2016 United States Department of the Interior OFFICE OF THE SECRETARY BEC 1 8 1973 Dear Mr. Neuberger: A group of policy officials representing the Department of the Interior and the Department of the Army recently met in Washington to discuss Federal marketing policies for municipal and industrial water uses in the Missouri River Basin. - This group requests that you establish a regional Ad Hoc Specifically, we suggest that the Committee provide (1) How much water is it acceptable for the States and the Federal Government to market now? (2) How much water is available for industrial uses in the long run? (3) What advice can be offered relative to existing applications for industrial water before the North Dakota Water Board? (4) What is the unit price at which water for municipal and industrial uses should be marketed by the Federal Government from the six reservoirs? REMARKS OF WILLIAM J. JANKLOW, GOVERNOR, STATE OF SOUTH DAKOTA SOUTH DAKOTA AND THE ETSI EXPERIENCE Introduction In this paper I would like to take the opportunity to remove from the emotional arena South Dakota's experience with ETSI Pipeline Project and Its coal slurry pipeline proposal and to explain to fellow practioners of the legal profession, In the context of a rational examination, what it is South Dakota and ETSI have done. In doing so, I am confident that the attendees of this conference, as fellow professionals, will agree that South Dakota was placed in a position that a decision had to be made and action had to be taken. I am also confident you will agree that the decision South Dakota made was the correct one under the circumstances. remarks here today, I would like to discuss South Dakota's Impression of why coal slurry pipelines are becoming a force in the coal transportation market, why the Missouri River is an attractive water source from the standpoint of both ETSI and South Dakota, why South Dakota was drawn into this relationship with ETSI, what the basic contract between South Dakota and ETSI provides, what it is the downstream states are complaining about, and what the law of the 1944 Flood Control Act and Federal law respecting Inter-basin transfers really is. Why Coal Slurry? In presenting these In an address to the American Public Power Association delivered on May 7, 1980 Mayor. Lyla Cockrell of San Antonio related her city's experiences in its attempts to convert from natural gas to coal in its municipal electric 97-082 0-82-52 utility. Mayor Cockrell Indicated that things went very smoothly in designing the equipment to convert to coal and in obtaining long-term coal contracts from Sun 011 Company at its Cordero Mine near Gillette, Wyoming. With respect to the transportation of that coal from Wyoming to Texas, however, the Mayor related an entirely different story. "Unfortunately, this story is not the same for the railroad freight rate. When we were looking for coal leases..., the railroad at point of origin, quoted us a price of $7.90 a ton for hauling the coal 1630 miles from Wyoming to Texas by unit train, with [San Antonio] furnishing some $30 million dollars of coal cars. Subsequently, when the commitment was made to the Cordero Mine, [the railroad] withdrew Its offer and began quoting prices of as high as $16 a ton. When no agreement could be reached we were ready to stockpile coal, we petitioned the Interstate Commerce Commission to set a rate, and they did so in October, 1976, at $10.93 a ton. In the next two yaers, several freight rate increases were granted until the rate reached $12.42 a ton. It became apparent that railroad lobbyists were hard at work. Then, on December 1, 1978, the ICC granted a rate increase to $16.12 per ton. Eight additional rate increases since that time have driven the freight rate to $20.25 per ton. There have been five Increases since October 1 of last year!" These remarks by the Mayor of San Antonio are sufficient argument to explain why some people feel there is a need for competition in the coal transportation market.. ETSI belleves that it has a competitive advantage over railroad transportation because of the capital Intensive nature of coal slurry pipelines. Chart I is a graph taken from a presentation by Frank Odasz, of ETSI given to the Interstate 011 Compact Commission in 1981. It represents the claim by ETSI that 70% of a coal slurry pipeline's operating costs go to debt service and are fixed. Only 30% of slurry pipeline operating costs are variable and, therefore, are subject to inflation. Railroads on the otherhand currently have only 15% of their operating costs fixed and 85% of their operating costs are variable and are subject to inflation. As Chart 1 shows, during an Inflationary period the mode of transportation with the highest |