Nov. 04--Enbridge Energy’s pledges to cover cleanup costs from a Line 5 oil spill may not be legally enforceable based on the corporation’s structure, according to a new analysis by American Risk Management Resources Network.
“In the event of a catastrophic oil spill, the people of the state of Michigan could be left holding the bag for more than a billion dollars in unfunded liability,” said a statement from Michigan Attorney General Dana Nessel.
The report, which was released this week, was commissioned by attorney general’s office as well as the state Department of Environment, Great Lakes and Energy, and the Department of Natural Resources.
The analysis marks the latest salvo in the controversy over Enbridge’s Line 5, as Nessel and Gov. Gretchen Whitmer attempt to nullify or renegotiate a December 2018 agreement between Enbridge and then-Gov. Rick Snyder. The agreement was finalized days before Snyder left office.
The report -- titled “An Analysis of the Enbridge Financial Assurances Offered to the State of Michigan" -- looked specifically at the Enbridge’s pledge that the company has $1.878 billion to cover the costs of a cleanup if its Line 5 pipeline ruptured in the Straits of Mackinac, contaminating the Great Lakes.
Despite that assurance, Enbridge’s corporate structure is such that it could avoid liability, the American Risk Management report says. That’s because the agreement was signed by Enbridge Energy, the subsidiary that operates by the pipeline, while the company’s assets are controlled by Enbridge Inc., the parent company based in Canada -- and the parent company is not responsible for liabilities incurred by its subsidiaries, the analysis said.
An examination of company records and statements indicates the parent company’s responsibility to cover cleanup costs would be a “purely voluntary endeavor,” the report says.
That’s the “most chilling finding of the report," Nessel said in a statement, adding the report indicates “Enbridge Energy Partners L.P. seriously misrepresented its financial holdings when it made its deal with the Snyder Administration."
Ryan Duffy, an Enbridge spokesman, said his company is reviewing the report, but added, Enbridge “would cover all costs in the unlikely event of an incident, just as we did with the Marshall release."
Duffy did not respond to a question about whether the report is correct in saying that Enbridge’s corporate structure shields the parent company from legal liability.
Among the report’s findings:
$1.878 billion “is on the low end of the possible range” of damages resulting from a rupture of Line 5 in the Straits of Mackinac.
Since 1953, Michigan’s agreements in regards to Line 5 have been with Enbridge subsidiaries, not Enbridge Inc. “The State of Michigan is not contractually indemnified by the Canadian company Enbridge Inc.,” the report said.
If Line 5 ruptured today, Enbridge Inc. -- the parent company based in Canada -- “has the financial capacity to voluntarily pay up to $1.878 billion to fund an environmental clean-up and to compensate victims.” But Enbridge Energy -- the actual responsible party to the agreement -- does not.
Tapping assets of the parent company is further complicated by the fact that Enbridge is headquartered outside the United State. “Money held in Canada may not be as accessible as assets held by a company in the U.S. would be," the report said.
The “financial assurances” required in the Snyder agreement “lack the specificity to be accurate, reliable and easily verifiable by a third party."
Enbridge had liability insurance of $940 million in 2018. But it’s possible that losses in other parts of the Enbridge operation "could exhaust the available insurance coverage for a subsequent loss at Line 5.”
Enbridge’s business model “is facing new challenges that could affect the ability of the firm over time” to pay for a Line 5 cleanup, the report said. Those challenges include its reliance on oil from tar sands, a market that could shrink because of specific environmental concerns about tar sands oils, and disputes over treaty rights with Native Americans involving the location of Enbridge pipelines.
“Although Enbridge, Inc. could self-insure a $1.878 billion petroleum product clean-up in the Straits this year that does not mean the company will be able to do so in the foreseeable future,” the report said.
“Therefore, it will be necessary for the State of Michigan to monitor the financial condition of the relevant Enbridge business entities annually over the operational life of Line 5 through the Straits.”
The report recommends:
Michigan get an indemnity obligation from Enbridge Inc., to make sure the parent company has legal liability for a Line 5 rupture.
Require more specifics on the Financial Assurance Verification Form.
Require liability insurance specifically for Line 5, with the State named as an additional Insured on those policies.
Develop a pre-agreed upon process to eliminate the loss exposure arising from Line 5 operation if the available assets of the responsible entities dip below $1.878 billion U. S. dollars at any point in the future.
Further evaluate the adequacy of the $1.878 billion minimum level of financial assurance.
Enbridge built its Line 5 oil and gas pipeline in 1953. It extends 547 miles in Michigan, from the border of Wisconsin near Ironwood to Marysville, where it crosses the St. Clair River and goes into Canada.
The aging pipeline has drawn considerable attention from environmentalists and others in recent year, particular when the pipeline goes through the Straits of Mackinac between the Upper and Lower Peninsulas.
Just days before Snyder left office, he finalized an agreement with Enbridge to construct and pay for a $500 million tunnel under the Straits that would house Line 5 and other utilities.
The deal also requires Enbridge to hand ownership of the tunnel over to a state oversight panel after it is completed.
Gov. Gretchen Whitmer and Nessel took control of the governor and attorney general offices in January, they effectively scuttled the deal, at least temporarily. Nessel deemed the law underpinning the deal as unconstitutional in March, which led Whitmer to halt all state work on the tunnel afterward.
Enbridge filed a lawsuit in June to get the deal reinstated. Thursday, a Michigan Court of Claims Judge Michael Kelly issued a summary judgment in favor of Enbridge, slapping down Nessel’s argument the pact was unconstitutional.
