Bloomberg News

Shutdown Deal Labeled Pork Unclogs AEP’s Ohio River Traffic Jam

October 18, 2013

Don’t tell American Electric Power (AEP:US) Co. that a part of the U.S. budget agreement allowing an Ohio River lock reconstruction project to continue is a sweetheart deal for Senate Minority Leader Mitch McConnell.

To AEP, the Columbus, Ohio-based utility, rebuilding the Olmsted Locks and Dam is crucial to keeping $70 billion of fuels, agricultural commodities, aggregates, fertilizer and steel flowing through the 12,000-mile U.S. waterways system. About $16 billion of those goods flow through Lock 52, which Olmsted is replacing.

“Just about any commodity that travels through the waterway goes through Lock 52,” said Marty Hettel, senior manager of bulk sales at AEP River Operations.

The Olmsted project now soaks up 85 percent to 90 percent of annual spending from the U.S. Inland Waterways Trust Fund, which finances lock and dam projects, Hettel said.

Lock 52, located about 34 miles upstream from Cairo, Illinois, and its twin, Lock 53, were built in the 1920s. The U.S. Army Corps of Engineers is spending $96 million every few years to maintain wooden wickets used to adjust water levels. Each time the lock is engaged, a crew of 16 men connects each of 487 wickets by hand to a steam-powered crane, a process that can take as long as 30 hours.

The deal brokered by McConnell, a Kentucky Republican, and Senate Majority Leader Harry Reid, a Nevada Democrat, to raise the U.S. debt limit and end the 16-day partial government shutdown included permission to continue Olmstead construction. It boosts the authorization to about $2.9 billion from about $1.7 billion.

Alexander, Feinstein

The two senators in charge of the panel that allocates money for water projects said Oct. 16 that contracts would have been canceled and $160 million would have been wasted unless Congress moved quickly to renew the project’s authorization.

Senator Lamar Alexander of Tennessee, the top Republican on the appropriations subcommittee that handles spending on waterways, said in an Oct. 16 statement that he and the panel’s chairman, Democratic Senator Dianne Feinstein of California, requested the provision.

McConnell has previously sought funding for the project, and he toured the construction site on Aug. 20, 2009. The Senate Conservatives Fund, a group opposing McConnell’s re-election in 2014, said the senator had used his position to add spending on “parochial pork.”

Allowing more spending on the Olmsted project is “an insult to all the Kentucky families who don’t want to pay for Obamacare and don’t want to shoulder any more debt,” the group said on its website.

25-Year Project

URS Corp. (URS:US), a San Francisco-based company, is leading a joint venture to build the project. It’s designed to reduce tow and barge delays through that stretch of the river, about 17 miles upstream from where the Ohio and Mississippi Rivers meet, according to the Corps of Engineers website for the Louisville district.

The Corps began the project to replace locks 52 and 53 -- about 23 miles downstream -- in 1988. The job was estimated at $775 million. Twenty-five years later, the cost estimate has ballooned to $3.1 billion and the project is 45 percent complete. The current timetable calls for Olmsted to be operational in 2020 and demolition of Locks 52 and 53 to be done by 2024.

“It’s the poster child for why reform to the process is needed,” said Debra Colbert, senior vice president at the Waterways Council Inc., a trade group for barge companies in Arlington, Virginia. “Something needs to get fixed here. It cannot take 40 years to build a lock project.”

Shippers like AEP, Cargill Inc., Consol Energy Inc. (CNX:US) and Marathon Petroleum Corp. (MPC:US) need Olmstead to get built, Colbert said. It’s sucking up money needed for about 25 other projects to keep the rivers navigable for shippers, she said.

Raise Fees

To do maintenance on Locks 52 and 53, the Corps must take one of the two chambers out of service, backing up barge traffic, said AEP’s Hettel.

When the Corps takes the 1,200-foot-long chamber down, all traffic has to be routed through a 600-foot chamber, he said. When both are open, about 30 tows a day can make it through. That falls to nine when the maintenance projects are being done, Hettel said.

The Corps’ most recent maintenance project, from late August to early October, backed up traffic and cost the industry about $15 million, Hettel said. Barge operators have paid about $800 million into the inland waterways fund to pay for Olmstead, twice what was expected at the project’s beginning, he said.

About 300 barge operators pay a user fee of 20 cents per gallon of diesel fuel, generating about $80 million a year for the trust fund. That’s matched dollar for dollar by the U.S. government, generating about $160 million a year to maintain all U.S. rivers, according to the Waterways Council.

The industry supports raising its taxes by as much as 11 cents per gallon to help complete Olmstead and have money to pay for other needed projects, Colbert said.

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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