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TransCanada's $100M Oil Spill Bond: True Value Debated as Neb. Pipeline Session Nears

The pipeline giant has offered a $100 million bond to Nebraska if it fails to clean up a spill. Opponents say federal law already requires more.

Oct 28, 2011
The Nebraska Sandhills in Holt County

WASHINGTON—TransCanada's offer to fund a $100 million performance bond if it fails to clean up a future oil spill in Nebraska's sensitive Sandhills might sound like a hefty sum.

But is it enough to persuade state legislators not to reroute the hotly contested Keystone XL pipeline out of that fragile landscape when they convene in a special session Tuesday?

Critics maintain that the bond—the centerpiece in a package of six Nebraska-specific safety measures that TransCanada executive Alex Pourbaix rolled out in an Oct. 18 letter to lawmakers—is nothing more than a duplicate of what the federal government already requires for spills.

They also say the amount is very small, considering that the cost of an ongoing cleanup of a heavy crude spill in Michigan is nearing $700 million.

"The bond is merely grandstanding with big numbers intended to impress the uninformed," attorney Paul Blackburn told InsideClimate News. He tracked oil pipelines for the advocacy organization Plains Justice and now advises Bold Nebraska, a coalition of Keystone XL opponents.

In an interview, TransCanada spokesman Shawn Howard was unable to answer questions about when or how the bond would kick in, or how much his company would have to pay for it. In a memo to legislators, TransCanada said only that the $100 million would be available if the company "does not clean up a spill in the Sandhills."

"The terms have to be figured out," Howard said. "TransCanada is not trying to take a shortcut. We’re not trying to be cute. We're actually prepared to buy this financial tool.

"We want this to be simple, clear and straightforward so we don't have people trying to pull things apart unnecessarily. This is a serious offer but there needs to be a discussion."

Pipeline opponents, however, bristle about the environmental cost of the political trade-off the bond might spur. They said TransCanada is using it as a pot-sweetener to seduce legislators into keeping the $7 billion proposed pipeline on its current path instead of passing legislation to reroute it. The Ogallala aquifer that lies beneath the Sandhills is an irreplaceable irrigation and drinking water source throughout the Great Plains.

Howard said TransCanada intends for the bond to go above and beyond what U.S. federal law requires.

But attorney Anthony Swift, an energy analyst with the Natural Resources Defense Council, doubts that is possible. TransCanada wouldn't have to "cash in" on the bond in the event of a spill, he said, because the federal Oil Pollution Act, which is part of the Clean Water Act, already sets a $350 million liability cap for each spill from an oil pipeline. Those dollars are dedicated solely to spill cleanup.

"This bond makes it look as if TransCanada is actually doing something," Swift said. "But the company really isn't taking on any additional burdens. And it doesn't make the Sandhills any safer."

A Drop in the Proverbial Spill Bucket?

Workers are still cleaning up an oil sands spill in southern Michigan more than 15 months after it occurred. That July 2010 rupture of a pipeline operated by Alberta-based Enbridge Energy Partners contaminated large swaths of the Kalamazoo River with more than 800,000 gallons of diluted bitumen.

That's the same type of heavy crude that TransCanada wants to pump through the Keystone XL, which would run from the tar sands mines in Alberta, across six states, to U.S. Gulf Coast refineries. It would be capable of delivering as much as 900,000 barrels per day.

In late September, Alberta-based Enbridge filed paperwork with the U.S. Securities and Exchange Commission indicating that it will spend close to $700 million for cleanup and property damage claims, according to Enbridge spokeswoman Terri Larson. Up to $650 million of that will be covered by the company's pollution liability insurance policy, which is separate from the Oil Pollution Act, Larson said.

Possible fines or penalties aren't included in the $700 million estimate.

If a 30-inch pipeline on a relatively small river caused that much damage, pipeline opponents point out, a big spill in the proposed 36-inch Keystone XL pipeline in the Sandhills could be even worse.

"It is reasonable to assume that a major rupture of the Keystone XL pipeline could cost TransCanada well in excess of $1 billion," said Blackburn, the Bold Nebraska adviser.

TransCanada's $100 million bond would not be triggered automatically by a spill, Blackburn said, so it's extremely unlikely Nebraska would ever be able to make use of it. Federal law already requires companies to clean up oil spills. If they fail to follow through, he said the Environmental Protection Agency is empowered to clean up the mess and bill TransCanada.

He said Nebraska also could sue the company for economic losses caused by damage to public resources.

The bond could be used if TransCanada declared bankruptcy and couldn't perform a cleanup, Blackburn said. But that scenario is highly unlikely because Keystone XL is expected to be a moneymaker. It, coupled with another TransCanada pipeline known simply as Keystone, would have an estimated asset value of $13 billion.

Both Blackburn and Swift, of NRDC, said the fact that the bond doesn't mention economic damages proves that it merely duplicates what the federal Oil Pollution Act already offers. That act applies only to cleanup costs such as oil removal, and to land and water remediation. It does not cover economic damages such as reductions in property values, losses of business revenue or homeowners' inability to live in their houses. For example, revenue lost by Gulf Coast fishermen after the BP spill is not within the federal liability cap because it isn't considered a clean-up cost.

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