Enbridge, Inc. has a history of trying to shelter assets to avoid liability from major crude oil spills

Did the Minnesota Public Utilities Commission build in adequate financial protections should a new Line 3 crude oil pipeline burst? Minnesotans should worry.

Enbridge Inc., a giant Canadian crude oil pipeline company, has a history of trying to use a corporate shell game to avoid responsibility for the clean-up costs from a major crude oil spill.

Liability coverage is a significant point of contention around the proposed Enbridge Line 3 crude oil pipeline through northern Minnesota. The proposed 340-mile pipeline route would cross more than 200 waterbodies and pass through more than 75 miles of wetlands, according to project documents. It would pass through and near wild rice beds. It would pass near drinking water sources. The question is: should this pipeline get built, could Enbridge cover clean-up costs from a major spill?

Let’s be clear. A Line 3 spill would be disastrous and impossible to clean up fully. Tar sands crude oil is heavy and sinks, making it difficult to clean up. The tar sands crude is viscous and difficult to pump through pipelines. Producers add toxic chemicals to help the tar sands crude oil flow. A spill would release those toxic additives into the environment. A spill in a fragile ecosystem such as a wild rice bed would do long-term damage.

Money would not solve the spill. Still, the Minnesota Public Utilities Commission (PUC) sought to ensure Enbridge would be on the hook for clean up costs.

It did a poor job.

Straits of Mackinac (Wikipedia)

For context, consider Enbridge Line 5, an aging crude oil pipeline that runs through Michigan, including a stretch along the floor of Straits of Mackinac in the Great Lakes.

Concerned about Enbridge’s commitment to clean-up a major crude oil spill in the Great Lakes, Michigan leaders commissioned a report to look at a worst-case scenario. (It was prepared for the State of Michigan, the Michigan Attorney General, the Michigan Department of Environment, Great Lakes and Energy, and the Michigan Department of Natural Resources.)

The report was released Oct. 29: An Analysis of The Enbridge Financial Assurances Offered to the State of Michigan. It said:

Estimates on the potential costs arising from a release of petroleum products from Line 5 at the Straits range from an Enbridge supplied estimate of $300 million, to a $1.878 billion estimate from the Independent Risk Analysis for the Straits Pipeline analysis, to a $45 billion estimate from a Michigan State University study on the projected costs.

Comment: Not surprisingly, Enbridge low balled its estimated clean-up costs, presumably to minimize the amount of financial assurances it would need to provide.

Michigan granted Line 5’s easement more than 65 years ago, in 1953. It granted the easement to one of Enbridge’s U.S. subsidiaries. It was the U.S. subsidiary — not Canadian-based Enbridge Inc. — that provided the financial guarantee to cover a spill clean-up.

Chart from the Michigan report that shows how Enbridge Inc. protects itself from liability.

Michigan followed the Line 3 debate in Minnesota; comments from an Enbridge official raised a red flag. Chris Johnston, the Chief Financial Officer for Enbridge’s largest U.S. subsidiary, testified that Canadian-based Enbridge, Inc. was not legally required to cover the clean-up costs of a spill made by one of its subsidiaries. (See chart.)

The Michigan report noted that Enbridge Inc. has a whopping 275 subsidiaries.

The report concluded that Enbridge’s corporate structure would leave Michigan with financial liability in the case of a major spill — unless Canadian parent Enbridge provided “a voluntary financial bailout.”

Comment: The word “voluntary” isn’t reassuring.

For more on this story, see:

• Enbridge could duck cleanup costs from future Line 5 spill, study says
• Enbridge vows to cover costs in ‘unlikely’ case of Michigan Line 5 rupture

Let’s return to Minnesota.

At a 2018 Line 3 hearing before the PUC, Minnesota Department of Commerce Deputy Commissioner Bill Grant recalled how Enbridge tried to duck liability for its proposed Sandpiper pipeline. Though Sandpiper never got built in Minnesota, it provided an important lesson. Grant said the state would later learn that Enbridge’s corporate structure would have protected a lot of the company’s assets against Sandpiper spill claims. “We were somewhat ‘Babes in the Woods’ in the Sandpiper case,” he said.

Grant and the Department of Commerce’s Division of Energy Resources raised concerns to the PUC about Enbridge’s financial guarantees to cover Line 3 spills. It wasn’t until the last minute that Enbridge sprung a new financial guarantee proposal.

PUC Commissioners asked Grant to comment on Enbridge’s proposal: “We only learned that the company was willing to agree to this last week,” Grant replied June 26, 2018. “I have not had the chance to sit down with a qualified attorney … I am not going to tell you that it satisfactory until it is.”

Comment: Enbridge last-minute proposal seems to have been a thinly veiled effort to avoid public comment and scrutiny.

The PUC ultimately sided with Enbridge. It tentatively approved Line 3’s Route Permit and Certificate of Need June 27, 2018 without resolving the financial liability issues. The PUC approved the permits contingent on Enbridge later filing assurances with the PUC that it would pay for environmental damages from pipeline construction or operation, and maintain General Liability and Environmental Impairment Liability insurance.

Sounds good on paper, but the PUC denied the general public access to the details. Honor the Earth filed a motion with the PUC to force Enbridge to make public its detailed insurance policies. Enbridge opposed the request, claiming its insurance coverage was a “trade secret.” (See earlier blog: Enbridge Uses “Trade Secret” Tag to Hide Inadequate Spill Insurance; Honor the Earth Tries to Bring it to Light.)

Again, the PUC sided with Enbridge, saying the company didn’t have to disclose its insurance coverage. The PUC ultimately approved Enbridge’s financial assurances, including its insurance plan, “which critics of the project, including the Minnesota Department of Commerce, argued wasn’t designed to cover an oil spill,” Prairie Business reported.

The PUC approved Line 3’s amended Route Permit and Certificate of Need. Line 3 opponents have challenged those decisions at the Minnesota Court of Appeals.

Given Enbridge’s past actions, Minnesotans should worry about getting stuck with future clean up costs.

The fossil fuel era is coming to an end. The European Investment Bank is phasing out “its multibillion-euro financing for fossil fuels within the next two years to become the world’s first ‘climate bank,’” The Guardian reported Nov. 15. And it’s not just those crazy Europeans who are divesting. On Aug. 16, the news site Energy Mix reported that the Koch Brothers were dumping their massive investments in the Alberta Tar Sands.

What happens when Enbridge shutters its business in a few decades? Who pays for its insurance coverage then? Who cleans up the mess from all these buried pipelines? What happens if Line 5 has a major spill in the Straits of Mackinac, then Line 3 has a major spill in Minnesota? Will Enbridge Inc. have the financial wherewithal to clean up all of its messes when there isn’t an Enbridge Inc. anymore?

There’s still time. Gov. Tim Walz, Lt. Gov. Peggy Flanagan, and Minnesota Pollution Control Agency Commissioner all have the ability to stop this dangerous project. Write or call them and have your voice heard. Tell them to Stop Line 3.

Special thanks to Jami Gaither for flagging this issue on her blog: An analysis of Enbridge’s financial assurances (and it ain’t good…)