities: and (3) MInImum shipment or purchase tenders. 12883,1-S Export With certain exceptions, domestical- ly produced crude oil transported through a pipeline Is subject to the provisions of Section 28(u) of the Min- eral Leasing Act of 1920 (41 Stat. 449), so amended (30 U.S.C. 185), and the Export Administration Act of 1960 as amended (50 U.S.C. 2401), and may not be exported without Presidential and congressional approval, I 2863.2 Holder aetlelty. (a) The actIons of holders of right- of-way grants or temporary use per- mits shall be regulated by the appro- priate agency head having jurisdiction over the Federal lands Involved, unless other arrangements are agreed to by the authorized officer and `agency head. FEDESAL 05011138, VOL 43, 140. 42_Th1J*SOAY, MAOCH 2.1074 PAGENO="0168" 8776 (b) The authorized officer may order ~.medlate suspension of an activity ir- respective of any section that has been or Is being taken by another Federal agency or a State agency. Cc) The authorized officer may give an Immediate suspension order orally or In writin.c at the site of the activity to the bolder or a contractor or ss.ib- cositractor of the holder, or to any representative, agent. empioyee. or contractor of any of them, and the suspended activity shall cease at that thsse. As soon as practicable, the au- thorized officer shall confirm the order by a written notice to the holder addressed to the ho'der or the holder's designated agent. (d) An order of temporary auspen- zion of activities shaii remain effective ~nUi the authorized officer issues an -ceder permitting resumption of actis'i- ties. Ce) At any time after an order of sin- pension has been issued, the holder roay rile with the authorized officer a request for permission to resume. The request shall be irs writing and shall contain a statement of the facto sup- porting the request. (2) The authorized officer may render an order to either grant or deny the request to resume 5 working days of the date the request Is filed. tf the authorized officer does not render ,.,an order on the request within 5 work- ing days. the request shall be corisid- ered denied, and the holder shall have the same right to appeal the denial as If an order denying the request had been Issued. 42883.6 Suspension and terminaUoe of right-of-way grants and temporary use - pretests (a) If the right-of.wny grant or tem- porcry use permit provides by Its terms that It shall terministe on the occurrence of a fixed or sgreed.upon condition or event, the right-of-way grant or temporary size permit alas)) thereupon automatically termiziate by operation of Law, unless some other procedure is specified in the right-of- `way grant ci- temporary ore permit. fbI The authorized officer may lnztl. tote procedures for suspension or terrn ~lnztion of a right-of-way grant or `temporary ore permit If be determPiee that: (1) The bolder is onwmfllng, onable ~ has failed to comply with any term, flOPOS,ED &ULSS conditIon, or stipulation of the right- of.way grant, temporary ore permit or applicable laws or reguiations. 12) The holder has deliberately failed to use the right.of.way for the purpose for which it was granted or re- newed for a continuous 2-year ceriod. (Cl Where the authorized offIcer de. terosines that a situation under ~2883.6(b) exists, he shall give notice to the holder, arid refer the matter to the Office of Bearings and Appeals for a hearing before an Administrative Law Judge pursuant to 43 CFR Part 4. The autnorized officer shall suspend or terminate the right-of-way grant If the Administrative Law Judge neter- mines that grosnds for suspension or termination exists and that such action is justified - 2S53.7 Change in Federal jurisdIction or disposal of lands. (a) Where a right-of-way adminis- tered under these regulations ira- verses Federal lands that are trans- ferred from one Feceral agency to an- other. the transfer shall not operate to terminate or modify the right-of-way or the right-of-way grant, unless oth- erwise provided by law. The Secretary shall continue to administer the right- of-way and the right-of.way grant, in- eluding renewals thereof, and collec- tion of rentals and other payments. unless the transfer instrument pro- vides ntiierwise. Temporary use per. mit,s shall likewise continue under the Secretary's administration, except where otherwise provided by law or by the instrument of transfer. (b) Where .a right-of-way adminis- tered under these regulations era. verses Federal lands that are trans- ferred out of Federal ownership, the transfer shall not operate to terminate or modify the right-of-way, unless oth- erwise provided by law, and the new owner of the land shall take title thereto subject to the right-of-way. Unless otherwise provio~d by law or by the Instrument of transfer, the Sec- retary shall eantinue to aomsnister the right-of-way and *the rsghl-of-way grant, including renewals thereof and collection of rentals and other pay- osrots. Temporary use permits shall ~s-in~szte upon sueS Is-ansfer. ! 2883.8 ~.eztoraIIon of Federal hnds. (a) Upon termInation of a right-of- way grant or tensporary use permit Subpart 2884-App.ala ZSStl Appeals proced are. (a) All appeals under this section .ahail be taken in accordance with Part 4 of 43 CFR from any final decision of the authorized officer to the Office of the Secretary, Board of Land Appeals. fbI AU actions taken under this sec~ ton shall remain effective pending any appeal taken unless the Secretary -or hl,s delegate rules otherwise, *nd the provisioco of 43 CFR 4.211.a) shall not apply to wicks appeal.a. 42502,1-2 tAen~11 4. SectIon 2802,1-BaXil) zrsd (T12) of Subpart 2802 of this title are hereby ęeieted, Gow ~, Moarns, * jssisdanfSecretcry of * Interior. *:Fassnaaw 27,2878. (FR Dcc. 18.5512 Piled 3.4-73:6:45 ansi - .~cL&L Z}G15128. V~. 43, ~O. 42-Thlfl.SOAY,.MAIC4 2,8W$ 162 and In the absence of any agreement to the contrary, if all moneys due the Federal Government thereunder have been paid, the holder of the right-of- way grant or temporary use permit shall be allowed 6 months or sucn ad- ditional time as may be granted in which to remove from the rightofway or temporary use permit area all prop- erty or lrnprovensenta of any kind -placed thereon: but If riot removed within the time allowed, all such prop- erty and improvements may be re- moved and disposed of by sale or oth- erwise by the authorized officer at the holder's sole expense. The holder of the right-of-way grant or temporary use permit shall be liable for all costs incurred by the United States to dis- -mantle and/or remove the property and Improvements from Federal lands and to restore the lands to a conaition occeptable to the authorized officer. (b) Upon termination of a right-of- way grant or temporary use permit by exp~ratlon or by conceliation. the boider shall restore the lands to a con- dition satisfactory to the authorized officer. The holder shall furnish the United States security sufficient to assure performance of this obligation: the security shail not be released by the authorized officer until he deter- mines that there has been satisfactory compliance with this obligation. PAGENO="0169" 163 Question: 1. (3) Under the above laws, what type of interest is conveyed by the Departrr~nt? Answer: 1. (3) Section 28 of the Mineral Leasing Act of 1920 does not define the term "right-of-way". H~ever, the term as applied to section 28 rights-of-way has been defined in the Departrrent' s regulations at 43 C.F.R. 2800.0-5 (i) as including a " ... license, permit or easerrent, as the case msy be, and where applicable, includes `site'." The sarr~ regulations. also provide at 43 C.F.R. 2801.1-1 that: "NO interest. . . shall give the holder thereof any estate of any kind in fee in the lands. The interest granted shall consist of an easement, license or permit in accordance with the terms of the a~licable statute; no interest shall be greater than a permit revccable at the discretion of ~he authorized officer unless the applicable statute provides otherwise".* The regulations in Part 2800 currently are under revision. The revised regulations which have been published as proposed rulemaking, define the grant as "a nonnossessory, nonexclusive right to use Federal lands for the limited purpose of construction, operation, msintenance and termination of a pipeline." Section 2881.1 of the prqosed regulations sets forth the "nature of interest" granted at sate length. See the enclosed copy. The Federal Land Policy and Management Act of 1976, in section 103(f) thereof, 43 tT. S.C .A. 1702 (f), defines a right-of-way ~.s including "an easer~erit, lea.~e, permit, or license to occupy, use, or traverse public lands granted for the purpose listed in Title V of this Act." Regulations implementing this provision have not been issed to date. The definition of "public lands" is generally discussed above in item 2. (1) (a). A specific definition of that term will be found in the statute at section 103 (e), 43 U.S.C.A. 1702(e). We are granting rights-of-way and other interests for a naxintum of 30 years, subject to rerre~ial in appropriate cases. PAGENO="0170" 164 Question: 1. (4) (a) ~Thiat is the extent of the Federal Governirent s ovnership of coal deposits? Wnere are they? (b) Han much of the coal deposits are leased for raining purposes? Cc) ~`tho controls the leases? Cd) ?~at carpanies are non leasing those deposits for mining purposes? (e) Could you give us sate idea on the terms of the outstanding leases? (f) Do you have any data on the rnasket distribution of the coal being mined subject to govern*ent leases? Answer: 1. (4) (a) The tJnited States has mineral interests in over lOQ million acres of land mrosoectivelv valuabla frtr coal. Of this 100 million acres, approximately 12 million acres are in knonn recoverable coal resource areas. This is predartimantly concentrated in the States of Colorado, Montana, North Dakota, Nen Mexico, Utah, and W~Taning. Due to checkerboarding and carplex land onnership patterns in the west, it would be reasonable to assure that 85 percent of all coal in krxwn recoverable coal resource areas in the above States (including Federal arid non-Federal coal) is influenced or controlled by the Federal Governrrent. Federal onnership of coal in the midwestern and eastern states is relatively minor although several million acres of coal land are onred by the Federal Goverrirrent on eastern acquired land. We have attached i~o charts designated Tables 1-28 arid 1-31 that set out the estimated tonnage of recoverable coal reserves on Federal lands camritted to leasing and that indicate where the Federal coal is located. (b) Nearly 800,000 acres or 8 percent of the 12 million acres i~ knot/In recoverable coal resource areas are under lease representing about 16.9 billion tons of coal. Approximately 76 percent of the existing 531 leases are in Utah, Colorado, Wyaning. (c) ¶t\~ienty lease holders hold 65 percent of the Federal acreage under lease. The remainder of leases are held by nrsrerous corporations, partherships arid individuals. The too 20 leases arid percentage of leased acreage are listed in an attached chart and additional lessees are shcwn on a second list attached. PAGENO="0171" (d) There are 41 producing companies operating 28 underground and 29 surface operations involving Federal leasds. The following companies may or may not be subsidiaries of the companies listed as major holders under question (c) above. The following list includes only producing companies. There are other outstanding leases which (e) Outstanding leases have been issued over a period of 50 years. They are subject to readjustment in 20 year intervals from the date of issuance. Leases issued under.the Federal Coal Leasing Amendments Act of 1975 are adjusted at 10 year intervals after one 20 year primary term. New terms and conditions are put on them at this time. lany existing leases require royalties of 17.5c or 22.5c per ton. More recent leases have ad valorum royalties approaching 8% for underground leases and 12˝% for surface mines. A l2˝~ royalty for surface mines is required by the Federal Cosl Leasing Amendments Act of 1975. All leases must be producing in commercial quantities prior to August 4, 1986 or be terminated. Even before enactment of the Surface Mining Control and Reclamation Act of 1977 environmental stipulations on old leases as well as recent leases required reclamation and proper land restoration. Now all leases are also subject to the additional requirements and enforce- ment mechanisms of `The Surface Mining Control and Reclamation Act of 1977." Enclosed are copies of a lease offer and a lease form including routine terms and conditions. Other special terms and conditions are developed to address particular concerns or land use conflicts that arise in connection with issuance of each individual lease. 165 are not producing. Kaiser Steel Corp. Peabody Steel Co. U.S. Steel Corp. Utah Power & Light Plateau Mining Co. Swisher Coal Co. Franklin Real Estate Sunoco Energy Development Wyodak Resources Development ~eadowlark Farms, Inc. Arch Mining Corp. Rosebud Coal Sales Energy Development Corp. Pacific Power & Light Medicine Bow Coal Co. Stansbur~ Loal Company* Keamerer Coal Co. Bridger Coal Co. Peavely-Smith Leeco. Inc. Gulf Oil Corp. Republic Steel Co. Western Slope Carbon Atlantic Richfield Co. Routt Mining Corp. Henry L. & Eugene WE Energy Fuels Corp. Nid-Cont. Coal & Coke Henrietta Nines, Inc. Knife River Coal Nine Divide Coal Nine Co. Decker Coal Co. North Amer. Coal Corp. Western Energy Co. Western Coal Co. Pittsburg & Midway (Gulf) Garland Coal & Mining Nththrone Mining Co. California Portland Westmoreland Resource Utah International I PAGENO="0172" 166 (f) Much coal mined under a Federal lease is distributed to electric po~zer facilities in the west. Frequently, a Federal lease carprises only a portion of a prcducing logical mining unit. Federal coal is also nistrthuted to California and export rrarkets, as well as to Eastern and Southern states such as Tennessee and Texas. The Departeent of Energy keeps data on the ni~ket distribution of coal. Approximately 42% of western production for fiscal year 1977 is attributable to Federal leases. PAGENO="0173" 167 Table 1.28 Recoverable Coal Reserves on Federal Lands Committed to Lea~n~ and Projected Production from Federal Coal Lease Lands for 1975 through 1990 : Total . Recoverable Production Production Production Production Tons 1975 1980 1985 1990 Committed to Lease Million Estimated - Million Tons Estimated Million Tons Estimated Million Tons Estimated Million Tons State Tons' Per Year Per Year Per Year Per Year Colorado 2,540 8.4 21.6 32.0 -39.2 Monjan.a 1.973 12.0 24.6 -47.2 62.3 NewMexico 897.. 2.1 33 4.7 5.3 North Dakota 268 3.0 6.3 22.4 413 * Utah . 4,203 3.2 20.2 21.7 35.3 Wyoming Other States2 16,510 260 . 153 2.6 65.0 2.1 843 2.7 97.7 .3.4 Total 26,651 96.8 1433 220.2 284.7 tTota] surface and underground minable recoverable coil under Federal coal lease and ` preference right lease applications for which coal reserves have been calculated. Includes no reserves for coal prospecting permits. 2C)ther slates inchi~e Atibama, Alaska, CalifQnsia, Kentu*y, Ohio, Oklaisouia, Oregon, Washington and V,est Virginia. Source: BLM January 27, 1974', Coal Lease Analysis, 1974. Table 1.31 States with Major Federal Coal Acreages . Federal Million Coal"2 Non-Federal Million Coal Total2'3 Million State Aces Percent Aces Percent Acres Alaska 23.4 97. .8 3 24.2 Colorado 8.7 53 7.9 47 16.6 Montana .24.6 75 8.2- 25 * 32.8 NewMexico 5.5 59 3.9 41 9.4 North Dakota 5.6 25 16.8 75 . 22.4 Oklahoma .4 4 89 96 9.3 Utah .4.1 82 .9 18 5.0 Wyoming 11.8 65 . 10.7 35 303 58.1 Totals 92.1 150.2 1Southwestern Energy Study, Appendix J, p 48, 1972. 3BLM State Office Estimates 3Avenn, Paul, Coal Resources of the U.S., January 1, 1967: U.S. Geological Survey Bufletin 127$, p. 32, 1969. PAGENO="0174" 1~ LT.Peabody Coal Co.~ ~~(Kennecott cooper Co.) , 2. Garland Coal & Mining Co. 1O.7Z * 3. Consolidation Coal Co. (Continental Oil Co.) 5.9 4. Resources Co. Ct al (Ariz. Pub. Serv. & San Diego Gas & Elec.) 5.8 5. Pacific Power & Light 5.0 4.5 Top5Total 31 .97. 6. El Paso Natural Gas 7. Utah International, Inc. 3.5% 8. Keminerer Coal Co. (Lincoln Corp.) 3.1 . 9. Richard D. Bass 2.9 10. Atlantic Richfield 2.6 2.5 ` 11-. U.S. Steel Corp. 12. Consol. Coal & Keminerer coal Co. (Cont. Oil 2.4% 13. Carter Oil Co. (Exxon Corp.) , 2.4 * 14. Industrial Resources, Inc. . . 2.0 15. Sun Oil Co. . 1.9 1.9 Top 15 Total . . 57.0% 16. Kaiser Steel Corp. 17. Decker Coal Co. (Pacific Power & Light) . 1.9% * 18. Kerr McGee Corp. . * . 1.7 19. Evans Coal Co. . * 1.7 20. ~Jestern Coal Co. . 1.6 1.6 .` Top 20 Total 65.5Z US Total PAGENO="0175" The Pacola Company P.O. Box 186 Ft. Smith, Arkansas 72901 Mandrones Mining Co., Inc. Route 1 Box 337 Molalla, Oregon 97038 Pacific Power & Light Co. Public Service Building Portland, Oregon 97204 American Colloid Co. 5100 Suffield Court Skokie, Il~nois 80076 Baukol-Noonan, Inc. P.O. Box 248 )iinot, North Dakota 58701 Big Morn Coal Company P.O. Box 724 - Sheridan, Wyoming 82801 Atlantic Richfield Go; Suite 1500 Security Life Building Denver, Colorado 80202 Usibelli Coal Mine, Inc. P.O. Box 3018 Fairbanks, Alaska 99701 Washington Irrigation & Development 1015 Big Hanaford Road Centralia, Washington, 98531 Mr. Wayne Brannan Bill, Wyoming 82631 The Carter Oil Company P.O. Box 2180 Bouston, Texas 77001 Consolidation Coal Company Mr. Mike Thurman P.O. Box 200 Stanton, North Dakota 58571 Coteau Properties Co. 12800 Shaker Blvd. Cleveland, Ohio 44120 169 Decker Coal Co. P.O. Box 12 Decker, Montana 59025 Divide Coal Mining Co. P.O. Box 342 Round Up, Mot4ana 59702 Georesources Exploration Inc. P.O. Box 1505 Williston, North Dakota 58801 Gulf Oil Corporation Attn: J.P. Gregory 1720 5. Bellaire Street Denver, Colorado 80222 Mr. Glenn Johnson Roundup, Montana 59702 Kerr-McGee Corp. Drawer 1500 Gillette, Wyoming 82716 Knife River Coal Mining Co. 400 N. Fourth Street Bismarck, North Dakota 58501 Mobil Oil Corporation P,0. Box 5444 Denver, Colorado 80217 Mr. Glenn Mock Bayon, Wyoming 82836 Mr. Richard D. Bass 1150 Mercentile Dallas Bldg. Dallas, Texas 75201 Mr. Adolph Bugni 1906 Massachusetts Ave. Butte, Montana 59701 Rosebud Coal Sales Co. Box 724 Sheridan, Wyoming 82801 Shell Oil Company Attn: A. J. Rubbo, Mining Vent P.O. Box 2099 Houston, Texas 77001 PAGENO="0176" 170 Suite 1500 Dallas, Texas 75251 Mr. John P. Logan, Jr. Texaco Inc. P.O. Box 980 Buffalo, Wyoming 82834 US Steel Corporation Room 2215 600 Grant Street Pittsburg, Pennsylvania Western Energy Co. 40 E Broadway Butte, Montana 59701 Western Nuclear, Inc. Suite 387, One Park Central 1515 Arapahoe Street Denver, Colorado 80202 Wyodak Resources Development Corp. Garner Lake Road Gillette, Wyoming 82-716 Mr. Robert L. Davis Bell Route Raton, New Mexico 87740 Sunoco Energy Dev~lopment Company 12700 Park Central Place 15230 * Barney Urtado P;O. Box 12 Raton, New Mexico 87740 Leo Warren Starr Route Box 48 Waterflow, New Mexico 87421 Western Coal Co. P.O. Box 509 Farmington, New Mexico 87401 Arch Mineral Corp. 500 N. Broadway `St. Louis, Missouri 63102 Belden Enterprises R.R. 1, Box 167 Cedar Edge, Colorado 81413 CF & I Steel Corp. P.O. Box 316 Pueblo, Colorado 81002 ~çomm\nwea\t h C~1 Co. CXO A~ric~çi Fue\s Corp.~ ~ `29k C~lis1\ N.E\ ~- ~ A1bu'?~er~e, ~w Me\i\co 87110 Empire Energy Corp. Suite 2003 5610 Crawfordsville Road Indianapolis, Indiana 46224 Peabody Coal Company 301 North Memorial Drive St. Louis, Missouri 63102 Franklin Real Estate Co. C/O William B. Collister 3120 Security Life Building Denver, Colorado 80202 Garland Coal & Mining Co. P.O. Box 186 Fort Smith, Arizona 72901 Henrietta Mines, Inc. The King Coal Mine Rt. 1, Box 199 Hesperus, Colorado 81326 James Bros. Coal Company South Main Street Magnolia, Ohio 44643 Pittsburg & Midway Coal Mining Company Ten Main Center Kansas City, Missouri 64105 James 1,. Simmons 8907-8th Street, NW Albuquerque, New Mexico 87114 Thermal Energy Company 4681 First National Bank Building C/O E. B. Larve, Jr. Dallas, Texas 75202 Texas Industries, Inc. Executive Offices 8100 Carpenter Freeway Dallas, Texas 75247 PAGENO="0177" Ferne H. James P.O. Box 546 Craig, Colorado 81625 Ewing, Shaw, Petersen & Zinkl C/0 Mr. Jerry W. Uhrlaub 345 Main Street, P.O. Box 1874 Grand Junction, Colorado 81501 The Kemmerer Coal Company Frontier, Wyoming 83121 Mr. Andrew Haneotis Maneotis Sheep Company 890 Barclay Craig, Colorado 81625 Mr. Albert Martinez Box 205 Cokedale, Colorado 81032 Mid-Continent Coal &_Coke Company 105 W. Adams Street Chicago, Illinois 60603 Mid-Continent Limestone Drawer 790 Glenwood Springs, Colorado 81601 Medicine Bow Coal Company Suite 1800 500 N. Broadway St. Louis, Missouri 63102 Mr. Mack R. Peterson Box 338 Palisade, (~lorado 81526 Mr. Joe Petroanovich P.O. Box 64 Oak Creek, Colorado 80222 Pitkin Iron Corp. P.O. Drawer 790 Glenwood Springs, Colorado 81601 Thompson Creek Coal & Coke C/O Mr. Albert H. Keenan 8893 West 0th Avenue Lakewood, Colorado 80215 Utah International, Inc. P.O. Box 187 Craig, Colorado 81625 171 Western Slope Carbon, Inc. 1650 University Club Building Salt Lake City, Utah 84111 Cameron Coal Company P.O. Box 186 Fort Smith, Arizonia 72901 Evans Coal Company P.O. Box XYZ Middletown, Ohio 45042 Lone Star Steel Company Land Department Lone Star, Texas 75668 Midwest Mining Company P.O. Box 190 Poteau, Oklahoma 74953 Petroleum International Inc. 1605 National Bank of Tulsa Tulsa, Oklahoma 74354 Riko Bell Mining and Oil Company P.O. Drawer AB Vernal, Utah 84078 Mr. John L. Bell P.O. Box 356 Orangeville, Utah 84537 Bridger Coal Company P.O. Box 2068 ~ock Springs, Wyoming 82901 California Portland Cement CfO Soldier Creek Coal Company P.O. Box I Price, Utah 84501 Carbon Emery Bank P.O. Box Ill Price, Utah 84501 Carroll County Coal Company 1100 Superior Avenue, Suite 180 Cleveland, Ohio 44114 Coal Search Corporation Attention: Mr. David Groves P.O. Box 1407 Denver, Colorado 80201 32.745 Q . 78 . 12 PAGENO="0178" 172 Coastal States Energy Company Atto: Mr. R. D. Baalman Five Greenway Plaza East Bouston, Texas 77046 Columbine Mining Company P.O. Box 158 Carbondale, Colorado 81623 El Paso Natural Gas Company P.O.Box 1492 El Paso, Texas 79978 Attn: Mr. Henry Samaniego F}fC Corporation Box 750 Ketaserer, Wyoning 83101 Mr. George H. Frandsen P.O. Box 683 Washington, Utah 84780 Granite Creek Coal & Uranium C/O A. .J~. Noker 73 West 900 North Bountiful, Utah 84010 Reiner Coal Company C/O Island Creek Coal Company 8301 East Prentice Avenue Englewood, Colorado 80110 Intermountain Exploration P.O. Box 473 Boulder City, Nevada 89005 Kaiser Steel Corporation P.O. Box 58 Oakland, California 94666 Attn: Hr. L. .3. McKee Kanawba & flocking Coal & Coke Co. 700 Westgote Tower Cleveland, Ohio 44116 - Xennecott Coal Company P.O. Box 11200 Salt Lake City, Utah 84147 Attn: Mr. C. H. Daily, Ada. Engin. King Cannel Coal Company C/0 R. A. Gillis Rockville, Utah 84763 Nevada Electric Investment Co. P.O. Box 230 Las Vegas, Nevada 89101 Resources Company, et. al. P.O. Box 20824 Phoenix, Arizona 84036 John F. Sanders P.O. Box 133 Fairview, Utah 84629 Stansbury Coal Company P.O. Box 2088 Rock Springs, Wyoming 82901 Swisher Coal Company P.O. Box AU Price, Utah 84501 U.S. Fuel Company 19th Floor, University Blub 136 E. South Temple Street Salt Lake City, Utah 84111 Utah Power and Light Company P.O. Box 899 Salt Lake City, Utah 84110 Attn: Mr. David R. Neilson Wasatch Coal Company 1322 Chandler Drive Salt Lake City, Utah 84103 Western America Energy Corporat- 6900 East Camelback Road Suite 1020 Scottsdale, Arizona 85281 Lloyd A. Wilberg and Eliza Wilberg P.O. Box 206 Castle. Dale, Utah 84513 Leeco, Inc. P.O. Box 306 Manchester, Kentucky 40962 E. T. Smith & Peavely Coal P.O. Box 7 Williamsburg, Kentucky 40769 PAGENO="0179" McKinnon dO Mr. z~ank Armeda 1300 Walker Bank Building 175 South Main Street Salt Lake City, UT 84111 Energy Fuels Corp. 4567 Coal Spring Road Indianapolis, IN 46208 Centennial Resources Company Suite 1720 Beneficial Life Tower Salt Lake City, UT 84111 S. H. West P.O. Box 165 Pleasant Grove, UT 84062 C. 0. Kingston, Et. Al. C/O Best Distributing 3753 South State Street Salt Lake City, UT 84115 Mrs. Fred A. Silva - 8457 Pratt Street Westminister, CO 80030 Plateau Mining Company Box 539 Price, UT 84501 Republic Steel Corp. P.O. Box 6778 Cleveland, Ohio 44101 Reliable Coal & Mining Company * 79 West Monroe Street Chicago, IL 60603 * Aaron H. Rasmussen and Veola H. Rasmussen * Veyo Star Route, Box 80 Central, UT 84722 Northwestern Resources Company 40 East Broadway Butte, MT 59701 North American Coal Corp. 12800 Shaker Blvd. Cleveland, Ohio 44120 John Sackett 924 Hermosa Drive, N.E. Albuquerque, New Mexico 87110 Moon Lake Electric Association 188 West 2nd North P.O. Box 278 Roosevelt, Utah 84066 Monolith Portland Midwest P.O. Box 65677 Glass El Station *Los Angeles, Califorhia 90065 Florentino Padilla Box 413 Cuba, New Mexico 87013 Mr. dames Reese Box 14 * Douglas City, CA 96024 Alaska State Bank P.O. Box 769 Fairbanks, Alaska 99707 Aquarius Resources Corporation Herbert B. Kleinstick C/0 Norman J. Blearner LaBarge, Wyoming 83123 Kemmer & Consolidation Coal Company Frontier, Wyoming 83121 Sun Oil Company P.O. Box 1798 Denver, Colorado 80201 Walker Bank and Trust Company * Administrator of the Estate of Frank V. Colombo 175 South Main Street Salt Lake City, Utah 84111 Black Butte Coal Company 1000 Kiewit Plaza Omaha, Nebraska 68131 Ceasar Fulton C/O the Alton Shakespear Estate 4671 W. 109 Place Westminister, Colorado 80030 at ~ ~ `~ L~. ~ Z ~k V 173 PAGENO="0180" Charles & Paul Silengo P.O. Box 396 Craig, Colorado 81625 Energy Development Company P.O. Box 36 Hanna, Wyoming 82327 Eileen Tolley Clausen C/0 Shirley Wiggins P.0. Box 42369 Las Vegas, Nevada 89104 Helen Mining Company P.O. Box. 61 Seward, Pennsylvania 15954 Collins Mining Company 1005 Kent Lane Ironton, Ohio 45638 Leroy E. Bonsness Columbus, North Dakota 58727 Routt Mining Corp. C/O Sunland Mining ~ompany 3000 S. Yosemite Street Denver, Colorado 80237 Summit Explor. & Dcv. .Cornpany C/0 Sunoco Eng. & Dcv. Co. 12700 Park Central Place Suite 1500 Dallas, Texas 75251 Meadowlark Faris, Inc. 105 S. Meridian Street Indianapois, Indiana 46225 Majorie B. Mann C/O Getty Oil Company P.O. Box 15037 Salt Lake City, Utah 84115 W. K. Grace & Company C/0 Colowyo Coal Company 7935 E. Prentice Avenue Building 40 Englewood, Colorado 80110 L. H. Cooley C/O Paul Riebold P.O. Box 760 Rangely, Colorado 81648 174 Kim C/0 Peabody Coal Company 301 N. Memorial Drive St. Louis, Missouri 63102 Kermit L. James C/O Pitkin Iron Corp. P.O. Drawer 790 *Glenwoodsprings, Colorado 81601 lndustrial Resources Inc. 11011 W. 6th Avenue Suite 301 Lakewood, Colorado 80215 Henry L. & Eugene Weaver Box 772 *Gunnison, Colorado 81210 United E1ectri~ Coal Company dO Freeman United Coal Company 300 West Washington Street Chicago, Illinois 60606 A. James Gordon P.O. Box G McAlester, Oklahoma 74501 Mr. Paul Rees Coal Company Mining System Corporation P.0 Box 847 Kant, Washington 94031 Belco Petroleum C/0 Arch Minerals Corp. 500 N. Broadway St. Louis, Missouri 63102 Jerome Cruze C/0 H. J. Purcell Route 4, Box 407 Rigby, Idaho 83442 Cumberland Coal Company 1000 Keiwit Plaza Omaha, Nebraska 68131 Eastern Assoc. Coal Corp. 1728 Koppers Building Pittsburg, Pennsylvania 15219 Mountain States Resources 1399 S. 700 East Suite 11 Salt Lake City, Utah 84105 PAGENO="0181" 175 t';i i i:n si ~i s PP.;1~,:4r.~; t ov iiit: 1:~TJIUOR btl~1.~L~ OF L\:!) ~:t::.~ci:~ii.sT ~ STXIE 01 Fl C~ 222 h~.rtl, 32nd Street BL111n1;s, fluntana 39101 TEENS OF,LF.'!C OFFER A~ OF 0M. 1L~SE TibVl ~i.Vf I~E I1:~) AS A Er.SFLT OF~ TILlS OFFER N 35740 On the date and at ~ hmr spccifid herc~n, an authorized officer uf the burea'! of Land ~ .`n~nna .:r.~ Office, Granite Tc'wer, 222 North 32nd Street, ~`. 0. 1i~'x 30137, ~i1lin~s, :~ont.tna 59107, will offer the lands liereinif tee described for cer.pc*titive coal 1ea~a as one le:tsing unit by sea]cd bId, follewed by orai auc~i~n, to the qualified bi~iJor oi the highest cash amount per acre, as a beaus for the privilege of lc.isin; the lands in accordance with the provisicas of the Nineral LeasintI Act of 1920 (41 Sinc. 437), as amendod and the re~u1atiens in 43 GTE 352l.2-2(c~(l) and 3521.2-3. Only those bidders wio su~:it sealed bids will be permitted to bid orally. lAh'DS OFFERD: The lands are located in Rosebud County near the community of Colstrip, :Iontana. Coistrip is located. -29 miles south of Interstate 94 and 36. miles from ror~yth, Nonc;r.a. The lands are described as fellows: T..2 L, L 41 E., P.M.M. Sec. 32: E~E'I, SW~SE'.~ 200 acres Wifl N. ~D ~`HERE TO S135IIT BIDS: Sealed bids must be submitted on or before 1 p.m., M.S.T., February 1, 1977, tothe Cashier. 2nd Floor, Bureau of Land ~1anagement Gr~i~te T~.er 222 orth 32nd Street P o Bo'c 30157 Bill~r". Montana 59107. Bids.reccived after the hour specified will not be consid~rod. BIDDING REQUIR~!~TS: Each sealed bid must be accompanied by, and the successful oral auction bidder on the day of the sale must deposit with the authorized officer conducting the sale, the following: 1 A bid drposic of one-fifth of the amount bid in cash cashier's check certified check, bank draft, or money order payable to the order of the Bureau of Land Management; 2. A statement over the bidder's own signature with respect to citizen- ship and interests held, similar to that prescribed in 43 CFR 3502, and * statement as to sole party in interest as specified in 3502.7; 3. A complet~d and signed Form 1140-8, Equal Opportunity Compliance Report Certification, as required by 41 CFR 60-1.7(b) and Executive -Order. No. 11246 of September 24, 1965, as amended. - Bidders are warned against violation of Sec. 1860, Tit'e 18 U.S.C., pro- bibiting unlawful combination or intimidation of bidders. ~o special form of sealed bid is required but all bids must show the total amount bid, the amount submitted with the bid, and be signed by the applicant or.a person authorized to act for the applicant. The bid should also show the amount bid per acre. The envelope used by the biddet must be plainly marked that it Is not to be opened before the hour and date of the sale and must show that the bid is -.f~ coal 1t~ase ~`1 35740. Sealed bids may not he w.odif Lcd or witl,drawn unless the mod if leations or withdrawals arc rcccivcd before the date, tine, and place set for the opening of~ such bids. MD OPEX1~C: At 2 p.m., M.S.T., in the 6th Floor BL'I Conference Room, Granite Tower, 222 l~nrth 32nd Street, Billings, flontana on February 1, 3977, the authorized officer: wi!1 open and read all of the scaled bids. Anyone interested Lu attendln- the sale Lb wtlcom~ to do ~ PAGENO="0182" 176 ORAl. /UJCT10~: .\ftcr all Vu' ..calcd bids have been read and recorded, the autharizt*d officer vilI r~'ceive ~`rnl attctii.'a bk~s fros those bidders ~no suhi~iL ted at'aled hiis. ~e c'r:il t'itI~ini: vill b~in at t~.e level of the lIihhest s~a hid ~i:~d which nu::t at least t~qual the fair narhet. va1u~' deterci::atf.'n .~f U. S. C~,t.iet~ic.il S~rv~v. The bid deposit sub- nlttei with the se.: ~*J ~J by the ice bliiders will be returned to then after the lai~h bid is :crniauJ. SPECIAL 1::Fcr~ATI~r:: The .stccL~sp:fu1 hidJer, as a conditien of lease award, w~1l be requred :.` ~ Yer~ 11.40-6, Independent Price Deteraini- tion Cert ~fi:ate, te the effect that the bid vas arrived at by the bic.ier indc;ond~:tcly and w~s tcn~ct:d witheut coUuei a with any ocher bidder. In accordance with the Fderal Ccal .easthg ~endaonts Act of 1975, prier to issuance of a leace it wi~l he necessary that 3L~! cons~i1t vith the Attorney Ceneral to .cetcrnine whither iss~ar.ce cf the lease c,uld create or nai.ntain a situn ~ a ..i.c~.S car t.ith th. an ~trust j.~ws A lease viii be of fired :3 the ~.~lified bid~ar s'.abnittin; .tl'a hi~hes: acc..~':ah~e beaus *oid `~`r ncr:. :f thiS qval~fied tidder ~a not the applicant, he nest c~r.s:ra:o that ho ceets the short-ter3 ceal leasin;. criteria set Out by the Secretary of the Interior, in his coal leasing policy statcr.ent ef dar.e.ry 2~. 1976. A perIod cf 60 days vi.l be .a1~*.e~ dunn; which tine t:.:' bfiier nay suhnic evid~nce. The Gcverr-nent no- serv,~s Vie r~;ht to ~eJe~: ~ ~-a au b~ds ~.ie ~r scaled o~ oral PAY~TS AriD hO2DING ~Ff~R~hyTS: ?nior to the Issuance of a lease, the succetsiul bidder w~l1 he required to furnish the balance of the banus bid, the first year's rental, the advertisin; costs of this of fer~ag,. and a lease bend in the anount of S5,000. The hcnd requireacat prior tC leasing ~ill' be sati~fied if the successful bIdder has an approved `atieavida or s:atc~:idc cccl bond (43 CFR 3~3.5 and 35C~.6) issued pursuant to the hinerai Leasing ~ct of February 25, 1920 (41 Stat. 43~), as anended. In addition, the successful bid~ar will be recuired ta execute four copies of a coal lease fora and the attached lease ccn- ditions which provide for the protection and reclaaation of the surface resources of t ie la-...~. .." tao o _eriig RENTAL AND ~0YALTY: A lease issUed as a result of this offer viii prcvide for paynent of an annual rental of $3 per acre or fraction thereof and a royalty payable to the T3nited' States at the rate of 12˝ percent of the value as defined in 30 CFR 211 63 PAGENO="0183" 177 UNITED ~`fAT~S DEPART'ENT OF Tm: INTEROR BUREAU OF LA:~fl MANAGEMENT COAL L~A~E Serial Number This I . is treed tetu ttts LaedM.ttsagemc..t.attd Sea. 3. 3tLIGENCE - The Ic ecu halt etsgage itt the dit' igettt decelupetettt uf the ecal pesa eessttbjeet te the lppse. PEter diligrttt det'elttpotrttt is achieped. the essees hull etaietaitt tyettttnued apetatsuet uf the mitre mieps utt the leased lartds. The tertes diligettt deeeluptoettt attd uutttittupd upteatias are defitspd itt the eegulatttttts. Sep. 4* BOND - The terser shalt file uctth the appeeptiate 13 areas ttfLated Mattageytrtst ufficea tease hocd itt the oeoaaet of $ , fur th pure attd besetit of hr Uttited States, to ittsure payteertt ut retttats ted etyaltirs attd to iatsaeeeompliartye octth all other tetms rf this cape, the ettptoeatiott uttd mtttittg plaes, the eegttlotiaes aod the Apt. Ate ittyrrase itt the uetttuttt ci the lease baod etay be tequtred by the tessut upee apprttt.~ 1 af the eupluratiott or ertrtittg platt or uputt apptatal at ehartge itt esther plae, ue at utty other titer durstsg the life of the tease a eeflect yhueged Seo. 5. RENTAL - A e aeeua 1 eretul ct tot each acre ur Baptists thereof shall be patd ttt adcatrce up or befute the attttserrsaey date of this lease. The atoeicersaty date ste the aeescrrs ary of the etteyttee datr at this lease. See. 6. PRODUCTION ROYALTY - The lessee shall pay prodoerise tuyalty tI perceetaf the calur uf caal pto. duced by strtp or auger oisittg teethudu at'.d pereettto the ealue uf coal prudaerd by sedergraaed ettttttc methods. The oalue of coal shall be determteed asset futth itt the rrgslatiess. Petduyttgrt rocalties paid fur a euletodar mueth shall he erduerd by thr umguot at uoy pasd uedee thts lease tI the eotyott that such aduattee rca' alttes It aye cut beeo sut,d r., red' eprudayttey rpyulttps at by the litsited States af America, the lesspe. through the Bueeau :1 a pres'suus ettaeth. Htteteo'er, prttdaetiuts ruyalties payable utter the 20th pear at the leases hail cot be seduced ho ml. caeee tuyaltses paid daeitsg the titot 20 yours of the lease: Pruduetiats tuyalties shall be payable the heal day of the mueth succeeditrg hr calettdat mueth itt ohiyh the tual Sec. 7. ADVANCE ROYALTY - Upoe request by thtt lessee the tettsi~g supetuiaar ma p ayee pt, far a total >1 Rut mute thus 10 yeats, the puyeoettt uf ads'stoye ruyalties at lieu the coeditiao af eaetittard aperatiatt far acy p trttuu lut year. Aoy payreres of ads'aoee rayaltteu p lieu of euorsoaed ayer' atsoet shall be pursaae t tu as aureemee t. sigeed by the leuece uttd lestrut, tahiph shall hr made a pats of lBs lease. Tite he subByt tu the udcaocr ruyalty uaodstsuos set forth to Sop. 0. METHOD OF PAYME5TS - The lessee shall reotal payreeets P the upptuprtate Bureau ut Luod \layupp. `reel office uotsl either pruduettutt royalties at aduuoue rayalttes becume payable. Thereaftee. all eetttals, poauuutsae raoultes aed ad aaeee rota Itips shall ~c pasd tm the r.trattp euperetsar. All eemttt aeeea tu Bateau at Laod Olayace.:cer shall be made payable to the Bureau at Lattd tluouaor'eot. base to the Gealogiest Saeeey shall he trade payaclp the Uttited States Gealugscal Sareeo. See. 9. EXPLOItATION PLAN - As specified te the et'au' lattutts, the lessee s hall submit to the mieio g sapere Bar at `::tpiaratsets plae brfarr easductiog aoy eeplaeatiott `op to leased leeds. eooept casual ater, betuere the etfeetuce `l.'tt' af thts lease ted the date uf appracal at the `ratteg pi.so. The lesspeshull eat cammeece cc plutartatt aotsi attd shall bettaoe etfectioe ao , (efJs'etiop datel. See. 1. STATUTES AND REGULATIONS - rhts lousy is t~sued parsuaetattd suh~eot sa the teems aed praesssues tI the Mseerui Leastog Act 01 February 25. 1920. 41 Stat. 437, as amecded, 30 U.S.C. Sectiaos l81-2h3, hrreuttoe teferred tu as the Act. lh:a lease ts alsasabject to all regalatiaos atthc' Seutrptary tI the loteriar ltocladteg, hat cot limtted to. 3OCFR Parr 211 aeddd CFFP Group 30001 abtub are yam ut hrreatter 0 feroo aod aohtch are made a part hereul, cycept that oa ameodmeet Ia the regalusiat:. this lease. W IT N P 5S ET HI Sep. 2. RIGHTS OF LESSEE - The lessor. io tcesidrratios of the hooss, reots, sod royalties aed other eeoditiaos 0 eretoa set forth hereby graets aed leases Ia the leosre the etclasiye rlght aod prieilrge to mice aod dispose ala 11 ooal io the toilaatog- deseribed feauts Ileased laodsl situated io the State of ostateueg acres, more or less, together ocith sh t eighs to eoosteayt all corks, buildiega, structures, equipmeat, atsd appttasoes uthteh may beoeerssaro aed e ooeeeieet foe the mioiog attd preparatias of the coal toe market, aed. subject tu the eotsdaOsotts heresu peoosded, ro ases o much of the sari aye as may reasutsobtybe required ia lbe eaeec ise uf the eights aodpeis'ileges berets graeted Bat a peesod of 20 pears ted su beg thereattee as the euoditlao of ccotuoaed upeeatiuo to met. PAGENO="0184" [ho 1~stoot boll odoot oil plouoo to ooooodoooo ~tth Uto oppootod pi~t.oo pioo. otto. Uotil tb. o~ooo ott oopt:od ho ~oo~ plo- oh. oo.otthoii o. iooood 1ioodo oo.pt boo ~O. ~i.tI~0O U plototioo ott S 000p0000 d. Tttftto. ho I ~o1 .oodo.t oil op.oot.ooo itt doo.o oi.th ho oppooood So.. 11. LOGiCAL MINING UNITS :LMU1-Thio yoso toooottooiiy 00id~oyd to b. ott (LSIUI tot tot' ho blood o,ith otho. Iotd. i iodio,- othot Ftototoi ioot.h-,ido otod oott-Fttdytoi tototosto to .01. to Ittoto bog.. LMU). Tb. otiotitog plo. too ho lUll) o'tigdt.b pootio.biyo syhodolo hot po.ttdos lot ho otoioy of .11 ho )LMU) to- oooooo. both Fydyotti ood oo~-Fydobt,). ot)httt 40 booS ho doto of ho oppootol .1 1. pUg. Tb. dt'fioot'oo of ([MU) ood (LMOJ) ooooooos oO'.ot .ood:tiog oppit~obi. 00 thoo Soy. 12. OPERATIONS 05 LEASES LANDS - Itt oo.otd- ~.th [ho y (ititoot of hit toot.. ho yloootioo ood ootoittg pitot. ho oo iotto.os ood oh 0~0. oh. I boil hi. diiiooooto. tkili. ood H000 to oil opot- oh. ioo'ood loodo. Tbo lot-pot ohiigot,oot shoil ioyiodp. bttt tot ho litoitod to. tb. foiltotoy: (o) Tho ipotoot boil .oodoy oil opooottooo ott th~ (b) Tb. iostoothotl do.toptooo toot to ttoyh b. ttoodt-d to oooid ot ohooo oooidootyo to itopoottioobio. to oototootoo ood. o0ooo poo.t:yob(o. to o00oto dottogo to: ii) ooy foo~go ond tlooobot' tttoo'th ott Fodoooi to ooo-Fodooot Iotdo it ho ojytoito of ho iooooot lotodtt; (ii) ooopo. i:toiodioy fooooo ood bob... oo toopoo:00000ttt of Uoitod Sttttot op ho to p000t:ttoott. iiyooooot, oo 1 Tb. [otto. toottt opp0000 tho otopt to ho tokooo ood tho oootoootioo to ho ooodo to oh 000000 of tb. 000ttt00000 of dootogo dototibod itt Ohit tobtoyttoot. (o) Tho 1 otsoo boil toioiot,tto to oh. tgooioootot potsiblo ootttioog of ho ooiooooi dopottitt oodothoo iooolodiog. hot ott liooitod to. ttool000 oottoooHot oth.oh toot- ho foood jo. opoo. 00 oodot Noolt loods. So.. 13. CULTURAL RESOURCES - :o( Bof~oo ho ooytoool of otiooiog p10g. oh. totyoot.ood otfiyoo OOy toqoi000500-:o of oIl oo pott of ho lootod lood to yoottdo ott i0000toob of otty [titttooiyol. yoltotol. ood ooohooioot.oi o-oioot. Tb. NOOSOY sholl b. ooodootod ho tiooiifiod poofo'[tttoRoi ooohoolog.st. oppoot-od ho' ho oothooi~od offtooo. ood oopoot of tho sot-sop thou ho ttobooittod to ho ooottooiood offiooo. Tho oppootol of ott oopi000ttoo ot ototo p pioo ot ho pooool of tho Nooooy topoot ood tb. oppooooi of ot000o000 to po000yt [ho hittooiooi. yoltoooi. ood oot-hooitotyoi ooioot. Thooostof ooy00000y0000000to000 Oopootootttt.hooioos dittooooood ottooottoit of oh ootsoo' oholl too boooto h. oh. lottoooo d itotot ood fyo(ooot of hitttooiooi. poitotool, otoohoologiool o'oioo thou oo-oto oodoo tho-jooittdiootott of tho Uoitod Stotos. fbi If ooy itotot 00 foototoot of histooiyoi. yoitoool. 00 ooyhoologiyol ooioo oto ti spoyoood doo iog loosoopotottoos. tho I ostoosboil itogood,otyiy oott(f h. ototog sop000tsot ood tholl 000 dittoob tto~h toot 00 footooos .ootl ho ojottog Nto~ooiNoo i00000 100t0000iooN. if tb. ottttoo 0 oodooodto toko oooottotot to pootoot ooy toots 00 tottotoot of hittotoipol. otoltopol, op ooyhosiog,Hoi o'oioo dts.oooood :hoio~ lootto opot'otioot, [ho yost of ho tooosotos Nho lb boo ooooo ho tho losoooood Nooh i00000 ottd footoooo tool oooooto oodoo ho jooiootiotioto of [ho iJoito dOtotos. Soy. 14. AUTHORIZATION OF `OTHER USES AND DIS- POSITION OF LEASED LANDS - jo) Tb. i0000000000000 [ho oight to 000hotooo othoo bOON of Oh. loosod loodo by yogolotioo oo by itsoiog, io odd,tooo to hit iootto. tho Ayt. Thy lootoooioyotothotioo ooy oth~oosot of ho lootod loodo (hot do 000 0000t0000 bit tot otfoto otth tho ooploootiott ood ooo,og oyoootioott of tho otto.. ood ho lo$N000hoil otoko olloyootogohip toffotto to oooid L'tto:loooooo (hI Thy )otttotoosooooto [ho t,oht: If) to soil oo othoo- otto dispoto of [ho totfoto ot ho loottod loots toodoo ott- ittiog loot op bob hopooltyt pgiopopd ott-lot ott ootd soofopo ood ooot.oool o[ tho yool otoototot. to toil to `ttopooo of totoofoop otob oh. oopiooototo ottO otooo~ opooo10000 ho 1°) 11 [ho loosod loods hoop hoot, opt boll hopooftot ho dispottod 01 oodoo 10-ott to totoottg to [ho Uo'odStotot [ho doposots of oool Ihooyio. thy botsoo ohoil too-ply ooh oil Soy, 15. EQUAL OPPORTUNITY CLAUSE - Ooooog ho poofoooooooo tO hit looso, POtty" 000POt 0 O0)OpbH to,th 10) Loottto 0.11 oot :titpoio'.it'oto ogotos[ Otto' oopiooot 00 oppliooot lot' otopboty'.yot hot- ooootttfoo,to, to otoopo thot -opyitootots 000 o-pbo.d. .~t-d :ho~ oo"p(ooooo 178 000 toootod dooiotg oooplootoottt. otthoot togood 0 hop ooloo. toligooo. sot, 00 00010001 001gb. Sot-h opttoo gylodo. boo got ho lioottod Oo ho ioiloo-tttto: `00) [d0ot'ts:tt~; boto:ff ot tooo'.tooboog; ootos of pot- t-o "blot ofPoopo000l:oo;oodooio-tiotoft-t:totott-o.:o-:oS'..: Otooshop. Lo'tsooogooot to post ioo,oottotooooo obooiohto 0 t'optt-yoot ood oppiiooots foo o'oytotoot'ot. to ho poottdod b. ho io soot to [tog both tho poob:otoo of hit Eqool Oppottootty olootto, (h) Lostoo ooil, ott oil tolioito[iottt op odtootiitoto-ot. fop otoploy005 ptoyod by oo ott hohoif of tho iootsoto, to:: hot oil -oo!:fio-d oppliyooto -0111 o,-ootoo -:oott~do,Io: boo oooobooooo'oo `.oothooo oogood to 0000, Hobo, toiooioo, to. by) Lotsto otib ttottd to oooh bohoo 00000 Ot top0000000 to: -.1 oook:oo `lb ohtth ho hot o ,oiitoott:o h;togo: po-ooodod h. oh.- bt.'ttoo, odtitiog ho toboo oo:oooto:o'k: 00000500to[ito of ho iottsoo'o ootoo000000ott oodoo ohtg ho'. i)yp:tttoooty ol,o:oto, ottO ohoil p000 toptoot ti ho to oootpiooo'.oo plot-os ooo ilobio to otopi oyoos ood tppiit-oot: Id) Lotsytooll oooopiy ototh oil pottttosoooto of Eoooottt' Oodto No, 11246 of Sopttoo'.hoo 24. 1965, ot oo'.oodod. to'.: of [ho ootot, oogotottoos, ood oo)o.oot oodoot of oh (01 Lossoo ooil foooish 011 ittlooototiott ottd oopotts 00- qotood ho' Ettoootioo Oodoo No. 11246 of Soptooohoo 24, 1505 osotootodod ood by tho ooios, oogoio[iooN, ottd otdpot of th: 0000to ty of Lohoo, Ut p000000t thoooto, ood `oill rooo'.ot to- 0055 to hit hooks, ooooodt, ood oo0000tt by ho Soototot ittooNtigo[iott to ot0000000 oooopiioo~o toith ttooh otto's, lotioos, ood oodottt. if) lo ho ooottt ol ho bossoo `t oooootoplioooo ot[h oh: Eqool Oppootooioy oboote of Ihit 0000000000 :oi)h itof U [ho toid ootpt, 0000totioot, 00 otdoos. Ibis boot go:' b hod, 000otittotod op toopoodod itt o'hoip ot io plot its' the lotso-o toot by dot-boyd iooiopobit' too totth,o io Eoooo[ooo Oodoo No. 11246 oi St.-ptotoboo 24. i9h5 it: otooodod, ood ttooh olboottitty oioot oooy ho igyotod ootoodios tot-. :od Os ytobidod itt Ettoootito Oodeo Nt,. 112 I) of Soptotoboo 24, 1965 ot otsoodod, 00 ho ooto, 0000bo[too 00 otdoe of [ho Sooootooy of Lohot, ot os o[hootooio,o pootttdoo by loot. (gi Lotsoo otoll oyiodo [ho ooooosoottt of potogtop. 1°) lhooogh ig) of this 500[iott 15 io ot-oty y ootooo 0, 00 potohoto otdoo ottloos ooooopttod by ooios. Iotioot, oo ood[oo of ho S eyoo000y of Loh:to ossood pootooot Spytioo 254 of Eo oyoboe Oodoo No. 112db of Soptooobot 24 1955, oN ooooodyd, to hot sot-h ptOOiN1000 ttoii ho tiodio: opoto oooh 0000000too, oohoott1000[0o go ooodoo. Lost. soil toko sooh 000itto oith 000poot [0 ,00t- 0001000,. so:: 00 pooyhoto oodoo os thttUopootooy of [ho 1000010 boy diooo[ Oso oyottt of oo(ooyiog sooh ptoootioot oot-iodio. tottotioot lot ttooy0000ii0000: Poot-odo.i, boo `too, Thot ho oooot [ho bossoo bopootos oooohood ito, `oo[h, t:tigotiott Ioi[h o 0000000000, tobootttoootoo, 00 ooodo it of sooh ditootitto by tho Soooeooey of ho looooooo [ho iesloe Roy ooqoos[ ho Uoit,d S[o[os to 00000 hitigotiott to poo[~o ho ittt0000ts of [ho ijtootod S[o[ot. Spo. 16. CEOTiF(CAT)Ot OF 5O550GREGATED FACIL) TIES - By oo[oooog 000 Ohio iooto, [ho bestoo yo o[ifiot ho ho doos to[ ood 0111 oo[ t0000tAott 0° poooodo foo hit otooboyooo ooy togtogoood foitoii[ioo otooy of his osoobilthoo0000, Ohot ho d got ootood `ill ooo pootsit hio ooopioyoes to pot- boottt [hoio Opotiopo ,otooy ioootooo ootdoo hot oootool oogtogotod loyilitioo 000 tooootoottod, Tho 105500 ogooo tho[ o booooh of this yoeoofiy,otioo is o oiobotioo of ho Etoo. Oppoooooolyolooso ol Ibis looso. As osed itt this yoettlioo- tioo, tho [Otto ``sogoogotod fooili[ios'' toooos, hot it 00 liotitod [o, otty ooitiog ooooos, oo,k 00005. oet[ oootos 00: oosh oootos, oost00000ts ood othoo 00000gotoos, bookoo oooo°.s ood othoos[oeogo oo doossiot, oooos, pookoo' lots, dtiokiog foootooos, t0000poototioo, otod hootoog looiiitios poot-oded boo ooopiooop tohiob ote togoogo tod by eopbioit do000[000 00 000 Itt oegoog000d Ott ho bot:t of ooye, ooloo, ooiigioo, 00 000gito, booooto of hobot, looob 005[oott, 00 othottotto. Less," fo,[hooogooot [boo (oooopt `.ohooo iosseo h ot obtoottod idyo tiool 000[lfiHO[iotto loots pooptosod oooo000000t otod sobyoo [tOO[oet lot tpooofio [iso potoods) lotsoo toill ohlooo idotttioo poo[olioo[iotts 00000 pooposod ,`.oo[oopt oos ood ttoboottoooooot'. ,oioo [o oo'ood of .otttoooos 00 tohooooooots ooooodittg 410,00 o'hioh too 000 000topt Itoto [ho o000s000t ol [ho Eqoob Oppito olooso; [boo 105500 0011 eotoott oot,'h 000tolioo[ooo - it losseo't filet; ottd hot [ossoo o[ll boto'ood ho 00110010 to tothpoopoot,od oooeootoot ood Nobyoo000o[oosl 0500y tohooo pooposod 000000t[oe 00 tobooooeootoo do~ soltoo000, tdotttio'l oootofioo[iotts 1005000 ofio it-to pooiods). Noti.: boo oootifit-o[ooo .tf oooo'ogoogotod fooiiilios. A I5ttt)o',t~' -todpo (32 P.R. 7439, hots 19, 1967) ott I)l-ot:,tlt Ott `tt 00000 Fopilito,',, by ol:oSpooeoooy 00 L,oboo, 0010 ho sAb.,lto,- 00000 to tho oo:ood `f 0 O:'oOooo[ oooeydtoo $111000 yhi. 5 OR[ 000 top, boots [ho poo. otioos of [ho Eqooi Opy000o01; oloooo. Coo[)[ioooit.o soy too stobotot[od otthoo 100 eooh It 0000[oodsobo'ootooo[ oOboooil000[oi[ots .tot:eg 0 potood ho. qotoooobo, ttoooo000oo (by, ito Soo. 17. Et.OPLOYMENT PRACTICES - Tho 105000000: poy oIl sot-os dito po0000s ootyb000d ott ho ipotod tood .ottpos[to.'ooo yoohtoooohittbootfoitoottopotooet,'tttto Soooot. The iotoyo boll loot oIl otottoos ood otboo otoptot-oo .ootoybo'to )tood:oo', tO poophotio itoodt ood soootoosdhooeot tO.otto-,00dOt'OOooodpegtooodoolkPOO .goopt oooooo of `ootoooottoy. Tho 100000 boil ylopbot- - oosottoetb,000t'.,pot[16 yotos ooooooooo `-olitottho't-i PAGENO="0185" 179 tape. If the Vats at thy Stat.~ a ahtoh the y,iae 5 taated py.t.tthy!:,otoot.y:oioo pMatlS at glyatyt ia,ta IS yp~ya, thy ly,:ptl., plyaaiththa1a~as. Sep. 18. MONOPOLY AND FAIR PRACTICES - The essay yaeesea (1111 aothay,ty ta p,~gat~aod fato~ atd~ts aad gslatiayt attdt~ he p iaas at S ttaas 30 aad 32 a! thy Apt (30 ((S.C. Sypttaas 187 aad 189) oppyssa ty a that aay sale at tbt ptadaptiaa ftatt the lyased laada V the (baited States a s the poblsa 5 st ~tab1~ p~ps. a p"taa aaaapaly, aad a atfygaatd the poblso tifayp. aad tsala eegalatiaas thall apao ys Igatsats be btadsag Spt5 the basset. Sea. (9. ASSIGNMENT - Thts lease tay be aassgttyd, spat apptapal at the aathytiyed a(figpy. a aoyatdaape `st h thy ptaaissatts at 43 CFR Sssbyatt 3500. At aNsigttteat asill beaaee effeptsao the fitot day at ha ,aattth fallaa.'itag appeaaal by the aathat,atd affiaetae. 1 the as gape queats, the that day ti (by aattth af (by appta..sl. Sea. 20. RELINQUISHMENT OF LEASE - Tha leaa~e lay tile teeqaes t a yeliaqassh all at at, logal tabdsais,aa af thas INaNe. The eyqaest a ball ha filyd a dapliaaty aah ha asthayiged affiyyy. The aathayjyed affjyyy shall appsaoe th~ tyliaqsishyyat if ha ,fe~eyy~jay~ that th~ Iyytyy h-as yaplied ai,th the eeqaieytaettts af the lease. the aaylatattya aad tt,la,tsg plaaa, the yygalatiatts at,d the Apt. Upaa appaaoal, the eeliaqaishataat Nhall he eft,tptiye as of the daty 1 5 fi!ed. sabjeat Ia the ,iaatiaaed abligataaa of the esayeaad hss saeety a pay all apaeay d eeatala aad yayalties sad ta yaotply a,ith all athee eeqaiaetaeats of the lease. the yegalatsata, the ca latatiata aad aiasag plaas, the aegalatiaaa tad the Aat. See. 21. NONCOMPLIANCE - Aay tailsste a aataply aith the paaditiaas at this lease. Ihe paplaatiaa sad y,ia,ay plaas, the eegssl.st,aaa, at th~ Apt shall be dealt ai,th a aayaedaaae atith the peapedssees set faeth ia the eygalatiaas. Sec. 22. WAIVER OF CONDITIONS - Thy lessat the tight ft asatse Nay beeaph of the gat,ditiaa. p aatatae d th.s lease, .`s:aeyt the heeaah at Ntaah paaditi aas as aty ye. qaseed by the Apt, hal aay SlIP h aiaiact ahall ~at~sd aaly ta the paytiaalae bteaah Na asaaed aad shall tat hail the eithts at the lessae ,atth eyspepf a aay (afaee hayapt. aaa shall the aaaapee at a pattaptlae bteSah Pt yayat saaye tlatiaa at this lease tae Nay atheepaase. at fat ftc sassy apeseeiag at aaathee tat,e. Sep. 23. READJUSTMENT OF TERMS AND CC.IDITIONS - (a) The lessae taay pcapase the eeasaaable eeadjssttaeat at aay aaaditiaas at this lease, lapladiag yayalt y tatys, the taett eetdjasttaeat aa he efteptipe aa the 20th a' eat altye the e(feptise date aad sahaeqsseat eeadjastate,ata Ia be elfyptipe at l0.yeae iateeyals theteaftye. The lessa~t ball aat,fy the lessee ,ahythee he iateads Ia eeattjast aaaditi aas atd, d he iatettds Ia eeadtaat, lb eaataee at the yeaallasttlthats. If it is feasible, the lessa~ shall giae sap h aataae 120 days betate the eftyptipe date at the etadtsaataettt. Ia aay cactI. be etadiasted ae thaa they asill eat by epadjaate'd, thy lessae the tight ta teqaiee eeadjasttaeat. Ualyss the lessee, asithia 30 dats aftoe teat ipt af saab eatipe, aaaditiaas at eeliaqaishes thy lease as of the efteptipe date at the eeadiasttaeat, the lessee shall be dattaed aaeplaaipety ta hate ageetd ta saab aaaditiaas. tb) It the lessee files ahfeatiaas ta the peapased cc- adjasted aaeditiaas e,ith the lesaey, aad aayeelaeatpaaa at be eeaahed heta,eea the lessaeaad the lessee a,'athia a peeiad at 60 days afttt the tiliag at the abiyatita, the lease ,tay he teeaatated by esthee patty apoa gisiag 30 daps' satiac ta the atbee patty; baa eaee, tht lessae's eight ta teyttiasate the leases ball be saspyaded by the lesNe~ `a tiliag at a aatiae at appeal paesaaat ta seatiaa 29 at this lease, aad if the lessee is altittately aaapess fat ia his appeal, the lease shall asatiatse ciahaat thy phaage it the pyaaisiaas, the ittpatattaa at aahiah, the lessee appea led. If the lessee t~s~aattsstat ia hia appaat aad, aaithia 30 days at the deaisias as appeal sttifies the iessae that he aaaepts the detisits eeedeetd ap as NaPh appeal, thea the leases hall aastitlaeasatteaded by the tbaeisiaa. Sec. 30. Special S(ipalatiaas g) If the lessee tiles ahleattatt a the peayastd ye' .sdjasled pyadstsaaa. the eaisI~ tat ,atdtt,ats. ytyt't.t laae OAaaaat~agtsfa;Isaa. shaltpti5:P .tptlpiil i.e es at ageeessett betaatea the lessae aad the lessee at the teat paaditasas It be ttpatpaeated it the lease. ae att,l he lessee has eahaasted his eights at aypeal ssadee syatsyp at this lease, at aatal tt,e lyase s tyetstated. `a t. tip tead)asted eayalty pyapas,ats shall be pftept,ae saul thee is eath te agtae seat beta,tet the lessae aad Ih~ lessee satal the iease is teetitated. It the teadlssatad aasalty ptaass,aas .attsssbseqsatttly taspiadad at spaded. he lessee shall he petlaltted ta peedit aty eaaess tasalty eayaltitstabaeqaeatly dot a the leatae. Sag. 24. CELIVEI!Y OF F~,EMISES - Upaa teysi:a:tts'.ia 1 lease fat aayee gNat, at talttqasshalett at a pact af lisa thy Ia ssep shall ,.cl,gpe Ia the lassat a sad acdet aad esaditiat all at the .,pptapeiate yatt at lead laads. De!iaety at the laasad laada shall sapladp aadetgtaattta aeaessa ty faa the peasets'a tags at th~ aa,a~ it daaastl. tad shall be a appatdatae auth all asttee applsashle peassssaas at Ihe t,gslatiaas fat the pacspletaaa at apetalsats asd abaadaaayett. hea. 25. PROPRIETARY INFORMATION - Gealagtaal ~ad aetphysiacl data atd iataeaatiaa, iaaladiag saps. teade sepeets, atd ataactaial dad fieatsiaf iafaet,alaaa ashtah he essay tbtaaas fasts the 1 esaces ball be tetaled at s,aaaadsaae path 43 CFR Pact 2. Sep. 20. LESSEE'S LIABILITY TO LESSOR - (a) Tse lessees hall be liable a the Ua,led States faa aay das'age satteead by the Uailed States a aty say acssaaa teats at a atatatad astth the lessee's aatiaities aad apeeataaas sadee this Vase, eapept abate daaage It aaase d by esspl goats at the Utilad States agliag asithia the aaapa al Pest asdhststy. )hl The lessga shall itdeaaity a~d hold haa. lass hp UasIpd Slates Itay, at, aad all ylasas ac ssag Its as teated saith the lessee' s aataa sties aad apttatiaasssas'e (a) It aayaase as'heye liability aaithaat faalt as tspaaya Ias'alaed pete paassd by the agtiaa at a th,ed patty, the tales at sabtagatiaa ahall apply ia appatdaage at,th the lag,' a( ha laeasdiptaaa ashete ha datsiages ape'st'ted. Uaa. ?~ INSPECTIONS AND INVESTIGATIONS - a) Al: baaks aad teaatds ssaittaitad by the lesyea shass'tag ta taeecataas eeqaited by this lease at teasslatiats cast he kept aateettatdiasaphtsattee thatthebaaktsstdteaatdsaass be eeadily phephed, apaa eeqaest, by the tjaasg ssspeys'Isat at his eeptesettataae at the plaae ashete thcy ate pas (b) The lessee shall petalat aty daly saslthatiead alliate at teptesettatiae at the lesseeataayeeasaaable tltae It) iasptpt a e iatseasagat e the leaaed laads aad all saefaaeaa aadeegeaaad itspcaaetseats, aaayks. ttaahiaety, aad eqalpysats. aed all baaks asia eepatda pettaaascg ta the ltssee `t ahla' aataaas Ia the Iessae aadee this ltase attd eegalata aas at (21 sapy, aad sake eateaals feats aay ssa h baahs aad eeaaeds. Sap. 28. UNLAWFUL INTEREST - Nc tteaybte at, at Dde. gate Ia, Cttgaess, aa Resideat Catatasa,atet, aftet h,s at appaiattsett, eahee befaee at attee he has qaahit,ed aad daaiag his pasaiaaatae it attiatc. sad as att,get. at ass playee at the Depaetseat at tht lateeaae, `cpeptsss ptaaadad is 43 CFR 7.4(a)(3I, shall bald asy shate at patt it thas lease ae detipe aay heaetit theecfeae,. The ptahasiaas af Septica 3741 at tht Resased Ssatatet, as assetded, 4t U.S.C. Saatiat 22, aed the Aat at Jtaaa 25. (948, 62 Stat. 702, as atteaded, 18 U.S.C. Septiaaa 43t-433, eelatisg a iata aad fatta a patt at this lease issafat as they tay be apphigable. Say. 29. APPEALS - The lessees ball base the eight Is appaal (a) aadat 43 CFR 3000.4 ttaat at aataaa at deaisaaa at aay aftipial at the B aeeta at Laad NI aaaaeseat (hI sadet 30 CFR Patt 290 ttats at agtica, aedey, at daassaaa at aty aftiaial at the hasted Statas Gealagiaal Sssapey. at a) stday appliaable tegalatiaa feast aay aaaaat te daoisiaa at Nay alhae attialal at the Depaett,eat at tha Isteta at atlslag P paaaeatiaa a,ith this leace, iapladiagaayap tiaa at deaiaiatt a Seatiaa 23 ,tf thss lease taith teapeat a (he teadjasltatat ataaaditaaas. PAGENO="0186" 180 Special Stipulatiors (con.) THE UNITED STATES OF AMERICA By (Signing Officer) (Titir) WITNESS TO SIGNATURE OF LESSEE ~ of Lrssne) (Signa~orn of Lesson) Signa!orn ~) Lesson 1' ~ ~ ~ PAGENO="0187" 181 Question: 2. Under the proposal submitted by the Administration, you state that the concurrence of the Depariorent of the Interior would be required on all questions of impacts on lands, waters, and other natural resources affected by the proposed pipeline. Could you please elaborate on this point; that is, could you tell ire what specific considerations the Department would have to examine? Answer: 2. The Department would consider impacts upon the environment including, but not limited to, socioeconomic conditions, water, aquatic habitat, geology, minerals, toperravhv, soils, climore, ~ir quality) land use, aesthestics, noise, cultural resources, and consistency with land use plans. This examination would be primarily conducted during the environ- mental assessment of the proposed project. These are the same kinds of matters that are within the Secretary of the Interior's authority and responsibility with respect to public lands. Pursuant to the stewardship role specified in FLPMA, particularly Section 102(a) and Sections 201 and 202, the Bureau of Land ~anagement must ascertain the nature and likelihood of effects of such proposals on the public lands. These potential effects and their consequences must be assessed for the impact they would have on attainment oi the goals and objectives established by law as quidelines for public land use. In addition, the Secretary of the Interior has an everall respensi- bility for cultural resource ma~ragement and Endansered Species on Fuderal lands. Finally, in a broader context of NEPA and other laws, executive orders, and international accords linked to the environmental asses~mamr process, there would be a responsibility to discover and disclose benaficial and adverse impacts including those that would go beyond the pubLic la~ds. Thus we believe that this Department has expertise to examine the issues included within its responsibility undep the Administration's position. PAGENO="0188" 182 Q~stion: 3. Sare concern has been e~gressed about section 5(h) of the bill as reorted by the House Coornittee on Interior and Insular Affairs. The concern focuses on the study that rm~st be made by the U.S. Geological Survey. (1) Does the Depari~rent have any reservations on that section as to hov it cay affect the certification process, and, rrore irrportantly, about the effects, if any, this tray have on existing law? Answer: 3. (1) Certainly the issuance of a certificate, of public convenience and necessity must be consistent with findings of water supp]y and quality irr~act studies. Protection of State water rights has been a major these of this Administration and a major assisr~tion on which our support for coal pipeline legislation has been based. We believe that section 9 fully protects those rights. As a matter of general policy, we would prefer that section 5(h) refer to the Secretary of the Interior rather than ore of the Bureaus under his jurisdiction and that it be left to the Secretary s discretion as to whether a separate water study rnig'nt be required. H~iever, the Survey would be involved in any such study, and we do not question the need for full information on imnoacts on water. The type of study required by Section 5(h) is within the field of canoetence of the Geological Survey, and such studies are being carried out presently in connection with other types of water develo~srent projects. Indeed, ground water studies currently underway in the Northern Great Plains, when cansleted, are expected to rreet the requirerrents of Section 5(h) (1). Similarly, an already. ccxrpleted stufy of the San Luis Valley, Colorado, should also suffice under Section 5(h) (1) with modest additional work. Thus, the requirerrents of Section 5 (h) (1) for two principal slurry line proposals involving ground water as a supply will be substantially trot by studies already canpleted or underway. Major r~ studies would require additional tine and effort. It is conceivable that the water table may be impacted in sate cases without impacting water rights. For example, this would be so in States which do not regulate ground waters. There may also be a quastion of subsidence in the surface over the aquifers being pumped. In sane locations, subsidence caused by the settling of the earth surface to fill the void left by rerroval of the water has caused significant daitmage to the area. The report would prestinably also address this prublem where relevant. The reguireronts of Section 5(h) do raise the issue of the tine it might take to camr late necessary studies prior to certification. There is an additional issue as to whether 5(h) (2) might require not only the dDtaining of all state permits, but the resolution of all possible interstate water disuutes among affected states before a certificate could be issued. That result could infinitely delay a decision. PAGENO="0189" 183 ~estion: 4. Does the Deoarthssnt of the Interior nc~i have the authority to issue any type of license requiring the type of considerations that are set forth in section 5(b) of the bifl? Answer: 4. Both Title I of the Mineral Leasing Act of 1920, as enended, and Title V of the Federal Land Policy and Management Act of 1976 give the Secretary authority and responsibility to examine sane of the types of considerations as are set forth in Section 5(b~ of H.P. 1609. Snecifically, Section 501(b)(1) of the Federal Land Policy and Management Act of 1976, and Section 28(r)(6) of the Mineral Leasing Act of 1920, as amended, provide for the submission of information reasonsbly related to the use or intended use of the right-of-way. In addition, the NEPA arocess, with which this Department has considerable experience, has required Federal agencies to examine a vast range of concerns in detail, no~ ~ll of which have been directly related to their traditional responsibilities. Thus we feel a familiarity with all of the subjects mentioned in Section 5(b). However, we would not object to having primary responsibility for some of these assessments in other agencies. Those provisions on which our expertise is most relevant are Sections 5(b)(3), (4), and (7). PAGENO="0190" 184 ~estion: 5. Are you satisfied that the provisions of the bill do not affect existing proocrty rights in water? Please address your answer to (1) Rights of the Federal Goverrimant (2) Rights of the States (3) Private rights ?nswer: 5. In our opinion the provisions of H.R. 1609 do not affect existing property rights in water. The bill makes clear that water is to be obtained independently of the certification process. This would, in effect, preserve the staths quo with regard to the acquisition and use of water. Section 9 of theBill clearly provides that nothing ~in the Act shall be construed as affecting any Federal, State, or private rights to water. We think this section makes clear Congress' intent that thisBjll, in and of itself, shall not create any rights to the use of water which ~uld not have existed before its passage or would not exist independently of the bill. PAGENO="0191" 185 Question: 6. In Section 5(a) of the bill it is stated: The Secretary is authorized to issue such a certificate if the Secretary finds, With respect to a particular project of the carrier as to which said pcx~er is sought, that the project is in the national interest and provides the capacity necessary to fulfill the requireirents of a ccmnen carrier of coal, as determined by the Secretary. (1) Do you regard this as empcwering the Secretary to establish the corrrr~n carrier obligations of the coal pipeline in the certificate of public convenience and necessity? (2) If you do, would this not preclude any authority of the ICC fmim inposing a comn~n carrier duties upon the carrier that are not included in the certificate? Answer: 6. (1) Section 5(a) would irrplicitly authorize the Secretary to condition each certificate on actual construction of a certificated pipeline so as to rreet the physical capacity reguiren~nts that must be found and approved by the Secretary prior to certification. In only this limited sense, the Secretarys~uld be errpcwered by section 5(a) to establish camon carrier obligations in the certificate of public convenience and necessity. - 6. (2) The limited authority described in item 6(1) above, would not preclude any authority of the ICC Ł ran enforcing camon carrier duties on a pipeline carrier that are not specifically included in the certificate. absent a clear expression of Congress' intent to vest in the Secretary of the Interior the regulatory duties that nornelly would be discharged by the ICC under the Interstate Ccsirerce Act, 49 U.S.C. 1 et seq., this DeparUr~nt would not view H.R. 1609 as authorizing its intrusion into that regulatory area and would not wish to do so. See, Chaprran v. El Paso Natural Gas Co. 204 F. 2d 46, 51 (D.C. Cir. 1953). - See also S. Hept. No. 93-207, 93d Cong. 1st Sess. 90-91 (1973); S. Rept. No. 93-1072, 93d Cong. 2d Sass. 26-27 (1974); Market Performonce and Catoetition in the Petroleum Industry, Hearings pursuant to 5. Res. 45, A National Fuels and Energy Policy before Special Subcormiittee on Integrated Oil Operations of the Ccrrmittee on Interior and Insular Affairs, U.S. Senate, 93d Cong. 1st Sass. 896-897 (1973); * Coal Slurry~ Pipeline Leqislation, Hearings before Coirmittee on Interior and Insular Affairs, U.S. House of Representatives, 94th Cong. 1st Sass., on H.R. 1863 and other bills, 465, 621-623, 631 (1975). PAGENO="0192" 186 ~iestion: 7. In Section 5b (6), the Secretary is required to make findings on the extent to which the project "(6) will be likely to result in lo~ier rates for the transportation of coal than would be in effect if such coal were transported by railroad under Part I of the Interstate Cctrrrerce Act." (1) Do you regard this as requiring the rates to be inoluded in the contracts that must be considered by the Secretary in section 5(a)? (2) Hc~~i could this be done before the pipeline is constructed? (3) ?~at, if any, effect would this have upon the I~X authority over the rate when it is filed with that agerxy? Answer: 7. (1) &(2) We do not interpret section 5 b(6), itself, to require that ICC approved rates be included in the carriage contracts that are referred to in section 5(a) of the bill. The actual rates could not be fixed until ICC approval. (The Administration position gives this authority to the Deparhrent of Energy.) H~iever see the attached answer of the Deoartxent of Transportation to qi~stion 14 propounded to it by your Ccriinittee. To the extent that it would be custanaxy for any charges, rate data or formula clauses to be made a part of such contracts, the Departrr~nt' 5 study could be expected to take those el~rents of the several contracts into account. Section 5(b) (6) is intended to insure ". . . that the Secretary will consider whether cost savings will be reflected in the actual rates charged for coal transportation, consonant with the purpose of the Act to foster ccrripetition in the coal transportation market." H. Report 95-924 Part I, to acccxnpany H.R. 1609, 95th Corxr. 2d Sess., 24 (1978). 7. (3) None. PAGENO="0193" 187 QUESTIOt~: 14. In Section 5b(6), the Secretary is required to make findings on the extent to which the project is likely to result in lower rates for the transportation of coal than would be in effect if such coal were transported by railroad under Part I of the Interstate Commerce Act. (a) Do you regard this as requiring the rates to be included in the contracts that must be considered by the Secretary in 5(a)? (b) How could this be done before the pipeline is constructed? (c) What, if any, effect would this have upon ICC authority over the rate when it is filed with that agency. ANSWER: Our understanding of the complexities surrounding slurry pipeline contracts is that a rate agreement with the utility is an integral part of the pac~age presented to potential financial backers, as well as to the certifying agency. Pipelines will not be built on speculation, with - - the backers hoping the utility at the other end will agree to purchase the coal. Therefore, rates and volume of traffic to be carried must be agreed uçion before construction. The Administration version of H.R. l6O~ recognizes this fact by having the certification and rate regulation powers reside in the same agency. Since both issues must be considered * simultaneously, the'Taté question cannot be decided after the fact. * *. * 32.745 0 . 78 - 13 PAGENO="0194" 188 Question: 8~ Lri your testirrony you stated that a significant feature of the AdministrationT S proposed airendrrents was that before a Federal certificate could be issued the Secretary of the Interior would be required to dDtain assurame fran the Governor or other proper authority of the state fran which water would be diverted that all * rights to water under state jurisdiction for pipeline use have been obtained according to applicable state laws and procedures.' You went on to state that ". . . this * an~n&rent wifl provide the necessary assurance to state and local governrrents that state water laws will be respected and that the Federal Governcent will not interfere with whatever state authority exists for state water use decisions. (1) Ha~i does this position fare when placed alongside the ruling in the Suprerre Court case of First lova Hydro Electric Coooerative v. Federal Pover Carmission (1946) 328 U.S. 152? (2) Is it conceivable that First Ia~za could be construed by the courts in such a way as would result in a Federal certificate of convenience and necessity overriding state irrposed conditions in water permits, in as much as this Federal certification would indicate a Federal determina- tion that an operative coal slurry pipeline is in the public interest? (3) First Ic~ia and other cases deciding similar issues suggest that statutory language which preserves in general terms state control over water resources are to be narr~ily construed. In light of this does DOl believe that H.R. 1609 should specify precisely what control is left in the hands of the state, if it is the Congressional intent to preserve state control over water resources allocation? Answer: 8. (1) We feel that our position regarding respect of state water laws is not incar atible with First Icwa. The f~o situations are distinguishable. In First Ia~ia the Suprerre Court found that the Federal Pa~ier Act superseded ~nflicting state laws because a dual system of regulation had developed, and that of the incanpatible dual regulation the Federal Pa~ier Act was pararrount as a Federal law enacted pursuant to constitutional authority. H.R. 1609, and the Administration's proposed arrendrrents, are intended to divorce entirely the question of granting a certificate f ran the question of a~uisition of water rights. Because of the wording of Section 9 (a) - state water permits can be e~ressly conditioned by the PAGENO="0195" 189 state. Also, section 4(c) of the Act states that the Act, in and of itself, should not provide a basis for accuiring water rights by condemnation. These features of H.R. 1609 make it clear that Congress is avoiding conflicting regulatory scherres. Bather, the schema of the Act is to divorce entirely questions of water use and acquisition fran certifications of public use and necessity. (2) ~tile it is always dangerous to anticipate that a * court would or would not construe a statute in a particular manrer, the language of section 9(a) states very clearly that the states may irrpose legitimate conditions on the use of water and may even require curtaiLTrent of use. If a similar provision had been placed in the Federal P~ier Act the First Ia~a case would mast likely not have arisen. (3) We agree that First Ia~a and other cases involving state control over Federal activities construe very narr~zly the manner in ~thich states can place restrictions on constitutionally authorized Federal programs. Hcwever, Congress_c~n make the tes' role clear and we believe the language of H.R. 1609 clearly indicates thpt it is Congress' intent to allow the states to condition the uses of water under state pe~rmits for coal slurry purposes. Our pr~osed airendrrent would serve the saire purpose. PAGENO="0196" 190 Question: 9. (1) Are the functicns delegated to the Departr~nt the j~yp~ of functions that can be carried out under existing law? (2) Does Section 6 (a) provide the Departrrent the nxens to recoun the additional costs incurred as a. result of the ne~i duties irrnosed upon the Deparicrent by H.R. 1609? (3) Under the Mineral Leasing Act, is the Deparirtent able to recoup costs incurred as the result of granting rights-of-way across Federal lands? (4) ~that, if any, nonreirricursable costs would be incurred by the Deparicrent azx~ for what purpose? lthswer: 9. (1) Most of the functions that would be perforired by the Departrrent under H.R. 1609 are the types of functions that ordinarily may be conducted by an administrative agency when authorized to . do so by law. The functions require consideration of many of the sane kinds of factors and immacts as are required under existing law. The princimal function that would be delegated by H.R. 1609 to the Secretary would be the authority and duty to determine whether a specific pipeline carrier who has applied for a certificate of public convenience and necessity should be certificated for the purpose of exercising the Federal Governrrent' s power of eminent domain in relation to a particular pipeline project. The courts have recoqnized that it is within the power of Congress to delegate to an officer or agency of the Federal Goverrirrent the pcwer to determine the necessity for taking of private or public property by a publicly regulated, private corporation upon which the Federal Governrrent s power of eminent darain has been generally conferred by statute, State of Missouri v. Union Electric Light and Power Co., 42F. 2d 692 (D.C. Mo. 1930) (construing section 21 of the Federal Power Act). A similar statutory scherre under subsections (c) and (h) of section 7 of the Federal Natural Gas Act was upheld in Thacher v. Tennessee Gas Transmission Co., l8OF. 2d 644 (5th Cir. 1950), certiorari denied 340 U.S. 829 (1950). See, also, Martin v. Portland Pipeline Co., 158 F. 2d 848 (1st Cir. 1946) (construing the scope of the required Presidential findings of necessity under the Act of July 30, 1941, c. 333, 55 Stat. 610). PAGENO="0197" 191 Under Title V of FLM4A, the Secretary presently has authority to grant rights-of-way over BIN administered, Federal lands for coal pipelines (slurry and emulsion systems). Section 28 Mineral Leasing Act pipelines are ~nitted fran the scope of Title V of FLPMA. The Secretary has no authority to issue right-of-way grants over non-Federal lands and no authority to issue certificates to enable pipeline applicants to use ~ninent damain to acxiuire private lands. To the extent that a right-of-way applied for under Title V of FLL~A would also involve non-Federal lands, the Secretary should consider the iopacts of the project on those lands through the application of the N~A process and other laws which consider the irrpact of the Federal action. To the extent that BIN administered Federal lands are involved, the provisions of H.R. 1609 that whuld arrend S~tion 28 of the Mineral Leasing Act to cover coal slurry pipelines duplicate or supersede the Secretary's authority under Title V of FLPN2\. Our proposed arrendrrents would correct that. Fran nother point of vie~i, the Secretary already has authority to issue right-of-way grants for oil, gas and several other types of pipelines over certain land under his administration or, where two or rrore agencies are concerned, over other Federal lands, under Section 28 of the Mineral Leasing Act. H.R. 1609 would expand this authority to cover all coal pipelines, thus enabling the Secretary to exercise authority over coal pipe- lines wherever two or core Federal agencies are concerned rather than just on ELM administered, Federal lands. Answer: 9. (2), (3), and (4). With respect to cost reirrburserrent, Section 6(a) would provide only for reimburserrent of administrative and other costs incurred in the processing of the application for a ~~~icabB of public convenience axxl necessity. The reirrbursenent of administrative and other costs irxnmred in processing a ~ght-of-~~py application, and the subsequent conitoring of the construction, operation and maintenance, and termination of any pipeline or related facility on Federal lands would be provided for in Section 28(1) of the Mineral Leasing Act of 1920, as Section 28(a) of the sane Act would be airended by H.R. 1609 to inclirfe ~al pipelines. PAGENO="0198" 192 The Departeent has been able to recoun costs incurred as the result of granting pipeline riohts-of-way across Federal lands pursuant to its authority under Section 28 of the Mineral Leasing Act of 1920. The cost associated with rionitoring and enforcerrent of the ç~~ficcate of public convenience and necessity after issuance is not clearly provided for. Costs incurred by the Departsent in the ordinary course of businass in running its operations are not recoverable. Costs incurred because of a particular application, and directly related overhead costs, are recoverable. This forrrat nay be analcgized to the running of a fire house. The costs of operating and rreintaining the fire house are not recoverable. The costs of putting out a fire are, hcwever, recoverable as well as any overhead cost directly related to putting out tl3e fire. The decision of the United States District Court, Utah, in the case of Al~sret v. Cecil ?ndrus at. al. (attached) has added ner~i un~ertainty to the question of recoverable costs. Pending the outcara of the Department s appeal of the Alaret decision, holding that the Deoartment nay not recover the cost of processing envirorrrental staterrents, sara of the costs rrentioned above nay became nonreirrbursable. For this reason, we urge that the legislative history of Section 6(a) of H.R. 1609 reflect that like Section 28(1) or the Mineral Leasing Act of 1920, as attended, administrative and other costs `include the costs of any reports or studies reguired by law, including environxrental assessrrents and irrpact statenants. ` - PAGENO="0199" 1~E: C 76-287 7U~r12t vs C~il D. ~rus, et ztl. ~%T~J~2 ~1O;~AL S~UCtTO~ ~ La~ Cr~y. Ut.h 193 ~JIiITzD sr,vtc r~sr~Icr C~Jr-r ~ ~ oz trr;~ ~M,T iJ~}:C CITY, UIlsi( *~ATE: ~rth 13, 1978 ~t ~. ?r~b~, ~sz., ~±~t P. RiU, Ł~. 4D~ ~ret ~ 79 ~~ith ~ejn, ~ La)e City~ tft~ ~41li L.,C~rles ~ ~ 333 S~Idirt ~ ~xmte1lo~ I~ 83201 W. Łn~rr, Msist.~t U. S. taney, 20D P O~ thv.~ B1a~., ~.1t ~ Utah ~Ne~.so~_~ ( )Lh~__ ( )~Pi.e_ -~ ) Virz7i )TOWI- -~ F~e~ -I. .1 ~ ~TICE, in accordance vitb Rule 77(d) of the~ roderal ~ules of Civil Procedure, you are hereby notified that: - . ~ 7~ 3IZ~~T (oç'~ ~c1os~) t I ~tR ~ ,`t~7~ ~2~J~1OS~) was st~ned by Bonor~b1e - ~ on the B_~~~p~y of ~rch l9~, and entered in tha D~ct as of the ~_d~w of ~ *l9~78. PXJLL. ~ - . Clot!: -JUflitcz~ Sta~cs Oistrict Court By: Z2~ ~ - . D~p~t C1er~: 1. - * PAGENO="0200" 194 TI~ U?~ITED SThTtS DISTRICT CO~JRT ~ T~ ~L-~IVISiO~ - PAULL~AD~ ). Plaintiff, ) ORDER AND 3tTDC)~E}~'T --v. -* C76287 CECIL D. ANDRJJS, CURTIS 3. ) * EER~AND, PAUL i~AP%D, and ) * the UIUTED STATES OF AMERICA, ) .; * : ~ Defendants. *j) * j * - - In the above-captioned case the court, having enter a nenorandun opinion and order, now enters its 5udgn~nt there- - IT IS ~D3TJDCZD, DECREED AND ORDERED that: 1.. The P~eitsbursenant Regulations as presently cons and enforced exceed the authority granted defendants under tb relevant acts of Congress, in ~ 2. iJuder the circunstances in question the proper ~easura of a fee is value to the recipient. Pees assessed it accordance with this naasure nay not exceed the actual costs incurred by defendants, and 3. As presently structured ~nd enforced, in connec with the applications for rights-of-i~'ay, defendants' fee str~ does riot exhibit the necessary nexus betc7eert value to the re~ and fees assessed, 1n that 4. There Tnust be a fair and rational nexus betwee fees charged and sen'ic~es rendered by the agency. Therefore connection with the applicatiorufor rights-of-~ay, the defen ~ay only assess as co~Sts those itnns which provide special b PAGENO="0201" 195 to pl~iiitiff bynd th evhic ecte to the P~SIiC at large. 5. IT 1$ T~ COUfl `S J1TXfl~E~t, T ?~EYC~RE, tht t veder the present eir~tstattees the completion of envirr~aentel as~ess~ ~nts and imp~act statacents is not a seavice which provides spa: benefits to plaintiff beyond those -which accrue to the public et large, and pleintiff~y not be assessed for such costs. *~6. Indirect or overhead cotta ~ay be included in the fee. Bowever, defendatits rust first deixnstrete thtt~ such aervi costs provide special benefits to plaintiff beyond those which accrue to the public at large 7. ~The Independent Offices Appropriation Act er4 the Public Lands Adzaiuistrat~Ofl Act are not vIolated by charges for oth~.~icc proper costs and regulations pro~ulgated pursuant to those acts continue to be valid under the Yederal. Land Polic~r -~- - - -- and }`~anagea~nt Act. - -~ - - - - --- : 8. Defendants and their subordinatos ~nd agents are hereby enjoined from enforcing the reiubursencnt regulations it this case to the extent that it reluburses the governc~nt for public benefit. It is the court's opiniot that in such respec: they would exceed the authority provided by the Independent Of: Appropriation Act, the Public Land Administration Act, or the Federal Land Policy and }~anagencnt Act. - 9. Defendants and their subordinates and agents she comply ~with the teros of 43 C.F.R. S 28O2.l~2(a)(S~ to the ex~ of any excess payments tcade by plaintiff. Defendants are ordt to process the applicationsin accordance with this opinion. 10. With respect to other relief plaintiff sought, PAGENO="0202" 196 -court t~D~S tot believa, 2.zr present cir t~-r*ca~, that ft !i ~carranted at this ~ -. .. 28 U.S.C. 2412. U. plaintiff is awarded its cozt~ t~nder the ter~z -of DATED this _ day of )`~.ar~.h, 1978. - ---~-----~----- - ALDON 1. A~SON - ~VnitedStatesDistriat .~udge 4 .j~i PAGENO="0203" 197 I~ TIE 1~ITED STATES D1ST~ICT CC~JRT TOR TI* D1STRI~ P~~AR CC~IRkL DIVISIt~N -. - Plaintiff, ) ORDER CPA~TI1~ ~L~fl~TI~T `S ) )VTLO~ FOR SITh~RY J3DC~NT V. - . ) ~-:.. ~76-287 CECIL D. A~DR1JS, CITh~TIS 3. ) BEPJZLAND) PAUL WYAARD, and ) the UNITED STAT~S OF A~ERICJ~,) . -~: ~ ) Defendants ~ ) I - ~This case involves a dispute over the validity and application of certain regif~atiorts adopted by the Secretary of tha In~erinr fsacretary3. Thcse regulations, 43 C.F.R., ~ 2802.1- (1975) thereinafter r~imbursea~nc regulationsj, perc.it the Eure.au of Land Managenent IBU~] to obtain reinbursnnent for adninistra- *ttve and other costs incurred in processing applications for rights-of-way across federal lands for power lines, railroad spurs, water pipelines, etc. See 43 U.S.C. 5 959 & S 961. In connection with the proposed developcant of an aluni mine and processing plant in Beaver County, Utah, plaintiff appli for certain rights-of-way. Defendants, upon the recou=endation of the Utah State office of the BLM, undertook preparation of an environtsental statement EElS] of the entire alunitcpro3ect in accordance with the terms of the National Environna~ntal Policy Ac of 1969, 42 U.S.C. f~ 4321 et.~.a. Defendants have undertaken to act upon plaintiff's right-of-way applications but have condirior such action upon reimbursement cc, defendants by plaintiff of all costs incurred in processing- the applications, including the cost PAGENO="0204" 198 `~f the LIS. Pl.aLntiff hes alsobeen biUe4 for "indirect eosts' incurred in processing the app1~cations. .flaizttiff brought this action challenging the reirse- ~nt regulations &nd requests declaratory and injunctive relief. Eath parties aubsequently filed notions for su=~xy judgneat requesting that the court deternint the validity of the regolitiona The issues have been extensively briefed in supporting and reply renoranda filed by both parties `and at oral &rgu~ut before the Court * Plaintiff attacks the reithursezent regulations ~a tvo grounds. First, they do not apply to the Ii i~.a project, ~ ninerels project, and hence any costs ineiirred in e nnection with the dfalting of an EIS on the entire project are not subject to' \ reinbursenant under the regulations. Second, the reithursee~nt. reulations and the reinburserent denands pursuant thereto are V V milavful and invalid because they exceed V the statutory authority upon which they are based. Defendants argue that the regulations V are valid and were adopted pursuant to proper statutory cuthorit~ V~ :` * V , V and that the preparation of an EIS yes a necessary expense in connection with -processing the V right~-ofway applications. The. validity of the reinbursenent regulation rests on - VVV `V V the cleAned statutory basis-pursuant to which they were adopted. 4~. They are based on the policy expressed in three acts of Congress V The Lndep~ndent Offices Appropriation Act [~tJ~JJ, 31 U.S.C. ~ 4t -------------------. ~ the Public Land Administration Act [PLAA1, 43 U.S.C. 5 1371 & V 5 1374; and the 1973 amn5ndnsrLts to the MLneral Leasing Act, 3~ V U. S.C. ~ Section 185(1) of the ~imeral Leasing Act applies oni to oil and gas pipelines. - SincI the rights-of-way at issue are PAGENO="0205" 199 not for oil or gas pipelines, it La clear that the )`.in.rzl Leasin Act is not a proper ha sis for the re imburse~ent regulations. It J~s apparent that ~ 2&4a of t~ .pjjj.~, 43 c.s~c. ~ 1376 is not a ~proper basis for the regulations since it deals only vith refunds for overpayments ~nade by applicants. It is manifest to the court however, that 5 201 of the ?lAi, 43 U.S.C. S 1371 and the lOlA, 3 U.S.C. 5 483a do provide a proper basis for sore type of reimburs sent regulation. It is lihevise apparent that the application of the regulations at issue here exceed the statutory authority clained Section 201 of the PLAA, 43 U.S.C. 5 1371 provides i~i part: Notwithstanding any other provision of 1a~, tbeSecretary of the Interior cay establish - - reasonable filinl fees, saivica fees and charges, and cornissions v~th rasacct to z~p1ications and other docu=entn relating cc public lands and their resources under his jurisdiction, and uny charge and abolish such fees, charges, and con~ iSS)ThS. - - A superficial examination of the statute appears to support the reithurserncnt regulations. Rovever, as Judge }`inesil has noted in construing the same regulations: The force of the language [of 43 U.S.C. f 1371) is diminished . . . when one consults the legislative history of the statute. The Legislature's understanding of Secdon 201 is partially r~vcaled in . . 2 U.S. Code Cong. and Admin. ~e:s p. 3147 (1960). - There a letter from Roger Ernst, Assist~ ant Secretary of the Interior, a~as reproduced, which indicated the anticipated effect of Section 201. Mr. Ernst indicated that the bill involved ~only five percent of the business volume covered by LLM fees. Ha also noted that "receipts from fees, etc., accruing to the Bureau appro~:irute $1 million annually. It is estimated that this bill, if enacted, will increase these receipcs by approximately $50,000 annually.'~ PAGENO="0206" 200 The Senate t erstzrdit2 of &ectizn 201 was obvIously inte~ed to allow tb_a Secretary $o~e fleribihi ty Ia :a tcIr~ zeta for r~rice.a rendered for the pr~ary ber.etht of the re'~ questing ix~divicu.al. ~ar.et~ieiess.itc~ hardl'ç' be aint~i~ad t~-:: t~ S ..ste ~ to there~,v aii.z~ ~ tO ___________________ ~ ~ ~ of dollars susr~ os tr'~a~ea~~5ec in Public SerVIce Co. of Colorado v. dr~,, 433 7. Strop. 144, 149- 50 ~ Cob. 1977). The Psau.se of Representatives apparently lied a aS.rilar ~nderstanding.of the scope and inpact of 5 201. ~efendants also argue that the TIOAA authorizis the reiz~ursenent regulation, Essentially the IOM, 31 U.S.C. S 483s provides that federal agencies "sbaU be self-sustaining to the full extent possible . The Supreoe Court his recently exanined the intent and scope of S 483a and found that it &~es authorize the itrpositlon of fees by federal agencies. P.ational Cable Te1~'isIonAsa'n, Inc. v. United States, 415 U.S. 5, 40 (1~74). ICourtho-i ever, narrowly united the scope of the I0.iA, The Court stated: The public agency perforting those services `nornally nay CT_act a fce for a grar~t ~hich, presunably, bosto~s a be~er~it on the appli'. cant, riot sharcd by other renbars of society, It would be a sharp brza~ with nur traditions - to conclude that Congress had bestc-,~ed on a federal agency the taxing power that we read 31 U.S.C. S 482a narrowly as authorizing not a "tax" but a "fee," A "fee" connotes a "benefit" and the Act by its `use of the standard "value to the recipient" carries that - connotation, The Court stated that the proper standard for. deternir -- -- ing ~that fees should be' charged is the "value to the recipierrt. Id. at 344. In~ conpanion casethe Court stated: It is true that the Act includes services rendered "to or for any person (including PAGENO="0207" 201 groups . . .)." ~ut if we are to construe the Act to cover only "fees" and not es"~as ye held should be done in the io~a~_Ca~ Television case, ante, P. 336-~the ~fe& pre~ supposes an application vhether by a single company or by a group of con~anies. The Offine of }~aaagenent and Budget (than known as the Bureau of the Budget) issued a circular in 1959 con- struing the Act. That circular etated that a reasonable charge `should be made to each identifiable recioiertt for a measurable unit or amount of Goverar.enc service or proterry from which he derives a special, benefit.33 (Emphasis added.) The circular also states * that no charge should be. made for services I rendered, "c.'han the identificatiOn of the ultimate beneficiary is obscure and the service --can be primarily considered as benefiting broadly the general public." . * We believe that is the proper construction of the Act. . * ~.. * Pederal. P Corrdssion v. yevEn~land?owerCo., 415 U.S. ~45, 349-51 (1974). (Citations onitt~d, emphasis in original.) Defendants also argue that the reimbursement regulatic is authorized by the Federal Land Policy and r.anage.mant Act of I [FLP~&), 43 U.S.C. 5 1701 et ~ The FLWA provides that the Secretary of the Interior ray promulgate regulations requiring reimbursement "for all reasonable administrative and other costs incurred in processing an application for such right-of-'..~ay *" 43 U.S.C. 5 1764(g). The FLPKk further provides that: As i.tsed in this section "reasonable costs" itt / monitoring construcc~.on, operation, ~anccnance, and termination of any authorized faci1it~; or other special activities. In determining whether costs arc reasonable under this section, the ,~t7 Secretarv"~J',take into consideration actual ~ ts(e~:clusjve of rurtagenent overhead), the A manetary value of the rights or privileges sought by the applicant, the efficiency to the government process.ing involved, that portion of the cost incurred for the benefit of the general public interest rather than for the exclusive benefit of the applicant, the public service provided, and PAGENO="0208" 202 cther factors relevant to deter~iujrt~ the .` reasonableness of the ~DSt5. - 43 U.S.C. 5 1734(b). Vhile this language provides soraethir~g lea; than a precise guideline, the intent of the provision appears to be tba~ "reasonable costs" ~hould be detenitied on ~ benefit to the appi: cant basis. The court conclude; that ~`re.asonabie costs" acoesse' pursuant to the FLP~ are subject to the analysis adopted by the Suprer~e Court in construing the bAA in `~ationa1 Cable euo~u, and n~ Power, suera - 2 Plaintiff argues that there i~an be nc requirement of relubursement of costs after October 21, 1976, the effective -j date of the FLPVA, since the enact~ent of the PLP~i~~ revokes all pri6i~legisThtion dealing with right-of--'0'ay applications. This so plaintiff argues, because the Secretary has not yet proeulgat regulations regarding right~of-way applications. The PL~A, hew ever, provides that "[p)rior to the pro~ilgation of such idles- and regulations, such lands shall be administered under existing rules and regulations concerning such lands to the fullest exter possible.1' 43 U.S.c. 5 1740. The legislative intent is clear t the court sees no compelling reason to depart therefrom. It is proper, therefore, that the EL~ nay require fce~ in connection with applications for rights-of~.way over federal where a "service (or privilege) provides special benefits to an identifiable recipient above and beyond those which accrue to t public at large . . . .!` Public Sewice Com~anv, suera at 151. Defendants argue that the cost of the EIS is properly reimbursable und~er the reirthursemenc regulation since the right of-way applications could ziot be processed without an EIS on r.c ~iL~ ~e~- PAGENO="0209" 203 whole alunite project. As Judge Tinesilvtr unted 9s]uch reason- ing . . would pertcit an agency to charge for all. services rendered to an applicant for a license or privilege, since pre- suarsbly all services rendered &re the i~esu1t of the ohracary application for a right of ~ray. . . We reject this contention. Public Service of Colorado at 152-53. The court concurs in Judg~ Tinesalver's statenertt that I The costs of environrenthl analyses and * inpact tnts developed ~ursuant to the ~ndate of the yational Environrantal Policy Act are not of prinary banexit to the right off way applicant, and thus canrt properly be charged as fees under either the Independent Offices Appropriation Act c~* 1952 * or the - Public Land Ad=ittistration Act * * -. Public Service Co=anv of Colorado, at 153. *~ The court also finds, notvithstandin the language in the FLP~"A, 43 U.S.C. S 1:764(g), that the cost of an EIS ray con- .~~-~titucea "reasonable cost" under the Act, that other lar~gungc f that same section providing that a factor in determining reasoru costs is whether "the cost incurred (is] for the benefit of the general public interest" precludes defendants frnm requiring reimbursement for the preparation of an EIS. This is so becaus. the BU~ undertook the preparation of the EIS itt order to meet t~ requirements of 1~EPA, an Act passed by Congress tnanifestly for benefit of the general public. But for NEPA. the B~{ t.'ould not have undertaken such ertvironeenr.af studies. Such a cost falls within the Suprere Court's holding in Nec England P01;cr, ~ that "no charge should be made for services rendered, where the identification of the ultimate beneficiary is obscure and the service can be considered primarily as benefitIng broadly the general public." Id. at 350. 32-745 0 - 78 - 14 PAGENO="0210" 204 With respect to the other costs, such as adinistrative o~rerhead plaintiff coc~lains of, there can be no pree~sedel~.nea~ tion of which costs are subj e~t to reicburs e~nt and -.thich arc no The court is incl±tmed to agree with the standard adop tad in the Public Setvice Co~anv of Colorado case. As a fee, the Et.»={ ~tst ueasure its reiubixseent denands only by the actuel costs to the ageac7~ To include the ~ltiute value to the app1icai~t in * its consideration to inta a rei ~rscuent plan inno - a revenue seheze. in ~ionel Cable Tele'ric~cn Ass'ri~ The. v. F.C.C., 55-. ~.Zd 1Q94 tiLG~ the court obsei:vea: . . [T)he agency ~st ~ot look at the value- -which the regulatso parry nay irraoiaccay j or eventually derive the rulaterr * ~cbene but at the vaiue od the direct a~d indirect services v~.-~iah the agency coaEere. * This rcans, for e~a=~.a, that a ~ in - * order not to be a t~, clnnoc he by the revenues rce:~ved or the which cable or'eratacs -aue nade ~rcn their * franchises, but c~sc he rcasottaoly related to those att ucthLe direct and indirect ,~costs which the ageary ncc-.tsily iricus in ti~'gu1atinz (aervici~) the in st'~-- The Court was rare direct in :`itinn~ I A~ ~7nof roade.astcrs v. ~.C.C.I ~ra, an 1129-1133 n. 28 "~h.en the east oz c~a aetedic con Eerred is caceeded by any uataed~ai a~eane, one ir~oedLanely gets into the taxing areas and the result l.a a revenue and net a ~s the cast to the ~encv which deeerrthes n~e lue cu c~ recipient. T~e ~e ecr~u1es aheu~d be scrue- tured accordinclv. Id. at 153. (Eaphasis added.) Accordingly, .IT IS HEREBY ORDERED that defendant's notion for siu judgraent is denied and plaintiff's notion for suteaary judgnertc 1. granted in accordance with the abave opinion. A judgment reflec the court's order is filed in a separate document. DATED this day of ~arch, 1978. *thn'~ j~ 4t:~-.~SflN PAGENO="0211" 205 Question: 10. What existing Federal laws apply to the source and supply of water used in a coal slurry pipeline? Answer: 10. While it is ~ntpossible to list all Federal statutes ~fnich may, in sar~ way, apply to the source and supply of water for coal slurry purposes the act with rrost application is the National Envirorimantal Policy Act of 1969. Normally, private rights to the use of water in western states are acquired pursuant to state water laws. Question: 11. What existing Federal laws apply to the use and disposal of water at the discharge end of a coal slurry pipeline? Answer: As in number 10, it is impossible to list all Federal laws which might affect, in sane way, the use or disposal of water for coal slurry purposes; Imiever, the Federal acts of major consequence weuld be the Federal Water Pollution Control Act and the National Environxrental Policy Act. Question: 12. I)es-the National Environrrental Policy Act apply? Will it continue to apply in the sane way if this bill is passed? - In responding to this question, we presuse that your concern is directed to the need for the preparation of a NEPA impact staterrent. There is nothing in H.R. 1609 that weuld indicate an intent to exclude the provisions of the bill fron the requirerrents of the National Environrrental Policy. Act, 42 U.S.C. 4321, et An application for a certificate of public convenience and necessity, as provided for in H.R. 1609, ~uld require a determination by the Secretary of the r~e:1 for a pipeline carrier' s exercise of the Federal governrtent' s eminent danain power in relation to the construction and operation of a specific pipeline project. If a determination of need were found and if, after all of the other recruirerrents of the bill relatinp to the certification process were net, the Secretary concluded that a carrier sheuld be certified, the act of certification, per se, ~uld r~t have an impact on PAGENO="0212" 206 the environirent. Hc~cever, that action could have the effect of enabling the pipeline project itself to be constructed Or carnileted or it might facilitate to a considerable degree such construction or the tirrely corrietion of the project. Thus, an application for certification should be considered in terms of the "enablerrent', or `but for', test for purposes of inpact *staterrant conrliance. Given this ground rule, the fact that major pipeline projects are likely to generate considerable public controversy and the fact that other Federal licensing actions would be generated (as for example navigable stream crossing permits), we believe it can be assurred that an environrrental impact staterrent would have to be prepared before the Secretary could act on an application for certification involving a major pipeline project. CF., H. Pept. 95-924 Part 1, to accarpany H.R. 1609, 95th Cong. 2d Sass., 18, 24 (1978). The ~eqjiirerrents of the National Environrrent Policy Act would not be altered by the passage of H.R. 1609. Question: 13. Dees the Water Pollution Control Act apply? How? Will it continue to apply in the same way if this bill is passed? answer: ~s in the case of the Resource Conservation and Recovery Act of 1976 (see item 14), we do net find any direct connection between the provisions of H.R. 1609 and the Water Pollution Control Act, 33 U.S .C. 1251 et seq., as amended by the Clean Water Act of 1977 ,~ib. L. 95-217, Act of December 27, 1977, 91 Stat. 1566, and H.R. 1609. Water pollution would, of course, be of concern in connection with the environmental review requirements of NEPA and of section 5(b) of the bill. Generally, the Federal Water Pollution Control Act (FWPCP3 will apply if there is a discharge of pollutants into any waters of the United States. If this wore to occur all the necessary permits for discharges required by the FWPC~ would have to be obtained. Tne Environmental Protection Agency would be able to furnish rrore specific information concerning all the possible ways the EWPC~ might apply The passage of H.R. 1609, in our opinion, would have no effect on the applicability of the FNPC~. PAGENO="0213" 207 Question: 14. Does the Resource Conservation and Recovery Act apply? How? Hill it continue to apply in the sarre way if this bill is passed? Answer: The purging of acctirmalated sludge in a coal slurry pipeline can result in environrrmntal and property damage unless properly contained and disposed of. For these reasons, the sludge might well be held by the EPA to be a "hazardous waste" as defined in section 1004(5) of the Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6903(5) and thus subject to the provisions of Subtitle C of the Act, including location, design and construction standards of disposal or storage facilities and facility permitting requirerrents. Hc~ver, we find no direct connection, in terms of inplerrenting the provisions of H.R. 1609, between the Resource Conservation and Recovery Act of 1976 and H.R. l~09. Obviously solid waste disposal would be of concern in óonnection with the environrrental review requirerrents of NEPA and of section 5 tb) of the bifl. The requirements of the Resource Conservation arxi Pacovery Act of 1976 would not be altered by H.R. 1609. Question: 15. Does Interior have jurisdiction over any aspect of the operations of the Black Mesa coal slurry pipeline? If so, please explain. Answer: 15. The Departrrent has granted a right-of-way across public lands and L~-idian reservation lands for the Black Mesa coal slurry pipeline. Accordingly, the Departrrent, through the Bureau of land »=4anagecent, is rronitoring the operation and nEintenance of the pipeline to ensure ccrrpliance with the tents and conditions of the right-of-way grant. Question: 16. Does Interior regulate the use and disposal of the discharge water of the Black Mesa pipeline? If not, what Federal agency does? Answer: The Bureau of Land Management has no role in regulating or menitoring use and control of discharge water. The water is trapped in ponds to assure that it does not enter the Colorado River. The Geological Survey does have a role in nnnitoring ground-water sources for Black Mesa water. The Department does not rronitor discharges. PAGENO="0214" 208 Question: 17. Doesn' t the Federal land Policy and Managenent Act of 1976 authorize the granting of rights-of-way? And if so, what is the need for H.R. 1609? Answer: 17. FLPMA does authorize the granting of rights-of-way over "public lands" (BUd administered Federal lands) for a variety of purposes, inclnding coal slurry pipelines. Hc~'iever, it covers only those situations in which authoriza- tion to cross these public lands is involved. It does not cover other Federal lands (with ~the exception of National Forest System lands) or non-Federal lands and does not give the Secretary any authority, over non-Federal lands for coal slurry pipeline purposes or to enable private entities to exercise the pcwer of eminent dcrnain. We see the main purpose of H.R. 1609 as a guarantee that major pipelines are not held up or stopped because of inability to anguire a right-of-way in non-Federal lands, and as a ceans to assure that ccxrcanies anguiring rights by eminent danain exercise those rights in the public interest. See also answers to questions 1, 2, and 9 above. Question: 18. ~iat existing laws or regulations relate to safety requiremanth for coal slurry pipelines to guard against ruptures, both on public and private lands? Answer: 18. We will confine our remarks to Federal law administered by this Departuent. The Departrent of Transportation may also have an interest in this issue. To the extent that "coal pipelines" are encanpassed within Title V of the Federal Land Policy and Managerrent Act of 1976 (see our rerrerks under item 2 (1) (a) above), sections 504 and 505 of the Act would be applicable to those pipelines or to the portions of them traversing BIN administered Federal lands or National Forest System lands. Section 505 of the Act requires that each grant of a right-of-way contain, anong other provisions, tern~ and conditions which will: minimize daxtage to scenic and esthetic values and fish and wildlife habitat and otherwise protect the environirent; require cczrtpliance with applicable air and water quality standards; require ccrnpliance with state standards for public health and safety, envirorrrental protection, and siting, construction, operation and rraintenance of or for a right-of-way if those standards are dore stringent than applicable Federal standards. Section 505 also directs that each grant of a right-of-way contain terrrs and conditions as the Secretary concerned deema necessary to: protect Federal property and econanic interests; protect lives and property and; anong other matters, otherwise protect the public interest in the lands traversed by the right-of-way and adjacent thereto. Section 504 (c) authorizes the Secretary concerned PAGENO="0215" 209 to impose terra and conditions with regard to the construction and maintenance of each right-of-way. Section 504 (d) requires an applicant to submit a plan of construction, operation and rehabilitation for a right-of-way which must cariply with stipulations or with regulations issued by the Secretary including the terms and conditions required under Section 505 of that Act. Section 504 (e) authorizes regulations to be issued in relation to the terms and conditions that will be incleded in right-of-way grants pursuant to Section 505. Taken as a whole, we believe that these provisions afford ample authority to incorporate in coal pipeline right-of-way grants that are subject to Title V of the Act appropriate stipulations to guard against runtures, caused by plugging or otherwise, on BIN administered or National Forest System lands. HcMever, it is our vie~i that terms and conditions imposed upon a right-of-way grantee for crossing Federal lands under FLWA cannot be extended to private lands. There are other statutes under the administration of other agencies that would also have a bearing on safety. Question: 19. H.R. 1609 as reported fran the House Interior Carrnittee only iremEions subsection (a). of Section 28 of the Mineral Leaning Act of 1920. The other 25 subsections of Section 28 cover such important subjects as pipeline safety, environirental protection and right-of-way limitations, arrnng others. In your opinion, would the other subsections of Section 28 apply to coal slurry pipelines? If not, should they be made applicable? ?~nswer: 19. Subsection (a) of Section 28 of the Mineral Leasing Act of 1920, after conferring the authority to grant pipeline rights-of-way to the extent prescribed, states that a grant must be made "in accordance with the provisions of this section". The term "section" is used throughout Section 28 to refer to the entire section and not just to the subsection in which the term happens to be employed. Consequently, if "coal" pipelines are added to subsection (a) of Section 28, all of the provisions of Section 28 would be applicable to coal pipeline right-of-way applications and grants except as otherwise expressly provided in Section 28, as for ezarrple, in subsection (r) which in certain respects is limited to only oil pipelines or gas lines or a ccrnbination of only oil or gas pipelines. PAGENO="0216" 210 Question: 20. We have had testimony and discussions on the potential of recycling water to the point of origin. Is this or is this not a feasible thing to do?. If so, would you object to an amondirent to require that a certain percentage of the water be recycled. Answer: 20. We have no reason to doubt the technoleqical feasibility of recycling, although we are not aware of specific studies on the point. The potential econanic ininact of such a reguiremant could thviously be very substantial. Question: 21. Would an environirental irrnact staterrent be required prior to the issuance of a certificate of public convenience and necessity for coal slurry pipelines? Would you have any ±jections to an arrendirent which declared the issuance of a certificate a major Federal action for the purpose of NEPA? Answer: 21. The preparation of an environrrental staterrent (ES) regardinga proposed coal slurry line would pr±ably prove to be appropriate in rrost cases, in order to be consistent with the National Environrrental Policy Act of 1969. See the answer to question 12, above. Hcrzever, the normal process in determining if an ES is needed should be foUc~ied. It ~uld not be good managerrent to legislate such a reguirerrent. Procedures for determining where an ES is required are well established in the Deparhrent and the Bureau of Laod Managerrent. Question: 22. On page 2 of your testimony, you indicated that the Department of the Interior would conduct a thorough revier~i of water, land use, and natural resources questions. Please explain what land use questions would be revier~zed. Answer: 22. Please refer to the response to question 2, above. Question: 23. On page 3 of your testimony, you indicate that the Department of Interior' s, concurrence would be. required in the issuance of a certificate. - Do you ~čel . that Interior s~ould have a veto over a proposed pipeline? Would you support an airerxtrent makIng it clear that Interior would have a veto? . Answer: 23.. The testimony rrentioned in thin question was offered in reference to the Administration's proposed substitute for FLR. 1609. PAGENO="0217" 211 Under section 5(b) (1) of the substitute bill, a certificate could not be issued by the Secretary of Energy if the Secretary of the Interior refused to concur in the finding required by section 5(c) (4) of the bill. Under the Administration' s proposed arr~ndn~nts, the requirerrent for concurrence of the Departrrerit of the Interior is intended as a veto pcx~ier over a certificate for a proposed project. We would have no dejection to inclt~ing an airendrrent to clarify this pc~ier. That question is not presented by the version of H.R. 1609 that was reported by the House Interior Carrnittee since the Departrent of the Interior would be the lead agency and would issue the certificates. Question: 24. The C1L~ report indicates that a1rr~st no information exists on what materials will be leached fran coal by water in the anserchic conditions that will be encountered in a coal slurry pipeline. Do you agree? Has Interior or EPA dose any studies on this subject? Are any studies underway or contesplated? Answer: 24. The-Departrent of Energy might have information on this. Otherwise, see attach~rent, relating to pre-DOE work. Question: 25. (1) Isn't it true that a pipeline crossing a navigable water would require a permit under Section 10 of the River and Harbor Act of 1899, which requires permission of the Secretary of the Army for arrj structure in or alteration of such waters? (2) And, isn't it also true that any pipeline crossing of a water of the United States would require a permit under Section 404 of the Federal Water Pollution Control Act which requires a permit f ran the Secretary of the Army for any activity involving the discharge of dredged or fin material into such waters. Answer: 25. (1) Yes, a pipeline crossing the channel of a navigabL waterway would require a permit under Section 10 of the River and Harbor Act of 1899, 33 U.S.C. 403, which in part requires that the excavations, alteration or filling in of the channel of any navigable water of the United States is not lawful unless the work has been reccrrrrended by the Chief of Engineers and authorized by the Secretary of the Arnrj prior to the beginning of the work. If a pipeline crosses over navigable waters, certain U.S. Coast Guard responsibilities care into play. PAGENO="0218" 212 25. (2) Yes, the discharge of dredged or fill materials, in connection with the construction, operation or termination of a pipeline, into the navigable waters, in general would be subject to the permit requirerrents and provisions of Section 404 of the Federal Water Pollution Control Act, 33 U.S.C. 1344, as airended by Section 67 of the C lean Water Act of 1977, Pub. L. 95-217, Act of Decerrher 27, 1977, 91 Stat. 1566, 1600. The discharge of dredged or fill materials in connection with maintenance work may not, hc~iever, reqi~ire a permit. If an approved state program exists, the relevant state authority rather than the Secretary of the Army, acting through the Chief Engineers, nay issue the appropriate permits. PAGENO="0219" 213 ~ ANSWERS TO QUESTIONS PERTAINING TO COAL PIPELINE TECHNOLOGY ~JRSUANT TO THE HEARING ON JANUARY 29, 1976, BEFORE THE HOUSE COMMITTEE ON SCEENCE AND TECHNOLOGY SUBMITTED BY THE DEPARTMENT OF THE INTERIOR PAGENO="0220" 214 1. Question: Please describe to us any research and development work that has been or is being performed since FY 1970 by the Federal Government in using pinelines for the transportation of coal over long distances, indicate which agency or agencies have done this work directly or by contract, identify the contractors, indicate the amount of funds (Federal and non-Federal) expended on such work since FY 1970. Please provide similar data concerning any such R&D work cerformed by non- Federal organizations during this period. Also, provide to us a complete bibliography of any pertinent reports of such work. Answer: To the knowledge of the Bureau of Mines, no Federal agency has conducted R&D work specifically on long distance coal slurry pipelines. The Bureau conducted studies relating to the abrasive and erosive characteristics of a slurry mixture on the pump and pipe interiors; however, all of these records have been transferred to ERDA. Outside R&D work was done by the Black Mesa Pipeline, Inc., the details of which are not available to us. Attached is a &imt of projects funded inhouse and by contract by the Division of Mining Research and ~ bibliography of pertinent reports related to hydraulic transportation of coal in pipelines. All of the research by the Division of Mining Research to date has been directed towards hydraulic transportation of coarse coal within coal mines. These research results are applicable to pipeline systems for transporting coal in sizes up to four inches in diameter and for relatively short distances of about ten miles. The Mining Research Divisionts current effort is aimed towards demonstrating a coal pipeline transport system in an underground coal mine in five years. No programs related to long distance overland pipeline transportation of fine coal slurries are being considered by the Department in the near future. To a substantial extent, the small amount of R&D work in this area must be considered a reflection of a lack of need. Coal pipeline technology is established and proven. In allocating limited R&D dollars, it does not seem wise to place cmii pipeline technology high on the list, whereas a model to study the conparative economics of various power or fuel transmission modes was lacking and entirely relevant and necessary for assessing and planning future energy transportation developments. PAGENO="0221" 215 jr :~ rF Uniur ~ Aas~ L.u~: ~`~: .1o~--*:;n~rR. J:~. cf l!incs Attached is a list of project.r funded inhoune and by ccncrc~ct by the Division of Ninin~ Research and a bibliography of pertinent reports related to hydraulic transportation of coal in pipelines. All of the research by the Divi::ion of fining Research to date has been directed towards hydraulic trensportation of coarse coal within coal icires. These research results are applicable Lu pipeline systems for transporting coal in sizes up to four inches in diarnatcr and.for relatively short distances of about ten miles. The Mining Rasecrch Division's current effort is aimed towards demonstrating a-coal pipeline transport systemS in an underground coal mine in five years. Up to the present time theDivision of Mining Research has not done any research related to long distance o~orland pfpeline transportation of fire coal siurr~er. PAGENO="0222" Hydranlic Transporation of Coal Research Projccts--Buroau of Mines Funding ($1~000) and Fiscal Years Title Contractorflnhnuse 1970 1971 1972 1973 1976 1975 1976 Hydraulic Tranportation Pilot Inhouse 75.0 175.3 l02~4 73.0 158.9 201.6 251.0 Plant and Labortory Studies Slurry Data Bank Colorado School of Nines 19.9 - Properties of Coal-Water Slurries Colcrado School of Mines - 40.2 - - Numerical Model for the Study Carnagie Mellon of Particle Interaction in Institute Relation to Hydraulic Transport 22.3 - Feasibility of hydraulic Tran- Colorado School sportation in Underground of Hines Research Coal Nines Institute - - 127.0 2.4 9.6 *Solid~ Injector for Closed Ingcrsoll-~rnd Loop Hydraulic Haulage Roscarch Inc. - 38.9 Coal Injector for Coarse Tosteu-Niller Slurry Transport As~ociatč.3, Inc. - - - - - 9f.2 Design of a Hydraulic Tran- Stone and 4ehster sport Research Facility En~ineeriag Corp. - - - . - 287.4 Total 75.0 257.7 102,4 200.0 161.3 633.7 251.0 PAGENO="0223" 217 Dibliography Colorado School of yincs. A Nlnoral S~urry Data Dank NTIS No. l'R220565 Carnegie Noilon Inst~tutc. A Nwarical Nodal for the Study of Particle Interactions iii Relation to Hydranlic Transport. Gerg, Joanne S. Analysis of Diiliar:s rnthers Enginoering Company Coal Slurry Pipeline Tests. B~cau of Nin~~OFR 66-73. Colorado School of Ninos Research Institute. Feasibility of Hydraulic Transportation in Underground Coal Nines. NTiS No. PB244/ii. . - Pang, Richard C., and J.J. Seinan. Solid-Liquid Flow in Noncircular Pipes. 1973. Bureau of Nines Report of Investigations 7725. 1/ National Technical leformation Service. 21 Bureau of Nines Open File Report. 2. Question: Please describe any R&D work concerning the use of pipelines for the transportation of coal planned by any Federal agency for the next three fiscal years. Please provide all Dertinent details, including funding. timetable. etc. Answer: No such work is being planned in the Department of the Interior. See our answer to question 1. This question might well be referred to ERDA. PAGENO="0224" 218 Mr. EDGAR. You talk about the Interior and Department of Trans- portation concurrence being required. Could you elaborate on that statement, and reflect on whether or not that gives either the Depart- ment of Transportation or the Department of Interior veto power? Mr. WICKS. In response to the last part of your question, Mr. Chair- man, it is my understanding that the concurrence required in the ad- ministration amendments does mean that the Department of In- terior-that a certificate would :not be granted if the Department of Interior and the Department Of Transportation refused to concur in the findings and the recommendation by the Department of Energy. So, the answer is yes, to the veto question. In terms of elaboration, the amendments proposed by the adminis- tration were submitted on March 21, I think it is section 5 where we talk about the certification procedures. "The Secretary of Energy shall not issue"-to quote some of the language-"a certificate unless he has obtained the concurrence of the Secretary of Transportation with respect to findings"-S (c)~(1), which deal with the impacts on other means of transportation and the relative costs of railroads- "and the concurrence of the Secretary of Interior with respect to the finding required by 5(c) (4)," and that deals specifically with the en- vironmental impacts, the impact on water and other natural resources that might be affected by the pipeline. Is that the kind of elaboration you wanted? Mr. EDGAR. Yes, that is helpful. Let me speak just to the question of the water impact. We were discussing here informally before the hearing started this afternoon the process of piping coal with water and, when it gets to the other end, whether or not that water is dis- posed of in an environmentally sound way. Is there any experience on the panel there of exactly what happens when the coal is again sepa- rated from the water and what, in fact, happens to the water? Mr. WICKS. Mr. Davis, do you have any comments on that? Mr. DAVIS. Yes, Mr. Chairman. In the one existing pipeline situa- tion, water is separated from the coal mechanically, and then the water is routed into the cooling system of the powerplant that is served with the coal. In this particular situation, the blowdown from the powerplant ultimately is disposed of in evaporation ponds, so there is no release of water or mineral matter to the environmentthat way. Mr. EDGAR. Would this be one of the considerations of the Depart- ment of Interior? Mr. WICKS. Very definitely, Mr. Chairman, and I think the con- cern is expressed by some of the amendments the committee had to H.R. 1609 and, certainly, it is a concern that we have. It would be one of the specific things we would come up with findings in making a determination as to whether or not to concur in the Department of Energy decision. Mr. EDGAR. Thank you. Mr. Nowak? Mr. NOWAK. Thank you very much, Mr. Chairman. I wondered if you could give us any type of broad timetable as far as getting through the procedures that you have outlined here in the bill. Mr. WICKS. Well, I think that when we discussed it within the ad- ministration, there was, of course, an understanding that we would PAGENO="0225" 219 have to do an EIS. We have had to do that before on pipeline ap- plications. And I think we are looking at a period of about 18 to 24 months, once an application is received, to process it and go through the findings required in the law and go through the proper hearnigs and come up with a determination as to whether or not a certificate should be issued. Mr. NOWAK. And I assume you would have to follow that process for every one of these pipelines that is submitted? Mr. WICKS. Yes; under the terms of the bill, that is correct. Depend- ing on the situation, the complexity of the applications makes a lot of difference as to what time period is required to complete it. Mr. NOWAK. But you would still have to fully investigate every aspect as outlined in the bill not only on the public lands, but see that it is done on the private lands as well, and get the concurrence of the Governors in respective States and other agencies? Mr. WICKS. That is correct. Mr. NOWAK. Have you had any indication of the desirability of this proposal to the Governors of the respective States? Mr. WICKS. Of the administration's proposal, or H.R. 1009? Mr. NOWAK. Of either. Mr. WICKS. No; we have not had any indication, that I know of. Of course, many Governors have testified on coal slurry pipelines, and there is some concern about water and, I am sure, some other aspects of coal slurry pipelines. But we have not made any specific contact, that I know of, which would indicate a feeling one way or the other. Mr. NOWAK. The question was asked-we were discussing it here- about the end result of this water after it is mechanically separated- I believe that is the term you used. Can you tell me where that existing facility is right now? Mr. DAVIS. That facility I referred to is the Mojave Power Plant at the southern tip of Nevada, which is served by the Black Mesa Pipeline. Mr. NOWAK. And do you know how much water is being pumped through there at the present time? Mr. DAVIS. It is approximately 3,200 acre-feet per year; it is roughly 50 percent water, 50 percent coal by weight. Mr. NOWAK. And after it is separated, you say it is put into a pond, a storage area? Mi. DAVIS. Well, initially, it goes into the regular power plant cooling system, where it makes up only a small proportion-say, one- sixth. But in every cooling system. you have to permit a certain amount of blowdown to carry away concentrated mineral matter. This, in that powerplant situation, is then routed to an evaporation pond for final disposal. Mr. N0wAK. You say an evaporation pond. How much water is pumped in, and how big are these ponds; how fast does this evaporate? Mr. DAVIS. Well, in that particular climate of southern Nevada, the evaporation rate would be in the neighborhood of 6 feet per year. There is a pond area there of several tens of acres to dispose of that amount of water. In a different. climate, of course, you would have different conditions. Mr. NOWAK. Then the water would just stay there and evaporate? 32-745 0 - 78 - 15 PAGENO="0226" 220 Mr. DAVIS. Yes, it goes into the air in that desert. climate of southern Nevada. In a more humid location, perhaps it might be necessary to dispose of water in a different fashion. Mr. NOWAK. You could not do it that way if you were in a different climate? Mr. DAVIS. That is correct. Mr. NOWAK. I have no further questions. Mr. EDGAR. Thank you. Mr. Shuster? Mr. SHUSTER. Thank you. Mr. Wicks, I just have one question. IVould an environmental impact statement be required prior to the issuance of a certificate of public convenience and necessity for coal slurry pipelines? Mr. WICKS. Yes. Mr. SHUSTER. Thank you. Mr. EDGAR. I just have one fnrther question. In Mr. Dempsey's statement, he quotes from the OTA study on the issue of the findings; they concluded, "In all potential coal slurry pipeline origin areas except Tennessee. demand projected for 1985 to the year 2000 period exceeds the legally available supply." And he goes on to say that the "character of the impact of a pipeline is illustrated as follows," and he has a quote in terms of the Montana pipeline. I think you were present when lie was making that statement. Does the Department of Interior have any statistics or information about the question of water supply as it relates to the areas that are being projected for pipeline use? Mr. WICKS. Mr. Chairnmn, the Department is currently involved, together with a lot of other departments, in a. water for energy study that I think will be completed later this year to give us a more defini- tive answer. But there are a number of studies that have bee.n done., and we could review that and make them available to the committee if you would like. But in response to the general question, Mr. Dempsey's statement, it seems to me, raises the difficulty of trying to deal with this in a general situation, when water problems, generally, are very specific to a location. And SO that. while. von might have a general problem in the West, there are certainly some areas of the West--for in- stance. some of the Federal reservoirs-where the Federal Govern- ment has determined that water is available for industrial uses, in- cluding slurry pipeline, assuming the State goes along with that use. So, my answer to your question is that in a macro sense what Mr. Dempsey said may be accurate, but in terms of the specifics, there seems to be water available for the transportation of coal in some of the IVestern States, if you talk about a specific. location for the coal and a specific source for the water. Mr. EDGAR. I yield to the gentleman from Pennsylvania, Mr. Shuster. Mr. SHUSTER. Thank you, Mr. Chairman. I would like to follow up on my previous question. Is it true, Mr. lVic.ks, that if this legislation were not passed and coal slurry pipelines relied on the State eminent domain and, therefore, did not rely on the legislation such as this, an PAGENO="0227" 221 environmental impact statement would not be required unless it crossed Federal land? Mr. Wici~s. WTe,fl, it has been my experience that most of the States now have some kind of environmental requirements- Mr. SHTJSTER. Yes, those are State. I am speaking about Federal environmental impact statements. Mr. WICKS. But what I am saying is that I expect that there is no way we are going to get away from environmental impact statements, and even at the Federal Government level, we have section 404 permits that are required when we cross a stream or a body of water, and under that, I expect that. we would see an environmental statement.. I just cannot anticipate, or could not. foresee a major coal slurry pipeline not crossing a stream at some point and not requiring a section 404 permit. Mr. SHusTER. But would that not require a specific statement relative to that point where is crossed the stream, as opposed to one comprehensive Federal environmental impact statement that covered 1,000 miles? Mr. WICKS. Well, I guess the problem that you run into in doing environmental impact statements is that you have to look at secondary impacts in most of them, and that is what we do in most of the impact statements the Department of Interior does. And I expect that you might get away with a narrow look at a particular river crossing, but it seems to me you would probably~ and at least in a general sense, have to take a look at the broader impacts. But I would say that it would not be the kind of study we are looking at here with the various findings by the different departments required. Mr. SHIISTER. And if this law is passed and the massive environmen- tal impact statement, Federal statement, that would then, obviously, be required, would it not be of a nature that it. would just lend itself to litigation in the courts for years and years and years? Mr. WICKS. No; I think the answer to that is no. Mr. SHUSTER. A 1000-mile Federal EIS? Mr. WICKS. Well, we have, had those. kind before; we have had the Alaskan Pipeline ElS. Mr. SHUSTER. Well, that was tied up, the Alaskan Pipeline was. In fact, Congress had to pass a law to shake loose the Alaskan Pipeline. Mr. Wicics. We have had Sohio, where we got an ETS done. We have had a number of different pipelines; in fact, we ha..ve a list of 17 pipe- lines here that we have been involved in and, .so far, I do not think there have been any major problems with the EIS's. The question of whether or not an EIS is legally defensible, of course, depends on what kind of job is done on the EIS. If you do a good job, I think you can sustain an ElS legally. It is always going to be subject to some legal challenge; I think that occurs fairly often, obviously. But the type of job you do, the quality of the job, determines what kind of outcome you are going to have legally. Mr. SHUSTER. I am surprised we do not have the American Bar Association in here testifying in favor of this legislation. Thank you~ Mi'. EDGAR. Are there any other questions? [No response.] PAGENO="0228" 222 Mr. EDGAR. ~We appreciate yo~ir patience, Mr. Wicks, and thank you for your testimony. We look forward to getting responses to the ques- tions that we have submitted to you. Mr. WICKS. Thank you, Mr. Chairman. Mr. EDGAR. Our next witness will be the Honorable Rupert IL. Mur- phy, Commissioner, Interstate Commerce. Commission. I believe there is a panel to accompany Mr. Murphy. Thank you for coming today, and I would appreciate it if you would introduce your associates with you today, and you can begin your testimony. TESTIMONY OF HON. RUPERT L. MURPHY, COMMISSIONER, IN- TERSTATE COMMERCE COMMISSION, ACCOMPANIED BY EAN ROSENAK, DEPUTY DIRECTOR, OFFICE OF PROCEEDINGS; HAN- FORD O'HARA, ASSOCIATE GENERAL COUNSEL FOR LEGISLA- TION; DAVID JONES, ECONOMIST, BUREAU OF ECONOMICS; AND CHESTER NAUMINOW, SPECIAL ASSISTANT TO COMMISSIONER MURPHY Mr. MURPHY. I have the introduction of them in the prepared brief statement I will be making. The Commission appreciates the opportunity to appear before you today and present the views of the Commission on H.R. 1609, the Coal Pipeline Act of 1978, as recently reported by the House Committee on Interior and Insular Affairs. T\Te have a more comprehensive statement prepared which I would request at this time be included in the record. I would also ask that. the statement reflect that Commissioner Christian did not participate in the statement. Mr. EDGAR. Without objection, so ordered. [Statement referred to follows:] STATEMENT OF A. DANIEL O'NEAL, CHAIRMAN, INTERSTATE COMMERCE Co~f~fIssIoN Mr. Chairman, Members of the Subcommittee: I welcome the oprortunity to appear before you today and present the views of the Interstate Commerce Commission on H.R. 1609, the "Coal Pipeline Act of 1978," as recently reported by the House Committee on Interior and Insular Affairs. The proposed bill delegates to operators of coal pipelines the Federal power of eminent domain if the operator obtains a certificate of public convenience and necessity from the Department of the Interior (Department). Such a certificate can be issued if the Secretary of the Interior (Secretary) determines that the proposed pipeline project is in the national interest. This determination is to be based upon national needs of coal, alternative routes or means of transportation and their relative costs, delay which denial of eminent domain would caure, pos- sible environmental harm, and water requirements in the origin area. Additionally, the determination takes into account the likelihood of impairment of the financial integrity or services of other common carriers, the likelihood of lower rates for coal transportation than would be provided if the coal were trans- ported by railroad, and any existing, proposed, or anticipated contracts for the carriage of coal. The Secretary is directed to request this Commission and the Department of Transportation to make recommendations with respect to the im- pact of the proposed pipeline on other modes of transportation. The Secretary's determination involves, at least in part, many of the considerations this Commis- PAGENO="0229" 223 sion takes into account when it issues licenses to surface carriers other than pipelines. The bill also contains a "commodity clause" restriction prohibiting any coal pipeline granted the power of eminent domain from transporting any coal in which it has a proprietary interest except where necessary to achieve transporta- tion and storage economies through commingling of coal from several producers or for several users, and except for some feeder lines. There is also a required finding by the Department that such interest is also in the public interest. The Commission is authorized to iiivestigate possible violations of the commodity clause. Further, secton 5(e) provides that no certificate of public convenience and necessity may be issued to any person engaged as a common carrier in interstate transportation of coal by any mode unless such person agrees with the Secretary to grant rights-of-way across its lines. The bill does not specifically annul or abridge any of the Commission's existing authority, and specifies that any pipe- line constructed pursuant to a certificate of public convenience and necessity will be operated as a common carrier under the Interstate Commerce Act (ICA). Nor does the bill require a license to construct such pipelines if the owners do not desire to obtain the Federal power of eminent domain. The apparent purpose of this bill is the conservation of oil and natural gas resources through further utilization of coal, the nation's most abundant fossil fuel. We at the Commission find this purpose highly commendable. It is cer- tainly clear to everyone after the President's energy messages that coal must play an increasing role in our national effort to attain energy independence since it is the country's only available fuel with long-term reserves. In some circum- stances, the expeditious construction of coal pipelines should help us make the most efficient use of our domestic coal resources. However, we feel that in attempting to encourage the construction of coal pipelines, this bill contains certain provisions which we believe could affect national transportation policy and, perhaps, national goals concerning economy, environment and energy. In accordance with the National Transportation Policy, as established by Con- gress in the Interstate Commerce Act (49 U.S.C. preceding section 1), the Com- mission is charged with the responsibility of providing "fair and impartial regulation of [surface] transportation . . . so . . . as to recognize and preserve the inherent advantages of each; to promote safe, adequate, economical and ef- ficient service and foster sound economic conditions in transportation and among the several carriers." Congress' purpose in granting us this mandate was to assure the development, coordination and preservation of a national transporta- tion system, "adequate to meet the needs of the commerce of the United States, of the Postal Service, and the national defense." Congress has frequently enun- ciated the need for a national transportation policy, and for avoiding pitting one mode of transportation against another. In our view, land-use, environment, and transportation are all very important considerations in the coal slurry pipeline issue. However, we view transportation as the foremost issue. While H.R. 1609 as now written does provide for Com- mission input to the Department on the impact of a proposed pipeline on other carriers, we believe that it would be preferable for the Commission to make the ultimate determination of whether the pipeline should be certified. In addition to its authority over pipelines, the Commission currently licenses railroad construction and extension, motor carrier entry into the field and exten- sion, joinder of transportation operations througl1 corporate consolidation, and numerous other aspects of instituting and enlarging for-hire surface transporta- tion service. In *exercising our jurisdiction over surface transportation, our procedures require that we analyze and weigh the public need, environmental im- pacts, and effects on competition. Under these procedures, the Department and any other government entity would be entirely free to participate in any pro- ceeding for the purpose of expressing their views as to the findings which are required before any certificate of public convenience and necessity can be issued. Economics, of course, is a major factor in choosing any transportation system. To be economically competitive with a unit coal train, it is believed by some that a pipeline must transport in excess of 5 million tons of coal a year. The PAGENO="0230" 224 first long-distance coal slurry pipeline in this country (Consolidation Coal Pipe- line from Cadiz, Ohio to Cleveland) had to close down when it could not profit- ably compete w-itli low-ered railroad rates. Today, the significance of the cost of transporting coal by rail has diminished in terms of determining delivery price. As Appendix A demonstrates, the rail rate percentage of the average total coal destination value has been reduced from 63.3 percent in 1932 to an estimated 22.7 percent in 1977. Moreover, it is likely that increased use of large coal cars will further lower rail transportation costs. Currently, about two-thirds of all coal moves by rail. Trucks and water carriers each transport about 11 percent of the coal mined and most of the remaining coal is delivered to mine-mouth generating plants. Only a small percentage of coal is presently transported by pipeline in slurry form because there is only one slurry pipeline now operating. Even with the advent of additional pipe- lines, most of the coal which is expected to be mined in the near future will have to rely on existing forms of transportation. Therefore, it is and will be neces- sary to allow those existing forms to make the necessary expenditures and improvements needed to meet the anticipated demand. The Department of Trans- portation has recently estimated that it will take an investment of about $10 bil- lion by the railroads to meet the demand for rail transportation of coal through 1985. Substantial diversion of the railroads' coal traffic which w-ould occur even with rate regulation of pipeline transportation would plainly have a serious im- pact on an already financially troubled industry. At a time when Congress has committed billions of dollars in an attempt to maintain a w-orkable railroad sys- tem in this country, it is important to note that railroads derive more revenue from coal than from any other commodity-in 1976 over $2.2 billion annually, or about 11.7 percent of their gross revenue. Diversion of coal traffic could result in railroads having to reduce their service to coal producing areas, further de- priving them of revenue and perhaps forcing them to increase their rates on other commodities to cover operating costs. Of course, the Commission cannot and would not protect any mode of trans- portation from competition when that mode is not providing the public with ade- quate service at reasonable prices. By balancing all considerations, our inten- tion is, how-ever, to provide an integrated surface transportation system in which each mode complements every otl1er mode so as to maximize America's logistical capability to move potentially larger volumes of coal from mine to market. In summary, the question of whether the Federal pow-er to eminent domain should be extended to coal pipelines is a matter of Congressional policy. How- ever, should it l)e so extended. w-e feel that control over certification by the Commission is desirable to help preserve uniform regulation of all surface com- mon carriers w-ith the objective of maintaining an adequate, integrated trans- portation system. We would now- like to mention some of the specific provisions of H.R. 1609 w-hich we believe raise problems or require clarification. Section 5(a) requires the Secretary "in addition to other factors customarily considered in determin- ing common carrier status in the case of pipeline common carriers . . ." to con- sider certain existing or proposed contracts for the carriage of coal. The lan- guage of this section leaves unclear what contracts are covered-whether con- tracts betw-een common carriers by rail and shippers, conditional contracts be- tween pipeline operators and the shippers, or both. While the report of the In- terior and Insular Affairs Committee suggests that shipper-pipeline conditional contracts are at issue, we would suggest that the language of this section be clarified. Section 5(h) directs the Secretary to make certain findings in the course of analyzing the proposed pipeline pursuant to subsection (a). Of special interest to this Commission are those findings on the pipeline's impact ~n other common carriers and the likelihood of the pipeline's resulting in low-er rates than would be in effect if the coal was transported by railroad. Both of these findings were added during the Interior and Insular Affairs Committee's markup of H.R. 1609. These findings, like other amendments adopted by the Committee, are intended to address many of the concerns raised in the report of the Office of Technology Assessment (OTA) on coal slurry pipelines. While these changes effect a slight improvement in tile legislation, we do not believe that they sufficiently address tile concerns w-e have raised here today nor those raised in tile OTA study. PAGENO="0231" 225 The OTA study concludes that the relative economics of rail and slurry pipe- lines in the transportation of coal will vary considerably with the characteristics of the specific coal movement under consideration. It also concludes that a deter- mination of whether a coal slurry pipeline is the "least costly available means for transporting coal measured in economic terms" can only be made "by detailed evaluation of the conditions specific to the route." The economic evaluation con- templated by the study is like that now performed by the Commission in licens- ing railroad construction and extension and authorizing motor carrier entry and extension. Additionally, the OTA study concluded that "with the power of eminent do- main, coal pipelines would enjoy significant regulatory advantages over rail- roads." It attributed such advantages to the ability of the pipelines to engage in long-term contracts, to serve selected shippers, and to obtain more favorable rates of return on investment. While we do not believe that these findings by the OTA tell the full story about ICC policies and rate regulation, we do think they amply demonstrate that coal slurry pipelines are primarily another com- peting mode of transportation, and that this Commission is the better forum for balancing the effects of eminent domain power on two potentially competing modes. Section 5(b) (6) requires the Secretary to consider and make a finding on the extent to which the pipeline "will be likely to result in lower rates for the trans- portation of coal than would be in effect if such coal were transported by a com- mon carrier by railroad under part I of the Interstate Commerce Act." The pur- pose of this amendment is to ensure that the Secretary will consider whether cost savings will be reflected in the rates to be charged and to require the pro- ponents of the proposed pipeline to l)e realistic in their cost estimates. The latter is important, especially in light of OTA's statement that "the costs of errors in judgment will probably be borne largely by the public and not necessarily the utility investors." We agree with the OTA study that since the public may be asked to bear these costs, that long-term contracts for pipeline transportation should be scrutinized with great care by the agency charged with this responsi- bility. We believe the Commission, with its substantial expertise in considering rate proposals, is the logical forum to deal with this matter. As now drafted, this section does not even provide for comments by this Commission. We would sug- gest that if this Committee does not deem it appropriate that the Commission l)e assigned responsil)ihty for certifying coal slurry pipelines, that at the least, sections 5(b) (6) and 6(e) should be modified to direct the Secretary to consider a recommendation by the Commission on this matter. The "commodities clause" of section 5(d) (1) is intended primarily to prevent pipelines from achieving unfair cornp~titive `advantages in non-transportation industries by shipping coal they own or control at rates lower than they would ship coal owned by their competitors. Two exceptions were added by the Corn- inittee `during `markup so as to promote flexibility, to `avoid additional storage re- quirements, and to minimize transportation costs. We `~tr'ongly en'd'orse the application of the commodity clause to slurry pipelines. However, this provision, as reported, is different than that applicable to the railroads under `section 1(8) of `the IGA. We would suggest that any commodity restriction on one mode should be equal `to th'ose on `the other. In `addition, the "commingling" exception could en'able pipelines to give price advantages to selected users. Further, we believe that the "public interest" finding required by the second proviso is one that would be more within the expertise of this Commission, rather than the `Secretary, to m'ake. Finally, if the pipeline' i's in operation a't `the time it seeks authority to acquire the coal, the `Secretary will be undertaking regulatory responsibilities simultaneously with the Commission. We are `also concerned `about se~tion 5(e), which state's that no certificate of public convenience `and necessity may be issued to any person engaged as a com- mon carrier in interstate transportation of coal by any mode unless such person enters into `an `agreement with the Secretary providing means whereby rights-of- way acrosh `the lines of `such person m'ay `be acquired by `another carrier. Since, under section 1(18) (a) of `the Interstate `Commerce Act, a railroad is required to obtain a "certificate of public convenience `and necessity" in order to extend a line of railroad, this section as presently written might `be re'ad as precluding such an extension unless `the raiiread enters into s'uc'h `an agreement with the Secretary. We believe `that, when re'ad in cor~text, the intention o'f this pr'ovision PAGENO="0232" 226 is to apply the requirement to a person seeking a pipeline certificate of public con- venience and necessity. If this is indeed the intention, the provision should be clarified by adding the words "under this Act," so that the sentence would read: "No certificate of public convenience and necessity under this Act may be issued to any person engaged as a common carrier in interstate transportation of coal by any mode unless such person enters `into a compact with the Secretary within two years from the date of enactment of this Act providing means whereby rights-of-way across the lines of such person may be acquired by a carrier on terms customarily employed with reference to dther types of pipelines." Under section 12 of the bill pipelines would be regulated by this Commission as common carriers under part I of the Interstate Commerce Act. As common carriers, they are subject to the requisite duties and obligations set out in part I except to the extent provisions are specifically applicable only to railroads. In brief, pipelines are subject to reporting, valuation, and accounting requirements; must set rates and charges within the statutory requirement of justness and reasonableness; and are required to serve, on an equal `basis, all si'milarly situated persons requesting pipeline transportation. Pipelines `are no't subject, however, to the commodities clause `of `section 1(8) of the Act nor its entry, acquisition, addi- tion, extension or abandonment requirements. Additionally, there are some rate provisions which apply only to the railroads, and the requirement that the Com- mission approve issuance of securities does not apply to pipelines. We h'ave attached as Appendix B to our statement a list of the comparable provisions applicable to each mode. Some questions are rai'sed with respect to the Commission's regulatory respon- sibilities for the pipelines. The matter of contract rates appears to be one area of particular concern. The OTA s'tudy concluded that "due to the practical requirements imposed by the economics `and mechanics of their opera'tion" pipelines wil'l arrange contracts with shippers binding them to transport a specified volume of coal through the pipeline for a long, fixed period of time. The prospect that `pipelines and shippers will make contract arrangements for the carriage of coal, naturally raises ques- tions over the present restrictions against long-term contracts `between railroads and shippers. There is, of course, no statutory requirement that prohibits `Com- mission approval of railroad contract rates. Rat'her, the restriction rests on the Commission's traditional `policy of trying to reduce destructive competition and to provide a measure of m'a'rket stability. Thus, contract rates `have `been viewed as imposing a restraint on trade by foreclosing participating s'hip'pers from use of competing m'odes of transportation and foreclosing the use of the committed railroad capacity by other shippers. Despite this general policy, it now appears that there are some commodities `and some situations where contract rate agree- ments may be justifiable. Specifically, one of the questions expected to be raised in our so~n-to-~be-in'stituted investigation of rail transportation of coal in the western States is whether railroads should be allowed to enter into contract rate agreements. Whatever the outcome of our investigation, we think it would be difficult to preclude the railroads from entering into contract agreements if their new competitors, coal slurry pipelines, are permitted such arrange- ments. Of course, when either type of carrier is `allowed to enter into contract rate agreements for the carriage of coal, the Commission would still have to ensure th'at the objectives of the National Transportation Policy are met. As s'tated above, pipelines are not~ subject to the acqui'sit'ion, addition, exten- sion or abandonment requirements of the WA. The proposed legislation s'ays nothing on how `these matters `are' to be handled. Presumably, each acquisition, addition, and extension could be considered a "particular project" requiring a separate certificate `by the Secretary However, it is by no `means clear th'at th'is is the in'tent of the `bill. We believe thi's matter needs to `he clarified. Lastly, we believe the language contained in section 13 of the bill requires some clarification. As it now reads, it could be construed to `mean th'at no person may engage in `the transportation of coal by slurry pipeline without obtaining a certifi- cate from the Secretary, even if the pipeline were intrastate and/or the `operator di'd not use the right of Federal eminent domain to construct the `pipeline. Looking `at the bill as a whole, we do not `believe this was the intent of this section. Th'ank you for `the opportunity to comment upon `this propose'd legislation. PAGENO="0233" 2.~ ~ (p~ 2 ~`F -. (0 (0 p ~ cp -, ~C/) O(O(OC.O CD ~ ~ 11 ~ ~ ~CO~ 2 I ~ ~ (Dli .2~4 ~ ~ic'~ ~ r~O~ ~ CD ~ r~ (0 p p ~ o -~ 5 0 2 Ci .~C~3C~C-.CC~)CC) (D~ 0 2 ~ ~ ~Ei~-~ E~2 2 ~ M ~ 02h1 o~i - 2~ ~ 202~ ~ ~C- ~0pCli (0p~C.~. (12H (D -i~CD ~ -~--~~-~ ~. ~ ~+ ~~C/25' C-~(D~ ~D-3OQ ~ (11 0 CD ~ . P ~ # C-(OCOCJ1 0D-J -JCI.~ ~ ~ .~ .~ ~ ~ ~ .~ .~ (C~ -~ -~ .~ ~ ~ ~ -~ C*D CC~ t%~ r%3~i3r\) ~~`C-'C-' 9 CD 0 2 (/2 (p~ CJ) Ci~02Q02CDCiCiCiCi~)O~02 ~ 8 ~ (p Hi ~ 02 C ~ CD -. ~ ~ c4 CI~~2 ~ 02~ C~ ~ Ic, ~-~:»=. P (/2 02 t~ ~P- .~ ~ CD (/2 (p~P~ 0 0 ~> ~ -~ ~ 9. c, 91 ~ N~C~'' CD"-) (0 (0i-C~i~' N)(0 (002 00-J CC1~ (C) (C) 020)00(0 -~ C0-J (0 -`(0 N) N) (C) -4 -J 02 (Ci (00) N) C~C (0 r -p~~ -~ 91 2'? ~~2P ~ (0 ~0) ~CD ~ _ 91 91 C~ N)rC)N)r%~-'C-~C~ - I (/2 91 ~ -~ ~ ~ -~ 0 0(-~ ~ (C) P ~C (p H) 91 (p ~ -J 02(00)10 (C) -J -1(0 ODN.)Ui -10)00(000 C0N~10 (Cl -4~ ~02 (Cl 00() 00(i) (CCC-' 0(i 00 `-1 00 -J N)*-'C-'C-'(0 ~ -JO) CD ~ CD~ Plic-C- ~1 Ii~ ~ /20 91 0)02 ~-10~10WCI310 ~ 91 ~~O(C-JQ 21. 5 ~ C-'(0 ~1 CD OlD ~PC~ ~ ~ ~ ~CD ~ lCD 0 ~-t- ~ 5 CD p-ta. 0 (/2 . -~--.~ c,CJJ.~ ~cocor-)~ ooco~-' r~a~c, ~ oo -ic~--~~ C)~~ (0 ~ 0000 C-' C" 02(C) 00000000 C0 D-'(C) (0 (IC PAGENO="0234" 228 Sec. 3(a)-The term "common carrier" as used in this part shall include all pipeline companies. Duty.~-Applicable to all common carriers. Sec. 1(4) -Duty `to provide and furnish transportation upon reasonable request . . . and to establish reasonable through routes with other such carriers . Justness and reasonableness of charges-Applicable to all common carriers. Sections 1(4), 1(5) and 1(6) -Rates, fares, charges, and classifications must be just and reasonable. Market Dominance provisions.-Applicable to railroads. Sec. 1(5) (b)-In part, states that no rate shall be found to be unjust or unreasonable . . . unless the Commission has first found that the proponent carrier has market dominance Free transportation prohibited.-Applicable to all common carriers-Sec. 1(7). Commodities ala use-Applicable to railroads. Sec. 1(8)-In part, states that no railroad may transport "any article or commodity, other than timber . . . , manufactured, mined, or produced by it except such articles . . . intended for its use in the conduct of its business as a common carrier." Duty to construct and operate switch connections; "cur service," defined; char- acter of required ear service-Applicable to railroads-Sections 1 (9)-i (ii). Duty of every carrier by railroad to make just and reasonable distribution of ears for transportation of coal among the coal mines served by it-Applicable to railroads-Sec. 1(12). Filing of ear-servIce rules-Applicable to railroads-Sec. 1(13). Rates of compensation for use of rail freight ears-Applicable to railroads- Sec. 1(14) (a). Existence of emergency; routing of traffic; carrier compliance with rail service orders.-Applicable to railroads-Section 1(15)-i (17). Certificate required for the extension or construction of any additional line.- Applicable to railroads. Sec. 1(18)-A certificate of public convenience and necessity must be issued by the Commission. Discontinuance and abandonment of rail service-Applicable to railroads. Sec. la-A certificate of public convenience and necessity must be issued by the Commission. Special rates and rebates prohibited-Applicable to all common carriers. Sections 2 and 6(7)-Common carriers are prohibited from demanding or col- lecting any different compensation for transportation than that specified in their tariffs. Undue or unreasonable preference or advantage; undue or unreasonable preju- dice or disadvantage-Applicable to all common carriers. Sec. 3-Prohibition against subjecting any shipper, locality or territory to any undue or unreasonable prejudice or disadvantage. Long and short haul charges-Applicable to all common carriers. Sec. 4(1) -Prohibition against charging or receiving "any greater compensa- tion in the aggregate for the transportation . . . of like kind of property for a shorter than for a longer distance over the same line or route in the same direc- tion, the shorter being included within the longer, or to charge any greater com- pensation as a through rate than the aggregate of the intermediate rates . . . Rates reduced to meet water competition-Applicable only to railroads- Sec. 4(2). Pooling of freight and division of earnings forbidden except on appi-ovai.- Applicable to all common carriers-Sec. 5(1). Consolidation or merger of carrier; joint acquisition, lease, or contract; acqui- sition of control of two or more cai-riers by a noncarrier, or of one carrier by one already in control of a carrier.-Applicable to railroads, express companies, sleeping car companies, motor carriers under Part II, and w-ater carriers under Partlil-section 5(2)-(14). Interest in competing can-icr by water prohibited, except as provided in Sec- tion 5(17) -Applicable to all common carriers-Sec. 5 (15)-(17). 2 Section 1 (5) (a) does not apply to raih carriers, but would apply to pipelines. Section 1(5) (b), which applies only to rail carriers, also requires that each railroad rate must be just and reasonable. PAGENO="0235" 229 Agreements between carriers regarding rates, classifications, divisions, allow- ances, etc., or rules pertaining tliereto.-Applicable to all common carriers except railroads-Sec. 5a. Agreements between carriers subject to Part 1.-Applicable only to railroads- Sec. 5b. Schedules of all rates, fares, and charges must be open to the public.-Appli- cable to all common carriers-Sec. 6(1). Freight carried through a foreign country-Applicable to all common car- riers-Sec. 6(2). No change in rates, fares, or charges can be made unless notice is given to the public at least 30 days before its effective date, except where the Commission by rule or by order in an individual proceeding provides a different notice period-Applicable to all common carriers. Sec. 6(3) (The Commission has provided in its regulations that tariffs for services over newly laid pipelines may be filed on 10 days' notice (49 CFR 1300.57)). Joint tariffs to specify participating carriers; copies of traffic contracts and arrangements to be filed; prescribed form-Applicable to all common carriers- Sections 6(4)-(6). Rates, fares, and charges must be filed and published in accordance with time provisions of the act-Applicable to all common carriers-Sec. 6(7). Freight carriage treated as continuous unless stoppage in good faith-Appli- cable to all common carriers-Sec. 7. Liability in damages-Applicable to all common carriers. Sec. 8-Imposes civil liability for the full amount of damages caused by viola- tion of any provision of Part I of the Act. Filing of complaints-Applicable to all common carriers. Sec. 9-Claimant may file complaint with Commission or sue in United States court. Penalties for violations of regulations.-Applicable to all common carriers- Sec. 10. Interstate Commerce Commission; Duties; Complaints to and investigation by Commission-Not applicable-Sec. 12-13. Discontinuance or change of certain operations or services-Applicable to railroads-Sec. 13a. Reports and Decisions of Commission-Not applicable-Sec. 14. Determination of rates, routes, divisions, and authority to suspend-Appli- cable to all common carriers. Sec. 15(1)-The Commission, after full hearing upon a complaint or on its own initiative, may prescribe the maximum, minimum, or precise rate if the rate in question is or will be unjust, unreasonable, unjustly discriminatory, or unduly preferential or prejudicial, or otherwise in violation of the act. Sec. 15(7)-Pending the hearing and decision, the Commissiom~ may suspend the operation of the tariff for as long as 7 months. Rule of ratenmaicing; factors for consideration; proceeding where competition of different modes.-Applicable to all common carriers-Sec. 15a. Orders of Commission and enforcement thereof; Commission procedure; em- ployees; office and sessions-Not applicable-Sections 16-19. Valuation of property of carriers-Applicable to all common carriers-Sec. 19a. Reports, records, and accounts of carriers-Applicable to all common car- riers-Sec. 20. Commission approval for issuance of securities.-Applicable to railroads, and by section 214 to motor carriers under Part IT-section 20a. Modifications of railroad financial structures-Applicable to railroads-Sec. 20b. Railroad equipntent -Applicable to railroads-Sec. 20c. Annual Report of Commission-Not applicable-Sec. 21. Re~trictions.-Applicable to all common carriers-Sec. 22. Mandamus; Enlargement of Commission; Safety; Tax Exemption, Office of Rail Public Counsel; Discriminatory State Taxation; Citation-Not applica- ble-Sections 23-29. Mr. EDGAR. Please proceed. Mr. MURPHY. Chairman O'Neal requested that I appear here today in his place. Accompanying me arc Mrs. Rosenak, on my right; Mr. PAGENO="0236" 230 Jones, 011 my extreme left; Mr. Nauminow, on my right, and our legis- lative counsel, Mr. O'Hara, on my left. The proposed bill delegates to operators of coal pipelines the Fed- eral power of eminent domain if the operator obtains a certificate of public convenience and necessity from the Department of the Interior, hereinafter referred to as the Department. The apparent purpose of this bill is the conservation of oil and natural gas resources through further utilization of coal. In some circumstances, the expeditious con- struction of coal pipelines should help this country make the most efficient use of our domestic coal resources. However, we feel that in attempting to encourage the construction of coal pipelines, this bill contains certain provisions which we believe could adversely affect national transportation policy and, perhaps, na- tional goals concerning economy, environment and energy. In our view, the most important consideration in the coal slurry pipeline issue is transportation. While H.R. 1609 does provide for Commission input to tile Department on the impact of a proposed pipeline on Otiler carriers, we believe that it would be preferable for tile Commission to make the ultimate determination of whether tile pipeline should be certified. In addition to its authority over pipelilles, tile Commission currently licenses railroad construction and extension, motor carrier entry into the field and extension, and numerous other aspects of instituting aild enlarging for-hire surface transportation. In exercising our jurisdic- tion over surface transportation, our procedures require that we analyze and weigh the public need, environmental impacts, and effects on corn- petition. A balancing of all considerations allows us to provide an in- tegrated surface transportation system ill which each mode comple- ments every other mode. We would now like to mention some of tile specific provisions of H.R.. 1609 which we believe raise problems or require clarification. Section 5(a) requires the Secretary to consider certain existing or pro- posed contracts for tile carriage of coal. Tile language of this section leaves unclear what contracts are covered. WTe would suggest tilat this be clarified. Section 5 (b) directs tile Secretary to consider tile pipelines' impact on otller common carriers and tile likelihood of the pipelille's resulting in lower rates than would be in effect if the coal was transported by railroad. Both of these findings were added during tile Interior Coin- mittee's markup of H.R. 1609, and are intended to address cOncerns raised in the report of tile Office of Technology Assessment (OTA) on coal slurry pipelines. Wlnle these changes effect a slight improve- ment ill tile legislation, we do nOt believe that tiley sufficiently address the concerns raised here today, nor those raised in tile OTA study. Tile OTA study cOllcludes that tile relative economics of rail and slurry pipelines ill tue transportation of coal will vary considerably with tile characteristics of tile specific coal movement under considera- tion, andi that a detailed evaiuation of tile conditions specific to tile route is necessary. The economic evaluation contemplated by tile study is like that now Performed by tile Commission in licensing railroad construction and extension and authorizing motor carrier entry and extension. PAGENO="0237" 231 Additionally, the OTA study concluded that "with the power of eminent domain, coal pipelines would enjoy significant regulatory advantages over railroads." While we do not believe that these findings by the OTA tell the full story about ICC policies and rate regulation, we do think they amply demonstrate that this Commission is the proper forum for balancing the effects of eminent domain power on two potentially competing modes of transportation. The purpose of section 5(b) (6) is to insure that the Secretary will consider whether cost savings will be reflected in the rates to be charged by the proposed pipeline, and to address a finding by the OTA that "the costs of errors in judgment will probably be borne largely by the public and not necessarily the utility investors." We believe the Commission, with its substantial expertise in considering rate proposals, is the logical forum to deal with this matter. As now drafted, this section does not even provide for comments by the Commission. The "commodities clause" of section 5(d) (1), as reported, is dif- ferent than that applicable to the railroads under section 1(8) of the ICA. We would suggest that any commodity reestrictions on one mode be equal to those on the other. In addition, the "commingling" excep- tion could enable pipelines to give price advantages to selected users. Section 5(e), as written, might be read as precluding an extension of a railroad unless it enters into an agreement with the Secretary. However, t.he intention apparently is to apply the requirement to a person seeking a pipeline certificate. If this is indeed the intention, the provision should be clarified by adding the words "under this act." Under section 12 of this bill, pipelines would be regulated by this Commission a~s common carriers under part I of the Interstate Com- merce Act. As common carriers, they are subject to the requisite duties and obligations set out in part I, except to the extent provisions are specifically applicable only to railroads. The prospect that pipelines and shippers will make contract ar- rangements for the carriage of coal raises questions over the present restrictions against long-term contracts between railroads and ship- pers. There is no statutory requirement that prohibits Commission ap- proval of railroad contract rates. Rather, the restriction rests on the Commission's traditional policy of trying to reduce destructive com- petition and to provide a measure of market stability. Despite this general policy, it now appears that there are some commodities and some situations where contract rate agreements may be justifiable. Specifically, in the April 5 open conference, the Commission directed the staff to prepare a policy statement on railroad contract rate agree- ments. We expect to issue the statement in 60 to 90 days, or earlier, if possible. Our original intention was to raise this issue in our soon-to-be in- stituted investigation of rail transportation of coal in the Western States. However, we determined that the issue was sufficiently im- portant and well-developed t.hat it should be treated separately and more expeditiously. Whatever policy we adopt now, we think it would be difficult to preclude the railroads from entering into contract agree- ments if their new competitors, coal slurry pipelines, are permitted such arrangements. Of course, when either type of carrier is allowed PAGENO="0238" 232 to enter into contract rate agreements for the carriage of coal, the Commission would still have to insure that objectives of the national transportation policy are met. Pipelines are not subject to the acquisition, addition, extension or abandonment requirements of the Interstate Commerce Act. The pro- posed legislation says nothing on how these matters are to be handled. Presumably, each acquisition, addition, and extension could be con- sidered, a "particular project" requiring a separate certificate by the Secretary. However, it is by no means clear that this is the intent of the bill. We believe this matter: needs to be clarified. Mr. Chairman, that conchicles the brief statement. Mr. EDGAR. Thank you for your statement, Mr. Murphy. `We will begin our questioning with Mr. Shuster. Mr. SInISTER. Thank you, Mr. Chairman. Mr. Murphy, I want to compliment you on your testimony, and particularly one point that I think deserves emphasis, and that is, from a transportation policy point of view, this represents a further splinter of responsibility with- in the Federal Government. unless the ICC or the Department of Transportation is given the lead responsibility in this, and we would now find what is essentially a. transportation matter being over in another agency of Government. Do you see this as being one of the long-term flaws of t.his legisla- tion, or do you think, perhaps, I am over-emphasizing? Mr. MURPHY. Do you mean a further splintering of authority? Mr. SHUSTER. Yes. Mr. MURPHY. Yes, sir, I do. Mr. SI-JUSTER. Thank you. That is all I have, Mr. Chairman. Mr. EDGAR. Mr. Nowak? Mr. NowAIc. Thank you, Mr. Chairman.You talk about the contract arrangements for the ca.rriage of coal; you said that they "raise ques- tions over the present restrictions." And later in that paragraph, you stated that your staff is now prepa.rmg a policy statement on railroad, contract rate agreements. - Did the one precipitate the other, or you do not allow the rate contract now for the railroads? Mr. MURPI-JY. No, sir, we do not at the present time. As I explained in the statement, it ha.s been the Policy of the Commission to try to reduce destructive competition and to provide, to the extent possible, market stability. Now, we have, over the years-for example, with these train load movements of coal, had some rates that depended on tonnage. The train lot movement is very similar to a contract, but it is not one of the long-term contracts referred to in the pipeline bill. Mr. NOWAK. Do you see any problems with a. 30-year contract? Mr. MURPHY. Sir? Mr. N0wAK. Do von see any problems arising because of a 30-year contract, if a pipeline entered into one, as far as problems that could possibly arise down the line from those 30 years? Mr. MURPHY. You could have problems. M.y personal view is that over an extended time, 20 or 30 years. there undoubtedly will be prob- lems. It is unclear whether we can address these problems, or foresee them. For example, there could be a development whereby the cost PAGENO="0239" 233 of the operation could be greatly reduced. It is also unclear whether we would have the authority to protect the public's interest and come in with a study and alter the contract rates. That would be a difficult problem under what is proposed. Mr. NowAIc. You do not have that authority now in the 1)111, do you? Mr. MURPHY. No, sir, I do not believe it is in there. Mr. EDGAR. Will the gentleman yield? Mr. NOWAK. Yes, I yield. Mr. EDGAR. Speaking to that very question, where you indicate that you expect to issue a statement in 60 to 90 days, can you give the committee some indication as to why it is going to take 60 to 90 days to put this particular statement together? Mr. MURPHY. Well, Mr. Chairman, I was trying to be a little bit- not conservative, but taking what I think would be the maximum time, and I marked in red to tell you that we would try t.o do it in less time. I would prefer giving you the maximum, outside time that I honestly think it will take, and then present it to you at an earlier date, rather than asking for an extension of time. Mr. EDGAR. Thank you. Mr. NOWAK. I have no further questions. Mr. EDGAR. Mr. Fury? Mr. FARY. No questions, Mr. Chairman. Thank you. Mr. EDGAR. In section 5(a) of the bill, it is stated that "the Secre- tary is authorized to issue such a certificate, if the Secretary finds with respect to a particular project of the carrier, as to which said power is sought, that the project is in the national interest and pro- vides the capacity necessary to fulfill the requirements of a common carrier of coal, as determined by the Secretary." I have two questions. First, do you regard this as empowering the Secretary to establish the common carrier obligations of the coal pipe- line in the certificate of public convenience and necessity? Mr. MURPHY. I think I would have to say yes to your question, Mr. Chairman. Mr. EDGAR. The second question: If you do, would this not pre- clude any authority of the ICC from imposing a common carrier duties upon the carriers that are not included in the certificate? Mr. MURPI-IY. I do not believe I caught your question there, Mr. Chairman. Mr. EDGAR. Let me just read the question again, which we are going to ask all of the people testifying. If the answer to the first question is yes, would this not preclude any authority of the ICC from impos- ing a common carrier duties upon the carriers that are not included in the certificate? Would it set a limit of the common carrier limitations? Mr. MURPHY. It would raise questions, certainly. However, under the act, as it is written, there is a common carrier duty and respon- sibility. But this could raise a controversial question if my answer in the affirmative is correct. Mr. EDGAR. Let me ask you several other questions, then. What type of regulatory controls would exist for initial rate filings by coal pipe- lines under the provisions of the Interstate Commerce Act? PAGENO="0240" 234 Mr. Mmipuy. The initial rates would be subject, in my opinion, to suspension; that is, if there was. a reasonable basis to figure that they were not on a level of just, reasOnable, and equitable rates, the Com- mission would have authority under the present provisions of the act to suspend, investigate., and determine what would be the proper rate to apply. Then, from thereon, the contract rate would be applicable., subject to any additional increases or modifications that might be. ap- proved at some later date as a. result of petitions or investigations that might be made. Mr. EDGAR. In determining ra.te levels, the Interstate Commerce Commission has certain guidelines in section 15(a) of the act. Would you please explain the factors the. Commission can consider with re- spect to both pipelines and railroads? What are some of the facts that you use? Mr. MURPHY. I will ask Ms. Rosenak, our Deputy Director of the Office of Proceedings, to answer that. Ms. ROSENAK. We would look at a number of factors, including cost of service, rate comparisons, value of service; anything that might be applicable traditionally would be applied to the same extent to pipe- lines as to our rate regulations of other modes. Mr. EDGAR. In the Office of Technological Assessment's report, they state: The major differences between the ICC's railroad ratemaking and its pipeline ratemaking is that the reasonableness of railroad rates is jud.ged without refer- ence to a fair rate of return. Would you please comment on that? Ms. R.OSENAK. We.ll, that is no longer true, in a. sense. We. have had amendments under the 4R. Act., and we do look a.t a fair rate of return. We have always looked at a. rate of return on net investments for railroads. The determination of pipeline rates is similar, except that we have looked at the actua.l valuation. This has grown up traditionally, and it has been continued, but it does not necessarily result in any differ- ences between the two. Mr. EDGAR. Are there any further questions? Mr. Mine.ta? Mr. MINETA. Mr. Chairman, I apologize for not having been here during the testimony of Commissioner Murphy, and I apologize for that. I would like to ask a counle of ouestions. First, of all, the OTA concluded in its report on coal slurry pipelines that "if Federal eminent domain legislation were passed without pro- visions for equalizing the regulatory restrictions on each mode, pipe- lines would enjoy a. significant. advantage over railroads." And I am wondering whether or not the Commission would be in favor of equal- izing the regulatory restrictions in that case? Mr. MURPHY. I think the. tenor of the testimony on behalf of the Commission throughout. is that we do not believe that one rule should apply against one mode of transportation and not the others. One ex- ample is `the commodity clause. ~\Te think wha.t al)plies to the pipelines shouldi apply to the rail carriers. Further, we think if contract rates are permitted for the pipelines as common carriers, then the railroads shouldi be permitted to make similar rates, under similar conditions. PAGENO="0241" 235 Mr. MINETA. So that in the case of equity amongst modes then, would. let us say, a bulk commodity exemption for waterways and agricultural exemptions for the truckers-do you think that the rail- roads should be eligible for a commodity exemption of some nature? Mr. MURPHY. You have asked me, and I will give you my personal opinion. No, sir; as a matter of fact, I do not think we are. ever going to solve some of our transportation problems until all transportation comes under regulation. Mr. MINETA. Could you repeat that? Mr. MURPHY. I said, no, sir; I do not think we ought to extend the exemptions. We should bring more transportation under regulation for a more stabilized form of transportation. That is my personal view. Mr. MINETA. Well, assuming that 1-1.11. 1609 were enacted into law in its present form, with eminent. domain granted for coal slurry corn- l)a.nies, do you think that the railroad companies would be placed at ~ further disadvantage aga.inst the competing mode? Mr. MURPHY. No, sir; I do not see how they would be. Mr. MINETA. You do not feel that the railroads would be at a dis- advantage if eminent domain were given to the coal slurry lines? Mr. MURPHY. I would sa.y the answer would be. no, but that is assum- ing what we have suggested here; that the railroads, at the same t.ime, be given the right to make. contract rates. Mr. MINETA. Do you feel that t.he "take-or-pay" contracts would be the way to go? Mr. MURPHY. Sir? Mr. MINETA. The "take-or-pay" contracts, the long-term contracts- would that be one way to solve the problem of equity amongst modes? Mr. MURPHY. If that is what the Congress sees fit to do, in passing this bill, then I would say, yes, sir; the railroads should be permitted to make contract rates. Mr. MINETA. Now, would you consider equity amongst modes as be- ing part of a sound national transportation policy? Mr. MURPHY. Yes, sir. Mr. MINETA. But you feel that to fulfill that portion of it, the long- term contracts is enough to have equity amongst modes? Mr. MURPHY. If each mode is given similar rights on this particular commodity, yes, sir. Mr. MTNETA. But you do not think it ought to be done through a bulk commodity exemption? Mr. MURPHY. No, sir. My personal opinion is that it should not. Mr. MINETA. As I understand it, the 4R Act permits railroads to file rates for 5 years if there is a capital investment in excess of $1 million~ and once approved by ICC, this rate will be in effect for 5 years and ca.nnot be challenged. Mr. MURPHY. That is correct, yes, sir. Mr. MINETA. Now, in addition, the 411 Act amended section 15(a) of the ICC Act by adding a new rule of rateinaking, and it seems to me that that might change ICC's method of determining the. rate of return for railroads. Could you explain those guidelines, or if it has already been covered, I will just read it in the testimony. I would like to have you explain those new guidelines and what their impact will be on railroads. 32-745 0 - 78 - 16 PAGENO="0242" 236 Mr. Mtmpiiy. I will ask Ms. Rosenak to give you t.hat from the record. Ms. ROSENAK. Our regulations were promulgated in ex parte 338 in February. There are presently petitions pending. But, basically, under those guidelines, we are going to have a revenue proceeding every year, in which we will determine, the revenue needs of the railroads nation- wide, on a territoria.l basis, and for the individual roads. Then, this will be taken into consideration in any general increase proceeding that is filed. In addition, in a particular rate case, if a carrier's revenue is inad- equate, this will then be a. consideration. In the past, it has not neces- sarily been so; we have considered the cost of the particular movement rather than the overall needs of the cariier. So that would be one of the major changes under the 4R Act. For the first time, we have a duty not only to determine the carriers' revenue needs, but also to assist the carriers, to the extent. we can, in achieving these revenue needs. We are hoping, also, to encourage the carriers to price more selec- tively, rather than simply using general increases for their revenue needs. Mr. MINETA. Are. you considerin~, at the same time then, these long- term contracts? Ms. RosExAIc. We have, been directed- Mr. MIXETA. When you look a.t revenue needs, do you look a.t it also in terms of long-term contracts? Ms. ROSENAK. In the past, we have not because of some old cases in 1961, but we are reassessing it now. We hope to issue a statement very shortly that contract rates are not, per se, unlawful, and we will then look at contract rates on coal or other commodities. Mr. MIXETA. If contract or Tong-term rates were permitted, would this permit rates charged b~ the railroads to be increased, and would this give added impetus to the pipelines? Ms. ROSENAK. Well, we cannOt say at this time whether it would be an increase or a decrease; for competitive reasons, it may well be a decrease. Each case would be judged on its own merits. Mr. MINETA. \Vith regard to the criteria for determining w-hether a rate is legal for railroads; how would that differ, let us say, in its application toward pipelines? Ms. R0sENAIc. There would be no difference, except that the 4R Act amendments do not apply to pipelines. Mr. MINETA. So that once a. rate goes into effect for pipelines-the criteria would be the same for whether you are applying' it against railroads or pipelines? Ms. RosExAIc. That is generally correct. Mr. MINETA. And how long would it stay in effect, as far as those rates are concerned? Ms. ROSENAK. Well, we cannot really answer that at this time. In the past, most rates have been filed on an annual volume basis. There have been some that have been filed with 3-year provisions, andl then, of course, as on mentioned, under the new rate incentive statute, we have rates for 5 years. This would remain to be determined depending on the type of legislation enacted. We at the Commission have some problems with 25- to 30-year rates. PAGENO="0243" 237 Mr. MINETA. Would you be allowed to make long-term ratemaking for pipelines under H.R. 1609? Ms. RosENAIc. If we are upheld, should there be any judicial chal- lenge, I think that we could permit long-term rates for railroads under H.R. 1609. Mr. MINETA. Thank you very much, Commissioner Murphy. Thank you, Mr. Chairman. Mr. EDGAR. Are there any other questions? [No response.] Mr. EDGAR. If not, we will recess for 10 minutes to vote on the es- tablishment of the Lowell Historical Park, and we will return in 10 minutes for our next witness. We appreciate your coming here today. Mr. MURPHY. Thank you. [WThereupon, a brief recess was taken.] Mr. EDGAR. The subcommittee will come to order. The next witness is Pat Jennings, president of the Slurry Transport Association. Pat, we welcome you to the committee this afternoon, and we invite you to testify. TESTIMONY OF W. PAT JENNINGS, PRESIDENT, SLURRY TRANS- PORT ASSOCIATION; ACCOMPANIED BY HENRY R. TALIAFERRO, COUNSEL TO LEGISLATIVE POLICY COMMITTEE, AND ROBERT B. McNEIL, ASSISTANT TO PRESIDENT Mr. JENNINGS. Thank you, Mr. Chairman. I have with me Mr. Henry Taliaferro, who represents the SPA Legislative Policy Com- mittee, and Mr. Robert McNeil, who is my assistant. I think, per- haps, that I can read my statement, because it is not too long. My name is Pat Jennings. I am president of the Slurry Transport Association, an organization of companies that will produce, trans- port, or use coal that can be delivered by pipeline in a liquid slurry. I appreciate this opportunity to appear before you today and to thank you, first, for your promptness in scheduling this important matter, and then to urge your favorable consideration of the bill before you, H.R. 1609. The purpose of this bill is to promote the economical transportation of coal by giving the right of eminent domain to those coal pipeline projects that qualify under the bill for certificates of convenience and necessity. Your committee shares jurisdiction over H.R. 1609 with the Committee on Interior and Insular Affairs. That committee `de- voted many hours during the past 3 years to consideration of this bill and its predecessors, and last month, the Interior Committee, by a vote of more than 2 to 1, recommended its passage. The report on H.R. 1609 filed by the Interior Committee is a docu- ment that deserves the thoughtful consideration of everyone concerned with the rising cost of electrical energy. The committee describes how rapidly the cost of coal transportation by rail is escalating and ex- presses its conviction that the cost savings `of coal pipelines in specific circumstances may be crucial in making the coai conversion program work. I commend this report to you. It is one of the best, most concise summaries available of the benefits that coal pipelines can provide. PAGENO="0244" 238 For your additional consideration, I have copies of statements on coal slurry pipelines and their benefits that were made before a special joint subcommittee of the Interior Committee last April by Mr. Joe H. Foy, president of Houston Natural Gas Co.; Mr. Frank Odasz, vice president, Energy Transportation Systems, Inc., and Mr. Howard Cowan, former senior vice president of the Public Service Co. of Oklahoma. These statements offer useful information on the issues before you, especially as they relate to the approval by the Wyoming Legislature of water for a coal slurry pipeline and to the difficulties utilities have experienced in getting coal transportation by rail at reasonable prices. WTith your permission, I would like to submit these for the record, Mr. Chairman. Mr. EDGAR. How extensive are they? Mr. JENNINGS. They are very~ short. Mr. EDGAR. Without objection, they will be made a part of the record. [The following was received for the record:] TESTIMONY OF FRANK B. ODASZ, VICE PRESIDENT, ENERGY TRANSPORTATION SYSTEMS, INC. I am Frank B. Odasz, Vice President, Energy Transportation Systems Inc. I am a chemical engineer and Jive in Casper, Wyoming. I would like to give the subcommittee members a perspective on water for coal slurry pipelines that is based on what is happening in the area supplying the water. My observations this morning grow out of three years of work with ETSI in the Rocky Mountain and Plains States but they also are formed from living, working, and owning property in Wyoming since 1947 when I first came to Cody to work in the energy industry. What I have learned over those years is that the people of Wyoming and sur- rounding states value their water highly and they are quite sensible in de- ciding how to use it. They know there are vast water resources available, but there are serious problems involving distribution and management of their re- sources. Most westerners want to proceed with caution before authorizing water projects. They want to complete information on the cost and benefits of each proposal. This traditional attitude will be an important element in the develop- ment of the West's vast energy resources, because water is essential to every method now under consideration. The final decisions on the merits of water projects have been made by the people of the area. This works. I believe that this successful procedure should be protected. Slurry pipelines are one of the methods proposed for helping develop western coal resources. I know that the eminent domain legislation has no bearing on w-ater rights, but many questions have been raised about water in the course of erevious hearings. Perhaps a review of what has happened in the states will serve to make it clear that water decisions are being made at the state level, where the authority resides, and that those decisions are not unfavorable to slurry pipeline development. Among the various energy development systems requiring water, slurry pipe- lines are the lowest consumers. Every ton of coal requires only a ton of water to form the slurry that is pumped into the pipeline. A mine-mouth power plant would require seven to eight times as much water for the same amount of coal. Hence, compared w-ith a mine-mouth power plant, transporting coal from the West represents an important contribution to the nation's new conservation ethic. There are socio-economic factors to be balanced as well. Power generation, gasification and similar industrial processes will require large work forces to construct the plants and operate them. The influx of large numbers of new residents into a state as sparsely populated as Wyoming is viewed with alarm. We are very protective of our unique life style and are working to preserve it. PAGENO="0245" 239 While recognizing a responsibility to help the nation solve its energy problems, the people of Wyoming generally would like to make that contribution with as little impact as possible on our present way of life. Our legislature has worked hard and skillfully to develop the nation's finest set of state environmental, im- pact, and severance laws to achieve this objective-and appear ready to continue to do so. ENERGY EXPORT The desire to minimize the impact of energy development has led many to favor exporting coal from Wyoming. Although some conversion of coal within Ihe state is progressing, by far the largest portion of coal will be moved out of the state to conversion plants much closer to the urban areas where the con- sumers and workers live. Buried pipelines are aesthetically attractive. No roads or fences are required. The land is restored to its original use. Railroads now have a monopoly on coal shipping in the West. As a matter of fact, access to a particular mining area usu- ally is by a single railroad. The Union Pacific, for example, is the only way to ship coal from the fields in southwestern Wyoming. Burlington Northern is virtually the only way to get coal out of the vast area of northeastern Wyoming, Montana, and North Dakota. Rail coal traflic is steadily building, and the environmental costs are rapidly becoming apparent. There are more range fires and greater interference with the movement of livestock and wild life. There is more air and noise pollution. Perhaps the greatest impact is in the form of interference with community life. So many towns are built around railroad tracks that they find themselves in- creasingly invaded by coal trains with all the safety hazards, noise, pollution and traffic interruption that goes with it. Lusk, Wyoming has been told to ex- pect 50 trains a day. The State of Colorado conducted a study which showed coal traffic could rise from two or three trains a day to 14 to 21 daily through the front range cities by 1985. As a result, Governor Lamm of Colorado obtained an agreement from the Burlington Northern to bypass these cities, but the new route wasn't defined. It appears that Torrington, Wyoming might become the new railroad corridor. Like Lusk, all crossings are at the same grade as pedestrians, autos, fire engines, ambulances and school buses. A single coal slurry pipeline delivering 25 million tons annually will replace 5,000 unit train trips. APPROVAL BY WYOMING Evaluating these factors, the State of Wyoming in 1974 approved a water supply for the pipeline ETSI is developing to deliver 25 million tons annually to power plants in Arkansas and adjacent states. People in Wyoming saw the ad- vantages and, I should add, many of them admired the technological innovation involved. We still believe strongly that innovation and competition are iinpor- taut elements of our free enterprise system. The slurry pipeline concept has been steadily winning acceptance in that light. In developing a water supply for the pipeline, ETSI sought a source not al- ready in use or likely to be developed soon for other purposes. The ETSI project preferred a system that was in harmony with nature and the environmental sensitivity of Wyoming residents. The answer was deep underground water, spe- cifically the Madison Formation in eastern Wyoming. It has been estimated that the Madison contains as much as a billion acre feet, which is enough to refill Lake Erie 27 times or Yellowstone Lake 56 times. Natural recharge is estimated at between 100,000 and 150,000 acre feet annually, roughly ten times the amount ETSI needs to operate the slurry pipeline. We should all recognize that this natural recharge system is an efficient example of solar energy at work. In con- trast to a man-made recycle system, the natural recycle system burns no fuel and requires no steel. For the ETSI pipeline, this conserves 52,000 horsepower and 290,000 tons of steel. Furthermore, the underground reservoir eliminates waste water by evaporation, inundates no hay meadows or home sites, and inte:feres with no free-flowing fishing streams. Encouraged by this harmony with nature, we applied for production well per- mnits in December 1973, and the Wyoming Legislature took up the question of exporting water when it met the following month. After considerable debate, a law was enacted which asserted state control over underground water resources, required legislative approval for the export of water and specifically stated that the ETSI project was the first approved under the new law. That authorization PAGENO="0246" 240 was contingent on approval of the State Engineer, and it stipulated several pro- tective clauses to be included in the water permits. ETSI already had begun a test well drilling and pumping program, and this was continued under supervision of the State Engineer and the U.S. Geological Survey. Additional drilling and pumping were required, and the results were fully discussed at a public meeting conducted in July 1974. In September, well permits were issued which authorize our company to withdraw an average of 15,000 acre feet of water from the Madison aquifer. It was concluded that the impact of such a withdrawal would be limited only to general area of the well field. OTHER WATER USES PROTECTED The permits contain 19 limitations which protect other users of Madison water. If there is a case of interference, ETSI must deepen the affected well and pay additional pumping costs, or provide the affected user with equivalent water from another source, or stop pumping and supply the slurry pipeline from another source, or cease and desist. In addition, ETSI entered into an unprecedented contract with the State of Wyoming which incorporates the protections already in the well permits and extends those protections to future use of the Madison by several existing com- munities and a new- city planned for the coal mining area. Performance is guaranteed by a $1 million bond posted by ETSI. A network of at least five mon- itor wells outside the ETSI well field was required in order to detect any impact from the company's operations. The contract eliminates any fears that protec- tions could be evaded through conflicting claims of interstate commerce. There have been subsequent attempts to reverse the decision of the legisla- ture, and court challenges have been threatened during political campaigns. Two repeal attempts were overwhelmingly rejected, and the legal challenges never materialized. A question of constitutionality was resolved in 1975 when Governor Ed Hersch- icr confirmed its constitutionality. Although the formal arrangements cover only Wyoming water users, ETSI has voluntarily offered similar protections to South Dakotans living near the production well field. POTENTIAL OF THE MADISON The Madison aquifer is an attractive source of w-ater for a coal slurry pipeline because of its vast size and the fact that it is virtually untapped for other pur- poses. The basic reason is the cost of raising the water from the depths of 3,000 to 4,000 feet. A single well can cost a quarter of a million dollars. ETSI will face a cost of $400 an acre foot for its pipeline water, while typical irrigation water in that area costs about $10 an acre foot. Most of the water now pumped from the Madison is used for secondary recovery of oil. The high cost explains w-hy industrial users are likely to continue to be the only major developers of Madison w-ater in the future. Efforts are under way to learn more about the potential of the Madison as a source of w-ater for energy development. The ETSI test program produced the first substantial data on the aquifer. The U.S.G.S. subsequently launched a five-year drilling and testing program to develop a broad profile which will be valuable but which, according to the agency, will not produce the detailed information on specific areas of the type already recorded by ETSI and placed on the public record. In that sense, we already know more about the aquifer in the area of the well field than w-e will find out from the U.S.G.S. study. In a practical sense, the only way to really analyze the capacity and characteristics of the Madison is to begin using it. A long-term production program of the type planned by ETSI will provide invaluable data on which to base more comprehensive plans for development of the aquifer. Meanwhile, ETSI is e~cploring other sources of pipeline water, many of them involving joint use. We are looking into the possibility of supplying Madison w-ater to the city of Gillette, Wyoming, w-here it would be used in the municipal system and then treated before going into the slurry pipeline. Another study involves taking and treating w-aste water from Torrington, which would eliminate theneed for that city tospend $1.5 million on a new treatment plant and obtain a discharge permit. We also are exploring the u.~e of industrial waste water from various sources. Although none of these sources are now available for pipeline use, they demonstrate the approach taken from the outset-ETSI is not ]ooking for sources which would interfere with other water users. PAGENO="0247" 241 SHARING WATER IN SOUTH DAKOTA The Missouri River system is another very large source of water which can be tapped for energy development without interfering with the needs and rights of others. As a matter of fact, ETSI has helped South Dakotans develop a plan which would provide industrial water while simultaneously fulfilling a long- standing and increasingly critical need for more water in the western part of the state. South Dakota west of the Missouri has been chronically short of water. The quality, in general, does not meet U.S. Public Health standards for drink- ing water. Despite the millions of acre feet available in the Oahe Reservoir, there never has been a system developed to inalce the water available where it is needed for domestic, municipal and agricultural purposes. A solution emerged from an engineering study, completed in late 1975 and financed by the Black Hills and West River Conservancy Sub-Districts and the Federal Energy Administration. The solution involved a shared pipeline system called the West River Aqueduct. The West River Aqueduct is to he a large water line running about 200 miles from the Oahe Reservoir westward to the Wyoming border. It w-ould carry 10,000 acre feet of water annually to the 17 towns and five rural water users' districts which have applied for the water through the Black Hills and West River Conservancy Sub-Districts. In addition, the aqueduct would deliver 20,000 acre feet annually to ETSI at the Wyoming border. ETSI would use the water for a future pipeline, or to expand the first pipeline and to protect the users of the Madison Formation in accord with one of the alternatives of the Wyoming law as mentioned previously. Involvement of an industrial user w-as essential l)ecause ETSI could be charged rates sufficiently high to subsidize low rates for South Dakota users. Studies indicated rates within the state would be prohibitive, about $585 an acre foot or $1.80 per thousand gallons, if a smaller pipeline were built to serve South Dakota users alone. ETSI was committed to paying a surcharge of $100 an acre foot, which would have provided aim annual profit of $2 million to the South Dakota Conservancy District, proposed operator of the aqueduct. That sum was to be available as seed money for the state's other water projects. There is no question about the availability of the water. More than 18 million acre feet flow past the Oahe Dam every yemir; so the withdrawal of 30,000 acre feet-on the order of 0.1 percent-from the Onhe Reservoir would have little impact. The U.S. Bureau of Reclamation has estimated that 3 million acre feet can be made available for il1dustrial use alone, and the 20,000 acre feet for ETSI would stake a claim for South Dakota on a small portion of the industrial alloca- tion. APPROVAL IN SOUTH DAKOTA The West River Aqueduct concept was reviewed by a variety of state of- ficials and groups. Some agreed with it while others did not. But the ultimate decision\by law had to he made by the South Dakota Legislature. After hear- ings and debate, both houses voted approval and sent the enabling legislation to the governor. The enabling bill contained changes in water marketing, contracting and bonding authority as well as provisions dealing directly with the West River Aqueduct concept. Included in the bill was a conditional permit for 20,000 acre feet to be delivered to ETSI with provisions that engineering and economic studies be completed and that a satisfactory contract be negotiated. Final approval was reserved to the legislature. As in Wyoming, the concept was ap- proved by the legislature with a host of restrictions protecting the interests of the state and its people. Governor Richard F. Kneip vetoed the bill. An override attempt was success- ful in the House but w-as narrowly unsuccessful in the Senate. Simultaneously, he signed into law a separate bill that his staff prepared containing provisions for feasibility studies under l1is direction. He has announced his intention to request funds from the Old West Regional Commission to finance these studies. The governor also said he thought that the state of Wyoming should participate. This might mean a delay in development of the aqueduct. But it needn't because both the legislature's bill and time governor's bill recognized that the next logical step is a careful technical and economic feasibility study. We are prepared. to assist in any reasonable way the governor's office determines would be most helpful. PAGENO="0248" 242 What is important to all of us is that in both Wyoming and South Dakota, the legislatures saw the advantages which coal slurry pipelines can bring the people the legislators represent. They were willing to authorize the use of a small portion of their water, which is carefully safeguarded, as a contribution to the national energy program and because there were distinct benefits to state residents. In each case, the legislators and other state officials surrounded the authorization with restrictions which protected their constituents. ACTION IN OTHER STATES I understand other western states also are examining this issue. Colorado is considering how to approach the use of its water in coal slurry pipelines, and Montana is including coal slurry pipelines in its new energy study. The Montana Legislature passed a law a few years ago which prohibits the use of the state's water in slurry pipelines, but the governor recently asked the legislature to re-examine the potential benefits of transporting some of Montana's vast coal reserves by pipeline. Consistent with the actions of states which would be a source of water for coal slurry pipelines, the consumer states also are protecting their rights. Eminent domain legislation recently enacted by the Texas and Oklahoma legislatures con- tained provisions to protect state water rights. And, of course, federal, state and private rights are preserved intact l)y H.R. 1609 and similar bills. Members of the slurry transport industry have determined that there is ade- quate water available to operate coal pipelines without harm to the interests of other users. Each project must be examined on its merits, including an analysis of the proposed water zource and its ability to sustain pipeline pumping without prejudice to others. When that is done with care and dispassion, it is our ex- perience that the states w-elcome the prospect of coal slurry pipelines and are prepared to approve a reasonable and n-eli-documented proposal. On the federal level passage of H.R. 1609 n-ill help implement our natural com- mitment to assure energy for our future; and do it in a way that is in har- mony with the new national awareness of a Conservation Ethic: Conservation of resources: steel, diesel fuel, water. Conservation of dollars for imported energy. Conservation of the consumer's energy budget. Conservation of creative ingenuity by coordinating with developing coal technology. Conservation of our unique life style. I respectfully urge prompt passage of the Coal Pipeline Act of 1977-HR. 1609. STATEMENT OF JOE H. For, PRESIDENT AND CHIEF OPERATING OFFICER, HOUSTON NATURAL GAS CORP. My name is Joe H. Foy. I am President and Chief Operating Officer of Houston Natural Gas Corporation. I appreciate the opportunity to appear in support of HR. 1609. Houston Natural is a diversified energy company which, among other activities, produces, purchases, transports and sells natural gas within the State of Texas. We mainly serve large industrial consumers such as refineries, petrochemical plants, in the vital Gulf Coast complex, as well as electric utilities and gas dis- tribution companies. In view of developments in the last decade-the dwindling supplies of natural gas and their increasing cost, government restraints on the use of natural gas for industrial purposes, the high cost and unreliability of foreign oil supplies-we began, several years ago, to look for another primary source of ~nergv for our area. This means coal, which in turn means we must quickly and substantially increase the capacity to transport coal to a region which presently uses no coal. We therefore became one of the first companies to study the feasibility of, and ultimately to plan and actively pursue, a coal Slurry pipeline project. We propose to build a coal slurrypipeline from a point near Wahsenburg, Cole- - rado, to the Texas Gulf Coast, a distance of over 900 miles. The line is scheduled to be thirtT- inches in diameter and will move apnroximately 15 million tons of coal annually, from reserves in both Colorado and New Mexico. We estimate that PAGENO="0249" 243 this project will require an initial investment of $500 million, all of which will be raised from private sources. Four other companies have announced plans to build slurry pipelines to transport Rocky Mountain coal to points of large con- sumption in the Gulf Goast, the South, and the Pacific Northwest. When I appeared before you in November, 1975, our Nation's crude oil imports were running at about 40 percent of our requirements. We had already undergone the Arab embargo and suffered a 500 percent increase in the price of foreign oil. Domestic natural gas and oil reserves were known to be severely limited and on the' decline. A massive switch to coal as a primary energy source was already foreordained. Now, a year and a half later, our foreign oil dependency is running at about half our requirements, up nearly 25 percent from when I was last here and up over 100 percent from 1973. And, in 1976, both domestic oil reserves and natural gas reserves declined by about 5 percent. In Texas, after adding new discoveries, proven oil reserves declined over 8 percent last year; Texas' natural gas reserves, after discoveries, declined 9 percent in 1976. Despite the depressing statistics on oil and gas reserves, experts have estimated that the energy value of our western coal equals or exceeds the known crude reserves of the Arab countries. Some coal has started to move by rail from the Rocky Mountains to central Texas, but none of the planned coal slurry pipelines has been built nor has construction begun. We must await eminent domain legislation, for the simple reason that the railroads, who now ha ~e a monopoly on the trasportation of western coal, refuse to grant permission for coal pipelines to cross their rights-of-way-which were acquired by their own exercise of the governmentally-conferred power of eminent domain. The power of eminent domain has been granted for natural gas pipelines, crude oil and petroleum product pipelines, railroads, electrical transmission lines, and a number of other, products being moved for public benefit. Indeed, I think it is correct to say that any other method for transporting coal or energy directly produced from coal, would enjoy the right of eminent domain except coal pipe- lines. As a national policy, this makes no sense whatsoever. H.R. 1609 would permit, under carefully controlled circumstances, a common carrier coal pipeline, which qualifies for and is issued a certificate of public convenience and necessity, to exercise a limited power of eminent domain. De- tailed public interest and environmental protection findings must be made prior to certification. Above all, no authority whatsoever is granted the certificating agency, nor may any be conferred upon the pipeline applicant, with respect to water supplies necessary for a slurry line. Water for a slurry project can only be obtained after full compliance with the involved states' own water laws. Also, if it becomes necessary for the coal pipeline to acquire easements across private lands by exercising the power of eminent domain, such right-of-way would be obtained by full compliance with state law and procedure. I think most of the Members of the combined Subcommittees are familiar with coal slurry technology and its advantages. However, for the benefit of the newer Members, I would like briefly to review some of the critical facts concerning slurry technology. It is not a new technology. It was first patented in 1891 and a slurry pipeline was carrying coal in London in 1914. The first modern system was established in Ohio in 1957. It operated successfully for a. number of years, transporting coal from southern Ohio to an electric generating plant on Lake Erie. Then, the railroads cut their tariffs and succeeded in making the line uneconomic and it ceased operations. In 1970, the Black Mesa pipeline, located in Arizona and owned by the South- ern Pacific Railroad, commenced operations through an 18-inch line over a dis- tance of 273 miles. It has a 99 percent reliability record. Recently, it experienced the first known break of a coal pipeline. The railroad opponents of coal slurry legislation hastened to the scene with photographers and publicized the event. However, the real news was that the' break was repaired within 36 hours without any permanent environmental damage. We are thus dealing with a proven and essentially uncomplicated technology. To prepare the slurry, coal is pulverized and mixed with an equal volume of water. It is then transported by pipeline, which typically will be buried beneath plow depth. After construction, the right-of-way can be returned to its original use within a matter of months. The pipeline operates silently and efficiently, with- out the disruptions to farmers, townspeople and travellers caused by frequent unit trains and without the blow-off of coal dust along the route. PAGENO="0250" 244 `S/jrtually everyone who has studied the question believes that coal slurry pipe- lines offer significant savings to consumers. This is because most of the invest- nient is made up front, and so most of the cost of operation is represented by capital charges (the interest on bonds and the dividends to shareholders). But once the investment is made, the capital charges do not continue to increase along with the rate of inflation of the economy at large. Railroads, however, being more labor intensive, are unusually susceptible to inflationary pressures. The experience of the San Antonio Public Service Commission is illustrative. In a statement to be filed on behalf of the City of San Antonio, it is pointed out that two coal fired generating plants are coming onstream, which necessitated contracting for long-distance transportation of coal. Without competition from coal pipelines, the Burlington Northern rates for coal transportation have in- creased from a 1973 quotation of $7.90 per ton to a proposed rate as high as $17.34 per ton this past October. San Antonio filed a complaint with the Interstate Commerce Commission which reduced the rate, but it is still over $11 per ton at the present time. And this rate is exclusive of the estimated one dollar per ton cost associated w-ith San Antonio's having to purchase and maintain a fleet of 810 coal cars. For similar reasons, a number of the electrical utilities w-hich must purchase and transport coal over long distances to supply new l)Ower plants have concluded that their customers could experience substantial savings from pir~eline transpor- tation of coal. In fact, a major electric utility in the State of Texas has concluded that it would save in excess of $2 billion over the 40-year useful life of a coal slurry pipeline serving only one of its new generating stations. In light of the President's energy message, preceded by a number of Congres- sional initiatives, it is now- clearer than ever that large volumes of western coal will, be shipped to the South and Southwest regions where electrical utilities and large industrial users of oil and gas will have no choice but to burn coal. Our concern that coal soon be available, upon economic terms, to Gulf Coast industries is really a national concern. This is because 29 percent of our Nation's refining capacity and about 46 percent of our primary petrochemical capacity is located in Texas, and a substantial l;art of the balance of such capacity is located in such states as Louisiana and Oklahoma. The location of these industries was selected because of the proximity of cheap and plentiful su~phies of natural gas. Almost all of the newer anhydrous ammonia plants, which supply most of the fertilizer for our agricultural outrut have 1 een built in the same area. P0ese industries use large quantities of natural gas both as fuel and as feedstock. Even if natural gas continues to be available for essential feedstock uses, petrochemical and fertilizer plants cannot run w-ithout large amounts of energy devoted to fuel uses. They also require large amounts of electrical energy. So, the industrial complex located on the Gulf Coast, upon w-hich the Nation as a w-hole is dependent, is energy inten- sive and interdependent. It is therefore clearly in the national interest that coal promptly be made avnilcble for Gulf Coast utility and industrial furnaces. Thus, coal slurry pipelimies are needed: they offer a proven technology, the pos- sibility for significant cost savings to consumers, and an environmentally accept- able method of transporting coal. And what is sought by HR. 1009 is nothing more than what has been granted for similar methods of energy transportation. So why all time uproar? Stated most charitably to the railroad point of view, it has to do with their "economic health." Stated more starkly, it has to do with the abuse of economic pow-er and government privilege. Burlington and Northern and the union Pacific railroads rank first and third, respectively, among the holders of coal reserves in the United States. These coal reserves are in lands given them by the federal government in the 19th century. Time same railroads, but primarily Burlington and Northern, also dominate the transportation of western coal. As best we can tell, the railroads have no opposition to coal pipelines as such as long as they are not owned by a cOmnetifor. The only coal pipeline now operating in the TJ.S. is owned by a railroad. and Burlington Northern conceded in hearings before this Committee tl)at it has studied the feasibility of coal pipe- lines. If the results of such study wei'e comnietely mmeg~itive. why are they trying so hard to defeat this legislation? If passage of this legislation continues to be withheld, only the railroads will be able to build coal pipelines. The claims of financial ruin and lost jobs by the railroads and the brother- hoods are exaggerated. In feet, tlěe future coal transport needs of our country will tax the best efforts of all who would participate. In Texas alone it is esti- mated that by 1985, use of coal must increase to between 83 and 127 million PAGENO="0251" 245 tons per year. Nationwide, President Carter has correctly called for coal pro- duction to increase by over 400 million tons by 1088. A large portion of our in- creased coal requirements, and almost all of the coal required for the Gulf Coast will come from the Rocky Mountains. Our coal pipeline project is initially planned for a throughput of 15 million tons per year. Even if optimistic projec- tions are met for coal pipeline transportation, the railroads will still have an opportunity to haul the bulk of the new coal supplies to the Gulf Coast and other regions, and probably all of the new coal in the East. From this, it follows that the often expressed concern for railroad profits and jobs is misplaced. There obviously will be no less coal hauled in the future and hence no jobs lost; the probability is that rail employment will increase irrespective of what happens with coal pipelines. Under these circumstances, failure to pass eminent domain legislation would be to continue the monopoly of the railroads. On the other hand, passage of this legislation will not guarantee that a single coal pipeline will be certificated or built. No federal money is sought. It merely affords an opportunity for those willing to risk their funds and ingenuity to put together a coal pipeline project. The ultimate test of feasibility will be the market place where, in our economy, it should be. I know there is great concern, which is properly expresed by Members of these Committees, for scarce water supplies in the western United States, par- ticularly during this year of drought. As I emphasized earlier, the bill grants no rights whatsoever with respect to state or local water supplies. An applicant must obtain his water supplies in full compliance with state law or else the pipeline will not be built. Houston Natural's experience in Colorado is illustrative. In anticipation that the necessary eminent domain legislation will utlimately be passed, we have undertaken to find acceptable and adequate supplies of water in Colorado. We have located what we think is such a source which could not be economically used for agricultural or domestic purposes. We have purchased the necessary lands and have drilled test wells. However, water rights are public property under Colorado law and permission to use and export water from the state must be obtained from appropriate state authorities. This has necessitated our filing a petition in Colorado Water Court. The State Engineer and 29 protes- tants have intervened. We will have to establish l)y satisfactory proof each of the statutory requisites. I can assure you from our experience, that Colorado is quite capable of looking after its own interests as concerns water rights. The bill before you would not change Colorado's or any other state's rights and powers with respect to control of their own water resources. This concludes my statement. I will be happy to answer your questions. TESTIMONY OF HOWARD COWAN, PUBLIC SERVICE Co. OF OKLAHOMA I am Howard Cowan. I would like to discuss the coal transportation situation from the perspective of 20 years as an electric utility executive in Oklahoma. I retired January 1 as Senior Vice President of Public Service Company of Okla- homa, and I remain a Consultant to that company. Eighty-five percent of Oklahoma's electric energy today is generated in nat- ural gas-fired plants. Hydro accounts for 13 percent and fuel oil 2 percent. We forecast that by 1985, natural gas will fuel only ~0 percent of our generat- ing capacity. Coal burning plants will generate 40 percent, hydro 7 percent, fuel oil 2 percent. There is a distinct possibility that federal authorities will ban the use of nat- ural gas for boiler fuel before 1985. If that happens, we may he watching coal leapfrog from zero to 80 percent of our fuel base for generation in just eight years. And w-e'll have company. May I refer you to a report from the Bureau of Power to the Federal Power Commission in January 1977. Actual coal ship- ments to utilities in Oklahoma, Texas, Louisiana and Arkansas in 1975 were a little over 9 million tons. Based on generation units under construction or sched- uled for service, the demand for coal in these four states will soar from 9 million tons to more than 124 million tons by 1985. And these figures were provided l)y electric utilities in those states before the full impact of the President's energy program and its emphasis on coal was known. PAGENO="0252" 246 WTe are concerned about getting sufficient coal to maintain an adequate power supply. We are more concerned about getting coal delivered at a cost that won't impose an unbearable burden on our electric customers. This explains our interest in coal slurry pipelines. When this fuel crisis started building in 1975, we thought we might have some options. Oklahoma has 7 billion tons of bituminous coal resources. About half of this is recoverable but the sulfur content is 2.2 percent. The Environmental Protection Agency won't let us burn it in Oklahoma. Two million tons of Oklahoma coal are mined each year and shipped to elec- tric utilities in Missouri and Iowa. EPA says it's okay to burn it in Kansas City, but not in Oklahoma. So our company and others in the Southwest are relying on Wyoming, Colo- rado or New Mexico for coal. The sulfur content is one half of one percent, acceptable to EPA. We have contracted for 50 million tons from Kerr McGee's Jacobs ranch mine near Gillette, Wyoming. The distance by rail to Oologah, in northeastern Okla- homa, is 1,329 miles with Burlington Northern handling about 80 percent of the haul, Missouri Pacific 20 percent. They quoted a rate of $6.48 a ton when we started negotiating i11 1975 after bowing to their ultimatum that we spend $20 million for our own coal cars. This added $2.26 a ton to the rate for a total of $8.74 a ton. We signed on the dotted line last month and the $6.48 base rate had jumped 32 percent to $8.57 a ton or a total of $10.83, including the cost of owning and maintaining our own cars. Up 32 percent in two years. Incidentally, the tariff obligates us to take or pay for a minimum of 2.6 mil- lion tons a year for for 20 years, despite their claims that they are unable to make long term contracts. Again, we thought we had an option that would trim our coal transportation costs and benefit our customers with lower electric rates. There was a proposal for a 38-inch coal slurry pipeline to deliver 25 million tons a year to generating rilants in Nebraska, Kansas, Oklahomaand Arkansas. Initial pipeline rates compared favorably with rail but more important, pro- jections over the 30-year life of the plant indicated savings of billions of dollars to our electric customers. Escalation factors in the rail rate pointed to annual increases of 15 or 16 per- cent. We had already seen that. In the coal pipeline rate, escalation was mini- mal. one or two percent. The weighted average rate comparison over 30 years showed rail three times higher than pipeline. If Oklahoma generating plants could utilize the full capac- ity of the pipeline, ultimate savings could reach $12 billion over 30 years. That's why Public Service Conmany and Oklahoma Gas and Electric Com- pany, that state's major electric utilities, and the Oklahoma Association of Elec- tric Co-operatives, 28 of them, joined hands against the railroad lobby to get an eminent domain bill passed in the current session of the Legislature. The vote was 31 to 13 in the Senate, 62 to 36 in the House. But we have u-on a battle, not a war. The potential savings I mentioned are speculative because long distance coal slurry pipelines are still blocked by the railroad monopoly in Kansas and Nebraska. The wetsern railroads, principally Burlington Northern, have waged a ruth- less campaign based on amazing contradictions. On one hand, they insist the railroads can haul it cheaper. In the next breath, they warn railroad workers they'll lose their jobs that the railroads will go broke if coal slurry pipelines are built. They warn wheat farmers they'll either have no rail transportation at all or the rates u-ill he doubled or tripled, if coal pipelines are built. We heard the voices of doom from the railroads and then watched Burlington Northern spending tens of thousands of dollars on prime time TV to perpetuate their coal-hauling monopoly. Yet security analysts say Burlinaton Northern's revenue this year will exceed $2 billion, up from $11/2 billion in 1975; that net income u-ill hit $93.7 million, up from $511/a million in 1075. Last week they reported a 67 percent increase in first quarter profits over a year ago and BN stock hit a new high, $53 a share, up 111/4 since the first of the year. The question is not whether they'll go broke, it's whether their profits will quadruple rather than triple over the next 8 or 10 years: whether they will con- tinue to haul 100 percent of the coal, or share a fraction of it with coal pipelines. PAGENO="0253" 247 The sobering part of this picture is that there'll probably be more business than the railroads and the slurry lines can handle as coal replaces natural gas for electric generation. Projections are that 300 nńllion tons of coal annually will be moving out of Wyoming by 185. The Wyoming-Arkansas pipeline can move 25 million tons. If the Congress had made a coal slurry pipeline possible in 1975 and our Oolo- gah plant was operational today, fuel cost would be 98 cents per million BIT. Our actual fuel cost in March was $1.33 per million BTU. Electric rates have gone out of sight, due principally to soaring fuel costs which account for 50 cents out of every dollar our customers pay for electricity. Without legal authority for a coal pipeline to cross under railroad right of way, we are deprived of the most efficient and economical method of moving coal from Wyoming to Oklahoma. It takes about four years to build a coal-fired generating plant. It must be designed to receive coal either by rail or by pipeline. There is no practical way to switch in midstream. That's why it is critical that this choice be available now. Texas is enacting an eminent domain law and that will bring to seven the number of states pro- viding authority for coal slurry pipelines. It is an encouraging demonstration of awareness at the state level but is far from providing the authority needed to penetrate railroad obstruction of long distance pipelines. The process of winning state-by-state approval is lengthy and laborious. Emi- nent domain authority on a federal basis is the sensible way to accomplish this within a reasonable time. We urge the Congress to enact HR. 1609. Mr. JENNINGS. In that connection, I would like to call attention to one part of the statement that was made by Mr. Cowan, who is the former senior vice president of the Public Service Co. of Oklahoma. He said: We signed on the dotted line last month, and the $6.84 base price has jumped 32 percent to $8.57 a ton, or a total of $10.83, including the cost of owning and maintaining our own cars; up 32 percent in two years. Incidentally, the tariff ol)ligates us to `take-or-pay' for a minimum of 2.6 million tons a year for 20 years, despite the claims that they"-talking about the railroads-are unable to make long-term contracts. These three statements that I have submitted for the record repre- sent only a small portion of the positive record that has been built for H.R. 1609. Some of. the other supporters of coal slurry pipelines have been invited to testify here and others will, or can, supply you with statements. For the moment, it is sufficient to say that coal slurry pipelines enjoy a broad base of support, ranging from the 4 million members of the 17 national and international unions affiliated with the Building and Construction Tro des Department of the AFL-CIO to the United States Chamber of Commerce. In addition, H.R. 1609 is supported by the National Coal Association, representing the coal producers, and by the three organizations that represent those who generate e.lectricity-4he National Association of Electric Companies, the National Association of Rural Electric Co-operatives, and the American Public Power Association. Much time and attention has been given to the question of coal slurry pipelines. The concept of moving coal underground economically and efficiently by pipelines has been endorsed by four Presidents-Ken- nedy, Nixon, Ford and, most recently, Carter. Since 1975, the Interior Committee has conducted extensive hearings, compiling a record of more than 1,700 pages. In addition, the Office of Technology Assess- ment has just completely a lengthy study of coal pipeline technolog. The issue is not that complicated. It has been made to appear diffi- cult by the railroads who are opposing coal slurry pipelines with the PAGENO="0254" 248 same ferocity they have exhibited toward every innovation in trans- portation. Essentially, the Coal Pipeline Act of 1978 is a simple bill. It pro- vides, first, that certified coal pipelines may exercise the right of emi- nent domain to acquire the rights-of-way needed for their construction. Second, it establishes a process for the thorough examination of each individual pipeline proposal on a case-by-case basis. This certification process, a.s the Interior Committee points out, will, quote, "insure that only those pipelines which represent sound economic, environmental, and social policy are granted e.ińinent domain authority." Finally, H.R. 1609 preserves the States' rights over their own water supplies. The water issue was fully and carefully considered by mem- bers of the Interior Committee. Section 9 of the bill recommended by that committee makes it clear that 11.11. 1609 does not change any of the traditional procedures relating to the allocation of water. In its report, the Interior Committee says, quote, "The States have retained the power to control their waters, and there is no intent to alter that arrangement." That statement clearly expresses not only the view of the Interior Committee, but the posit.ion of the Slurry Transport Association and its members. In summary, H.R. 1609 does not authorize a single pipeline. It does not provide a cent of Federal money, and it does not appropriate a drop of water. Instead, H.iR. 1609 establishes a process for the exami- nation of each pipeline~proposal on its own merits. Those proposals that can demonstrate they will serve the public's convenience and necessity will be permitted to use the right of eminent domain to obtain rights-of-way they cannot get by negotiation. This is necessary pri- marily because the railroad industry, one of the large landholders, refuses to permit coal pipelines to cross their rights-of-way, although such passage is routinely granted to other pipelines. To overcome this opposition, we are asking for the same right of eminent domain that has been extended to natural gas pipelines and to the oil pipelines when the first long distance lines were constructed. The Federal eminent domain was granted to oil pipelines for a brief period during World War II, but the major trunk lines constructed under that right served for many years after the war. The need for coal slurry pipelines arises from this country's need to make use of its a.bundant supplies of coal to reduce its dependence on expensive foreign oil and diminishing supplies of natural gas. The President's national energy plan calls for increasing coal production in the next 8 years by two-thirds, from the present 670 million tons a year to more than a billion tons by 1985. While the final details of the energy bill are not settled, the conferees have agreed already that there will be a stringent conversion program mandating the increased use of coal. Since transportation represents oftentimes more than 40 percent of the cost of coal, it is natural that the companies who must switch to coal are seeking the least expensive means of transportation. In many cases, the least expensive means of coal transportation is a coal slurry pipeline. From other witnesses. this committee has heard already of the grow- ing concern that the high cost of rail transportation will limit the extent t.hat national coal conversion goals can be met. The report of PAGENO="0255" 249 the Interior Committee on H.R. 1609 describes how high coal tariffs can be, especially where long distances are involved, and how fast they escalate. In ilouston, for example, the rail tariff is twice the cost of the cost itself, and in San Antonio, a rate is being considered that is 130 percent higher than the original one quoted just 5 years ago. Without coal slurry pipelines, there will be no: competitive force whatsoever in many parts of the country to help stabilize the cost of coal transportation. Slurry pipelines have two significant advantages. They offer econo- mies of scale and can carry large volumes of coal over long distances for long periods of time. This makes them a convenient link between mines and power companies. The other advantage of pipelines is that they are capital intensive, with about 70 percent of their costs related to the initial capital investment. This makes them highly resistant to inflation. Contrasted with the railroads, whose rates have more than doubled in just a few short years, pipeline rates are relatively stable. There is nothing new or experimental about coal slurry pipelines. The first commercial coal pipeline in this country was built 20 years ago in Ohio, and that first pipeline not only produced significant sav- ings in coal transportation, but, as we have heard from the railroads themselves, it encouraged the development of the unit train. Right now, a coal pipeline is delivering coal from a mine in northeast Arizona to a powerplant in southern Nevada. The technology of slurry pipelines is simple and straight forward. The coal is pulverized to the consistency of sugar, mixed with water or other liquid carrier, and pumped through underground pipes to its destination. At the receiving end, centrifuges spin the water out of the coal, and then the water is available for use in the cooling processes associated with the combustion of the coal. Much has been written and said about coal slurry pipelines. The recent OTA study covers the major points of contention and, hope- fully, it will clear away much of the confusion created by the railroads and their supporters. The OTA, for example, confirms that slurry pipe- lines can indeed transport coal more cheaply than rail under certain circumstances. The circumstances that favor slurry pipelines are high annual coal volumes and long distances, which are exactly the condi- tions that exist in the areas that historically have burned oil and gas. The OTA says there is adequate water for several coal pipelines. The report confirms that slurry pipelines will use only a small frac- tion of the available water and, even so,. will use less than either elec- tric generating stations or coal conversion processes. The report does question whether adequate water is legally available, but we believe, and the majority of the Interior Committ.ee does too, that this is a matter for local authorities to decide on a case-by-case basis. So far as the environmenta.l impact is concerned, the only significant impact identified with slurry pipelines was during the brief period of construction. This is temporary and restoration is not only feasible, but required by H.R. 1609. On the other hand, OTA said the increased coal traffic by rail will have a major negative impact on the lives of individuals living or working near the tracks. This includes, quote, "the increased exposure to train noise, interruption of commuting and other automotive traffic, PAGENO="0256" 250 adclitional accidents at grade crossings, and interference with cattle movements Oil rangelands." The OTA report also destroys the myth that coal slurry pipelines will eliminate existing railroad jobs, or have a serious impact on the railroad industry. Railroad employment in the next decade or so, the report says, will remain constant, or even decline, whether any coal pipelines are built or not. At the same time, construction of pipe- lines will generate their own economic benefits, especially in the build- ing and construction trades where unemployment far exceeds the national average. So far as the rail industry is concerned, the OTA report says the overall potential impact of coal slurry pipelines, quote, "appears to be substantially less than that of possible adverse regu- latory policy or a decline in the present rate of improvement in the productivity." The spokesmen for the railroads talk a lot about regulatory policy and quote the OTA as saying that coal slurry pipelines, given the ri~rht of eminent domain, will enjoy a regulatory advantage over the railroads because the pipelines could enter into long-term contracts and the railroads cannot, or they say they cannot. This question, however, is not an issue in H.R. 1609. Representatives of the Inter- state Commerce Commission have testified elsewhere that they are considering long-term contracts for unit train shipments of coal in the West, and if legislation is required to accomplish this purpose, it should originate in the committee with jurisdiction over railroad legislation. The railroad spokesmen also talk about the capacity of the railroads to carry a.ll of the new coal production that is expected. The point is not how m~ny trains you can put on a given stretch of track, but whether the trains can get where they are going in a timely fashion. The capacity of the rail system to handle the constant pounding from long, heavy coal trains must be questioned by anyone who has read a newspaper recently. Another question that has been raised about the capacity of the rail- roads to deliver coal in a timely and reliable manner is the possibility of a strike, a possibility that is hinted at from time to time in the press and greatly feared by those who produce our electricity. It has been pointed out that if the railroads are the sole transporters of coal, they could become, in a few years, the lifeline of the Nation, controlling the flow of basic energy, and that the president of the United Trans- portation Union, representing all the ra.ilroad workers, would be able to turn out the lights in this country and have more power than the President of the United States. In such an eventuality, I would not want to be the one who said we did not need an alternate method of coal transportation. / Coal slurry pipelines can provide both the discipline of competition needed to produce reasonable transportation rates and an alternate transportation system to guard against any type of breakdown or stoppage of rail transportation. We believe that conversion of our energy base to coal will require the best of all our transportation systems: Pipelines~ trains, barges, and trucks. We also believe that H.R. 1609 provides for more restric- tions than are imposed on any other system of transportation, but we PAGENO="0257" 251 are confident that coal pipelines, examined on a case-by-case basis, can demonstrate their utility and their benefits. We urge you to recom- mend the passage of H.R. 1609. I would be pleased to answer any questions, Mr. Chairman. Mr. EDGAR. Thank you for your statement. Before yielding to Mr. Shuster I would just like to comment on this Office of Technology Assessment report. We have heard the railroads and we have heard yourself use the report to justify two different positions and, there- fore, the report must be fairly accurate.. I yield to the gentleman from Pennsylvania, Mr. Shuster. Mr. SImSTER. I thank you. I certainly want to compliment you, Mr. Jennings, for a very, very persuasive presentation. Mr. JENNINGS. The proof of the pudding will be in the eating. Mr. SHUSTER. Not at all; you are doing an outstanding job with such a weak case. [Laughter.] Mr. Siiusa~. Let me get more serious for a moment. You talk about the U.S. Chamber of Commerce in support of coal slurry pipelines. Now, do I infer from that that they have come out in support of H.R. 1609, or are they just generally in support of the idea of coal slurry pipelines ~ Mr. JENNINGS. They came out in support of the concept of coal slurry pipelines. It would not be fair to say that they have come out specially for every part of 1609. What they did come out for was the ~ight of eminent domain for coal slurry pipelines. Mr. SHUSTER. The Federal right of eminent domain, you are saying? Mr. JENNINGS. Yes. Mr. SIITJSTETm. They have not necessarily endorsed 1609? Mr. JENNINGS. No. Back when they came out-I believe it was 1863- they addressed themselves to that. Mr. S1-rnsTEll. Is that the bill mimber or the year? Mr. JENNINGS. I am a little at a loss to tell you. This issue has been before Congress for quite some tin'ie, but that is the bill number from the last Congress. Mr. SHUSTER. Thank you very rnu~h. Mr. EDGAR. Thank you, Mr. Shuster. I have a couple of questions I would like to ask you, Mr. Jennings. If H.R. 1609 is enacted~ what is your estimate on how long it would take to construct the first coal slurry pipeline? Mr. JENNINGS. That would depend, of course, on how long it would take to get an environmental impact statement and how long it would take to get the rights-of-ways and how long it would take to litigate any court proceedings that might ensue. Mr. EDGAR. Wliell would you anticipate beginning contract nego- tiations? Mr. JENNINGS. They have already begun. Mr. EDGAR. Could you give us just a brief outline of what is con- tained in the ideal contract that you are seeking to negotiate? Mr. JENNINGS. Well, no, very frankly, I cannot. Let me express how, in my opinion~ it would work. First of all, the utilities., or the large users of coal would go to a coal company and make a contract for the coal, just as they do today. Then, they would contract with the trans- 32-745-78-17 PAGENO="0258" 252 porting agency, whether it would be the railroads or whether it would be the pipelines. And those are the details that would have to be worked out by negotiation between the receiver and the owners of the pipeline. Mr. EDGAR. In relationship to the pipelines specifically, you would be looking for how many year contracts? Mr. JENNINGs. Well, there again, that would be a. part of the con- tract, in all probability. Floyd Lewis, who is president of Mid South Utilities, testified before the Interior Committee that over the life of a boiler, which is approximately 30 to 35 years, that if he could receive coal by coal slurry pipeline, 25 million tons of coal a year, that it would provide a savings of about $14 billion in transportation costs, all of which would be passed on to the consumer. Mr. EDGAR. Can you tell the committee what happened to the pipe- line that was established in Ohio~20 years ago? Mr. JENNINGS. Yes. It is now mothballed. At the time that was put into operationS the railroads wei~e charging $3.47 a ton to haul coal from Cadiz. Ohio. over at the edge of West Virginia, to the Cleveland Electric Illuminating Plant on Lake Erie. Mr. EDGAR. ~\That was the distance ther~? Mr. JENNINGS. The distance was about a hundred rniles-108 miles. After this pipeline went into operation, the railroads approached the company. At that time, they had the pipeline set up, as I recall, on about a 15-year amortization. They had operated it about 6 or 7 years. The railroads agreed to pa~ for the entire cost of the; amortization of the remaining portion of that pipeline and to cut thetransportation cost of coal to $1.88 a ton, and it was such an attractive proposition that. the coal company bought it. And the Ohio pipeline is there in mothballs today. With very few improvements and with the increased technol- ogy, it could go back into operation. It had a significant effect in keep- ing the price of tra.nsportation down in coal. Mr. EDGAR. Did it have any initial problems over the 6 or 7 years it was operating ? Mr. JENNINGS. Many of them. It had nmny problegis, but they were able to overcome all of them. It was a small line; it was only 10 inches in diameter, and it was somewhat of a guinea pig in this country for coal slurry pipeliiies. Those original operating proble~.ns were overcome to the extent that Southern Pacific Railroad. or one of their subsidiaries, decided to build one. It has been in operation now going on its eighth year; they say it has better than a 99 percent efficiency of delivery. The problems that were encountered. initially in the little Cadiz line have been overcome, and so have additional problems that have been encountered since then. As a matter of fact, it is stated today that it would probably not be nec- essary at all, because of the efficiency of the Black Mesa line and the additional experience, to build holding ponds along the way. Mr. EDGAR. Could you describe what you mean at the end there ? I have another question, but holding ponds along the way would be for- Mr. JiNNINGS. In case of a rupture, they had it so they could cut off the valves and pump the coal out into the hold.ingpond, and then re- slurry it and put it back into the line. The efficiency rate has been so great, and with the one or two little ruptures they have had, they have PAGENO="0259" 253 not used the holding ponds, and they say, today, that it would not be necessary to build holding ponds along the way. Mr. EDGAR. This next question may be a bit technical, but it comes to mind in light of a visit that I made yesterday to a resource recovery plant here in Washington, D.C., that is taking trash and putting it through a process. It was indicated that the abrasiveness of some of the particles going through the machinery and equipment, and pulleys and different belts that are in that process, causes a wearing on the process. And I wonder if you have had any experience of the coal passing through the pipelines, as to its wearing on the inner lining of the pipe- line and therefore causing a problem downline in terms of replacement of that pipeline. Mr. PJENNINGS. They have taken the pipeline out; they have checked it with micrometers; they found that there is practically no wear on it at all. If the grind is correct and if the rate of travel is correct, there is very little wear on the pipe at all. They have found if they grind it real fine, suspend it and move it at about 4 miles an hour, that there is no wear on the pipeline at all, and they now consider that the pipeline will far outlive the life of the boilers. Mr. EDGAR. If, in fact, there was a rupture or a loss of water to the system, and the coal does not have a holding pond to place it in, what happens in the pipeline process? Mr. JENNINGS. First of all, there are a series of valves so you can cut it off, and you would not have a great, large quantity of coal. But it is nonflammable; it is nontoxic. In the one little rupture that they had, the wildlife people and the environmental people in the State of Arizona said that it was not necessary to even clean it up. Mr. EDGAR. What kind of problems have they experienced in clean- ing out the pipeline? Have they had to call in iRoto-Booter, or any body like that, to clean out the residue of coal? Mr. JENNINGS. No. I was just at the Black Mesa pipeline a week be- fore last. It was shut down for the simple reason that they had deliv- ered so much coal to the generating plant in anticipation of a coal strike, which did not last very long in that particular case-they get their coal from the Peabody Coal Co.; they were able to make a con- tract. The miners went back to work in a couple of weeks after the coal strike was called, and because of the large volume; of coal at the power stocked station, they asked that the pipeline be shut down. And so, it is a very simple matter just to flush the line out with water and then start it back up again. Mr. EDGAR. In light of my visit yesterday on resource recovery, may- be sometime in the future we will be having you come back for trash slurry pipelines of some kind to take trash from New York City or Philadelphia or Washington to a boiler someplace in the same way you take the coal. Mr. JENNINGS. Congressman, if it takes as long to get the legisla- tion through as it does on coal, I think we would be inundated with that trash before we could get it done. Mr. EDGAR. Well, it was just very interesting to me to see pellets being made out of the trash that can be used as supplemental fuel in a coal-fired process, and it makes a lot more sense than trucking the trash off to a landfill to utilize it for energy. Hopefully, we will learn PAGENO="0260" 254 how to recover energy and other resources out of our trash and stop either incinerating it or landfillińg it, eventually. Are there any other questions? Mr. Fary? Mr. FARY. No questions, Mr. Chairman. Mr. JENNINGs. One thing that was brought up this morning I would like to comment on, and that is energy. The energy use is very close between the two systems, between the pipeline system and the railroad system, and I think the fact that they fail to take into consid- eration the. preparation of the coal and the. dewatering. and so forth, and the preparation ha.s to be done regardless of the method of trans- porting it. But there is one real significant point, and that is, that this energy that will be used in a pipeline is our own electrical energy that. will be generated by coal or nuclear, or some other type, while the railroads will be using imported oil, which is adding a great deal to our deficit balance of payments, which, in turn, is probably adding more to our inflationary rate than any other one single thing. Mr. EDGAR. Do you plan to ship the PiPeS to the place of construction by rail? Mr. JENNINGs. Probably so, if they provide the economics of dis- tance and volume and price. Mr. EDGAR. Are there any further questions? [No response.] Mr. EDGAR. Thank you for your testimony. Mr. JENNINGS. Thank you. Mr. EDGAR. Our next witness will be Marshall Sage, who will be representing the Railway Labor Executives' Associat.ion. Welcome to the committee this afternoon, and if you will just introduce your as- soc.iate there, we can begin. TESTIMONY . OF MARSHALL: SAGE, LEGISLATIVE RESEARCH DIRECTOR, UNITED TRANSPORTATION UNION, SPEAKING ON BE- HALF OP JAMES R. SNYDER, CHAIRMAN, LEGISLATIVE COMMIT- TEE, RAILWAY LABOR EXECUTIVES' ASSOCIATION, AND NA- TIONAL LEGISLATIVE DIRECTOR, UNITED TRANSPORTATION UNION, ACCOMPANIED BY WILLIAM G. MAHONEY, COUNSEL, RAILWAY LABOR EXECUTIVES' ASSOCIATION Mr. SAGE. Mr. Chairman. my name is Marshall Sage. I am the leg- islative research director of t.he United Transportation Union, and I ~m today representing Mr. James II. Snyder, who is the chairman of the Railway Labor Executives' Association's Legislative Committee and also national legislative director of the United Transportation Union. With me, I have Mr. William G. Mahoney, who is counsel for the RLEA. I will read Mr. Snyder's statement, and then any technical ques- tions may be directed to Mr. Mahoney, and we do have, I would say, a rebuttal statement we would like to make on some of the comments previously macIc. Mr. Chairman and members Of the subcommittee, on March 20, 1978, I submitted to the subcommittee a copy of short prepared remarks, to which was attached as exhibit 1 the statement of Mr. C. J. Chamber- PAGENO="0261" 255 lain, then chairman o~f the Railway Labor Executives' Association, who testified on this subject on April 25, 1977. Mr. Chairman, I re~ spectfully request those statements be copied into the record of this proceeding and I would like, if I may, to make a very short statement sununarizing the evidence both for and against coal slurry pipeline legislation, as that evidence has been developed before this sübcom- mittee, the Subcommittees on Mines and Mining and on Indian Affairs and Public Lands of the Committee on Interior and Insulai Aff tirs, as well as before the Subcommittee on Transportation and Commerce of the Committee on Interstate `uid Foreign Commerce, all of the U S House of Representatives Mr EDGAR Without objection, so ordered Mr. SAGE. Thank you. [Statements referred to follow ] STATEMENT OF J. R. SNYDER, CHAIRMAN, LEGISLATIVE COMMITTEE, RAILWAY LABOR EXECUTIVES' ASsocIATIoN AND NATIONAL LEGISLATIVE DIRECTOR, UNITED TRANS- PORTATION UNION Mr. Chairman and Members of the Subcommittee : On behalf of the Railway Labor Executives' Association, its members and the employees of the nation's railroads whom they represent, I would like to express our appreciation for the opportunity to present to you their views on a most important legislative matter. My name is J. R. Snyder. I am Chairman of the Legislative Committee of the Railway Labor Executives' Association and the National Legislative Director of the United Transportation Union. My office is located in the Railway Labor Building, at 400 First Street, N.W., Washington, D.C. Accompanying me is Mr. William G. Mahoney, counsel to the Railway Labor Executives' Association. The Railway Labor Executives' Association is an unincorporated association with which are affiliated the chief executive officers of all of the standard na- tional and international railway labor unions in the United States. The orga- nizations whose chief executive officers are members of the RLEA are listed below: American Railway Supervisors Association. S American Train Dispatchers `Association. S - Brotherhood of Locomotive Engineers. * Brotherhood of Maintenance of Way Employes. S Brotherhood ofRailroad Signalmen. S Brotherhood Railway Carmen of. the United States and Canada. Brotherhood of Railway, Airline and SteanishipClérks. S Brotherhood-of Slee~ing Car Porters. * S.... Hotel & Restaurant Employees & Bartenders Int'l Union. International Association of Machinists & AerospaceWorkers. International Brotherhood of Boilermakers & Blacksmiths. International Brotherhood of Electrical Workers. International Brotherhood of Firemen & Oilers. International Organization of Masters, Mates & Pilots of America. National Marine~Engineers' Beneficial Association. Railroad Yardmasters of America Railway Empioyes' Department, AFL-CIO. S Sheet Metal Workers' International Association. S Seafarers International. Union of North America. . Transport Workers Union of America United Transportation Union On April 25, 1977, Mr. C. J. Chamberlain, then Chairman of the Railway Labor Executives' Association, testified before the Subcommittee on Mines and Mining and the Subcommittee on Indian Affairs and Publič Lands of the Committee on Interior and Insular Affairs of the House of Representatives, in opposition to the enactment of H.R. 1609, which sought to extend the power of federal eminent domain authority to slurry pipeline, companies. I have attached Mr. Chamber- lain s state~nent to my prepared remarks as Exhibit 1 and respectfully request itbe copied into the record. * . 32-745-78-18 PAGENO="0262" 256 I attach that statement because it was made well before the issuance of the Office of TechnOlogy Assessment report on coal slurry pipelines and is largely confirmed by that report. The OTA report notes that the major impetus for the construction of coal slurry pipelines occurred in 1902 when President Kennedy suggested "coal slurry pipelines might represent a way of transporting coal more economically thereby improving the depressed condition of the coal mining industry * * *" We need nO longer search for a means of revivifying the coal mining industry. That was accomplished by our finally becoming aware of the seriousness of our dwindling petroleum reserves and our increasing dependence upon foreign oil. Absent the necessity of revitalizing the coal mining industry to what do we look to determine whether a need exists for the development of coal slurry pipe- lines? It seems clear to us that the OTA report found no such need. Indeed, as I just noted, the OTA report confirms in most major respects the testimony presented by Chairman Chamberlain. The OTA report finds that under certain circumstances pipeline economies would result in savings beneficial to the coal mine operators, the electric utilities, and the pipeline operators, but the extent to which those benefits would reach the consumer is unknown. Also, pipelines would divert traffic from the rails even where the incremental rail costs would be lower; pipelines may impede future railroad expansion; water in the state of Wyoming could be reduced by 3 percent at a time when agricultural uses already had depleted flows to a point where water quality had seriously declined; and, shipping costs of electrical utilities may be lowered while those of non-cOal rail users could be increased. These are but a few of the conclusions of the OTA report which appear to indicate that, on balance, legislation promoting construction of coal slurry pipe- lines would not be in the public interest. However, of most direct importance to the RLEA are those conclusions of the Report which indicate that from 1985 to the year 2000 some 12,000 to 18,000 railroad jobs would be lost, while some 12,800 individual employees would be unemployed. While the number of jobs in the construction industry would be increased, these jobs would be temporary in nature as compared with railroad jobs and would, of course, cease with com~ pletion of the construction of the pipeline. Such jobs would contribute but tem- porarily to the region in which they were located, whereas those employed by the railroads normally settle permanently in a particular region thereby con- tributing permanently to the development of the community in which they are found. As I said a moment ago, there has been shown no need, either present or future, for the construction of coal slurry pipelines. Certainly there has been no justification presented for the promotion of the construction of coal slurry pipe- lines by the Federal government through enactment of federal eminent domain legislation. As confirmed by the OTA report. construction of such pipelines would serve little or no public purpose and, considering the liabilities involved, could be detrimental to the overall public interest. Thank you for your kind attention to my remarks and for inviting the RLEA to present its position on these issues. STATEMENT OF 0. J. CHAMBERLAIN, OHAIRMAN, RAILWAY LABOR EXECUTIVES' ASSOCIATION My name is 0. 3. Chamberlain. I am 0hairm~n of the Railway Labor Execu- tives' Association and President of the Brotherhood of Railroad Signalmen. I present this statement on behalf Of the Railway Labor Executives' Association in opposition to the enactment of H.R. 1009. The membership of the Railway Labor Execntives' Association cojisists of the chief executive officers of twenty-one standard national and international rail- way labor unions. These organizations are: American Railway Supervisors Association American Ti~ain Dispatchers Association Brotherhood of Locomotive Engineers. Brotherhood of Maintenance of Way Einployes Brotherhood of Railroad Signalmen BrotherhoodRafiway Oarmen* of the united States and Canada. Brotherhood of Railway, Airline and Steamship Clerks, Freight Handlers, Express and Station Employees. Brotherhood of Sleeping Oar Porters. PAGENO="0263" 257 Hotel & Restaurant Employees & Bartenders International Union. International Association of Machinists and Aerospace Workers. International Brotherhood of Boilermakers and Blacksmiths. International Brotherhood of Electrical Workers. International Brotherhood of Firemen & Oilers. International Organization of Masters, Mates and Pilots of America. National Marine Engineers' Beneficial Association. Railroad Y'ardm'asters of America. Railway Employes' Department, AFL-CIO. `Sheet Metal Workers' International Association. Seafarers International Union of North America. Transport Workers Union of America. United Transportation Union. I appear `before you today to express the unanimous opposition of the member- ship of RLEA to HR. 1609, which seeks to extend the power of federal eminent domain authority to privately owned coal slurry pipeline co~panies. The private carriers thus advantaged by this grant of federal eminent domain authority would direct their efforts at capturing the most profitable long-haul, high-volume coal traffic; traffic traditionally transported by this nation's rail- roads. It is our conviction, `a conviction we believe buttressed `by President Carter's energy message to the Congress on April 20, that the passage of H.R. 1609 in these times would not be in the public intere~t. `Coal slurry pipelines are not needed; they `are environmentally unsound; they represent `a Specialized, inflexible use of energy; t'heir construction would con- tradict established Congressional policy of revitalizing the nation's railroads; and, would provide private carriers the com'bined advantages provided prh~ate and common carriers without the attendant disadvantages of either. Testimony an'd documentary evidence `will be presented to' `thes~ Subcommittees which will demonstrate that railroads can meet the increased demands for coal transportation at rates probably lower, but at least comparable to pipeline rates. Railroads are `at least `as, if not more, energy efficient than pipelines. However, if pipelines are afforded eminent domain authority under HR. 1609, railroads will `be placed at a regulatory disd'avantage that `seriously will handi- cap their `ability to compete. The only way to avoid th'e destructive competition which would result from private coal slurry pipeline companies' use of eminent domain authority is to recognize now that pipelines do not offer improved coal transportation, `but-at' the very `best-merely comparable coal transportation, while at' the same time, undermining' the financial stability and service avail- ability of the n'ation's railroads. We respeetft'ily submit that such' is too high a price to pay for an `alternative `system of transportation that can produce no measurable improvement over what can be provided by the ex'i'sting railroad system. A's the representatives of virtually all employees in the railroad industry, the members of the Railway Labor Executives' ASsociation `are `intensely concerned with `the ultimate `effect of the enactment of H.R. 1609 upon present and future job oppor'tuni'ties' in the `railroad `in'dustry. There `of course would be lost job opportunities in construction and maintenance on the railroad's as well as in carbuilding and car repair if the pipelines rather than railroads are to transport high-volume coal t'raffic~ between `certain pohits'in this Country. It is obviously difficult to determine with any precision the number of job opportunities which will be lost in the railroad in'dustry due to the enactment of H.R. 1609, however, we know that there will be direct losses of employment due to rail ~utbacks brought about due to `the los's of' hig~h-volume coal business. The industry is now ex~and'ing to meet `the growing need `for `hopper ears'and diesel engines, ,t'he" railroad equipmen't used in high-vol'ume coal transportation uni't~trains. This expanSion will ceSse to a great extent if the railrOads are de- prived of a'ny substantial amount of high-volume coal `business. If this expan- sion i's retarded, job opportunities will be lost. Despite the adverse effects upon the railroad industry of the enactment of HR. 160~, that legislation might~ `be, acceptable *e~re it not for five vital con- sIderation~. First of `all, coal slurry pipelines are not needed. As will be demonstrated in greater detail by other witnesses, the railroads of this nation can meet the increased demands for coal traffic without difficulty. For example,' coal traffic has been expected to double in the next ten years. PAGENO="0264" 258 With the energy problems now upon us that traffic may very well triple within the next ten years. Coal is the railroad industry's highest volume com- modity representing 16% of the ton miles transported by rail. Were that traffic to double in the next ten years, it would increase the total rail traffic by only 16% over a full ten year period or perhaps, if traffic tripled, it would be increased by 32% over ten years. Total rail traffic has increased by 15% over the past three years. Consequently, on the basis of volume of traffic alone, there is no reason to think that the railroads could not expand sufficiently to meet coal transporta- tion demands. The recent ii~tensive increase in the use of coal brought about following the so-called "Arab boycott" is an indication of the ability of the railroad industry readily to handle increases in coal traffic under emergency conditions. Surely under a predicted growth policy the railroads would have no material problem in providing the necessary facilities to transport all our coal needs in the future. A second consideration which renders the enactment of H.R. 1609 unaccept- able is, we respectfully submit, its devastating effects upon our environment. A coal slurry pipeline requires two hundred to two hundred and fifty gallons of water per ton of coal transported. The proposed Wyoming-Arkansas pipeline would require between 5 and 61% billion gallons of water annually to transport 25 million tons of coal, the minimum amount required to maintain profitable pipeline efficiency. The result of thi~ enormous drain of valuable water resources from arid western states would be incalculably harmful to human, agricultural and industrial needs. At the other end of the pipeline, half of the water must be drained off before the coal can be burned. Only one-third of the water could be used in the power generating plant for cooling purposes. Therefore, over 2 billion gallons of contaminated waste water would be discharged into Arkansas streams, or held in specially constructed Arkansas reservoirs. Ground water pollution resulting from seepage of this coial-contaminated water and air pol- lution resulting from the evaporation of this water are very real, very serious, and very great risks intimately intertwined with the use of a coal slurry pipe- line. We submit that there simply is no justification for such waste and pollution. A third consideration is the reversal of Congressional policy which would be evidenced by the enactment of H.R. 1609. In 1973 Congress enacted the Regional Rail Reorganization Act in order to rescue the Northeastern section of this country from economic chaos following the collapse of the Penn Central Rail- road. During the course of the hearings on that legislation, it became apparent that the railroad industry was in need of revitalization and so, following exten- sive hearings in both Houses of Congress, there was enacted the Railroad Revitalization and Regulatory Reform Act of 1976. That Act provides certain direct grants of funds but mostly loan guarantees to the railroad industry to revivify it in order to insure to this nation the essential service provided by the railroad i.ndustry. It seems to us contradictory of that policy to provide a type of competition which. would skim the cream from the traffic carried by the railroads for the benefit of private companies and very few members of the public, thereby further weakening the railroads and very probably necessitating greater amounts of Congressional aid to the railroads in the forms of direct mohetary grants and loanguaranteeS. Finally, it seems to us that a coal slurry pipeline represents an. irrational use of energy at a time when all our energy resources must be most prudently i~tllized. High-powered diesel locomotives pulling unit-trains are considered 98 percent fuel efficient, i.e., they use as fuel 2 percent of the coal they carry. Indeed, the diesel locomotive is generally regarded as the most fuel efficient transportation equipment available today. On the, other hand, coal slurry pipe- lines are supposed to' be approximately 96 percent fuel efficient as they burn up about 4 percent of the coal which they transport. In addition, of course, the railroad locomotive ~provides a much more flexible use of energy than does the `pipeline as it stands ready to transport virtually all commodities. to all points in this country. In closing, I wish only to add that we believe H.R. 1609 does not provide adequate regulation of coal slurry pipelines. It simply provides no effective regulation of their operation. Legislative inability to create comparable regu- latory schemes between the two competing modes of rail and pipeline for the transportation of c6al seems' to us to stem directly from the fact that coal slurry pipelines will never willingly be true common carriers in the common PAGENO="0265" 259 law sense. They will never hold themselves out to transport the coal of anyone who wants to ship through pipelines unless they are compelled to do so. Coal simply cannot be shipped by pipeline at all unless ground to the fine consistency required by the slurry process. The ordinary coal producer would not have coal in that form and slurry pipeline operators would not voluntarily accept unground coal because to do so would require the pipeline operators to grind that coal, thereby interfering with the grinding and transport of their own coal. Coal slurry pipelines, by their very nature, are intended only for the trans- portation of coal to particular heavy volume consumers at electric generating plants to which the pipeline is directly extended. Large volume users must plan to contract for their entire coal requirements from one, or from a very few, large supply sources thereby foreclosing the opportunity of all other producers to sell to them unless those other producers can obtain the right to use the coal slurrry pipeline owned by their competitors. The expensive and complicated processing plants and operations required by the coal slurry process will severely restrict the possibility of a small producer attempting to use pipeline service to transport its coal. Coal slurry pipelines are private, speciality carriers which, if permitted federal eminent domain authority without realistic, ef1~ective gov- črnmental regulation, threaten the nation's railroads-and therefore the shippers of all other commodities by rail-with destructive competition. We respectfully submit that H.R. 1609 should be rejected by your Subcommittees. Thank you. Mr. SAGE. As 1 listened to the testimony presented to these commit- tees and examined the OTA report, it became very clear to me, at least; that no need has been shown for the construction of coal slurry pipe- lines anywhere in the United States today or in the forese'eable future. As a matter of fact, the only benefit of a public nature which is even tentatively claimed for pipeline construction is that given by Secretary O'Leary when he testified before this committee and stated that the reason the administration supported construction of coal slurry pipe- lines was to be found in the possible potential lower costs which might be provided consumers of electricity. There have been other arguments to the effect that to block construc- tion of the pipeline is to block development of a particular type of technology, as if the use of a particular technology was in itself a public good, regardless of the public injury such use might inflict. It seems to me that these reasons given to support coal slurry pipe- lines would not support a feather on a breeze. On the other hand, as reported by the OTA, use of such pipelines will foreclose all other future uses of our remaining western water supplies. We should have an awfully strong need, or at least be guaranteed one tremendous over- riding public benefit, to be willing to shut off all other future possible water uses in our Western States. We have been shown no need nor offered any guarantee. After the water has carried that slurry to its destination, a great deal of it is just contaminated waste water. In Arkansas alone, over 2 billion gallons of this contaminated waste water would be discharged into streams or have to be held in specially constructed reservoirs. The OTA has testified that it does not know the answer to the problem. When the water evaporates and that fine coal dust starts blowing around, it seems to me that air pollution would become a very serious problem. Certainly, any contaminated coal slurry waste water that seeps out of the reservoirs would create quite an environmental mess. Closer to home, from my point of view, is the fact that railroads PAGENO="0266" 260 would lose a great deal of business. Development of railroad business would be retarded at a time when Congress is spending a great deal of money trying to save the railroads. Now, unlike most essential in~ ~lustries in this country, employment in the railroad industry has de- dined from 1.2 million in 1950 to approximately 500,000 today. The rate of decline exceeds any rate of decline of any class of employees anywhere in this country. Obviously, that rate should not be increased or even continued by unnecessary congTessional action. I respectfully submit, Mr. Chairman and members of this com- mittee, that legislation which would encourage the construction of coal slurry pipelines is unnecessary legislation, and the BLEA opposes permitting the development of a transport vehicle for coal-and ~e respectfully submit that is all the pipeline is-which has all the in- herent dangers to the public interest listed in the OTA report solely because it may possibly lower costs to some. consumers to some unknown degree at some future time. And to keep the record straight, at this point I want to say that the AFL-CIO has taken no position on this legislation, contrary to some implications which have been made by the supporters of the pipeline. - Thank you very much for your invitation to speak to you today and to present our views and for your attention to my remarks. Mr. EDGAR. Thank you for your comments. Unfortunately, with the bells ringing, it means that we must rim off to our duties on the House floor, and we will come back in about 10 minutes, if you will wait. Mr. Shuster? Mr. SHUSTER. I have no questions. I think it is an excellent state- ment. Mr. EDGAR. We appreciate your statement. Mr. MAHONEY. If I may make just. one comment on the statement which was made in the last paragraph of Mr. Jenning's prepared re- marks. I think it should be replied to on the record at this time. Mr. EDGAR. OK. If you will take 1 minute, we can wait for that. Mr. MAHONEY. Yes, sir. As I read Mr. Jenning's statement, I was Teminded of one of Winston Churchill's comments: Never in the annals of the Congress have so many mistakes been made about so many things in so few words as Mr. Jennings made about the power of the railroad labor unions and the United Transportation Union, in par- ticular. If anyone had taken the time during the preparation of this statement of Mr. Jennings, to look at the history of railroad labor strife in this country, he would find that there has not been a railroad strike on a nationwide basis since 1922 and there could be one today. Consequently railroad labor strikes would have no effect whatever on transportation of coal even if no coal slurry pipelines were built. Mr. EDGAR. Thank you for th.at comment. I hope that you understand that our not grilling you with questions does not, in any way, indicate our lack on interest in the statement that you have prepared and we appreciate your patience throughout the day. I~ ~ 4ifficuit when we have long days of. testimony and other responsibilities that we keep coming in and out of the situation. We appreciate your testimony today, and we will excuse you. We will be back in about 10 minutes with our final witness. Mr. SAGE. Thank you, sir. PAGENO="0267" 261 [Whereupon, a brief recess was taken.] [Whereupon, Mr. Fary assumed the Chair.] Mr. FAJ~Y. Substituting f or the chairman, the temporary Chairman Edgar, the Committee will come to order. Our nexi witnesses arc Mr. Turner and Mr. John J. Brown; Mr. Turner is the general president, International Union of Operating Engineers AFL-CIO, and Mr. Brown is the legislative director. TESTIMONY OF JOHN J~. BROWN, LEGISLATIVE DIRECTOR, INTER- NATIONAL UNION OF OPERATING ENGINEERS, AFL-CIO, SPEAK- ING ON BEHALF OP J. C. TURNER, GENERAL PRESIDENT, INTERNATIONAL UNION OF OPERATING ENGINEERS, AFL-CIO Mr. BROWN. Mr. Chairman, to set the record straight, J. C. Turner was called out of town, and he is the general president of the Inter- national Union of Operating Engineers. And it is on his behalf that I will present the statement on behalf of our members for our inter- national union. Mr. FART. Thank you. Mr. BROWN. Mr. Chairman and members of the subcommittee on Surface Transporation of the House Public Works and Transporation Committee, let me express my appreciation for being given the oppor- tunity to appear before you today. On behalf of the 425,000 members and officers of the International Union of Operating Engineers, AFL- ClO, we welcome the chance to appear before you to briefly explain our interest in slurry pipelines and what effect they have on our inter- national union. The interest in slurry pipelines stems from the need to convert our energy base from oil and gas to coal. If we must use more coal, then we must produce more and deliver more. The ability to move large quantities of coal underground in silent, dust-free pipelines that do not interfere with surface activities is an attractive option to many in the West who want to minimize the adverse effects of coal development. The fact that pipelines are reliable and economical make them interest- ing also to both the producer and the user of coal, as well as to the ulitmate consumer, who, in the long rim, pays all the bills. Once coal is mined, it can be transported in many ways. It can be converted at the mine into electricity and transmitted over high vol- tage transmission lines. It can be converted into gas or synthetic fuel and flow through pipelines. Or, it can be hauled in a railroad hopper car, a truck, or a barge for conversion at some distant point. But coal in its natural unprocessed state cannot move through a pipeline because the railroads say it cannot. In the West, where the distances from the mine to the consumer are greater, coal slurry pipelines are the only practical alternatives. There are no waterways for barges. The distances are too great for trucks. Water requirements and environmental consideration discour- age mine-mouth conversion in the West. The only alternative then to the overland transportation of coal by unit train is the coal slurry pipeline. Since the coal pipeline uses less water than any conversion process and produces less social and environmental disruption than a train, PAGENO="0268" 262~ coal pipelines should be part of a balanced coal delivery system. Slurry pipelines require only one-eighth of the water needed for an electric generating station, and one-half of that used in a gasification plant. Without slurry pipelines, there are no real options for reducing the adverse effects of massive overland shipments of coal in the mile-long unit trains. In the West, a recent study found that the coming impact of coal trains will be so severe that existing local and State resources and Federal programs are entirely inadequate fOr the needs along the front range. It is the same in States such as Wyoming, Kansas, Ne- braska-the States that are destined to be coal transportation corri- dors, whether they like it or not. The anticipated growth in western coal production will increase rail traffic so substantially and change the relationship of the railroad to the corridor communities so radically that an enviromnental impact statement should be required for each new coal train. There is nothing new or experimental about coal slurry pipelines~ The first patent for a coal pipeline was issued back in 1891. Slurry pipelines are in use in various parts of the world. The first coal pipe- line in this country was built 20 years ago in Ohio. That pipeline op- erated successfully for 6 years. It not only produced significant sav- ings in the cost of coal transportation, but it stimulated the railroads into improving their efficiency and introducing the unit train. But there is a limit, after all, to the efficiencies that can be produced by modifying a century-old concept. The unit train may be the last in-* novation. The ultimate extension of the unit train is the pipeline, but that extension is being denied. Why? The major constraint to the construction of other pipelines is the hostility of the railroad industry, in general. Five major pipelines are proposed to carry western coal to the energy-hungry population centers that historically have used oil and gas. But the railroads, who enjoy an effective monopoly on the transportation of western coal, have turned their rights-of-way, many of which were given to them, into an impassable barrier for coal slurry pipelines. To overcome this barrier and to obtain the same rights enjoyed by every other form of energy transportation, we are asking for the right of eminent domain. This is the same right that was advocated first by President Kennedy as long ago as 1962; by President Ford, who foresaw the need to increase coal utilization; and most recently by President Carter. The bill we support does not authorize a single pipe- line, as stated earlier here today. It does not provide 1 cent of Gov- eimment money, and it does not appropriate a drop of water. It simply establishes the machinery for the examination of each specific pipe- line proposal on its merits. The interest of our members and that of every citizen is at stake in this issue. We respectfully request that you review the 1978 report by OTA, wherein it is stated that coal slurry pipelines will not cause a loss of railroad jobs, but will put paychecks into the hands of con- struction workers-paychecks instead of welfare and unemployment checks. The construction worker today has a rate of unemployment that, in some areas of this country, doubles and triples the average unemployment rate in the Nation. That is the interest of our mem- PAGENO="0269" 2.3 bers. For the citizens of our country, it means, as previously~ stated, a new way to transport energy to all parts of an energy-starved na- tion. We ask that you support this `bill and move for its adoption without any crippling amendments. Again, on behalf of the members and officers of the International Union of Operating Engineers, let me express my thanks for the con- sideration and kindness shown to me by the members of your sub- committee here today. Mr. FARY. Thank you, Mr. Brown. The Chair recognizes Mr. Shuster. Mr. SHUSTER. Thank you, Mr. Chairman. Mr. Brown, thank you for your statement. How many jobs, roughly, would be created by the six proposed pipelines? Mr. BROWN. Depending upon the amounts of moneys or the lines that will be constructed, Congressman, you can roughly figure, on 1 billion `dollars' worth of construction work, somewhere around 58,700 in jobs. Then, if you go into your related jobs, if I could use this building that we are now in, you can see the pictures on the walls, and if you look at this, you can see the curtains and you can see the tables. You can just appreciate the wiring, and the glass, and everything that goes into a building. You can see the amount of related jobs that will go into any given structure, once construction is completed. I think you will find in the last two winters, where we have had severe shortages of commercial and residential gas, the difference that coal slurry will mean to the United States, jobwise, as far as con- struction is concerned, you are also talking about permanent jobs, be- cause you are talking about the pumping of coal slurry. Mr. SHUSTER. Thank you very much. Mr. FARY. Mr.' Mineta? Mr. MINETA. Thank you, Mr. Chairman. Thank you, Mr. Brown, for your testimony. I can understand that you have taken a look at this from the viewpoint of how it creates jobs for operating engineers, but have you looked at it in terms of the loss of jobs in the railroads? If slurry lines go in, would the railroads then lose this potential income that they might have otherwise had for improving their road- beds, for buying capital equipment, and for doing a lot of other thmgs? Mr. BROWN. I think, very seriously, as was mentioned, there is a difference of opinion within the AFL-CIO, as such. You will notice in the testimony presented by my brother, Jim Snyder, many of the names that are listed as part of his association are also part of the building trades-the sheet metal people, the Brotherhood of Electrical Workers. We are not so far apart that we aretrying to create unemployment by creating employment. I think we should recognize today, and every- one has been talking about it. that our modes of transportatiofl are changing. I think the railroad, if anything, is coming back into its own, both for freight and for passengers. One only has to look at the amounts of money that Congress has spent over the last 3 or 4 years, especially in 1975 in the 4-R Act, on PAGENO="0270" 264 exactly what yOu are doing fdr ConRail. 1 do ~not find that yoi~ are going to create unemployment. The OTA report says that you will not create unemployment. Let me basically say that as the West expands~-and, there is no two ways abdut it; there will be expansion. I do not think we are going to ~it with 220 million Americans. The population will definitely increase, and our need for transportation in all ph~ses, whether it be by air- plane, by rail, or by truck, will increase. We are producing more for our own people. So, I do not see, Congressman, how we are going to create unem- ployment within the railroad system itself. I do not find that to be. Mr. MINETA. Well, I think we have seen a drop in the number of rail passengers. I Imow that at the hearings we had on~ Union Station here in Washington, testimony showed that there has been a drop in passengers, even though we have poured a lot of money into Amtrak and ConRail operations. Has there been any discussion on the extent of, let us say, the water rights and whether or not there is a preemption on the part of the Feds over the State water rights issue. Mr. BROWN. I think that if the bill created the problem, then I would say we have to address ourselves to it. But, the bill itself gives the States the rights to control their own water. I think it was brought up here by Congressman Eckhardt this morning that we are not a Nation of separate, individual States. You are talking about a United States, and I think that is what it should stand for. Surely, if we had something in one section of the country that could benefit another section-and let me again use Congressman Eckhardt's own words of transporting coal to Texas so that they can release the necessary gas and oil that the Northeast needs. I was reminded not too long ago of how long this fight goes on be- tween who transports any given goods in this country. It was in about the year 18Th that the railroads denied oil pipelines. In fact, in the State of Pennsylvania, they actually ran their oil pipeline-I think it was called the Columbia Conduit-up to the railroad, emptied it out by mule, carried it across the railroad, and put it back in the pipeline. Is this what we are talking about today, in 1978, 103 years later? We are talking about transporting energy in an energy-starved nation. The whole administrtaion that you are a part of, Congre~sman, has been geared to the reduction of oil imports and yet we are laying out there with 400 years of good, God-given energy. You talked this morning of a unit train only 110 cars long. Well, if they do not increase the 110 cars, that means they cannot transport any additional coal. So, we are going to have less coal, or the same coal. We are not going to have more coal, which is what we are looking for, unless they add another 110 cars right behind it. Then you are not talking about the 2, 3, or 4 minutes to pass a given station. You are talking about 4 or 5 units of 110 cars each and, surely, this is not what we are looking for in the western section of our Nation. At least, I do not see it. I would say to the Congressman today that when it comes to the mining of the coal in the West, the operating engineers, because of the strip mining that has gone on out there, we are deeply involved m it, and that is why we are deeply involved in the coal slurry. PAGENO="0271" 265 Mr. MINETA. Thank ~OU very much, Mr. Brown. Thank you Mr. Chairman. Mr. FARY. Thank you, Mr. Mineta. Mr. Brown, I have one question. Does your statement reflect the opinion of the AFL-CIO, or the International Union of Operating Engineers? Mr. BROWN. I think it was well put by the previous speaker who rep- resented the brotherhood. My statement reflects only those unions that would be involved in the construction of the pipeline. As I said to you before, we are part of the building trades. My statement, as of today, reflects the position of the International Union of Operating Engineers and its 425,000 members. Jack Curran, who testified here at the last public hearing, his statement represented 600,000 members of the Laborers International. Again, Mr. Chairman, there are many people on both sides of the table. As I said, you will see members here who are also members of the building trades. The AFL-CIO has adopted a position of complete neutrality, as the parent organization between two sons who are fighting. Let me put it that way to you-a difference of opinion. Mr. FARY. Thank you. Are there any other questions of the witness? [No response.] Mr. FARY. This concludes the hearings on House Resolution 1609. The record in these proceedings will be held open until April 26, 1978 for the submission of any additional views. There being no other witnesses, the committee will stand adjourned, subject to the call of the Chair. Thank you very much. [Whereupon, at 4:18 p.m., the hearings were adjourned subject to, the call of the Chair.] PAGENO="0272" PAGENO="0273" APPENDIX DEPARTMENT OF JUSTICE Washington, D.C., May 2, 1.978. Hon. JAMES J. HOWARD, Chairman, Subcommittee on Surface Transportattion, House of Representatives,~ Washington, D.C. DEAR Ma. CHAIRMAN: This is in response to your letter of Apr11 24, 1978, in- quiring as to (1) whether 11.11. 1609 would impose any new function on the Department of Justice which it is not able to carry out under its existing au- thority, and (2) what costs would be incurred by the Department (presumably under that bill) and for what purpose. (1) We are not aware of any new function created by H.R. 1609 which the Department would lack authority to carry out. (2) HR. 1609 would require the Department of Justice to review any applica- tion for a certificate for public convenience and necessity under the Act in order to provide advice as to whether the issuance of such certificate would have anti- competitive effects. [Amendments to H.R. 1609 supported by the Administration retain the requirement for this review under a slightly reworded standard.1 Costs incurred by the Department in performing this function will depend on the number of applications for certificates and the complexity of the antitrust analy- sis required for each. The Department does not expect the number to be great. Other costs incurred as a result of litigation which H.R. 1609 might develop are unknown but are not anticipated to be great. Sincerely, PATRICIA M. WALD, Assistant Attorney General. DEPARTMENT OF JusTIcE Washington, D.C., May11, 1978. Hon. JAMES J. HOWARD, Chairman, Subcommittee on Surface Transportation, Committee on Public Works and Transportation, House of Representatives, Washington, D.C. DEAR Mn. CHAIRMAN: This is in response to your request for the views of the Department of Justice on H.R. 1609, the Coal Pipeline Act of 1977. HR. 1609, both as introduced and as reported by the House Committee on Iii. tenor and Insular Affairs ("Interior Committee"), would grant the power of eminent domain to carriers of coal by pipeline operating under certificates Of public convenience and necessity issued by the Secretary of Interior. COal piPe- lines not requiring eminent domain authority would not be obligated to secure a certificate of public convenience and necessity. All certificated coal pipelines would be subject to regulation according to the common carrier provisions of the Interstate Commerce Act. The bill also would amend subsection 28(a) of the Mineral Leasing Act of 1920 (30 U.S.C. §~ 181 et seq.) to insure that coal pipe lines would be eligible for rights-of-way across Federal lands under the terms of that Act. HR. 1609 as introduced contained a "commodities clause" (Section 5(d) (1)) prohibiting pipelines that have been granted the power of eminent domain from transporting coal which they mine, own, or in which they have a direct or indirect interest. H.R. 1609 as reported by the House Interior Committee would qualify this prohibition by permitting a pipeline to own coal in order to achieve trańs- portation and storage economies by commingling the coal received from more than one shipper. A second qualification would permit the Secretary to allOw ownership of coal during shipment to effectuate similar economies. In the origi- nal H.R. 1609, the commodities clause further prohibits the issuance of a certi- ficate of public convenience and necessity to any pipeline which controls, 1s (267) PAGENO="0274" 268 controlled by, or is under common control with suppliers and customers of the coal pipeline. No carrier granted the power of eminent domain under the bill could control, be controlled by, or be~ under common control with suppliers and customers. The commodities clause of H.R. 1609 is not applicable to all coal pipelines, but applies only to those pipelines that are certified to operate pur- suant to the Secretary's grant of eminent domain authority. HR. 1609, both as introduced and as reported by the Interior Committee, containstwo provisions, Sections 5(e) and 13, that wouldeondition the grant of a certificate and the right to operate a coal slurry pipeline without a certificate upon the making of an agreement within two years of the date of enactment with the Secretary of Interior that the person engaged in transporting coal will per- mit other carriers to acquire rights-of-way across its pipeline. H.R. 1609, both as introduced and as reported by the Interior Committee, would prohibit the issuance of a certificate of public convenience and necessity unless the Secretary of Interior received the advice of the Attorney General and the Federal Trade Commission that the issuance of a certificate "would not re- strain trade, further monopolization, substantially adversely affect competition, or otherwise create or maintain a situation in contravention of the antitrust laws" (Section 7). Also, the bill would preserve antitrust jurisdiction in the Attorney General and the Federal Trade Commission to challenge any anticom- petitive situation involved in the operation of a coal slurry pipeline. Finally, the bill provides for the civil and criminal enforcement of any of the provisions of 4he Act or regulations promulgated thereunder. On March 21, 1978, Secretary of Energy James R. Schlesinger transmitted to both the House Committee on Interior and Insular Affairs and the House Corn- mittee on Public Works and Transportation the Administration's recommenda- tions concerning HR. 1609. The Department of Justice supports those recom- inendations. In the remainder of this letter, we indicate which of those recoin- mendations are of particular concern to this Department and transmit on behalf of the Administration one additional recommendation. The comodities clause as drafted in the Original H.R. 1609 would apply only to those pipelines granted the power of eminent domain through certification and not to pipelines that do not require eminent domain authority and certification. We suggest that the commodities clause be extended to all coal slurry pipelines, re- gardless of whether they are certified. Our recommendation is based on the fact that the competitive problems sought to be cured by the proposed commodities clause are not limited to those pipelines exercising the power of eminent do- main. The Administration's amendments to H.R. 1609 would make the commodi- ties clause prohibitions applicable to all coal slurry pipelines subject to Part I of the Interstate Commerce Act. Since H.R. 1609 specifically makes coal slurry pipelines subject to the requirements of Part I of the Interstate Commerce Act * (Section 12) and since the common carrier provisions of the Interstate Commerce Act appear to apply to coal slurry pipelines (Section 1(1) (b) of the Interstate Commerce Act), the Administration amendments would cure the present in- firmity in this provision. H.R. 1609, as amended by the House Interior Committee, added qualifications to Section 5(d) (1), the commodities clause prohibition. The qualifications would permit ownership of coal by pipelines after it was mined but prior to and during shipment in order to effect storage and shipping efficiencies through com- mingling coal from more than one shipper. Also, the Secretary of Interior has been given the discretion to waive the commodities clause proscription during shipment in order to effect these same efficiencies. The Committee report concern- ing these qualifications indicates that they were inserted to avoid the unintended effect of requiring pipelines to batch coal that might he shipped through the pipeline by more than one shipper, thereby increasing storage and transportation costs (H. Rep. No. 95-924 Part I, 24-25). The Department is of the view that the provision as originally drafted would not have this effect, since the proscription is against vertical integration and not against efficient pipeline operation. Moreover, the proposed qualification could overreach its stated purpose and, in fact, operate to vitiate the commodities clause provision by giving back to the pipeline the ownership of the coal it would transport. The Department believes that the commodities clause as amended by the In- tenor Committee is insufficient for its purposes and supports instead the com- modities clause endorsed by the Administration. Sections 5(e) and 13 of HR. 1609, both as introduced and as reported by the Interior Committee, would create inadvertent* barriers to entry of either new PAGENO="0275" 269 `certificated or non-certificated pipelines that have failed to enter certain agree- `ments with the Secretary of Interior concerning access across rights-of-way within two years of enactment of H.R. 1609. Such barriers would result from the fact that all future competitors would have had to make the necessary compact or agreement within the two year period or be barred thereafter from entering the industry. The Department is of the view that the provisions were not in- tended to have this adverse affect. The Administration's amendments would eliminate the problem by requiring, in Section 5(g) of the Administration's version of the bill, that the compact be made prior to the issuance of a. certifi- cate rather than within the two year period and, in Section 13, by providing * that subsequent to two years after the date of enactment of the Coal Slurry Pipeline Act non cei tificated pipelines may corn nence operations only after en tering into a compact. Both changes are essential to avoid the inadvertent effects of the original provisions. Furthermore, as indicated in Secretary Schlesinger's letters of March. 21, Section 5(e) (Section 5(g) of the Administration version) was undergoing further review at that time. That review has been completed and the Adminis- tration now recommends an additional change. According to the House Interior Committee Report on H.R. 1609, Section 5(e) was intended to require certificated coal pipelines to enter into compacts with the Secretary of the certificating Department, so that . "certificated carriers cannot unfairly deny access to other carriers." H. Rep. No. 95-924, Part I, 25. However, as presently worded, the section places requirements on interstate coal transporters other than pipelines. Particularly, Section 5(e) would require railroads to enter into compacts with the coal slurry pipeline certificating Department whenever they obtain certifi- cates of public convenience and necessity from the ICC (such certificates are required whenever an extension or abandonment of rail service is sought). Therefore, whenever railroads obtain certificates of public convenience and necessity they would have to grant coal slurry pipelines easements over their entire system. Therefore, the section should be* reworded to. clearly indicate that only certificated coal slurry pipelines have to enter into such compacts. We recommend the following substitute for Section 5(e) of the bill as introduced and reported by the Interior Committee, and for the earlier Section 5(g) of the Administration version of the bill:. "No certificate of public convenience, and necessity may be issued to any car- rier unless such carrier has entered into a compact with the Secretary prior * to the issuance of a certificate providing means whereby rights-of-way across the lines of such carrier may be acquired by another carrier on terms customarily employed with reference to other types of pipeline.. Any Federal court of com- petent jurisdiction may entertain a suit by an interested party to enforce the provision of such compact." The antitrust review provision of HR. 1609, both as introduced and as reported by the Interior Committee, ought to be changed to reflect the proper standard.for review-the probable competitive effect of the pipeline.. The . bill should be amended to provide an antitrust test in language similar to other antitrust re- view statutory provisions such as those contained in the Atomic Energy Act (Section 105c, 42 U.S.C. 1473) or the Federal Coal Leasing Amendments Act of 1975 (Section 15, 30 U.S.C. 184). Those statutes condemn actions which would be "inconsistent" with the antitrust laws.. The Administration's amend- ments reflect this change (Section 7(a)). The Department also is of the view that an antitrust review by both the Attorney General and the Federal Trade Commission is duplicative and un- necessary. The Administration's amendments have suggested mandatory review only by the Attorney General and have added a 180-day time limit on this review. . . HR. 1609, both as introduced and as reported by the Interior Committee places certificate jurisdiction over coal slurry pipelines in the. Department of Interior and rate regulation in the Interstate Commerce COmmission. The De- partment prefers the Administration position, which would place certificate au- thority in the Department of Energy, with concurrences .by the Departments of Interior and Transportation and rate authority in the Federal Energy Regula tory Commission. In the past, the Interstate Commerce Commission had juris- diction over all pipelines, except those specifically exempted from its jurisdic- tion (water. an.d gas pipelines). The enabling act creating the Department of Energy transferred the responsibility for regulating oil pipelines to the Depart PAGENO="0276" 270 ment of Energy, leaving virtually no pipeline subject to the interstate Com- merce Commission's jurisdiction. In our view, regulation of coal pipelines also should be vested in the Department of Energy in order to maintain consistency in regulation and enforcement. HR. 1609, both as introduced and as reported by the Interior Committee, pro- vides for dual enforcement by the Department of Interior and the Interstate Commerce Commission. The Department of Interior would enforce the provisions of H.R. 1609 by requesting the Attorney General to institute enforcement ac- tions under proposed Section 8 and the Interstate Commerce Commission would enforce the commodities clause prohibition. Moreover, it is not clear which agency would enforce the common carrier provisions of the Interstate Commerce Act. We would suggest that H.R. 1609 be amended to vest responsibility for the regu- lation of coal pipelines in the Department of Energy and that all regulatory and enforcement powers with respect to such pipelines be removed from the Inter- state Commerce Commission. The Administration's proposed amendments to H.R. 1609 reflect this transfer of regulation and enforcement. The Department of Justice has no objection to the proposed legislation if amended as suggested and in ~onformance with the Administration's proposed amendments. The Office of Management and Budget has advised that from the standpoint of the Administration's program there is no objection to the submission of this report. Sincerely, PATRIcIA M. WALD, A,!sistant Attorney General. INTEBSTATE COMMERCE CoMMIssIoN, Washington, D.C., May 3, 1978. Ron. JAMES J. HOWARD, Chairman, Subcommittee on Surface Transportation, Committee on Public Works and Transportation, House of Representatives, Washington, D.C. DEAP. CHAIRMAN HOWARD: Thank you for your letter of April 24, 1978, request- ing answers to questions on contract rates, unit train rates, and the general ratemaking authority of the Commission. Because I perceive the questions to be essentially the type that might be put to me as a witness before your subëommittee. I am forwarding these answers to you without review by the other members of the Commission in order to meet the requested date which has been extended to today. I am circulating copies of this exchange of correspondence to the Commission. I hope these answers which have been developed by our staff will be helpful t,ř you. Should any of the members desire to supplement the answers, I will be pleased to forward that material to you as soon as possible. Sincerely yours, A. DANIEL O'NEAL, Chairman. [Enclosure.J QUESTIONS ICC CONTRACT RATES 1. There has been much discussion about the issue of long-term contract rates for pipeline operators and for railroads. I think that the Subcommittee should clarify this issue. I, therefore, would like to ask you a series of questions on this point. (a) Do you construe H.R. 1609 as permitting long-term contract rates for coal pipelines? (b) If you do, under what sections of the Interstate Commerce Act would these rates be regulated and how would they be regulated? (c) If you do not consider H.R. 1609 as permitting long-term contract rates, how would the ICC regulate the rates? (d) Other than as provided for in, section 15(19) of the Act, are railroads per- mitted to negotiate long-term rates or contract rates for any service they pro- vide? Please explain. Could it include "take or pay" contracts? (e) Would you please explain section 15(19) of the Interstate Commerce Act, and explain how that section has been utilized and to what éffecl? PAGENO="0277" ~271 (f) Presently, there is only one coal pipeline carrier. What type of rates does carrier file, and, how are they regulated by the ICC? UNIT TRAINS 2. Would you please explain to the Committee how rates for unit train ship- ments are established? (a) Could a coal pipeline operator challenge a rate filed for unit trains? (b) Conuld a railroad challenge a rate filed by a coal pipeline? (c) Briefly, could you explain how the ICC would handle a rate contest between railroads and coal pipelines? RATEMAKING 3. Would you please state which provisions of the Interstate Commerce Act (a) Provide a basis for remedies by shippers; *(b) Provide a basis for remedies by competing carriers. CONTROL QUESTIONS 4. Section 5(d) (1) of the bill imposes a "commodities clause" type restriction on coal pipelines, except in two types of situations. Do you interpret this as a ban on any ownership interest by the pipeline in the coal being transported? Please explain. (a) A similar prohibition for railroads is set forth in section 1(8) of the Interstate Commerce Act. Would you explain to the Committee * (1) How it differs from the one in H.R. 1609, and (2) How section 1(8) has been applied? (b) If the ban on pipelines is broader do you believe that it is necessary? If so, why? (c) Subsection 5(a) (4) prohibits the issuance of a certificate to any carrier that controls, is controlled by, or is under common control with any person which uses coal transported by the pipeline carrier, of which supplies coal to the pipe- line. In addition, the same ban applies to any carrier that has been granted the * power of eminent domain. (1) Do you believe that this type of ban is necessary. If the answer is yes, then why? (d) Enforcement of the control issue contained in section 5 is vested with the ICC. (1) What enforcement powers do you have at disposal for this purpose? (2) Do you believe that the ICC has adequate powers to ascertain whether or not a "control" violation exists? GENERAL RATEMAIUNG 1. Why type of regulatory controls would exist for initial rate filings by coal pipelines under the provisions of the Interstate Commerce Act? 2. In Section 5(a) of the bill it is stated: "The Secretary is authorized to issue such a certificate if the Secretary finds, with respect to a particular project of the carrier as to which said power is sought, that the project is in the national interest and provides the capacity nec- essary to fulfill the requirements of a common carrier of coal, as determined by the Secretary." a. Do you regard this as empowering the Secretary to establish the common carrier obligations of the coal pipeline in the certificate of public convenience and necessity? b. If you do, would this not preclude any authority of the I.C.C. from impos- ing a common carrier duties upon the carrier that are not included in the certificate? 3. In Section 56(6), the Secretary is required to make findings on the extent to which the project (6) will be likely to result in lower rates for the transporta- tion of coal than would be in effect if such coal were transported by railroad under Part I of the Interstate Commerce Act. (a) Do you regard this as requiring the rates to be included in the contracts * that must be considered by the Secretary in section 5(a)? (b) How could this be done before the pipeline is constructed? (c) What, if any, effect would this have upon the ICC's authority over the rate when it is filed with that agency? 32-745-78------19 PAGENO="0278" 272 RATEMAKING ` 1. In determining rate levels, the Interstate CommerceCommission has certain guidelines in section 15a of the Act. Would you please explain the factors the Commission can consider with respect to coal pipelines and railroads. Please indicate where the two might differ. 2. The Office of Technology Assessment's Report at page 100 states that "The major difference between the ICC's railroad ratemaking and its pipeline rate- making is that the reasonableness of railroad rates is judged without reference to a fair rate ofreturn." Would you please. comment on that? How has this been affected by the issuance of Ex Parte No. 338? . 3. Does HR. 1009 impose any function upon the I.C.C. that the agency is not now able to carry out under its existing authority? What, costs would be in- curred by the Interstate Commerce Commission and for what purpose? RESPONSES . C~NTIIACT RATES 1(a). The certification of coal pipelines described in section 5(a) of the bill suggests that long-term contract rates will be permitted. There is no~ explicit language however, which describes what types of contracts are contemplated, or whether the rate will be immune from regulatory provisions regarding reasonable- ness, discrimination, or other regulatory safeguards; 1(b). Section 5(c) of the bill requires that any pipeline "be constructed, op- erated, and maintained as a common carrier as provided in the `Iiiterstate Com- merce Act." By way of dicta in a 1961 decision, a plurality of the `Commission stated that čontract rates are illegal per se.' The Commission is currently exam- ining its position on contract rates, and will shortly issue a policy statement to the effect that contract or contract-like rates will be considered individually on their own merits under Part I of the Act. Moreover, despite the prior statement as to per se illegality, the position of the Commission has been that tariffs con- taming exclusive dealing provisions (i.e. contract-like rates) are illegal, only where they constitute a "destructive competitive practice" (against other car- riers) or where other shippers would be competitively disadvantaged. Notwithstanding , a possible reexamination of the Commission's policy on con- tract rates, very long-term contract rates for coal pipelines could be inconsist- ent with the obligations of common carriers under Part I of the Act and with the Commission's regulatory jurisdiction over such common carriers.2 With re- spect to applicable sections of the Act, a pipeline common carrier has a duty to provide and furnish transportation upon reasonable request there- fore . . . " (Section 1(4)) and to establish " . . . just and reasonable rates, fares, charges, and classifications .. . " (Section 1(4), (5), and (6)). Among other powers, the Commission has authority to review all pipeline rates and, if it determines that such rate is unjust or unreasonable or unjustly discrimina- tory or unduly preferential, to suspend such rates and determine and prescribe the just and reasonable rate (Section 15(1) and (7)). Moreover, the Commission has held that a contract between a carrier and shipper to institute a particular rate level is not binding. See, e.g., Parley Terminal Company v. Atchison, Topeka And Santa Fe Ry., 522 .F.2d 1095 (9th Cir. 1974), cert. denied, 423 U.S. 996 (1975). Therefore, under the present regulatory scheme, a pipeline operator could not necessarily rely on the stability of .a negotiated long-tenn contract rate. 1(c). Not applicable in light of preéeding answer. 1(d). While nothing in the Act prohibits railroads from negotiating with ship- pers and agreeing on the terms of the service to be provided, such agreements are not binding and they may be challenged by any interested person after their terms are filed and published in a public tariff with the Commission. However, rail tariffs containing trainload or unit-train rates with minimum annual vol- 1 Guaranteed Rates-Sault Ste. Marie, Out., to Chicago, Ill., 315 i.c.c. 311 (1961). (in this case, a railroad published a tariff which, in effect, required a shipper to use the rail- road for all its transportation requirements in order to he eligible for the reduced rate.) 2 A single company-owned pipeline transporting only Its own products Is a common carrier for reporting purposes only and cannot be required to file rates with the Corn'- mission or to transport the products of others. See Churn pits Refining Co. v. United States 329 U.S. 29 (1946). See also answer to question 1(f) below. PAGENO="0279" :273 umes (i.e., quantity discounts) are similar. to contract rates and are widely used. They are contract-like rates in that they are designed primarily to meet the specific needs of a particular shipper. Such tariffs have been approved by the Commission in the past where they were found necessary to meet unregulated competition, where the rate was compensatory to the carrier, and where other shippers would not be discriminated against. The Commissions has not per- mitted such tariffs, however, where the "exclusive dealing" aspects were found to effectively capture the traffic of a particular shipper to the possible disad vantage of other carriers who might be able to provide the service more eco- riomically. The provisions regarding minimum annual volume in unit-train tar- iffs are also similar but not identical to "take or pay" contracts. If a shipper fails to meet the minimum annual volume, the shipper must pay the higher "fall back" rate which is normally a trainload or single-car rate. 1(e). Section 15(19) is designed to encourage investment in rail-related facil- ities and innovative rail technology. The section provides incentives for individual carriers and shippers to negotiate rates (and other transportation terms) for new or innovative service. Such rates presumably would reflect the capital in- vestment made by the shipper or carrier. Examples of the type of investment contemplated include railroad invest- ment in the development of a new type of freight car to service a particular shipper or shipper group or investment in a spur track from a shipper's manu- facturing plant to~ the main line of a railway. Such investments might not other- wise be made, either because of the railroads' difficulty in generating investment capital or shipper uncertainty over the stability of the transportation terms (in- cluding the rate) on which the capital investment decision is based. The section contains two incentives to encourage such investments-an ex- iedited Commission determination of the lawfulness of rate schedules premised on the investment and an effective fiye-year ban on regulatory interference with that rate once it has been found lawful. To the extent that Section 15(19) is successful in achieving its purpose, better service will be available to shippers kind additional traffic (and revenues) to the railroads. To date, three capital incentive schedules have been filed with the Commis- sion. In all three, railroads have used Section 15(19) to propose unit-train tariffs on movements of Wyoming coal to~ newly constructed coal-fired electric generat- ing facilities. The terms of the schedules reflected the particular transportation requirements of electric utility shippers. Capital incentive treatment was based upon the railroads' investment in new rolling stock and track improvements which would be needed to accommodate the heavy unit-trains. The Commission approved the first two schedules over the protests of the electric utilities which the schedules were designed to serve.3 Prior negotiations between the carriers and the utilities broke down because they could not agree on a rate. Hopefully, the absence of cooperation between shipper and carrier in these cases reflects an economic battle over the western coal rate structure rather than a failure of Section 15(19). After a western coal rate structure starts to develop, it can be expected that protests will more likely come from competing shippers or carriers who feel that a negotiated capital incentive rate is clis- crirninatory or prejudicial. 1(f). Presently, this Commission has jurisdiction over the Black Mesa Pipe- line Company which is the only coal slurry pipeline known to be subject to its regulation. This is an eighteen inch pipeline of 273 miles running in a south- westerly direction from the Black Mesa coal area in Northeastern Arizona to near Davis Dam in Nevada where the fuel is used to generate electricity at the Mohave Power Plant. Black Mesa Pipeline does file annual reports with the * Commission, and is subject to our system of accounts. Black Mesa Pipeline has a contract rate with a single shipper. Since there were no other shippers involved or competitively disadvantaged, the Commis- sion has not to date taken action to require a ~ariff to be filed Docket No. 36608, Incentive Rate on Coal-Cordero, Wyoming to Smithers Lake, Texas, I.C.C. (Decided November 30, 1977, Docket No. 36612, Incentive Rate on Coal-Gallup. New Mexico to Cochise~ Arizona, I.C~C. (Decided November 28, 1977). The third case, Docket No. 36792, IncentIve Rate on Coal-Belle Ayr, Wyoming to Council Bluffs, Iowa, is currently pending before the Commission. The case is perhaps distinguishable from the first two in that it is not for new service; coal~ is :already moving over the route which the capital incentive schedule is designed to serve. PAGENO="0280" 274 UNIT TRAINS 2. Unit-train rates are normally established through negotiation between the carrier and shipper. The rates and terms of unit-train service reflect the par- ticular characteristics of the shipper's transportation requirements. Normally, the rates would be considerably lower than the carload rate to reflect economies of transporting large volumes in a virtually continuous movement of the ship- pers' freight. The negotiated terms of the service are then published in a public tariff (which is subject to challenge by any interested person) on file with the I.C.C. While any person theoretically could ship under the tariff, as a practical matter, it would usually apply only to the shipper who negotiated the rate. In the absence of agreement by the shippier on the carrier-proposed rate, the Commission may be asked to prescribe a just and reasonable rate for the service. 2(a).Yes. 2(b). Yes. 2(c). Upon complaint of either a railroad or pipeline, the Commission would begin an investigation and decide the matter in an adversarial proceeding. The Commision would be called on to consider any "inherent advantages" ~ which one mode might have the other in providing the particular coal service at issue; e.g., the ability to provide the service at a lower cost. If the challenged rates were found to be below the variable cost (out of pocket costs) of providing the service, or if the tariff (or contract) terms would prevent the competing mode from fairly competing for the traffic, the Commission would have to deter- mine whether the rate or tariff constituted a "destructive competitive practice." A new Section iSa (4) with regard to railroads has been added by the 4R Act. The last sentence of that provision may have a bearing on intermodal rate controversies. However, it has not to date been considered in a formal proceeding. EATEMAKING 3. Shippers and carriers alike are protected under the National Transporta- tion Policy, 49 U.S.C. preceding § 1. Under the NTP, the Commission has an obli- gation to preserve the "inherent advantages" of each mode of transport and to "encourage the establishment and maintenance of reasonable charges for transportation services, without unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices." 3(a). Shippers' primary remedies under Part I of the Act are contained in Sections 1(5), 2, 3, 4, 15(1) and (7). 3(b). A competing carrier's primary remedies are contained in Section 15 (in conjunction with the National Transportation Policy) and Section 3(4). Section 1 is also available to competing carriers. CONTROL QUESTIONS 4. The first part of this question is whether section 5(d) (1) would ban any ownership interest in the coal being transported. By the very terms of section 5(d) (1), the ban extends to coal mined by the pipeline or under its authority, or which it may own in whole or in part, or over which it may have either direct or indirect control. This language appears to contemplate a complete ban on ownership (aside from the two exceptions provided by section 5(d) (1). Control may be distinguished from ownership. If, for example, coal is mined by a company affiliated with the pipeline, that would not be ownership-though it may or n~ay not be control. "Control" is defined by section 2(e) as the power to exercise control. Such power exists where there is a common director or 5 percent ownership of voting stock of the carrier. Section 5(d) (1) does not speak to the latter; rather, "control" as used jil section 5(d) (1) refers to control by the carrier over the coal. Even so, the ban on control would effectively reach coal mined and owned by a carrier affiliate, where the carrier has power to exerrise control over the affiliate. More impoi4ant, under section 5(d) (3) a control rela- tionship between a certificated pipeline carrier and any user or supplier of coal is prohibited. 4(a) (1). Section 1(8) ~f the Act has never applied to carriers by pipeline; the so-called commodities clause applies only to railroads. It applies to all commodi- The term is contained in the National Transportation Policy, 49 U.S.C. preceding § 1. PAGENO="0281" 275 ties other than timber; whereas section 5(d) (1) of the bill applies only to coal. Section 1(8) applies only to interstate or forcign commerce. The draft bill. is apparently not limited bu't would also apply to intrastate pipelines. The purpose of section 1(8) is to prevent a railroad from becoming a dealer in commodities which it transports. `Such power would give a railroad the ability to favor certain shippers along its lines by deciding from whom it would `buy and to whom it would sell, and thereby give such shippers undue advanitage over other shippers. Apparently `section 5(d) (1) of the bill is designed for the same purpose. This is a natural corollary to the common carrier duty, which is spelled out in section 5(c) of the bi1l. Unlike the bill, however, the Interstate Commerce Act contains no prohibition upon control of a railroad by a holding company which also con- trols shippers. 4(a) (2). Oases decided pursuant to the commodities clause of the Act find that control exists where the railroad is an alter ego of the holding company. ExiStence `of control would be a question of fact in each instance. `See, e.g., Caimbria ~ Indiana R.R. Control, 275 I.C.C. 360; Ark. cf La. Midl~md R. Control, 282 I.C.C. 254; and Rockdale, Sandow ~ Soutlwrn R.R. Operations c~ Control, 282 I.C.C. 297. 4(b). The ban on pipelines does not appear to be broader except as it may apply to intrastate pipelines and to traffic of holding company affiliates. 4(c). A ban on common control does not appear necesSary provided that the pipeline carrier is subject to the normal safeguard's `againrt discrimination, rebat- ing, and other forms of predatory pricing designed to enforce the long recognized duties of common carriers. No `such ban applies to railreads nor to o'ther pipe- lines. In faCt, Gil pipelines are almost universally owned, either directly or in- directly, by their shippers. 4(d). The commodities clause i's enforced by a proper court aCtion. As previ- ously noted, however, the question of control has been adequately determined in Commission proceedings. GENERAL RATEM~&KING 1. Assuming that coal pipelines are regulated under Part 1 of the Interstate Commerce Act, initial rate filings would `be subject to protest and suspension and/or investigation. (As `provided for in section 15(7), the Commission ean~ institute an investigation of a new rate on its own motion.) The rates would then be subject `to the various regulatory safegu~ards provided for in the Act, i.e., reasonableness `of the rate, unjust discrimination, undue preference and prejudice, long-and~short haul clause, etc. The rates proposed by the coal pipelines would have `to be filed as a tariff publication in accord'anc~e with section 6 of the Act. 2(a). Section 5(a) of the bill does not, as it is written, suggest that the Secre- tary shall delineate the common carrier ebligations `of a coal pipeline in its certifi- cate `of public convenience and necessity. If `this provision wa's construed to em- power the Secretary to qualify or limit the common carrier obligations of a pipeline, such con~truction appears to conflict with the intent underlying section 5(c) of the bill, which conditions the issuance of a certificate upon a pipeline assuming all the common carrier Obligations as provided in the Act. 2(b). If the Commission and the courts chose to interpret section 5(a) as enabling the SecrCtary to establish comm'on carrier obligations, it would pre- sumably preclude the Commission from exercising its authority to impose com- mon carrier duties not included in the certificate. 3(a). If the Commission were making this finding, it is contemplated that the rates Would be required to `be included in the contract. In our view, the Secre.. tary would consider the matter in a broad sense, while the carrier would consider the laWfulness of particular rates. 3(b). Most `contracts that are negotiated prior to pipeline construction involve close~ examination of the transportation .i~ate, since it determines in large part the type and amount of financing necessary. Inclusion of the proposed rate would also afford the Commission time to examine the laWfulness of the contract terms as `they interrelate with `the projeCted cost of service and the proposed rate. 3(c). Absent a statutory provision insulating the contract rate from `being sus~ pended or `set aside as uńlaWftil under sections 1, 2, 3, or 4 of the Act (as pro- vided for capital incentive rates filed under section 15(19)), the filing of the con- tract rate wimldh'ave no effect upon the Oomrnissi'on'S authority over the rate. PAGENO="0282" 276 V -. BATEMAKING 1 The factors which the Commission must consider with respect to railroad ratemakiing are implicit in section 15(a) (4) and have been delineated in En Parte No.338. Generally, in addition to the t~aditional ratemaking criteria which apply in ernluating rates, the Cornm'issionmust look at the revenue needs of rail- roads sufficient to cover expenses plus a fair, r~asonable, and economic profit or return on capital employed in the business. With rctpect to coal pi~eines, the factors mentioned in section 15(a) (2) must be given due consideration, e.g., effect of the rate on the movement of traffic, the need of adequate and efficient railway transportation service, and the need of reveilue sufficient to provide such service. V SeCtions 15(a). (3) and V 15(a) (4) differ, however, in that section 15(a) (4) provides that no rate of a common Carrier by rail can be held UV~ to a particular level to protect the traffic of any other carrier or mode unless it is found that ~uCh a rate reduces or ~ould reduce the going concern Value Of the carrier charg- ing the rate This proviso regarding going concern Value is not contained in section 15(a) (3). V 2. Pipeline rates have traditionally been based on the theory of fair return on value, which required valuation reporting and studies. Alth'oug~h the Commis~ sion at one time in the past undertook such valuation studies of railroad plant, these proceedings were subsequently considered too inexact and burdensome for the Commission to perform on a continuing basis. V AS provided in En PVarte 338, one of the factors to be considered by the Corn- mission in determining rail revenue needs will be the calculation of a fair return on net investment, It wa~ determined iii Ex Parte No. 338, therefore that a return on net investment equal to the cost capital would be conducive to the retention and attraction of ca~ital. In this manner the reasonableness of a railroad rate,. will take into consideration the factor of whether tb railroad has sufficient revenues, which in turn is ctlculated in part on whether Vthe return on net invest- ment is equal to the railroad's cost of capital. 3. The HR 1609 does not impose any new functions on the Commission that it is not able to carry out under its existing authority. It Would create an additional workload, however, which might necessitate a small increase in staff during the initial period. V V FEDERAL TRADE CoilMIssIoN, V Washington, D.C., May 3, 1978. Hon. JAMES J. HOWARD, Chairman, subcommittee on ~S'urface Transportation, CommIttee on Public Works and Transportation, House of Representatives, Washington, D.C. DaAR Mn. CHAIRMAN: This is in response to your letter dated April 24th in which you asked two questions regarding HR. 1609, the "Coal Pipeline Act." I am enclosing for your reference a copy of the letter which the Commission Sent to Chairman Udall regarding this bill last year. You first asked whether HR.. 1609 would confer any new authority upon the Federal Trade Commission. H.R. 1609 would indeed confer new authority upon the Commission because the Secretary's issuance of a certificate would be con- ditioned upon advice by the Commission that such action would not "restrain trade, further monopolization, substantially adversely affect competition, or otherwise create or maintain a situation in contravention of the antitrust laws." In addition, the mandatory "Antitrust Review" of Section 7 contemplates that the Commission will have both adequate advance notice and adequate informa- tion from the Interior Department in order to make the review. Your second question concerns the costs of H.R. 1609 to the Commission. It is not possible to make an estimate Of such costs at this time. This is because we do not have enough information to estimate the number of such reviews which would be necessary under H.R. 1609 nor the level of review necessary in each situation. V V V V We appreciate your interest in the work of the Commission. V Sincerely yours, V V V V MICHAEL PERTSCHUK, Chairman. Enclosure, PAGENO="0283" 277 FEDERAL TRADE COMMISSION, Washington, D.C., June 7, 1977. Hon. MORRIS K. UDALL, Chairman, Committee on Interior and Insular Affairs, House of Representatives, S Washington, D.C. S S DEAR Mn. CHAIRMAN: This is in response to your requests for the views of the Federal Trade Commission on HR. 1609, a bill "To amend the Mineral Leasing: Act of 1920, and for other purposes." S S 5 The general purpose of HR. 1609, which has the short title "Coal Pipeline Act of 1977", is to provide a statutory basis for the authorization, regulation,. ownership, construction, and operation of coal slurry pipelines, under the aegis of the Secretary of the Interior. H.R. 1609 provides that after its enactment no person shall engage in the transportation of coal by slurry pipeline without obtaining a certificate of public convenience and necessity from the Secretary of the Interior, unless within two years after enactment such person enters into an agreement with the Secretary of Interior to permit the acquisition of rights-of-way across his pipelines by other carriers of coal by pipeline. Persons granted certificates would be required' to make the same agreement within the same two-year period. The Secretary would be authorized to issue a certificate to a carrier upon his determination that its pipeline project would be in the national interest and of adequate capacity to fulfill requirements. Carriers granted such certificates would be authorized to acquire rights-of-way by eminent domain when such rights are not attainable by negotiation, and applicants granted certificates. would be required to operate their certificated pipelines as common carriers pursuant to the Interstate Commerce Act. In determining whether to grant a certificate the Secretary would be required to make findings indicating the extent to which the project (a) would help to satisfy the national needs for coal, (b) would be delayed unless granted the power of eminent domainr (c) would disrupt the environment when compared with other modes of coal transportation, and (d) affects the balance between the energy needs to be' served by the project, and the water requirements of the area from which the coal would be carried. The bill contains a number of restrictive provisions which would prohibit those having control of certified pipelines from carrying coal in which they have an interest-no carrier granted a certificate would be permitted to trans- port in the line coal which it controls or is mined under its authority; no. certificate could be issued to a carrier which controls, is controlled by, or is under common control with any person using coal carried by, or supplying coal to, the pipeline; and, no pipeline granted eminent domain authority could carry coal mined by it or under its authority, or which it may own or control. Section 7 of the bill provides for antitrust review, the issuance of a certifi- cate by the Secretary would be conditioned upon advice by the Attorney General. and the Federal Trade Commission that such action would not "restrain trade, further monopolization, substantially adversely affect competition, or otherwise create ormaintain a situation in contravention of-the antitrust laws." It is also provided that the issuance of a "license" under the bill would not be a defense for violations of the antitrust laws, and would not bar the Attorney General or the Commission from challenging any anticompetitive condition involved in the operation of a pipeline. - COMMON CONTROL OF PIPELINE AND COAL The provisions of the bill which prohibit the owners of a coal slurry pipeline from having an interest in the coal which is transported in the line are wisely intended to insure fair and non-discriminatory treatment of all coal shipped in the pipeline, and to provide an incentive for maximum utilization and any nec- essary future expansion of the facility. The Commission supports this objective,. but believes that some modification of the bill - is needed to achieve this result. The bill prohibits a carrier which is granted the power of, eminent domain from carrying coal which it mines or owns this prohibition would not extend to a certificated line having a right-of-way obtained solely through negotiation. It is possible, but not entirely clear, that the provision which disqualifies for certification a carrier which controls, is controlled by, or under the common PAGENO="0284" 278 control of, a user or supplier of coal transported in the line would be construed as completing the separation of ownership or control of the line from owner- ship or control of an interest in the coal carried by the line. To resolve this uncertainty a clarifying amendment is suggested to prevent a certificated car- rier which does not utilize the power of eminent domain from carrying coal which is owned or mined by itself or by persons under its authority or control. In any event, the manner by whičh a pipeline may obtain its right-of-way appears irrelevant to the goal of preventing unified control of both the line and the coal it transports. Two-YEAR CLAUSES Section 5(e) conditions the granting of a certificate, and Section 13 condi- tions the right to operate a coal-slurry pipeline without a certificate, upon the making of an agreement "within two years from the date of enactment" with the Secretary that the person engaged in transporting coal will permit other carriers to acquire rights-of-way across his pipeline. These provisions create a total entry barrier to either new certificated, or non-certificated, oil pipelines two years after enactment, because no provision is made for such an agreement after that time. Au amendment to prevent this result is necessary. ANTITRUST REVIEW The antitrust review provisions of HR. 1609 as drafted require the assess- ment of the future effects of the issuance of a certificate. As the actual effects cannot be determined until the project in question has been in operation, it is recommended that section 7(a) 1)e amended to provide that the antitrust find- ings required of the Attorney General and the Commission be expressed in terms of probable effects. It is also anticipated that there could be instances in which the application may cover an operation which, although not involving a viola- tion of the antitrust laws (even in terms of probability), raises serious anti- trust questions or is inconsistent with antitrust policy. It is therefore recom- mended that the antitrust advice required by the bill be expressed in terms of "probable effects on competition" or "consistency with the policies of the anti- trust laws." In addition, requiring antitrust findings from both the Commission and the Attorney General may be needlessly duplicative. It is suggested that the bill permit either agency to refer a particular application to the other for review, utilizing the same informal clearance procedure which is employed in other antitrust matters. Moreover, since the bill permits mere inaction by the Com- mission or the Attorney General to prevent the issuance of a certificate by the Interior Department, it is recommended that the antitrust review be required to be completed within a fixed time, such as six months. Another problem arises from an inconsistency between the numbered para- graphs of section 7(b) of H.R. 1609, particularly when read in the light of sec- tions 5 and 6 of the Federal Trade Commission Act. Paragraph (1) of section 7(b) of the bill appears to authorize the Attorney General and the Commission to maintain competition oversight over the operations of coal slurry pipelines. Paragraphs (2) and (3) read together indicate that section 7 of the bill is in- tended to make no change in the antitrust laws nor the Federal Trade Commis- sion Act. Section 5(a) (6) and paragraphs (a) and (b) of section 6 of the Federal Trade Commission Act all restrict the jurisdiction of the Federal Trade Com- mission over "common carriers subject to the Acts to regulate commerce." Since a pipeline certificated under the bill would, by virtue of section 5(c) thereof, be "constructed, operated and maintained as a common carrier as pro- vided in the Interstate Commerce Act", it would be subject to the provisions of sections 5 and 6 of the Federal Trade Commission Act, supra, restricting the Commission's jurisdiction over common carriers. To remedy this situation, and to carry out the intention of paragraph (1) of section 7(b) of the bill, the following amendments are suggested: (a) In section 7(b) (1), strike "Nothing in this section shall be construed to bar the Attorney General or the Federal Trade Commission from challenging" and substitute in lieu thereof "Nothwithstanding subparagraph (2) or the status of a coal slurry pipeline as a common carrier subject to the Interstate Commerce Act, the Attorney General or the Federal Trade Commission are authorized to challenge". PAGENO="0285" 279 (b) In section 7(b) (2), strike "Nothing" and substitute in lieu thereof "Except as provided in paragraph (1) of this subsection, nothing". Referring again to the carrier who, pursuant to Section 13, exempts himself from the certification requirements of the bill by agreeing to grant rights-of-way across his pipeline, such a carrier would not be subject to antitrust scrutiny be- fore being authorized to operate his pipeline. Because the need to examine the antitrust implications of a pipeline operation should not be dependent on whether or not the operator is certificated pursuant to this bill, it is recommended that all proposed slurry pipelines be subjected to antitrust review. As a technicality, the word "license" should be "certificate" in line 17 on page 9 of the bill, and the figure "567" in line 20 on page 2 should be "576". In conclusion, the Commission would have no objection to the enactment of H.R. 1609 if amended in accordance with the foregoing recommendations. By direction of the Commission. JOHN F. DUGAN, Acting ~Secretary. U.S. ENVIRONMENTAL PRoTEcTIoN AGENCY, Washington, D.C., May 5, 1978. Hon. JAMES J. HOWARD, * Chairman, Subcommittee on Surface Transportation, Committee on Public Work8 and Transportation, House of Representatives, Washington, D.C. DEAR Mn. CHAIRMAN: This is in response to your April 24, 1978 letter requesting answers to three questions concerning the coal pipeline bill H.R. 1609. Our responses are enclosed. If I can be of further assistance, please let me know. Sincerely yours, CHARLES S. WARREN, Director, Office of Legislation. [EPA RESPONSES TO QUESTIONS ON H.R. 1609] Question 1. Does H.R. 1609 impose any new function upon EPA that EPA is not able to carry out under its existing authority? Answer. In section 6(f) the bill requires the Agency to participate in any public, formal adjudicatory hearing held by the Secretary of the Interior on the proposed issuance of a certificate of public convenience and necessity for a coal pipeline once State hearings are held. While the requirement would of course be new, the Agency presently is authorized to take part in such a hearing. Question 2. What costs would be incurred by EPA and for what purpose? Answer. EPA costs incurred by the bill would include those of taking part in the public hearings referred to above; and the cost of advising the Secretary of the Interior if our advice should be sought by him pursuant to the requirements in setcion 5(b) (3), (4), and (7) to make a determination of the effect of a proposed pipeline on the environment. While the Secretary is not required to consult with this Agency on such matters, we expect we will be requested to advise him. Further, certain EPA functions are involved in the bill: National Pollu- tant Discharge Elimination System permit issuance to water pollution point- sources; comment on environmental impact statements; and permit-application reviews under section 404 of the Clean Water Act (see answer to 3 below). However, none of these roles will increase appreciably our present workload, SO costs will increase only slightly. Question 3. Isn't it true that a pipeline crossing a navigable water would re- quire a permit under section 10 of the Rivers and Harbors Act of 1899, which re- quires permission of the Secretary of the Army for any structure in or alteration of such waters? And, isn't it also true that any pipeline crossing of a water of the United States would require a permit from the Secretary of the Army for any activity involving the discharge of dredged or fill material into such waters? Answer. (a) Yes. (b) Yes. However, the Environmental Protection Agency plays a key concur- rence role in the issuance of such permits under section 404 of the Clean Water Act (Federal Water Pollution Control Act 33 U.S.C. 466 et. seq.), which provides among other things* that the Administrator may prohibit the specification of a disposal site if he determines that discharge of materials will have an unac- ceptable adverse effect on a wide range of water uses. PAGENO="0286" 280 Further, the section provides for transferring permit-issuance authority to a State if the Administrator, advised by the Secretary by the Fish and Wildlife Service, determines that the State has authority to carry out a program as :specified in section 404(h) (1). The Administrator retains a strong oversight role over State programs under section 404(j). U.S. ENVIRONMENTAL PROTECTION AGENCY, Washington, D.C. April 10 1978. Hon. JAMES J. HOWARD, Chairman, Subcommittee on Surface Transportation, Committee on Public Works and Transportation, House of Representatives, Washington, D.C. DEAR MR. OHAIRMAN. This is in response to a recent request for comments from EPA on HR. 1609 which proposes to amend the Mineral Leasing Act of 1920 with relation to coal slurry pipelines. I am pleased to provide you with EPA's views on the possible environmental impact of coal slurry pipelines, the construction of which would be facilitated by the proposed legislation before this Subcommittee. We at the Environmental Protection Agency are will aware of the need: for domestic energy production. We are committed to a policy which, whileseeking increased domestic energy production, is consistent with the need for environ- mental protection. The proposal before the Subcommittee with respect to coal slurry pipelines may well provide us with another alternative in determining the best means to convey coal from its source to the point of consumption. Every reasonable means should be explored. We are optimistic that coal slurry pipelines can be built and operated in an environmentally acceptable manner. Coal slurry pipelines can have environ- mental advantages. By providing a means of conveying coal from the origin to a remote point of use, the mined area is spared the additional environmental problems attendant to mine mouth power generation including air pollution and a far greater degree of water consumption, a limiting factor in the West. Two direct evnvironmental concerns which can be posed: by a coal slurry pipeline are its impact on water supply and on water quality. Water supply impacts can in turn have an effect on water quality, as for example where use of surface water depletes the volume of flow of a stream to the point that the pollutant load which the stream can carry is greatly reduced, threatening main- *tenance of the stream's ecological integrity; or where use of underground water, whether saline or potable, affects the quality of the potable water aquifers. As presently designed, coal slurry pipelines can be generally assumed to utilize slurries in the proportion of 50 percent water and 50 percent pluversized coal, give or take 10 percent. They are, therefore, a water intensive means of transporting coal. The use of surface waters or the mining of ground waters for this purpose may have secondary and cumulative impacts well beyond the geo- graphic scope of the pipeline itself. Careful and scientific investigation is needed before commitment of scarce water resources to slurry pipeline should be made It has been found that only 64 percent of the slurry carrier is available for re-use. Quantitative determination of the availability of water for large coal slurry pipelines requires extensive hydrologic investigation and assessment of re- (luirements which closely approximate the recharge of the ground water aquifer tapped. Thus, it is important that the effects of withdrawing water be as~essed prior to construction of the pipeline. In the case of the proposed Wyoming to Arkansas pipeline, the investigations to define the available water in the ground water aquifer system have been considerable and are continuing. Not only are ground water investigations to determine aquifer characteristics necessary, but water measurements to define recharge rates and responses of the surface water system to demands made on the ground water system are also an integral part of the investigations. While overall water consumption by a pipeline may not be great, on a local scale withdrawal of any significant amount of water can be serious and means lost opportunity for other uses, especially in the arid West, and should be evaluated. Proposals have been made in the West to use water from saline PAGENO="0287" 281 aquifers and thereby avoid depletion of fresh water. This should be analyzed for ground water effects in detail on a site-by-site basis. The removal of such water from equifers underlying viable ground water aquifers containing usable water may result in reduction in storage in the overlying higher quality aquifers through subsidence and compaction of the upper aquifers. Salinity may also be a water quality problem at the discharge point. After coal has been slurried to its destination it is separated from the water and the water can be evaporated, discharged into a stream, or used in the power plant. Our analysis indicates that pollutants in the water can be removed under most con- ditions without prohibitive costs. However, if saline water is used to slurry the coal, the salinity of the water may be a problem. A major concern is whether the water will contain some exotic or toxic con- taminants, perhaps trace elements and heavy metals in dissolved form. This will depend on the chemical properties of the specific coal being used. This factor should be examined carefully well before a certificate-issuance decision is made. Additional considerations include coal and water interaction and corrosion. According to the Office of Technology Assessment report on "Coal `Slurry Pipe- lines", chemical interaction between coal and the carrier liquid is an important factor because of "possible adverse environmental impacts from: (1) a slurry spill or pipeline rupture; (2) slurry dewatering process and water reuse or waste disposal;, and (3) alteration of combustion characteristics of the end- product coaL" Little is `known about the nature of the chemical combination which will result between coal and water in pipeline transit. The assumption is that leaching of the solid by the liquid will occur; however, the extent of leach- ing that will take place is not clear. Wastewater from the slurry will be af- fected by corrosion and corrosion inhibitors. The Office of Technology Assessment study points out that, the amount of iron in the slurry will elevate as corrosion increases. This iron will generally remain in the wastewater. As corrosion in- hibitors are added, such as hexavalent chromium, possible environmental problems increase in the event of' a spill. Wildlife could be poisoned by drinking spilled slurry wastewater with the anti-corrosion additive. EPA feels that adequate water treatment methods are available to control the potential hazardous chemical constituents of the water or other fluid removed from the coal after use for transportation. In order to evaluate the ávailŕbility, the potential contaminants must be identified and the mechanisms available to' neutralize the contaminants must be evaluated both technically an'd economically. We believe that research into these is essential prior to large-scale use of coal slurry pipelines. The major coal slurry pipeline now in use (the Black Mesa line, from Arizona to Nevada) discharges into a water-short, arid climate where e~ ~poration of contaminated water is commonly practiced Furthermore there are incentives to reuse as much of the water as possible. More recent proposals for slurry pipelines proposed to transport coal and water to more humid climates where the incentives to conserve water are not so significant and evaporation is less feasible. We are concerned about the "residual pollutants" of coal slurry waters. These potentially include total dissolved solids, chlorides, sulfates' and carbonates, trace elements present in the coal' such as arsenic, cadmium, chromium, copper, fluorine, lead, `manganese, nickel, selenium and zinc; and corrosion inhibitor additives such as chromates, phosphates and various organic compounds. Also various as yet unidentified organic compounds must be care- fully analyzed to determine the production rates in the pipelines, their toxicity if discharged, and their treatability if present in hazardous amounts. EPA is investigating these concerns. One particular study of interest is an investigation of the chemical characteristics of coal slurry waters and equilib- rium rate relationships under pipeline operating conditions. Under an EPA grant, the amount of contamination which can be expected to remain in water used as a transport medium in a coal slurry pipeline is being studied. Evaluations will be made using both fresh and saline water. Investigations to chemically characterize coal slurry waters should be followed with investigations into the treatability and costs associated with the ultimate disposal of coal slurry waters in an environmentally acceptable manner. Several methods are available for dewatering the coal slurry at the end of the pipeline: (1) centrifugation; (2) chemical flocculation; (3) vacuum filtration; and (4) beating. PAGENO="0288" 282 The type of re-use for wastewater from slurry pipelines is dependent upon the chemical quality as it leaves the slurry system and the economic and technical feasibility of treatment for re-use. Three major possible re-uses are: makeup~ water for a powerplant cooling system, discharge to surface waters, and agri- cultural irrigation. Under the last two possible re-uses, a discharge permit from EPA. would be required under the National Pollution Discharge Elimination System of the Clean Water Act. No standards exist at present for slurry dis- charge, so "engineering judgment" as to best available technology would apply. There are also indirect concerns which necessitate adequate pre-planning. For example, coal slurry pipelines entail a large initial investment which in turn requires long-term contracts and a large demand in a relatively confined area. These factors can affect the flexibility of air quality planning in an area and close off alternatives by binding that area to use of coal over a long period. The design of~ the pipeline can have land use, aesthetic, and wildlife impacts, although underground lines normally would have less impact than construction of a rail line. We fully support the Administration version of this legislation which lists certain factors which must be considered prior to reaching a finding on the issuance of a certificate of public convenience and necessity. We feel that joint DOE-DOT consultation and concurrence by DOl prior to issuance is a procedure which adequately safeguards environmental interests affected by the construc- tion and operation of a coal slurry pipeline. We are of the opinion that granting of a certificate of public convenience and necessity is a "major Federal action" within the meaning of Section 102(2) (c) of the National Environmental Policy Act of 1969. In addition to safeguards to ensure full public participation included within the proposal, the advantages of an environmental impact statement under NEPA would be realized because a comprehensive overview would be provided of the effects of all coal slurry pipeline projects in an area on an area's water supply and other natural resources. We are advised by the Office of Management and Budget that there is no objection to the presentation of this report from the standpoint of the Administra- tion's program. Sincerely yours, DOUGLAS M. COSTLE. AssocIATIoN OF AMERICAN RAILROADS, Washington, D.C., April 20, 1978. Hon. JAMES J. HOWARD, Chairman, Subcommittee on Surface Transportation, Committee on Public WorkR and Transportation, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: During the hearings held by your Subcommittee on April 11, 1978 on H.R. 1609, the Coal Pipeline Act of 1978, one of the witnesses, W. Pat Jennings, President of the Slurry Transport Association, received permission to file testimony certain other witnesses had offered on H.R. 1609 during earlier hearings held by a joint subcommittee of the House Committee on Interior and Insular Affairs in April, 1977. One of those witnesses was Howard Cowan for the Public Service Company of Oklahoma, who appeared on April 26, 1977. Mr. Jennings stated that, according to Mr. Cowan's testimony, the Public Service Company was required by the Burlington Northern to sign a "take-or-pay" con- tract for the transportation of coal. Back in April, 1977 when Mr. Cowan initially made the assertion that his com- pany was required to sign a "take-or-pay" contract, the railroads responded in the form of an April 29, 1977 letter from Louis W. Menk, Chairman and Chief Executive Officer of Burlington Northern, Inc. to the Honorable Abraham Kazen, Chairman of the Subcommittee on Mines and Mining and the Honorable Teno Roncalio, Chairman of the Subcommittee on Indian Affairs and Public Lands. That letf~er refuted Mr. Cowan's allegation that his company was required to sign a "take-or-pay" contract with the Burlington Northern. It is a simple fact that the railroads do not have authority to make contract rates. William H. Dempsey, President of this Association, stated as much a num- ber of times in his testimony before your Subcommittee on April 11, 1978. But since the Public Service contract rate allegation has been raised again, we feel PAGENO="0289" 283 obligated to submit a copy of Mr. Menk's April 29, 1977 letter in response. I respectfully request that this letter and the attached letter from Louis W. Menk, Chairman and Chief Executive Officer of Burlington Northern, Inc., be made a part of the record. Very truly yours, HARRY J. BREITHAUPT, Jr. Attachment. BURLINGTON NORTHERN, St. Paul, Minn., April 29, 1977. Re H.R. 1609-Coal pipeline legislation. Hon. ABRAHAM KAZEN, Chairman, Subcommittee on Mines and Mining, House Committee on Interior and Insular Affairs, Washington, D.C. Hon. TENO R0NOALIO, Chairman, Subcommittee on Indian Affairs and Public Lands, House Committee on Interior and Insular Affairs, Washington, D.C. GENTLEMEN: During the hearings on April 26 there was a colloquy as to what the railroads regard as the grossly unfair advantage which the slurry pipelines would enjoy over our industry if, as they intend, they are permitted to make long-term through-put or "take or pay" contracts patterned on those employed in the petroleum pipeline business. The discussion was precipitated by the prepared testimony submitted by Mr. Cowan in which it was stated that the rail "tariff obligates us (Public Service Company of Oklahoma, which the witness serves as a consultant) to take or pay for minimum of 2.6 million tons a year for 20 years, despite their claims that they are unable to make long-term contracts." During the questioning I denied that there is any such contract or obligation since the railroads do not have authority to make contract rates. I suggested that reliance was apparently mistakenly placed on a short retter of understanding confirming arrangements under which a proposed tariff establishing freight rates would be employed. On checking, I find that my understanding was correct. The letter referred to, dated November 9, 19Th, was addressed to Mr. B. J. Harris, Vice President, Administration, of the Public Service Company of Oklahoma, Tulsa, the officer of that company who is charged with the procurement of trans- portation services for his firm and who negotiaI~ed the rate in question. The first paragraph of the mentioned letter reads as follows: "The attached tariff marked Exhibit A covers transportation of coal by unit train from the Gillette, Wyoming area to Oologah, Oklahoma for Units No. 3 and 4 which are scheduled to commence receiving coal about September, 1978 and September, 1979, respectively. Shipments will be handled via Burlington Northern Inc. to Kansas City, Missouri, thence Missouri Pacific Railroad Com- pany to the plant site near Oologah, Oklahoma, with the coal movement to con- tinue for approximately 20 years." The letter went on for a page to ~deal with such subjects as the time at which the tariff would be made effective, a memorandum covering possible rate escala- tion, the provision of cars, etc. In light of these circumstances, I wish to supplement my testimony by advising the committee as follows: (1) On April 28, two days after my appearance before you a conference tele- phone call was placed to Mr. Harris and Mr. Cowan's testimony respecting the alleged 20-year contract of carriage was read to him. Mr. Harris stated that neither the mentioned letter, the proposed tariff or anything else obliges the Public Service Company of Oklahoma to use the services of the railroads for 20 years or for my other specific period. (2) Mr. Harris is correct in his view-and it corresponds with the one which I expressed before the committee-for the reason that rail rates can be estab- lished only by tariff. The one referred to in the mentioned letter is a complex nine-page document which will be furnished on request. It will apply for no stated period and makes no mention of a 20-year or any ether term and can be used by any shipper of coal between the named origin and destination at the stated rate of $8.57 per ton if 2.6 million tons are shipped per calendar year. Shippers are otherwise free to use or abandon our services at will. (3) I am advised by čounsel that my representations to the committee respecting the subject were correct, specifically, that Public Service Company of Oklahoma PAGENO="0290" 284 has no contractual or other obligatidn to use the services of either Burlington Northern or Missouri Pacific for any term whatever either before or after publi- cation of the tariff. However, once the tariff becomes effective and shipments begin freight charge higher than $8.57 per ton would be incurred should minimum annual tonnage requirements not be met before shifting to other transport or to other fuel sources. COunsel suggests that for a brief description of the basis for rail freight charges I refer you to Williston on Contracts, Section 1102, Carriage by Rail and Motor Vehicle. It reads: "By virtue of the statute (Interstate Commerce Act) as amended, it (the carrier) can make no contracts relating to such transportation of goods unless it has previously filed with the Commission schedules (tariffs) statin~the terms thereof, including the rate for the carriage services, and this rate must be payable in money. The carrier and the shipper, thereforC, can only choose which of the contracts filed in the carriers' schedules they will adopt. No further freedom of contract is open to them; and how far such obligations should be called contracts may be questioned, for one entering into an agreement for service thus enumerated in the carriers' schedules becomes liable to the carrier, irrespective of the agree- ment and in spite of any provision therein to the contrary, to pay the rate speci- fied in the schedule. Nor may the carrier bind itself by contract to a greater obligation than permitted under its tariffs." I repeat and emphasize, the through-put contracts used by slurry lines would be monopolistic devices by which to place the transportation business covered. by them beyond the competitive reach of any other carrier. Respectfully yours, Louis W MENK, Chairman.. 0