SHIPPING

Neck-deep in financial woe, political mud on the Ohio River

The last-minute addition to the fiscal deal this week of a $1.2 billion boost in the spending cap for an embattled waterway project in the home state of Senate Republican leader Mitch McConnell kicked up a political storm, but the "Kentucky Kickback" has jittery inland-shipping interests on the busy Ohio River breathing a sigh of relief.

The Olmsted Locks and Dam project was facing a Nov. 1 deadline before it would need to start shutting down under the old spending cap. Not only would that have added as much as $160 million to the project's overall price, but it could have threatened the movement of billions of dollars of goods on the nation's busiest stretch of river.

Located 17 miles upriver of the Ohio's confluence with the Mississippi River, Olmsted is designed to replace two decrepit 1920s-era locks and dams that make possible the shipment of about 88 million tons of coal, crude materials, chemicals and farm products each year.

The Ohio River's bustling commercial navigation system hits a choke point at locks and dams 52 and 53, which are considered among the most at risk of failure in the national network maintained by the Army Corps of Engineers.

Here's how they work now: When water levels dip low enough that the dam must be raised, the lockmaster sends a steamboat into the rushing Ohio River. Fighting the current, a worker sinks a long pole in the water and feels by hand for a hook attached to a wooden plank called a wicket. When he finds it, he attaches the pole to the boat's crane and pulls up the wicket. Then he moves a little farther into the river and raises the next one, and then the next, until a wall of wickets has closed off the river.

So the planned modernization at Olmsted is the top priority for the U.S. barge industry. Steve Little, president of Crounse Corp., whose barges carry coal along the Ohio, said he can often see barges waiting in a long line to pass through lock 52. The line, he said, stretches for 5 miles from the lock -- all the way to his office window in Paducah, Ky.

"The traffic is just sitting there," he said. "You've got three-day delays waiting to go through the lock. I'd say with Olmsted, you'd probably cut that back to, at most, eight or 10 hours."

But the project has been plagued by cost overruns and delays. The corps now expects it will be completed in 2024, and the cost has ballooned to $2.9 billion.

Olmsted has become a poster child for the inland-shipping industry -- which splits the bill for new construction projects with taxpayers -- in its fight for a change in its cost-share requirements.

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The little-known story behind the Olmsted debacle could have big implications for the water resources bill headed for a vote on the House floor next week.

Trouble from day one

When Congress authorized Olmsted in 1988, lawmakers expected construction to be completed within seven years.

But the problems began right away.

First, lawmakers failed to provide project funding for three years. When they finally began ponying up, the funding came at levels that the corps and others found inefficient.

"These big projects would become piggy bank projects that could then be raided," said Steve Ellis, vice president of the nonpartisan Taxpayers for Common Sense. "Particularly when there were earmarks, Congress would just spread the money further and thinner."

Then, in 1997, the corps set off a cascade of trouble when it switched to a new construction technique for the dam.

Traditionally, construction crews build enormous walls of sheet steel called a cofferdam in the middle of the river to divert water around the section where they need to work. They then pump water out of the dam, creating a dry work area.

But cofferdams can be dangerous, particularly on a dynamic river like the Ohio, where water levels often vary by dozens of feet in a single year.

Just upriver from Olmsted, in 1971, the walls of a cofferdam failed days after being dewatered, washing away construction equipment and barely sparing workers.

Col. Luke Leonard, commander of the corps' Louisville District, said that incident was not forgotten by his engineers.

"Seven minutes ago, you had all this equipment in there; now everybody is running for their lives," Leonard told Greenwire on a tour of the area last December. "You lose a year and millions of dollars to pump it out and make sure it's safe to have people down there again."

In 1997, corps engineers opted to try a new technique called "in the wet" to build Olmsted's dam. Engineers argued that the new method would be safer and cheaper. But critics say that it was simply hubris and that engineers were eager to prove their hands at a new, unproved technique.

Instead of building a cofferdam to dry out an area of the river, building in the wet involves assembling massive shells of concrete on land and then sinking them into the flowing river. It's a feat that requires enormous, one-of-a-kind infrastructure and extreme precision.

"It's remarkable," said Mike Braden, chief of the Olmsted division for the corps' Louisville District. "You're talking a quarter-of-an-inch, half-an-inch tolerances for setting these things down."

But for contractors, the risk was too great.

When the corps put the project out to bid, it received no offers. So the corps sweetened the deal by offering a different type of contract that laid the risk on the government and reimbursed the contractor for expenses up to a limit plus a percentage for profit.

In January 2004, the corps awarded a $564 million contract for the dam -- the locks had already been completed -- to two firms that later became part of URS Corp.

But challenges soon started arising with the equipment. The project required tools that didn't exist anywhere else, including a super gantry crane that can lift up to 5,100 tons and an enormous, $19 million catamaran barge that ferries the concrete shells into the river and gradually lowers them to the bottom. Unable to rent the equipment, contractors -- at taxpayer and industry expense -- had to build it.

Meanwhile, money from Congress was not flowing according to the corps' plans. That drove costs even higher.

Building in the wet also shortens the work season. While construction crews can work year-round in a cofferdam, when building in the wet, crews are limited to the low-water season, which typically runs from June through November or December. After that, the river becomes too turbulent to send divers in.

By 2009, when the first shells were just being built, the corps estimated that the bill for the dam would rise by $300 million. Less than two years later, the total cost was adjusted up to $2.1 billion. Last February, that became $2.9 billion. Today, the corps estimates the project is 52 percent complete.

'We're on the path to success' -- Army Corps

The Army Corps maintains it's on track to finish Olmsted at the latest cost estimate and timeline. The construction equipment is in place now, and Congress is providing steady levels of funding, the agency's project leaders point out.

"What we've demonstrated since 2010 is that we're trending on schedule and on budget," Braden said. "If recent history is any guide, we certainly believe that we're on the path to success."

But the barge industry, which is staring at a $1.45 billion bill for its share of the project, paid through a fuel tax of 20 cents a gallon, is less sure.

"We have no faith in the estimate because the past estimates have been woefully inaccurate," said Mike Toohey, president of the industry group Waterways Council Inc.

Funding Olmsted at roughly $150 million a year, as has been the case for the last few years, eats up the lion's share of the industry fuel tax funds that flow into the Inland Waterways Trust Fund. That leaves little to pay for other navigation projects.

Meanwhile, an $8 billion backlog has piled up on the rest of the inland navigation system. Fifty-seven percent of the system's locks and dams are beyond their design lives, and 30 of them are more than 80 years old, Toohey said.

Industry proposed a plan, turned into legislation by Kentucky Republican Rep. Ed Whitfield, that calls for a 6- to 9-cent increase to the industry's fuel tax and shifting the cost of constructing new dams entirely to the federal government (E&E Daily, March 15).

While the tax increase is unlikely to move outside a major tax reform package, industry won a compromise in water resources legislation passed by the Senate and expected to hit the House floor next week.

Under the Water Resources Development Act passed by the Senate in May, the $1.56 billion balance on the Olmsted project would be entirely funded by the federal government, freeing up money in the trust fund to pay for other inland navigation projects. Under the House bill set to be taken up by the lower chamber Wednesday, the government would take up three-quarters of the remaining cost for the project.

But while allegations of a Kentucky Kickback are still reverberating across Capitol Hill, lawmakers may now take a closer look at that provision in the House bill.

"It complicates the bill moving forward, there's no doubt about it," Ellis said. "There's a lot of people who had never even heard of Olmsted, much less the [Water Resources Development Act], and are now primed and paying attention. Remember the Kentucky Kickback? Now they're going for the second half."

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