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.
TransCanada: Criticism Unfair
Howard, the TransCanada spokesman, accused "professional activists running around in Nebraska" of continuously shifting the goal posts on Keystone issues, whether the topic is the bond or the pipeline's route.
He said it is disingenuous for them to dismiss TransCanada's offer of a Nebraska-specific cleanup bond, because those same critics had argued earlier that such a tool should be made available. But according to news accounts, Nebraskans asked not for a cleanup bond but for a law that would set up a trust to protect landowners if a pipeline leaks or is abandoned.
Howard said TransCanada is not a "fly-by-night organization," but a 60-year-old company valued at nearly $50 billion.
"This is a tool to show how we are going to manage and safely operate this pipeline," he said. "We take our responsibilities seriously, whether it's legally or morally. This is something we could do that provides an extra layer of protection for both the government and the residents of the Sandhills.
"We have gone so far above and beyond," he said about the company's attempts to respond to specific requests, "and activists insist it is not enough. Where does it stop?"
TransCanada applied to the State Department for a permit to cross the U.S.-Canadian border in Sept. 2008, and initially predicted the pipeline would be up and running by now. State Department officials had vowed to approve or deny the permit by the end of the year but are now wavering on that deadline.
Will Legislators Step Up?
Pipeline opponents see the performance bond as an extension of an uneven game of corporate hardball. To them, it's nothing more than an attempt to placate state lawmakers who are already so cowed by the threat of a TransCanada lawsuit over relocating Keystone XL that they couldn't rally enough votes to organize a special session on their own.
Republican Gov. Dave Heineman—whose second term expires in 2014—ordered the special session earlier this week.
Groups such as Bold Nebraska are curious to see how the legislators—all 49 carry the title of senator—handle the latest version of a draft bill that state Sen. Annette Dubas circulated several weeks ago. The Oil Pipeline Siting Act would be up for discussion, and perhaps a vote, during the special session.
Soon after Dubas's proposal became public, a TransCanada lobbyist sent legislators a memo saying it had "glaring and obvious problems." The company laid out the legal challenges it said the state would face if legislators voted to reroute the Keystone XL.
TransCanada's memo evidently alarmed state Sen. Michael Flood, who is also speaker of the legislature. The day after he received it, he sent a letter to his fellow legislators saying he couldn't support a special session that focused on rerouting Keystone XL. Instead he suggested using a special session to address the siting of future oil pipelines.
"After careful analysis, it would be both reckless and disingenuous for me to suggest that siting legislation, if enacted in special session, would redirect the proposed route and be vindicated in court," Flood, an attorney, said when he released his letter.
In that letter, he also said he had encouraged the governor to use the six safeguards TransCanada laid out Oct. 18 as a starting point for further negotiations on Keystone XL.
The State Department, the Congressional Research Service and three Nebraska attorneys representing environmental groups have all said that the state has the authority to route oil pipelines. But Keystone XL opponents are afraid Flood's letter will make legislators too timid and lawsuit-shy to pass a law that would prevent the pipeline from being buried in the Sandhills.
"The list is long on what our state can do to ensure our land and water are safe," said Jane Kleeb, executive director of Bold Nebraska. "Right now, in our state, my hairdresser has more regulations to follow than oil pipelines."
TransCanada's warning to the Nebraska legislature that such a law would be illegal is a classic case of crisis response by a major corporation, said Daniel J.H. Greenwood, a law professor at Hofstra University, so it's understandable that lawmakers are on edge about relocating the Keystone XL.
It's not all that difficult to intimidate or overrun a "taxaphobic" legislature with just the threat of a lawsuit, said Greenwood, who is not involved in Nebraska's debate over the pipeline.
"Even if this is a fight worth fighting," he said, politicians are reluctant to engage in a lawsuit that could be so expensive that it might force them to raise taxes. "That's why fear is a terrible thing."