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

by David Cay Johnston

  In reading some of these waivers, I noticed that they seemed not to say what was presumably intended. Five safety waivers were issued to Empire Pipeline LLC, a subsidiary of National Fuel Gas in suburban Buffalo, New York, for nearly two miles of pipelines because of the difficulty involved in inspecting the pipes, which vary in diameter. As written, the permits set limits: Empire Pipeline may pump gas through when corrosion has eaten through 72 percent of the pipeline wall not covered by the safety waiver and, where the safety waiver is in effect, 80 percent along segments. After confirming with Professor Theofanous and others that the permit was actually intended to say the reverse—requiring repairs at 28 percent corrosion for the main areas and 20 percent for the waivered areas—I notified both Empire’s president, Ronald Kraemer, and Secretary of Transportation Ray LaHood’s office.

  Kraemer told me that he did not understand. After I explained the error, Kraemer did not follow up; nor did LaHood’s office. If the Empire pipeline ever blows up, what is reported here will almost certainly become a full-employment act for litigators, thanks to the studied inaction of both the company and the government when notified of this potentially lethal mistake.

  PEERING INTO THE PIPES

  The Empire pipeline segments with waivers aren’t easy to find; although the pipeline safety administration that issues these permits discloses their location, the language is, at best, cryptic. Here is a typical description, for a third of a mile segment of the Empire State Pipeline in Western New York, that was given a safety waiver:

  Special Permit Segment 2—24-inch Empire State Pipeline mainline, approximately 1,715 feet in length, located in Monroe County, NY from Survey Station 4018 + 73 to Survey Station 4035 + 88; (MP 76.09 to MP 76.42)

  Just where is this one-third-mile-long pipeline? Unless you know the proprietary mile marking system that the pipeline company uses, you cannot tell. Does it run through a wheat farm or along Church Street? Past a wooded lot or a hospital? If you request map coordinates, street intersections or street addresses at the start and end of the section, neither Empire nor Transportation Secretary LaHood’s office nor his agency’s Pipeline and Hazardous Materials Safety Administration will tell you.

  The reason for this secrecy, LaHood spokeswoman Maureen Knightly told me, is official concern that terrorists might blow up the pipeline segments. Knightly was subsequently incensed when, in reporting this for the Web site remappingdebate.org, I paraphrased her words and cited Al Qaeda by name. “I never said ‘Al Qaeda,’” an angry Knightly said, missing the point. With easily identifiable pipelines in places like Manhattan, media-savvy zealots who want to scare us into thinking their worldview is superior aren’t likely to target a section of pipeline in the Finger Lakes region of New York. But this misguided secrecy on the part of federal pipeline safety regulators does mean that people along the Empire Pipeline route are ignorant of the fact that they are living, shopping, playing and going to schools near pipelines that have been given inspection waivers and are still allowed to operate when pipeline walls may be 80 percent corroded.

  Although the means to inspect inside pipelines exist, the principal method of detecting gas leaks is to fly overhead and look for desiccated grass and trees (leaking natural gas kills plant life at the roots). That may be adequate for slow leaks, but not sudden ruptures in which tearing metal can create sparks.

  Internal inspections are done using in-line inspection tools. So-called “pigs” employ lasers and magnets to identify corrosion, weak welds and other signs of wear and damage. Not only had a pig never inspected the Carlsbad pipeline, the San Bruno pipeline also went more than a half century with no internal inspection. Pacific Gas & Electric explained that was because the pipeline varied in diameter, preventing use of a pig. San Bruno Mayor Ruane told me that PG&E’s rationale troubles him. “We put a man on the moon decades ago and we can’t build a pipeline pig that can measure pipelines of varying size?”

  Professor Theofanous said the problem could have been solved long ago. “Yes, there are engineering problems, but the reason they have not been solved is a failure of will, not skill,” he said. He explained that a prototype pig capable of moving through a pipeline of changing size is being tested, but is not yet in field use.

  Even when pigs are used to check inside a pipeline, government rules allow inspections to be conducted as infrequently as once every seven years. Seven years is too long in the view of Theofanous and some other experts. The Transportation Department’s Pipeline and Hazardous Materials Safety Administration agrees, at least in some of the safety waivers it grants. Some of them require external inspections every four years.

  There are other ways to detect leaks, one of which could be a boon to consumers. The pipeline industry’s rules allow 5 percent of natural gas to go missing between the wellhead and the consumer, who gets charged for the full 100 percent. In Texas the rules are so loose that up to 30 percent of gas can just vanish. The industry says these loose measurements are needed because of shortcomings in gas meters. While that may have been true at one time, it isn’t with modern technology that can detect pinprick leaks.

  In the Carlsbad disaster, the NTSB made other troubling findings. Prior to the explosion, the federal Office of Pipeline Safety found no flaw in El Paso Natural Gas training and procedures for dealing with corrosion; after the blast, the pipeline safety office determined that corrosion control was “not carried out by, or under the direction of, a person qualified in pipeline corrosion control methods. This is because [El Paso Natural Gas’s] corrosion personnel have not received the informal or formal training necessary to perform the tasks required to implement the corrosion control procedures.” So the regulators were clueless and the company lackadaisical. Neither suggests a vigorous focus on safety, much less basic competence.

  That any pipeline inspections are required in our nation is only because of the insistence of people in Bellingham, including the parents of the three youths, who couldn’t believe it when they discovered that no law required pipeline inspections. The local federal prosecutor, incensed over what he considered the pipeline company’s blasé attitude, saw to it that the $4 million penalty paid by the pipeline company was used to create the Pipeline Safety Trust (pstrust.org). The trust lobbied for the Pipeline Safety Improvement Act of 2002, which covers large-bore lines that convey fuels, but not the small-bore transmission lines that distribute natural gas to homes and offices.

  Under the 2002 law, only 44 percent of liquid fuel pipelines and just 7 percent of natural gas pipelines are subject to safety inspections. “We thought it was a good start, but that it was just a start, and the safety regulations would be expanded and increased over time. We are still trying to achieve that goal,” said Weimer, executive director of Pipeline Safety Trust.

  The 2002 law requires that residents be told if they live near a transmission pipeline, but the notices I inspected were nothing more than inserts in utility bills, which most people toss out unread. Aside from boilerplate copy advising anyone with a backhoe to call 811 to locate pipelines before digging, the supposed warning notices read more like promotional brochures for pipeline safety.

  The actual purpose of the pamphlets—to alert people who live near a high-pressure pipeline of its presence—typically gets a single paragraph deep in the pamphlet using that ill-defined term mentioned earlier, “high consequence area.” Words like death, blast and burn do not appear, nor does any advice on what to do in case of explosion. None of the brochures I reviewed mentioned the size, age, condition or location of any pipeline.

  Even when schoolchildren are at risk, the pipeline industry and the government put obfuscation ahead of safety warnings. One colorful six-page pamphlet sent to schools by the pipeline industry states on its fifth page that “you are receiving this information because pipeline infrastructure is located near schools or facilities in your district.” There is no useful information in the brochure about where pipelines are located, what precautions or plans are appropriate, or
anything else that might help school officials or parents. This utterly useless document comes from the Pipeline Association for Public Awareness, an industry group, with official approval from the federal Office of Pipeline Safety and its Pipeline and Hazardous Materials Safety Administration.

  The federal government has done no studies or surveys or convened any focus groups to see if these pamphlets are effective. But the proof that they do not work is this: Mayor Ruane said San Bruno fire and police officials did not even know of the existence of the pipeline that exploded in 2010. The mayor said a second pipeline came to the city’s attention only because of plans to build a structure—a tot lot, a park for small children—directly atop that pipeline.

  When the next pipeline disaster occurs, how well prepared will pipeline companies be? Paul Blackburn ran Plains Justice, a public interest law firm that was in Vermillion, South Dakota, on the border with Nebraska. Earlier in his career Blackburn worked as an energy regulatory lawyer in Washington. Because he is engaged in several public interest actions aimed at dealing with damage from pipeline ruptures and efforts to make a proposed new pipeline from Canada into the United States safer, he filed Freedom of Information Act requests for pipeline company safety planning.

  “I expected detailed emergency response and evacuation plans, including emergency contact numbers and an assessment of firefighting resources,” Blackburn said. Instead, “I found there was almost nothing in the file. It was pathetic.” Blackburn said the files show that “the government basically rubber stamps industry documents” with little to no evidence that it questioned, much less challenged, anything the companies proposed.

  Utility workers across the country have told me that customers are being put at risk by cost-cutting that they say began with the deregulation of gas distribution. “All the gas utility companies are basically playing the odds,” said Charlie D. Rittenhouse, president of the Utility Workers Union of America, Local 98 in West Virginia. “They’ve cut the workforces and cut the workforces and cut the workforces while at the same time keeping the CEOs’ and top executives’ wages going up and up and up. A major concern for our group and many other groups we deal with is that there’s not enough people there to do the work.”

  Rittenhouse and others say their greatest concern is with the rebuilding of compressor stations serving pipelines laid three or more decades ago. “The compressor stations have been refitted to handle higher pressure and higher volumes of gas,” Rittenhouse said, “so you would think that means more and more careful supervision, but just the opposite…has happened. Now in compressor stations, fewer people are utilized and more reliance is put on computers. Fortunately we have not had a major disaster at a large compressor station for some time, but when we do, I believe it will make the pipeline explosions look like small fireworks.

  “Fact is, pipeline safety and regulation for compressor-station manning has not kept up with the times; the companies are pretty well allowed to handle the manning any way they see fit,” he said.

  Rittenhouse recalled what a federal Occupational Safety and Health Administration official once told a gathering of union members concerned about the risk of a compressor blowing up. “Once there is a major disaster,” the OSHA official said, “then there will be all kinds of regulations regarding compressor stations. Until then, as the companies tell us, we should not worry because it hasn’t happened yet.”

  Prior to protests from parents and the prosecutor that followed the Bellingham disaster, the federal Office of Pipeline Safety was so badly run that it did not even have maps locating pipelines. In 2006, four years after the very limited safety inspection bill became law, the Houston Chronicle showed that some pipelines did not even appear on official maps for East Texas and Louisiana. Other pipelines noted on the map were far from their actual locations.

  The bottom line is this: America’s 2.4-million-mile network of pipelines is aging and corroding. About 300,000 of these pipeline miles are high-pressure natural-gas transmission lines like the ones that blew up in New Mexico and California. Another 200,000 miles of pipelines move diesel, jet fuel and gasoline, like the one that ruptured in Bellingham. While experience so far has been that pipeline explosions killing more than one or two people are rare, past performance is no indicator of future outcomes.

  There’s a final irony. The pipeline monopolies whose prices are regulated by the government get to include in their rates the cost of insurance to pay for losses from pipeline disasters. As pipelines age and as more people live near pipelines, the risk of disaster increases—and so does the cost of insurance. But because pipelines are monopolies, they get to add the higher insurance costs to the rates they charge. So you get to pay more even as you are put in greater danger.

  11…

  Draining Pockets

  What we did not know then, but realized later, was that they planned to double our water rates about every three years.

  —Connie Barr, Felton, California

  11. Connie Barr figured three dozen people might come to the Fel- ton firehouse in 2002 to learn about the stealthy takeover of their water supply by a giant German corporation. When a hard rain started falling, Barr expected half the seats to go empty.

  Instead, the room quickly overflowed with people. So many came that the fire trucks had to be moved into the street, allowing an audience of 120 people to crowd into the empty bays. Several dozen latecomers stood outside, intent on hearing even as the cold night rain pelted them.

  The story of that night, and what happened over the next four years in Felton, may well be repeated in your town. Water companies are doing their best to win ownership or control of reliable, low-cost municipal and community water systems. They know that, over time, they can make big profits by jacking up water rates.

  We tend to take water for granted. It flows from the tap instantly, pure enough to drink and cheap enough to water our lawns. About 275 million Americans get their water from piped systems; some 240 million of those are served by nonprofit operations. Water provided by cities and other nonprofit systems typically costs less than half a penny per gallon. Even in Atlanta, which has perhaps the costliest municipal water in America, the price runs only about a penny a gallon.

  Corporate water costs more. A 2006 study for the American Water Works Association (AWWA) found that, in New York State, the six largest water companies charge 25 percent higher rates than nearby municipal systems. The association represents mostly municipal water systems and the companies that sell them equipment and services.

  In Wisconsin, corporate water costs on average 49 percent more than municipal water, according to Wisconsin Public Utility Commission data.

  In California, where about 140 corporate water suppliers serve 6 million people (a sixth of the state population), corporate water, according to a 2007 study by the national consulting firm Black and Veatch, cost on average 20 percent more than public water. Three years later, American Water filed to raise rates in seven California systems it operates by 31 percent, at a time when wages were flat to falling and inflation the lowest in living memory.

  How high can it go? In the lettuce-growing town of Chualar, an hour’s drive from Felton in neighboring Monterey County, some people saw their water bills jump 500 percent after American Water bought their system in 2002.

  GOING PRIVATE

  Monopolists protect their exclusive franchises with targeted campaign contributions, seeking to acquire the allegiance of elected officials, who then put in place rules that mean ever higher prices for water. But that is not all. These monopolists can get laws changed to make it harder to buy them out (that would let people get water at lower prices).

  Typically, these monopolists don’t talk about the profits they plan to make when they seek to acquire publicly owned water systems. They talk about easing tax burdens, staying mum about rate hikes. Sometimes they appeal to the beleaguered taxpayer, proffering a big cash payment. To local governments facing a budget squeeze, that big cash payment loo
ks like a great deal. But compared to the stream of costs that will follow, it is probably a mirage. The corporation will recover that upfront payment through higher rates; it’s no gift to the community, but an advance that must be paid back—along with what studies show is typically an 11 percent profit.

  Corporate owners employ more expensive executives than municipal water systems, adding to the pressure to hike water rates. The corporation pays dividends to its shareholders, unlike municipal systems that can return any surplus to the community through lower rates or by reducing local tax burdens. If a holding company sits atop the water utility, which is the case with all of the big operators, the corporate income taxes embedded in water rates may never make their way to government. And the holding company may borrow most of its capital, making its real rate of return to shareholders double or triple the officially authorized rate of return.

  Increasing the cost of all the piped water Americans use by just a penny a gallon taps an extra $96 billion from consumer pockets per year. That penny would increase the total price that households would pay for piped water from about a billion dollars a week to nearly three billion.

  In Felton, California, people fought to avoid having their pockets drained by a distant water corporation and to regain control of a water system that, more than a century earlier, the town fathers built as a perpetual benefit for the community.

  The Feltonians succeeded, despite a 1992 law the state legislature passed at the behest of corporate utilities to insulate the companies from municipal takeovers. Before 1992, California law assumed that public takeovers of water utilities were in the public interest; but the new law, sponsored by an association of corporate water providers, required that communities trying to buy out a corporate utility prove the action was a necessity.