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Central Hudson Gas & Electric Corp. v. Tug M/V Scott Turecamo

July 25, 2007

CENTRAL HUDSON GAS & ELECTRIC CORPORATION, PLAINTIFF,
v.
THE TUG M/V SCOTT TURECAMO, HER ENGINES, BOILERS, TACKLE, ETC., THE BARGE MARIA T., HER ENGINES, BOILERS, TACKLE, ETC., LAFARGE BUILDING MATERIALS, INC., F/K/A BLUE CIRCLE, INC., AND MORAN TOWING CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Conner, Senior D.J.

OPINION AND ORDER

Plaintiff Central Hudson Gas & Electric Corporation ("Central Hudson") brings this admiralty action against defendants the tug M/V Scott Turecamo, Official No. 1067705 (the "Tug"), the barge Maria T, Official No. 64930 (the "Barge"), LaFarge Building Materials, Inc. and Moran Towing Corp., seeking damages for losses incurred on August 8, 1999, when an anchor that was dragged by the Barge became caught on Central Hudson's gas and electric piping lying on or near the bottom of the Hudson River in the vicinity of Poughkeepsie, New York, causing it severe damage.*fn1 This Court has admiralty jurisdiction pursuant to 28 U.S.C. § 1333. Defendants conceded liability for negligence, and the action was tried to the Court solely on the issue of damages. For the reasons that follow, we find that Central Hudson sustained damages in the amount of $648,487.75, but that Central Hudson itself was comparatively negligent and that its negligence should be assigned twenty-five percent responsibility for the damage. The Court therefore finds that Central Hudson is entitled to an award of damages in the amount of $486,365.81, plus prejudgment interest. The following opinion sets forth the Court's Findings of Facts and Conclusions of Law pursuant to FED. R. CIV. P. 52(a).

BACKGROUND

Trial of the present action began on January 29, 2007 and lastedten days. During the course of the trial, the Court heard the testimony of seventeen witnesses, including seven experts, and received in evidence 173 exhibits addressing the effect of the Incident on Central Hudson's facilities, as well as the costs of responding to it. Specifically, Central Hudson called as witnesses: (1) Carl Meyer, Central Hudson's President and Chief Operating Officer; (2) Bruce Sieving, Central Hudson's Manager of Business Development; (3) Lawrence Cambalik, a Gas Operations Engineer employed by Central Hudson; (4) David Schultz, a Gas Operations Engineer employed by Central Hudson; (5) David Merte, Central Hudson's Director of Gas Operations; (6) Karl Schoeberl, a Senior Environmental Coordinator employed by Central Hudson; (6) Michael Gallucci, Central Hudson's Safety Director; (7) Tera Waclawski Stoner, an Associate Engineer employed by Central Hudson; (8) Joseph Croshier, head of Central Hudson's Accounting Department, (9) Hans Schick, Senior Engineer and Section Head of Central Hudson's Gas and Mechanical Engineering Department; (10) Robin Dill, an expert in evaluating soil conditions, with particular relation to horizontal directional drilling ("HDD");*fn2 (11) John Hair, an expert in HDD techniques and drilling underwater crossings; (12) Allen Crabtree, an expert in environmental and regulatory issues; and (13) Edward Gonzales, an expert in pipeline construction.

Defendants presented the testimony of three expert witnesses, namely: (1) James DeMetro, an expert in natural gas system operations and analysis; (2) Eric Skonberg, an expert in pipeline installation, with an emphasis on HDD; and (3) J. Roger Trettel, an expert in environmental and permitting issues. The Court's Findings of Fact are based on the extensive record developed over the course of the bench trial during which the parties had a full and fair opportunity to present their cases to the Court, and the Court observed the demeanor of the witnesses and evaluated their credibility.

DISCUSSION

I. The Central Hudson Gas Distribution System

Central Hudson is a regulated transmission and distribution utility that delivers natural gas and electricity to commercial and residential customers in New York's Mid-Hudson Valley. (Tr. 44-45.) In connection with the natural gas aspect of its business, Central Hudson is the owner and operator of a network of distribution and transmission pipelines, which it uses to transport natural gas to its customers. (Statement of Agreed Facts ¶ 3;*fn3 Tr. 49-50.) The earliest parts of Central Hudson's gas system date back to the early twentieth century. (Tr. 43-44.) In those days, there was no infrastructure of high pressure cross-country gas transmission lines capable of delivering natural gas from Canada or the Gulf of Mexico. Instead, gas was manufactured and distributed locally. (Tr. 101-03.) Central Hudson had several such manufacturing plants, including one at a location called the Kingston Holder Station and another at a location called the Poughkeepsie Receival Station. (Tr. 102; Joint Ex. 5.)

In the early 1930s, Central Hudson constructed a distribution pipeline with a maximum allowable operating pressure ("MAOP") of 60 pounds per square inch ("psi") connecting the Poughkeepsie Receival Station to the Kingston Holder Station. (Tr. 103; Joint Exs. 5-6.) This so-called "PK Line" allowed Central Hudson to deliver gas from these two manufacturing plants to its customers along that line. (Tr. 102-03.) The PK Line ran from the Poughkeepsie Receival Station, west across the Hudson River at a location just north of the Poughkeepsie railroad bridge, and then north along the west shore of the river to the Kingston Holder Station. (SAF ¶ 15; Tr. 51.)

In the years following the installation of the PK Line, Central Hudson's method of supplying gas to its customers changed dramatically. Instead of manufacturing gas in its own facilities, the practice of "importing" natural gas over high pressure interstate gas transmission pipelines owned and operated by third parties became more prevalent. (Tr. 104-05.) Accordingly, over time, Central Hudson began constructing its own medium pressure (i.e., approximately 565 psi) gas transmission system designed to receive natural gas from third-party interstate transmission companies and to distribute that natural gas throughout its own network of pipes. (Tr. 104-06.) To this end, in the early 1950s, Central Hudson constructed a new transmission pipeline crossing the Hudson River in the same location where the PK Line crossed the river. (SAF ¶ 21; Tr. 104-07).

This new river crossing, which was part of Central Hudson's TP transmission pipeline connecting Tuxedo to Poughkeepsie, consisted of two parallel eight-inch-diameter pipelines each having a MAOP of 565 psi. (SAF ¶ 22.) These pipes were laid directly over the older PK Line. (SAF ¶ 21.) The purpose of the TP river crossing was to provide a new supply of natural gas to the city of Poughkeepsie. As Central Hudson's system grew, it also provided an important connection between Central Hudson's transmission lines on the west shore of the Hudson River and those on the east shore. During the mid-1990s, Central Hudson constructed another transmission pipeline across the river connecting the MP Pipeline (i.e., its transmission line running from Mahopac to Poughkeepsie) on the east side of the river to the TP Pipeline on the west side. This river crossing was south of the TP river crossing and was known as the MPR Pipeline. This pipeline was sixteen inches in diameter and had a MAOP of 750 psi. (Tr. 191-92; Joint Ex. 6.)

As it existed in August 1999, Central Hudson's natural gas transmission system consisted of several pipelines that ran generally north-south along both sides of the Hudson River with certain connections across the river. This system was supplied through four "city gates," two on each side of the river. The city gates are interfaces with major third-party interstate gas transmission systems, namely the Algonquin Gas Transmission Line ("Algonquin"), the Columbia Gas Transmission Line ("Columbia"), the Iroquois Gas Transmission Line ("Iroquois") and the Tenneco Gas Transmission Line ("Tenneco"). Specifically, Tenneco connects to Central Hudson's system from the north, on the west shore of the Hudson River; Iroquois connects to Central Hudson's system from the east, on the east side of the river; Columbia connects to Central Hudson's system from the south, on the west side of the river; and Algonquin connects to Central Hudson's system from the south, on the east side of the river. (Tr. 107; Joint Ex. 5.)

Configured in this manner, Central Hudson's transmission pipeline system allows it to procure natural gas from four major interstate sources, two on each side of the Hudson River. (Tr. 244-46; Joint Ex. 5.) Once the gas enters Central Hudson's system, Central Hudson's own transmission lines transport the natural gas through the system, where it ultimately reaches low-pressure distribution lines, such as the 60 psi PK Line. The transmission lines are connected to Central Hudson's distribution lines through regulator stations, which decrease the pressure to the lower pressures required to supply customers. (Tr. 113, 135.)

In 1999, the gas manufacturing plants at the Kingston Holder Station and the Poughkeepsie Receival Station were inactive, although those names were still used to describe the relevant geographical areas of the Central Hudson system. (Joint Ex. 5.) On the east side of the Hudson River, the southern end of the PK Line was connected to Central Hudson's TP transmission line through a regulator station located in Poughkeepsie that "stepped down" the operating pressure from 565 psi to 60 psi. Through that regulator station, the PK Line was also capable of receiving natural gas from Central Hudson's MP transmission line. (Joint Ex. 5.)

On the west side of the Hudson River, the northern end of the PK Line interfaced with Central Hudson's AH transmission line (Albany to Highland) through a regulator station at the old Kingston Holder Station, which reduced the pressure from the AH Line's MAOP of 618 psi to the distribution pressure of 60 psi. (Joint Exs. 5 and 6.) In 1999, the PK Line did not interface with a southern source of natural gas on the west side of the Hudson River. (Joint Ex. 5.) With the natural gas supplied through these transmission interconnections, the PK Line supplied residential and commercial customers situated between Highland and Kingston along the west shore of the Hudson River.

Neither the PK nor the TP river crossings were trenched or placed beneath the riverbed by HDD; rather they were laid directly across the bottom of the river. (SAF ¶¶ 16, 21.) The water depth in this vicinity is approximately 50-60 feet. (Joint Ex. 99.) The PK river crossing was 3,125 feet in length from shore to shore. (SAF ¶ 19.)

An underwater survey conducted in September 1983 by Logan Diving, Inc. ("Logan") revealed that the PK river crossing had "significant amounts of exposure and suspension . . . ." (Joint Ex. 121 at LO 103). According to the report, 480 feet of the pipeline was exposed (i.e., missing its protective coating) and 110 feet was suspended (i.e., raised above the river bottom). (Id. at LO 104.) Logan recommended that "the suspensions that exceed twenty feet in length be stabilized by building cement bag piers" and advised that it would take approximately 600 bags to accomplish this project. (Id.)

Logan also observed substantial exposures and suspensions of the TP Lines and recommended similar measures to address those problems. (Id. at LO 102.) A further survey was done of the PK and TP Lines by Petro-Chemical Associates, Inc. in late 1983. Their survey report noted further suspensions, "at least 4 feet above the bottom in some areas," and specifically warned that "[a] line suspended (undercut) above the river bottom may be subject to damage[] by drifting debris and ships' anchors." (Joint Ex. 81 at CH 555, CH 553.) In 1991, Logan performed another underwater survey of Central Hudson's river crossings, including the PK pipeline. (Joint Ex. 122.) Following completion of this survey, Logan reported that "[t]he exposure and suspension at this crossing has more than doubled since our inspection of September[] 1983." (Id. at LO 182.) The report further noted that "[t]he pipeline is exposed and suspended for more than 2500' at this crossing" (id.), an amount representing over eighty percent of the 3,125 foot crossing. Of this length of pipe, some 1,174 feet were suspended above the riverbed. (Id. at LO 182-83.)

Logan also found the TP Lines to be "exposed and suspended for the majority of this crossing." (Id. at LO 179.) In its 1991 report, Logan recommended that Central Hudson take steps to stabilize the TP river crossing using the "cement bag repair method," that is, supporting the lines with cement bag piers. (Id. at LO 181.) Logan further recommended that the repairs it suggested for the TP river crossing should also be made to the PK pipeline "to immobilize and stabilize this crossing . . . ." (Id. at LO 183.) Specifically, Logan recommended that the TP and PK pipelines be stabilized at any locations where they were suspended for spans of more than twenty feet. (Id. at LO 181.)

Central Hudson ultimately took steps to stabilize and protect the TP river crossing (Tr. 374-75), and its HR/DR electric cable crossings, (Tr. 1546-47), by covering portions of them with protective rock piles. Notwithstanding Logan's recommendations, however, Central Hudson took no steps to protect the PK river crossing or in any way address the hazards revealed by the dive reports. (Tr. 302-03, 374-75, 1583-84.)

II. The Incident and Central Hudson's Response

On August 8, 1999, the PK Line river crossing was severed by the Barge's dragging anchor while the Barge was being pushed southbound in the Hudson River by the Tug in the vicinity of the Poughkeepsie Railroad Bridge. (SAF ¶ 6.) The severing of the PK Line river crossing caused the immediate leakage of natural gas into the surrounding environment, and the dragging anchor also caused damage to other Central Hudson property. (SAF ¶¶ 7, 9 and 10.)

A. Emergency Response and Construction of the West Shore Regulator Station

In immediate response to the Incident, Central Hudson closed valves on the PK Line on both sides of the river. (Tr. 350.) Because Central Hudson was unsure which lines had been damaged, valves for the TP Lines were also closed. (Joint Ex. 17; Tr. 338, 350.) The day after the incident, Hans Schick, Section Head of Gas and Mechanical Engineering, assigned Lawrence Cambalik, another Central Hudson engineer, the responsibility of accompanying the divers to the scene so that they could survey the nature and extent of the damage to the TP and PK Line river crossings. (Tr. 1336-37.)

The divers discovered that, in addition to the severing of the PK Line and accompanying loss of gas, the protective epoxy coating on the TP river crossing suffered minor abrasion damage, but the pipeline did not rupture or sustain other, more significant damage. (SAF ¶ 9.) The value of the natural gas lost as a result of the damage to the PK pipeline was $8,439. (Id. ¶ 11.) The damage to the TP Line was subsequently repaired by applying a new epoxy coating to the damaged pipe segments. (Id. ¶ 9.) The divers also inspected Central Hudson's various other gas and electric lines crossing the river in this vicinity. (Id. ¶¶ 8, 10.) Aside from minor damage to the rock cover on Central Hudson's HR/DR electrical lines, however, no other damage was detected.*fn4 (Id. ¶ 10.) The rock cover was replaced at a cost of $6,700. (SAF ¶ 10.) Following the assessment of damages, metal blanks were inserted in the PK Line at flanges on both shores to ensure that no natural gas could enter the length of the PK Line in the river.

Following the incident, Central Hudson analyzed its gas transmission and distribution system to determine the impact of the loss of the PK river crossing. This included conducting computer modeling analysis using a software program produced by a company named Stoner/Advantica,*fn5 which allowed Central Hudson to analyze existing gas pressures at various "nodes" along the PK Line given certain assumptions about anticipated loads and the remaining sources of natural gas to the line. (Tr. 1338-40; Pl. Exs. 139-40.)

Central Hudson's analysis demonstrated that even with the loss of the PK river crossing, and thus the southern supply of natural gas to the PK Line west of the Hudson River, the gas pressures along this line would remain adequate to serve every customer along the PK Line even on a "design day" (i.e., a day that experiences the most severe weather conditions for which Central Hudson plans-namely twenty-four consecutive hours of temperatures of minus five degrees Fahrenheit). (Tr. 115, 231, 1342; Pl. Ex. 140.)

Central Hudson was concerned, however, that the loss of the southern supply of natural gas to the PK Line made it vulnerable in the event of a contingency impacting the availability of gas from a northern supply. (Tr. 566.) Accordingly, Schick prepared a memo dated August 25, 1999, setting forth several possible remedies, namely: (1) repairing the pipeline by replacing only the damaged segment of the pipe; (2) replacing the entire length of the crossing; (3) horizontally directionally drilling a new crossing 30 feet below the river bottom; or (4) abandoning the PK river crossing and installing a regulator station*fn6 on the west shore to feed the southern end of the PK Line from the TP transmission line.*fn7 (Joint Ex. 8.) Schick estimated the cost of each option respectively at: (1) $2.0 to $2.5 million; (2) $3.0 to $3.5 million; (3) $2.5 to $3.0 million; and (4) $500,000 to $700,000. (Id.) In concluding his memorandum, Schick recommended that Central Hudson pursue the fourth option and abandon the PK river crossing and install a regulator station on the west shore of the Hudson River. (Joint Ex. 8). Upon direct examination, Schick testified that by "abandonment of the river crossing" he meant that Central Hudson should abandon the existing, severed crossing and construct another one. Schick's testimony in this regard, however, was not credible and was contradicted by his prior deposition testimony. Contrary to his statements at trial, it is clear that by "abandon" Schick meant to discontinue use of the PK crossing and never reconstruct it in any form. Notably, the memo also recommended renaming the new line (located on the west side of the Hudson River) connecting the proposed regulator station to the Kingston Holder the "HK," or Highland to Kingston, line because it would no longer connect Poughkeepsie to Kingston. (Tr. 1443-45; Joint Ex. 8.) Plainly, Schick's recommendation was that Central Hudson build the west shore regulator station and discontinue use of the river crossing, and it is this option that Central Hudson finally chose to pursue.

By building the west shore regulator station ("WSR"), Central Hudson was able to connect its users on the west side of the Hudson River to a second major interstate distribution source, namely, Columbia. In doing so, Central Hudson ensured that its system was sufficiently redundant, that is, customers on the west side of the Hudson River could be supplied by two alternate major high pressure sources-one in the north and one in the south, each of which alone was capable of meeting customer needs in the event of a failure of the other.*fn8 (See Joint Exs. 5-6.)

Construction of the WSR was started in early September 1999 (Tr. 624) and was completed in December of that year. (Tr. 644.) David Schultz, a Central Hudson engineer, was principally responsible for overseeing the project. (Tr. 562-66.) In addition to constructing the regulator station itself, Central Hudson cut out a short length of the PK Line on the west shore of the river and installed a gas outlet which was then connected to the regulator station feed, thus connecting the southern end of the PK Line with the northern end of the TP line on the west shore of the river. (Tr. 590.) By allowing customers on the west side of the Hudson River to receive gas from two major interstate sources, the WSR provided customers on the PK Line with gas service that is at least as reliable as it was before the incident, (Tr. 1457-58) and Central Hudson has adduced no credible evidence that this level of reliability will significantly decrease at any time in the foreseeable future.

In order to install the WSR, Central Hudson conducted a bidding process for the outside contractor work that was required. The lowest bid was from Granholm Underground Construction, Inc., which performed the work in accordance with the project's specifications. (Tr. 593-97; Joint Exs. 26 and 27.) Additionally, Central Hudson used its own internal labor on many aspects of the project, which often involved working with live natural gas lines. The work performed by Central Hudson personnel generally involved tasks requiring specialized engineering training in the handling of natural gas, which Central Hudson employees possessed. (Tr. 608.)

In order to connect the WSR to the PK Line running to Kingston, additional work was required at a location some distance from the regulator station itself. That is, excavation away from the regulator station revealed that part of the line was not the full required 8-inch diameter pipe, but instead was a much smaller diameter line. The small line was removed in its entirety and a new length of 8-inch pipe was installed in its place. (Tr. 587-92; Joint Ex. 28.)

During construction of the WSR, the PK Line was tested for contamination with environmentally-toxic polychlorinated biphenyls ("PCBs"). (Tr. 978-80.) The testing revealed elevated levels of PCBs in the PK Line river crossing. Thus, in the spring of 2000, Central Hudson engaged divers to cut back sections of the river crossing and cap the line to avoid further leakage. (Tr. ...


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