The Fine Print: How Big Companies Use Plain English to Rob You Blind

by David Cay Johnston

  Gooch also noted that in the past decade many private equity funds had bought electric utilities so they could “strip, flip and skip” out of town, leaving behind not a reliable provider of power, but a hollowed-out corporation. A pipeline, or any utility, stripped of assets lacks the money needed to invest in reliability and to prevent explosions, fires, toxic spills and other disasters.

  Even if you never buy a partnership unit and no one in your family does, you will still be hurt when a pipeline is bankrupted. Why? Because the general partner is sure to ask the Federal Energy Regulatory Commission to approve new, higher rates. After all, if the pipeline went broke, then it must not be charging enough.

  The net result? You pay for someone else’s taxes at the gas pump and when you boil water. You pay for profits that are wildly beyond “just and reasonable.” And if the pipeline is bankrupted you will pay new, even higher rates. And on top of all that, because the government never gets the corporate income tax money you pay, you will have to pay higher taxes, accept fewer government services or pay more interest to finance government borrowing.

  10…

  Playing with Fire

  It looked like a napalm drop.

  — Anonymous

  10. Among fly fisherman in the Pacific Northwest, Liam Wood was a wunderkind. He started casting at age nine and was soon tying his own flies. Still in school, he got a part-time job at a sporting-goods store that outfitted fly fishermen. Five days after graduating from Sehome High School in 1999, Wood grabbed his waders and headed for Whatcom Falls Creek, hoping to hook rainbow trout. It was a perfect day for doing what he loved best. Until, that is, he took a deep breath of cool June air. Liam Wood, eighteen, collapsed and drowned.

  Just upstream, Stephen Tsiorvas and Wade King were doing what many ten-year-old boys do, playing with fire. They had a blue butane cigarette lighter. It was spent, but when they flicked the flint, a tiny spark ignited 237,000 gallons of gasoline, killing every living thing for a mile and a half along the banks of Whatcom Falls Creek.

  “It looked like a napalm drop,” one resident said.

  The explosion came minutes before the gasoline, gushing from a ruptured pipeline managed by Royal Dutch Shell, would have flowed under Interstate 5. A few minutes later it would have reached downtown Bellingham, where a high-rise apartment tower for the elderly and disabled stands just seventy-five feet from the water’s edge. Because their normal boyish play saved hundreds of lives by igniting the gasoline before it reached downtown, Mayor Mark Asmundson called Stephen and Wade, badly burned and in agony, “unwitting heroes.”

  Outside the state of Washington, the blast was reported as a freak accident, worthy of a single sentence on the ABC World News, which reported a dead teenager and two boys with burns. Stephen and Wade died soon after the broadcast ended. Within days the boys were largely forgotten by the media, which focused on a sudden spike in gasoline prices, a consequence of the ruptured pipeline that was no longer delivering fuel along the I-5 corridor in Washington and Oregon.

  A little more than a year later, the New Mexico desert erupted just before dawn. The blast awakened people twenty miles away. When Carlsbad firefighters reached the scene south of town, they found what appeared to be a gigantic blowtorch, as natural gas under high pressure shot from a thirty-inch-wide pipeline. During the fifty-five minutes it took for El Paso Natural Gas to shut off the flow of natural gas, the roar from the flames was so loud that firefighters could barely hear orders shouted directly into their ears. But the silence that followed was punctuated by the sound of wailing.

  Rushing down to the Pecos River, firefighters found six horribly burned members of an extended family of twelve. Those not killed in the blast sought refuge in the waters after flames engulfed their campsite. One begged to be shot.

  This second pipeline disaster also made a brief appearance in the national news, covered as the sad story of an unlucky family that happened to be in the wrong place at the wrong time. Within days, all twelve campers would be dead; along with the causes of the rupture, their story was lost in the rush to talk about how electricity prices in California soared because there was no fuel for the modified jet engines that generate electricity to meet peak demand on hot August afternoons. The pipeline repairs took nearly a year.

  A decade later, on September 9, 2010, another thirty-inch natural-gas pipeline exploded, this time on the San Francisco Peninsula. This pipe operated at 1,000 pounds of pressure per square inch. A wall of flames hundreds of feet high shot skyward as evening fell on suburban San Bruno. To reach manual shutoff valves, Pacific Gas & Electric crews had to negotiate rush-hour traffic. One valve was more than thirty miles from the blast, and it took the crew an hour and a half to get there. The explosion—which left a crater forty feet deep—killed eight people, injured sixty more, and severely damaged or destroyed 120 homes.

  Among the dead were Jacqueline Greig and her thirteen-year-old daughter Janessa. Ironically, Greig had worked for the Division of Ratepayer Advocates at the California Public Utilities Commission in San Francisco as a natural-gas analyst for more than two decades. Her last assignment: investigating whether PG&E was spending enough money maintaining and inspecting its high-pressure transmission pipelines to make sure they would not explode.

  These are just three incidents out of many, but the explosions in Bellingham, Carlsbad and San Bruno should serve as warning signs about an increasingly dangerous future, one in which an immensely profitable industry too often works quietly to thwart safety regulations.

  IS ANYBODY WATCHING?

  If you live in an urban or suburban area, you probably spend part of your day above or near a pipeline that moves massive amounts of pressurized natural gas, scalding hot diesel, jet fuel or gasoline. Due to the potential impact of a rupture, these areas are officially known as “high consequence areas,” a euphemism for what might more accurately be called death zones.

  Compared to automobile or even plane crashes, very few people have died from pipeline ruptures in the past two decades. A pipeline blast kills someone about every three weeks on average, while someone is burned every few days. Most of these are the result of preventable accidents, often due to a mistake by a pipeline worker or a backhoe operator hitting a pipeline. Though the numbers are small, as the pipeline industry emphasizes, this reflects luck more than serious safety planning. Open spaces where pipelines were laid decades ago are now being developed, but aging pipelines in the vicinity remain in use. The political push for less government means fewer inspections, increasing the risk of a deadly blast that one day might wipe out a block of homes, offices, stores or even a hospital or an elementary school.

  High-pressure natural-gas lines run in to every big city in America. In Manhattan alone, high-pressure gas lines enter Battery Park at the southern tip of the island, at the mouths of the Lincoln and Holland tunnels, near the George Washington Bridge, on the Lower East Side, and near the vast apartment complex on the East Side known as Tudor City. That is a partial list.

  Vincent Dunn, deputy chief of the New York City Fire Department from 1973 to 1999, says what no one wants to hear: when it comes to high-pressure pipelines, profits trump safety. “Industry and big business run the city,” Dunn told me. “So if a fire department was asked how to control high-pressure gas lines, we would say don’t run it through the big population centers, but we would just be overruled. We have to clean up and wipe up whatever the results are when things go wrong.”

  A gas industry study, adopted by the federal Department of Transportation, defined “high consequence areas” and estimated the damages from an explosion in an open area, like the desert death zone in New Mexico. The study considered a thirty-inch pipeline operating at 1,500 pounds of pressure per square inch of the pipeline wall and concluded that the likely death zone in the event of an explosion would extend 660 feet in every direction. Experience shows that the estimate is woefully inadequate. The El Paso Natural Gas pipeline that killed the Heady, Smith and Sumler
families in August 2000 operated at just 675 pounds of pressure, so the consequences should have been felt in a much smaller area than 660 feet from the blast. The family members were 675 feet from the rupture.

  In a city, buildings could help contain the blast zone, but that presents another problem: streets are flush with secondary fuel sources. Gasoline, diesel and compressed natural gas fill the tanks of cars, trucks and buses. Fuel oil tanks lie under buildings. Sidewalks feature canopies made of canvas and people wear clothes that would add more fuel.

  Chief Dunn praised Consolidated Edison for its annual training of FDNY crews, but still warned that the rupture of a large natural-gas line in a densely developed city would likely cost many lives and many billions of dollars in damage. “The gas would burn until the gas company could shut it off from two directions,” Chief Dunn said. “The heat would radiate up five or six floors and go through the windows, which don’t stop the heat.” Fires would start inside offices and apartments.

  Once the electric power went off, either from the fire or a deliberate shutdown to prevent sparking, those in elevators would be trapped. People fleeing tall buildings would have to navigate emergency stairwells, a difficult-to-impossible task for the elderly and disabled. Even in buildings that did not catch fire, the smoke and heat from the streets could kill many.

  Professor Glenn Corbett, a New Jersey fire captain who teaches fire safety management at John Jay College in Manhattan, told of a pipeline explosion in Edison, New Jersey, in 1994. More than six hundred manual turns of a valve were required to shut off the gas, a process that took six long hours. “There is no question you will ignite some surrounding buildings,” Professor Corbett said about a natural gas-fueled fire burning for hours in an area of office or apartment towers. “The chance of this happening is very small, but if it does happen, the costs in life, in services being shut off for weeks or months, and in reconstruction would be enormous.”

  HOW SAFE IS SAFE ENOUGH?

  No law required that any pipelines be inspected until 2002. Even now, with an assist from government officials whose job is to ensure safe operation of pipelines, the industry regularly obscures pipeline locations.

  Most troubling of all, segments of pipeline are being given waivers from the very limited safety inspections required under the Pipeline Safety Improvement Act of 2002. The exact locations of these segments are treated as secret, although with enough determination and a surveyor’s transit and chain, they can be identified. The industry also benefits from rules it promoted, rules that discourage repairing or replacing old, corroded pipelines. The corroded pipe that exploded near Carlsbad hadn’t been tested for integrity since it was laid back in 1950, when Harry Truman was president.

  Pipeline safety is the responsibility of the federal Department of Transportation and two agencies under its umbrella. “Safety is the number one priority,” department spokesperson Maureen Knightly told me. She said the agency conducts eight hundred to nine hundred inspections a year and “reviews all available data to determine inspection frequency and focus.”

  A very different view comes from Carl Weimer, executive director of the Pipeline Safety Trust. It is funded with $4 million of the penalties paid in the Bellingham disaster. Weimer considers the Transportation Department’s safety-first claims almost laughable.

  “The overarching problem with the current pipeline safety regulatory system is the undue influence that the pipeline industry has on every aspect of how those regulations are designed and enforced,” Weimer said. “The industry deluges rule-making processes with their public relations people and lawyers, and most regulators have either come from the industry they now regulate or plan to go to work for that industry once they leave government service.”

  At pipeline safety conferences, Weimer said, he is often the only person present who is not an industry advocate or regulator. As far back as 1978, the investigating arm of Congress, now called the Government Accountability Office, issued scathing reports about incompetence, weak rules and ineffective enforcement by the Transportation Department’s Office of Pipeline Safety. Pacific Gas & Electric was repeatedly found to have violated safety rules in its natural-gas pipeline system, yet was not fined once prior to the deadly San Bruno blast.

  Even the American Petroleum Institute, which represents big oil companies, criticized the pipeline safety office over the poor quality of its accident records. Yet the industry as a whole has worked hard to make sure that not enough money is spent to properly inspect pipelines. Six months after the Bellingham disaster, the chairman of the agency that investigates pipeline disasters, the National Transportation Safety Board, told the Association of Oil Pipelines that its efforts to keep the pipeline safety office short of funds and unable to effectively regulate for safety would backfire. Safety board chairman Jim Hall said that “no American would want to use any transportation vehicle that would not be properly inspected for 48 years, nor should we have pipelines traveling through any of our communities in this condition.” His words drew no applause. Hall said that to get the industry’s attention, criminal charges and prison sentences might be necessary.

  The pipeline industry lawyer whom the Obama administration made head of the federal Pipeline and Hazardous Materials Safety Administration, Cynthia Quarterman, said after the San Bruno blast that “we inherited a program that suffered from almost a decade of neglect.” She is wrong about that. The neglect goes back long before the George W. Bush administration.

  The entire federal and industry approach to pipeline safety stands in stark contrast to the way government and industry deal with airline safety issues, where the focus is on preventing crashes through the use of engineering, analysis and data collection. Rick Kessler, a pipeline engineer who worked on pipeline issues as a Capitol Hill staffer, now serves as a volunteer vice president of the Pipeline Safety Trust. How bad is the current system? Kessler told me that if the Federal Aviation Administration operated on the same rules as pipeline safety regulators, “I wouldn’t get on a plane.”

  Inspecting pipelines for corrosion, faulty welds and damage from earth movements, both natural and by excavators, is one of the best ways to reduce the chance of rupture. Yet buried in the fine print are government rules that discourage shutting down pipelines to inspect, maintain or replace them before they fail, in effect shifting the risks of pipeline disasters from pipeline owners on to unwitting Americans.

  Instead of replacing corroded pipelines, the owners just de-rate them. “De-rating” means reducing the maximum pressure allowed from, say, 1,500 pounds per square inch to 1,200 pounds. As corrosion eats through more of a pipeline’s steel wall, the pressure maximum may be reduced again and again based on calculations estimating the rate of corrosion. In theory, if the engineers guess right about the rate of corrosion, the pipeline will keep operating at lower and lower pressures until it is no longer profitable and will then be replaced or abandoned. In the meantime, as if engaged in some sort of life-or-death power game, they bet on the balance of corrosion and pressure.

  Water and other liquids often contaminate natural-gas pipeline flows, despite industry efforts to dry out gas before it is sent through high-pressure pipelines. Liquids speed corrosion, especially in low-lying segments of the pipe, where the liquid tends to pool. The NTSB found that salts, sulfur and other contaminants had rusted the Carlsbad pipeline at a low-lying spot. The deaths of the twelve campers show that engineers estimating the speed at which corrosion weakens pipeline walls sometimes get it terribly wrong.

  Gordon Allen Aaker Jr., a pipeline engineer in Kingwood, Texas, who consults on safety issues both to pipeline companies and those who sue them, sees de-rating as a dangerous policy that sends the wrong message to the pipeline industry. “Allowing producers to de-rate the pipeline does not give them any incentive to maintain the pipeline,” he said. Why, Aaker asked, would companies shut down a pipeline (and the flow of revenue) to make repairs “when they can just de-rate it?”

  The safety
factors built into pipelines are slim, according to Theo Theofanous, a professor of civil and chemical engineering at the University of California at Santa Barbara and director of its Center for Risk Studies and Safety. Theofanous served on a National Academy of Engineering committee that wrote a 144-page report in 2004 that focused on the risks of development coming to rural areas with aging high-pressure pipelines. Its recommendations were softened at the insistence of industry representatives, the professor said, muddling some issues and avoiding the exploration of others, including improving technology to detect corrosion and other damage.

  Theophanous said the rules on corrosion and other damage to pipeline walls are not nearly stringent enough and allow unnecessary risks. Nor is enough margin of safety built into their design.

  “[A] safety factor of two not uncommon in situations involving high pressures, even if the consequences of failure are modest,” Theofanous said. A factor of two means that the pipeline must be twice as strong as the minimum needed to contain its maximum pressure. Yet many high-pressure pipelines are built with a safety factor of just 1.4, meaning they have only 40 percent more strength designed into them than is necessary, not twice as much strength as needed. Federal pipeline safety regulators routinely allow these safety margins to be weakened as corrosion eats into pipeline walls and pipelines are operated at lower pressures.

  “Safety factors are employed to provide a margin of safety against unexpected causes,” Theofanous said. “It is not good engineering practice to use them against known deterioration of the structure.” Doing so means that after the pipeline has deteriorated, the safety factor will be even slimmer.

  The federal officials whose responsibility is to keep us safe from pipeline explosions hold a very different view. They have been granting “special permits” for segments of high-pressure pipelines that are supposed to be inspected under the 2002 law. While the federal Department of Transportation calls them “special permits,” that is just another euphemism for inspection-rule waivers.