ALJ Report on Line 3 Replacement: Need, Yes. Proposed Route, No.

In a widely anticipated decision for Enbridge's largest project to date, the Line 3 Replacement Project, a Minnesota Administrative Law Judge has recommended that the Minnesota Public Utility Commission grant a Certificate of Need and Routing Permit but only if it replaces the existing line in its current location -- and not a new route proposed by Enbridge. The recommendation appears to take the issue of "need" off the table (i.e., "if" the replacement should proceed) and focus the remaining contested issue on route ("where" the project should proceed). If the PUC agrees, then, according to the ALJ, the benefits to refiners and the people of Minnesota "slightly outweigh the risks and impacts of a new crude oil pipeline." The ALJ's extensive 434-page report, which is not binding on the PUC, is a final step before an expected PUC decision in late June which is the key remaining hurdle for Line 3.

The ALJ report potentially creates a strategic decision point for Enbridge, which may look to recent precedent for guidance in considering its response, if any, to the report. On the one hand, the company could consider the response of another company facing an adverse recommendation, Buckeye Partners, who has opted to revise its proposed full east-to-west reversal of the Laurel Pipeline in Pennsylvania to a more flexible bidirectional option in light of an ALJ recommendation to deny the project, given alleged negative impacts to state refining interests. The Pennsylvania PUC has yet to rule in that case.

On the other hand, Enbridge may elect to stand pat given the extensive record and defend its preferred route to the PUC relying on the commission to rule on the application as submitted. A conditional approval of a project, pending an alternate route, will be familiar to those following the TransCanada's Keystone XL project, another major takeaway project servicing Canadian crude producers. Keystone XL's path forward is now in the hands of the Nebraska Supreme Court, highlighting the complexities and risks of introducing an alternate route consideration at the eleventh hour. A key difference, however, between the two projects is that, in the case of Line 3, both the preferred route and the ALJ-suggested alternative route were studied in the Environmental Impact Statement (EIS).

Issues Before the PUC to Watch

In a hotly contested application, state economic proponents and Enbridge are aligned against environmental groups and tribal groups opposing the project. For Line 3, the primary debate involves whether or not there is need for a newer, larger replacement of an existing Enbridge pipeline, and whether demand exists for the replacement, both now and considering other future projects and alternatives. A short summary of these arguments are below:

The ALJ report found a "preponderance of evidence" in favor of Line 3's benefits from newer technology and higher integrity and safety resulting from a replacement of the 60-year old pipeline, and agrees that apportionment creates issues for state refiners. However, the report also heavily qualifies the benefits of the project, and finds no merit in adding a new route when an existing route already exists for the current system.

The final Line 3 route is a looming issue for Enbridge, based on current federal easements through tribal lands for Enbridge's existing lines that expire in 2029. While the ALJ found that Enbridge has the right to replace the existing Line 3 through one of the tribal lands it crosses, Enbridge may not want to put a pipe in the ground for only 10 years and face near-term negotiations with Indian Tribes for extended permits. The company's preferred route avoids the tribal lands altogether. The map below from the Line 3 EIS indicates Enbridge's preferred route (APR, black line) and the EIS identified Route Alternative-07 highlighted by the ALJ (RA-07, green line).

Project Map from 2017 Final EIS

What's Next

Enbridge filed its application with Minnesota in 2015. Based on the comprehensiveness of the report, and three years of documentation based on litigation, a related appeal, extensive public comment, procedural challenges, and a detailed environmental analysis, the record is complete for the PUC to rule. The PUC has denied opposition attempts to lengthen the review process and According to Minnesota PUC practice, during the next several weeks, the parties will likely present intermediate challenges to the ruling that may lead to an oral argument before the final vote and decision.