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Senator BUMPERS. Thank you, Mr. Chairman. I have to leave in a couple of minutes.

I have a couple of questions. Is it Mr. Wilson, is that right? Mr. WILSON. Yes.

Senator BUMPERS. First of all, and this is not to disarm you, I certainly have a tendency to support the repeal of 2(c). I think we have passed that twice since I have been in the Senate. It has passed several times in the past few years. It always got torpedoed in the House. There are questions I would like to ask you as a representative of the company and Union Pacific.

If production of coal by Union Pacific or by your company, Rocky Mountain Energy Corp.-are you a wholly owned subsidiary?

Mr. WILSON. We are.

Senator BUMPERS. If your company produced coal and in the same area Peabody Coal was producing coal, and the production of the two exceeded UP's ability to haul all of the coal, and you were the only really feasible, economical carrier, how would you resolve that?

Mr. WILSON. Let me answer it by referring to an analogous situation.

Senator BUMPERS. My concern is, are you going to haul Union Pacific coal or are you going to tell Peabody that your coal comes first? Under deregulation you probably have the right to do that.

Mr. WILSON. The practical truth is that we would probably stand in line. There is a very earnest sense of responsibility on the part of our corporation generally, and certainly the railroad specifically, to carry out its service obligations.

I was going to refer to an analogous situation in that in Wyoming there is a major chemical manufacturing industry. It produces a material called soda ash, manufactured from a mined substance. Several major companies are involved in the business. Rocky Mountain Energy has an interest in one of those companies, and from time to time the unique covered hopper cars that are used in the transport of soda ash come in conflict with heavy transport of grain, for example. The railroad, from all of our experience, moves to allocate, works closely with all of those companies who have historically been shipping with them, to allocate the available cars, to allocate between that industry and even say the short term, shorter term grain movements in order that no one is hurt specially. Of course, it involves a great deal of negotiation, a great deal of communication between all the parties, but there is no evidence on the record that the railroad has ever discriminated, for example, in favor of the company in which we have an interest.

Miss ADAIR. Could I add to Mr. Wilson's comments to say that it is up to the customer to determine whose coal it wants to purchase, and I think it would be in the best interest of Union Pacific Railroad to haul whichever coal purchased, whether it is Rocky Mountain Energy or Peabody.

Senator BUMPERS. In the question I was assuming that both Peabody and Union Pacific have we will say, long-term contracts for the coal. It is not a question of what the customer wants. They have an obligation to deliver the coal under a contract, we will say, to my State, from Wyoming. And I use that-Union Pacific doesn't come to Arkansas, but I am just saying that where all things are equal and both of you have long-term contracts to supply coal, and Union Pacific is not in a position to haul the coal that is going to be required under the two contracts, who is going to get preference? Your position, of course, is that you would work it out so to speak.

Mr. Wilson. The prudent business decision is to keep in mind that you are going to be in business over a long period of time that customer may buy other coal in the future and to discriminate against him at this time might drive him to some other region where another railroad could serve him.

Senator BUMPERS. Has your company been approached for permission to cross your right-of-way?

Mr. Wilson. I have no personal knowledge of that.

Senator Bumpers. What would Union Pacific's position be if they were approached?

Mr. WILSON. Well, rather than speak out of turn on this, because I am not fully informed on a matter that my company isn't directly involved in, I probably ought to defer the answer and give you a full written account from our railroad

Senator BUMPERS. Could you do that?
Mr. WILSON. Certainly.

Senator BUMPERS. If you would, give me a full statement on Union Pacific's position on coal slurry pipelines, whether or not they would favor eminent domain rights across rights-of-ways by slurry pipelines.

[Subsequent to the hearing Mr. Wilson supplied the following:]

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On September 11, 1981, at the hearing of the Subcommittee on Energy and Mineral Resources on repeal of Section 2(c) of the Mineral Leasing Act, you requested that I supply a statement for the record on two issues. You wish to be advised of the views of Union Pacific Corporation on legislation to provide federal eminent domain powers for coal slurry pipelines and of Union Pacific Railroad's position if it were to be approached by a slurry pipeline seeking a right-of-way across the railroad's trackage. This letter responds to those questions. In addition, I would like to amplify my answer to the question you asked me at the hearing about the policy of Union Pacific Railroad in allocating coal cars between Rocky Mountain Energy and another mine operator in the event of a shortage.

Union Pacific Corporation Policy on Coal Slurry Eminent
Domain Legislation.

Union Pacific believes that the huge duplicative capital costs of coal slurry pipelines and the resistance to them in the West, because of their use of scarce water resources, make coal slurry pipelines impractical. Railroads are capable of handling projected increases in coal traffic through the end of the century and, therefore, coal pipelines are unnecessary. If slurry lines are built, however, Union Pacific believes that it can successfully compete with them.

Furthermore, Union Pacific questions whether coal slurry pipelines should enjoy the right of federal eminent domain. It is our view that eminent domain ought not be provided an entity which is not a true common carrier and, more importantly, that a judgment about whether to grant eminent domain authority should be made at the state and not the federal level.

While deregulation has provided railroads with additional latitude to respond to coal pipelines, the railroad industry is still at a competitive disadvantage given its common carrier obligation and the scope of regulation it faces. If Congress were ultimately to decide that federal

10 Longs Peak Drive Box 2000 Broomtield Colorado 80020 303 409.3844

The Honorable Dale Bumpers
September 30, 1981
Page Two

condemnation power should be allowed in some circumstances to promote coal slurry, it is Union Pacific's position that such legislation should contain provisions which require that coal pipeline proposals be subject to a detailed certification review which scrutinizes their purported public benefits and weighs their impact on the nation's rail system. H.R.4230, recently introduced into the House by Congressman Udall of Arizona, recognizes several of these concerns. However, we feel the legislation still needs to contain safeguards to assure that these national transportation policy issues are thoroughly considered.

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Response of Union Pacific Railroad When Approached by Coal Slurry Interest to Cross Right-of-Way.

The proponents of the ETSI pipeline have already established that they can cross Union Pacific's trackage at most locations without the necessity of receiving its permission. Union Pacific Railroad has been a defendant, along with other railroads, in several lawsuits filed by ETSI. In each situation, ETSI had received an easement from owners of the land adjacent to the railroad's tracks. The courts held that ETSI did not need Union Pacific's permission to cross under its trackage on grounds that the railroad had only an easement under the Pacific Railway Act and did not have control over the land underneath the tracks. Since most of Union Pacific's right-of-way is in this category, ETSI should have no further difficulty in crossing its tracks. Union Pacific has, in fact, voluntarily granted at least one crossing.

Coal Car Supply in Times of Shortage.

Relevant to this concern is the fact that western unit train coal movements are generally in cars provided by the shipper, not the railroad. Rates and charges reflect this, whether set by negotiation or ICC decision.

In addition to the sound business practices which I cited in my testimony as a motivation for allocating railroad owned cars equitably, car supply is governed by requirements of the Interstate Commerce Act and by other law. The act specifically prohibits a railroad from discriminating against any shipper in the provision of car service for common carriage.

There are also protections in the case of contract carriage. While the discrimination provision does not in itself apply to this type of rail service, we believe a shipper can adequately protect against perceived efforts to discriminate in favor of a railroad affiliated coal company.

The Honorable Dale Bumpers
September 30, 1981
Page Three

First of all, a coal receiver or shipper could ensure that it received adequate car supply through its own contract arrangement with the railroad. In addition, the Interstate Commerce Act allows a shipper to challenge a contract between a railroad and another shipper, including a railroad affiliate, on grounds that the contract would adversely affect the railroad's ability to provide cars for common carrier service. Finally, a coal shipper which felt that a railroad had discriminated in favor of its own affiliate through a contract arrangement or otherwise could seek redress under the antitrust laws.

Thank you for the opportunity to present our views. We would be pleased to follow up with you on any of the matters described above.

Sincerely,

Pamerantom

James C. Wilson

CC:

Senator John W. Warner, Chairman

Energy and Mineral Resources Subcommittee

Mr. Wilson. I am familiar with our corporate policy and philosophy on this. Your question directed itself to a more specific area that I was unsure of. But I am comfortable in referring to a statement made by the chairman of our parent company, James Evans, made just this spring before the National Coal Association. In his address, he expressed some skepticism about slurry pipelines. He expressed the thought that the huge duplicative capital costs and the enormous resistance in the West based on the water problem, made slurry pipelines an impractical thing.

Based on my testimony with respect to the 2(c) proposal, if slurry lines are ever built, Union Pacific is firm in its belief that a flexible and reliable rail transportation system can and will compete successfully with it. He went on to discuss regulations that should be taken into account to assure equal competitive conditions.

He commented on the fact that being sensitive to the water problem in the West is not just “apple pie” talk, but it really relates to the entire ability of preserving an industry, an agricultural industry in the West, that is very important to the railroads in terms of revenue. It is not an idle reference to the water problem. But we can submit additional information on this-

Senator BUMPERS. Because there might come a time where, for example, in my state we would be willing to ship water to Wyoming and let them ship it back to us in the form of slurry and maybe keep a circular system going so we won't have to worry about taking irrigation waters that produce grain that you haul away from the people of Wyoming.

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