By Lee Buchsbaum, Associate Editor and Photographer

Endless foreign wars, endless Federal budget cuts and endless political debates are starting to take a collective toll on the health and viability of our nation’s crumbling infrastructure, once the envy of the world. While most taxpayers are familiar with the limitations of the nation’s highway system, far fewer understand the problems now commonplace along the U.S. inland waterways system. Traversed daily by thousands of barges and tows owned by dozens of operators, industry and government stakeholders are becoming increasingly frustrated as the locks and dams that comprise much of the waterways infrastructure continue to fail at accelerating rates. As funds dry up from the Federal level, it will be left to industry, labor and local governments to shore up the liquid arteries of commerce that bind this nation together.

Unique among the network of rivers that make up the U.S. inland waterways, the Ohio River would be considered a major coal river. Hundreds of millions of tons of coal travel through the Ohio River’s many locks and dams annually going from mine to power plant, and increasingly from mine to export facility. As domestic utilities reduce the collective coal burn, now more than 10% of the combined steam and thermal coal produced in the U.S. is heading overseas. With coal traffic patterns changing as a result of this market shift, larger amounts of river-borne coal are seeking new outlets, especially as existing rail-served coal ports become clogged with other traffic.

Complicating transit is the fact that many locks and dams on the Upper Mississippi and particularly the Ohio River are ancient, some over a century old, and quite a few are way past their design life. As each day passes, the threat of a significant or catastrophic lock or dam failure becomes more imminent. While America has so far dodged that bullet, the right bolt breaking lose at the wrong time in the wrong place could wreak havoc on coal markets.

The Federal Government continues to invest funds in various river improvement projects. Tremendous amounts of money have been tied up for years in one of the biggest boondoggles in modern times: the Olmstead Lock and Dam on the lower Ohio. Initially budgeted at $775 million, projected costs have today climbed to more than $2.1 billion and there’s no end in sight. Moreover, according to the way in which money has been allocated and prioritized, under existing law, dozens of other projects are being held up while Olmstead is “finished.” Meanwhile, the inland waterways become more fragile.

According to the Waterways Council, a Washington-based industry group, moving coal and other freight via barge through the nation’s river system is the most energy efficient mode of transportation. On average, barges move a ton of cargo 576 miles per 1 gallon of fuel. A rail car, by contrast, will move the same ton of cargo 413 miles per gallon. Trucks are the worst, averaging only 155 miles travel per that 1 gallon of fuel. One of the largest river shippers, American Electric Power (AEP) is able to do better: squeezing an average of over 642 miles traveled per gallon of fuel used. But in our increasingly carbon constrained and supposedly “greening” economy, America’s inland waterways are actually becoming less efficient and reliable. As Congress debates how much to fund the waterways through this winter, shippers wonder how the inevitable spring floods will affect them and their customers later this year.

The Ohio: America’s Real Coal River
In a presentation delivered at the Coal Handling & Storage conference, which was held during November in St. Louis, Keith Darling, president of AEP’s River Operations, discussed how fragile the Ohio River system’s lock and dam infrastructure has become.

Headquartered in Chesterfield, Mo., AEP’s River Operations subsidiary is the second largest dry bulk barge company on the inland waterways transporting more than 71 million tons of commodities each year. Traversing almost all of the nation’s river systems, AEP moves about 32 million tons of coal annually into AEP power plants as well as another 3 million tons of limestone and urea, which is used in emission control systems, also traveling by barge.

Throughout the nation’s heartland, the Ohio, Illinois, Green, Tennessee, and the Upper and Lower Mississippi rivers and other rivers carry millions of tons of cargo to hundreds of industrial facilities. While the Lower Mississippi does not have any locks and dams, some of the oldest in the nation are on the upper Mississippi. But, in terms of cargo, it’s really a grain river as is the Illinois. “If you really want to talk about a coal river, we’re talking about the Ohio,” Darling said. With almost 40 locks and dams throughout a system comprising both the Monongahela and Allegheny rivers as well as the Ohio River, Darling explained, more coal flows over these waters than any where else in the nation.

For hundreds of miles from Pittsburgh, Pa., to Cairo, Ill., where it meets the Mississippi, the Ohio River valley is dotted by factories, chemical plants, power plants and other industrial facilities. Over the course of a year more than 200 million tons of cargo move through its locks and dams, and no cargo is more plentiful than coal.

Lock Outages on the Ohio
As the Inland River system ages, Darling likened the situation to a form of Russian roulette, pulling the trigger each time the system locks another tow, and hoping there’s no bullet in that chamber. Most of the dams’ “design life were exceeded 50 years ago and it’s heroic to keep those structures operating. As they get older and we don’t do proper maintenance and we don’t modernize them, their reliability has become challenged,” said Michael Toohey, president and CEO of the Waterways Council, the primary industry group associated with protecting that viability.

As compiled by AEP and the Army Corps of Engineers, since 2000, more locks are closing for repair or maintenance every year. And as the system continues to fatigue, the amount of time locks are out for repairs grows each year as well. “Lock outages have increased three-fold in a 10-year period. Throughout 2009, there was a lock out somewhere on the Ohio River roughly 25% of the year,” said Darling.

Over the next 20 years lock gate failures will continue steadily. “Lock gate failures will occur at increasing rates over the next couple decades. Indeed by the year 2020, the Corps predicts that all 40 lock gates on the Ohio will fail at some point in time. That’s the Corps’ prediction. And amazingly they’ve been about 100% at predicting lock failures,” Darling said.

Those lock failures have major impacts to the traffic on the Ohio River. When a main chamber on the Ohio River fails, all traffic must use an auxiliary lock chamber instead. Generally the auxiliary chambers are only half the size of the main chambers, forcing barge lines to break tows in half and move a tow through in two or more pieces. “This adds time and it creates queues. Locks you typically drive up to and lock directly through, you’ll sit at for two, three, even four days while waiting for your turn to move through. And, time is money,” said Darling. The extra costs the shippers bear generally translate into higher costs per delivered ton and increased costs for ratepayers. All of this translates to higher costs for coal, which only prices it further out when compared to natural gas.

Using the Corps and AEP’s data, in three years—by 2015—the main chambers of five dams, which currently lock through a combined 72.2 million tons per year (tpy), will fail (Hannibal L&D, 17.4 million tpy; Willow Island L&D, 17 million tpy; Belleville L&D, 16.5 million tpy; Lock 52, 17.9 million tpy; and Lock 53 3.4 million tpy). In fact, by 2020, both the main and auxiliary locks will have failed on four dams along with the mains on four others. Millions of tons would be displaced. Essentially, that amount of cascading lock and dam failures would clog up the river, perhaps rendering it uneconomical compared to competing modes as dwell times and costs rise precipitously.

Too much hyperbole? Perhaps. But Darling and AEP believe that even today, one key installation failure could have tremendous repercussions. In his presentation, Darling discussed the ramifications of a hypothetical lock failure at the Belleville lock and dam, located at milepost 203.9 on the Ohio River. A team at AEP studied what the system-wide ramifications would be if a gate failure occurred at Belleville, essentially in middle of the Ohio River system. Belleville is one of six dams (out of 40) that has earned a “D” condition rating by the Corps. It is expected to fail sometime between today and 2015—along with four others.

When, not if, Belleville fails, roughly 16.5 million tons of throughput could be affected, causing a displacement of well more than 1.3 million tons. That failure alone could “add about 6.8 cents per kilowatt-hour to the average customer. And the average customer uses about 100 kilowatts per day. Though $6.80 per day doesn’t sound like a lot, in a month that’s about $204 more that every electric utility customer of AEP would have to pay. And AEP is only one of many utilities along the Ohio River,” said Darling.

Of course, any increased transportation costs will be further heaped upon the mountain of other costs from a whole slew of expensive environmental regulations and other burdens conspiring to drive up the cost of coal-fired generated electricity.

 

How the Corps of Engineers Spends Its Funds
So why are America’s dams failing and how well has Congress prepared the country by allocating the resources to prevent this looming systems failure? Not well. Think “neglect.” But, Darling cautioned, this long-term neglect “didn’t happen under this recession. It didn’t happen under Obama. This has been occurring over decades. Congress is not funding lock and dams,” he said. So what you have is a system constructed for a 50-year life that, through neglect, has seen its life expectancy actually decrease. However, industry will continue to use these same locks and dams longer than those planned 50 years. “It’s a situation that we can’t sustain without some investment,” Darling said.

Currently maintenance of the Inland Waterways system comes from both funds allocated by Congress and from a variety of user fees administered by the Inland Waterways Trust Fund (IWTF). Currently the barge industry pays a $0.20/gallon diesel fuel tax into the IWTF. That adds up. AEP alone paid more than $10.2 million into the fund in 2010. A cost-sharing formula was established in 1986 so that half the lock and dam construction costs are paid out of the IWTF and the balance from general revenues. This includes construction and major rehabilitation initiatives.

The Inland Waterways Users Board was also established in 1986 to advise Congress and the Secretary of the Army about inland waterways system priorities and spending levels. Currently the Trust Fund generates roughly $70-$90 million annually, far less than what is necessary. The modernization needs of the system, as projected by both AEP and the Corps, far exceeds the annual IWTF revenues. And currently far too much of those meager revenues are being sucked up by just one project: the infamous Olmsted Lock and Dam.

Olmsted Lock and Dam: Boondoggle on the Ohio
The Olmsted Lock and Dam construction project is actually two projects at once. One is the actual construction of the new locks and dam, but also the phasing out of the busy locks 52 and 53. Located just up-stream of the confluence of the Ohio and Mississippi at Cairo, Ill., Olmsted replaces these older dams with the one new one. “It’s just become an enormously expensive proposition,” said Toohey.

In 1988, Congress authorized the Olmstead project at $775 million for a 12-year construction period. Because of the cost sharing formula for the initial funding authorization, about half of the cost was to come out of the IWTF, roughly $387 million over those 12 years. “What that worked out to was about $32 million a year spread over 12 years to come out of that fund for one project. But the fund is still supposed to fund all of the major projects on all the locks and dams on all the rivers in the U.S.,” Darling said.

However, the Olmsted project quickly fell behind schedule. After spending more than $1.3 billion so far, there continue to be problems, delays, and more delays. Over this time, Olmsted’s project cost has ballooned to more than $2.1 billion. And now, instead of a 12-year project, it will take at least 26 years to complete. Worse for the IWTF, “using the same cost sharing formula, 50% or $1.05 billion will come out of the fund. That’s $40.3 million per year for at least 26 years. And the sad part is, the Corps says it doesn’t think it can meet that. So Olmsted is going to be higher in cost than even this and it’s going to be a longer timeline to completion. The business model for financing our navigation infrastructure just isn’t working,” Darling said.

There’s a growing sense of frustration and almost helplessness in the industry because no other projects can be prosecuted or implemented until Olmsted is back on schedule or completed—or the rules are changed. “We’re very concerned because the project is commanding all the money for this modernization build out, even though we have 25 other authorized projects. That’s more than $8 billion of backlogged work that we can’t get to because of the priority Congress has established for the appropriation of funds,” said Toohey.

So in essence, as those contractors fritter away the time, and increase the price of the project, Congress has put all other major waterways projects on hold. “In its defense, Olmsted has great benefits. It returns $8 back to the community for every dollar invested. It’s a good project, but it’s just become an enormously expensive project. That’s probably because of the use of experimental engineering technology. They are trying to build a dam in the wet rather than use traditional structures,” said Toohey.

Then again, the other projects on the drawing boards would generate lots of revenue and jobs as well. “In the short term we have $8 billion of family wage construction work being held up. The Corps figures 30,000 jobs per every $1 billion spent, so that’s 240,000 jobs. Those projects are already authorized, but we need federal funding,” said Toohey. The majority of them will be located along the Ohio.

Just as importantly, modernization of the waterways will attract more investments along it, and thus more jobs. “Facilities that are located along the waterways, precisely because of their ability to transport goods in a reliable, efficient and environmentally friendly manner, are now in jeopardy, especially new build outs. “Shell Oil Co. stated it wants to locate a plant along the Ohio River. It has announced that it will either be in Ohio, West Virginia or Pennsylvania to take advantage of the crude oil production in the Marcellus shale gas. With the multiplier effect factored in, they estimate this plant, including construction, will create another 17,500 jobs,” said Toohey.

Solutions to Difficult and Expensive Problems
In an effort to try to fix this failing model, a group of industry stakeholders including the Coast Guard, the Waterways Council and others sat down and hammered out a plan. Titled the “Inland Marine Transportation Systems Capital Projects Business Model,” the plan “would allow us to complete 25 projects in a 20-year period as opposed to seven projects over a 20-year period if we go down the current path. And I have serious doubts that they’ll even be able to accomplish the seven projects at the pace they’re going,” said Darling.

The new plan provides for additional revenues for the trust fund, it re-prioritizes the nation’s investments, and recognizes and accounts for all the beneficiaries of the water systems, and “it protects commercial users that cost-share the construction projects,” said Darling.

The development plan has five elements. The first is to increase Federal funding for the program from the current $160 million a year to $380 million. Second, it suggests a way to prioritize the projects so that those that are ready to go and provide the most benefit would be funded first. Third, it proposes reforming the core project delivery process that now takes 40 years to achieve “what we used to be able to achieve in four years. And finally, it proposes to increase the current diesel fuel tax of $0.20 a gallon to $0.69 a gallon to help pay for these projects,” said Toohey.

Indeed, the waterways users would “volunteer to pay more money for an increased fuel tax,” said Toohey. Stakeholders hope that by taking a page out of the Warren Buffet playbook and showing a willingness to increase their collective exposure, maybe the government will follow suit. But so far, as the Great Recession wanes on, Congress’ reception has been decidedly mixed. “Members that understand the importance of investment and infrastructure support it and those that are just, ‘no new taxes,’ of course oppose this,” said Toohey.

While industry is prepared to raise its stake, the only thing that can really save the existing system are more Federal funds. “It really is going to take convincing Congress that we need more infrastructure investment. This is not a discussion about raising taxes. It’s about having the resources to invest so that our economy can thrive. Congressman Ed Whitfield (R-KY) has agreed to be a champion for the proposal in House of Representatives. For the sake of the Inland Waterways system and to maintain the health and viability of our nation’s industrial heartland, we need to pass the Whitfield bill,” said Toohey.