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The fight over the Minnesota Department of Commerce’s role in the Line 3 pipeline project, explained

The Department of Commerce says its decision to challenge a critical permit is focused on a narrow issue of law. But Republican state Senators say it’s a political choice, aimed at halting or delaying the pipeline. 

Enbridge Line 3, Public Utilities Commission designated route
Enbridge Line 3, Public Utilities Commission designated route
State of Minnesota

As Minnesota Senate Republicans consider whether to remove Steve Kelley as Commissioner of the state’s Department of Commerce, his decision to challenge Enbridge’s proposed Line 3 oil pipeline in court has drawn intense scrutiny.

The GOP broadly backs the $2.6 billion pipeline, which would carry 760,000 barrels of oil per day across northern Minnesota and create thousands of construction jobs amid the state’s economic downturn. Regulators on the state’s Public Utilities Commission have repeatedly approved the project, saying building the new, larger, 36-inch pipeline would be safer than continuing to operate a 34-inch one built in the 1960s that is operating at half-capacity and considered a spill risk — or allowing oil to instead be transported by rail to market.

But Line 3 has been fought by environmental groups like The Sierra Club, who say new fossil fuel infrastructure is reckless and unnecessary amid climate change. And several tribes — the Red lake Band of Chippewa Indians, the White Earth Band of Ojibwe and the Mille Lacs Band of Ojibwe — have opposed the pipeline as well, arguing a new line would also bring its own spill risks, including to treaty land that tribes use to hunt, fish and gather wild rice. Those opponents have their own legal challenges to Line 3.

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Separately, the Minnesota Department of Commerce has tried three times to appeal a critical permit for the project, its Certificate of Need, which has been granted to Enbridge twice. The court has not weighed in on the state agency’s arguments yet, but Kelley and the administration of DFL Gov. Tim Walz have a more narrow set of claims than other Line 3 opponents, and the state’s lawsuit hinges on whether there is demand for the oil the pipeline would deliver.

What is the state’s problem with Line 3?

Kelley’s agency insists that Enbridge has not provided a long-range forecast of oil demand for the Line 3 pipeline, which is required by state law to prove the pipeline is actually necessary. Any judgment made by the PUC was made in error, the Commerce Department argues, because they did not have the full information to approve a Certificate of Need for the project — a critical permit.

Steve Kelley
Steve Kelley
The state has been making the same argument for years, since Democrat Mark Dayton was governor and Kelley was a senior fellow at the University of Minnesota’s Humphrey School of Public Affairs.

The PUC is made up of five commissioners appointed by the governor. Currently there are three Democrats, one Republican and one commissioner with no party. Two of the Democrats were appointed by Walz.

Did Enbridge actually fail to prove demand?

The PUC has rejected the argument made by Commerce, saying what Enbridge has provided is enough to show demand for oil that Line 3 would transport 337 miles across the state to a terminal in Superior, Wisconsin. The full line begins near Edmonton and travels through Canada and North Dakota before reaching Minnesota.

In a May 1, 2020 order granting Enbridge a Certificate of Need, the PUC wrote it relied on several forecasts through the years-long permitting process that showed “oil supply would continue to increase throughout the forecast period,” as well as other evidence that oil supply would continue to be “equal to or less than demand.”

That includes a 2015 report by the oil and gas consultancy Muse Stancil, which concludes there is enough demand in Enbridge’s vast markets for crude oil from Western Canada that the company’s pipeline system will be operating at, or near, capacity through 2033. Crude oil transported by Line 3 can be expected, in part, to be processed in Midwestern refineries like Flint Hills, supplying petroleum to Minnesota, North Dakota, South Dakota, Wisconsin and Iowa. And refineries in that five-state area can’t meet local demand for transportation fuels, the report says.

The Department of Commerce, however, maintains that the Muse Stancil Report is based primarily on forecasts of supply, not demand, of Canadian crude oil and makes wrong assumptions of continued global demand. That conclusion was based, in part, on testimony from Marie Fagan, an economist at the Boston firm London Economics International, which was hired by the state.

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In her own 2017 report, Fagan argued the Muse Stancil was inadequate, in part because she said the company provided a forecast that showed just one future scenario of pipeline use, rather than a range of possibilities.

In 2018, the PUC wrote that it had granted previous certificates of need to Enbridge pipeline projects based on similar “supply forecasts” to establish demand for crude oil that would increase or be stable for the foreseeable future. The commission did say that this method of forecasting demand may not be enough in the future, as governments work to slash carbon emissions and promote electric vehicles in a way that could hurt oil demand. In May, however, a majority of the Commission said oil shippers still regularly are unable to move all of the crude oil they want to export to the U.S. The PUC approved Line 3 on a 4-1 vote.

Commissioner Matthew Schuerger
Commissioner Matthew Schuerger
Commissioner Matthew Schuerger, a 2016 Dayton appointee with no party affiliation, dissented in part because he believes Enbridge did not give a proper demand forecast or account for new evidence of a shift away from oil.

Schuerger argued that advancing climate change science, such as the October 2018 United Nations Intergovernmental Panel on Climate Change, has prompted governments and businesses to take quicker action to slash carbon emissions, impacting demand for oil in a way that Enbridge has not accounted for. The Walz administration, for instance, has pushed for tougher new auto emissions regulations to promote electric vehicles since the PUC granted a Certificate of Need for Line 3 in 2018.

In a prepared statement, Enbridge spokeswoman Juli Kellner said multiple independent crude oil supply forecasts and alternative scenarios for pipelines “indicate that even with lower demand for refined product in Minnesota and the region there will still be ample need for crude oil supplied by a replaced Line 3.” Keller said there would be a need for Line 3 even if there was widespread adoption of electric vehicles in Minnesota over the next 15 years.

Does the state’s argument hold merit?

Courts have yet to decide whether the Commerce Department is correct that Enbridge has not provided a long-term demand forecast. Late in his term, Dayton challenged the Certificate of Need, but the Court of Appeals threw out the lawsuit because it was filed too early.

When Walz took over, his administration chose to continue the legal challenge. But it was again thrown out when the Court of Appeals ruled that an environmental impact study for Line 3 was incomplete, invalidating the Certificate of Need on unrelated grounds.

The Commerce Department has now filed the legal challenge a third time because the PUC re-authorized the Certificate of Need — after further environmental research — but did not change its position on the long-term forecast.

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Alexandra Klass, a professor at the University of Minnesota specializing in environmental law, said the Commerce Department has a “very compelling argument” that may be stronger than it was in the past as the state continues to march toward electrifying the transportation system. And while the five commissioners on the PUC have closely scrutinized the project, Commerce is the “expert agency on this idea of the demand forecast.”

Klass said case law generally dictates that courts be deferential to the PUC, in part because the commissioners have expertise on the issues. But the courts lately have also rejected a string of permits issued by the PUC or other state regulators for industrial projects like Line 3 and the PolyMet copper-nickel mine. “The court certainly is scrutinizing some controversial permits and making sure the law is being followed, and I would assume that they would do that in this case too,” Klass said.

Is this about process or politics?

At Kelley’s confirmation hearing last week, Republican Senators portrayed Kelley’s decision to challenge Line 3 as a political choice aimed at halting or delaying the pipeline despite the decisions reached by experts on the PUC.

State Sen. David Osmek
State Sen. David Osmek
Sen. David Osmek, a Mound Republican who chairs the Senate’s Energy and Utilities Finance and Policy Committee, asked Kelley whether it would be safer to build a new pipeline with better modern technology than continue to operate the aging, corroding one that currently exists. The May 1 order from the PUC says the existing Line 3 “is deteriorating an alarming rate, increasing the public safety and environmental risks to Minnesota.” The Leech Lake Band of Ojibwe has urged construction of a new Line 3 because the current one sits on reservation land and poses risks.

Kelley said his Department was focused on a more narrow issue of law requiring a demand forecast — not broader arguments. such as the safety of a new pipeline compared to the old one. Kelley said the decision to appeal was ultimately his, though Walz supported the choice.

Still, the dispute over the demand forecast is critical to the future of the project. Walz said he views the appeal as effectively part of the environmental permitting process, since his administration believes the law in the actual Certificate of Need process has not been properly followed. Enbridge still needs permits from the Minnesota Pollution Control Agency, the state Department of Natural Resources and the U.S. Army Corps of Engineers before it can start construction.

“When it comes to any project that impacts our environment and our economy, we must follow the process, the law, and the science,” Walz said.

Correction: This post has been updated to reflect that the Public Utilities Commission has granted Enbridge a Certificate of Need for its Line 3 project twice.