The CHAIRMAN. Thank you very much, Mr. Brolick. STATEMENT OF WILLIAM H. DEMPSEY, PRESIDENT, ASSOCIATION OF AMERICAN RAILROADS Mr. DEMPSEY. Thank you, Mr. Chairman. I appreciate your remarks. I am only mildly disappointed because, as I recall, the last time you suggested that my board increase my salary, and I would appreciate it if you would take that into consideration. [Laughter.] You will not be surprised to hear, nor will the committee, that I have not changed my mind and the industry has not, and that we remain strongly in opposition of this legislation. The CHAIRMAN. Well, I know you cannot admit that, anyway. [Laughter.] Mr. DEMPSEY. And get paid at the same time. I will be brief, I have testified a number of times before. We are opposed to the legislation on fundamentally two grounds. One is that there is no need for it. And the second has to do with the adverse consequences that the legislation would have with respect to the railroads and their employees, and the shippers and communities that they serve. As to need, when this whole matter became important about 10 years ago, as you will recall, the main argument in favor of coal slurry pipelines was that the rail industry would not be able to cope with the projected increased transportation of coal. That, we said at the time, was clearly wrong. As as time has gone on, that has been demonstrable true. And so that argument is no longer raised, and I will pass over it. The argument now, essentially, is, as I understand it, that the introduction of additional competition in the transportation of coal is important. And that has to do with, then, the lowering of rates for transportation of coal. I make two points, briefly. One is that one might expect that the argument would be supported by evidence that there has been some sort of explosion in rates for the rail transportation of coal, particularly since the partial deregulation of the industry in 1980. In fact, that is not the case. What has happened has been that, in real dollar terms, coal rates, on average, have gone down since 1980 about 10 percent. That has been just almost exactly the same reduction in rates that we have experienced with respect to all of our commodities on average. And that has to do with all kinds of competitive factors that operate in the market place, both on the railroads and on the producers of coal. So there is not that sort of crying need for a restraint on the rail rates for transportation of coal. Secondly, and I think terribly importantly, it has not been mentioned yet, is the fact that under the recently adopted coal rate guidelines for the regulation of rail coal rates adopted by the Interstate Commerce Commission, in effect, the shippers of coal get the benefit of coal slurry pipeline competition without any coal slurry pipeline being built. That is to say, under these guidelines, a shipper complaining about the level of rail rates for the transportation of coal or other commodities, if the Commission extends the rule, produces evidence with respect to what would, in the shipper's judgment, be the lowest cost, most efficient operator of that transportation service. That could be another truncated rail line, it could be a barge line, or it could be a coal slurry pipeline. And if the evidence then establishes that a coal slurry pipeline would probably transport the coal at a lower rate than that which is proposed by the railroad, the railroad must reduce its rates to that level. So that without replication, without the creation of redundancy in the transportation of coal, the shippers essentially have the benefit that is suggested would be produced by this bill. As to adverse impact, Mr. Otero has discussed the question of impact on labor. I add, by way of emphasis, that because of competitive pressures, we have had to reduce our labor force in Class I railroads over the last eight years by about 40 percent. That is an enormous burden upon our employees. It is one that we are scarcely happy with. What we are dealing with here is a threat, and a major one, to rail employment. And by way of illustration, I take you back to the 1979 report of the Office of Technology Assessment, with respect to impact on employment. That report concluded that-I am talking now about permanent jobs-for every permanent new job in the coal pipeline industry, there would be a loss of 6 to 10 permanent jobs in the rail industry. That scarcely is a job spill, I suggest. And it is ironic that when the bill was originally proposed, many of its supporters claimed that its major advantage in terms of cost would be that coal slurry pipelines are less labor intensive than railroads, and that, therefore, because that was a time of burgeoning inflation, that cost lines between competition between rails and coal slurry pipelines would at some point cross. As to impact on railroads, the Office of Technology Assessment, it its 1979 report, estimated that if the coal slurry pipelines then on the drawing boards were built, that the railroads would lose something in the way of $700 million a year in net revenue. That, today, would translate into something over $1 billion a year, or two-thirds of the net operating revenues of the rail industry. Now, the Congress if familiar with the decade of the 1970s and the efforts of the Congress and the billions of dollars in taxpayers' monies that were necessary to rescue the Northeast railroads from bankruptcy, and much of the Middle West. The industry is not at a revenue adequate position yet. It is only about two-thirds there. And what this suggests is an invitation to return to those destructive days. The industry is simply in no position to withstand that sort of punishment. The reaction of the industry would be obvious. We have been through this before. It would try to raise rates on other services that it performs and therefore the first victims would be other shippers. That is to say, shippers that would not be able to use coal slurry pipelines. That is to say, most shippers-the vast majority of them-and the communities that they serve. But our experience has been clear since 1980. Notwithstanding partial deregulation, we face enormous competition and it would not be possible to raise the rates anywhere close to the level that would be necessary to recapture this net revenue. Accordingly, what would happen would be, again, the spiral of the '70s-deferred maintenance, deteriorating service, loss of shippers and the inevitable financial collapse of at least a major part of the industry. Now I understand that is gloomy picture that I paint, but I think we speak from some experience and I do rely upon the estimates of the Office of Technology Assessment. Thank you, Mr. Chairman. [The prepared statement of Mr. Dempsey follows:] Statement of William H. Dempsey Association of American Railroads Senate Committee on Energy and Natural Resources The Coal Distribution and Utilization Act April 20, 1989 Mr. Chairman and members of the Committee, I appreciate the opportunity to present the views of the Association of American Railroads on S. 318, the Coal Distribution and Utiliza tion Act. In considering S. 318, the Committee is revisiting one of the most debated transportation issues of the last ten years: Should the Federal Government confer the privileged power of eminent domain on coal slurry pipeline companies? That question has been debated in seven of the last eight Congresses and, when subjected to a vote, has been answered in the negative. With each Congress, the argument for granting the federal power of eminent domain to coal slurry pipelines has become less persuasive. The power of eminent domain is to be exercised or conferred by government only where it is found necessary to take private property for public uses. Because private property rights are being infringed, eminent domain is a power to be exercised only when the public's need is a compelling one. It is a well-settled general principle that Thus, |