Time for Minnesota to update 1970s-era pipeline permitting process

A series of public hearings started yesterday on whether there is a “need” to replace the Enbridge Line 3 pipeline that carries crude oil from Hardisty, Alberta to Superior, Wisconsin.  The first hearing took place in Thief River Falls and, according to TRF Radio,  supporting testimony “far outweighed those against.”

To gain approval, oil pipelines have been required to acquire a certificate of need at least as far back as 1974.  State law requires oil pipelines to follow essentially the same procedure to demonstrate need as electric power generating plants and high voltage powerlines.

Considering how these laws date back to an era of energy scarcity, it’s worth asking whether this process still makes sense.  In adopting the certificate-of-need process, the legislature issued these findings:

The legislature finds and declares that the present rapid growth in demand for energy is in part due to unnecessary energy use; that a continuation of this trend will result in serious depletion of finite quantities of fuels, land and water resources, and threats to the state’s environmental quality …

Those findings were approved March 28, 1974 in the midst of an energy crisis.   In October 1973, in response to the Yom Kippur War, OPEC imposed an oil embargo on the U.S. and raised oil prices.  Making matters worse, U.S. oil production had also been declining from its peak in 1970.  By March 1974, oil prices had quadrupled.

Though the embargo ended in March, Minnesota’s energy policy was set and, ever since, the broad outlines for certifying need have not changed much.

Dial forward to 2017 and no one can argue America faces “serious depletion of finite quantities of fuel.”  Worldwide reserves of both crude and natural gas grew by over 250 percent between 1980 and today.  Crude oil reserves grew from 642 to 1,611 billion barrels today and natural gas reserves grew from 2,586 to 6,604 trillion cubic feet.

The U.S. now holds the 11th largest crude oil reserves and 4th largest natural gas reserves in the world.  Thanks to technological advances in fracking and shipping, the U.S. is now the world’s largest natural gas producer and is expected to become a net exporter of natural gas for the first time this year.  Crude oil exports are also set to surge in coming years after the decades long ban on exporting crude oil was lifted by Congress in 2015.  By 2020, U.S. crude oil exports are projected to surpass that of most OPEC members.

Increasing production and trade in oil and natural gas will substantially boost the U.S. economy, increase wages, and create jobs.   It’s important to note here that the U.S. benefits from both imports and exports.  The benefit is from the trade.  Sometimes the U.S. gains more value from imports and sometimes more value from exports.

Nonetheless, Minnesota’s embargo-era policies are slowing down the construction of oil pipelines that facilitate the oil trade.

Regulating oil pipeline installations just like electricity generation and transmission does not make sense today and maybe never made sense.  For electric utilities, the certificate-of-need process is important to protect utility customers.  Electric utilities are guaranteed a rate of return from their customers on their investments, which means it’s the customer that pays when a utility over invests.  By contrast, companies operating oil pipelines are not guaranteed a rate of return.  If they build out too much and fail to get an adequate return on their pipeline investment, it’s the company’s shareholders that pay.

Thus, if Enbridge replaces Line 3 and there ends up being no need, it will be Enbridge on the hook for losses on the investment like any other business investment.

But there certainly is a need.  The existing line, built in the 1960s, is corroding and at risk for leaking.  Due to these safety concerns, Enbridge entered into an agreement with the U.S. government to replace it.  And then there is the increased production of oil in North America that demonstrates an obvious need.

It’s true that laying pipeline can involve taking private land through eminent domain.  Both pipeline carriers and electric utilities are considered common carriers.  Taking private land certainly requires a heightened level of oversight.

So, it’s entirely appropriate for the MPUC to oversee just where the pipes are going.

Though, in the case of the Line 3 replacement, eminent domain is less of an issue because the pipes are being laid down largely along existing right-of-way.  It will be laid down right alongside the existing Line 3 from the Minnesota border to Clearbrook, then head south to Hubbard along an existing pipeline corridor, and then east to Superior, Wisconsin along mostly existing electric transmission and railroad right-if-way.

While oil pipelines can get approved in less than a year in states bordering Minnesota, Enbridge began the regulatory process nearly three years ago.

With the Line 3 pipe proposed to be laid along existing right-of-way, an obvious need demonstrated, and Enbridge financially on the hook if there turns out to be less need than projected, the permitting process for the pipeline should already be completed.

It has been over 40 years since the OPEC oil embargo.  The federal government has finally begun adjusting to new energy realities by lifting the ban on oil exports.  It’s time for Minnesota to do likewise and streamline the process for permitting pipelines.