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Is new Line 3 needed? A look at the law, PUC’s impending decision

An aerial view of the Enbridge pipeline under construction over the Nemadji River just south of Superior shown on Aug. 17. (Bob King / Forum News Service)1 / 2
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DULUTH — When five people gather next year to determine the destiny of the Enbridge Line 3 replacement pipeline, their task will be to decide, simply, whether or not the thing is needed.

Only it's not that simple.

"It's a multifactored test. There's many different aspects the commissioners can stand on, and they're going to need to look at the evidence," said University of Minnesota energy law professor Alexandra Klass. "Right now we don't even have all the information and data in."

The fate of the pipeline across northern Minnesota does not depend solely on how many jobs it may create versus how much damage it may do to the environment, as the debate is often framed. Instead the state Public Utilities Commission has to weigh the adequacy and reliability of energy supplies, decide which forecasts to trust and — if it is to approve the project — be convinced there's no better alternative.

Among other things.

The Minnesota Department of Commerce has joined environmentalists, Native American tribes and others in opposing the pipeline via testimony that could weigh heavily on the PUC's decision.

"The position the state is taking is yes, having a new pipeline will be more efficient for Enbridge's business operations, but that's not saying it's needed for the state and citizens of Minnesota," Klass said.

Enbridge fired back last week with its own testimony warning, if not threatening, that oil would move by rail if it didn't come on pipelines, and many employees have submitted comments to the PUC standing by the need for the replacement Line 3.

"Would a company be willing to spend ($6.5 billion) on a project that is not wanted and/or needed by their customers?" wrote Jerry Christoff, Enbridge pipeline support services manager for the Superior region. "Enbridge is replacing Line 3 due to customer demand and to ensure the protection of the environment."

If the PUC finds the pipeline meets the tests laid out in state law, then construction will begin across northern Minnesota on the Line 3 replacement, as it has already in Canada and Wisconsin. If not, Enbridge CEO Al Monaco wouldn't say if there is a Plan B, so that outcome remains to be seen.

Adequacy and reliability

The new pipeline would carry 760,000 barrels per day of heavy crude oil from Alberta to the Enbridge terminal in Superior. The existing Line 3, nearing 50 years old, is carrying half its original capacity at 390,000 barrels per day.

Enbridge says a new pipeline is needed for reliability, as the old Line 3 is increasingly in need of maintenance that can be disruptive to landowners and the environment. The company also says the increased oil is needed to meet perceived demand — and to unload the supply of Canadian crude being produced, which is too much to fit in Enbridge's mainline currently.

"The system is full today, and production is expected to grow even under the most conservative forecasts," said Enbridge executive vice president Guy Jarvis.

The Canadian Association of Petroleum Producers this year predicted oil output will increase by 1.5 million barrels per day in 2030. It is producers that sign many of the contracts that back up the funding of a pipeline like the $6.5 billion Line 3.

Whether Midwestern refiners need the oil, and how much that should sway the PUC, remains in question. Marie Fagan, lead economist at London Economics International, reviewed two reports submitted by Enbridge that made the case for the pipeline and shot down a key component required by law — forecast accuracy.

"Both reports assumed no new oil pipeline expansions from Western Canada would occur after 2021," Fagan wrote. "Because of simplifying assumptions such as this, LEI cannot conclude with confidence that the forecasts in the reports are realistic."

She went on to say that the increased (restored) capacity from Line 3 likely wouldn't be used in Minnesota, and that demand for refined products "appears unlikely to increase in the long term."

Enbridge's analyst, Muse, Stancil & Co. president Neil Earnest, said last week that demand for crude will remain even if demand for gasoline falls, since refiners want to operate at their fullest potential — which could lead to shipping refined products throughout, or outside of, the region.

"The support of the largest refiner in Minnesota (Flint Hills) and the largest refiner in the Midwest (Marathon) demonstrates that the industry views the (pipeline) as being needed for an adequate and reliable supply of crude oil going forward," he wrote in testimony.

Minnesota has two refineries that supply the state and region, and petroleum products also come into the state from the Calumet (soon Husky) refinery in Superior along with refineries in North Dakota and Indiana, according to a report last year from the state House of Representatives.

To the argument that oil would come by rail as opposed to pipeline if Enbridge is denied, the report said that while oil travels by rail through Minnesota, most of it ends up on the East Coast.

"In 2015, less than 0.1 percent of the crude oil received by refineries in 15 Midwestern states arrived by rail," the report said.

Alternatives

Say the replacement isn't approved and the existing Line 3 continues operations — one of the alternatives the PUC is looking at.

"Landowners and the environment would continue to be impacted year-over-year, and shippers in Minnesota and neighboring states would continue to experience apportionment," or a lower percentage of oil heading to refineries due to pipeline crowding, project manager Paul Eberth wrote in rebuttal testimony for Enbridge last week.

The PUC needs to be convinced that option, or a different route, is a "more reasonable and prudent alternative," per state law, and it puts the burden on pipeline opponents to do so.

"The 'no action' alternative would adversely impact the adequacy, reliability and efficiency of energy supply to Minnesota and neighboring states," Eberth wrote.

All pipeline routes studied, according to the project's bulky environmental impact statement conducted by state agencies, "would add to the negative mental, spiritual and physical health impacts already disproportionately suffered by American Indian populations," which in part led the Department of Commerce declaring last month that "Minnesota would be better off if Enbridge proposed to cease operations of the existing Line 3, without any new pipeline being built."

Other proposed Canadian/international pipelines — TransCanada's Keystone XL and Kinder Morgan's Trans Mountain expansion — have the ability to eat up much of the ongoing expansion of tar sands oil production. But with the cancellation of another Canadian pipeline project — Energy East — analysts say Line 3 is now needed more than ever, for the producers' sake as much as Enbridge's.

"Even with that additional pipeline capacity, (Line 3) will be fully utilized," Earnest wrote.

The picture is different in the U.S., where Reuters reported earlier this year pipelines aren't operating at full capacity and in many cases space is being sold in those lines on the cheap.

Still, pipeline opponents will likely take to a different part of the law to stand against Line 3's approval.

Consequences

No matter the outcome, there will be consequences. The Line 3 replacement gets approval in Minnesota if, on top of everything else: "The consequences to society of granting the certificate of need are more favorable than the consequences of denying the certificate," says the law.

State energy needs will be considered — Enbridge has focused heavily on that in its quest to build the pipeline thus far.

The effect on the natural and socioeconomic environment will also be considered. Pipeline opponents have long been sounding the alarm on the risk Line 3 poses to lakes, rivers, wildlife, wild rice and Native American ways of life, not to mention climate change.

"There is no victory if the world is still getting sick and dying. The victory will be when all pipelines are shut down," Neo Gabo Benais, a Cloquet water protector protesting the pipeline, told the News Tribune last month.

A socioeconomic benefit for the state, meanwhile, would be the 6,000 construction jobs and other work provided by the project.

"To say this project is not needed reflects a short-sighted outlook on the future well-being of business, labor and community in our state," says pro-pipeline advocacy group Jobs for Minnesota.

It is, in this way, about jobs vs. the environment after all.

Klass, the U of M law professor, said that in states such as North Dakota where fossil fuels are produced and the overall economy is more reliant on those jobs, the workforce argument is more effective in getting projects approved.

"It's one of the things that doesn't end up clouding the decision as much (in Minnesota)," she said. "Not to say there's no economic benefit to state of Minnesota."

Klass added that Enbridge and its allies are having to make a stronger case than they used to as organized opposition to energy projects has become far more formidable in recent decades.

"Environmental groups have done a good job of hiring experts and marshalling evidence so they're not just complaining, 'We don't want this.' They're taking on expertise that was only offered by proponents before," she said. "Is all this infrastructure really needed if we want to move away from fossil fuels? Proponents of (that) are able to make a better case today."

Yet it is, again, a combination of factors that will lead to the PUC's decision. Or perhaps the five commissioners will simply heed the advice of Duluth's Jesse Martus, who wrote to the commission last month:

"If Americans need the oil, then we should build Line 3."

The law says

Enbridge is asking the Minnesota Public Utilities Commission for a certificate of need in order to proceed with its Line 3 oil pipeline replacement. State law says:

"A certificate of need shall be granted to the applicant if it is determined that:

"A. The probable result of denial would adversely affect the future adequacy, reliability or efficiency of energy supply to the applicant, to the applicant's customers or to the people of Minnesota and neighboring states...

"B. A more reasonable and prudent alternative to the proposed facility has not been demonstrated by a preponderance of the evidence on the record by parties or persons other than the applicant...

"C. The consequences to society of granting the certificate of need are more favorable than the consequences of denying the certificate...

"D. It has not been demonstrated on the record that the design, construction or operation of the proposed facility will fail to comply with those relevant policies, rules and regulations of other state and federal agencies and local governments."

If you go

What: Public hearings on the Enbridge Line 3 oil pipeline replacement

When: Wednesday 1-4 p.m. and 6-9 p.m.

Where: Duluth Entertainment Convention Center

Comments can be left in writing as well or submitted at mn.gov/commerce/energyfacilities/line3 through Nov. 22.

Brooks Johnson

Brooks covers business and the economy for the Duluth News Tribune.

(218) 723-5329
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