Bloomberg News

Keystone Pipeline Review by State Department to Be Probed

November 09, 2011

(Updates with comment from deputy inspector general in third paragraph.)

Nov. 7 (Bloomberg) -- The U.S. State Department’s inspector general will review the agency’s handling of TransCanada Corp.’s proposed Keystone XL oil pipeline, agreeing to a request from Congress.

A memo from the inspector general’s office, released today by Senator Bernie Sanders, a Vermont independent, said the watchdog was “initiating a special review” of the environmental study and a pending determination of whether the $7 billion pipeline is in the national interest.

“The primary objective is to determine to what extent” the department “and all other parties involved” complied with federal laws and regulations “relating to the Keystone XL pipeline permit process,” Deputy Inspector General Harold Geisel said in the Nov. 4 memo.

Sanders and 13 other lawmakers asked for an investigation in an Oct. 26 letter questioning whether the process has been “free of actual or apparent conflicts of interest.”

“I appreciate the inspector general’s responsiveness to our request and the willingness to treat this important matter, and the allegations of conflicts of interest, with the seriousness it deserves,” Sanders said today in a statement.

TransCanada, based in Calgary, will “welcome an independent review by the inspector general’s office so that these latest claims by professional activists and lawmakers who are adamantly opposed to our pipeline project can be addressed,” spokesman Terry Cunha said in a written statement.

Denial of Favoritism

The State Department has denied that its environmental review involved conflicts of interest and favoritism toward TransCanada. Spokeswoman Beth Gosselin referred questions today to the inspector general’s office.

“The team is already assembled and the work is beginning,” Douglas Welty, a spokesman for the inspector general’s office, said today in an e-mail.

The department has jurisdiction over the pipeline because it would cross an international border. The 1,661-mile (2,673- kilometer) project would carry crude from Canadian oil sands to refineries on the Gulf Coast.

Welty didn’t comment on how long the review may take. He said the watchdog’s investigators “certainly appreciate the urgency of the issue and are focused on being comprehensive and thorough.”

Deferring the Decision

The group including Sanders asked President Barack Obama to defer a final decision on the pipeline until an investigation is complete. Environmental groups that oppose the project and had sought an investigation said today that no approval or denial should be issued until the inspector general is finished.

“It should be obvious to the White House that it would be wholly inappropriate to continue moving forward with this rigged process while violations of law and federal regulations are being investigated,” Erich Pica, president of the Washington- based Friends of the Earth, said today in a written statement.

The State Department is “working towards a decision by the end of the year, but our foremost commitment is to make the best decision possible,” Gosselin said on Nov. 1.

The lawmakers had questioned the department’s hiring of the consulting firm Cardno Entrix, a subsidiary of Cardno Limited of Brisbane, Australia, to conduct the environmental study. Cardno Entrix had described TransCanada as a “major client.”

“On its face alone, this creates an appearance of a conflict of interest,” the lawmakers said.

‘Major Client’

The decision “does not constitute a conflict of interest,” David Adams, the State Department’s assistant secretary for legislative affairs, said in an Oct. 31 letter to Senator Patrick Leahy, a Vermont Democrat.

Cardno Entrix identified TransCanada as a “major client” only because the U.S. government had previously selected the firm to review four other TransCanada permit applications, Adams said.

Cardno Entrix received about $13 million in fees for that work, amounting to about 2.7 percent of net revenue, and the National Environmental Policy Act provides for the applicant to pay for an independent contractor, he said.

Lawmakers asked the inspector general to examine whether there were any communications between the State Department and TransCanada “which were in any way improper.” A TransCanada lobbyist, Paul Elliott, had served as deputy campaign manager for the 2008 presidential campaign of Hillary Clinton, now the secretary of State.

‘No Significant Impacts’

Lawmakers also requested an investigation into whether the State Department fully considered the views of other government entities such as the Environmental Protection Agency in evaluating risks.

The State Department’s environmental study found the pipeline poses “no significant impacts to most resources” along its proposed route, provided TransCanada complies with U.S. law and follows recommended safeguards.

TransCanada has said it didn’t try to shape the outcome of the environmental study.

--With assistance from Bradley Olson in Houston. Editors: Judy Pasternak, Larry Liebert

To contact the reporter on this story: David Lerman in Washington at dlerman1@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net


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