WASHINGTON, DC, February 27, 2014 (ENS) – The State Department Office of Inspector General has cleared the contractor that prepared the most recent environmental review of the proposed Keystone XL pipeline of allegations that the company’s work was tainted by conflict of interest.

In a Compliance Follow-up Review of the agency’s choice of Environmental Resources Management, Inc. released Wednesday, the Office of Inspector General, OIG, found that State Department processes avoided conflicts of interest and were more rigorous than required.

State Department spokesperson Jen Psaki said, “We welcome findings in this review that ‘the process used to assess organizational conflicts of interest was effective’ and that the department’s process to select Environmental Resources Management ‘substantially followed and at times was more rigorous than its prescribed Guidance.’”

The Pipeline

Keystone XL is a proposed 875-mile pipeline that would carry 830,000 barrels per day of diluted bitumen from the tar sands of Alberta, Canada, through Montana and South Dakota to Nebraska, to link with existing pipelines running to refineries on the U.S. Gulf Coast.

Keystone pipeline route

Keystone pipe route, all phases, both operational proposed (Map courtesy Wikipedia)

Environmentalists and some elected officials in both the United States and Canada argue that the pipeline is key to the further development of the Alberta tar sands, which would worsen climate change.

U.S. Senator Barbara Boxer of California, who chairs the Environment and Public Works Committee, said today, “There is broad concern about the harmful health effects linked to both the extraction and transport of tar sands, as well as how the pipeline will accelerate the steadily worsening erosion of health we see every day as a result of climate change.”

If approved, the project would be built and operated by TransCanada Keystone Pipeline LP, an energy company based in Calgary, Alberta.

TransCanada contends that the world and the United States need the energy and jobs that the pipeline would provide.

In September 2008, TransCanada submitted a Presidential permit application to the State Department because Keystone XL would cross the U.S.-Canada border into Montana.

The State Department is responsible for reviewing applications for cross-border oil pipelines, deciding whether issuance of the requested permit would serve the U.S. national interest and making a recommendation to the President, who makes the final decision.

As part of the permit application review process, the department must prepare an Environmental Impact Statement, and like many federal agencies, uses third-party contractors to help prepare the required EIS.

In accordance with the third-party contract arrangement, the Office of Inspector General explained in this review, “the Department selects and directly supervises the third-party EIS contractor, independent of the permit applicant, but the permit applicant pays the contractor for its work.”

The Complex History

For TransCanada’s 2008 application, the State Department selected Entrix, Inc., now known as Cardno Entrix, to prepare the EIS, which was issued on August 26, 2011.

That December the Temporary Payroll Tax Cut Continuation Act of 2011 was enacted, which required the President to determine, within 60 days, whether Keystone XL would serve the national interest.

pipes

Keystone XL pipes lie in wait in North Dakota (Photo courtesy TransCanada)

On January 18, 2012, the State Department recommended that the permit be denied because there was too little time to conduct the required analysis. The President agreed and denied the application.

Meanwhile, based on a request from 14 members of Congress, the OIG reviewed the selection of Entrix and issued a report in February 2012 that addressed their concerns that TransCanada had improperly influenced the selection of Cardno Entrix.

The OIG report found that while Cardno-Entrix did execute organizational conflict of interest documents, the department “did not verify Cardno Entrix’s organizational conflict of interest statements, accepting them at face value;” did not “conduct any independent inquiry regarding the information contained in the organizational conflict of interest statement; and did not require TransCanada to provide an organizational conflict of interest certification.

While the OIG found no evidence of improper influence, it made recommendations to improve the State Department’s process for selecting third-party contractors and screening contractors for conflicts of interest.

In May 2012, TransCanada filed a new Keystone XL permit application. A supplemental EIS was required because the route through Nebraska proposed by TransCanada had changed, to avoid the environmentally sensitive Sand Hills region, which overlies the Oglalla Aquifer.

At this point, the department needed to select an EIS contractor to help prepare the SEIS. In May 2012, the department published a modified version of its third-party contractor selection process in response to OIG’s recommendations. The department used this revised process for the first time to select a third-party contractor for the Keystone XL SEIS.

The department selected Environmental Resources Management, the subject of the current review.

Who Is Environmental Resources Management?

Environmental Resources Management Group, Inc. is a global provider of environmental, health, safety, risk, social consulting services and sustainability related services.

Headquartered in London, UK, the company has 150 offices in 40 countries and territories employing more than 5,000 people. The company’s U.S. headquarters are in Washington, DC.

The oil and gas, mining and power sectors are the backbone of ERM’s business, while the company also works with the manufacturing, chemical and transport sectors.

The Current Complaint

In March 2013, the State Department issued a draft SEIS for the Keystone XL project. Soon, the department received complaints asserting that ERM and its staff lacked the independence to serve as the SEIS contractor and that ERM’s answers in the conflict of interest questionnaire submitted as part of the SEIS contractor selection process were not accurate.

A dozen environmental, faith-based and public interest organizations called on Secretary of State John Kerry and the State Department Deputy Inspector General Harold Geisel to investigate whether Environmental Resources Management hid conflicts of interest which might have excluded it from performing the Keystone XL environmental assessment and how State Department officials failed to flag inconsistencies in ERM’s proposal.

Syncrude

Syncrude Canada Ltd. is one of the largest producers of crude oil from oil sands. Photo by mtnflyer3)

In their letter to the State Department the groups said, “It appears that the Department repeated the very mistake that the OIG Report pointed out with respect to its selection of Cardno-Entrix – it simply took ERM’s OCI statements at face value without conducting an independent verification whatsoever.”

The publication “Mother Jones” released unredacted versions of the ERM proposal, showing that three experts “had done consulting work for TransCanada and other oil companies with a stake in the Keystone’s approval.”

The unredacted biographies of these experts show that ERM’s employees worked for TransCanada within the last three years and also worked for other companies involved in the Canadian tar sands.

A State Department spokesperson said at the time, “ERM proposed redactions of some information in the administrative documents that they considered business confidential.”

In response to these concerns, OIG initiated the review released Wednesday, to evaluate the department’s handling of potential conflict of interest issues, including conflict of interest allegations regarding Environmental Resources Management.

The OIG reviewed documentation and interviewed State Department officials, Federal Energy Regulatory Commission officials, and ERM employees.

The State Department’s Findings

“Based on the information provided and interviews conducted, OIG found that the process the Department used to select ERM to help prepare the Keystone XL SEIS substantially followed its prescribed guidance and at times was more rigorous than that guidance.”

In the case of concerns raised about ERM’s alleged lack of objectivity because current ERM staff had previously worked for TransCanada and other oil and pipeline companies, OIG found that “the Department’s conflict of interest review was effective and that the review’s conclusions were reasonable.”

OIG’s review found that “ERM had fully disclosed the prior work histories of its team members as part of its proposal.”

The OIG found that the State Department’s assistant legal advisers for oceans, international environmental and scientific affairs, referred to in the review as L/OES, had researched the nature of the prior work, discussed this work with ERM during the pre-selection interview, and determined that the prior TransCanada work occurred before the staff began work at ERM. They found that none of the prior work had involved Keystone XL.

refinery

Suncor’s oil sands refinery near Fort McMurray, Alberta. Suncor’s vision is to more than double oil sands production to over half a million barrels per day in the next decade. (Photo by Suncor Energy)

The State Department’s prescribed conflict of interest guidance provides four factual scenarios that may create impairments to objectivity:

  • the contractor has been involved with the applicant on the project before the project is proposed to the Department or while it is pending with the Department
  • the contractor has an ongoing relationship with the applicant
  • the contractor would be called on to review its own prior work
  • the contractor has a financial or other interest in the outcome of the Department’s decision

The OIG review found that the employees’ prior work histories did not involve any of those four scenarios.

The OIG found that this prior work had not impaired ERM’s objectivity; the totality of information provided by ERM to the Department was not misleading; and the Department’s conflict of interest guidance is consistent with pertinent regulations and case law.

However, OIG did find that the process for documenting the contractor selection process, including the conflict of interest review, can be improved.

Very little documentation is specifically required by The White House Council on Environmental Quality regulations and State Department guidance, and the OIG found that the department met those minimal requirements.

“However,” the OIG stated, “the Department did not fully document its process, and additional documentation would help ensure effective management and oversight of this process.”

State Department spokesperson Psaki said, “We continue to work to improve and strengthen the procedures for selecting third-party contractors and assessing potential conflicts of interest. We welcome the recommendations in the OIG’s Review that will contribute to improved guidelines, documentation, and sharing of information.”

“As noted in the OIG Review, we had already begun implementing changes in our process consistent with some of the recommendations,” she said, “and we look forward to further implementing these recommendations.”

What Next?

Keystone XL is now in the National Interest Determination/Final Decision phase. But this decision could be delayed by the ruling of a Nebraska judge earlier this month that the Nebraska law giving the state’s governor the right to set the pipeline route is unconstitutional.

Now the Government Accountability Office will begin an investigation on the State Department’s environmental review process.

Earlier this week, Representative Raúl Grijalva, an Arizona Democrat, requested the GAO review, warning again that the Keystone XL environmental assessment has been corrupted by conflicts of interest.

“Nothing should be glossed over; nothing should be ignored,” Grijalva said. “The questions that we posed to GAO had to do with the State Department process. And if this is a tainted process, I suggest the president at that point shouldn’t trust that information,”

In an editorial in today’s “New York Times,” Grijalva wrote, “Keystone is about more than one pipeline. It is about establishing once and for all whether we have moved on from the disastrous Bush-Cheney view of environmental policy. President Obama’s own Environmental Protection Agency has said in no uncertain terms that the pipeline will contribute significantly to greenhouse gas emissions. That should be the end of the conversation. The fact that it isn’t – that we’re left hanging and hoping – is more than disappointing. It is a very troubling sign for the future.”

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