Investigation Reveals Flaws in State Department's Keystone XL Review Process, Raises Fresh Concerns

Multiple flaws in the State Department's review of the proposed Keystone XL tar sands oil pipeline were revealed today in a report released by the department's Office of Inspector General.

The report raised fresh concerns about the process by which the department produced a widely criticized environmental impact statement for the pipeline -- a statement that independent experts said dramatically downplayed the harm the pipeline was likely to cause. The pipeline is now in limbo given that President Obama rejected it on January 18.

"The report reveals that the department failed to follow even its own flawed procedures. It also contains the striking revelation that the contractor Cardno Entrix, which the department entrusted to manage much of the environmental review process, had a previously undisclosed financial relationship with pipeline firm TransCanada," said Damon Moglen, climate and energy director at Friends of the Earth. "It's no wonder that the result was a deeply flawed environmental review, and that the department ended up understating the significant risks posed by pipelines that carry dirty and corrosive tar sands oil. The evidence contained in this report must disqualify the State Department's Keystone XL environmental impact statement from being used in any shape or form when future proposed pipelines are reviewed."

Among the concerns raised by today's report:

* The State Department failed to fully address concerns of other federal agencies, as "some concerns, such as the manner in which alternative routes were considered in the Department's EIS, were not completely incorporated." (page 2 of the report)

* "The department's limited technical resources, expertise, and experience impacted the implementation of the NEPA process." (p. 2)

* The department ignored guidelines intended to prevent conflicts of interest. For example, "the Department did not require the applicant to review and certify Cardno Entrix's organizational conflict of interest statement, as required" (p. 2) and "the Department did not verify Cardno Entrix's organizational conflict of interest statements, accepting them at face value." (p. 26)

* There may not be a contract between the State Department and Cardno Entrix -- in fact, Cardno Entrix's contract may be directly with pipeline firm TransCanada. The report notes that the "applicant [TransCanada] is responsible for awarding the contract and paying the contractor for its work." (p. 11)

* TransCanada influenced the department's selection of Cardno Entrix: "the third-party contracting process used by the department to select an EIS contractor inherently gives the applicant some influence in the process because the applicant decides which contractors receive the requests for proposal, is allowed to review the proposals, and then identifies its preferred contractor." (p13)

* State Department officials had insufficient expertise in how the pipeline could impact endangered species, which led them to cede authority on this subject to Cardno Entrix. This was viewed as a problem by the Fish and Wildlife Service: "During the OIG review, U.S. Fish and Wildlife Service officials stated that initially, as part of the environmental review process, their interactions were primarily and almost exclusively with Cardno Entrix for the required Section 714 consultations under the Endangered Species Act. These consultations are typically an agency-to-agency process and require involvement from the lead agency that makes the final decisions on issues raised under Section 7. However, department officials involved in the EIS did not initially have the knowledge or scientific background to fully participate in the consultations. Ultimately, the department hired an individual with the biological background to handle the threatened and endangered species issues. Fish and Wildlife Service officials stated that after the individual was hired, the situation improved." (p. 21)

* Cardno Entrix and TransCanada had a preexisting financial relationship --including work that may have amounted to more than 1 percent of Cardno Entrix's revenue in some years, a level of influence which the Federal Energy Regulatory Commission believes presents potential conflict of interest concerns: "OIG found that Cardno Entrix has done a minimal amount of contract work (about 0.3 percent of Cardno Entrix's total revenue from TransCanada over a 9-year period) on two corporate projects Cardno Entrix has been associated with for many years but that were bought by TransCanada in 2007 and 2008. ... The Department and the Federal Energy Regulatory Commission, collectively, have directed the contracts under which 99.7 percent of all payments from TransCanada to Cardno Entrix (by value) have been made during the last 7 years. ... Although not written into Federal Energy Regulatory Commission guidelines, Federal Energy Regulatory Commission officials interviewed by OIG indicated that they do not consider Federal agency-controlled third-party contracts to present potential organizational conflicts of interest and that they use a ceiling of 1 percent of a contractor's annual revenue as a de facto cut-off for a minimal financial relationship that would not present a potential organizational conflict of interest." (p. 24)

* The Office of Inspector General appears to have failed to include in its review any consideration of the influence wielded by TransCanada lobbyist Paul Elliott, a former high-ranking official on the Hillary Clinton presidential campaign. The report also notes that "There were also allegations that an Embassy Ottawa official's communications with TransCanada officials showed bias within the Department" but fails to come to a conclusion on whether such bias existed. (p. 31)

* The report confirms the existence of documents that were not released in response to Freedom of Information Act requests. Documents Friends of the Earth requested via the Freedom of Information Act include meeting notes as well as a contract with Cardno Entrix. These documents were apparently reviewed by the Office of Inspector General but were not released to Friends of the Earth.