Poorly-regulated pipeline, railroad, and electric utility monopolies cost an average American family $1090 a year. Unless they kill you. (More)

The Fine Print, Part II: Pipelined, Railroaded, and Shocked

This week Morning Feature looks at David Cay Johnston’s The Fine Print: How Big Companies Use “Plain English” to Rob You Blind. Yesterday we began with how Americans pay premium prices for substandard telephone, internet, and cable service. Today we see how railroads, pipelines, and other industries have been re-monopolized and the steep costs both in prices and public safety. Tomorrow we’ll conclude with Johnston’s proposed solutions to these and other corporate welfare issues.

David Cay Johnston is an investigative reporter specializing in economics and tax issues. His analysis of federal tax loopholes won the Pulitzer Price for Beat Reporting. His investigative reporting career began in 1973 at the Detroit Free Press and continued at the Los Angeles Times and the Philadelphia Inquirer, before joining the New York Times in 1995, where in 2001 his series on federal tax loopholes won the Pulitzer Prize for Beat Reporting. After retiring from the Times in 2009, Johnston became a Distinguished Visiting Lecturer at Syracuse University College of Law and, since last June, a board member of Investigative Reporters and Editors, a nonprofit organization that provides recognition and training for reporters nationwide.

“Unwitting heroes”

In June of 1999, Stephen Tsiorvas and Wade King were playing near Washington’s Whatcom Falls Creek. Being ten-year-old boys, they were also playing with a butane lighter. It had no fuel left, but there was plenty else to catch the spark as they thumbed the flint. Almost a quarter-million gallons of gasoline had leaked from a Royal Dutch Shell pipeline, and the spark from the boys’ lighter ignited a fireball that scorched everything for a mile and a half along the river. Including them.

Bellingham Mayor Mark Asmundson called the boys “unwitting heroes.” Had they not sparked the blaze, the leaking gasoline would have flowed under Interstate 5 and into downtown Bellingham, possibly costing hundreds of lives. Instead the leak killed only the two boys, and an eighteen-year-old fisherman named Liam Wood, who had passed out from the fumes and drowned in the creek just before the blaze. The tragedy garnered only a single sentence on ABC World News, but the media did cover the subsequent spike in gasoline prices in Washington and Oregon.

A little more than a year later, twelve New Mexico campers died when a natural gas pipeline exploded near the Pecos River in Carlsbad. Their deaths also received less coverage than the rise in California electricity prices during the year-long repair of the pipeline.

Ten years later, in September 2010, a 30-inch natural gas pipeline exploded near San Francisco, leaving a 40-foot-deep crater and killing eight people. Among the dead were Jacqueline Greig and her 13-year-old daughter Janessa. In one of life’s cruel ironies, Greig had worked for the California Public Utilities Commission in San Francisco for over 20 years. Her most recent assignment: an investigation into the safety of PG&E’s high-pressure gas pipelines.

“Industry and big business run the city”

If you live in an urban or suburban area, there’s a good chance you’re close to a high-pressure pipeline. Johnston quotes former New York City Fire Department deputy chief Vincent Dunn on the risks:

Industry and big business run the city. 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.

Yet no federal law required pipeline inspections until 2002, and the Pipeline Safety Improvement Act passed that year allows companies to request waivers from the limited safety inspections that law requires. Worse, the companies don’t tell the public which pipeline segments have been given waivers. Unless you get copies of the waivers, translate the company’s internal codes, and go out with surveying tools, there’s no way to know whether you live, drive, or work over a old, corroded pipeline that has been waived from inspection. The Carlsbad pipeline that killed 12 people in New Mexico had not been inspected since it was laid … in 1950.

Worse yet, corroded pipelines are rarely shut down for repairs. Instead they are “de-rated,” reducing the maximum pressure the line can carry based on estimates of the rate of corrosion. And rather than the engineering safety factor of two – twice the strength required – that is standard for high-pressure structures, most pipeline companies use only a factor of 1.4 … and that margin decreases as the pipeline is de-rated.

Because pipelines are natural monopolies, you can’t switch another gas company that has a better maintenance record. Without market competition, effective regulation is your only hope of protection. Yet pipeline companies resist that regulation at every turn. And they’re allowed to overcharge you by an estimated $140 a year while you wait for what Esquire‘s Charlie Pierce calls “Your Regularly-Scheduled Pipeline Debacle.”

“We lead the industry with integrity”

You could move to an area without gas pipelines – if you can find one – and rely on electricity. You might even find a city that hires an independent consultant to keep an eye on the local electric company. Joe Seeber’s TriStem Consulting does that, counting streetlights and wattages to see if cities are being overcharged, and he almost went to jail for his trouble.

Seeber uncovered $100,000 in bogus charges to the city of Beaumont, Texas by an electricity conglomerate called Entergy. Within days, four other East Texas towns filed lawsuits against Entergy, based on TriStem audits. Entergy was doing pretty well, with $5 billion in profits from 2006-2008, while claiming tax credits that got back almost $58 million from the federal government, for a real corporate tax rate of minus 2.4%. The company earns 17.5% profit for each dollar of revenue – compared to an average of less than 10% for large corporations – thanks to monopoly pricing, tax breaks, and other taxpayer largesse. And their corporate training manuals proudly claim: “We lead the industry with integrity.”

So when Entergy lost a $3 million lawsuit after a rusty New Orleans light pole collapsed and killed a fruit seller named Nathaniel Joseph, they sued TriStem, arguing that Seeber should have noticed the pole was rusted and informed Entergy and the city. A state judge ordered Seeber – who was acting as his own lawyer – not to discuss the case with Entergy executives and speak only to the company’s lawyers. The judge later dismissed the case, but Entergy appealed … and then let the case sit in legal limbo.

Seeber later wrote a book, Wired for Greed, and sent a copy of the manuscript to Entergy for comment. Because the appeal was still open and the book mentioned the Joseph case, Entergy promptly went back to court and tried to have Seeber jailed for contempt. Had Johnston not covered the contempt hearing, he and Seeber believe the judge would have imposed the 45-day sentence Entergy demanded. Instead the judge ordered Seeber to write a written apology.

The same Entergy training manual that talks about integrity declares in bold capital letters: “RETALIATION IS NOT TOLERATED.” Except by the CEO, apparently.

Johnston estimates that electric utility tax breaks, monopoly overcharges, and stranded costs total $850 per year for an average family. Our re-monopolized freight railroads – allowed to charge monopoly rates for an entire shipment if even a few miles of a thousand-mile route traverse a single-access track – add another $100 per family per year.

As with pipeline companies, you can’t choose another electric company, or another railroad to bring coal to your local power plant or grain to your local bakery. Yet we’re told regulation hurts business and we should trust “free markets,” while industry lobbyists rig the rules to help themselves. Until, too often, we discover that regulation might have been a good idea after all:


Happy Friday!