Waste: The Real Problem With the Alaska Pipeline
Gruenstein, Peter
Waste: The Real Problem With the Alaska Pipeline The Alaska Pipeline by Peter Gruenstein No one ever said building the Alaska Pipeline was going to be easy. Winding its way over hundreds...
...They're ripping off the state basically, ripping off our jobs...
...And if you're around that sort of attitude long enough, you're very susceptible to getting sucked in yourself...
...The State of Alaska in effect owns 20 per cent-12.5 per cent in royalties and a severance tax of about 7.5 per cent—of the field but nothing of Alyeska...
...So everybody's happy...
...While the rate of profit remains the same regardless, of cost, the higher the price tag, the greater the profits in dollars...
...Workers have merely become more inventive...
...Carl: They brought out all these batteries, just filled them with water and stacked them up...
...Steve: Yeah, except that you have to keep in mind the attitude of everybody is: 'Gee, we live here and all the pipeline-related shit, that's the occupation forces, and they're fair game.' So everybody from the dispatcher to the chief of the yard to the truck driver to the guy guarding the gate, everybody knows that truck was not going where it was supposed to, and they just lose the paper...
...We must get on top of this...
...But if they are wrong, and the pipeline has been built with little regard for cost or waste, it brings into serious question whether the major oil companies possess the one characteristic critical to achieving legitimacy in a free enterprise system: the incentive to produce goods or provide services at their lowest possible cost...
...This attitude exists within both the Alyeska and Bechtel organizations and came about because of environmental and quality control demands, and because of the weather, terrain and location...
...It was just more tires than he could use...
...Of course, in two or three days they all froze, just a pile of useless material...
...The requested tariff (the ICC rarely rejects tariffs) will be based on the pipeline's cost—including waste-2and a "reasonable return on investment," which is defined by the ICC as eight per cent...
...Reporter: Do you personally know guys...
...Alyeska president Edward Patton says, "The last time we attempted to quantify it, we had less than a halfmillion dollars lost on the whole project...
...The evidence isclear that Patton's assessment of the cost-management aspect of the pipeline is inaccurate...
...And, once again, the higher the costs, the greater the dollar profits...
...You've got to do something with your time," he explains...
...They were so incredibly wasteful because they were stupid...
...And they go right out the front gate looking like everybody, just truck after truck after truck...
...It was legitimate salvage too...
...Personnett was replaced by Robert Sundberg, a former Fairbanks police chief...
...You have a whole bunch of stuff coming up in packing crates [that are constructed] with perfect sheets of plywood...
...2, pick up X number of bales of insulation, and go up to camp No...
...So that kind of attitude prevails...
...In 1975 the number of pipeline employees was 21,600...
...If the `gold plating' attitude is not wiped out...
...I'd go there and I'd say, 'Well, I need a battery.' I live in the bush out here and a battery, you know, you can run a stereo, house lights...
...Emphasis in original...
...For example, Alyeska had set up a special mail service to and from the isolated construction camps...
...Last year Terry paid $20,000 in federal income taxes...
...Their records were so screwed up they had a hard time determining what had been ripped off...
...What does come as a surprise, however, is that Alyeska executives claim, despite a series of cost estimates that have skyrocketed from $1.5 billion to $9 billion, that the pipeline has been constructed efficiently, with little waste or theft...
...Steve: See, this is what fostered the whole attitude of ripping things off...
...Steve: Oh, no, that's the idea...
...There have been, as will be seen later, compelling incentives to build the line quickly and equally compelling incentives not to worry about costs...
...He said if you won't let me run it my way, I'll go...
...But how inefficient can we be, Alyeska executives assert...
...Reporter: But why didn't someone tell them...
...About 50,000 pounds just in packages were being handled by the special mail service each week and this had become one favorite means of getting stolen items safely out of the camps...
...I'm sure it would be legally called fencing, but it wasn't like he was making a whole lot of profit off it...
...After relating stories that I had heard about duplicate and unauthorized purchasing, he responded, "It's very probable they were buying the way you said it...
...Not only does that share climb from 26 per cent to 54 per cent as Prudhoe Bay production edges up to about 1.2-million barrels a day, but for BP to comply with the terms of the takeover, the 1.2-million level must be achieved by the end of 1977...
...Waste: The Real Problem With the Alaska Pipeline The Alaska Pipeline by Peter Gruenstein No one ever said building the Alaska Pipeline was going to be easy...
...They want to get ripped off...
...By that time, five truckloads have been re-routed elsewhere, and all the people involved have got their truckload of insulation out of the deal...
...Steve: Nobody knows...
...In December 1974, for example, Alyeska's chief of construction, Frank Moolin, wrote a letter to the Alaska general manager of Bechtel, the huge California-based construction firm which Alyeska had hired to manage the building of the line (and later demoted to quality control assurance...
...I told her that one of the most interesting rationalizations I had heard was that if workers didn't steal something, Alyeska would destroy it...
...Well, you know," she responded after some thought, "that is right...
...Shortly after leaving in September 1975, Personnett complained, "I've got bumps all over my head from running into brick walls...
...But labor productivity has continued to fall far below even these revised estimates...
...So here's $15,000 worth of batteries destroyed...
...Steve: When the Teamster trucks were loaded with this bestinthe-world insulation, they would just drive their truck to wherever they wanted the insulation and unload it there...
...That's the attitude...
...Another manifestation of this goldplating approach was food...
...But the theft mentality among workers became so deeply etched during the initial stages of pipeline construction that, despite tighter security measures and increases in the number of security guards, stealing has remained widespread...
...they're all from Texas...
...I don't see anything wrong with that, though...
...They throw it out and burn it, so you want to get it before they burn it...
...The individual workman was just picking up and walking off with the job," says Mike Bradner, Speaker of Alaska's House of Representatives...
...Cost-Plus, Phase Two, is the actual marketing of the oil...
...But some of the trucks didn't make it to the pipeline...
...You will recall the debacle we had at the end of 1974 when we were faced with several hundred million dollars of uncoded invoices...
...Another example of slugging was reported by the tiny All Alaska Weekly in Fairbanks, which discovered that Alyeska had spent $10 million on 12 Radmark machines to backfill buried portions of the pipeline...
...Carl: Not even fencing, it was just sort of -to—compensate him for his expenses...
...When the pipeline is completed, Alyeska will file a tariff with the Interstate Commerce Commission, which has already begun an informal audit...
...Winding its way over hundreds of miles of permafrost, across scores of rivers and streams, around tundra, through volatile earthquake zones, and up and down some of God's most spectacular mountains, it is a gargantuan engineering challenge...
...The machines turned out to be the wrong kind, were never used, and have sat idle...
...As late as the end of 1974—after the first construction season—Alyeska estimated that peak employment on the line would hit 15,600 workers in 1975, dropping to 12,000 this year...
...WE WILL NEVER BE ABLE to exercise cost control...
...He went...
...One reasonably typical discussion with three pipeline employees in Fairbanks provides insight into both the management of pipeline construction and the attitudes of many of the workers...
...that the oil industry is not oligopolic...
...So the attitude is, if we don't steal the stuff and save it, Alyeska is going to destroy it...
...According to Larry Carpenter, an Alyeska public relations executive in Fairbanks, the pipeline's first security chief, Mel Personnett, "found there was great resentment [among top Alyeska officers] towards strict security...
...The quantity of outgoing shipments, he reports, dropped by 75 per cent, which gives some idea of the severity of the theft problem...
...Overlaying the theft and labor problems has been a top-heavy isolated management (the top brass in Alyeska and the owner oil companies are based in cosmopolitan Anchorage, hundreds of miles from pipeline operations, rather than in frigid, dreary Fairbanks) that has been slow to identify inefficiencies and even slower to take remedial steps...
...For the first year-and-a-half of the project, in many cases, the oil consortium did not employ inventory and security nieasures that a small businessman would have installed...
...More importantly, Congress gave the Federal Energy Administration authority to set a special price, subject to a congressional veto within 15 days, for Alaskan oil...
...They didn't understand you take a battery outside and it's 50 below and it freezes and the end pops open...
...Two months later, Moolin wrote another letter to Bechtel in which he pointedly noted that many of the major contractors were submitting invoices "many months after the fact (if at all) and when they do submit them, they are incomplete, inacccurate or not even cost-coded...
...Reporter: But one would assume the normal procedure would be: 'Okay, Smith, go to gate No...
...A conservative Democrat running for the state legislature, someone not unsympathetiC .td the oil industry, began one of his television ads: "How many pipeline workers have you heard complain about getting a pay check for doing nothing...
...the loss rate may be as high as 15 per cent...
...Sundberg relates one recent incident when a guard spotted a yellow stick hammered in the ground beyond the gate where he was stationed...
...Reporter: Isn't there someone there telling them not to do it...
...If here you come walking by, here's some guy, he's from Texas, he's stacking all the batteries outside, and you say: `Hey, put them back because they'll freeze.' But if you're 20 minutes too late, they've frozen...
...Our whole house was built by Alyeska...
...And Sohio and the other seven companies can still deduct the interest payments on the billions they have borrowed to finance the line...
...When Alyeska tried to terminate this privilege in the summer of 1974, a group of 30 welders at Tonsina Camp, south of Fairbanks, busted up $3,000 worth of equipment in the camp mess...
...The cavalier attitude toward costs displayed by Alyeska, its five prime contractors, and a host of subcontractors has allowed pipeline workers to employ a rather elaborate rationalization to justify the thefts...
...Brian Rogers, a researcher for the state legislature, says he has "lots of friends who quit Alyeska because it was too hard looking like, you're working when you're riot...
...they didn't want to risk the ire of workers by subjecting them to such measures as baggage inspection...
...they just didn't understand what was going on...
...He would just pick up a little piece here and a little piece there...
...The FEA, a friend of the oil industry, will presumably base that price on the total "costs" of bringing the oil to market —including the profit the oil companies are paying themselves to use the pipeline—plus a reasonable profit on the sale of the oil...
...Above all, they wanted labor peace...
...The other half are folks from the state who think that Alyeska is ripping off the state by destroying the kind of lifestyle we have here...
...After all, the pipeline will be ready on schedule in mid-1977...
...He didn't like what people were getting away with...
...In the letter, Moolin complained that: "The resources that can be dedicated to this project, as for any project, are limited...
...Oil executives now concede they were wrong when they told Congress in 1972 that the West Coast would be able to absorb all the oil from an Alaska route...
...For if they are right, the pipeline provides the most convincing evidence the major oil companies have yet amassed that bigness is not badness—that firms with huge technical and capital resources are necessary to the discovery, transportation, and production of the massive amounts of energy required by this country...
...Everybody's just laughing and joking and jamming things into their pocket.' The stories of pipeline waste and theft told by more than 50 pipeline workers interviewed in Fairbanks, Prudhoe Bay, the Chandalar Camp in the Brooks Range, and Anchorage were strikingly similar...
...Basic controls, such as I.D.s and authorization signatures, were not used...
...We live in a cabin that a carpenter built with perfectly good plywood that Alyeska was going to destroy...
...He uncovered a $2,000 hydraulic ram jack used for lifting equipment weighing up to 150 tons...
...Sundberg took the simple step of requiring that all packages leaving the camps be sealed in the presence of a security guard...
...It pays to be an oil company...
...My official duty was garbage trucks...
...I finally found a woman truck driver who didn't, or at least I thought so at first...
...Cost-Plus So Cost-Plus, Phase One, is that the oil companies will make a sizable, guaranteed profit for transporting their own oil...
...1976, Peter Gruenstein...
...Workers going out into the field during the day were allowed to take virtually unlimited quantities of raw steak with them to barbecue for lunch...
...On costplus contracts," notes one long-time pipeline worker, "the more money you spend, the more money you make...
...They would burn perfectly good plywood all the time...
...One former pipeliner's younger brother, who works at one of the pipeline camps as a pipe fitter, visited him in Fairbanks in late August...
...The question is even more intriguing in light of the fact that the oil companies admit they have little idea what they are going to do with about one-half of the initial production of 1.2-million barrels -a day (which eventually will increase to a peak of two million...
...Bob: Everybody's just laughing and joking and jamming things into their pocket...
...One of the most important and elusive questions is why Alyeska is willing to pay that price to get the Prudhoe Bay oil to market as soon as possible...
...Of course, you just go over and ask one of your buddies: 'Say, hey, my rear end is kind of sounding bad here,' and he says, 'O.K., I'll get you a new whatever-you-need.' Carl: People didn't have that much to do so that kind of thing would be real easy...
...And naturally, the owners of the Prudhoe Bay oil are also the pipeline owners, with one exception...
...It's amazing the intricate rationalizations they use to justify the theft...
...As one former pipeline worker puts it: "The biggest rip-off is doing no work...
...Steve: The fools were just writing out orders as fast as they could...
...A Paycheck For Doing Nothing But if Alyeska has done a poor job of controlling the theft problem it has performed even worse in managing its most important single cost component: labor...
...People come in and say, `I'm from Alyeska and I need all of your widgets.' And people give them all their widgets and suddenly find out they weren't from Alyeska...
...The interviews were also unusual in that many workers readily admitted to having been involved in the theft themselves...
...The aura of 'only the best and the most is good enough' must be dispelled by Alyeska and Bechtel management...
...With over 800 miles of 48-inch pipe, more than 20,000 workers earning up to $19 an hour for 70-hour weeks, intricate environmental stipulations, and one of the world's least hospitable climates, it is a management nightmare of such proportions that to note that it is the most expensive private project in history is still to understate its complexity...
...I hauled out the garbage...
...This worker admits to having stolen a 12-ton hydraulic jack, four-and-ahalfby-six-inch pieces of oak—"they just leave them on the side of the right-of-way"—mosquito nets, gloves, sleeping bags, a generator, a First Aid kit, and stainless steel that he used to make various kinds of "pipeline jewelry" on the job...
...An added twist is that they will try to transfer as much of the costs of the entire project onto the pipeline in order to sock it to their junior Prudhoe Bay partner, the State of Alaska...
...That's the way the professional guys did it, with official Teamster trucks loaded with insulation...
...The two have agreed that, in return for Prudhoe Bay oil, BP will get a share in Sohio...
...When the project first began—and to some degree still—Alyeska officials were worried that security and inventory measures would slow down construction of the pipeline...
...And if they were willing to pay workers as much as $70,000 a year for a couple of hours of real work a day, they were not going to worry too much about some thefts and duplicate orders...
...The younger brother brought with him one of his most prized possessions—an elaborate, stainless steel hashish pipe he made on the job...
...He pointed out that items worth less than $500 have not been inventoried...
...A second wrinkle is that, thanks to the Nixon Administration and a compliant Congress, the oil firms can avail themselves of a ten per cent investment tax credit (not a deduction, mind you, but a dollar for dollar credit against taxes owed) on the billions they've poured into the pipeline...
...Arctic and other hard-to-get-at oil is also entitled to an additional three per cent...
...I'm satisfied it's more difficult to steal from this project than ordinary construction projects, and our loss ratio is probably something less than one-tenth of a per cent, whereas for a building in Washington, D.C...
...Large warehouses and other storage areas were often unfenced and unguarded, and when guards were present they were frequently more a part of the problem than of the solution...
...Perfectly Good Plywood I heard so many workers try to justify the stealing that I began searching for someone who didn't...
...to steal from a big company, but they forget that it was once a small company...
...But the Personnett resignation and the dozens of stories of theft and waste that were circulating by word of mouth became intolerably embarrassing, and when Sundberg was hired he was told he would be given at least some freedom to do his job...
...He says he spends most of his 70-hour weeks making pipeline jewelry—belt buckles, rings, and maps of the pipeline made out of the pipe that are sold to tourists for as much as $75—and goofing off...
...This attitude manifests itself in 'slugging' the project with people, facilities, equipment, etc...
...Carl: I was offered tires once at $5.00 each...
...Unfortunately, an attitude of 'gold plating' has evolved...
...And the rationale [is] : I ain't got no stock in this company, go ahead...
...Half the people are new in the state and don't care...
...And there are so many things like that that happen...
...There were lots of bogus purchase orders...
...They were destroying it, so we decided to see if we could salvage some of it...
...Bob: A bunch of us were up in the pipeyard...
...And what they don't realize is that they're paying for it, that that sort of thing causes prices to rise for everyone...
...A major part of the explanation is that two of the three largest owners of the Prudhoe Bay reserve—BP and Sohio—have become inseparably link?d...
...So it should come as no surprise that officials of the Alyeska Pipeline Service Co., the consortium of eight oil companies building the pipeline, are crowing that the pipeline is the eighth wonder of the world or that they are publicly delighted with the virtual completion of the pipeline this fall, making it nearly certain that the oil will begin flowing from Prudhoe Peter Gruenstein is a Washington writer, currently working on a book about Alaska...
...Paperwork was a relatively loose procedure for a while, no doubt about that," he noted...
...During the first months of construction, steak and lobster were on the menu every night at the camps, many of which boasted first-rate pastry chefs...
...And no one ever said the pipeline was going to be cheap...
...Patton's and Bradshaw's assessment of the efficiency of pipeline construction bears close scrutiny...
...Reporter: A little fencing operation...
...All the trucks are hauling insulation off to the pipeline...
...Alyeska is willing to pay almost any price—even a 600-percent cost overrun that would make the Pentagon blush—to begin pumping some -of the billions of barrels of oil cradled beneath the frozen Prudhoe Bay tundra as soon as possible...
...And if they are wrong, it gives powerful ammunition to critics of the oil industry who maintain that the majors have become so mammoth, so interlocked with each other, and so tied to the world economy that they do not respond to the normal costprice incentives that competitive businesses respond to, and thus do not adequately serve the public interest...
...A friendly and open man, Sundberg also paints a very different picture from Patton's...
...the work force grossly inefficient...
...the Alyeska solution has been to throw in more manpower...
...Of the woman Teamster's story that her cabin had been built with Alyeska plywood, he said, "I would say in all probability it's true...
...It will get away from us and be too late...
...Much of the rest of the time he spends in a little heated shack reading, especially the porn magazines that are available in profuse array at the camp's commissary...
...Terry's primary responsibility is to pump gas, which takes up one or two hours of his 12-hour days...
...And Congress, through legislation, has apparently foreclosed the option of shipping the surplus oil to the lucrative Japanese market...
...Bob: I was working in Isabel [a pipeline camp south of Fairbanks] , and I have a Ford truck...
...Arco President Thornton F. Bradshaw calls the North Slope venture "big business at its best—enterprising, courageous, and, above all, successful...
...He grosses up to $1,200 a week...
...Thievery was particularly pervasive in the first 18 months of pipeline construction, which began in the spring of 1974...
...Carl: We hauled out the garbage, all right...
...Mike Bradner also worries about his younger brother, Terry, a personable and quick-witted 20-year-old who works on the pipeline at Prudhoe...
...Steve: You've got a big bureaucracy [in Alyeska...
...The legislatively authorized base price for "new" oil is $11.28 per barrel, plus inflation...
...Bob: [To steal trucks] you just pick up keys—all the paper work is just sitting there in the envelope [on the seat] —and you just drive the truck off...
...It will have to pay its partners' rates to ship its one-fifth share to market...
...16 by 1 p. m.' And if he didn't do it, it would be pretty easy to find out that he didn't...
...For some reason the guard became suspicious and started digging where the stick was marked...
...Bob: Oh, yeah—I'm covered, right?—I personally know trucks driving around, two that are official 1975 [Alyeska] 4-wheel drive trucks with an old pick-up body stuck on it...
...Theft has been widespread, at times uncontrolled...
...Bay to Valdez on schedule, in mid-1977...
...In retrospect, there is little Alyeska would do differently to control costs if pipeline construction were starting over again...
...At a conservative estimate of $75,000 per man-year— including pay, food, lodging and equipment—that's an additional $1 billion in costs right there...
...BP is a huge multinational with large world-wide reserves but it has been looking for ways to expand its rnarketing potential in the U. S. Sohio is a debt-ridden, relatively small company that owns little crude but whose strength is in marketing...
...There was a massive lack of security...
...in 1976 it also topped 21,000...
...and mismanagement the rule...
...But that's the very point, critics respond...
...The amount of theft has been tremendous," says Richard Fineberg, a Fairbanks-based reporter who has probably written more extensively on the pipeline than anyone else...
...I think this ripping off is really wrong," she said with some passion...
...People think it's O.K...
Vol. 8 • January 1977 • No. 11
