Minn. judge shoots down arguments against $2.6B Sandpiper proposal

By Daniel Cusick | 04/15/2015 08:30 AM EDT

MINNEAPOLIS — Prospects for the permitting and construction of a new $2.6 billion oil pipeline through northern Minnesota improved this week after a state administrative law judge found that Enbridge Inc.’s 610-mile Sandpiper project warranted receipt of a state-issued “certificate of need.”

MINNEAPOLIS — Prospects for the permitting and construction of a new $2.6 billion oil pipeline through northern Minnesota improved this week after a state administrative law judge found that Enbridge Inc.’s 610-mile Sandpiper project warranted receipt of a state-issued "certificate of need."

In a 100-page opinion handed down late Monday, Judge Eric Lipman of the Minnesota Office of Administrative Hearings said that Enbridge subsidiary North Dakota Pipeline Company LLC had met the state’s regulatory requirements to receive the certificate of need, and that opponents had not demonstrated "that there was a more reasonable and prudent alternative to the proposed project."

Moreover, Lipman wrote that groups seeking to deny the Calgary, Alberta-based company a state certificate of need were relying on arguments that, while legitimate to broader energy policy debates, had little relevance to the case before the state Public Utilities Commission, and that "no carefully planned, market supported and thoroughly resourced proposal is ever categorically unacceptable."


Lipman also wrote that by virtue of its geography, Minnesota "lies between energy-rich areas in the Dakotas and Western Canada, and the urban centers to the East that are eager for those resources." Regardless of whether those resources are traditional fuels like oil, gas and coal or renewable resources like wind and solar, "someone soon will want to transport energy across Minnesota to these markets."

And while petitioners had raised a wide variety of issues around oil pipelines — ranging from the risk of leaks and spills to broader questions about increased U.S. reliance on carbon-rich fossil fuels — Lipman said none of those concerns belongs in a docket seeking to determine a company’s legal right to build a pipeline across a state.

"A certificate of need proceeding is not an appropriate forum to resolve the much larger questions as to what are safe levels of fossil fuel consumption, or whether some areas of the state should be free of utility corridors," he said.

With Lipman’s opinion in hand, Enbridge will now take its proposal directly to the state’s five-member Public Utilities Commission, which has final authority over issuance of the certificate of need and an accompanying routing permit that could allow construction to begin later this year.

Route concerns

As proposed, the line would traverse roughly 300 miles of northern Minnesota, including forest, lakes and wetlands that are highly valued by recreational users and Native Americans (EnergyWire, April 10). Much of the right of way is privately owned, and a significant portion of the route follows existing utility lines, according to Enbridge.

Enbridge, which has owned and operated oil pipelines in the state since the 1950s, has argued that the Sandpiper project is a critical addition to the U.S. oil delivery system because it will allow hundreds of thousands of barrels of oil to flow from North Dakota’s Bakken oil fields to an Enbridge terminal in Superior, Wis., just across the Minnesota-Wisconsin border. From there, the oil would be distributed through other Enbridge pipelines to refineries throughout the Midwest.

But critics, including Minnesota environmentalists and members of the state’s Chippewa tribe, maintain that the Sandpiper route as proposed crosses a landscape that is far too valuable due to wildlife, water quality, recreation and traditional activities like wild rice harvesting, and that regulators should either deny Enbridge permits to build the line or force the company to move the project away from those sensitive resources.

Arguments on both sides have been waged in a series of public meetings as well as administrative hearings that began in January. According to state officials, more than 2,000 written comments have been submitted on the project from a wide variety of stakeholders and constituencies.

With Monday’s ruling, Enbridge and stakeholders both for and against the project said they would shift their focus to the PUC, which is expected to rule on the pipeline later this year.

In a statement, Enbridge officials said Lipman’s recommendation "is significant and will enable the Minnesota regulatory process to move forward in a timely manner." The company had initially hoped to put the Sandpiper line into service by 2016; it has since revised that target date to 2017, pending the completion of other regulatory steps.

In addition to providing an economic windfall during construction, Enbridge said that Sandpiper "will help address rail congestion throughout the state by putting increased Bakken oil supplies in pipelines," and will benefit northern Minnesota long after the line is completed by generating an estimated $25 million in new property taxes annually.

Focus shifts to PUC

Opponents characterized Lipman’s opinion as a setback but said they will continue to press the PUC to act in the broad interests of the state rather than adopt Lipman’s strict finding that Sandpiper adheres to existing regulations and state statutes.

They will also challenge Lipman’s contention that "the hearing record demonstrates that the project will have positive socioeconomic impacts on Minnesota and the surrounding region" and that it "is as compatible, or better, for the natural environment than competing alternatives, including the No-Build alternative."

"We are disappointed with Judge Lipman’s decision," said Richard Smith, president of Friends of the Headwaters, a citizen-organized nonprofit that wants Enbridge to reroute the Sandpiper line away from its preferred corridor, which runs south from an existing oil terminal in Clearbrook, Minn., to Park Rapids near the headwaters of the Mississippi River, then east across what is known as Minnesota’s "Lakes Belt" before terminating at Superior.

Smith said his organization is confident that the PUC will see that Enbridge’s proposed route is not in the state’s interest. "It puts far too many of our natural resources at risk, when better alternative routes are available."

But Lipman, who reviewed seven alternative pipeline routes offered by Friends of the Headwaters as part of the administrative proceedings, found that none of the proposed routes met conditions that Enbridge believes are essential to make the pipeline work, including provisions routing the line through Enbridge’s existing Clearbrook oil terminal.

"The record evidence demonstrates that none of the system alternatives are more reasonable or prudent alternatives" to the proposed Sandpiper project, he wrote. "Additionally, none of the proposed alternatives have either a development sponsor or underlying financial commitments," as Enbridge’s preferred route does. Among the major oil companies that have signed agreements to use the Sandpiper line are Marathon Oil Corp. of Ohio. Marathon is also a direct investor in the project, having agreed to cover 37.5 percent of its total cost.

Opponents shift to lawsuit

While the question of a certificate of need now moves to the PUC, opponents will shift attention to a lawsuit pending before the Minnesota Court of Appeals asking the state to require that Enbridge conduct a full-scale environmental impact statement (EIS) for the pipeline project as part of the certificate of need process.

Kathryn Hoffman, an attorney with the Minnesota Center for Environmental Advocacy, which filed a petition on behalf of Friends of the Headwaters in December, said an EIS is required under the Minnesota Environmental Policy Act. She also said the project is likely to meet federal scrutiny since the Army Corps of Engineers has regulatory authority over impacts to wetlands.

Referencing a 2010 Enbridge pipeline failure in Michigan that resulted in 840,000 gallons of oil spilling into the Kalamazoo River and a cleanup cost exceeding $1 billion, Hoffman said any new pipelines permitted in Minnesota "should be sited with great respect for Minnesota’s lakes, rivers and the health of its people."

In a response filed with the appeals court this week, Enbridge said it intends to do an "EIS-equivalent environmental review" as part of the PUC’s forthcoming route permit proceedings. But it maintains that state law does not require such a detailed analysis at the certificate of need stage.