N&W coal train in West Virginia
…There Was the Coal Slurry Pipeline.
by James A. Bacon
The early 1980s were a momentous time for the U.S. coal industry, and for Virginia economic history and politics as well. As the world turned to coal in the wake of the Arab oil embargo, coal exports through Hampton Roads were surging. Loading terminals literally could not load the black rock fast enough, and dozens of ships were backing up in Hampton Roads waiting for their turn at dock. Meanwhile, the Norfolk & Western Railway (soon to become part of Norfolk Southern) and the C&O (soon to become part of CSX) exercised duopoly control over rail shipments to the ports, and, newly deregulated, they used their power to charge punishing tariffs. Thus commenced a years-long battle between railroads and coal operators over the spoils of a once-in-a-lifetime export boom.
E. Morgan Massey, president of the Richmond-based A.T. Massey Coal Co., took the lead in taking on the railroads. Not only did he build new terminals in Newport News and Charleston, S.C., to bust the railroad monopoly on loading facilities, he helped orchestrate a bid to build a 350-mile coal slurry pipeline across Virginia to bypass the railroads. Just one hitch: A coal slurry pipeline had to cross railroad rights-of-way, and only the General Assembly could grant the eminent domain. Thus began one of the greatest lobbying battles between business lobbies – VEPCO, the Transco pipeline company, and coal industry interests on the one hand, and the railroads on the other — that Richmond had ever seen.
Chapter 8, “Rails and Pipes,” of my new book, “Maverick Miner” tells the story of the clash between business titans from Massey’s perspective. Here, for the joy and delight of Bacon’s Rebellion readers, I excerpt the section that focuses on the coal slurry pipeline debate. There is no coal slurry pipeline in Virginia today, so it is not a spoiler to reveal that the railroads won the legislative battle. But Morgan and his allies, VEPCO and Transco, felt like they squeaked out a victory in the business war.
The Virginia Electric Power Company (VEPCO), Virginia’s largest electric utility, first developed concerns about railroad freight rates in the 1970s. Rail tariffs had not been an issue when the power company generated most of its electricity through nuclear, oil, and hydro power. But when oil prices spiked in the wake of the Arab oil embargo, the utility aggressively converted its oil-fired boilers to coal – and coal traveled on rails. “We had to figure out how to get energy to our plants the least expensive way, explains O.J. Peterson, who served as VEPCO treasurer at the time. “And freight rates were a sticking point.”
VEPCO’s first gambit was to cut a deal with the C&O railroad to ship all its coal, roughly 4 million tons a year, to a single point on the James River, transload the coal onto barges, and then float the fuel to its coal-fired power plants located on navigable rivers. Between C&O’s modestly discounted freight rates and the low barging costs, VEPCO wound up paying less than it would have otherwise, but in Peterson’s analysis the cost still was higher than it needed to be. As Peterson saw it, the railroads were determined to protect profit margins on their 40–50 million tons a year of export coal. If the railroads cut rates for VEPCO, what justification would they have for maintaining rates for export coal traveling roughly the same distance over the same rail lines from the same mining regions of Central Appalachia? Coal operators would raise hell, says Peterson. “The railroads didn’t want to mess with that price. They didn’t want the tail to wag the dog.”
Around 1980 VEPCO came under mounting pressure from Virginia state legislators to purchase Virginia coal and create jobs for Virginia miners. The utility sourced its coal from Kentucky and West Virginia because, as high as the rail rates were from the mines there, they were lower than the rates from the coalfields in Southwest Virginia where the N&W monopolized traffic for the entire region. The N&W wanted to charge $20 a ton to move coal from Virginia mines to the utility’s giant coal-burning plant in Chesterfield County near Richmond, Peterson recollects, and VEPCO wasn’t willing to pay that much. At times, he says, it cost more to transport the steam coal than to mine it. Adding insult to injury, the N&W quoted higher rates to ship Virginia coal to VEPCO power stations than to ship it to neighboring utilities.
Looking for an alternative, VEPCO began investigating coal slurry pipelines. The technology of pulverizing the coal into a powder, mixing it with water, and pumping it through a pipe was well proven. Many years before, Consolidation Coal had operated a slurry pipeline in Ohio before railroads slashed freight rates to recapture market share, and Peabody Western Coal still was operating a slurry pipeline to move coal from strip mines on the Black Mesa Navajo Indian reservation to a power station 273 miles away. By the early 1980s, other companies were exploring the coal slurry option. The Wheelabrator-Frye engineering firm, for instance, announced in June 1981 that it was studying the feasibility of using coal slurry to deliver coal to colliers off the coast of Morehead City, North Carolina. Later that month, Ken Anderson, president of a Blacksburg engineering firm, told the Virginia Coal and Energy Commission that Virginia should consider allowing coal slurry pipelines, perhaps using methanol as a mixing medium rather than water, as an option for relieving port congestion in Hampton Roads.
VEPCO’s preliminary analysis indicated that, depending upon the cost of capital, the cost of obtaining rights of way, and the cost of cleaning and disposing of the slurry water, the utility could transport coal from point to point in Virginia for a fraction of the cost imposed by the railroads – perhaps as low as $5 per ton. In July 1981 VEPCO engaged Dr. Oner Yucel, a Virginia Tech civil engineer and specialist in coal slurry pipelines, to undertake a study to provide more authoritative numbers. In comments to the press, Yucel immediately identified a potential sticking point: the cost of acquiring land along a pipeline route. Particularly tricky would be getting the rights to cross the railroad lines. In 1962 Virginia had become the only state in the country to enact legislation, at the behest of the railroads, prohibiting public service companies from using eminent domain to condemn rights of way for coal slurry lines. Without eminent domain, Norfolk Southern and CSX exercised veto power over any coal slurry projecting their rail lines, as any pipeline connecting the coalfields in Virginia’s far southwest to VEPCO power stations in the east would do.
Up in Washington, D.C, the National Coal Association (NCA) was lobbying Congress to loosen restrictions on interstate coal slurry pipelines. In the fall of 1982 Carl Bagge, president of the NCA, traveled south of the Potomac River to stump for an intrastate Virginia pipeline. Blasting the N&W and Chessie, he charged that their high rates were hurting coal companies trying to sell into European markets. “We need policy changes to give the railroads more competition,” he said. A few days later, Del. Orby L. Cantrell, a Democrat from a coal-producing county, let it be known that he was drafting a bill to grant condemnation power to developers of coal slurry pipelines.
At this stage of the controversy, slurry advocates spoke of building a pipeline with an annual capacity of anywhere between 5 million tons and 25 million tons. A 5-million-ton pipeline wasn’t terribly threatening to the railroads – it would accommodate VEPCO’s needs and little more. But project economics improved dramatically with bigger pipes and larger capacities. A 25-million-ton-per-year pipeline could cut the guts out of railroad profits on their coal-export routes, creating a near-existential threat. Terrified by the possibility, the rail companies mobilized in opposition. As the 1982 General Assembly session unfolded, VEPCO-friendly legislators found it prudent to back off Cantrell’s eminent-domain measure in favor of a feasibility study. The utility was willing to defer a legislative showdown in the hope that an arm’s length study – not one paid for by the utility – would show how a pipeline would create thousands of jobs for Virginians and save electric ratepayers millions of dollars a year. But the rail lobby gave no ground, arguing that the proposed $30,000 allocation was insufficient to conduct a proper study. In the end, the railroads carried the day. The General Assembly scuttled the idea of even studying coal slurry.
Put in charge of VEPCO’s slurry pipeline initiative, Peterson had just begun to fight. That summer he found an ally in the Transcontinental Gas Pipe Line Corporation (Transco), a Houston-based gas pipeline company. Transco’s involvement with coal slurry pipelines can be traced back to Jim Crawford, who had left Massey Coal the previous year. Seeing little future as CFO under Royal Dutch Shell’s financial oversight, Crawford had signed on with Transco, owner of a major natural gas pipeline stretching from the Gulf of Mexico to New York. Persuading the pipeline company to diversify into the coal business under the name of the Transco Coal Company, he acquired three Kentucky coal companies that produced about 2 million tons a year of steam and met coal. To handle sales, he also partnered with Blue Crystal Coal Sales Company, founded by Bill Massey Jr. not long before. Indeed, it was Bill Jr. who made the introductions at the annual Rodeo coal convention at the Greenbrier Resort to the management team of General Energy Company, whose McCoy-Elkhorn and Bell County Coal mines in Kentucky Transco proceeded to purchase. As refugees from the Royal Dutch Shell investment in Massey Coal, Crawford and Bill Jr. were back in business together.
Crawford, who had contacts at VEPCO dating back to his Massey Coal days, saw the power company as a potential Transco Coal customer. “Virginia Power was clearly an opportunity for us,” he says. But rail rates were an obstacle. Rates to VEPCO power plants had tripled since the 1970s, adding about $15 per ton to Kentucky coal selling for $30 to $40 per ton, bumping up the delivered cost by one third to one half. Once a secondary factor in coal industry economics, rail rates had become a paramount consideration. Says Crawford: “Transportation issues began driving coal industry strategy in a way they had not before.”
Over and above the prospect of selling coal to VEPCO, Transco saw an opportunity to create a new market for its core business of building and operating pipelines. A pipeline crossing the state of Virginia could cost anywhere between $200 million and $900 million, according to widely varying estimates. That represented a big opportunity even for a company the size of Transco. Furthermore, a coal slurry pipeline constructed in Virginia might lead to pipelines in other locations. Coal slurry could create a new growth market in a business that didn’t see much change.
“Transco had lots of knowledge and experience about pipelines,” Crawford recalls. “They knew everything there was to know about pipeline operations.”
For all of Transco’s expertise, there were many unanswered questions about the proposed pipeline project. No one had settled upon a desired capacity. No one had established precisely where it would start and end, or what route it would run. No one knew how much water it would require, or how the water would be disposed of once it was separated from the coal. But of one thing Crawford was sure: there was a case to be made for giving railroads some competition.
In September 1982, VEPCO and Transco formally joined forces, creating a new entity, Virginia Coal Slurry Associates, to lobby lawmakers and shape public opinion. Crawford hired Charles M. “Charlie” Guthridge, a former protégé of VEPCO CEO Justin Moore who had won his lobbying spurs representing VEPCO interests in the North Carolina legislature. As a Transco senior vice president in charge of the coal slurry effort, Guthridge would run the ground game. A couple of months later, Virginia Coal Slurry Associates snagged William “Bill” Thomas, a former Democratic Party of Virginia chairman who had co-chaired Charles Robb’s 1982 Virginia gubernatorial campaign, along with Walter Marston, known as one of the top lobbyists in Richmond, to twist arms in the General Assembly. Along with VEPCO’s in-house lobbyist Bill Crump, the slurry had assembled a team well equipped to take the battle to the railroads.
As the 1983 General Assembly session approached, the railroads assembled an impressive roster of their own. Norfolk Southern and CSX initially worked through the Virginia Railway Association and its chief lobbyist Bruce Wingo, with help from the railroad unions’ lobbyist Houston Kitts. Anti-pipeline forces scored a coup when they managed to hire John Dalton, who upon leaving the Governor’s Office had joined McGuire Woods Battle & Boothe, one of Richmond’s preeminent law firms. Though a minority in the General Assembly, Republicans represented a not-insignificant faction in the Democratic-controlled legislature, and the slurry lobbyists had hoped they would respond favorably to the argument that slurry pipelines would promote competition and free enterprise. “Dalton was very effective” in persuading them otherwise, Guthridge recalls. “He brought a majority of Republicans in the legislature over to his side.”
The railroad camp also had a powerful intellect in John Snow, the heir apparent at CSX. Guthridge got a taste of what he was up against when he ran into Snow at a Richmond cocktail party. The railroad lawyer took Guthridge’s pro-pipeline arguments and delivered them back to him better than he could have done himself. “Have I convinced you about the need for a coal slurry pipeline yet?” Snow grinned. Guthridge realized what a powerhouse he was up against.
Virginia had never before witnessed such a clash of corporate titans. Every so often a Virginia company would square off against an out-of-state interloper on a legislative matter, but coal slurry pitted the state’s biggest utility against two Fortune 500 railroad companies. The Virginia ports and Virginia-based coal producers also had big stakes in the outcome. Although Dalton rallied some Republican legislators to the railroad side, factions in the Democratic-dominated General Assembly broke mainly along geographical lines, remembers Bill Thomas. Norfolk Southern had just moved its headquarters to Norfolk, which gave it an edge with Hampton Roads legislators, and the railroad still had thousands of employees in Roanoke, home of the N&W’s old corporate headquarters. The newly formed CSX Corporation was headquartered in Richmond, where it nullified VEPCO’s hometown advantage. To counter the powerful Norfolk-Richmond-Roanoke “axis of influence,” says Thomas, the slurry lobby tried building a coalition between the coalfield counties of Southwest Virginia and the fast-growing Northern Virginia suburbs of Washington, D.C.
As intense as the politicking got, the battle remained civil. VEPCO and CSX executives mingled in the same Richmond clubs – the Commonwealth Club, a men’s-only club downtown, and the Country Club of Virginia, a haven of the city’s social elite. Loyalties in the pipeline debate also cut across old political alliances. One of Thomas’s main competitors in the chambers of the General Assembly was Wingo, the railroad lobbyist. When he had been chairman of the state Democratic party years before, Thomas had hired Wingo to run the office. “Everybody knew everybody extremely well,” says Thomas. “It was never ugly or mean-spirited.”
The fight was business, not personal, agrees Guthridge. “It was competitive, and it got tough, but everyone had an underlying respect for one another.” The “Virginia Way,” an unspoken code of gentlemanly conduct, still prevailed. A couple of years later, after the slurry debate finally subsided, Dalton gave Guthridge a call to say he’d fought the good fight. If he ever needed a recommendation, the former governor told the young lobbyist, he would be glad to provide it.
As the two sides geared up for the 1983 session, money was no object. Guthridge and VEPCO lobbyist Crump ferried five friendly legislators in Transco’s corporate jet to Arizona, then switched to smaller planes to fly the length of the Black Mesa pipeline. The purpose of the trip was to drive home the message that the country’s only active coal slurry pipeline had transported 40 million tons of coal since the 1970s without incident. On the spur of the moment, Guthridge persuaded his pilot to swing by the Grand Canyon. The pilot skimmed over the rim and plunged deep into the gorge. It was a spellbinding experience. Quips Guthridge: “I’d never seen a group of politicians and lobbyists go so long without saying a word.” Not to be outdone, two weeks later the railroads organized a flight over the Black Mesa pipeline for their own lobbyists and legislative allies.
A breaking business story in mid-January drove home the size of the spoils at stake. New England Electric Service, a Massachusetts utility, canceled a contract with Massey Coal to supply 400,000 tons of coal a year, forcing the layoff of hundreds of Massey’s West Virginia miners. The plan had been for Massey to ship the coal to Hampton Roads and then move it by barge to New England’s Brayton Point power station. But the utility discovered it could beat N&W’s freight rate – more than $14 per ton – by shipping the coal over Conrail tracks from Pennsylvania mines through Baltimore at a savings of $3 million annually. Explained Glen Schleede, a senior New England executive: “We have decided we can no longer afford to ship on N&W.”
Later in January a pro-slurry group called Virginians for Competitive Coal Transportation released a poll that found 47% of Virginians supported a coal slurry pipeline while only 22% opposed it. “The voters of Virginia are ready to support this,” proclaimed lobbyist Walter Marston. The poll reinforced key pro-slurry talking points: Not only would a pipeline save electric ratepayers several dollars per ton in freight rates – as much as $50 million a year, according to one estimate that made its way into print – it would stimulate job creation. A slurry-commissioned report published a few days later claimed a pipeline would support up to 3,200 construction jobs and 1,300 permanent jobs over thirty years, mostly in Hampton Roads. A railroad spokesman scoffed at the poll, noting that only 55% of those sampled said they had even heard of the pipeline proposal, but the survey helped the slurry lobby build momentum.
Not to be outdone, the railroads raised water-quality concerns to win over environmental groups. “What is going to be in that wastewater?” asked Wingo. “No one knows.” Another question: How much water would the pipeline require? Estimates ranged from 1.25 billion gallons a year to 6.25 billion gallons, depending upon the pipeline’s capacity. Where would that come from? The rivers of Southwest Virginia were relatively small. If a pipeline extracted enough water to mix with coal, could the rivers maintain sufficient water flow in drought conditions to maintain aquatic life? Pipeline foes introduced yet another complication – the fact that a pipeline would transfer water from one river basin to another. Was that even legal in Virginia? And what about riparian rights? Would a pipeline withdrawing water millions of gallons daily from a Southwest Virginia river violate the rights of property owners downstream?
The objections gave many legislators pause, and the coal slurry team knew it. The Richmond Times-Dispatch reported that pipeline lobbyists offered in the 1983 session, just as they had the previous session, to abandon their fight for enabling legislation in exchange for a study of the pipeline question. This time they were successful. The General Assembly authorized $200,000 to study the economic and environmental implications of a coal slurry line. That vote shifted the battle to a new venue: a study subcommittee that would hire consultants, gather information and make recommendations to the full legislature to consider a year later.
The slurry fight set a state record for lobbying expenditures in a short legislative session. Newspapers reported that all special interests had invested about $1.6 million into efforts to influence the General Assembly. Of that sum, the pro-slurry lobby racked up $177,000, the most of any group, while opponents spent $92,000. Expenses listed included feasibility studies, airplane trips to the Black Mesa pipeline, lobbyist salaries, and, among other miscellaneous expenses, Norfolk Southern pocketknives valued at $8.50 each.
*****
In July 1983, stung by the loss of that 400,000-ton contract with New England Power, Massey Coal joined Virginia Coal Slurry Associates as a junior partner. Massey Coal took a 20% stake in the organization, while VEPCO and Transco retained 40% interests. “Because of railroad deregulation under the Staggers Act of 1980 and subsequent ICC rulings,” Morgan said in a press conference, “the railroad industry now enjoys a virtually unregulated monopoly.” A pipeline, Morgan said, would ensure the lowest delivered cost for both foreign and domestic markets.
The addition of Massey Coal to the pro-pipeline forces immediately changed the tenor of the debate. On the plus side, the consortium gained a coal industry heavyweight. As head of one of the nation’s largest coal producers and exporters, Morgan had been active in the National Coal Association, the World Coal Council, and the Bituminous Coal Operators Association, and he knew everyone worth knowing in the industry. As a regular attendee of the railroad-sponsored Coal Rodeo at the Greenbrier Resort, he was on first-name terms with the East Coast’s senior railroad executives. As a lifelong Virginian, he was plugged into the Richmond business community. As Crawford put it, “He could open doors and get people involved at very high levels.” He was a “straight shooter.” He spoke plainly and said what he thought. As a bonus, Morgan didn’t hesitate to pile the slurry lobbyists into his plane and fly them up to Washington, D.C. to push interstate pipeline legislation.
But Massey’s presence in the consortium created a new talking point for the railroads. Although Massey Coal was headquartered in Richmond, its mines were located in West Virginia and Kentucky. Railroad lobbyists immediately asked if Morgan’s ulterior motive was to use a Virginia pipeline – sucking up Virginia water and employing an eminent domain law to acquire Virginia land – to create a market for West Virginia coal. Crawford had conceded in a press conference that Massey Coal’s Newport News coal-loading terminal might be a logical eastern terminus for the pipeline. Where were Transco Coal and Massey Coal planning to put the western terminus? Would it be on the Kentucky or West Virginia border? Would it be possible to build spur lines into the neighboring states? “West Virginia and Kentucky would profit at Virginia’s expense,” declared Del. Clifton A. Woodrum, a Democratic representative from Roanoke, expressing the fears of many.
Even Virginia coal producers, who had supported the pipeline as long as they thought it would transport Virginia coal, waffled. L. Blaine Carter, president of the Virginia Coal Association, observed that Massey Coal had no coal holdings in the commonwealth. “We’d be very much opposed to a line running to West Virginia,” he said, alluding to the parallel effort in Congress to enact an interstate coal slurry pipeline. “The Virginia coal industry supports slurry to move coal if the intention is a pipeline originating in Virginia’s coalfields.”
Morgan saw no conflict. If Virginia passes coal slurry legislation, he said, “We’ll be sure to buy [a Virginia coal mine] in a hurry.” But what had been a simple calculation for Virginia coal entrepreneurs, who ranked among the biggest campaign contributors in Virginia politics, now required a complex calculus. Where did they think the western terminus would be located, and did they think they could transport their coal on it?
In September 1983, the slurry lobby expanded its coalition by admitting Baltimore Gas and Electric Company into the Virginia Slurry Associates partnership. BG&E transported coal to its power stations by rail but planned to switch the next year to delivery by barge from Hampton Roads. The company, which had had no more luck than VEPCO in cracking the monopoly rail rates, saw the slurry pipeline as a lower-cost alternative. “Obviously,” said Chairman Bernard C. Treuschler, “our customers would benefit from the lower costs and competition that a pipeline would bring to coal transportation.”
The addition of the Maryland utility expanded the potential demand for slurried steam coal to 9 million tons, and the Virginia Coal Slurry Associates began talking more expansively of a pipeline that could carry between 15 million and 25 million tons.
As the General Assembly subcommittee plodded through its coal-slurry hearings, lobbyists kept raising new issues. Representing the railroads, John Dalton had argued that using eminent domain to condemn land for a coal slurry pipeline would be unconstitutional because eminent domain was reserved for “public use,” that is, it had to be available to all shippers. But J. Westwood Smithers Jr., a senior assistant attorney general, advised the study committee differently. A pipeline did not have to be open to everyone. Instead, he said, it was sufficient to say that access could not be reserved for “a select few.”
Dalton shot back with the argument that the pipeline could cut into CSX’s slender profits and force the rail line to increase its charges to other shippers. That, he alleged, would increase the price to consumers of food and other goods delivered by rail. In another gambit, he argued that he had expended considerable effort as governor trying to persuade CSX and Norfolk Southern to locate their headquarters in the state. It would be shameful if Virginia rewarded them by approving a pipeline that could push them to the same dismal fate as the defunct Penn Central.
A consultant hired by the slurry lobby countered that the railroads used accounting procedures that understated their earnings. A slurry line, he said, would create “no imminent danger” of financial distress to either CSX or Norfolk Southern. “The railroads’ entire approach has been to obfuscate the issues,” charged Thomas, the slurry lobbyist. The specter of pipeline precipitating the demise of CSX was absurd. Almost none of CSX’s coal traffic came from Virginia mines!
Several days later, a long-awaited study by independent consultant Paul S. Souder Jr., with BDM International in McLean, Virginia, brought some clarity to the debate. Under the scenario he presented, an $840 million pipeline would have a yearly $64 million operating cost. A boost to Virginia coal production would create about ten thousand jobs in Buchanan County, Virginia, the logical location for a terminus, thus ameliorating the 30% unemployment rate there. By contrast, the railroads would lose only 135 jobs, $77 million in revenue, and $9.5 million in profits. If VEPCO passed along the savings, residential households would save $6.35 per year on electric bills. The environmental impact could be minimized easily by treating the water to lower acidity levels and prevent leaching from the coal, and by treating the water at the end of the line after the coal was extracted.
Although pipeline advocates had hoped that slurry water could be recycled, Souder found no feasible industrial or agricultural use in Hampton Roads, and a closed-loop system capable of pumping the water back to Southwest Virginia would add about 15% to costs. On the other hand, the pipeline would require only twenty million gallons of water per day, which could be supplied by either the Clinch River or the John Flannagan Reservoir on the Pound River. Although the slurry lobby hailed the study as a vindication of their views, the debate was far from over. County farm bureaus representing potentially affected landowners came out against the pipeline. Then an Old Dominion University professor, Dr. Joseph Rule, warned that the release of water from a pipeline could stir up hazardous substances, such as toxic heavy metals and carcinogenic compounds, lying on the river bottom. The water movement in the Elizabeth River was mainly tidal. By contrast, he said, slurry water “could kick up these sediments.” At the other end of the state, UMWA President Richard Trumka, a foe of national pipeline legislation, asserted that a slurry pipeline would not put Virginia miners back to work. But Sam Church, a former UMWA president and Trumka rival still active in the Virginia union, said only a pipeline could make the railroads compete. “I’d say four out of five people I talk to will say the railroads are holding up the coal companies,” he said. “Most of them say the railroads are killing us.”
In mid-December the General Assembly study committee at long last issued its recommendations. The panel of legislators and gubernatorial appointees decided that the eminent-domain ban should be lifted from coal slurry pipelines. They had only one caveat: The pipeline route should avoid homes and farm buildings where possible. But the committee left many matters unaddressed, such as clean-water standards, the riparian rights issue, and the exact location of the pipeline loading point in the coalfields, which lawyers warned could be the subject of lawsuits.
Slurry lobbyists were hopeful heading into the 1984 General Assembly session, their fourth year of pushing for eminent-domain legislation. But a House Courts of Justice subcommittee surprised everyone when members voted to ban the use of water in a coal slurry pipeline. The restriction would force the pipeline to consider alternative media for carrying the coal, such as methanol or liquid carbon dioxide. A different subcommittee recommended adding guidelines for maintaining water quality and discharging effluent. As the debate continued unabated through February, the slurry lobbyists found themselves forced into concession after concession. By February, it was evident that the railroads had won again. When the House Courts of Justice Committee voted to carry over the bill to the following year, the Richmond Times-Dispatch declared, “the coal slurry issue appears officially dead for 1984.”
Slurry backers licked their wounds over the next few months as key players pondered what to do next. “Anybody has to be disheartened when they are that badly whipped,” Morgan told the press. “We certainly have to marshal our forces and regroup.” Morgan admitted that he had recently told CSX President A. Paul Funkhouser, “His side had whipped us at every turn, and we were just barely crawling.” But Morgan wasn’t yet willing to calling it quits. “We are considering what we can do now to prepare for the legislative effort next year. We are lower than a snake’s belly, but we are still in there.”
By November 1984, the pro-slurry forces had regrouped with yet a new strategy. They reorganized themselves as Trans-Virginia Public Service Corporation, a public service company, and disclosed that they had entered into negotiations for the joint use of existing rights of way with other regulated utilities. Guthridge acknowledged, however, that a slurry pipeline still would need eminent domain to cross railroad tracks at some fifteen to twenty-five locations. “This is a pivotal year, he said. His group had invested about $2 million without yet seeing a return, but, he added, “We’re in this for the long term. We’re here to stay.”
Ironically, only two weeks later, VEPCO announced that it had cut a deal that took it out of the slurry coalition in all but name. Norfolk Southern would cut its rates for coal shipments to VEPCO’s Chesapeake Energy Center the following year, and it would cut rates by mid-1987 to ship coal to a new $40- to $50-million barge-loading facility the utility expected to have completed by then. The barge fleet, which Guthridge jokingly referred to as “the Peterson Navy,” would move the coal to four power stations located on navigable Virginia waterways. VEPCO won concessions from Norfolk Southern of between 10 cents and $3 per ton, according to press reports. CSX, which previously had supplied about 70% of VEPCO’s coal, was the big loser. The threat of competition had worked. While VEPCO retained its stake in the slurry partnership, it would no longer lobby actively for pipeline legislation. “We’d concluded we’d lost the battle,” says Peterson. “There was no place to turn but to negotiate better rates from the railroads.”
VEPCO may have lost the pipeline battle, but it arguably won the war. “The pipeline controversy did get the railroads’ attention,” Peterson says. “The fight was worth it.”
In a final gambit, Guthridge and his allies backed legislation that would allow a slurry pipeline using pressurized liquid CO2 as the mixing agent. The maneuver rendered moot the multitudinous environmental objections relating to wastewater disposal, riparian rights, and inter-basin transfers. The bill squeaked through the House Courts of Justice Committee on an 11–9 vote, but was defeated two days later in a 62–56 vote in the full house. Guthridge credited Dalton with the result, noting that twenty-four of the thirty-four House Republicans voted against the pipeline along with thirty-seven of the sixty-five Democrats. Worries that a Virginia pipeline might end up transporting out-of-state coal and kill more rail jobs than it created coal jobs in Virginia carried the day.
“I think everybody has had enough of slurry for now and, I think, for this year,” a dejected Guthridge told the media. The coal slurry pipeline, he conceded, is “an idea whose time has not yet come.”
The coal slurry lobby had nearly prevailed against long odds. The railroad lobby was highly motivated and had the advantage of playing defense. The decisive factor had been the precautionary maneuver in 1962 by a long-forgotten railroad lawyer to slip the eminent-domain prohibition into state law when no one was thinking about coal slurry pipelines and, therefore, there was no one to object. That provision put the burden on pipeline advocates two decades later to push legislation through the General Assembly. “If you give me my choice, I’ll always play defense,” says Thomas. “It’s always easier to kill a bill” – especially in the Virginia legislature in which every other year is a “short” session. As debates get protracted, the natural inclination of legislators is, “We don’t have time to deal with that,” and to defer action until the following year.
“It is exponentially more difficult to drive legislation through than to stop it,” agrees Guthridge. “The railroads knew the chokeholds in the legislative process. They knew how to shut things down.” Another factor was an asymmetry in motivation. VEPCO, Transco, and Massey Coal all stood to benefit from building a pipeline and bypassing the railroads, but the pipeline was never the make-or-break proposition for them that it was for the railroads. The coal-export rail routes were the cream of the coal traffic, and coal was the cream of the entire railroad sector. While it may have been an exaggeration to suggest, as Dalton did, that the railroads’ corporate survival depended upon maintaining their monopoly, the loss of profits would have been horrendous to their bottom line. Consequently, CSX and Norfolk Southern adopted a take-no-prisoners approach. They rebuffed every effort Thomas made to seek a compromise. For them, the battle was all or nothing. And they won it all. A coal slurry pipeline of any size or configuration would never be built in Virginia.
But the threat of building a pipeline did act as a restraining influence on CSX and Norfolk Southern. C. Richard Cranwell, D-Roanoke, leader of the anti-slurry forces in the House of Delegates acknowledged as much when he said the fight “has made the railroads of this commonwealth better corporate citizens, and we expect that in the future.”
As it turned out, VEPCO never did build the barge facilities. It didn’t need to. Norfolk Southern just lowered its rates.
Though disappointed by the legislative outcome, Crawford believed the four-year struggle was worthwhile. “We were in a no-lose situation. From our point of view, we were building a relationship with a customer (VEPCO), trying to help our customer, and forcing the railroads to reconsider their rates, which they did.” As he looks back, Crawford says, “It might not have been such a smart thing to build a pipeline. For a relatively small amount of money – a few hundred thousand dollars – we forced the issue for the railroads and opened up new markets.”
Morgan came to much the same conclusion. The best thing about the threatened coal slurry pipeline is that it kept the railroads guessing. One big advantage the slurry backers had was that they knew what the per-ton rail rates were but the railroads didn’t know what the per-ton pipeline cost would be. Various studies had issued estimates, but the railroads had no way of knowing what the slurry consortium believed to be the case. Truth be told, the slurry crew didn’t even know – backers never conducted the detailed engineering studies because there were too many uncertainties regarding the origin point, destination point, the route, the mixing medium, and other matters – but that didn’t matter. Says Morgan: “The railroads didn’t know what we were prepared to do.”
Morgan saw the lower rates VEPCO won from Norfolk Southern as an indirect victory for Massey Coal. In the utility’s long-term planning, a lower delivered cost favored increased use of coal in a fuel mix that included nuclear, oil, gas, and hydro. That in turn benefited Massey Coal, one of VEPCO’s main suppliers. “When they got a lower freight rate,” says Morgan, “that was great for us because it gave more security for our business.”
From a strategic perspective, Morgan and Massey Coal battled the railroads to a draw – maybe a bit better than a draw. However, incremental improvements in freight rates did not alter Massey Coal’s competitive posture in a fundamental way. It’s not as if Massey Coal gained access to lower transportation costs that other Central Appalachian coal companies could not. Even the benefit of lower coal-loading costs at the Newport News and Charleston terminals proved fleeting. When Royal Dutch Shell split the 50/50 partnership with Fluor, it took the terminals as part of the deal. The truncated Massey Coal had to pay the same trans-loading fees for its export coal as everyone else. The game changer for Massey Coal did not come from its confrontation with the railroads. The strategic breakthrough that bolstered the company’s competitive standing and drove its profitability was its confrontation with the UMWA. That protracted conflict would transform not only the A.T. Massey Coal Company but the entire coal industry.
