Delaware River Deepening Project
Comprehensive Reanalysis Corrected Errors, but Several Issues Still Need to Be Addressed Gao ID: GAO-10-420 March 31, 2010In 1992 Congress authorized the U.S. Army Corps of Engineers (Corps) to implement the Delaware River deepening project, which would deepen the river's shipping channel from 40 to 45 feet. In 2002 GAO reviewed the Corps' economic analysis of the project, concluding that it contained significant limitations. GAO recommended that the Corps prepare a comprehensive economic reanalysis, which the Corps completed in 2004. GAO was asked to determine the extent to which (1) the reanalysis addressed the limitations GAO identified; (2) the reanalysis's benefit projections, as updated, reflect current and anticipated market and industry conditions; and (3) the Corps has accounted for other key issues that could affect the project. GAO reviewed Corps project documentation and interviewed federal officials along with representatives of affected states, firms, and environmental groups.
The Corps' reanalysis addressed many of the limitations GAO had identified in 2002 in the Delaware River deepening project's original economic analysis by using updated information to correct invalid assumptions and outdated data, recalculating benefits and costs to correct miscalculations, and accounting for some of the economic uncertainty associated with the project. For example, the Corps revised its benefit estimates for transportation cost savings related to such commodities as crude oil, containerized cargo, and steel slabs. In addition, as GAO recommended, the Corps had independent experts review the reanalysis. Although the Corps' efforts were responsive overall to GAO's 2002 recommendations, GAO identified several additional limitations in the reanalysis. For example, in its analysis of economic uncertainty, the Corps considered the effects of negative-growth scenarios only for crude oil and refined petroleum, but not for the remaining commodities. In the 6 years that have elapsed since the Corps completed its reanalysis, current and anticipated future market and industry conditions have changed significantly. Several of the assumptions that underlie the Corps' estimates of the project's benefits are inconsistent with these changes. For example, the Department of Energy has lowered its long-term forecasts for growth in East Coast refinery capacity and U.S. imports of crude oil. Also, in the fall of 2009, Delaware River refinery firms closed two major facilities. Further, steel imports have declined since 2006 according to the benefiting facility identified in the reanalysis, and were well below the reanalysis's growth projection for 2009. However, the Corps' 2008 and 2009 economic updates for the project did not analyze the potential effect of these changes on the project's benefit estimates. The updates also did not determine the current status of shipping services on two trade routes that provide all of the benefits related to containerized cargo. Because of these and other omissions, decision makers do not have sufficient updated information to judge the extent to which market and industry changes would affect the project's net benefits. GAO identified three key outstanding issues that could affect the Delaware River deepening project. First, the Corps lowered its estimate of the volume of dredged material, which eliminated the need for new disposal sites in New Jersey, but its disposal plan continues to face resistance from that state. Second, Delaware, New Jersey, and several environmental groups filed separate lawsuits against the Corps in the fall of 2009, charging that the Corps lacks the environmental approvals needed to proceed with the project, among other concerns. Finally, New Jersey and several environmental groups have challenged in court the Corps' National Environmental Policy Act (NEPA) process for the project. Although the Corps completed an environmental assessment (EA) in April 2009, stakeholders believe that the process for soliciting public comment on its scope was unclear, did not allow enough time for comment, and that a new supplemental environmental impact statement is needed. Also, at the Army's direction, the Corps did not provide a public comment period for the draft EA as it had proposed to do.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-10-420, Delaware River Deepening Project: Comprehensive Reanalysis Corrected Errors, but Several Issues Still Need to Be Addressed
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Report to the Chairman, Subcommittee on Surface Transportation and
Merchant Marine Infrastructure, Safety, and Security, Committee on
Commerce, Science, and Transportation, U.S. Senate:
United States Government Accountability Office:
GAO:
March 2010:
Delaware River Deepening Project:
Comprehensive Reanalysis Corrected Errors, but Several Issues Still
Need to Be Addressed:
GAO-10-420:
GAO Highlights:
Highlights of GAO-10-420, a report to the Chairman, Subcommittee on
Surface Transportation and Merchant Marine Infrastructure, Safety, and
Security, Committee on Commerce, Science, and Transportation, U.S.
Senate.
Why GAO Did This Study:
In 1992 Congress authorized the U.S. Army Corps of Engineers (Corps)
to implement the Delaware River deepening project, which would deepen
the river‘s shipping channel from 40 to 45 feet. In 2002 GAO reviewed
the Corps‘ economic analysis of the project, concluding that it
contained significant limitations. GAO recommended that the Corps
prepare a comprehensive economic reanalysis, which the Corps completed
in 2004. GAO was asked to determine the extent to which (1) the
reanalysis addressed the limitations GAO identified; (2) the reanalysis‘
s benefit projections, as updated, reflect current and anticipated
market and industry conditions; and (3) the Corps has accounted for
other key issues that could affect the project. GAO reviewed Corps
project documentation and interviewed federal officials along with
representatives of affected states, firms, and environmental groups.
What GAO Found:
The Corps‘ reanalysis addressed many of the limitations GAO had
identified in 2002 in the Delaware River deepening project‘s original
economic analysis by using updated information to correct invalid
assumptions and outdated data, recalculating benefits and costs to
correct miscalculations, and accounting for some of the economic
uncertainty associated with the project. For example, the Corps
revised its benefit estimates for transportation cost savings related
to such commodities as crude oil, containerized cargo, and steel
slabs. In addition, as GAO recommended, the Corps had independent
experts review the reanalysis. Although the Corps‘ efforts were
responsive overall to GAO‘s 2002 recommendations, GAO identified
several additional limitations in the reanalysis. For example, in its
analysis of economic uncertainty, the Corps considered the effects of
negative-growth scenarios only for crude oil and refined petroleum,
but not for the remaining commodities.
In the 6 years that have elapsed since the Corps completed its
reanalysis, current and anticipated future market and industry
conditions have changed significantly. Several of the assumptions that
underlie the Corps‘ estimates of the project‘s benefits are
inconsistent with these changes. For example, the Department of Energy
has lowered its long-term forecasts for growth in East Coast refinery
capacity and U.S. imports of crude oil. Also, in the fall of 2009,
Delaware River refinery firms closed two major facilities. Further,
steel imports have declined since 2006 according to the benefiting
facility identified in the reanalysis, and were well below the
reanalysis‘s growth projection for 2009. However, the Corps‘ 2008 and
2009 economic updates for the project did not analyze the potential
effect of these changes on the project‘s benefit estimates. The
updates also did not determine the current status of shipping services
on two trade routes that provide all of the benefits related to
containerized cargo. Because of these and other omissions, decision
makers do not have sufficient updated information to judge the extent
to which market and industry changes would affect the project‘s net
benefits.
GAO identified three key outstanding issues that could affect the
Delaware River deepening project. First, the Corps lowered its
estimate of the volume of dredged material, which eliminated the need
for new disposal sites in New Jersey, but its disposal plan continues
to face resistance from that state. Second, Delaware, New Jersey, and
several environmental groups filed separate lawsuits against the Corps
in the fall of 2009, charging that the Corps lacks the environmental
approvals needed to proceed with the project, among other concerns.
Finally, New Jersey and several environmental groups have challenged
in court the Corps‘ National Environmental Policy Act (NEPA) process
for the project. Although the Corps completed an environmental
assessment (EA) in April 2009, stakeholders believe that the process
for soliciting public comment on its scope was unclear, did not allow
enough time for comment, and that a new supplemental environmental
impact statement is needed. Also, at the Army‘s direction, the Corps
did not provide a public comment period for the draft EA as it had
proposed to do.
What GAO Recommends:
GAO recommends that the Department of Defense direct the Corps to (1)
provide an assessment of relevant market and industry changes and the
effect of any changes on the project‘s net benefit estimate, and (2)
develop guidance for public notice and comment on environmental
documents for projects that are controversial but have no applicable
NEPA requirement. The Department of Defense generally agreed with
these recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-10-420] or key
components. For more information, contact Anu K. Mittal at (202) 512-
3841 or mittala@gao.gov.
[End of section]
Contents:
Letter:
Background:
The Corps' Reanalysis Addressed Many of the Economic Analysis
Limitations GAO Had Identified in 2002:
The Benefit Assumptions in the Corps' Reanalysis and Economic Updates
Do Not Fully Reflect Current and Anticipated Future Market and
Industry Conditions:
Several Key Issues That Could Affect the Project Remain Outstanding:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Additional Observations about the Project's Associated
Costs:
Appendix III: Comments from the Department of Defense:
Appendix IV: Letter from the State of New Jersey:
Appendix V: Letter from the State of Pennsylvania:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Corps' Average Annual Benefit Estimates and Share of Total
Benefits by Benefit Category for the Delaware River Deepening Project,
2002-2004 Reanalysis:
Table 2: Corps' Average Annual Benefit, Cost, and Net Benefit
Estimates, and Benefit-Cost Ratio for the Delaware River Deepening
Project, 2002-2004 Reanalysis and 2009 Economic Update:
Figures:
Figure 1: Map of Delaware River Deepening Project Area:
Figure 2: Summary Timeline of Key Documents Related to the Delaware
River Deepening Project:
Abbreviations:
Corps: U.S. Army Corps of Engineers:
DMA: David Miller & Associates, Inc.
EIA: U.S. Energy Information Administration:
EIS: Environmental Impact Statement:
LRR: Limited Reevaluation Report:
NEPA: National Environmental Policy Act:
OSG: Overseas Shipholding Group, Inc.
PRPA: Philadelphia Regional Port Authority:
SEIS: Supplemental Environmental Impact Statement:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 31, 2010:
The Honorable Frank R. Lautenberg:
Chairman:
Subcommittee on Surface Transportation and Merchant Marine
Infrastructure, Safety, and Security:
Committee on Commerce, Science, and Transportation: United States
Senate:
Dear Mr. Chairman:
In 1992 Congress authorized the U.S. Army Corps of Engineers (Corps)
to implement the Delaware River deepening project.[Footnote 1] The
project would increase the depth of the Delaware River's main shipping
channel from 40 to 45 feet from the mouth of the Delaware Bay to the
ports of Philadelphia, Pennsylvania, and Camden, New Jersey, about 100
miles upriver. The Corps expects this greater depth to facilitate the
movement of certain commodities--liquid cargo (such as crude oil),
containerized cargo (such as refrigerated meat), and bulk commodities
(such as steel slabs and other construction materials)--to receiving
refineries and other terminals along the river. The deeper channel is
also expected to reduce the transportation costs for these commodities
because ships carrying them could travel upriver more fully loaded.
Specifically, the Corps expects cost savings to occur because oil
tankers would need less lightering--the practice of unloading a
portion of a tanker's liquid cargo onto smaller ships in deeper water
before sailing upriver--and because container and bulk commodity
vessels could carry the same cargo for lower shipping costs and
potentially make fewer overall trips from their originating ports to
their Delaware River destinations. Furthermore, ships that now
experience delays as they wait for rising tides to allow safe passage
up the channel could see these tidal delays reduced or eliminated.
According to project plans, the construction period for the Delaware
River deepening project is 5 years, followed by annual maintenance
over a 50-year project operation period. Responsibility for managing
the project rests with the Philadelphia district office of the Corps'
North Atlantic division. Following the project's congressional
authorization in 1992, the Philadelphia district issued a series of
analyses supporting the deepening, including its 1998 Limited
Reevaluation Report (LRR), which updated the project's benefits and
costs. In June 2002[Footnote 2] we reported on material weaknesses in
the 1998 report's economic analysis of the project's benefits and
costs. We concluded that the analysis undermined the reliability of
the Corps' basis for determining whether the project was economically
justified--that is, whether net benefits exist once project costs are
subtracted from project benefits. We recommended, among other things,
that the Corps comprehensively reanalyze the project's benefits and
costs.
In response, the Corps reanalyzed the project from 2002 to 2004
(hereafter referred to as the reanalysis) and concluded that it would
yield, on average, annual benefits of $24.2 million with annual costs
of $21.0 million--resulting in annual net benefits totaling $3.2
million, about $8 million less than the 1998 estimate of annual net
benefits.[Footnote 3] As in the Corps' 1998 LRR, the reanalysis
determined that benefits would result largely from transportation cost
savings associated with importing specific commodities, such as crude
oil. In addition to the reanalysis, the Corps updated aspects of its
benefit and cost information in 2008 and 2009.
The Corps' project plans call for the mud, silt, sand, gravel, and
rock that would be dredged from the river bottom (dredged material) to
be stored at federal disposal sites in Delaware and New Jersey;
blasted rock would be deposited at a federal disposal site in
Pennsylvania. Through the years, these affected states and regional
environmental groups have differed in their positions toward the
deepening project. For example, Pennsylvania has been supportive of
the deepening, while Delaware, New Jersey, and the environmental
groups have raised concerns about the disposal of dredged material
among other aspects of the project. At the time of its reanalysis, the
Corps envisioned adding three new disposal sites in New Jersey, in
addition to using existing disposal sites in all three states.
You asked us to determine (1) the extent to which the Corps'
reanalysis addressed the economic analysis limitations we identified
in 2002; (2) the extent to which the benefit projections the Corps
included in its reanalysis of the project, as updated, are consistent
with current and anticipated future market and industry conditions;
and (3) what other key issues, if any, could affect the project, and
the extent to which the Corps has accounted for these issues and their
potential impacts.
To answer the first and third objectives, we developed a list of
economic limitations and other key issues that we had identified in
our 2002 report. These issues ranged from errors in benefit and cost
estimation--such as the misapplication of commodity growth rates and
the omission of disposal site construction costs--to concerns about
the Corps' treatment of economic uncertainty, the lack of internal
quality control in the Corps' report review process, and the Corps'
analysis of selected environmental topics. We used the economic
limitations and other key issues we had identified earlier, along with
standard economic principles, as criteria for reviewing the 2002 and
2004 reports that form the basis of the Corps' reanalysis to assess
whether and how each issue was addressed in those documents. In
addition to the reanalysis, we reviewed later economic and
environmental analyses the Corps had prepared to determine whether
certain limitations and other key issues previously identified by GAO
had been addressed in these subsequent documents. We discussed these
issues with officials from the Corps' Philadelphia district, its North
Atlantic division, and its headquarters in Washington, D.C. To answer
the second objective, we reviewed historical crude oil imports from a
number of sources, including the Department of Energy's Energy
Information Administration (EIA). We also reviewed EIA's Annual Energy
Outlook forecasts for U.S. crude oil imports and refinery capacity on
the East Coast. We determined that EIA's crude import data and
forecasts are sufficiently reliable for the purposes of this report.
(We note that EIA may revise its forecasts over time as new
information becomes available.) For other commodities, we interviewed
representatives of importing firms and a U.S. Geological Survey
official, as appropriate. We also reviewed U.S. government import data
for additional background. For all three objectives, we consulted
experts in the fields of economics and lightering, including
consultants who helped the Philadelphia district prepare its
reanalysis. We also spoke with representatives of the Delaware River
refineries, other potential project beneficiaries, and the private
lightering firm that serves the Delaware River market; representatives
of the states of Delaware, New Jersey, and Pennsylvania; and
environmental groups with an interest in the project. Appendix I
contains more detailed information on our scope and methodology.
We conducted this performance audit from March 2009 through March 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
The Delaware River deepening project calls for dredging the river's
main navigation ship channel to 45 feet, from a depth of 40 feet,
beginning at the mouth of the Delaware Bay through Philadelphia
Harbor, and to the Beckett Street Terminal in Camden, New Jersey--a
distance of 102.5 miles. The Corps plans to use nine existing federal
disposal sites in Delaware (one), New Jersey (seven), and Pennsylvania
(one) to dispose of the material dredged from the bottom of the
river.[Footnote 4] The new dredged material is to be layered on top of
the material already deposited at these sites during annual
maintenance dredging in the channel to maintain its 40-foot depth.
Additionally, a portion of the material to be dredged is sand from
Delaware Bay, which would be used by the Corps to restore wetlands at
Kelly Island, Delaware, and the shoreline at Broadkill Beach,
Delaware. According to the Corps, dredged material has been used in a
variety of beneficial projects over the years, including environmental
restoration, landscaping, and airport runway fill material. Often, the
material must be drained and dried for several months before it can be
used in these ways. Figure 1 shows the area to be dredged, the nine
federal disposal sites, the two Delaware restoration locations, and
other features discussed in this report.
Figure 1: Map of Delaware River Deepening Project Area:
[Refer to PDF for image: Map of Delaware River Deepening Project Area]
The following entities are depicted on the map:
Delaware Ship Channel;
River mile 25: Near Kelly Island;
River mile 50: Near Salem, New Jersey;
River mile 75: Near Wilmington, Delaware;
River mile 102.5: Near Camden, New Jersey;
Federal disposal site (9);
Deep-draft commodity terminal (9);
County boundary;
Philadelphia boundary.
Source: GAO analysis of U.S. Army Corp of Engineers documents.
Note: Numbers in the ship channel indicate river miles.
[End of figure]
In 1992, the year Congress authorized the deepening project, the Corps
completed a Final Interim Feasibility Study and Environmental Impact
Statement (EIS) for the project. This document was used to inform
decision makers and the public of the Corps' recommended plan for the
project, potential alternatives to it, its benefits and costs, and the
likely environmental effects. The Corps then prepared a design
memorandum in 1996, which provided details on the final design and
engineering plans for the project, and published a Supplemental
Environmental Impact Statement (SEIS) in 1997. In its 1998 LRR, the
Corps updated its economic analysis of the project's benefits and
costs.
In our June 2002 report,[Footnote 5] we found that the Corps' 1998
analysis was based on miscalculations, invalid assumptions, and
outdated information, and did not consider a number of uncertainties
that could affect the project's benefits and costs. Consequently, we
concluded that the Corps' analysis did not provide a reliable basis
for determining whether the project was economically justified and
recommended that the Corps (1) prepare a comprehensive, new economic
analysis of the project; (2) obtain the information necessary to
address uncertainties that could affect benefits and costs; (3) engage
an external independent party to review the new analysis; and (4)
submit the new analysis to Congress.
In response to our 2002 report, the Corps reanalyzed the economic
benefits and costs of the deepening project and issued a Comprehensive
Economic Reanalysis Report in 2002, followed by a Supplement to
Comprehensive Economic Reanalysis Report in 2004. (In this report we
use the term "reanalysis" to refer collectively to both the Corps'
2002 report and 2004 supplement.) The Corps' reanalysis concluded that
the project would yield average annual benefits of $24.2 million,
about $16 million less than the Corps' 1998 annual benefit estimate of
$40.1 million.[Footnote 6] According to the Corps' reanalysis, annual
benefits would result largely from transportation cost savings
associated with the importation of specific commodities--crude oil;
containerized cargo, such as refrigerated meat and produce; and dry
bulk commodities, such as steel slabs and blast furnace slag (an
additive used in the production of cement). Crude oil savings would
account for about half of these benefits, with cost savings related to
containerized cargo accounting for another quarter of them. See table
1 for details on the benefit estimates and share of total benefits for
each benefit category in the reanalysis.
Table 1: Corps' Average Annual Benefit Estimates and Share of Total
Benefits by Benefit Category for the Delaware River Deepening Project,
2002-2004 Reanalysis:
Benefit category: Transportation cost savings: Crude oil;
Average annual benefits[A] (percentage of total benefits): $11.8
million (49%).
Benefit category: Transportation cost savings: Containerized cargo;
Average annual benefits[A] (percentage of total benefits): $6.1
million (25%).
Benefit category: Transportation cost savings: Steel slabs;
Average annual benefits[A] (percentage of total benefits): $3.6
million (15%).
Benefit category: Transportation cost savings: Blast furnace slag;
Average annual benefits[A] (percentage of total benefits): $1.8
million (7%).
Benefit category: Transportation cost savings: Refined petroleum;
Average annual benefits[A] (percentage of total benefits): $0.4
million (1%).
Benefit category: Beneficial use cost savings: Beneficial use of
dredged sand;
Average annual benefits[A] (percentage of total benefits): $0.6
million (2%).
Total average annual benefits:
Average annual benefits[A]: $24.2 million.
Source: GAO analysis of 2004 Supplement to Comprehensive Economic
Reanalysis Report.
Note: Due to rounding, individual estimates do not sum to total and
percentages do not sum to 100.
[A] Estimates presented at 2002 price levels and federal fiscal year
2004 discount rate (5.625 percent).
[End of table]
The benefit estimates in the Corps' reanalysis depend on a number of
factors, including (1) the extent to which future growth expands the
total volume transported for each of the benefiting commodities; (2)
the savings associated with using less of certain economic resources,
such as the Delaware River lightering fleet; and (3) the economy's
prevailing price level and discount rate.[Footnote 7] For the
reanalysis, the Philadelphia district contracted with a private
consulting firm to analyze project benefits.
According to the Corps' reanalysis, the Delaware River deepening
project would generate benefits relating to commodities imported by
the following entities:
* Five crude oil refining facilities with six deep-draft terminals now
owned by Sunoco (four), Valero (one), and ConocoPhillips (one), with
four terminals located in Pennsylvania and two in New Jersey.[Footnote
8]
* Other commodity terminals, including those at Beckett Street
Terminal in Camden, New Jersey; Packer Avenue Marine Terminal in
Philadelphia, Pennsylvania; and Delaware Terminal at the port of
Wilmington, Delaware.[Footnote 9]
(The nine commodity terminals appear in the figure 1 map.)
With regard to project costs, the Corps' reanalysis estimated average
annual project costs of $21.0 million, almost $8 million less than the
Corps' 1998 annual cost estimate of $28.8 million. This revised cost
estimate includes channel dredging, disposal site construction, and
any related land costs, such as land for new disposal sites and rights
of way. It also includes associated costs, which are those needed, in
addition to project costs, to achieve the benefits claimed during the
period of the Corps' analysis. These costs include, for example, berth
deepening and dock modifications to accommodate deeper ships at
refinery facilities and container terminals. Although associated costs
are the responsibility of the potentially benefiting facilities, the
Corps includes these costs in its total cost estimate, in accordance
with its guidance. See appendix II for more information about the
project's associated costs.
In addition to the 2002 and 2004 reanalysis documents, the Corps
prepared the following documents that provide supplemental information
on the benefits and costs of the Delaware River deepening project:
* an economic update to the project that reaffirmed the reanalysis's
benefit and cost estimates for budgeting purposes (April 2008),
* an environmental assessment that included a section summarizing the
project's potential economic benefits (April 2009), and:
* an economic update to support the Corps' fiscal year 2011 budget
request (December 2009).[Footnote 10]
See figure 2 for a summary timeline of key documents related to the
deepening project.
Figure 2: Summary Timeline of Key Documents Related to the Delaware
River Deepening Project:
[Refer to PDF for image: timeline]
February 1992:
Final Interim Feasibility Study and Environmental Impact Statement.
May 1996:
Design Memorandum.
July 1997:
Supplemental Environmental Impact Statement.
February 1998:
Limited Reevaluation Report.
June 2002:
Delaware River Deepening Project: Comprehensive Reanalysis Needed[A].
December 2002:
Comprehensive Economic Reanalysis Report.
February 2004:
Supplement to Comprehensive Economic Reanalysis Report.
April 2008:
2008 Economic Update.
April 2009:
Environmental Assessment.
December 2009:
2009 Economic Update.
Source: GAO analysis of U.S. Army Corps of Engineers and GAO documents.
[A] [hyperlink, http://www.gao.gov/products/GA0-02-604].
[End of figure]
As of December 2009, the Corps estimated average annual benefits of
$30.1 million and average annual costs of $22.3 million for the
project, yielding annual net benefits of $7.8 million. Because
estimated benefits exceeded estimated costs--resulting in positive net
benefits and a benefit-cost ratio greater than one--the Corps
determined that the project remained economically justified. See table
2 for a summary of the benefit and cost estimates and resulting
benefit-cost ratios in the Corps' reanalysis and in its most recent
economic update. As noted in table 2, the benefit and cost estimates
are based on different price levels and discount rates, which accounts
for some of the changes observed in the estimates between the 2002-
2004 reanalysis and the 2009 economic update. This means that the
estimates and resulting net benefits and benefit-cost ratios are not
directly comparable between the two analyses.
Table 2: Corps' Average Annual Benefit, Cost, and Net Benefit
Estimates, and Benefit-Cost Ratio for the Delaware River Deepening
Project, 2002-2004 Reanalysis and 2009 Economic Update:
Dollars in million:
Total average annual benefits;
2002-2004 reanalysis[A]: $24.2 million;
2009 economic update[B]: $30.1 million.
Total average annual costs;
2002-2004 reanalysis[A]: $21.0 million;
2009 economic update[B]: $22.3 million.
Average annual net benefits;
2002-2004 reanalysis[A]: $3.2 million;
2009 economic update[B]: $7.8 million.
Benefit-cost ratio;
2002-2004 reanalysis[A]: 1.15;
2009 economic update[B]: 1.35.
Source: GAO analysis of 2004 Supplement to Comprehensive Economic
Reanalysis Report and 2009 economic update.
[A] Estimates presented at 2002 price levels and federal fiscal year
2004 discount rate (5.625 percent).
[B] Estimates presented at 2009 price levels and federal fiscal year
2010 discount rate (4.375 percent). The change in price level and
discount rate accounts for some of the change between estimates and
resulting net benefits and benefit-cost ratios. This means that they
are not directly comparable between the two analyses.
[End of table]
With regard to assessing the project's potential environmental
impacts, the Corps is required to comply with the National
Environmental Policy Act (NEPA).[Footnote 11] In addition to
summarizing the project's potential economic benefits, as noted
earlier, the 2009 environmental assessment's primary purpose was to
evaluate the impacts of changes to the project and in the project area
since the 1992 EIS and 1997 SEIS, as well as to present the results of
post-SEIS environmental monitoring and data collection.
Although the Corps has made efforts to conduct a reanalysis of the
project and provide assessments of its potential environmental
impacts, the project has remained controversial. For many years the
project has been criticized by regional environmental groups, among
others, who have raised concerns about the project's impact on water
quality and various fish and wildlife species, as well as the accuracy
of the Corps' estimates of the project's benefits and costs.
Notwithstanding, because of the results of the reanalysis,
congressional funding, and support for the project from its local
sponsor and others, the Corps continued its efforts to begin
construction. Specifically, in 2008 the Philadelphia Regional Port
Authority (PRPA)--an independent agency of the state of Pennsylvania--
replaced the Delaware River Port Authority as the project's local
sponsor. In that same year, PRPA and the Army signed a project
partnership agreement for the construction of the deepening project.
As the local sponsor, PRPA is to contribute 25 percent of the
project's total costs.[Footnote 12]
The Corps' Reanalysis Addressed Many of the Economic Analysis
Limitations GAO Had Identified in 2002:
The Corps' reanalysis addressed many of the limitations that we had
identified in 2002 in the project's original economic analysis by
using more recent information to correct invalid assumptions and
outdated data, recalculating benefits and costs to correct
miscalculations, and accounting for some of the economic uncertainty
associated with the project. In addition, as we recommended, the Corps
had independent experts review the reanalysis before submitting it to
Congress. Although the Corps' efforts were responsive overall to the
recommendations we made in 2002, we found several additional
limitations in the reanalysis. For example, in its analysis of the
economic uncertainty associated with the project, the Corps considered
the effects of negative-growth scenarios only for crude oil and
refined petroleum but not for the remaining benefit categories.
Reanalysis Used Updated Information to Correct Invalid Assumptions and
Addressed Other Errors:
The Corps' reanalysis was based in large part on the information that
its contractor, David Miller & Associates (DMA), an economic
consulting firm, developed between 2002 and 2004. Using the updated
information that DMA developed, the Corps revised its list of
potential benefit categories to exclude those that would no longer
benefit from the project or those for which the agency had
insufficient information to calculate benefits. For example, our 2002
report noted that the Corps had assumed benefits resulting from coal
and iron ore imports, as well as scrap metal exports, even though
trade in these commodities had greatly declined since the Corps had
last studied them. In its reanalysis, the Corps dropped these
commodities from its benefit calculations because of factors, such as
reduced trade volumes, that indicated that benefits related to these
commodities would not be realized. In addition to identifying outdated
benefit categories, our 2002 report suggested that changing import
patterns could present new commodities for the Corps' consideration.
The Corps' reanalysis subsequently identified additional benefiting
commodities that were not previously considered, such as refined
petroleum, steel slabs, and blast furnace slag.
The Corps' reanalysis also prepared new forecasts of growth rates for
each of the benefiting commodities to correct the past overstatement
of key benefit categories, using information from government and
private trade databases to re-evaluate import growth rates. For
example, in 2002 we found that the Corps' 1998 LRR had applied a 5.8
percent growth rate to oil imports from West Africa for 1992 through
2005, when that rate should have been applied only through 2000 and a
lower rate--1.4 percent--applied for 2001 through 2005. This
misapplication of growth rates was significant because crude oil
benefits increase as import volume increases, generating savings from
reduced transportation costs per barrel. For the reanalysis, the Corps
assumed a lower annual growth rate of 0.2 percent by linking the
forecast to the expected growth rate for the Delaware River
refineries' relatively fixed overall capacity, which was expected to
grow by 10 percent--or 0.2 percent per year--over the 50-year life of
the project. For other commodities, the Corps assumed that growth
would be limited to the period leading up to the base year, which is
the first year that the project's full benefits can be realized.
[Footnote 13] One commodity that the Corps limited in this way was
containerized cargo, which, like crude oil, was assigned growth rates
in the 1998 LRR that we found in 2002 to be overstated. In addition to
constraining containerized cargo growth to the period leading up to
the base year, the Corps' reanalysis also assumed that project
benefits for containerized cargo would be limited to two specific
trade routes and the Corps forecasted growth for only one of these two
routes. These routes included one extending from the East Coast of
South America northbound to the U.S. East Coast and a second reaching
from Australia and New Zealand eastbound through the Panama Canal and
up the U.S. East Coast--both terminating at Philadelphia's Packer
Avenue Marine Terminal.
In its reanalysis the Corps also corrected several additional invalid
assumptions that we had identified in our prior report concerning the
estimate of crude oil benefits. Specifically, in 2002 we reported that
the Corps' 1998 LRR (1) assumed that many more crude oil ship type and
trade route combinations would benefit from a deepened channel than
could be supported by its analysis, (2) relied on outdated
specifications for lightering vessels in calculating benefits, and (3)
incorrectly assumed that lightering reduction benefits would be
realized at ports of origin. In the reanalysis these issues were
addressed as follows:
* First, according to the Corps' original statistical model, in 23
percent of all possible cases, ships on specific crude oil trade
routes would carry enough cargo to exceed 40 feet of draft if a 45-
foot channel were available, leading to transportation cost savings
for that cargo in a deeper channel. However, in its 1998 LRR the Corps
applied these benefits for 100 percent of the possible ship type-trade
route combinations, thereby overstating benefits. In the reanalysis,
DMA replaced the Corps' statistical model with new projections based
on the characteristics of the ships that actually called on Delaware
River refineries in 2000, including information on each ship's origin
and destination, operating cost, crude oil tonnage, actual draft, and
maximum draft for which it was designed. DMA used this information, in
conjunction with refinery interviews, to determine which ships would
be likely to increase their tonnage--and thus their drafts--in a
deepened channel, and what level of benefits would be associated with
this change. DMA ultimately based its projections on 86 percent of the
crude oil tonnage reported by the refineries for the year 2000 because
the remaining data were incomplete or otherwise unsuitable for
analysis.
* Second, for those crude oil tankers that would need to be lightered
less in a deepened channel, the 1998 LRR relied on outdated
specifications in assuming that tankers can discharge crude oil into
refineries' dockside storage tanks twice as fast as they can transfer
the oil to lightering vessels. The Corps' reanalysis revised this
assumption to reflect that lightering rates exceed dockside discharge
rates because of, for example, shorter pumping distances and the
assistance of gravity when pumping from large tankers to smaller
lightering vessels. As the Corps recognized in the reanalysis, some
portion of the benefits of reduced lightering would be offset by the
increased time and cost of discharging more cargo at refineries' docks.
* Third, the Corps' 1998 analysis assumed that cost savings from
reduced lightering would be realized at both the port of origin and
port of destination. In fact, these benefits would be realized only at
the destination port because that is where lightering occurs. The
reanalysis assigns these benefits only to destination ports.
In the reanalysis, the Corps used a lightering model based on a full
year's worth of lightering operations data to help refine its estimate
of crude oil benefits. DMA initially constructed this model using
assumptions about the lightering firm's practices that were based on
its review of Maritime Exchange data on tanker movements and sailing
drafts for the year 2000. Following publication of the model's
assumptions and results in the Corps' 2002 Comprehensive Economic
Reanalysis Report, the lightering firm disagreed with DMA's
methodology and claimed that DMA's assumptions resulted in an
overstatement of lightering costs, which in turn would overstate crude
oil benefits derived from avoiding these costs. For example, the
lightering firm noted that DMA did not include the minority of its
lightering activity that occurs not in the Delaware River but in the
ocean offshore of Delaware Bay. Ignoring this portion of the firm's
lightering overstates cost per barrel lightered by inaccurately
dividing 100 percent of costs by less than 100 percent of barrels
lightered. In response, DMA revised its lightering model in the 2004
supplement by collecting and combining actual lightering operations
data for the year 2000 from the lightering firm, the Corps' Waterborne
Commerce Statistics Center, and three of the five principal refinery
firms operating in the Delaware River at that time. According to the
Corps, this refinement allowed DMA to account for nearly 99 percent of
all crude oil barrels lightered in the Delaware River and offshore
during 2000, providing a more accurate estimate of crude oil benefits
in the 2004 supplement.
The Corps further attempted to address the lightering firm's comments
about its 2002 report by developing a more sophisticated model of
lightering activities in the event of a 45-foot channel. Specifically,
in its initial model, DMA had determined that the likely reduction in
lightering volume in a deeper channel would be roughly equivalent to
the capacity of one of the three vessels in the lightering firm's
fleet. DMA estimated lightering reduction benefits by removing that
vessel and its operating costs from the fleet, as it assumed the
lightering firm would choose to do in the event of a deepened channel,
then recalculating total lightering costs based on the remaining two
vessels. In response to the lightering firm's criticism of this
approach as unrealistic, DMA revised its approach by using updated
data on operations from 2000 to simulate tanker-by-tanker lightering
operations through 2058. The simulation results were matched with
estimated vessel operating costs and hourly fuel consumption costs
developed by the Corps' Institute for Water Resources specifically for
each of the three vessels in the lightering firm's fleet.[Footnote 14]
According to the Corps, this approach allowed the agency to more
directly calculate the reduction in total economic resources--such as
those devoted to each ship's crew, fuel, and maintenance--needed to
provide lightering services as lightering volumes fall. The Corps
assumed these freed resources would be put to productive use by the
lightering firm elsewhere in the economy. The revised methodology in
the 2004 supplement was associated with a roughly 20 percent drop in
the Corps' crude oil benefit estimate when compared to the 2002 report.
Finally, the Corps corrected miscalculations and important omissions
we identified in 2002 that affected the project's benefit and cost
estimates. For example:
* When we attempted to replicate the Corps' results in 2002, we
identified a $4.7 million gap between the Corps' estimate of annual
project benefits and the estimate that we developed. The Corps'
economist for the project told us in 2002 that the gap resulted from a
computer error that could have occurred when files were transferred
from one program to another; ultimately, the Corps acknowledged the
error but was unable to definitively explain it. For the reanalysis,
the Corps recalculated its total benefit estimate using DMA's new
analysis of each benefiting commodity. We reviewed this calculation
and found no significant errors.
* The Corps' 1998 LRR was marked by inconsistent discounting of
project benefits and costs to determine their net present value.
Moreover, the Corps presented benefit estimates at price levels for
different years--for example, coal benefits were presented at 1991
price levels and containerized cargo benefits at 1995 price levels.
Both of these practices made it difficult for decision makers to
understand and compare the true benefits and costs of the project. In
developing the reanalysis the Corps used DMA's analysis, which
standardized the price level and discounting adjustments for project
benefit estimates by benefit category, presenting each at 2002 price
levels and using the prevailing discount rate at the time the
reanalysis was published (5.625 percent). The Corps adjusted the
reanalysis's cost estimates using the same approach.
* In 2002 we found that the Corps omitted construction costs for
federal disposal sites from its summary calculations in the 1998 LRR
cost estimate. These construction costs would be incurred as the Corps
expands the sites to accommodate additional dredged material resulting
from annual maintenance of the 45-foot channel over its 50-year
project life. In its reanalysis, the Corps' estimate of total costs
included costs for these sites.
* In 2002 we reported that the Corps' 1998 LRR failed to update its
estimates for associated costs, such as deepening the access channels
that connect the main channel to benefiting facilities' loading docks
and increasing on-site storage capacity to handle larger deliveries.
For the reanalysis, DMA hired a subcontractor to survey potentially
benefiting firms and determine their likely associated costs,
including berth deepening, dock modifications, and additional storage,
and to estimate the cost of these modifications. This work was
completed in 2002, and the Corps included the updated associated costs
in the reanalysis's total cost estimate.
* Our 2002 report noted that the Corps' cost estimate in the 1998 LRR
assumed that annual maintenance dredging for the 45-foot channel would
begin after the last year of construction and continue for 50 years.
However, maintenance dredging in completed segments of the channel
could be required before the end of project construction--a
consideration that was not accurately incorporated into the Corps'
previous maintenance cost estimate. The Corps' reanalysis recognized
that maintaining a 45-foot channel segment is more costly than
maintaining a 40-foot segment, and incorporated this higher cost into
its total cost estimate.
Reanalysis Included Sensitivity Analysis to Assess Uncertainty in
Benefit and Cost Assumptions:
In our 2002 report, we observed that some of the errors we identified
illustrated the uncertainty inherent in forecasting information, such
as commodity shipments, technological changes, and industry's economic
choices. We suggested that a reanalysis of the project consider a more
careful treatment of the uncertainty associated with estimating
benefits and costs, particularly since Corps guidance requires
planners to identify areas of uncertainty in their analysis and to
clearly describe them so that decision makers can understand the
degree of reliability in a project's benefit and cost estimates.
One way to analyze the uncertainty associated with estimating benefits
and costs is to include more information than simple point estimates,
which can give the illusion of precision when a range of estimates may
be more appropriate. Sensitivity analysis is one analytical tool for
assessing the uncertainty associated with the estimates. In the
context of benefit and cost estimation, sensitivity analysis can be
used to assess the degree to which a benefit or cost estimate is
affected by a change in a key assumption. For example, a sensitivity
analysis for a labor-intensive construction project might examine the
effect on overall project cost if the estimated hourly cost of labor
were varied by plus or minus 10 percent.
The 1998 LRR did not employ sensitivity analysis, but both of the
reports that constitute the Corps' reanalysis used this tool to
analyze some of the uncertainties associated with the project's
benefit and cost estimates. Specifically, in the 2002 Comprehensive
Economic Reanalysis Report, the Corps used sensitivity analysis to
assess the extent to which the benefit and cost estimates, including
the net benefit estimate, would change given alternative assumptions
about factors such as commodity growth rates, lightering operation
costs, and future ship sizes for slag and steel imports. For example,
the Corps analyzed the effect on the net benefit estimate if future
crude oil imports to Delaware River refineries grew by more, or less,
than the assumed 0.2 percent per year. Scenarios included higher
growth, lower growth, no growth, and negative growth.[Footnote 15]
Under the latter scenario, the Corps estimated that crude oil benefits
would be reduced by about 16 percent. The Corps' rationale for the
negative-growth scenario, in part, was the possibility that one or
more of the refineries could go out of business. The Corps, however,
stated that this was unlikely, citing the continued expansion of
demand for products refined from crude oil and noting that its 0.2
percent growth rate was conservative relative to the Department of
Energy's projection of future U.S. crude oil imports through 2020,
which ranged from 0.6 percent to 1.6 percent annually. Similarly, the
Corps examined the potential effect on benefits of a negative-growth
scenario for refined petroleum, as well as higher-growth, lower-
growth, and no-growth scenarios for refined petroleum, blast furnace
slag, containerized cargo, and steel slabs.
To augment its sensitivity analysis, the Corps examined the
vulnerability of various benefit categories to the actions of
individual firms whose business decisions could affect the project.
For example, the Corps' estimate of blast furnace slag benefits was
based on slag imports by a single cement firm. Benefits related to
importing blast furnace slag could be lower or could disappear if this
facility were to operate at a lower production capacity than the Corps
assumed, or if it were shut down and not replaced by another firm.
Crude oil, on the other hand, was imported by five firms at the time
of the reanalysis's 2002 report. Given the history of the continued
operation of their respective refinery facilities in the recent past,
including successful transfers of ownership to new firms, the Corps
considered it unlikely that any refinery would be shut down for an
extended period of time. However, the Corps did note that if one or
more of the refineries went out of business, the benefits related to
crude oil imports could drop significantly.
In addition to analyzing the uncertainty associated with some of its
benefit estimates, the Corps conducted a sensitivity analysis of some
cost assumptions in the 2002 Comprehensive Economic Reanalysis Report.
These sensitivity analyses tested different assumptions about key cost
factors, such as dredging efficiency and the composition of dredged
material. The latter could vary from mud and silt, which is relatively
more expensive to dredge, to loose sand, which is relatively cheaper.
The Corps also examined associated costs--specifically, whether
individual firms were likely to make the necessary infrastructure
investments to benefit from a deepened channel given their expected
benefits. The Corps' analysis showed that facility benefits would
likely exceed facility costs for each of the project beneficiaries.
The 2004 Supplement to Comprehensive Economic Reanalysis Report also
contained sensitivity analyses--four related to crude oil benefits and
three related to containerized cargo benefits. The crude oil analyses
examined the impact of altering certain assumptions about lightering
operations. These assumptions informed the Corps' lightering
simulation model, such as the vessel capacity assigned to each
lightering trip in the model, and therefore any change in these
assumptions could result in a significant change in the Corps' crude
oil benefit estimate. The final three sensitivity analyses examined
containerized cargo assumptions. For example, the Corps calculated the
positive and negative effect on project benefits that would result
from increasing and decreasing containerized imports by 20 percent,
respectively, for the two trade routes that the reanalysis identified
as benefiting from a deeper channel.
Independent Experts Reviewed the Corps' Reanalysis:
As we recommended in our 2002 report, the Corps submitted its
reanalysis to independent reviewers before delivering it to Congress.
This process included separate reviews of project benefits and costs.
Benefits were reviewed first by a university professor with expertise
in transportation systems. In addition, at the request of Corps
headquarters, the Corps' Institute for Water Resources arranged to
have an external independent panel review the project's benefit
analysis. The institute contracted with a private consulting firm to
convene a panel of economics and navigation experts for this review,
which consisted of an iterative process of issue resolution through
panel comments and the Corps' responses. Similarly, the Corps selected
an engineering firm with expertise in dredging cost analysis to review
the project's costs, including those incurred in initial construction
dredging, long-term maintenance dredging, and the construction of
disposal sites for dredged material. After the independent reviewers
issued their final reports, the Corps' Director of Civil Works
approved the reanalysis.
In at least one instance, the Corps' external independent reviews
resulted in a substantial change to the project's benefit estimate.
Specifically, the benefits review panel disagreed with an aspect of
the approach DMA used to calculate the cost of crude oil lightering
operations. This calculation had a direct effect on project benefits
because a significant portion of crude oil benefits are derived from
avoiding the cost of some lightering due to a deepened river channel.
DMA defended its methodology in a series of responses to review panel
comments. However, the Corps ultimately accepted the review panel's
revision of DMA's calculation and used the resulting lower benefit
estimate in its 2004 supplement. This $2.8 million adjustment
represented a 19 percent reduction in annual crude oil benefits and a
10 percent reduction in the project's total benefit estimate.
Reanalysis Contained Several Additional Limitations:
Overall, while the Corps' efforts have been responsive to the
recommendations we made in 2002, we identified several limitations in
the economic reanalysis that introduce additional uncertainty into the
project's benefit estimates. First, the external independent panel
convened to review the reanalysis's benefit estimates raised concerns
about the benefit analysis for containerized cargo that may not have
been fully resolved. Specifically, in its January 2004 final report,
the independent panel concluded that the Corps had not eliminated
significant uncertainties associated with the estimation of
containerized cargo benefits. The review panel had been concerned that
the Corps based its benefit estimate on transportation cost savings
that would accrue to the project through more direct delivery of goods
to Philadelphia-area destinations on just the two trade routes in the
Corps' analysis--one originating from South America and the other from
Australia/New Zealand--and a weekly shipping service operating on
each. According to the Corps, savings would result because some
containers on the South America route were being shipped to the deeper
port of New York/New Jersey to bypass the 40-foot Delaware River
channel, and then trucked south to Philadelphia-area destinations.
With the deeper channel, the Corps projected that these containers--as
well as others resulting from growth on the Australia/New Zealand
route--would instead be shipped directly to the port of Philadelphia
through the 45-foot channel, avoiding the costly trucking from New
York/New Jersey to Philadelphia. The review panel noted that for one
of the two trade routes--Australia/New Zealand to the U.S. East Coast,
accounting for 85 percent of containerized cargo benefits--the Corps'
benefit estimate relies on trucking that (1) does not yet occur and
(2) depends on future revisions to the existing shipping service
prompted by growth. The panel also noted that the prospective benefits
rely on the future business decisions of only a few shipping services.
For these and other reasons, the review panel stated that significant
uncertainties remained in the containerized cargo benefit estimate and
that the estimation of benefits accruing to the Australia/New Zealand
trade route was the greatest source of residual uncertainty for this
benefit category. The Philadelphia district responded to the panel's
comments in a document defending its analysis and also revised its
discussion of containerized cargo benefits in the final version of the
February 2004 supplement. The district's response was reviewed by
Corps headquarters, which acknowledged that not all uncertainties had
been resolved, but concluded that the findings as a whole were
reasonable and defensible. However, the Corps did not provide the
final version of the 2004 supplement to the external review panel for
resolution as the contract for its services had expired.
Second, as noted earlier, the Corps' 2002 Comprehensive Economic
Reanalysis Report employed sensitivity analysis to examine the effect
of negative-growth scenarios on the annual benefit estimates for crude
oil and refined petroleum. However, negative-growth scenarios were not
considered for the remaining benefiting commodities, which were
analyzed under only higher-growth, lower-growth, and no-growth
scenarios. The possibility of a contraction in the market for blast
furnace slag, containerized cargo, and steel slabs was not
insignificant, given the relatively few importers for certain
commodities and the sensitivity of these markets to changes in world
economic conditions. Indeed, as noted earlier, estimated benefits for
slag rely on the future business decisions of a single firm.
Considering that even a no-growth scenario for each benefit category
would collectively result in the project's total annual costs slightly
exceeding its total annual benefits, as shown in the Corps'
reanalysis, the cumulative effect of negative growth for all
commodities could have provided additional context to decision makers.
In addition, the alternative-growth scenarios for crude oil from the
2002 report's sensitivity analysis were not reanalyzed in the 2004
supplement, even though the methodology used to develop the estimate
of crude oil benefits changed substantively from the 2002 report and
the estimate itself declined by about 20 percent.
Finally, the lightering firm disagrees with the reanalysis's
assumption that significant savings will result from the firm reducing
its service levels proportionally in response to reduced demand for
lightering in a deepened channel. To the extent that lightering
service levels in a 45-foot channel are higher than the Corps assumes,
project benefits could be reduced. In practice, the Corps' assumption
would mean that the lightering firm's three vessels would spend less
time in operation, or perhaps that two vessels would maintain similar
service levels but the third vessel would be put to other uses. This
reduction in service would save crew, fuel, and other resource costs
that are the basis for the Corps' estimate of lightering cost savings
in its crude oil benefit model. However, the lightering firm contends
that tanker arrivals into Delaware Bay can be unpredictable, with
multiple arrivals possible on short notice, which requires the firm to
retain three vessels in order to maintain the flexibility needed to
provide prompt service. For the importing refineries that pay for
tankers to ferry crude oil across the ocean to their facilities,
lightering delays in the bay are costly. Moreover, refinery facilities
typically do not maintain much on-site storage and instead rely on
timely deliveries to continue operating. For these reasons, the
lightering firm told us that the reanalysis's assumption of service
levels falling in proportion to reduced lightering demand is
unrealistic. Instead, the lightering firm believes service levels
would likely remain higher than the Corps' modeling predicts because,
for example, the firm would continue to provide service with three
vessels instead of two. In fact, the lightering firm's position on the
feasibility of reduced service levels resembles an observation that
the Corps made in discussing the undesirability of delivery delays for
containerized cargo in the reanalysis's 2002 report: "The issue is
customer satisfaction and the potential loss of customers who are not
receiving their desired service." In interviews with us, Corps
officials characterized their assumption of reduced lightering service
levels as consistent with an economically rational firm's most
efficient allocation of its resources.
The Benefit Assumptions in the Corps' Reanalysis and Economic Updates
Do Not Fully Reflect Current and Anticipated Future Market and
Industry Conditions:
In the 6 years that have elapsed since the Corps completed its
reanalysis, current and anticipated future market and industry
conditions have changed significantly. Several of the assumptions that
underlie the Corps' estimates of the project's benefits are
inconsistent with these changes. For example, the Department of Energy
has lowered its long-term forecasts for growth in East Coast refinery
capacity and U.S. imports of crude oil. These developments raise
questions about the extent to which the reanalysis's findings could be
affected by these changed conditions. The Corps' 2008 and 2009
economic updates did not analyze the potential effect of these changes
on the project's benefit estimates. Consequently, decision makers do
not have the updated information necessary to indicate whether the
market and industry changes that have occurred would affect the
project's net benefits.
Reanalysis's Benefit Assumptions Do Not Consistently Reflect Current
Market and Industry Conditions and Future Outlook:
Benefits related to crude oil, containerized cargo, and steel slabs
make up 89 percent of the project's total annual benefits, accounting
for 49 percent, 25 percent, and 15 percent respectively.[Footnote 16]
Current market and industry conditions and future outlook for these
key benefit categories have changed since the reanalysis was completed
in early 2004. These changes indicate that the assumptions underlying
the Corps' benefit estimates may need to be revised, but their net
effect is unclear without additional information and analysis. The
following summarizes our findings related to these benefit categories,
in descending order of importance to the project's overall benefit
estimate.
Crude Oil:
The reanalysis's crude oil benefit assumptions are not consistent with
current market and industry conditions and future outlook, which
raises questions about the reliability of the reanalysis's crude oil
benefit estimate. Relevant changes that could affect crude oil
benefits include a projected decline in refinery capacity, a current
and projected decline in crude oil imports, and changes in the
Delaware River crude oil refining and lightering industries.
Projected Decline in Refinery Capacity:
In the reanalysis, the Corps chose a 0.2 percent annual growth rate as
the basis for its long-term forecast for crude oil imports into
Delaware River ports. The Corps based its growth rate on the expected
growth in long-term capacity for refineries in the East Coast region.
This forecast came from the Department of Energy's Energy Information
Administration (EIA) as part of its Annual Energy Outlook.[Footnote
17] However EIA's long-term outlook for East Coast refinery capacity
has declined from 0.2 percent annual growth in its 2002 outlook to a
0.1 percent annual decline in its 2009 outlook, and the early-release
version of EIA's 2010 outlook has predicted a steeper decline of 2.0
percent annually.
Current and Projected Decline in Imports:
The Corps observed in its reanalysis that its 0.2 percent annual
growth rate for crude oil imports was a conservative projection
compared to a Department of Energy forecast of future U.S. crude oil
imports through 2020, which ranged from 0.6 percent to 1.6 percent
annual growth; in its 2002 annual energy outlook, EIA identified 1.1
percent annual growth in imports as the most likely rate for this
period. By 2009, this outlook had changed considerably from the
earlier part of the decade: instead of the 1.1 percent annual growth
for crude oil imports forecasted in EIA's 2002 long-term outlook or
the 0.2 percent annual growth assumed by the Corps, EIA's 2009 and
2010 long-term outlooks forecasted annual declines of 1.6 and 0.4
percent, respectively.
Moreover, to date, available data indicate that even the Corps'
marginal growth rate of 0.2 percent overstated crude oil imports
through at least 2008. According to EIA data, the volume of crude oil
imports into Delaware River ports declined from about 415 million
barrels in 2000 to about 381 million barrels in 2008, for an annual
decline of 1.1 percent and an overall decline of 8.1 percent since
2000. Imports were about 332 million barrels in 2009.[Footnote 18]
We identified several reasons for the decline in crude oil imports
into the Delaware River and changes to their long-term outlook. First,
EIA officials pointed to several factors that have reduced the demand
for crude oil in the United States overall and thus contributed to
changes in the long-term forecast. These include the requirements of
new regulations and legislation, such as the Energy Independence and
Security Act of 2007[Footnote 19]--which includes mandates to increase
domestic use of nonpetroleum liquid fuels such as ethanol and more
stringent fuel efficiency standards--and competition from gasoline
produced in Europe. EIA officials explained that crude oil imports are
sensitive to changes in the market for gasoline, a product that
accounts for about half of the refined output from a typical barrel of
crude oil. East Coast refineries are especially vulnerable to
competition from refineries in Europe (as well as U.S. Gulf Coast
states) because the East Coast refineries have relatively high
production costs. On the other hand, the officials noted that by
lowering lightering costs, a deeper channel could reduce the cost of
production and could potentially improve the refineries' position in a
highly competitive market.
Second, EIA officials explained that the nation's current economic
recession has been associated with declines in demand for products
refined from crude oil and shrinking profit margins for Delaware River
refineries. These conditions are reflected in relatively low
utilizations--that is, how much of a refinery's total productive
capacity is being used--which EIA officials said had fallen below 80
percent by late 2009. The officials noted that the following two
Delaware River refinery firms have recently reduced their respective
refinery capacities by halting production at major facilities:
* In October 2009 Sunoco announced that it was indefinitely idling its
Eagle Point refinery facility in Westville, New Jersey. Subsequently,
the firm announced in February 2010 that the closure was permanent.
* In November 2009 Valero announced that it would permanently shut
down one of its two Delaware River refinery facilities--the former
Motiva facility in Delaware City, Delaware.[Footnote 20]
According to EIA officials, the remaining Delaware River facilities
are likely to continue to operate because most of the excess refinery
capacity has already been squeezed out of the Delaware River region.
Looking ahead, EIA officials said that according to many observers,
demand is not expected to return to its former levels even after the
economy recovers because of the policy and structural changes noted
earlier, resulting in less need for gasoline from crude oil. However,
they said that the Northeast will remain a major consumer of home
heating oil, which is made from crude oil, and that demand will likely
grow for diesel fuel, a crude oil product that is used heavily in the
trucking industry--especially in the Northeast.
Third, according to an independent economic expert with experience
analyzing the Delaware River crude oil market, demand for crude oil
imports has declined in the Northeast because of high oil prices,
changing consumer preferences, and gasoline imports from Europe. He
predicted that, in general, U.S. energy demand will rely less heavily
on crude oil in the future. In his assessment, the Corps' crude oil
forecasts are therefore likely outdated, and while the Corps'
assumptions about projected crude oil growth may have been reasonable
in the early 2000s, they do not reflect current and expected future
conditions.
Changes in Delaware River Refining Industry:
Changes in the Delaware River crude oil refining industry affect the
reanalysis's crude oil benefit assumptions in ways that raise
questions about the Corps' crude oil benefit estimate. For example,
the reanalysis's lightering simulation model predicted that in the
first year of a 45-foot channel the recently closed Eagle Point
facility's lightering requirement would be reduced by 41 percent. This
amount represented 22 percent of the total expected decline in the
need for Delaware River lightering in the model's initial year. This
reduction in lightering represents resource cost savings that are a
key part of the Corps' crude oil benefit estimate. If the facility is
not reopened, it is unclear to what extent its share of crude oil
benefits would instead be realized by Sunoco's remaining Delaware
River facilities. In comparison with Sunoco's Eagle Point closure,
Valero's closure of its Delaware City facility would likely affect the
crude oil benefit estimate less because this facility was not
considered a potential beneficiary in the Corps' reanalysis.[Footnote
21] However, the Corps' lightering simulation model assumed that the
facility would account for nearly a quarter of the lightering firm's
volume in the first year of a 45-foot channel. While this
consideration does not affect the crude oil benefit estimate directly--
because the volume of lightering for this facility was expected to
remain the same in a 45-foot channel, thus precluding lightering
reduction benefits--it does alter the assumptions about the lightering
firm's day-to-day operations that the Corps used to build the model,
which could affect the benefit estimates for other facilities.
[Footnote 22] In addition, because the Corps' crude oil benefit
estimate includes time savings from fewer tidal delays as tankers
proceed upriver, a reduction in future oil imports could decrease
these savings in a 45-foot channel. Overall, the net effect of these
and other industry changes on the Corps' crude oil benefit estimate is
unclear.
Changes in Delaware River Lightering Operations:
Changes experienced by the lightering firm whose operations were
modeled in the Corps' reanalysis also could influence the Corps'
estimate of crude oil benefits. According to Overseas Shipholding
Group (OSG),[Footnote 23] the firm lightered about 98 million barrels
in 2000, the year that the Corps used to build the reanalysis's crude
oil benefit model and that served as the basis for its crude oil
projections. As recently as 2007, OSG officials told us, the firm
lightered about 95 million barrels; however, OSG lightered only about
88 million barrels in 2008 and 77 million barrels in 2009, down almost
22 percent from the 2000 total. Despite the drop in lightering demand,
OSG officials said they have maintained three ships in their
lightering fleet to keep service levels consistent for their customers.
As discussed earlier, the Corps' Institute for Water Resources
estimated the vessel operating costs, including factors such as hourly
fuel consumption costs, for each of the three vessels in the
lightering fleet at the time of the reanalysis--avoiding these costs
through reduced lightering provided the basis for lightering resource
cost savings in a deepened channel. However, according to OSG
officials, two of the three ships in the firm's current Delaware River
lightering fleet are different from those the Corps modeled in its
reanalysis, which suggests that fleet operating costs and other
characteristics, such as pumping efficiency, may now be different.
[Footnote 24] In 2010 the composition of OSG's lightering fleet is
expected to change even more from the composition of the fleet used in
the Corps' model, which could further influence the Corps' estimate of
crude oil benefits. Fleet composition would change because of a 10-
year contract with Sunoco--OSG's largest Delaware River customer--that
led OSG to order two new tug-barges slated for delivery in 2010. An
OSG official explained that these vessels were specially designed to
take into account customer requirements, desired cargo volumes,
increased operational efficiencies, and anticipated future
environmental requirements. By adding these vessels to its fleet, OSG
expects that greater lightering volumes will be realized. OSG
officials said that by fall 2010, they expect to have the two new tug-
barges operating as part of the firm's fleet, along with a third
vessel that was not modeled in the Corps' reanalysis. OSG officials
expect the new lightering fleet to have lower operating costs than the
fleet that was modeled by the Corps, primarily because they will burn
a less expensive fuel, coupled with increased operational efficiency.
This would tend to reduce lightering resource costs and thus reduce
the Corps' estimated crude oil benefits, all else the same.
Finally, the delivery of the first new tug-barge would activate the 10-
year contract with Sunoco, which OSG officials said includes
guaranteed minimum lightering volumes. If this contract causes
lightering volumes to be higher than the Corps' model predicts for
whatever portion of the 10 years overlaps with the deepened channel's
50-year operation period, then lightering reduction benefits could be
lower as a result. It is possible that increased lightering under the
contract, if any, for Sunoco's remaining facilities could mitigate the
drop in potential lightering cost savings resulting from the closure
of Sunoco's Eagle Point facility. Still, without an updated analysis
of these changes, their net effect on the Corps' estimate of crude oil
benefits remains unclear.
Potential Effect of Crude Oil Changes:
The Corps has acknowledged that changes since the reanalysis could
affect its crude oil benefit model but has not analyzed this potential
effect. In the reanalysis's 2002 sensitivity analysis, the Corps
showed that benefits related to crude oil could drop significantly in
a negative-growth scenario where, for example, refineries go out of
business (though, as we mentioned earlier, this analysis was not
revised in the 2004 supplement despite substantive changes in the
crude oil analysis). Further, according to the Corps, future import
growth is responsible for about 9 percent of annual crude oil
benefits. The Corps' primary economic consultant for the reanalysis
agreed that a decline in crude oil imports into the Delaware River
would reduce crude oil benefits, although he noted that the percentage
decline for benefits would be less than the decline for imports--that
is, it would not be a one-for-one decline. The consultant also said
that changes to vessel operating costs in the lightering firm's fleet
could have a significant effect on the crude oil benefit model.
Containerized Cargo:
The reanalysis's containerized cargo benefit assumptions may not fully
reflect current conditions and cannot be adequately assessed without
additional information. In the reanalysis's 2004 supplement, the Corps
revised its containerized cargo analysis to focus on specific growth
assumptions for the two trade routes in its analysis--one from the
East Coast of South America and a second from Australia/New Zealand
passing through the Panama Canal. At the time of the Corps'
reanalysis, the two routes were served by a primary shipping firm and
several partners operating one weekly service on each route that
called at Philadelphia. The reanalysis's containerized cargo benefits
depended entirely on changes in shipping practices prompted by a 45-
foot ship channel. Specifically, the reanalysis derived transportation
cost savings from avoiding inefficient and costly trucking from the
port of New York/New Jersey to Philadelphia--whether already occurring
(on the South America service) or assumed to begin at some future time
(on the Australia/New Zealand service). This trucking was an
adaptation resulting from constraints on cargo capacity because of the
need to maintain ship drafts that did not exceed the Delaware River's
40-foot depth, which meant that some ships and cargo destined for
Philadelphia would offload first at the relatively deeper port of New
York/New Jersey.
We were unable to verify the Corps' key assumptions underlying the
reanalysis's expected containerized cargo benefits. Specifically, we
could not confirm whether trucking is occurring at all, is occurring
at a stable rate, or is growing on the South America service, and
whether trucking has begun as a result of growth on the Australia/New
Zealand service. According to the logistics provider for the firm that
operates the Packer Avenue Marine Terminal, the South America weekly
service still exists, is still operated by the same primary shipping
firm, and still includes time-sensitive refrigerated cargo that could
be trucked from New York/New Jersey to hasten its arrival in
Philadelphia, thus preserving its retail value. The logistics
provider's weekly delivery data from January through November 2009
indicate overall growth on this service. However, we cannot fully
assess the reanalysis's benefit assumptions for this trade route
without information about the number of containers still being
offloaded in the port of New York/New Jersey and trucked to
Philadelphia, which is the basis for containerized cargo benefits.
We also asked the logistics provider for information about the weekly
Australia/New Zealand service, which represents 85 percent of
containerized cargo benefits in the Corps' reanalysis. The provider
said the weekly shipping service on that trade route is now handled in
part by a firm that acquired the former primary shipper. In addition,
a competing biweekly service that carries refrigerated cargo from the
same countries began in early 2006. The logistics provider's weekly
delivery data from January through November 2009 indicate that the
reanalysis may have understated the number of containers that could be
shipped directly into Philadelphia on the weekly service without being
rerouted to New York/New Jersey with subsequent trucking back to
Philadelphia. It is also possible that additional imports that
otherwise would have arrived on the weekly service are instead being
accommodated at current channel depth, without trucking, by the
competing biweekly service that did not exist at the time of the
reanalysis. Being able to avoid trucking only through a deeper channel
was the basis for containerized cargo benefits in the reanalysis, and
was a key source of uncertainty identified by the reanalysis's
independent review panel. Ultimately, as in the case of the South
America trade route, we cannot fully assess the reanalysis's benefit
assumptions for this trade route without additional information about
the extent to which trucking is occurring on the weekly service, if at
all.
Steel Slabs:
The reanalysis's steel slabs benefit assumptions are not consistent
with current market conditions. The Corps assumed that (1)
transportation cost savings would be realized by a shift toward deeper-
drafted vessels that can load more fully in a deepened channel and (2)
these savings would grow as steel import volumes increased. From a
2001 base, the reanalysis forecasted a 1.1 percent annual growth rate
for steel slab imports into the Packer Avenue Marine Terminal over the
life of the project, which the Corps estimated would result in
approximately 1 million tons imported in 2009--the reanalysis's
project base year--and 1.6 million tons imported in 2059. According to
the Packer Avenue logistics provider, 1 million tons was exceeded in
2002 (1.1 million tons) and again in 2006 (1.2 million tons). However,
worsening economic conditions affecting construction and other steel-
intensive industries were reflected in import volumes for steel
products in 2008 (261,000 tons) and 2009 (63,000 tons). In the
reanalysis's 2004 supplement, the Corps notes that the domestic market
for steel is cyclical and exhibits a certain level of expected
volatility. Still, import volumes would need to recover to at least 1
million tons by 2015--the revised project base year--before steel slab
benefits could reach the Corps' forecasted levels.
Potential Effect of Recession and Other Observations:
For commodities such as steel slabs, the downturn in imports may be
directly related to the recession and imports may recover as the
economy recovers. It is possible that, over the length of the project,
the growth rate for this benefit category may reach or exceed the
Corps' expected growth rate. For example, the current construction
schedule means that benefits would not begin to be realized until at
least 2015. Certain market and industry trends that have the potential
to reduce project benefits--especially those tied to current economic
conditions--could change over the next 5 years and have little or no
negative effect on the benefit estimates or could even increase them.
On the other hand, trends that result in part from policy and
structural changes in the economy, such as legislation requiring
increased fuel efficiency and the adoption of alternative fuels, are
more likely to persist.
Despite policy changes, competition from other sources, the recent
downturn in the crude oil market, and other changes in the industry,
officials from Delaware River crude oil refineries continue to be
strong supporters of the deepening project. They agree that as long as
they are importing crude oil, they would have an incentive to maximize
efficiency on large vessels with drafts that exceed 40 and often 45
feet. For example, according to an official from a refinery facility
that receives crude oil from Canada, being able to more fully load its
supply tankers would save one out of every seven tanker deliveries to
the facility. The Corps' benefit model correctly presumes that
transportation cost savings could be generated from these
efficiencies, but given the market and industry changes since the
modeling was performed, the benefit estimates may not be reliable.
In addition, the Corps, the Philadelphia Regional Port Authority
(PRPA), and others contend that the project has additional benefits
that are not included in the Corps' reanalysis. In its reanalysis, the
Corps based its benefit estimate for the project on existing ships,
commodities, and trade routes, with no commodity growth or new routes
occurring as a direct result of the deepening. However, others have
suggested that a 45-foot channel would actually increase the amount of
trade in the Delaware River by making its ports more marketable
globally. Moreover, a Corps Institute for Water Resources study
expects the expansion and deepening of the Panama Canal that would
accommodate 50-foot ship drafts by 2014 to significantly affect
shipping routes, port development, and cargo distribution among ports.
[Footnote 25] According to the study, one of the expansion's greatest
impacts will be seen in the containerized cargo trade. We heard from
industry representatives that this trade is moving toward ever-larger
container ships in order to realize greater economies of scale,
including many ships that draft in excess of 40 feet. Furthermore,
according to one of the economic experts we spoke with, significant
growth in the chilled meat market could attract trade to Philadelphia
and its extensive refrigerated warehouse infrastructure. To the extent
that new cargoes and trade routes appear during the project's 50-year
operation period, the Corps' analysis may understate project benefits
for those commodities carried on vessels large enough to benefit from
a 45-foot channel. However, these potential benefits would need to be
analyzed by the Corps before they could be used to support the
project's economic justification. This analysis would also need to
assess the potential effect of an expansion of Delaware River trade in
relation to other East Coast ports to ensure that any Delaware River
benefits claimed are not merely transfers from those ports.
Corps' Recent Economic Updates Do Not Account for Changes in
Conditions and Future Outlook That Could Affect Project Benefits:
The Corps' 2008 and 2009 economic updates do not account for the
market and industry changes that have occurred since the completion of
the reanalysis or verify certain benefit categories that were expected
to develop by 2009. The two economic updates affirmed the level of
expected benefits for each commodity and adjusted these estimates to
reflect the current price level and discount rate. However, neither
update analyzed the extent to which changes in, for example, the
market for crude oil might affect the net benefits of the project.
Such information would be useful to establish whether the changes have
affected the Corps' estimate of the project's economic justification.
Corps policy requires planners to report and maintain current
estimates of project benefits and costs for all active funded projects
in order to provide reasonable estimates of economic justification to
Congress, federal decision makers, and local project sponsors. This
policy requires economic updates for ongoing projects when more than 3
fiscal years have passed since the project's last economic analysis.
According to Corps guidance, economic updates do not require any major
new analysis. Instead, they are limited to reviewing and updating
previous assumptions, as well as limited surveying, sampling, and
other techniques to develop a reasonable estimate of project benefits.
The Corps' 2008 economic update did not account for changed conditions
and uncertainties related to the Corps' commodity benefit estimates.
According to Corps officials, the April 2008 economic update was
developed internally for budgetary purposes and for establishing
current project costs in preparation for the Army's June 2008 project
partnership agreement with PRPA. The update recapped the discussion of
major benefit categories from the two documents that constitute the
reanalysis and presented an additional few years of data on the volume
of commodity imports. We believe that some of these updates would be
useful to decision makers seeking to understand how the reanalysis's
forecasts had performed to date, but others would be less relevant.
For example, the Corps validated its assumption of growth in blast
furnace slag imports (and thus slag benefits) by using Waterborne
Commerce Statistics Center data through 2005 to show that slag imports
had exceeded the reanalysis's growth forecast. However, the Corps also
used the center's data to show that crude oil imports had remained
stable through 2005, but did not update the true constraint on long-
term growth identified in the reanalysis--the Corps' assumption of 0.2
percent annual growth in the area's refinery capacity. For example,
EIA's 2006 Annual Energy Outlook forecasted a 0.4 percent long-term
annual decline in East Coast refinery capacity, and its 2007 outlook
forecasted no long-term change, but the Corps did not discuss either
of these forecasts in its 2008 economic update or assess their
potential effect on its crude oil benefit estimate.[Footnote 26]
Neither did the Corps contact OSG to discuss the potential benefit-
estimate implications of (1) the firm's long-term contract with Sunoco
and the new lightering vessels it ordered (both of which were reported
publicly in 2005), or (2) OSG's 2006 acquisition of the lightering
firm whose operations were modeled by the Corps, which could have led
to changes in the lightering operations that serve as the basis for
the Corps' model.
The Corps' 2008 update also did not resolve uncertainties related to
some other benefit categories. For example, the Corps noted the
healthy growth rate of container volumes overall for the Packer Avenue
Marine Terminal for 2005 and 2006 but did not update the status of the
weekly shipping services on the two trade routes that account for all
containerized cargo benefits. Specifically, the Corps did not confirm
that (1) containers were still being trucked from New York/New Jersey
to Philadelphia on the South America trade route and (2) the expected
rate of growth was occurring on the Australia/New Zealand trade route,
which was projected to cause trucking to begin by 2009--both of which
are necessary to realize any containerized cargo benefits. This
information is especially vital given that the future status of the
Australia/New Zealand trade route was identified by the reanalysis's
external independent review panel as the primary source of uncertainty
in the Corps' estimate of containerized cargo benefits. Furthermore,
the Corps' estimate of refined petroleum benefits depends in part on
the benefiting petroleum firm's construction of a new ship berth on
the Delaware River that was due to be completed in 2007. The 2008
economic update did not discuss the status of this berth; according to
a firm official, these improvements have not been made.[Footnote 27]
Like the 2008 update, the Corps' 2009 economic update reviewed
commodity growth rates and adjusted benefit estimates to reflect new
price levels and a lower discount rate. In addition, the update--
completed by the Philadelphia district in December 2009, reviewed by
the New England and New York districts, and approved by the North
Atlantic division in January 2010--reduced the project's construction
cost estimate to reflect the latest engineering surveys of the amount
of material needing to be dredged from the river channel. However, the
2009 update did not present any revised modeling, sensitivity
analysis, or related adjustments to the benefit estimates to reflect
changes to market and industry conditions and outlook for the Delaware
River region--for example, by incorporating the lost refinery capacity
at the Delaware City and Eagle Point facilities into its forecasts, or
by revisiting the sensitivity analysis from the Corps' 2002 report
that analyzed the effect of negative growth for crude oil, both of
which could have provided additional context for decision makers. Like
the 2008 update, the 2009 update provided no updated information about
the current status of the weekly shipping services on the two trade
routes that account for all containerized cargo benefits. Moreover,
the 2009 update reprinted the same steel slab import volumes from 2005
and 2006 that appeared in the 2008 update, which captured the 2006
peak in steel slab imports but ignored the precipitous decline from
2007 through 2009. In addition, the 2009 update presented 2 additional
years of blast furnace slag import data (2006 and 2007), but did not
discuss the 38 percent decline in slag imports from 2005 to 2007. The
2007 import total (529,000 tons) was just more than half of the 1
million tons that the reanalysis forecasted would occur by 2009;
according to a U.S. Geological Survey official who studies the slag
industry, a private trade database indicates that the 2009 import
total was about 125,000 tons. Finally, like the 2008 update, the 2009
update did not revisit the Corps' expectation that the benefiting
petroleum firm's new ship berth would be in place by 2007.
The Corps' 2009 update did reduce the project's overall benefit
estimate by 2.6 percent to remove benefits that were expected to be
achieved prior to the completion of all segments of the deeper
channel. In the reanalysis, the Corps stated that its construction
schedule would allow benefits to be achieved at downriver facilities
where deepening had already occurred before all upriver segments had
been deepened. However, we observed--and Corps officials agreed--that
the Corps' revised construction schedule makes it impossible to
achieve these benefits.
After we shared our preliminary findings with the Corps in February
2010, the agency asked David Miller & Associates (DMA) to prepare a
document that would provide us with additional information about the
current status of Delaware River commerce to consider as we finalized
our report. The resulting memorandum, reviewed by the Philadelphia
district, discussed current trends in Delaware River commerce and
identified changes in operations for relevant industries since the
reanalysis was completed in 2004. DMA's memorandum generally agreed
with our findings regarding declines in crude oil, steel slab, and
blast furnace slag imports. However, the memorandum concluded that
other than short-term impacts of the recession, Delaware River import
trends and industry changes have the potential to increase project
benefits. According to DMA, this is because changes that would likely
have a negative impact on project benefits, such as the reduction in
crude oil imports, would likely be offset by increases in
containerized cargo, refined petroleum, and steel imports. However,
although the memorandum asserts that additional benefits and
beneficiaries may be present, it does not include sufficient
quantitative analysis to show how the changed conditions and outlook
would likely affect the reanalysis's commodity benefit estimates. For
example, DMA's memorandum acknowledges that (1) crude oil imports have
declined in part because of competition from imports of refined
petroleum products, such as gasoline, to East Coast ports; and (2)
refined petroleum vessels typically do not lighter their cargo and
therefore tend to arrive at the Delaware River with shallower drafts
than crude oil vessels, which often engage in lightering. DMA
suggested that a deeper channel could result in a shift to larger
refined petroleum vessels that could make fewer trips to deliver the
same volume of cargo. If so, DMA states that partial replacement of
crude oil imports by refined petroleum imports may increase project
benefits if the transportation cost savings of avoided refined
petroleum vessel trips are greater than the cost savings associated
with reduced crude oil lightering over the life of the project.
Nonetheless, this partial revision of the reanalysis's assumptions
indicates that its crude oil and refined petroleum benefit estimates
may no longer be reliable. Changed assumptions related to these
benefit estimates--and those related to the estimates for
containerized cargo, steel, and slag that also were presented in DMA's
memorandum--could affect each benefit estimate as well as the
project's overall net benefit estimate.
Several Key Issues That Could Affect the Project Remain Outstanding:
We identified three key outstanding policy issues that could impact
the construction of the Delaware River deepening project as it moves
forward. Specifically, the Corps (1) lowered its estimate of the
volume of dredged material, which eliminated the need for new disposal
sites, but it continues to face resistance to its disposal plan; (2)
was sued by Delaware and New Jersey in October and November 2009,
respectively, which charged that the Corps lacks the environmental
approvals needed to proceed with the project; and (3) has an ongoing
dispute with New Jersey and several environmental groups over the
project's National Environmental Policy Act (NEPA) process.
Disposal Plan Remains a Point of Contention:
In the 2009 environmental assessment, the Corps lowered its 2002
estimate for the amount of material that would be dredged during the
project's 5-year initial construction period by 38 percent, from 26
million cubic yards of material dredged during initial construction to
16 million cubic yards. The estimate was lower because improved
hydrographic survey technology showed less need for dredging in some
portions of the river channel, nonfederal interests had conducted
dredging in some portions of the channel, and higher sea levels have
naturally deepened some portions of the channel. Unlike the estimate
of dredged material for initial construction, the estimate for
additional annual dredging to maintain a 45-foot channel, over the
amount of dredging that would be required to maintain the 40-foot
channel, remained unchanged--860,000 cubic yards per year, or 43
million cubic yards over the 50-year life of the project. The Corps'
lower estimate of dredged material for initial construction was
independently validated in January 2009 by an engineering firm hired
by PRPA, which, as the project's local sponsor, is responsible for 25
percent of the cost of dredging and other aspects of construction. We
found the firm's approach to validating the dredged material estimate
to be reasonable.
The lower estimate for dredged material allowed the Corps to eliminate
the three additional disposal sites in New Jersey that it had planned
to add according to the reanalysis. In its 2009 environmental
assessment, the Corps stated that it can account for all project-
related dredged material at its existing disposal sites. The disposal
sites are to receive the material dredged during initial construction
as well as the material dredged during annual maintenance of the 45-
foot channel. As we mentioned earlier, the Corps already uses the
existing sites in Delaware and New Jersey to dispose of dredged
material during annual maintenance cycles for the current 40-foot
channel. By using only its existing disposal sites, the Corps expects
to reduce project costs by forgoing land expenditures and construction
costs related to the new sites. The Corps has accounted for these
plans in a revised disposal cost estimate in its 2009 economic update.
When it revised its dredged material estimate for the deepening
project's initial construction in the 2009 environmental assessment,
the Corps also reduced the beneficial uses of Delaware Bay dredged
sand from three projects to two. A third beneficial use project
included in the reanalysis would have restored wetlands at Egg Island
Point, New Jersey. However, Corps officials told us that the agency
decided to defer the project in part because the Corps no longer
expects to dredge enough sand in the bay portion of the deepening
project to supply all three sites.
Despite reductions in the dredged material estimate and the number of
disposal sites needed, the Corps' disposal plan remains a point of
contention. Specifically, New Jersey is opposed to receiving any
dredged material from the deepening project because it believes that
the Corps has not adequately sampled and analyzed the material.
Furthermore, New Jersey officials believe that the material could
contain polychlorinated biphenyls (PCBs) and other toxins that could
contaminate the state's water supply, harm marine life, and pose a
risk to disposal site employees.[Footnote 28] The Corps disagrees with
this assertion, maintaining that the incremental additional dredged
material, from 40 feet to 45 feet, is similar to the material dredged
during annual maintenance of the 40-foot channel, which is deposited
each year at the same disposal sites in New Jersey. The Corps contends
that based on its sediment testing, the dredged material contains no
harmful levels of contamination and will have no impact on water
quality. New Jersey officials question the sufficiency of this
sediment testing, asserting that the Corps' testing is outdated and
did not include sediment in the project's new work areas--channel
bends, channel widenings, and the channel bottom below 40 feet--which
are not dredged during the Corps' annual maintenance of the channel.
[Footnote 29]
A 2007 agreement between the governors of New Jersey and Pennsylvania
has also added to the controversy over the placement of the project's
dredged material. According to a letter from the governor of New
Jersey to the Corps, the agreement specified that dredged material
resulting from any deepening would be deposited entirely in
Pennsylvania, not in New Jersey. Conversely, in separate letters from
the governor of Pennsylvania to the Corps and to the governor of New
Jersey, Pennsylvania interpreted the agreement to mean that
Pennsylvania would be the final repository for all of the material
unwanted by New Jersey or Delaware that could be used for beneficial
purposes in Pennsylvania, but that the material could be initially
deposited and drained in federal disposal sites in New Jersey and
Delaware before being moved to Pennsylvania. Additionally, while both
New Jersey and Pennsylvania agreed in 2007 to the formation of a
committee to identify sites for the disposal of the material, they
have not yet formed this committee.[Footnote 30] Although the Corps
and PRPA were not involved in the governors' agreement, Corps
officials told us that while they are open to an alternative disposal
plan in general, any new disposal plan would have to be at least as
safe as the current plan and result in no additional costs to the
agency. Moreover, Corps officials stated that the project's benefits
and costs would need to be reassessed to ensure economic justification
if under an alternative disposal plan (1) the dredged material were
first placed in New Jersey and later moved to Pennsylvania or (2) all
the material went directly to Pennsylvania. They also noted that an
alternative plan could result in another needed round of project
approvals by Congress. However, Corps officials also told us that if
Pennsylvania agreed with New Jersey to remove the dredged material
from New Jersey sites at a later date, then the Corps would not
consider this agreement to be part of the deepening project. Further,
Corps officials said the later activity would have to be a "100
percent nonfederal expense" and would not affect the overall cost of
the project.
States Contend That Additional Approvals Are Needed:
The Corps and the states of Delaware and New Jersey disagree on the
need for additional environmental approvals related to the deepening
project, and this is currently the subject of litigation. In 1997 the
Corps obtained letters from both states concurring that the project is
consistent with each state's coastal resource management policies.
Under the Coastal Zone Management Act, a federal agency must carry out
its activities consistent to the maximum extent practicable with the
enforceable policies of approved state management programs. In states
with federally approved coastal zone management programs--such as
Delaware and New Jersey--a federal agency that undertakes a project in
the coastal zone must provide a certification to that state that the
project is consistent with the state's program.[Footnote 31] If a
state deems the project consistent with the state's policies, the
state issues a consistency "concurrence." However, in 2002, New Jersey
informed the Corps that the state was revoking its consistency
determination, citing substantial changes in the project's economic
analyses and unresolved environmental issues. According to New Jersey
officials, these issues include state requests for updated sediment
sampling and analyses, as well as surface and groundwater monitoring
reports, as described in a memorandum of understanding that
accompanied the state's 1997 consistency concurrence.[Footnote 32]
Additionally, in a 2009 letter to the Corps, Delaware asked for
additional coordination on its consistency concurrence issued in 1997,
citing substantial project modifications over the previous 10 years.
The Corps disagrees with the states' positions on the consistency
concurrences. First, Corps officials told us that they have the
necessary concurrence letter on file from New Jersey. While New Jersey
asserted that it "revoked" this concurrence, the National Oceanic and
Atmospheric Administration, which administers the coastal zone
management program, advised New Jersey that a state may not revoke a
concurrence, noting an exception where the project has not begun and
the effects are substantially different than previously reviewed.
[Footnote 33] Similarly, with respect to Delaware, the Corps' position
is that the state already concurred with the Corps' consistency
determination. In November 2009 the Corps determined that supplemental
coordination was not required for either state's concurrence, because
it found that the project changes were not substantial and that the
changed circumstances were not significant.
In addition, in 2001 the Corps applied for a subaqueous lands and
wetlands permit from the state of Delaware. Under that state's law,
dredging in subaqueous lands or wetlands requires a permit. In
comments on our 2002 report, the Under Secretary of the Army stated
that the Corps "could not, and would not, proceed to construction
without [Delaware's] Subaqueous Lands/Wetlands Permit," a position
that the Under Secretary noted was a provision of the project
cooperation agreement with the project's original local sponsor
(Delaware River Port Authority). In 2003 a hearing officer for
Delaware's Department of Natural Resources and Environmental Control
recommended that the department deny the permit, citing the need for
additional information. According to the Corps, it made several
attempts to provide additional information to Delaware in the years
following the hearing officer's recommendation. However, a senior
Delaware official told us that this information could have been
accepted only as part of a new application because the record on which
the department's decision would be based had been closed.
When the Army entered into a new project partnership agreement with
PRPA in 2008, it reserved the right to determine whether the Delaware
state permit was required as a matter of federal law, and presumably
to move forward with the project if it determined the permit not to be
required. In July 2009 Delaware's Department of Natural Resources and
Environmental Control denied the Corps' request for the permit--
finding that the Corps failed in its 2001 application to demonstrate
that adverse environmental effects resulting from the project had been
minimized, and that the record was outdated given the significant
changes to the project as well as additional information developed
since 2001. Subsequently, the Corps has argued that, under a provision
of the Clean Water Act, the agency can assert federal supremacy and
avoid compliance with the relevant state law because the Assistant
Secretary of the Army for Civil Works found that regulation under such
law impaired the Corps' authority to maintain navigation.[Footnote 34]
In summer 2009 the Corps solicited construction bids for dredging the
first segment of the project.[Footnote 35] In response to the Corps'
statements and actions, in fall 2009, Delaware, New Jersey, and
several environmental groups filed separate lawsuits against the Corps
in U.S. district courts in Delaware and New Jersey. Among other
things, the states and environmental groups are seeking a halt to the
project until the Corps complies with all legal requirements,
including obtaining relevant concurrences and permits.[Footnote 36]
However, a U.S. district court recently allowed the Corps to proceed
with deepening of the first river segment, denying in part Delaware's
motion for preliminary injunction. The judge also granted Delaware's
motion in part, ruling that the Corps cannot proceed with the rest of
the project pending resolution of the lawsuit or further order of the
court. The judge stated her opinion that, notwithstanding the ruling,
the project "should be completed, consistent with congressional
intent." In reaching the decision, the court did not make a final
ruling on Delaware's claims, but concluded that the state was unlikely
to prevail on a majority of its claims, while finding the Corps'
record lacking with respect to one claim.[Footnote 37] According to
the court, its decision "gives the parties the opportunity to satisfy
their respective obligations to govern responsibly." The environmental
groups who intervened in the case have appealed the ruling. On
February 23, 2010, the Corps announced it had awarded a contract to
deepen the first segment of the project, and on March 1 this work
began. In the meantime, the district court case, as well as the
pending New Jersey and environmental groups' cases, is proceeding.
Outstanding Disputes over the Project's NEPA Process:
The Corps' 2009 environmental assessment for the Delaware River
deepening project was controversial and has been challenged in court
on several grounds. Specifically, New Jersey officials and several
environmental groups have separately claimed that the assessment is
not the appropriate mechanism for updating the last major
environmental analysis of the project--the 1997 Supplemental
Environmental Impact Statement (SEIS)--because, in their view,
applicable regulations require the Corps to prepare another SEIS to
account for project and environmental conditions that they contend
have changed significantly since 1997. Generally, an environmental
assessment involves a less detailed analytical process than other NEPA
documents, such as an Environmental Impact Statement (EIS) or SEIS.
Instead, it is intended to be a concise document that provides
sufficient evidence and analysis for determining whether to prepare an
EIS or SEIS. In commenting on a draft of this report, the Department
of Defense noted that it has followed the regulations concerning the
NEPA documents. Specifically, the stated purpose of the environmental
assessment included to evaluate the impacts of changes to the
deepening project, as well as changes to the existing conditions in
the project area from those described in the 1992 EIS and 1997 SEIS.
On this basis, the Corps concluded that none of the changes to the
proposed project were substantial and there were no new circumstances
or information that can be considered significant, and therefore
determined that an SEIS was not required.
According to New Jersey and the environmental groups, the
environmental assessment overlooked certain elements of the project,
relied on outdated information, and did not sufficiently explore all
of the potential adverse impacts from the project. For example, they
believe additional and updated sediment sampling and analyses are
needed to fully characterize the materials to be dredged in the
deepening project. As a result of these concerns, New Jersey and the
environmental groups are now asking a U.S. district court, as part of
the lawsuits they filed in fall 2009, to order the Corps to issue a
new SEIS before proceeding with the project.
In this regard, the Corps' process for public comments on the
deepening project has also been criticized. On December 17, 2008, the
Philadelphia district, via a public notice, solicited comments from
stakeholders concerning environmental changes as well as project
changes since the 1997 SEIS, such as changes to the amount of
estimated dredged material and the elimination of new disposal sites.
The Corps' notice indicated that all comments should be made by
December 31, 2008. Among other things, environmental groups criticized
the Corps for not giving stakeholders sufficient time for commenting
on these changes and for scheduling the comment period over a major
holiday period. Following these criticisms, the Corps extended the
public comment period by 2 weeks.
The public notice also did not explicitly inform the public that their
comments would be used to prepare an environmental assessment.
Instead, the notice asked the public for comments related to a summary
of project changes and to identify any applicable existing and new
information generated subsequent to the 1997 SEIS, to be used to
update the environmental record and to determine whether further
environmental work and analyses would be needed. Owing to both the
abbreviated response period and the confusion over the public notice's
purpose, the environmental groups we spoke to stated that some
potential respondents may not have commented, and comments the Corps
did receive may not have been comprehensive.
The environmental groups also contend that the Corps should have
circulated a draft of the environmental assessment for public comment.
There was professional disagreement between the Corps and the Army
concerning whether a comment period for the draft environmental
assessment was necessary. Specifically, in March 2009 the Corps'
Director of Civil Works asked permission from the Assistant Secretary
of the Army for Civil Works to circulate the draft environmental
assessment for public comment before it was issued in final form. In
his request, the director identified several reasons why circulation
of the draft assessment was advisable. The Assistant Secretary of the
Army, however, denied his request, disagreeing with the rationale and
focusing on its finding that circulation was not legally required--
maintaining that the initial notice and comment period constituted a
sufficient amount of public participation and that there was no legal
requirement for additional public involvement.[Footnote 38] While
Corps officials in the Philadelphia district told us that Corps
guidance does not direct the agency to provide a public comment period
for draft environmental assessments, they could not identify other
environmental assessments that the district had issued without first
circulating the draft for public comment. The reason that NEPA
regulations emphasize public involvement through mechanisms such as
public comment is that the law's purpose, in part, is "to require
disclosure of relevant environmental considerations that were given a
'hard look' by the agency, and thereby to permit informed public
comment on [the agency's] proposed action and any choices or
alternatives that might be pursued with less environmental harm."
[Footnote 39]
Conclusions:
The Corps has had the difficult task of developing benefit and cost
estimates for the Delaware River deepening project that are based on
what may occur over a 50-year period of analysis--a period that begins
only after 5 years of channel dredging have been completed. For such a
project, economic uncertainties associated with making projections
about future conditions are important to consider because expectations
about future market conditions and benefits often may not be realized.
As the Corps' policies recognize, analyzing uncertainties can help
decision makers judge whether a project would be warranted under a
range of economic conditions. The Corps' reanalysis has provided a
more solid foundation for estimating the project's benefits and costs
and has used sensitivity analysis to analyze the uncertainties
associated with several key assumptions.
However, since the reanalysis was completed, market and industry
conditions have changed significantly in ways that raise questions
about the Corps' project benefit estimates going forward. While some
of these changes could be short-term trends, others could have longer-
lasting impacts. Such changes create additional uncertainties about
the deepening project. In some cases, such as blast furnace slag, the
changes affect a small portion of the project's estimated benefits,
but in other cases, such as crude oil, containerized cargo, and steel
slabs, the changes are associated with commodities that make up most
of the project's estimated benefits. A key purpose of the Corps'
periodic economic updates is to analyze these uncertainties by
collecting enough additional information to ensure that decision
makers are presented with reasonable and timely estimates and that the
project is warranted under a range of economic conditions. Because the
Corps' economic updates have not accounted for the potentially
significant impact that some market and industry trends could have on
the project's estimated benefits, federal decision makers do not have
the most current information about the project, including whether
adjustments to the assumptions in the Corps' benefit models are
necessary. Such information would help decision makers more fully
assess the project's economic justification.
Noneconomic aspects of project implementation can also add to
uncertainties about the project. A key area of such uncertainty is the
outcome of the legal challenges to the project's environmental
approvals and compliance. In particular, the Corps has made several
decisions--such as soliciting information from the public over the
winter holiday, and then, following Army direction, not seeking public
comment on the draft environmental assessment--that have exacerbated
public concerns over environmental issues, and as a result, its
communications with the public regarding its actions have not been as
open as might have been advisable for such a controversial project.
Recommendations for Executive Action:
To better ensure that decision makers have the most current
information about changes that could affect the benefits of the
Delaware River deepening project, we recommend that the Secretary of
Defense direct the Chief of Engineers and Commanding General of the
U.S. Army Corps of Engineers to provide an updated assessment to the
Assistant Secretary of the Army for Civil Works, and to Congress, of
relevant market and industry trends and outlook that specifies the
extent to which the data and assumptions underlying each benefit
category have changed, and the effect of any changes on each benefit
estimate and the project's net benefit estimate. This assessment
should be issued as a public document and become part of the project's
official record.
To improve consistency and transparency in how the Corps handles
public participation in the development of environmental documents
that are related to controversial projects and that the Corps believes
have no applicable NEPA requirement, we recommend that the Chief of
Engineers develop guidance on the appropriate timing and approaches
for public notice and comment on such documents.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Department of Defense for
review and comment. The department generally agreed with the
recommendations in our report. Specifically, the department concurred
with our recommendation that the Corps provide an updated assessment
of relevant market and industry trends and outlook that specifies the
extent to which data and assumptions underlying each benefit category
have changed and the effect of these changes on project benefit
estimates. The department agreed to have the Corps prepare an updated
quantitative assessment that would incorporate the long-term trend in
the economy over the project's 50-year planning period. In addition,
the department partially concurred with our recommendation that the
Corps develop guidance on the appropriate timing and approaches for
public notice and comment on environmental documents that are related
to controversial projects and that the Corps believes have no
applicable National Environmental Policy Act requirement. The
department agreed that the Army will review and evaluate the need for
clarifying guidance regarding whether or when a draft Corps Civil
Works environmental assessment (EA) and finding of no significant
impact (FONSI) should be circulated for public comment before they are
finalized.[Footnote 40] The department notes that it has no reason to
believe that its existing regulations and guidance regarding this
subject are defective or in need of modification. While there are
regulations addressing the typical scenario where an environmental
assessment is the first NEPA document developed (e.g., there is no EIS
previously prepared), we believe that no Corps guidance exists for the
less common scenario where a relatively old EIS or supplemental EIS
already exists for a project that has not yet been constructed, as was
the situation in 2009 when the Corps prepared its EA for the deepening
project. The department acknowledges that it would be beneficial to
issue clarifying guidance for conducting an EA in such a scenario.
The department's official comments are presented in appendix III. We
also received technical comments from the department, which we have
incorporated as appropriate throughout the report. In addition, we
invited Delaware, New Jersey, and Pennsylvania to comment on draft
report excerpts discussing issues relevant to each state. We received
comment letters from New Jersey and Pennsylvania, which we present in
appendixes IV and V, respectively. We also received technical comments
from all three states, which we incorporated as appropriate throughout
the report.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to the appropriate congressional committees, the Secretary of Defense,
the Chief of Engineers and Commanding General of the U.S. Army Corps
of Engineers, and other interested parties. In addition, this report
will be available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact me at (202) 512-3841 or mittala@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report are
listed in appendix VI.
Sincerely yours,
Signed by:
Anu K. Mittal:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives were to determine (1) the extent to which the U.S. Army
Corps of Engineers' (Corps) reanalysis addressed the economic analysis
limitations we identified in 2002; (2) the extent to which the benefit
projections the Corps included in its reanalysis of the project, as
updated, are consistent with current and anticipated future market and
industry conditions; and (3) what other key issues, if any, could
affect the project, and the extent to which the Corps has accounted
for these issues and their potential impacts.
To determine the extent to which the Corps' reanalysis addressed the
economic analysis limitations we identified in 2002, we reviewed our
2002 report[Footnote 41] to identify the key limitations we had found
in the Corps' 1998 analysis. These limitations ranged from errors in
benefit and cost estimation--such as the misapplication of commodity
growth rates and the omission of disposal site construction costs for
future channel maintenance dredging--to concerns about the Corps'
treatment of economic uncertainty and the lack of internal quality
control in the Corps' report review process. We then reviewed the
Corps' reanalysis--the 2002 Comprehensive Economic Reanalysis Report
and the 2004 Supplement to Comprehensive Economic Reanalysis Report--
and supporting documents, and assessed the extent to which the
reanalysis generally addressed the limitations we had identified
earlier consistent with standard economic principles for conducting a
benefit-cost analysis. The supporting documents we reviewed included
detailed quantitative analyses for each of the five benefiting
commodities included in the reanalysis--crude oil, containerized
cargo, steel slabs, blast furnace slag, and refined petroleum--as well
as the Corps' calculation of benefits for reuse of dredged sand at
Broadkill Beach. We also reviewed documents that provided greater
context for the Corps' reanalysis, such as the agency's official
comments in response to the findings and recommendations in our 2002
report, and two subsequent internal documents that updated and further
explained the reanalysis's benefit and cost assumptions--the Corps'
2008 and 2009 economic updates. We interviewed Corps officials at the
Philadelphia district with primary responsibility for the reanalysis's
benefit-cost analysis to gain further understanding of the steps taken
by the Corps to address the limitations. We also discussed the
reanalysis with officials from the Corps' North Atlantic division and
its headquarters in Washington, D.C. For further information about the
reanalysis, we interviewed the primary economic consultant for the
reanalysis from David Miller & Associates (DMA), the firm that the
Corps hired to prepare key parts of the reanalysis, including an
updated analysis of project benefits and associated costs. Finally, we
presented our findings related to each limitation in a table for the
Corps to review, at which time we requested additional information and
documentation for certain items, as appropriate. In addition, we
discussed the Corps' analyses with an academic expert who has analyzed
the lightering and crude oil industries in the Delaware River.
To determine the extent to which the benefit projections the Corps
included in its reanalysis of the project, as updated, are consistent
with current and anticipated future market and industry conditions, we
attempted to verify key data and assumptions underlying the key
benefit categories in the reanalysis's 2002 report and 2004
supplement, as well as the Corps' 2008 and 2009 economic updates,
using data on the general trends since the Corps conducted its
reanalysis, current conditions, and the expected outlook for relevant
Delaware River imports and industries. For crude oil, we used data on
imports to Delaware River ports collected by the Department of
Energy's Energy Information Administration (EIA). Importers of crude
oil and petroleum products are required to report on a monthly basis
to EIA. To assess the reliability of these data, we reviewed existing
agency information about the data and the agency's data quality
procedures, and we interviewed agency officials knowledgeable about
the data. We used information from the Department of Commerce and
industry sources to corroborate the general historical trend exhibited
in the EIA import data. We note that EIA's import data for 2009 are
preliminary and may be revised. We determined that the EIA data are
sufficiently reliable for the purposes of this report. We also
reviewed EIA's Annual Energy Outlook forecasts for U.S. crude oil
imports and refinery capacity on the East Coast; EIA forecasts were a
primary source for the Corps' in developing the reanalysis's crude oil
benefit estimate. To assess the reasonableness of these forecasts, we
reviewed supporting documentation on the approach and key assumptions
and we interviewed knowledgeable EIA officials to discuss possible
reasons for observed declines in historical imports and changes in the
agency's forecast for crude oil refinery capacity and imports. We note
that EIA may revise its forecasts over time as new information becomes
available.
To further assess trends and outlook in the Delaware River crude oil
industry, we interviewed officials from the three refinery firms that
own the six Delaware River refinery facilities included in the Corps'
reanalysis,[Footnote 42] as well as representatives of Overseas
Shipholding Group,[Footnote 43] which conducts the lightering
operations for those firms, to discuss their past and present crude
oil-related operations. We also interviewed EIA officials and an
academic expert knowledgeable about oil markets.
To assess current conditions and outlook for containerized cargo and
steel slab imports, we reviewed Corps data in the reanalysis and
subsequent economic updates and we interviewed the logistics provider
for the Packer Avenue Marine Terminal. Although we obtained
information on containerized cargo import trends, we were unable to
obtain data with which to verify key assumptions that the Corps used
to support its containerized cargo benefit estimate. Specifically, we
could not confirm that (1) containers were still being trucked from
the port of New York/New Jersey to Philadelphia for the weekly service
on the South America trade route and (2) the expected rate of growth
was occurring for the weekly service on the Australia/New Zealand
trade route, which was supposed to cause trucking to begin by 2009--
both of which are necessary to realize any containerized cargo
benefits. For information on blast furnace slag imports, we reviewed
annual reports by the U.S. Geological Survey on the slag industry in
the United States and we interviewed a U.S. Geological Survey official
who is knowledgeable about the slag industry. We believe that the
information is sufficiently reliable for the purposes of this report.
For details about the operational status of the reanalysis's sole
refined petroleum beneficiary, we interviewed a representative of
Magellan LP, the firm that acquired the benefiting petroleum terminal
identified in the reanalysis. For additional background on all
commodities, we reviewed historical import data from several
additional sources, including the Corps' Waterborne Commerce
Statistics Center,[Footnote 44] the U.S. Department of Agriculture,
and the U.S. Department of Commerce.
To determine what other key issues, if any, could affect the project,
and the extent to which the Corps has accounted for these issues and
their potential impacts, we reviewed the limitations that we had
identified in our 2002 report to develop a list of key noneconomic
concerns for further examination. This included the Corps' handling of
environmental policy issues, such as its pursuit of a subaqueous lands
permit from Delaware for dredging in that state's waters. Similar to
the methodology described in our first objective, we used these
previously identified concerns as criteria for reviewing the
reanalysis and other key documents, as well as the Corps' 2009
environmental assessment, to determine whether and how each issue was
addressed by the Corps. We also requested from the Corps all comment
letters received in response to its public request for information in
advance of its 2009 environmental assessment. These letters--from
federal, state, and local agencies; environmental groups; and private
citizens--detailed concerns about the project's potential impacts and
changes in the project area since the Corps' 1997 supplemental
environmental impact statement (SEIS). We reviewed these letters, and
the content analysis that the Corps prepared to summarize them, in
order to gain an understanding of prominent issues and controversies
associated with the project. Throughout our review we also read local
media accounts of these issues and controversies. Further, we reviewed
correspondence and legal filings related to Delaware's, New Jersey's,
and regional environmental groups' ongoing disputes with the Corps
over environmental approvals for the deepening project. We discussed
the project with several regional environmental groups, including some
that were involved in lawsuits to stop the project. Finally, once we
had determined key policy and legal issues affecting the project, we
discussed these issues with the Corps and requested more information
and documentation of the Corps' plans where necessary. We also asked
representatives of the three states likely to be most affected by the
project--Delaware, New Jersey, and Pennsylvania--to review our
interpretation of these issues to the extent that it was relevant to
each state.
For all three objectives, we consulted experts in the fields of
economics and lightering, environmental groups with an interest in the
project, representatives of firms likely to be affected both
positively and negatively by the project, and the Philadelphia
Regional Port Authority (PRPA), the project's local sponsor. Where we
obtained other analyses or external studies, we considered the
contents of these studies but conducted our own independent review.
For example, the Corps' reduced estimate of dredged material from
initial construction was independently validated in January 2009 by an
engineering firm hired by PRPA, which, as the project's local sponsor,
is responsible for 25 percent of the cost of dredging and other
aspects of construction. We reviewed the firm's approach to validating
the revised dredged material estimate and found it to be reasonable.
We conducted this performance audit from March 2009 through March 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Additional Observations about the Project's Associated
Costs:
It has now been more than 7 years since the Corps has asked the
refineries about changes to their facilities. Since the reanalysis,
some refinery facilities have undergone significant structural and
operational changes that could affect the associated costs of the
project, which are the private costs that would need to be incurred,
in addition to project costs, to achieve the project's full benefits.
Associated costs account for about 10 percent of the project's total
economic first costs.[Footnote 45] Specifically:
* Associated costs could be lower. According to one refinery, a tanker
dock at one of its facilities was completely rebuilt in 2008 to
address structural problems. In anticipation of a deepened channel,
the new dock was constructed to accommodate tankers needing a depth of
45 feet. Since this work was undertaken after the Corps' reanalysis,
the project's associated costs could be lower than the reanalysis
initially predicted. In 2002 the Corps estimated that these
modifications would cost $3.6 million. In addition, the recent closure
of Sunoco's Eagle Point facility, if permanent, could decrease
associated costs because no modifications would need to be made at
this facility. In 2002 the Corps estimated that it would cost $362,000
to modify this facility.
* Associated costs could be higher. Refinery officials expressed
concerns about the availability of private disposal space for dredged
material, which could be costly. According to PRPA, private dredging
and disposal costs have risen since the time of the reanalysis due to
higher fuel costs, among other factors. If the disposal cost for
dredged material is significantly more now than it was in 2002, the
project's associated costs could increase.
Officials from all three refinery firms told us that they supported
the deepening project. However, they also told us that they would need
to analyze the project's benefits and costs for their firms to
determine whether they would commit to making the improvements
necessary to take advantage of the project. These improvements could
be substantial: deepening their ship berths, retrofitting their docks,
or expanding their storage capacity. As our discussions with refinery
officials suggest, firms are not likely to commit to the modifications
needed to realize project benefits until they have conducted their own
financial analysis of the benefits they would gain. If the firms
decided against making the necessary modifications, then the project's
benefits could be lower than initially estimated.
These decisions are particularly important in light of the Army's
project partnership agreement with PRPA. The agreement specifies that
PRPA is responsible for ensuring that the local facilities undertake
the modifications necessary to take advantage of the deepening
project. However, this agreement does not require PRPA to produce
third-party agreements with these potential beneficiaries as evidence
of their commitment before project construction could proceed. In
contrast, under the agreement with the project's original local
sponsor (the Delaware River Port Authority), the local sponsor had to
provide copies of third-party agreements as evidence of local
facilities' commitment to make the modifications necessary to realize
project benefits. Corps officials said that in the time between the
signed agreements with the Delaware River Port Authority and PRPA, the
model project partnership agreement, developed by Corps headquarters,
changed so that provisions for third-party agreements are no longer
included.
Nevertheless, according to Corps officials with whom we spoke, the
agency expects benefiting firms will modify their facilities once
project construction begins. The Corps assumes that the beneficiaries
will make separate arrangements with the Corps' dredging contractor
while the contractor is working in each beneficiary's section of the
river. By using the Corps' contractor, the beneficiaries could save
certain dredging costs, such as those related to the transfer of
equipment to and from the site and the installation and removal of
pipelines.
[End of section]
Appendix III: Comments from the Department of Defense:
Department Of The Army:
Office Of The Assistant Secretary:
Civil Works:
108 Army Pentagon:
Washington, DC 20310-0108:
March 25, 2010:
Ms. Anu K. Mittal:
Director, Natural Resources and Environment:
U.S. Government Accountability Office (GAO):
441 G Street, N.W.
Washington, DC 20548:
Dear Ms. Mittal:
This is the Department of Defense response to the GAO draft report,
GAO-10420, "Delaware River Deepening Project: Comprehensive Reanalysis
Corrected Errors, but Several Issues Still Need to Be Addressed,"
dated March 2010 (GAO Code 36150). Thank you for the opportunity to
comment on the draft report.
We concur with your first recommendation. The Corps will perform an
updated quantitative assessment of the impact of relevant market and
industry trends on the previously projected project benefits. The
updated assessment will augment the qualitative port assessment
previously provided by the Corps for consideration during the
development of the GAO draft report.
We partially concur with your second recommendation that the Chief of
Engineers develop guidance on the appropriate timing and approaches
for public notice and comment on environmental documents that are
related to controversial projects that the Corps believes to have no
applicable National Environmental Policy Act requirement. We do not
believe that our existing regulations, which are based on the Council
on Environmental Quality regulations that are applicable to all Federal
agencies, are either defective or in need of modification. However, we
acknowledge that it would be beneficial to issue clarifying guidance
for conducting the analysis contemplated by 40 C.F.R. § 1502.9(c),
where a relatively old Environmental Impact Statement or Supplemental
Environmental Impact Statement exists for a project that has not yet
been constructed, as the situation was in the present case.
Responses to the GAO recommendations are enclosed.
Very truly yours,
Signed by:
Jo-Ellen Darcy:
Assistant Secretary of the Army (Civil Works):
Enclosures:
GAO Draft Report ” Dated March 15, 2010:
GAO 10-420 (GAO Code 36150):
Delaware River Deepening Project: Comprehensive Reanalysis Corrected
Errors, but Several Issues Still Need To Be Addressed:
Department Of Defense Comments To The Recommendations:
Recommendation 1: To better ensure that decision makers have the most
current information about changes that could affect the benefits of
the Delaware River deepening project, we recommend that the Secretary
of Defense direct the Commanding General and the Chief of Engineers of
the U.S. Army Corps of Engineers to provide an updated assessment to
the Assistant Secretary of the Army for Civil Works and to Congress of
relevant market and industry trends and outlook that specifies the
extent to which the data and assumptions underlying each benefit
category have changed and the effect of any changes on each benefit
estimate and the project's net benefit estimate. This assessment
should be issued as a public document and become part of the project's
official record.
DOD Response: Concur. The Corps will perform an updated quantitative
assessment of the impact on project benefits resulting from relevant
market and industry trends and outlook. This work effort will augment
the qualitative port assessment previously provided by the Corps to
the GAO for consideration during the development of the agency's Draft
Report, and will incorporate the long-term secular trend in the
economy over the 50-year planning period of analysis. It should be
noted that short-term business cycle fluctuations, such as the deep
2009 recession, are a consideration, but should not be the determining
basis for defining a project's benefits.
Recommendation 2: To improve consistency and transparency in how the
Corps handles public participation in the development of environmental
documents that are related to controversial projects and that the
Corps believes have no applicable NEPA requirement, we recommend the
at the Chief of Engineers develop guidance on the appropriate timing
and approaches for public notice and comment on such documents.
DOD Response: Partially Concur. The Department of the Army (DA) will
review and evaluate our existing guidance regarding whether or when a
draft Corps Civil Works EA/FONSI should be circulated for public
comment before it is finalized.
Presently we have no reason to believe that our existing regulations
and guidance regarding this subject are defective or in need of
modification.
There are only three circumstances in which the Corps is required to
circulate a draft EA/FONSI for public comment, none of which encompass
the present situation. The first two circumstances are mandated by
CEQ's legally binding NEPA regulations at 40 C.F.R. § 1501.4(e) (2):
1. where the proposed action is, or is closely similar to, one of a
class of actions designated as normally requiring an EIS under that
agency's NEPA regulations; or;
2. where the nature of the proposed action is one without precedent.
The Corps' Civil Works NEPA regulation, 33 C.F.R. § 230.1, articulates
the third circumstance in which the Corps is required to circulate a
draft EA/FONSI:
"In the case of feasibility, continuing authority, or special planning
reports and certain planning/engineering reports, the draft FONSI and
EA should be included within the draft report and circulated for a
minimum 30 days review to concerned agencies, organizations and the
interested public (40 C.F.R. § 1501.4(e)(2))."
In all other circumstances, the decision to circulate a Corps Civil
Works draft EA/FONSI before finalization is discretionary. The draft
EA/FONSI may be circulated for public comment if the Army or Corps
decision-maker determines that it would be advantageous or appropriate
to do so.
In the case of the Delaware River Deepening Project's most recent EA,
then-ASA(CW) Woodley determined that it was not necessary or
appropriate to circulate that particular draft EA before it was
finalized. We believe that decision was proper under the circumstances
involved. The circumstances presented the issue whether the EA
documenting that analysis contemplated by 40 C.F.R. § 1502.9(c),
required additional public comment and participation where an
environmental record exists in the form of a relatively old EIS or
SEIS project, and the project has not yet been constructed. The Corps
will undertake an additional review and consider whether internal
guidance, in addition to 40 C.F.R. § 1502.9(c), would be useful to
address these situations.
[End of section]
Appendix IV: Letter from the State of New Jersey:
State of New Jersey:
Chris Christie: Governor:
Kim Guadagno: Lt. Governor:
Department Of Environmental Protection:
Bob Martin: Acting Commissioner:
P.O. Box 402:
Trenton, NJ 05625-0402:
TEL: # (609) 292-2895:
FAX # (609) 292-7695:
March 16, 2010:
Mr. David A. Brown:
United States Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Brown:
Thank you and your staff for speaking to me and Suzanne Diettick on
March 4th about the Delaware River Deepening Project (Project)
currently being undertaken by the Army Corps of Engineers,
Philadelphia District (ACOE). We certainly appreciate that the
Government Accountability Office (GAO) is reviewing the economic and
environmental issues surrounding the Project, and will be issuing a
new report on or around March 25, 2010.
As we discussed, the New Jersey Department of Environmental Protection
(NJDEP) has serious concerns about this Project, and wants to ensure
that New Jersey's air and water are not harmed should the Project
continue to go forward. I am enclosing a mark-up of the draft report
that we discussed, with NIDEP's comments incorporated, with the hope
that the GAO will seriously consider the points that we raised. Please
note that we have a correction on our mark up regarding the number of
tons of NOx/year that are being offset in the New York Harbor
Deepening Project.
NJDEP is particularly concerned that the ACOE will be deepening the
Delaware River, and depositing the dredged materials in upland
confined disposal facilities (CDFs) located primarily in New Jersey.
Our concern is that large segments of the Delaware River that will be
dredged have not been comprehensively sampled for at least seventeen
years. In NIDEP's view, a significant amount of this dredged material
will come from industrial parts of the River (between
Philadelphia/Camden to the Port of Wilmington), where contamination
with polychlorinated biphenyls (PCBs), polyaromatic hydrocarbons (PAI-
Is), and other highly toxic substances is likely to be high and in
violation.of NJDEP's regulatory standards. A massive oil spill
occurred in this part of the River in 2004. NJDEP expects that runoff
from the dredged material stored in the CDFs will impact the surface
waters of the Delaware River and will also seep into and contaminate
the groundwater. If the ACOE knows the levels of contamination in the
dredged materials, then controls can be put in place to manage the
contaminated material properly, and prevent further water pollution.
For these reasons, NJDEP has been insisting on updated, comprehensive
sampling of the new work areas of the River.
NJDEP realizes that the sediment sampling it is demanding will add to
the overall cost of the Project. In the New York Harbor Deepening
Project, however, the New York District of ACOE performed
comprehensive, state-of-the-art sediment sampling prior to the
initiation of construction activities for each contract. We were able
to use our experience with the New York Harbor Deepening Project to
estimate the costs of performing sediment sampling in the Delaware
River. We believe that the additional sampling will range from $4.8 to
$5,4 million (or less than 2% of the total project costs). if the
sediment sampling produces results that exceed New Jersey's regulatory
standards such that the dredged materials could not be managed at the
CDFs, then additional management of the materials will be required,
which could add approximately $400,000,000 to the total project costs.
This figure is based on the projected volumes to be removed from areas
of the Delaware River where we expect there to be the most
contamination (e.g., between Philadelphia/Camden to the Port of
Wilmington).
In addition, NJDEP has serious concerns that the ACOE is choosing to
mitigate the air emissions caused by the construction of the Project
(e.g., diesel emissions caused by the dredgers, tug boats, trucks and
other heavy equipment) exclusively through the purchase of Emission
Reduction Credits (ERCs). The ACOE is proposing to spend $3.3 million
to offset 607 tons/year of NOx emissions. In contrast, the New York
District spent approximately $20 million on new mitigation projects
(e.g., engine upgrades and air pollution controls on the Staten Island
Ferries, repowering tugboats, and ERCs) to offset the 1,265 tons/year
of NOx emission increases caused by the deepening of New York Harbor.
NJDEP believes that if the Philadelphia District approached air
conformity in the same manner as the New York District, it would be
spending much more on new mitigation projects that actually improved
air quality.
Again, we appreciate the opportunity to review the draft report and to
provide you with our comments. If you need any additional information,
please feel free to contact us.
Sincerely,
Signed by:
Bob Martin:
Acting Commissioner:
[End of section]
Appendix V: Letter from the State of Pennsylvania:
Philadelphia Regional Port Authority:
Chairman of the Board
3450 N. Delaware Avenue:
Philadelphia, PA 19134:
(215) 426-2600:
FAX (215)426-6800:
March 26, 2010:
Ms. Anu K. Mittal:
Director, Natural Resources and Environment:
U.S. General Accounting Office:
441 G Street, NW:
Washington, DC 20548:
Subject: Delaware River Main Channel Deepening Project:
Dear Ms. Mittal:
In my capacity as Chairman of the Philadelphia Regional Port Authority
("PRPA") -- an independent agency of the Commonwealth of Pennsylvania
and the local sponsor for the Delaware River Main Channel Deepening
Project (the "Project") -- I am writing to provide our views,
generally, on the Project as well as clarification on the
understanding between Governor Rendell and Governor Corzine regarding
the disposal of dredged materials.
The Army Corps of Engineers ("ACOE") has been planning the Project in
earnest since 1992 and, in accordance with applicable law, has
followed a planning and implementation process that has been thorough,
inclusive and protective of both public interest and the environment.
The ACOE has been responsive to reasonable and justified concerns
during the planning/implementation process and has worked diligently
to resolve outstanding issues to the greatest extent possible. As a
result of these efforts, the ACOE and PRPA executed a Project
Partnership Agreement ("PPA") on June 23, 2008, federal and non-
federal funds have been appropriated, and construction in Reach C of
the Project began in February 2010.
Certain interest groups have opposed the Project on environmental
grounds and certain state regulatory agencies from Delaware and New
Jersey have expressed concerns in regard to the process that the ACOE
followed in order for the Project to proceed. As noted above, the
process followed was in accordance with applicable law and, since
1992, the environmental impacts of the Project have been studied
leading to the preparation of numerous reports that incorporated input
from regulatory agencies and the public. Furthermore, the ACOE and
PRPA repeatedly met with stakeholders in the Project to address their
concerns.
The concerns of the interest groups and state regulatory agencies have
also been formally raised in court proceedings. To date, the United
States District Court for the District of Delaware and the United
Stated Third Circuit Court of Appeals have ruled in favor of the ACOE,
validating the process followed by the ACOE and allowing the Project
to proceed. I encourage you to carefully scrutinize for accuracy any
issues that opponents of the Project contend are "unresolved" in light
of these court rulings. There may be parties who continue to be
dissatisfied with aspects of the Project, but there are no unresolved
issues.
Regarding the understanding between Governor Rendell of the
Commonwealth of Pennsylvania and former Governor Corzine of the State
of New Jersey regarding the disposal of dredged materials, I would
like to point out the following:
1. The understanding is a non-binding agreement between Pennsylvania
and New Jersey and is independent of the Project. As directed by
Congress, ACOE is constructing the federally authorized project,
including the use of the existing federal disposal sites as specified
in the signed PPA and all of the accompanying economic and
environmental reviews.
2. In order to use the dredged material beneficially, the following
process -- the same process the ACOE currently uses for the beneficial
use of maintenance material -- needs to be undertaken:
* The placed material needs to be de-watered.
* Specific uses for beneficial uses need to be identified.
* Appropriate environmental clearances need to be obtained.
* Removal needs to be funded by the beneficiary.
3. The identified disposal placement sites will be used for storage and
dewatering of the dredged material until the respective states
complete the process to use the material beneficially. Since the
placement sites are federally owned and will be available for the life
of the Project, the stored material will be available for beneficial
use following the de-watering process.
4. Governor Rendell repeatedly assured the then Governor of New Jersey
and the former and current Governors of Delaware that the Commonwealth
of Pennsylvania will accept for beneficial re-use the dredged material
from the Project that neither New Jersey nor Delaware desire. Until
the final beneficial use of dredged material is defined and
implemented, the dredged material will remain deposited in the
federally owned disposal sites in New Jersey, Delaware and
Pennsylvania.
During the current review of the Project's benefits, you contacted the
PRPA to obtain information on the Port's current and anticipated
commerce levels at various facilities. I would like to point out that
during the current recession the volume and mix of cargoes coming to
the Pod have changed since the start of the recession. This is true of
every major port complex in the United States. For example, in the
last year the Port of New York/New Jersey experienced a decline in
containers of almost 20%.
Certainly the economic analysis for any ACOE authorized deep draft
commercial navigation project could be considered to have unresolved
issues regarding the nature and extent of benefits previously
estimated. However, the underlying strength of the regional economy
has not changed and we fully expect the Port to recover and grow.
Indeed, the economic outlook for Delaware River port facilities
changes on a daily basis as demonstrated by the recent agreement
of two shipping lines to call on PRPA facilities and bring an
additional 76 ships per year to Philadelphia. The impending completion
of improvements to the Panama Canal will only further enhance the Port
and the region's economic strength.
Thank you for your attention and consideration with respect to these
matters.
Respectfully,
Signed by:
John H. Estey:
Chairman:
Philadelphia Regional Port Authority:
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Anu K. Mittal, (202) 512-3841 or mittala@gao.gov:
Staff Acknowledgments:
In addition to the individual listed above, Vondalee R. Hunt
(Assistant Director), Elizabeth Beardsley, David Brown, Laurie
Ellington, and Timothy Guinane made significant contributions to this
report. Michael Armes, Sara Daleski, Terrance Horner, Richard Johnson,
Armetha Liles, Christopher Murray, Lauren Nunnally, Katherine Raheb,
Carol Shulman, Vasiliki Theodoropoulos, and Eugene Wisnoski also made
key contributions.
[End of section]
Footnotes:
[1] Water Resources Development Act of 1992, Pub. L. No. 102-580, §
101(6) (1992). Congress modified the project in the Water Resources
Development Act of 1999, Pub. L. No. 106-53, § 308 (1999) and the
Water Resources Development Act of 2000, Pub. L. No. 106-541, § 306
(2000).
[2] GAO, Delaware River Deepening Project: Comprehensive Reanalysis
Needed, [hyperlink, http://www.gao.gov/products/GAO-02-604]
(Washington, D.C.: June 7, 2002).
[3] Corps benefit and cost estimates cited in this report are based on
the Corps' planned 5-year construction period. Estimates could change
if project construction takes longer than 5 years.
[4] Project-related disposal at the Pennsylvania site is limited to
rock that would be removed from the river after blasting in the
vicinity of Marcus Hook, Pennsylvania.
[5] [hyperlink, http://www.gao.gov/products/GAO-02-604].
[6] The Corps' 1998 LRR presented benefit and cost estimates at 1996
price levels and federal fiscal year 1997 discount rate (7.375
percent); the reanalysis's 2004 supplement presented benefit and cost
estimates at 2002 price levels and federal fiscal year 2004 discount
rate (5.625 percent). Some of the change observed in benefit and cost
estimates between the LRR and the reanalysis was due to this change in
price level and discount rate.
[7] Corps guidelines state that districts should discount future
benefits and costs that accrue in different periods back to their
present values for valid comparison and should revise this discount
rate periodically. The Corps also directs districts to adjust price
levels to account for changes that occur over time in the prices of
various factors, such as commodities and wages.
[8] At the time of the reanalysis, Coastal Eagle Point owned one of
the current Sunoco facilities. In addition, Valero owns a second
Delaware River refinery facility that was owned by Motiva Enterprises
at the time of the reanalysis, but this facility was not considered to
be a potential project beneficiary.
[9] The Delaware Terminal--a facility that imports refined petroleum--
has since been renamed Magellan Terminal because of a change of
ownership.
[10] We received this document from the Corps in January 2010 as our
work neared its completion. We considered the document in our findings
but due to reporting time frames we could not comprehensively review
its economic analysis.
[11] Under NEPA, federal agencies evaluate the likely environmental
effects of projects they are proposing using an environmental
assessment or, if projects are likely to significantly affect the
environment, a more detailed environmental impact statement. See 42
U.S.C. § 4332(2)(C), (E).
[12] According to the agreement, PRPA would also pay an additional
amount of 10 percent of the total cost of construction of the general
navigation features.
[13] Typically, the base year occurs at or near the end of project
construction.
[14] The Institute for Water Resources provides the Corps' Civil Works
program with research and analysis to aid its long-range planning.
[15] The Corps analyzed a 0.2 percent annual decline in future crude
oil imports.
[16] These percentages were the same in the reanalysis's 2004
supplement and in the 2009 economic update.
[17] The EIA is the Department of Energy's statistical and analytical
agency. It is the primary federal government authority on energy
statistics and analysis.
[18] An EIA official indicated that imports for 2009 are preliminary
and subject to revision.
[19] Pub. L. No. 110-140, §§ 102 (requiring increased average fuel
economy standards for vehicles), 202 (requiring regulation to ensure
that, of the transportation fuel sold each year, a certain amount is
renewable fuels and certain biofuels, including most ethanols), 121
Stat. 1492.
[20] According to a Valero representative, as of March 2010 the firm
was seeking a buyer for the facility.
[21] At the time of the reanalysis, Motiva maintained the facility's
access channel at less than the main channel's 40-foot depth, a
practice that Valero has continued since it acquired the facility.
This is due to excessive sediment deposit in the facility's access
channel.
[22] Moreover, Valero's other Delaware River facility--in Paulsboro,
New Jersey--was assumed to benefit primarily from the more efficient
use of vessels rather than reduced lightering because the facility
avoided lightering during the period of the Corps' reanalysis.
Instead, the Paulsboro facility was expected to account for most of
the project's annual benefits associated with increased tanker
efficiency, such as the ability to load existing vessels more fully or
switch to larger vessels. However, Valero representatives told us that
their supply practices have changed since the Corps' reanalysis, with
the facility now relying more on lightering than before. For this
reason, it is likely that benefits related to vessel efficiency should
be reduced for this facility and benefits related to reduced
lightering should be increased.
[23] In 2006 OSG acquired Maritrans, the lightering firm whose
operations were modeled in the Corps' reanalysis.
[24] According to an OSG official, one of the vessels in the
lightering fleet at the time of the reanalysis has been replaced by
its sister ship, which loads more slowly but is otherwise similar to
the original vessel.
[25] U.S. Army Corps of Engineers Institute for Water Resources, The
Implications of Panama Canal Expansion to U.S. Ports and Coastal
Navigation Economic Analysis (Alexandria, VA: December 2008).
[26] EIA's 2008 annual energy outlook was released in June 2008--too
late to have been considered for the Corps' April 2008 economic update.
[27] In January 2010 we spoke with a representative of the petroleum
firm--Magellan LP--located at the port of Wilmington, Delaware. He
indicated that no new Delaware River berth had been constructed but
that two alternative berths were now being evaluated. According to the
representative, Magellan LP is in favor of the deepening project,
which would create certain advantages for the firm. However, the
firm's pursuit of a Delaware River ship berth is being evaluated
independently of the deepening.
[28] PCBs are a family of chemicals that were used in hundreds of
industrial and commercial applications, such as electric and hydraulic
equipment; as plasticizers in paints, plastics, and rubber products;
and in pigments and dyes. PCBs were banned in 1979 and have been
demonstrated to cause cancer and affect human immune, reproductive,
and nervous systems.
[29] New Jersey officials further note that if dredged material is
found after it is deposited in a federal disposal site to have higher
levels of contaminants than currently expected by the Corps, changes
to required treatment or disposal of this material could result in
considerable federal expense. For more information about New Jersey's
concerns, see the state's letter to GAO in appendix IV.
[30] For additional comments from Pennsylvania regarding the
governors' agreement, see the state's letter to GAO in appendix V.
[31] Coastal Zone Management Act of 1972, Pub. L. No. 92-583 (1972),
as amended and codified at 16 U.S.C. §§ 1451-1466, § 1456(c) (2010).
The act's purpose is to promote comprehensive and coordinated planning
for coastal zone development and preservation between states and the
federal government. Conservation Law Foundation v. Watt, 560 F.Supp.
561, 574 (D. Mass. 1983).
[32] In commenting on a draft of this report, the Department of
Defense stated that groundwater monitoring reports were provided to
New Jersey in July 2009.
[33] David Kaiser, Office of Ocean and Coastal Resource Management,
Letter to Bradley Campbell, Commissioner, New Jersey Department of
Environmental Protection, December 19, 2002. The letter also noted the
National Oceanic and Atmospheric Administration's understanding that
the Corps had agreed to supplemental coordination and encouraged the
state and the Corps to coordinate and consult with each other.
[34] In commenting on a draft of this report, the Department of
Defense stated that a new subaqueous lands and wetlands permit
application was submitted to Delaware on March 12, 2010.
[35] The solicitation was for a single contract for the segment to
include both maintenance dredging and deepening. According to the
Corps, the base contract is for maintenance, but there is also an
option clause that would authorize dredging in the portions of the
segment necessary to reach 45 feet of depth.
[36] The states' and environmental groups' lawsuits assert that the
Corps has not complied with several other laws, such as the Clean Air
Act, in addition to those discussed here.
[37] The court stated that Delaware had failed to prove its claim
related to the state subaqueous lands and wetlands permit under the
Clean Water Act, that the record supported the Corps' determination
that no supplemental consistency determination was required under the
Coastal Zone Management Act, and that the record did not support that
the Corps' Clean Air Act conformity determination was rational. Del.
Dep't of Natural Res. & Envtl. Control v. United States Army Corps of
Engineers, --F.Supp.2d --, 2010 WL 322171 (D. Del., 2010).
[38] In commenting on a draft of this report, the Department of
Defense observed that "predecisional disagreements are not uncommon
during the deliberation process, and serve as a healthy basis for
resolving differing opinions and reaching sound conclusions."
[39] See, e.g., 40 C.F.R. §§ 1500.1(b), 1500.2(d), pt. 1503, §
1501.4(b) (2010); Soda Mountain Wilderness Council v. Norton, 424
F.Supp.2d 1241, 1262 (internal citations omitted) (E.D. Cal. 2006);
Sierra Nevada Forest Protection Campaign v. Weingardt, 376 F. Supp. 2d
984, 990-91 (E.D. Cal. 2005); Pogliani v. U.S. Army Corps of
Engineers, 306 F.3d 1235, 1237-38 (2nd Cir. 2002).
[40] A FONSI is a document prepared by a federal agency briefly
presenting the reasons why an action will not have a significant
effect on the human environment and for which an environmental impact
statement therefore will not be prepared. It includes the
environmental assessment or a summary of it.
[41] GAO, Delaware River Deepening Project: Comprehensive Reanalysis
Needed, [hyperlink, http://www.gao.gov/products/GAO-02-604]
(Washington, D.C.: June 7, 2002).
[42] The reanalysis identified five of these refinery facilities
importing crude oil at six deep-draft terminals as potential project
beneficiaries. The sixth facility was included in DMA's modeling of
Delaware River lightering operations but was not considered to be a
project beneficiary.
[43] In 2006 Overseas Shipholding Group acquired Maritrans, the
lightering firm whose operations were modeled in the Corps' reanalysis.
[44] The primary function of the Waterborne Commerce Statistics Center
is to collect, process, distribute, and archive vessel trip and cargo
data. These data are self-reported to the Corps by companies engaged
in transporting goods on the navigable waters of the United States.
[45] Total economic first costs include major items such as
engineering and design, channel dredging, associated costs, and
interest during construction, but do not include annual operations and
maintenance of the deeper channel. The Corps' 2009 economic update
estimated total economic first costs to be $332.5 million. Associated
costs, including interest, were estimated to account for $34.4 million
of this total.
[End of section]
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