KEYSTONE XL:

Inquiry into State's environmental contractor could jeopardize Obama decision timeline

An independent government inquiry into the State Department's choice of a private contractor to steer the latest Keystone XL environmental review could remain open through this fall, raising the specter of a further delay in a final decision on the contentious pipeline project that President Obama vowed in March to rule on before 2014.

A spokesman for State's inspector general, Douglas Welty, said in an interview yesterday that the office expects by the end of the summer to finish examining anti-KXL activists' allegations of bias and impropriety in the screening of Environmental Resources Management (ERM), the firm State tapped a year ago after an earlier contractor's ties to the pipeline sponsor triggered a separate IG investigation.

Welty's office said that if the initial inquiry turns up information that merits a more in-depth audit, a further probe of the department's internal procedures could prolong the process.

State is now poring over the 1.2 million-plus public comments it received on the five-month-old draft review of KXL, a $5.3 billion plan to ship heavy Canadian oil sands crude to Gulf Coast refineries. It is expected to open another comment period after it releases a final version of that environmental impact statement (EIS). A still-pending IG inquiry would give mobilized anti-KXL environmental groups a potent case for postponing that final review until State gets new recommendations from its internal auditor.

Even if the inspector general's inquiry into State's ERM contract concludes by summer's end, a 90-day public comment period on the final version of the KXL environmental impact statement could push a final decision on the pipeline into 2014. Obama told Republican senators in a meeting two weeks after the draft review became public that he would weigh in on a border-crossing permit for KXL before next year (E&E Daily, March 15).

Green groups accuse ERM of falsely stating on its federal conflict-of-interest declaration that it had no financial ties to parties positioned to benefit from the pipeline's construction. They note that the contractor is a member of the American Petroleum Institute trade group and that senior employees had consulted on projects for industry players that stand to gain from a boost in oil sands imports.

The inspector general's previous investigation into the choice of Cardno ENTRIX to conduct earlier rounds of pipeline reviews ended in a positive decision for the department, which chose the firm from a list of three submitted by KXL sponsor TransCanada Corp. Still, the Office of Inspector General also chided State for not independently verifying the contractor's declaration of impartiality with regard to TransCanada, which paid the cost of its pipeline review under guidelines adopted from the Federal Energy Regulatory Commission.

In its response to the 18-month-old report on ENTRIX, State vowed to make its contractor screening process "cleaner" to avoid any suggestion of bias (E&ENews PM, Feb. 9, 2012). Before ERM came on board for the latest draft EIS on KXL, the department also hired a specialist in National Environmental Policy Act project reviews who had worked for the Commerce Department.

Activists looking to defeat the pipeline, citing oil sands' higher emissions footprint relative to conventional crude and what they view as a greater risk of harmful oil spills, cheered the inspector general's inquiry as a sign that State could be forced to restart the environmental review process. That would definitively punt the project past Obama's March time frame and set a stricter standard for further pipeline reviews.

State "got guidance the last time that they were supposed to be independently verifying [contractors], and it seems like they didn't do that again," said Friends of the Earth campaigner Ross Hammond. "I'd certainly hope that out of this would come a policy that they would pay attention to, that they would follow -- and not require public interest groups like my own to do their research for them. It would save them a whole lot of embarrassment going forward."

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