INDEX CALCULATION The coal rate index was calculated by using actual tonnage figures to weight the percent change in the rate for each O-D pair from October 1, 1980, to October 1 of each of the study years. The calculation process involved computing and calculating several intermediate indexes to arrive at the final index for coal. As outlined below, an index was calculated for each railroad system based on intermediate O-D pair indexes and then the national index was computed. 1. O-D pair weights were computed by dividing the 1983 tonnage for each O-D pair by the total 1983 tonnage for all O-D pairs supplied by that railroad. 2. O-D pair rate indexes were calculated for each O-D pair by dividing the October 1 rate for each study year by the October 1, 1980 rate and multiplying by one hundred. The O-D pair rate indexes were multiplied by the O-D pair weights to arrive at the weighted O-D pair indexes. 3. The O-D pair weighted indexes for each railroad system were summed to compute the railroad index. 4. Railroad weighting factors were determined for each railroad system by dividing that railroad's total 1983 originated coal tonnage by the total 1983 originated coal tonnage for all four surveyed railroad systems. The railroad indexes were multiplied by the railroad weights to compute the weighted railroad indexes. 5. The composite Coal Index was computed by summing the weighted railroad indexes. Association of American Railroads February 1989 Mr. DEMPSEY. Thank you, Mr. Chairman. Next, we will hear from John Kearney, Jr., a Senior Vice-President of Energy and Environmental Activities, the Edison Electric Institute. David Senter, National Director of the American Agriculture movement, who is also testifying on behalf of the National Farmers Union, and the National Farmers Organization. And Joseph Lema, the Vice-President for Transportation of the National Coal Association, who is also testifying on behalf of the American Mining Congress. Welcome, all of you-we very much appreciate your patience, as we have gone through this hearing. As with all witnesses, we would urge you to summarize your written testimony. Your full written testimony will become part of the record of the Committee. And we will also hold the record open for a sufficient time to get additional questions answered in writing, if that becomes necessary. Mr. Kearney, if I might call on you first, and again, indicate if you would summarize your testimony. If we try to allow about five minutes apiece for the witnesses to summarize their written testimony, and then we would go into a period for questioning. I hope I have pronounced your name correctly. Mr. KEARNEY. No, you did not. But, that is all right. [Laughter.] Senator CONRAD. Well, straighten me out. STATEMENT OF JOHN J. KEARNEY, JR., SENIOR VICE PRESIDENT, ENERGY AND ENVIRONMENTAL ACTIVITIES, EDISON ELECTRIC INSTITUTE Mr. KEARNEY. Mr. Conrad, my name is John J. Kearney, and I am a Senior Vice-President of the Edison Electric Institute, which, as you may know, is the Association of investor-owned electric utility companies, whose member companies generate and distribute about 75 percent of all the electricity in the United States. So, you can see this is something of vast interest to us. And I am pleased to testify today on behalf of the Institute in support of S318, the Coal Distribution and Utilization Act of 1989. We believe that the development of coal-slurry pipelines can provide the potential for much needed competition in the transportation of coal to electric utility power plants, and could provide substantial benefits for our national economy. Coal-slurry pipelines can offer shippers in many areas of the country, an alternative, less expensive mode of coal transportation. Because coal transportation costs are generally paid for by electric utility customers, in our judgment, this is a consumer issue. The EEI supports passage of appropriate legislation, such as S318, which allows the development of coal-slurry pipelines, by setting up a procedure for deciding water rights and eminent domain authority. And most importantly, allows the market to decide if a pipeline is economically feasible. Coal, as I am sure you know, coming from your state, is a critical fuel for the electric utility industry. Electric utilities consume some 700 million tons of coal per year, and approximately 57 percent of the electricity generated in the United States each year is produced from coal. And coal is expected to continue to serve as an important source of fuel for the production of electricity. Because of the bulk nature of coal, and the long distances over which it most often must travel to generating plants, transmission options are limited. Currently, rails are the predominant means of transportation for coal, and nearly two-thirds of utility coal is transported by rail for all, or part, of its journey to the power plants. And the annual cost of transporting this coal is now running at approximately $5 billion. These costs, as I indicated, are generally passed on to our customers, and reflected in their rates. In order to minimize cost to our customers, electric utilities need the flexibility to take advantage of competition among types of fuels, and among the various methods of transporting these fuels to power plants. In conclusion, as I have stated, we believe that the development of coal slurry pipelines, can provide competition in coal transportation, and have the potential for reducing coal shipping rates. And since these transportation costs are generally passed on to our consumers, they will benefit the general public. Mr. Chairman, this concludes my statement, and I will be willing to, pleased to answer questions of you and Mr. McClure, or others. Thank you. [The prepared statement of Mr. Kearney follows:] STATEMENT OF JOHN J. KEARNEY, JR. SENIOR VICE PRESIDENT ENERGY AND ENVIRONMENTAL ACTIVITIES EDISON ELECTRIC INSTITUTE ON S. 318, THE COAL DISTRIBUTION AND UTILIZATION ACT OF 1989 BEFORE THE COMMITTEE ON ENERGY AND NATURAL RESOURCES UNITED STATES SENATE APRIL 20, 1989 Good morning, Mr. Chairman. My name is John J. Kearney, Jr., Senior Vice President, Energy and Environmental Activities, Edison Electric Institute (EEI). I am pleased to testify today on behalf of EEI in support of S. 318, the Coal Distribution and Utilization Act of 1989. EEI is the association of investor-owned electric utilities whose members generate and distribute approximately 75% of all the electricity in the United States. EEI believes that the development of coal slurry pipelines can provide the potential for much needed competition in the transportation of coal to utility powerplants and could provide substantial benefits for our domestic economy. Coal slurry pipelines can offer shippers in many areas of the country an alternative, less expensive mode of coal transportation. Because coal transportation costs are generally paid by the customer, this is a consumer issue. EEI supports passage of appropriate legislation, such as S. 318, which allows the development of coal slurry pipelines by setting up a process for deciding water rights and eminent domain authority; and most importantly allows the market to decide if a pipeline is economically feasible. Coal is a critical fuel for the electric utility industry. Electric utilities consume nearly 700 million tons of coal per year. Approximately 57 percent of the |